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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, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______________ to ______________
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)
999 BRICKELL AVENUE, SUITE 700
MIAMI, FLORIDA 33131
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (305) 579-0999
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $1 PAR VALUE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K
or any amendments to this Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates
of the Registrant: $1,131,075 based on the average of the bid and asked prices
of such stock as traded on the over-the-counter on March 22, 1996. (Excludes
shares of 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: 6,729,142 shares of common
stock, $1 par value, as of March 22, 1996,
excluding 12,228 shares held in treasury.
DOCUMENTS INCORPORATED BY REFERENCE
Document Incorporated
Part(s)
* Registrant's 1995 Annual Meeting Proxy Statement to be
filed with the Securities and Exchange Commission
pursuant to Regulation 14A Part III
======================================================================
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
Business Segments................... 3
Real Estate......................... 4
Other Businesses.................... 10
Employees........................... 10
Competition......................... 10
Regulation.......................... 10
Item 3....... Legal Proceedings................... 15
Item 4....... Not Applicable
PART II
Item 5....... Price Range of Common Stock and
Dividends.......................... 17
Item 6....... Selected Consolidated Financial
Information........................ 18
Item 7....... Management's Discussion and
Analysis of Financial Condition
and Results of Operations........... 19
Item 8....... Index to Consolidated Financial
Statements and Supplemental Data.... 34
Item 9....... Not Applicable
PART IV
Item 14...... Exhibits, Financial Statement
Schedules and Reports on Form 8-K... 60
PAGE
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 has developed nine planned communities in
Florida, six of which are completed and three are in various stages
of development, and range in size from 1,500 to over 17,000 acres
with a combined estimated population in excess of 186,000. The
Company plans, designs and develops roads, waterways, recreational
amenities, grading and drainage systems within these communities.
Since 1962, the Company has sold over 150,000 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 has substantial land holdings in Florida. Its
holdings include an inventory of over 18,900 unsold platted
single-family lots and multi-family 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 operates such amenities until
their conveyance or sale.
Historically, the Company has 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 is incorporated in Delaware and has its principal
executive offices at 999 Brickell Avenue, Suite 700, Miami, Florida
33131. Its telephone number is (305) 579-0999. The Company, as
used herein, refers to The Deltona Corporation and, unless the
context otherwise indicates, its wholly-owned subsidiaries.
RECENT DEVELOPMENTS
During the first quarter of 1995, the Company initiated a new
land sales program, which utilizes a limited group of independent
dealers. During 1995, the Company reached a lot sales volume of
$6,260,000 as compared to $1,910,000 during 1994.
Since Antony Gram's appointment as Chairman of the Board and
Chief Executive Officer of the Company on July 13, 1994, he has
been responsible for resolving the financial and legal difficulties
facing the Company and developing an alternative business plan to
enable the Company to continue as a going concern. Mr. Gram, who
had served as a director of the Company and Vice Chairman of the
Board from June, 1992 through April 6, 1994, holds a controlling
interest in Yasawa Holdings, N.V., a Netherland Antilles
Corporation ("Yasawa") and Wilbury International N.V., a
Netherlands Antilles Corporation ("Wilbury"), which holds all of
the issued and outstanding capital stock of Selex International,
B.V., a Netherlands corporation ("Selex"), a 41.9% shareholder of
the Company. As a consequence, Mr. Gram is deemed to be the
beneficial owner of 3,109,703 shares of Common Stock of the Company
(46.21% of the outstanding shares of Common Stock of the Company,
based upon the number of shares of the Company's Common Stock
outstanding as of March 22, 1996).
(1)
At the November 30, 1995 meeting of the Board of Directors,
Marcellus H. B. Muyres, Leonardus Nipshagen, Cornellus van de
Peppel and Cornellus L. J. J. Zwaans voluntarily tendered their
resignations from the Board. The Board appointed Rudy Gram, son of
the Chairman of the Board Antony Gram, and Earle D. Cortright, Jr.,
President and Chief Operating Officer of the Company, to serve out
two of the four remaining terms of the resigning Board members. In
addition, the Board amended the Company's By-Laws to reduce the
minimum number of directors from five to three.
During 1995, the Company was successful in settling certain
lawsuits, including the lawsuit entitled GARCIA V. DELTONA ET AL.,
which was filed in the Circuit Court for Dade County, Florida on
January 30, 1986, reducing the Company's development obligation
through a successful exchange program whereby purchasers with
undeveloped lots accepted developed lots in exchange, and
negotiating with Citrus County a final improvement and maintenance
agreement to eliminate its remaining development obligation at the
Citrus Springs subdivision, with the exception of the second golf
course.
In September 1995, the Company relocated its corporate
headquarters from 3250 S.W. Third Avenue, Miami, Florida 33129 to
999 Brickell Avenue, Suite 700, Miami, Florida 33131. In
conjunction with the move, telephone and facsimile numbers were
changed. The new telephone number is (305) 579-0999; the new
facsimile number is (305) 358-0999.
On May 22, 1995, the Company closed on a sale to Conquistador
Development Corporation ("Conquistador") of an administration
building and a multi-family site in the Company's St. Augustine
Shores community as well as the remaining lot inventory in the
Company's Feather Nest community at Marion Oaks in consideration
for the satisfaction of $2,599,300 of principal and accrued
interest on the Second and Third Selex Loans ("Second Conquistador
Acquisition"). The amount of debt reduction is equivalent to the
amount of Mr. Marcel Muyres' participation in those loans as of
January 31, 1995. In a separate transaction, on May 22, 1995,
Conquistador and the Company closed on the sale of four single
family residential lots in the St. Augustine Shores community for
$100,000 in cash ("Third Conquistador Acquisition").
The Company continues to be dependent upon Yasawa to fund
continuing working capital requirements until the Company is able
to restructure its development and other obligations. As of
December 31, 1995, Yasawa has advanced an aggregate amount of
$4,012,000 to the Company ("the Second Yasawa loan") at an interest
rate of 8% per annum. Included in this amount is a $500,000 Letter
of Credit, which has since been called, to provide assurance for a
payment pursuant to a settlement agreement with the Company's
landlord at its former corporate headquarters in Miami.
The Company continued to experience liquidity problems during
1995, with the Company's minimum working capital requirements being
funded by Yasawa. Efforts are continuing to seek third parties to
provide funds to the Company for the Company to continue as a going
concern. There can be no assurance, however, that any of these
efforts will be successful or that additional financing will be
obtained. In the event that new financing is not successfully
acquired or that Yasawa or Mr. Gram do not continue to fund the
Company's minimum working capital requirements, the Company's Board
of Directors will consider other appropriate action given the
severity of the Company's liquidity position, including, but not
limited to, filing for protection under the federal bankruptcy
laws. See "Legal Proceedings", "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
Notes 1, 5 and 8 to Consolidated Financial Statements.
(2)
BUSINESS SEGMENTS
The following table sets forth the total amounts of revenues
and operating profits (losses) from continuing operations
attributable to each of the Company's business segments for the
years ended as indicated. See Note 11 to Consolidated Financial
Statements:
YEARS ENDED
-----------------------------------------------------------
DECEMBER DECEMBER DECEMBER, DECEMBER, DECEMBER,
31, 1995 31, 1994 31, 1993 25, 1992 27, 1991
-------- -------- --------- --------- ---------
(in thousands)
REVENUES
Real estate:
Net land
sales(a)..... $ 2,394 $ 2,058 $ 2,432 $ 2,092 $ 1,154
Housing
revenues..... 1,383 2,543 344 -0- 120
Improvement
revenues(b).. 1,052 1,214 4,725 2,404 -0-
Interest
income(c).... 1,019 1,046 1,197 3,584 5,270
Other......... -0- -0- 67 -0- -0-
-------- -------- -------- -------- -------
Total real
estate..... 5,848 6,861 8,765 8,080 6,544
Other(d)...... 1,030 1,832 3,447 4,372 4,510
Intersegment
sales(e)..... (190) (152) (113) (235) (270)
-------- -------- -------- -------- -------
TOTAL...... $ 6,688 $ 8,541 $ 12,099 $ 12,217 $ 10,784
======== ======== ======== ======== ========
OPERATING PROFITS (LOSSES)
Real estate.... $ 1,377 $ 1,055 $ (3,073) $ 1,486 $ (6,750)
Other (d)...... 341 1,033 279 2,209 1,928
General corporate
expense....... (2,981) (4,147) (4,721) (7,057) (7,811)
Interest expense. (1,642) (1,847) (1,257) (3,356) (6,896)
-------- -------- -------- -------- --------
INCOME (LOSS) FROM
CONTINUING OPERATIONS
BEFORE INCOME TAXES
AND EXTRAORDINARY
ITEMS............ $ (2,905) $ (3,906) $ (8,772) $ (6,718) $(19,529)
======== ======== ======== ======== ========
________________
(a) Net land sales consist of gross land sales less estimated
uncollectible installment sales and contract valuation
discount and, prior to 1991, deferred revenue (see Notes 1, 2
and 7 to Consolidated Financial Statements).
(b) Improvement revenues consist of revenue recognized due to
completion of improvements on prior period sales and exchanges
from undeveloped to developed lots.
(c) Interest income primarily consists of interest earned on
contracts and mortgages receivable and on temporary cash
investments and the amortization of valuation discounts.
(d) Other consists of revenues from sales other than real estate,
the major portion of which came from the country club
operations in prior years. In 1994, the major portion
consists of a gain of $1,051,000 from the termination of its
office lease on its Miami corporate headquarters.
(e) Intersegment sales consist primarily of sales between the
Company and its title insurance subsidiary.
(3)
REAL ESTATE
The Company's principal business segment has primarily
involved 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, 1995. For a detailed description of
these communities, see "Existing Communities" and "Other
Properties".
EXISTING COMMUNITIES
UN-
PLATTED IMPROVED IMPROVED
ESTI- LOTS & UNSOLD UNSOLD
ACREAGE INITIAL MATED TRACTS PLATTED PLATTED
IN ACQUISI- CURRENT IN MAS- LOTS & LOTS & UN-
MASTER TION YEAR POPULA- TERPLAN TRACTS TRACTS PLATTED
PLAN YEAR OPENED TION (a) (a) (b) (a) (b) ACREAGE
------ ------ ------ ------- ------ ------ ------ -------
* Deltona
Lakes. 17,203 1962 1962 66,300 34,964 - 6 -
* Marco
Island(c) 7,844 1964 1965 36,500 8,657 - 1 -
* Spring
Hill(d). 17,240 1966 1967 70,300 32,909 - 6 -
* Citrus
Springs
(e),(f),
(g)..... 15,954 1969 1970 6,300 33,783 44 132(f)(i) -
St.
Augustine
Shores. 1,985 1969 1970 7,400 3,130 892 4(i) 16
Sunny
Hills.. 17,743 1968 1971 1,350 26,251 12,440 751(i) -
* Pine
Ridge.. 9,994 1969 1972 2,300 4,833 - 3(i) -
Marion
Oaks(e) 14,644 1969 1973 7,650 27,537 3,995 581(i) -
* Seminole
Woods.. 1,554 1969 1979 400 262 - - -
JOINT VENTURE
COMMUNITY:
* Tierra
Verde.. 666 1976 1977 4,600 1,036 - - -
------- ------- ------- ------ ----- --
Total... 104,827 203,100 173,362 17,371(f) 1,484(f) 16
======= ======= ======= ====== ===== ==
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 114
improved and 92 unimproved lots and tracts that are required
for drainage and cannot be sold, and approximately 142
improved and 344 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 2 unimproved golf course sites, as well as approximately
463 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.
(d) Includes the South Hernando U.S. # 19 Commerce Center.
(e) Excluded 84 Citrus Springs and 65 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.
(4)
(f) Excludes 850 improved and 844 unimproved platted lots and
tracts held for retail sale by Citony Development Corporation
("Citony"), an affiliate of Yasawa. Also excludes 272
improved and 76 unimproved platted lots and tracts owned by
Citony that may be subject to certain adverse soil conditions
and/or drainage conditions that render the subject properties
unuseable for retail sales purposes. The property acquired by
Citony in December 1992 was marketed by the Company during
1993 and early 1994 pursuant to a joint venture agreement
between the Company and Citony. The Company and Citony agreed
to terminate the joint venture agreement in April 1994;
however, the Company is providing certain assistance to Citony
during the transition period.
(g) Excludes 17 improved lots held by SunBank/Miami, N.A., as
Trustee for the Marco Shores Trust.
(h) Excludes 18 unplatted acres in existing communities and 3,829
acres of unplatted natural preserves restricted for
recreational park use which cannot be sold.
(i) Not included are 737 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 443 lots in Citrus
Springs, 292 lots in Marion Oaks and 2 lots 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 sales in certain communities
upon receipt of a down payment equal to at least 25% of the sales
price. 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. 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 150,000 lots and tracts sold since
the Company's inception, contracts receivable
(5)
presently exist with respect to approximately 1,153 lots and tracts
with an outstanding balance of approximately $8,059,000 at December
31, 1995, 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 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
Although the Company had discontinued its single-family housing
activities at the end of 1984, in December, 1992, the Company
re-entered the single-family housing business at its Marion Oaks
community. Two and three bedroom moderately-priced homes are being
constructed by an exclusive independent builder at the Company's
Feather Nest housing village in this community and sold in the
local markets and through the Company's independent dealer network.
These homes include, as standard features, cathedral ceilings,
attached garages, lanais, breakfast nooks and spacious walk-in
closets. The housing village is planned to feature its own
recreational complex, including a swimming pool, tennis courts and
other amenities. The Company also offers the same model line in
Marion Oaks outside of the FeatherNest village in a suburban
program as well as build on your own lot program for those
purchasers who have previously acquired a lot. Prices on the
Company's current model line range from $49,800 to $88,950,
exclusive of lot. The Company sold to Conquistador the remaining
lot inventory in FeatherNest as partial consideration for the
satisfaction of $2,599,300 in debt. Other housing programs are
unaffected by this transaction. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
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.
Substantially all of the Company's remaining inventory in its
vacation ownership complex, The Surf Club, located on the Gulf of
Mexico at Marco Island, was sold in 1990.
MARKETING
The Company has historically sold land and housing products 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,
1995, sales by independent dealers in the United States accounted
for approximately 75% (in dollar volume) of new land sales
contracts; while overseas dealers accounted for approximately 13%
of such contracts; and Company-affiliated salespeople accounted for
approximately 12% of such contracts.
The financing and debt restructuring completed in 1992 and the
first half of 1993 enabled the Company to commence implementation
of its 1993 business plan by undertaking a new marketing program
which provided for the strengthening of the Company's marketing
organization, the rebuilding of its retail land sales business and
its re-
(6)
entry into the single-family home business. During 1993, the
Company concentrated on bolstering and expanding its existing
network of independent dealers, particularly in the northeastern
and midwestern regions of the United States, and during the latter
part of the year, overseas. The Company also established a
Company-affiliated sales office in Chicago during the second half
of 1993.
The marketing program initiated in 1993 did not produce the level
of sales necessary in order that the Company's future working
capital requirements could be obtained through the sale of newly
generated contracts and mortgages receivables. Selex, Yasawa and
their affiliates, upon whom the Company had been dependent to meet
its working capital needs since December, 1992, concluded that they
would not provide any further funds to the Company to be utilized
in such marketing program. Consequently, the Company severely
curtailed its marketing program in 1994.
During the first quarter of 1995, the Company initiated a new
land sales program, which utilizes a limited group of independent
dealers. During 1995, the Company reached a lot sales volume of
over $6,260,000 of contracts written.
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 66,300. 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 a junior high school are located in the
community. The Company has virtually completed development of this
community.
MARCO ISLAND
The Company's resort community of Marco Island is located 104
miles west of Miami and approximately 17 miles south of Naples,
Florida. Over 8,500 lots and tracts and over 4,200 single and
multi-family housing units have been sold in this community.
More than 36,500 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 over 3,300 condominium
units and The Surf Club, a 44 unit vacation ownership complex, on
the island. In 1990, the Company completed the sale of
substantially all of its remaining vacation ownership weeks.
Since its inventory at Marco Island is virtually sold out, 1996
revenues are expected to be generated from collections on existing
contracts receivable.
(7)
The community's planned growth was interrupted in 1976 by denial
of certain federal permits needed to complete the development of
approximately 14,500 units. The Settlement Agreement between the
Company, the State of Florida and various environmental interest
groups (the "Settlement Agreement") which became effective on March
14, 1985, allowed for the potential development of additional
dwelling units at Marco Island, Horr's Island and Marco Shores,
located two miles from Marco Island. The bulk of these properties
have subsequently been sold or transferred to the Company's lenders
or to the trustee pursuant to the 1992 settlement of the class
action litigation. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and
Capital Resources" and Note 9 to Consolidated Financial Statements.
SPRING HILL
Spring Hill, with an estimated population of approximately
70,300, 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. The Company has sold
its country club and golf courses. Several shopping centers and
medical centers, two elementary schools, a junior high school, a
senior high school, numerous houses of worship and two 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 6,300, 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 and a convenience shopping area are located in the
community. The Company has completed 400 miles of road. 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 and Citony then entered into a joint
venture agreement with respect to the property, providing for the
Company to market the property and receive an administration fee
from the venture. The Company and Citony terminated the joint
venture agreement in April 1994; however, the Company provided
certain assistance to Citony during the transition period. The
Company is negotiating with a third party for the purchase and sale
of the second Citrus Springs Golf Course, which is undeveloped.
The Purchase and Sale agreement contemplates the completion of the
course by the buyer by December 31, 1997. 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
approximately 7,400, is located seven miles south of St. Augustine,
between the Intracoastal Waterway and U.S. Highway 1. Only
commercial and multi-family tracts, house and lot packages and
condominium apartment units had been sold in this community before
1987, but that year St. Augustine Shores was opened for the retail
sale of single-family lots. Approximately 1,000 additional
single-family lots became available during 1988 through the
platting of 641 acres adjacent to the existing platted properties.
Over 2,000 single and multi-family housing units and lots and
tracts have been sold.
The Company has completed 28 miles of road. 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 and shopping facilities are also located in the
community. A golf course and country club and a recreation
building have been completed by the Company. In October 1991, the
country club and golf course was transferred to the Company's
lenders. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital
Resources" and Note 5 to Consolidated Financial Statements.
(8)
Pursuant to the June, 1992 transaction with Selex, the Company
purchased certain multi-family and commercial property at this
community from Mr. Muyres and entities affiliated with Messrs.
Muyres and Zwaans. Also in conjunction with the June, 1992
transaction, an affiliate of Selex was granted an option to
repurchase certain of the property for $312,000, which option was
exercised by the affiliate in March, 1994. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations". Retail land sales will not resume at the community
until certain improvements are completed, as the Company is selling
only fully improved lots. See also "Regulation - Community
Development and Environmental".
