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 January 31, 1999
[ ] 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)
385 Country Club Road
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].
KILLEARN PROPERTIES, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information
Item 1. Consolidated Condensed Financial Statements (Unaudited):
Consolidated Condensed Balance Sheet as of January 31, 1999 3
Consolidated Condensed Statements of Operations for the Three 4
Months Ended January 31, 1999 and 1998, and Nine Months Ended
January 31, 1999 and 1998.
Consolidated Statements of Cash Flows for the Nine Months 5
Ended January 31, 1999 and 1998
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of
Financial Condition and Results of Operations 7
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 9
Signatures 10
Exhibit Index 11
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
KILLEARN PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
ASSETS 1/31/99
(Unaudited)
Cash $ 324,016
Accounts and notes receivable 3,818,729
Land contracts receivable, net 213,809
Real estate held for development and sale 22,608,603
Other property, plant and equipment, net 448,395
Other assets 79,301
__________
TOTAL ASSETS $ 27,492,853
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable & other liabilities $ 1,822,406
Income taxes payable 2,655,797
Debt 15,594,874
Deferred liabilities 880,088
Deferred income taxes 2,265,570
Deferred income 405,617
__________
TOTAL LIABILITIES $ 23,624,352
STOCKHOLDERS' EQUITY
Common stock - par value $.10 per share;
authorized 6,000,000 shares; issued
887,412 shares $ 88,741
Additional paid-in capital 1,942,998
Retained earnings 1,836,762
__________
TOTAL STOCKHOLDERS' EQUITY $ 3,868,501
__________
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 27,492,853
==========
The accompanying notes are an integral part of these consolidated financial
statements
KILLEARN PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
1/31/99 1/31/98 1/31/99 1/31/98
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
INCOME:
Net sales of land $3,723,267 $2,743,524 $14,145,702 $11,266,734
Interest income 5,831 180,120 108,836 429,705
Commission income 30,278 - 215,614 58,383
Other revenues 1,008 40,651 4,508 111,618
__________ __________ __________ __________
Total Revenues $3,760,384 $2,964,295 $14,474,660 $11,866,440
EXPENSES:
Cost of land sold $2,446,703 $1,980,380 $10,990,595 $8,377,252
Commissions and selling expense 620,640 373,118 1,457,406 1,331,345
Interest expense 322,490 162,109 461,514 396,478
Depreciation 6,798 19,444 43,309 58,328
Property taxes 28,515 122,430 155,775 287,075
General & administrative costs 209,970 257,302 632,096 758,796
__________ __________ ___________ __________
TOTAL COST AND EXPENSES $3,635,116 $2,914,783 $13,740,695 $11,209,274
Earnings before income taxes 125,268 49,512 733,965 657,166
Income tax (50,107) (18,631) (293,586) (247,291)
__________ __________ ___________ __________
NET INCOME $ 75,161 $ 30,881 $ 440,379 $ 409,875
========== ========== =========== ==========
EARNINGS PER SHARE $ .08 $ .03 $ .50 $ .46
(basic and diluted) ========== ========== =========== ==========
Weighted average shares outstanding
887,412 887,412 887,412 887,412
DIVIDENDS PER SHARE NONE NONE NONE NONE
<FN>
The accompanying notes are an integral part of these consolidated financial
statements
</FN>
KILLEARN PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
1/31/99 1/31/98
-------- --------
(Unaudited) (Unaudited)
NET CASH FROM OPERATING ACTIVITIES: $ 690,617 $2,326,764
___________ __________
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (33,274) (3,654)
Distributions from joint ventures - 50,000
__________ __________
Net cash from investing activities (33,274) 46,346
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans 6,242,989 16,962,631
Principal payments on debt (6,942,370) (19,343,038)
__________ __________
Net cash from financing activities (699,381) (2,380,407)
__________ __________
NET DECREASE IN CASH (42,038) (7,297)
CASH - Beginning of period 366,054 269,194
__________ __________
CASH - End of period $ 324,016 $ 261,897
========== ==========
Supplemental Information
Cash Paid: Interest paid was $1,479,702 and $911,652 for fiscal 1998 and
1999, respectively.
Income taxes paid were $1,181,492 and $1,317,021 in fiscal 1998 and
1999, respectively.
The accompanying notes are an integral part of these consolidated financial
Statements.
PART I. KILLEARN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JANUARY 31, 1999
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 10-KSB for the year ended April 30, 1998.
The operating statements for the current three and nine month periods are not
necessarily indicative of the results expected for the year.
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 acquire the 551,321
shares of common stock in the Company held by J.T. Williams, Jr., the
Company's former Chairman of the Board and Chief Executive Officer, and the
cancellation of his option to purchase an additional 100,000 shares of common
stock through the transfer of certain of its assets and liabilities. 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, subject to certain mortgages and other liabilities.
The agreement provided that subject to shareholder approval, the redemption
would 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 approved the redemption,
and the transaction closed on November 16, 1996. The historical cost basis of
approximately $17,191,000 of the net assets transferred has been reflected as
retired treasury stock in the accompanying balance sheet and statement of
changes in stockholders' equity. 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 for the nine months ended January 31, 1999.
