SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15[d] OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
EXCHANGE ACT
For the transition period from to
Commission file number 1-6762
KILLEARN PROPERTIES, INC.
(Exact name of small business issuer as specified in its charter )
Florida 59-1095497
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 Eagle's Landing Way
Stockbridge, GA 30281
(Address of principal executive offices)
Issuer's telephone number
(770)389-2020
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the last practicable date: 887,412.
Transitional Small Business Disclosure Format: No [X].
Page One of Twelve
Exhibit Index on Page Eleven
KILLEARN PROPERTIES, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information
Item 1. Consolidated Condensed Financial Statements (Unaudited):
Consolidated Condensed Balance Sheet as of October 31, 1996 3
Consolidated Condensed Statements of Operations for the Three 4
Months Ended and Six Months Ended October 31, 1996 and 1995
Consolidated Statements of Cash Flows for the Six Months 5
Ended October 31, 1996 and 1995
Notes to Consolidated Condensed Financial Statements 6 - 7
Item 2. Management's Discussion and Analysis of Financial Condition 7 - 9
and Results of Operations
Part II Other Information
Item 1. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 10
Exhibit Index 11
Page Two of Twelve
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
KILLEARN PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
ASSETS 10/31/96
(Unaudited)
Cash $ 321,065
Cash in improvement trust funds 166,417
Accounts and notes receivable 6,898,541
Land contracts receivable, net 749,542
Real estate held for development and sale 26,337,940
Property under contract for sale 291,538
Other property, plant and equipment, net 1,033,056
Other assets 39,338
__________
TOTAL ASSETS $ 35,837,437
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable & other liabilities $ 1,701,899
Income taxes payable 1,327,264
Mortgages & notes payable 23,585,386
Deferred improvement revenue 726,073
Deferred income taxes 5,228,365
Deferred profit 1,613,707
__________
TOTAL LIABILITIES $ 34,182,694
STOCKHOLDERS' EQUITY
Common stock - par value $.10 per share;
authorized 6,000,000 shares; issued
887,412 shares $ 88,741
Additional paid-in capital 6,846,014
Retained earnings 12,624,211
Net assets to be transferred for stock (17,904,223)
__________
TOTAL STOCKHOLDERS' EQUITY $ 1,654,743
__________
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 35,837,437
==========
See Notes to Consolidated Condensed Financial Statements
Page Three of Twelve
KILLEARN PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
10/31/96 10/31/95 10/31/96 10/31/95
Unaudited Unaudited Unaudited Unaudited
INCOME:
Net sales of land $2,801,702 $8,297,860 $5,595,686 $9,176,300
Sales of residential construction 45,500 155,000 45,500
Interest income 165,335 273,310 311,716 450,336
Commission income 11,395 74,592 65,566 122,423
Income from joint ventures 55,232 55,232
Other revenues 11,961 398,213 32,977 481,716
_________ _________ _________ _________
Total 3,045,625 9,089,475 6,216,177 10,276,275
EXPENSES:
Cost of land sold 1,617,936 6,389,553 3,491,496 6,992,019
Cost of residential construction 925 41,713 179,879 42,063
Commissions and selling expenses 416,089 291,587 811,256 622,329
Interest expense 146,238 71,787 269,682 151,696
Depreciation 25,862 27,538 56,945 55,256
Property taxes 47,430 28,168 79,201 85,026
General & administrative costs 392,553 323,339 693,008 778,661
_________ _________ _________ __________
TOTAL EXPENSES 2,647,033 7,173,685 5,581,467 8,727,050
Net income before income taxes
and discontinued operations 398,592 1,915,790 634,710 1,549,225
Income tax provision 154,343 722,227 243,195 582,973
_________ _________ ________ _________
NET INCOME BEFORE
DISCONTINUED OPERATIONS $ 244,249 $1,193,563 $ 391,515 $ 966,252
DISCONTINUED OPERATIONS:
Net loss from transferred operations
(net of income tax benefit of $15,848
and $10,184 for three and six months
ended October 31, 1995, respectively)$ 0.00 $ (26,190) $ 0.00 $ (16,880)
Net income $ 244,249 $1,167,373 $ 391,515 $ 949,372
======= ========= ======= =======
Earnings per share before
