SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 10-Q
(Mark One)
_X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ending March 31, 1994
---------------------
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 number _1-4719_
THE DELTONA CORPORATION
- - -----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 59-0997584
- - -------------------------------------------------------------------
(State of other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
3250 S. W. THIRD AVENUE, MIAMI, FLORIDA 33129
- - ----------------------------------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including
area code: _(305)_854-1111_____
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of 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 the issuer's
classes of common stock, as of the latest practicable date:
6,680,993 shares of common stock, $1 par value, as of October 12,
1994.
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
THE DELTONA CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 31, 1994 AND DECEMBER 31, 1993
($000 Omitted)
<CAPTION>
March 31, Dec. 31,
1994 1993
<S> <C> <C>
Cash and temporary cash investments, including
escrow deposits and restricted cash of $2,426
in 1994 and $2,730 in 1993....................$ 2,611 $ 3,008
Contracts receivable for land sales - net...... 5,549 5,531
Mortgages and other receivables - net.......... 3,247 3,946
Inventories (b):
Land and land improvements.................. 12,646 12,443
Other....................................... 163 163
-------- --------
Total inventories................... 12,809 12,606
-------- --------
Property, plant, and equipment at cost - net... 996 1,009
-------- --------
Prepaid expenses and other..................... 447 465
-------- --------
Total....................................$ 25,659 $ 26,565
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Mortgages and similar debt(c):
Mortgage notes payable.......................$ 12,520 $ 13,284
Other loans ................................. 2,500 2,500
-------- --------
Total mortgages and similar debt............ 15,020 15,784
Accounts payable, accrued expenses, customers'
deposits...................................... 10,070 8,948
Allowance for Marco permit costs (d)........... 2,815 2,886
Deferred revenue............................... 12,707 13,238
-------- --------
Total liabilities........................ 40,612 40,856
-------- --------
Commitments and contingencies (d)
Stockholders' equity (deficiency):
Common stock, $1 par value - authorized
15,000,000 shares; outstanding: 1994 and 1993
- 6,550,604 and 5,950,604 shares (excluding
12,228 shares held in treasury in 1994 and
1993) 6,551 5,951
Capital surplus............................. 42,620 42,080
Accumulated deficit......................... (64,124) (62,322)
-------- -------
Total stockholders' equity (deficiency) (14,953) (14,291)
-------- -------
Total...................................$ 25,659 $ 26,565
======== ========
</TABLE>
2
<PAGE>
<TABLE>
THE DELTONA CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
FOR THE PERIODS INDICATED
($000 Omitted Except Per Share Amounts)
<CAPTION>
Three Months Ending
March 31, March 26,
1994 1993
<S> <C> <C>
Revenues (a):
Net land sales............................. $ 690 $ 247
House and apartment sales.................. 292 -0-
Recognized improvement revenue/prior period
sales..................................... 424 1,441
Interest income............................ 208 311
Other revenues............................. 217 1,336
------- --------
Total................................. 1,831 3,335
------- --------
Costs and expenses (a):
Cost of sales and improvements............. 744 1,854
Selling, general and administrative and
other expenses........................... 2,442 2,216
Interest expense (c)(e).................... 447 262
------- --------
Total.................................. 3,633 4,332
------- --------
Loss from operations before income taxes..... (1,802) (997)
Provision (benefit) for income taxes......... -0- -0-
------- --------
Net loss..................................... $(1,802) $ (997)
======= ========
Net loss per share........................... $ (.28) $ (.16)
------- --------
Number of common and common
equivalent shares.......................... 6,550,604 6,056,967
========= =========
</TABLE>
No dividends have been paid on Common Stock.
Results of operations for the first three months may not be
indicative of results which may be expected for the full year.
See Notes to Unaudited Condensed Consolidated Financial Statements.
See Management's Analysis of Quarterly Statements of Operations
included herein.
Certain amounts have been reclassified for comparative purposes.
3
<PAGE>
<TABLE>
THE DELTONA CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE PERIODS INDICATED
($000 Omitted)
<CAPTION>
Three Months Ended
March 31, March 26,
1994 1993
<S> <C> <C>
Cash flows from operating activities...... $ (762) $ (2,311)
-------- --------
Cash flows from investing activities:
Proceeds from sale of property, plant and
equipment................................ -0- 428
Payment for acquisition and construction of
property, plant and equipment............ (12) (23)
-------- --------
Net cash provided by (used in) investing
activities.............................. (12) (405)
-------- --------
Cash flows from financing activities:
New borrowings........................... 515 750
Repayment of borrowings.................. (138) (208)
-------- --------
Net cash provided by (used in) investing
activities............................. 377 542
-------- --------
Net increase (decrease) in cash and
temporary cash investments (including
escrow deposits and restricted cash)..... (397) (1,364)
Cash and temporary cash investments at
December 31, 1993 and December 25, 1992... 3,008 7,622
-------- --------
Cash and temporary cash investments at
March 31, 1994 and March 26, 1993......... $ 2,611 $ 6,258
======== ========
Supplemental disclosure of non cash
investing and financing activities:
Common Stock issued for reduction of
mortgage note payable..................... $ 1,140 $ -0-
======== ========
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements.
4
<PAGE>
<TABLE>
THE DELTONA CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE PERIODS INDICATED
($000 Omitted)
<CAPTION>
Three Months Ended
March 31, March 26,
1994 1993
<S> <C> <C>
Reconciliation of net loss to net cash
provided by (used in) operating activities:
Net loss..................................... $ (1,802) $ (997)
--------- --------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization............. 25 28
Provision for estimated uncollectible
sales-net................................ 106 (426)
Contract valuation discount, net of
amortization............................. 11 (226)
Net loss on sale of property, plant and
equipment................................ -0- 64
Net change in assets and liabilities...... 998 (754)
--------- --------
Total adjustments....................... $ 1,140 $ (1,314)
--------- --------
Net cash provided by operating activities... $ (762) $ (2,311)
========= ========
</TABLE>
5
<PAGE>
THE DELTONA CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1994
(a) SIGNIFICANT ACCOUNTING POLICIES
The condensed unaudited financial statements of the Company
have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission ("SEC"). Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to SEC rules and regulations. The information
furnished reflects, in the opinion of the Company, all
adjustments (consisting only of normal recurring adjustments)
necessary for a fair statement of the results for the interim
periods presented. These condensed consolidated financial
statements should be read in conjunction with the financial
statements and the notes thereto included in the Company's
latest Annual Report on Form 10-K.
(b) INVENTORIES
Information with respect to the classification of inventory of
land and improvements is as follows (in thousands):
<TABLE>
<CAPTION>
Land and Improvements
March 31, December 31,
1994 1993
<S> <C> <C>
Unimproved land $ 444 $ 444
Land in various stages of development 4,800 4,888
Fully improved land 7,402 7,111
------- -------
Total $12,646 $12,443
======= =======
</TABLE>
Land and land improvements include approximately $202,000 of
land placed in the Marco Island and Marco Shores trusts for
the Marco refund program as of March 31, 1994 and December 31,
1993. Other inventories consists primarily of vacation
ownership units completed.
(c) MORTGAGES AND SIMILAR DEBT
On June 19, 1992, the Company completed a transaction with
Selex whereby, among other things, Selex loaned the Company
$3,000,000 (the First Selex Loan). The First Selex Loan is
collateralized by a first mortgage on certain of the Company's
property in its St. Augustine Shores, Florida community. The
Loan matures on June 15, 1996 and provides for principal to be
repaid at 50% of the net proceeds per lot for lots requiring
release from the mortgage, with the entire unpaid balance
becoming due and payable at the end of the four year term. It
initially bears interest at the rate of 10% per annum, with
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<PAGE>
payment of interest deferred for the initial eighteen months
of the Loan and interest payments due quarterly thereafter.
On February 17, 1994, principal in the amount of $1,140,000
was repaid under the First Selex Loan when Selex exercised its
previously described Option to convert a portion of the Loan
into 600,000 shares of the Company's Common Stock at a
conversion price of $1.90 per share. Accrued interest in the
amount of $619,800 was unpaid and in default under the First
Selex Loan as of September 30, 1994.
