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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ending December 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 1-4719
THE DELTONA CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 59-0997584
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
8014 SW 135th Street Road
Ocala, FL 34473
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (352) 307-8100
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $1 PAR VALUE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendments to this Form 10-K. [ ]
State the aggregate market value of the voting stock held by
non-affiliates of the Registrant: $1,085,000 (based upon the average price of
such stock as traded over-the-counter ($.31) at December 31, 1999 multiplied by
the 3,498,836 shares of stock owned by non-affiliates, excluding voting stock
held by directors, executive officers and beneficial owners of more than 10% of
the Registrant's voting stock ; however, this does not constitute an admission
that any such holder is an "affiliate" for any purpose.)
Indicate the number of shares outstanding of the Registrant's
classes of common stock, as of the latest practicable date: 13,544,277 shares of
common stock, $1 par value, as of March 24, 2000, excluding 12,228 shares held
in treasury.
DOCUMENTS INCORPORATED BY REFERENCE
Document Incorporated Part(s)
* Registrant's 2000 Annual Meeting Proxy Statement
to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A Part III
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THE DELTONA CORPORATION
INDEX
Form 10-K Page
Item No. Section Heading in Attached Material Number
-------- ------------------------------------ ------
PART I
Items 1 and 2 ......... Business..................................... 1
General................................. 1
Recent Developments..................... 1
Real Estate............................. 2
Other Businesses........................ 7
Employees............................... 7
Competition............................. 7
Regulation.............................. 7
Item 3 ............ Legal Proceedings............................ 10
Item 4 ............ Not Applicable
PART II
Item 5 ............ Price Range of Common Stock and Dividends.... 11
Item 6 ............ Selected Consolidated Financial Information . 12
Item 7 ............ Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. 12
Item 8 ............ Index to Consolidated Financial Statements and
Supplemental Data ......................... 21
Item 9 ............ Not Applicable
PART IV
Item 14 ........... Exhibits, Financial Statement Schedules and
Reports on Form 8-K ....................... 41
ITEMS 1 AND 2
BUSINESS
General
The Company was founded in 1962 and is principally engaged in the
development and sale of Florida real estate, through the development of planned
communities on land acquired for that purpose. The Company offers single-family
lots and multi-family and commercial tracts for sale, in communities designed by
the Company. The Company is the developer of eleven planned communities in
Florida, including TimberWalk, which is located in the western portion of Marion
Oaks. Seven communities are completed and four are in various stages of
development. The Company plans, designs and develops roads, waterways,
recreational amenities, grading and drainage systems within these communities.
Since 1962, the Company has sold over 157,000 single-family lots and
multi-family and commercial tracts in its communities, in addition to over
13,000 single-family homes and over 4,300 multi-family housing units.
The Company's land holdings in Florida include an inventory of
approximately 17,000 unsold platted single-family and multi-family lots and
commercial tracts. (Platting is the process of recording, in the public records
of the county where the land is located, a map or survey delineating the legal
boundaries of the lots and tracts.) See "Real Estate: Land".
The Company also operates other businesses related to its real estate
activities, such as a title insurance company and a real estate brokerage
company. In addition, the Company has designed and constructed country clubs,
golf courses and other recreational amenities at its communities, and operated
such amenities until their conveyance or sale.
Historically, the Company had designed, constructed and operated utility
systems for the distribution of water and LP gas and for the collection and
treatment of sewage, primarily at the Company's communities. However, on June 6,
1989, Topeka Group Incorporated ("Topeka"), a subsidiary of Minnesota Power &
Light Company ("MPL"), exchanged the Company's Preferred Stock which it acquired
in November, 1985 for the Company's utility subsidiaries. The Company entered
into a Developer Agreement for each of its communities, which provides the
policies for water and sewer utility services to the Company and it's
purchasers.
The Company is incorporated in Delaware and has its principal office at
8014 SW 135th Street Road, Ocala, Florida 34473. Its telephone number is
(352)307-8100. The Company, as used herein, refers to The Deltona Corporation
and, unless the context otherwise indicates, its wholly-owned subsidiaries.
Recent Developments
In the third quarter of 1999, the Company introduced a new line of homes
available at Marion Oaks and Citrus Springs. Homes are to be constructed by an
independent builder. These new models were designed to fit the needs and wants
of a variety of housing customers: models range from 1,692 square feet to 2,895
square feet. From the smallest home to the largest, these homes feature 2 car
garages, cathedral ceilings over the main living areas, ceramic tile foyers,
plant shelves, large fully equipped kitchens (most with breakfast nooks or good
morning rooms), fully enclosed laundry centers, impressive master suites with
walk-in closets and large bedrooms. A new model center opened in February 2000
at Marion Oaks.
During 1999, Swan Development Corporation ( "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 $5,114,000 as of December 31, 1999. 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
1
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.
Real Estate
The Company is primarily involved with the development and marketing
of planned communities in Florida since 1962. The following table sets forth
certain information about these communities and other land assets of the Company
as of December 31, 1999. For a detailed description of these communities, see
"Existing Communities" and "Other Properties".
Existing Communities
Platted Unsold Platted
Acreage Initial Estimated Lots & Tracts Lots & Tracts
In Acquisition Year Current in Masterplan Unimproved Improved
Masterplan Year Opened Population (a) (a) (b) (a) (b)
---------- ---- ------ ---------- ------------- ---------- ---------
* Deltona Lakes .......... 17,203 1962 1962 73,150 34,964 -- 6
* Marco Island(c) ........ 7,844 1964 1965 43,490 8,657 -- --
* Spring Hill(d) ......... 17,240 1966 1967 76,110 32,909 -- 7
* Citrus Springs(e) ..... 15,954 1969 1970 6,940 33,783 -- 7(h)
St. Augustine Shores.... 1,985 1969 1970 7,700 3,130 -- -(h)
Sunny Hills ............ 17,743 1968 1971 1,410 26,251 12,469 681
* Pine Ridge ............. 9,994 1969 1972 3,780 4,833 -- 3
Marion Oaks(e)(f) ..... 14,644 1969 1973 8,530 27,537 3,136(f) 699(f)(h)
* Seminole Woods ......... 1,554 1969 1979 515 262 -- --
There is no unplatted acreage in any community
Joint Venture Community:
* Tierra Verde ........... 666 1976 1977 5,200 1,036 -- --
--- ---- ---- ----- ----- ------ -----
Total ............ 104,827 221,625 173,362 15,605 1,394
======= ======= ======= ====== =====
Other Properties
Initial
Acquisition
Year Acres
Other Land Assets:
Other land adjacent to
existing communities(h).. Various 92
--
Total..... 92
==
* Development completed.
(a) Excluded from these lots and tracts are approximately 121 improved
and 92 unimproved lots and tracts that are required for drainage and
cannot be sold, and approximately 128 improved and 333 unimproved
lots and tracts that have been removed from sale for encumbrances or
additional site development, which can only be sold when these
issues are resolved. Also excluded are amenities consisting of 2
administration facility sites, 2 recreational facility sites and 1
unimproved golf course sites, as well as approximately 292 tracts
reserved for community usage such as for greenbelts, buffer areas,
church and school sites.
(b) "Unimproved Unsold Platted Lots & Tracts" and "Improved Unsold
Platted Lots & Tracts", when added to lots and tracts sold, as
described in "Existing Communities", may not equal "Platted Lots &
Tracts in Masterplan" for various reasons, such as the subdivision
of tracts into two or more parcels for sale to different purchasers.
(C) Excludes permit denial areas; reflects seasonal population.
2
(d) Includes the South Hernando U.S. # 19 Commerce Center.
(e) Excludes 83 Citrus Springs and 63 Marion Oaks improved lots deeded
to a purchaser of the Company's contracts receivable as exchange
inventory to be available for customers who pre-pay their contracts
prior to the installation of water service lines within one mile of
their homesite and who wish to commence immediate construction.
Unused exchanged inventory will be reconveyed to the Company when
all purchased receivables have matured and are paid in full.
(f) Includes TimberWalk
(g) Excludes 3,637 acres of unplatted natural preserve in Washington
County restricted for recreational, open space/park use which can
only be sold subject to the underlying land use restrictions.
(h) Not included are 583 improved lots deeded to a collateral trustee on
behalf of a purchaser of the Company's contract receivables so they
may be sold by the Company to create additional receivables for the
Company's replacement obligation. These lots are comprised of 481
lots in Citrus Springs, 101 lots in Marion Oaks and 1 lot in St.
Augustine Shores.
Land
In selecting sites for its communities, the Company examined various
demographic and economic factors, the regulatory climate, the availability of
governmental services and medical, educational and commercial facilities, and
estimated development costs. Its communities are accessible to major highways
and Florida's major metropolitan areas and are near at least one large body of
water that can be used for recreational purposes. Other criteria used by the
Company in site selection are the suitability of the land for natural or
engineered drainage and the availability of a sufficient supply of potable water
to support the community's anticipated population.
The master plans of the Company's communities have been designed to
provide for amenities such as golf courses, greenbelt areas, parks and
recreational areas, as well as for the basic infrastructure, such as roads and
water, and in selected development areas, sewer lines. Sites are set aside for
shopping centers, schools, houses of worship, medical centers and public
facilities such as libraries and fire stations.
In its major planned communities, the Company offers for sale lot
and house "packages" situated on paved streets. In other areas of these
communities, the Company historically has sold single-family lots and
multi-family and commercial tracts on an installment basis. Prior to 1991, the
Company sold such land, subject to a future development obligation, accepting
down payments as low as 5% of the sales price, with the balance payable over
periods ranging from 2 to 15 years, depending on the payment plan selected. When
the applicable rescission period expired and the Company received at least 10%
of the contracted sales price, a substantial portion of the revenue and related
profit on the sale was recognized, with the remaining revenue and profit
deferred and recognized as land improvements such as street paving occurred.
Due to various factors, since 1986, the Company had utilized a deed
and mortgage format for effecting certain sales in its communities. Beginning
September 29, 1990, the Company changed its method of recognizing land sales by
recording the sale of lots, subject to a future development obligation, under
the deposit method; since January 1, 1991, no sale has been recognized until the
Company receives at least 20% of the contracted sales price; and beginning in
the fourth quarter of 1991, the Company limited the sale of lots to those which
front on a paved street and are ready for immediate building. See Note 1 to
Consolidated Financial Statements.
A portion of the contract purchase price is discounted and treated
as interest income to be amortized over the life of the contract. Interest
income is also earned in accordance with the interest rate stated in the
installment land sales contract or promissory note. The Company further provides
an allowance for contract cancellations based on the historical experience of
the Company for such cancellations.
Substantially all of the Company's single-family lot and
multi-family and commercial tract sales have been made on an installment basis.
