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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, 2000
( ) 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 ___________
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: $770,000 (based upon the average price of such
stock as traded over-the-counter ($.22) at December 31, 2000 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 16, 2001, 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 ................ Submission of Matters to a Vote of
Security Holders (Refer to Registrant's
2001 Annual Meeting Notice and Proxy
Statement incorporated herein by
reference and to be filed with the
Securities and Exchange Commission
pursuant to Regulation 14A)
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...................... 13
Item 8 ................ Index to Consolidated Financial
Statements and Supplemental Data .. 20
Item 9 ................ Independent Public Accountants...... 36
PART III (Refer to Registrant's 2001 Annual
Meeting Notice and Proxy Statement
incorporated herein by reference
and to be filed with the Securities
and Exchange Commission pursuant to
Regulation 14A)
PART IV
Item 14 ............... Exhibits, Financial Statement
Schedules and Reports on Form 8-K . 38
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 16,548 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 the Company's
customers.
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
During 2000, 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 $5,399,000 as of December 31, 2000. The Company signed a
promissory note to Swan in March 1999 which provides that funds advanced by Swan
will be paid back by the Company monthly in contracts receivables at 90% of face
value, with recourse. There will be no interest for the first six months after
an advance of money is received from Swan by the Company; thereafter the
interest shall be 6% per annum on the outstanding balance of the advance.
Effective January 1, 2001 and semi-annually thereafter, the interest rate will
be adjusted to equal the prime rate then in effect. 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.
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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, 2000. 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 73,290 34,964 -- 6
* Marco Island(c) ........ 7,844 1964 1965 43,700 8,657 -- --
* Spring Hill(d) ......... 17,240 1966 1967 76,300 32,909 -- 7
* Citrus Springs(e) ..... 15,954 1969 1970 6,950 33,783 -- 10(h)
St. Augustine Shores.... 1,985 1969 1970 7,730 3,130 -- -(h)
Sunny Hills ............ 17,743 1968 1971 1,410 26,251 12,478 677
* Pine Ridge ............. 9,994 1969 1972 3,800 4,833 -- 3
Marion Oaks(e)(f) ..... 14,644 1969 1973 8,560 27,537 2,683(f) 710(f)(h)
* Seminole Woods ......... 1,554 1969 1979 530 262 -- --
There is no unplatted acreage in any community
Joint Venture Community:
* Tierra Verde ........... 666 1976 1977 5,530 1,036 -- --
--- ---- ---- ----- ----- ------ -----
Total ............ 104,827 222,270 173,362 15,161 1,413
======= ======= ======= ====== =====
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 97 improved
and 91 unimproved lots and tracts that are required for drainage and
cannot be sold, and approximately 172 improved and 335 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 site , as well as approximately 275 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.
(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.
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(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, 346 contracts
receivable presently exist with respect to lots and tracts with an outstanding
balance of approximately $2,109,000 at December 31, 2000, 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.
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
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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
The Company's homes, constructed by an independent builder, are 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 model center
is open 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, 2000, 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 73,290. Over 30,000 lots and tracts and over 4,500 single and
multi-family housing units have been sold at this community.
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.
4
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 43,700 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 76,300, 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 6,950, 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 7,730, 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.
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.
5
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 3,800, 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 8,560 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.
The Company's homes, constructed by an independent builder, are 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 model center
is open 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 2001 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 530, 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.
Other Land Assets
The Company also owns 92 acres of land in Florida adjacent to its existing
communities.
