SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ending June 30, 2002
--------------
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
Commission file number 1-4719
------
THE DELTONA CORPORATION
------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 59-0997584
- --------------------------------------------------------------------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
8014 SW 135 STREET ROAD, OCALA, FLORIDA 34473
- --------------------------------------------------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (352)307-8100
-----------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No ___
Indicate the number of shares outstanding of the issuer's classes of common
stock, as of the latest practicable date: 13,544,277 shares of common stock, $1
par value, excluding treasury stock, as of June 30, 2002.
PART I- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE DELTONA CORPORATION AND SUBSIDIARIES
----------------------------------------
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
-----------------------------------------------
JUNE 30, 2002 AND DECEMBER 31, 2001
-----------------------------------
($000 Omitted)
June 30, December 31,
2002 2001
--------- ------------
ASSETS
------
Cash and cash equivalents, including escrow deposits
and restricted cash of $432 in 2002 and $561 in 2001.. $ 847 $ 923
--------- ---------
Contracts receivable for land sales - net.............. 1,048 1,213
--------- ---------
Mortgages and other receivables - net.................. 225 248
--------- ---------
Inventories (b):
Land and land improvements............................ 7,607 7,941
Other................................................. 1,414 1,261
--------- ---------
Total inventories............................... 9,021 9,202
--------- ---------
Property, plant, and equipment at cost - net........... 621 623
Investment in Venture.................................. 64 53
Prepaid expenses and other (g)......................... 899 1,168
--------- ---------
Total........................................... $ 12,725 $ 13,430
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
-------------------------------------------------
Mortgages and similar debt(c):
Mortgage notes payable................................ $ 3,600 $ 4,200
Other loans .......................................... 6,959 6,077
--------- ---------
Total mortgages and similar debt................ 10,559 10,277
Accounts payable, accrued expenses,
customers' deposits................................... 6,707 7,045
Deferred revenue....................................... 3,641 4,425
--------- ---------
Total liabilities...................................... 20,907 21,747
--------- ---------
Commitments and contingencies (d):
Stockholders' equity (deficiency):
Common stock, $1 par value - authorized
15,000,000 shares; outstanding: 13,544,277 shares
(excluding 12,228 shares held in treasury............ 13,544 13,544
Capital surplus....................................... 52,489 52,440
Accumulated deficit................................... (74,215) (74,301)
--------- ---------
Total stockholders' equity (deficiency)......... (8,182) (8,317)
--------- ---------
Total..................................... $ 12,725 $ 13,430
========= =========
See accompanying notes.
2
THE DELTONA CORPORATION AND SUBSIDIARIES
----------------------------------------
UNAUDITED CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
---------------------------------------------------------
FOR THE PERIODS INDICATED
-------------------------
($000 Omitted Except Per Share Amounts)
Six Months Ended Three Months Ended
-------------------------- --------------------------
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
------------ ----------- ------------- -----------
Revenues (a):
Net land sales .................. $ 3,038 $ 4,092 $ 1,394 $ 2,198
House ........................... 2,335 1,941 1,362 959
Recognized improvement revenue /
prior period sales ............. 129 42 88 12
Gain on recovery of bad debt .... 0 178 0 0
Interest income ................. 226 230 157 56
Other revenues .................. 418 419 215 270
------------ ----------- ------------ ----------
Total ....................... 6,146 6,902 3,216 3,495
------------ ----------- ------------ ----------
Costs and expenses (a):
Cost of sales and improvements .. 2,844 2,744 1,594 1,411
Selling, general, administrative
and other expenses ............. 2,995 3,512 1,544 1,775
Loss in Joint Venture ........... 4 0 0 0
Interest expense (c)(e) ......... 217 540 125 265
------------ ----------- ------------ ----------
Total ....................... 6,060 6,796 3,263 3,451
------------ ----------- ------------ ----------
Net Income (Loss)................. $ 86 106 $ (47) $ 44
============ =========== ============ ==========
Net Income (Loss) per common share $ (.01) $ .01 $ (.00) $ .00
============ =========== ============ ==========
Number of common and common
equivalent shares ............... 13,544,277 13,544,277 13,544,277 13,544,277
============ =========== ============ ==========
See accompanying notes.
