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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, 2001
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)
8014 SW 135th Street Road
Ocala, FL 34473
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (352) 307-8100
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $1 PAR VALUE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates
of the Registrant: $946,983(based upon the sales price at which shares were sold
on March 14, 2002 ($0.29 per share) multiplied by the 3,265,458 shares of stock
owned by non-affiliates, excluding voting stock held by directors, executive
officers and beneficial owners of more than 10% of the Registrant's voting
stock; however, this does not constitute an admission that any such holder is an
"affiliate" for any purpose.)
Indicate the number of shares outstanding of the Registrant's classes of
common stock, as of the latest practicable date: 13,544,277 shares of common
stock, $1 par value, as of March 14, 2002, excluding 12,228 shares held in
treasury.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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THE DELTONA CORPORATION
INDEX
Form 10-K Page
Item No. Section Heading in Attached Material Number
---------- ------------------------------------ ------
PART I
Items 1 and 2 ......... Business............................ 1
General.......................... 1
Forward Looking Statements....... 1
Recent Developments.............. 2
Real Estate...................... 2
Other Businesses................. 8
Employees........................ 8
Competition...................... 8
Regulation....................... 8
Item 3 ................ Legal Proceedings.................. 11
PART II
Item 5 ................ Price Range of Common Stock and
Dividends......................... 12
Item 6 ................ Selected Consolidated Financial
Information ...................... 13
Item 7 ................ Management's Discussion and
Analysis of Financial Condition
and Results of Operations......... 14
Item 7A................ Disclosures and Market Risk........ 21
Item 8 ................ Index to Consolidated Financial
Statements and Supplemental Data.. 23
Item 9 ................ Independent Public Accountants..... 41
PART III
Item 10................ Directors and Executive Officers
of the Registrant................. 42
Item 11................ Executive Compensation............. 45
Item 12................ Security Ownership of Certain
Beneficial Owners and Management.. 47
Item 13................ Certain Relationships and Related
Transactions...................... 49
PART IV
Item 14 ............... Exhibits, Financial Statement
Schedules and Reports on Form 8-K. 51
ITEMS 1 AND 2
BUSINESS
General
The Company was founded in 1962 and is principally engaged in the
development and sale of Florida real estate, through the development of planned
communities on land acquired for that purpose. The Company offers single-family
lots and multi-family and commercial tracts for sale, in communities designed by
the Company. The Company is the developer of eleven planned communities in
Florida, including TimberWalk, which is located in the western portion of Marion
Oaks. Of those eleven planned communities, two are in various stages of
development. The Company plans, designs and develops roads, waterways,
recreational amenities, grading and drainage systems within these communities.
Since 1962, the Company has sold over 157,000 single-family lots and
multi-family and commercial tracts in its communities, in addition to over
13,000 single-family homes and over 4,300 multi-family housing units.
The Company's land holdings in Florida include an inventory of
approximately 16,000 unsold platted single-family and multi-family lots and
commercial tracts. (Platting is the process of recording, in the public records
of the county where the land is located, a map or survey delineating the legal
boundaries of the lots and tracts.) See "Real Estate: Land".
The Company also operates other businesses related to its real estate
activities, such as a title insurance company and a real estate brokerage
company. In addition, the Company has designed and constructed country clubs,
golf courses and other recreational amenities at its communities, and operated
such amenities until their conveyance or sale.
Historically, the Company had designed, constructed and operated utility
systems for the distribution of water and LP gas and for the collection and
treatment of sewage, primarily at the Company's communities. However, on June 6,
1989, Topeka Group Incorporated ("Topeka"), a subsidiary of Minnesota Power &
Light Company ("MPL"), exchanged the Company's Preferred Stock which it acquired
in November, 1985 for the Company's utility subsidiaries. The Company entered
into a Developer Agreement for each of its communities, which provides the
policies for water and sewer utility services to the Company and the Company's
customers.
The Company is incorporated in Delaware and has its principal office at
8014 SW 135th Street Road, Ocala, Florida 34473. Its telephone number is
(352)307-8100. The Company, as used herein, refers to The Deltona Corporation
and, unless the context otherwise indicates, its wholly-owned subsidiaries.
Forward Looking Statements
This annual report on Form 10-K of The Deltona Corporation. for the year
ended December 31, 2001 contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, which are intended to be
covered by the safe harbors created thereby. To the extent that such statements
are not recitations of historical fact, such statements constitute
forward-looking statements which, by definition, involve risks and
uncertainties. In particular, statements under Items 1 and 2, Business, Item 5,
Price Range of Common Stock and Dividends, and Item 7, Management's Discussion
and Analysis of Financial Condition and Results of Operation, contain
forward-looking statements. Where, in any forward-looking statement, Deltona
expresses an expectation or belief as to future results or events, such
expectation or belief is expressed in good faith and believed to have reasonable
basis, but there can be no assurance that the statement of expectation or belief
will result or be achieved or accomplished.
All of the above estimates are based on the current expectations of our
management team, which may change in the future due to a large number of
potential events, including unanticipated future developments.
The following factors are factors that could cause actual results or events
to differ materially from those anticipated, and include, but are not limited
to: the availability of operating capital, general economic, financial and
business conditions;
1
competition for customers in the single- and multi-family home market; the costs
of construction; and changes in and compliance with governmental regulations.
Recent Developments
On December 13, 2001, the Board of Directors approved a 1 for 500,000
reverse split of the Company's common stock and a related amendment to the
Company's Articles of Incorporation reducing the number of authorized shares to
30. Both actions are subject to stockholder approval. The Company has filed a
Form 13E(3) and a preliminary proxy statement related to the proposals. The
effect of the reverse split will be to reduce the number of the Company's
stockholders to two stockholders: Selex International, B.V., a Netherlands
corporation ("Selex") and Yasawa Holdings, N.V., a Netherlands Antilles
corporation ("Yasawa"). The date of the meeting of stockholders to consider both
matters will be determined upon the conclusion of SEC review.
During 2001, Swan Development Corporation ( "Swan") continued to loan the
Company funds to meet its working capital requirements. The Company's
outstanding debt to Swan, which is secured by a second lien on the Company's
receivables, was $ 5,929,000 as of December 31, 2001. The Company signed a
promissory note to Swan in March 1999, which provides that funds advanced by
Swan will be paid back by the Company monthly in contracts receivables at 90% of
face value, with recourse. There is no interest for the first six months after
an advance of money is received from Swan by the Company; thereafter the
interest was 6% per annum on the outstanding balance of the advance. The
interest rate was changed effective January 1, 2001 to the prime rate, to be
adjusted semi-annually thereafter, to equal the prime rate then in effect. Each
time an advance is made, a supplemental note is signed. The amount of each
monthly payment will vary and will be dependent upon the amount of contracts
receivable in the Company's portfolio, excluding contracts receivable held as
collateral for prior receivable sales. Pursuant to the terms of the promissory
note, the Company is required to transfer to Swan monthly as debt repayment all
current contracts receivable in the Company's portfolio in excess of the
aggregate sum of $500,000. Funds advanced by Swan were used by the Company to
meet the Company's working capital requirements. From January 2001 to June 2001,
the interest rate on the outstanding debt was 9.5%, which was prime. As of July
2001, the interest rate on the outstanding debt was adjusted to 6.5%, which
equals the prime rate as of July 1, 2001. As of December 31, 2001, the total
amount of interest accrued is approximately $591,000, which is included in
accrued expenses.
During 2001, the Company entered into a joint venture agreement (the
"Venture") with Scafholding, for the purchase of property tax certificates,
application of tax deeds, administration and the acquisition and sale of land.
The Company provides administrative, managerial, sales and marketing services to
the Venture. The Company is reimbursed by the Venture for all commissions and
marketing costs plus an administrative fee of 10% of all sales consummated.
Scafholding provides financing to the Venture and has loaned the Venture
approximately $1,200,000 as of December 31, 2001. There are no capital financing
requirements on behalf of the Company due into the Venture.
Real Estate
The Company is primarily involved with the development and marketing of
planned communities in Florida since 1962. The following table sets forth
certain information about these communities and other land assets of the Company
as of December 31, 2000. For a detailed description of these communities, see
"Existing Communities" and "Other Properties".
2
Existing Communities
Platted Unsold Platted
Acreage Initial Estimated Lots & Tracts Lots & Tracts
In Acquisition Year Current in Masterplan Unimproved Improved
Masterplan Year Opened Population (a) (a) (b) (a) (b)
---------- ---- ------ ---------- ------------- ---------- ---------
* Deltona Lakes .......... 17,203 1962 1962 75,580 34,964 -- 6
* Marco Island(c) ........ 7,844 1964 1965 45,140 8,657 -- --
* Spring Hill(d) ......... 17,240 1966 1967 77,100 32,909 -- 7
* Citrus Springs(e) ..... 15,954 1969 1970 7,170 33,783 -- 11(h)
* St. Augustine Shores.... 1,985 1969 1970 7,890 3,130 -- -(h)
Sunny Hills (g)......... 17,743 1968 1971 1,420 26,251 12,536 685
* Pine Ridge ............. 9,994 1969 1972 4,290 4,833 -- 3
Marion Oaks(e)(f) ..... 14,644 1969 1973 9,296 27,537 2,071(f) 1,024(f)(h)
* Seminole Woods ......... 1,554 1969 1979 550 262 -- --
There is no unplatted acreage in any community
Joint Venture Community:
* Tierra Verde ........... 666 1976 1977 5,530 1,036 -- --
--- ---- ---- ----- ----- ------ -----
Total ............ 104,827 222,270 173,362 14,607 1,736
======= ======= ======= ====== =====
Other Properties
Initial
Acquisition
Year Acres
Other Land Assets:
Other land adjacent to
existing communities(h).. Various 92
--
Total..... 92
==
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* Development completed.