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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, 2000, the Company had 36 employees, of whom 34 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
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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, 2000, the Company had estimated development obligations
of approximately $25,000 on sold property, an estimated liability to provide
title insurance and deeding costs of $251,000 and an estimated cost of street
maintenance, prior to assumption of such obligations by local governments, of
$585,000, all of which are included in deferred revenue. As of December 31, 2000
and December 31, 1999 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 had been 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 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
From time to time the Company may become a party to legal and
administrative proceedings arising in the ordinary course of business. At
present, the Company is not a party to any legal or administrative proceeding
which might 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, 2000, 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 2000 is as
follows:
March 31, 2000 $ .250
June 30, 2000 $ .232
September 30, 2000 $ .402
December 31, 2000 $ .331
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,
2000 1999 1998 1997 1996
------------ ------------ ------------ ------------ ------------
Revenues ........................ $ 9,617 $ 8,837 $ 6,487 $ 9,425 $ 8,650
Costs and expenses .............. 10,659 9,204 9,078 10,751 9,877
------------ ------------ ------------ ------------ ------------
Loss from continuing operations
before taxes and extraordinary
items .......................... (1,042) (367) (2,591) (1,326) (1,227)
Provision for income taxes ...... -0- -0- -0- -0- -0-
------------ ------------ ------------ ------------ ------------
Loss from operations
before extraordinary items ..... (1,042) (367) (2,591) (1,326) (1,227)
Extraordinary items:
Gain on settlement related to
the Marco refund obligation ... -0- -0- -0- -0- 331
------------ ------------ ------------ ------------ ------------
Net income (loss) applicable
to common stock ............... $ (1,042) $ (367) $ (2,591) $ (1,326) $ (896)
============ ============ ============ ============ ============
Basic earnings per share amounts:
Continuing operations ....... $ (.08) $ (.03) $ (.19) $ (.20) $ (.18)
Extraordinary items ......... -0- -0- .00 .00 .05
------------ ------------ ------------ ------------ ------------
Net income (loss) ............... $ (.08) $ (.03) $ (.19) $ (.20) $ (.13)
============ ============ ============ ============ ============
Weighted average common shares
outstanding .................... 13,544,277 13,544,277 13,544,277 6,753,587 6,729,648
============ ============ ============ ============ ============
Consolidated Balance Sheet Data
(in thousands)
Year Ending
----------------------------------------------------------------------------
December 31, December 31, December 31, December 31, December 31,
2000 1999 1998 1997 1996
------------ ------------ ------------ ------------ ------------
Total assets .................... $ 13,968 $ 11,913 $ 11,915 $ 13,560 $ 19,422
============ ============ ============ ============ ============
Liabilities ..................... $ 22,807 20,117 $ 20,175 $ 19,174 $ 37,301
Stockholders' equity(deficiency). (8,839) (8,204) (8,260) (5,614) (17,879)
------------ ------------ ------------ ------------ ------------
Total liabilities and
stockholders' equity
(deficiency) ................... $ 13,968 $ 11,913 $ 11,915 $ 13,560 $ 19,422
============ ============ ============ ============ ============
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, including Scafholding,
B.V. ("Scafholding"). Since December, 1992, the Company has been dependent on
loans and advances from Selex, Yasawa Swan and their affiliates in order to meet
its working capital requirements.
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:
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 $5, 400,000 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. The interest rate
was again changed in November 2000 when it was agreed that effective January 1,
2001 and semi-annually thereafter, the interest rate would be adjusted to equal
the prime rate then in effect. Yasawa and Scafholding did not require the
Company to make interest payments for the period September 1, 1998 to December
31, 2000. As of December 31, 2000, the total amount of interest accrued is
approximately $1,055,600.
The Company recorded interest expense on all outstanding debt balances for 2000
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 $408,000 for 2000.
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
$5,572,000 as of December 31, 2000. The Company signed a promissory note to Swan
in March 1999 which provides that funds advanced by Swan will be paid back by
the Company monthly in contracts receivables at 90% of face value, with
recourse. There will be no interest for the first six months after an advance of
money is received from Swan by the Company; thereafter the interest shall be 6%
per annum on the outstanding balance of the advance. Effective January 1, 2001
and semi-annually thereafter, the interest rate will be adjusted to equal the
prime rate then in effect. 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
13
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. As of December 31,
2000, the total amount of interest accrued is approximately $273,000.
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
was recorded as deferred profit and recognized over the lease term.
Results of Operations
Years ended December 31, 2000 and December 31, 1999
Revenues
Total revenues were $9,617,000 for 2000 compared to $8,837,000 for 1999.
Gross land sales were $6,804,000 for 2000 versus $4,959,000 for 1999. Net
land sales (gross land sales less estimated uncollectible installment sales and
contract valuation discount) increased to $4,896,000 for 2000 compared to
$4,4605,000 for 1999. 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, 2000 and December 31, 1999 were
$9,535,000 and $6,491,000, respectively. The Company had a backlog of $4,413,000
and $2,139,000 in unrecognized sales as of December 31, 2000 and 1999,
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 $3,231,000 for
2000 compared to $3,045,000 for 1999. The increase in housing revenues is
directly related to expanded 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 $276,000 in 2000 as compared to $381,000 in 1999.
The decrease is a result of lower expenditures on development work.
Interest income was $440,000 for 2000 as compared to $498,000 for 1999.
This decrease is the result of lower contracts receivable balances resulting
from the Company's repayment of debt to Swan and Yasawa.
Other revenues were $774,000 for 2000 compared to $448,000 for 1999. Other
revenues were generated principally by the Company's title insurance and real
estate brokerage subsidiaries.
14
Costs and Expenses
Costs and expenses were $10,659,000 for 2000 compared to $9,204,000 for
1999. Cost of sales totaled $4,351,000 for 2000 compared to $3,693,000 for 1999.
The increase reflects higher sales by the Company's independent dealers.