3
THE DELTONA CORPORATION AND SUBSIDIARIES
----------------------------------------
UNAUDITED CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
---------------------------------------------------------
FOR THE SIX MONTHS ENDED
------------------------
JUNE 30, 2002 AND JUNE 30, 2001
-------------------------------
($000 Omitted)
Six Months Ended
------------------------
June 30, June 30,
2002 2001
---------- ---------
Cash flows from operating activities ............... $(1,676) $(3,086)
------- -------
Cash flows from investing activities:
Payment for acquisition of equipment .............. (44) (47)
------- -------
Cash flows from financing activities:
New borrowings .................................... 1,644 3,239
------- -------
Net increase (decrease) in cash and cash equivalents
(including escrow deposits and restricted cash) ... (76) 106
Cash and cash equivalents beginning of period ...... 923 680
------- -------
Cash and cash equivalents end of period ............ $ 847 $ 786
======= =======
See accompanying notes.
4
THE DELTONA CORPORATION AND SUBSIDIARIES
----------------------------------------
UNAUDITED CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
---------------------------------------------------------
FOR THE SIX MONTHS ENDED
------------------------
JUNE 30, 2002 AND JUNE 30, 2001
-------------------------------
($000 Omitted)
Six Months Ended
------------------------
June 30, June 30,
2002 2001
---------- ---------
Reconciliation of net income to net cash
provided by (used in) operating activities:
Net income ....................................... $ 86 $ 106
-------- -------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization .................... 46 30
Provision for estimated uncollectible sales-net .. 646 1,247
Contract valuation discount, net of amortization . (25) (48)
Imputed Interest on debt with related party ...... 86 113
Loss on Joint Venture ............................ 4 0
Net change in assets and liabilities ............. (2,519) (4,534)
-------- -------
Total adjustments ................... $ (1,762) $(3,192)
-------- -------
Net cash provided by (used in) operating
activities....................................... $ (1,676) $(3,086)
======== =======
Supplemental disclosure of non cash investing
and financing activities:
Reduction of debt as a result of the conveyance
of contracts receivable ............. $ 1,336 $ 3,167
======== =======
See accompanying notes.
5
THE DELTONA CORPORATION AND SUBSIDIARIES
----------------------------------------
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------
JUNE 30, 2002
-------------
THE INFORMATION PRESENTED HEREIN AS OF JUNE 30, 2002 FOR THE THREE AND SIX
MONTHS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED.
(a) BASIS OF PRESENTATION
The condensed unaudited financial statements of The Deltona Corporation and
subsidiaries ("The Company") have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission (the "Commission").
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted
pursuant to Commission rules and regulations. The information furnished
reflects, in the opinion of management, all adjustments (consisting only of
normal recurring adjustments) necessary for a fair statement of the results
for the interim periods presented. Operating results for the threeand six
months ended June 30, 2002 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2002. These condensed
consolidated financial statements should be read in conjunction with the
financial statements and the notes thereto included in the Company's latest
Annual Report on Form 10-K.
Certain amounts have been reclassified for comparative purposes.
The accompanying financial statements of the 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
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.
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 the three and six month
periods ended June 30, 2002 and was funded through additional loans from
Swan. Additional financing will be required in the future. Although Swan
has loaned the Company additional funds to be paid back with contracts
receivable at the rate of 90% of face value, with recourse since 1999,
there can be no guarantee that the Company will be able to generate
sufficient receivables to obtain sufficient financing in the future or that
Yasawa, Scafholding, Swan and other related parties will continue to make
loans to the Company.
(b) INVENTORIES
Information with respect to the classification of inventory of land and
improvements including land held for sale or transfer is as follows (in
thousands):
Land and Improvements
---------------------
June 30, December 31,
2002 2001
-------- ------------
Unimproved land............................. $ 420 $ 420
Land in various stages of development....... 2,592 2,147
Fully improved land......................... 4,595 5,374
-------- --------
Total................................ $ 7,607 $ 7,941
======== ========
6
(c) MORTGAGES AND SIMILAR DEBT
The following table presents information with respect to mortgages and
similar debt (in thousands):
June 30, December 31,
2002 2001
-------- ------------
Mortgage Notes Payable ..................... $ 3,600 $ 4,200
Other Loans................................. 6,959 6,077
-------- --------
Total mortgages and similar debt........ $ 10,559 $ 10,277
======== ========
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.
Included in Mortgage Notes Payable is the Yasawa loan ($3,600,000 at June
30, 2002); included in Other Loans is the Swan loan ($6,837,000 as of June
30, 2002).
Indebtedness under various purchase money mortgages and loan agreements is
collateralized by substantially all of the Company's assets, including
stock of certain wholly-owned subsidiaries. The Company's outstanding debt
to Yasawa is secured by a first lien on the Company's receivables and a
mortgage on all of the Company's property; and the Company's outstanding
debt to Swan is secured by a second lien on the Company's receivables.