(a) Excluded from these lots and tracts are approximately 98 improved
and 90 unimproved lots and tracts that are required for drainage and
cannot be sold, and approximately 172 improved and 338 unimproved
lots and tracts that have been removed from sale for encumbrances or
additional site development, which can only be sold when these
issues are resolved. Also excluded are amenities consisting of 2
administration facility sites, 2 recreational facility sites and 1
unimproved golf course site , as well as approximately 260 tracts
reserved for community usage such as for greenbelts, buffer areas,
church and school sites.
(b) "Unimproved Unsold Platted Lots & Tracts" and "Improved Unsold
Platted Lots & Tracts", when added to lots and tracts sold, as
described in "Existing Communities", may not equal "Platted Lots &
Tracts in Masterplan" for various reasons, such as the subdivision
of tracts into two or more parcels for sale to different purchasers.
(c) Excludes permit denial areas; reflects seasonal population.
(d) Includes the South Hernando U.S. # 19 Commerce Center.
(e) Excludes 83 Citrus Springs and 63 Marion Oaks improved lots deeded
to a purchaser of the Company's contracts receivable as exchange
inventory to be available for customers who pre-pay their contracts
prior to the installation of water service lines within one mile of
their homesite and who wish to commence immediate construction.
Unused exchanged inventory will be reconveyed to the Company when
all purchased receivables have matured and are paid in full.
(f) Includes TimberWalk
(g) Excludes 3,637 acres of unplatted natural preserve in Washington
County restricted for recreational, open space/park use which can
only be sold subject to the underlying land use restrictions.
(h) Not included are 574 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 482
lots in Citrus Springs, 91 lots in Marion Oaks and 1 lot in St.
Augustine Shores.
3
Land
In selecting sites for its communities, the Company examined various
demographic and economic factors, the regulatory climate, the availability of
governmental services and medical, educational and commercial facilities, and
estimated development costs. Its communities are accessible to major highways
and Florida's major metropolitan areas and are near at least one large body of
water that can be used for recreational purposes. Other criteria used by the
Company in site selection are the suitability of the land for natural or
engineered drainage and the availability of a sufficient supply of potable water
to support the community's anticipated population.
The master plans of the Company's communities have been designed to provide
for amenities such as golf courses, greenbelt areas, parks and recreational
areas, as well as for the basic infrastructure, such as roads and water, and in
selected development areas, sewer lines. Sites are set aside for shopping
centers, schools, houses of worship, medical centers and public facilities such
as libraries and fire stations.
In its major planned communities, the Company offers for sale lot and house
"packages" situated on paved streets. In other areas of these communities, the
Company historically has sold single-family lots and multi-family and commercial
tracts on an installment basis. Prior to 1991, the Company sold such land,
subject to a future development obligation, accepting down payments as low as 5%
of the sales price, with the balance payable over periods ranging from 2 to 15
years, depending on the payment plan selected. When the applicable rescission
period expired and the Company received at least 10% of the contracted sales
price, a substantial portion of the revenue and related profit on the sale was
recognized, with the remaining revenue and profit deferred and recognized as
land improvements such as street paving occurred.
Due to various factors, since 1986, the Company had utilized a deed and
mortgage format for effecting certain sales in its communities. Beginning
September 29, 1990, the Company changed its method of recognizing land sales by
recording the sale of lots, subject to a future development obligation, under
the deposit method; since January 1, 1991, no sale has been recognized until the
Company receives at least 20% of the contracted sales price; and beginning in
the fourth quarter of 1991, the Company limited the sale of lots to those which
front on a paved street and are ready for immediate building. See Note 1 to
Consolidated Financial Statements.
A portion of the contract purchase price is discounted and treated as
interest income to be amortized over the life of the contract. Interest income
is also earned in accordance with the interest rate stated in the installment
land sales contract or promissory note. The Company further provides an
allowance for contract cancellations based on the historical experience of the
Company for such cancellations.
Substantially all of the Company's single-family lot and multi-family and
commercial tract sales have been made on an installment basis. Of the over
157,000 lots and tracts sold since the Company's inception, 313 contracts
receivable presently exist with respect to lots and tracts with an outstanding
balance of approximately $1,115,000 at December 31, 2001, 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.
4
Single-Family Housing
The Company's homes are designed to fit the needs and wants of a variety of
housing customers: models range from 1,692 square feet to 2,895 square feet.
From the smallest home to the largest, these homes feature 2 car garages,
cathedral ceilings over the main living areas, ceramic tile foyers, plant
shelves, large fully equipped kitchens (most with breakfast nooks or good
morning rooms), fully enclosed laundry centers, impressive master suites with
walk-in closets and large bedrooms. A model center is open at Marion Oaks and a
new model center is scheduled to open in Sunny Hills in March 2002. Houses are
sold with the lot included in the sales price; however, the Company also offers
a "build on your own lot" program for those purchasers who have previously
acquired a lot. The FeatherNest Housing Village in Marion Oaks, where the lot is
included in the price of the home, is owned by Conquistador Development
Corporation and marketed by the Company. All housing sales are made within the
local market and through the Company's independent dealer network. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
The Company is directing a greater portion of its marketing efforts to the
sale of lots with homes or lots with compulsory building obligations to offset
the negative cash effects of installment land sales, where the purchase price of
the lot is paid over several years and there is no commitment to build.
Multi-Family Housing
The Company has designed, constructed and sold more than 4,300 condominium
apartment units at its communities in buildings ranging from garden-style
apartment complexes to luxury high-rise towers. Every condominium complex
constructed by the Company includes at least one pool and patio area; many
feature tennis courts and other recreational amenities.
The Company's limited inventory of multi-family housing is at its vacation
ownership complex, The Surf Club, located on the Gulf of Mexico at Marco Island.
The bulk of its inventory at The Surf Club was sold prior to 1990.
Marketing
The Company has historically sold land and housing on a national and
international basis through independent dealers in the United States, Canada and
overseas, as well as through Company-affiliated salespeople. For the year ended
December 31, 2001, sales by independent dealers in the United States accounted
for approximately 100% (in dollar volume) of new land sales contracts.
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 is now an incorporated
city with a population of approximately 75,580. Over 30,000 lots and tracts and
over 4,500 single and multi-family housing units have been sold at this
community.
Recreational amenities constructed by the Company include tennis courts, a
golf course and country club (which were sold in 1983), and a recreational
complex on the shores of Lake Monroe. A 133-room motel, an industrial park, a
medical complex, several shopping centers, numerous houses of worship, a fire
station, a public library and schools are located in the community. The Company
has completed development of this community.
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
5
in this community. More than 45,140 persons reside at Marco Island, including a
population which more than triples during the winter season. It is the largest
of Florida's Ten Thousand Islands and is known for its recreational amenities
which, in addition to its 3 1/2 mile white sand beach, sport fishing, sailing
and shelling, include golf, tennis, swimming and other recreational activities.
The island community has several major shopping centers, banks and savings &
loan associations, and medical and professional centers.
Since the community's opening in January, 1965, the Company has built and
operated a yacht club and marina, the Marco Beach Hotel & Villas, and a golf
course and country club, all of which have been sold. The Company has also
constructed and sold over 3,300 condominium units on the island and The Surf
Club, a 44 unit vacation ownership complex. In 1990, the Company completed the
sale of substantially all of its remaining vacation ownership weeks at The Surf
Club.
Spring Hill
Spring Hill, with an estimated population of over 77,100 is located 45
miles north of Tampa-St. Petersburg. Over 32,000 lots and tracts and over 4,000
single-family homes have been sold in this community. The Company has
constructed a recreation complex, a country club, and two golf courses, which
have been sold. Several shopping centers and medical centers, schools, numerous
houses of worship and fire stations are located in the community. The Company
has completed the development of this community.
Citrus Springs
Citrus Springs, with an estimated population of over 7,170 is located 28
miles southwest of Ocala and 25 miles from the Gulf of Mexico. Over 30,000 lots
and tracts and over 700 single-family homes have been sold at this community. A
golf course and a clubhouse (sold in 1990) and a community center have been
completed by the Company. Several churches, schools and a convenience shopping
area are located in the community. In 1992, most of the Company's remaining
inventory at this community was sold to Citony Development Corporation
("Citony") for approximately $6,500,000. The Company provides miscellaneous
administrative assistance and loan servicing to Citony for a fee.
St. Augustine Shores
St. Augustine Shores, with a population estimated to be over 7,890 is
located seven miles south of St. Augustine, between the Intracoastal Waterway
and U.S. Highway 1. In December 1997, the Company sold all of its remaining
inventory at St. Augustine Shores to Swan Development Corporation ("Swan"). As
part of the purchase, Swan assumed the liability for completing improvements
within St. Augustine Shores.
Certain common areas of the community, such as parks and swale areas, are
maintained by the St. Augustine Shores Service Corporation, a non-profit
corporation, of which all property owners are members. Several houses of
worship, shopping facilities, a recreational building and a golf and country
club are also located in the community.
