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 _June_30,_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 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
incorporation or organization) Identification 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:
6,697,022 shares of common stock, $1 par value, as of June 30, 1995.
<PAGE>
PART I FINANCIAL INFORMATION
============================
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
___THE_DELTONA_CORPORATION_AND_SUBSIDIARIES___
_UNAUDITED_CONSOLIDATED_CONDENSED_BALANCE_SHEETS_
__JUNE_30,_1995_AND_DECEMBER 31,_1994__
($000 Omitted)
<CAPTION>
June 30, December 31,
1995 1994
----------- ------------
<S> <C> <C>
Cash and temporary cash investments,
including escrow deposits and restricted
cash of $1,210 in 1995 and $2,242 in 1994.$ 1,328 $ 2,440
--------- ---------
Contracts receivable for land sales - net.. 5,592 5,544
--------- ---------
Mortgages and other receivables - net...... 573 1,243
--------- ---------
Inventories (b):
Land and land improvements................ 11,010 11,797
Other..................................... 132 148
--------- ---------
Total inventories.................... 11,142 11,945
--------- ---------
Property, plant, and equipment at cost -
net..................................... 522 653
--------- ---------
Prepaid expenses and other................. 231 284
--------- ---------
Total................................ $ 19,388 $ 22,109
========= =========
<CAPTION>
________LIABILITIES_AND_STOCKHOLDERS'_EQUITY_(DEFICIENCY)________
Mortgages and similar debt(c):
Mortgage notes payable....................$ 12,841 $ 14,070
Other loans .............................. 2,500 2,500
--------- ---------
Total mortgages and similar debt........ 15,341 16,570
Accounts payable, accrued expenses,
customers' deposits....................... 8,184 8,996
Allowance for Marco permit costs (d)....... 1,349 2,897
Deferred revenue........................... 9,696 10,467
--------- ---------
Total liabilities.................... 34,570 38,930
--------- ---------
Commitments and contingencies (d):
Stockholders' equity (deficiency):
Common stock, $1 par value - authorized
15,000,000 shares; outstanding: 1995 and
1994 - 6,697,022 shares and 6,668,765 shares
(excluding 12,228 shares held in treasury
in 1995 and 1994)........................ 6,697 6,669
Capital surplus........................... 44,677 42,738
Accumulated deficit....................... (66,556) (66,228)
--------- ---------
Total stockholders' (deficiency)..... (15,182) (16,821)
--------- ---------
Total.......................... $ 19,388 $ 22,109
========= =========
</TABLE>
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<TABLE>
___THE_DELTONA_CORPORATION_AND_SUBSIDIARIES___
___UNAUDITED_CONDENSED_STATEMENTS_OF_CONSOLIDATED_OPERATIONS___
___FOR_THE_PERIODS_INDICATED___
($000 Omitted Except Per Share Amounts)
<CAPTION>
Six Months Three Months
Ended Ended
-----------------------------------------------
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues (a):
Net land sales......... $ 987 $ 1,481 $ 555 $ 791
House and apartment sales. 998 776 265 484
Recognized improvement
revenue/ prior period
sales.................... 771 483 554 59
Interest income............ 422 472 194 264
Other revenues............ 571 359 352 142
-------- -------- -------- --------
Total...................... 3,749 3,571 1,920 1,740
-------- -------- -------- --------
Costs and expenses (a):
Cost of sales and
improvements............. 1,564 1,538 671 794
Selling, general and
administrative and other
expenses................. 2,409 4,020 1,253 1,578
Interest expense (c)(e)... 806 887 359 440
-------- -------- -------- --------
Total...................... 4,779 6,445 2,283 2,812
-------- -------- -------- --------
Loss from operations before
extraordinary item........ (1,030) (2,874) (363) (1,072)
Extraordinary item:
Gain on settlement related
to the Marco refund
obligation............... 702 -0- -0- -0-
-------- -------- -------- --------
Net Loss................... (328) (2,874) (363) (1,072)
======== ======== ======== ========
Net loss per share.........$ (.05)$ (.43) $ (.05) $ (.16)
======== ======== ======== ========
Number of common and common
equivalent shares.........6,690,396 6,625,634 6,695,568 6,625,634
========= ========= ========= =========
</TABLE>
No dividends have been paid on Common Stock.
Results of operations for the first six 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.
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<PAGE>
<TABLE>
___THE_DELTONA_CORPORATION_AND_SUBSIDIARIES___
_UNAUDITED_CONDENSED_STATEMENTS_OF_CONSOLIDATED_CASH_FLOWS_
___FOR_THE_SIX MONTHS_ENDED___
__JUNE_30,_1995_AND_JUNE_30,_1994__
($000 Omitted)
<CAPTION>
Six Months Ended
------------------------------
June 30, June 30,
1995 1994
--------- ---------
<S> <C> <C>
Cash flows from operating activities......$ (2,167) $ (1,472)
--------- ---------
Cash flows from investing activities:
Proceeds from sale of property, plant
and equipment........................... 25 280
Payment for acquisition and construction
of property plant and equipment......... (15) -0-
--------- ---------
Net cash provided by (used in) investing
activities............................... 10 280
--------- ---------
Cash flows from financing activities:
New borrowings.......................... 1,050 694
Repayment of borrowings................. (5) (157)
--------- ---------
Net cash provided by (used in) financing
activities............................... 1,045 537
--------- ---------
Net increase (decrease) in cash and
temporary cash investments (including
escrow deposits and restricted cash)..... (1,112) (655)
Cash and temporary cash investments at
December 31, 1994 and December 31, 1993 2,440 3,008
--------- ---------
Cash and temporary cash investments at
June 30, 1995 and June 30, 1994.... $ 1,328 $ 2,353
========= =========
Supplemental disclosure of non cash
investing and financing activities:
Common Stock issued for reduction of
mortgage note payable................. $ -0- $ 1,140
========= =========
Common Stock issued for Marco Settlement $ 56 $ 150
========= =========
Interest and debt reduction in exchange
for Land and Property Plant and
Equipment........................... $ 2,599 $ -0-
========= =========
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements.