On May 22, 1995 the Company sold to Conquistador (the "Second
Conquistador Acquisition") an administration building and a multi-
family site in the Company's St. Augustine Shores community, as
well as other property, in consideration for the satisfaction of
$2,599,300 of principal and accrued interest on the Second and
Third Selex Loans. On that same date but in a separate
transaction, the Company also sold to Conquistador (the "Third
Conquistador Acquisition") four single family residential lots in
the St. Augustine Shores community for $100,000 in cash. These
transactions were accounted for in accordance with generally
accepted accounting principals for these types of related party
transactions. Accordingly, the resulting gain of $1,900,000 was
treated as a contribution of capital and recorded directly to
capital surplus.
SUNNY HILLS
Sunny Hills, with a population of approximately 1,350 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. It includes several houses of worship and a convenience
shopping center. The Company has completed or under construction
165 miles of road. The community also has a golf course and
country club, which was sold by the Company for $1,000,000 in the
first quarter of 1993.
The Company reopened Sunny Hills for retail lot sales in
mid-1989. Revenues in 1996 will be generated from collections on
existing contracts receivable, from retail land sales and from the
recognition of deferred revenue as land development and lot
exchanges proceed.
PINE RIDGE
Pine Ridge, with a population of approximately 2,300, is located
34 miles southwest of Ocala. The community's facilities include an
equestrian club and tennis courts. In May, 1987, the Company
completed the $8,500,000 sale of its remaining inventory and golf
course at Pine Ridge. Prior to the sale, the Company had sold over
3,500 lots and tracts and over 53 single-family homes in Pine
Ridge.
MARION OAKS
Marion Oaks, with a population of approximately 7,650 residents,
is located 18 miles south of Ocala. Over 20,000 lots and tracts and
over 2,700 single-family homes have been sold in the community.
The community includes playgrounds, two golf courses (one of which
was sold in 1988 and the second which was transferred to the
Company's lenders on October 11, 1991) and several recreation
buildings. A shopping center and several houses of worship are
located in the community. The Company has completed 311 miles of
road. The Company re-entered the single-family housing business at
this community in December, 1992 with the opening of its
FeatherNest housing village. On May 22, 1995, the Company sold to
Conquistador (the "Second Conquistador Acquisition") the remaining
lot inventory in the Company's FeatherNest community at Marion Oaks
, as well as other property, in consideration for the satisfaction
of $2,599,300 of principal and accrued interest on the Second and
Third Selex Loans. See "Housing" and "Marketing". Revenues in 1996
will be generated from the sale of land inventory, from housing
sales, from the recognition of deferred revenue as land development
and lot exchanges proceed, from collections on existing contracts
receivable and from the Company's real estate brokerage operation.
(9)
SEMINOLE WOODS
Seminole Woods, with a population of approximately 400, is
comprised of 1,554 acres of property located 20 miles north of
Orlando. The community, comprised of 262 single-family lots, each
a minimum of five acres, has been sold out and development
completed.
TIERRA VERDE
Tierra Verde, with a population of approximately 4,600, is a
666-acre waterfront subdivision located eight miles south of St.
Petersburg. It was developed and marketed pursuant to a 50% joint
venture between a wholly-owned subsidiary of the Company and an
unaffiliated corporation which filed a petition for bankruptcy
under the Bankruptcy Code in 1985. The community has been sold out
and development completed. The venture, which extended until
December 31, 1990, provided for the Company's subsidiary to receive
a management fee and to share in the venture's results of
operations equally with its venture partner. The venture was
extended for the purposes of winding down operations which were
completed in 1993.
OTHER LAND ASSETS
The Company also owns 92 acres of land in Florida adjacent to its
existing communities. Certain of these properties are being
marketed by the Company's commercial sales division.
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 products 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, 1995, the Company had 34 employees, of whom 31
were involved in executive, administrative, sales and community
maintenance capacities and 3 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.
COMPETITION
The Company faces competition primarily from property owners in
the Company's communities seeking to resell their land. The
Company is also facing competition, on a regional level, with 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.
(10)
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") has now commenced. 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 virtually completed in certain
of these communities). Thus, such 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.
On September 30, 1988, the Company entered into an agreement with
Citrus County, Florida to establish the procedure for transferring
final maintenance responsibilities for roads in the Company's
Citrus Springs subdivision to Citrus County. The agreement
obligated the Company to perform certain remedial work on
previously completed improvements within the Citrus Springs
subdivision by June 1, 1991. The Company was unable to complete
this work due to the lack of available funds and negotiated a final
settlement with Citrus County for the transfer of final maintenance
responsibility for the roads to the County. This final agreement
was entered into in May 1995.
The Company's present development schedule for completing
improvements to approximately 600 acres at its St. Augustine Shores
community does not coincide with the current development
requirements of the Planned Unit Development ("PUD") approved by
St. Johns County. The Company will seek a modification of the PUD
development requirements consistent with the Company's future
development plans at St. Augustine Shores.
The Company's corporate performance bonds to assure the
completion of development at its St. Augustine Shores community
expired in 1993. Such bonds cannot be renewed due to a change in
the policy of the Board of County Commissioners of St. Johns County
which precludes allowing any developer to secure the performance of
development obligations by the issuance of corporate bonds. In the
event that St. Johns County elects to undertake the completion of
such development work, the Company would be obligated with respect
to 1,000 unimproved lots at St. Augustine Shores in the amount of
approximately $6,200,000. The Company has proposed the formation
of a community development district as a funding source and
submitted an alternative assurance program for the completion of
such development and improvements.
In the third quarter of 1991, St. Johns County, Florida acquired
the St. Augustine Shores utility company, formerly owned by Topeka,
under an action framed as a condemnation suit. The County has
contended that it is not obligated, as was Topeka, to extend
utility lines at its cost to future residents of the Company's St.
Augustine Shores community. The Company has had discussions with
Topeka and the County in attempt to reach a resolution to this
dispute. If a satisfactory resolution is not achieved it may be
necessary for the Company to institute appropriate legal
proceedings to assure the installation of utility lines.
ENVIRONMENTAL
To varying degrees, certain permits and approvals will be
necessary to complete the development of all of the Company's
communities. Despite the fact that the Company has obtained
substantially all of the permits and
(11)
authorizations necessary to proceed with its development work on
communities presently being marketed, additional approvals may be
required to develop certain platted properties in certain
communities 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.
Certain of the Company's development permits for a portion of its
St. Augustine Shores community issued by the St. Johns Water
Management District and the U.S. Army Corps of Engineers expired.
The Company will submit new permit applications that will coincide
with the Company's future development plans. Since there can be no
assurance that the Company will be successful in obtaining such new
permits in a timely manner, the Company may be required to alter
its development plans for this community.
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 above ground fuel storage tanks at
its communities. The Florida Department of Environmental Regulation
("DER") is responsible not only for regulating these tanks, but for
developing and implementing plans and programs to prevent the
discharge of pollutants by such facilities. The Company has
registered its storage tanks with the DER, constructed containment
devices around above ground storage tanks, replaced or properly
abandoned faulty tanks or equipment and conducts periodic
inspections and monitoring of all facilities.
In December, 1988, the Company surveyed all of its fuel
facilities and reported any facility 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 Company's sites have
been inspected and reviewed under the EDI program and are 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; reviews 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.
(12)
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, the
Company, in February, 1980, entered into a Consent Order with the
Division which provided a program for notifying affected customers.
The Consent Order, which was restated and amended, provided a
program for notifying affected customers of the anticipated delays
in the completion of improvements (or, in the case of purchasers of
unbuildable lots in certain areas of the Company's Sunny Hills
community, the transfer of development obligations to core growth
areas of the community); various options which may be selected by
affected purchasers; a schedule for completing certain
improvements; and a deferral of the obligation to install water
mains until requested by the purchaser. Under an agreement with
Topeka, Topeka's utility companies agreed to furnish utility
service to the future residents of the Company's communities on
substantially the same basis as such services were provided by the
Company. The Consent Order also required the establishment of an
improvement escrow account as assurance for completing such
improvement obligations.
In June, 1992, the Company entered into the 1992 Consent Order
with the Division, which replaced and superseded the original
Consent Order, as amended and restated. Among other things, the
1992 Consent Order consolidated the Company's development
obligations and provided for a reduction in its required monthly
escrow obligation to $175,000 from September, 1992 through
December, 1993. Beginning January, 1994 and until development is
completed or the 1992 Consent Order is amended, the Company is
required to deposit $430,000 per month into the escrow account. As
part of the assurance program under the 1992 Consent Order, the
Company and its lenders granted the Division a lien on certain
contracts receivable (approximately $9,537,600 as of
December 31, 1995) and future receivables. The Company defaulted on
its obligation to escrow $430,000 per month for the period of
January, 1994 through the present and, in accordance with the 1992
Consent Order, collections on Division receivables were escrowed
for the benefit of purchasers from March 1, 1994 through April 30,
1994. In May, 1994 the Company implemented a program to exchange
purchasers who contracted to purchase property which is undeveloped
to property which is developed. As of March 22 1996, approximately
83% of the customers whose lots are currently undeveloped have
opted to exchange. Consequently, the Division has allowed the
Company to utilize collections on receivables since May 1, 1994.
Because of the Company's default, the Division could also exercise
other available remedies under the 1992 Consent Order, which
remedies entitle the Division, among other things, to halt all
sales of registered property.
The Company's goal is to eliminate its development obligation
(with the exception of its maintenance obligation in Marion Oaks
and Sunny Hills) under the 1992 Consent Order through this exchange
program, completion of two commercial areas in Marion Oaks, sale of
its second Citrus Springs Golf Course (with the buyer assuming the
development obligation) and settlement of all remaining maintenance
and improvements obligations in Citrus Springs through a final
agreement with Citrus County (entered into in May 1995). Pursuant
to the 1992 Consent Order, the Company has limited the sale of
single-family lots to lots which front on a paved street and are
ready for immediate building.
As of December 31, 1995, the Company had estimated development
obligations of approximately $1,295,000 on sold property, an
estimated liability to provide title insurance and deeding costing
$1,217,000 and an estimated cost of street maintenance, prior to
assumption of such obligations by local governments, of $1,150,000,
all of which are included in deferred revenue. The total cost to
complete improvements at December 31, 1995 to lots subject to the
1992 Consent Order, including the previously mentioned obligations,
and to all lots, sold and unsold, including the St. Augustine
Shores community, was estimated to be approximately $14,449,000.
As of December 31, 1995 and December 31, 1994 the Company had in
escrow approximately $489,000 and $911,000, respectively,
specifically for land improvements at certain of its Central and
North Florida communities.
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.
(13)
On the federal level, the Company's homesite installment sales
are subject to the Federal Consumer Credit Protection
("Truth-in-Lending") Act. In addition, the Company's activities are
subject to regulation by the Interstate Land Sales Registration
Division ("ILSRD"), which administers the Interstate Land Sales
Full Disclosure Act. That Act requires that the Company file with
ILSRD copies of applicable materials on file with the Division as
to all properties registered; certain properties must be registered
directly with ILSRD, in addition to being registered with the
Division.
The Company has either complied with applicable statutory
requirements relative to the properties it is offering or has
relied on various statutory exemptions which have relieved the
Company from such registration, filing and disclosure requirements.
If these exemptions do not continue to remain available to the
Company, compliance with such statutes may result in delays in the
offering of the Company's properties and products to the public.
In addition, Florida and other jurisdictions in which the
Company's properties are offered for sale have strengthened, or
are considering strengthening, their regulation of subdividers and
subdivided lands in order to provide further assurances to the
public, particularly given the adverse publicity surrounding the
industry which existed in 1990. 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
In addition, various other 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.
(14)
PAGE
ITEM 3
LEGAL PROCEEDINGS
In the action styled GARCIA V. DELTONA ET. AL, Case No. 86-03542,
filed in the Circuit Court for Dade County, Florida, on January 30,
1986, the plaintiff sought to recover $2,000,000 allegedly paid to
the Company on four installment land sales contracts, claiming
fraud and misrepresentation on the part of one of the Company's
independent sales representatives and other violations of law. The
Company had cancelled the contracts in question according to their
terms for default of the payment obligations by the purchaser.
Although the Company negotiated a settlement of this action which
provided for the Company to convey to the plaintiff property which
has a value equivalent to the monies paid by the plaintiff to the
Company under the cancelled contracts, the plaintiff asserted that
the Company has breached the settlement agreement by failing to
convey sufficient property which met the criteria of the settlement
agreement. The Company believed that the property conveyed
complied with such criteria. The plaintiff could have sought a
judgment of $5,400,000, plus interest, less the value of the
property transferred. On October 27, 1995, the parties resolved
and settled their dispute by the Company transferring alternative
property for settlement purposes. The Company exchanged releases
with the plaintiff, which released the Company from any further
obligations, except certain obligations and warranties contained in
the modification of settlement agreement.
The Company was previously sued by its former landlord for breach
of lease in the action styled FIVE POINTS LIMITED V. THE DELTONA
CORPORATION, Case No. 93-22877, filed in the Circuit Court for Dade
County, Florida, which has been settled. The Company had entered
into a short term lease agreement with the landlord and/or its
affiliate for a term of lease of one (1) year with a ninety (90)
day cancellation provision. Certain payments were made to the
landlord and a letter of credit in the amount of $500,000, now
called, was conveyed to the landlord. Funding of the settlement
was obtained through a loan to the Company. The Company vacated
the premises in September 1995 and neither party owes the other any
further duty or obligation.
In the action entitled ESTATE OF BOBINGER, ET AL. V. THE DELTONA
CORPORATION, Case No. 87-45051, filed in the Circuit Court of the
Eleventh Judicial Circuit in and for Dade County, Florida, the
plaintiff sued the Company for breach of contract and for recovery
of monies paid on contracts for Marco property that will not be
developed by the Company. The matter was settled pending
performance of the settlement agreement. In the opinion of the
Company, residual obligations of the Company that are due and
payable in the future may approximate up to $1,300,000. The
Company has provided an allowance for Marco permit costs, which
encompasses these obligations. See "Management's Discussion and
Analysis" and Note 9 to the consolidated financial statements.
In the action styled LEE SU WEN NI ET. AL. V. THE DELTONA
CORPORATION AND SCAFHOLDING B.V., Case No. 95-4422-CA-E, filed in
the Circuit Court of Marion County, Florida on October 11, 1995,
the plaintiff alleges that the liquidated damages provision in the
Company's installment contracts for the sale of its properties is
unenforceable under Florida Law and contests the method utilized by
the Company to calculate actual damages in the event of contract
cancellations. As part of the complaint, the plaintiff is seeking
certification as a class action, as well as unspecified
compensatory damages, together with interest, costs and fees. The
Company filed a Motion to Dismiss in response to the plaintiff's
complaint. The Court has dismissed the claim of the class
representative against the Company and against Scafholding B.V.;
however, the Company expects an appeal to ensue. In the event that
any future appeal is successful, class certification is authorized
and the Company is not successful in its defenses, a substantial
claim could be asserted against the Company.
In the action styled BRUCE WEINER V. THE DELTONA CORPORATION,
filed in the Circuit Court of Dade County, Florida, Case No. 94-
7825-04, the plaintiff, Bruce Weiner, prior Executive Vice
President of the Company, sued the Company on April 28, 1994 for
alleged breach of employment contract seeking damages of
approximately $750,000 and unspecified employee benefits. The
Company settled the matter and a general release was entered into
in 1995.
(15)
In the action styled JOSEPH MANCILLA, JR. V. THE DELTONA
CORPORATION, files in the Circuit Court of Dade County, Florida,
Case No. 94-09116, the plaintiff, Joseph Mancilla, Jr., prior
Senior Vice President of the Company, sued the Company on May 17,
1994 for alleged breach of employment contract seeking damages in
excess of $391,000 plus an unspecified amount in employee benefits,
costs and attorneys' fees. The Company settled the matter and a
general release was entered into in 1995. The Company is obligated
for certain payments to fulfill settlement obligations through
January 1997.
In the action styled MICHELLE GARBIS V. THE DELTONA CORPORATION,
the plaintiff, Michelle Garbis, prior Senior Vice President and
Corporate Secretary of the Company, sued the Company on August 18,
1994 for alleged breach of employment contract. The Company
settled the matter and a general release was entered into in 1995.
In the action styled THEODORE MAUREAU V. THE DELTONA CORPORATION,
the Company was sued by a former Vice President and employee
asserting breach of an oral contract and a claim based on fraud.
The plaintiff asserted unspecified damages and punitive damages.
The Company settled the matter and a general release was entered
into in 1995.
The Company is also a party to certain other legal and
administrative proceedings arising in the ordinary course of
business. The outcome will not, in the opinion of the Company,
have a material adverse effect on the business or financial
condition of the Company.
(16)
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,
1995, the Company's Common Stock was traded on a limited basis in
the over-the-counter markets. The bid and the ask were as follows
at the end of the first, second, third and fourth quarters of 1995:
BID ASK
--- ---
March 31, 1995 1/16 1/4
June 30, 1995 1/8 3/8
September 30, 1995 1/8 3/8
December 31, 1995 1/8 1/2
The Company has never paid any 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.
(17)
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)
YEARS ENDED
-------------------------------------------------------
DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER
31, 1995 31, 1994 31, 1993 25, 1992 27, 1991
--------- --------- ---------- ----------- -----------
Revenues ............ $ 6,688 $ 8,541 $ 12,099 $ 12,217 $ 10,784
Costs and expenses... 9,593 12,447 20,871 18,935 30,313
--------- --------- ---------- ---------- ----------
Loss from continuing
operations before
taxes and extraordinary
items.............. (2,905) (3,906) (8,772) (6,718) (19,529)
Provision for
income taxes....... -- -- -- 90 --
--------- --------- --------- ---------- ----------
Loss from operations
before extraordinary
items.............. (2,905) (3,906) (8,772) (6,808) (19,529)
Extraordinary items:
Gain (loss) from debt
restructuring...... -- -- -- 10,161 (7,100)
Gain on settlement
related to the
Marco refund
obligation......... 702 -- -- 3,983 --
--------- --------- --------- ---------- ----------
Net income (loss)
applicable
to common stock..... $ (2,203) $ (3,906) $ (8,772) $ 7,336 $ (26,629)
========= ========= ========= ========== ==========
Per common share
amounts:
Continuing operations. $ (.43) $ (.59) $ (1.45) $ (1.19) $ (3.45)
Extraordinary
items............ .10 -- -- 2.48 (1.25)
--------- --------- --------- ---------- ----------
Net income (loss)..... $ (.33) $ (.59) $ (1.45) $ 1.29 $ (4.70)
========= ========= ========= ========== ==========
Weighted average
common shares
outstanding.......... 6,699,923 6,514,988 6,056,743 5,694,236 5,660,967
========= ========= ========= ========== ==========
CONSOLIDATED BALANCE SHEET DATA
(in thousands)
DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER
31, 1995 31, 1994 31, 1993 25, 1992 27, 1991
---------- --------- -------- --------- ---------
Total assets.......... $ 19,180 $ 22,109 $ 26,565 $ 37,050 $ 65,243
========== ======== ======== ======== =========
Liabilities........... $ 36,193 $ 38,930 $ 40,856 $ 42,569 $ 78,412
Stockholders' equity
(deficiency)........ (17,013) (16,821) (14,291) (5,519) (13,169)
---------- ---------- --------- --------- ---------
Total liabilities
and stockholders'
equity (deficiency).. $ 19,180 $ 22,109 $ 26,565 $ 37,050 $ 65,243
========== ========== ========= ========= =========
(18)
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On June 19, 1992, the Company completed a transaction with Selex,
which resulted in a change in control of the Company. Under the
transaction, Selex loaned the Company $3,000,000 collateralized by
a first mortgage on certain of the Company's property in its St.
