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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, 1994
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)
3250 S.W. THIRD AVENUE
MIAMI, FLORIDA 33129
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (305) 854-1111
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $1 PAR VALUE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [ ]
State the aggregate market value of the voting stock held by
non-affiliates of the Registrant: $1,676,210 based average of the
bid and asked prices of such stock as traded on the
over-the-counter on March 24, 1995. (Excludes shares of voting
stock held by directors, executive officers and beneficial owners
of more than 10% of the Registrant's voting stock; however, this
does not constitute an admission that any such holder is an
"affiliate" for any purpose.)
Indicate the number of shares outstanding of the
Registrant's classes of common stock, as of the latest
practicable date: 6,704,839 shares of common stock, $1 par
value, as of March 24, 1995.
DOCUMENTS INCORPORATED BY REFERENCE
Document Incorporated Part(s)
* Registrant's 1995 Annual Meeting
Proxy Statement to be filed with
the Securities and Exchange
Commission pursuant to Regulation 14A Part III
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THE DELTONA CORPORATION
INDEX
FORM 10-K SECTION HEADING IN PAGE
ITEM NO. ATTACHED MATERIAL NUMBER
__________ ---------------------------- -----
PART I
Items 1 and 2 .. Business.............................. 1
General............................... 1
Recent Developments................... 1
Business Segments..................... 4
Real Estate........................... 5
Other Businesses...................... 11
Employees............................. 11
Competition........................... 12
Regulation............................ 12
Item 3 ......... Legal Proceedings..................... 16
Item 4 ......... Not Applicable
PART II
Item 5 ......... Price Range of Common Stock and
Dividends............................ 18
Item 6 ......... Selected Consolidated Financial
Information.......................... 19
Item 7 ......... Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 20
Item 8 ......... Index to Consolidated Financial
Statements and Supplemental Data..... 35
Item 9 ......... Not Applicable
PART IV
Item 14 ........ Exhibits, Financial Statement Schedules
and Reports on Form 8-K.............. 61
ITEMS 1 AND 2
BUSINESS
GENERAL
The Company was founded in 1962 and is principally engaged
in the development and sale of Florida real estate, through the
development of planned communities on land acquired for that
purpose. The Company offers single-family lots and multi-family
and commercial tracts for sale, in communities designed by the
Company. The Company has developed nine planned communities in
Florida, six of which are completed and three are in various
stages of development, and range in size from 1,500 to over
17,000 acres with a combined estimated population in excess of
186,000. The Company plans, designs and develops roads,
waterways, recreational amenities, grading and drainage systems
within these communities. Since 1962, the Company has sold over
150,000 single-family lots and multi-family and commercial tracts
in its communities, in addition to over 13,000 single-family
homes and over 4,300 multi-family housing units.
The Company has substantial land holdings in Florida. Its
holdings include an inventory of over 19,400 unsold platted
single-family lots and multi-family and commercial tracts.
(Platting is the process of recording, in the public records of
the county where the land is located, a map or survey delineating
the legal boundaries of the lots and tracts.) See "Real Estate:
Land".
The Company also operates other businesses related to its
real estate activities, such as a title insurance company and a
real estate brokerage company. In addition, the Company has
designed and constructed country clubs, golf courses and other
recreational amenities at its communities, and operates such
amenities until their conveyance or sale.
Historically, the Company has designed, constructed and
operated utility systems for the distribution of water and LP gas
and for the collection and treatment of sewage, primarily at the
Company's communities. However, on June 6, 1989, Topeka Group
Incorporated ("Topeka"), a subsidiary of Minnesota Power & Light
Company ("MPL"), exchanged the Company's Preferred Stock which it
acquired in November, 1985 for the Company's utility
subsidiaries.
The Company is incorporated in Delaware and has its
principal executive offices at 3250 S.W. Third Avenue, Miami,
Florida 33129. Its telephone number is (305) 854-1111. The
Company, as used herein, refers to The Deltona Corporation and,
unless the context otherwise indicates, its wholly-owned
subsidiaries.