discontinued operations $ 0.28 $ 0.83 $ 0.44 $ 0.67
Discontinued operations $ 0.00 $ (0.02) $ 0.00 $ (0.01)
_________ _________ ________ _________
NET INCOME PER SHARE $ 0.28 $ 0.81 $ 0.44 $ 0.66
========= ========= ======== =========
Weighted average shares outstanding 887,412 1,438,733 887,412 1,438,733
DIVIDENDS PER SHARE NONE NONE NONE NONE
<FN>
See Notes to Consolidated Condensed Financial Statements
Page Four of Twelve
KILLEARN PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
10/31/96 10/31/95
-------- --------
(Unaudited)(Unaudited)
NET CASH FROM OPERATING ACTIVITIES: (679,203) (440,719)
___________ __________
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (50,040) (13,553)
Distributions from joint ventures 129,927 235,441
Net change in assets from discontinued operations 0 258,898
___________ ___________
Net cash from investing activities 79,887 480,786
___________ ___________
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans 5,803,968 2,095,528
Principal payments on debt (5,043,734) (2,536,832)
____________ ___________
Net cash from financing activities 760,234 (441,304)
___________ ___________
NET INCREASE/(DECREASE) IN CASH 160,918 (401,237)
CASH - Beginning of period 160,147 507,277
___________ ___________
CASH - End of period $ 321,065 $ 106,040
=========== ===========
Supplemental Information
Cash Paid: Interest paid was $1,104,828 and $1,039,627 for fiscal 1996 and
1997, respectively.
Income taxes paid were $683,207 in fiscal 1997.
See Notes to Consolidated Condensed Financial Statements
Page Five of Twelve
PART I. KILLEARN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
OCTOBER 31, 1996
NOTE 1. Basis of Presentation
The accompanying unaudited consolidated condensed financial statements
have been prepared in accordance with the instructions for Form 10-QSB
and, therefore, do not include all information and footnotes necessary
for a fair presentation of financial position, results of operations
and changes in financial position in conformity with generally accepted
accounting principles.
The information furnished reflects all adjustments which are, in the
opinion of management, necessary for a fair statement of the results for the
interim period covered. For further information, refer to the complete
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10KSB for the year ended April 30, 1996.
NOTE 2. Transfer of Assets
On August 1, 1996, the Company entered into an agreement, subject to
shareholder approval, pursuant to which it agreed to transfer certain
of its assets and liabilities to J.T. Williams, Jr., the Company's former
Chairman of the Board and Chief Executive Officer, in exchange for the
551,321 shares of common stock he held in the Company and the cancellation
of his option to purchase an additional 100,000 shares of common stock.
The net assets identified in the agreement consisted principally of the
Eagle's Landing Golf Course and Country Club, the Inn at Eagle's Landing,
a note for approximately $2 million and approximately 250 acres of commercial
and industrial real estate, and certain mortgages and other liabilities, as
more fully described in the Company's proxy statement filed on August 26,
1996. Such transfer, once approved, was agreed to be effective as of May 1,
1996. Accordingly, the net cash flows related to the transferred assets
from the effective date (May 1, 1996) until the closing date would be
transferred to or funded by J.T. Williams, Jr.
On September 30, 1996, the shareholders of the Company (excluding J.T.
Williams, Jr.) voted on and approved the transfer agreement, and the
transfer closed on November 16, 1996. At October 31, 1996, the net assets
to be transferred had a historical cost basis of approximately $17,904,000
which has been reflected as a reduction to shareholders' equity in the
accompanying balance sheet. The net operating results of the transferred
assets have been removed from the statement of operations retroactively to the
effective date and have not been considered in the determination of net income
of the Company. The prior year results of the transferred assets have been
reflected as discontinued operations in the accompanying statements of
operations and cash flows.