Commissions, advertising and other selling expenses totaled $3,455,000 for
2000 compared to $3,040,000 for 1999. Advertising was $351,000 for 2000 compared
to $359,000 in 1999. Other selling expenses were $1,170,000 in 2000 as compared
to $1,075,000 in 1999.
General and administrative expenses were $1,362,000 in 2000 as compared to
$1,129,000 in 1999. General and administrative expenses increased primarily due
to there being increased overhead.
Real estate tax expense was $598,000 in 2000 as compared to $491,000 in
1999.
Interest expense was $894,000 in 2000 and $851,000 in 1999. The increase in
interest expense is the result of increased debt. Interest in the amount of
$99,000 and $62,000 was capitalized in 2000 and 1999, respectively.
Net Income
The Company reported a net loss of $1,042,000 for 2000 compared to a net
loss of $367,000 for 1999.
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.
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.
15
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 $99,000 and $62,000 was capitalized in 2000 and 1999, respectively. 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.
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
16
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
As of December 31, 2000, the Company had satisfied its principal debt
obligation to Scafholding; the Company's outstanding debt to Yasawa was
$5,400,000 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. The interest rate was again changed in November 2000 when it was agreed
that effective January 1, 2001 and semi-annually thereafter, the interest rate
would be adjusted to equal the prime rate then in effect. Yasawa and Scafholding
did not require the Company to make interest payments for the period September
1, 1998 to December 31, 2000. As of December 31, 2000, the total amount of
interest accrued is approximately $1,055,600.
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 $5,572,000 as of December 31, 2000. The Company signed a
promissory note to Swan in March 1999 which provides that funds advanced by Swan
will be paid back by the Company monthly in contracts receivables at 90% of face
value, with recourse. There will be no interest for the first six months after
an advance of money is received from Swan by the Company; thereafter the
interest shall be 6% per annum on the outstanding balance of the advance.
Effective January 1, 2001 and semi-annually thereafter, the interest rate will
be adjusted to equal the prime rate then in effect. 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. As of December 31, 2000, the total amount of
interest accrued is approximately $273,000.
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
was recorded as deferred profit and is recognized over the lease term.
The Company recorded interest expense on all outstanding debt balances for
1999 and 2000 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 $408,000 for 2000 and
$423,000 for 1999.
17
The following table presents information with respect to mortgages and
similar debt (in thousands):
Years Ended
-------------------------------
December 31, December 31,
2000 1999
------------ ------------
Mortgage Notes Payable................. $ 5,400 $ 6,600
Other Loans............................ 5,572 5,114
------- -------
Total Mortgages and similar debt..... $10,972 $11,714
------- -------
- ----------
* Included in Mortgage Notes Payable is the Yasawa loan ($5,400,000
at December 31, 2000); included in Other Loans is the Swan loan
($5,572,000 as of December 31, 2000).
Indebtedness under various purchase money mortgages and loan agreements is
collateralized by substantially all of the Company's assets, including stock of
certain wholly-owned subsidiaries. The Company's outstanding debt to Yasawa is
secured by a first lien on the Company's receivables and a mortgage on all of
the Company's property; and the Company's outstanding debt to Swan is secured by
a second lien on the Company's receivables.
Contracts and Mortgages Receivable Sales
In 1990 and 1992, the Company sold contracts and mortgages receivable to
thrid parties. 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 $1,445,000 as of
December 31, 2000). 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 did not
replace any delinquent receivables in 1998, 1999 or 2000. As of December 31,
2000 and 1999, $1,210,000 and $1,083,000 in receivables were delinquent,
respectively.
During 1998, Scafholding purchased approximately $1,400,000 in contracts
and mortgages receivable from the Company at sixty-five percent (65%) of face
value with recourse for non-performing contracts. These sales generated
approximately $900,000 used to meet the Company's working capital requirements.
The Company was the guarantor of approximately $16,066,000 of contracts
receivable sold or transferred as of December 31, 2000, for the transactions
described above. There are no funds on deposit with purchasers of the
receivables as security to assure collectibility as of such date. A provision
has been established for the Company's obligation under the recourse provisions
of which $2,730,000 remains at December 31, 2000. The Company has been in
compliance with all receivable 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 $75,300 and $86,700 in 2000 and 1999, 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, 2000, the Company had estimated development obligations
of approximately $25,000 on sold property, an estimated liability to provide
title insurance and deeding costs of $251,000 and an estimated cost of street
maintenance, prior to assumption of such obligations by local governments, of
$585,000, all of which are included in deferred revenue. As of December 31, 2000
and December 31, 1998 the Company had in escrow approximately $7,200
specifically for land improvements at certain of its Central and North Florida
communities.
