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-KSB
(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, 1997
[ ] 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. $18,281,880
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.
$1,224,637 as of December 31, 1997
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 - 484,129 shares as of December 31, 1997
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_
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I
<S> <C> <C>
ITEM 1. BUSINESS...............................................................................................1
General................................................................................................1
Principal Business.....................................................................................1
Competition............................................................................................3
Regulation.............................................................................................3
Employees..............................................................................................3
ITEM 2. PROPERTIES.............................................................................................3
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..................................................................................5
ITEM 7. FINANCIAL STATEMENTS..................................................................................12
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
</TABLE>
<PAGE>
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,
river frontage, and wooded acreage 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 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. 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 recreational properties
for building primary and secondary homes for use as vacation
retreats, retirement residences or investment. The Company's
strategy is to expand the organization by exploring new markets
outside of the Midwest.
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 nearby amenities 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.
<PAGE>
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 - $50,000
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 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 regional sales
offices are located near Brainerd, Minnesota; Spooner, Minocqua,
and 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.
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 President for
ultimate approval or rejection. Approved customers execute notes
secured by first mortgages on the lots purchased.
<PAGE>
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 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, 1997, the Company has 70 full-time and 4
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.
<PAGE>
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, 1997.
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 484,129 shares
were outstanding and held of record by 17 stockholders as of
December 31, 1997. 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 Company's Credit Agreement 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, debt covenant
limitations, 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.
<PAGE>
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 and river frontage, and wooded acreage.
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 an asset-based credit facility
(the "Credit Agreement"). On average, 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 the next twelve months.
Inventory balances were $12.2 million and $14.1 million as of
December 31, 1997, and 1996, respectively.
The Company contracts for the construction of shell homes on its
Four Season's lots. These lots and structures are eventually sold.
The Company plans to have 1-3 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.
Generally, 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 31.8% and 25.9% of sales for
the years ended December 31, 1997, and 1996, respectively. The
increase in purchases financed by the Company is due to a change in
financing programs. The weighted average interest rate on
outstanding contracts and mortgages receivable was approximately
12.3% and 12.5% as of December 31, 1997 and 1996, respectively.
Other revenues also include the following:
RESORT MANAGEMENT INCOME - The Company managed the Laurentian
Resort in Biwabik, Minnesota through its wholly owned subsidiary,
Resort Hospitality, Inc. In this capacity, Resort Hospitality, Inc.
<PAGE>
retains a percentage of the income generated through the rental of
condominiums, which have previously been sold by the Company. The
Company discontinued management of the resort on October 31, 1997.
CLOSING FEE INCOME - The Company collects a documentation
preparation fee and a closing fee for each sale.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1997 AND 1996.
The Company reported a 18.8% decrease in sales for the year ended
December 31, 1997 to $16.8 million, including sales of shell homes,
condominiums, townhomes and timeshare sales of $1.6 million, or
9.4% of sales. For the same period in 1996, sales were $20.7
million, including $3.9 million in sales of shell homes,
condominiums and townhomes, or 19.0% of sales. The overall sales
decrease is attributable primarily to poor weather conditions
throughout the first quarter and into the first half of the second
quarter of 1997. Structure sales decreased due to management's
decision to reduce emphasis on structure sales. The Company expects
sales to increase again in 1998, driven by a focused marketing
campaign, improved spring weather conditions, and a strong economy.
The following table sets forth the sales, cost of sales, and gross
profit information for the years ended December 31, 1997 and 1996.
<TABLE>
<CAPTION>
1997 Land Structures Total
<S> <C> <C> <C> <C> <C> <C>
Sales $ 15,247,661 100.0% $ 1,579,701 100.0% $16,827,362 100.0%
Cost of sales 9,440,821 61.9% 1,452,347 91.9% 10,893,168 64.7%
------------ ------- ------------ ------- ------------- -------
Gross profit $ 5,806,840 38.1% $ 127,354 8.1% $ 5,934,194 35.3%
1996 Land Structures Total
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%
</TABLE>
For 1997, gross profit was $5.9 million or 35.3% of sales, compared
to $7.7 million or 37.1% of sales for the same period in 1996.
