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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended June 30, 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 June 30, 1999
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<PAGE>
TAYLOR INVESTMENT CORPORATION
INDEX
PART I. FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
June 30, 1999 (unaudited) and December 31, 1998 .................... 3
Condensed Consolidated Statements of Income
Three and six months ended June 30,
1999 and 1998 (unaudited)........................................... 4
Condensed Consolidated Statements of Cash Flows
Six months ended June 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
<PAGE>
TAYLOR INVESTMENT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
(Unaudited)
JUNE 30, 1999 DECEMBER 31, 1998
<S> <C> <C>
ASSETS
INVENTORY - Principally land held for sale $ 10,869,728 $ 11,469,212
CONTRACTS AND MORTGAGES RECEIVABLE 8,416,515 9,365,257
INVESTMENT IN JOINT VENTURE 9,000 11,060
OTHER ASSETS:
Cash 228,784 433,717
Notes receivable from officer 223,934 225,000
Tax increment financing receivable 616,398 631,373
Other receivables 151,530 102,220
Prepaid expenses and earnest money deposits 229,721 161,987
Funds held by trustee 38,500 37,500
Land, buildings, and equipment, less accumulated
depreciation of $764,828 and $659,310, respectively 500,478 504,930
Loan acquisition costs and debt issuance costs, less accumulated
amortization of $302,660 and $284,472, respectively 337,514 351,819
------------- -------------
Total other assets 2,326,859 2,448,546
------------- -------------
$ 21,622,102 $ 23,294,075
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LINES OF CREDIT $ 5,860,261 $ 5,820,433
NOTES PAYABLE 4,320,148 5,888,508
CONTRACTS AND MORTGAGES PAYABLE 126,702 207,433
SENIOR SUBORDINATED DEBT 3,757,000 3,832,000
OTHER LIABILITIES:
Accounts payable 120,620 147,077
Accrued liabilities 237,722 481,197
Income taxes payable -- 241,664
Deposits on land sales and purchase agreements 35,249 34,358
------------- -------------
Total other liabilities 393,591 904,296
DEFERRED INCOME TAXES 451,976 608,023
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 5,967,447 5,288,405
------------- -------------
Total stockholders' equity 6,712,424 6,033,382
------------- -------------
$ 21,622,102 $ 23,294,075
============= =============
</TABLE>
See note to condensed consolidated financial statements (unaudited).
3 of 12
<PAGE>
TAYLOR INVESTMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
REVENUES: 1999 1998 1999 1998
<S> <C> <C> <C> <C>
Sales $ 5,030,732 $ 5,693,075 $ 8,696,639 $ 9,625,433
Interest income on contracts receivable 231,040 276,546 487,879 560,310
Equity in earnings of 50% owned subsidiary
and joint venture 13,671 12,631 9,940 30,137
Other revenue 145,496 85,612 178,486 133,992
------------ ------------ ------------ ------------
Total revenue 5,420,939 6,067,864 9,372,944 10,349,872
COSTS AND EXPENSES:
Cost of sales 2,567,032 3,206,288 4,552,263 5,520,810
Selling, general, and administrative 1,839,644 1,621,000 3,114,459 2,908,493
Interest expense 345,294 429,755 727,021 899,487
------------ ------------ ------------ ------------
Total costs and expenses 4,751,970 5,257,043 8,393,743 9,328,790
INCOME BEFORE INCOME TAXES 668,969 810,821 979,201 1,021,082
INCOME TAX EXPENSE -- 324,310 -- 407,856
------------ ------------ ------------ ------------
NET INCOME $ 668,969 $ 486,511 $ 979,201 $ 613,226
============ ============ ============ ============
NET INCOME PER COMMON SHARE
OUTSTANDING $ 1.38 $ 1.00 $ 2.02 $ 1.27
============ ============ ============ ============
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)
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 979,201 $ 613,226
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 157,788 177,574
Loss on disposal of fixed assets -- 94,616
Deferred income taxes (156,047) 88,960
Equity in earnings of 50% owned subsidiary and joint venture (9,940) (30,137)
Contracts and mortgages receivables funded (2,489,897) (2,959,015)
Payments on contracts and mortgages receivable 3,438,639 2,920,473
Decrease in inventory - land held for sale 2,837,834 3,825,013
Increase in other receivables (33,269) (42,277)
Decrease in income tax receivable -- 314,296
Increase in prepaid expenses (67,734) (441,785)
Decrease in income tax payable (241,664) --
Decrease in accounts payable (26,457) (127,062)
(Decrease) increase in accrued liabilities (243,475) 29,167