Of the over 157,000 lots and tracts sold since the Company's inception,
contracts receivable presently exist with respect to approximately 340 lots and
tracts with an outstanding balance of approximately $2,448,000 at December 31,
1999, excluding contracts receivable of which the Company is a guarantor. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 2 to Consolidated Financial Statements.
3
Housing
Historically, the Company has been involved in the design,
construction and marketing of single-family homes and multi-family housing,
including both condominium apartment complexes and a vacation ownership
(timesharing) project. Since commencing operations, the Company has constructed
and sold over 13,000 single-family homes and over 4,300 multi-family housing
units in its communities, with much of the actual construction performed by
subcontractors. Revenues, as well as related costs and expenses, from
single-family home and vacation ownership sales are recorded at the time of
closing.
Single-Family Housing
In the third quarter of 1999, the Company introduced a new line of
homes available at Marion Oaks and Citrus Springs. Homes are to be constructed
by an independent builder. These new models were designed to fit the needs and
wants of a variety of housing customers: models range from 1,692 square feet to
2,895 square feet. From the smallest home to the largest, these homes feature 2
car garages, cathedral ceilings over the main living areas, ceramic tile foyers,
plant shelves, large fully equipped kitchens (most with breakfast nooks or good
morning rooms), fully enclosed laundry centers, impressive master suites with
walk-in closets and large bedrooms. A new model center opened in February 2000
at Marion Oaks. Houses are sold with the lot included in the sales price;
however, the Company also offers a "build on your own lot" program for those
purchasers who have previously acquired a lot. The FeatherNest Housing Village
in Marion Oaks, where the lot is included in the price of the home, is owned by
Conquistador Development Corporation and marketed by the Company. All housing
sales are made within the local market and through the Company's independent
dealer network. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations".
The Company is directing a greater portion of its marketing efforts
to the sale of lots with homes or lots with compulsory building obligations to
offset the negative cash effects of installment land sales, where the purchase
price of the lot is paid over several years and there is no commitment to build.
Multi-Family Housing
The Company has designed, constructed and sold more than 4,300
condominium apartment units at its communities in buildings ranging from
garden-style apartment complexes to luxury high-rise towers. Every condominium
complex constructed by the Company includes at least one pool and patio area;
many feature tennis courts and other recreational amenities.
The Company's limited inventory of multi-family housing is at its
vacation ownership complex, The Surf Club, located on the Gulf of Mexico at
Marco Island. The bulk of its inventory at The Surf Club was sold prior to 1990.
Marketing
The Company has historically sold land and housing on a national and
international basis through independent dealers in the United States, Canada and
overseas, as well as through Company-affiliated salespeople. For the year ended
December 31, 1999, sales by independent dealers in the United States accounted
for approximately 100% (in dollar volume) of new land sales contracts; while
overseas dealers accounted for a fraction of a percent.
Existing Communities
Deltona Lakes
Deltona Lakes is located 26 miles northeast of Orlando, with its
popular tourist attractions of Disney World and Sea World, and is bordered on
the northwest by Interstate 4. Opened in 1962, Deltona Lakes now has a
population of approximately 73,150. Over 30,000 lots and tracts and over 4,500
single and multi-family housing units have been sold at this community.
4
Recreational amenities constructed by the Company include tennis
courts, a golf course and country club (which were sold in 1983), and a
recreational complex on the shores of Lake Monroe. A 133-room motel, an
industrial park, a medical complex, several shopping centers, numerous houses of
worship, a fire station, a public library and schools are located in the
community. The Company has completed development of this community.
Marco Island
The Company's resort community of Marco Island is located 104 miles
west of Miami and approximately 17 miles south of Naples, Florida. Over 8,500
lots and tracts and over 4,200 single and multi-family housing units have been
sold in this community.
More than 43,490 persons reside at Marco Island, including a
population which more than triples during the winter season. It is the largest
of Florida's Ten Thousand Islands and is known for its recreational amenities
which, in addition to its 3 1/2 mile white sand beach, sport fishing, sailing
and shelling, include golf, tennis, swimming and other recreational activities.
The island community has several major shopping centers, banks and savings &
loan associations, and medical and professional centers.
Since the community's opening in January, 1965, the Company has
built and operated a yacht club and marina, the Marco Beach Hotel & Villas, and
a golf course and country club, all of which have been sold. The Company has
also constructed and sold over 3,300 condominium units on the island and The
Surf Club, a 44 unit vacation ownership complex. In 1990, the Company completed
the sale of substantially all of its remaining vacation ownership weeks at The
Surf Club.
Spring Hill
Spring Hill, with an estimated population of over 76,110, is located
45 miles north of Tampa-St. Petersburg. Over 32,000 lots and tracts and over
4,000 single-family homes have been sold in this community. The Company has
constructed a recreation complex, a country club, and two golf courses, which
have been sold. Several shopping centers and medical centers, schools, numerous
houses of worship and fire stations are located in the community. The Company
has completed the development of this community.
Citrus Springs
Citrus Springs, with an estimated population of over 6,940, is
located 28 miles southwest of Ocala and 25 miles from the Gulf of Mexico. Over
30,000 lots and tracts and over 700 single-family homes have been sold at this
community. A golf course and a clubhouse (sold in 1990) and a community center
have been completed by the Company. Several churches, schools and a convenience
shopping area are located in the community. In 1992, most of the Company's
remaining inventory at this community was sold to Citony Development Corporation
("Citony") for approximately $6,500,000. The Company provides miscellaneous
administrative assistance and loan servicing to Citony for a fee.
In February 1997, the Company finalized the sale of the undeveloped
second Citrus Springs Golf Course to a third party, which completed the golf
course ("El Diablo") in 1998. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" .
St. Augustine Shores
St. Augustine Shores, with a population estimated to be over 7,700,
is located seven miles south of St. Augustine, between the Intracoastal Waterway
and U.S. Highway 1. Over 2,000 single and multi-family housing units and lots
and tracts have been sold. In December 1997, the Company sold all of its
remaining inventory at St. Augustine Shores to Swan Development Corporation
("Swan"). As part of the purchase, Swan assumed the liability for completing
improvements within St. Augustine Shores.
5
Certain common areas of the community, such as parks and swale
areas, are maintained by the St. Augustine Shores Service Corporation, a
non-profit corporation, of which all property owners are members. Several houses
of worship, shopping facilities, a recreational building and a golf and country
club are also located in the community.
Sunny Hills
Sunny Hills, with a population of over 1,410 residents, is located
in the Florida Panhandle, 45 miles north of the Gulf of Mexico and 35 miles
north of Panama City. Over 12,000 lots and tracts and 300 single-family homes
have been sold at this community. The community includes a golf course and
country club, which was sold by the Company, several houses of worship and
convenience shopping.
Pine Ridge
Pine Ridge, with a population of approximately 3,780, is located 34
miles southwest of Ocala. The community's facilities include an equestrian club
and tennis courts. The Company sold over 3,500 lots and tracts and more than 53
single-family homes in Pine Ridge prior to the sale of its remaining inventory
in 1987.
Marion Oaks
Marion Oaks, with a population of over 8,530 residents, is located
18 miles south of Ocala. Over 23,000 lots and tracts have been sold in the
community. The community includes playgrounds, two golf courses (both of which
are owned by third parties), several recreation buildings, community shopping
centers and several houses of worship. In addition, this community is home to
the Company's corporate headquarters.
In the third quarter of 1999, the Company introduced a new line of
homes available at Marion Oaks and Citrus Springs. Homes are to be constructed
by an independent builder. These new models were designed to fit the needs and
wants of a variety of housing customers: models range from 1,692 square feet to
2,895 square feet. From the smallest home to the largest, these homes feature 2
car garages, cathedral ceilings over the main living areas, ceramic tile foyers,
plant shelves, large fully equipped kitchens (most with breakfast nooks or good
morning rooms), fully enclosed laundry centers, impressive master suites with
walk-in closets and large bedrooms. A new model center opened in February 2000
at Marion Oaks. Houses are sold with the lot included in the sales price;
however, the Company also offers a "build on your own lot" program for those
purchasers who have previously acquired a lot. The FeatherNest Housing Village
in Marion Oaks, where the lot is included in the price of the home, is owned by
Conquistador Development Corporation and marketed by the Company. All housing
sales are made within the local market and through the Company's independent
dealer network.
Revenues in 2000 will be generated from the sale of land inventory,
from housing sales, from the recognition of deferred revenue as land development
proceeds, from collections on existing contracts receivable and from the
Company's real estate brokerage and title company subsidiary operations.
Seminole Woods
Seminole Woods, with a population of over 515, is comprised of 1,554
acres of property located 20 miles north of Orlando. The community's 262
single-family lots, each with a minimum of five acres, have been sold and
development completed.
Tierra Verde
Tierra Verde, with a population of over 5,220, is a 666-acre
waterfront subdivision located eight miles south of St. Petersburg. It was
developed and marketed pursuant to a 50% joint venture, which no longer exists,
between a wholly-owned subsidiary of the Company and an unaffiliated
corporation. The community has been sold out and development completed.
6
Other Land Assets
The Company also owns 92 acres of land in Florida adjacent to its
existing communities.
Other Businesses
The Company's title insurance subsidiary was established in 1978 in
order to reduce title insurance, legal and certain related closing costs
incurred by the Company in transferring title of its land and housing to its
purchasers. The subsidiary serves as an agent for TICOR Title Insurance Company,
Chicago Title Insurance Company and other title insurers. The Company's realty
subsidiary performs real estate brokerage and rental services at the Company's
Marion Oaks and Sunny Hills communities.
Employees
At December 31, 1999, the Company had 37 employees, of whom 35 were
involved in executive, administrative, sales and community development/
maintenance capacities and 2 were involved with the title insurance subsidiary.
Certain of the Company's development activities are carried out by
subcontractors who separately employ additional personnel. For the most part,
the Company's marketing activities are carried out by independent dealers and
marketing personnel employed by the Company and its subsidiaries.
Competition
The Company faces competition in the sale of its lots primarily from
property owners in the Company's communities seeking to resell their land. The
Company is also facing competition, on a regional level, from other builders and
developers in the sale of single-family housing. Such competition is generally
based upon location, price, reputation, quality of product and the existence of
commercial and recreational facilities and amenities.
Regulation
The Company's real estate business is subject to regulation by
various local, state and federal agencies. The communities are increasingly
subject to substantial regulation as they are planned, designed and constructed,
the nature of such regulation extending to improvements, zoning, building,
environmental, health and related matters. Although the Company has been able to
operate within the regulatory environment in the past, there can be no assurance
that such regulations could not be made more restrictive and thereby adversely
affect the Company's operations.
Community Development
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.