Augustine Shores, Florida community (the "First Selex Loan"). The
First Selex Loan initially bears interest at the rate of 10% per
annum with a term of four years and payment of interest deferred
for the first 18 months.
In conjunction with the First Selex Loan: (i) Empire of Carolina,
Inc. ("Empire") sold Selex its 2,220,066 shares of the Company's
Common Stock and assigned Selex its $1,000,000 Note from the
Company, with $225,000 of interest accrued thereon; (ii) Maurice A.
Halperin, Chairman of the Board of Empire and former Chairman of
the Board of the Company, forgave payment of the $200,000 salary
due him for the period of April, 1990 through April, 1991, which
was in arrears; and (iii) certain changes occurred in the
composition of the Company's Board of Directors. Namely, the six
directors serving on the Company's Board who were previously
designated by Empire resigned and four Selex designees (Messrs.
Marcellus H.B. Muyres, Antony Gram, Cornelis van de Peppel and
Cornelis L.J.J. Zwaans) were elected to serve as directors in their
stead. Marcellus H.B. Muyres was appointed Chairman of the Board
and Chief Executive Officer of the Company. These directors, as
well as Leonardus G.M. Nipshagen, a Selex designee, were then
elected as directors at the Company's 1992 Annual Meeting and re-
elected at the Company's 1993 Annual Meeting.
As part of the Selex transaction, Selex was granted an option,
approved by the holders of a majority of the outstanding shares of
the Company's Common Stock at the Company's 1992 Annual Meeting, to
convert the Selex Loan, or any portion thereof, into a maximum of
850,000 shares of the Company's Common Stock at a per share
conversion price equal to the greater of (i) $1.25 or (ii) 95% of
the market price of the Company's Common Stock at the time of
conversion, but in no event greater than $4.50 per share (the
"Option"). However, on September 14, 1992, Selex formally waived
and relinquished its right to exercise the Option as to 250,000
shares of the Company's Common Stock to enable the Company to
settle certain litigation involving the Company through the
issuance of approximately 250,000 shares of the Company's Common
Stock to the claimants, without jeopardizing the utilization of the
Company's net operating loss carryforward. On February 17, 1994,
Selex exercised the remaining full 600,000 share Option at a
conversion price of $1.90 per share, such that $1,140,000 in
principal was repaid under the First Selex Loan through such
conversion. As a consequence of such conversion, Selex holds
2,820,066 shares of the Company's Common Stock (41.9% of the
outstanding shares of Common Stock of the Company based upon the
number of shares of the Company's Common Stock outstanding as of
March 22, 1996).
Pursuant to the Selex transaction, $1,000,000 of the proceeds
from the First Selex Loan was used by the Company to acquire
certain commercial and multi-family properties at the Company's St.
Augustine Shores community at their net appraised value, from Mr.
Muyres and certain entities affiliated with Messrs. Zwaans and
Muyres. Namely, (i) $416,000 was used to acquire 48 undeveloped
condominium units (twelve 4 unit building sites) and 4 completed
(and rented) condominium units from Conquistador, in which Messrs.
Zwaans and Muyres serve as directors, as well as President and
Secretary/Treasurer, respectively; (ii) $485,000 was used to
acquire 4 commercial lots from Swan Development Corporation
("Swan"), in which Messrs. Zwaans and Muyres also serve as
directors, as well as President and Secretary, respectively; and
(iii) approximately $99,000 was used to reacquire, from Mr. Muyres,
all of his rights, title and interest in a certain contract with
the Company for the purchase of a commercial tract in St. Augustine
Shores, Florida. None of the commercial land and multi-family
property acquired by the Company from Mr. Muyres and certain
entities affiliated with Messrs. Zwaans and Muyres collateralizes
the First Selex Loan. In March, 1994, Conquistador exercised its
right to repurchase certain of the multi-family property from the
Company (which right had been granted in connection with the June,
1992 transaction) at a price of
(19)
$312,000, of which $260,000 was paid in cash to the Company and
$52,000 was applied to reduce interest due to Selex under the
Second Selex Loan (the "First Conquistador Acquisition").
In December, 1992, Mr. Gram, a director of the Company and
beneficial owner of the Common Stock of the Company held by Selex,
acquired all of the Company's outstanding bank debt and then
assigned same to Yasawa, of which Mr. Gram is also the beneficial
owner. Yasawa simultaneously completed a series of transactions
with the Company which involved the transfer of certain assets to
Yasawa or its affiliated companies, the acquisition by Yasawa of
289,637 shares of the Company's Common Stock through the exercise
of warrants previously held by the banks, the provision of a
$1,500,000 line of credit to the Company and the restructuring of
the remaining debt as a $5,106,000 Yasawa Loan. Principal
repayments aggregating $341,000 have reduced the Yasawa Loan to
$4,765,000 as of December 31, 1995. On April 30, 1993, Selex
loaned the Company an additional amount of $1,000,000 pursuant to
the Second Selex Loan and since July 1, 1993 made further loans to
the Company aggregating $4,400,000 under the Third Selex Loan.
Principal of $1,000,000 had been repaid under the Second Selex Loan
and $1,371,000 under the Third Selex Loan through December 31,
1995. As of December 31, 1995, Yasawa has loaned the Company an
additional sum of $4,012,000 pursuant to the Second Yasawa Loan.
As a consequence of these transactions, the Company had loans
outstanding from Selex, Yasawa and their affiliates on December 31,
1995 in the aggregate amount of approximately $20,378,000. On May
22, 1995, the Company closed a transaction with Conquistador (the
"Second Conquistador Acquisition") for the sale of an
administration building and a multi-family site in the Company's
St. Augustine Shores community as well as the remaining lot
inventory in the Company's FeatherNest community at Marion Oaks in
consideration for the satisfaction of $2,599,300 of principal and
accrued interest on the Second and Third Selex Loans. On that same
date, but in a separate transaction, the Company also sold to
Conquistador Development Corporation (the "Third Conquistador
Acquisition") four single family residential lots in the St.
Augustine Shores community for $100,000 in cash. These
transactions were accounted for in accordance with generally
accepted accounting principals for these types of related party
transactions. Accordingly, the resulting gain of $1,900,000 was
treated as a contribution of capital and recorded directly to
capital surplus. The loans from Selex, Yasawa and their affiliates
are secured by substantially all of the assets of the Company. See
Note 5 to Consolidated Financial Statements.
The Company, Selex and Yasawa entered into loan modification
agreements in which all accrued interest was converted into non-
interest bearing principal at the earlier of the maturity date or
the default date. Accordingly, at December 31, 1995, $4,200,000 of
accrued interest was reclassified as principal. The loans were
also modified to formalize the elimination of the default interest
rate provisions in each of the applicable loan agreements.
The Company has stated in previous filings with the Commission
and elsewhere herein that the obtainment of additional funds to
implement its marketing program and achieve the objectives of its
business plan is essential to enable the Company to maintain
operations and continue as a going concern. Since December, 1992,
the Company has been dependent on loans and advances from Selex,
Yasawa and their affiliates in order to implement its marketing
program and assist in meeting its working capital requirements. As
previously stated, during the last nine months of 1993, Selex,
Yasawa and their affiliates loaned the Company an aggregate of
$4,400,000 pursuant to Third Selex Loan. Funds advanced under the
Third Selex Loan enabled the Company to commence implementation of
the majority of its marketing program in the third quarter of 1993.
The full benefits of the program were not realized in 1993 and the
Company was unable to secure financing in 1994 to meet its working
capital requirements and continue its marketing program.
Commencing in 1994, Yasawa advanced additional funds (the "Second
Yasawa Loan") totalling $4,012,000 as of December 31, 1995, to meet
the Company's minimum working capital requirements, to pay $750,000
in delinquent real estate taxes, to pay settlements with certain
trade creditors and to settle certain litigation.
On March 10, 1994, the Company was advised that Selex filed an
Amendment to its Schedule 13D with the Commission. In the
Amendment, Selex reported that it, together with Yasawa and their
affiliates, were uncertain as to whether they would provide any
further funds to the Company. The Amendment further stated that
Selex, Yasawa and their affiliates were seeking third parties to
provide financing for the Company and that as part of any
(20)
such transaction, they would be willing to sell or restructure all
or a portion of their loans and Common Stock in the Company.
As a consequence of its liquidity position, the Company has
defaulted on certain obligations, including its previously
described escrow obligations to the Division pursuant to the
Company's 1992 Consent Order and its obligation to make required
payments under loans from Selex, Yasawa and their affiliates.
Furthermore, the Company has not paid delinquent real estate taxes
which aggregate approximately $2,975,000 as of December 31, 1995;
non-payment of these delinquent taxes may adversely affect the
financial condition of the Company.
The Company is continuing to seek third parties to provide
financing. As part of any such transaction, Selex, Yasawa and
their affiliates have indicated that they are willing to sell or
restructure all or a portion of their loans and Common Stock in the
Company. They have also indicated that they are willing to sell
their interests in the Company at a significant discount.
Consummation of any such transaction may result in a change in
control of the Company. There can be no assurance, however, that
such transaction will result or that any financing will be
obtained. Accordingly, the Company's Board of Directors is also
considering other appropriate action given the severity of the
Company's liquidity position including, but not limited, to filing
for protection under the federal bankruptcy laws. See "Business:
Recent Developments", and Notes 1, 5 and 8 to Consolidated
Financial Statements.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994
REVENUES
Total revenues were $6,688,000 for 1995 compared to $ 8,541,000
for 1994.
Gross land sales were $3,623,000 for 1995 versus $2,994,000 for
1994. Net land sales (gross land sales less estimated
uncollectible installment sales and contract valuation discount)
increased to $2,394,000 for 1995 from $2,058,000 for 1994. The
increase in sales reflects the Company's marketing program which
was initiated in 1995.
There were no bulk land sales in 1995 as compared to bulk land
sales of $315,000 in 1994. In light of the Company's diminished
bulk land sales inventory it is anticipated that in the future the
Company will produce a negligible volume of bulk land sales. See
"Liquidity and Capital Resources: Mortgages and Similar Debt".
The Company re-entered the single-family housing business in
December, 1992. Revenues are not recognized from housing sales
until the completion of construction and passage of title. Housing
revenues were $1,383,000 for 1995 compared to $2,543,000 in 1994.
Housing revenues decreased in 1995 due to the lack of an
advertising and promotion program.
The following table reflects the Company's real estate product
mix for 1995 and 1994 (in thousands):
YEARS ENDED
--------------------------
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
Gross Land Sales:
Bulk sales............... $ 0 $ 315
Retail sales*............ 3,623 2,679
------- -------
Total.............. 3,623 2,994
------- -------
Housing Sales:
Single Family............ 1,328 2,506
Vacation Ownership....... 55 37
------- -------
Total.............. 1,383 2,543
------- -------
Total Real Estate.. $ 5,006 $ 5,537
======= =======
(21)
_____________
* 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, 1995 and December 31, 1994 were
$6,260,000 and $1,910,000, respectively. The Company had
a backlog of $3,100,000 and $906,000 in unrecognized sales
as of December 31, 1995 and December 31, 1994,
respectively. Such contracts are not included in retail
land sales until the applicable rescission period has
expired and the Company has received payments totalling 20%
of the contract sales price. See Note 1 to the
Consolidated Financial Statements.
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 totalled $1,052,000 in
1995 as compared to $1,214,000 for 1994. The decrease was due to
the Company's financial condition which caused the Company to
curtail development in the first quarter of 1994.
Interest income was $1,019,000 for 1995 compared to $1,046,000
for 1994. This decrease is the result of lower escrow balances.
Other revenues were $840,000 for 1995 compared to $629,000 in
1994. Other revenues are generated principally by the Company's
title insurance and real estate brokerage subsidiaries.
Included in the 1995 results is an extraordinary gain of $702,000
related to the settlement of the Marco refund obligation.
Included in the 1994 results is a gain of $1,051,000 from the
termination of the lease on the Company's corporate headquarters in
Miami.
COSTS AND EXPENSES
Costs and expenses were $9,593,000 for 1995 compared to
$12,447,000 in 1994. Cost of sales totalled $2,432,000 for 1995
versus $3,845,000 for 1994. These decreases are primarily due to
lower housing sales in 1995. The Company completed its Compromise
and Settlement Agreement program with its trade creditors during
the third quarter of 1994. Accordingly, costs and expenses were
reduced by approximately $430,000 as a result of these settlements.
In 1995, the Company recorded a provision of $650,000
representing the Company's estimate of its liability to replace or
repurchase cancelled contracts receivable under the recourse
provisions of its prior sales of contracts and mortgages
receivable.
Commissions, advertising and other selling expenses totalled
$1,889,000 for 1995 versus $2,608,000 for 1994. Advertising and
promotional expenditures decreased to $151,000 in 1995 from
$275,000 in 1994 as a result of the reduction in the Company's
marketing programs. Other selling expenses decreased to $550,000
in 1995 from $1,595,000 in 1994 as a result of cost reductions.
General and administrative expenses were $1,869,000 in 1995
versus $2,984,000 for 1994. General and administrative expenses
have decreased primarily due to overhead reductions and settlement
of the Company's lease obligation on its corporate headquarters in
October 1994.
Real estate tax expense was $1,111,000 in 1995 compared to
$1,163,000 in 1994. Included in real estate tax expense is
delinquent interest and administrative fees on 1993 and 1994
delinquent taxes, which accrue interest at 18% per annum.
Interest expense was $1,642,000 for 1995, as compared to
$1,847,000 for 1994. The decrease in interest expense is the
result of the decrease in debt. No interest was capitalized in
1995 and 1994 since the Company had curtailed land development work
at its communities.
(22)
NET INCOME
The Company reported a net loss of $2,203,000 for 1995, compared
to a net loss of $3,906,000 for 1994. Included in the 1995 results
is an extraordinary gain of $702,000 related to the settlement of
the Marco refund obligation. Included in 1994 results is a gain of
$1,051,000 from the termination of the lease on the Company's
corporate headquarters in Miami.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994 AND DECEMBER 31, 1993
REVENUES
Total revenues were $8,541,000 for 1994 compared to $12,099,000
for 1993.
Gross land sales were $2,994,000 for 1994 versus $3,170,000 for
1993. Net land sales (gross land sales less estimated
uncollectible installment sales and contract valuation discount)
decreased to $2,058,000 for 1994 from $2,432,000 for 1993. The
decrease in sales reflects the curtailment of the Company's
marketing program which was limited in 1994.
Bulk land sales were $315,000 in 1994 as compared to bulk land
sales of $113,000 in 1993. In light of the Company's diminished
bulk land sales inventory it is anticipated that in the future the
Company will produce a negligible volume of bulk land sales. See
"Liquidity and Capital Resources: Mortgages and Similar Debt".
The Company re-entered the single-family housing business in
December, 1992. Revenues are not recognized from housing sales
until the completion of construction and passage of title. Housing
revenues were $2,543,000 for 1994 compared to $344,000 in 1993.
The following table reflects the Company's real estate product
mix for 1994 and 1993 (in thousands):
YEARS ENDED
--------------------------
DECEMBER 31, DECEMBER 31,
1994 1993
------------ ------------
Gross Land Sales:
Bulk sales.................... $ 315 $ 113
Retail sales*................. 2,679 3,057
------- -------
Total................... 2,994 3,170
------- -------
Housing Sales:
Single Family................. 2,506 314
Vacation Ownership............ 37 30
------- -------
Total................... 2,543 344
------- -------
Total Real Estate....... $ 5,537 $ 3,514
======= =======
_____________
* 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, 1994 and December 31, 1993 were
$1,910,000 and $4,106,000, respectively. Such contracts
are not included in retail land sales until the applicable
rescission period has expired and the Company has received
payments totalling 20% of the contract sales price. See
Note 1 to the Consolidated Financial Statements.
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 totalled $1,214,000 in
1994 as compared to $4,725,000 for 1993. The decrease was due to
the Company's financial condition which caused the Company to stop
development in the first quarter of 1994.
Interest income was $1,046,000 for 1994 compared to $1,197,000
for 1993. This decrease is the result of lower contracts
receivable balances.
(23)
Other revenues were $629,000 for 1994 compared to $3,401,000 in
1993. This decrease was the result of the termination of its lease
on the Marco Shores Country Club on December 31, 1993 and the sale
of Marco Island Realty in November, 1993.
Included in 1994 results is a gain of $1,051,000 from the
termination of the lease on the Company's corporate headquarters in
Miami.
COSTS AND EXPENSES
Costs and expenses were $12,447,000 for 1994 compared to
$20,871,000 in 1993. Cost of sales totalled $3,845,000 for 1994
versus $6,441,000 for 1993. These decreases are primarily due to
the termination of development work in the first quarter of 1994
and the sale of the Marco Island Realty and the termination of the
lease of the Marco Shores Country Club in 1993. Additionally, the
Company completed the first phase of its Compromise and Settlement
Agreement program with its trade creditors during the third quarter
of 1994. Accordingly, costs and expenses were reduced by
approximately $430,000 as a result of these settlements.
Commissions, advertising and other selling expenses totalled
$2,608,000 for 1994 versus $6,008,000 for 1993. Advertising and
promotional expenditures decreased to $275,000 in 1994 from
$1,521,000 in 1993 as a result of the reduction in the Company's
marketing programs.
General and administrative expenses were $2,984,000 in 1994
versus $3,790,000 for 1993. General and administrative expenses
have decreased primarily due to overhead reductions implemented in
the first quarter of 1994 and settlement of the Company's lease
obligation on its corporate headquarters in October 1994.
Real estate tax expense was $1,163,000 in 1994 compared to
$975,000 in 1993. Included in real estate tax expense is
delinquent interest and administrative fees on 1992 and 1993
delinquent taxes, which accrue interest at 18% per annum.
Interest expense was $1,847,000 for 1994, as compared to
$1,257,000 for 1993, or a 47% increase. Total interest costs
(including capitalized interest) were $1,847,000 and $1,421,000 for
1994 and 1993, respectively. The increase in interest expense is
primarily the result of the increase in debt. No interest was
capitalized in 1994 since the Company had stopped land development
work at its communities.
NET INCOME
The Company reported a net loss of $3,906,000 for 1994, compared
to a net loss of $8,772,000 for 1993. The 1993 results include a
provision for contract cancellations of $2,400,000. Included in
1994 results is a gain of $1,051,000 from the termination of the
lease on the Company's corporate headquarters in Miami.
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, the increased regulation has lengthened the development
process and added to development costs.
On a statewide level, the Florida Legislature adopted and
implemented the Florida Growth Management Act of 1985 (the "Act")
to aid local governments efforts to discourage uncontrolled growth
in Florida. 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 virtually completed in certain of these
(24)
communities). Thus, such 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.
