UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the Period ended March 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____ Commission File No. 0-7479
INDIANA FINANCIAL INVESTORS, INC.
(Exact name of registrant as specified in its charter)
Indiana 52-6120603
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 East Monroe Street, Suite 1600, Chicago, IL 60603
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 849-2990
Indicate by check mark whether the Registrant (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
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
Class Outstanding at May 1, 1995
Common Stock 826,895 shares
INDIANA FINANCIAL INVESTORS, INC.
BALANCE SHEETS
ASSETS
March 31, June 30,
1995 1994
(Unaudited)
Cash and cash equivalents $ 268 $ 4,183
Mortgage loan receivable 130,750 130,750
Investment in affiliated companies 536,000 906,000
Other assets 541 2,221
------- ---------
$ 667,559 $1,043,154
======= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued expenses and other liabilities $ 249,025 $ 111,100
Payable to affiliated companies 101,500 19,435
Deferred gain on sale of foreclosed
properties held for resale and real
estate mortgage loan 425,740 425,740
Shareholders' equity:
Common shares, no par value - authorized
3,000,000 shares, issued 1,154,177 shares
including 327,282 shares in treasury 1,154,177 1,154,177
Additional paid-in capital 20,102,745 20,102,745
Accumulated deficit (6,603,221) (5,975,811)
Less cost of common shares in treasury (2,133,464) (2,133,464)
---------- ----------
Total shareholders' equity 12,520,237 13,147,647
Less receivable from affiliates (12,628,943) (12,660,768)
---------- ----------
$ 667,559 $1,043,154
======= =========
See notes to financial statements
INDIANA FINANCIAL INVESTORS, INC.
STATEMENT OF INCOME
(Unaudited)
For the Three Months Ended
March 31,
1995 1994
INCOME
Losses in affiliated companies $ (364,000) $ (75,000)
------- ------
(364,000) (75,000)
------- ------
EXPENSES
General and administrative 188,101 48,478
------- ------
188,101 48,478
------- -------
Loss before federal income taxes (552,101) (123,478)
Federal income taxes -- 26,953
------- -------
NET LOSS $ (552,101) $(150,431)
======= =======
Weighted average shares outstanding 826,895 826,895
Loss per common share $ (.67) $(.18)
=== ===
See notes to financial statements
INDIANA FINANCIAL INVESTORS, INC.
STATEMENT OF INCOME
(Unaudited)
For the Nine Months Ended
March 31,
1995 1994
INCOME
Income(Losses) in affiliated companies $ (370,000) $ 910,000
Interest on mortgage loan -- 16,009
Other -- 8,022
------- -------
(370,000) 934,031
------- -------
EXPENSES
General and administrative 257,410 113,702
------- -------
257,410 113,702
------- -------
Income(Loss) before federal
income taxes (627,410) 820,329
Federal income taxes -- 107,779
------- -------
NET INCOME(LOSS) $ (627,410) $ 712,550
======= =======
Weighted average shares outstanding 826,895 826,895
Net Income(Loss) per common share $ (.76) $ .86
=== ===
See notes to financial statements
INDIANA FINANCIAL INVESTORS, INC.
STATEMENT OF CASH FLOWS
(Unaudited)
For the Nine Months Ended
March 31,
1995 1994
OPERATING ACTIVITIES
Net income(loss) $ (627,410) 712,550
Adjustments to reconcile net
income to net cash provided
by operating activities:
(Income) Loss in affiliated companies 370,000 (910,000)
Changes in operating assets and
liabilities:
Decrease in other assets 1,680 49,958
Increase in accrued
expenses and other liabilities 137,925 137,453
Interest received from affiliate 31,825 --
Increase in payable to
affiliate 82,065 --
----- ------
Net cash used in operating activities (3,915) (10,039)
----- ------
Decrease in cash and
cash equivalents (3,915) (10,039)
Cash and cash equivalents at
beginning of year 4,183 10,478
----- ------
Cash and cash equivalents at
end of period $ 268 $ 439
=== ===
See notes to financial statements
INDIANA FINANCIAL INVESTORS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
Note A SIGNIFICANT ACCOUNTING POLICIES
1. Basis of Presentation and Going Concern
The consolidated financial statements have been prepared on
the basis of a going concern.