The Company's outstanding debt to Yasawa as of June 30, 2002 was
$3,600,000. The terms of repayment of the restructured Yasawa loan 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, with recourse.
Interest accrues on the declining balance at the prime rate, adjusted
semi-annually to equal the prime rate then in effect. From January 2002 to
June 30, 2002, the interest rate on the outstanding debt was 4.75%, which
was prime. Yasawa and Scafholding have not required the Company to make
interest payments since September 1, 1998. As of June 30, 2002, the total
amount of interest accrued is approximately $2,245,000, which is included
in accrued expenses.
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 was $6,837,000 as of June 30, 2002. 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 the Company receives an advance of money from
Swan. Currently, the interest rate is the prime rate, adjusted
semi-annually to equal the prime rate then in effect (4.75% as of June 30,
2002). 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 meet the Company's
working capital requirements. From January 2002 to June 30, 2002, the
interest rate on the outstanding debt was 4.75%, which was prime. As of
June 30, 2002, the total amount of interest accrued is approximately
$696,000 , which is included in accrued expenses.
For 2002 and 2001 , the Company recorded interest expense for the first six
months of each loan advance from Swan that is non- interest bearing at the
prime rate. Since the interest is not paid to Swan, the amount calculated
is recorded as a capital contribution increase to capital surplus. For the
first six months of 2002, the Company recorded interest expense and a
capital contribution in the amount of approximately $49,000.
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 may loan the
Company funds to be repaid with contracts receivable at 90% of face value,
with recourse.
7
(d) COMMITMENTS AND CONTINGENCIES
Homesite sales contracts provide for the return of all monies paid in
(including paid-in interest) should the Company be unable to meet its
contractual obligations after the use of reasonable diligence. If a refund
is made, the Company will recover the related homesite and any improvement
thereto.
(e) CAPITALIZED INTEREST
The Company capitalizes interest cost incurred during a project's
construction period. Interest expense incurred prior to capitalization was
$254,000 and $639,000 for the six months ended June 30, 2002 and June 30,
2001, respectively. Interest in the amount of $37,000 and $99,000 was
capitalized for the six months ended June 30, 2002 and 2001, respectively.
(f) EARNINGS OR LOSS PER SHARE
Basic earnings (loss) per common and common equivalent share were computed
by dividing net income (loss) by the weighted average number of shares of
Common Stock and common stock equivalents outstanding during each period.
(g) CAPITAL TRANSACTION
On December 13, 2001, the Board of Directors approved a 1 for 500,000
reverse split of the Company's common stock and a related amendment to the
Company's Articles of Incorporation reducing the number of authorized
shares to 30. Both actions are subject to stockholder approval. The Company
has filed a Form 13E(3) and a preliminary proxy statement related to the
proposals. The effect of the reverse split will be to reduce the number of
the Company's stockholders to two stockholders: Selex International, B.V.,
a Netherlands corporation ("Selex") and Yasawa Holdings, N.V., a
Netherlands Antilles corporation ("Yasawa"). The date of the meeting of
stockholders to consider both matters will be determined upon the
conclusion of SEC review.
(h) RELATED PARTY TRANSACTION
During 2001, the Company entered into a joint venture agreement (the
"Venture") with Scafholding for the purchase of property tax certificates,
application of tax deeds, administration and the acquisition and sale of
land. The Company provides administrative, managerial, sales and marketing
services to the Venture. The Company is reimbursed by the Venture for all
commissions and marketing costs plus an administrative fee of 10% of all
sales consummated. Scafholding provides financing to the Venture and has
loaned the Venture approximately $1,325,000 as of June 30, 2002. There were
no reimbursements for the six months ended June 30, 2002. Administrative
fees in the amount of $1,960 were earned for the six months ended June 30,
2002; no administrative fees were earned in 2001. Interest on the
outstanding debt accrues at the fixed rate of 7.75%. Net income is to be
distributed equally between the Company and Scafholding. The Company
records its investment in the Venture using the equity method of accounting
as control of the Venture rests with Scafholding as specified in the joint
venture agreement.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This report on Form 10-Q of the Company for the three and six months ended June
30, 2002 contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which are intended to be covered by
the safe harbors created thereby. To the extent that such statements are not
recitations of historical fact, such statements constitute forward-looking
statements which, by definition, involve risks and uncertainties. In particular,
statements under Item 2, Management's Discussion and Analysis of Financial
Condition and Results of Operation, contain forward-looking statements. Where,
in any forward-looking statement, the Company has an expectation or belief as to
future results or events, such expectation or belief is expressed in good faith
and believed to have reasonable basis, but there can be no assurance that the
statement of expectation or belief will result or be achieved or accomplished.