7
Environmental
To varying degrees, certain permits and approvals will be necessary
to complete the development of Marion Oaks and Sunny Hills. Despite the fact
that the Company has obtained substantially all of the permits and
authorizations necessary to proceed with its development work on communities
presently being marketed, additional approvals may be required to develop
certain platted properties to be marketed in the future. Although the Company
cannot predict the impact of such requirements, they could result in delays and
increased expenditures. In addition, the continued effectiveness of permits and
authorizations already granted is subject to many factors, some of which,
including changes in policies, rules and regulations and their interpretation
and application, are beyond the Company's control.
The Company is aware of studies indicating that prolonged exposure
to radon gas may be hazardous to one's health. Such studies further indicate
that radon gas is apparently associated with mining and earth moving activities,
particularly in phosphate-bearing geological formations. Since phosphate mining
has, over the years, constituted a significant industry in Florida, various
state and local governmental agencies are in the process of attempting to
determine the nature and extent of indoor radon gas intrusion throughout the
state. Similar studies undertaken by the Company at its Citrus Springs community
indicate that less than 1% of its property in that community may be affected by
radon gas; studies conducted at the Company's Marion Oaks community revealed no
indications of potential indoor radon gas problems. None of the other properties
owned by the Company are situated over geological formations which are suspected
of causing radon gas problems. Consequently, the existence of radon gas in
Florida is not expected to materially affect the business or financial condition
of the Company.
The Company owns and operates one above ground fuel storage tank at
Marion Oaks. The Florida Department of Environmental Regulation ("DER") is
responsible not only for regulating this tank, but for developing and
implementing plans and programs to prevent the discharge of pollutants by the
facility. The Company has registered this storage tank with the DER, constructed
a containment device around the above ground storage tank and conducts periodic
inspections and monitoring of the facility. The Company surveyed this site,
which exhibited evidence of potential soil contamination to the DER prior to the
deadline for acceptance into the Early Detection Incentive ("EDI") Program. The
EDI Program provides for the State to assume the financial responsibility for
any necessary clean-up operations when suspected contamination has been
voluntarily reported by the facility owner and accepted into the program by the
DER. The site has been inspected and reviewed under the EDI program and is in
compliance with current DER regulations.
Marketing
The Company is also subject to a number of statutes imposing
registration, filing and disclosure requirements with respect to homesites and
homes sold or proposed to be sold to the public. On the state level, the
Company's land sales activities are subject to the jurisdiction of the Division
of Florida Land Sales, Condominiums and Mobile Homes (the "Division") which
requires registration of subdividers and subdivided land; regulates the contents
of advertising and other promotional material; inspects the Company's land and
development work; exercises jurisdiction over sales practices; and requires full
disclosure to prospective purchasers of pertinent information relating to the
property offered for sale.
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, 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.
On December 30, 1997, the Division approved the formation of a Lot
Exchange Trust into which the Company conveyed sufficient exchange inventory to
provide exchanges to customers with undeveloped lots. Concurrently, the Division
released its lien on the Company's contracts receivable, satisfied its mortgage
on the Company's property and
8
approved a settlement of all remaining issues under the 1992 Deltona Consent
Order. The 1992 Deltona Consent Order was formally terminated on April 13, 1998.
As of December 31, 1999, the Company had estimated development
obligations of approximately $25,000 on sold property, an estimated liability to
provide title insurance and deeding costs of $273,700 and an estimated cost of
street maintenance, prior to assumption of such obligations by local
governments, of $622,000, all of which are included in deferred revenue. As of
December 31, 1999 and December 31, 1998 the Company had in escrow approximately
$7,000 specifically for land improvements at certain of its Central and North
Florida communities. 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.
On the federal level, the Company's homesite installment sales are
subject to the Federal Consumer Credit Protection ("Truth-in-Lending") Act. In
addition, the Company's activities are subject to regulation by the Interstate
Land Sales Registration Division ("ILSRD"), which administers the Interstate
Land Sales Full Disclosure Act. That Act requires that the Company file with
ILSRD copies of applicable materials on file with the Division as to all
properties registered; certain properties must be registered directly with
ILSRD, in addition to being registered with the Division.
The Company has either complied with applicable statutory
requirements relative to the properties it is offering or has relied on various
statutory exemptions which have relieved the Company from such registration,
filing and disclosure requirements. If these exemptions do not continue to
remain available to the Company, compliance with such statutes may result in
delays in the offering of the Company's properties and products to the public.
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 may strengthen,
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.
Real estate salespersons must, absent exemptions which may be
available to employees of the property owner, be licensed in the jurisdiction in
which they perform their activities. Real estate brokerage companies in Florida,
as well as their brokers and salespersons, must be licensed by the Florida Real
Estate Commission.
Miscellaneous
Various subsidiaries and divisions of the Company are subject to
regulation by local, state and federal agencies. Such regulation extends to the
licensing of operations, operating areas and personnel; the establishment of
safety and service standards; and various other matters.
9
ITEM 3
LEGAL PROCEEDINGS
During 1999, the Company was subject to a lawsuit entitled Marco
Island Civic Association, Inc. et al v. The Deltona Corporation, et al, Case No.
98-3758-CA, which was filed in the Circuit Court of Collier County Florida on
October 29, 1998. The complaint alleged that the Company amended certain
Declaration of Restrictions for property in Marco Island without having the
authority to do so. The plaintiff was seeking to have the Amendment to the
Declaration declared null and void and to obtain unspecified additional relief.
The complaint was amended by the plaintiff to add claims for breach of warranty
and indemnity and included a claim for reimbursement of attorneys' fees incurred
in connection with prior litigation. In the amended Complaint, the plaintiff
also sought certification of the case as a class action based upon an allegation
that Deltona received compensation for granting Declaration amendments. The
Company has settled all claims against it.
The Company is also a party to certain other legal and
administrative proceedings arising in the ordinary course of business. The
outcome will not, in the opinion of the Company, have a material adverse effect
on the business or financial condition of the Company.
10
ITEM 5
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Company's Common Stock was traded on the New York and Pacific
Stock Exchanges under the ticker symbol DLT. On April 6, 1994, both the New York
and Pacific Stock Exchanges suspended the Company's Common Stock from trading
and instituted procedures to delist the Company's Common Stock. On June 16,
1994, the Company's Common Stock was formally removed from listing and
registration on the New York Stock Exchange. As of December 31, 1999, the
Company's Common Stock was traded on a limited basis in the over-the-counter
markets (on the bulletin board) under the symbol DLTA. The weighted average
price at which the stock was traded at the end of the first, second, third and
fourth quarters of 1999 is as follows:
March 31, 1999 $ .324
June 30, 1999 $ .449
September 30, 1999 $ .316
December 31, 1999 $ .229
The Company has never paid cash dividends on its Common Stock. The
Company's loan agreements contain certain restrictions which currently prohibit
the Company from paying dividends on its Common Stock.
11
ITEM 6
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table summarizes selected consolidated financial
information and should be read in conjunction with the Consolidated Financial
Statements. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
Consolidated Income Statement Data
(in thousands except per share amounts)
Year Ending
December 31, December 31, December 31, December 31, December 31,
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
Revenues ........................ $ 8,837 $ 6,487 $ 9,425 $ 8,650 $ 6,688
Costs and expenses............... 9,204 9,078 10,751 9,877 9,593
----------- ---------- ---------- ----------- ----------
Loss from continuing operations
before taxes and extraordinary
items........................... (367) (2,591) (1,326) (1,227) (2,905)
Provision for income taxes....... -0- -0- -0- -0- -0-
----------- ---------- ---------- ----------- ----------
Loss from operations
before extraordinary items...... (367) (2,591) (1,326) (1,227) (2,905)
Extraordinary items:
Gain on settlement related to
the Marco refund obligation.... -0- -0- -0- 331 702
---------- ---------- ---------- ----------- ----------
Net income (loss) applicable
to common stock................ $ (367) $ (2,591) $ (1,326) $ (896) $ (2,203)
========== ========== ========== =========== ==========
Basic earnings per share amounts:
Continuing operations........ $ (.03) $ (.19) $ (.20) $ (.18) $ (.43)
Extraordinary items.......... -0- .00 .00 .05 .10
---------- ---------- ---------- ----------- ----------
Net income (loss)................ $ (.03) $ (.19) $ (.20) $ (.13) $ (.33)
========== ========== ========== =========== ==========
Weighted average common shares
outstanding..................... 13,544,277 13,544,277 6,753,587 6,729,648 6,699,923
========== ========== ========== =========== ==========
Consolidated Balance Sheet Data
(in thousands)
December 31, December 31, December 31, December 31, December 31,
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
Total assets..................... $ 11,913 $ 11,915 $ 13,560 $ 19,422 $ 19,180
=========== ========== ========== =========== ==========
Liabilities...................... $ 20,117 $ 20,175 $ 19,174 $ 37,301 $ 36,193
Stockholders' equity(deficiency). (8,204) (8,260) (5,614) (17,879) (17,013)
----------- ---------- ---------- ----------- ----------
Total liabilities and stockholders'
equity (deficiency)............. $ 11,913 $ 11,915 $ 13,560 $ 19,422 $ 19,180
=========== ========== ========== =========== ==========
12
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
From June 19, 1992 through March 1999, the Company had entered into loan
agreements with Selex International B.V., a Netherlands corporation ("Selex"),
Yasawa Holdings, N.V., a Netherlands Antilles Corporation ("Yasawa"), Swan
Development Corporation ("Swan") and related parties. Since December, 1992, the
Company has been dependent on loans and advances from Selex, Yasawa Swan and
their affiliates in order to implement its marketing program and assist in
meeting its working capital requirements.
On November 4, 1997 at the 1997 Annual Meeting, the Company's stockholders
approved an Agreement between the Company and its lenders that would
substantially reduce the Company's outstanding debt obligation of $25.3 million
(the "Agreement"). The Agreement, consummated effective December 30, 1997,
resulted in a reduction in the Company's outstanding debt obligation through the
conveyance of all remaining land inventory and obligations in the Company's St.
Augustine Shores Subdivision and the issuance of approximately 6.8 million
shares of Common Stock at $1.00 per share (par value). Additionally, the lenders
purchased $7.5 million in contracts receivable from the Company to generate
working capital and further reduce the debt obligation. Specifically:
1. Selex sold its remaining debt ($2,664,736), including the Empire
note, to Yasawa and the Company owes no further duty or obligation to Selex,
which provided the Company a release. The debt purchased by Yasawa was satisfied
through Yasawa's purchase of 2,664,736 shares of Common Stock issued by the
Company at a per share conversion price of One Dollar ($1.00), which is equal to
par value.
2. Swan had previously acquired $5,529,501 of the Company's debt
from Selex. This $5,529,501 was satisfied through the Company's conveyance of
all of the Company's remaining land inventory and obligations in its St.
