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, 1998
[ ] 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. $21,373,505
-----------
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, 1998
----------------------------------
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, 1998
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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
PART I
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.................................................4
ITEM 7. FINANCIAL STATEMENTS.................................................12
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.............................................27
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT....................27
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
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PART I
ITEM 1. BUSINESS
GENERAL
Taylor Investment Corporation (the Company) 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, Georgia,
and Texas. The Company 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 ranges 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 those states.
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. 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 can be concluded.
DEVELOPMENT - After purchase negotiations are completed, the Company's
Development Department is responsible for obtaining regulatory approval
for the planned development. This process typically
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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 - $60,000 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; Atlanta, Georgia; and Austin, Texas. 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 six
existing Four Seasons regional sales offices are located near Brainerd,
Minnesota; Spooner, Minocqua, and Stevens Point, Wisconsin; Jasper,
Georgia; and Austin, Texas. 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.
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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, access to capital (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 that 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 noncontiguous
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, 1998, the Company has 63 full-time and 12 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; however, the Company plans to renew this lease.
The Company leases regional sales, acquisition and development offices
at various locations in Minnesota, Wisconsin, Georgia, and Texas. 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.
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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, 1998.
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, 1998. 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.
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. The
Company 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 that, at any time, will
meet its sales goals for the
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next twelve months. Inventory balances were $11.5 million and $12.2
million as of December 31, 1998 and 1997, respectively.
The Company occasionally contracts for the construction of shell homes
on its Four Seasons lots. These lots and structures are eventually
sold. The Company may have between one and three cabins in inventory,
at any time, 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 is
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 12.25% depending
principally on the amount of the down payment. Company-financed sales
were 35.3% and 31.8% of sales for the years ended December 31, 1998 and
1997, respectively. The increase in customer purchases financed by the
Company is due to competitive financing programs. The weighted average
interest rate on outstanding contracts and mortgages receivable was
approximately 11.6% and 12.3% as of December 31, 1998 and 1997,
respectively.
Other revenues also include closing fee income the Company collects for
each sale.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1998 AND 1997
The Company reported an 18.5% increase in sales for the year ended
December 31, 1998 to $19.9 million, including sales of shell homes,
condominiums, townhomes and timeshare sales of $1.6 million, or 8.2% of
sales. For the same period in 1997, sales were $16.8 million, including
$1.6 million in sales of shell homes, condominiums and townhomes, or
9.4% of sales. The overall sales increase is attributable primarily to
mild weather conditions throughout the first and second quarters of
1998.
The following table sets forth the sales, cost of sales and gross
profit information for the years ended December 31, 1998 and 1997.
<TABLE>
<CAPTION>
1998 Land Structures Total
<S> <C> <C> <C> <C> <C> <C>
Sales $18,295,165 100.0% $ 1,639,264 100.0% $19,934,429 100.0%
Cost of sales 10,269,115 56.1% 1,540,493 94.0% 11,809,608 59.2%
----------- -------- ----------- -------- ----------- --------
Gross profit $ 8,026,050 43.9% $ 98,771 6.0% $ 8,124,821 40.8%
<CAPTION>
1997 Land Structures Total
Sales $15,247,662 100.0% $ 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%
</TABLE>
For 1998, gross profit was $8.1 million or 40.8% of sales, compared to
$5.9 million or 35.3% of sales for the same period in 1997. Gross
profit margin from the sale of lots was 43.9% for 1998 and 38.1% in
1997. In 1998, gross profit margin from the sale of structures (shell
homes, condominiums, and
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townhomes) was 6.0%, while for the same period in 1997 gross profit
margin from the sale of structures was 8.1%. The increase in gross
profit is principally due to the sale of higher quality inventory in
1998, where as in 1997, sales programs were aimed toward the
liquidation of lower-margin, aged inventory. Also, the Company wrote
down inventory by $137,781 and $277,257 in 1998 and 1997, respectively,
to reflect the net realizable value. The decrease in gross profit
margin for structures is due to the liquidation of timeshare inventory
at less than cost.
Other revenues of $1,439,076 in 1998 decreased 1.1% from $1,454,518 for
the same period in 1997. This decrease is due to the loss of management
fees collected from the Resort Hospitality in 1997. The company
discontinued management of the resort on November 1, 1997. Interest
income increased to $1,086,340 in 1998 from $1,008,379 in 1997 as a
result of higher average balances of contracts and mortgages
receivable. Closing fees increased 37.0% from the prior year, due to
approximately $116,000 of commissions collected on sales of property
owned by an unaffiliated company.