At March 31, 1995, Indiana Financial Investors, Inc. ("IFII"
or "Company") has notes and interest receivable from Wisconsin Real
Estate Investment Trust ("WREIT") and Hickory Furniture Company
("Hickory") of $12,628,943. WREIT and Hickory have experienced
liquidity problems which have prevented them from making interest
payments to IFII on these notes and, in the case of Hickory, from
repaying the notes when due on September 30, 1992. No schedule for
collection of the amounts due, including interest, has been
established and no significant collections are anticipated within
the next year. Because of the uncertainty as to the period for
recovery, the Company has classified these receivables with the
stockholders' equity and, effective July 1, 1992, suspended
recognition of interest income in its financial statements. As of
March 31, 1995, interest earned but not accrued totalled $2,719,890.
IFII's only cash requirements are for ongoing administrative
expenses. If interest on the notes is not received, IFII expects to
have a deficiency in cash flow for the year ending June 30, 1995.
Hickory has represented to IFII that it intends to pay interest to
IFII in amounts at least sufficient to provide for any deficiency
in 1995 cash flow.
These conditions raise substantial doubts about IFII's ability
to continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from
the outcome of these uncertainties.
The significant accounting policies followed for the unaudited
interim financial reporting are consistent with the accounting
policies followed for annual financial reporting. In the opinion of
management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. For further information, refer to the financial
statements and footnotes included in the Company's Annual Report on
Form 10-K for the year ended June 30, 1994.
IFII is 74.8% owned directly and indirectly by Hickory.
Hickory is a majority owned subsidiary of Telco Capital Corporation
("Telco").
Note B INVESTMENT IN AFFILIATED COMPANIES
The Company has invested $765,000 in the common stocks of Sunstates
Corporation ("Sunstates") (formerly Acton Corporation) and $332,000 in the
common shares of beneficial interest of WREIT. WREIT, a majority owned
subsidiary of Hickory, holds a majority of the voting interests in
Sunstates. Accordingly, although the Company does not directly own 20% of
the voting interests in Sunstates or WREIT, the Company accounts for its
investments in Sunstates and WREIT under the equity method of accounting.
During l99l IFII's cumulative equity in WREIT's losses exceeded its
original investment in WREIT. As a result IFII did not record equity in
WREIT's losses in 1994 or 1993. As of the quarter ended September 30, 1993,
IFII's cumulative equity in Sunstates' losses had exceeded its original
investment in Sunstates and, as a result, IFII did not record equity in
Sunstates' losses during that quarter. However, in the year ended June 30,
1994, Sunstates had significant net income due to realizing a gain on the
sale of its cable television system and IFII recorded equity in Sunstates'
earnings of $906,000. For the nine months ended March 31, l995, IFII
recorded equity in Sunstates' losses of $370,000. The market value of the
investment in Sunstates and WREIT was approximately $403,000 and $40,000,
respectively, on March 31, 1995.
Note C INCOME TAXES
Federal income tax is based on taxable income, which differs from
pretax accounting income for financial statement purposes due to affiliate
interest income and the equity in income of affiliated companies. At June
30, 1994, IFII had net operating loss carryforwards of approximately
$391,000.
Effective with the year ending June 30, 1994, IFII is included in the
consolidated state tax return of RDIS, Telco and Hickory. State income
taxes for IFII will be calculated on a stand alone basis and any tax will
be due to Hickory.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation.
Basis of Presentation and Going Concern
The consolidated financial statements have been prepared on the basis
of a going concern.
At March 31, 1995, IFII has notes and interest receivable from WREIT
and Hickory Furniture Company of $12,628,943. WREIT and Hickory have
experienced liquidity problems which have prevented them from making
interest payments to IFII on these notes and, in the case of Hickory, from
repaying the notes when due on September 30, 1992. No schedule for
collection of the amounts due, including interest, has been established and
no significant collections are anticipated within the next year. Because
of the uncertainty as to the period for recovery, the Company has
classified these receivables with the stockholders' equity and, effective
July 1, 1992, suspended recognition of interest income in its financial
statements. As of March 31, 1995, interest earned but not accrued totalled
$2,719,890.
IFII's only cash requirements are for ongoing administrative expenses.
If interest on the notes is not received, IFII expects to have a deficiency
in cash flow for the year ending June 30, 1995. Hickory has represented to
IFII that it intends to pay interest to IFII in amounts at least sufficient
to provide for any deficiency in 1995 cash flow.
These conditions raise substantial doubts about IFII's ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.
