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, 1999
[ ] 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. $24,973,604
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, 1999
----------------------------------
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, 1999
---------------------------------------------------------------------
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.................................................11
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.............................................25
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT....................25
ITEM 10. EXECUTIVE COMPENSATION...............................................26
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT...........................................................27
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................28
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.....................................28
SIGNATURES....................................................................29
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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 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 primary residences, 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 rural properties for building
primary and secondary homes. The Company's strategy is to expand the
organization by exploring new markets outside its current locations.
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 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. 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 subdivision 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 involves
determining the layout of lots, or platting the property, attending
public hearings, and
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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 properties 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 secondary homes for use as primary residences,
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, creeks, attractive views and shorelines.
The Company's sales and marketing activities are conducted principally
through its Four Seasons subsidiaries in Minnesota, Wisconsin, Georgia
and Texas. 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, television, radio 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 Controller 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. The Company's competitive factors in the market for
developed lots include the ability to acquire quality inventory and
the size and quality of the sales force, and 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, Georgia or Texas. 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, 1999, the Company has 68 full-time and 7 part-time
employees. None of the Company's employees are represented by a labor
union or are 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,
2002.
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 year ended December 31, 1999.
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,
1999. 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 non-assessable. The Company's Credit
Agreement contains a covenant requiring the Company to obtain written
approval for the declaration and payment of cash distributions.
Distributions 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.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. The Company
currently attempts to maintain its inventory at a level that, at any
time, will meet its sales goals for the next twelve months. Inventory
balances were $9.9 million and $11.5 million as of December 31, 1999
and 1998, respectively.
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The Company occasionally contracts for the construction of shell homes
on its Four Seasons lots. The Company may have between one and three
structures in inventory, at any time, for each Four Seasons office.
Structure inventory consists of structures that existed on a property
at the time of acquisition and structures that the Company contracted
to build. Structure sales also include the 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 10.25% to 12.25%
depending principally on the amount of the down payment.
Company-financed sales were 26.4% and 35.3% of sales for the years
ended December 31, 1999 and 1998, respectively. The decrease in
customer purchases financed by the Company is due to low interest
rates throughout the year, resulting in more competitive financing
programs available through banks and other lending institutions. The
weighted average interest rate on outstanding contracts and mortgages
receivable was approximately 11.1% and 11.6% as of December 31, 1999
and 1998, respectively.
Other revenues also include closing fee income the Company collects
for each sale.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1999 AND 1998
The Company reported an 18.0% increase in sales for the year ended
December 31, 1999 to $23.5 million, including sales of shell homes,
condominiums, townhomes and timeshare sales of $1.4 million, or 6.0%
of sales. For the same period in 1998, sales were $19.9 million,
including $1.6 million in sales of shell homes, condominiums and
townhomes, or 8.2% of sales. The overall sales increase is
attributable to superior quality inventory, a strong real estate
market and a dedicated sales staff.
The following table sets forth the sales, cost of sales and gross
profit information for the years ended December 31, 1999 and 1998.
<TABLE>
<CAPTION>
1999 Land Structures Total
<S> <C> <C> <C> <C> <C> <C>
Sales $22,104,045 100.0% $ 1,414,393 100.0% $23,518,438 100.0%
Cost of sales 11,344,516 51.3% 1,403,366 99.2% 12,747,882 54.2%
----------- ------ ----------- ------ ----------- ------
Gross profit $10,759,529 48.7% $ 11,027 0.8% $10,770,556 45.8%
<CAPTION>
1998 Land Structures Total
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%
</TABLE>
For 1999, gross profit was $10.8 million or 45.8% of sales, compared
to $8.1 million or 40.8% of sales for the same period in 1998. Gross
profit margin from the sale of lots was 48.7% for 1999 and 43.9% in
1998. In 1999, gross profit margin from the sale of structures (shell
homes, condominiums, and townhomes) was 0.8%, while for the same
period in 1998 gross profit margin from the sale of structures was
6.0%. The increase in gross profit on land sales is principally due to
the sale of superior
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quality inventory in 1999 and managements focus on controlling project
related costs, compared to 1998. Offsetting this increase, the Company
wrote down inventory by $294,480 and $137,781 in 1999 and 1998,
respectively, to reflect its net realizable value.
