SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ending March 31, 2000
--------------
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)
8014 SW 135 STREET ROAD, OCALA, FLORIDA 34473
- -----------------------------------------------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (352)307-8100
-------------
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: 13,544,277 shares of common
stock, $1 par value, excluding treasury stock, as of March 31, 2000.
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders
of The Deltona Corporation:
We have reviewed the accompanying balance sheet of The Deltona Corporation as of
March 31, 2000, and the related statements of operations, and cash flows for the
three-month period then ended, in accordance with standards established by the
American Institute of Certified Public Accountants. These financial statements
are the representation of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit in accordance with
generally accepted auditing standards, the objective of which is the expression
of an opinion regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on information furnished to us by management, we believe certain
disclosures required under generally accepted accounting principles have been
omitted as permitted under Rule 10-01(a) of Regulation S-X of the Securities and
Exchange Commission for financial statements filed with Form 10-QSB. These
regulations presume the users of interim financial statements have read the
latest Form 10-KSB which include all disclosures required by generally accepted
accounting principles. The accompanying interim financial statements disclose
only material transactions, uncertainties, commitments, contingencies or
subsequent events.
The Company has omitted the statement of stockholders' equity, which is a
required statement under generally accepted accounting principles. This
statement is not required under Rule 10-01(a) of Regulation S-X of the
Securities and Exchange Commission.
Based on our review, with the exception of the matters described in the
preceding paragraphs, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
The balance sheet as of December 31, 1999 was audited by us and we expressed an
unqualified opinion on it in our report dated February 18, 2000, and we have not
performed any auditing procedures since that date.
The accompanying statements of operations, and cash flows of The Deltona
Corporation for the three-months ended March 31, 1999 were not audited by us
and, accordingly, we do not express an opinion on them.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note a to the
consolidated financial statements, the Company incurred substantial operating
losses and has continued to experience problems with liquidity, causing the
Company to be unable to meet certain contractual obligations and has a
stockholders' deficiency at March 31, 2000. These matters raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans concerning these matters are described in Note a. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
JAMES MOORE & CO. P.L.
Certified Public Accountants
Gainesville, Florida
March 5, 2000
2
<PAGE>
PART I- FINANCIAL INFORMATION
-----------------------------
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
THE DELTONA CORPORATION AND SUBSIDIARIES
----------------------------------------
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
-----------------------------------------------
MARCH 31, 2000 AND DECEMBER 31, 1999
------------------------------------
($000 Omitted)
March 31, December 31,
2000 1999
--------- ------------
<S> <C> <C>
ASSETS
------
Cash and cash equivalents, including escrow deposits
and restricted cash of $406 in 2000 and $396 in 1999... $ 551 $ 548
--------- ---------
Contracts receivable for land sales - net............... 1,166 1,549
--------- ---------
Mortgages and other receivables - net................... 72 109
--------- ---------
Inventories (b):
Land and land improvements............................. 8,270 8,237
Houses completed or under construction................. 895 0
Other.................................................. 70 70
--------- ---------
Total inventories........................... 9,235 8,307
--------- ---------
Property, plant, and equipment at cost - net............ 477 489
Prepaid expenses and other.............................. 858 911
--------- ---------
Total............................................ $ 12,359 $ 11,913
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
-------------------------------------------------
Mortgages and similar debt(c):
Mortgage notes payable................................. $ 6,300 $ 6,600
Other loans ........................................... 6,338 5,114
--------- ---------
Total mortgages and similar debt..................... 12,638 11,714
Accounts payable, accrued expenses,
customers' deposits.................................... 5,903 6,024
Deferred revenue........................................ 2,314 2,379
--------- ---------
Total liabilities....................................... 20,855 20,117
--------- ---------
Commitments and contingencies (d):
Stockholders' equity (deficiency):
Common stock, $1 par value - authorized
15,000,000 shares; outstanding: 13,544,277 shares