The Company previously filed its quarterly report for the three months ended
July 31, 1996 which included the results of the transferred net assets in the
determination of net income. Had such transaction been approved and recorded
prior to the filing of such financial statements, revenues and net income for
Page Six of Twelve
the three months ended July 31, 1996 would have been as follows:
Revenues $3,170,552
Net income 147,267
Earnings per share $ .17
NOTE 3 Earnings per share
Earnings per share reflect the weighted average shares outstanding during each
of the periods presented as reflected on the face of the income statement. As
discussed in Note 2, the Company entered into an agreement to transfer certain
net assets in exchange for 551,321 shares and the cancellation of an option to
purchase 100,000 shares of the the Company's common stock. Based on the
effective date of that agreement, earnings per share are computed based on the
number of shares outstanding during the period as if such shares were
transferred on the effective date. Had such transaction been completed on May
1, 1995, earnings per share for the six months ended October 31, 1995 would
have been $1.09.
NOTE 4 Financing
The Company obtained various additional credit facilities during the six month
period ending October 31, 1996. One such facility of approximately $1.8
million is being used for the acquisition and development of 75 additional
acres of land located contiguous to the Company's property in Stockbridge,
Georgia. Additional borrowings were for the financing of development cost
under various development loans. These loans generally mature as the related
lots are sold and bear interest rates at one point over prime rate.
In addition, in connection with the transfer agreement discussed in Note 2,
the Company has recorded at October 31, 1996, and subsequently issued, a note
for $2 million. Such obligation is reflected as debt and an increase to the
amount on net assets to be tranferred for stock in the accompanying balance
sheet.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net sales of land decreased approximately $5.5 million (66.2%) during the
current three month period and $878,000 (9.6%) during the current six month
period compared to the same period a year ago. The primary reason for the
decrease was a result of the recognition in the prior year of income in the
Florida operations related to the sale of substantially all of the Florida
assets in November 1993. However, net land sales in Georgia increased 158%
for the current three month period, and 218% for the current six month period,
compared to the same period a year ago, as a result of the Company initiating
a modified sales program intended to expand its marketing efforts.
Page Seven of Twelve
Cost of land sold, as a percentage of net sales of land, was 57.7% for the
current three month period compared to 77.0% for the same period a year ago.
The cost of land sold for the current six month period decreased to 62.4%
compared to 76.2% for the same period a year ago. These improvements in gross
margins are reflective of the discounted sales price granted in the prior year
on the bulk sale of land from the Florida operations.
Interest income decreased approximately $108,000 during the current three
month period compared to the same period a year ago primarily due to a
decrease in the interest on notes receivable from the sale of substantially
all the Florida assets. As the principal is repaid, the related interest
income is reduced.
Commission income decreased approximately $63,000 in the current three month
period as compared to the same period a year ago. This decrease resulted from
the Company's change in its method of marketing homes in some of the Georgia
developments in the second quarter of fiscal 1996. At that time, the Company
began using independent brokers rather than Company-employed salespersons.
General and administrative expenses have remained relatively consistent with
the prior periods.
Discontinued operations represents the results attributible to the net assets
transferred to J.T. Williams, Jr. pursuant to the August 1, 1996 Agreement
between the Company and Mr. Williams. Loss from discontinued operations was
$26,189 and $16,880 repsectively for the three and six month ended October 31,
1996 (See Item 4.)
The operating statements for the current six months are not necessarily
indicative of the results expected for the year.
Liquidity and Capital Resources
The Company finances its operations with operating cash flow and bank
borrowings. On October 31, 1996 the Company had available lines of credit
of approximately $2.1 million which may be drawn as needed for the development
of the Company's property and other working capital needs. The Company
continues to look for additional sources of lines of credit and other
financing alternatives and believes that such sources are available on
acceptable terms should the need for additional financing arise.