Other revenues increased to $1,455,166 in 1999, from $1,439,706 for
the same period in 1998, which is the net result of closing fees
increasing and interest income decreasing. Closing fees increased
28.6% from the prior year, due to approximately $244,000 of
commissions collected on sales of property owned by an unaffiliated
company. Interest income decreased to $988,145 in 1999 from $1,086,340
in 1998 as a result of a lower average balance of contracts and
mortgages receivable.
Selling, general and administrative expenses for 1999 were $8.0
million or 33.8% of sales, compared to $6.0 million or 29.9% of sales
for the same period in 1998. The increase in selling, general and
administrative expense, as a percent of sales, is attributable to
increased advertising costs to promote new or slow markets, a higher
rate paid for sales commissions in 1999 and an new management
incentive program.
Interest expense of $1.2 million in 1999 decreased by 18.2% from $1.5
million in 1998. The decrease in interest expense is due to a decrease
in contracts and mortgages payable in 1999 from 1998.
No income tax expense was 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 for the year ended December 31, 1998 was 40.0% of income
before income taxes and was based on the Company's estimated annual
income tax rate.
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 and 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, 1999 and 1998:
1999 1998
Net cash provided by (used in):
Operating activities $ 12,151,270 $ 7,094,849
Investing activities (41,473) (93,342)
Financing activities (11,574,205) (7,216,550)
------------ -----------
Net increase (decrease) in cash $ 535,592 $ (215,043)
============ ===========
Cash provided by operating activities totaled $12,151,270 in 1999 and
$7,094,849 in 1998. Cash used for investing and financing activities
in 1999 consisted primarily of principal payments on notes, contracts,
mortgages payable and subordinated debt of $10.0 million and dividend
payments to shareholders of $1,549,212. Cash used for investing and
financing activities in 1998 consisted primarily of principal payments
on notes, contracts, and mortgages payable of $6.9 million and a
dividend payment to shareholders of $300,160.
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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, 1999 and 1998.
SOURCES OF FINANCING
<TABLE>
<CAPTION>
1999 Percentage 1998 Percentage
<S> <C> <C> <C> <C>
Lines of credit $ 3,797,508 31.0% $ 5,820,433 37.0%
Notes payable (1) 4,725,779 38.6 5,888,508 37.4
Contracts and mortgages payable 46,041 0.4 207,433 1.3
Senior subordinated debt 3,680,000 30.0 3,832,000 24.3
------------ ------- ------------ -------
Total debt $ 12,249,328 100.0% $ 15,748,374 100.0%
============ ======= ============ =======
</TABLE>
--------------------------
(1) Notes payable includes the real estate line of credit in the
amounts of $1,606,429 and $2,440,408 as of December 31, 1999 and
1998, respectively.
"CREDIT AGREEMENT" - The Company began its borrowing relationship in
1986 and may currently borrow a total aggregate of up to $10.0 million
under the Credit Agreement which includes the following four lines of
credit:
DESCRIPTION OF LINES OF CREDIT
<TABLE>
<CAPTION>
Balance
Amount of Outstanding as of
Line(1) December 31, 1999
<S> <C> <C>
Mortgages and Contracts Receivable $10,000,000 $ 3,772,143
Real Estate Mortgage 3,500,000 1,606,429
Project 1,000,000 25,365
Interim Financing 2,250,000 0
------------
$ 5,403,937
============
</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 $10.0 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 the greater of 8.0% or the lender's base rate
plus 1.0% (9.50% as of December 31, 1999). 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.
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<PAGE>
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, 2001 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 parcel 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 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
8
<PAGE>
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, 1999,
$956,947 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 2000 and
2001, and $488,129 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, 1999, and 1998 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, 1999 and 1998.