Certain amounts have been reclassified for comparative purposes.
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<PAGE>
<TABLE>
___THE_DELTONA_CORPORATION_AND_SUBSIDIARIES___
_UNAUDITED_CONDENSED_STATEMENTS_OF_CONSOLIDATED_CASH_FLOWS_
__FOR_THE_SIX_MONTHS_ENDED__
__JUNE_30,_1995_AND_JUNE_30,_1994__
($000 Omitted)
<CAPTION>
Six Months Ended
-----------------------
June 30, June 30,
1995 1994
-------- --------
<S> <C> <C>
Reconciliation of net income (loss)
to net cash provided by (used in)
operating activities:
Net loss................................. $ (328) $ (2,874)
-------- --------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization............. 34 54
Provision for estimated uncollectible
sales-net................................ 362 307
Contract valuation discount, net of
amortization............................. 48 55
Gain on settlement related to the Marco
refund obligation........................ (702) -0-
Net change in assets and liabilities...... (1,581) 955
-------- --------
Total adjustments...................... $ (1,839) $ 1,402
-------- --------
Net cash provided by (used in) operating
activities............................. $ (2,167) $ (1,472)
======== ========
</TABLE>
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<PAGE>
___THE_DELTONA_CORPORATION_AND_SUBSIDIARIES___
_NOTES_TO_UNAUDITED_CONDENSED_CONSOLIDATED_FINANCIAL_STATEMENTS_
___JUNE_30,_1995___
(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 (the "Commission").
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 Commission 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
_____________________
June 30, December 31,
1995 1994
_________ _____________
<S> <C> <C>
Unimproved land................ $ 444 $ 444
Land in various stages of
development................... 3,699 4,014
Fully improved land............ 6,867 7,339
-------- --------
Total.................... $ 11,010 $ 11,797
======== ========
</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 June 30, 1995 and December 31,
1994. Other inventories consists primarily of vacation
ownership units completed.
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<PAGE>
(c) MORTGAGES AND SIMILAR DEBT
On June 19, 1992, Selex International, B.V., a Netherlands
corporation ("Selex") loaned the Company the sum of $3,000,000
pursuant to the First Selex Loan. The First Selex Loan is
collateralized by a first mortgage on certain of the Company's
unsold, undeveloped 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 18 months of the Loan and interest payments due
quarterly thereafter. 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, which, modified, enabled Selex
to convert the First Selex Loan, or any portion thereof, into
a maximum of 600,000 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"). On February 17, 1994, Selex
exercised the Option, in full, 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 of June 30,
1995, the Company was in default of the First Selex Loan
inasmuch as accrued interest in the amount of $767,300
remained unpaid.
One million dollars 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 Marcellus H.B.
Muyres and certain entities affiliated with Cornelis L.J.J.
Zwaans and Mr. 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 Development Corporation ("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 Development
Corporation ("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 contracts with the Company for the
purchase of a commercial tract in St. Augustine Shores,
Florida. None of the commercial and multi-family property
acquired by the Company from Mr. Muyres and certain entities
affiliated with Messrs. Zwaans and Muyres collateralizes the
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<PAGE>
First Selex Loan. In March, 1994, Conquistador exercised its
right to repurchase certain multi-family property from the
Company (which right had been granted in connection with the
June, 1992 Selex 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 Second Selex
Loan (the "First Conquistador Acquisition").
On December 2, 1992, the Company entered into various
agreements relating to certain of its assets and the
restructuring of its debt with Yasawa Holding N.V., a
Netherlands Antilles corporation ("Yasawa"), which is
beneficially owned by Mr. Antony Gram. The consummation of
these agreements, which are further described below, was
conditioned upon the acquisition by Gram of the Company's
outstanding bank loan.
On December 4, 1992, Gram entered into an agreement with the
lenders, pursuant to which he acquired the bank loan of
approximately $25,150,000 (including interest and fees) for a
price of $10,750,000. In conjunction with such transaction,
the lenders transferred to Gram the warrants which they held
that entitled the holder to purchase an aggregate of 277,387
shares of the Company's Common Stock at an exercise price of
$1.00 per share. Immediately after the acquisition of the
bank loan, 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
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<PAGE>
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 June 30, 1995); 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").
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. An assignment of a
mortgage receivable and miscellaneous sales of collateral
reduced the Yasawa Loan to $4,764,600 as of June 30, 1995. As
of June 30, 1995, $796,300 in principal and accrued interest
was in default under the Yasawa 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 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. The Second Selex Loan was satisfied on May 22, 1995
through the closing of the Second Conquistador Acquisition,
discussed below.