Selling, general and administrative expenses for 1998 were $6.0 million
or 29.9% of sales, compared to $6.1 million or 36.4% of sales for the
same period in 1997. The decrease in selling, general and
administrative expense, as a percent of sales, is attributable to fixed
costs being spread over greater sales.
Interest expense of $1.5 million in 1998 decreased by 18.5% from $1.8
million in 1997. The decrease in interest expense is due to declining
interest rates throughout 1998 and a decrease in contracts and
mortgages payable in 1998 from 1997.
Income tax expense for the year ended December 31, 1998 was 40.0% of
income before income taxes, compared to income tax benefit of 39.7% of
the loss before taxes for the year ended December 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW - The Company 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 Company finances the sale and collections are made on
its contracts and mortgages receivable. The Company'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, 1998 and 1997:
1998 1997
Net cash provided by (used in):
Operating activities $ 7,094,849 $ 7,733,742
Investing activities (93,342) (115,150)
Financing activities (7,216,550) (7,584,886)
----------- -----------
Net (decrease) increase in cash $ (215,043) $ 33,706
=========== ===========
Cash provided by operating activities totaled $7,094,849 in 1998 and
$7,733,742 in 1997. Cash used for investing and financing activities in
1998 consisted primarily of principal payments on notes, contracts,
mortgages payable and subordinated debt of $6.9 million and a dividend
payment to shareholders of $300,160. Cash used for investing and
financing activities in 1997 consisted primarily
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of principal payments on notes, contracts, and mortgages payable of
$7.2 million and a dividend payment to shareholders of $300,160.
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, 1998 and
1997.
SOURCES OF FINANCING
<TABLE>
<CAPTION>
1998 Percentage 1997 Percentage
<S> <C> <C> <C> <C>
Lines of credit $ 5,820,433 37.0% $ 5,932,225 34.2%
Notes payable (1) 5,888,508 37.4 7,028,377 40.5
Contracts and mortgages payable 207,433 1.3 406,948 2.3
Senior subordinated debt 3,832,000 24.3 3,990,000 23.0
----------- -------- ----------- --------
Total debt $15,748,374 100.0% $17,357,550 100.0%
=========== ======== =========== ========
</TABLE>
- ----------------------
(1) Notes payable includes the real estate line of credit in the amounts of
$2,440,408 and $1,592,221 as of December 31, 1998 and 1997,
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, 1998
<S> <C> <C>
Mortgages and Contracts Receivable $9,000,000 $ 5,777,068
Real Estate Mortgage 3,500,000 2,440,408
Project 1,000,000 43,365
Interim Financing 2,250,000 0
-------------
$ 8,260,841
=============
</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
greater of the lender's base rate (8.75% as of December 31, 1998) or
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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 1.5% 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 that changed
the structure of the Agreement to a Committed Line. All funds advanced
by the lender under the Credit Agreement are collateralized by an
assignment by the Company of first mortgages, contracts for deed,
security interests, or other rights or property interests acquired by
the Company in connection with specific property development projects
and a security interest in virtually all of the Company's assets. In
addition, the Credit Agreement also 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 that 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 the Company 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. The Company makes interest and principal payments on
a scheduled amortization which varies by transaction, but which in no
event extends beyond the sale of the property. 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 the Company 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
8
<PAGE>
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.
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, 1998,
$1,571,638 in contracts and mortgages receivable were 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 zero in 1999, $51,604
in 2000, $0 in 2001, and $677,587 in 2002. Should all of the put
options be exercised, the Company would use amounts available under its
Credit Agreement to repurchase the contracts and mortgages receivable.
The following table lists as of December 31, 1998, and 1997 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, 1998 and 1997.
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Contracts and mortgages receivable:
Balance outstanding $9,365,257 $9,094,999
Amount 90 days past due 294,827 367,340
Percentage of Balance 3.15% 4.05%
Amount foreclosed during period 111,960 123,126
Percentage of balance 1.20% 1.35%
Average portfolio term 6 years 6 years
Weighted average interest rate 11.6% 12.3%
</TABLE>
At December 31, 1998, contracts and mortgages receivable outstanding
were approximately $9.4 million, had an average remaining term of
approximately six years, and carried a weighted average interest rate
of 11.6%. Approximately 3% 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, 1998, there was
approximately $111,960 in contract and mortgage receivable balances
where the foreclosure process was complete, and an additional $68,613
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 1999 and the above
available financing resources, management believes it has adequate
sources of funds to finance its 1999 cash requirements.
NEW ACCOUNTING STANDARDS - In June 1997, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 130, REPORTING COMPREHENSIVE INCOME. Comprehensive
income includes net income and several other items that current
accounting standards require to be recognized outside of net income.
