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 September 30, 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 September 30, 2000.
<PAGE>
PART I- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
THE DELTONA CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
($000 Omitted)
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents, including escrow
deposits and restricted cash of $705 in 2000
and $398 in 1999 .................................$ 912 $ 548
-------- --------
Contracts receivable for land sales - net ......... 1,038 1,549
-------- --------
Mortgages and other receivables - net ............. 87 109
-------- --------
Inventories (b):
Land and land improvements ....................... 8,335 8,237
Houses completed or under construction ........... 1,225 0
Other ............................................ 70 70
-------- --------
Total inventories .................. 9,630 8,307
-------- --------
Property, plant, and equipment at cost - net ...... 468 489
Prepaid expenses and other ........................ 1,135 911
-------- --------
Total ................$ 13,270 $ 11,913
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Mortgages and similar debt(c):
Mortgage notes payable ...........................$ 5,700 $ 6,600
Other loans ...................................... 5,938 5,114
-------- --------
Total mortgages and similar debt ............... 11,638 11,714
Accounts payable, accrued expenses,
customers' deposits .............................. 7,803 6,024
Deferred revenue .................................. 2,123 2,379
-------- --------
Total liabilities ................................. 21,564 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 ................................. 52,176 51,863
Accumulated deficit ............................. (74,014) (73,611)
-------- --------
Total stockholders' (deficiency) .. (8,294) (8,204)
-------- --------
Total ............... $ 13,270 $ 11,913
======== ========
See accompanying notes.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
THE DELTONA CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
FOR THE PERIODS INDICATED
($000 Omitted Except Per Share Amounts)
Nine Months Ended Three Months Ended
----------------------------- ---------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues (a):
Net land sales .................. $ 4,345 $ 2,805 $ 1,483 $ 1,012
House and apartment sales ....... 2,074 2,615 944 570
Recognized improvement revenue /
prior period sales ............. 207 293 68 106
Interest income ................. 370 390 201 179
Other revenues .................. 388 400 98 179
------------ ------------ ------------ ------------
Total ....................... 7,384 6,503 2,794 2,046
------------ ------------ ------------ ------------
Costs and expenses (a):
Cost of sales and improvements .. 2,964 3,004 1,185 790
Selling, general, administrative
and other expenses ............. 4,127 3,789 1,304 1,362
Interest expense (c)(e) ......... 695 510 236 174
------------ ------------ ------------ ------------
Total ....................... 7,786 7,303 2,725 2,326
------------ ------------ ------------ ------------
Net Income (Loss) ................ $ (402) $ (800) $ 69 $ (280)
============ ============ ============ ============
Net Income (Loss) per common share $ (.03) $ (.06) $ .01 $ (.02)
============ ============ ============ ============
Number of common and common
equivalent shares ............... 13,544,277 13,544,277 13,544,277 13,544,277
============ ============ ============ ============
See accompanying notes.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
THE DELTONA CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
($000 Omitted)
Nine Months Ended
-----------------------------
September 30, September 30,
2000 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities ........... $(3,627) $(5,934)
------- -------
Cash flows from investing activities:
Proceeds from sale of property, plant and
equipment...................................... 0 3
Payment for acquisition and construction of
property, plant and equipment ................. (17) (81)
------- -------
Net cash provided by (used in) investing
activities .................................... (17) (78)
------- -------
Cash flows from financing activities:
New borrowings ............................... 4,008 5,975
------- -------
Net cash provided by (used in) financing
activities .................................... 4,008 5,975
------- -------
Net increase (decrease) in cash and cash
equivalents (including escrow deposits and
restricted cash) .............................. 364 (37)
Cash and cash equivalents beginning of period .. 548 721
------- -------
Cash and cash equivalents end of period ........ $ 912 $ 684
======= =======
</TABLE>
See accompanying notes.
4
<PAGE>
<TABLE>
<CAPTION>
THE DELTONA CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
($000 Omitted)
Nine Months Ended
-----------------------------
September 30, September 30,
2000 1999
------------- -------------
<S> <C> <C>
Reconciliation of net income (loss) to
net cash provided by (used in) operating
activities:
Net income (loss)........................... $ (402) $ (800)
------- --------
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization............... 37 37
Provision for estimated uncollectible
sales-net................................. 618 653
Contract valuation discount, net of
amortization.............................. 34 3
Net Gain on sale of property, plant &
equipment................................. 0 3
Imputed Interest on debt with related
party..................................... 313 0
Net change in assets and liabilities........ (4,227) (5,830)
------- --------
Total adjustments.............. $(3,225) $ (5,134)
------- --------
Net cash provided by (used in) operating
activities................................ $(3,627) $ (5,934)
======= ========
Supplemental disclosure of non cash
investing and financing activities:
Reduction of debt as a result of the
conveyance of contracts receivable........ $ 4,084 $ 3,170
======= ========
See accompanying notes.