The Company had defaulted on its bank debt in the third
quarter of 1990, and was engaged in negotiating the repayment
and restructuring of such debt through 1991 and the first half
of 1992. As of December 27, 1991, the Company's bank debt had
been reduced by the assignment of mortgages receivables and,
on October 11, 1991, the transfer of certain properties to its
principal lending banks pursuant to a Conveyance Agreement
with such lenders. The Conveyance Agreement not only provided
for the partial repayment of the bank debt, but also
encompassed an agreement in principle providing for the
restructuring and repayment of the remaining bank debt.
On June 18, 1992, the Company completed the restructuring of
its bank debt by entering into the Sixth Amended and Restated
Credit and Security Agreement (the "Sixth Restatement") with
its lenders. The terms of the Sixth Restatement provided for
the Company's remaining debt in the principal amount of
approximately $25,300,000 to be repaid by June 30, 1997, with
specified interim repayments and benchmarks to be achieved.
Among other things, the Sixth Restatement provided for: (i)
interest to accrue on the remaining debt at Citibank's
alternate base rate ("ABR") plus 4% per annum, subject to a
minimum interest rate of 11% per annum and a maximum interest
rate of 14% per annum, with no interest payments due until
June 30, 1996; (ii) accrued, but unpaid interest on
$10,000,000 of the restructured debt to be forgiven provided
that the principal balance outstanding on the restructured
debt as of June 30, 1996 was less than $9,000,000; and (iii)
the issuance to the lenders of warrants to acquire up to
277,387 shares of the Company's Common Stock at a price of
$1.00 per share.
In conjunction with the completion of the Sixth Restatement,
the lenders released or subordinated their lien on certain
assets of the Company, to enable the Company to complete the
First Selex Loan, to complete the $13,500,000 sale of
contracts receivable described below, to enter into the 1992
Consent Order with the Division, and to secure working capital
needed to pay real estate taxes which were, at the time,
delinquent and meet its customer obligations for improvement
work at certain of the Company's communities. During the
third quarter of 1992, the lenders also released their lien on
certain other contracts receivable to allow the Company to
complete a sale of such receivables, which generated $600,000
in proceeds. These proceeds were, in turn, paid to the
lenders, with the lenders allowing the Company $1,000,000 in
debt reduction credit, and resulting in an extraordinary gain
of $400,000.
On December 2, 1992 the Company entered into various
agreements relating to certain of its assets and the
restructuring of its debt with Yasawa. The consummation of
these agreements was conditioned upon the acquisition by Mr.
Gram of the bank debt under the Sixth Restatement (the "Bank
7
<PAGE>
Loan") described above. On December 4, 1992, Gram acquired
the Bank Loan of approximately $25,150,000 (including interest
and fees) for a price of $10,750,000, as well as the warrants
which the lenders held. Immediately thereafter, Gram
transferred all of his interest in the Bank Loan, including
the warrants, to Yasawa.
On December 11, 1992 the Company consummated the December 2,
1992 agreements with Yasawa. Under these agreements, Yasawa,
its affiliates and the Company agreed as follows: (i) the
Company sold certain property at its Citrus Springs community
to an affiliate of Yasawa in exchange for approximately
$6,500,000 of debt reduction credit; (ii) an affiliate of
Yasawa and the Company entered into a joint venture agreement
with respect to the Citrus Springs property, providing for the
Company to market such property and receive an administration
fee from the venture (in March, 1994, the Company and the
affiliate agreed to terminate the venture); (iii) the Company
sold certain contracts receivable at face value to an
affiliate of Yasawa for debt reduction credit of approximately
$10,800,000; (iv) the Company sold the Marco Shores Country
Club and Golf Course to an affiliate of Yasawa for an
aggregate sales price of $5,500,000, with the affiliate
assuming an existing first mortgage of approximately
$1,100,000 and the Company receiving debt reduction credit of
$2,400,000, such that the Company obtained cash proceeds from
this transaction of $2,000,000, which amount was used for
working capital; (v) an affiliate of Yasawa agreed to lease
the Marco Shores Country Club and Golf Course to the Company
for a period of approximately one year; (vi) an affiliate of
Yasawa and the Company agreed to amend the terms of the
warrants to increase the number of shares issuable upon their
exercise from 277,387 shares to 289,637 shares and to adjust
the exercise price to an aggregate of approximately $314,000;
(vii) Yasawa exercised the warrants in exchange for debt
reduction credit of approximately $314,000; (viii) Yasawa
released certain collateral held for the Bank Loan; (ix) an
affiliate of Yasawa agreed to make an additional loan of up to
$1,500,000 to the Company, thus providing the Company with a
future line of credit (all of which was drawn and outstanding
as of September 30, 1994); and (x) Yasawa agreed to
restructure the payment terms of the remaining $5,106,000 of
the Bank Loan as a loan from Yasawa.
The Yasawa Loan bears interest at the rate of 11% per annum,
with payment of interest deferred until December 31, 1993, at
which time only accrued interest became payable. Commencing
January 31, 1994, principal and interest became payable
monthly, with all unpaid principal and accrued interest being
due and payable on December 31, 1997. A portion of the
proceeds from a March, 1993 sale of contracts receivable was
applied to reduce the Yasawa Loan to $4,900,000 during the
first quarter of 1993 and the assignment of a mortgage
receivable to Yasawa reduced the Yasawa Loan to $4,764,000 as
of September 30, 1994. Accrued interest due under the Yasawa
Loan in the amount of $398,900 was unpaid and in default as of
September 30, 1994.
As of March 31, 1994, Yasawa had loaned the Company an
additional amount of $515,000 at an interest rate of 8% per
annum (the "Second Yasawa Loan"). As of September 30, 1994, a
total of $1,400,000 had been advanced under the Loan.
8
<PAGE>
On April 30, 1993 Selex loaned the Company an additional
$1,000,000 collateralized by a first mortgage on certain of
the Company's property in its Marion Oaks, Florida community
(the "Second Selex Loan"). The Second Selex Loan bears
interest at 11% per annum, with interest deferred until
December 31, 1993. The Second Selex Loan provides for
principal to be repaid at $3,000 per lot for lots requiring
release from the mortgage, with the entire unpaid principal
balance and interest accruing from January 1, 1994 to April
30, 1994 to be due and payable on April 30, 1994. Although
Selex had certain conversion rights under the Second Selex
Loan in the event the Company sold any Common Stock or
Preferred Stock prior to payment in full of all amounts due to
Selex under the Second Selex Loan, such rights were voided as
of December 31, 1993 since the regulations set forth in
proposed Treasury Decision CO-18-90 relative to Section 382 of
the Internal Revenue Code were not adopted by such date. As
of September 30, 1994 $33,000 in principal had been repaid
under the Second Selex Loan, but accrued interest of $102,200
due under the Loan as of September 30, 1994 remained unpaid
and in default.
From July 9, 1993 through December 31, 1993, Selex loaned the
Company an additional $4,400,000 collateralized by a second
mortgage on certain of the Company's property on which Selex
and/or Yasawa hold a first mortgage pursuant to a Loan
Agreement dated July 14, 1993 and amendments thereto (the
"Third Selex Loan"). The Third Selex Loan bears interest at
11% per annum, with interest deferred until December 31, 1993.
Principal is to be repaid at $3,000 per lot for lots requiring
release from the mortgage, with the entire unpaid principal
balance and interest accruing from January 1, 1994 to April
30, 1994 becoming due and payable on April 30, 1994. As of
September 30, 1994 accrued interest of $507,000 due under the
Third Selex Loan was unpaid and in default.
Interest due to Selex, Yasawa and their affiliates in the
aggregate amount of $2,441,300 remained unpaid and in default
as of September 30, 1994. From January 1, 1994 through
September 30, 1994, $33,000 in principal was repaid under the
Second Selex Loan and $1,140,000 in principal was repaid under
the First Selex Loan through the exercise of the above
described Option. After giving effect to such repayments of
principal, the Company had loans outstanding from Selex,
Yasawa and their affiliates on September 30, 1994 in the
amount of approximately $18,317,000 including interest, of
which approximately $9,942,000 is owed to Selex, including
accrued and unpaid interest of approximately $1,730,400 (10%
per annum on the First Selex Loan, 11% per annum on the Second
and Third Selex Loans and 12% per annum on the $1,000,000
Empire Note assigned to Selex); approximately $6,601,000 is
owed to Yasawa, including accrued and unpaid interest of
approximately $436,400 (11% per annum on the Yasawa Loan and
8% per annum on the Second Yasawa Loan); and approximately
$1,774,000 is owed to an affiliate of Yasawa, including
accrued and unpaid interest of approximately $274,500 (12% per
annum). The loans from Selex, Yasawa and their affiliates are
secured by substantially all of the assets of the Company.
