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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended March 31, 1999 Commission File Number 33-87024C
- ----------------------------------- --------------------------------
TAYLOR INVESTMENT CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota 41-1373372
- ---------------------------------- ----------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation organization)
43 Main Street SE, Suite 506
Minneapolis, MN 55414
(Address of principal executive offices)
Issuer's telephone number, including area code: (612) 331-6929
Not applicable
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(Former name, former address and former fiscal year, if changed since
last report.)
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) or the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, $.01 Par Value - 484,129 shares as of March 31, 1999
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<PAGE>
TAYLOR INVESTMENT CORPORATION
INDEX
PART I. FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
March 31, 1999 (unaudited) and December 31, 1998 .....................3
Condensed Consolidated Statements of Income
Three months ended March 31,
1999 and 1998 (unaudited).............................................4
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 1999 and 1998 (unaudited)................5
Note to Condensed Consolidated Financial Statements (unaudited).......6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition ........................7
Part II..............................................................10
Signatures...........................................................11
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<PAGE>
TAYLOR INVESTMENT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
(Unaudited)
MARCH 31, 1999 DECEMBER 31, 1998
<S> <C> <C>
ASSETS
INVENTORY - Principally land held for sale $ 11,630,041 $ 11,469,212
CONTRACTS AND MORTGAGES RECEIVABLE 8,619,402 9,365,257
INVESTMENT IN JOINT VENTURE 7,329 11,060
OTHER ASSETS:
Cash 341,494 433,717
Notes receivable from officer 175,000 225,000
Tax increment financing receivable 609,476 631,373
Other receivables 244,297 102,220
Prepaid expenses and earnest money deposits 191,541 161,987
Funds held by trustee 75,000 37,500
Land, buildings, and equipment, less accumulated
depreciation of $720,154 and $659,310, respectively 471,285 504,930
Loan acquisition costs and debt issuance costs, less accumulated
amortization of $302,528 and $284,472, respectively 356,986 351,819
-------------- --------------
Total other assets 2,465,079 2,448,546
-------------- --------------
$ 22,721,851 $ 23,294,075
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
LINES OF CREDIT $ 5,747,415 $ 5,820,433
NOTES PAYABLE 5,756,840 5,888,508
CONTRACTS AND MORTGAGES PAYABLE 205,789 207,433
SENIOR SUBORDINATED DEBT 3,832,000 3,832,000
OTHER LIABILITIES:
Accounts payable 235,644 147,077
Accrued liabilities 265,781 481,197
Income taxes payable 241,664
Deposits on land sales and purchase agreements 113,239 34,358
-------------- --------------
Total other liabilities 614,664 904,296
DEFERRED INCOME TAXES 521,688 608,023
COMMITMENTS AND CONTINGENCIES
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 5,298,478 5,288,405
-------------- --------------
Total stockholders' equity 6,043,455 6,033,382
-------------- --------------
$ 22,721,851 $ 23,294,075
============== ==============
</TABLE>
See note to condensed consolidated financial statements (unaudited).
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<PAGE>
TAYLOR INVESTMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
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THREE MONTHS ENDED
MARCH 31,
-----------------------------------
1999 1998
<S> <C> <C>
REVENUES:
Sales $ 3,665,907 $ 3,932,358
Interest income on contracts receivable 256,839 283,764
Equity in (loss) earnings of 50% owned subsidiary
and joint venture (3,731) 17,507
Other revenue 32,990 48,380
-------------- --------------
Total revenue 3,952,005 4,282,009
COSTS AND EXPENSES:
Cost of sales 1,985,231 2,314,522
Selling, general, and administrative 1,274,815 1,287,994
Interest 381,727 469,732
-------------- --------------
Total costs and expenses 3,641,773 4,072,248
INCOME BEFORE INCOME TAXES 310,232 209,761
INCOME TAX EXPENSE -- 83,546
-------------- --------------
NET INCOME $ 310,232 $ 126,215
============== ==============
NET INCOME PER COMMON SHARE
OUTSTANDING $ 0.64 $ 0.26
============== ==============
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 484,129 484,129
============== ==============
</TABLE>
See note to condensed consolidated financial statements (unaudited).
