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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 September 30, 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.)
----------------------
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 September 30, 1999
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1 of 12
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TAYLOR INVESTMENT CORPORATION
INDEX
Part I. Financial Information
Page No.
--------
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
September 30, 1999 (unaudited) and December 31, 1998...................3
Condensed Consolidated Statements of Income
Three and nine months ended September 30,
1999 and 1998 (unaudited)..............................................4
Condensed Consolidated Statements of Cash Flows
Nine months ended September 30, 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...............................................................11
Signatures............................................................12
2 of 12
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TAYLOR INVESTMENT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
(Unaudited)
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
<S> <C> <C>
ASSETS
INVENTORY - Principally land held for sale $ 10,167,847 $ 11,469,212
CONTRACTS AND MORTGAGES RECEIVABLE 8,382,935 9,365,257
INVESTMENT IN JOINT VENTURE 7,268 11,060
OTHER ASSETS:
Cash 124,721 433,717
Notes receivable from officer 205,091 225,000
Tax increment financing receivable 596,381 631,373
Other receivables 151,726 102,220
Prepaid expenses and earnest money deposits 297,190 161,987
Funds held by trustee 77,000 37,500
Land, buildings, and equipment, less accumulated
depreciation of $812,861 and $659,310, respectively 449,392 504,930
Loan acquisition costs and debt issuance costs, less accumulated
amortization of $322,092 and $284,472, respectively 318,082 351,819
------------- -------------
Total other assets 2,219,583 2,448,546
------------- -------------
$ 20,777,633 $ 23,294,075
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LINES OF CREDIT $ 4,791,541 $ 5,820,433
NOTES PAYABLE 3,481,033 5,888,508
CONTRACTS AND MORTGAGES PAYABLE 315,547 207,433
SENIOR SUBORDINATED DEBT 3,757,000 3,832,000
OTHER LIABILITIES:
Accounts payable 169,474 147,077
Accrued liabilities 278,700 481,197
Income taxes payable 0 241,664
Deposits on land sales and purchase agreements 65,711 34,358
------------- -------------
Total other liabilities 513,885 904,296
DEFERRED INCOME TAXES 392,419 608,023
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 6,781,231 5,288,405
------------- -------------
Total stockholders' equity 7,526,208 6,033,382
------------- -------------
$ 20,777,633 $ 23,294,075
============= =============
</TABLE>
See note to condensed consolidated financial statements (unaudited).
3 of 12
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TAYLOR INVESTMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- -------------------------------
REVENUES: 1999 1998 1999 1998
<S> <C> <C> <C> <C>
Sales $ 6,035,276 $ 4,793,365 $ 14,731,915 $ 14,418,798
Interest income on contracts receivable 259,343 260,007 747,222 820,317
Equity in earnings (loss) of 50% owned subsidiary
and joint venture 48,268 (3,577) 58,208 26,560
Other revenue 136,721 103,740 315,206 237,732
------------- ------------- ------------- -------------
Total revenue 6,479,608 5,153,535 15,852,551 15,503,407
EXPENSES:
Cost of sales 3,490,701 2,954,070 8,042,964 8,474,879
Selling, general, and administrative 1,831,781 1,454,465 4,946,240 4,362,958
Interest 343,342 219,835 1,070,362 1,119,322
------------- ------------- ------------- -------------
Total costs and expenses 5,665,824 4,628,370 14,059,566 13,957,159
INCOME BEFORE INCOME TAXES 813,784 525,165 1,792,985 1,546,248
INCOME TAX EXPENSE -- 211,823 -- 619,679
------------- ------------- ------------- -------------
NET INCOME $ 813,784 $ 313,342 $ 1,792,985 $ 926,569
============= ============= ============= =============
NET INCOME PER COMMON SHARE
OUTSTANDING $ 1.68 $ 0.65 $ 3.70 $ 1.91
============= ============= ============= =============
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 484,129 484,129 484,129 484,129
============= ============= ============= =============
</TABLE>
See note to condensed consolidated financial statements (unaudited).