Gross profit margin from the sale of lots was 38.1% for 1997 and
42.9% in 1996. In 1997, gross profit margin from the sale of
structures (shell homes, condominiums, and townhomes) was 8.1%,
while for the same period in 1996, gross profit margin from the
sale of structures was 11.6%. The decline in gross profit for land
is principally due to continued programs to liquidate lower-margin
aged inventory and a charge of $277,257 to reduce certain inventory
to net realizable value. The decrease in gross profit margin for
structures is due to the discontinuance of timeshare sales.
Other revenues of $1,454,518 million in 1997 decreased 5.0% from
$1,531,716 million for the same period in 1996. This decrease was
due to fewer closing fees and rental revenue collected, partially
offset by higher interest income. Interest income increased to
$1,008,379 in 1997 from $946,274 in 1996 as a result of higher
average balances of Contracts and Mortgages receivable. Rental
income for the Resort Hospitality decreased from $211,763 in 1996
to $195,517 in 1997, due to fewer rentals. Closing fees decreased
37.0% from the prior year due to fewer closing transactions in
1997. There were 515 closing transactions in 1997, compared to 661
in 1996.
Selling, general and administrative expenses for 1997 were $6.1
million or 36.4% of sales, compared to $6.8 million or 32.9% of
sales for the same period in 1996. The decrease in selling, general
and administrative expense is primarily due to the decline in
sales. The increase in these expenses, as a percent of sales, is
attributable to fixed costs being spread over fewer sales.
<PAGE>
Interest expense of $1.8 million in 1997 increased by 15.0% from
$1.6 million in 1996. The increase in interest expense was due to
slightly higher interest rates on some of the mortgages and notes
payable established in 1997 as compared to 1996.
Income tax benefit was 39.7% of loss before taxes for the year
ended December 31, 1997, compared to income tax expense of 43.3% of
income before taxes for the year ended December 31, 1996.
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, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Net cash provided by (used in):
Operating activities $ 7,534,672 $ 4,610,672
Investing activities (85,150) (296,139)
Financing activities (7,415,816) (4,135,445)
------------ -----------
Net increase in cash $ 33,706 $ 179,088
============ ===========
</TABLE>
Cash provided by operating activities totaled $7,534,672 in 1997
and $4,610,672 in 1996. Cash uses for investing and financing
activities in 1997 consisted primarily of principal payments on
notes, contracts, and mortgages payable of $7.0 million and a
dividend payment to shareholders of $300,160. 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 a new
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.
FINANCING SOURCES - The Company's financing sources consist of
short-term financing under its Credit Agreement, 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, the Company finances 75% of the cost of land
acquisitions and development. 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. The following table sets forth the Company's
sources of financing and the amount of such financing at December
31, 1997 and 1996.
<PAGE>
SOURCES OF FINANCING
<TABLE>
<CAPTION>
1997 Percentage 1996 Percentage
<S> <C> <C> <C> <C>
Lines of Credit $ 5,932,225 34.2% $ 5,995,646 31.9%
Notes payable (1) 7,028,377 40.5 8,571,571 45.6
Contracts and mortgages payable 406,948 2.3 253,781 1.3
Senior subordinated debt 3,990,000 23.0 3,990,000 21.2
------------- ------ -------------- ----
Total debt $ 17,357,550 100.0% $ 18,810,998 100.0%
============= ====== ============== =====
</TABLE>
- --------------------
(1) Notes payable include the real estate line of credit
in the amounts of $1,592,221 and $1,286,347 as of
December 31, 1997 and 1996, respectively.