(excluding 12,228 shares held in treasury............. 13,544 13,544
Capital surplus........................................ 51,973 51,863
Accumulated deficit.................................... (74,013) (73,611)
--------- ---------
Total stockholders' (deficiency)............ (8,496) (8,204)
--------- ---------
Total........................... $ 12,359 $ 11,913
========= =========
<FN>
See accompanying notes and independent accountants' report.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
THE DELTONA CORPORATION AND SUBSIDIARIES
----------------------------------------
UNAUDITED CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
---------------------------------------------------------
FOR THE PERIODS INDICATED
-------------------------
($000 Omitted Except Per Share Amounts)
Three Months Ended
-----------------------
March 31, March 31,
2000 1999
--------- ----------
<S> <C> <C>
Revenues (a):
Net land sales......................................... $ 1,168 $ 613
House and apartment sales.............................. 593 1,253
Recognized improvement revenue /
prior period sales.................................... 49 101
Interest income........................................ 85 109
Other revenues......................................... 192 108
--------- ----------
Total.............................................. 2,087 2,184
---------- ----------
Costs and expenses (a):
Cost of sales and improvements......................... 882 1,246
Selling, general and administrative
and other expenses.................................... 1,353 1,119
Interest expense (c)(e)................................ 254 116
---------- ----------
Total.............................................. 2,489 2,481
---------- ----------
Net Income (Loss)....................................... $ (402) $ (297)
========== ==========
Net Income (Loss) per common share...................... $ (.03) $ (.02)
========== ==========
Number of common and common equivalent shares........... 13,544,277 13,544,277
========== ==========
<FN>
See accompanying notes and independent accountants' report.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
THE DELTONA CORPORATION AND SUBSIDIARIES
----------------------------------------
UNAUDITED CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
---------------------------------------------------------
FOR THE THREE MONTHS ENDED
--------------------------
MARCH 31, 2000 AND MARCH 31, 1999
---------------------------------
($000 Omitted)
Three Months Ended
-----------------------
March 31, March 31,
2000 1999
--------- ----------
<S> <C> <C>
Cash flows from operating activities.................... $ (1,705) $ (3,984)
--------- ----------
Cash flows from investing activities:
Payment for acquisition of equipment................... 0 (18)
--------- ----------
Net cash provided by (used in) investing activities..... 0 (18)
--------- ----------
Cash flows from financing activities:
New borrowings........................................ 1,708 4,925
--------- ----------
Net cash provided by (used in) financing activities..... 1,708 4,925
--------- ----------
Net increase (decrease) in cash and cash equivalents
(including escrow deposits and restricted cash)........ 3 923
Cash and cash equivalents beginning of period........... 548 721
--------- ----------
Cash and cash equivalents end of period................. $ 551 $ 1,644
========= ==========
<FN>
See accompanying notes and independent accountants' report.
</FN>
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
THE DELTONA CORPORATION AND SUBSIDIARIES
----------------------------------------
UNAUDITED CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
---------------------------------------------------------
FOR THE THREE MONTHS ENDED
--------------------------
MARCH 31, 2000 AND MARCH 31, 1999
---------------------------------
($000 Omitted)
Three Months Ended
-----------------------
March 31, March 31,
2000 1999
--------- ----------
<S> <C> <C>
Reconciliation of net income (loss) to net cash
provided by (used in) operating activities:
Net income (loss)................................. $ (402) $ (297)
--------- ----------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization..................... 12 13
Provision for estimated uncollectible sales-net... 306 231
Contract valuation discount, net of amortization.. 38 62
Imputed interest on debt with related party....... 110 0
Net change in assets and liabilities.............. (1,769) (3,993)
--------- ----------
Total adjustments....................... $ (1,303) $ (3,687)
--------- ----------
Net cash provided by (used in) operating
activities.............................. $ (1,705) $ (3,984)
========= ==========
Supplemental disclosure of non cash investing
and financing activities:
Reduction of debt as a result of the conveyance
of contracts receivable................. $ 784 $ 1,012
========= ==========
<FN>
See accompanying notes and independent accountants' report.
</FN>
</TABLE>
6
<PAGE>
THE DELTONA CORPORATION AND SUBSIDIARIES
----------------------------------------
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------
MARCH 31, 2000
--------------
THE INFORMATION PRESENTED HEREIN AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND 1999 IS UNAUDITED.