4 of 12
<PAGE>
TAYLOR INVESTMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
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1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,792,985 $ 926,569
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 235,652 252,624
(Gain) loss on sale of assets (4,343) 109,957
Deferred income taxes (215,604) (501,865)
Equity in earnings of 50% owned subsidiary and joint venture (58,208) (26,560)
Contracts and mortgages receivables funded (3,775,156) (4,554,271)
Payments on contracts and mortgages receivable 4,757,478 4,471,827
Decrease in inventory - land held for sale 4,547,115 4,629,420
Decrease in other receivables 5,395 14,315
Decrease in income tax receivable 0 314,296
Decrease in income tax payable (241,664) 0
Increase in prepaid expenses (135,203) (78,519)
Increase (decrease) in accounts payable 22,397 (150,804)
Decrease in accrued liabilities (202,497) (10,549)
Increase in deposits on land sales and purchase agreements 31,353 47,682
------------- -------------
Net cash provided by operating activities 6,759,700 5,444,122
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of land, buildings and equipment (103,658) (77,983)
Proceeds from sale of land, buildings and equipment 10,000 300
Proceeds from distribution of joint venture 62,000 84,000
Increase in funds held by trustee (39,500) (73,000)
------------- -------------
Net cash used in investing activities (71,158) (66,683)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on lines of credit (1,028,892) (466,773)
Repayment of notes, contracts, and mortgage payables (5,570,263) (4,830,464)
Loan Acquisition Costs (23,224) 0
Dividends paid (300,159) (270,042)
Repayment of subordinated debt (75,000) (85,000)
------------- -------------
Net cash used in financing activities (6,997,538) (5,652,279)
------------- -------------
DECREASE IN CASH (308,996) (274,840)
CASH AT BEGINNING OF PERIOD 433,717 648,760
------------- -------------
CASH AT END OF PERIOD $ 124,721 $ 373,920
============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,085,599 $ 1,132,411
============= =============
Income taxes $ 457,268 $ 967,248
============= =============
Noncash financing activity - inventory and equipment
purchased with notes contracts and mortgages payable $ 3,270,902 $ 3,198,796
============= =============
</TABLE>
See note to condensed consolidated financial statements (unaudited).
5 of 12
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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 sheet as of September 30, 1999 and the
condensed consolidated statements of income for the three and nine months
ended September 30, 1999 and 1998 and the condensed consolidated statements
of cash flows for the nine months ended September 30, 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 September 30, 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 12
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
RESULTS OF OPERATIONS
COMPARISON OF THE THREE-MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998.
Sales of $6,035,276 including sales of structures of $136,362, for the quarter
ended September 30, 1999 increased by $1,241,911 from the same period in 1998.
Land sales of $5,898,914 increased by $1,276,183 from the same period in 1998.
The increase in land sales is attributable to the introduction of a new sales
office in the southern states, in 1999, and to superior quality inventory, with
higher resale values, being sold company wide.
Gross profit was $2,544,575 or 42.2%, for the quarter ended September 30, 1999
compared to $1,839,295 or 38.4%, for the same period in 1998. The gross profit
margin on land sales was 43.9% in 1999 compared to 40.2% in 1998. The increase
in gross profit margin on land is due to the continuous efforts to monitor and
reduce development costs on new properties. The gross profit margin on sales of
structures is negative for the third quarter of 1999, which is attributable to
the liquidation of structure inventory.
Selling, general and administrative expenses of $1,831,781 were 30.4% of sales
for the third quarter of 1999, compared to $1,454,465 or 30.3%, for the same
period in 1998. The lack of change, as a percent of sales, is attributable to
management's continued efforts to control expenses.
For the quarter ended September 30, 1999, interest income of $259,343 remained
steady compared to $260,007 for the same period in 1998, despite a decrease in
the average balance of contracts and mortgages receivable. This is driven by the
increased attention given to the collection of past due receivables in the third
quarter of 1999.
Other revenue of $136,721 for the third quarter of 1999 increased by $32,981 for
the same period in 1998. The increase in other revenue is attributable to
marketing fees collected on sales of property owned by an unaffiliated company.
Interest expense was $343,342 and $219,835 for the quarters ended September 30,
1999 and 1998, respectively. Interest expense in 1998 is lower than 1999, due to
a correction related to subordinated debt, made in the third quarter of 1998.
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 was not material to the
financial statements. Income tax expense, as a percentage of income, for the
third quarter of 1998 was 40.3%. Income taxes were based on the Company's
estimated annual income tax rate.
7 of 12
<PAGE>
COMPARISON OF THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998.
Sales for the nine months ended September 30, 1999 were $14,731,915, an increase
of $313,117 or 2.17%, compared to the same period in 1998. Land sales of
$13,896,878 increased by $530,120 from the same period in 1998, due primarily to
the introduction of a new sales office in the southern states in 1999. Sales of
structures declined $217,003 due to lower levels of structure inventory in 1999.
Gross profit for the first nine months of 1999 was $6,688,951, or 45.4%,
compared to $5,943,919 or 41.2% for the same period in 1998. The gross profit
from land sales was 48.0% and 43.7% for the nine months ended September 30, 1999
and 1998, respectively. The increase in gross profit is due to continuous
efforts to monitor and reduce development costs and obtain superior quality
inventory in 1999. The gross profit from the sale of structures was 2.5% in 1999
and 9.5% for the same period in 1998.
For the first nine months of 1999, selling, general and administrative expenses
were $4,946,240 or 33.6% of sales, compared to $4,362,958, or 30.3% of sales in
1998. The increase in expenses, as a percent of sales, is due to the opening of
a new realty office and restructured commission programs.
Interest income of $747,222 for the first nine months of 1999 was 8.9% lower
than for the same period in 1998, due to a decrease in the average balance of
contracts and mortgages receivable and low, introductory finance rates used as
sales incentives in 1999.