Sunny Hills
Sunny Hills, with a population of over 1,420 residents, is located in the
Florida Panhandle, 45 miles north of the Gulf of Mexico and 35 miles north of
Panama City. Over 12,000 lots and tracts and 300 single-family homes have been
sold at this community. The community includes a golf course and country club,
which was sold by the Company, several houses of worship and convenience
shopping.
During 2001, the Company initiated construction of four model homes in
Sunny Hills. The Company's homes are designed to fit the needs and wants of a
variety of housing customers: models range from 1,904 to 2,498 total square
feet. The construction of these models is to test the market and future sales
potential in the geographical area. The Sunny Hills model center is scheduled to
open in March 2002. Houses will be sold with the lot included in the sales
price, however the company also offers a "build on your own lot" program for
those purchasers who have previously acquired a lot. All housing sales are
expected to be made within the local market and through the Company's
independent dealer network.
6
During 2001, the Company expended approximately $225,000 for construction of
these model homes. It is estimated that an additional $233,000 of capital will
be required in order to complete these models and associated improvements.
Revenues in 2002 will be generated from the sale of land inventory, from
house sales, from the recognition of deferred revenue as land development
proceeds, from collections on existing contracts receivable and from the
Company's real estate brokerage subsidiary operation.
Pine Ridge
Pine Ridge, with a population of approximately 4,290 is located 34 miles
southwest of Ocala. The community's facilities include an equestrian club and
tennis courts. The Company sold over 3,500 lots and tracts and more than 53
single-family homes in Pine Ridge prior to the sale of its remaining inventory
in 1987.
Marion Oaks
Marion Oaks, with a population of over 9,296 residents, is located 12 miles
southwest of Ocala. Over 23,000 lots and tracts have been sold in the community.
The community includes playgrounds, two golf courses (both of which are owned by
third parties), several recreation buildings, community shopping centers and
several houses of worship. In addition, this community is home to the Company's
corporate headquarters.
The Company's homes, constructed by an independent builder, are designed to
fit the needs and wants of a variety of housing customers: models range from
1,692 square feet to 2,895 square feet. From the smallest home to the largest,
these homes feature 2 car garages, cathedral ceilings over the main living
areas, ceramic tile foyers, plant shelves, large fully equipped kitchens (most
with breakfast nooks or good morning rooms), fully enclosed laundry centers,
impressive master suites with walk-in closets and large bedrooms. A model center
is open at Marion Oaks. Houses are sold with the lot included in the sales
price; however, the Company also offers a "build on your own lot" program for
those purchasers who have previously acquired a lot. The FeatherNest Housing
Village in Marion Oaks, where the lot is included in the price of the home, is
owned by Conquistador Development Corporation and marketed by the Company. All
housing sales are made within the local market and through the Company's
independent dealer network. During 2001, the Company continued to construct spec
homes and these homes generally sold prior to completion of construction.
Revenues in 2002 will be generated from the sale of land inventory, from
housing sales, from the recognition of deferred revenue as land development
proceeds, from collections on existing contracts receivable and from the
Company's real estate brokerage and title company subsidiary operations.
Seminole Woods
Seminole Woods, with a population of over 550, is comprised of 1,554 acres
of property located 20 miles north of Orlando. The community's 262 single-family
lots, each with a minimum of five acres, have been sold and development
completed.
Tierra Verde
Tierra Verde, with a population of over 5,360, is a 666-acre waterfront
subdivision located eight miles south of St. Petersburg. It was developed and
marketed pursuant to a 50% joint venture, which no longer exists, between a
wholly-owned subsidiary of the Company and an unaffiliated corporation. The
community has been sold out and development completed.
Other Land Assets
The Company also owns 92 acres of land in Florida adjacent to its existing
communities.
7
Other Businesses
The Company's title insurance subsidiary was established in 1978 in order
to reduce title insurance, legal and certain related closing costs incurred by
the Company in transferring title of its land and housing to its purchasers. The
subsidiary serves as an agent for TICOR Title Insurance Company, Chicago Title
Insurance Company and other title insurers. The Company's realty subsidiary
performs real estate brokerage and rental services at the Company's Marion Oaks
and Sunny Hills communities.
Employees
At December 31, 2001, the Company had 37 employees, of whom 34 were
involved in executive, administrative, sales and community development/
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 and
marketing personnel employed by the Company and its subsidiaries.
Competition
The Company faces competition in the sale of its lots primarily from
property owners in the Company's communities seeking to resell their land. The
Company is also facing competition, on a regional level, from other builders and
developers in the sale of single-family housing. Such competition is generally
based upon location, price, reputation, quality of product and the existence of
commercial and recreational facilities and amenities.
Regulation
The Company's real estate business is subject to regulation by various
local, state and federal agencies. The communities are increasingly subject to
substantial regulation as they are planned, designed and constructed, the nature
of such regulation extending to improvements, zoning, building, environmental,
health and related matters. Although the Company has been able to operate within
the regulatory environment in the past, there can be no assurance that such
regulations could not be made more restrictive and thereby adversely affect the
Company's operations.
Community Development
In Florida, as in many growth areas, local governments have sought to limit
or control population growth in their communities through restrictive zoning,
density reduction, the imposition of impact fees and more stringent development
requirements. Although the Company has taken such factors into consideration in
its master plans by agreeing, for example, to make improvements, construct
public facilities and dedicate certain property for public use, the increased
regulation has lengthened the development process and added to development
costs.
The implementation of the Florida Growth Management Act of 1985 (the "Act")
precludes the issuance of development orders or permits if public facilities
such as transportation, water and sewer services will not be available
concurrent with development. Development orders have been issued for, and
development has commenced in, the Company's existing communities (with
development being completed in certain of these communities). Thus, the
Company's communities are less likely to be affected by the new growth
management policies than future communities. Any future communities developed by
the Company will be strongly impacted by new growth management policies. Since
the Act and its implications are consistently being re-examined by the State,
together with local governments and various state and local governmental
agencies, the Company cannot further predict the timing or the effect of new
growth management policies, but anticipates that such policies may increase the
Company's permitting and development costs.
Environmental
To varying degrees, certain permits and approvals will be necessary to
complete the development of Marion Oaks and Sunny Hills. Despite the fact that
the Company has obtained substantially all of the permits and authorizations
necessary to proceed with its development work on communities presently being
marketed, additional approvals may be required to
8
develop certain platted properties to be marketed in the future. Although the
Company cannot predict the impact of such requirements, they could result in
delays and increased expenditures. In addition, the continued effectiveness of
permits and authorizations already granted is subject to many factors, some of
which, including changes in policies, rules and regulations and their
interpretation and application, are beyond the Company's control.
The Company is aware of studies indicating that prolonged exposure to radon
gas may be hazardous to one's health. Such studies further indicate that radon
gas is apparently associated with mining and earth moving activities,
particularly in phosphate-bearing geological formations. Since phosphate mining
has, over the years, constituted a significant industry in Florida, various
state and local governmental agencies are in the process of attempting to
determine the nature and extent of indoor radon gas intrusion throughout the
state. Similar studies undertaken by the Company at its Citrus Springs community
indicate that less than 1% of its property in that community may be affected by
radon gas; studies conducted at the Company's Marion Oaks community revealed no
indications of potential indoor radon gas problems. None of the other properties
owned by the Company are situated over geological formations which are suspected
of causing radon gas problems. Consequently, the existence of radon gas in
Florida is not expected to materially affect the business or financial condition
of the Company.
The Company owns and operates one above ground fuel storage tank at Marion
Oaks. The Florida Department of Environmental Regulation ("DER") is responsible
not only for regulating this tank, but for developing and implementing plans and
programs to prevent the discharge of pollutants by the facility. The Company has
registered this storage tank with the DER, constructed a containment device
around the above ground storage tank and conducts periodic inspections and
monitoring of the facility. The Company surveyed this site, which exhibited
evidence of potential soil contamination to the DER prior to the deadline for
acceptance into the Early Detection Incentive ("EDI") Program. The EDI Program
provides for the State to assume the financial responsibility for any necessary
clean-up operations when suspected contamination has been voluntarily reported
by the facility owner and accepted into the program by the DER. The site has
been inspected and reviewed under the EDI program and is in compliance with
current DER regulations.
Marketing
The Company is also subject to a number of statutes imposing registration,
filing and disclosure requirements with respect to homesites and homes sold or
proposed to be sold to the public. On the state level, the Company's land sales
activities are subject to the jurisdiction of the Division of Florida Land
Sales, Condominiums and Mobile Homes (the "Division") which requires
registration of subdividers and subdivided land; regulates the contents of
advertising and other promotional material; inspects the Company's land and
development work; exercises jurisdiction over sales practices; and requires full
disclosure to prospective purchasers of pertinent information relating to the
property offered for sale.
Other Obligations
As a result of the delays in completing the land improvements to certain
property sold in certain of its Central and North Florida communities, the
Company fell behind in meeting its contractual obligations to its customers. In
connection with these delays, in 1980 the Company entered into a Consent Order
with the Division which provided a program for notifying affected customers.
Since 1980, the Consent Order was restated and amended several times,
culminating in the 1992 Deltona Consent Order.
On December 30, 1997, the Division approved the formation of a Lot Exchange
Trust into which the Company conveyed sufficient exchange inventory to provide
exchanges to customers with undeveloped lots. Concurrently, the Division
released its lien on the Company's contracts receivable, satisfied its mortgage
on the Company's property and approved a settlement of all remaining issues
under the 1992 Deltona Consent Order. The 1992 Deltona Consent Order was
formally terminated on April 13, 1998.