Results of Operations
Net loss for the three and nine months ended March 31, 1995 was
$(552,101) and $(627,410), respectively, compared to net income(loss) of
$(150,431) and $712,550 for the three and nine months ended March 31, 1994.
IFII records its equity in the earnings and losses of Sunstates. In
the three and nine months ended March 31, 1995, IFII recorded $364,000 and
$370,000 of equity in losses of Sunstates as Sunstates has incurred losses
in its insurance and furniture manufacturing businesses. However, in the
nine months ended March 31, 1994, Sunstates had significant net income due
to realizing a gain on the sale of its cable television system and IFII
recorded equity in Sunstates' earnings for that period of $910,000.
Income in the nine months ended March 31, 1994 includes interest on
mortgage loan of $16,009. This interest is received once a year if the
underlying real estate generates positive cash flow and thus the interest
income is recorded on a cash basis. The calendar year 1993 amount was
received and recorded in the quarter ended September 30, 1993 whereas the
calendar year 1994 amount was received and recorded in the quarter ended
June 30, 1994.
General and administrative expenses were $257,410 and $113,702 for the
nine months ended March 31, 1995 and 1994, respectively. The increased
costs for the nine months ended March 31, 1995 as compared to March 31,
1994 are primarily attributed to legal costs incurred related to the
shareholder suit described in "Legal Proceedings". The legal costs were
$161,950 and $9,090 for the nine months ended March 31, 1995 and 1994,
respectively. During the nine months ended March 31, 1995 and 1994, IFII
was charged approximately $82,000 and $56,000 ($32,000 of which was paid
in 1994), respectively, for accounting, SEC reporting, shareholder
communications and other services provided by Telco and Hickory (since
March of 1994). Payable to affiliates at March 31, 1995 includes
approximately $102,000 of unpaid reimbursement. Other expenses include
auditing fees, tax consulting fees and stock transfer agent charges.
Capital Resources and Liquidity
See "Basis of Presentation and Going Concern" above for a description
of the status of the notes and interest receivable from affiliates and cash
flow considerations.
IFII's only potential sources of liquidity are collection of principal
and interest on the Hickory and WREIT notes, the sale of its investment in
Sunstates and collection of interest on the mortgage loan. The Hickory and
WREIT notes are all in default or due on demand and IFII has the right to
demand immediate payment. The obligations of Hickory and WREIT to IFII are
expected to be settled during calendar year 1995. During the nine months
ended March 31, 1995, Hickory has paid $31,825 of interest on the notes.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a nominal defendant in a putative class and derivative
action entitled John C. Boland v. Clyde Wm. Engle et al., Cause No. IP93-1731 C,
pending in the Indianapolis Division of the United States District
Court for the Southern District of Indiana. The complaint, originally filed
in December, 1993, alleges that the directors of the Company have breached
their fiduciary obligations to the Company in connection with among other
things (i) certain advances to its corporate parent Hickory Furniture
Company aggregating $5,417,981 and (ii) the purchase of a participation in
a secured loan to an affiliate, Wisconsin Real Estate Investment Trust, in
the principal amount of $790,000. Both of these entities have been joined
as defendants in the action. The complaint also alleges breaches of the
Investment Company Act of 1940 by the Company and breaches of common law
and statutory obligations to the Company and its shareholders by the
directors of the Company. The complaint asks that all amounts owing to the
Company by its affiliates be declared immediately due and that they be
paid, and asks for unspecified compensatory and punitive damages from the
directors of the Company.
The Company has filed an answer to the complaint denying all
liability. The defendants other than the Company have entered appearances
and have moved to dismiss the complaint for failure to state a cause of
action. In addition, two corporate affiliates of the Company and two of the
Company's directors have been defaulted for failure to plead timely, and
have moved the court to relieve the defaults and to permit the filing of
an answer to the complaint. During the pendency of these motions, both
sides have commenced discovery which is continuing. All of the defendants
intend to defend these actions aggressively.
Item 6. Exhibits and Reports on Form 8-k.
(a) Exhibits. None.
(b) Reports on Form 8-K. None.
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
INDIANA FINANCIAL INVESTORS, INC.
By: /s/ Clyde Wm. Engle
Clyde Wm. Engle
Chairman and Chief Executive Officer
By: /s/ Phillip J. Robinson
Phillip J. Robinson
Chief Financial and Accounting Officer
May 22, 1995