Augustine Shores Subdivision to Swan . The price, based upon appraised value,
was adjusted to take into account the development obligations on sold lots
assumed by Swan.
3. Scafholding B.V. ("Scafholding"), an affiliate of Selex and
Yasawa, purchased approximately $7.5 million in contracts receivable from the
Company at seventy-five percent (75%) of face value with recourse for non-
performing contracts. This sale generated approximately $5.6 million, $1,982,457
of which was used to reduce outstanding debt to Yasawa. The balance was used by
the Company to pay a portion of the delinquent real estate taxes, to implement
its marketing programs, to initiate development of TimberWalk and to meet the
Company's working capital requirements.
4. A $4,144,602 portion of the Company's debt to Yasawa was
satisfied through Yasawa's purchase of 4,144,602 shares of Common Stock issued
by the Company at a per share conversion price of One Dollar ($1.00), which is
equal to par value.
Through Yasawa's acquisition of the 6,809,338 shares of Common Stock of the
Company referenced above, Mr. Antony Gram's beneficial ownership increased from
3,109,703 shares to 9,919,041 shares (73.23% of the outstanding shares of Common
Stock of the Company as of December 31, 1999).
Prior to November 4, 1997 and independent of the Agreement outlined above, Selex
and Yasawa agreed to forgive $2,050,818 in accrued interest on the Company's
debt to them.
As part of the Agreement, if the Company elects to do so, Scafholding agreed to
purchase contracts receivable at 65% of face value, with recourse, to meet the
Company's ongoing capital requirements. Scafholding purchased the following
contracts receivables from the Company to generate working capital for the
Company:
13
Approximate Contracts
Date of Purchase Receivable Amount Purchased
---------------- ---------------------------
June 30, 1998 $200,100
July 15, 1998 $115,200
July 31, 1998 $179,900
August 31, 1998 $250,400
September 10, 1998 $153,400
September 29, 1998 $497,100
As of December 31, 1999, the Company had satisfied its principal
debt obligation to Scafholding; the Company's outstanding debt to Yasawa was
$6,600,000 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
9.6% per annum in cash or with contracts receivable at 65% of face value.
Effective January 1, 1999, Yasawa and Scafholding agreed to reduce the annual
percentage rate for their existing loans to the Company from 9.6% to 6% per
annum. Yasawa and Scafholding did not require the Company to make interest
payments for the period September 1, 1998 to December 31, 1999. As of December
31, 1999, the total amount of interest accrued is approximately $692,600.
The Company recorded interest expense on all outstanding debt
balances for 1999 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 $423,000 for
1999.
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 $5,114,000 as of December 31, 1999. 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.
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 at December 31, 1999 and
1998.
Results of Operations
Years ended December 31, 1999 and December 31, 1998
Revenues
Total revenues were $8,837,000 for 1999 compared to $6,488,000 for
1998.
14
Gross land sales were $4,959,000 for 1999 versus $4,155,000 for
1998. Net land sales (gross land sales less estimated uncollectible installment
sales and contract valuation discount) increased to $4,465,000 for 1999 compared
to $3,078,000 for 1998. The increase reflects higher sales by the Company's
independent dealers and a lower estimate of uncollectible installment sales .
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 years ended December 31, 1999 and December 31, 1998 were
$6,491,000 and $4,679,000, respectively. The Company had a backlog of $2,139,000
and $630,000 in unrecognized sales as of December 31, 1999 and 1998,
respectively. 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. See Note 1 to the Consolidated
Financial Statements.
Advertising and marketing costs are charges to operations when
incurred. Sales commissions are recognized as a liability when the related
contract is accepted and charged to expense when the sale is recognized as
revenue.
Housing revenues are not recognized from housing sales until the
completion of construction and the passage of title. Housing revenues were
$3,045,000 for 1999 compared to $1,622,000 for 1998. The increase in housing
revenues is directly related to the increase in the Company's promotional
programs for housing.
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 $381,000 in 1999 as compared to $956,000 for 1998.
The decrease is a result of lower expenditures.
Interest income was $498,000 for 1999 compared to $548,000 for 1998.
This decrease is the result of lower contracts receivable balances due to debt
repayments to Swan, Scafholding and Yasawa.
Other revenues were $448,000 for 1999 compared to $284,000 for 1998.
Other revenues are generated principally by the Company's title insurance and
real estate brokerage subsidiaries.
Costs and Expenses
Costs and expenses were $9,204,000 for 1999 compared to $9,079,000
for 1998. Cost of sales totaled $3,693,000 for 1999 compared to $2,562,000 for
1998. The increase reflects higher sales by the Company's independent dealers.
Commissions, advertising and other selling expenses totaled
$3,040,000 for 1999 compared to $2,533,000 for 1998. Advertising was $359,000 in
1999 compared to $46,000 in 1998. Other selling expenses were $1,075,000 in 1999
compared to $1,124,000 in 1998.
General and administrative expenses were $1,129,000 in 1999 versus
$2,144,000 in 1998. General and administrative expenses decreased primarily due
to there being reduced payments due in 1999 pursuant to the 1998 termination
agreements to officers who resigned effective October 1998.
Real estate tax expense was $491,000 in 1999 compared to $1,028,000
in 1998. Included in real estate tax expense in 1998 is delinquent interest and
administrative fees on delinquent taxes, which accrued interest at 18% per
annum.
Interest expense was $851,000 in 1999 as compared to $812,000 for
1998. The increase in interest expense is the result of increased debt. Interest
in the amount of $62,000 was capitalized in 1999. No interest was capitalized in
1998.
Net Income
The Company reported a net loss of $367,000 for 1999 compared to a
net loss of $2,591,000 for 1998.
15
Years ended December 31, 1998 and December 31, 1997
Revenues
Total revenues were $6,488,000 for 1998 compared to $9,425,000 for
1997.
Gross land sales were $4,155,000 for 1998 versus $6,093,000 for
1997. Net land sales (gross land sales less estimated uncollectible installment
sales and contract valuation discount) decreased to $3,078,000 for 1998 from
$4,045,000 for 1997. The decrease in sales reflects lower sales from the
Company's independent dealers.
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 years ended December 31, 1998 and December 31, 1997 were
$4,679,000 and $5,359,000, respectively. The Company had a backlog of $630,000
and $1,094,000 in unrecognized sales as of December 31, 1998 and December 31,
1997, respectively. 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. See Note 1 to the
Consolidated Financial Statements.
Housing revenues are not recognized from housing sales until the
completion of construction and passage of title. Housing revenues were
$1,622,000 for 1998 compared to $1,214,000 in 1997. The increase in housing
revenues is directly related to the increase in the Company's housing
advertising and promotional programs for housing.
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 $956,000 in 1998 as compared to $2,366,000 for
1997. The decrease is a result of the Lot Exchange Trust entered into in 1997,
which provided sufficient developed inventory for exchanges to customer with
undeveloped lots.
Interest income was $548,000 for 1998 compared to $1,367,000 for
1997. This decrease is the result of lower contracts receivable balances.
Other revenues were $284,000 for 1998 compared to $433,000 in 1997.
Other revenues are generated principally by the Company's title insurance and
real estate brokerage subsidiaries.
Costs and Expenses
Costs and expenses were $9,079,000 for 1998 compared to $10,751,000
in 1997. Cost of sales totaled $2,562,000 for 1998 versus $2,831,000 for 1997.
This decrease reflects lower sales by the Company's independent dealers.
Commissions, advertising and other selling expenses totaled
$2,533,000 for 1998 versus $2,517,000 for 1997. Advertising decreased to $46,000
in 1998 from $104,000 in 1997. Other selling expenses increased to $1,124,000 in
1998 from $623,000 in 1997 as a result of increased promotion of the Company's
housing line.
General and administrative expenses were $2,144,000 in 1998 versus
$1,680,000 for 1997. General and administrative expenses have increased
primarily due to termination agreements to officers who resigned effective
October 1998.
The Company recorded a $840,000 provision for recourse obligations
in 1997.
Real estate tax expense was $1,028,000 in 1998 compared to
$1,338,000 in 1997. Included in real estate tax expense is delinquent interest
and administrative fees on delinquent taxes, which accrue interest at 18% per
annum.
16
Interest expense was $812,000 for 1998, as compared to $1,545,000
for 1997. The decrease in interest expense is the result of the decrease in
debt. No interest was capitalized in 1998 and 1997.
Net Income
The Company reported a net loss of $2,591,000 for 1998, compared to
a net loss of $1,326,000 for 1997.
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 may strengthen,
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
Effective December 30, 1997, the Company and its lenders consummated
several transactions that resulted in a reduction in the Company's outstanding
debt obligation through the conveyance of all remaining land inventory and
obligations in the Company's St. Augustine Shores Subdivision and the issuance
of approximately 6.8 million shares of Common Stock at $1.00 per share (par
value). Additionally, the lenders purchased $7,500,000 in contracts receivable
from the Company to generate working capital and further reduce the debt
obligation. Selex sold its remaining debt ($2,664,736), including the Empire
note, to Yasawa and the Company owes no further duty or obligation to Selex,
which provided the Company with a release. The debt purchased by Yasawa was
satisfied through Yasawa's purchase of 2,664,736 shares of Common Stock issued
by the Company at a per share conversion price of One Dollar ($1.00), which is
equal to par value. Swan had previously acquired $5,529,501 of the Company's
debt from Selex. This $5,529,501 was satisfied through the Company's conveyance
of all of the Company's remaining land inventory and obligations in its St.
17
Augustine Shores Subdivision to Swan . The price, based upon appraised value,
was adjusted to take into account the development obligations on sold lots
assumed by Swan. Scafholding purchased approximately $7,500,000 in contracts
receivable from the Company at seventy-five percent (75%) of face value with
recourse for non-performing contracts. This sale generated approximately $5.6
million, $1,982,457 of which was used to reduce outstanding debt to Yasawa. The
balance was used by the Company to pay a portion of the delinquent real estate
taxes, to implement its marketing programs, to initiate development of
TimberWalk and to meet the Company's working capital requirements. A $4,144,602
portion of the Company's debt to Yasawa was satisfied through Yasawa's purchase
of 4,144,602 shares of Common Stock issued by the Company at a per share
conversion price of One Dollar ($1.00), which is equal to par value.
As of December 31, 1999, the Company had satisfied its principal
debt obligation to Scafholding; the Company's outstanding debt to Yasawa was
$6,600,000 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
9.6% per annum in cash or with contracts receivable at 65% of face value.
Effective January 1, 1999, Yasawa and Scafholding agreed to reduce the annual
percentage rate for their existing loans to the Company from 9.6% to 6% per
annum. Yasawa and Scafholding did not require the Company to make interest
payments for the period September 1, 1998 to December 31, 1999. As of December
31, 1999, the total amount of interest accrued is approximately $692,600.