18
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.
19
ITEM 8
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND SUPPLEMENTAL DATA
Page
----
Independent Auditors' Report....................................... 21
Consolidated Balance Sheets as of December 31, 2000 and
December 31, 1999............................................... 22
Statements of Consolidated Operations for the years ended
December 31, 2000, December 31, 1999 and December 31, 1998...... 24
Statements of Consolidated Stockholders' Equity (Deficiency)
for the years ended December 31, 2000, December 31, 1999
and December 31, 1998........................................... 25
Statements of Consolidated Cash Flows for the years ended
December 31, 2000, December 31, 1999 and December 31, 1998...... 26
Notes to Consolidated Financial Statements......................... 28
20
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, 2000 and 1999 and the
related statements of consolidated operations, consolidated stockholders' equity
(deficiency) and consolidated cash flows for the years ended December 31, 2000,
1999 and 1998. 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, 2000 and 1999 and the results of its operations and its cash
flows for the years ended December 31, 2000, 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, and
has a stockholders' deficiency at December 31, 2000. These matters raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans concerning these matters are described in Note 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, 2001
21
CONSOLIDATED BALANCE SHEETS
THE DELTONA CORPORATION AND SUBSIDIARIES
ASSETS
(in thousands)
December 31, December 31,
2000 1999
------------ ------------
Cash and cash equivalents, including escrow
deposits and restricted cash of $587 in 2000
and $396 in 1999 (Note 7)....................... $ 680 $ 548
---------- -----------
Contracts receivable for land sales
(Notes 2, 5 and 8).............................. 2,109 2,448
Less: Allowance for uncollectible contracts...... (291) (606)
Unamortized valuation discount............. (264) (293)
---------- -----------
Contracts receivable - net....................... 1,554 1,549
---------- -----------
Mortgages and other receivables - net
(Notes 2, 5 and 8).............................. 140 109
---------- -----------
Inventories, at lower of cost or net realizable
value (Notes 3 and 5):
Land and land improvements....................... 8,375 8,237
Other............................................ 1,361 70
---------- -----------
Total inventories................. 9,736 8,307
---------- -----------
Property, plant and equipment - net
(Notes 4 and 5)................................. 455 489
---------- -----------
Prepaid expenses and other....................... 1,403 911
---------- -----------
Total............................. $ 13,968 $ 11,913
========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
22
CONSOLIDATED BALANCE SHEETS
THE DELTONA CORPORATION AND SUBSIDIARIES
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
(in thousands except share data)
December 31, December 31,
2000 1999
------------ ------------
Mortgages and similar debt (Note 5):
Mortgage notes payable ................... $ 5,400 $ 6,600
Other loans .............................. 5,572 5,114
-------- --------
Total mortgages and similar debt... 10,972 11,714
Accounts payable-trade .......................... 217 7
Accrued interest payable (Note 5) ............... 1,329 744
Accrued taxes, principally real estate taxes .... 289 30
Accrued expenses and other (Notes 2 and 8) ...... 3,258 3,209
Customers' deposits ............................. 1,397 730
Deferred revenue (Notes 7 and 8) ................ 5,345 3,683
-------- --------
Total liabilities ............................... 22,807 20,117
-------- --------
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 2000 and 1999 (excluding
12,228 shares held in treasury)........... 13,544 13,544
Capital surplus .......................... 52,270 51,863
Accumulated deficit ...................... (74,653) (73,611)
-------- --------
Total stockholders' equity (deficiency) ......... (8,839) ( 8,204)
-------- --------
Total........................ $ 13,968 $ 11,913
======== ========
The accompanying notes are an
integral part of the consolidated financial statements.
23
STATEMENTS OF CONSOLIDATED OPERATIONS
THE DELTONA CORPORATION AND SUBSIDIARIES
(in thousands except share data)
Years Ended
--------------------------------------------
December 31, December 31, December 31,
2000 1999 1998
------------ ------------ ------------
Revenues
Gross land sales (Notes 2 and 7) ............... $ 6,804 $ 4,959 $ 4,155
Less: Estimated uncollectible sales ............ (1,641) (322) (840)
Contract valuation discount .............. (267) (172) (237)
-------- -------- --------
Net land sales ................................. 4,896 4,465 3,078
Sales-housing .................................. 3,231 3,045 1,622
Recognized improvement revenue-prior period
sales ......................................... 276 381 956
Interest income ................................ 440 498 548
Other .......................................... 774 448 284
-------- -------- --------
Total 9,617 8,837 6,488
-------- -------- --------
Costs and expenses
Cost of sales-land ............................. 1,397 986 741
Cost of sales-housing .......................... 2,716 2,402 1,269
Cost of improvements-prior period sales ........ 62 126 302
Cost of sales-other ............................ 175 179 250
Commissions, advertising, and other selling
expenses ...................................... 3,455 3,040 2,533
General and administrative expenses ............ 1,362 1,129 2,144
Real estate tax ................................ 598 491 1,028
Interest expense ............................... 894 851 812
-------- -------- --------
Total 10,659 9,204 9,079
-------- -------- --------
Loss from operations before income
taxes .......................................... (1,042) (367) (2,591)
Provision for income taxes (Note 6) ............. -0- -0- -0-
-------- -------- --------
Net income (loss) ............................... $ (1,042) $ (367) $ (2,591)
======== ======== ========
Net income (loss) per common share .............. $ (.08) $ (.03) $ (.19)
======== ======== ========
The accompanying notes are an
integral part of the consolidated financial statements.