As of December 31, 2001, the Company had estimated development obligations
of approximately $25,000 on sold property, an estimated liability to provide
title insurance and deeding costs of $145,000 and an estimated cost of street
maintenance, prior to assumption of such obligations by local governments, of
$638,000, all of which are included in
9
deferred revenue. As of December 31, 2001 and December 31, 2000 the Company had
in escrow approximately $7,000 specifically for land improvements at certain of
its Central and North Florida communities. The Company's development obligation
had been substantially reduced in 1997 by the consummation of the Agreement
approved by the stockholders on November 4, 1997. Approximately $7,400,000 of
the development obligation at St. Augustine Shores was assumed by Swan. In
addition, the creation of a Lot Exchange Trust, reduced the development
obligation at Marion Oaks and Sunny Hills by approximately $5,800,000.
On the federal level, the Company's homesite installment sales are subject
to the Federal Consumer Credit Protection ("Truth-in-Lending") Act. In addition,
the Company's activities are subject to regulation by the Interstate Land Sales
Registration Division ("ILSRD"), which administers the Interstate Land Sales
Full Disclosure Act. That Act requires that the Company file with ILSRD copies
of applicable materials on file with the Division as to all properties
registered; certain properties must be registered directly with ILSRD, in
addition to being registered with the Division.
The Company has either complied with applicable statutory requirements
relative to the properties it is offering or has relied on various statutory
exemptions which have relieved the Company from such registration, filing and
disclosure requirements. If these exemptions do not continue to remain available
to the Company, compliance with such statutes may result in delays in the
offering of the Company's properties to the public.
The Company's land sales activities are further subject to the jurisdiction
of the laws of various states in which the Company's properties are offered for
sale. In addition, Florida and other jurisdictions in which the Company's
properties are offered for sale have strengthened, or may strengthen, their
regulation of subdividers and subdivided lands in order to provide further
assurances to the public. The Company has attempted to take appropriate steps to
modify its marketing programs and registration applications in the face of such
increased regulation, but has incurred additional costs and delays in the
marketing of certain of its properties in certain states and countries. For
example, the Company has complied with the regulations of certain states which
require that the Company sell its properties to residents of those states
pursuant to a deed and mortgage transaction, regardless of the amount of the
down payment. The Company intends to continue to monitor any changes in statutes
or regulations affecting, or anticipated to affect, the sale of its properties
and intends to take all necessary and reasonable action to assure that its
properties and its proposed marketing programs are in compliance with such
regulations, but there can be no assurance that the Company will be able to
timely comply with all regulatory changes in all jurisdictions in which the
Company's properties are presently offered for sale to the public.
Real estate salespersons must, absent exemptions which may be available to
employees of the property owner, be licensed in the jurisdiction in which they
perform their activities. Real estate brokerage companies in Florida, as well as
their brokers and salespersons, must be licensed by the Florida Real Estate
Commission.
Miscellaneous
Various subsidiaries and divisions of the Company are subject to regulation
by local, state and federal agencies. Such regulation extends to the licensing
of operations, operating areas and personnel; the establishment of safety and
service standards; and various other matters.
10
ITEM 3
LEGAL PROCEEDINGS
From time to time the Company may become a party to legal and
administrative proceedings arising in the ordinary course of business. At
present, the Company is not a party to any legal or administrative proceeding
which might have a material adverse effect on the business or financial
condition of the Company.
11
ITEM 5
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Company's Common Stock is quoted on the Over-The-Counter Bulletin Board
("OTCBB") under the symbol DLTA. According to the Over-The-Counter Bulletin
Board, the low and high bid prices for the Company's stock during the first,
second, third and fourth quarters of 2000 and 2001 were as follows:
Low Bid High Bid
------- --------
1st quarter 2000 $ 0.19 $ 0.21
2nd quarter 2000 $ 0.15 $ 0.25
3rd quarter 2000 $ 0.18 $ 0.63
4th quarter 2000 $ 0.14 $ 0.53
1st quarter 2001 $ 0.16 $ 0.56
2nd quarter 2001 $ 0.25 $ 0.45
3rd quarter 2001 $ 0.25 $ 0.46
4th quarter 2001 $ 0.25 $ 0.37
As of March 14, 2002, there were approximately 1,765 record holders of the
Company's Common Stock. The Company has not privately purchased or sold any
stock since September 30, 2001.
The Company has never paid cash dividends on its Common Stock. The
Company's loan agreements contain certain restrictions which currently prohibit
the Company from paying dividends on its Common Stock.
12
ITEM 6
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table summarizes selected consolidated financial information
and should be read in conjunction with the Consolidated Financial Statements.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations".
Consolidated Income Statement Data
(in thousands except per share amounts)
Year Ending
----------------------------------------------------------------------------
December 31, December 31, December 31, December 31, December 31,
2001 2000 1999 1998 1997
------------ ------------ ------------ ------------ ------------
Revenues ........................ $ 14,145 $ 9,617 $ 8,837 $ 6,487 $ 9,425
Costs and expenses .............. 13,793 10,659 9,204 9,078 10,751
------------ ------------ ------------ ------------ ------------
Income (Loss) from continuing
operations before income taxes.. 352 (1,042) (367) (2,591) (1,326)
Provision for income taxes ...... -0- -0- -0- -0- -0-
------------ ------------ ------------ ------------ ------------
Net income (loss) applicable
to common stock ............... $ 352 $ (1,042) $ (367) $ (2,591) $ (1,326)
============ ============ ============ ============ ============
Basic earnings per share amounts:
Net income (loss) ............... $ .03 $ (.08) $ (.03) $ (.19) $ (.20)
============ ============ ============ ============ ============
Weighted average common shares
outstanding .................... 13,544,277 13,544,277 13,544,277 13,544,277 6,753,587
============ ============ ============ ============ ============
Consolidated Balance Sheet Data
(in thousands)
December 31, December 31, December 31, December 31, December 31,
2001 2000 1999 1998 1997
------------ ------------ ------------ ------------ ------------
Total assets .................... $ 13,430 $ 13,968 $ 11,913 $ 11,915 $ 13,560
======== ======== ======== ======== ========
Liabilities ..................... $ 21,747 $ 22,807 $ 20,117 $ 20,175 $ 19,174
Stockholders' equity
(deficiency) ................... (8,317) (8,839) (8,204) (8,260) (5,614)
-------- -------- -------- -------- --------
Total liabilities and
stockholders' equity
(deficiency) ................... $ 13,430 $ 13,968 $ 11,913 $ 11,915 $ 13,560
======== ======== ======== ======== ========
13
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
From June 19, 1992 through March 1999, the Company had entered into loan
agreements with Selex International B.V., a Netherlands corporation ("Selex"),
Yasawa Holdings, N.V., a Netherlands Antilles Corporation ("Yasawa"), Swan
Development Corporation ("Swan") and related parties, including Scafholding
B.V., a Netherlands corporation ("Scafholding"). Since December, 1992, the
Company has been dependent on loans and advances from Selex, Yasawa, Swan and
their affiliates in order to meet its working capital requirements.
Scafholding agreed to purchase contracts receivable at 65% of face value, with
recourse, to meet the Company's ongoing capital requirements. During 1998,
Scafholding purchased approximately $1,396,000 in contracts receivable from the
Company.
As of December 31, 1999, the Company had satisfied its principal debt obligation
to Scafholding. The Company's outstanding debt to Yasawa as of December 31, 2001
was $4,200,000. The terms of repayment of the restructured Yasawa loan provide
for monthly payments of principal in the amount of $100,000 payable monthly in
cash or with contracts receivable at 100% of face value, with recourse. Interest
accrues on the declining balance at the rate, effective January 1, 1999, of 6%
per annum. The interest rate was again changed effective January 1, 2001 to the
prime rate, to be adjusted semi-annually thereafter, to equal the prime rate
then in effect. From January 2001 to June 2001, the interest rate on the
outstanding debt was 9.5%, which was prime. As of July 2001, the interest rate
on the outstanding debt has been adjusted to 6.5%, which equals the prime rate
as of July 1, 2001. Yasawa and Scafholding have not required the Company to make
interest payments since September 1, 1998. As of December 31, 2001, the total
amount of interest accrued is approximately $1,456,000, which is included in
accrued expenses.
From October 9, 1998 through the present, Swan continued to loan the Company
funds to meet its working capital requirements. The Company's outstanding debt
to Swan, which is secured by a second lien on the Company's receivables, was
$5,929,000 as of December 31, 2001. The Company signed a promissory note to Swan
in March 1999, which provides that funds advanced by Swan will be paid back by
the Company monthly in contracts receivables at 90% of face value, with
recourse. There is no interest for the first six months after an advance of
money is received from Swan by the Company; thereafter the interest was 6% per
annum on the outstanding balance of the advance. The interest rate was changed
effective January 1, 2001 to the prime rate, to be adjusted semi-annually
thereafter, to equal the prime rate then in effect. Each time an advance is
made, a supplemental note is signed. The amount of each monthly payment will
vary and will be dependent upon the amount of contracts receivable in the
Company's portfolio, excluding contracts receivable held as collateral for prior
receivable sales. Pursuant to the terms of the promissory note, the Company is
required to transfer to Swan monthly as debt repayment all current contracts
receivable in the Company's portfolio in excess of the aggregate sum of
$500,000. Funds advanced by Swan were used by the Company to meet the Company's
working capital requirements. From January 2001 to June 2001, the interest rate
on the outstanding debt was 9.5%, which was prime. As of July 2001, the interest
rate on the outstanding debt has been adjusted to 6.5%, which equals the prime
rate as of July 1, 2001. As of December 31, 2001, the total amount of interest
accrued is approximately $591,000, which is included in accrued expenses.