On January 11, 1996, the Company modified its loan agreements with a bank
involving its Georgia operations. The modified agreement effectively
combined a $1.5 million revolving loan with a term loan with a balance of
$6.1 million. The outstanding principal amount of the modified loan at
October 31, 1996 was $5.86 million. The agreement provides for interest
to be paid at the bank's prime rate plus 1 1/2%, and extends the due date to
December 10, 1996. The loan is collateralized by first mortgages on
substantially all the undeveloped land in the Company's Georgia property and
certain contracts receivable. Upon the sale of collateralized property,
release prices, which vary with the development, are applied against the loan
balance owed to the bank. The Company is presently negotiating with the bank
Page Eight of Twelve
to extend the loan and expects the loan to be extended as it has in the past.
The Company historically secures development loans from other lenders in an
amount sufficient to pay the release price and all development costs, which
are ultimately satisfied with proceeds from the sale of the properties. The
failure of the bank to extend the Company's loan, or the failure of the
Company to obtain replacement financing, could have a material adverse effect
on the Company's financial condition. Based upon the Company's relationship
with its lender, management believes this debt will be extended, as it has
been in the past.
In addition, the Company has other debt maturing in the amount of approxi-
mately $4.6 million in fiscal 1997 and $6.1 million in the following fiscal
year. The Company anticipates that these obligations will be paid with the
proceeds of land sales from normal operations, extension of debt or new
borrowings.
PART II - OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
NONE
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 30, 1996, the shareholders approved the transfer by the Company
(the "Split-off") of certain of its assets, comprised principally of the
Eagle's Landing Golf Course and Country Club, the Inn at Eagle's Landing, a
note for approximately $2 million and approximately 250 acres of commercial
and industrial real estate, subject to certain liabilities, to a newly-formed
wholly owned subsidiary of the Company ("NewSub"), and the subsequent transfer
of all of the outstanding capital stock of NewSub to J.T. Williams, Jr., the
Company's former Chairman of the Board and Chief Executive Officer, in exchange
for 551,321 shares of Common Stock owned by Mr. Williams and the cancellation
of his option to purchase an additional 100,000 shares of Common Stock. The
closing of the Split-off occurred on November 16, 1996; however, the effective
date of the transfer of assets and liabilities was May 1, 1996. With
1,438,733 shares outstanding, 1,179,454 shares voted in favor of the proposed
split-off, with 52,695 voting against, and 30,784 abstaining from voting.
On September 30, 1996, the shareholders elected Mark A. Conner, Robert E.
Maloney, Jr. and Langdon S. Flowers, Jr. to the Board of Directors.
Additionally, Mark A. Conner was elected by the Board to be President
and Chairman. With 1,438,733 shares outstanding, 1,259,234 shares voted in
favor of, and 4,875 voted against the election of the new directors.
ITEM 5.
OTHER INFORMATION
NONE
Page Nine of Twelve
ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibit is being filed with this report:
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K
On December 2, 1996, the Company filed an 8-K reporting the closing of
the transfer by the Company (the "Split-off") of certain of its assets,
comprised principally of the Eagle's Landing Golf Course and Country Club,
the Inn at Eagle's Landing, a note for approximately $2 million and
approximately 250 acres of commercial and industrial real estate, subject to
certain liabilities, to a newly-formed wholly owned subsidiary of the Company
("NewSub"), and the subsequent transfer of all of the outstanding capital
stock of NewSub to J.T. Williams, Jr., the Company's former Chairman of the
Board and Chief Executive Officer, in exchange for 551,321 shares of Common
Stock owned by Mr. Williams and the cancellation of his option to purchase an
additional 100,000 shares of Common Stock. The closing of the Split-off
occurred on November 16, 1996; however, the effective date of the transfer of
assets and liabilities was May 1, 1996.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
KILLEARN PROPERTIES, INC.
(Registrant)
Date: December 16, 1996 /s/ David K. Williams
---------------------------
DAVID K. WILLIAMS
Chief Financial Officer
Vice President
Page Ten of Twelve
EXHIBIT INDEX
Exhibit No. Description Page No.
----------- ----------- --------
27 Financial Data Schedule 12
Page Eleven of Twelve