RECENT DEVELOPMENTS
Although the Company has experienced severe liquidity
problems since 1990, the Company was able to stabilize its
situation somewhat in 1992 when it completed a $13,500,000 sale
of contracts receivable and a transaction with Selex, described
below, which resulted in the infusion of additional funds into
the Company and in a change in control of the Company.
In June 1992, Selex International B.V., a Netherlands
Corporation ("Selex") loaned the Company $3,000,000
collateralized by a first mortgage on certain of the Company's
property in its St. Augustine Shores, Florida community ("the
First Selex Loan") and acquired from Empire of Carolina, Inc.
("Empire") 2,220,066 shares of the Company's Common Stock held by
Empire, as well as the $1,000,000 Loan which Empire previously
made the Company (with interest accrued thereon of approximately
$225,000). As part of the Selex transaction, Selex was granted
an option, which, as modified, enabled Selex to convert the First
Selex Loan, or any portion thereof, into a maximum of 600,000
shares of the Company's Common Stock at a per share conversion
price equal to the greater of (i) $1.25 or (ii) 95% of the market
price of the Company's Common Stock at the time of conversion,
but in no event greater than $4.50 per share (the "Option"). On
February 17, 1994, Selex exercised the Option, in full, at
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a conversion price of $1.90 per share, such that $1,140,000 in
principal was repaid under the First Selex Loan through such
conversion, and Selex held an aggregate of 2,820,066 shares of
the Company's Common Stock (42.06% of the outstanding shares of
Common Stock of the Company, based upon the number of shares of
the Company's Common Stock outstanding as of March 24, 1995).
In December, 1992, Mr. Gram, the beneficial owner of the
Common Stock of the Company held by Selex, acquired all of the
Company's outstanding bank debt and then assigned same to Yasawa
Holdings N.V., a Netherlands Antilles Corporation ("Yasawa").
Yasawa simultaneously completed a series of transactions with the
Company which involved the transfer of certain assets to Yasawa
or its affiliated companies, the acquisition by Yasawa of 289,637
shares of the Company's Common Stock through the exercise of
warrants previously held by the banks, the provision of a
$1,500,000 line of credit to the Company and the restructuring of
the remaining debt as a $5,106,000 loan from Yasawa ("the Yasawa
Loan").
The Company began 1993 with the objective of securing the
financing necessary to effectively implement its marketing
program and achieve the objectives of its business plan so that
the Company could continue as a going concern. The business plan
was designed to significantly increase the Company's sales
through a major marketing effort so that future working capital
could be obtained by selling or otherwise financing newly
generated contracts and mortgages receivable. During 1993, the
Company was dependent on loans and advances from Selex, Yasawa
and their affiliates in order to implement its marketing program
and assist in meeting its working capital requirements. On April
30, 1993, Selex loaned the Company an additional amount of
$1,000,000 ("the second Selex loan") and since July 1, 1993 made
further loans to the Company aggregating $4,400,000 ("the third
Selex loan"). Funds advanced under the third Selex loan enabled
the Company to commence implementation of its marketing plan in
the third quarter of 1993. The full benefits of the program were
not realized in 1993 and the Company was unable to secure
financing in 1994 to meet its ongoing working capital
requirements.
While Selex, Yasawa and their affiliates provided the
Company with certain limited funds in 1994, such funds were not
sufficient to meet the Company's obligations or support its
marketing program. Additionally, on March 10, 1994, the Company
was advised that Selex filed Amendment No. 2 dated February 17,
1994 to its Schedule 13D ("the Amendment") with the Securities
and Exchange Commission ("the Commission"). In the amendment,
Selex reported that it, together with Yasawa and their
affiliates, were uncertain as to whether they would provide any
further funds to the Company. The amendment further stated that
Selex, Yasawa and their affiliates were seeking third parties to
provide financing for the Company and that as part of any such
transaction, they would be willing to sell or restructure all or
a portion of their loans and Common Stock in the Company.