</TABLE>
5
<PAGE>
THE DELTONA CORPORATION AND SUBSIDIARIES
----------------------------------------
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------
SEPTEMBER 30, 2000
------------------
THE INFORMATION PRESENTED HEREIN AS OF SEPTEMBER 30, 2000 FOR THE THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 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 and nine months ended September
30, 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 September 30, 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
September 30, December 31,
2000 1999
------------- ------------
Unimproved land.......................$ 420 $ 420
Land in various stages of development. 3,808 2,633
Fully improved land................... 4,107 5,184
-------- --------
Total...............................$ 8,335 $ 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):
September 30, December 31,
2000 1999
------------- ------------
Mortgage Notes Payable ...............$ 5,700 $ 6,600
Other Loans........................... 5,938 5,114
------- --------
Total mortgages and similar debt....$11,638 $ 11,714
======= ========
6
<PAGE>
Included in Mortgage Notes Payable is the Yasawa loan ($5,700,000
at September 30, 2000); included in Other Loans is the Swan loan
($5,938,000 as of September 30, 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 September 30, 2000. As of
September 30, 2000, the total amount of interest accrued on the
Yasawa debt is approximately $972,000.
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 $5,938,000
and accrued interest on the Swan debt of $216,000 as of September
30, 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 of September 30, 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 $132,000 and an estimated cost of street maintenance, prior to
assumption of such obligations by local governments of $603,000,
all of which are included in deferred revenue. The total cost to
complete improvements as of September 30, 2000, including the
previously mentioned obligations, was estimated to be
approximately $760,000.
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.
7
<PAGE>
(e) CAPITALIZED INTEREST
The Company capitalizes interest cost incurred during a project's
construction period. Of the total interest cost incurred of
$756,000 and $510,000, $61,000 was capitalized for the nine
months ended September 30, 2000 and none for the nine months
ended September 30, 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.
8
<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 other 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 $6,000,000 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 September 30, 2000. As of September 30, 2000, the
total amount of interest accrued on the Yasawa debt is approximately $972,000.
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
$5,938,000 and accrued interest on the Swan debt of $216,000 as of September 30,
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 $313,000 for
the nine months ended September 30, 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 nine months ended September 30, 2000 and September 30, 1999.
Revenues
--------
Total revenues were $7,384,000 for the first nine months of 2000 ($2,794,000 for
the quarter ending September 30, 2000) compared to $6,503,000 for the comparable
1999 period ($2,046,000 for the quarter ending September 30, 1999).
Gross land sales were $5,184,000 for the first nine months of 2000 versus
$3,618,000 for the comparable 1999 period. Net land sales (gross land sales less
estimated uncollectible installment sales and contract valuation discount)
increased to $4,345,000 the first nine months of 2000 from $2,805,000 for the
first nine months of 1999. For the three months ended September 30, 2000, net
land sales increased to $1,483,000 from $1,012,000 for the comparable 1999
period. The increase in sales reflects higher sales by the Company's independent
dealers.
9
<PAGE>
Housing revenues were $2,074,000 for the first nine months of 2000 versus
$2,615,000 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 less closings on sales by the Company's
independent dealer network. The backlog of houses under contract was $6,736,000
and $2,466,000 as of September 30, 2000 and September 30, 1999, respectively.
The following table reflects the Company's real estate product mix for the
periods indicated (in thousands):
Nine Months Ended Three Months Ended
--------------------------- ----------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------- ------------- ------------- --------------
Gross Land Sales:
Retail Sales* $ 5,184 $ 3,618 $ 1,687 $ 1,333
------- --------- ------- -------
Housing Sales: 2,074 2,615 944 570
------- --------- ------- -------
Total Real
Estate $ 7,258 $ 6,233 $ 2,631 $ 1,903
======= ========= ======= =======
---------------------
* 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 nine months ended September 30, 2000 and September
30, 1999 were $6,715,000 and $4,903,000, respectively and $2,775,000 and
$2,217,000 for the three months ended September 30, 2000 and 1999,
respectively.The Company had a backlog of approximately $3,340,000 in
unrecognized sales as of September 30, 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 $207,000 for the first nine months of 2000 ($68,000 for the
third quarter 2000) versus $293,000 for comparable 1999 period ($106,000 for the
third quarter of 1999).