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 $5,114,000 as of December 31, 1999. 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 for 1999 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 $423,000 for
1999.
The following table presents information with respect to mortgages
and similar debt (in thousands):
Years Ended
-----------
December 31, December 31,
1999 1998
------------ ------------
Mortgage Notes Payable........ $ 6,600 $ 6,670
Other Loans................... 5,114 1,895
------- -------
Total Mortgages and
similar debt............. $11,714 $ 8,565
------- -------
* Included in Mortgage Notes Payable is the Yasawa loan
($6,600,000 at December 31, 1999); included in Other
Loans is the Swan loan ($5,114,000 as of December 31,
1999) and, for 1998, the Scafholding loan, which was
paid in full as of December 31, 1999.
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
18
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
$1,855,000 as of December 31, 1999). 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 December 31, 1999 and 1998, $1,244,000 and $1,019,000 in
receivables were delinquent, respectively.
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 of $150,000. In 1998, the balance of the monies in the
holdback account were withdrawn by the contracts receivable purchaser pursuant
to the purchase agreement and the holdback account was terminated.
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.
The Company was the guarantor of approximately $13,038,000 of
contracts receivable sold or transferred as of December 31, 1999, 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 $3,809,000 remains at December 31, 1999. 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 and $82,000, in 1999 and 1998, respectively, in
revenue pursuant to these agreements.
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.
Other Obligations
As of December 31, 1999, the Company had estimated development
obligations of approximately $25,000 on sold property, an estimated liability to
provide title insurance and deeding costs of $273,700 and an estimated cost of
street maintenance, prior to assumption of such obligations by local governments
of $622,000, all of which are included in deferred revenue. As of December 31,
1999 and December 31, 1998 the Company had in escrow approximately $7,000
specifically for land improvements at certain of its Central and North Florida
communities. The Company's development obligation was substantially reduced in
1997 by the consummation of the Agreement approved by the stockholders on
19
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.
20
ITEM 8
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND SUPPLEMENTAL DATA
Page
----
Independent Auditors' Report................................... 22
Consolidated Balance Sheets as of December 31, 1999
and December 31, 1998....................................... 24
Statements of Consolidated Operations for the years ended
December 31, 1999, December 31, 1998 and
December 31, 1997........................................... 26
Statements of Consolidated Stockholders' Equity(Deficiency)
for the years ended December 31, 1999, December 31, 1998
and December 31, 1997....................................... 27
Statements of Consolidated Cash Flows for the years ended
December 31, 1999, December 31, 1998 and
December 31, 1997........................................... 28
Notes to Consolidated Financial Statements..................... 30
Supplemental Unaudited Quarterly Financial Data................ 41
21
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
THE DELTONA CORPORATION:
We have audited the consolidated balance sheets of The Deltona
Corporation and subsidiaries (the "Company") as of December 31, 1999 and 1998
and the related statements of consolidated operations, consolidated
stockholders' equity (deficiency) and consolidated cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements referred to
above present fairly, in all material respects, the financial position of the
Company at December 31, 1999 and 1998 and the results of its operations and its
cash flows for the years ended December 31, 1999 and 1998 in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been
prepared assuming the Company will continue as a going concern. As discussed in
Note 1 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 December 31, 1999. 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
1. 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
February 18, 2000
22
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
THE DELTONA CORPORATION:
We have audited the consolidated statements of operations,
shareholders' equity (deficiency) and cash flows of The Deltona Corporation and
subsidiaries (the "Company") for the year ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
from material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such consolidated financial statement referred to
above present fairly, in all material respects, the results of the Company's
operations and its cash flows for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been
prepared assuming the Company will continue as a going concern. As discussed in
Note 1 to the consolidated financial statements, the Company incurred
substantial operating losses and has continued to experience liquidity crises,
causing the Company to be unable to meet certain contractual obligations and has
a stockholders' deficiency at December 31, 1997. 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 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
DELOITTE & TOUCH LLP
Certified Public Accountants
Miami, Florida
March 25, 1998
23
CONSOLIDATED BALANCE SHEETS
THE DELTONA CORPORATION AND SUBSIDIARIES
ASSETS
(in thousands)
December 31, December 31,
1999 1998
------------ ------------
Cash and cash equivalents, including escrow
deposits and restricted cash of $396 in 1999
and $667 in 1998 (Note 7)........................ $ 548 $ 721
-------- --------
Contracts receivable for land sales
(Notes 2, 5 and 8)............................... 2,448 3,519
Less: Allowance for uncollectible contracts....... (606) (945)
Unamortized valuation discount.............. (293) (401)
-------- --------
Contracts receivable - net........................ 1,549 2,173
--------- --------
Mortgages and other receivables - net (Notes 2,
5 and 8)......................................... 109 194
--------- --------
Inventories, at lower of cost or net realizable
value (Notes 3 and 5):
Land and land improvements........................ 8,237 7,579
Other............................................. 70 76
-------- --------
Total inventories..................... 8,307 7,655
-------- --------
Property, plant and equipment - net (Notes
4 and 5)......................................... 489 467
-------- --------
Prepaid expenses and other........................ 911 705
-------- --------
Total................................. $ 11,913 $ 11,915
======== ========
The accompanying notes are an integral part
of the consolidated financial statements.
24
CONSOLIDATED BALANCE SHEETS
THE DELTONA CORPORATION AND SUBSIDIARIES
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
(in thousands except share data)
December 31, December 31,
1999 1998
------------ ------------
Mortgages and similar debt (Note 5):
Mortgage notes payable .............. $ 6,600 $ 6,670
Other loans ......................... 5,114 1,895
-------- --------
Total mortgages and similar debt... 11,714 8,565
Accounts payable-trade .......................... 7 193
Accrued interest payable (Note 5) ............... 744 258
Accrued taxes, principally real estate taxes .... 30 2,880
Accrued expenses and other (Notes 2 and 8) ...... 4,513 4,459
Customers' deposits ............................. 730 996
Deferred revenue (Notes 7 and 8) ................ 2,379 2,824
-------- --------
Total liabilities ............................... 20,117 20,175
-------- --------
Commitments and contingencies (Notes 1, 2, 5,
7 and 8)
Stockholders' equity (deficiency) (Notes 1, 5,
and 9):
Common stock, $1 par value-authorized
15,000,000 shares; issued and outstanding:
13,544,277 shares in 1999 and 1998
(excluding 12,228 shares held in treasury).. 13,544 13,544
Capital surplus ............................ 51,863 51,440
Accumulated deficit ........................ (73,611) (73,244)
-------- --------
Total stockholders' equity (deficiency) ......... (8,204) ( 8,260)
-------- --------
Total........ $ 11,913 $ 11,915
======== ========
The accompanying notes are an integral part
of the consolidated financial statements.
25
STATEMENTS OF CONSOLIDATED OPERATIONS
THE DELTONA CORPORATION AND SUBSIDIARIES
(in thousands except share data)
Years Ended
December 31, December 31, December 31,
1999 1998 1997
----------- ------------ ------------
Revenues
Gross land sales (Notes 2 and 7).............. $ 4,959 $ 4,155 $ 6,093
Less: Estimated uncollectible sales........... (322) (840) (1,528)
Contract valuation discount............. (172) (237) (520)
------- -------- --------
Net land sales................................ 4,465 3,078 4,045
Sales-housing................................. 3,045 1,622 1,214
Recognized improvement revenue-prior period
sales........................................ 381 956 2,366
Interest income............................... 498 548 1,367
Other ........................................ 448 284 433
------- -------- --------
Total...... 8,837 6,488 9,425
------- -------- --------
Costs and expenses
Cost of sales-land............................ 986 741 1,121
Cost of sales-housing......................... 2,402 1,269 917
Cost of improvements-prior period sales....... 126 302 545
Cost of sales-other........................... 179 250 248
Provision for uncollectible contracts and
recourse obligations (Note 2)............... -0- -0- 840
Commissions, advertising, and other selling
expenses..................................... 3,040 2,533 2,517
General and administrative expenses........... 1,129 2,144 1,680
Real estate tax............................... 491 1,028 1,338
Interest expense.............................. 851 812 1,545
------- -------- --------
Total...... 9,204 9,079 10,751
------- -------- --------
Loss from operations before income
taxes......................................... (367) (2,591) (1,326)
Provision for income taxes (Note 6)............ -0- -0- -0-
------- -------- --------
Net income (loss).............................. $ (367) $ (2,591) $ (1,326)
======= ======== ========
Net income (loss) per common share............. $ (.03) $ ( .19) $ (.20)
======= ======== ========
The accompanying notes are an integral part
of the consolidated financial statements.
26
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY (DEFICIENCY)
THE DELTONA CORPORATION AND SUBSIDIARIES
(in thousands)
For the years ended December 31, 1999, December 31, 1998 and December 31, 1997
Common Stock Capital Accumulated
($1 par value) Surplus Deficit Total
-------------- ------- ----------- -------
Balances, December 31, 1996....... $ 6,734 $44,714 $(69,327) $(17,879)
Issuance of Common Stock to
Related Party............ 6,810 -0- -0- 6,810
Gain from Exchange of Land
and Contracts Receivable
with Related Party....... -0- 6,781 -0- 6,781
Net (loss) for the year.... -0- -0- (1,326) (1,326)
------- ------- -------- --------
Balances, December 31, 1997....... $13,544 $51,495 $(70,653) $ (5,614)
Gain (loss)from Exchange
of Land and Contracts
Receivable with Related
Party.................... -0- (55) -0- (55)
Net (loss) for the year.... -0- -0- (2,591) (2,591)
------- ------- -------- --------
Balances, December 31, 1998....... $13,544 $51,440 $(73,244) $ (8,260)
Imputed Interest expense on
debt with Related Party
(See Note 5)............. -0- 423 -0- 423
Net (loss) for the year.... -0- -0- (367) (367)
------- ------- -------- --------
Balances, December 31, 1999....... $13,544 $51,863 $(73,611) $ (8,204)
======= ======= ======== ========
The accompanying notes are an integral
part of the consolidated financial statements.