(a) BASIS OF PRESENTATION
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
management, all adjustments (consisting only of normal recurring
adjustments) necessary for a fair statement of the results for the
interim periods presented. Operating results for the three months
ended March 31, 2000 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2000. 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.
Certain amounts have been reclassified for comparative purposes.
The accompanying financial statements of The Deltona Corporation and
subsidiaries ("The Company") have been prepared on a going concern
basis, which contemplates the realization of assets and satisfaction
of liabilities in the normal course of business. The Company has
incurred losses from operations resulting in a stockholders'
deficiency as of March 31, 2000. The Company has been dependant on its
ability to obtain financing from related companies to meet its cash
requirements. There can be no guarantee that the Company will be able
to obtain sufficient financing in the future or that related parties
will continue to make loans to the Company. The consolidated financial
statements do not include any adjustments relating to the
recoverability of asset amounts or the amount of liabilities should
the Company be unable to continue as a going concern.
(b) INVENTORIES
Information with respect to the classification of inventory of land
and improvements including land held for sale or transfer is as
follows (in thousands):
Land and Improvements
March 31, December 31,
2000 1999
--------- ------------
Unimproved land......................... $ 420 $ 420
Land in various stages of development... 3,002 2,633
Fully improved land..................... 4,848 5,184
-------- --------
Total............................ $ 8,270 $ 8,237
======== ========
Other inventories consists primarily of completed vacation ownership
units.
(c) MORTGAGES AND SIMILAR DEBT
The following table presents information with respect to mortgages and
similar debt (in thousands):
March 31, December 31,
2000 1999
--------- ------------
Mortgage Notes Payable ................. $ 6,300 $ 6,600
Other Loans............................. 6,338 5,114
-------- --------
Total mortgages and similar debt. $ 12,638 $ 11,714
======== ========
7
<PAGE>
Included in Mortgage Notes Payable is the Yasawa loan ($6,300,000 at
March 31, 2000); included in Other Loans is the Swan loan ($6,338,000
as of March 31, 2000).
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
Company's outstanding debt to Yasawa is secured by a first lien on the
Company's receivables and a mortgage on all of the Company's property;
and the Company's outstanding debt to Swan is secured by a second lien
on the Company's receivables. The Company satisfied its debt
obligation to Scafholding.
The terms of repayment of the Yasawa debt provide for monthly payments
of principal in the amount of $100,000 payable monthly in cash or with
contracts receivable at 100% of face value, plus interest payable
monthly on the declining balance at the rate of 6% per annum (reduced
from 9.6% effective January 1, 1999) in cash or with contracts
receivable at 65% of face value. Yasawa has not required the Company
to make monthly interest payments for the period September 1, 1998 to
March 31, 2000. As of March 31, 2000, the total amount of interest
accrued is approximately $790,000.
From October 9, 1998 through the present, Swan has advanced the
Company funds to meet its working capital requirements. The Company's
outstanding debt to Swan, which is secured by a second lien on the
Company's receivables, is approximately $6,337,000 and accrued
interest of $99,000 as of March 31, 2000. The Company signed a
promissory note to Swan in March 1999 which provides that funds
advanced by Swan will be paid back by the Company monthly in contracts
receivables at 90% of face value, with recourse. There will be no
interest for the first six months after an advance of money is
received from Swan by the Company; thereafter the interest shall be 6%
per annum on the outstanding balance of the advance. Each time an
advance is made, a supplemental note is signed. The amount of each
monthly payment will vary and will be dependent upon the amount of
contracts receivable in the Company's portfolio, excluding contracts
receivable held as collateral for prior receivable sales. Pursuant to
the terms of the promissory note, the Company is required to transfer
to Swan monthly as debt repayment all current contracts receivable in
the Company's portfolio in excess of the aggregate sum of $500,000.
Funds advanced by Swan were used by the Company to pay outstanding
real estate taxes for unsold properties with the balance to meet the
Company's working capital requirements.
The Company recorded interest expense on all outstanding debt balances
to Yasawa and Swan at 8%, the Company's incremental borrowing rate.