24
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY (DEFICIENCY)
THE DELTONA CORPORATION AND SUBSIDIARIES
(in thousands)
For the years ended December 31, 2000, December 31, 1999 and December 31, 1998
Common Stock Capital Accumulated
($1 par value) Surplus Deficit Total
-------------- ------- ----------- ---------
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)
Imputed Interest expense on
debt with Related Party
(See Note 5) ..................... -0- 407 -0- 407
Net (loss)for the year ........... -0- -0- (1,042) (1,042)
-------- -------- -------- --------
Balances, December 31, 2000 .............. $ 13,544 $ 52,270 $(74,653) $ (8,839)
======== ======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
25
STATEMENTS OF CONSOLIDATED CASH FLOWS
THE DELTONA CORPORATION AND SUBSIDIARIES
(in thousands)
December 31, December 31, December 31,
2000 1999 1998
------------ ------------ ------------
Cash flows from operating activities:
Cash received from operations:
Proceeds from sale of residential units ............. $ 3,282 $ 2,846 $ 1,768
Collections on contracts and mortgages
receivable ......................................... 1,040 1,051 1,993
Down payments on and proceeds from sales
of homesites and tracts ......................... 1,748 891 1,072
Proceeds from sale of Contracts Receivables ...... 0 0 868
Proceeds (uses) from other sources ............... 490 (80) 240
-------- -------- --------
Total cash received from operations .... 6,560 4,708 5,941
-------- -------- --------
Cash expended by operations:
Cash paid for residential units .................. 3,167 2,402 1,269
Cash paid for land and land improvements ......... 1,309 1,648 1,047
Customer refunds ................................. 0 0 35
Commissions, advertising and other
selling expenses ................................ 4,737 3,274 2,620
General and administrative expenses .............. 1,082 1,452 1,715
Interest paid .................................... 0 0 299
Real estate taxes paid ........................... 347 3,336 260
-------- -------- --------
Total cash expended by operations ...... 10,642 12,112 7,245
-------- -------- --------
Net cash provided by (used in) operating
activities ................................... (4,082) (7,404) (1,304)
-------- -------- --------
Cash flows from investing activities:
Proceeds from sale of property, plant
and equipment ....................................... 0 3 0
Payment for acquisition and construction of
property, plant and equipment ...................... (31) (72) (137)
-------- -------- --------
Net cash provided by (used in) investing
activities ........................... (31) (69) (137)
-------- -------- --------
Cash flows from financing activities:
New borrowings ....................................... 4,245 7,300 765
-------- -------- --------
Net cash provided by (used in) financing
activities ........................... 4,245 7,300 765
Net increase (decrease) in cash and cash
equivalents .......................................... 132 (173) (676)
Cash and cash equivalents, beginning of year .......... 548 721 1,397
-------- -------- --------
Cash and cash equivalents, end of year ................ $ 680 $ 548 $ 721
======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements.