This standard requires companies to display comprehensive income and
its components in financial statements, to classify items of
comprehensive income by their nature in financial statements, and to
display the accumulated balances of other comprehensive income in
stockholders' equity separately from retained earnings and additional
paid-in capital. The Company adopted SFAS No. 130 in 1998, and there
were no items of other comprehensive income for all periods presented.
9
<PAGE>
In June 1997 the FASB issued SFAS No. 131, DISCLOSURE ABOUT SEGMENTS OF
AN ENTERPRISE AND RELATED INFORMATION, replacing SFAS No. 14 and its
amendments. This standard requires companies to report certain
information about products and services, activities in different
geographic areas, reliance on major customers, and to disclose certain
segment information in their financial statements. Operating segments
are components of a company for which financial information is
available and evaluated by the company's chief operating decision maker
in allocating resources and assessing performance. The Company adopted
SFAS No. 131 in 1998, and has determined that it operates in one
segment, the development and sale of previously undeveloped land. In
addition, none of the Company's revenue is derived from customers
outside the United States, nor are any of the Company's assets located
outside the United States. No customer represents more than 1% of total
revenue.
Effective January 1, 1998, the Company adopted Statement of Position
(SOP) No. 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED
OR OBTAINED FOR INTERNAL USE. SOP No. 98-1 provides guidance on
accounting for costs associated with computer software developed or
obtained for internal use. Adoption of this standard did not have a
significant effect on the financial results of the Company.
In June 1998 the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 requires companies to
record derivative instruments on the balance sheet at fair market value
and recognize fluctuations in fair value either in earnings or as a
component of other comprehensive income, depending on the nature of the
derivative instrument. Although the Company expects that this standard
will not materially affect its financial position and results of
operations, it has not yet determined the impact of this standard on
its financial statements.
EFFECT OF INTEREST RATE ENVIRONMENT - The Company believes it can
protect itself from sustained high interest rates by selling its
contracts and mortgages receivable portfolio and increasing the rates
it charges to customers who utilize Company financing, or by incurring
fixed rate debt. Such increases in rates would, however, have an
adverse impact on the Company's cost of carrying inventory. The Company
believes the best defense against rising interest rates is to buy only
the best property, which should remain in high demand. However,
sustained increases in interest rates could impact future sales levels.
If demand for product was to decline for an extended period of time,
the Company believes it could minimize the impact by reducing the sales
price of the product to stimulate sales and would discontinue
purchasing properties until the level of inventory more closely matched
customer demand.
YEAR-2000 ISSUE - As with other organizations, some of the Company's
computer programs were originally designed to recognize calendar years
by their last two digits. Calculations performed using these truncated
fields may not work properly with dates from the year 2000 and beyond.
As a result, the year 2000 may cause system errors or complete failure.
The Company has recently implemented new computer systems in all areas
of operations, except accounts receivable, that are expected to remedy
this situation. The new software and hardware systems have been
purchased since the year-2000 issue has been exposed, and all sellers
have assured the Company, in writing, that their product is year-2000
compliant. The Company is currently in the process of evaluating an
accounts receivable software package that is certified year-2000
compliant. The Company plans to have a new system selected and fully
implemented by June 30, 1999. The Company has, and will continue to,
communicate with third parties with which it does significant business
to determine their year-2000 readiness and the extent to which the
Company is vulnerable to any third party issues. Of these third-party
vendors, approximately half have been contacted, with the other half to
be contacted by the end of third quarter, 1999. A written response
regarding their year 2000 readiness has been, and will continue to be,
requested.
Currently, the costs that have been associated with the year-2000 issue
total approximately $335,000. This cost is composed, primarily, of new
computer hardware and new financial accounting software. The Company is
still evaluating the overall costs, however, the expected cost to
complete, which
10
<PAGE>
includes the purchase and implementation of new accounts receivable
software, is not expected to exceed $50,000.
Overall, the Company believes it has amply researched the year-2000
issue and has taken actions which minimize the risk of system failure
or corruption. In the case that a new accounts receivable system is not
in place by the year 2000, or would fail to operate, the Company could
keep records manually. This failure may be a hindrance but the Company
could continue with business, as normal. Also, if third-party creditors
have system failures it may limit the immediate credit available to the
Company, but with cash and inventory on hand, business would not be
immediately affected.
SAFE HARBOR DISCLOSURE - Various forms filed by the Company with the
Securities and Exchange Commission, including the Company's Form 10-KSB
and Form 10-QSB, and other written documents and oral statements
released by the Company, may contain forward-looking statements.