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
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<PAGE>
30, 1994 due and payable on April 30, 1994. As of June 30,
1995, accrued interest of $612,700 due under the Loan, as well
as the principal balance of $3,044,600, remained unpaid and in
default. The Second Conquistador Acquisition, discussed
below, closed on May 22, 995 and provided a reduction of the
debt due and payable under the Third Selex Loan.
In February, 1994, Yasawa loaned the Company an additional
amount of approximately $514,900 at an interest rate of 8% per
annum (the "Second Yasawa Loan"). Since May, 1994, additional
amounts were advanced to the Company under the Second Yasawa
Loan to enable the Company to pay certain essential expenses,
effectuate settlements with the Company's principal creditors
and pay certain real estate taxes. As of June 30, 1995, an
aggregate amount of $3,172,000 had been advanced to the
Company under the Second Yasawa Loan and accrued interest of
$181,400 remains unpaid.
On May 22, 1995, the Company closed a transaction with
Conquistador (the "Second Conquistador Acquisition") for the
sale of an administration building and multi-family site in
the Company's St. Augustine Shores community as well as the
remaining lot inventory in the Company's Feather Nest
community at Marion Oaks in consideration for the satisfaction
of $2,612,000 of principal and accrued interest on the Second
and Third Selex Loans. In a separate transaction, on May 22,
1995 Conquistador and the Company closed a transaction (the
"Third Conquistador Acquisition") for the sale of four single
family residential lots in the St. Augustine Shores community
for $100,000 in cash. These transactions were accounted for
in accordance with generally accepted accounting principals
for these types of related party transactions. Accordingly,
the resulting gain of $1,900,000 was treated as a contribution
of capital and recorded directly to capital surplus.
As previously stated, Messrs. Muyres and Zwaans also serve as
directors and executive officers of M&M First Coast Realty
Inc. ("M&M"). The Company has leased certain office space to
M&M at the St. Augustine Shores Administration Building
pursuant to a Lease Agreement dated August 10, 1990. A
payment of approximately $21,300 in delinquent rental payments
was made on May 22, 1995 upon the closing of the Second
Conquistador Acquisition, which included the sale of the St.
Augustine Administration Building.
Interest due to Selex, Yasawa and their affiliates as of June
30, 1995 in the aggregate amount of $3,365,500 remained unpaid
and in default. Through June 30, 1995, $1,140,000 in
principal was repaid under the First Selex Loan through the
exercise of the above described Option, $1,000,000 in
principal and $139,400 in accrued interest was repaid under
the Second Selex Loan, $1,368,100 in principal was repaid
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<PAGE>
under the Third Selex Loan, and $135,900 in principal and
$346,000 in accrued interest was repaid under the Yasawa loan.
As of June 30, 1995, the Company had loans outstanding from
Selex, Yasawa and their affiliates in the aggregate amount of
approximately $18,706,800, including interest, all of which
are in default, including approximately $7,879,500, which is
owed to Selex, including accrued and unpaid interest of
approximately $1,974,900 (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 $8,914,300, which owed to Yasawa,
including accrued and unpaid interest of approximately
$977,700 (11% per annum on the Yasawa Loan and 8% per annum on
the Second Yasawa Loan); and approximately $1,913,000, which
is owed to an affiliate of Yasawa, including accrued and
unpaid interest of approximately $413,000 (12% per annum).
The loans from Selex, Yasawa and their affiliates are secured
by substantially all of the assets of the Company.
(d) COMMITMENTS AND CONTINGENCIES
During 1983 the Company entered into a sale-leaseback
agreement on its executive office building. 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 March 31, 1994, at which time
the Company would have the option of acquiring the leased
premises or reinstating the lease according to its original
terms. In the action styled FIVE POINTS LIMITED v. THE
DELTONA CORPORATION, Case No. 93-22877, filed in the Circuit
Court for Dade County, Florida and served upon the Company on
December 8, 1993, the plaintiff sought damages against the
Company for an alleged breach of the lease for its office
building. The complaint alleged that the Company had
defaulted on its obligation to make payments under the lease
and sought damages in excess of $272,000 for additional past
due rent, plus damages for acceleration of lease payments in
excess of $4,000,000. On February 17, 1994 the Court entered
an Order requiring the Company to pay uncontested back rent of
approximately $240,000, plus uncontested monthly rents of
approximately $48,000, commencing on March 1, 1994.
Approximately $41,500 had been garnished by the Court under
this Order. The Plaintiff has obtained multiple judgments in
the amount of $647,000. These judgments were recorded in
certain of the Company's communities. As set forth in the
Company's filing on September 1, 1994 of its Form 10-K for the
fiscal year ended December 31, 1993, the Company had entered
into a Settlement Agreement with the plaintiff which needed to
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be consummated on or before October 17, 1994. The Company
also stated that new financing would be required to consummate
the settlement agreement and that failure to fund this
agreement would result in continued litigation and a likely
substantial judgement against the Company. The settlement
agreement was consummated on October 27, 1994 as a result of
funds being advanced by Yasawa and the posting of a letter of
credit by Mr. Antony Gram, Chairman and Chief Executive
Officer of the Company.
The profit on the sale-leaseback agreement was included in
deferred revenue and amortized as a reduction in rent expense
over the term of the lease which, according to its terms would
expire March 31, 1998. At December 31, 1993, $1,205,000 of
the profit remained in deferred revenue. On October 27, 1994,
the date on which the above referenced settlement agreement
was consummated, all of the profit remaining in deferred
revenue was recognized resulting in a gain of $1,051,000.