In addition to Florida, other jurisdictions in which the
Company's properties are offered for sale have recently
strengthened, or are considering strengthening, their regulation of
subdividers and subdivided lands in order to provide further
assurances to the public, particularly given the adverse publicity
surrounding the industry which existed in 1990. 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 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
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, Selex and Yasawa entered into loan modification
agreements in which all accrued interest was converted into non-
interest bearing principal at the earlier of the maturity date or
the default date. Accordingly, at December 31, 1995, $4,200,000 of
accrued interest was reclassified as principal. The loans were
also modified to formalize the elimination of the default interest
rate provisions in each of the applicable loan agreements.
The following table presents information with respect to
mortgages and similar debt (in thousands):
YEARS ENDED
_____________________________
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
Mortgage Notes Payable.... $ 16,717 $ 14,070
Other Loans............... 3,661 2,500
-------- --------
Total mortgages
and similar debt.... $ 20,378 $ 16,570
======== ========
Included in Mortgage Notes Payable is the First Selex Loan
($2,722,000 as of December 31, 1995), the Third Selex Loan
($3,825,000 as of December 31, 1995), the Yasawa Loan ($5,829,000
as of December 31, 1995) and the Second Yasawa Loan ($4,341,000 as
of December 31, 1995). Other loans include the $1,656,000 Empire
note and the $2,005,000 Scafholding Loan.
These mortgage notes payable and other loans are in default as
of December 31, 1995 due to the non-payment of principal. The
lenders have not taken any other action as a result of these
defaults.
On June 19, 1992, Selex loaned the Company the sum of $3,000,000
pursuant to the First Selex Loan. The First Selex Loan is
collateralized by a first mortgage on certain of the Company's
unsold, undeveloped property in its St.
(25)
Augustine Shores, Florida community. The Loan matures on June 15,
1996 and provides for principal to be repaid at 50% of the net
proceeds per lot for lots requiring release from the mortgage, with
the entire unpaid balance becoming due and payable at the end of
the four year term. It initially bears interest at the rate of 10%
per annum, with payment of interest deferred for the initial 18
months of the Loan and interest payments due quarterly thereafter.
As part of the Selex transaction, Selex was granted an option,
approved by the holders of a majority of the outstanding shares of
the Company's Common Stock at the Company's 1992 Annual Meeting,
which, as modified, enabled Selex to convert the First Selex Loan,
or any portion thereof, into a maximum of 600,000 shares of the
Company's Common Stock at a per share conversion price equal to the
greater of (i) $1.25 or (ii) 95% of the market price of the
Company's Common Stock at the time of conversion, but in no event
greater than $4.50 per share (the "Option"). On February 17, 1994,
Selex exercised the Option, in full, at a conversion price of $1.90
per share, such that $1,140,000 in principal was repaid under the
First Selex Loan through such conversion. As of March 22, 1996,
the Company was in default of the First Selex Loan inasmuch as
accrued interest in the amount of $42,000 remained unpaid.
One million dollars of the proceeds from the First Selex Loan was
used by the Company to acquire certain commercial and multi-family
properties at the Company's St. Augustine Shores community at their
net appraised value, from Mr. Muyres and certain entities
affiliated with Messrs. Zwaans and Muyres. Namely, (i) $416,000
was used to acquire 48 undeveloped condominium units (twelve 4 unit
building sites) and 4 completed (and rented) condominium units from
Conquistador, in which Messrs. Zwaans and Muyres serve as
directors, as well as President and Secretary/Treasurer,
respectively; (ii) $485,000 was used to acquire 4 commercial lots
from Swan, in which Messrs. Zwaans and Muyres also serve as
directors, as well as President and Secretary, respectively; and
(iii) approximately $99,000 was used to reacquire, from Mr. Muyres,
all of his rights, title and interest in that certain contracts
with the Company for the purchase of a commercial tract in St.
Augustine Shores, Florida. None of the commercial and multi-family
property acquired by the Company from Mr. Muyres and certain
entities affiliated with Messrs. Zwaans and Muyres collateralizes
the First Selex Loan. In March, 1994, Conquistador exercised its
right to repurchase certain multi-family property from the Company
(which right had been granted in connection with the June, 1992
Selex transaction) at a price of $312,000, of which $260,000 was
paid in cash to the Company and $52,000 was applied to reduce
interest due to Selex under the Second Selex Loan (the "First
Conquistador Acquisition").
On December 2, 1992, the Company entered into various agreements
relating to certain of its assets and the restructuring of its debt
with Yasawa, which is beneficially owned by Mr. Antony Gram. The
consummation of these agreements, which are further described
below, was conditioned upon the acquisition by Mr. Gram of the
Company's outstanding bank loan.
On December 4, 1992, Mr. Gram entered into an agreement with the
lenders, pursuant to which he acquired the bank loan of
approximately $25,150,000 (including interest and fees) for a price
of $10,750,000. In conjunction with such transaction, the lenders
transferred to Mr. Gram the warrants which they held that entitled
the holder to purchase an aggregate of 277,387 shares of the
Company's Common Stock at an exercise price of $1.00 per share.
Immediately after the acquisition of the bank loan, Mr. Gram
transferred all of his interest in the bank loan, including the
warrants, to Yasawa.
On December 11, 1992, the Company consummated the December 2,
1992 agreements with Yasawa. Under these agreements, Yasawa, its
affiliates and the Company agreed as follows: (i) the Company sold
certain property at its Citrus Springs community to an affiliate of
Yasawa in exchange for approximately $6,500,000 of debt reduction
credit; (ii) an affiliate of Yasawa and the Company entered into a
joint venture agreement with respect to the Citrus Springs
property, providing for the Company to market such property and
receive an administration fee from the venture (in March, 1994, the
Company and the affiliate agreed to terminate the venture); (iii)
the Company sold certain contracts receivable at face value to an
affiliate of Yasawa for debt reduction credit of approximately
$10,800,000; (iv) the Company sold the Marco Shores Country Club
and Golf Course to an affiliate of Yasawa for an aggregate sales
price of $5,500,000, with the affiliate assuming an existing first
mortgage of approximately
(26)
$1,100,000 and the Company receiving debt reduction credit of
$2,400,000, such that the Company obtained cash proceeds from this
transaction of $2,000,000, which amount was used for working
capital; (v) an affiliate of Yasawa agreed to lease the Marco
Shores Country Club and Golf Course to the Company for a period of
approximately one year; (vi) an affiliate of Yasawa and the Company
agreed to amend the terms of the warrants to increase the number of
shares issuable upon their exercise from 277,387 shares to 289,637
shares and to adjust the exercise price to an aggregate of
approximately $314,000; (vii) Yasawa exercised the warrants in
exchange for debt reduction credit of approximately $314,000;
(viii) Yasawa released certain collateral held for the bank loan;
(ix) an affiliate of Yasawa agreed to make an additional loan of up
to $1,500,000 to the Company, thus providing the Company with a
future line of credit (all of which was drawn and outstanding as of
March 22, 1996); and (x) Yasawa agreed to restructure the payment
terms of the remaining $5,106,000 of the bank loan as a loan from
Yasawa (the "Yasawa Loan").
The Yasawa Loan bears interest at the rate of 11% per annum, with
payment of interest deferred until December 31, 1993, when only
accrued interest became payable. Commencing January 31, 1994,
principal and interest became payable monthly, with all unpaid
principal and accrued interest being due and payable on December
31, 1997. As of March 22, 1996, $5,948,000 in principal and
accrued interest was in default under the Yasawa Loan.
On April 30, 1993 Selex loaned the Company an additional
$1,000,000 collateralized by a first mortgage on certain of the
Company's property in its Marion Oaks, Florida community (the
"Second Selex Loan"). Interest under the Second Selex Loan was 11%
per annum, deferred until December 31, 1993, and principal was to
be repaid at $3,000 per lot for lots requiring release from the
mortgage, with the entire unpaid principal balance and interest
accruing from January 1, 1994 to April 30, 1994 due and payable on
April 30, 1994. Although Selex had certain conversion rights under
the Second Selex Loan in the event the Company sold any Common
Stock or Preferred Stock prior to payment in full of all amounts
due to Selex under the Second Selex Loan, such rights were voided.
The Second Selex Loan was satisfied on May 22, 1995 through the
closing of the Second Conquistador Acquisition, discussed below.
From July 9, 1993 through December 31, 1993, Selex loaned the
Company an additional $4,400,000 collateralized by a second
mortgage on certain of the Company's property on which Selex and/or
Yasawa hold a first mortgage pursuant to a Loan Agreement dated
July 14, 1993 and amendments thereto (the "Third Selex Loan"). The
Third Selex Loan bears interest at 11% per annum, with interest
deferred until December 31, 1993. Principal is to be repaid at
$3,000 per lot for lots requiring release from the mortgage, with
the entire unpaid principal balance and interest accruing from
January 1, 1994 to April 30, 1994 due and payable on April 30,
1994. The Second Conquistador Acquisition, discussed below,
closed on May 22, 1995, provided a reduction of the debt due and
payable under the Third Selex Loan. As of March 22, 1996,
$1,371,000 in principal had been repaid under the Third Selex Loan.
As of March 22, 1996, the remaining principal balance of $3,825,000
and accrued interest of $76,000 remained unpaid and in default.
In February, 1994, Yasawa loaned the Company an additional amount
of approximately $514,900 at an interest rate of 8% per annum (the
"Second Yasawa Loan"). Since May, 1994, additional amounts were
advanced to the Company under the Second Yasawa Loan to enable the
Company to pay certain essential expenses, including payment of
certain real estate taxes, and effectuate settlements with the
Company's principal creditors. As of March 22, 1996, an aggregate
amount of $4,012,000 had been advanced to the Company under the
Second Yasawa Loan and the principal balance of $4,341,000 and
accrued interest of $73,000 remains unpaid.
On May 22, 1995, the Company closed a transaction with
Conquistador (the "Second Conquistador Acquisition") for the sale
of an administration building and a multi-family site in the
Company's St. Augustine Shores community as well as the remaining
lot inventory in the Company's FeatherNest community at Marion Oaks
in consideration for the satisfaction of $2,599,300 of principal
and accrued interest on the Second and Third Selex Loans. In a
separate transaction which also closed on the same date, the
Company sold to Conquistador (the "Third Conquistador
Acquisition") four single family residential lots in the St.
Augustine Shores community for $100,000 in cash. These
transactions were accounted for in accordance with generally
accepted accounting principals for these
(27)
types of related party transactions. Accordingly, the resulting
gain of $1,900,000 was treated as a contribution of capital and
recorded directly to capital surplus.
As previously stated, Messrs. Muyres and Zwaans also serve as
directors and executive officers of M&M First Coast Realty ("M&M").
The Company had leased certain office space to M&M at its St.
Augustine Shores community pursuant to a Lease Agreement dated
August 10, 1990. A payment of approximately $21,300 in delinquent
rental payments was made on May 22, 1995 upon the closing of the
Second Conquistador Acquisition, which included the sale of the St.
Augustine Administration Building to which the lease pertained.
At December 31, 1995, $4,200,000 of accrued interest due to
Selex, Yasawa and their affiliates was reclassified as non-interest
bearing principal. Through March 22, 1996, $1,140,000 in principal
was repaid under the First Selex Loan through the exercise of the
above described Option, the Second Selex Loan was repaid in full,
$1,371,000 in principal was repaid under the Third Selex Loan, and
$135,900 in principal and $346,000 in accrued interest was repaid
under the Yasawa loan. As of March 22, 1996, the Company had loans
outstanding from Selex, Yasawa and their affiliates in the
aggregate amount of approximately $20,757,000, including interest,
all of which are in default, including approximately $8,349,600,
which is owed to Selex, including accrued and unpaid interest of
approximately $145,900 (10% per annum on the First Selex Loan, 11%
per annum on the Third Selex Loan and 12% per annum on the
$1,000,000 Empire Note assigned to Selex); approximately
$10,361,800, which is owed to Yasawa, including accrued and unpaid
interest of approximately $192,500 (11% per annum on the Yasawa
Loan and 8% per annum on the Second Yasawa Loan); and approximately
$2,046,000, which is owed to an affiliate of Yasawa, including
accrued and unpaid interest of approximately $41,000 (12% per
annum). The loans from Selex, Yasawa and their affiliates are
secured by substantially all of the assets of the Company.
On March 10, 1994, the Company was advised that Selex filed an
Amendment to its Schedule 13D filed with the Commission. In the
Amendment, Selex reported that it, together with Yasawa and their
affiliates, were uncertain as to whether they would provide any
further funds to the Company. The Amendment further stated that
Selex, Yasawa and their affiliates were seeking third parties to
provide financing for the Company and that as part of any such
transaction, they would be willing to sell or restructure all or a
portion of their loans and Common Stock in the Company.
The Company has stated in previous filings with the Commission
and elsewhere herein that the obtainment of additional funds to
implement its marketing program and achieve the objectives of its
business plan is essential to enable the Company to maintain
operations and continue as a going concern. Since December, 1992,
the Company has been dependent on loans and advances from Selex,
Yasawa and their affiliates in order to implement its marketing
program and assist in meeting its working capital requirements. As
previously stated, during the last nine months of 1993, Selex,
Yasawa and their affiliates loaned the Company an aggregate of
$4,400,000 pursuant to Third Selex Loan. Funds advanced under the
Third Selex Loan enabled the Company to commence implementation of
the majority of its marketing program in the third quarter of 1993.
The full benefits of the program were not realized in 1993 and the
Company was unable to secure financing in 1994 to meet its working
capital requirements and continue its marketing program.
Commencing in 1994, Yasawa advanced additional funds (the "Second
Yasawa Loan") totalling $4,012,000 as of December 31, 1995, to meet
the Company's minimum working capital requirements, to pay $750,000
in delinquent real estate taxes, to pay settlements with certain
trade creditors and to settle certain litigation.
As a consequence of its liquidity position, the Company has
defaulted on certain obligations, including its previously
described escrow obligations to the Division pursuant to the
Company's 1992 Consent Order and its obligation to make required
payments under loans from Selex, Yasawa and their affiliates.
Furthermore, the Company has not paid delinquent real estate taxes
which aggregate approximately $2,975,000 as of December 31, 1995;
non-payment of these delinquent taxes may adversely affect the
financial condition of the Company.
(28)
The Company is continuing to seek third parties to provide
financing. As part of any such transaction, Selex, Yasawa and
their affiliates have indicated that they are willing to sell or
restructure all or a portion of their loans and Common Stock in the
Company. They have also indicated that they are willing to sell
their interests in the Company at a significant discount.
Consummation of any such transaction may result in a change in
control of the Company. There can be no assurance, however, that
such transaction will result or that any financing will be
obtained. Accordingly, the Company's Board of Directors is also
considering other appropriate action given the severity of the
Company's liquidity position including, but not limited, to filing
for protection under the federal bankruptcy laws. See "Business:
Recent Developments" and Notes 1, 5 and 8 to Consolidated Financial
Statements.
CONTRACTS AND MORTGAGES RECEIVABLE SALES
In December, 1992, as described above, the Company sold
$10,800,000 of contracts and mortgages receivable to an affiliate
of Yasawa at face value, applying the proceeds therefrom to reduce
the Bank Loan acquired by Yasawa.
In March , 1993, the Company transferred $1,600,000 in contracts
and mortgages receivable generating approximately $1,059,000 in
proceeds to the Company, which was used for working capital and the
creation of a holdback account in the amount of $150,000. As of
December 31, 1995, the balance of the holdback account as
approximately $108,000.
In June, 1992 and February, 1990, the Company completed sales of
contracts and mortgages receivable totalling $13,500,000 and
$17,000,000, respectively, which generated approximately
$8,000,000 and $13,900,000 respectively, in net proceeds to the
Company. The anticipated costs of the June, 1992 transaction were
included in the extraordinary loss from debt restructuring for
1991 since the restructuring was dependent on the sale. The
Company recorded a loss of $600,000 on the February, 1990 sale. In
conjunction with these sales the Company granted the purchaser a
security interest in certain additional contracts receivable of
approximately $2,700,000 and conveyed all of its rights, title and
interest in the property underlying such contracts to a collateral
trustee. In addition, these transactions, among other things
require that the Company replace or repurchase any receivable that
becomes 90 days delinquent upon the request of the purchaser. Such
requirement can be satisfied from contracts in which the purchaser
holds a security interest (approximately $1,388,000 as of December
31, 1995). The purchaser of these receivables experienced
financial difficulty and filed in 1994 for protection under Chapter
11 of the Federal Bankruptcy Code. In November 1995, the purchaser
of these receivables sold the portfolio to Finova Capital
Corporation. The Company is unable to determine what effect this
will have, if any, on future cancellations, since it is unable to
determine how the bankruptcy or the subsequent sale of the
portfolio will impact servicing and collection procedures and the
customers' determination to continue to pay under those contracts.
The Company has fully reserved for the amount of the holdback
account and the estimated future cancellations based on the
Company's historical experience for receivables the Company
services. However, due to the uncertainty noted above, the Company
does not feel there is sufficient information to estimate future
cancellations and is unable to determine the adequacy of its
reserves to replace or repurchase receivables that become
delinquent. The Company was unable to replace or repurchase
$1,148,000 in delinquent contracts in 1994 and $524,000 in
delinquent contracts in 1995, which amounts were deducted from the
deposit held by the purchaser of the receivables as security. In
addition, the Company was unable to replace or repurchase $613,000
in delinquent receivables in 1995; however, a replacement of
$293,000 in receivables was made in January, 1996.
The Company was the guarantor of approximately $15,653,000 of
contracts receivable sold or transferred as of December 31, 1995,
for the transactions described above, and had $108,000 on deposit
with purchasers of the receivables as security to assure
collectibility as of such date. A provision of $650,000 has been
established for the Company's obligation under the recourse
provisions. The Company has been in compliance with all receivable
transactions since the consummation of sales.
(29)
The Company anticipates that it will be necessary to complete
additional sales and financings of a portion of its receivables in
1996. There can be no assurance, however, that such sales and/or
financings can be accomplished.
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, the
Company, in February, 1980, entered into a Consent Order with the
Division which provided a program for notifying affected customers.
The Consent Order, which was restated and amended, provided a
program for notifying affected customers of the anticipated delays
in the completion of improvements (or, in the case of purchasers of
unbuildable lots in certain areas of the Company's Sunny Hills
community, the transfer of development obligations to core growth
areas of the community); various options which may be selected by
affected purchasers; a schedule for completing certain
improvements; and a deferral of the obligation to install water
mains until requested by the purchaser. Under an agreement with
Topeka, Topeka's utility companies have agreed to furnish utility
service to the future residents of the Company's communities on
substantially the same basis as such services were provided by the
Company. The Consent Order also required the establishment of an
improvement escrow account as assurance for completing such
improvement obligations.