Forward-looking statements generally use words such as "expect,"
"anticipate," "believe," "project," "should," "estimate," and similar
expressions, and reflect the Company's expectations concerning the
future. Such statements are based upon currently available information,
but various risks and uncertainties may cause the Company's actual
results to differ materially from those expressed in these statements.
Among the factors which management believes could affect the Company's
operating results are the following:
* Changing economic conditions, including economic downturns or
recessions;
* The ability of the Company to maintain and enhance its market
position relative to its competitors, realize productivity, and
continue to control expenses;
* The availability of suitable tracts of undeveloped land in
proximity to the marketplace;
* Changes in zoning and subdivision regulations;
* The availability and cost of financing; and
* Continuity of management.
11
<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
12
<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, 1998
and 1997 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, 1998 and 1997 and the results of their operations
and their cash flows for the years then ended, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
March 12, 1999
Minneapolis, Minnesota
13
<PAGE>
TAYLOR INVESTMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
1998 1997
<S> <C> <C>
ASSETS
INVENTORY - Principally land held for sale $11,469,212 $12,231,884
CONTRACTS AND MORTGAGES RECEIVABLE 9,365,257 9,094,999
INVESTMENT IN JOINT VENTURE 11,060 60,645
OTHER ASSETS:
Cash 433,717 648,760
Note receivable from officer 225,000 250,000
Tax increment financing receivable 631,373 692,562
Other receivables 102,220 92,240
Income taxes receivable 314,296
Prepaid expenses and earnest money deposits 161,987 136,483
Funds held by trustee 37,500
Land, buildings, and equipment 504,930 747,325
Loan acquisition and debt issuance costs,
less accumulated amortization of $284,472 and
$215,917, respectively 351,819 420,375
----------- -----------
Total other assets 2,448,546 3,302,041
----------- -----------
$23,294,075 $24,689,569
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LINES OF CREDIT $ 5,820,433 $ 5,932,225
NOTES PAYABLE 5,888,508 7,028,377
CONTRACTS AND MORTGAGES PAYABLE 207,433 406,948
SENIOR SUBORDINATED DEBT 3,832,000 3,990,000
OTHER LIABILITIES:
Accounts payable 147,077 351,907
Accrued liabilities 481,197 349,635
Income taxes payable 241,664
Deposits on land sales and purchase agreements 34,358 25,572
----------- -----------
Total other liabilities 904,296 727,114
DEFERRED INCOME TAXES 608,023 1,544,708
COMMITMENTS AND CONTINGENCIES (Notes 8 and 9)
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 10,000,000 shares authorized;
484,129 shares issued and outstanding 4,841 4,841
Additional paid-in capital 740,136 740,136
Retained earnings 5,288,405 4,315,220
----------- -----------
Total stockholders' equity 6,033,382 5,060,197
----------- -----------
$23,294,075 $24,689,569
=========== ===========
</TABLE>
See notes to consolidated financial statements.
14
<PAGE>
TAYLOR INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
1998 1997
<S> <C> <C>
REVENUES:
Sales $ 19,934,429 $ 16,827,362
Interest income on contracts receivable 1,086,340 1,008,379
Equity in earnings of 50% owned subsidiary and
joint venture 34,415 39,916
Other revenue 318,321 406,223
------------ ------------
Total revenue 21,373,505 18,281,880
COSTS AND EXPENSES:
Cost of sales 11,671,827 10,615,911
Reduction of inventory to net realizable value (Note 1) 137,781 277,257
Selling, general, and administrative 5,959,479 6,126,626
Interest 1,481,843 1,817,753
------------ ------------
Total costs and expenses 19,250,930 18,837,547
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 2,122,575 (555,667)
INCOME TAX EXPENSE (BENEFIT) 849,230 (220,790)
------------ ------------
NET INCOME (LOSS) $ 1,273,345 $ (334,877)
============ ============
NET INCOME (LOSS) PER COMMON SHARE OUTSTANDING $ 2.63 $ (0.69)
============ ============
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 484,129 484,220
============ ============
</TABLE>
See notes to consolidated financial statements.