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 improvements 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 June 30, 1995 was approximately $6,119,300.
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 State of Florida , Department of
Business and Professional Regulation, Division of Land Sales,
Condominiums and Mobile Homes (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 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
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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 $7,392,000 as of June 30, 1995) and future
receivables. The Company defaulted on its obligation to escrow
$430,000 per month for the period of 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. As of June 30,
1995, approximately 81% of the customers whose lots are
currently undeveloped have opted to exchange. The Company's
goal is to eliminate its development obligation (with the
exception of its road maintenance obligation in Marion Oaks
and Sunny Hills) under the 1992 Consent Order through this
exchange program, completion of two commercial areas in Marion
Oaks, closing on a pending contract for the sale of its second
Citrus Springs Golf Course (with the buyer assuming the
development obligation) and settlement of all remaining
maintenance and improvements obligations in Citrus Springs
through a final agreement with Citrus County (entered into in
May 1995). Consequently, the Division has allowed the Company
to utilize collections on receivables since May 1, 1994.
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 June 30, 1995, the
Company had estimated development obligations of approximately
$2,167,000 on sold property, an estimated liability to provide
title insurance and deeding costing $1,215,600 and an
estimated cost of street maintenance, prior to assumption of
such obligations by local governments, of $1,228,000, all of
which are included in deferred revenue. The total cost,
-13-
<PAGE>
including the previously mentioned obligations, to complete
improvements at June 30, 1995 to lots subject to the 1992
Consent Order and to lots in the St. Augustine Shores
community was estimated to be approximately $16,000,000. As
of June 30, 1995 the Company had in escrow approximately
$675,000 specifically for land improvements at certain of its
Central and North Florida communities.
Based upon the Company's experience with affected customers,
the Company believes that the total refunds arising from
delays in completing such improvements will not materially
exceed the amount provided for in the consolidated financial
statements. Approximately $35,000 of the provision for the
total refunds relating to the delays of improvements remained
in accrued expenses and other at June 30, 1995.
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 the
completion of 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.
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, 1994, 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
have no material effect upon the Company's operation.
(e) CAPITALIZED INTEREST
The Company capitalizes interest cost incurred during a
project's construction period. Of the total interest cost
incurred of $806,000 and $887,000, none was capitalized for
the six months ended June 30, 1995 and June 30, 1994,
respectively.
-14-
<PAGE>
(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 the
average number of shares of Common Stock and common stock
equivalents used to calculate earnings per share for the six
months ended June 30, 1995 and June 30, 1994 were $(328,000)
and $(2,874,000) and 6,690,396 and 6,625,534, respectively,
and for the second quarters of 1995 and 1994 were
$(363,000)and $(1,072,000) and 6,695,568 and 6,625,634,
respectively.
-15-
<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 $767,300 was unpaid and in default as
of June 30, 1995.
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
-16-
<PAGE>
conversion. As a consequence of such conversion, Selex holds
2,820,066 shares of the Company's Common Stock (42.03% 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
June 30, 1995).
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.
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
Second Selex Loan (the "First Conquistador Acquisition").
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. 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. As of June 30, 1995, Yasawa has loaned the Company
additional sums of $3,172,000 pursuant to the Second Yasawa Loan.
As a consequence of these transactions, the Company had loans
outstanding from Selex, Yasawa and their affiliates on June 30,
1995 in the aggregate amount of approximately $18,706,800,
including interest. On May 22, 1995, the Company closed a
-17-
<PAGE>
transaction with Conquistador (the "Second Conquistador
Acquisition") for the sale of an administration building and
multi-family site in the Company's St. Augustine Shores community
as well as the remaining lot inventory in the Company's Feather
Nest community at Marion Oaks in consideration for the satisfaction
of $2,612,300 of principal and accrued interest on the Second and
Third Selex Loans. On May 22, 1995, Conquistador and the Company
closed a transaction (the "Third Conquistador Acquisition") for the
sale of four single family residential lots in the St. Augustine
Shores community for $100,000 in cash. These transactions were
accounted for in accordance with generally accepted accounting
principals for these types of related party transactions.
Accordingly, the resulting gain of $1,900,000 was treated as a
contribution of capital and recorded directly to capital surplus.
The loans from Selex, Yasawa and their affiliates are secured by
substantially all of the assets of the Company.
On March 10, 1993, 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.
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. As of June 30, 1995, Yasawa had advanced (the
"Second Yasawa Loan") a total of $3,172,000 to meet the Company's
minimum working capital requirements, pay $550,000 in delinquent
real estate taxes, pay settlements of outstanding amounts due
certain trade creditors reducing the Company's accounts payable by
more than $1,000,000 and settle certain litigation reducing the
Company's exposure in excess of $5,000,000.
-18-
<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 and its obligation to make required interest payments under
loans from Selex, Yasawa and their affiliates. Furthermore, the
Company has not paid delinquent real estate taxes aggregating
approximately $1,503,000 at June 30, 1995.
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 will
consider other appropriate action given the severity of the
Company's liquidity position including but not limited to filing
for protection under the federal bankruptcy laws.
RESULTS OF OPERATIONS
- ----------------------
For the six months and three months ended June 30, 1995 and June
30, 1994.