9
<PAGE>
(d) COMMITMENTS AND CONTINGENCIES
Homesite sales contracts provide for the return of all monies
paid in (including paid-in interest) should the Company be
unable to meet its contractual obligations after the use of
reasonable diligence. If a refund is made, the Company will
recover the related homesite and any improvement thereto. The
aggregate amount of all monies paid in (including paid-in
interest) on all homesite contracts having outstanding
contractual obligations (primarily to complete improvements)
at March 31, 1994 was approximately $8,687,863.
In February, 1980, the Company entered into a Consent Order
with the Division as a result of delays the Company
encountered in completing improvements to lots in certain of
its Central and North Florida communities. The Consent Order,
as restated and amended, provided a program for notifying
affected customers of the anticipated delays in the completion
of improvements (or, in the case of purchasers of unbuildable
lots in certain areas of the Company's Sunny Hills Community,
the transfer of development obligations to core growth areas
of the subdivision); various options which may be selected by
affected purchasers; a schedule for completing certain
improvements; and a deferral of the obligation to install
water mains until requested by the purchaser. Under an
agreement with Topeka Group Incorporated ("Topeka"), Topeka's
utility companies have agreed to furnish utility service to
the future residents of the Company's communities on
substantially the same basis as such services were provided by
the Company. The Consent Order also required the
establishment of an improvement escrow account as assurance
for completing certain improvement obligations. In June,
1992, the Consent Order was superseded and replaced by the
1992 Consent Order which, among other things, consolidated the
Company's development obligations and reduced its monthly
escrow obligation to $175,000, from September, 1992 through
December, 1993. Beginning January, 1994 and until development
is completed or the 1992 Consent Order is amended, the Company
is required to deposit $430,000 per month into the escrow
account. As part of the assurance program under the 1992
Consent Order, the Company and its lenders granted the
Division a lien on certain contracts receivable (approximately
$8,697,000 as of March 31, 1994) and future receivables. The
Company defaulted on its obligation to escrow $430,000 per
month for the period January 1994 through the present and, in
accordance with the 1992 Consent Order, collections on
Division receivables were escrowed for the benefit of
purchasers from March 1, 1994 through April 30, 1994. In May,
1994 the Company implemented a program to exchange purchasers
who contracted to purchase property which is undeveloped to
property which is developed. Consequently, the Division has
allowed the Company to utilize collections on receivables
since May 1, 1994. At March 31, 1994, the liability to
complete improvements to fully paid-for lots was approximately
$774,000. Pursuant to the 1992 Consent Order, the Company has
limited the sale of single-family lots to lots which front on
a paved street and are ready for immediate building.
Based upon the Company's experience with affected customers,
the Company believes that the total refunds arising from the
delays in completing such improvements will not materially
6
<PAGE>
exceed the amount provided for in the consolidated financial
statements. Approximately $52,000 and $64,000 of the
provision for the total refunds relating to the delays of
improvements remained in accrued expenses and other at March
31, 1994 and December 31, 1993, respectively.
In addition to the matters discussed above and in Note 9 to
the Company's Consolidated Financial Statements included in
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993, the Company is a party to other
litigation relating to the conduct of its business which is
routine in nature and, in the opinion of management, should
not have a material effect upon the Company's operations.
(e) CAPITALIZED INTEREST
The Company capitalizes interest cost incurred during a
project's construction period. Of the total interest cost
incurred of $447,000 and $262,000, none was capitalized for
the three months ended March 31, 1994 and March 26, 1993,
respectively.
(f) EARNINGS OR LOSS PER SHARE
Earnings (loss) per common and common equivalent share were
computed by dividing net income (loss) by the weighted average
number of shares of Common Stock and common stock equivalents
outstanding during each period. The earnings (loss) and
average number of shares of Common Stock and common stock
equivalents used to calculate earnings per share for March 31,
1994 and March 26, 1993 were ($1,802,000) and 6,550,604, and
($997,000) and 6,056,967, respectively.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
On June 19, 1992, the Company completed a transaction with Selex,
which resulted in a change in control of the Company. Under the
transaction, Selex loaned the Company $3,000,000 collateralized by
a first mortgage on certain of the Company's property in its St.
Augustine Shores, Florida community (the "First Selex Loan"). The
First Selex Loan initially bears interest at the rate of 10% per
annum with a term of four years and payment of interest deferred
for the first 18 months. Accrued interest due under the First
Selex Loan in the amount of $619,800 was unpaid and in default as
of September 30, 1994.
In conjunction with the First Selex Loan: (i) Empire sold Selex its
2,220,066 shares of the Company's Common Stock and assigned Selex
its $1,000,000 Note from the Company, with $225,000 of interest
accrued thereon; (ii) Maurice A. Halperin, Chairman of the Board of
Empire and former Chairman of the Board of the Company, forgave
payment of the $200,000 salary due him for the period of April,
1990 through April, 1991, which was in arrears; and (iii) certain
changes occurred in the composition of the Company's Board of
Directors. Namely, the six directors serving on the Company's
Board who were previously designated by Empire resigned and four
Selex designees (Messrs. Marcellus H.B. Muyres, Antony Gram,
Cornelis van de Peppel and Cornelis L.J.J. Zwaans) were elected to
serve as directors in their stead. Marcellus H.B. Muyres was
appointed Chairman of the Board and Chief Executive Officer of the
Company. These directors, as well as Leonardus G.M. Nipshagen, a
Selex designee, were then elected as directors at the Company's
1992 Annual Meeting and re-elected at the Company's 1993 Annual
Meeting.
As part of the Selex transaction, Selex was granted an option,
approved by the holders of a majority of the outstanding shares of
the Company's Common Stock at the Company's 1992 Annual Meeting, to
convert the Selex Loan, or any portion thereof, into a maximum of
850,000 shares of the Company's Common Stock at a per share
conversion price equal to the greater of (i) $1.25 or (ii) 95% of
the market price of the Company's Common Stock at the time of
conversion, but in no event greater than $4.50 per share (the
"Option"). However, on September 14, 1992, Selex formally waived
and relinquished its right to exercise the Option as to 250,000
shares of the Company's Common Stock to enable the Company to
settle certain litigation involving the Company through the
issuance of approximately 250,000 shares of the Company's Common
Stock to the claimants, without jeopardizing the utilization of the
Company's net operating loss carryforward. On February 17, 1994,
Selex exercised the remaining full 600,000 share Option at a
conversion price of $1.90 per share, such that $1,140,000 in
principal was repaid under the First Selex Loan through such
conversion. As a consequence of such conversion, Selex holds
2,820,066 shares of the Company's Common Stock (43.1% of the
outstanding shares of Common Stock of the Company based upon the
number of shares of the Company's Common Stock outstanding as of
March 31, 1994.
Pursuant to the Selex transaction, $1,000,000 of the proceeds from
the First Selex Loan was used by the Company to acquire certain
commercial and multi-family properties at the Company's St.
Augustine Shores community at their net appraised value, from Mr.
12
<PAGE>
Muyres and certain entities affiliated with Messrs. Zwaans and
Muyres. Namely, (i) $416,000 was used to acquire 48 undeveloped
condominium units (twelve 4 unit building sites) and 4 completed
(and rented) condominium units from Conquistador, in which Messrs.