"CREDIT AGREEMENT" - The Company began its borrowing relationship
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
<TABLE>
<CAPTION>
Balance
Amount of Outstanding as of
Line(1) December 31, 1997
<S> <C> <C>
Mortgages and Contracts Receivable $9,000,000 $ 4,438,448
Real Estate Mortgage 3,500,000 1,592,221
Project 1,000,000 93,777
Interim Financing 2,250,000 1,400,000
-------------
$ 7,524,446
=============
</TABLE>
- --------------------
(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 are at the discretion of the
lender, are based on 90% of eligible contracts receivable, and are
to be used to finance the development of properties. Borrowings
under this credit line bear interest at a rate equal to the greater
of 1.0% over the lender's base rate (9.5% as of December 31, 1997)
or 8.0%. The lender's 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
Mortgage 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 Mortgage 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 a project in northern Minnesota. The assets of the
project secure this line of credit. Borrowings of up to $2,250,000
under the Interim Financing line are available to the Company at
the discretion of the lender to cover demand overages on the other
lines of credit. Borrowings under the Real Estate Mortgage, Project
and Interim Financing lines of credit bear interest at a rate equal
to 2.0% over the lender's base rate.
All amounts borrowed by the Company under the Credit Agreement are
due April 30, 2000 under an amendment to the Credit Agreement which
changed the structure of the Agreement to a Committed
<PAGE>
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 contains a number of restrictive covenants, and is
personally guaranteed by the Company's President, Philip C. Taylor.
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 resale 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, 1997, there were $2,932,851 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 $196,403 in 1998, $1,725 in 1999, $0 in 2000, and
$893,043 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.
<PAGE>
The following table lists as of December 31, 1997 and 1996 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, 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Contracts and mortgages receivable:
Balance outstanding $9,094,999 $9,389,611
Amount 90 days past due 368,340 217,861
Percentage of balance 4.05% 2.32%
Amount foreclosed during period 123,126 199,786
Percentage of balance 1.35% 2.13%
Contracts and mortgages sold -0- 783,812
Average portfolio term 6 years 6 years
Weighted average interest rate 12.3% 12.5%
</TABLE>
At December 31, 1997, contracts and mortgages receivable
outstanding were approximately $9.1 million, had an average
remaining term of approximately six years, and carried a weighted
average interest rate of 12.3%. Approximately 4% of the balance was
over 90 days past due. The Company 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 the Company receives full payment. On occasion, the Company
must cancel the contract and begin foreclosure proceedings. As of
December 31, 1997, there was approximately $123,000 in contract and
mortgage receivable balances where the foreclosure process was
complete, and an additional $29,000 were in the process of
foreclosure. Subsequent to a completed foreclosure, the Company
returns the underlying property to inventory and begins remarketing
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 1998 and the
above available financing resources, management believes it has
adequate sources of funds to finance its 1998 cash requirements.
NEW ACCOUNTING STANDARDS - In 1997, the Company adopted Statement
of Financial Accounting Standard (SFAS) No. 128, EARNINGS PER
SHARE. SFAS No. 128 requires the reporting of earnings per share
(EPS) in two forms for entities with complex capital structures:
basic EPS and diluted EPS. The Company currently does not have a
complex capital structure as the Company has no potentially
dilutive common stock, thus the Company will continue to calculate
EPS as net (loss) income available to common shareholders divided
by the weighted average number of common shares outstanding during
the year.
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 131,
DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION,
which will be effective for the Company beginning January 1, 1998.
SFAS No. 131 redefines how operating segments are determined and
requires disclosure of certain financial and descriptive
information about a company's operating segments. The Company has
not yet completed its analysis of operating segments on which it
will report.
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
<PAGE>
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.
YEAR 2000 - As with other organizations, the Company's computer
programs were originally designed to recognize calendar years by
their last two digits. Calculations performed using these truncated
fields would not work properly with dates from the year 2000 and
beyond. The Company has recently implemented new systems in all
areas of operations that are expected to remedy this situation. In
addition, the Company intends to communicate with third parties
with whom it does significant business to determine their year 2000
compliance readiness and the extent to which the Company is
vulnerable to any third party year 2000 issues. There can, however,
be no guarantee that a failure to convert by another company would
not have a material adverse effect on the Company.