1999 1998
Contracts and mortgages receivable:
Balance outstanding $8,694,934 $9,365,257
Amount 90 days past due 269,871 294,827
Percentage of Balance 3.10% 3.15%
Amount foreclosed during period 302,164 111,960
Percentage of balance 3.48% 1.20%
Average portfolio term 4 years 6 years
Weighted average interest rate 11.1% 11.6%
At December 31, 1999, contracts and mortgages receivable outstanding
were approximately $8.7 million, had an average remaining term of
approximately four years, and carried a weighted average interest rate
of 11.1%. 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. During 1999, there were approximately
$302,164 in contract and mortgage receivable balances where the
foreclosure process was complete, and an additional $54,453 were in
the process of foreclosure. Subsequent to a completed foreclosure, the
Company returns the underlying property to inventory and begins
re-marketing 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 2000 and the above
available financing resources, management believes it has adequate
sources of funds to finance its 2000 cash requirements.
NEW ACCOUNTING STANDARDS - In June 1998 the Financial Accounting
Stantards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES, which will be effective for the Company beginning
January1, 2001. 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
9
<PAGE>
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.
The Company implemented new computer systems in all areas of
operations that corrected this situation. The new software and
hardware systems have been purchased since the year-2000 issue has
been exposed, and all sellers assured the Company, in writing, that
their product was year-2000 compliant. The costs associated with the
year-2000 issue totaled approximately $360,000. This cost is composed,
primarily, of new computer hardware and new financial accounting
software, which have been capitalized in the Company's financial
statements.
Overall, the Company was well prepared for the year-2000 issue and
took actions that minimized the risk of system failure or corruption.
There were no failures with any software or hardware. Also, there were
no reports of failures or problems with third-party creditors or any
other service providers.
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.
10
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
Independent Auditors' Report........................................12
Consolidated Balance Sheets.........................................13
Consolidated Statements of Income...................................14
Consolidated Statements of Stockholders' Equity.....................15
Consolidated Statements of Cash Flows...............................16
Notes to Consolidated Financial Statements..........................17
11
<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, 1999
and 1998 and the related consolidated statements of income, 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, 1999 and 1998 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 1, 2000
Minneapolis, Minnesota
12
<PAGE>
TAYLOR INVESTMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
ASSETS
INVENTORY - Principally land held for sale $ 9,938,693 $ 11,469,212
CONTRACTS AND MORTGAGES RECEIVABLE 8,694,934 9,365,257
INVESTMENT IN JOINT VENTURE 6,713 11,060
OTHER ASSETS:
Cash 969,309 433,717
Note receivable from officer 0 225,000
Tax increment financing receivable 568,977 631,373
Other receivables 252,511 102,220
Prepaid expenses and earnest money deposits 342,602 161,987
Funds held by trustee 40,500 37,500
Land, buildings, and equipment, less accumulated
depreciation of $869,594 and 659,310, respectively 399,474 504,930
Loan acquisition and debt issuance costs, less accumulated
amortization of $332,480 and $284,472, respectively 291,470 351,819
------------ ------------
Total other assets 2,864,843 2,448,546
------------ ------------
$ 21,505,183 $ 23,294,075
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LINES OF CREDIT $ 3,797,508 $ 5,820,433
NOTES PAYABLE 4,725,779 5,888,508
CONTRACTS AND MORTGAGES PAYABLE 46,041 207,433
SENIOR SUBORDINATED DEBT 3,680,000 3,832,000
OTHER LIABILITIES:
Accounts payable 365,619 147,077
Accrued liabilities 925,259 481,197
Income taxes payable 0 241,664
Deposits on land sales and purchase agreements 47,615 34,358
------------ ------------
Total other liabilities 1,338,493 904,296
DEFERRED INCOME TAXES 374,032 608,023
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 6,798,353 5,288,405
------------ ------------
Total stockholders' equity 7,543,330 6,033,382
------------ ------------
$ 21,505,183 $ 23,294,075
============ ============
</TABLE>
See notes to consolidated financial statements.