Revenues
- ---------
Total revenues were $3,749,000 for the first six months of 1995
compared to $3,571,000 for the comparable 1994 period. For the
second quarter of 1995 total revenues were $1,920,000 compared to
$1,740,000 for the comparable 1994 period.
Gross land sales were $1,511,000 for the first six months of 1995
versus $1,947,000 for 1994. Net land sales (gross land sales less
estimated uncollectible installment sales and contract valuation
discount) decreased to $987,000 for the first six months of 1995
from $1,481,000 for the first six months of 1994. For the three
months ended June 30, 1995 net land sales decreased to $554,900
from $790,700 for the comparable year ago period. The decrease in
sales reflects the curtailment of the Company's marketing program
in 1994.
-19-
<PAGE>
Bulk land sales for the first six months of 1995 were $-0- ($-0-
for the second quarter of 1995) and $314,500 for the first six
months of 1994 ($-0- for the second quarter of 1994), 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. Revenues are not recognized from housing sales
until the completion of construction and passage of title. Housing
revenues were $998,000 as of June 30, 1995 compared to $776,000 as
of June 30, 1994.
The following table reflects the Company's real estate product mix
for the periods indicated (in thousands):
<TABLE>
<CAPTION>
Six months ended Three months ended
------------------ ------------------
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Gross Land Sales:
Bulk Sales $ -0- $ 315 $ -0- $ -0-
Retail Sales<FN> 1,511 1,632 846 1,048
-------- -------- -------- -------
Total 1,511 1,947 846 1,048
-------- -------- -------- -------
Housing Sales:
Single Family 991 776 265 484
Vacation ownership 7 -0- -0- -0-
-------- -------- -------- -------
Total 998 776 265 484
-------- -------- -------- -------
Total Real
Estate $ 2,409 $ 2,723 $ 1,111 $ 1,532
======== ======== ======== =======
<FN>
________
<F1> New retail land sales contracts entered into, including
deposit sales on which the Company has received less than 20%
of the sales price, net of cancellations, for the six months
ended June 30, 1995 and June 30, 1994 were $2,068,000 and
$1,434,000 respectively and $1,013,000 and $334,000 for the
second quarters of 1995 and 1994, respectively. Such
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.
</TABLE>
Improvement revenues result from recognition of revenues deferred
from prior period sales. Recognition occurs as development work
proceeds on the previously sold property or customers are exchanged
to a developed lot. Improvement revenues totalled $771,000 for the
first six months of 1995 ($554,000 for the second quarter of 1995),
as compared to $482,500 for the first six months of 1994 ($58,800
for the second quarter of 1994). The increase was due to increased
-20-
<PAGE>
profit margins resulting from revised cost estimates to complete
development work on sold property.
Interest income was $422,300 for the first six months of 1995
compared to $472,300 for the same period of 1994. This decrease is
the result of lower contracts receivable balances. For the second
quarters of 1995 and 1994, interest income was $193,500 and
$263,700, respectively.
Other revenues were $571,100 as compared to $359,500 for the six
months ended June 30, 1995 and June 30, 1994, respectively. For
the second quarters of 1995 and 1994, other revenues were $352,300
and $142,000, respectively. Other revenues are generated
principally by the Company's title insurance and real estate
brokerage subsidiaries.
Costs and Expenses
- -------------------
Costs and expenses for the first six months of 1995 were $4,779,000
compared to $6,445,000 for the same period in 1994. For the second
quarters of 1995 and 1994, costs and expenses totalled $2,283,000
and $2,812,000, respectively. The decrease is the result of cost
reduction in selling and general administrative expenses
implemented in the second quarter of 1994. Cost of sales totalled
$1,564,000 for the six months ended June 30, 1995 compared to
$1,538,000 for the 1994 period. For the second quarters of 1995
and 1994, cost of sales were $671,000 and $810,000, respectively.
Gross profit margin increased to 53.0% from 50.4%. Profit margins
increased primarily due to the higher margins on improvement
revenues resulting from revised estimates to complete maintenance
work at its communities.
Commissions, advertising and other selling expenses totalled
$820,000 for the six months ended June 30, 1995 and $1,851,600 for
the same period of 1994. Advertising and promotional expenditures
decreased to $55,000 from $362,000 for the six month period of 1995
versus 1994. For the second quarter of 1995, commission,
advertising and other selling expenses totalled $412,000, compared
to $604,000 for the 1994 second quarter. Advertising and
promotional expenditures decreased to $21,000 from $70,000 for the
second quarter period of 1995 versus 1994. These decreases are the
result of the reduction in the Company's marketing program.
General and administrative expenses were $1,026,000 for the first
six months of 1995 and $1,745,000 for the same period of 1994. For
the second quarter of 1995, general and administrative expenses
were $557,000, compared to $762,000 in 1994. General and
administrative expenses have decreased primarily due to the
overhead reductions implemented in the first quarter of 1994 and
settlement of the Company's lease obligation on its corporate
headquarters in October 1994.
-21-
<PAGE>
Real estate tax expense was $563,000 for the first six months of
1995 and $423,000 for the same period of 1994. Real estate tax
expense for the second quarter of 1995 was $284,000 versus $212,000
for the second quarter of 1994. Included in real estate tax
expense is interest and administrative fees on delinquent taxes,
which accrue interest at 18% per annum.