27
STATEMENTS OF CONSOLIDATED CASH FLOWS
THE DELTONA CORPORATION AND SUBSIDIARIES
(in thousands)
Years Ended
-----------
December 31, December 31, December 31,
1999 1998 1997
------------ ------------ ------------
Cash flows from operating activities:
Cash received from operations:
Proceeds from sale of residential units........ $ 2,846 $ 1,768 $ 1,272
Collections on contracts and mortgages
receivable.................................... 1,051 1,993 3,245
Down payments on and proceeds from sales
of homesites and tracts.................... 891 1,072 1,476
Proceeds from sale of Contracts Receivables. 0 868 4,625
Proceeds (uses) from other sources.......... (80) 240 (8)
-------- --------- --------
Total cash received from operations.. 4,708 5,941 10,610
-------- --------- --------
Cash expended by operations:
Cash paid for residential units............. 2,402 1,269 917
Cash paid for land and land improvements.... 1,648 1,047 621
Customer refunds............................ -0- 35 28
Commissions, advertising and other
selling expenses........................... 3,274 2,620 2,414
General and administrative expenses......... 1,452 1,715 1,803
Interest paid............................... -0- 299 -0-
Real estate taxes paid...................... 3,336 260 2,504
-------- --------- --------
Total cash expended by operations.... 12,112 7,245 8,287
-------- --------- --------
Net cash provided by (used in)
operating activities................ (7,404) (1,304) 2,323
-------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of property, plant
and equipment................................. 3 0 18
Payment for acquisition and construction of
property, plant and equipment................ (72) (137) (6)
-------- --------- --------
Net cash provided by (used in) investing
activities........................ (69) (137) 12
-------- --------- --------
Cash flows from financing activities:
New borrowings................................. 7,300 765 137
Repayment of borrowings........................ -0- -0- (1,982)
-------- --------- --------
Net cash provided by (used in) financing
activities........................ 7,300 765 (1,845)
-------- --------- --------
Net increase (decrease) in cash and cash
equivalents.................................... (173) (676) 490
Cash and cash equivalents, beginning of year.... 721 1,397 907
-------- --------- --------
Cash and cash equivalents, end of year.......... $ 548 $ 721 $ 1,397
======== ========= ========
The accompanying notes are an
integral part of the consolidated financial statements.
28
STATEMENTS OF CONSOLIDATED CASH FLOWS - (Continued)
THE DELTONA CORPORATION AND SUBSIDIARIES
(in thousands)
Years Ended
Years Ended
-----------
December 31, December 31, December 31,
1999 1998 1997
------------ ------------ ------------
Reconciliation of net income (loss) to net cash
provided by (used in) operating activities:
Net income (loss)............................... $ (367) $ (2,591) $ (1,326)
---------- ---------- ----------
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization....... 50 45 46
Provision for estimated uncollectible
sales and recourse obligations.... 322 840 1,528
Contract valuation discount, net of
amortization...................... (5) 140 238
Net (gain) loss on sale of property,
plant and equipment............... (3) -0- (18)
Imputed Interest on debt with related
party (See Note 5)................ 423 -0- -0-
Provision for recourse obligation... -0- -0- 840
(Increase) decrease in assets and increase
(decrease) in liabilities:
Gross contracts receivable plus
deductions from reserves........... (3,844) (1,689) 2,501
Mortgages and other receivables..... 85 890 (907)
Land and land improvements.......... (658) (211) 673
Housing completed or under
construction and other............. 6 23 -0-
Prepaid expenses and other.......... (205) (87) 115
Accounts payable, accrued expenses
and other.......................... (2,497) 2,049 1,086
Customers' deposits................. (266) 243 (103)
Deferred revenue.................... (445) (956) (2,350)
---------- --------- ----------
Total adjustments and changes... (7,037) 1,287 3,649
---------- --------- ----------
Net cash provided by (used in) operating
activities.................................... $ (7,404) $ (1,304) $ 2,323
========== ========= ==========
Supplemental disclosure of non-cash investing
and financing activities:
Reduction of accrued interest as a result of the
capitalization of interest to principal....... $ -0- $ -0- $ 1,130
========== ========= ==========
Reduction of accrued interest as a result of
forgiveness of interest....................... $ -0- $ -0- $ 2,050
========== ========= ==========
Reduction of accrued interest and mortgage notes
payable as a result of an exchange of land,
property and common stock..................... $ -0- $ -0- $ 11,689
========== ========= ==========
Reduction of land as a result of an exchange of
debt.......................................... $ -0- $ -0- $ 1,953
========== ========= ==========
Reduction of deferred revenue as a result of
assumption of the development obligation by
a related party............................... $ -0- $ -0- $ 1,901
========== ========= ==========
Common Stock issued for reduction of long-term
debt.......................................... $ -0- $ -0- $ 6,810
========== ========= ==========
Reduction of notes receivable as a result of payment
of accrued interest........................... $ -0- $ 254 $ -0-
========== ========= ==========
Reduction of accrued interest and mortgage
notes payable through transfer of contracts
receivable.................................... $ 4,151 $ 1,233 $ -0-
========== ========= ==========
Sale of land to related party in return for
future rent credits (see Note 8):
Increase of prepaid expenses ................. $ -0- $ 398 $ -0-
========== ========= ==========
Reduction of land inventory................... $ -0- $ 81 $ -0-
========== ========= ==========
Increase in deferred revenue.................. $ -0- $ 291 $ -0-
========== ========= ==========
The accompanying notes are an
integral part of the consolidated financial statements.
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE DELTONA CORPORATION AND SUBSIDIARIES
1. Basis of Presentation and Significant Accounting Policies
Basis of Presentation - Going Concern
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 a loss from operations for 1997 of
$1,326,000, for 1998 of $2,591,000, and for 1999 of $367,000 resulting in a
stockholders' deficiency of $8,204,000 as of December 31, 1999.
Following the restructuring of its debt in 1997 (see Note 5), the
Company commenced the implementation of its business plan by redirecting its
focus to single-family housing with the development of TimberWalk and other
housing in Marion Oaks. The transactions described in Note 5 with Selex
International, B.V. ("Selex"), Yasawa Holdings, N.V. ("Yasawa"), Scafholding
B.V. ("Scafholding") and Swan Development Corporation ("Swan"), provided the
Company with a portion of its financing requirements enabling the Company to
commence implementation of the marketing program and attempt to accomplish the
objectives of its business plan. Selex, Yasawa, Scafholding and Swan are related
parties to the Company either because they are shareholders or as a result of
common control.
The Company has been dependent on its ability to sell or otherwise
finance contracts receivable and/or secure other financing sources to meet its
cash requirements. Additional financing was required in 1999 and was funded
through additional loans from Swan. Additional financing will be required in the
future. Although Scafholding has purchased contracts receivables at the rate of
65% of face value, with recourse, in 1998 and Swan loaned the Company additional
funds to be paid back with contracts receivable at the rate of 90% of face
value, with recourse in 1998 and 1999, 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. (See Notes 5 and 11.)
The consolidated financial statements do not include any adjustments
relating to the recoverability of asset amounts or the amounts of liabilities
should the Company be unable to continue as a going concern.
Significant Accounting Policies
The Company is principally engaged in the development and sale of
Florida real estate through the development of planned communities on land
acquired for that purpose.
The Company's consolidated financial statements are prepared in
accordance with generally accepted accounting principles. Material intercompany
accounts and transactions are eliminated.
The Company sells homesites under installment contracts which
provide for payments over periods ranging from 2 to 10 years. Since 1991, the
Company has offered only developed lots for sale. Sales of homesites are
recorded under the percentage-of-completion method in accordance with Statement
of Financial Accounting Standards No. 66, "Accounting for Sales of Real Estate"
("FAST No. 66"). Since 1991, the Company has not recognized a sale until it has
received 20% of the contract sales price. During 1999, 1998 and 1997,
approximately 73%, 82% and 87% of sales were through a single independent dealer
in New York.
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE DELTONA CORPORATION AND SUBSIDIARIES
1. Basis of Presentation and Significant Accounting Policies(continued)
At the time of recording a sale the Company records an allowance for
the estimated cost to cancel the related contracts receivable through a charge
to the provision for uncollectible sales. The amount of this provision and the
adequacy of the allowance is determined by the Company's continuing evaluation
of the portfolio and past cancellation experience. While the Company uses the
best information available to make such evaluations it is at least reasonably
possible, future adjustments to the allowance may be necessary in the near term
as a result of future national and international economic and other conditions
that may be beyond the Company's control. Changes in the Company's estimate of
the allowance for previously recognized sales are reported in earnings in the
period in which they become estimable and are charged to the provision for
uncollectible contracts.
Land improvement costs are allocated to individual homesites based
upon the relationship that the homesite's sales price bears to the total sales
price of all homesites in the community. The estimated costs of improving
homesites are based upon independent engineering estimates made in accordance
with sound cost estimation and provide for anticipated cost-inflation factors.
The estimates are systematically reviewed. When cost estimates are revised, the
percentage relationship they bear to deferred revenues is recalculated on a
cumulative basis to determine future income recognition as performance takes
place.
Sales of houses and vacation ownership units, as well as all related
costs and expenses, are recorded at the time of closing.
Interest costs directly related to, and incurred during, a project's
construction period are capitalized. No interest was capitalized in 1997 and
1998. In 1999, approximately $62,000 of interest was capitalized.
Property, plant and equipment is stated at cost. Depreciation is
provided by the straight-line method over the estimated useful lives of the
respective assets, which range from 5 to 33 years. Additions and betterments are
capitalized, and maintenance and repairs are charged to income as incurred.
Generally, upon the sale or retirement of assets, the accounts are relieved of
the costs and related accumulated depreciation and any gain or loss is reflected
in income.
When property exchanges and refund transactions are consummated (see
Note 8), any resulting loss is charged against the allowance included in accrued
expenses and other. The Company accrues interest on its refund obligations in
accordance with the customer refund programs.
Advertising and marketing costs are charges to operations when
incurred. Sales commissions are recognized as a liability when the related
contract is accepted and charged to expense when the sale is recognized as
revenue.
For the purposes of the statements of cash flows, the Company
considers its investments, which are comprised of short term, highly liquid
investments purchased with a maturity of three months or less, to be cash
equivalents.
In accordance with Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ( SFAS No. 121), long-lived assets, such as
inventories and property, plant and equipment to be held and used are to be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amounts of an asset may not be recoverable. As of December 31,
1999, there were no assets considered impaired under the provisions of the
Statement.
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE DELTONA CORPORATION AND SUBSIDIARIES
1. Basis of Presentation and Significant Accounting Policies(continued)
The estimated fair values of financial instruments have been
determined by the Company using available market information and appropriate
valuation methods. Considerable judgment is required in interpreting market data
to develop the estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts the Company could realize
or incur in a current market exchange. The use of different market assumptions
and/or estimation methods may have a material effect on the estimated fair value
amounts. The Company's financial instruments consist of cash and cash
equivalents, contracts and mortgages receivable, and similar debt. The carrying
amount of cash and cash equivalents are reasonable estimates of fair value. The
fair value of contracts and mortgages receivable and similar debt has been
estimated using interest rates currently available for similar terms. The
carrying value of the contracts and mortgages receivable and similar debt
approximates fair value.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. Contracts and Mortgages Receivable
At December 31, 1999, interest rates on contracts receivable
outstanding ranged from 5% to 12% per annum (weighted average approximately
8.62%). The approximate principal maturities of contracts receivable were:
December 31,
1999
--------
(in thousands)
2000..................... 358
2001..................... 359
2002..................... 317
2003..................... 293
2004 .................... 293
2005 and thereafter...... 828
------
Total........ $2,448
======
If a regularly scheduled payment on a contract remains unpaid 30
days after its due date, the contract is considered delinquent. Aggregate
delinquent contracts receivable at December 31, 1999 and 1998 approximate
$856,000 and $1,058,000, respectively.