Increase (decrease) in deposits on land sales and purchase agreements 891 (654)
------------ ------------
Net cash provided by operating activities 4,145,870 4,462,395
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of land, buildings and equipment (90,655) (52,759)
Proceeds from distribution of joint venture 12,000 84,000
Increase in funds held by trustee (1,000) --
------------ ------------
Net cash (used in) provided by investing activities (79,655) 31,241
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowed (payments) on lines of credit 39,828 (1,463,753)
Repayment of notes, contracts, and mortgage payables (3,912,593) (3,331,232)
Loan acquisition costs (23,224) --
Dividends paid (300,159) (274,467)
Repayment of subordinated debt (75,000) --
------------ ------------
Net cash used in financing activities (4,271,148) (5,069,452)
------------ ------------
DECREASE IN CASH (204,933) (575,816)
CASH AT BEGINNING OF PERIOD 433,717 648,760
------------ ------------
CASH AT END OF PERIOD $ 228,784 $ 72,944
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $ 744,936 $ 913,202
============ ============
Income taxes $ 397,711 $ 164,400
============ ============
Noncash financing activity - inventory and equipment
purchased with notes and contracts payable $ 2,263,502 $ 1,573,952
============ ============
</TABLE>
See note to condensed consolidated financial statements (unaudited).
5 of 12
<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 sheet as of June 30, 1999 and the
condensed consolidated statements of income for the three and six months
ended June 30, 1999 and 1998 and the condensed consolidated statements of
cash flow for the six months ended June 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 June 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
<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 JUNE 30, 1999 AND 1998.
Sales of $5,030,732 including structure sales of $210,864, for the quarter ended
June 30, 1999, decreased by $662,343 from the same period in 1998. The decrease
in land sales is attributable to an idle sales market in the southern states and
a decrease in inventory in the northern states.
Gross profit was $2,463,700, or 49.0%, for the quarter ended June 30, 1999
compared to $2,486,787, or 43.7%, for the same period in 1998. The gross profit
margin on land sales was 51.3% in 1999 compared to 44.9% in 1998. The increase
in gross profit margin on land is due primarily to the continuous efforts to
monitor and reduce development costs on new properties. The gross profit margin
on sales of structures showed a decline in 1999, which is attributable to the
liquidation of structure inventory.
Selling, general and administrative expenses of $1,839,644 were 36.6% of sales
for the second quarter of 1999, compared to $1,621,000 or 28.5%, for the same
period in 1998. The primary reasons for the increase in these expenses, as a
percent of sales, are declining sales, a restructured commissions program and
commissions paid for sales on behalf of an unaffiliated company.
For the quarter ended June 30, 1999, interest income was $45,506 lower than for
the same period in 1998 due to decrease in the average balance of contracts and
mortgages receivable. Other revenues of $145,496 for the first quarter of 1999
increased from $85,612 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 $345,294 and $429,755 for the quarters ended June 30, 1999
and 1998, respectively. The decrease is due to the reduction in average 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
second quarter of 1998 was 40.0%. Income taxes were based on the Company's
estimated annual income tax rate.
7 of 12
<PAGE>
COMPARISON OF THE SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 1998.
Sales for the six months ended June 30, 1999 were $8,696,639 a decrease of
$928,794 compared to the same period in 1998. Land sales of $7,997,964 decreased
by $746,063 from the same period in 1998, due primarily to slow sales in the
southern states. Sales of structures declined $182,731 due to lower levels of
structure inventory in 1999.
Gross profit for the first six months of 1999 was $4,144,376, or 47.7%, compared
to $4,104,623, or 42.6% for the same period in 1998. The gross profit on land
sales was 51.0% and 45.6% for the six months ended June 30, 1999 and 1998,
respectively. The 5.4% increase in gross profit on land is primarily due to the
continuous efforts to monitor and reduce development costs.