26
STATEMENTS OF CONSOLIDATED CASH FLOWS - (Continued)
THE DELTONA CORPORATION AND SUBSIDIARIES
(in thousands)
December 31, December 31, December 31,
2000 1999 1998
------------ ------------ ------------
Reconciliation of net income (loss) to net cash
provided by (used in) operating activities:
Net income (loss) .................................. $ (1,042) $ (367) $ (2,591)
------------ ----------- -----------
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization .......... 66 50 45
Provision for estimated uncollectible
sales and recourse obligations ........ 1,641 322 840
Contract valuation discount, net of
amortization........................... 62 (5) 140
Net (gain) loss on sale of property,
plant and equipment ................... 0 (3) -0-
Imputed Interest on debt with related
party (See Note 5) .................... 408 423 -0-
(Increase) decrease in assets and increase (decrease)
in liabilities:
Gross contracts receivable plus
deductions from reserves .............. (7,558) (3,844) (1,689)
Mortgages and other receivables ........ (31) 85 890
Land and land improvements ............. (138) (658) (211)
Housing completed or under construction
and other.............................. (430) 6 23
Prepaid expenses and other ............. (492) (205) (87)
Accounts payable, accrued expenses and
other ................................. 1,103 (3,801) 2,049
Customers' deposits .................... 667 (266) 243
Deferred revenue ....................... 1,662 859 (956)
------------ ----------- ----------
Total adjustments and changes ...... (3,040) (7,037) 1,287
------------ ----------- ----------
Net cash provided by (used in) operating
activities ........................................ $ (4,082) $ (7,404) $ (1,304)
============ =========== ==========
Supplemental disclosure of non-cash investing
and financing activities:
Interest expense treated as contribution to
capital (See Note 5).............................. $ 408 $ 423 $ -0-
============ =========== ==========
Increase in inventory as a result of spec house
acquisition and corresponding increase in debt ... $ 863 $ -0- $ -0-
============ =========== ==========
Reduction of accrued interest and mortgage notes
payable through transfer of contracts receivable . $ 5,850 $ 4,151 $ 1,233
============ =========== ==========
Sale of land to related party in return for future
rent credits (see Note 8):
Increase of prepaid expenses ..................... $ -0- $ -0- $ 398
============ =========== ==========
Reduction of land inventory ...................... $ -0- $ -0- $ 81
============ =========== ==========
Increase in deferred revenue ..................... $ -0- $ -0- $ 291
============ =========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
27
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 2000 of $1,042,000, for
1999 of $367,000 and for 1998 of $2,591,000 resulting in a stockholders'
deficiency of $8,839,000 as of December 31, 2000.
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 2000 and was funded through
additional loans from Swan. Additional financing will be required in the future.
Although in 1998 Scafholding purchased contracts receivables at the rate of 65%
of face value, with recourse, 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, 1999 and 2000, 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's consolidated financial statements are prepared in accordance
with generally accepted accounting principles. Material intercompany accounts
and transactions are eliminated.
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 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"
("SFAS No. 66"). Since 1991, the Company has not recognized a sale until it has
received 20% of the contract sales price. During 2000, 1999 and 1998,
approximately 99%, 73% and 82% of sales were through two independent brokers in
New York.
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE DELTONA CORPORATION AND SUBSIDIARIES
1. Basis of Presentation and Significant Accounting Policies (continued)
As part of its debt repayment obligation as described in Note 5, the
Company transfers contracts and mortgages receivable, with recourse, to its
lenders, many of which have not been recognized in the financial statements
under the provisions of SFAS No. 66. The Company recognizes the contracts when
transferred and records deferred revenue until such time as the requirements of
SFAS No. 66 are met and the sale can be recognized.
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 1998. In
1999 and 2000, approximately $62,000 and $99,000 in interest, respectively, 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 expensed 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.
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, 2000,
there were no assets considered impaired under the provisions of the Statement.
29
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.
Certain reclassifications have been made to the 1999 financial information
to conform to the 2000 presentation.
2. Contracts and Mortgages Receivable
At December 31, 2000, interest rates on contracts receivable outstanding
ranged from 5% to 12% per annum (weighted average approximately 7.8%. The
approximate principal maturities of contracts receivable were:
December 31,
2000
------------
(in thousands)
2001...................................................... $ 471
2002...................................................... 420
2003...................................................... 391
2004 ..................................................... 422
2005...................................................... 381
2006 and thereafter....................................... 24
------
Total.............................................. $2,109
======
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, 2000 and 1999 approximate $797,000 and
$856,000, 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, 2000....... 98 months 7.8% 13.5%
December 31, 1999....... 88 months 7.5% 13.5%
December 31, 1998....... 94 months 8.3% 13.5%
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE DELTONA CORPORATION AND SUBSIDIARIES
2. Contracts and Mortgages Receivable (continued)
In 1990 and 1992, the Company sold contracts and mortgages receivable to
third parties. 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 $1,445,000 as of
December 31, 2000). 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 did not
replace any delinquent receivables in 1998, 1999 or 2000. As of December 31,
2000 and 1999, $1,211,000 and $1,083,000 in receivables were delinquent,
respectively.
During 2000 and 1999, the Company transferred contracts and mortgages
receivable, with recourse, in satisfaction of debt of $5,849,649 and $4,150,738,
respectively. 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).