RESULTS OF OPERATIONS
- ---------------------
For the six months ended June 30, 2002 and June 30, 2001.
Revenues
- --------
Total revenues were $6,146,000 for the first six months of 2002 ($3,216,000 for
the quarter ending June 30, 2002) compared to $6,902,000 for the comparable 2001
period ($3,495,000 for the quarter ending June 30, 2001).
Gross land sales were $3,792,000 for the first six months of 2002($1,728,000 for
the quarter ending June 30, 2002) compared to $5,453,000 for the first six
months of 2001 ($2,937,000 for the quarter ending June 30, 2001). Net land sales
(gross land sales less estimated uncollectible installment sales and contract
valuation discount) decreased to $3,038,000 the first six months of
2002($1,394,000 for the quarter ending June 30, 2002) compared to $4,092,000 for
the first six months of 2001 ($2,198,000 for the quarter ending June 30, 2001).
The decrease in sales reflects lower land sales by the Company's independent
dealers.
New retail land sales contracts entered into, including deposit sales on which
the Company has received less than 20% of the sales price, net of cancellations,
for the six months ended June 30, 2002 and June 30, 2001 were $3,387,000 and
$5,715,000, respectively and $1,783,000 and $3,320,000 for the three months
ended June 30, 2002 and 2001, respectively. The Company had a backlog of
approximately $2,655,000 in unrecognized sales as of June 30, 2002. 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.
Housing revenues were $2,335,000 for the first six months of 2002 versus
$1,941,000 for the comparable 2001 period. Revenues are not recognized from
housing sales until the completion of construction and passage of title. Housing
revenues increased as of result of more homes being closed in the period. The
backlog of houses under contract , including both houses under construction and
to be constructed, was $7,077,000 and $4,627,000 as of June 30, 2002 and June
30, 2001, respectively.
The following table reflects the Company's real estate product mix for the
periods indicated (in thousands):
Six Months Ended Three Months Ended
----------------------- ------------------------
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
-------- -------- -------- --------
Gross Land Sales:
Retail Sales: $ 3,792 $ 5,453 $ 1,728 $ 2,937
------- -------- ------- ------
Housing Sales: 2,335 1,941 1,362 959
------- -------- ------- ------
Total Real Estate $ 6,127 $ 7,394 $ 3,090 $ 3,896
======= ======== ======= =======
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 $130,000 for the first six months of 2002 ($88,000 for the
second quarter of 2002) versus $41,000 for the comparable 2001 period ($12,000
for the second quarter of 2001).
9
Interest income was $226,000 for the first six months of 2002 ($157,000 for the
second quarter of 2002) versus $230,000 for the comparable 2001 period ($56,000
for the second quarter of 2001).
Other revenues were $418,000 for the first six months of 2002 ($215,000 for the
second quarter of 2002) versus $419,000 for the comparable 2001 period ($270,000
for the second quarter of 2001). Other revenues are principally generated by the
Company's title insurance and real estate brokerage subsidiaries.
Costs and Expenses
- ------------------
Costs and expenses were $6,060,000 for the first six months of 2002 ($3,263,000
for the second quarter of 2002) versus $6,796,000 for the comparable 2001 period
($3,451,000 for the second quarter of 2001).
Cost of sales were $2,844,000 for the first six months of 2002 ($1,593,000 for
the second quarter of 2002) versus $2,744,000 for the comparable 2001 period
($1,411,000 for the second quarter of 2001). Commissions, advertising and other
selling expenses totaled $1,893,000 for the first six months of 2002 ($934,000
for the second quarter of 2002) versus $2,495,000 for the comparable 2001 period
($1,283,000 for the second quarter of 2001). Lower retail land sales resulted in
decreased commission expense. Other selling expenses decreased to $596,000 for
the first six months of 2002 ($347,000 for the second quarter of 2002) versus
$630,000 for the comparable 2001 period ($354,000 for the second quarter of
2001) as a result of decreased jobsite expenses. Advertising and promotional
expenses decreased to $63,000 for the first six months of 2002 ($29,000 for the
second quarter of 2002) versus $135,000 for the comparable 2001 period ($47,000
for the second quarter of 2001).
General and administrative expenses were $815,000 for the first six months of
2002 ($468,000 for the second quarter of 2002) versus $729,000 for the
comparable 2001 period ($348,000 for the second quarter of 2001). General and
administrative expenses increased primarily due to increased overhead expenses.