Zwaans and Muyres serve as directors, as well as President and
Secretary/Treasurer, respectively; (ii) $485,000 was used to
acquire 4 commercial lots from Swan, in which Messrs. Zwaans and
Muyres also serve as directors, as well as President and Secretary,
respectively; and (iii) approximately $99,000 was used to
reacquire, from Mr. Muyres, all of his rights, title and interest
in that certain contract with the Company for the purchase of a
commercial tract in St. Augustine Shores, Florida. None of the
commercial land and multi-family property acquired by the Company
from Mr. Muyres and certain entities affiliated with Messrs. Zwaans
and Muyres collateralizes the First Selex Loan. In March, 1994,
Conquistador exercised its right to repurchase certain of the
multi-family property from the Company (which right had been
granted in connection with the June, 1992 transaction) at a price
of $312,000, of which $260,000 was paid in cash to the Company and
$52,000 was applied to reduce interest due to Selex under the Third
Selex Loan.
In December, 1992, Mr. Gram, a director of the Company and
beneficial owner of the Common Stock of the Company held by Selex,
acquired all of the Company's outstanding bank debt and then
assigned same to Yasawa, of which Mr. Gram is also the beneficial
owner. Yasawa simultaneously completed a series of transactions
with the Company which involved the transfer of certain assets to
Yasawa or its affiliated companies, the acquisition by Yasawa of
289,637 shares of the Company's Common Stock through the exercise
of warrants previously held by the banks, the provision of a
$1,500,000 line of credit to the Company and the restructuring of
the remaining debt as a $5,106,000 Yasawa Loan. Principal
repayments aggregating $341,000 were made in 1993 and 1994 to
reduce the Yasawa Loan to $4,765,000. On April 30, 1993, Selex
loaned the Company an additional amount of $1,000,000 pursuant to
the Second Selex Loan and since July 1, 1993 made further loans to
the Company aggregating $4,400,000 under the Third Selex Loan.
Principal of $33,000 had been repaid under the Second Selex Loan
through September 30, 1994. As of September 30, 1994, Yasawa has
loaned the Company an additional sum of $l,400,000 pursuant to the
Second Yasawa Loan. As a consequence of these transactions, the
Company had loans outstanding from Selex, Yasawa and their
affiliates on September 30, 1994 in the aggregate amount of
approximately $18,317,000, including interest. The loans from
Selex, Yasawa and their affiliates are secured by substantially all
of the assets of the Company.
The Company has stated in previous filings with the Commission that
the obtainment of additional funds to implement its marketing
program and achieve the objectives of its business plan is
essential to enable the Company to maintain operations and continue
as a going concern. Since December, 1992, the Company has been
dependent on loans and advances from Selex, Yasawa and their
affiliates in order to implement its marketing program and assist
in meeting its working capital requirements. As stated above,
during the last six months of 1993, Selex, Yasawa and their
affiliates loaned the Company an aggregate of $4,400,000 pursuant
to Third Selex Loan. Funds advanced under the Third Selex Loan
enabled the Company to commence implementation of the majority of
its marketing program in the third quarter of 1993. The full
benefits were not realized in 1993 and the Company was unable to
secure financing in 1994 to meet its working capital requirements and
continue its marketing program. As of September 30, 1994, Yasawa had advanced
("Second Yasawa Loan") a total of $1,400,000 to meet the Company's minimum
working capital requirements and pay settlements of outstanding amounts due
certain trade creditors.
13
<PAGE>
On March 10, 1994, the Company was advised that Selex filed
Amendment No. 2 dated February 17, 1994 to its Schedule 13D (the
"Amendment") with the Commission. In the Amendment, Selex reported
that it, together with Yasawa and their affiliates were uncertain
as to whether they would provide any further funds to the Company.
The Amendment further stated that Selex, Yasawa and their
affiliates, were seeking third parties to provide financing for the
Company and that as part of any such transaction, they would be
willing to sell or restructure all or a portion of their loans and
Common Stock in the Company.
Inasmuch as funding is not presently available to the Company from
external sources and, as stated in their Amendment, Selex, Yasawa
and their affiliates have not determined whether they will provide
any further funds to the Company, the Company is facing a severe
cash shortfall. As a consequence of its liquidity position, the
Company has defaulted on certain obligations, including its escrow
obligations to the Division pursuant to the Company's 1992 Consent
Order, its obligation under its lease for its corporate offices and
its obligation to make required interest payments under loans from
Selex, Yasawa and their affiliates. Furthermore, the Company has
not paid certain real estate taxes which are approximately
$1,570,000 at September 30, 1994 and is also subject to certain
pending litigation by former employees and others, which may
adversely affect the financial condition of the Company.
The Company is continuing to seek third parties to provide
financing. As part of any such transaction, Selex, Yasawa and
their affiliates have indicated that they are willing to sell or
restructure all or a portion of their loans and Common Stock in the
Company. They have also indicated that they are willing to sell
their interests in the Company at a significant discount.
Consummation of any such transaction may result in a change in
control of the Company. There can be no assurance, however, that
any such transaction will result or that any financing will be
obtained. Accordingly, the Company's Board of Directors is also
considering other appropriate action given the severity of the
Company's liquidity position including but not limited to filing
under the federal bankruptcy laws. Alternatively, the Company could
be subject to the filing of an involuntary bankruptcy proceeding in
the event it is unable to resolve and settle pending litigation,
satisfy settlement commitments and other unpaid creditor claims.
14
<PAGE>
RESULTS OF OPERATIONS
For the three months ended March 31, 1994 and March 26, 1993.
Revenues
Total revenues were $1,831,000 for the first three months of 1994
compared to $3,335,000 for the comparable 1993 period.
Gross land sales were $859,000 for the first quarter of 1993 versus
$320,000 for the first quarter of 1993. Net land sales (gross land
sales less estimated uncollectible installment sales and contract
valuation discount) increased to $690,000 for the first three
months of 1994 from $247,000 for the first three months of 1993.
Bulk land sales for the first quarter of 1994 and 1993 were
$315,000 and -0-, respectively. In light of the Company's
diminished bulk land sales inventory it is anticipated that the
Company will produce a negligible volume of bulk land sales. See
"Liquidity and Capital Resources -- Mortgages and Similar Debt".
The Company re-entered the single-family housing business in
December, 1992. Since revenues are not recognized from housing
sales until the completion of construction and passage of title, no
housing revenues were recognized until late 1993.
<TABLE>
The following table reflects the Company's real estate product mix
for the periods indicated (in thousands):
<CAPTION>
Three months ended
March 26, March 27,
1994 1993
<S> <C> <C>
Gross Land Sales:
Bulk Sales $ 315 $ -0-
Retail Sales<F1> 544 320
-------- --------
Total $ 859 $ 320
-------- --------
Housing Sales:
Single Family 292 -0-
Vacation ownership -0- -0-
-------- --------
Total $ -0- $ -0-
-------- --------
Total Real Estate $ 1,151 $ 320
======== ========
<FN>
<F1>
Retail land sales contracts entered into, net of cancellations, for
the three months ended March 31, 1994 and March 26, 1993 were
$1,100,000 and $1,050,000, respectively. Contracts are not
included in retail land sales until the applicable rescission
period has expired and the Company has received payments totalling
20% of the contract sales price.
</FN>
</TABLE>
15
<PAGE>
Improvement revenues result from recognition of revenues deferred
from prior period sales. Recognition occurs as development work
proceeds on the previously sold property. Improvement revenues
totalled $424,000 for the first quarter of 1994, as compared to
$1,441,000 for the first quarter of 1993. The decrease was due to
the Company's financial condition which caused the Company to stop
development in the first quarter of 1994.
Interest income was $208,000 for the first three months of 1994
compared to $311,000 for the same period of 1993. This decrease is
the result of substantially lower contracts receivable balances.
Other revenues were $217,000 as compared to $1,336,000 for the
three months ended March 31, 1994 and March 26, 1993, respectively.
This decrease was the result of the termination of its lease on the
Marco Shores Country Club on December 31, 1993 and the sale of the
Marco Island Realty in November, 1993.
Costs and Expenses
Costs and expenses for the first three months of 1994 were
$3,633,000 compared to $4,332,000 for the same period in 1993.
Cost of sales totalled $744,000 for the three months ended March
31, 1994 compared to $1,854,000 for the 1993 period. The decrease
was primarily due to the termination of development work in the
first quarter of 1994; the sale of the Marco Island Realty; and the
termination of the lease of the Marco Shores Country Club.