Interest expense for the first six months of 1995 was $806,000,
compared to $887,000 for the first six months of 1994. Interest
expense for the second quarter of 1995 was $359,000, compared to
$440,000 for the second quarter of 1994. Total interest cost (none
of which represents capitalized interest) was $806,000 and $887,000
for the first six months of 1995 and 1994, respectively. For the
second quarter of 1995, total interest cost (none of which
represents capitalized interest) was $359,000, compared to $440,000
for the second quarter of 1994. No interest has been capitalized
since the first quarter of 1994 since the Company had stopped land
development work at its communities.
Net Income (Loss)
- ------------------
The Company reported a net loss of $328,000 for the six months
ended June 30, 1995, compared to a net loss of $2,874,000 for the
six months ended June 30, 1994. For the second quarter of 1995, a
net loss of $363,000 was reported compared to a net loss of
$1,072,000 for the second quarter of 1994. The six months ending
June 30, 1995 included an extraordinary gain of $702,000 resulting
from a reduction in the allowance for the guarantee pursuant to a
settlement of the Marco class action.
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
-22-
<PAGE>
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.
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.
The following table presents information with respect to mortgages
and similar debt (in thousands):
<TABLE>
<CAPTION>
Years Ended
-----------------------------
June 30, December 31,
1995 1994
-------- ------------
<S> <C> <C>
Mortgage Notes Payable........ $12,841 $14,070
Other Loans................... 2,500 2,500
-------- -------
Total Mortgages and
Similar Debt...... $15,341 $16,570
======== =======
</TABLE>
-23-
<PAGE>
Included in Mortgage Notes Payable is the $3,000,000 First Selex
Loan ($1,860,000 as of June 30, 1995), the $4,400,000 Third Selex
Loan ($3,044,600 as of June 30, 1995), the $4,900,000 Yasawa Loan
($4,764,600 as of June 30, 1995) and the Second Yasawa Loan
($3,172,000 as of June 30, 1995). 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
June 30, 1995 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, Selex International, B.V., a Netherlands
corporation ("Selex") loaned the Company the sum of $3,000,000
pursuant to the First Selex Loan. The First Selex Loan is
collateralized by a first mortgage on certain of the Company's
unsold, undeveloped 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 18 months of the Loan and
interest payments due quarterly thereafter. 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, which, modified,
enabled Selex to convert the First Selex Loan, or any portion
thereof, into a maximum of 600,000 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"). On February 17, 1994, Selex exercised the
Option, in full, 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 of June 30, 1995, the Company was in
default of the First Selex Loan inasmuch as accrued interest in the
amount of $767,300 remained unpaid.
One million dollars 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 Marcellus H.B. Muyres and certain
entities affiliated with Cornelis L.J.J. Zwaans and Mr. 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 Development Corporation
("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 Development Corporation ("Swan"), in which Messrs. Zwaans
and Muyres also serve as directors, as well as President and
-24-
<PAGE>
Secretary, respectively; and (iii) approximately $99,000 was used
to reacquire, from Mr. Muyres, all of his rights, title and
interest in that certain contracts with the Company for the
purchase of a commercial tract in St. Augustine Shores, Florida.
None of the commercial 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
multi-family property from the Company (which right had been
granted in connection with the June, 1992 Selex 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 Second Selex Loan (the "First Conquistador Acquisition").
On December 2, 1992, the Company entered into various agreements
relating to certain of its assets and the restructuring of its debt
with Yasawa Holding N.V., a Netherlands Antilles corporation
("Yasawa"), which is beneficially owned by Mr. Antony Gram. The
consummation of these agreements, which are further described
below, was conditioned upon the acquisition by Gram of the
Company's outstanding bank loan.
On December 4, 1992, Gram entered into an agreement with the
lenders, pursuant to which he acquired the bank loan of
approximately $25,150,000 (including interest and fees) for a price
of $10,750,000. In conjunction with such transaction, the lenders
transferred to Gram the warrants which they held that entitled the
holder to purchase an aggregate of 277,387 shares of the Company's
Common Stock at an exercise price of $1.00 per share. Immediately
after the acquisition of the bank loan, 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
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<PAGE>
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 June 30, 1995); 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").
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. An assignment of a mortgage receivable and miscellaneous
sales of collateral reduced the Yasawa Loan to $4,764,600 as of
June 30, 1995. As of June 30, 1995, $796,300 in principal and
accrued interest was in default under the Yasawa 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 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. The Second
Selex Loan was satisfied on May 22, 1995 through the closing of the
Second Conquistador Acquisition, discussed below.
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 due and payable on April 30,
1994. As of June 30, 1995, accrued interest of $612,700 due under
the Loan, as well as the principal balance of $3,044,600, remained
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<PAGE>
unpaid and in default. The Second Conquistador Acquisition,
discussed below, closed on May 22, 995 and provided a reduction of
the debt due and payable under the Third Selex Loan.
In February, 1994, Yasawa loaned the Company an additional amount
of approximately $514,900 at an interest rate of 8% per annum (the
"Second Yasawa Loan"). Since May, 1994, additional amounts were
advanced to the Company under the Second Yasawa Loan to enable the
Company to pay certain essential expenses, effectuate settlements
with the Company's principal creditors and pay certain real estate
taxes. As of June 30, 1995, an aggregate amount of $3,172,000 had
been advanced to the Company under the Second Yasawa Loan and
accrued interest of $181,400 remains unpaid.