13
<PAGE>
TAYLOR INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
REVENUES:
Sales $ 23,518,438 $ 19,934,429
Interest income on contracts receivable 988,145 1,086,340
Equity in earnings of 50% owned subsidiary and
joint venture 57,653 34,415
Other revenue 409,368 318,321
------------ ------------
Total revenue 24,973,604 21,373,505
COSTS AND EXPENSES:
Cost of sales 12,453,402 11,671,827
Reduction of inventory to net realizable value (Note 1) 294,480 137,781
Selling, general, and administrative 7,953,939 5,959,479
Interest 1,212,623 1,481,843
------------ ------------
Total costs and expenses 21,914,444 19,250,930
------------ ------------
INCOME BEFORE INCOME TAXES 3,059,160 2,122,575
INCOME TAX EXPENSE 0 849,230
------------ ------------
NET INCOME $ 3,059,160 $ 1,273,345
============ ============
NET INCOME PER COMMON SHARE OUTSTANDING $ 6.32 $ 2.63
============ ============
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 484,129 484,129
============ ============
</TABLE>
See notes to consolidated financial statements.
14
<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, 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
Dividends paid (1,549,212) (1,549,212)
Net income 3,059,160 3,059,160
------------ ------------ ------------ ------------ ------------
BALANCES AT DECEMBER 31, 1999 484,129 $ 4,841 $ 740,136 $ 6,798,353 $ 7,543,330
============ ============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
15
<PAGE>
TAYLOR INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,059,160 $ 1,273,345
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 326,267 329,951
(Gain) Loss on sale of assets (4,613) 120,842
Deferred income taxes (233,991) (936,685)
Equity in earnings of 50% owned subsidiary and joint venture (57,653) (34,415)
Contracts and mortgages receivable funded (5,293,516) (5,743,480)
Payments on contracts and mortgages receivable 5,963,839 5,473,222
Decrease in inventory - land held for sale 8,001,090 6,069,886
Decrease in other receivables 137,105 76,209
Decrease in income taxes receivable 0 314,296
(Decrease) Increase in income taxes payable (241,664) 241,664
Increase in prepaid expenses (180,615) (25,504)
Increase (decrease) in accounts payable 218,542 (204,830)
Increase in accrued liabilities 444,062 131,562
Increase in deposits on land sales and purchase agreements 13,257 8,786
------------ ------------
Total adjustments to net income 9,092,110 5,821,504
------------ ------------
Net cash provided by operating activities 12,151,270 7,094,849
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of land, buildings, and equipment (110,473) (148,742)
Proceeds from sale of land, buildings, and equipment 10,000 8,900
Proceeds from distribution of joint venture 62,000 84,000
Increase in funds held by trustee (3,000) (37,500)
------------ ------------
Net cash used in investing activities (41,473) (93,342)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on lines of credit (2,022,925) (111,792)
Repayment of notes, contracts, and mortgage payables (7,819,844) (6,646,598)
Loan acquisition costs (30,224) 0
Repayment of senior subordinated debt (152,000) (158,000)
Dividends paid (1,549,212) (300,160)
------------ ------------
Net cash used in financing activities (11,574,205) (7,216,550)
------------ ------------
INCREASE (DECREASE) IN CASH 535,592 (215,043)
CASH AT BEGINNING OF YEAR 433,717 648,760
------------ ------------
CASH AT END OF YEAR $ 969,309 $ 433,717
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,420,261 $ 1,524,263
============ ============
Income taxes $ 507,619 $ 1,392,293
============ ============
Non-cash financing activity - inventory and equipment
purchased with notes and contracts payable $ 6,495,723 $ 5,307,214
============ ============
</TABLE>
See notes to consolidated financial statements.