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:
o Changing economic conditions, including economic downturns or
recessions;
o The ability of the company to maintain and enhance its market
position relative to its competitors, realize productivity,
and continue to control expenses;
o The availability of suitable tracts of undeveloped land in
proximity to the marketplace;
o Changes in zoning and subdivision regulations;
o The availability and cost of financing;
o Continuity of management.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
Independent Auditors' Report..............................13
Consolidated Balance Sheets...............................14
Consolidated Statements of Operations.....................15
Consolidated Statements of Stockholders' Equity...........16
Consolidated Statements of Cash Flows.....................17
Notes to Consolidated Financial Statements................18
<PAGE>
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, 1997
and 1996 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, 1997 and 1996 and the results of their operations
and their cash flows for the years then ended, in conformity with generally
accepted accounting principles.
March 20, 1998
Minneapolis, Minnesota
<PAGE>
TAYLOR INVESTMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
ASSETS
INVENTORY - Principally land held for sale (Notes 4, 5, and 6) $ 12,231,884 $ 14,137,556
CONTRACTS AND MORTGAGES RECEIVABLE (Notes 2, 4, 5, 6, 8, and 12) 9,094,999 9,389,611
INVESTMENT IN JOINT VENTURE 60,645 50,729
OTHER ASSETS:
Cash 648,760 615,054
Note receivable from officer (Note 12) 250,000 250,000
Tax increment financing receivable (Note 3) 692,562 702,627
Other receivables (Note 8) 92,240 257,912
Income taxes receivable (Note 10) 314,296 65,540
Prepaid expenses 136,483 200,993
Land, buildings, and equipment, less accumulated
depreciation of $579,114 and $501,940, respectively (Notes 1, 4, and 5) 747,325 903,741
Loan acquisition and debt issuance costs,
less accumulated amortization of $215,917 and
$136,491, respectively 420,375 499,801
------------ ------------
Total other assets 3,302,041 3,495,668
------------ ------------
$ 24,689,569 $ 27,073,564
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LINES OF CREDIT (Note 4) $ 5,932,225 $ 5,995,646
NOTES PAYABLE (Note 5) 7,028,377 8,571,571
CONTRACTS AND MORTGAGES PAYABLE (Note 6) 406,948 253,781
SENIOR SUBORDINATED DEBT (Note 7) 3,990,000 3,990,000
OTHER LIABILITIES:
Accounts payable 351,907 365,746
Accrued liabilities 349,635 470,333
Deposits on land sales and purchase agreements 25,572 67,353
------------ ------------
Total other liabilities 727,114 903,432
DEFERRED INCOME TAXES (Note 10) 1,544,708 1,593,713
COMMITMENTS AND CONTINGENCIES (Notes 8 and 9)
STOCKHOLDERS' EQUITY (Notes 4 and 7):
Common stock, $.01 par value; 10,000,000 shares authorized;
484,129 and 488,884 shares issued and outstanding, respectively 4,841 4,889
Additional paid-in capital 740,136 766,650
Retained earnings 4,315,220 4,993,882
------------ ------------
Total stockholders' equity 5,060,197 5,765,421
------------ ------------
$ 24,689,569 $ 27,073,564
============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
TAYLOR INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
REVENUES:
Sales $ 16,827,362 $ 20,725,388
Interest income on contracts receivable 1,008,379 946,274
Equity in income (loss) of 50% owned subsidiary and
joint venture 39,916 (2,904)
Other revenue 406,223 588,346
-------------- ---------------
Total revenue 18,281,880 22,257,104
COSTS AND EXPENSES:
Cost of land and structures sales 10,615,911 13,041,353
Reduction of inventory to net realizable value (Note 1) 277,257
Selling, general, and administrative 6,126,626 6,821,949
Interest 1,817,753 1,581,277
-------------- ---------------
Total costs and expenses 18,837,547 21,444,579
-------------- ---------------
(LOSS) INCOME BEFORE INCOME TAXES (555,667) 812,525
INCOME TAX (BENEFIT) EXPENSE (Note 10) (220,790) 351,975
-------------- ---------------
NET (LOSS) INCOME $ (334,877) $ 460,550
============== ===============
NET (LOSS) INCOME PER COMMON SHARE (Note 1) $ (0.69) $ 0.94