The difference between interest calculated at 8% and the amount
accrued under the terms of the respective notes was recorded as
capital contribution increase to capital surplus.
(d) COMMITMENTS AND CONTINGENCIES
Homesite sales contracts provide for the return of all monies paid in
(including paid-in interest) should the Company be unable to meet its
contractual obligations after the use of reasonable diligence. If a
refund is made, the Company will recover the related homesite and any
improvement thereto.
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, in 1980
the Company entered into a Consent Order with the Division which
provided a program for notifying affected customers. Since 1980, the
Consent Order was restated and amended several times, culminating in
the 1992 Deltona Consent Order.
As of March 31, 2000, the Company had estimated development
obligations of approximately $25,000 on sold property, an estimated
liability to provide title insurance and deeding costs of $228,000 and
an estimated cost of street maintenance, prior to assumption of such
obligations by local governments of $621,000, all of which are
included in deferred revenue. The total cost to complete improvements
as of March 31, 2000, including the previously mentioned obligations,
was estimated to be approximately $875,000 .
8
<PAGE>
In addition to the matters discussed above and in Item 3 of the
Company's Annual Report on Form 10-K for the year ended December 31,
1999, 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 the 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 $254,000
and $116,000, none was capitalized for the three months ended March
31, 2000 and March 31, 1999, respectively.
(f) EARNINGS OR LOSS PER SHARE
Basic 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.
(g) RELATED PARTY TRANSACTION
In January 2000, the Company purchased 16 lots and homes under
construction from Scafholding for approximately $862,000. This amount
represents Scafholding's lot cost and payments to date to the home
builder. This transaction was 100% financed by Swan under its existing
note payable arrangement.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Since December, 1992, the Company has been dependent on loans and advances from
Selex International B.V., a Netherlands corporation ("Selex"), Scafholding,
B.V., a Netherlands corporation ("Scafholding"), Yasawa Holdings, N.V., a
Netherlands Antilles Corporation ("Yasawa"), Swan Development Corporation, a
Florida corporation ("Swan"), and related parties in order to implement its
marketing program and assist in meeting its working capital requirements.
The Company had satisfied its outstanding debt to Selex and Scafholding; the
Company's outstanding debt to Yasawa is $6,300,000 secured by a first lien on
the Company's receivables and a mortgage on all of the Company's property. The
terms of repayment of this debt have been restructured to provide for monthly
payments of principal in the amount of $100,000 payable monthly in cash or with
contracts receivable at 100% of face value, plus interest payable monthly on the
declining balance at the rate of 6% per annum (reduced from 9.6% per annum
effective January 1, 1999) in cash or with contracts receivable at 65% of face
value. Yasawa did not require the Company to make interest payments for the
period September 1, 1998 to March 31, 2000. As of March 31, 2000, the total
amount of interest accrued is approximately $790,000.
From October 9, 1998 through the present, Swan continued to loan the Company
funds to meet its working capital requirements. The Company's outstanding debt
to Swan, which is secured by a second lien on the Company's receivables, was
$6,338,000 as of March 31, 2000. The Company signed a promissory note to Swan in
March 1999 which provides that funds advanced by Swan will be paid back by the
Company monthly in contracts receivables at 90% of face value, with recourse.
There will be no interest for the first six months after an advance of money is
received from Swan by the Company; thereafter the interest shall be 6% per annum
on the outstanding balance of the advance. Each time an advance is made, a
supplemental note is signed. The amount of each monthly payment will vary and
will be dependent upon the amount of contracts receivable in the Company's
portfolio, excluding contracts receivable held as collateral for prior
receivable sales. Pursuant to the terms of the promissory note, the Company is
required to transfer to Swan monthly as debt repayment all current contracts
receivable in the Company's portfolio in excess of the aggregate sum of
$500,000. Funds advanced by Swan were used by the Company to pay outstanding
real estate taxes for unsold properties with the balance to meet the Company's
working capital requirements.