Commissions, advertising and other selling expenses totalled
$1,248,000 for the three months ended March 31, 1994 and $1,054,000
for the same period of 1993. Advertising expenditures increased to
$291,000 from $152,000 for the three month period of 1994 versus
1993, reflecting the Company's efforts to stimulate sales in
conjunction with the implementation of its marketing program.
General and administrative expenses were $983,000 for the first
three months of 1994 and $930,000 for the same period of 1993.
General and administrative expenses have increased primarily due to
employee termination pay resulting from the overhead reductions
implemented in the first quarter of 1994.
Interest expense for the first three months of 1993 was $447,000
compared to $262,000 for the first three months of 1993. Total
interest cost (none of which represents capitalized interest) was
$447,000 and $262,000 for the first three months of 1993 and 1992,
respectively. The increase in interest expense is primarily the
result of the increase in debt.
Net Income (Loss)
The Company reported a net loss of $1,802,000 for the three months
ended March 31, 1994, compared to a net loss of $997,000 for the
three months ended March 26, 1993.
16
<PAGE>
Regulatory Developments which may affect Future Operations
In Florida, as in many growth areas, local governments have sought
to limit or control population growth in their communities through
restrictive zoning, density reduction, the imposition of impact
fees and more stringent development requirements. Although the
Company has taken such factors into consideration in its master
plans, the increased regulation has lengthened the development
process and added to development costs.
On a statewide level, the Florida Legislature adopted and
implemented the Florida Growth Management Act of 1985 (the "Act")
to aid local governments efforts to discourage uncontrolled growth
in Florida. The Act precludes the issuance of development orders
or permits if public facilities such as transportation, water and
sewer services will not be available concurrent with development.
Development orders have been issued for, and development has
commenced in, the Company's existing communities (with development
being virtually completed in certain of these communities). Thus,
such communities are less likely to be affected by the new growth
management policies than future communities. Any future
communities developed by the Company will be strongly impacted by
new growth management policies. Since the Act and its implications
are consistently being re-examined by the State, together with
local governments and various state and local governmental
agencies, the Company cannot further predict the timing or the
effect of new growth management policies, but anticipates that such
policies may increase the Company's permitting and development
costs.
In addition to Florida, other jurisdictions in which the Company's
properties are offered for sale have recently strengthened, or are
considering strengthening, their regulation of subdividers and
subdivided lands in order to provide further assurances to the
public, particularly given the adverse publicity surrounding the
industry which existed in 1990. The Company has attempted to take
appropriate steps to modify its marketing programs and registration
applications in the face of such increased regulation, but has
incurred additional costs and delays in the marketing of certain of
its properties in certain states and countries. For example, the
Company has complied with regulations of certain states which
require that the Company sell its properties to residents of those
states pursuant to a deed and mortgage transaction, regardless of
the amount of the down payment. The Company intends to continue to
monitor any changes in statutes or regulations affecting, or
anticipated to affect, the sale of its properties and intends to
take all necessary and reasonable action to assure that its
properties and its proposed marketing programs are in compliance
with such regulations, but there can be no assurance that the
Company will be able to timely comply with all regulatory changes
in all jurisdictions in which the Company's properties are
presently offered for sale to the public.
17
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Mortgages and Similar Debt
Indebtedness under various purchase money mortgages and loan
agreements is collateralized by substantially all of the Company's
assets, including stock of certain wholly-owned subsidiaries.
<TABLE>
The following table presents information with respect to mortgages
and similar debt (in thousands):
<CAPTION>
Years Ended
March 31, December 31,
1994 1992
<S> <C> <C>
Mortgage Notes Payable.............. $12,520 $13,284
Other Loans......................... 2,500 2,500
------- -------
Total Mortgages and Similar Debt.. $15,020 $15,784
======= ========
</TABLE>
Included in Mortgage Notes Payable is the $3,000,000 First Selex
Loan ($1,860,000 as of September 30, 1994), the $1,000,000 Second
Selex Loan ($967,000 as of August 31, 1994) the $4,384,000 Third
Selex Loan and the $4,900,000 Yasawa Loan ($4,765,000 as of
September 30, 1994). Other loans include the $1,000,000 Empire
note and the $1,500,000 Scafholding Loan.
These mortgage notes payable and other loans are in default as of
September 30, 1994 due to the non-payment of interest and
principal. The lenders have not taken any action as a result of
these defaults.
On June 19, 1992, the Company completed a transaction with Selex
whereby, among other things, Selex loaned the Company $3,000,000
(the First Selex Loan). The First Selex Loan is collateralized by
a first mortgage on certain of the Company's property in its St.
Augustine Shores, Florida community. The Loan matures on June 15,
1996 and provides for principal to be repaid at 50% of the net
proceeds per lot for lots requiring release from the mortgage, with
the entire unpaid balance becoming due and payable at the end of
the four year term. It initially bears interest at the rate of 10%
per annum, with payment of interest deferred for the initial
eighteen months of the Loan and interest payments due quarterly
thereafter. On February 17, 1994, principal in the amount of
$1,140,000 was repaid under the First Selex Loan when Selex
exercised its previously described Option to convert a portion of
the Loan into 600,000 shares of the Company's Common Stock at a
conversion price of $1.90 per share. Accrued interest in the
amount of $619,800 was unpaid and in default under the First Selex
Loan as of September 30, 1994.
The Company had defaulted on its bank debt in the third quarter of
1990, and was engaged in negotiating the repayment and
restructuring of such debt through 1991 and the first half of 1992.
As of December 27, 1991, the Company's bank debt had been reduced
by the assignment of mortgages receivables and, on October 11,
1991, the transfer of certain properties to its principal lending
banks pursuant to a Conveyance
18
<PAGE>
Agreement with such lenders. The Conveyance Agreement not only
provided for the partial repayment of the bank debt, but also
encompassed an agreement in principle providing for the
restructuring and repayment of the remaining bank debt.
On June 18, 1992, the Company completed the restructuring of its
bank debt by entering into the Sixth Amended and Restated Credit
and Security Agreement (the "Sixth Restatement") with its lenders.
The terms of the Sixth Restatement provided for the Company's
remaining debt in the principal amount of approximately $25,300,000
to be repaid by June 30, 1997, with specified interim repayments
and benchmarks to be achieved. Among other things, the Sixth
Restatement provided for: (i) interest to accrue on the remaining
debt at Citibank's alternate base rate ("ABR") plus 4% per annum,
subject to a minimum interest rate of 11% per annum and a maximum
interest rate of 14% per annum, with no interest payments due until
June 30, 1996; (ii) accrued, but unpaid interest on $10,000,000 of
the restructured debt to be forgiven provided that the principal
balance outstanding on the restructured debt as of June 30, 1996
was less than $9,000,000; and (iii) the issuance to the lenders of
warrants to acquire up to 277,387 shares of the Company's Common
Stock at a price of $1.00 per share.
In conjunction with the completion of the Sixth Restatement, the
lenders released or subordinated their lien on certain assets of
the Company, to enable the Company to complete the First Selex
Loan, to complete the $13,500,000 sale of contracts receivable
described below, to enter into the 1992 Consent Order with the
Division, and to secure working capital needed to pay real estate
taxes which were, at the time, delinquent and meet its customer
obligations for improvement work at certain of the Company's
communities. During the third quarter of 1992, the lenders also
released their lien on certain other contracts receivable to allow
the Company to complete a sale of such receivables, which generated
$600,000 in proceeds. These proceeds were, in turn, paid to the
lenders, with the lenders allowing the Company $1,000,000 in debt
reduction credit, and resulting in an extraordinary gain of
$400,000.
On December 2, 1992 the Company entered into various agreements
relating to certain of its assets and the restructuring of its debt
with Yasawa. The consummation of these agreements was conditioned
upon the acquisition by Mr. Gram of the bank debt under the Sixth
Restatement (the "Bank Loan") described above. On December 4,
1992, Gram acquired the Bank Loan of approximately $25,150,000
(including interest and fees) for a price of $10,750,000, as well
as the warrants which the lenders held. Immediately thereafter,
Gram transferred all of his interest in the Bank Loan, including
the warrants, to Yasawa.