For 2001, the Company recorded interest expense for the first six months of each
loan advance from Swan that is non-interest bearing at the prime rate, the
Company's incremental borrowing rate. Since the interest is not paid to Swan,
the amount calculated is recorded as a capital contribution increase to capital
surplus. For 2001, the Company recorded interest expense and a capital
contribution in the amount of approximately $170,000.
For 2000 and 1999, the Company recorded interest expense on all outstanding debt
balances to Yasawa, Scafholding and Swan at 8%, the Company's incremental
borrowing rate. The difference between interest calculated at 8% and the amount
accrued under the terms of the respective notes was recorded as a capital
contribution increase to capital surplus. For 2000 and 1999, the Company
recorded interest expense and a capital contribution in the amount of
approximately $408,000 and $423,000, respectively.
14
Results of Operations
Years ended December 31, 2001 and December 31, 2000
Revenues
Total revenues were $14,145,000 for 2001 compared to $9,617,000 for 2000.
Gross land sales were $9,960,000 for 2001 versus $6,804,000 for 2000. Net
land sales (gross land sales less estimated uncollectible installment sales and
contract valuation discount) increased to $7,689,000 for 2001 compared to
$4,896,000 for 2000. The increase reflects higher sales by the Company's
independent dealers and a lower estimate of uncollectible installment sales .
New retail land sales contracts entered into, including deposit sales on
which the Company has received less than 20% of the sales price, net of
cancellations, for the years ended December 31, 2001 and December 31, 2000 were
$10,258,000 and $9,535,000, respectively. The Company had a backlog of
$3,785,000 and $4,413,000 in unrecognized sales as of December 31, 2001 and
2000, respectively. Such contracts are not included in retail land sales until
the applicable rescission period has expired and the Company has received
payments totaling 20% of the contract sales price. See Note 1 to the
Consolidated Financial Statements.
Advertising and marketing costs are charges to operations when incurred.
Sales commissions are recognized as a liability when the related contract is
accepted or as a prepaid asset when paid and charged to expense when the sale is
recognized as revenue.
Housing revenues are not recognized from housing sales until the completion
of construction and the passage of title. Housing revenues were $4,975,000 for
2001 compared to $3,231,000 for 2000. The increase in housing revenues is
directly related to the Company's expanded promotional programs for housing.
Improvement revenues result from recognition of revenues deferred from
prior period sales. Recognition occurs as development work proceeds on the
previously sold property or customers are exchanged to a developed lot.
Improvement revenues totaled $124,000 for 2001 as compared to $276,000 in 2000.
The decrease is a result of lower expenditures on development work.
Interest income was $377,000 for 2001 as compared to $440,000 for 2000.
This decrease is the result of lower contracts receivable balances resulting
from the Company's repayment of debt to Swan and Yasawa.
Gain on recovery of bad debt was $178,000 for 2001. The Company collected a
large, previously charged-off contract receivable in 2001.
Other revenues were $801,000 for 2001 compared to $774,000 for 2000. Other
revenues were generated principally by the Company's title insurance and real
estate brokerage subsidiaries.
Costs and Expenses
Costs and expenses were $13,793,000 for 2001 compared to $10,659,000 for
2000. Cost of sales totaled $6,216,000 for 2001 compared to $4,351,000 for 2000.
The increase reflects higher sales by the Company's independent dealers.
Commissions, advertising and other selling expenses totaled $4,690,000 for
2001 compared to $3,455,000 for 2000. Advertising was $194,000 for 2001 compared
to $351,000 for 2000. Other selling expenses were $1,207,000 in 2001 compared to
$1,170,000 in 2000.
15
General and administrative expenses were $1,431,000 in 2001 compared to
$1,362,000 in 2000. General and administrative expenses increased primarily due
to there being increased overhead.
Real estate tax expense was $702,032 in 2001 compared to $598,000 in 2000.
Interest expense was $754,000 in 2001 and $894,000 in 2000. The decrease in
interest expense is the result of a decrease in the interest rate on outstanding
debt offset somewhat by higher total outstanding debt. Interest in the amount of
$164,000 and $99,000 was capitalized in 2001 and 2000, respectively.
Net Income
The Company reported a net income of $352,000 for 2001 as compared to a
net loss of $1,042,000 for 2000.
Years ended December 31, 2000 and December 31, 1999
Revenues
Total revenues were $9,617,000 for 2000 compared to $8,837,000 for 1999.
Gross land sales were $6,804,000 for 2000 versus $4,959,000 for 1999. Net
land sales (gross land sales less estimated uncollectible installment sales and
contract valuation discount) increased to $4,896,000 for 2000 compared to
$4,465,000 for 1999. The increase reflects higher sales by the Company's
independent dealers and a lower estimate of uncollectible installment sales .
New retail land sales contracts entered into, including deposit sales on
which the Company has received less than 20% of the sales price, net of
cancellations, for the years ended December 31, 2000 and December 31, 1999 were
$9,535,000 and $6,491,000, respectively. The Company had a backlog of $4,413,000
and $2,139,000 in unrecognized sales as of December 31, 2000 and 1999,
respectively. Such contracts are not included in retail land sales until the
applicable rescission period has expired and the Company has received payments
totaling 20% of the contract sales price. See Note 1 to the Consolidated
Financial Statements.
Advertising and marketing costs are charges to operations when incurred.
Sales commissions are recognized as a liability when the related contract is
accepted and charged to expense when the sale is recognized as revenue.
Housing revenues are not recognized from housing sales until the completion
of construction and the passage of title. Housing revenues were $3,231,000 for
2000 compared to $3,045,000 for 1999. The increase in housing revenues is
directly related to the Company's expanded promotional programs for housing.
Improvement revenues result from recognition of revenues deferred from
prior period sales. Recognition occurs as development work proceeds on the
previously sold property or customers are exchanged to a developed lot.
Improvement revenues totaled $276,000 in 2000 as compared to $381,000 in 1999.
The decrease is a result of lower expenditures on development work.
Interest income was $440,000 for 2000 as compared to $498,000 for 1999.
This decrease is the result of lower contracts receivable balances resulting
from the Company's repayment of debt to Swan and Yasawa.
Other revenues were $774,000 for 2000 compared to $448,000 for 1999. Other
revenues were generated principally by the Company's title insurance and real
estate brokerage subsidiaries.
16
Costs and Expenses
Costs and expenses were $10,659,000 for 2000 compared to $9,204,000 for
1999. Cost of sales totaled $4,351,000 for 2000 compared to $3,693,000 for 1999.
The increase reflects higher sales by the Company's independent dealers.
Commissions, advertising and other selling expenses totaled $3,455,000 for
2000 compared to $3,040,000 for 1999. Advertising was $351,000 for 2000 compared
to $359,000 in 1999. Other selling expenses were $1,170,000 in 2000 as compared
to $1,075,000 in 1999.
General and administrative expenses were $1,362,000 in 2000 as compared to
$1,129,000 in 1999. General and administrative expenses increased primarily due
to there being increased overhead.
Real estate tax expense was $598,000 in 2000 as compared to $491,000 in
1999.
Interest expense was $894,000 in 2000 and $851,000 in 1999. The increase in
interest expense is the result of increased debt. Interest in the amount of
$99,000 and $62,000 was capitalized in 2000 and 1999, respectively.
Net Income
The Company reported a net loss of $1,042,000 for 2000 compared to a net
loss of $367,000 for 1999.
Regulatory Developments which may affect Future Operations
In Florida, as in many growth areas, local governments have sought to limit
or control population growth in their communities through restrictive zoning,
density reduction, the imposition of impact fees and more stringent development
requirements. Although the Company has taken such factors into consideration in
its master plans by agreeing, for example, to make improvements, construct
public facilities and dedicate certain property for public use, the increased
regulation has lengthened the development process and added to development
costs.
The implementation of the Florida Growth Management Act of 1985 (the "Act")
precludes the issuance of development orders or permits if public facilities
such as transportation, water and sewer services will not be available
concurrent with development. Development orders have been issued for, and
development has commenced in, the Company's existing communities (with
development being completed in certain of these communities). Thus, the
Company's communities are less likely to be affected by the new growth
management policies than future communities. Any future communities developed by
the Company will be strongly impacted by new growth management policies. Since
the Act and its implications are consistently being re-examined by the State,
together with local governments and various state and local governmental
agencies, the Company cannot further predict the timing or the effect of new
growth management policies, but anticipates that such policies may increase the
Company's permitting and development costs.
The Company's land sales activities are further subject to the jurisdiction
of the laws of various states in which the Company's properties are offered for
sale. In addition, Florida and other jurisdictions in which the Company's
properties are offered for sale have strengthened, or may strengthen, their
regulation of subdividers and subdivided lands in order to provide further
assurances to the public. The Company has attempted to take appropriate steps to
modify its marketing programs and registration applications in the face of such
increased regulation, but has incurred additional costs and delays in the
marketing of certain of its properties in certain states and countries. For
example, the Company has complied with the regulations of certain states which
require that the Company sell its properties to residents of those states
pursuant to a deed and mortgage transaction, regardless of the amount of the
down payment. The Company intends to continue to monitor any changes in statutes
or regulations affecting, or anticipated to affect, the sale of its properties
and intends to take all necessary and reasonable action to assure that its
properties and its proposed marketing programs are in compliance with such
regulations, but there can be no assurance that the Company will be able to
timely comply with all regulatory changes in all jurisdictions in which the
Company's properties are presently offered for sale to the public.