Since January 1, 1999, the Company has recorded interest expense on all
outstanding debt balances to Yasawa, Scafholding and Swan at 8%, the Company's
incremental borrowing rate. The difference between interest calculated at 8% and
the amount accrued under the terms of the respective notes was recorded as a
capital contribution increase to capital surplus. The Company recorded interest
expense and a capital contribution in the amount of approximately $110,000 for
the three months ended March 31, 2000.
During 1998, the Company transferred 14 lots and 4 tracts of land to Swan. In
return, Swan built an office complex on part of the land for use by the Company
for a period of 54 months, renewable thereafter. The Company valued the land
transferred at approximately $440,000 and recorded the net present value of the
use of the office complex of approximately $375,000 as prepaid rent. The
difference between the net present value of the rent and the cost of the land of
approximately $290,000 is recorded as deferred profit.
RESULTS OF OPERATIONS
- ---------------------
For the three months ended March 31, 2000 and March 31, 1999.
Revenues
- --------
Total revenues were $2,087,000 for the first three months of 2000 compared to
$2,184,000 for the comparable 1999 period.
Gross land sales were $1,532,000 for the first three months of 2000 versus
$925,000 for the comparable 1999 period. Net land sales (gross land sales less
estimated uncollectible installment sales and contract valuation discount)
increased to
10
<PAGE>
$1,168,000 the first three months of 2000 from $613,000 for the first three
months of 1999. The increase in sales reflects higher sales by the Company's
independent dealers.
Housing revenues were $593,000 for the first three months of 2000 versus
$1,253,000 for the comparable 1999 period. Revenues are not recognized from
housing sales until the completion of construction and passage of title. Housing
revenues decreased as of result of lower sales by the Company's independent
dealer network. The backlog of houses under contract was $981,000 and $1,276,000
as of March 31, 2000 and March 31, 1999, respectively.
The following table reflects the Company's real estate product mix for the
periods indicated (in thousands):
Three Months Ended
-------------------------
March 31, March 31,
2000 1999
--------- ---------
Gross Land Sales:
Retail Sales* $ 1,532 $ 925
-------- --------
Housing Sales: 593 1,253
-------- --------
Total Real Estate $ 2,125 $ 2,178
======== ========
- ---------------------
* 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 three months ended March 31, 2000 and March 31, 1999
were $1,499,000 and $1,327,000, respectively. The Company had a backlog of
approximately $1,970,000 in unrecognized sales as of March 31, 2000. Such
contracts are not included in retail land sales until the applicable
rescission period has expired and the Company has received payments totaling
20% of the contract sales price.
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 totaled $49,000 for the first three months of 2000 versus $101,000 for
the comparable 1999 period.
Interest income was $85,000 for the first three months of 2000 versus $109,000
for the comparable period in 1999. The decrease is the result of a decrease in
the Company's contracts receivable, resulting from the sale and assignment of
contracts receivable to the Company's lenders.
Other revenues were $192,000 for the three months of 2000 versus $108,000 for
the comparable period in 1999. Other revenues are principally generated by the
Company's title insurance and real estate brokerage subsidiaries.
Costs and Expenses
- ------------------
Costs and expenses were $2,489,000 for the first three months of 2000 versus
$2,481,000 for the comparable period in 1999.
Cost of sales were $882,000 for the first three months of 2000, versus
$1,246,000 for the comparable period in 1999.
Commissions, advertising and other selling expenses totaled $845,000 for the
three months of 2000 versus $612,000 for the comparable period in 1999. Higher
retail land sales resulted in increased commission expense. Other selling
expenses decreased to $258,000 for the first three months of 2000 versus
$269,000 for the comparable period in 1999 as a result of lower jobsite
expenses. Advertising and promotional expenses increased to $120,000 for the
first three months of 2000 versus $9,000 for the comparable period in 1999.
General and administrative expenses were $363,000 for the first three months of
2000 versus $315,000 for the comparable period in 1999. General and
administrative expenses increased primarily due to increased overhead expenses.
11
<PAGE>
Real estate tax expenses were $144,000 for the first three months of 2000 versus
$193,000 for the comparable period in 1999. Included in real estate tax expense
for 1999 was interest and administrative fees on delinquent taxes, which accrued
interest at 18% per annum.