16
<PAGE>
TAYLOR INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
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 Four Seasons Realty of
Michigan, Inc., which was inactive in 1999 and 1998.
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.
Interest is capitalized on all projects during the development stage.
Interest capitalized into inventory was $179,229 and $36,897 in 1999 and
1998, respectively.
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 $294,480 and $137,781 in 1999 and 1998,
respectively, were necessary to reduce this inventory to net realizable
value.
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.
Land, buildings, and equipment consist of the following at December 31:
1999 1998
Land $ 11,022 $ 11,022
Buildings and improvements 70,104 63,904
Equipment 1,187,942 1,089,314
------------ ------------
1,269,068 1,164,240
Less accumulated depreciation 869,594 659,310
------------ ------------
Land, buildings, and equipment, net $ 399,474 $ 504,930
============ ============
17
<PAGE>
Included in land, buildings, and equipment at December 31, 1999 are assets
under capital lease of $32,202 and associated accumulated depreciation of
$12,711.
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 1999 and 1998, down payments on
sales financed by the Company averaged 15% and 18% 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.
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 $3,620,000 and $3,742,000 at December 31, 1999 and 1998,
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.
18
<PAGE>
NEW ACCOUNTING STANDARDS -In June 1998 the Financial Accounting Standards
Board (FASB) issued Statement of Financial Account Standards (SFAS) No.
133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES which
will be effective for the Company beginning January 1, 2001. 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.
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, 1999,
the weighted average maturity of contracts and mortgages receivable was
approximately four years, and the weighted average interest rate on
outstanding contracts and mortgages receivable was approximately 11.1% and
11.6% as of December 31, 1999 and 1998, respectively.
Maturities of contracts and mortgages receivable at December 31, 1999 are
as follows:
<TABLE>
<S> <C>
Year ending December 31:
2000 $ 1,993,167
2001 885,180
2002 1,007,944
2003 965,770
2004 961,338
Thereafter 2,978,244
------------
8,791,643
Less allowance for uncollectable contracts and mortgages receivable 96,709
------------
$ 8,694,934
============
</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 non-interest 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 $568,977 and $631,373 at December
31, 1999 and 1998, respectively. Estimated maturity of these receivables at
December 31, 1999 is as follows:
19
<PAGE>
Year ending December 31:
2000 $ 97,057
2001 97,612
2002 98,173
2003 98,738
2004 88,363
Thereafter 718,940
-----------
1,198,883
Less imputed interest at 10% 629,906
-----------
Net receivable $ 568,977
===========
4. LINES OF CREDIT
The Company has a credit agreement that provides for total borrowings of up
to $10,000,000 at the discretion of the lender and is due April 30, 2001.
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), and limitation of
capital expenditures. The Company was in compliance with these financial
covenants in the credit agreement at December 31, 1999 and 1998.
At December 31, 1999 and 1998, the Company had borrowings outstanding of
$3,772,143 and $5,777,068, 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, 1999
and 1998, the Company had borrowings of $1,606,429 and $2,440,408,
respectively, which are included in real estate notes payable (see Note 5).
Borrowings under the line of credit bear interest at the greater of 8% or
the lender's "base" rate plus 1.0% (9.50% and 8.75% at December 31, 1999
and 1998, respectively). Borrowings under the real estate loan facility
bear interest at the greater of 8% or the lender's "base" rate plus 1.5%
(10.00% and 9.25% at December 31, 1999 and 1998, respectively). 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, 1999
the Company has unused availability of $1,738,952 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% (10.00% and 9.25% at
December 31, 1999 and 1998, respectively). Borrowings under the project
line outstanding at December 31, 1999 and 1998 were $25,365 and $43,365,
respectively, and are secured by a mortgage on the major project.
The credit agreement also provides the Company an over-line up to
$2,250,000 at the discretion of the lender. Borrowings under the over-line
facility at December 31, 1999 and 1998 were zero. Borrowings bear interest
at the lender's "base" rate plus 1.5% (10.00% and 9.25% at December 31,
1999 and 1998, respectively).