On May 22, 1995, the Company closed a transaction with Conquistador
(the "Second Conquistador Acquisition") for the sale of an
administration building and multi-family site in the Company's St.
Augustine Shores community as well as the remaining lot inventory
in the Company's Feather Nest community at Marion Oaks in
consideration for the satisfaction of $2,612,000 of principal and
accrued interest on the Second and Third Selex Loans. In a
separate transaction, on May 22, 1995 Conquistador and the Company
closed a transaction (the "Third Conquistador Acquisition") for the
sale of four single family residential lots in the St. Augustine
Shores community for $100,000 in cash. These transactions were
accounted for in accordance with generally accepted accounting
principals for these types of related party transactions.
Accordingly, the resulting gain of $1,900,000 was treated as a
contribution of capital and recorded directly to capital surplus.
As previously stated, Messrs. Muyres and Zwaans also serve as
directors and executive officers of M&M First Coast Realty Inc.
("M&M"). The Company has leased certain office space to M&M at the
St. Augustine Shores Administration Building pursuant to a Lease
Agreement dated August 10, 1990. A payment of approximately
$21,300 in delinquent rental payments was made on May 22, 1995 upon
the closing of the Second Conquistador Acquisition, which included
the sale of the St. Augustine Administration Building.
Interest due to Selex, Yasawa and their affiliates as of June 30,
1995 in the aggregate amount of $3,365,500 remained unpaid and in
default. Through June 30, 1995, $1,140,000 in principal was repaid
under the First Selex Loan through the exercise of the above
described Option, $1,000,000 in principal and $139,400 in accrued
interest was repaid under the Second Selex Loan, $1,368,100 in
principal was repaid under the Third Selex Loan, and $135,900 in
principal and $346,000 in accrued interest was repaid under the
Yasawa loan. As of June 30, 1995, the Company had loans
outstanding from Selex, Yasawa and their affiliates in the
aggregate amount of approximately $18,706,800, including interest,
all of which are in default, including approximately $7,879,500,
which is owed to Selex, including accrued and unpaid interest of
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<PAGE>
approximately $1,974,900 (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
$8,914,300, which owed to Yasawa, including accrued and unpaid
interest of approximately $977,700 (11% per annum on the Yasawa
Loan and 8% per annum on the Second Yasawa Loan); and approximately
$1,913,000, which is owed to an affiliate of Yasawa, including
accrued and unpaid interest of approximately $413,000 (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 sales 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. However commencing in 1994,
Yasawa advanced additional funds (the "Second Yasawa Loan") a total
of $3,172,000 as of June 30, 1995, to meet the Company's minimum
working capital requirements, to pay certain 1992 delinquent real
estate taxes, to pay settlements with certain trade creditors and
to settle certain litigation.
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 and its obligation to make required interest payments under
loans from Selex, Yasawa and their affiliates. Furthermore, the
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<PAGE>
Company has not paid delinquent real estate taxes which aggregate
approximately $1,503,000 as of June 30, 1995 and is also subject to
certain pending litigation from former employees, 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 will
consider other appropriate action given the severity of the
Company's liquidity position including, but not limited, to
protection under federal bankruptcy laws.
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 March, 1993 the Company transferred $1,600,000 in contracts and
mortgages receivable generating approximately $1,059,000 in
proceeds to the Company, which was used for working capital and the
creation of a holdback account in the amount $150,000. As of June
30, 1995, the balance of the holdback account was approximately
$107,000.
In June, 1992 and February, 1990, the Company completed sales of
contracts and mortgages receivable totalling $13,500,000 and
$17,000,000, respectively, which generated approximately $8,000,000
and $13,900,000, respectively, in net proceeds to the Company. The
anticipated costs of the June, 1992 transaction were included in
the extraordinary loss from debt restructuring for 1991 since the
restructuring was dependent on the sale. The Company recorded a
loss of $600,000 on the February, 1990 sale. In conjunction with
these sales 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. In
addition, these transactions, among other things require 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 purchaser holds a security
interest (approximately $1,222,000 as of June 30, 1995). The
purchaser of these receivables has experienced financial difficulty
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<PAGE>
and filed in 1994 for protection under Chapter 11 of the Federal
Bankruptcy Code. The Company is unable to determine what effect
this will have, if any, on future cancellations, since it is unable
to determine how the bankruptcy will impact servicing and
collection procedures and the customers' determination to continue
to pay under those contracts. The Company has fully reserved for
the amount of the holdback account and the estimated future
cancellations based on the Company's historical experience for
receivables the Company services. However, due to the uncertainty
noted above, the Company does not feel there is sufficient
information to estimate future cancellations and is unable to
determine the adequacy of its reserves to replace or repurchase
receivables that become delinquent. The Company was unable to
replace or repurchase $1,148,000 in delinquent contracts in 1994,
which amount was deducted from the deposit held by the purchaser of
the receivables as security.
The Company was the guarantor of approximately $21,451,000 of
contracts receivable sold or transferred as of June 30, 1995, for
the transactions described above, had $107,000 on deposit with
purchasers of the receivables as security to assure collectibility
as of such date. No liability had been established for the
Company's obligation under the recourse provisions. The Company
has been in compliance with all receivable transactions since the
consummation of sales.