Interest expense was $254,000 for the first three months of 2000 versus $116,000
for the comparable period in 1999. The increase in interest expense is a result
of higher debt balances accruing interest.
Net Income (Loss)
- -----------------
The Company reported a net loss of $402,000 for the first three months of 2000
versus a loss of $297,000 for the comparable period in 1999.
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 by agreeing, for example, to make improvements, construct
public facilities and dedicate certain property for public use, the increased
regulation has lengthened the development process and added to development
costs.
The implementation of the Florida Growth Management Act of 1985 (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 completed in certain of these communities). Thus, the
Company's communities are less likely to be affected by the new growth
management policies than future communities. Any future communities developed by
the Company will be strongly impacted by new growth management policies. Since
the Act and its implications are consistently being re-examined by the State,
together with local governments and various state and local governmental
agencies, the Company cannot further predict the timing or the effect of new
growth management policies, but anticipates that such policies may increase the
Company's permitting and development costs.
The Company's land sales activities are further subject to the jurisdiction of
the laws of various states in which the Company's properties are offered for
sale. In addition, Florida and other jurisdictions in which the Company's
properties are offered for sale have strengthened, or are considering
strengthening, their regulation of subdividers and subdivided lands in order to
provide further assurances to the public. 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 the 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
The Company has satisfied its outstanding debt to Scafholding. The terms of
repayment of the Yasawa debt have been restructured to provide for monthly
payments of principal in the amount of $100,000 payable monthly in cash or with
contracts receivable at 100% of face value, plus interest payable monthly on the
declining balance at the rate of 9.6% per annum in cash or with contracts
receivable at 65% of face value. Effective January 1, 1999, Yasawa agreed to
reduce the annual percentage rate on their existing loans to the Company from
9.6% to 6% per annum. Yasawa and Scafholding have
12
<PAGE>
not required the Company to make monthly interest payments for the period
September 1, 1998 to March 31, 2000. As of March 31, 2000, the total amount of
interest accrued is approximately $790,000.
From October 9, 1998 through the present, Swan has advanced the Company funds to
meet its working capital requirements. The Company's outstanding debt to Swan,
which is secured by a second lien on the Company's receivables, is approximately
$6,337,000 and accrued interest of $99,000 as of March 31, 2000. The Company
signed a promissory note to Swan in March 1999 which provides that funds
advanced by Swan will be paid back by the Company monthly in contracts
receivables at 90% of face value, with recourse. There will be no interest for
the first six months after an advance of money is received from Swan by the
Company; thereafter the interest shall be 6% per annum on the outstanding
balance of the advance. Each time an advance is made, a supplemental note is
signed. The amount of each monthly payment will vary and will be dependent upon
the amount of contracts receivable in the Company's portfolio, excluding
contracts receivable held as collateral for prior receivable sales. Pursuant to
the terms of the promissory note, the Company is required to transfer to Swan
monthly as debt repayment all current contracts receivable in the Company's
portfolio in excess of the aggregate sum of $500,000. Funds advanced by Swan
were used by the Company to pay outstanding real estate taxes for unsold
properties with the balance to meet the Company's working capital requirements.
The following table presents information with respect to mortgages and similar
debt (in thousands):
Three Months Ended Year Ended
March 31, December 31,
2000 1999
------------------ ------------
Mortgage Notes Payable ............. $ 6,300 $ 6,600
Other Loans......................... 6,338 5,114
-------- --------
Total mortgages and similar debt. $ 12,638 $ 11,714
======== ========
- ------
* Included in Mortgage Notes Payable is the Yasawa loan $6,300,000 at March 31,
2000); included in Other Loans is the Swan loan ($6,338,000 as of March 31,
2000).
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 Company's outstanding debt to Yasawa is
secured by a first lien on the Company's receivables and a mortgage on all of
the Company's property; and the Company's outstanding debt to Swan is secured by
a second lien on the Company's receivables.