Since March, 1994, the Company together with Selex, Yasawa
and their affiliates, have engaged in discussions with third
parties to provide funds to the Company through loans, equity
investments or asset acquisitions. None of such discussions has
resulted in an agreement or commitment by any party. In the
interim, the Company's liquidity position further deteriorated,
causing the Company to default on certain obligations, including
its escrow obligations to the State of Florida, Department of
Business and Professional Regulation, Division of Land Sales,
Condominiums and Mobile Homes ("the Division") pursuant to the
Company's 1992 Consent Order, its obligation under its lease for
its corporate offices and its obligation to make required
principal and interest payments under loans from Selex, Yasawa
and their affiliates. Furthermore, the Company has not paid
certain real estate taxes which aggregate approximately
$2,676,000 as of December 31, 1994 and is subject to certain
pending litigation claims which could further adversely affect
the financial condition of the Company. To address its severe
lack of working capital, the Company has drastically reduced the
scope of its operations, which, among other things, required the
Company to reduce its staffing levels by over 78% since December
31, 1993. See "Regulation - Other Obligations", "Legal
Proceedings", "Management's Discussion and Analysis of Financial
Condition and Results of Operations", and Notes 1, 5 and 8 to
Consolidated Financial Statements.
On April 6, 1994, both the New York and Pacific Stock
Exchanges suspended the Company's Common Stock from trading and
instituted procedures to delist the Company's Common Stock. On
June 16, 1994, the Company's
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Common Stock was formally removed from listing and registration
on the New York Stock Exchange. As of December 31, 1994, the
Company's Common Stock was traded on a limited basis in the
over-the-counter markets.
On July 13, 1994, Antony Gram was appointed Chairman of the
Board and Chief Executive Officer of the Company. As Chairman
and Chief Executive Officer, Mr. Gram was given the
responsibility of resolving the financial and legal difficulties
facing the Company and developing an alternative business plan to
enable the Company to continue as a going concern. Mr. Gram, who
had served as a director of the Company and Vice Chairman of the
Board from June, 1992 through April 6, 1994, holds a controlling
interest in Yasawa and Wilbury International N.V., a Netherlands
Antilles Corporation ("Wilbury"), which holds all of the issued
and outstanding capital stock of Selex. As a consequence, Mr.
Gram is deemed to be the beneficial owner of 3,109,703 shares of
Common Stock of the Company (46.38% of the outstanding shares of
Common Stock of the Company, based upon the number of shares of
the Company's Common Stock outstanding as of March 24, 1995).
The above-described appointment of Mr. Gram as Chairman and
Chief Executive Officer of the Company represents a further
attempt by the Board of Directors to address the Company's
financial difficulties. In conjunction with Mr. Gram's
appointment, he has loaned funds to the Company to pay certain
essential expenses
and effectuate certain settlements with the Company's principal
creditors. Yasawa has, as of December 31, 1994, advanced an
aggregate amount of $2,122,000 to the Company ("the Second Yasawa
loan") at an interest rate of 8% per annum. In addition, Mr.
Gram posted a $500,000 Letter of Credit to provide assurance for
a future payment pursuant to a settlement agreement with the
Company's landlord at its corporate headquarters in Miami.
During 1994, the Company has been successful in settling
certain lawsuits, including the lawsuit involving the lease for
the Company's corporate office; reducing its occupancy costs from
in excess of $1 million per annum to approximately $90,000 per
annum and reducing trade creditor obligations from approximately
$1,100,000 to $137,000 as of December 31, 1994. Additionally, in
an effort to reduce the Company's development obligation, the
Company has been successful in exchanging purchasers with
undeveloped lots to developed lots, negotiating for the sale of
its undeveloped second golf course in Citrus Springs with a
transfer of approximately $1.6 million in development obligation
to the Buyer, and negotiating with Citrus County a final
improvement and maintenance agreement to eliminate its remaining
development obligation at the Citrus Springs subdivision. In
addition, general
administrative expenses were reduced from $3,790,000 for the year
ending December 31, 1993 to $2,984,000 for the year ending
December 31, 1994.