Interest income of $487,879 for the first six months of 1999 was $72,431 lower
than for the same period in 1998, due to an decrease in the average balance of
contracts and mortgages receivable. Other revenue for the first six months of
1999 was $178,486, compared to $133,992 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.
For the first six months of 1998, selling, general and administrative expenses
were $3,114,459, or 35.8% of sales, compared to $2,908,493, or 30.2% of sales in
1998. The increase in expenses, as a percent of sales, is due to declining
sales, the opening of a new realty office and a restructured commissions
program.
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 six months of 1998 was 39.9%. 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 from operations,
investing and financing activities for the six months ended June 30, 1999 and
1998.
<TABLE>
<CAPTION>
Six months ended Six months ended
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Net cash provided by (used in):
Operating activities $ 4,145,870 $ 4,462,395
Investing activities (79,655) 31,241
Financing activities (4,271,148) (5,069,452)
----------- -----------
Net decrease in cash $ (204,933) $ (575,816)
</TABLE>
The principal sources of cash flow for the first six months of 1999 and 1998
were cash received from sales of land and structures.
Sources of financing as of June 30, 1999 and December 31, 1998 are detailed in
the following table:
SOURCES OF FINANCING
<TABLE>
<CAPTION>
June 30, 1999 Percentage December 31, 1998 Percentage
------------- ---------- ----------------- ----------
<S> <C> <C> <C> <C>
Lines of credit $ 5,860,261 41.7% $ 5,820,433 37.0%
Notes payable(1) 4,320,148 30.7 5,888,508 37.4
Contracts and mortgages
payable 126,702 .9 207,433 1.3
Senior subordinated debt 3,757,000 26.7 3,832,000 24.3
------------------------------------------------------------
$14,064,111 100.0% $15,748,374 100.0%
============================================================
</TABLE>
Total debt declined $1,684,263 from December 31, 1998, due to a decline in
inventory and the repayment of debt from collections of contracts and mortgages
receivable. As of June 30, 1999, contracts and mortgages receivable were
$8,416,515 compared to $9,365,257 as of December 31, 1998. The decrease in the
portfolio is due to decreased sales activity.
Based on expected cash generated from operations, inventory management and the
above financing sources available, management believes it has adequate sources
of financing to fund its cash requirements for the remainder of 1999.
- ----------------------
(1) Notes payable include the real estate line of credit in the amounts of
$820,694 and $2,440,408 as of June 30, 1999 and December 31, 1998, respectively.
9 of 12
<PAGE>
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 has selected a
new accounts receivable system and plans to have it fully implemented by August
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 two-thirds have been contacted, with
the other one-third 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 $360,000. This cost is comprised, primarily, of new computer
hardware and new financial accounting and accounts receivable software. The
Company is still evaluating the overall costs, however, the expected cost to
complete, which includes the implementation of the new accounts receivable
software, is not expected to exceed $10,000.
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.
10 of 12
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
Not applicable
Item 3. Defaults in Senior Securities
Not applicable
Item 4. Submission of Matters to a vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Not applicable
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter covered by
this report.
11 of 12
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Taylor Investment Corporation
-------------------------------------------
(Registrant)
Dated: August 6, 1999 /S/ Philip C. Taylor
-------------------------------------------
Philip C. Taylor
President, Chief Executive Officer and
Director (principal executive officer)
Dated: August 6, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 228,784
<SECURITIES> 0
<RECEIVABLES> 9,408,377
<ALLOWANCES> 0
<INVENTORY> 10,869,728
<CURRENT-ASSETS> 0
<PP&E> 1,191,439
<DEPRECIATION> 764,828
<TOTAL-ASSETS> 21,622,102
<CURRENT-LIABILITIES> 0
<BONDS> 3,757,000
<COMMON> 4,841
0
0
<OTHER-SE> 6,707,583
<TOTAL-LIABILITY-AND-EQUITY> 21,622,102
<SALES> 8,696,639
<TOTAL-REVENUES> 9,372,944
<CGS> 4,552,263
<TOTAL-COSTS> 4,552,263
<OTHER-EXPENSES> 3,841,480
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 727,021
<INCOME-PRETAX> 979,201
<INCOME-TAX> 0
<INCOME-CONTINUING> 979,201
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 979,201
<EPS-BASIC> 2.02
<EPS-DILUTED> 2.02
</TABLE>