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 $16,066,000 of contracts
receivable sold or transferred as of December 31, 2000, for the transactions
described above. There are no funds on deposit with purchasers of the
receivables as security to assure collectibility as of such date. A provision
has been established for the Company's obligation under the recourse provisions
of which $2,730,000 remains at December 31, 2000. The Company has been in
compliance with all receivable transactions since the consummation of receivable
sales. Because of inherent uncertainties in estimating the recourse provisions,
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 $75,300, $86,700 and $82,000, in 2000, 1999 and 1998,
respectively, in revenue pursuant to these agreements. The Company also services
the Swan receivable portfolio, which consisted of 564 contracts as of December
31, 2000; however, the Swan portfolio is serviced at no charge to Swan under the
debt agreement.
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,
2000 1999
------------ ------------
(in thousands)
Unimproved land..................... $ 420 $ 420
Land in various stages of
development........................ 2,316 2,633
Fully improved land................. 5,639 5,184
------ -------
Total........................ $8,375 $ 8,237
====== =======
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE DELTONA CORPORATION AND SUBSIDIARIES
4. Property, Plant and Equipment
Property, plant and equipment and accumulated depreciation consist of the
following:
December 31, 2000 December 31, 1999
-------------------- -------------------
Accumulated Accumulated
Cost Depreciation Cost Depreciation
------ ------------ ------ ------------
(in thousands)
Land and land improvements... $ 74 $ -0- $ 74 $ -0-
Other buildings, improvements
and furnishings............. 1,122 803 1,116 789
Construction and other
equipment................... 783 721 758 670
------ ------- ------ ------
Total................. $1,979 $ 1,524 $1,948 $1,459
====== ======= ====== ======
Depreciation charged to operations for the years ended December 31, 2000,
1999 and 1998 was approximately $66,000, $50,000 and $45,000, respectively.
5. Mortgages and Similar Debt
As of December 31, 1999, the Company had satisfied its principal debt
obligation to Scafholding. As of December 31, 2000, the Company's outstanding
debt to Yasawa was $5,400,000 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.The interest rate was again changed effective January 1,
2001 and semi-annually thereafter, the interest rate will be adjusted to equal
the prime rate then in effect. Yasawa and Scafholding did not require the
Company to make interest payments for the period September 1, 1998 to December
31, 2000. As of December 31, 2000, the total amount of interest accrued is
approximately $1,055,600.
From October 9, 1998 through the present, Swan continued to loan the
Company funds to meet its working capital requirements (see Note 10). The
Company's outstanding debt to Swan, which is secured by a second lien on the
Company's receivables, was $5,572,000 as of December 31, 2000. The Company
signed a promissory note to Swan in March 1999 which provides that funds
advanced by Swan will be paid back by the Company monthly in contracts
receivables at 90% of face value, with recourse. There is 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. Effective January 1, 2001 and semi-annually thereafter, the interest
rate will be adjusted to equal the prime rate then in effect. 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 are used by the Company to meet the
Company's working capital requirements. As of December 31, 2000, the total
amount of interest accrued as approximately $273,000.
The Company recorded interest expense on all outstanding debt balances for
2000 and 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 $408,000 and $423,000
for 2000 and 1999, respectively.
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE DELTONA CORPORATION AND SUBSIDIARIES
5. Mortgages and Similar Debt (continued)
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,
2000 1999
------------ ------------
Mortgage Notes Payable...................... $ 5,400 $ 6,600
Other Loans................................. 5,572 5,114
------- -------
Total Mortgages and similar debt.......... $10,972 $11,714
======= =======
- ---------
* Included in Mortgage Notes Payable is the Yasawa loan ($5,400,000 at
December 31, 2000); included in Other Loans is the Swan loan
($5,572,000 as of December 31, 2000).
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)
2001.......................... $ 1,200
2002.......................... 1,200
2003.......................... 1,200
2004.......................... 1,200
2005.......................... 600
-------
$ 5,400
=======
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.
6. Income Taxes
The Company follows the provisions of Statement of Financial 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, 2000, 1999 and 1998, 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, 2000, the Company had a net deferred tax asset of
approximately $15,017,000, which primarily resulted from the tax effect of the
Company's net operating loss carryforward of $11,057,000, losses on subsidiaries
sold in prior years of $ 3,960,000 and a difference in reporting the sale of
land under the installment basis. A valuation allowance of $15,017,000 has been
established against the net deferred tax asset.
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE DELTONA CORPORATION AND SUBSIDIARIES
6. Income Taxes (continued)
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, losses on subsidiaries
sold in prior years of $3,960,000 and a difference in reporting the sale of land
under the installment basis. A valuation allowance of $14,139,000 has been
established against the net deferred tax asset.
The Company's regular net operating loss carryover for tax purposes is
estimated to be $39,729,000 at December 31, 2000, $542,000 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,
$1,354,000 through 2019 and $6,457,000 through 2020. In addition to the net
operating loss carryover, 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.