In March 1995, the Company approved a Purchase and Sale
Agreement with Conquistador Development Corporation ("Second
Conquistador Acquisition") for the sale of an administration
building and multi-family site in the Company's St. Augustine
Shores community as well as the remaining lot inventory in the
Company's Feather Nest community at Marion Oaks in consideration
for the satisfaction of $2,599,300 of principal and accrued
interest on the Second and Third Selex Loans. The amount of debt
reduction is equivalent to the amount of Mr. Marcel Muyres'
participation in those loans as of January 31, 1995. In a
separate transaction, Conquistador Development Corporation and
the Company approved a Purchase and Sale Agreement ("Third
Conquistador Acquisition") for the sale of four single family
residential lots in the St. Augustine Shores community for
$100,000 in cash. The Second and Third Conquistador Acquisitions
are anticipated to close by April 30, 1995.
During the first quarter of 1995, the Company initiated a
new land sales program, which utilizes a limited group of
independent dealers. During March 1995, the Company reached a
lot sales volume of over $800,000, an encouraging first step in
its new land sales program.
Efforts are continuing to seek third parties to provide
funds to the Company, to reach reasonable settlements with the
Company's principal creditors and to develop a new business plan
for the Company to continue as a going concern. There can be no
assurance, however, that any of these efforts will be successful,
that additional financing will be obtained, that reasonable
settlements will be effected with the Company's principal
creditors, or that a new business plan will be developed and
successfully implemented.
Consequently, there can be no assurance that the
3
Company can continue as a going concern. In the event that these
matters are not successfully addressed, the Company's Board of
Directors will consider other appropriate action given the
severity of the Company's liquidity position, including, but not
limited to, filing for protection under the federal bankruptcy
laws. See "Legal Proceedings", "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
Notes 1, 5 and 8 to Consolidated Financial Statements.
BUSINESS SEGMENTS
The following table sets forth the total amounts of revenues
and operating profits (losses) from continuing operations
attributable to each of the Company's business segments for the
years ended as indicated. See Note 11 to Consolidated Financial
Statements:
YEARS ENDED
_________________________________________________________________________
DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER
31, 1994 31, 1993 25, 1992 27, 1991 28, 1994
--------- -------- -------- -------- --------
(IN THOUSANDS)
REVENUES
Real estate:
Net land sales(a).......$ 2,058 $ 2,432 $ 2,092 $ 1,154 $ 11,612
Housing revenues........ 2,543 344 -0- 120 1,919
Improvement revenues(b). 1,214 4,725 2,404 -0- 2,152
Interest income(c)...... 1,046 1,197 3,584 5,270 8,236
Other................... -0- 67 -0- -0- -0-
------- -------- -------- -------- --------
Total real estate.... 6,861 8,765 8,080 6,544 23,919
Other(d).................. 1,832 3,447 4,372 4,510 5,436
Intersegment sales(e)..... (152) (113) (235) (270) (322)
------- -------- -------- -------- --------
Total................$ 8,541 $ 12,099 $ 12,217 $ 10,784 $ 29,033
======= ======== ======== ======== ========
OPERATING PROFITS (LOSSES)
Real estate...............$ 1,055 $ (3,073)$ 1,486 $ (6,750)$ (798)
Other (d)................. 1,033 279 2,209 1,928 1,789
General corporate expense. (4,147) (4,721) (7,057) (7,811) (10,602)
Interest expense.......... (1,847) (1,257) (3,356) (6,896) (7,397)
------- -------- -------- -------- --------
INCOME (LOSS) FROM
CONTINUING OPERATIONS
BEFORE INCOME TAXES
AND EXTRAORDINARY ITEMS..$(3,906) $ (8,772)$ (6,718)$(19,529)$(17,008)
======= ======== ======== ======== ========
________________
(a) Net land sales consist of gross land sales less estimated uncollectible
installment sales and contract valuation discount and, prior to 1991,
deferred revenue (see Notes 1, 2 and 7 to Consolidated Financial Statements).