On December 11, 1992 the Company consummated the December 2, 1992
agreements with Yasawa. Under these agreements, Yasawa, its
affiliates and the Company agreed as follows: (i) the Company sold
certain property at its Citrus Springs community to an affiliate of
Yasawa in exchange for approximately $6,500,000 of debt reduction
credit; (ii) an affiliate of Yasawa and the Company entered into a
joint venture agreement with respect to the Citrus Springs
property, providing for the Company to market such property and
receive an administration fee from the venture (in March, 1994, the
Company and the affiliate agreed to terminate the venture); (iii)
the Company sold certain
19
<PAGE>
contracts receivable at face value to an affiliate of Yasawa for
debt reduction credit of approximately $10,800,000; (iv) the
Company sold the Marco Shores Country Club and Golf Course to an
affiliate of Yasawa for an aggregate sales price of $5,500,000,
with the affiliate assuming an existing first mortgage of
approximately $1,100,000 and the Company receiving debt reduction
credit of $2,400,000, such that the Company obtained cash proceeds
from this transaction of $2,000,000, which amount was used for
working capital; (v) an affiliate of Yasawa agreed to lease the
Marco Shores Country Club and Golf Course to the Company for a
period of approximately one year; (vi) an affiliate of Yasawa and
the Company agreed to amend the terms of the warrants to increase
the number of shares issuable upon their exercise from 277,387
shares to 289,637 shares and to adjust the exercise price to an
aggregate of approximately $314,000; (vii) Yasawa exercised the
warrants in exchange for debt reduction credit of approximately
$314,000; (viii) Yasawa released certain collateral held for the
Bank Loan; (ix) an affiliate of Yasawa agreed to make an additional
loan of up to $1,500,000 to the Company, thus providing the Company
with a future line of credit (all of which was drawn and
outstanding as of September 30, 1994); and (x) Yasawa agreed to
restructure the payment terms of the remaining $5,106,000 of the
Bank Loan as a loan from Yasawa.
The Yasawa Loan bears interest at the rate of 11% per annum, with
payment of interest deferred until December 31, 1993, at which time
only accrued interest became payable. Commencing January 31, 1994,
principal and interest became payable monthly, with all unpaid
principal and accrued interest being due and payable on December
31, 1997. A portion of the proceeds from a March, 1993 sale of
contracts receivable was applied to reduce the Yasawa Loan to
$4,900,000 during the first quarter of 1993 and the assignment of
a mortgage receivable to Yasawa reduced the Yasawa Loan to
$4,764,000 as of September 30, 1994. Accrued interest due under the
Yasawa Loan in the amount of $398,900 was unpaid and in default as
of September 30, 1994.
As of March 31, 1994, Yasawa had loaned the Company an additional
amount of $515,000 at an interest rate of 8% per annum (the "Second
Yasawa Loan"). As of September 30, 1994, a total of $1,400,000 had
been advanced under the Loan.
On April 30, 1993 Selex loaned the Company an additional $1,000,000
collateralized by a first mortgage on certain of the Company's
property in its Marion Oaks, Florida community (the "Second Selex
Loan"). The Second Selex Loan bears interest at 11% per annum,
with interest deferred until December 31, 1993. The Second Selex
Loan provides for principal to be repaid at $3,000 per lot for lots
requiring release from the mortgage, with the entire unpaid
principal balance and interest accruing from January 1, 1994 to
April 30, 1994 to be due and payable on April 30, 1994. Although
Selex had certain conversion rights under the Second Selex Loan in
the event the Company sold any Common Stock or Preferred Stock
prior to payment in full of all amounts due to Selex under the
Second Selex Loan, such rights were voided as of December 31, 1993
since the regulations set forth in proposed Treasury Decision
CO-18-90 relative to Section 382 of the Internal Revenue Code were
not adopted by such date. As of September 30, 1994 $33,000 in
principal had been repaid under the Second Selex Loan, but accrued
interest of $102,200 due under the Loan as of September 30, 1994
remained unpaid and in default.
20
<PAGE>
From July 9, 1993 through December 31, 1993, Selex loaned the
Company an additional $4,400,000 collateralized by a second
mortgage on certain of the Company's property on which Selex and/or
Yasawa hold a first mortgage pursuant to a Loan Agreement dated
July 14, 1993 and amendments thereto (the "Third Selex Loan"). The
Third Selex Loan bears interest at 11% per annum, with interest
deferred until December 31, 1993. Principal is to be repaid at
$3,000 per lot for lots requiring release from the mortgage, with
the entire unpaid principal balance and interest accruing from
January 1, 1994 to April 30, 1994 becoming due and payable on April
30, 1994. As of September 30, 1994 accrued interest of $507,000
due under the Third Selex Loan was unpaid and in default.
Interest due to Selex, Yasawa and their affiliates in the aggregate
amount of $2,441,300 remained unpaid and in default as of September
30, 1994. From January 1, 1994 through September 30, 1994, $33,000
in principal was repaid under the Second Selex Loan and $1,140,000
in principal was repaid under the First Selex Loan through the
exercise of the above described Option. After giving effect to
such repayments of principal, the Company had loans outstanding
from Selex, Yasawa and their affiliates on September 30, 1994 in
the amount of approximately $18,317,000 including interest, of
which approximately $9,942,000 is owed to Selex, including accrued
and unpaid interest of approximately $1,730,400 (10% per annum on
the First Selex Loan, 11% per annum on the Second and Third Selex
Loans and 12% per annum on the $1,000,000 Empire Note assigned to
Selex); approximately $6,601,000 is owed to Yasawa, including
accrued and unpaid interest of approximately $436,400 (11% per
annum on the Yasawa Loan and 8% per annum on the Second Yasawa
Loan); and approximately $1,774,000 is owed to an affiliate of
Yasawa, including accrued and unpaid interest of approximately
$274,500 (12% per annum). The loans from Selex, Yasawa and their
affiliates are secured by substantially all of the assets of the
Company.
On March 10, 1994, the Company was advised that Selex filed an
Amendment to its Schedule 13D filed with the Commission. In the
Amendment, Selex reported that it, together with Yasawa and their
affiliates, were uncertain as to whether they would provide any
further funds to the Company. The Amendment further stated that
Selex, Yasawa and their affiliates were seeking third parties to
provide financing for the Company and that as part of any such
transaction, they would be willing to sell or restructure all or a
portion of their loans and Common Stock in the Company.
The Company has stated in previous filings with the Commission that
the obtainment of additional funds to implement its marketing
program and achieve the objectives of its business plan is
essential to enable the Company to maintain operations and continue
as a going concern. Since December, 1992, the Company has been
dependent on loans and advances from Selex, Yasawa and their
affiliates in order to implement its marketing program and assist
in meeting its working capital requirements. As stated above,
during the last six months of 1993, Selex, Yasawa and their
affiliates loaned the Company an aggregate of $4,400,000 pursuant
to Third Selex Loan. Funds advanced under the Third Selex Loan
enabled the Company to commence implementation of the majority of
its marketing program in the third quarter of 1993. The full
benefits of the program could not be realized in 1993 and the
Company was unable to secure financing in 1994 to meet its ongoing
working capital requirements and continue its marketing program. As of
September 30, 1994, Yasawa had advanced ("Second Yasawa Loan") a total of
$1,400,000 to meet the Company's minimum working capital requirements and pay
settlements of outstanding amounts due certain trade creditors.
21
<PAGE>
Inasmuch as funding is not presently available to the Company from
external sources and, as stated in their Amendment, Selex, Yasawa
and their affiliates have not determined whether they will provide
any further funds to the Company, the Company is facing a severe
cash shortfall. As a consequence of its liquidity position, the
Company has defaulted on certain obligations, including its escrow
obligations to the Division pursuant to the Company's 1992 Consent
Order, its obligation under its lease for its corporate offices and
its obligation to make required interest payments under loans from
Selex, Yasawa and their affiliates. Furthermore, the Company has
not paid certain real estate taxes which aggregate approximately
$1,570,000 as of September 30, 1994 and is also subject to certain
pending litigation from former employees and others, which may
adversely affect the financial condition of the Company.