CONTRACTS AND MORTGAGES RECEIVABLE SALES
In June, 1992 and February, 1990, the Company completed sales of contracts and
mortgages receivable totaling $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 $1,743,679 as of March 31,
2000). The purchaser of these receivables experienced financial difficulty and
filed in 1994 for protection under Chapter 11 of the Federal Bankruptcy Code. In
November 1995, the purchaser of these receivables sold the portfolio to Finova
Capital Corporation. The Company has fully reserved for the estimated future
cancellations based on the Company's historical experience for receivables the
Company services and believes these reserves to be adequate. In 1999, the
Company did not replace any delinquent receivables. As of March 31, 2000 and
December 31, 1999 $1,107,000 and $1,244,000 in receivables were delinquent,
respectively.
13
<PAGE>
During 1998, Scafholding purchased approximately $1,400,000 in contracts and
mortgages receivable from the Company at sixty-five percent (65%) of face value
with recourse for non-performing contracts. These sales generated approximately
$900,000 used to meet the Company's working capital requirements.
In the future, if the Company elects to do so, Yasawa and Scafholding have
agreed to purchase contracts receivable at 65% of face value, with recourse. The
Company has an agreement with Swan whereby Swan will loan the Company funds to
be repaid with contracts receivable at 90% of face value, with recourse.
The Company was the guarantor of approximately $12,842,000 of contracts
receivable sold or transferred as of March 31, 2000, for the transactions
described above. There are no funds on deposit with purchasers of the
receivables as security to assure collectibility as of such date. A provision
has been established for the Company's obligation under the recourse provisions
of which $3,409,000 remains at March 31, 2000. The Company has been in
compliance with all receivables transactions since the consummation of
receivable sales.
The Company has an agreement with Scafholding and Citony Development Corporation
for the servicing of their receivable portfolios. The Company received
approximately $86,700 in 1999 in revenue pursuant to these agreements.
ACQUISITION OF HOMES UNDER CONSTRUCTION
In January 2000, the Company purchased 16 lots and homes under construction from
Scafholding for approximately $862,000. This amount represents Scafholding's lot
cost and payments to date to the home builder. This transaction was 100%
financed by Swan under its existing note payable arrangement.
OTHER OBLIGATIONS
As of March 31, 2000, the Company had estimated development obligations of
approximately $25,000 on sold property, an estimated liability to provide title
insurance and deeding costs of $228,000 and an estimated cost of street
maintenance, prior to assumption of such obligations by local governments of
$621,000, all of which are included in deferred revenue. The total cost to
complete improvements as of March 31, 2000, including the previously mentioned
obligations, was estimated to be approximately $875,000 . The Company's
development obligation was substantially reduced in 1997 by the consummation of
the Agreement approved by the stockholders on November 4, 1997. Approximately
$7,400,000 of the development obligation at St. Augustine Shores was assumed by
Swan. In addition, the creation of a Lot Exchange Trust reduced the development
obligation at Marion Oaks and Sunny Hills by approximately $5,800,000.
LIQUIDITY
Retail land sales have traditionally produced negative cash flow through the
point of sale as a result of a regulatory requirement to sell fully developed
lots and the additional requirement to pay marketing and selling expenses prior
to or shortly after the point of sale. In an effort to offset the negative cash
flow effects of installment land sales, the Company is directing a greater
portion of its marketing efforts to the sale of lots with homes and is now
offering lots for sale in compulsory building areas where a lot purchaser must
complete payments for the lot and construct a home within a limited period of
time.
The Company has been dependent on its ability to sell or otherwise finance its
contracts receivable and/or secure other financing to meet its cash
requirements. Since 1992, the Company has been largely dependent on Yasawa,
Scafholding and Swan and related parties for the financing of its operations.
Although Scafholding has purchased contracts receivables at the rate of 65% of
face value, with recourse, and Swan has loaned the Company additional funds to
be paid back with contracts receivable at the rate of 90% of face value, with
recourse, there can be no guarantee that the Company will be able to generate
sufficient receivables to obtain sufficient financing in the future or that
Yasawa, Scafholding, Swan and other related parties will continue to make loans
to the Company.
14
<PAGE>
PART II - OTHER INFORMATION
---------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
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: May 11, 2000 By: /s/Donald O. McNelley
------------ ---------------------
Donald O. McNelley
Treasurer
(Principal Financial Officer)
15
<PAGE>