============= ===============
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 484,220 486,100
============== ===============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
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, 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
Repurchase of common stock (4,755) (48) (26,514) (43,625) (70,187)
Dividends paid (300,160) (300,160)
Net loss (334,877) (334,877)
----------- ----------- ----------- ------------ ------------
BALANCES AT DECEMBER 31, 1997 484,129 $ 4,841 $ 740,136 $ 4,315,220 $ 5,060,197
=========== =========== =========== ============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
TAYLOR INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (334,877) $ 460,550
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
Depreciation and amortization 350,879 281,565
Loss on sale of assets 113 9,766
Deferred income taxes (49,005) 125,862
Equity in (income) loss of 50% owned subsidiary and joint venture (39,916) 2,904
Contracts and mortgages receivables funded (4,400,130) (5,371,211)
Payments on contracts and mortgages receivable 4,694,742 4,007,745
Contracts and mortgages receivable sold 783,812
Decrease in inventory - land held for sale 7,497,693 4,512,016
Decrese (increase) in other receivables 175,737 (28,916)
Increase in income tax receivable (248,756) (65,540)
Decrease (increase) in prepaid expenses 64,510 (42,290)
Increase in all other assets (57,916)
Decrease in accounts payable and accrued liabilities (134,537) (35,113)
(Decrease) increase in deposits on land sales and purchase agreements (41,781) 27,438
------------- ------------
Total adjustments to net (loss) income 7,869,549 4,150,122
------------ ------------
Net cash provided by operating activities 7,534,672 4,610,672
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of land, building, and equipment (152,950) (311,099)
Proceeds from sale of land, building, and equipment 37,800 14,960
Distribution from joint venture 30,000
------------ ------------
Net cash used in investing activities (85,150) (296,139)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on lines of credit (63,421) (1,217,438)
Proceeds from notes payable 4,829,355
Repayment of notes, contracts, and mortgage payables (6,982,048) (7,821,943)
Issuance of common stock 100,000
Retirement of common stock (70,187) (25,419)
Dividends paid (300,160)
------------ ------------
Net cash used in financing activities (7,415,816) (4,135,445)
------------- ------------
INCREASE IN CASH 33,706 179,088
CASH AT BEGINNING OF YEAR 615,054 435,966
------------ ------------
CASH AT END OF YEAR $ 648,760 $ 615,054
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $ 1,806,583 $ 1,589,577
============ ============
Income taxes $ 85,586 $ 389,300
============ ============
Noncash financing activity - inventory and equipment
purchased with notes and contracts payable $ 5,592,021 $ 7,612,248
============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
TAYLOR INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
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, Resort
Hospitality, Inc., 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 1997
and 1996.
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. 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.
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.
During each period, the Company provides for identified, unsalable, and
slow-moving inventory. In 1997, as a result of a review of the carrying
amount of this inventory, the Company determined that a $277,257
reduction in the carrying value of land inventories was necessary to
reduce this inventory to net realizable value.
Two units of a six-unit building that are currently being sold as
timeshare properties are included in inventory at December 31, 1997.
Four of the six units were 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 71%
of all timeshare properties included in the development. The total
remaining cost basis included in inventory at December 31, 1997 was
approximately $134,000.
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.