Information with respect to interest rates and average contract
lives used in valuing new contracts receivable generated from sales follows:
Average Average Stated Discounted
Years ended Term Interest Rate to Yield
----------- ---- ------------- --------
December 31, 1999......... 88 months 7.5% 13.5%
December 31, 1998......... 94 months 8.3% 13.5%
December 31, 1997......... 91 months 8.8% 13.5%
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,
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE DELTONA CORPORATION AND SUBSIDIARIES
2. Contracts and Mortgages Receivable (continued)
respectively, in net proceeds to the Company. 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
$1,855,000 as of December 31, 1999). 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. The Company was not requested to replace any delinquent
receivables in 1997, 1998 or 1999. As of December 31, 1999 and 1998, $1,083,000
and $1,019,000 in receivables owned by Finova were delinquent, respectively.
In December 1997, Scafholding purchased approximately $7,500,000 in
contracts receivable from the Company at seventy-five percent (75%) of face
value with recourse for non-performing contracts. This sale generated
approximately $5.6 million, $1,982,457 of which was used to reduce outstanding
debt to Yasawa. The balance was used to pay a portion of the delinquent real
estate taxes, to implement its marketing programs, to initiate development of
TimberWalk and for the Company's working capital requirements.
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 for the Company's working capital requirements.
The Company is required to make monthly principal payments to Yasawa
and Scafholding with contracts receivable at 100% of face value, with recourse.
The Company is also required to make monthly principal payments to Swan with
contracts receivable at 90% of face value, with recourse. The Company transfers
all current contracts receivable in excess of the net aggregate sum of $500,000
to Swan on a monthly basis (See Note 5).
The Company is the guarantor of approximately $13,038,000 of
contracts receivable sold or transferred as of December 31, 1999. 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 $3,809,000 remains
at December 31, 1999. The Company has been in compliance with all receivables
transactions since the consummation of receivable sales. Because of inherent
uncertainties in estimating the recourse provision, it is at least reasonably
possible that the Company's estimate will change in the near term.
The Company has an agreement with Scafholding and Citony Development
Corporation for the servicing of their receivable portfolios. The Company
received approximately $86,700 and $82,000, in 1999 and 1998, respectively, in
revenue pursuant to these agreements. The Company also services the Swan
receivable portfolio, which consisted of 231 contracts as of December 31, 1999;
however, the Swan portfolio is serviced at no charge to Swan under the debt
agreement.
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE DELTONA CORPORATION AND SUBSIDIARIES
3. Inventories
Information with respect to the classification of inventory of land
and improvements including land held for sale or transfer is as follows:
December 31, December 31,
1999 1998
------------ ------------
(in thousands)
Unimproved land........................ $ 420 $ 420
Land in various stages of development.. 2,633 2,287
Fully improved land.................... 5,184 4,872
-------- --------
Total...................... $ 8,237 $ 7,579
======== ========
4. Property, Plant and Equipment
Property, plant and equipment and accumulated depreciation consist
of the following:
December 31, 1999 December 31, 1998
------------------------ -----------------------
Accumulated Accumulated
Cost Depreciation Cost Depreciation
-------- ------------ -------- ------------
(in thousands)
Land and land improvements.. $ 74 $ -0- $ 74 $ -0-
Other buildings, improvements
and furnishings........... 1,116 789 1,073 771
Construction and other
equipment................. 758 670 752 661
-------- ------- ------- ------
Total........... $ 1,948 $ 1,459 $1,899 $1,432
======== ======= ======= ======
Depreciation charged to operations for the years ended December 31,
1999, 1998 and 1997 was approximately $50,000, $45,000 and $46,000,
respectively.
5. Mortgages and Similar Debt
Effective December 30, 1997, the Company and its lenders consummated
several transactions that resulted in a reduction in the Company's outstanding
debt obligation through the conveyance of all remaining land inventory and
obligations in the Company's St. Augustine Shores Subdivision and the issuance
of approximately 6.8 million shares of Common Stock at $1.00 per share (par
value). Additionally, the lenders purchased $7,500,000 in contracts receivable
from the Company to generate working capital and further reduce the debt
obligation. Selex sold its remaining debt ($2,664,736), including the Empire
note, to Yasawa and the Company owes no further duty or obligation to Selex,
which provided the Company a release. The debt purchased by Yasawa was satisfied
through Yasawa's purchase of 2,664,736 shares of Common Stock issued by the
Company at a per share conversion price of One Dollar ($1.00), which is equal to
par value. Swan had previously acquired $5,529,501 of the Company's debt from
Selex. This $5,529,501 was satisfied through the Company's conveyance of all of
the Company's remaining land inventory and obligations in its St. Augustine
Shores Subdivision to Swan . The price, based upon appraised value, was adjusted
to take into account the development obligations on sold lots assumed by Swan.
Scafholding purchased approximately $7,500,000 in contracts receivable from the
Company at seventy-five percent (75%) of face value with recourse for
non-performing contracts. This sale generated approximately $5.6 million,
$1,982,457 of which was used to reduce outstanding debt to Yasawa. A $4,144,602
portion of the Company's debt to Yasawa was satisfied through Yasawa's purchase
of 4,144,602 shares of Common Stock issued by the Company at a per share
conversion price of One Dollar ($1.00), which is equal to par value.
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE DELTONA CORPORATION AND SUBSIDIARIES
5. Mortgages and Similar Debt (continued)
The terms of repayment of the Yasawa and Scafholding debt were
restructured to provide for 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. As of December 31,
1999, the Company had satisfied its debt obligation to Scafholding. Effective
January 1, 1999, Yasawa and Scafholding agreed to reduce the annual percentage
rate for 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 December 31, 1999. As of December 31, 1999,
the total amount of interest accrued is approximately $693,000.
Prior to November 4, 1997 and independent of the Agreement outlined
above, Selex and Yasawa agreed to forgive $2,050,818 in accrued interest on the
Company's debt to them.
From October 9, 1998 through the present, Swan continued to loan the
Company funds to meet its working capital requirements (see Note 11). The
Company's outstanding debt to Swan, which is secured by a second lien on the
Company's receivables, was $5,114,000 as of December 31, 1999. 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 for 1999 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 $423,000 for
1999.
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 following table presents information with respect to mortgages
and similar debt (in thousands):
Years Ended
December 31, December 31,
1999 1998
------------ ------------
Mortgage Notes Payable............... $ 6,600 $ 6,670
Other Loans.......................... 5,114 1,895
------- -------
Total Mortgages and similar debt... $11,714 $ 8,565
------- -------
* Included in Mortgage Notes Payable is the Yasawa loan ($6,600,000 at December
31, 1999); included in Other Loans is the Swan loan ($5,114,000 as of December
31, 1999) and, for 1998, the Scafholding loan, which was paid in full as of
December 31, 1999.
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE DELTONA CORPORATION AND SUBSIDIARIES
5. Mortgages and Similar Debt (continued)
The following table presents information with respect to the minimum
principal maturities of mortgages and similar debt for the next five years
(excluding amounts owed to Swan):
For the year ended
December 31
(in thousands)
2000................................ 1,200
2001................................ 1,200
2002................................ 1,200
2003................................ 1,200
2004................................ 1,200
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 loan modifications
consummated December 31, 1997, satisfied all Company obligations to Selex. 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.
6. Income Taxes
Effective December 26, 1992, the Company adopted Statement of
Accounting Standard No. 109 "Accounting for Income Taxes." Differences between
accounting rules and tax laws cause differences between the basis of certain
assets and liabilities for financial reporting purposes and tax purposes. The
tax effect of these differences, to the extent they are temporary, are recorded
as deferred tax assets and liabilities. Income tax expense is the tax payable or
refundable for the period plus or minus the change during the period in deferred
assets and liabilities.
For the years ended December 31, 1999, 1998 and 1997, the Company
had a net loss for tax purposes and there was no material amount of taxes
payable or refundable. Accordingly, there was no tax provision for such years.
As of December 31, 1999, the Company had a net deferred tax asset of
approximately $ 14,139,000 which primarily resulted from the tax effect of the
Company's net operating loss carryforward of $ 8,610,000 and losses on
subsidiaries sold in prior years of $3,960,000. A valuation allowance of
$14,139,000 has been established against the net deferred tax asset.
As of December 31, 1998, the Company had a net deferred tax asset of
approximately $19,374,000 which primarily resulted from the tax effect of the
Company's net operating loss carryforward of $14,817,000 and losses on
subsidiaries sold in prior years of $3,960,000. A valuation allowance of
$19,374,000 has been established against the net deferred tax asset.
The Company's regular net operating loss carryover for tax purposes
is estimated to be $31,741,000 at December 31, 1999, $364,000 of which was
available through 2002, $9,189,000 through 2005, $9,780,000 through 2006,
$5,029,000 through 2008, $5,401,000 through 2009, $1,977,000 through 2011 , and
the remainder through 2019. In addition to the net operating loss carryover,
investment tax credit carryovers of approximately $64,000, which expire from
2000 through 2001, and alternative minimum tax credits of $386,000 are available
to reduce federal income tax liabilities only after the net operating loss
carryovers have been utilized.
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE DELTONA CORPORATION AND SUBSIDIARIES
6. Income Taxes (continued)
The utilization of the Company's net operating loss and tax credit
carryforwards could be impaired or reduced under certain circumstances, pursuant
to changes in the federal income tax laws effected by the Tax Reform Act of
1986. Events which affect these carryforwards include, but are not limited to,
cumulative stock ownership changes of 50% or more over a three-year period, as
defined, and the timing of the utilization of the tax benefit carryforwards.
7. Liability for Improvements
The Company has an obligation to complete land improvements upon
deeding which, depending on contractual provisions, typically occurs within 90
to 120 days after the completion of payments by the customer. The estimated cost
to complete improvements to lots and tracts from which sales have been made at
December 31, 1999 and 1998 was approximately $921,000 and $1,060,000,
respectively. The foregoing estimates reflect the Company's current development
plans at its communities (see Note 8). These estimates include: estimated
development obligations applicable to sold lots of approximately $25,000; a
liability to provide title insurance and deeding costs of $273,700 and $423,000,
respectively; and an estimated cost of street maintenance, prior to assumption
of such obligations by local governments, of $622,000 and $612,000,
respectively; all of which are included in deferred revenue. Included in cash at
December 31, 1999 and December 31, 1998, are escrow deposits of $7,000
restricted for completion of improvements in certain of the Company's
communities. 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.