In June, 1992, the Company entered into the 1992 Consent Order
with the Division, which replaced and superseded the original
Consent Order, as amended and restated. Among other things, the
1992 Consent Order consolidated the Company's development
obligations and provided for a reduction in its required monthly
escrow obligation to $175,000 from September, 1992 through
December, 1993. Beginning January, 1994 and until development is
completed or the 1992 Consent Order is amended, the Company is
required to deposit $430,000 per month into the escrow account. As
part of the assurance program under the 1992 Consent Order, the
Company and its lenders granted the Division a lien on certain
contracts receivable (approximately $9,537,600 as of
December 31, 1995) and future receivables. The Company defaulted on
its obligation to escrow $430,000 per month for the period of
January, 1994 through the present and, in accordance with the 1992
Consent Order, collections on Division receivables were escrowed
for the benefit of purchasers from March 1, 1994 through April 30,
1994. In May, 1994 the Company implemented a program to exchange
purchasers who contracted to purchase property which is undeveloped
to property which is developed. As of March 22 1996, approximately
83% of the customers whose lots are currently undeveloped have
opted to exchange. Consequently, the Division has allowed the
Company to utilize collections on receivables since May 1, 1994.
Because of the Company's default, the Division could also exercise
other available remedies under the 1992 Consent Order, which
remedies entitle the Division, among other things, to halt all
sales of registered property.
The Company's goal is to eliminate its development obligation
(with the exception of its maintenance obligation in Marion Oaks
and Sunny Hills) under the 1992 Consent Order through this exchange
program, completion of two commercial areas in Marion Oaks, sale of
its second Citrus Springs Golf Course (with the buyer assuming the
development obligation) and settlement of all remaining maintenance
and improvements obligations in Citrus Springs through a final
agreement with Citrus County (entered into in May 1995). Pursuant
to the 1992 Consent Order, the Company has limited the sale of
single-family lots to lots which front on a paved street and are
ready for immediate building.
As of December 31, 1995, the Company had estimated development
obligations of approximately $1,295,000 on sold property, an
estimated liability to provide title insurance and deeding costing
$1,217,000 and an estimated cost of street maintenance, prior to
assumption of such obligations by local governments, of $1,150,000,
all of which are included in deferred revenue. The total cost to
complete improvements at December 31, 1995 to lots subject to the
1992 Consent Order, including the previously mentioned obligations,
and to all lots, sold and unsold, including the St. Augustine
Shores community, was estimated to be approximately $14,449,000.
As of December 31, 1995 and December 31, 1994 the Company had in
escrow approximately $489,000 and $911,000, respectively,
specifically for land improvements at certain of its Central and
North Florida communities.
(30)
The Company's continuing liquidity problems have precluded the
timely payment of the full amount of its real estate taxes. On
properties where customers have contractually assumed the
obligation to pay into a tax escrow maintained by the Company, the
Company has and will continue to pay delinquent real estate taxes
as monies are collected from customers. Delinquent real estate
taxes aggregated approximately $2,975,000 as of December 31, 1995.
The Company's corporate performance bonds to assure the
completion of development at its St. Augustine Shores community
expired in March and June, 1993. Such bonds cannot be renewed due
to a change in the policy of the Board of County Commissioners of
St. Johns County which precludes allowing any developer to secure
the performance of development obligations by the issuance of
corporate bonds. In the event that St. Johns County elects to
undertake and complete such development work, the Company would be
obligated with respect to 1,000 improved lots at St. Augustine
Shores in the amount of approximately $6,200,000. The Company
intends to submit an alternative assurance program for the
completion of such development and improvements to the County for
its approval.
On September 30, 1988, the Company entered into an agreement with
Citrus County, Florida to establish the procedure for transferring
final maintenance responsibilities for roads in the Company's
Citrus Springs subdivision to Citrus County. The agreement
obligated the Company to complete certain remedial work on
previously completed improvements within the Citrus Springs
subdivision by June 1, 1991. The Company was unable to complete
this work by the specified date and negotiated another agreement
with Citrus County for the transfer of final maintenance
responsibility for the roads to the County. This final agreement
was entered into in May 1995.
In 1992, the Company conveyed certain properties to the former
landlord in satisfaction of its outstanding lease obligations for
its executive office building in Miami, Florida. The Company also
entered into a modification of its lease agreement, providing for
a reduction of its rental expenses through March 31, 1994, at which
time the Company would have the option of acquiring the leased
premises or reinstating the lease according to its original terms.
The modification provided that should the landlord sell the leased
premises to a third party at any time the lease, or any
modification thereof, is in effect, then the lease with the Company
would be cancelled. In December, 1993, the landlord filed suit
against the Company alleging that the Company defaulted in its
obligation to make rental payments under the lease and sought to
accelerate lease payments. The Company completed a settlement of
this litigation on October 27, 1994 as a result of funds being
advanced under the Second Yasawa Loan and the posting of a letter
of credit by Mr. Antony Gram, Chairman and Chief Executive Officer
of the Company. See "Business: Recent Developments" and "Legal
Proceedings".
The Company had placed certain properties in trust to meet its
refund obligations to Marco customers affected by the permit
denials. On September 14, 1992, the Circuit Court of Dade County,
Florida approved a settlement of certain class action litigation
instituted by customers affected by the Marco permit denials, under
the terms of which the Company was required, among other things, to
convey more than 120 acres of multi-family and commercial land that
had been placed in trust to the trustee of the 809 member class.
As part of the settlement, the Company guaranteed the amount to be
realized from the sale of the conveyed property, not to exceed
$2,000,000. Such settlement enabled the Company to resolve the
claims of an additional 12.7% of its affected customers and re-
evaluate the allowance for Marco permit costs. As a result of such
analysis, the Company was able to reduce such allowance by
$12,200,000, resulting in a $3,983,000 extraordinary gain in 1992
and a $500,000 credit to accrued expenses to be credited to paid-in
capital following issuance of 250,000 shares of restricted Common
Stock of the Company to the class members. Following the closing on
a majority of the property conveyed to the trust, the Company
recorded an extraordinary gain of $702,000 resulting from a
reduction in the amount of its guarantee pursuant to the settlement
agreement. At December 31, 1995, $1,349,000 remained in the
allowance for Marco permit costs, including $39,000 relating to
interest accrued on such obligations. Based upon the Company's
experience with affected customers, the Company believes that its
total obligations to the three remaining affected customers will
not materially exceed the amount provided for in the accompanying
Consolidated Financial Statements.
(31)
LIQUIDITY
Since 1986, the Company has directed its marketing efforts to
rebuilding retail land sales in an attempt to obtain a more stable
income stream and achieve a balanced growth of retail land sales
and bulk land sales. Retail land sales typically have a higher
gross profit margin than bulk land sales and the contracts
receivable generated from retail land sales provide a continuing
source of income. However, retail land sales also have
traditionally produced negative cash flow through the point of
sale. This is because the marketing and selling expenses have
generally been paid prior to or shortly after the point of sale,
while the land is generally paid for in installments. The
Company's ability to rebuild retail land sales has been
substantially dependent on its ability to sell or otherwise finance
contracts receivable and/or secure other financing sources to meet
its cash requirements.
To alleviate the negative cash flow impact arising from retail
land sales while attempting to rebuild its sales volume, the
Company implemented several new marketing programs which, among
other things, adjusted the method of commission payments and
required larger down payments. However, the nationwide economic
recession, which was especially pronounced in the real estate
industry, adverse publicity surrounding the industry which existed
in 1990, the resulting, more stringent regulatory climate, and
worldwide economic uncertainties have severely depressed retail
land sales beginning in mid-1990 and continuing thereafter,
resulting in a continuing liquidity crisis.
Because of this severe liquidity crisis, the Company ceased
development work late in the third quarter of 1990 and did not
resume development work until the third quarter of 1992. From
September 29, 1990 through the fourth quarter of 1991, when the
Company ceased selling undeveloped lots, sales of undeveloped lots
were accounted for using the deposit method. Under this method,
all payments were recorded as a customer deposit liability. In
addition, because of the increasing trend in delinquencies during
1990, since the beginning of 1991, the Company has not recognized
any sale until 20% of the contract sales price has been received.
As a result, the reporting and recognition of revenues and profits
on a portion of the Company's retail land sales contracts is being
delayed. See Note 1 to Consolidated Financial Statements.
The continued economic recession and the increasing adverse
effects of such recession on the Florida real estate industry not
only resulted in the Company's sales remaining at depressed levels,
but caused greater contract cancellations in 1991, particularly in
the second half of the year, than were anticipated. Such
cancellations required the Company to record an additional
provision to its allowance for uncollectible sales of approximately
$12,200,000 in the 1991 third quarter, impacting net income by
approximately $8,900,000. While the Company is making every effort
to reduce its cancellations, the Company could be required to
record additional provisions in the future.
In December, 1992, the Company's bank debt was acquired by Mr.
Gram and assigned to Yasawa. Through the sale of certain assets to
Yasawa and its affiliates, including certain contracts receivable,
and the exercise of the warrants by Yasawa, the Company was able to
reduce such remaining debt from approximately $25,150,000
(including interest and fees) to approximately $5,106,000. During
1994, the Yasawa Loan was reduced to 4,764,600. The agreement with
Yasawa also provided the Company with a future line of credit of
$1,500,000, all of which is drawn and outstanding as of December
31, 1995. During 1993, Selex loaned the Company an additional
$5,400,000 pursuant to the Second and Third Selex Loans, of which
$3,825,000 was outstanding as of December 31, 1995, and Yasawa
loaned the Company an additional $4,012,000, pursuant to the Second
Yasawa Loan, which had an outstanding balance of $4,341,000 as of
December 31, 1995. The loans from Selex, Yasawa and their
affiliates are collateralized by substantially all of the Company's
assets.
On March 10, 1994, the Company was advised that Selex filed an
Amendment to its Schedule 13D with the Commission. In the
Amendment, Selex reported that it, together with Yasawa and their
affiliates, were uncertain as to whether they would provide any
further funds to the Company. The Amendment further stated that
Selex, Yasawa and their affiliates were seeking third parties to
provide financing for the Company and that as part of any such
transaction, they would be willing to sell or restructure all or a
portion of their loans and Common Stock in the Company.
(32)
The Company has stated in previous filings with the Commission
and elsewhere herein that the obtainment of additional funds to
implement its marketing program and achieve the objectives of its
business plan is essential to enable the Company to maintain
operations and continue as a going concern. Since December, 1992,
the Company has been dependent on loans and advances from Selex,
Yasawa and their affiliates in order to implement its marketing
program and assist in meeting its working capital requirements. As
previously stated, during the last nine months of 1993, Selex,
Yasawa and their affiliates loaned the Company an aggregate of
$4,400,000 pursuant to Third Selex Loan. Funds advanced under the
Third Selex Loan enabled the Company to commence implementation of
the majority of its marketing program in the third quarter of 1993.
The full benefits of the program were not realized in 1993 and the
Company was unable to secure financing in 1994 to meet its working
capital requirements and continue its marketing program.
Commencing in 1994, Yasawa advanced additional funds (the "Second
Yasawa Loan") a totalling $4,012,000 as of December 31, 1995, to
meet the Company's minimum working capital requirements, to pay
$750,000 in delinquent real estate taxes, to pay settlements with
certain trade creditors and to settle certain litigation.
As a consequence of its liquidity position, the Company has
defaulted on certain obligations, including its previously
described escrow obligations to the Division pursuant to the
Company's 1992 Consent Order and its obligation to make required
interest payments under loans from Selex, Yasawa and their
affiliates. Furthermore, the Company has not paid delinquent real
estate taxes which aggregate approximately $2,975,000 as of
December 31, 1995; non-payment of these delinquent taxes may
adversely affect the financial condition of the Company.
The Company is continuing to seek third parties to provide
financing. As part of any such transaction, Selex, Yasawa and
their affiliates have indicated that they are willing to sell or
restructure all or a portion of their loans and Common Stock in the
Company. They have also indicated that they are willing to sell
their interests in the Company at a significant discount.
Consummation of any such transaction may result in a change in
control of the Company. There can be no assurance, however, that
such transaction will result or that any financing will be
obtained. Accordingly, the Company's Board of Directors is also
considering other appropriate action given the severity of the
Company's liquidity position including, but not limited, to filing
for protection under the federal bankruptcy laws. See "Business:
Recent Developments" and Notes 1, 5 and 8 to Consolidated Financial
Statements.
(33)
ITEM 8
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND SUPPLEMENTAL DATA
PAGE
-----
Independent Auditors' Report........................... 35
Consolidated Balance Sheets as of
December 31, 1995 and December 31, 1994............... 36
Statements of Consolidated Operations
for the years ended December 31, 1995,
December 31, 1994 and December 31, 1993............... 38
Statements of Consolidated Stockholders'
Equity (Deficiency) for the years ended
December 31, 1995, December 31, 1994
and December 31, 1993................................. 39
Statements of Consolidated Cash Flows
for the years ended December 31, 1995,
December 31, 1994 and December 31, 1993............... 40
Notes to Consolidated Financial Statements............. 42
Supplemental Unaudited Quarterly Financial Data... 59
(34)
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,
1995 and 1994 and the related statements of consolidated
operations, consolidated stockholders' equity (deficiency) and
consolidated cash flows for each of the three years in the period
ended December 31, 1995. 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 from material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our 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, 1995 and 1994 and the
results of its operations and its cash flows for each of the three
years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been
prepared assuming the Company will continue as a going concern. As
discussed in Note 1 to the consolidated financial statements, the
Company incurred substantial operating losses and has continued to
experience liquidity crises, causing the Company to be unable to
meet certain contractual obligations and has a stockholders'
deficiency at December 31, 1995. These matters raise substantial
doubt about the Company's ability to continue as a going concern.
Management's plans concerning these matters are described in Note
1. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami, Florida
March 29, 1996
(35)
CONSOLIDATED BALANCE SHEETS
THE DELTONA CORPORATION AND SUBSIDIARIES
ASSETS
(in thousands)
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
Cash, including escrow deposits
and restricted cash of $855
in 1995 and $2,242 in 1994
(Note 7)..................... $ 982 $ 2,440
------- --------
Contracts receivable for land
sales (Notes 2, 5 and 8)..... 8,059 7,830
Less: Allowance for
uncollectible contracts...... (1,628) (1,373)
Unamortized valuation
discount.............. (829) (913)
------- --------
Contracts receivable - net.... 5,602 5,544
------- --------
Mortgages and other receivables
net (Notes 2, 5 and 8)....... 413 1,243
------- --------
Inventories, at lower of cost
or net realizable value
(Notes 3 and 5):
Land and land improvements.... 11,131 11,797
Other......................... 104 148
------- --------
Total inventories...... 11,235 11,945
------- --------
Property, plant and
equipment net (Notes 4 and 5). 510 653
------- --------
Prepaid expenses and other..... 438 284
------- --------
Total................... $19,180 $ 22,109
======= ========
The accompanying notes are an integral part of the consolidated
financial statements.
(36)
CONSOLIDATED BALANCE SHEETS
THE DELTONA CORPORATION AND SUBSIDIARIES
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
(in thousands except share data)
DECEMBER 31, DECEMBER 31,
1995 1994
----------- ------------
Mortgages and similar
debt (Note 5):
Mortgage notes payable.. $ 16,717 $ 14,070
Other loans............ 3,661 2,500
---------- --------
Total mortgages
and similar debt.... 20,378 16,570
Accounts payable-trade.... 152 137
Accrued interest payable
(Note 5)................. -0- 2,899
Accrued taxes, principally
real estate taxes........ 2,983 2,679
Accrued expenses and other
(Notes 2 and 8).......... 1,812 2,559
Customers' deposits....... 754 722
Allowance for Marco permit
costs (Note 9)........... 1,349 2,897
Deferred revenue (Notes 7
and 8)................... 8,765 10,467
---------- --------
Total liabilities......... 36,193 38,930
---------- --------
Commitments and contingencies
(Notes 1, 2, 5, 7, 8 and 9)
Stockholders' equity
(deficiency) (Notes 1, 5,
and 10):
Common stock, $1 par value-
authorized 15,000,000 shares;
issued and outstanding:
6,719,244 shares in 1995
and 6,668,765 shares in 1994
(excluding 12,228 shares held
in treasury)............ 6,719 6,669
Capital surplus......... 44,699 42,738
Accumulated deficit..... (68,431) (66,228)
--------- --------
Total stockholders'
equity (deficiency)...... (17,013) (16,821)
--------- --------
TOTAL.............. $ 19,180 $ 22,109
========= ========
The accompanying notes are an integral part of the consolidated
financial statements.