20
<PAGE>
5. NOTES PAYABLE
Notes payable consisted of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Fixed rate notes payable, due through 2005 at
various rates of interest ranging from 2.77% to 13.50% $ 2,368,672 $ 2,526,229
Real estate notes payable, due through 2001
at various rates of interest ranging from prime to
prime plus 1.5% 2,357,107 3,362,279
------------ -----------
$ 4,725,779 $ 5,888,508
============ ===========
</TABLE>
At December 31, 1999, notes payable was 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, 1999 are as follows:
Years ending December 31:
2000 $ 3,177,755
2001 1,036,366
2002 181,380
2003 134,226
2004 111,731
Thereafter 84,321
-----------
$ 4,725,779
===========
6. CONTRACTS AND MORTGAGES PAYABLE
The Company has entered into contracts for deed and mortgages for the
purchase of land. At December 31, 1999, the agreements provide for interest
rates from 3.0% to 7.5% and maturity dates through 2005. 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, 1999 are as follows:
Years ending December 31:
2000 $ 11,348
2001 12,047
2002 12,793
2003 3,705
2004 3,816
Thereafter 2,332
-----------
$ 46,041
===========
21
<PAGE>
7. SENIOR SUBORDINATED DEBT
The Company has $680,000 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. These notes contain certain restrictive covenants (as
defined), including such items as maintenance of minimum net worth,
limitation of dividend payments, maximum debt to equity ratio, and other
financial ratios. At December 31, 1999, principal maturities of senior
subordinated debt are as follows:
Years ending December 31:
2000 $ 166,000
2001 780,000
2002 774,000
2003 760,000
2004 600,000
Thereafter 600,000
-----------
$ 3,680,000
===========
8. COMMITMENTS AND CONTINGENCIES
The Company has sold certain contracts receivable to financial institutions
under recourse sales agreements. In the event of default under 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, 1999 and 1998, the balance
on contracts and mortgages receivable under such recourse sales agreements
was approximately $956,947 and $1,571,638, respectively. Based on the
scheduled amortization of these balances, the Company's potential
liability, if the put features are exercised, is approximately zero in 2000
and 2001 and $488,129 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 non-cancelable leases for office space.
Estimated payments under these lease agreements at December 31, 1999 are
approximately as follows:
Years ending December 31:
2000 $ 187,455
2001 139,800
2002 25,300
-----------
$ 352,555
===========
Total rental expense for all operating leases was approximately $230,000
and $180,000 for the years ended December 31, 1999 and 1998, respectively.
22
<PAGE>
10. INCOME TAXES
In January 1999, the Company filed with the Internal Revenue Service and
obtained status as a Subchapter S-Corporation. Accordingly, taxable income
from operations is allocated to the individual shareholders with no income
tax expense recorded in the financial statements. 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. The recognition of all other deferred tax assets
and liabilities had no effect on income in 1999.
The following summarizes the provision for income taxes for the year ended
December 31, 1998:
Current:
Federal $ 863,997
State 216,602
-----------
Total current 1,080,599
Deferred:
Federal (216,303)
State (15,066)
------------
Total deferred (231,369)
-----------
$ 849,230
===========
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 Company's deferred
tax liability at December 31, 1999 of $374,032 consists entirely of
"built-in-gains" on installment sales.
The tax effect of significant items comprising the Company's net deferred
tax liability as of December 31, 1998 is as follows:
Deferred Tax
----------------------------
Asset Liability Total
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)
============ ============ ============
23
<PAGE>
The provision for income taxes differs from the amounts computed by
applying the federal statutory rate to income before income taxes for the
year ended December 31, 1998 as follows:
Computed income tax expense at
federal statutory rate $ 743,076
State income taxes, net of federal income tax
benefit 133,014
Other (26,860)
------------
$ 849,230
============
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 for the years ended December 31, 1999 and 1998.