NOTE 3 Earnings per share
Effective April 30, 1998, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("FAS 128") which replaces
the presentation of primary earnings per share with basic earnings per share
and which requires dual presentation of basic and diluted earnings per share on
the Consolidated Statements of Operations. FAS 128 requires restatement of all
prior-period earnings per share data presented. Basic net earnings per share
is computed by dividing net income by the weighted average number of shares of
common stock outstanding during the period, and diluted net earnings per share
includes the effect of unexercised stock options using the treasury stock
method. The treasury stock method assumes that common stock was purchased at
the average market price during the period. Because there were no stock
options outstanding for the three and nine months ending January 31,1999 and
1998, both basic and diluted earnings per share were the same.
NOTE 4 Financing
The Company obtained additional credit facilities during the nine month period
ending January 31, 1999.
In January 1999, the company refinanced a building with a new lender for
$560,000 and received $282,416 which was used as operating cash.
In May 1998, the company borrowed $1,588,900 from a lender of which the
Company used $1 million to reduce debt and used $588,900 to pay development
cost. In addition, the Company has drawn $1,273,440 from the lender for
additional development cost. The agreement provides for interest to be paid
at the bank's prime rate plus 1.0% per annum, and matures on May 18, 2000.
The loan is collateralized by a first mortgage on 62.9 acres.
Additionally, on October 8, 1998, the Company borrowed $1,328,935 from the
lender of which the Company used $1.2 million to reduce debt and used $128,935
to pay initial development cost and closing cost. In addition the Company has
drawn $865,594 and has available $3.6 million to draw from the lender for
additional development cost and new land acquisitions. The agreement provides
for interest to be paid at the bank's prime rates plus 1.0% per annum, and
matures on October 8, 2001.
Additional borrowings were for the financing of development costs under
various development loans. These loans generally mature as the related lots
are sold and bear interest rates at prime rate plus 1 to 1 3/4 points.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net sales of land increased $979,743 (36%) during the current three month
period and increased approximately $2.9 million (26%) during the current nine
month period compared to the same period a year ago. The primary reason for
the increase in the current quarter is the sale of a large tract of land.
The primary reason for the increase in the current nine month period was the
sale of approximately $4.4 million to Proactive Technologies, Inc. This sale
was consummated pursuant to a settlement agreement entered into in January
1998 after the Company had made demand on Proactive Technologies, Inc. to pay
notes which were in default.
Cost of land sold, as a percentage of net sales of land, was 66% for the
current three month period compared to 72% for the same period a year ago.
Cost of land sold for the current nine month period increased to 78% compared
to 74% for the same period a year ago. The increase in gross margin for the
current three month period is due to the sale of a large tract of land. On a
nine month basis, the decrease in gross Margin is primarily due to the
$4.4 million sale in 1998 to Proactive Technologies, Inc. at a price slightly
above book value.
Interest income decreased $174,289 during the current three month period and
$320,869 during the current nine month period compared to the same periods a
year ago primarily due to not recognizing interest on the $3.4 million
receivable from International Realty Development Partners, LTD., L.L.C. which
filed for Chapter 11 Bankruptcy in March 1998.
Commission income increased $30,278 in the current three month period and
$157,231 in the current nine month period compared to the same periods a year
ago. Additionally, commission and selling expenses increased $247,522 in the
current three month period and $126,061 in the current nine month period.
These overall changes resulted from the Company's change in its method of
marketing homes in its Georgia developments in the first quarter of fiscal
1999. At this time, the Company is using Company-employed salespersons rather
than independent brokers used last year. The Company also offers a $9,000
tennis membership with each sale in its Eagle's Landing Developments.
Interest expense, when compared to the same period a year ago, increased
$160,381 for the current three month period and $65,036 for the current nine
month period. This increase is due to certain interest expense incurred by
the Company not being eligible for capitalization in accordance with Financial
Accounting Standard 34.
General and administrative expenses decreased $47,332 in the current three
month period and $126,700 in the current nine month period when compared to
the same periods a year ago. This decrease is due to the reduction of salary
and travel expenses.
The operating statements for the current nine month period 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 January 31, 1999 the Company had available lines of credit of
approximately $3.8 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
when the need for additional financing arise.
In addition, the Company has other debt maturing in the amount of
approximately $3.6 million in fiscal 1999 and $9.3 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.
Year 2000 Issue
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. The Company's computer
equipment and software and devices with imbedded technology that are time-
sensitive may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations disruptions
of operations, including among other things, a temporary inability to engage
in similar normal business activities.
The company has reviewed the potential impact of Year 2000 compliance issues
on its information systems and business operations, and has preliminarily
determined that any cost, problems or uncertainties associated with the
potential consequences of the Year 2000 issues will not have a material impact
on its future operations or financial condition.
PART II - OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
NONE
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5.
OTHER INFORMATION
NONE
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
NONE
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: March 9, 1999
/s/ David K. Williams
_________________________
DAVID K. WILLIAMS
President & CEO
EXHIBIT INDEX
Exhibit No. Description Page No.
----------- ----------- --------
27 Financial Data Schedule 12