15
<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, 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
Dividends paid (300,160) (300,160)
Net income 1,273,345 1,273,345
----------- ----------- ----------- ----------- -----------
BALANCES AT DECEMBER 31, 1998 484,129 $ 4,841 $ 740,136 $ 5,288,405 $ 6,033,382
=========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
16
<PAGE>
TAYLOR INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,273,345 $ (334,877)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 329,951 350,879
Loss on sale of assets 120,842 113
Deferred income taxes (936,685) (49,005)
Equity in earnings of 50% owned subsidiary and joint venture (34,415) (39,916)
Contracts and mortgages receivable funded (5,743,480) (4,400,130)
Payments on contracts and mortgages receivable 5,473,222 4,694,742
Decrease in inventory - land held for sale 6,069,886 7,497,693
Decrease in other receivables 76,209 175,737
Decrease (increase) in income taxes receivable 314,296 (248,756)
Increase in income taxes payable 241,664
(Increase) decrease in prepaid expenses (25,504) 64,510
Decrease in accounts payable and accrued liabilities (73,268) (134,537)
Increase (decrease) in deposits on land sales and purchase agreements 8,786 (41,781)
----------- -----------
Total adjustments to net income (loss) 5,821,504 7,869,549
----------- -----------
Net cash provided by operating activities 7,094,849 7,534,672
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of land, buildings, and equipment (148,742) (152,950)
Proceeds from sale of land, buildings, and equipment 8,900 37,800
Distribution from joint venture 84,000 30,000
Increase in funds held by trustee (37,500)
----------- -----------
Net cash used in investing activities (93,342) (85,150)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on lines of credit (111,792) (63,421)
Repayment of notes, contracts, and mortgage payables (6,646,598) (6,982,048)
Retirement of common stock (70,187)
Repayment of senior subordinated debt (158,000)
Dividends paid (300,160) (300,160)
----------- -----------
Net cash used in financing activities (7,216,550) (7,415,816)
----------- -----------
(DECREASE) INCREASE IN CASH (215,043) 33,706
CASH AT BEGINNING OF YEAR 648,760 615,054
----------- -----------
CASH AT END OF YEAR $ 433,717 $ 648,760
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,524,263 $ 1,806,583
=========== ===========
Income taxes $ 1,392,293 $ 85,586
=========== ===========
Noncash financing activity - inventory and equipment
purchased with notes and contracts payable $ 5,307,214 $ 5,592,021
=========== ===========
</TABLE>
See notes to consolidated financial statements.
17
<PAGE>
TAYLOR INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
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), and Laurentian Development Corporation. FSM and
FSW are engaged in the sale of recreational property while Laurentian
Development Corporation is engaged in both the development and sale of
recreational property. The Company also owns 100% of T.I. Financial,
Inc. and Four Seasons Realty of Michigan, Inc., which were inactive in
1998 and 1997.
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 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. As a result of a review of the carrying amount of
this inventory, the Company determined that reductions in the carrying
value of land inventories of $137,781 and $277,257 in 1998 and 1997,
respectively, were necessary to reduce this inventory to net realizable
value.
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. At December 31, 1998 the Company had
sold 100% of all timeshare properties.
LAND, BUILDING, AND EQUIPMENT - Depreciation of buildings 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.
18
<PAGE>
Land, buildings, and equipment consist of the following at December 31:
1998 1997
Land $ 11,022 $ 19,304
Buildings and improvements 63,904 68,050
Equipment 1,089,314 1,239,471
---------- ----------
1,164,240 1,326,825
Less accumulated depreciation 659,310 579,500
---------- ----------
Land, buildings, and equipment, net $ 504,930 $ 747,325
========== ==========
Included in land, buildings, and equipment at December 31, 1998 are
assets under capital lease of $281,453 and associated accumulated
depreciation of $147,172.
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
1998 and 1997, down payments on sales financed by the Company averaged
18% and 15% of the sale price, respectively.
EARNINGS PER COMMON SHARE (EPS) - As the Company has no dilutive items
that would require disclosure of diluted EPS, the Company calculates
basic EPS as net income or loss 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 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 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.
19
<PAGE>
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying values of contracts
and mortgages receivable, 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 $3,742,000 and $3,900,000 at
December 31, 1998 and 1997, 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 (FASB) issued Statement of Financial Accounting Standard
(SFAS) No. 130, REPORTING COMPREHENSIVE INCOME. Comprehensive income
includes net income and several other items that current accounting
standards require to be recognized outside of net income. This standard
requires companies to display comprehensive income and its components in
financial statements, to classify items of comprehensive income by their
nature in financial statements, and to display the accumulated balances
of other comprehensive income in stockholders' equity separately from
retained earnings and additional paid-in-capital. The Company adopted
SFAS No. 130 in 1998, and there were no items of other comprehensive
income for all periods presented.
In June 1997 the FASB issued SFAS No. 131, DISCLOSURE ABOUT SEGMENTS OF
AN ENTERPRISE AND RELATED INFORMATION, replacing SFAS No. 14 and its
amendments. This standard requires companies to report certain
information about products and services, activities in different
geographic areas, reliance on major customers, and to disclose certain
segment information in their financial statements. Operating segments
are components of a company for which financial information is available
and evaluated by the company's chief operating decision maker in
allocating resources and assessing performance. The Company adopted SFAS
No. 131 in 1998, and has determined that it operates in one segment, the
development and sale of previously undeveloped land. In addition, none
of the Company's revenue is derived from customers outside the United
States, nor are any of the Company's assets located outside the United
States. No customer represents more than 1% of total revenue.