(37)
STATEMENTS OF CONSOLIDATED OPERATIONS
THE DELTONA CORPORATION AND SUBSIDIARIES
(in thousands except share data)
Years Ended
________________________________________
DECEMBER DECEMBER DECEMBER
31, 1995 31, 1994 31, 1993
------------ ------------ ------------
Revenues
Gross land sales
(Notes 2 and 7).............. $ 3,623 $ 2,994 $ 3,170
Less: Estimated
uncollectible sales.......... (850) (712) (486)
Contract valuation
discount................ (379) (224) (252)
-------- -------- --------
Net land sales............... 2,394 2,058 2,432
Sales-housing................ 1,383 2,543 344
Recognized improvement
revenue-prior period
sales........................ 1,052 1,214 4,725
Interest income.............. 1,019 1,046 1,197
Gain on settlement of lease
obligation (Note 8).......... -0- 1,051 -0-
Other........................ 840 629 3,401
-------- -------- --------
TOTAL................. 6,688 8,541 12,099
-------- -------- --------
COSTS AND EXPENSES
Cost of sales-land........... 635 574 656
Cost of sales-housing........ 1,135 2,169 292
Cost of improvements-prior
period sales................ 395 711 3,574
Cost of sales-other.......... 267 391 1,919
Provision for uncollectible
contracts and recourse
obligations (Note 2)........ 650 -0- 2,400
Commissions, advertising,
and other selling
expenses.................... 1,889 2,608 6,008
General and administrative
expenses.................... 1,869 2,984 3,790
Real estate tax.............. 1,111 1,163 975
Interest expense............. 1,642 1,847 1,257
-------- -------- --------
TOTAL................ 9,593 12,447 20,871
-------- -------- --------
LOSS FROM OPERATIONS BEFORE
INCOME TAXES AND
EXTRAORDINARY ITEMS......... (2,905) (3,906) (8,772)
PROVISION FOR INCOME TAXES
(NOTE 6)..................... -0- -0- -0-
-------- -------- --------
LOSS FROM OPERATIONS BEFORE
EXTRAORDINARY ITEMS.......... (2,905) (3,906) (8,772)
EXTRAORDINARY ITEM:
Gain on settlement
related to the Marco
refund obligation (Note 9)... 702 -0- -0-
-------- -------- --------
NET INCOME (LOSS)............. $ (2,203) $ (3,906) $ (8,772)
======== ======== ========
EARNINGS (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARES
FROM (NOTE 10):
Operations.................. $ (.43) $ ( .59) $ (1.45)
Extraordinary gain.......... .10 -0- -0-
-------- -------- --------
NET INCOME (LOSS)..... $ (.33) $ ( .59) $ (1.45)
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
(38)
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY (DEFICIENCY)
THE DELTONA CORPORATION AND SUBSIDIARIES
(in thousands)
FOR THE YEARS ENDED DECEMBER 31, 1995, DECEMBER 31, 1994 AND DECEMBER 31, 1993
COMMON STOCK CAPITAL ACCUMULATED
($1 PAR VALUE) SURPLUS DEFICIT TOTAL
-------------- ----- ----- ----------
BALANCES,
DECEMBER 25, 1992.. $ 5,951 $42,080 $(53,550) $ (5,519)
Net (loss) for
the year......... -0- -0- (8,772) (8,772)
------- ------- -------- --------
BALANCES,
DECEMBER 31, 1993.. $ 5,951 $42,080 $(62,322) $(14,291)
Net proceeds from
exercise of
Warrants....... 718 658 -0- 1,376
Net (loss) for
the year........ -0- -0- (3,906) (3,906)
------- ------- -------- --------
BALANCES,
DECEMBER 31, 1994.. $ 6,669 $42,738 $(66,228) $(16,821)
Net proceeds from
exercise of
Warrants....... 50 50 -0- 100
Gain from exchange of
debt for land with
related party
(Note 5)........ -0- 1,911 -0- 1,911
Net (loss) for
the year......... -0- -0- (2,203) (2,203)
------- ------- -------- --------
BALANCES,
DECEMBER 31, 1995... $ 6,719 $44,699 $(68,431) $(17,013)
======= ======= ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
(39)
STATEMENTS OF CONSOLIDATED CASH FLOWS
THE DELTONA CORPORATION AND SUBSIDIARIES
(in thousands)
YEARS ENDED
-------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1993
------------ ------------ ------------
CASH FLOWS FROM
OPERATING ACTIVITIES:
Cash received from
operations:
Proceeds from sale
of residential units........... $ 1,416 $ 2,543 $ 344
Collections on
contracts and
mortgages receivable........... 2,285 3,420 1,726
Proceeds from
sale or transfer of
contracts receivable........ -0- -0- 1,059
Down payments on
and proceeds from sales
of homesites and tracts..... 1,261 592 1,517
Proceeds from sale of
Marco Trust property........ -0- 22 444
Proceeds (uses) from other
sources..................... 86 (44) 262
--------- --------- --------
TOTAL CASH RECEIVED
FROM OPERATIONS....... 5,048 6,533 5,352
--------- --------- --------
Cash expended by operations:
Cash paid for
residential units........... 1,135 2,169 282
Cash paid for land
and land improvements....... 602 816 5,028
Customer refunds............. 874 136 1,248
Commissions, advertising
and other selling expenses.. 1,558 2,587 5,331
General and administrative
expenses.................... 2,721 2,728 3,806
Interest paid................ -0- 398 258
Real estate taxes paid....... 984 192 1,030
--------- --------- --------
TOTAL CASH EXPENDED
BY OPERATIONS........... 7,874 9,026 16,983
--------- --------- --------
NET CASH PROVIDED BY
(USED IN)
OPERATING ACTIVITIES... (2,826) (2,493) (11,631)
-------- --------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from sale of
property, plant
and equipment.................. 29 24 493
Payment for acquisition and
construction of
property, plant and equipment.. (43) (26) (94)
-------- --------- --------
NET CASH PROVIDED
BY (USED IN)
INVESTING ACTIVITIES... (14) (2) 399
-------- --------- --------
CASH FLOWS FROM
FINANCING ACTIVITIES:
New borrowings................. 1,390 2,122 6,900
Repayment of borrowings........ (8) (195) (282)
-------- --------- --------
NET CASH PROVIDED
BY (USED IN)
FINANCING ACTIVITIES... 1,382 1,927 6,618
-------- --------- --------
Net increase (decrease) in
cash and short term
investments.................... (1,458) (568) (4,614)
Cash and short term
investments, at beginning
of year........................ 2,440 3,008 7,622
--------- --------- --------
Cash and short term
investments, at end of year..... $ 982 $ 2,440 $ 3,008
======== ========= ========
The accompanying notes are an integral part of the consolidated financial
statements.
(40)
STATEMENTS OF CONSOLIDATED CASH FLOWS - (Continued)
THE DELTONA CORPORATION AND SUBSIDIARIES
(in thousands)
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES:
YEARS ENDED
---------------------------------------------
DECEMBER DECEMBER DECEMBER
31, 1995 31, 1994 31, 1993
--------- -------- ----------
Net income (loss)........... $(2,203) $ (3,906) $ (8,772)
------- --------- ---------
Adjustments to reconcile
net income (loss)
to net cash provided
by (used in) operating
activities:
Depreciation
and amortization....... 64 86 104
Provision for estimated
uncollectible sales
and recourse
obligations............ 1,500 712 2,886
Contract valuation discount,
net of amortization.... 30 19 (255)
Net gain on sale of property,
plant and equipment..... (19) (34) (50)
Extraordinary (gain) loss
from debt
restructuring........... -0- -0- -0-
Extraordinary gain on
settlement related to
the Marco refund
obligation............ (702) -0- -0-
(Increase) decrease in
assets and increase
(decrease) in liabilities:
Gross contracts receivable
plus deductions
from reserves......... (936) (13) (546)
Mortgages and other
receivables............ 830 2,513 2,204
Land and land
improvements.......... (8) 646 (25)
Housing completed or
under construction
and other............. 44 15 1,088
Prepaid expenses and
other................. (154) 181 67
Accounts payable, accrued
expenses and other.... 1,244 377 (460)
Customers' deposits.... 32 (329) (1,605)
Allowance for Marco
permit costs.......... (846) 11 (963)
Deferred revenue....... (1,702) (2,771) (5,304)
-------- --------- ---------
Total adjustments and
changes............ (623) 1,413 (2,859)
-------- --------- ---------
Net cash provided by
(used in) operating
activities. ............. $ (2,826) $ (2,493) $ (11,631)
========== ========= =========
SUPPLEMENTAL DISCLOSURE
OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Assets assigned or
conveyed as a
reduction of
accrued expenses,
mortgages and notes
payable and
settlement of Marco
refund obligation:
Contracts and mortgages
receivable (net)..... $ -0- $ 50 $ 708
========= ========= =========
Land and land improve-
ments, including
land held for
bulk sale or future
development.......... $ -0- $ -0- $ 202
========= ========= =========
Reduction of accrued
interest as a
result of the
capitalization of
interest to principal.. $ 4,200 $ -0- $ -0-
========= ========= =========
Reduction of accrued
interest and
mortgage notes
payable as a
result of an
exchange of land
and property........... $ 2,694 $ -0- $ -0-
========= ========= =========
Reduction of property,
plant and equipment
as a result of exchange
of debt................ $ 112 $ -0- $ -0-
========= ========= =========
Reduction of land as
a result of
an exchange of debt.... $ 674 $ -0- $ -0-
========= ========= =========
Reduction of accrued
expenses as a
result of the
settlement of an
obligation with
a prior landlord........ $ 500 $ -0- $ -0-
========= ========= =========
Common Stock issued
for reduction of
long-term debt........... $ -0- $ 1,140 $ -0-
========= ========= =========
Common stock issued
for Marco permit
costs.................... $ 101 $ 236 $ -0-
========= ========= =========
The accompanying notes are an integral part of the consolidated
financial statements.
(41)
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 1993 of
$8,772,000, for 1994 of $3,906,000 and for 1995 of $2,905,000,
resulting in a stockholders' deficiency of $17,013,000 as of
December 31, 1995. The Company has continued to experience
liquidity problems, causing it to be unable to fully meet certain
contractual obligations, primarily relating to the repayment of
debt, payment of real estate taxes and the completion of
improvements. The Company must obtain additional financing to
accomplish the objectives of satisfying or substantially reducing
its current debt obligations and provide the financial stability
that will allow the Company to accomplish the objectives of a
successful business plan.
Following the completion of the restructuring of its bank debt
in 1992 (see Note 5), the Company commenced the implementation of
its business plan by undertaking a new marketing program which
included the Company's re-entry into the single-family housing
business. To accomplish the objectives of its business plan
required the Company to obtain financing during 1994 and 1995 and
will require the Company to obtain additional financing in 1996.
The transactions described in Note 5 with Selex International,
B.V., a Netherlands corporation ("Selex"), Yasawa Holdings, N.V.,
a Netherlands Antilles corporation ("Yasawa"), and their affiliates
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, but additional financing will be required in 1996. Selex,
Yasawa and their affiliates are uncertain as to whether they will
provide any further funds to the Company. While the Company,
together with Selex, Yasawa and their affiliates, is seeking third
parties to provide financing for the Company and, as part of any
such transaction, Selex, Yasawa and their affiliates have indicated
their willingness to sell or restructure all or a portion of their
loans and Common Stock in the Company, such financing has not yet
become available. As a consequence of its liquidity position, the
Company has defaulted on certain obligations, including its escrow
account obligations to the State of Florida, Department of Business
Regulation, Division of Land Sales, Condominiums and Mobile Homes
(the "Division") pursuant to the Company's 1992 Consent Order with
the Division (the "1992 Consent Order"), its obligation to pay
certain real estate taxes, and its obligation to make required
payments under loans from Selex, Yasawa and their affiliates. (See
Notes 5 and 8.)
There can be no assurance that the Company will be able to timely
secure the necessary financing to resolve its liquidity situation
or that a new business plan will be successfully implemented.
Consequently, there can be no assurance that the Company can
continue as a going concern. In the event that these matters are
not successfully addressed, the Company's Board of Directors will
consider other appropriate action given the severity of the
Company's liquidity position, including, but not limited to, filing
for protection under the federal bankruptcy laws. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Notes 5 and 8 to Consolidated Financial
Statements.
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.
(42)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
THE DELTONA CORPORATION AND SUBSIDIARIES
1. Basis of Presentation and Significant Accounting Policies -
(Continued)
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.
Since 1986, the Company has used a 52-53 week fiscal year ending
on the last Friday of the year. The year ended December 31, 1993
contained 53 weeks, and the years ended December 25, 1992 and
December 27, 1991 contained 52 weeks. Commencing in 1994, the
Company returned to a fiscal year ended December 31.
The Company sells homesites under installment contracts which
provide for payments over periods ranging from 2 to 10 years.
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" ("FASB No.
66"). Since 1991, the Company has not recognized a sale until it
has received 20% of the contract sales price. During 1995,
approximately 72% of sales were through a single independent dealer
in New York.
Because of the severe liquidity crisis faced by the Company as
discussed above, the Company ceased development work late in the
third quarter of 1990. From September 29, 1990 through the fourth
quarter of 1991, all sales of undeveloped lots were accounted for
using the deposit method. Since the fourth quarter of 1991 and in
compliance with the 1992 Consent Order, the Company has been
offering only developed lots for sale (see Note 8).
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, future adjustments
to the allowance may be necessary 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 will be 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.
Bulk land sales are recorded and profit is recognized in
accordance with FASB No. 66. Bulk land sales of approximately
$315,000 and $113,000 are included in gross land sales for the
years ended December 31, 1994 and 1993, respectively.
(43)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
THE DELTONA CORPORATION AND SUBSIDIARIES
1. Basis of Presentation and Significant Accounting Policies -
(Continued)
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. Such capitalized
interest amounted to $164,000 for the year ended December 31, 1993.
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. Additions and betterments are
capitalized, and maintenance and repairs are charged to income as
incurred. Generally, upon the sale or retirement of assets, the
accounts are relieved of the costs and related accumulated
depreciation and any gain or loss is reflected in income.
When property exchanges and refund transactions are consummated
under the Company's Marco Island-Marco Shores customer programs
(see Note 9), any resulting loss is charged to the allowance for
Marco permit costs. When property exchanges and refund transactions
are consummated under the Consent Order (see Note 8), any resulting
loss is charged against the allowance included in accrued expenses
and other. The Company accrues interest on its refund obligations
in accordance with the various customer refund programs.
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 March 1995, the Financial Accounting Standards Board issued
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of". SFAS No. 121
requires companies to evaluate long-lived assets for impairment
based on the undiscounted future cash flows of the asset. If a
long-lived asset is identified as impaired, the value of the asset
must be reduced to its fair value. The Company's inventories would
be considered long-lived assets under this pronouncement.
The statement is effective for years beginning after December 15,
1995. The actual effects of implementing the new standard has not
been determined. However, the adoption is not expected to have any
material adverse effect on the Company's financial position or
results of operations.
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.
(44)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
THE DELTONA CORPORATION AND SUBSIDIARIES
1. Basis of Presentation and Significant Accounting Policies -
(Continued)
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
2. Contracts and Mortgages Receivable
At December 31, 1995, interest rates on contracts receivable
outstanding ranged from 5% to 12% per annum (weighted average
approximately 8.3%). The approximate principal maturities of
contracts receivable (including $163,000 restricted for use in the
Marco refund program, see Note 9) were:
DECEMBER 31,
1995
-------------
(in thousands)
1996.............................. $ 1,104
1997.............................. 1,164
1998.............................. 1,205
1999.............................. 1,115
2000.............................. 872
2001 and thereafter............... 2,599
-------
Total....................... $ 8,059
=======
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, 1995 and
1994 approximate $1,360,000 and $2,140,000, respectively.
Information with respect to interest rates and average contract
lives used in valuing new contracts receivable generated from sales
follows:
AVERAGE
STATED DISCOUNTED
AVERAGE INTEREST TO
YEARS ENDED TERM RATE YIELD
----------- --------- --------- ---------
December 31, 1995..... 92 months 8.2% 13.5%
December 31, 1994..... 92 months 8.4% 13.5%
December 31, 1993..... 98 months 7.8% 13.5%
In December, 1992, as described above, the Company sold
$10,800,000 of contracts and mortgages receivable to an affiliate
of Yasawa at face value, applying the proceeds therefrom to reduce
the Company's bank loan, which had been acquired by Yasawa.
In March, 1993 the Company transferred $1,600,000 in contracts
and mortgages receivable, generating approximately $1,059,000 in
proceeds to the Company, which was used for working capital, and
the creation of a holdback account in the amount of $150,000. As
of December 31, 1995, the balance of the holdback account was
$108,000.
(45)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
THE DELTONA CORPORATION AND SUBSIDIARIES
2. Contracts and Mortgages Receivable - (Continued)
In June, 1992 and February, 1990, the Company completed sales of
contracts and mortgages receivable totalling $13,500,000 and
$17,000,000, respectively, which generated approximately $8,000,000
and $13,900,000, respectively, in net proceeds to the Company. The
anticipated costs of the June, 1992 transaction were included in
the extraordinary loss from debt restructuring for 1991 since the
restructuring was dependent on the sale. The Company recorded a
loss of $600,000 on the February, 1990 sale. In conjunction with
these sales the Company granted the purchaser a security interest
in certain additional contracts and mortgages receivable of
approximately $2,700,000 and conveyed all of its rights, title and
interest in the property underlying such contracts to a collateral
trustee. In addition, these transactions, among other things,
require that the Company replace or repurchase any receivable that
becomes 90 days delinquent upon the request of the purchaser. Such
requirement can be satisfied from contracts in which the purchaser
holds a security interest (approximately $1,388,000 as of December
31, 1995). The purchaser of these receivables experienced
financial difficulty and filed in 1994 for protection under Chapter
11 of the Federal Bankruptcy Code. In November 1995, the purchaser
of these receivables assigned the portfolio to a third party, who
now owns the portfolio and will service and collect the
receivables. The Company is unable to determine what effect this
will have, if any, on future cancellations, since it is unable to
determine how the bankruptcy or the servicing and collection
procedures of the third party will impact the customers'
determination to continue to pay under those contracts. The
Company has fully reserved for the amount of the holdback account
and the estimated future cancellations based on the Company's
historical experience for receivables the Company services.
However, due to the uncertainty noted above, the Company does not
feel there is sufficient information to estimate future
cancellations and is unable to determine the adequacy of its
reserves to replace or repurchase receivables that become
delinquent. The Company was unable to replace or repurchase
$1,148,000 in delinquent contracts in 1994 and $524,000 in
delinquent contracts in 1995, which amounts were deducted from the
deposit held by the purchaser of the receivables as security. In
addition, the Company was unable to replace or repurchase $613,000
in delinquent receivables in 1995; however, a replacement of
$293,000 in receivables was made in January, 1996.
The Company was the guarantor of approximately $15,653,000 of
contracts receivable sold or transferred as of December 31, 1995
and had $108,000 on deposit with purchasers of the receivables as
security to assure collectibility as of such date. A provision of
$650,000 has been established for the Company's obligation under
the recourse provisions. The Company has been in compliance with
all receivable transactions since the consummation of sales.
The Company anticipates that it will be necessary to complete
additional sales and financings of a portion of its receivables in
1996. There can be no assurance, however, that such sales and/or
financings can be accomplished.
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,
1995 1994
------------ ------------
(in thousands)
Unimproved land............... $ 444 $ 444
Land in various stages of
development.................. 4,014 4,014
Fully improved land........... 6,673 7,339
-------- --------
Total.................... $ 11,131 $ 11,797
======== ========
(46)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
THE DELTONA CORPORATION AND SUBSIDIARIES
3. Inventories - (Continued)
Land and land improvements include approximately $202,000 of land
placed in the Marco Island and Marco Shores trusts for the Marco
refund program as of December 31, 1995 and 1994 (see Note 9).
Other inventories consists primarily of vacation ownership units
completed.
4. Property, Plant and Equipment
Property, plant and equipment and accumulated depreciation
consist of the following:
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- -----------------
ACCUMU- ACCUMU-
LATED LATED
DEPRECIA- DEPRECIA-
COST TION COST TION
------ --------- --------- -------
(in thousands)
Land and land
improvements............ $ 74 $ -0- $ 128 $ -0-
Other buildings,
improvements and
furnishings............. 1,257 877 1,449 983
Construction and other
equipment.............. 1,509 1,453 1,492 1,433
------ -------- ------- -------
Total............... $2,840 $ 2,330 $ 3,069 $ 2,416
====== ======== ======= =======
Depreciation charged to operations for the years ended December
31, 1995, 1994 and 1993 was approximately $64,000, $86,000 and
$104,000, respectively.
5. Mortgages and Similar Debt
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, Selex and Yasawa entered into loan modification
agreements in which all accrued interest was converted into non-
interest bearing principal at the earlier of the maturity date or
the default date. Accordingly, at December 31, 1995, $4,200,000 of
accrued interest was reclassified as principal. The loans were
also modified to formalize the elimination of the default interest
rate provisions in each of the applicable loan agreements.
The following table presents information with respect to
mortgages and similar debt (in thousands):
DECEMBER 31, DECEMBER 31,
1995 1994
----------- ------------
Mortgage Notes Payable. $ 16,717 $ 14,070
Other Loans............ 3,661 2,500
-------- --------
Total mortgages and
similar debt..... $ 20,378 $ 16,570
======== ========
Included in Mortgage Notes Payable is the First Selex Loan
($2,722,000 as of December 31, 1995), the Third Selex Loan
($3,825,000 as of December 31, 1995), the Yasawa Loan ($5,829,000
as of December 31, 1995) and the Second Yasawa Loan ($4,341,000 as
of December 31, 1995). Other loans include the $1,656,000 Empire
note and the $2,005,000 Scafholding Loan.