The Company is continuing to seek third parties to provide
financing. As part of any such transaction, Selex, Yasawa and
their affiliates have indicated that they are willing to sell or
restructure all or a portion of their loans and Common Stock in the
Company. They have also indicated that they are willing to sell
their interests in the Company at a significant discount.
Consummation of any such transaction may result in a change in
control of the Company. There can be no assurance, however, that
any such transaction will result or that any financing will be
obtained. Accordingly, the Company's Board of Directors is also
considering other appropriate action given the severity of the
Company's liquidity position including but not limited to
protection under federal bankruptcy laws. Alternatively, the
Company could be subject to the filing of an involuntary bankruptcy
proceeding in the event it is unable to resolve and settle pending
litigation, satisfy settlement commitments and other unpaid
creditor claims.
Contracts and Mortgages Receivable Sales
In December, 1992, as described above, the Company sold $10,800,000
of contracts and mortgages receivable to an affiliate of Yasawa at
face value, applying the proceeds therefrom to reduce the Bank Loan
acquired by Yasawa.
In June, 1992, the Company completed a new financing through a
$13,500,000 sale of contracts and mortgages receivable which
generated approximately $8,000,000 in net proceeds to the Company
and the creation of a holdback account in the amount of $3,100,000.
The anticipated costs of this transaction were included in the
extraordinary loss from debt restructuring for 1991. In
conjunction with this sale, the February, 1990 sale described below
and certain prior sales of receivables, the Company granted the
purchaser a security interest in certain additional contracts
receivable of approximately $2,700,000 and conveyed all of its
rights, title and interest in the property underlying such
contracts to a collateral trustee. Upon compliance with the
conditions of the agreement with the purchaser, funds from the
holdback account and property held by the collateral trustee will
be released to the Company.
In February, 1990, the Company completed a sale of $17,000,000 of
receivables, generating approximately $13,900,000 in net proceeds
and a loss of approximately $600,000. This transaction, as well as
the June, 1992 sale described above, among other things, requires
that the Company replace or repurchase any receivable that becomes
90 days delinquent upon the request of the purchaser. Such
requirement can be satisfied from contracts in which the
22
<PAGE>
purchaser holds a security interest (approximately $1,286,000 as of
September 30, 1994). The Company believes that it has established
adequate reserves and guarantees in the event such replacement or
repurchase becomes necessary.
In addition to the above, the Company transferred $1,600,000 in
contracts and mortgages receivable in March, 1993, to a third party
generating $1,100,000 in proceeds to the Company and the creation
of a holdback account in the amount $150,000.
The Company was the guarantor of approximately $27,552,000 of
contracts receivable sold or transferred as of March 31, 1994 and
had $1,457,000 on deposit with the purchaser of the receivables as
security to assure collectibility as of such date. The Company has
been in compliance with all receivable transactions since the
consummation of the June, 1992 sale.
The Company anticipates that it will be necessary to complete
additional sales and financings of a portion of its receivables in
1994 and 1995. There can be no assurance, however, that such sales
and/or financings can be accomplished.
Other Obligations
As a result of the delays in completing the land improvements to
certain property sold in certain of its Central and North Florida
communities, the Company fell behind in meeting its contractual
obligations to its customers. In connection with these delays, the
Company, in February, 1980, entered into a Consent Order with the
Division which provided a program for notifying affected customers.
The Consent Order, which was restated and amended, provided a
program for notifying affected customers of the anticipated delays
in the completion of improvements (or, in the case of purchasers of
unbuildable lots in certain areas of the Company's Sunny Hills
community, the transfer of development obligations to core growth
areas of the community); various options which may be selected by
affected purchasers; a schedule for completing certain
improvements; and a deferral of the obligation to install water
mains until requested by the purchaser. Under an agreement with
Topeka, Topeka's utility companies have agreed to furnish utility
service to the future residents of the Company's communities on
substantially the same basis as such services were provided by the
Company. The Consent Order also required the establishment of an
improvement escrow account as assurance for completing such
improvement obligations. In June, 1992, the Company entered into
the 1992 Consent Order with the Division, which replaced and
superseded the original Consent Order, as amended and restated.
Among other things, the 1992 Consent Order consolidated the
Company's development obligations and provided for a reduction in
its required monthly escrow obligation to $175,000 from September,
1992 through December, 1993. Beginning January, 1994 and until
development is completed or the 1992 Consent Order is amended, the
Company is required to deposit $430,000 per month into the escrow
account. To meet its current escrow and development obligations
under the 1992 Consent Order, the Company is required to deposit
into escrow $5,160,000 in 1994 and $3,519,000 in 1995. As part of
the assurance program under the 1992 Consent Order, the Company and
its lenders granted the Division a lien on certain contracts
receivable (approximately $8,697,000 as of March 31, 1993) and
future receivables. The Company defaulted on its obligation to
escrow $430,000 per month for the period January 1994 through the
present and, in accordance
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with the 1992 Consent Order, collections on Division receivables
were escrowed for the benefit of purchasers from March 1, 1994
through April 30, 1994. In May, 1994 the Company implemented a
program to exchange purchasers who contracted to purchase property
which is undeveloped to property which is developed. Consequently,
the Division has allowed the Company to utilize collections on
receivables since May 1, 1994. At March 31, 1994, liability to
complete improvements on fully paid-for lots was approximately
$774,000. Pursuant to the 1992 Consent Order, the Company has
limited the sale of single-family lots to lots which front on a
paved street and are ready for immediate building. Because of the
Company's default, the Division could also exercise other available
remedies under the 1992 Consent Order, which remedies entitle the
Division, among other things, to halt all sales of registered
property. As of March 31, 1994, the Company had estimated
development obligations of approximately $2,640,000 on sold
property, an estimated liability to provide title insurance costing
$951,000 and an estimated cost of street maintenance, prior to
assumption of such obligations by local governments, of $3,769,000,
all of which are included in deferred revenue. The total cost,
including the previously mentioned obligations, to complete
improvements at March 31, 1994 to lots subject to the 1992 Consent
Order and to lots in the St. Augustine Shores community was
estimated to be approximately $17,973,000. The Company has in
escrow approximately $1,349,000 specifically for land improvements
at certain of its Central and North Florida communities.
The Company's continuing liquidity problems have precluded the
timely payment of the full amount of its 1992 and 1993 real estate
taxes. The Company has paid real estate taxes on all properties
sold on which it is solely obligated to pay real estate taxes and
on all properties which are presently available for sale. On
properties where customers have contractually assumed the
obligation to pay into a tax escrow maintained by the Company, the
Company has and will continue to pay real estate taxes as monies
are collected from customers. Delinquent real estate taxes on
certain of the Company's properties, none of which are presently
being marketed, aggregated approximately $1,570,000 as of September
30, 1994.
The Company's corporate performance bonds to assure the completion
of development at its St. Augustine Shores community expired in
March and June, 1993. Such bonds cannot be renewed due to a
change in the policy of the Board of County Commissioners of St.
Johns County which precludes allowing any developer to secure the
performance of development obligations by the issuance of corporate
bonds. In the event that St. Johns County elects to undertake and
complete such development work, the Company would be obligated with
respect to 1,000 improved lots at St. Augustine Shores in the
amount of approximately $6,200,000. The Company intends to submit
an alternative assurance program for the completion of such
development and improvements to the County for its approval.
On September 30, 1988, the Company entered into an agreement with
Citrus County, Florida to establish the procedure for transferring
final maintenance responsibilities for roads in the Company's
Citrus Springs subdivision to Citrus County. The agreement
obligated the Company to complete certain remedial work on
previously completed improvements within the Citrus Springs
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subdivision by June 1, 1991. The Company was unable to complete
this work by the specified date and is negotiating with Citrus
County for the transfer of final maintenance responsibility for the
roads to the County.
Following the consummation of the Sixth Restatement, the Company
conveyed certain properties to the landlord in satisfaction of its
outstanding lease obligations for its executive office building in
Miami, Florida. The Company also entered into a modification of its
lease agreement, providing for a reduction of its rental expenses
through June 30, 1994, at which time the Company would have the
option of acquiring the leased premises or reinstating the lease
according to its original terms. Should the landlord sell the
leased premises to a third party at any time that the lease, or any
modification thereof, is in effect, then the lease with the Company
would be cancelled. In December, 1993, the landlord filed suit
against the Company alleging that the Company defaulted in its
obligation to make rental payments under the lease and seeking to
accelerate lease payments.