4 of 11
<PAGE>
TAYLOR INVESTMENT CORPORATION
CONDEDNSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 310,232 $ 126,215
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 78,901 89,130
Deferred income taxes (86,335) 83,546
Equity in loss (earnings) of 50% owned subsidiary and joint venture 3,731 (17,507)
Contracts and mortgages receivables funded (1,169,061) (1,401,954)
Payments on contracts and mortgages receivable 1,914,916 1,022,769
Decrease in inventory - land held for sale 1,888,921 1,553,845
Increase in other receivables (70,180) (95,657)
Decrease in income tax payable (241,664)
Increase in prepaid expenses (29,554) (53,774)
Decrease in other liabilities (10,860)
Decrease in accounts payable and accrued liabilities (126,849) (128,736)
Increase in deposits on land sales and purchase agreements 78,881 22,113
-------------- --------------
Net cash provided by operating activities $ 2,551,939 $ 1,189,130
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of land, buildings and equipment (27,199) (24,167)
Dividend from joint venture 35,000
Increase in funds held by trustee (37,500)
-------------- --------------
Net cash (used) provided by investing activities (64,699) 10,833
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on lines of credit (73,018) (205,319)
Repayment of notes, contracts, and mortgage payables (2,183,062) (1,380,889)
Loan acquisition costs (23,224)
Dividends paid (300,159)
-------------- --------------
Net cash used in financing activities (2,579,463) (1,586,208)
-------------- --------------
DECREASE IN CASH (92,223) (386,245)
CASH AT BEGINNING OF PERIOD 433,717 648,760
-------------- --------------
CASH AT END OF PERIOD $ 341,494 $ 262,515
===================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $ 369,376 $ 475,678
============== ==============
Income taxes $ 327,999
============== ==============
Noncash financing activity - inventory and equipment
purchased with notes and contracts payable $ 2,049,750 $ 1,263,040
============== ==============
</TABLE>
See note to condensed consolidated financial statements (unaudited).
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<PAGE>
TAYLOR INVESTMENT CORPORATION
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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1. The accompanying condensed consolidated balance sheet for December 31,
1998 was derived from the audited consolidated balance sheet as of that
date. The condensed consolidated balance sheets as of March 31, 1999 and
the condensed consolidated statements of income for the three months ended
March 31, 1999 and 1998 and the condensed consolidated statements of cash
flows for the three months ended March 31, 1999 and 1998 have been
prepared by the management of Taylor Investment Corporation without audit.
In the opinion of management, these condensed consolidated financial
statements reflect all adjustments (consisting of normal, recurring
adjustments) necessary to present fairly the financial position of Taylor
Investment Corporation at March 31, 1999 and the results of operations and
cash flows for all periods presented.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. Therefore, these
statements should be read in conjunction with the Company's consolidated
financial statements and notes thereto included in the Company's 1998 Form
10-KSB.
The results of operations for the interim periods are not necessarily
indicative of results which will be realized for the full year.
6 of 11
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
RESULTS OF OPERATIONS
COMPARISON OF THE THREE-MONTH PERIODS ENDED MARCH 31, 1999 AND 1998.
Sales of $3,665,907, including sales of structures of $487,811, for the quarter
ended March 31, 1999 decreased by $266,451 from the same period in 1998. Land
sales of $3,178,096 decreased by $55,602 from the same period in 1998, and
structure sales decreased by $210,849. The decrease in structure sales is
largely attributable to the planned reduction of this product.
Gross profit was $1,680,676 or 45.8% of sales, for the quarter ended March 31,
1999 compared to $1,617,836 or 41.1% of sales, for the same period in 1998. The
gross profit margin on land sales was 50.6% of sales in 1999 compared to 46.7%
in 1998. The increase in gross profit margin is due primarily to the sale of
higher quality inventory in 1999, where as in the first quarter of 1998, sales
programs were aimed toward the liquidation of lower-margin, aged inventory.
Selling, general and administrative expenses of $1,274,815 were 34.8% of sales
for the first quarter of 1999, compared to $1,287,994, or 32.8%, for the same
period in 1998. The 2.0% increase in these expenses, as a percent of sales, is
attributable to the opening of a new realty office in the first quarter of 1999.
General expenses were incurred throughout the entire quarter to open and
maintain this office, while sales only occurred in the last month of the
quarter.
For the quarter ended March 31, 1999, interest income was $26,925 lower than for
the same period in 1998 due to a decrease in the average balance of contracts
and mortgages receivable.
Interest expense for the quarter ended March 31, 1999 was $381,727, compared to
$469,732 for the same period in 1998. The decrease is due to the reduction of
inventory and related debt.
No income tax expense has been recorded in 1999 due to the Company's conversion
to an S-corporation, as of January 1, 1999. The effect of recognizing deferred
tax assets and liabilities as a result of the conversion is not material to the
financial statements. Income tax expense, as a percentage of income, for the
first three months of 1998 was 39.8%. Income taxes were based on the Company's
estimated annual income tax rate.