(47)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
THE DELTONA CORPORATION AND SUBSIDIARIES
5. Mortgages and Similar Debt - (Continued)
These mortgage notes payable and other loans are in default as
of December 31, 1995 due to the non-payment of principal. The
lenders have not taken any other action as a result of these
defaults.
On June 19, 1992, Selex loaned the Company the sum of $3,000,000
pursuant to the First Selex Loan. The First Selex Loan is
collateralized by a first mortgage on certain of the Company's
unsold, undeveloped property in its St. Augustine Shores, Florida
community. The Loan matures on June 15, 1996 and provides for
principal to be repaid at 50% of the net proceeds per lot for lots
requiring release from the mortgage, with the entire unpaid balance
becoming due and payable at the end of the four year term. It
initially bears interest at the rate of 10% per annum, with payment
of interest deferred for the initial 18 months of the Loan and
interest payments due quarterly thereafter. As part of the Selex
transaction, Selex was granted an option, approved by the holders
of a majority of the outstanding shares of the Company's Common
Stock at the Company's 1992 Annual Meeting, which, as modified,
enabled Selex to convert the First Selex Loan, or any portion
thereof, into a maximum of 600,000 shares of the Company's Common
Stock at a per share conversion price equal to the greater of (i)
$1.25 or (ii) 95% of the market price of the Company's Common Stock
at the time of conversion, but in no event greater than $4.50 per
share (the "Option"). On February 17, 1994, Selex exercised the
Option, in full, at a conversion price of $1.90 per share, such
that $1,140,000 in principal was repaid under the First Selex Loan
through such conversion. As of December 31, 1995, the Company was
in default of the First Selex Loan.
One million dollars of the proceeds from the First Selex Loan was
used by the Company to acquire certain commercial and multi-family
properties at the Company's St. Augustine Shores community at their
net appraised value, from Mr. Muyres and certain entities
affiliated with Messrs. Zwaans and Muyres. Namely, (i) $416,000
was used to acquire 48 undeveloped condominium units (twelve 4 unit
building sites) and 4 completed (and rented) condominium units from
Conquistador Development Corporation ("Conquistador"), in which
Messrs. Zwaans and Muyres serve as directors, as well as President
and Secretary/Treasurer, respectively; (ii) $485,000 was used to
acquire 4 commercial lots from Swan, in which Messrs. Zwaans and
Muyres also serve as directors, as well as President and Secretary,
respectively; and (iii) approximately $99,000 was used to
reacquire, from Mr. Muyres, all of his rights, title and interest
in that certain contracts with the Company for the purchase of a
commercial tract in St. Augustine Shores, Florida. None of the
commercial and multi-family property acquired by the Company from
Mr. Muyres and certain entities affiliated with Messrs. Zwaans and
Muyres collateralizes the First Selex Loan. In March, 1994,
Conquistador exercised its right to repurchase certain multi-family
property from the Company (which right had been granted in
connection with the June, 1992 Selex transaction) at a price of
$312,000, of which $260,000 was paid in cash to the Company and
$52,000 was applied to reduce interest due to Selex under the
Second Selex Loan (the "First Conquistador Acquisition").
On December 2, 1992, the Company entered into various agreements
relating to certain of its assets and the restructuring of its debt
with Yasawa, which is beneficially owned by Mr. Antony Gram. The
consummation of these agreements, which are further described
below, was conditioned upon the acquisition by Mr. Gram of the
Company's outstanding bank loan.
On December 4, 1992, Mr. Gram entered into an agreement with the
lenders, pursuant to which he acquired the bank loan of
approximately $25,150,000 (including interest and fees) for a price
of $10,750,000. In conjunction with
(48)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
THE DELTONA CORPORATION AND SUBSIDIARIES
5. Mortgages and Similar Debt - (Continued)
such transaction, the lenders transferred to Mr. Gram the warrants
which they held that entitled the holder to purchase an aggregate
of 277,387 shares of the Company's Common Stock at an exercise
price of $1.00 per share. Immediately after the acquisition of the
bank loan, Mr. Gram transferred all of his interest in the bank
loan, including the warrants, to Yasawa.
On December 11, 1992, the Company consummated the December 2,
1992 agreements with Yasawa. Under these agreements, Yasawa, its
affiliates and the Company agreed as follows: (i) the Company sold
certain property at its Citrus Springs community to an affiliate of
Yasawa in exchange for approximately $6,500,000 of debt reduction
credit; (ii) an affiliate of Yasawa and the Company entered into a
joint venture agreement with respect to the Citrus Springs
property, providing for the Company to market such property and
receive an administration fee from the venture (in March, 1994, the
Company and the affiliate agreed to terminate the venture); (iii)
the Company sold certain contracts receivable at face value to an
affiliate of Yasawa for debt reduction credit of approximately
$10,800,000; (iv) the Company sold the Marco Shores Country Club
and Golf Course to an affiliate of Yasawa for an aggregate sales
price of $5,500,000, with the affiliate assuming an existing first
mortgage of approximately $1,100,000 and the Company receiving debt
reduction credit of $2,400,000, such that the Company obtained cash
proceeds from this transaction of $2,000,000, which amount was used
for working capital; (v) an affiliate of Yasawa agreed to lease the
Marco Shores Country Club and Golf Course to the Company for a
period of approximately one year; (vi) an affiliate of Yasawa and
the Company agreed to amend the terms of the warrants to increase
the number of shares issuable upon their exercise from 277,387
shares to 289,637 shares and to adjust the exercise price to an
aggregate of approximately $314,000; (vii) Yasawa exercised the
warrants in exchange for debt reduction credit of approximately
$314,000; (viii) Yasawa released certain collateral held for the
bank loan; (ix) an affiliate of Yasawa agreed to make an additional
loan of up to $1,500,000 to the Company, thus providing the Company
with a future line of credit (all of which was drawn and
outstanding as of December 31, 1995); and (x) Yasawa agreed to
restructure the payment terms of the remaining $5,106,000 of the
bank loan as a loan from Yasawa (the "Yasawa Loan").
The Yasawa Loan bears interest at the rate of 11% per annum, with
payment of interest deferred until December 31, 1993, when only
accrued interest became payable. Commencing January 31, 1994,
principal and interest became payable monthly, with all unpaid
principal and accrued interest being due and payable on December
31, 1997. As of December 31, 1995, $5,829,000 in principal was
in default under the Yasawa Loan.
On April 30, 1993 Selex loaned the Company an additional
$1,000,000 collateralized by a first mortgage on certain of the
Company's property in its Marion Oaks, Florida community (the
"Second Selex Loan"). Interest under the Second Selex Loan was 11%
per annum, deferred until December 31, 1993, and principal was to
be repaid at $3,000 per lot for lots requiring release from the
mortgage, with the entire unpaid principal balance and interest
accruing from January 1, 1994 to April 30, 1994 due and payable on
April 30, 1994. Although Selex had certain conversion rights under
the Second Selex Loan in the event the Company sold any Common
Stock or Preferred Stock prior to payment in full of all amounts
due to Selex under the Second Selex Loan, such rights were voided.
The Second Selex Loan was satisfied on May 22, 1995 through the
closing of the Second Conquistador Acquisition, discussed below.
(49)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
THE DELTONA CORPORATION AND SUBSIDIARIES
5. Mortgages and Similar Debt - (Continued)
From July 9, 1993 through December 31, 1993, Selex loaned the
Company an additional $4,400,000 collateralized by a second
mortgage on certain of the Company's property on which Selex and/or
Yasawa hold a first mortgage pursuant to a Loan Agreement dated
July 14, 1993 and amendments thereto (the "Third Selex Loan"). The
Third Selex Loan bears interest at 11% per annum, with interest
deferred until December 31, 1993. Principal is to be repaid at
$3,000 per lot for lots requiring release from the mortgage, with
the entire unpaid principal balance and interest accruing from
January 1, 1994 to April 30, 1994 due and payable on April 30,
1994. The Second Conquistador Acquisition, discussed below,
closed on May 22, 1995, provided a reduction of the debt due and
payable under the Third Selex Loan. As of December 31, 1995,
$1,371,000 in principal had been repaid under the Third Selex Loan.
The remaining principal balance of $3,825,000 remained unpaid and
in default.
In February, 1994, Yasawa loaned the Company an additional amount
of approximately $514,900 at an interest rate of 8% per annum (the
"Second Yasawa Loan"). Since May, 1994, additional amounts were
advanced to the Company under the Second Yasawa Loan to enable the
Company to pay certain essential expenses, including payment of
certain real estate taxes, and effectuate settlements with the
Company's principal creditors. As of December 31, 1995, an
aggregate amount of $4,012,000 had been advanced to the Company
under the Second Yasawa Loan and the principal balance of
$4,341,000 was outstanding as of December 31, 1995.
On May 22, 1995, the Company closed a transaction with
Conquistador (the "Second Conquistador Acquisition") for the sale
of an administration building and a multi-family site in the
Company's St. Augustine Shores community as well as the remaining
lot inventory in the Company's FeatherNest community at Marion Oaks
in consideration for the satisfaction of $2,599,300 of principal
and accrued interest on the Second and Third Selex Loans. In a
separate transaction which also closed on the same date, the
Company sold to Conquistador (the "Third Conquistador
Acquisition") four single family residential lots in the St.
Augustine Shores community for $100,000 in cash. These
transactions were accounted for in accordance with generally
accepted accounting principals for these types of related party
transactions. Accordingly, the resulting gain of $1,900,000 was
treated as a contribution of capital and recorded directly to
capital surplus.
As previously stated, Messrs. Muyres and Zwaans also serve as
directors and executive officers of M&M First Coast Realty ("M&M").
The Company had leased certain office space to M&M at its St.
Augustine Shores community pursuant to a Lease Agreement dated
August 10, 1990. A payment of approximately $21,300 in delinquent
rental payments was made on May 22, 1995 upon the closing of the
Second Conquistador Acquisition, which included the sale of the St.
Augustine Administration Building to which the lease pertained.
At December 31, 1995, $4,200,000 of accrued interest due to
Selex, Yasawa and their affiliates was reclassified as non-interest
bearing principal. Through March 22, 1996, $1,140,000 in principal
was repaid under the First Selex Loan through the exercise of the
above described Option, the Second Selex Loan was repaid in full,
$1,371,000 in principal was repaid under the Third Selex Loan, and
$133,900 in principal and $346,000 in accrued interest was repaid
under the Yasawa loan. As of March 22, 1996, the Company had loans
outstanding from Selex, Yasawa and their affiliates in the
aggregate amount of approximately $20,757,000, including interest,
all of which are in default, including approximately $8,349,600,
which is owed to Selex, including accrued and unpaid interest of
approximately $145,900 (10% per annum on the First Selex Loan, 11%
per annum on the Third Selex Loan
(50)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
THE DELTONA CORPORATION AND SUBSIDIARIES
5. Mortgages and Similar Debt - (Continued)
and 12% per annum on the Empire Note assigned to Selex);
approximately $10,361,800, which is owed to Yasawa, including
accrued and unpaid interest of approximately $192,500 (11% per
annum on the Yasawa Loan and 8% per annum on the Second Yasawa
Loan); and approximately $2,046,000, which is owed to an affiliate
of Yasawa, including accrued and unpaid interest of approximately
$41,000 (12% per annum). The loans from Selex, Yasawa and their
affiliates are secured by substantially all of the assets of the
Company.
6. Income Taxes
Effective December 26, 1992, the Company adopted Statement of
Accounting Standard No. 109 "Accounting for Income Taxes." There
was no effect from the adoption of this standard. Under this
standard deferred income assets and liabilities are computed
annually for the difference between financial statements and the
tax bases of assets and liabilities that will result in taxable or
deductible amounts in the future bases on enacted tax and rates
applicable to periods in which the differences are expected to
affect taxable income. 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, 1995 and 1994, the Company had
a net loss for tax purposes and, as a result, there was no tax
payable or refundable and there was no change in the net deferred
tax asset. Accordingly, there was no tax provision for such years.
As of December 31, 1995, the Company had a net deferred tax asset
of approximately $23,615,000 which primarily resulted from the tax
effect of the Company's net operating loss carryforward of
$17,561,000 and losses on subsidiaries sold in prior years of
$3,960,000. A valuation allowance of $23,615,000 has been
established against the net deferred tax asset.
As of December 31, 1994, the Company had a net deferred tax asset
of approximately $25,564,000 which primarily resulted from the tax
effect of the Company's net operating loss carryforward of
$21,719,000 and losses on subsidiaries sold in prior years of
$3,960,000. A valuation allowance of $25,564,000 has been
established against the net deferred tax asset.
The Company's regular net operating loss carryover for tax
purposes is estimated to be $45,519,000 at December 31, 1995, of
which $4,733,000 will be available through 1996, $11,022,000
through 1999, $364,000 through 2002, $9,189,000 through 2005,
$9,780,000 through 2006, $5,029,000 through 2008, and the remainder
through 2009. In addition to the net operating loss carryover,
investment tax credit carryovers of approximately $117,000, which
expire from 1996 through 2001, 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.
(51)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
THE DELTONA CORPORATION AND SUBSIDIARIES
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, 1995 and
1994 was approximately $14,449,000 and $17,600,000 (as adjusted for
the 1992 Consent Order), 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
$1,295,000 and $2,412,000, respectively, a liability to provide
title insurance and deeding costing $1,217,000 and $1,300,000,
respectively, and an estimated cost of street maintenance, prior to
assumption of such obligations by local governments, of $1,150,000
and $2,948,000, respectively, all of which are included in deferred
revenue. Included in cash at December 31, 1995 and
December 31, 1994, are escrow deposits of $489,000 and $911,000,
respectively, restricted for completion of improvements in certain
of the Company's communities.
In May, 1994 the Company implemented a program to exchange
purchasers who contracted to purchase property which is undeveloped
to property which is developed. As of March 22, 1996,
approximately 83% of the customers whose lots are currently
undeveloped have opted to exchange. The Company's goal is to
eliminate its development obligation (with the exception of its
road maintenance obligations in Marion Oaks and Sunny Hills) under
the 1992 Consent Order through this exchange program, completion of
two commercial areas in Marion Oaks, sale of its second Citrus
Springs Golf Course (with the buyer assuming the development
obligation) and settlement of all remaining maintenance and
improvements obligations in Citrus Springs through a final
agreement with Citrus County. This final agreement was entered into
in May, 1995.
The anticipated expenditures for land improvements to complete
areas from which sales have been made through December 31, 1995 are
as follows:
DECEMBER 31, 1995
-----------------
(in thousands)
1996.................................... $ 1,090
1997.................................... 882
1998.................................... 2,310
1999+................................... 10,167
--------
Total............................... $ 14,449
========
8. Commitments and Contingent Liabilities
Total rental expense for the years ended December 31, 1995,
December 31, 1994 and December 31, 1993 was approximately $172,000,
$773,000 and $808,000, respectively.
The Company has no real estate leases that extend beyond 2000.
Estimated rental expense under these leases is expected to be
approximately $170,000 annually. The Company has no material
equipment leases.
During 1983 the Company entered into a sale-leaseback agreement
on its executive office building. In 1992, the Company conveyed
certain properties to the landlord in satisfaction of its
outstanding lease obligations for its executive office building in
Miami, Florida. The Company also entered into a modification of its
lease agreement, providing for a reduction of its rental expenses
through March 31, 1994, at which time the Company would have
(52)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
THE DELTONA CORPORATION AND SUBSIDIARIES
8. Commitments and Contingent Liabilities - (Continued)
the option of acquiring the leased premises or reinstating the
lease according to its original terms. If the landlord were to
sell the leased premises to a third party at any time that the
lease, or any modification thereof, is in effect, then the lease
with the Company would be cancelled. In the action styled FIVE
POINTS LIMITED V. THE DELTONA CORPORATION, Case No. 93-22877, filed
in the Circuit Court for Dade County, Florida and served upon the
Company on December 8, 1993, the plaintiff sought damages against
the Company for an alleged breach of the lease for its office
building. The complaint was settled and a stipulation filed. The
Company entered into a short term lease agreement with the landlord
and/or its affiliate for a term of lease of one (1) year with a
ninety (90) day cancellation provision. Certain payments were made
to the landlord and a letter of credit in the amount of $500,000,
now called, was conveyed to the landlord. Funding for the
settlement was obtained through a loan from Anthony Gram, Chairman
of the Board and Chief Executive Officer of the Company. The
Company vacated the premises in September 1995 and neither party
owes the other any further duty or obligation.
The profit on the sale-leaseback agreement was included in
deferred revenue and amortized as a reduction in rent expense over
the term of the lease which, according to its terms would
expire March 31, 1998. On October 27, 1994, the date on which the
above referenced settlement agreement was consummated, all of the
profit remaining in deferred revenue was recognized resulting in a
gain of $1,051,000.
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. The aggregate amount
of all monies paid in (including paid-in interest) on all homesite
contracts having outstanding contractual obligations (primarily to
complete improvements) at December 31, 1995 was approximately
$5,429,000.
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, the
Company, in February, 1980, entered into a Consent Order with the
Division which provided a program for notifying affected customers.
The Consent Order, which was restated and amended, provided a
program for notifying affected customers of the anticipated delays
in the completion of improvements (or, in the case of purchasers of
unbuildable lots in certain areas of the Company's Sunny Hills
community, the transfer of development obligations to core growth
areas of the community); various options which may be selected by
affected purchasers; a schedule for completing certain
improvements; and a deferral of the obligation to install water
mains until requested by the purchaser. Under an agreement with
Topeka Group Incorporated ("Topeka"), which purchased the Company's
utilities in 1989, Topeka's utility companies have agreed to
furnish utility service to the future residents of the Company's
communities on substantially the same basis as such services were
provided by the Company. The Consent Order also required the
establishment of an improvement escrow account as assurance for
completing such improvement obligations.
In June, 1992, the Company entered into the 1992 Consent Order
with the Division, which replaced and superseded the original
Consent Order, as amended and restated. Among other things, the
1992 Consent Order consolidated the Company's development
obligations and provided for a reduction in its required monthly
escrow obligation to $175,000 from September, 1992 through
December, 1993. Beginning January, 1994 and until
(53)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
THE DELTONA CORPORATION AND SUBSIDIARIES
8. Commitments and Contingent Liabilities - (Continued)
development is completed or the 1992 Consent Order is amended, the
Company is required to deposit $430,000 per month into the escrow
account. As part of the assurance program under the 1992 Consent
Order, the Company and its lenders granted the Division a lien on
certain contracts receivable (approximately $9,537,600 as of
December 31, 1995) and future receivables. The Company defaulted on
its obligation to escrow $430,000 per month for the period of
January, 1994 through the present and, in accordance with the 1992
Consent Order, collections on Division receivables were escrowed
for the benefit of purchasers from March 1, 1994 through April 30,
1994. In May, 1994 the Company implemented a program to exchange
purchasers who contracted to purchase property which is undeveloped
to property which is developed. As of March 22 1996, approximately
83% of the customers whose lots are currently undeveloped have
opted to exchange. Consequently, the Division has allowed the
Company to utilize collections on receivables since May 1, 1994.