Interest income was $370,000 for the first nine months of 2000 versus $390,000
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 $388,000 for the first nine months of 2000 ($98,000 for the
third quarter of 2000) versus $400,000 for the comparable period in 1999
($179,000 for the third quarter of 1999). Other revenues are principally
generated by the Company's title insurance and real estate brokerage
subsidiaries.
Costs and Expenses
------------------
Costs and expenses were $7,786,000 for the first nine months of 2000 ($2,725,000
for the third quarter of 2000) versus $7,303,000 for the comparable period in
1999 ($2,326,000 for the third quarter of 1999). Cost of sales were $2,964,000
for the first nine months of 2000 ($1,186,000 for the third quarter of 2000)
versus $3,004,000 for the comparable period in 1999 ($790,000 for the third
quarter of 1999).
Commissions, advertising and other selling expenses totaled $2,709,000 for the
first nine months of 2000 ($857,000 for the third quarter of 2000) versus
$2,278,000 for the comparable period in 1999 ($817,000 for the third quarter of
1999). Higher retail land sales resulted in increased commission expense. Other
selling expenses were $906,000 for the first nine months of 2000 ($333,000 for
the third quarter of 2000) versus $833,000 for the comparable period in 1999
($269,000 for the third quarter of 1999). Advertising and promotional expenses
increased to $280,000 for the first nine months of 2000 ($53,000 for the third
quarter of 2000) versus $269,000 for the comparable period in 1999 ($126,000 for
the third quarter of 1999).
General and administrative expenses were $987,000 for the first nine months of
2000 ($303,000 for the third quarter of 2000) versus $993,000 for the comparable
period in 1999 ($383,000 for the third quarter of 1999). General and
administrative expenses decreased primarily due to decreased overhead expenses.
10
<PAGE>
Real estate tax expenses were $431,000 for the first nine months of 2000
($144,000 for the third quarter of 2000) versus $519,000 for the comparable
period in 1999 ($163,000 for the third quarter of 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 $695,000 net of $61,000 of capitalized interest for the
first nine months of 2000 ($236,000 for the third quarter of 2000) versus
$510,000 for the comparable period in 1999 ($174,000 for the third quarter of
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 nine months of 2000
(an income of $69,000 for the third quarter of 2000) versus a loss of $800,000
for the comparable period in 1999 (a loss of $280,000 for the third quarter of
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 not required the Company to
make monthly interest payments for the period September 1, 1998 to September 30,
2000. As of September 30, 2000, the total amount of interest accrued on the
Yasawa debt is approximately $972,000.
11
<PAGE>
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
$5,938,000 and accrued interest on the Swan debt of $216,000 as of September 30,
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):
Nine Months Ended Year Ended
September 30, 2000 December 31, 1999
------------------ -----------------
Mortgage Notes Payable.......... $ 5,700 $ 6,600
Other Loans..................... 5,938 5,114
------- -------
Total Mortgages and
similar debt.................. $11,638 $11,714
------- -------
------------------
* Included in Mortgage Notes Payable is the Yasawa
loan ($5,700,000 at September 30, 2000); included
in Other Loans is the Swan loan ($5,938,000 as of
September 30, 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 $1,498,000 as of September
30, 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 September
30, 2000 and December 31, 1999 $1,196,000 and $1,244,000 in receivables were
delinquent, respectively.
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.
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The Company was the guarantor of approximately $16,959,000 of contracts
receivable sold or transferred as of September 30, 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 $4,151,000 remains at September 30, 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 September 30, 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 $132,000 and an estimated cost of street
maintenance, prior to assumption of such obligations by local governments of
$603,000, all of which are included in deferred revenue. The total cost to
complete improvements as of September 30, 2000, including the previously
mentioned obligations, was estimated to be approximately $760,000.
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.
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PART II - OTHER INFORMATION
---------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
None.
(b) Reports on Form 8-K
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: November 14, 2000 By: /s/Donald O. McNelley
-------------------------------
Donald O. McNelley
Treasurer
(Principal Financial Officer)
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