Effective January 1, 1998, the Company adopted Statement of Position
(SOP) No. 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED
OR OBTAINED FOR INTERNAL USE. SOP No. 98-1 provides guidance on
accounting for costs associated with computer software developed or
obtained for internal use. Adoption of this standard did not have a
significant effect on the financial results of the Company.
In June 1998 the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 requires companies to
record derivative instruments on the balance sheet at fair market value
and recognize fluctuations in fair value either in earnings or as a
component of other comprehensive income, depending on the nature of the
derivative instrument. Although the Company expects that this standard
will not materially affect its financial position and results of
operations, it has not yet determined the impact of this standard on its
financial statements.
20
<PAGE>
2. CONTRACTS AND MORTGAGES RECEIVABLE
Contracts and mortgages receivable result from the sale 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, 1998, 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 11.6% and 12.3% as of December 31, 1998 and 1997,
respectively.
Maturities of contracts and mortgages receivable at December 31, 1998
are as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1999 $1,777,477
2000 892,850
2001 930,712
2002 1,060,475
2003 947,029
Thereafter 3,860,923
----------
9,469,466
104,209
Less allowance for uncollectable contracts and mortgages receivable ----------
$9,365,257
==========
</TABLE>
3. TAX INCREMENT FINANCING RECEIVABLES
Several taxing authorities have established tax increment financing
districts whereby the Company will be reimbursed for costs incurred in
the development of community infrastructure to the extent the community
improvements and related development increase property taxes collected
by the taxing authority. The Company recognizes these receivables, which
are generally noninterest bearing, upon the sale of the developed
property or upon the completion of the structure by the owner. Estimated
amounts receivable under these agreements were $631,373 and $692,562 at
December 31, 1998 and 1997, respectively. Estimated maturities of these
receivables at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1999 $ 121,011
2000 125,452
2001 125,957
2002 126,467
2003 126,982
Thereafter 1,033,627
----------
1,659,496
Less imputed interest at 10% 1,028,123
----------
Net receivable $ 631,373
==========
</TABLE>
21
<PAGE>
4. LINES OF CREDIT
The Company has a credit agreement that 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
these financial covenants in the credit agreement at December 31, 1998
and 1997.
At December 31, 1998 and 1997, the Company had borrowings outstanding of
$5,777,068 and $4,438,448, 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, 1998 and 1997, the Company had borrowings of
$2,440,408 and $1,592,221, 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%
(8.75% and 9.5% at December 31, 1998 and 1997, respectively) and the
greater of 8% or the lender's "base" rate plus 1.5% (9.25% and 9.75% at
December 31, 1998 and 1997, 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, 1998 the Company has unused availability of
$396,415 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 1.5% (9.25% and 10.5% at
December 31, 1998 and 1997, respectively). Borrowings under the project
line outstanding at December 31, 1998 and 1997 were $43,365 and $93,777,
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, 1998 and 1997 were $0 and $1,400,000,
respectively. Borrowings bear interest at the lender's "base" rate plus
1.5% (9.25% and 10.5% at December 31, 1998 and 1997, respectively).
5. NOTES PAYABLE
Notes payable consisted of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Fixed rate notes payable, due through 2003 at
various rates of interest ranging from 2.77% to 12.82% $2,526,229 $4,056,483
Real estate notes payable, due through 1999
at various rates of interest ranging from prime to
prime plus 3.5% 3,362,279 2,971,894
---------- ----------
$5,888,508 $7,028,377
========== ==========
</TABLE>
22
<PAGE>
At December 31, 1998, notes payable were secured by certain land held
for sale, contracts and mortgages receivable, and equipment. The
president of the Company personally guarantees the notes payable.
Maturity requirements on notes payable at December 31, 1998 are as
follows:
Years ending December 31:
1999 $4,085,839
2000 868,576
2001 251,834
2002 231,795
2003 170,886
Thereafter 279,578
----------
$5,888,508
==========
6. CONTRACTS AND MORTGAGES PAYABLE
The Company has entered into contracts for deed and mortgages for the
purchase of land. At December 31, 1998, the agreements provide for
interest rates from 3.0% to 8.5% 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.