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, 2000 and 1999 was approximately $861,000 and $921,000,
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 $251,000 and $273,700,
respectively, and an estimated cost of street maintenance, prior to assumption
of such obligations by local governments, of $583,000 and $622,000,
respectively, all of which are included in deferred revenue. Included in cash at
December 31, 2000 and December 31, 1999, are escrow deposits of $7,200
restricted for completion of improvements in certain of the Company's
communities.
The anticipated expenditures for land improvements, title insurance and
deeding to complete areas from which sales have been made through December 31,
2000 are as follows:
December 31, 2000
-----------------
(in thousands)
2001.......................... $ 274
2002.......................... 191
2003.......................... 307
2004 and thereafter........... 89
--------
Total..................... $ 861
========
8. Commitments and Contingent Liabilities
Total rental expense for the years ended December 31, 2000, December 31,
1999 and December 31, 1998 was approximately $89,000, 77,000 and $134,000,
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.
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE DELTONA CORPORATION AND SUBSIDIARIES
8. Commitments and Contingent Liabilities (continued)
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
was recorded as deferred profit and recognized over the lease term.
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, 2000, 1999 and 1998, the Company earned $38,520, $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.
Prior to 1999, the Company's continuing liquidity problems 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
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 No.128). SFAS No. 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 earnings (loss) for 2000, 1999 and 1998 were $(1,042,000),
$(367,000) and $ (2,591,000) , respectively. The average number of shares of
common stock and common stock equivalents used to calculate basic earnings
(loss) per share in 2000, 1999 and 1998 was 13,544,277.
10. Subsequent Events
Between January 1, 2001 and February 18, 2001, Swan loaned the Company
$1,100,000 under similar terms as described in Note 5. These funds were used to
meet the Company's current working capital requirements.
In January and February 2001, the Company transferred contracts receivable
with a face value of $316,000 to Scafholding and contracts receivable with a
face value of $1,096,000 to Swan under the terms described in Note 5.
35
ITEM 9.
INDEPENDENT PUBLIC ACCOUNTANTS
Audit Fees
The Company paid audit and review fees to James Moore & Co. P.L. totalling
$65,800 for the year ended December 31, 2000.
Financial Information Systems and Implementation Fees
The Company did not incur and fees or costs associated with financial
information systems or implementation fees.
All Other Fees
The Company paid fees to James Moore & Co. P.L. for preparation of tax
related documentation in the amount of $13,375 for the year ended December 31,
2000.
36
SUPPLEMENTAL UNAUDITED QUARTERLY FINANCIAL DATA
(in thousands, except per share amounts)
(Loss)
From
Operations
Before (Loss) Net
Income From Income
Revenues Taxes Operations (Loss)
-------- ---------- ----------- ----------
2000
First.... $ 2,087 $ (402) $ (402) $ (402)
Second... $ 2,503 $ (69) $ (69) $ (69)
Third.... $ 2,794 $ 69 $ 69 $ 69
Fourth... $ 2,233 $ (640) $ (640) $ (640)
------- --------- -------- --------
Total...... $ 9,617 $ (1,042) $ (1,042) $ (1,042)
======= ======== ======== ========
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)
======= ======= ======== ========
Earnings (Loss) Per Share(a)
Net Income
Operations (Loss)
---------- ----------
2000
First............................... $ (.03) $ (.03)
Second.............................. (.01) (.01)
Third............................... .01 .01
Fourth.............................. (.05) (.05)
------- --------
Total.............................................. $ (.08) $ (.08)
======= ========
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)
======= ========
37
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.................. 39
Schedule VIII - Valuation and qualifying accounts
for the three years ended
December 31, 2000............. 40
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
2001 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, 2000.
38
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, 2000 and 1999
and for the years ended December 31, 2000, 1999 and 1998 and have issued our
reports thereon dated February 18, 2001 (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 audit. 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, 2001
39
SCHEDULE VIII
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, 2000
Allowance for uncollectible contracts(a) ......... $ 606 $ 1,641 $ 1,956 $ 291
====== ======= ======== ======
Unamortized contract valuation discount(b)........ $ 293 $ 267 $ 296 $ 264
====== ======= ======== ======
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
====== ======= ======== ======
- ------------
(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).
40
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 16, 2001
----------------------
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
- ------------------------------------------------
Christel DeWilde, Director
/s/George W. Fischer
- ------------------------------------------------
George W. Fischer, Director
/s/Rudy Gram
- ------------------------------------------------
Rudy Gram, Director
/s/Thomas B. McNeill
- ------------------------------------------------
Thomas B. McNeill, Director DATE: March 16, 2001
41