<PAGE>
Land, buildings and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Land $ 19,304 $ 19,304
Buildings and improvements 68,050 79,749
Equipment 1,239,471 1,306,628
-------------- --------------
1,326,825 1,405,681
Less accumulated depreciation 579,500 501,940
-------------- --------------
Land, buildings, and equipment, net $ 747,325 $ 903,741
============== ==============
</TABLE>
Included in land, building and equipment are assets under capital leases
of $304,000 and associated accumulated depreciation of $110,000.
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
1997 and 1996, down payments on sales financed by the Company averaged
approximately 15% of the sale price.
EARNINGS PER COMMON SHARE - In 1997, the Company adopted Statement of
Financial Accounting Standard (SFAS) No. 128, EARNINGS PER SHARE. SFAS
No. 128 requires the reporting of earnings per share (EPS) in two forms
for entities with complex capital structures: basic EPS and diluted EPS.
The Company currently does not have a complex capital structure as the
Company has no potentially dilutive common stock. Hence, the Company
will calculate EPS as net (loss) income available to common shareholders
divided by the weighted average number of common 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, however, impact future sales levels if demand for product
was to decline for an extended period of time. The
<PAGE>
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.
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 $3,900,000 and $4,029,000 at
December 31, 1997 and 1996, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS - The Company periodically reviews the
carrying amounts of all its long-lived assets and identifiable
intangibles based on expected future cash flows from the use of those
assets.
NEW ACCOUNTING STANDARDS - In June 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards
(SFAS) No. 131, DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION, which will be effective for the Company beginning January
1, 1998. SFAS No. 131 redefines how operating segments are determined
and requires disclosure of certain financial and descriptive information
about a company's operating segments. The Company has not yet completed
its analysis of operating segments on which it will report.
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, 1997, 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 12.3% and 12.5%, as of December 31, 1997 and 1996,
respectively.
Maturities of contracts and mortgages receivable at December 31, 1997
are as follows:
Year ending December 31:
1998 $ 979,564
1999 940,398
2000 1,062,427
2001 1,179,265
2002 1,294,443
Thereafter 3,747,502
---------------
9,203,599
Allowance for uncollectible
contracts and mortgages receivable (108,600)
---------------
$ 9,094,999
===============
<PAGE>
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
$692,562 and $702,627 at December 31, 1997 and 1996 respectively.
Estimated maturities of these receivables at December 31, 1997 are as
follows:
Year ending December 31:
1998 $ 117,926
1999 131,467
2000 131,958
2001 132,454
2002 132,954
Thereafter 1,115,094
---------------
1,761,853
Less imputed interest (1,069,291)
---------------
Net receivable $ 692,562
===============
4. LINES OF CREDIT
The Company has a credit agreement which provides for total borrowings
of up to $9,000,000 at the discretion of the lender and is due April 30,
2000. 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, 1997 and
1996.
At December 31, 1997 and 1996, the Company had borrowings outstanding of
$4,438,448 and $4,549,096, respectively, under the 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, 1997 and 1996, the Company had borrowings of
$1,592,221 and $1,286,347, 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 lender's "base" rate plus 1.0%
(9.5% and 9.25% at December 31, 1997 and 1996, respectively) and the
greater of 8% or the lender's "base" rate plus 2.0% (10.5% and 9.75% at
December 31, 1997 and 1996, respectively) 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, 1997 the Company has unused availability of
$584,770 under the credit agreements and real estate loan facility.
Also, under the credit agreement, the Company has a $1,000,000 line to
support financing of a major project. Borrowings under the project line
bear interest at the lender's "base" rate plus 2.0% (10.5% and 9.75% at
December 31, 1997 and 1996, respectively). Borrowings under the project
<PAGE>
line outstanding at December 31, 1997 and 1996 were $93,777 and
$296,550, respectively, and are secured by a mortgage on the major
project.