The Company had placed certain properties in trust to meet its
refund obligations to customers affected by the 1976 denial by the
U.S. Army Corps of Engineers of permits to complete the development
of the Company's Marco Island community and had provided in its
financial statements for such obligations. Following the
September, 1992 court approval of a settlement of certain class
action litigation instituted by customers affected by the Marco
permit denials, the Company, among other things, conveyed more than
120 acres of multi-family and commercial land that had been placed
in trust to the trustee of the 809 member class, and listed 250,000
shares of restricted Common Stock of the Company to be issued to
the class members. At March 31, 1994, $2,815,000 remained in the
allowance for Marco permit costs, including $493,000 relating to
interest accrued on such obligations. Based upon the Company's
experience with affected customers, the Company believes that its
total obligations to the remaining 1.3% of its affected customers
will not materially exceed the amount provided for in its financial
statements.
Liquidity
Since 1986, the Company has directed its marketing efforts to
rebuilding retail land sales in an attempt to obtain a more stable
income stream and achieve a balanced growth of retail land sales
and bulk land sales. Retail land sales typically have a higher
gross profit margin than bulk land sales and the contracts
receivable generated from retail land sales provide a continuing
source of income. However, retail land sales also have
traditionally produced negative cash flow through the point of
sale. This is because the marketing and selling expenses have
generally been paid prior to or shortly after the point of sale,
while the land is generally paid for in installments. The
Company's ability to rebuild retail land sales has been
substantially dependent on its ability to sell or otherwise finance
contracts receivable and/or secure other financing sources to meet
its cash requirements.
To alleviate the negative cash flow impact arising from retail land
sales while attempting to rebuild its sales volume, the Company
implemented several new marketing programs which, among other
things, adjusted the method of commission payments and required
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larger down payments. However, the nationwide economic recession,
which has been especially pronounced in the real estate industry,
adverse publicity surrounding the industry which existed in 1990,
the resulting, more stringent regulatory climate, and worldwide
economic uncertainties have severely depressed retail land sales
beginning in mid-1990 and continuing thereafter, resulting in a
continuing liquidity crisis.
Because of this severe liquidity crisis, the Company ceased
development work late in the third quarter of 1990 and did not
resume development work until the third quarter of 1992. From
September 29, 1990 through the fourth quarter of 1991, when the
Company ceased selling undeveloped lots, sales of undeveloped lots
were accounted for using the deposit method. Under this method,
all payments were recorded as a customer deposit liability. In
addition, because of the increasing trend in delinquencies during
1990, since the beginning of 1991, the Company has not recognized
any sale until 20% of the contract sales price has been received.
As a result, the reporting and recognition of revenues and profits
on a portion of the Company's retail land sales contracts is being
delayed.
The continued economic recession and the increasing adverse effects
of such recession on the Florida real estate industry not only
resulted in the Company's sales remaining at depressed levels, but
caused greater contract cancellations in 1991, particularly in the
second half of the year, than were anticipated. Such cancellations
required the Company to record an additional provision to its
allowance for uncollectible sales of approximately $12,200,000 in
the 1991 third quarter, impacting net income by approximately
$8,900,000. While the Company is making every effort to reduce its
cancellations, should this trend continue, the Company could be
required to record additional provisions in the future.
The Company had defaulted on its bank debt in the third quarter of
1990, and was engaged in negotiating the repayment and
restructuring of such debt through 1991 and the first half of 1992.
On October 11, 1991, as described above, the Company completed the
first phase of the restructuring of its bank debt by conveying to
the lenders certain real estate assets which had been held for
future development or bulk sales purposes, and on June 18, 1992,
the Company finalized the restructuring of its remaining bank debt
by entering into the Sixth Restatement.
In December, 1992, such bank debt was acquired by Mr. Gram and
assigned to Yasawa. Through the sale of certain assets to Yasawa
and its affiliates, including certain contracts receivable, and the
exercise of the warrants by Yasawa, the Company was able to reduce
such remaining debt from approximately $25,150,000 (including
interest and fees) to approximately $5,106,000. During 1994, the
Yasawa Loan was reduced to $4,765,000. The agreement with Yasawa
also provided the Company with a future line of credit of
$1,500,000, all of which was drawn and outstanding as of September
30, 1994. During 1993, Selex loaned the Company an additional
$5,400,000 pursuant to the Second and Third Selex Loans, of which
$5,351,000 was outstanding as of September 30, 1994, and Yasawa
loaned the Company an additional $1,400,000 in 1994 pursuant to the
Second Yasawa Loan. The loans from Selex, Yasawa and their
affiliates are collateralized by substantially all of the Company's
assets.
On March 10, 1994, the Company was advised that Selex filed an
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Amendment to its Schedule 13D with the Commission. In the
Amendment, Selex reported that it, together with Yasawa and their
affiliates, were uncertain as to whether they would provide any
further funds to the Company. The Amendment further stated that
Selex, Yasawa and their affiliates were seeking third parties to
provide financing for the Company and that as part of any such
transaction, they would be willing to sell or restructure all or a
portion of their loans and Common Stock in the Company.
The Company has stated in previous filings with the Commission and
elsewhere herein that the obtainment of additional funds to
implement its marketing program and achieve the objectives of its
business plan is essential to enable the Company to maintain
operations and continue as a going concern. Since December, 1992,
the Company has been dependent on loans and advances from Selex,
Yasawa and their affiliates in order to implement its marketing
program and assist in meeting its working capital requirements. As
previously stated, during the last six months of 1993, Selex,
Yasawa and their affiliates loaned the Company an aggregate of
$4,400,000 pursuant to Third Selex Loan. Funds advanced under the
Third Selex Loan enabled the Company to commence implementation of
the majority of its marketing program in the third quarter of 1993.
The full benefits of the program were not realized in 1993 and the
Company was unable to secure financing in 1994 to meet its working
capital requirements and continue its marketing program. As of September 30,
1994, Yasawa had advanced ("Second Yasawa Loan") a total of $1,400,000 to meet
the Company's minimum working capital requirements and pay settlements of
outstanding amounts due certain trade creditors.
Inasmuch as funding is not presently available to the Company from
external sources and, as stated in their Amendment, Selex, Yasawa
and their affiliates have not determined whether they will provide
any further funds to the Company, the Company is facing a severe
cash shortfall. As a consequence of its liquidity position, the
Company has defaulted on certain obligations, including its
previously described escrow obligations to the Division pursuant to
the Company's 1992 Consent Order, its obligation under its lease
for its corporate offices and its obligation to make required
interest payments under loans from Selex, Yasawa and their
affiliates. Furthermore, the Company has not paid certain real
estate taxes which aggregate approximately $1,570,000 as of
September 30, 1994 and is also subject to certain pending
litigation from former employees and others, which may adversely
affect the financial condition of the Company.
The Company is continuing to seek third parties to provide
financing. As part of any such transaction, Selex, Yasawa and
their affiliates have indicated that they are willing to sell or
restructure all or a portion of their loans and Common Stock in the
Company. They have also indicated that they are willing to sell
their interests in the Company at a significant discount.
Consummation of any such transaction may result in a change in
control of the Company. There can be no assurance, however, that
such transaction will result or that any financing will be
obtained. Accordingly, the Company's Board of Directors is also
considering other appropriate action given the severity of the
Company's liquidity position. Alternatively, the Company could be
subject to the filing of an involuntary bankruptcy proceeding in
the event it is unable to resolve and settle pending litigation,
satisfy settlement commitments and other unpaid creditor claims.
See Notes to Condensed Consolidated Financial Statements.
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PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
None
(b) Reports on Form 8-K.
A report on Form 8-K was filed by the Company on
February 17, 1994.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the
Registrant has duly caused this report to be signed on its behalf
by the
undersigned thereunto duly authorized.
THE DELTONA CORPORATION
Date: October ___, 1994 By:__Earle_D._Cortright,_Jr._____
Earle D. Cortright, Jr.
President and Chief
Operating Officer
(Principal Financial Officer)
29