The Company anticipates that it will be necessary to complete
additional sales and financings of a portion of its receivables in
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
State of Florida, Department of Business and Professional
Regulation, Division of Land Sales, Condominiums and Mobile Homes
(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 Group Incorporated ("Topeka"), Topeka's
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<PAGE>
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 $7,392,200 as of June 30, 1995) and
future receivables. The Company defaulted on its obligation to
escrow $430,000 per month for the period of 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. As of June 30, 1995, approximately 81% of the
customers whose lots are currently undeveloped have opted to
exchange. The Company's goal is to eliminate its development
obligation (with the exception of its road maintenance obligation
in Marion Oaks and Sunny Hills) under the 1992 Consent Order
through this exchange program, completion of two commercial areas
in Marion Oaks, closing a pending contract for the sale of its
second Citrus Springs Golf Course (with the buyer assuming the
development obligation) and settlement of all remaining maintenance
and improvements obligations in Citrus Springs through a final
agreement with Citrus County (entered into in May 1995).
Consequently, the Division has allowed the Company to utilize
collections on receivables since May 1, 1994. 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 June 30, 1995, the
Company had estimated development obligations of approximately
$2,167,000 on sold property, an estimated liability to provide
title insurance and deeding costing $1,215,600 and an estimated
cost of street maintenance, prior to assumption of such obligations
by local governments, of $1,228,000, all of which are included in
deferred revenue. The total cost, including the previously
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<PAGE>
mentioned obligations, to complete improvements at June 30, 1995 to
lots subject to the 1992 Consent Order and to lots in the St.
Augustine Shores community was estimated to be approximately
$16,000,000. As of June 30, 1995 the Company had in escrow
approximately $675,000, 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 real estate taxes. 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 delinquent real estate taxes
as monies are collected from customers. Delinquent real estate
taxes aggregated approximately $1,503,000 as of June 30, 1995.
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
subdivision by June 1, 1991. The Company was unable to complete
this work by the specified date and negotiated another agreement
with Citrus County for the transfer of final maintenance
responsibility for the roads to the County. This final agreement
was entered into May 1995.
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 March 31, 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
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<PAGE>
obligation to make rental payments under the lease and seeking to
accelerate lease payments. The Company completed a settlement of
this litigation on October 27, 1994 as a result of funds being
advanced under the Second Yasawa Loan and the posting of a letter
of credit by Mr. Antony Gram, Chairman and Chief Executive Officer
of the Company.
The Company placed certain properties in trust to meet its refund
obligation to Marco customers affected by the permit denials. On
September 14, 1992, the Circuit Court of Dade County, Florida
approved a settlement of certain class action litigation instituted
by customers affected by the Marco permit denials, under the terms
of which the Company was required, among other things, to convey
more than 120 acres of multi-family and commercial land that had
been placed in trust to the trustee of the 809 member class. As
part of the settlement, the Company guaranteed the amount to be
realized from the sale of the conveyed property, not to exceed
$2,000,000. Such settlement enabled the Company to resolve the
claims of an additional 12.7% of its affected customers and
re-evaluate the allowance for Marco permit costs. As a result of
such analysis, the Company was able to reduce such allowance by
$12,200,000, resulting in a $3,983,000 extraordinary gain in 1992
and a $500,000 credit to accrued expenses to be credited to paid-in
capital following issuance of 250,000 shares of restricted Common
Stock of the Company to the class members. Following the closing
on the majority of the property conveyed to the trust, the Company
recorded an extraordinary gain of $702,000 resulting from a
reduction in the amount of its guarantee pursuant to the settlement
agreement. At June 30, 1995, $1,349,000 remained in the
allowance for Marco permit costs. Based upon the Company's
experience with affected customers, the Company believes that its
total obligations to the three remaining affected customers will
not materially exceed the amount provided for in the accompanying
Consolidated 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
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<PAGE>
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
larger down payments. However, the nationwide economic recession,
which was 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
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<PAGE>
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 $4,764,600. The agreement with Yasawa
also provided the Company with a future line of credit, all of
which was drawn and outstanding as of June 30, 1995. During 1993,
Selex loaned the Company an additional $5,400,000 pursuant to the
Second and Third Selex Loans, of which $4,764,600 was outstanding
as of June 30, 1995, and Yasawa loaned the Company an additional
$3,172,000 as of June 30, 1995, 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
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 nine 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. However
commencing in 1994, Yasawa advanced additional funds (the "Second
Yasawa Loan") a total of $3,172,000 as of June 30, 1995, to meet
the Company's minimum working capital requirements, to pay certain
1992 delinquent real estate taxes, to pay settlements with certain
trade creditors reducing the Company's accounts payable by more
than $1,000,000 and to settle certain litigation reducing the
Company's exposure in excess of $5,000,000.
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
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<PAGE>
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 and its obligation to make
required interest payments under loans from Selex, Yasawa and their
affiliates. Furthermore, the Company has not paid delinquent real
estate taxes which aggregate approximately $1,503,000 as of June
30, 1995.
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 will
consider other appropriate action given the severity of the
Company's liquidity position including, but not limited, to filing
for protection under the federal bankruptcy laws.
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<PAGE>
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K
No Reports on Form 8-K were filed by the Company
during the quarter ended June 30, 1995.
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<PAGE>
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: August 11, 1995 By: /s/Donald O. McNelley
----------------- ----------------------
Donald O. McNelley
Treasurer
(Principal Financial Officer)
-38-
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<PERIOD-END> JUN-30-1995
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</TABLE>