Maturity requirements on the contracts and mortgages payable at December
31, 1998 are as follows:
Years ending December 31:
1999 $ 175,700
2000 13,981
2001 8,555
2002 9,197
----------
$ 207,433
==========
7. SENIOR SUBORDINATED DEBT
The Company has $832,000 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 that bears interest at 11% to
12% and is unsecured. At December 31, 1998, principal maturities of
senior subordinated debt are as follows:
Years ending December 31:
1999 $ 152,000
2000 166,000
2001 780,000
2002 774,000
2003 760,000
Thereafter 1,200,000
----------
$3,832,000
==========
23
<PAGE>
8. COMMITMENTS AND CONTINGENCIES
The Company has sold certain contracts receivable to financial
institutions under recourse sales agreements. In the event of default
under these contracts receivable, the Company is required to pay the
outstanding balance of the contract, whereupon the Company will
reacquire title to the underlying land. Put options that 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, were also granted for these contracts receivable. At
December 31, 1998 and 1997, the balance on contracts and mortgages
receivable under such recourse sales agreements was approximately
$1,571,638 and $2,932,851, respectively. Based on the scheduled
amortization of these balances, the Company's potential liability, if
the put features are exercised, is approximately zero in 1999, $51,604
in 2000 and $0 in 2001, and $677,587 in 2002. 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.
9. OPERATING LEASES
The Company has entered into noncancelable leases for office space.
Estimated payments under these lease agreements at December 31, 1998 are
approximately as follows:
Years ending December 31:
1999 $ 163,642
2000 124,920
2001 96,200
2002 15,000
----------
$ 399,762
==========
Total rental expense for all operating leases was approximately $180,000
and $186,000 for the years ended December 31, 1998 and 1997,
respectively.
10. INCOME TAXES
The following summarizes the provision (benefit) for income taxes for
the years ended December 31:
1998 1997
Current:
Federal $ 863,997 $ (190,990)
State 216,602
---------- ----------
Total current 1,080,599 (190,990)
Deferred:
Federal (216,303) 6478
State (15,066) (36,278)
---------- ----------
Total deferred (231,369) (29,800)
---------- ----------
$ 849,230 $ (220,790)
========== ==========
24
<PAGE>
Deferred income 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
law and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income.
The tax effect of significant items comprising the Company's net
deferred tax liability as of December 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1998
---------------------------------------------
Deferred Tax
----------------------------
Asset Liability Total
<S> <C> <C> <C>
Inventory capitalization $ 17,035 $ 17,035
Allowance reserves 42,409 42,409
Installment sales $ (618,251) (618,251)
Accelerated depreciation (33,789) (33,789)
Other (15,427) (15,427)
----------- ----------- -----------
$ 59,444 $ (667,467) $ (608,023)
=========== =========== ===========
<CAPTION>
1997
---------------------------------------------
Deferred Tax
----------------------------
Asset Liability Total
<S> <C> <C> <C>
State NOL carry forward $ 37,583 $ 37,583
Inventory capitalization 27,360 27,360
Allowance reserves 45,103 45,103
Installment sales $(1,613,524) (1,613,524)
Accelerated depreciation (25,662) (25,662)
Other (15,568) (15,568)
----------- ----------- -----------
$ 110,046 $(1,654,765) $(1,544,708)
=========== =========== ===========
</TABLE>
The provision (benefit) for income taxes differs from the amounts
computed by applying the federal statutory rate to income (loss) before
income taxes for the years ended December 31 as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Computed income tax expense (benefit) at
federal statutory rate $ 743,076 $ (194,484)
State income taxes, net of federal income tax
benefit 133,014 (36,278)
Graduated income tax rates (21,231) 5,557
Other (5,629) 4,415
----------- ----------
$ 849,230 $ (220,790)
========== ==========
</TABLE>
25
<PAGE>
11. EMPLOYEE 401(k) PLAN
The Company's 401(k) plan covers substantially all employees meeting
minimum eligibility requirements. The plan provides for employee
contributions of up to a maximum of 15% of each employee's compensation,
with the Company matching 50% of the first 6% of each employee's
contribution. The Company's contributions to the plan totaled
approximately $80,000 and $81,000 for the years ended December 31, 1998
and 1997, respectively.
12. TRANSACTIONS WITH OFFICER AND EMPLOYEES
At December 31, 1998 and 1997, the Company had a note receivable of
$225,000 and $250,000, respectively, from an officer of the Company. The
note accrues interest at 9.75% and is due on demand. Included in
contracts and mortgages receivable at December 31, 1998 and 1997 are
contracts receivable from employees of the Company in the amount of
$89,696 and $60,970, respectively. During the years ended December 31,
1998 and 1997, the Company had sales to officers and employees of
approximately $50,402 and $75,074, respectively.