17
Liquidity and Capital Resources
Mortgages and Similar Debt
As of December 31, 1999, the Company had satisfied its principal debt
obligation to Scafholding. The Company's outstanding debt to Yasawa as of
December 31, 2001 was $4,200,000. The terms of repayment of the restructured
Yasawa loan provide for monthly payments of principal in the amount of $100,000
payable monthly in cash or with contracts receivable at 100% of face value.
Interest accrues on the declining balance at the rate, effective January 1,
1999, of 6% per annum. The interest rate was again changed effective January 1,
2001 to the prime rate, to be adjusted semi-annually thereafter, to equal the
prime rate then in effect. From January 2001 to June 2001, the interest rate on
the outstanding debt was 9.5%, which was prime. As of July 2001, the interest
rate on the outstanding debt has been adjusted to 6.5%, which equals the prime
rate as of July 1, 2001. Yasawa and Scafholding have not required the Company to
make interest payments since September 1, 1998. As of December 31, 2001, the
total amount of interest accrued is approximately $1,456,000, which is included
in accrued expenses.
From October 9, 1998 through the present, Swan continued to loan the
Company funds to meet its working capital requirements. The Company's
outstanding debt to Swan, which is secured by a second lien on the Company's
receivables, was $5,929,000 as of December 31, 2001. The Company signed a
promissory note to Swan in March 1999, which provides that funds advanced by
Swan will be paid back by the Company monthly in contracts receivables at 90% of
face value, with recourse. There is no interest for the first six months after
an advance of money is received from Swan by the Company; thereafter the
interest was 6% per annum on the outstanding balance of the advance. The
interest rate was changed effective January 1, 2001 to the prime rate, to be
adjusted semi-annually thereafter, to equal the prime rate then in effect. Each
time an advance is made, a supplemental note is signed. The amount of each
monthly payment will vary and will be dependent upon the amount of contracts
receivable in the Company's portfolio, excluding contracts receivable held as
collateral for prior receivable sales. Pursuant to the terms of the promissory
note, the Company is required to transfer to Swan monthly as debt repayment all
current contracts receivable in the Company's portfolio in excess of the
aggregate sum of $500,000. Funds advanced by Swan were used by the Company to
meet the Company's working capital requirements. From January 2001 to June 2001,
the interest rate on the outstanding debt was 9.5%, which was prime. As of July
2001, the interest rate on the outstanding debt has been adjusted to 6.5%, which
equals the prime rate as of July 1, 2001. As of December 31, 2001, the total
amount of interest accrued is approximately $591,000, which is included in
accrued expenses.
For 2001, the Company recorded interest expense for the first six months of
each loan advance from Swan that is non interest bearing at the prime rate, the
Company's incremental borrowing rate. Since the interest is not paid to Swan,
the amount calculated is recorded as a capital contribution increase to capital
surplus. For 2001, the Company recorded interest expense and a capital
contribution in the amount of approximately $170,000.
For 2000 and 1999, the Company recorded interest expense on all outstanding
debt balances to Yasawa, Scafholding and Swan at 8%, the Company's incremental
borrowing rate. The difference between interest calculated at 8% and the amount
accrued under the terms of the respective notes was recorded as a capital
contribution increase to capital surplus. For 2000 and 1999, the Company
recorded interest expense and a capital contribution in the amount of
approximately $408,000 and $423,000, respectively.
The following table presents information with respect to mortgages and
similar debt (in thousands):
Years Ended
-----------
December 31, December 31,
2001 2000
------------ ------------
Mortgage Notes Payable................... $ 4,200 $ 5,400
Other Loans.............................. 6,077 5,572
------- -------
Total Mortgages and similar debt....... $10,277 $10,972
------- -------
- --------------------
* Included in Mortgage Notes Payable is the Yasawa loan ($4,200,000 at
December 31, 2001); included in Other Loans is the Swan loan ($5,929,000
as of December 31, 2001).
18
Indebtedness under various purchase money mortgages and loan agreements is
collateralized by substantially all of the Company's assets, including stock of
certain wholly-owned subsidiaries. The Company's outstanding debt to Yasawa is
secured by a first lien on the Company's receivables and a mortgage on all of
the Company's property; and the Company's outstanding debt to Swan is secured by
a second lien on the Company's receivables.
Contracts and Mortgages Receivable Sales
In 1990 and 1992, the Company sold contracts and mortgages receivable to
third parties. These transactions, among other things require that the Company
replace or repurchase any receivable that becomes 90 days delinquent upon the
request of the purchaser. Such requirement can be satisfied from contracts in
which the purchaser holds a security interest (approximately $1,115,000 as of
December 31, 2001). The Company has reserved for the estimated future
cancellations based on the Company's historical experience for receivables the
Company services and believes these reserves to be adequate. The Company did not
replace any delinquent receivables in 1999, 2000 or 2001. As of December 31,
2001 and 2000, $1,060,000 and $1,210,000 in receivables were delinquent,
respectively.
During 1998, Scafholding purchased approximately $1,400,000 in contracts
and mortgages receivable from the Company at sixty-five percent (65%) of face
value with recourse for non-performing contracts. These sales generated
approximately $900,000 used to meet the Company's working capital requirements.
The Company was the guarantor of approximately $17,368,000 of contracts
receivable sold or transferred as of December 31, 2001, for the transactions
described above. There are no funds on deposit with purchasers of the
receivables as security to assure collectibility as of such date. A provision
has been established for the Company's obligation under the recourse provisions
of which approximately $2,994,000 remains at December 31, 2001. The Company has
been in compliance with all receivable transactions since the consummation of
receivable sales.
The Company has an agreement with Scafholding and Citony Development
Corporation for the servicing of their receivable portfolios. The Company
received approximately $73,000 and $75,300 in 2001 and 2000, respectively, in
revenue pursuant to these agreements.
In the future, if the Company elects to do so, Yasawa and Scafholding have
agreed to purchase contracts receivable at 65% of face value, with recourse. The
Company has an agreement with Swan whereby Swan may loan the Company funds to
be repaid with contracts receivable at 90% of face value, with recourse.
Other Obligations
As of December 31, 2001, the Company had estimated development obligations
of approximately $25,000 on sold property, an estimated liability to provide
title insurance and deeding costs of $145,000 and an estimated cost of street
maintenance, prior to assumption of such obligations by local governments, of
$638,000, all of which are included in deferred revenue. As of December 31, 2001
and December 31, 2000 the Company had in escrow approximately $7,000
specifically for land improvements at certain of its Central and North Florida
communities. The Company's development obligation had been substantially reduced
in 1997 by the consummation of the Agreement approved by the stockholders on
November 4, 1997. Approximately $7,400,000 of the development obligation at St.
Augustine Shores was assumed by Swan. In addition, the creation of a Lot
Exchange Trust reduced the development obligation at Marion Oaks and Sunny Hills
by approximately $5,800,000.
Liquidity
Retail land sales have traditionally produced negative cash flow through
the point of sale as a result of a regulatory requirement to sell fully
developed lots and the additional requirement to pay marketing and selling
expenses prior to or shortly after the point of sale. In an effort to offset the
negative cash flow effects of installment land sales, the Company is directing a
greater portion of its marketing efforts to the sale of lots with homes and is
now offering lots for sale in
19
compulsory building areas where a lot purchaser must complete payments for the
lot and construct a home within a limited period of time.
The Company has been dependent on its ability to sell or otherwise finance
its contracts receivable and/or secure other financing to meet its cash
requirements. Since 1992, the Company has been largely dependent on Yasawa,
Scafholding and Swan and related parties for the financing of its operations.
Although Scafholding has purchased contracts receivables at the rate of 65% of
face value, with recourse, and Swan has loaned the Company additional funds to
be paid back with contracts receivable at the rate of 90% of face value, with
recourse, there can be no guarantee that the Company will be able to generate
sufficient receivables to obtain sufficient financing in the future nor can
there be any guarantee that Yasawa, Scafholding, Swan and other related parties
will continue to make loans to the Company.
20
ITEM 7A
DISCLOSURE AND MARKET RISK
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 transaction. 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 stated
amount of cash and cash equivalents is a reasonable estimate 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 stated
value of the contracts and mortgages receivable and similar debt approximate
fair value.
Management does not use derivatives to manage its exposure market interest
rate risk.
The Company is exposed to market interest rate risk on its contracts
receivable. Contracts receivable consists of fixed interest rate paper with an
initial collection term of ten years. The stated interest rate is below market
interest rates for similar paper. The Company periodically adjusts the stated
rate on new contracts in response to changes in the market interest rate and
other competitive sales factors. The Company discounts the contracts notes
receivable to current market rates. At December 31, 2001, the average stated
rate for contracts receivable was 8.5%, and the discount rate used was 13.5%.
The Company is required to transfer all current contracts receivable in excess
of the aggregate sum of $500,000 to a creditor for debt reduction. The Company's
outstanding contracts receivable, net of allowance for cancellations before
valuation adjustment was $1,351,000 at December 31, 2001. The unamortized
valuation adjustment at December 31, 2001 was $138,000. Management estimates
that a 1% increase in the market interest rate equals a valuation discount
increase of approximately $30,000, which would reduce net income.