The anticipated expenditures for land improvements, title insurance
and deeding to complete areas from which sales have been made through December
31, 1999 are as follows:
December 31, 1999
-----------------
(in thousands)
2000........................... $ 208
2001........................... 271
2002........................... 312
2003 and thereafter............ 130
-----
Total.................... $ 921
=====
8. Commitments and Contingent Liabilities
Total rental expense for the years ended December 31, 1999, December
31, 1998 and December 31, 1997 was approximately $77,000, $134,000 and $121,000,
respectively.
The Company has a lease on its headquarters building in TimberWalk
and on its Miami office that extend through 2003. Estimated rental expense under
these leases is expected to be approximately $76,000 annually. The Company has
no material equipment leases.
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 as of December 31, 1999
and 1998.
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE DELTONA CORPORATION AND SUBSIDIARIES
8. Commitments and Contingent Liabilities (continued)
Additionally during 1998, Scafholding advanced the Company $200,000
against future administrative fees due the Company for selling lots owned by
Scafholding. The Company recorded this advance as a deposit. In the years
ended December 31, 1999 and 1998, the Company earned $74,240 and $27,780,
respectively, in fees for sold lots.
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 of Florida Land Sales, Condominiums and Mobile Homes
(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.
On December 30, 1997, the Division approved the formation of a Lot
Exchange Trust into which the Company conveyed sufficient exchange inventory to
provide exchanges to customers with undeveloped lots. Concurrently, the Division
released its lien on the Company's contracts receivable, satisfied its mortgage
on the Company's property and approved a settlement of all remaining issues
under the 1992 Deltona Consent Order. The 1992 Deltona Consent Order was
formally terminated on April 13, 1998.
As of December 31, 1999 and 1998 the Company had in escrow
approximately $7,000 specifically for land improvements at certain of its
Central and North Florida communities. 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.
The Company's continuing liquidity problems had precluded the timely
payment of the full amount of certain real estate taxes. In 1999, delinquent as
well as current real estate taxes for all properties in the Company's saleable
inventory were paid. On properties where customers have contractually assumed
the obligation to pay real estate taxes, monies received from customers for
payment of such taxes are deposited into a tax escrow maintained by the Company
until paid.
In addition to the matters discussed above, 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.
9. Common Stock and Earnings Per Share Information
Effective December 30, 1997, the Company entered into agreements
with its lenders to substantially reduce the Company's outstanding debt
obligations. Yasawa purchased 6,809,338 shares of Common Stock issued by the
Company at a per share price of One Dollar ($1.00), which is equal to par value,
in satisfaction of $6,809,338 of the Company's debt to Yasawa. Through Yasawa's
acquisition of the 6,809,338 shares of Common Stock of the Company referenced
above, Mr. Antony Gram's beneficial ownership increased from 3,109,703 shares to
9,919,041 shares (73.23% of the outstanding shares of Common Stock of the
Company as of December 31, 1999).
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE DELTONA CORPORATION AND SUBSIDIARIES
9. Common Stock and Earnings Per Share Information (continued)
Net income (loss) per common share is computed in accordance with
the requirements of Statement of Financial Accounting Standards No. 128
"Earnings Per Share" (SFAS 128). SFAS 128 requires net income (loss) per share
information to be computed using a simple weighted average of common shares
outstanding during the periods presented.
The net loss and the average number of shares of common stock and
common stock equivalents used to calculate earnings (loss) per share for 1999,
1998 and 1997 were $(367,000), $(2,591,000) and $(1,326,000) and 13,544,277,
13,544,277 and 6,753,587, respectively.
10. Subsequent Event
Between January 1, 2000 and February 18, 2000, Swan loaned the
Company $645,000 under similar terms as described in Note 5. These funds were
used to meet the Company's current working capital requirements.
In January 2000, the Company acquired sixteen homes under
construction from Scafholding valued at approximately $763,000. Swan financed
the acquisition under similar terms as described in Note 5.
In January 2000, the Company transferred a 185 acre parcel zoned as
a park site to Scafholding. In consideration for the transfer, Scafholding has
paid approximately $100,000 in current and delinquent real estate taxes related
to the parcel. The Company did not record a gain or loss on this transaction as
neither the park site or the related taxes have been attributed any amounts on
the books of the Company.
In January and February 2000, the Company transferred contracts
receivable with a face value of $100,000 to Scafholding under the terms
described in Note 5.
39
SUPPLEMENTAL UNAUDITED QUARTERLY FINANCIAL DATA
(in thousands, except per share amounts)
(Loss)
From
Operations
Before (Loss) Net
Income From Income
Revenues Taxes Operations (Loss)
-------- ----- ---------- ------
1999
First..... $ 2,184 $ (297) $ (297) $ (297)
Second.... 2,277 (222) (222) (222)
Third..... 2,046 (280) (280) (280)
Fourth.... 2,330 432 432 432
------- -------- -------- --------
Total....... $ 8,837 $ (367) $ (367) $ (367)
======= ======== ======== ========
1998
First.... $ 1,379 $ (621) $ (621) $ (621)
Second... 1,946 (304) (304) (304)
Third.... 1,338 (1,269) (1,269) (1,269)
Fourth... 1,825 (397) (397) (397)
-------- -------- -------- -------
Total...... $ 6,488 $ (2,591) $ (2,591) $(2,591)
======== ======== ======== -
1997
First.... $ 2,072 $ (429) $ (429) $ (429)
Second... $ 2,291 $ (174) $ (174) $ (174)
Third.... $ 1,631 $ (627) $ (627) $ (627)
Fourth... $ 3,431 $ ( 96) $ ( 96) $ (96)
-------- -------- -------- --------
Total...... $ 9,425 $ (1,326) $ (1,326) $ (1,326)
======== ======== --------
Earnings (Loss) Per Share(a)
Net Income
Operations (Loss)
---------- ------
1999
First....... $ (.02) $ (.02)
Second...... (.02) (.02)
Third....... (.02) (.02)
Fourth...... .03 .03
------- --------
Total................... $ (.03) $ (.03)
======= ========
1998
First....... $ (.05) $ (.05)
Second...... (.02) (.02)
Third....... (.09) (.09)
Fourth...... (.03) (.03)
------- --------
Total................... $ (.19) $ (.19)
======= ========
1997
First....... $ (.06) $ (.06)
Second...... (.03) (.03)
Third....... (.09) (.09)
Fourth...... (.01) (.01)
------- --------
Total................... $ (.20) $ (.20)
======= ========
(a) Total shown does not agree with earnings per share set
forth in the Company's Statement of Consolidated
Operations for the year ended December 31, 1997 due to
differences in the calculation of the weighted average
number of shares outstanding at the end of each quarter
during the year.
40
ITEM 14
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
See Item 8, Index to Consolidated Financial Statements
and Supplemental Data.
(a) 2. Financial Statement Schedules
Page
----
Independent Auditors' Report..................... 42
Schedule VIII - Valuation and qualifying
accounts for the three years ended
December 31, 1999.............................. 44
All other schedules are omitted because they are not applicable or
not required, or because the required information is included in the
Consolidated Financial Statements or Notes thereto or the 2000
Annual Meeting Proxy Statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A, incorporated herein
by reference.
(a) 3. Exhibits
See the Exhibit Index included herewith.
(b) Reports on Form 8-K
No report on Form 8-K was filed during the year ended December 31,
1999.
41
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF THE DELTONA CORPORATION:
We have audited the consolidated financial statements of The Deltona
Corporation and subsidiaries (the "Company") as of December 31, 1999 and 1998
and for the years then ended, and have issued our reports thereon dated February
18, 2000 (which expresses an unqualified opinion and includes an explanatory
paragraph relating to the Company's ability to continue as a going concern),
included elsewhere in this Annual Report on Form 10-K. Our audit also included
the financial statement schedules listed in Item 14(a)2 of this Annual Report on
Form 10-K. These financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
JAMES MOORE & COMPANY P.L.
Certified Public Accountants
Gainesville, Florida
February 18, 2000
42
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF THE DELTONA CORPORATION:
We have audited the consolidated financial statements of The Deltona
Corporation and subsidiaries (the "Company") as of December 31, 1997, and for
the year then ended and have issued our report thereon dated March 25, 1998
(which expresses an unqualified opinion and includes an explanatory paragraph
relating to the Company's ability to continue as a going concern), included
elsewhere in this Annual Report on Form 10-K. Our audits also included the
financial statement schedules listed in Item 14(a)2 of this Annual Report on
Form 10-K. These financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami, Florida
March 25, 1998
43
THE DELTONA CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Additions
Charged to
Those Valuation and Qualifying Accounts Balance at Revenues, Deductions Balance at
Which are Deducted in the Balance Sheet Beginning Costs, and from End of
from the Assets to Which They Apply of Period Expenses Reserves Period
- --------------------------------------- ---------- ---------- ---------- --------
Year ended December 31, 1999
Allowance for uncollectible contracts(a)........ $ 945 $ 322 $ 661 $ 606
========= ========== ========== ==========
Unamortized contract valuation discount(b)...... $ 401 $ 172 $ 280 $ 293
========= ========== ========== ==========
Year ended December 31, 1998
Allowance for uncollectible contracts(a)........ $ 1,150 $ 840 $ 1,045 $ 945
========= ========== ========== ==========
Unamortized contract valuation discount(b)...... $ 508 $ 237 $ 344 $ 401
========= ========== ========== ==========
Year ended December 31, 1997
Allowance for uncollectible contracts(a)........ $ 2,429 $ 1,528 $ 2,807 $ 1,150
========= ========== ========== ==========
Unamortized contract valuation discount(b)...... $ 1,094 $ 520 $ 1,106 $ 508
========= ========== ========== ==========
- ------------
(a) Represents estimated uncollectible contracts receivable (see
Notes 1 and 2 to Consolidated Financial Statements).
(b) Represents the unamortized discount generated from
initial valuations of contracts receivable (see Notes 1
and 2 to Consolidated Financial Statements).
44
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE DELTONA CORPORATION
(Company)
By: /s/ Donald O. McNelley DATE: March 24, 2000
------------------------------------
Donald O. McNelley, Treasurer
Pursuant to the requirements of the Securities Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the date indicated.
/s/ Antony Gram
----------------
Antony Gram, Chairman of the Board of Directors,
Chief Executive Officer and President
/s/ Christel DeWilde
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Christel DeWilde, Director
/s/George W. Fischer
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George W. Fischer, Director
/s/Rudy Gram
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Rudy Gram, Director
/s/Thomas B. McNeill
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Thomas B. McNeill, Director DATE: March 24, 2000
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