The credit agreement also provides the Company an overline up to
$2,250,000 at the discretion of the lender. Borrowings under the
overline facility at December 31, 1997 and 1996 were $1,400,000 and
$1,150,000, respectively. Borrowings bear interest at the lender's
"base" rate plus 2.0% (10.5% and 9.75% at December 31, 1997 and 1996,
respectively).
5. NOTES PAYABLE
Notes payable consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Fixed rate notes payable, due through 2001 at
various rates of interest ranging from 6.25% to 12% $ 4,056,483 $ 5,426,136
Real estate notes payable, due through 1999
at various rates of interest ranging from prime to
prime plus 3.5% 2,971,894 3,145,435
------------- --------------
$ 7,028,377 $ 8,571,571
============= ==============
</TABLE>
At December 31, 1997, 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, 1997 are as
follows:
Years ending December 31:
1998 $ 4,212,160
1999 1,099,363
2000 512,108
2001 339,783
2002 307,750
Thereafter 557,203
---------------
$ 7,028,377
===============
6. CONTRACTS AND MORTGAGES PAYABLE
The Company has entered into contracts for deed and mortgages for the
purchase of land. At December 31, 1997, the agreements provide for
interest rates from 6.0% to 10.0% and maturity dates through 2002. The
contracts and mortgages payable are secured by land held for sale and
land which has been sold and the related contracts receivable.
<PAGE>
Maturity requirements on the contracts and mortgages payable at December
31, 1997 are as follows:
Years ending December 31:
1998 $ 208,654
1999 114,389
2000 25,712
2001 27,906
2002 30,287
--------------
$ 406,948
==============
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, 1997, principal maturities of
senior subordinated debt are as follows:
Years ending December 31:
1998 $ 158,000
1999 152,000
2000 166,000
2001 780,000
2002 774,000
Thereafter 1,960,000
--------------
$ 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, 1997 and 1996,
the balance on contracts and mortgages receivable under such recourse
sales agreements was approximately $2,932,851 and $3,916,000,
respectively. At December 31, 1997 and 1996, the Company had a holdback
receivable of approximately $6,000 and $9,000, 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 with recourse in the amount of $783,812. There were no such
sales in 1997.
9. OPERATING LEASES
The Company has entered into noncancelable leases for office space.
Estimated payments under these lease agreements at December 31, 1997 are
approximately as follows:
Years ending December 31:
1998 $ 104,310
1999 21,897
--------------
$ 126,207
==============
Total rental expense for all operating leases was approximately $186,000
and $193,000 for the years ended December 31, 1997 and 1996,
respectively.
<PAGE>
10. INCOME TAXES
Deferred taxes are recognized for the tax consequences in future years
of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year end based on enacted tax laws
and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income.
The following summarizes the provisions for income taxes for the years
ended December 31:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Current:
Federal $ (190,990) $ 171,841
State 54,272
------------ ------------
Total current (190,990) 226,113
Deferred:
Federal 6,478 95,960
State (36,278) 29,902
------------ ------------
Total deferred (29,800) 125,862
------------ ------------
Income tax (benefit) expense $ (220,790) $ 351,975
============ ============
</TABLE>
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,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997
---------------------------------------------------
Deferred Tax
--------------------------------
Asset Liability Total
<S> <C> <C> <C>
State net operating loss carryforward $ 37,583 $ 37,583
Inventory capitalization 27,360 27,360
Allowance reserves 45,103 45,103
Installment sales $ (1,613,524) (1,613,524)
Other (41,230) (41,230)
--------------- --------------- ----------------
$ 110,046 $ (1,654,754) $ (1,544,708)
=============== =============== ================
1996
---------------------------------------------------
Deferred Tax
--------------------------------
Asset Liability Total
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)
=============== ============== ===============
</TABLE>
<PAGE>
As of December 31, 1997, the Company has state net operating loss
carryforwards of approximately $517,000, which expire in 2012.