At December 31, 2001, interest rates on contracts receivable outstanding
ranged from 5% to 12% per annum (weighted average approximately 9.35%). The
approximate principal maturities of contracts receivable were:
December 31, 2001
-----------------
(in thousands)
2002.................................... $ 225
2003.................................... 199
2004.................................... 208
2005.................................... 210
2006.................................... 174
2007 and thereafter..................... 540
-------
Total.......................... $ 1,556
=======
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, 2001 and 2000 approximate $713,000 and
$797,000, respectively.
Information with respect to interest rates and average contract lives used
in valuing new contracts receivable generated from sales follows:
Average Average Stated Discounted
Years ended Term Interest Rate to Yield
----------- ------- -------------- ----------
December 31, 2001...... 111 months 8.5% 13.5%
December 31, 2000...... 98 months 7.8% 13.5%
December 31, 1999...... 88 months 7.5% 13.5%
21
The Company also has exposure to market interest rate risk on outstanding
debt. As of December 31, 2001, the Company has outstanding debt of approximately
$10,277,000. The stated interest rate is the prime rate, which was 6.5% at
December 31, 2001. The outstanding debt has no standard repayment term, it is
dependant on the Company's sales and future contracts receivable. Under the
assumption that additional borrowings would be approximate to any debt
repayment, the Company estimates that a 1% increase in the market interest rate
equals an increase in interest expense of approximately $103,000, which would
reduce net income.
22
ITEM 8
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND SUPPLEMENTAL DATA
Page
----
Independent Auditors' Report....................................... 24
Consolidated Balance Sheets as of December 31, 2001 and
December 31, 2000................................................ 25
Statements of Consolidated Operations for the years ended
December 31, 2001, December 31, 2000 and December 31, 1999....... 27
Statements of Consolidated Stockholders' Equity (Deficiency) for
the years ended December 31, 2001, December 31, 2000 and
December 31, 1999................................................ 28
Statements of Consolidated Cash Flows for the years ended
December 31, 2001, December 31, 2000 and December 31, 1999....... 29
Notes to Consolidated Financial Statements......................... 31
23
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, 2001 and 2000 and the
related statements of consolidated operations, consolidated stockholders' equity
(deficiency) and consolidated cash flows for the years ended December 31, 2001,
2000 and 1999. 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 auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
at December 31, 2001 and 2000 and the results of its operations and its cash
flows for the years ended December 31, 2001, 2000 and 1999 in conformity with
accounting principles generally accepted in the United States of America.
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 in prior periods, has continued to experience problems with
liquidity and has a stockholders' deficiency at December 31, 2001. These matters
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans concerning these matters are described in Note 1.
The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
JAMES MOORE & CO. P.L.
Certified Public Accountants
Gainesville, Florida
February 8, 2002
24
CONSOLIDATED BALANCE SHEETS
THE DELTONA CORPORATION AND SUBSIDIARIES
ASSETS
(in thousands)
December 31, December 31,
2001 2000
------------ ------------
Cash and cash equivalents, including escrow
deposits and restricted cash of $561 in 2001
and $587 in 2000 (Note 7)..................... $ 923 $ 680
-------- --------
Contracts receivable for land sales (Notes 2,
5 and 8)...................................... 1,556 2,109
Less: Allowance for uncollectible contracts.... (205) (291)
Unamortized valuation discount........... (138) (264)
-------- --------
Contracts receivable - net..................... 1,213 1,554
-------- --------
Mortgages and other receivables - net(Notes 2,
5 and 8)...................................... 248 140
-------- --------
Inventories, at lower of cost or net
realizable value (Notes 3 and 5):
Land and land improvements..................... 7,941 8,375
Other.......................................... 1,261 1,361
-------- --------
Total inventories........................ 9,202 9,736
-------- --------
Property, plant and equipment - net (Notes 4
and 5)........................................ 623 455
-------- --------
Investment in venture (Note 12)................ 53 -0-
-------- --------
Prepaid expenses and other..................... 1,168 1,403
-------- --------
Total........................... $ 13,430 $ 13,968
======== ========
The accompanying notes are an integral part of the
consolidated financial statements.
25
CONSOLIDATED BALANCE SHEETS
THE DELTONA CORPORATION AND SUBSIDIARIES
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
(in thousands except share data)
December 31, December 31,
2001 2000
------------ ------------
Mortgages and similar debt (Note 5):
Mortgage notes payable ..................... $ 4,200 $ 5,400
Other loans ................................ 6,077 5,572
-------- --------
Total mortgages and similar debt ..... 10,277 10,972
Accounts payable-trade ......................... 298 217
Accrued interest payable (Note 5) .............. 2,047 1,329
Accrued taxes, principally real estate taxes ... 81 289
Accrued expenses and other (Notes 2 and 8) ..... 3,360 3,258
Customers' deposits ............................ 1,259 1,397
Deferred revenue (Notes 1 and 7) ............... 4,425 5,345
-------- --------
Total liabilities .............................. 21,747 22,807
-------- --------
Commitments and contingencies (Notes 1, 2, 5,
7 and 8)
Stockholders' equity (deficiency) (Notes 1, 5,
and 9):
Common stock, $1 par value-authorized
15,000,000 shares; issued and outstanding:
13,544,277 shares in 2001 and 2000 (excluding
12,228 shares held in treasury) ............ 13,544 13,544
Capital surplus ............................ 52,440 52,270
Accumulated deficit ........................ (74,301) (74,653)
-------- --------
Total stockholders' equity (deficiency) ........ (8,317) (8,839)
-------- --------
Total ................. $ 13,430 $ 13,968
======== ========
The accompanying notes are an
integral part of the consolidated financial statements.
26
STATEMENTS OF CONSOLIDATED OPERATIONS
THE DELTONA CORPORATION AND SUBSIDIARIES
(in thousands except share data)
Years Ended
--------------------------------------------
December 31, December 31, December 31,
2001 2000 1999
------------ ------------ ------------
Revenues
Gross land sales (Notes 2 and 7) ............... $ 9,960 $ 6,804 $ 4,959
Less: Estimated uncollectible sales ............ (2,198) (1,641) (322)
Contract valuation discount .............. (73) (267) (172)
-------- -------- --------
Net land sales ................................. 7,689 4,896 4,465
Sales-housing .................................. 4,975 3,231 3,045
Recognized improvement revenue-prior period
sales ......................................... 124 276 381
Gain on recovery of bad debt ................... 178 -0- -0-
Interest income ................................ 377 440 498
Other .......................................... 802 774 448
-------- -------- --------
Total 14,145 9,617 8,837
-------- -------- --------
Costs and expenses
Cost of sales-land ............................. 1,928 1,397 986
Cost of sales-housing .......................... 4,028 2,716 2,402
Cost of improvements-prior period sales ........ 59 62 126
Cost of sales-other ............................ 201 175 179
Commissions, advertising, and other selling
expenses ...................................... 4,690 3,455 3,040
General and administrative expenses ............ 1,431 1,362 1,129
Real estate tax ................................ 702 598 491
Equity in loss of joint venture................. 30 -0- -0-
Interest expense ............................... 724 894 851
-------- -------- --------
Total 13,793 10,659 9,204
-------- -------- --------
Profit (loss) from operations before income
taxes .......................................... 352 (1,042) (367)
Provision for income taxes (Note 6) ............. -0- -0- -0-
Net income (loss) ............................... $ 352 $ (1,042) $ (367)
======== ======== ========
Net income (loss) per common share .............. $ .03 $ (.08) $ (.03)
======== ======== ========
The accompanying notes are an
integral part of the consolidated financial statements.
27
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY (DEFICIENCY)
THE DELTONA CORPORATION AND SUBSIDIARIES
(in thousands)
For the years ended
December 31, 2001, 2000 and 1999
Common Stock Capital Accumulated
($1 par value) Surplus Deficit Total
-------------- ------- ----------- ---------
Balances, December 31, 1998 .............. $ 13,544 $ 51,440 $(73,244) $ (8,260)
Imputed Interest expense on
debt with Related Party
(See Note 5) ............. -0- 423 -0- 423
Net (loss) for the year ... -0- -0- (367) (367)
-------- -------- -------- --------
Balances, December 31, 1999 .............. $ 13,544 $ 51,863 $(73,611) $ (8,204)
Imputed Interest expense on
debt with Related Party
(See Note 5) ............. -0- 407 -0- 407
Net (loss)for the year .... -0- -0- (1,042) (1,042)
-------- -------- -------- --------
Balances, December 31, 2000 .............. $ 13,544 $ 52,270 $(74,653) $ (8,839)
Imputed Interest expense on
debt with Related Party
(See Note 5) ............. -0- 170 -0- 170
Net income for the year ... -0- -0- 352 352
-------- -------- -------- --------
Balances, December 31, 2001 .............. $ 13,544 $ 52,440 $(74,301) $ (8,317)
======== ======== ======== ========
The accompanying notes
are an integral part of the consolidated financial statements.