Other revenue for the first nine months of 1999 increased by $77,474, compared
to the same period in 1998, due to marketing fees collected on sales of property
owned by an unaffiliated company.
Interest expense for the first nine months of 1999 remained consistent, compared
to the first nine months of 1998.
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 was not material to the
financial statements. Income tax expense, as a percentage of income, for the
first nine months of 1998 was 40.3%. Income taxes were based on the Company's
estimated annual income tax rate.
8 of 12
<PAGE>
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 operating, investing
and financing activities for the nine months ended September 30, 1999 and 1998.
Nine months ended Nine months ended
September 30, 1999 September 30, 1998
------------------ ------------------
Net cash provided by (used in):
Operating activities $ 6,759,700 $ 5,444,122
Investing activities (71,158) (66,683)
Financing activities (6,997,538) (5,652,279)
----------------------------------------
Net decrease in cash $ (308,996) $ (274,840)
The principal sources of cash flow for the first nine months of 1999 and 1998
were cash received from sales of land and structures.
Sources of financing as of September 30, 1999 and December 31, 1998 are detailed
in the following table:
SOURCES OF FINANCING
September 30, 1999 Percentage December 31, 1998 Percentage
------------------ ---------- ----------------- ----------
Lines of credit $ 4,791,541 38.8% $ 5,820,433 37.0%
Notes payable (1) 3,481,033 28.2 5,888,508 37.4
Contracts and
mortgages payable 315,547 2.6 207,433 1.3
Subordinated debt 3,757,000 30.4 3,832,000 24.3
--------------------------------------------------------------
$12,345,121 100.0% $15,748,374 100.0%
==============================================================
Total debt declined $3,403,253 from December 31, 1998, due to a decline in
inventory and the repayment of debt from collections of contracts and mortgages
receivable. As of September 30, 1999, contracts and mortgages receivable were
$8,382,935 compared to $9,365,257 as of December 31, 1998. The decrease in the
portfolio is due to customers choosing to finance through other financial
institutes with lower interest rates.
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 includes the real estate line of credit in the amounts of
$499,799 and $2,440.408 as of September 30, 1999 and December 31, 1998,
respectively.
9 of 12
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SAFE HARBOR DISCLOSURE - Various forms filed by the Company with the Securities
and Exchange Commission, including the Company's Form 10-KSB and Form 10-QSB,
and other written documents and oral statements released by the Company, may
contain forward-looking statements. Forward-looking statements generally use
words such as "expect," "anticipate," "believe," "project," "should,"
"estimate," and similar expressions, and reflect the Company's expectations
concerning the future. Such statements are based upon currently available
information, but various risks and uncertainties may cause the Company's actual
results to differ materially from those expressed in these statements. Among the
factors which management believes could affect the Company's operating results
are the following:
* Changing economic conditions, including economic downturns or recessions
and rising interest rates;
* The ability of the company to maintain and enhance its market position
relative to its competitors, to realize productivity, and to continue to
control expenses;
* The availability of suitable tracts of undeveloped land in proximity to the
marketplace;
* Changes in zoning and subdivision regulations;
* The availability and cost of financing;
* Continuity of management.
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, which 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 has communicated with nearly all 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. A written response
regarding their year 2000 readiness has been requested and received by most.
Currently, the costs that have been associated to the year 2000 issue total
approximately $360,000. This cost is comprised, primarily, of new computer
hardware and new financial accounting software. The Company has evaluated the
overall costs and does not expect any additional costs related to the year 2000
issue.
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 an accounting system 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.
10 of 12
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
Not applicable
Item 3. Defaults in Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Not applicable
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter covered by
this report.
11 of 12
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Taylor Investment Corporation
-----------------------------------------------
(Registrant)
Dated: November 9, 1999 /S/ Philip C. Taylor
-----------------------------------------------
Philip C. Taylor
President, Chief Executive Officer and Director
(principal executive officer)
Dated: November 9, 1999 /S/ Joel D. Kaul
-----------------------------------------------
Joel D. Kaul
Vice President and Chief Operating Officer
12 of 12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 124,721
<SECURITIES> 0
<RECEIVABLES> 9,336,133
<ALLOWANCES> 0
<INVENTORY> 10,167,847
<CURRENT-ASSETS> 0
<PP&E> 1,262,253
<DEPRECIATION> 812,861
<TOTAL-ASSETS> 20,777,633
<CURRENT-LIABILITIES> 0
<BONDS> 3,757,000
0
0
<COMMON> 4,841
<OTHER-SE> 7,521,367
<TOTAL-LIABILITY-AND-EQUITY> 20,777,633
<SALES> 14,731,915
<TOTAL-REVENUES> 15,852,551
<CGS> 8,042,964
<TOTAL-COSTS> 14,059,566
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,070,362
<INCOME-PRETAX> 1,792,985
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,792,985
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,792,985
<EPS-BASIC> 3.70
<EPS-DILUTED> 3.70
</TABLE>