12. TRANSACTIONS WITH OFFICER AND EMPLOYEES
At December 31, 1998, the Company had a note receivable of $225,000 from an
officer of the Company. The note was paid in full in November, 1999.
Included in contracts and mortgages receivable at December 31, 1999 and
1998 are contracts receivable from employees of the Company in the amount
of $71,700 and $89,696, respectively. During the years ended December 31,
1999 and 1998, the Company had sales to officers and employees of
approximately $272,263 and $50,402, respectively.
24
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
No changes in or disagreements with accountants have occurred during
the two-year period ended December 31, 1999.
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 48 President, Chairman of the Board,
Secretary and Treasurer
Joel D. Kaul 40 Vice President and Chief Operating Officer
W. John Driscoll 71 Director
John H. Hooley 48 Director
Charles J. McElroy 45 Director
William R. Sieben 47 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.
25
<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, 1999
and 1998 with respect to the President (Chief Executive Officer) and
all officers of the Company whose total annual salary and bonus for
1999 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 1999 $150,000 $220,853 $4,500(2)
1998 150,000 150,230 4,500
Joel D. Kaul, Vice President 1999 100,000 274,506 --
1998 100,000 77,142 --
</TABLE>
-------------------------
(1) The amount of Mr. Taylor's bonus is approved by the Board of
Directors and is 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.
26
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of December 31, 1999, 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.
Shares
Name and Address of Outstanding Beneficially
Beneficial Owner Shares(2) Owned(1)
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
--------------------------
(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, 1999.
(3) Includes 132,573 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.
27
<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.
Under the terms of the Subordinated Debt, the Company 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 *
10.3 Redevelopment Agreement between the City of Hillsboro,
Illinois and the Company dated April 26, 1994 *
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 *
10.8 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.
** Exhibit 27 has been excluded from the printed version.
(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.
28
<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 1, 2000 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 1, 2000
- ---------------------------- Secretary and Treasurer (Chief -------------
Philip C. Taylor Executive Officer)
/S/ W. John Driscoll Director March 1, 2000
- ---------------------------- -------------
W. John Driscoll
/S/ John H. Hooley Director March 1, 2000
- ---------------------------- -------------
John H. Hooley
/S/ Charles J. McElroy Director March 1, 2000
- ---------------------------- -------------
Charles J. McElroy
/S/ William R. Sieben Director March 1, 2000
- ---------------------------- -------------
William R. Sieben
/S/ Joel D. Kaul Vice President and Chief March 1, 2000
- ---------------------------- Operating Officer -------------
Joel D. Kaul
29
<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.....................................*
10.3 Redevelopment Agreement between the City of Hillsboro, Illinois
and the Company dated April 26, 1994.................................*
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............................................................*
10.8 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.........................................31
27 Financial Data Schedule ............................................**
- ---------------------
* Incorporated by reference to the Company's registration statement on Form
SB-2 (No. 33-87024C), effective January 12, 1995.
**Exhibit 27 has been excluded from the printed version.
30
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%
Kinkaid Development Corporation Illinois 100%
31
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 969,309
<SECURITIES> 0
<RECEIVABLES> 9,516,422
<ALLOWANCES> 0
<INVENTORY> 9,938,693
<CURRENT-ASSETS> 0
<PP&E> 721,128
<DEPRECIATION> 321,654
<TOTAL-ASSETS> 21,505,183
<CURRENT-LIABILITIES> 0
<BONDS> 3,680,000
0
0
<COMMON> 4,841
<OTHER-SE> 7,538,489
<TOTAL-LIABILITY-AND-EQUITY> 21,505,183
<SALES> 23,518,438
<TOTAL-REVENUES> 24,973,604
<CGS> 12,453,402
<TOTAL-COSTS> 21,914,444
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,212,623
<INCOME-PRETAX> 3,059,160
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,059,160
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,059,160
<EPS-BASIC> 6.32
<EPS-DILUTED> 6.32
</TABLE>