28
STATEMENTS OF CONSOLIDATED CASH FLOWS
THE DELTONA CORPORATION AND SUBSIDIARIES
(in thousands)
Years Ended
--------------------------------------------
December 31, December 31, December 31,
2001 2000 1999
------------ ------------ ------------
Cash flows from operating activities:
Cash received from operations:
Proceeds from sale of residential units ....... $ 4,852 $ 3,282 $ 2,846
Collections on contracts and mortgages
receivable ................................... 778 1,040 1,051
Down payments on and proceeds from sales
of homesites and tracts ................... 1,748 1,748 891
Proceeds (uses) from other sources ......... 375 490 (80)
-------- -------- --------
Total cash received from operations ..... 7,753 6,560 4,708
-------- -------- --------
Cash expended by operations:
Cash paid for residential units ............ 4,036 3,167 2,402
Cash paid for land and land improvements ... 1,494 1,309 1,648
Cash paid for interest...................... 5 0 0
Commissions, advertising and other
selling expenses .......................... 4,254 4,737 3,274
General and administrative expenses ........ 1,247 1,082 1,452
Real estate taxes paid ..................... 900 347 3,336
-------- -------- --------
Total cash expended by operations ....... 11,936 10,642 12,112
-------- -------- --------
Net cash provided by (used in)
operating activities ................... (4,183) (4,082) (7,404)
-------- -------- --------
Cash flows from investing activities:
Proceeds from sale of property, plant
and equipment ................................. 0 0 3
Payment for acquisition and construction of
property, plant and equipment ................ (76) (31) (72)
Investment in Venture.......................... (83) 0 0
-------- -------- --------
Net cash provided by (used in) investing
activities ............................. (159) (31) (69)
-------- -------- --------
Cash flows from financing activities:
New borrowings ................................. 4,600 4,245 7,300
Repayment of borrowings ........................ (15) 0 0
-------- -------- --------
Net cash provided by (used in) financing
activities ............................. 4,585 4,245 7,300
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents .................................... 243 132 (173)
Cash and cash equivalents, beginning of year .... 680 548 721
-------- -------- --------
Cash and cash equivalents, end of year .......... $ 923 $ 680 $ 548
======== ======== ========
The accompanying
notes are an integral part of the consolidated financial statements.
29
STATEMENTS OF CONSOLIDATED CASH FLOWS - (Continued)
THE DELTONA CORPORATION AND SUBSIDIARIES
(in thousands)
Years Ended
--------------------------------------------
December 31, December 31, December 31,
2001 2000 1999
------------ ------------ ------------
Reconciliation of net income (loss) to net cash
provided by (used in) operating activities:
Net income (loss) ............................... $ 352 $ (1,042) $ (367)
------- -------- -------
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation .............................. 72 66 50
Provision for estimated uncollectible
sales and recourse obligations ........... 2,198 1,641 322
Contract valuation discount, net of
amortization.............................. (126) 62 (5)
Net (gain) loss on sale of property, plant
and equipment ............................ -0- -0- (3)
Equity in loss in joint venture............ 30 -0- -0-
Imputed Interest on debt with related party
(See Note 5) ............................. 170 408 423
(Increase) decrease in assets and increase
(decrease) in liabilities:
Gross contracts receivable plus deductions
from reserves ............................ (7,174) (7,558) (3,844)
Mortgages and other receivables ........... (108) (31) 85
Land and land improvements ................ 597 (138) (658)
Housing completed or under construction
and other ................................ (100) 6
Prepaid expenses and other ................ 234 (492) (205)
Accounts payable, accrued expenses and
other .................................... 530 1,103 (3,801)
Customers' deposits ....................... (138) 667 (266)
Deferred revenue .......................... (920) 1,662 859
------- ------ ------
Total adjustments and changes ..... (4,535) (3,040) (7,037)
------- ------ ------
Net cash provided by (used in) operating
activities .................................... $(4,183) $(4,082) $(7,404)
======= ======= =======
Supplemental disclosure of non-cash investing
and financing activities:
Interest expense treated as contribution to
capital (See Note 5) ........................ $ 170 $ 408 $ 423
======= ======= =======
Increase in inventory as a result of
spec house transfer and corresponding
increase in debt ............................ $ -0- $ 863 $ -0-
======= ======= =======
Reduction of accrued interest and mortgage
notes payable through transfer of contracts
receivable ................................... $ 5,443 $ 5,850 $ 4,151
======= ======= =======
Acquisition of equipment financed with debt..... $ 164 $ -0- $ -0-
======= ======= =======
The accompanying
notes are an integral part of the consolidated financial statements.
30
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 net income from operations for 2001 of $352,000, and a
net loss from operations for 2000 and 1999 of $1,042,000 and $367,000,
respectively, resulting in a stockholders' deficiency of $8,317,000 as of
December 31, 2001.
Following the restructuring of its debt in 1997 (see Note 5), the Company
commenced the implementation of its business plan by redirecting its focus to
single-family housing with the development of TimberWalk and other housing in
Marion Oaks. The transactions described in Note 5 with Selex International, B.V.
("Selex"), Yasawa Holdings, N.V. ("Yasawa"), Scafholding B.V. ("Scafholding")
and Swan Development Corporation ("Swan"), provided the Company with a portion
of its financing requirements enabling the Company to commence implementation of
the marketing program and attempt to accomplish the objectives of its business
plan. Selex, Yasawa, Scafholding and Swan are related parties to the Company
either because they are stockholders or as a result of common control.
The Company has been dependent on its ability to sell or otherwise finance
contracts receivable and/or secure other financing sources to meet its cash
requirements. Additional financing was required in 2001 and was funded through
additional loans from Swan. Additional financing will be required in the future.
Although Swan has loaned the Company additional funds to be paid back with
contracts receivable at the rate of 90% of face value, with recourse since 1999,
there can be no guarantee that the Company will be able to generate sufficient
receivables to obtain sufficient financing in the future or that Yasawa,
Scafholding, Swan and other related parties will continue to make loans to the
Company. (See Notes 5 and 11.)
The consolidated financial statements do not include any adjustments
relating to the recoverability of asset amounts or the amounts of liabilities
should the Company be unable to continue as a going concern.
Significant Accounting Policies
The Company's consolidated financial statements are prepared in accordance
with accounting principles generally accepted in the United States of America.
Material intercompany accounts and transactions are eliminated.
The Company is principally engaged in the development and sale of Florida
real estate through the development of planned communities on land acquired for
that purpose. The Company sells homesites under installment contracts, which
provide for payments over periods ranging from 2 to 10 years. Since 1991, the
Company has offered only developed lots for sale. Sales of homesites are
recorded under the percentage-of-completion method in accordance with Statement
of Financial Accounting Standards No. 66, "Accounting for Sales of Real Estate"
("SFAS No. 66"). Since 1991, the Company has not recognized a sale until it has
received 20% of the contract sales price. The Company recognizes the sale of
houses at closing under the full accrual method meeting the requirements of SFAS
No. 66. The Company does not finance the sale of homes. Substantially all of the
sales in 2001 and 2000 and 73% of the sales in 1999 were through two independent
brokers in New York.
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE DELTONA CORPORATION AND SUBSIDIARIES
1. Basis of Presentation and Significant Accounting Policies (continued)
The Company records deferred revenue for contracts transferred to Swan and
Yasawa that have not yet been recognized for financial reporting purposes under
SFAS No. 66, as 20% of the contract sales price has not been received. These
contracts have not been recognized as sales when transferred to Swan and Yasawa
because Swan and Yasawa are related parties and because the recourse provision
allows the contracts to be returned to the Company in the event they become
delinquent. The Company monitors the collections on contracts receivable held by
Swan and Yasawa and recognizes the contracts as a sale when the provisions of
SFAS No. 66 are met. In addition, the Company has determined that the transfer
of contracts to Swan and Yasawa with recourse meet the requirements of Statement
of Financial Accounting Standard No. 140 "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities" ("SFAS No. 140") to be
accounted for as a sale. In accordance with the provisions of SFAS No. 140, the
Company has reduced its contracts receivable by the amount transferred and
reduced debt by the payment credit given. The Company does not retain any
financial interests in the contracts receivable transferred. SFAS No. 140 is
effective for transactions after March 31, 2001. Prior to the issuance of SFAS
No. 140, the Company followed the provisions of Statement of Financial
Accounting Standard No. 125 "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities" ("SFAS No. 125"). There was no effect
on the Company's financial reporting resulting from the transition from SFAS No.
125 to SFAS No. 140.
At the time of recording a sale the Company records an allowance for the
estimated cost to cancel the related contracts receivable through a charge to
the provision for uncollectible sales. The amount of this provision and the
adequacy of the allowance is determined by the Company's continuing evaluation
of the portfolio and past cancellation experience. While the Company uses the
best information available to make such evaluations it is at least reasonably
possible, future adjustments to the allowance may be necessary in the near term
as a result of future national and international economic and other conditions
that may be beyond the Company's control. Changes in the Company's estimate of
the allowance for previously recognized sales are reported in earnings in the
period in which they become estimable and are charged to the provision for
uncollectible contracts.
Land improvement costs are allocated to individual homesites based upon the
relationship that the homesite's sales price bears to the total sales price of
all homesites in the community. The estimated costs of improving homesites are
based upon independent engineering estimates made in accordance with sound cost
estimation and provide for anticipated cost-inflation factors. The estimates are
systematically reviewed. When cost estimates are revised, the percentage
relationship they bear to deferred revenues is recalculated on a cumulative
basis to determine future income recognition as performance takes place.
Interest costs directly related to, and incurred during, a project's
construction period are capitalized. In 1999, 2000 and 2001, approximately
$62,000, $99,000 and $164,000,respectively, in interest was capitalized.
Property, plant and equipment is stated at cost. Depreciation is provided
by the straight-line method over the estimated useful lives of the respective
assets, which range from 5 to 33 years. Additions and betterments are
capitalized, and maintenance and repairs are expensed as incurred. Generally,
upon the sale or retirement of assets, the accounts are relieved of the costs
and related accumulated depreciation, and any gain or loss is reflected in
income.