13. SUBSEQUENT EVENT
In January 1999, the Company filed with the Internal Revenue Service to
obtain status as a Subchapter S corporation. The Company will continue
to pay "built-in-gain" taxes related to deferred tax liabilities
existing at December 31, 1998 for installment sales, until all
installments of such sales have been received. All other deferred tax
assets and liabilities will be recognized in 1999 in deferred tax
expense (benefit).
26
<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, 1998.
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 are as follows:
Name Age Positions with Company
Philip C. Taylor 47 President, Chairman of the Board,
Secretary and Treasurer
Joel D. Kaul 39 Vice President and Chief Operating Officer
W. John Driscoll 70 Director
John H. Hooley 47 Director
Charles J. McElroy 44 Director
William R. Sieben 46 Director
PHILIP C. TAYLOR is the founder, President, Chairman of the Board and
majority shareholder of the Company. Mr. Taylor has been actively
involved in real estate investment and development for over 20 years.
Since 1979, management of the Company has been his full-time
occupation. Mr. Taylor graduated in 1973 from the College of St.
Thomas, St. Paul, Minnesota, with a Bachelor of Arts degree in
Economics. In 1978, Mr. Taylor received his Juris Doctorate degree from
William Mitchell College of Law, St. Paul, Minnesota. Mr. Taylor has
been Chairman, President, Secretary, and Treasurer since the Company's
formation.
JOEL D. KAUL is Vice President and Chief 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 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 where 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.
27
<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 director an annual fee of $4,500, plus
reimbursement of out-of-pocket expenses.
The Company does not have a class of equity securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934 (the
"Exchange Act") and therefore is not subject to Section 16 of the
Exchange Act.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by the
Company for services rendered during the years ended December 31, 1998
and 1997 with respect to the President (Chief Executive Officer) and
all officers of the Company whose total annual salary and bonus for
1998 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 1998 $150,000 $97,537 $4,500(2)
1997 150,000 6,355 4,500
Joel D. Kaul, Vice President 1998 100,000 45,805 --
1997 100,000 6,994 --
</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.
(2) Annual fee paid to Mr. Taylor for serving as a member of the Company's
Board of Directors.
28
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of December 31, 1998, 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>
Shares
Name and Address of Outstanding Beneficially
Beneficial Owner Shares (2) Owned (1)
<S> <C> <C>
Philip C. Taylor
43 Main Street SE, Suite 506
Minneapolis, Minnesota 55414 387,804 (3) 80.1%
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 1.6
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 (6 persons) 406,825 84.0
</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, 1998.
(3) Includes 132,146 shares owned by Mr. Taylor's wife, 120,000 shares
held in trust for his children. 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 that 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.
29
<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 $225,000 at
December 31, 1998. 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 *
10.2 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.
30
<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 24, 1999 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.
SIGNATURE TITLE DATE
- --------- ----- ----
/S/ Philip C. Taylor Chairman of the Board, President March 24, 1999
- ------------------------ Secretary and Treasurer (Chief ----------------
Philip C. Taylor Executive Officer)
/S/ W. John Driscoll Director March 24, 1999
- ------------------------ ----------------
W. John Driscoll
/S/ John H. Hooley Director March 24, 1999
- ------------------------ ----------------
John H. Hooley
/S/ Charles J. McElroy Director March 24, 1999
- ------------------------ ----------------
Charles J. McElroy
/S/ William R. Sieben Director March 24, 1999
- ------------------------ ----------------
William R. Sieben
/S/ Joel D. Kaul Vice President and Chief March 24, 1999
- ------------------------ Operating Officer ----------------
Joel D. Kaul
31
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION PAGE
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.................*
10.2 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.
32
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%
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 433,717
<SECURITIES> 0
<RECEIVABLES> 10,323,850
<ALLOWANCES> 0
<INVENTORY> 11,469,212
<CURRENT-ASSETS> 0
<PP&E> 1,164,240
<DEPRECIATION> 659,310
<TOTAL-ASSETS> 23,294,075
<CURRENT-LIABILITIES> 0
<BONDS> 3,832,000
0
0
<COMMON> 4,841
<OTHER-SE> 6,028,541
<TOTAL-LIABILITY-AND-EQUITY> 23,294,075
<SALES> 5,515,631
<TOTAL-REVENUES> 5,870,098
<CGS> 3,334,729
<TOTAL-COSTS> 3,334,729
<OTHER-EXPENSES> 1,569,521
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 362,521
<INCOME-PRETAX> 576,327
<INCOME-TAX> 229,551
<INCOME-CONTINUING> 346,776
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 346,776
<EPS-PRIMARY> 0.72
<EPS-DILUTED> 0.72
</TABLE>