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LIQUIDITY AND CAPITAL RESOURCES
Cash flow is generated from operations as land inventory is sold and collections
are made on contracts and mortgages receivable. The primary use of cash flow is
for financing the Company's ongoing acquisition of land and subsequent customer
mortgage financing. Secondarily, the Company uses cash to reduce the aggregate
amounts outstanding under its Credit Agreement, notes and mortgages payable. The
following table sets forth the Company's net cash flows for operations,
investing and financing activities for the three months ended March 31, 1999 and
1998.
<TABLE>
<CAPTION>
Three months ended Three months ended
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Net cash provided by (used in):
Operating activities $2,551,939 $1,189,130
Investing activities (64.699) 10,833
Financing activities (2,579,463) (1,586,208)
----------- -----------
Net decrease in cash $ (92,223) $ (386,245)
</TABLE>
Sources of financing as of March 31, 1999 and December 31, 1998 are detailed in
the following table:
SOURCES OF FINANCING
<TABLE>
<CAPTION>
March 31, 1999 Percentage December, 31, 1998 Percentage
-------------- ---------- ------------------ ----------
<S> <C> <C> <C> <C>
Lines of credit $ 5,747,415 37.0% $ 5,820,433 37.0%
Notes payable(1) 5,756,840 37.0 5,888,508 37.4
Contracts and mortgages payable 205,789 1.3 207,433 1.3
Senior subordinated debt 3,832,000 24.7 3,832,000 24.3
----------------------------------------------------------------------
$15,542,044 100.0% $15,748,374 100.0%
======================================================================
</TABLE>
Total debt declined $206,330 from December 31, 1998, due to the repayment of
debt from collections of contracts and mortgages receivable. As of March 31,
1999, contracts and mortgages receivable were $8,619,402 compared to $9,365,257
as of December 31, 1998.
Based on expected cash generated from operations, inventory management and the
above financing sources available, management believes it has adequate sources
of financing to fund its cash requirements for the remainder of 1999.
- --------------------
(1) Notes payable include the real estate line of credit in the amounts of
$1,180,929 and $2,440,408 as of March 31, 1999 and December 31, 1998,
respectively.
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SAFE HARBOR DISCLOSURE - Various forms filed by the Company with the Securities
and Exchange Commission, including the Company's Form 10-KSB and Form 10-QSB,
and other written documents and oral statements released by the Company, may
contain forward-looking statements. Forward-looking statements generally use
words such as "expect," "anticipate," "believe," "project," "should,"
"estimate," and similar expressions, and reflect the Company's expectations
concerning the future. Such statements are based upon currently available
information, but various risks and uncertainties may cause the Company's actual
results to differ materially from those expressed in these statements. Among the
factors which management believes could affect the Company's operating results
are the following:
* Changing economic conditions, including economic downturns or recessions
and rising interest rates;
* The ability of the company to maintain and enhance its market position
relative to its competitors, to realize productivity, and to continue to
control expenses;
* The availability of suitable tracts of undeveloped land in proximity to
the marketplace;
* Changes in zoning and subdivision regulations;
* The availability and cost of financing;
* Continuity of management.
THE 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 as year 2000 compliant. The Company's 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 to the year 2000 issue totals
approximately $335,000. This cost is comprised, 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 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. 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.
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<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
Not applicable
Item 3. Defaults in Senior Securities
Not applicable
Item 4. Submission of Matters to a vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Not applicable
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter covered by
this report.
10 of 11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Taylor Investment Corporation
------------------------------------------
(Registrant)
Dated: May 10, 1999 /S/ Philip C. Taylor
------------------------------------------
Philip C. Taylor
President, Chief Executive Officer and Director
(principal executive officer)
Dated: May 10, 1999 /S/ Joel D. Kaul
------------------------------------------
Joel D. Kaul
Vice President and Chief Operating Officer
11 of 11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 341,494
<SECURITIES> 0
<RECEIVABLES> 9,648,175
<ALLOWANCES> 0
<INVENTORY> 11,630,041
<CURRENT-ASSETS> 0
<PP&E> 1,191,439
<DEPRECIATION> 720,154
<TOTAL-ASSETS> 22,721,851
<CURRENT-LIABILITIES> 0
<BONDS> 3,832,000
0
0
<COMMON> 4,841
<OTHER-SE> 6,038,614
<TOTAL-LIABILITY-AND-EQUITY> 22,721,851
<SALES> 3,665,907
<TOTAL-REVENUES> 3,952,005
<CGS> 1,985,231
<TOTAL-COSTS> 1,985,231
<OTHER-EXPENSES> 1,656,542
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 381,727
<INCOME-PRETAX> 310,232
<INCOME-TAX> 0
<INCOME-CONTINUING> 310,232
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 310,232
<EPS-PRIMARY> 0.64
<EPS-DILUTED> 0.64
</TABLE>