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>
1997 1996
<S> <C> <C>
Computed income tax expense at federal
statutory rate $ (194,484) $ 284,382
State income taxes, net of federal income tax
benefit (36,278) 53,099
Graduated income tax rates 5,557 (8,125)
Other 4,415 22,619
------------- --------------
Income tax (benefit) expense $ (220,790) $ 351,975
============== ==============
</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 $81,000 and $80,000 for the years ended December 31, 1997
and 1996, respectively.
12. TRANSACTIONS WITH OFFICER AND EMPLOYEES
At December 31, 1997 and 1996, 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, 1997 and 1996 are contracts
receivable from employees of the Company in the amount of $60,970 and
$15,014, respectively. During the years ended December 31, 1997 and 1996
the Company had sales to officers and employees of approximately $75,074
and $16,600, respectively.
<PAGE>
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, 1997.
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:
<TABLE>
<CAPTION>
Name Age Positions with Company
<S> <C> <C>
Philip C. Taylor 46 President, Chairman of the Board,
Secretary and Treasurer
Joel D. Kaul 38 Vice President and Chief Operating Officer
W. John Driscoll 69 Director
John H. Hooley 46 Director
Charles J. McElroy 43 Director
William R. Sieben 45 Director
</TABLE>
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 Operating 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 land 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.
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 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.
<PAGE>
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 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 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.
<PAGE>
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, 1997 and 1996 with respect to the President (Chief
Executive Officer) and all officers of the Company whose total
annual salary and bonus for 1997 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 1997 $150,000 $6,355 $4,500(2)
1996 150,000 55,738 4,500(2)
Joel D. Kaul, Vice President 1997 100,000 6,994 -
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. Mr. Taylor's and Mr. Kaul's
1997 bonus of $6,355 and $6,994, consists of 1996 profit
sharing for which payment was deferred until 1997.
(2) Annual fee paid to Mr. Taylor for serving as a member of
the Company's Board of Directors.
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of December 31, 1997, 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 Outstanding Number of Shares
Beneficial Owner Shares (2) Beneficially Owned (1)
<S> <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 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 484,129 shares of common stock outstanding at December
31, 1997.
(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.
<PAGE>
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, 1997 and 1996. 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.
<PAGE>
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 25, 1998 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 25, 1998
- -------------------------------------------- Secretary and Treasurer (Chief
Philip C. Taylor Executive Officer)
/S/ W. John Driscoll Director March 25, 1998
- -------------------------------------------- ----------------------
W. John Driscoll
/S/ John H. Hooley Director March 25, 1998
- -------------------------------------------- ----------------------
John H. Hooley
/S/ Charles J. McElroy Director March 25, 1998
- -------------------------------------------- ----------------------
Charles J. McElroy
/S/ William R. Sieben Director March 25, 1998
- -------------------------------------------- ----------------------
William R. Sieben
/S/ Joel D. Kaul
- --------------------------------------------
Joel D. Kaul Vice President and Chief March 25, 1998
Operating Officer
--------------------------
</TABLE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
<S> <C> <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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 648,760
<SECURITIES> 0
<RECEIVABLES> 10,444,097
<ALLOWANCES> 0
<INVENTORY> 12,231,884
<CURRENT-ASSETS> 0
<PP&E> 1,326,439
<DEPRECIATION> 579,114
<TOTAL-ASSETS> 24,689,569
<CURRENT-LIABILITIES> 0
<BONDS> 3,990,000
4,841
0
<COMMON> 0
<OTHER-SE> 5,055,356
<TOTAL-LIABILITY-AND-EQUITY> 24,689,569
<SALES> 4,453,674
<TOTAL-REVENUES> 4,833,944
<CGS> 2,992,629
<TOTAL-COSTS> 2,992,629
<OTHER-EXPENSES> 2,249,972
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 493,385
<INCOME-PRETAX> (408,657)
<INCOME-TAX> (162,209)
<INCOME-CONTINUING> (246,448)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (246,448)
<EPS-PRIMARY> (0.51)
<EPS-DILUTED> (0.51)
</TABLE>