Real estate tax expenses were $287,000 for the first six months of 2002
($143,000 for the second quarter of 2002) versus $288,000 for the comparable
2001 period ($144,000 for the second quarter of 2001).
Interest expense was $217,000 for the first six months of 2002 ($125,000 for the
second quarter of 2002) versus $540,000 ($265,000 for the second quarter of
2001). The decrease in interest expense is a result of debt balances accruing
interest at a lower interest rate.
Net Income
- ----------
The Company reported net income of $86,000 for the first six months of 2002 (a
net loss of ($47,000) for the second quarter of 2002) versus a net income of
$106,000 for the comparable 2001 period (an income of $44,000 for the second
quarter of 2001).
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-
10
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 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.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
MORTGAGES AND SIMILAR DEBT
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.
Indebtedness under various purchase money mortgages and loan agreements is
collateralized by substantially all of the Company's assets, including stock of
certain wholly-owned subsidiaries. The Company's outstanding debt to Yasawa is
secured by a first lien on the Company's receivables and a mortgage on all of
the Company's property; and the Company's outstanding debt to Swan is secured by
a second lien on the Company's receivables.
The Company's outstanding debt to Yasawa as of June 30, 2002 was $3,600,000. The
terms of repayment of the restructured Yasawa loan 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, with recourse. Interest accrues on the
declining balance at the prime rate, adjusted semi- annually to equal the prime
rate then in effect. From January 2002 to June 30, 2002, the interest rate on
the outstanding debt was 4.75%, which was prime. Yasawa and Scafholding have not
required the Company to make interest payments since September 1, 1998. As of
June 30, 2002, the total amount of interest accrued is approximately $ , which
is included in accrued expenses.
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 was $6,837,000 as of June 30, 2002. 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 the Company
receives an advance of money from Swan. Currently, the interest rate is the
prime rate, adjusted semi-annually to equal the prime rate then in effect (4.75%
as of June 30, 2002). 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 meet the Company's working capital requirements.
From January 2002 to June 30, 2002, the interest rate on the outstanding debt
was 4.75%, which was prime. As of June 30, 2002, the total amount of interest
accrued is approximately $696,000, which is included in accrued expenses.
The following table presents information with respect to mortgages and similar
debt (in thousands):
June 30, December 31,
2002 2001
-------- ------------
Mortgage Notes Payable ..................... $ 3,600 $ 4,200
Other Loans................................. 6,959 6,077
-------- --------
Total mortgages and similar debt........ $ 10,559 $ 10,277
======== ========
- ---------
Included in Mortgage Notes Payable is the Yasawa loan ($3,600,000 at
June 30, 2002); included in Other Loans is the Swan loan ($6,837,000
as of June 30, 2002).
11
CONTRACTS AND MORTGAGES RECEIVABLE SALES
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 $983,000 as of June 30,
2002). The Company has 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 2001 or 2002. As of June 30, 2002 and December 31,
2001, $1,043,000 and $1,060,000 in receivables were delinquent, respectively.
Since 1997, the Company sold or transferred for debt repayment contracts and
mortgages receivable to related third parties, Scafholding and Swan. These
transactions, among other things, require that the Company replace any
receivable that becomes eligible to be canceled. Such requirement is satisfied
monthly from contracts in the Company's receivable portfolio not otherwise
secured to unrelated third parties. The Company has reserved for the estimated
future cancellations of these contracts based on the Company's historical
experience for receivables the Company services and believes these reserves to
be adequate.
The Company is the guarantor of approximately $19,787,000 of contracts
receivable sold or transferred as of June 30, 2002, 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 approximately $2,929,000 remains at June 30, 2002. 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 $37,000 for the six months ended June 30, 2002 and $73,000 for the
year 2001, 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 may loan the Company funds to be
repaid with contracts receivable at 90% of face value, with recourse.
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 nor can
there be any guarantee that Yasawa, Scafholding, Swan and other related parties
will continue to make loans to the Company.
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PART II - OTHER INFORMATION
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
See attached Exhibit 99.1 for Certification pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes - Oxley Act of 2002 (CEO Certification by
Antony Gram).
See attached Exhibit 99.2 for Certification pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes - Oxley Act of 2002 (CFO Certification by
Robert O. Moore).
(b) Reports on Form 8-K
None.
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE DELTONA CORPORATION
Date: August 14, 2002 By: /s/Sharon Hummerhielm
---------------------------------
Sharon Hummerhielm
Executive Vice President
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