Because of the Company's default, the Division could also exercise
other available remedies under the 1992 Consent Order, which
remedies entitle the Division, among other things, to halt all
sales of registered property.
The Company's goal is to eliminate its development obligation
(with the exception of its maintenance obligation in Marion Oaks
and Sunny Hills) under the 1992 Consent Order through this exchange
program, completion of two commercial areas in Marion Oaks, sale of
its second Citrus Springs Golf Course (with the buyer assuming the
development obligation) and settlement of all remaining maintenance
and improvements obligations in Citrus Springs through a final
agreement with Citrus County (entered into in May 1995). Pursuant
to the 1992 Consent Order, the Company has limited the sale of
single-family lots to lots which front on a paved street and are
ready for immediate building.
Based upon the Company's experience with affected customers, the
Company believes that the total refunds arising from delays in
completing improvements will not materially exceed the amount
provided for in the consolidated financial statements.
Approximately $21,000 and $49,000 of the provision for the total
refunds relating to the delays of improvements remained in accrued
expenses and other at December 31, 1995 and 1994, respectively.
The Company's corporate performance bonds to assure the
completion of development at its St. Augustine Shores community
expired in March and June, 1993. Such bonds cannot be renewed due
to a change in the policy of the Board of County Commissioners of
St. Johns County which precludes allowing any developer to secure
the performance of development obligations by the issuance of
corporate bonds. In the event that St. Johns County elects to
undertake the completion of such development work, the Company
would be obligated with respect to 1,000 unimproved lots at St.
Augustine Shores in the amount of approximately $6,200,000. The
Company intends to submit an alternative assurance program for the
completion of such development and improvements to the County for
its approval.
In the action styled LEE SU WEN NI ET. AL. V. THE DELTONA
CORPORATION AND SCAFHOLDING B.V., Case No. 95-4422-CA-E, filed in
the Circuit Court of Marion County, Florida on October 11, 1995,
the plaintiff alleges that the liquidated damages provision in the
Company's installment contracts for the sale of its properties is
unenforceable under Florida Law and contests the method utilized by
the Company to calculate actual damages in the event of contract
cancellations. As part of the complaint, the plaintiff is seeking
certification as a class action, as well as unspecified
compensatory damages, together with interest, costs and fees. The
Company filed a Motion to Dismiss
(54)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
THE DELTONA CORPORATION AND SUBSIDIARIES
8. Commitments and Contingent Liabilities - (Continued)
in response to the plaintiff's complaint. The Court has dismissed
the claim of the class representative against the Company and
against Scafholding B.V.; however, the Company expects an appeal
to ensue. In the event that any future appeal is successful, class
certification is authorized and the Company is not successful in
its defenses, a substantial claim could be asserted against the
Company.
In addition to the matters discussed above and in Note 9, 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. Marco Island-Marco Shores Permits
On April 16, 1976, the U.S. Army Corps of Engineers (the "Corps")
denied the Company's application for dredge and fill permits
required to complete development of the Marco Island community.
These denials adversely affected the Company's ability to obtain
the required permits for the Marco Shores community as originally
platted. Following the denials, the Company instituted legal
proceedings, implemented various programs to assist its customers
affected by the Corps' action, and applied for permits from certain
administrative agencies for other areas of the Company's Marco
ownership.
On July 20, 1982, the Company entered into an agreement with the
State of Florida and various state and local agencies (the
"Settlement Agreement"), endorsed by various environmental interest
groups, to resolve pending litigation and administrative
proceedings relative to the Marco permitting issues. The
Settlement Agreement became effective when, pursuant thereto,
approximately 12,400 acres of the Company's Marco wetlands were
conveyed to the State in exchange for approximately 50 acres of
State-owned property in Dade County, Florida. In October, 1987,
the Company sold the Dade County property for $9,000,000. The
Settlement Agreement also allowed the Company to develop as many as
14,500 additional dwelling units in the Marco vicinity. On October
11, 1991, 1,300 acres of Marco property (7,000 dwelling units) were
conveyed to the Company's lenders for debt reduction.
The Company placed certain properties in trust to meet its refund
obligation to affected customers. On September 14, 1992, the
Circuit Court of Dade County, Florida approved a settlement of
certain class action litigation instituted by customers affected by
the Marco permit denials, under the terms of which the Company was
required, among other things, to convey more than 120 acres of
multi-family and commercial land that had been placed in trust to
the trustee of the 809 member class. As part of the settlement, the
Company guaranteed the amount to be realized from the sale of the
conveyed property. This guaranteed amount shall not exceed
$2,000,000.
At December 31, 1995, $1,349,000 remained in the allowance for
Marco permit costs, including $39,000 relating to interest accrued
on such obligations. Based upon the Company's experience with
affected customers, the Company believes that its total obligations
to the three remaining affected customers will not materially
exceed the amount provided for in the accompanying Consolidated
Financial Statements. See "Legal Proceedings".
(55)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
THE DELTONA CORPORATION AND SUBSIDIARIES
9. Marco Island-Marco Shores Permits - (Continued)
Following the closing in 1995 on a majority of the property
conveyed to the Trust, the Company recorded an extraordinary gain
of $702,000 resulting from a reduction in the amount of its
guarantee pursuant to the Settlement Agreement.
Information with respect to the allowance for Marco permit costs
follows:
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
(in thousands)
Refunds requested by
affected customers................ $ 12 $ 319
Reserve for total
expense of settlement............. 1,298 2,000
Accrued interest on actual
and estimated refund obligation... 39 578
--------- -------
Total.................. $ 1,349 $ 2,897
========= =======
10. Common Stock and Earnings per Share Information
Under the Company's 1987 Stock Incentive Plan (the "Stock
Plan"), an aggregate of 500,000 shares of Common Stock have been
reserved for the granting of non-qualified stock options and the
award of incentive shares to such executive officers and other key
employees of the Company as may be determined by the Committee
administering the Stock Plan. The extent to which incentive shares
are earned and charged to expense will be determined at the end of
the three-year award cycle, based on the achievement of the
Company's net income goal for the award cycle. Payment of
incentive shares earned may be made in shares of the Company's
Common Stock and/or cash. If paid in cash, such payment will be
based on the average daily closing price of the Company's Common
Stock during the last month of the award cycle. The option
features of the Stock Plan are substantially the same as the
Company's incentive stock option plan described above. A total of
79,940 shares were issued and $233,412 was paid with respect to
awards earned under the Stock Plan as of December 29, 1989 and no
additional awards were granted until March 1993 when Bruce Weiner
was granted 20,000 shares of the Company's Common Stock at a price
of $4.00 per share, which was in excess of the market value of the
Company's Common Stock on the grant date. Such option expired
unexercised following Mr. Weiner's removal as an officer of the
Company in 1994.
On June 18, 1992, the Company issued warrants to its lenders for
the purchase of 277,387 shares of Common Stock at $1.00 per share
(the Warrants"). The Warrants became exercisable on June 18, 1992,
were subject to mandatory repurchase by the Company at the request
of the holder at any time after December 18, 1993 at 75% of the
market price of the Company's Common Stock and expired on the later
of: (i) 30 days after payment in full of all debt under the Sixth
Restatement; (ii) July 31, 1997, or (iii) such later date as to
which the expiration date had been extended to implement the
provisions applicable to the mandatory repurchase option.
On December 2, 1992, the Company entered into a Warrant Exercise
and Debt Reduction Agreement with Yasawa, providing for the number
of shares issuable upon acquisition of the Warrants by Yasawa and
the exercise of such Warrants by Yasawa to be increased from
277,387 shares of Common Stock to 289,637 shares of Common Stock,
and adjusting the exercise price to an aggregate of approximately
$314,000. On December 11, 1992, following the
(56)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
THE DELTONA CORPORATION AND SUBSIDIARIES
10. Common Stock and Earnings per Share Information - (Continued)
acquisition of the Company's bank loan and the Warrants by Gram
and the immediate transfer of the bank loan and the Warrants by
Gram to Yasawa, Yasawa exercised the Warrants in exchange for debt
reduction credit to the Company of approximately $314,000.
As part of the Selex transaction, Selex was granted an option
which was approved by the holders of a majority of the outstanding
shares of the Company's Common Stock at the Company's 1992 Annual
Meeting, to convert the Selex Loan, or any portion thereof, into a
maximum of 850,000 shares of the Company's Common Stock at a per
share conversion price equal to the greater of (i) $1.25 or (ii)
95% of the market price of the Company's Common Stock at the time
of conversion, but in no event greater than $4.50 per share (the
"Option"). However, on September 14, 1992, Selex formally waived
and relinquished its right to exercise the Option as to 250,000
shares of the Company's Common Stock to enable the Company to
settle certain litigation involving the Company through the
issuance of approximately 250,000 shares of the Company's Common
Stock to the claimants, without jeopardizing the utilization of the
Company's net operating loss carryforward.
On February 17, 1994, Selex exercised the remaining full 600,000
share Option at a conversion price of $1.90 per share, such that
$1,140,000 in principal was repaid under the First Selex Loan
through such conversion. As a consequence of such conversion,
Selex holds 2,820,066 shares of the Company's Common Stock (41.9%
of the outstanding shares of Common Stock of the Company based upon
the number of shares of the Company's Common Stock outstanding as
of March 22, 1996).
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. The net loss per share and the
average number of shares of Common Stock and common stock
equivalents used to calculate earnings per share for 1995, 1994 and
1993 were $(2,203,000), $(3,906,000) and $(8,772,000) and
6,699,923, 6,668,765 and 6,065,743, respectively.
(57)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
THE DELTONA CORPORATION AND SUBSIDIARIES
11. BUSINESS SEGMENTS
YEARS ENDED
________________________________________________________
DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER
31, 1995 31, 1994 31, 1993 25, 1992 27, 1991
-------- -------- -------- -------- --------
(in thousands)
Revenues
Real estate:
Net land sales(a)....... $ 2,394 $ 2,058 $ 2,432 $ 2,092 $ 1,154
Housing revenues........ 1,383 2,543 344 -0- 120
Improvement revenues(b). 1,052 1,214 4,725 2,404 -0-
Interest income(c)...... 1,019 1,046 1,197 3,584 5,270
Other................... -0- -0- 67 -0- -0-
-------- -------- -------- -------- --------
Total real estate..... 5,848 6,861 8,765 8,080 6,544
Other(d).................. 1,030 1,832 3,447 4,372 4,510
Intersegment sales(e)..... (190) (152) (113) (235) (270)
-------- -------- -------- -------- --------
Total................. $ 6,688 $ 8,541 $ 12,099 $ 12,217 $ 10,784
======== ======== ======== ======== ========
OPERATING PROFITS (LOSSES)
Real estate................ $ 1,377 $ 1,055 $ (3,073) $ 1,486 $ (6,750)
Other...................... 341 1,033 279 2,209 1,928
General corporate expense.. (2,981) (4,147) (4,721) (7,057) (7,811)
Interest expense........... (1,642) (1,847) (1,257) (3,356) (6,896)
-------- -------- -------- -------- --------
INCOME (LOSS) FROM
CONTINUING OPERATIONS
BEFORE INCOME TAXES
AND EXTRAORDINARY ITEMS... $ (2,905) $ (3,906) $ (8,772) $ (6,718) $(19,529)
======== ======== ======== ======== ========
REAL
ESTATE OTHER CORPORATE TOTAL
-------- -------- --------- --------
IDENTIFIABLE ASSETS........ 1995 $ 18,623 $ 289 $ 268 $ 19,180
1994 21,515 248 346 22,109
1993 25,997 248 320 26,565
DEPRECIATION EXPENSE....... 1995 $ 34 $ 5 $ 25 $ 64
1994 49 8 29 86
1993 57 -0- 47 104
CAPITAL EXPENDITURES....... 1995 $ 24 $ -0- $ 19 $ 43
1994 -0- -0- 26 26
1993 22 -0- 72 94
_______________________
(a) Net land sales consist of gross land sales less estimated
uncollectible installment sales and contract valuation
discount and, prior to 1991, deferred revenue (see Notes 1, 2
and 7 to Consolidated Financial Statements).
(b) Improvement revenues consist of revenue recognized due to
completion of improvements on prior period sales and exchanges
from undeveloped to developed lots.
(c) Interest income primarily consists of interest earned on
contracts and mortgages receivable and on temporary cash
investments and the amortization of valuation discounts.
(d) Other consists of revenues from sales other than real estate,
the major portion of which came from the country club
operations in prior years. In 1994, the major portion
consists of a gain of $1,051,000 from the termination of its
office lease on its Miami corporate headquarters.
(e) Intersegment sales consist primarily of sales between the
Company and its title insurance subsidiary.
(58)
SUPPLEMENTAL UNAUDITED QUARTERLY FINANCIAL DATA
(in thousands, except per share amounts)
EXTRAORDINARY
(LOSS) ITEM: GAIN ON
FROM SETTLEMENT
OPERATIONS RELATING TO
BEFORE (LOSS) THE NET
INCOME FROM MARCO REFUND INCOME
REVENUES TAXES OPERATIONS OBLIGATION (LOSS)
-------- ---------- ---------- ------------ ----------
1995
First....... $ 1,829 $ (667) $ (667) $ 702 $ 35
Second...... 1,920 (363) (363) - (363)
Third....... 1,218 (743) (743) - (743)
Fourth...... 1,721 (1,132) (1,132) - (1,132)
-------- -------- -------- -------- -------
TOTAL......... $ 6,688 $ (2,905) $ (2,905) $ 702 $(2,203)
======== ======== ======== ======== =======
1994
First....... $ 1,831 $ (1,802) $ (1,802) $ - $(1,802)
Second...... 1,740 (1,072) (1,072) - (1,072)
Third....... 2,105 ( 791) ( 791) - ( 791)
Fourth...... 2,865 ( 241) ( 241) - ( 241)
-------- --------- --------- -------- -------
TOTAL......... $ 8,541 $ (3,906) $ (3,906) $ - $(3,906)
======== ========= ========= ======== =======
1993
First....... $ 3,735 $ (997) $ (997) $ - $ (997)
Second...... $ 2,084 $ (1,797) $ (1,797) $ - $(1,797)
Third....... $ 2,523 $ (2,006) $ (2,006) $ - $(2,006)
Fourth...... $ 3,757 $ (3,972) $ (3,972) $ - $(3,972)
-------- -------- -------- -------- -------
TOTAL......... $ 12,099 $ (8,772) $ (8,772) $ - $(8,772)
======== ======== ======== ======== =======
EARNINGS (LOSS) PER SHARE
- -------------------------
EXTRAORDINARY NET INCOME
OPERATIONS ITEMS (LOSS)
---------- ------------- ----------
1995
First............................. $ (.10) $ .10 $ -0-
Second............................ (.05) - (.05)
Third............................. (.11) - (.11)
Fourth............................ (.17) - (.17)
------- -------- -------
Total........................... $ (.43) $ .10 $ (.33)
======= ======== =======
1994
First............................. $ (.28) $ - $ (.28)
Second............................ (.16) - (.16)
Third............................. (.12) - (.12)
Fourth............................ (.04) - (.04)
-------- ------- --------
Total........................... $ (.59)(a) $ - $ (.59)
======= ======== =======
1993
First............................ $ (.16) $ - $ (.16)
Second........................... $ (.30) $ - $ (.30)
Third............................ $ (.33) $ - $ (.33)
Fourth........................... $ (.66)(b) $ - $ (.66)(b)
------- ------- -------
Total............................... $ (1.45) $ - $ (1.45)
======= ======= =======
___________________
(a) Total shown does not agree with earnings per share set forth
in the Company's Statement of Consolidated Operations for the
year ended December 31, 1994 due to differences in the
calculation of the weighted average number of shares
outstanding at the end of each quarter during the year.
(b) Certain significant adjustments were recorded in the fourth
quarter of 1993 the impact of which on previous quarters in
1993 could not be determined.
(59)
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................ 61
Schedule VIII - Valuation and qualifying
accounts for the three
years ended December 31, 1995. 62
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 1996
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 Reports on Form 8-K were filed for the year ended December
31, 1995.
(60)
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, 1995 and 1994, and for each of the three years in the period
ended December 31, 1995, and have issued our report thereon dated
March 29, 1996 (which expresses an unqualified opinion and includes
an explanatory paragraph relating to the Company's ability to
continue as a going concern), included elsewhere in this Annual
Report on Form 10-K. Our audits also included the financial
statement schedules listed in Item 14(a)2 of this Annual Report on
Form 10-K. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is
to express an opinion based on our audits. In our opinion, such
financial statement schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present
fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami, Florida
March 29, 1996
(61)
SCHEDULE VIII
THE DELTONA CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
THOSE VALUATION
AND QUALIFYING
ACCOUNTS ADDITIONS
WHICH ARE CHARGED TO
DEDUCTED IN BALANCE AT REVENUES BALANCE
THE BALANCE SHEET BEGINNING COSTS, DEDUCTIONS AT END
FROM THE ASSETS OF AND FROM OF
TO WHICH THEY APPLY PERIOD EXPENSE REVENUES PERIOD
- --------------------- ---------- ---------- ---------- -------
Year ended
December 31, 1995
Allowance for
uncollectible
contracts(a)........ $ 1,373 $ 850 $ 594 $ 1,629
======= ======= ======= ========
Unamortized
contract
valuation
discount(b)...... $ 913 $ 379 $ 463 $ 829
======= ======= ======= ========
Year ended
December 31, 1994
Allowance for
uncollectible
contracts(a)........ $ 1,456 $ 712 $ 795 $ 1,373
======= ======= ======= ========
Unamortized
contract
valuation
discount(b)...... $ 895 $ 223 $ 205 $ 913
======= ======= ======= ========
Unamortized
mortgage
valuation
discount(d)...... $ 100 $ -0- $ 100 $ -0-
======= ======= ======= ========
Year ended
December 31, 1993
Allowance for
uncollectible
contracts(a)..... $ 1,646 $ 1,670 $ 1,860 $ 1,456
======= ======= ======= =======
Unamortized
contract
valuation
discount(b)...... $ 1,269 $ 252 $ 626 $ 895
======= ======= ======= =======
Allowance for
doubtful
accounts(c)....... $ 58 $ 58 $ -0-
======= ======= =======
Unamortized
mortgage
valuation
discount(d)...... $ -0- $ 100 $ 100
======= ======= =======
- ----------------
(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).
(c) Represents allowance for estimated uncollectible mortgages and
other receivables.
(d) Represents the unamortized discount generated from initial
valuations of mortgages receivable (see Notes 1 and 2 to
Consolidated Financial Statements).
(62)
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 29, 1996
-----------------------------
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
/s/ NEIL E. BAHR
- -----------------------------------------------
Neil E. Bahr, DIRECTOR
/s/ EARLE D. CORTRIGHT, JR.
- -----------------------------------------------
Earle D. Cortright, Jr., PRESIDENT,
CHIEF OPERATING OFFICER & 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 29, 1996
(63)