(b) Improvement revenues consist of revenue recognized due to completion of
improvements on prior period sales and exchanges from undeveloped to developed
lots.
(c) Interest income primarily consists of interest earned on contracts and
mortgages receivable and on temporary cash investments and the amortization of
valuation discounts.
(d) Other consists of revenues from sales other than real estate, the major
portion of which came from the country club operations in prior years. In
1994, the major portion consists of a gain of $1,051,000 from the termination of
its office lease on its Miami corporate headquarters.
(e) Intersegment sales consist primarily of sales between the Company and
its title insurance subsidiary.
4
REAL ESTATE
The Company's principal business segment has primarily
involved the development and marketing of planned communities in
Florida since 1962. The following table sets forth certain
information about these communities and other land assets of the
Company as of December 31, 1994. For a detailed description of
these communities, see "Existing Communities" and "Other
Properties".
EXISTING COMMUNITIES
UN-
IMPROVED IMPROVED
PLATTED UNSOLD UNSOLD UN-
ESTI- LOTS & PLATTED PLATTED PLAT
ACREAGE INITIAL MATED TRACTS LOTS & LOTS & -TED
IN ACQUIS- CURRENT IN MAS- TRACTS TRACTS PLAT
MASTER- TION YEAR POPULA- TERPLAN (A)(B) (A)(B) ACR-
PLAN YEAR OPEN TION (A) EAGE
---------- ------ ----- ------- -------- ------- -------- ----
-
* Deltona Lakes. 17,203 1962 1962 63,000 34,964 - 6 -
* Marco Island(c). 7,844 1964 1965 34,000 8,657 - 1 -
* Spring Hill(d).. 17,240 1966 1967 67,000 32,909 - 6 -
* Citrus Springs
(e),(f),(g).... 15,954 1969 1970 6,200 33,783 - 61(f)(i) 2
St. Augustine
Shores ........ 1,985 1969 1970 7,000 3,130 883 8(i) 16
Sunny Hills..... 17,743 1968 1971 1,300 26,251 12,325 815(i) -
* Pine Ridge...... 9,994 1969 1972 2,250 4,833 - 10(i) -
Marion Oaks(e).. 14,644 1969 1973 7,500 27,537 4,223 1,085(i) -
* Seminole Woods.. 1,554 1969 1979 370 262 - - -
JOINT VENTURE
COMMUNITY:
* Tierra Verde.... 666 1976 1977 4,000 1,036 - - -
------- ------- ------- ------ ------- --
Total.............104,827 186,320 173,362 17,431(f) 1,992(f) 18
OTHER PROPERTIES
INITIAL
ACQUISITION
YEAR ACRES
------------ -------
Other Land Assets:
Other land adjacent to existing communities(h)...... Various 92
---
Total......................................... 92
===
__________________
* Development completed.
(a) Excluded from these lots and tracts are approximately 117 improved and
94 unimproved lots and tracts that are required for drainage and cannot be sold,
and approximately 146 improved and 354 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 3 administration facility sites, 2 recreational facility sites and
2 unimproved golf course sites, as well as approximately 463 tracts reserved for
community usage such as for greenbelts, buffer areas, church and school sites.
(b) "Unimproved Unsold Platted Lots & Tracts" and "Improved Unsold Platted
Lots & Tracts", when added to lots and tracts sold, as described in "Existing
Communities", may not equal "Platted Lots & Tracts in Masterplan" for various
reasons, such as the subdivision of tracts into two or more parcels for
sale to different purchasers.
(c) Excludes permit denial areas.
(d) Includes the South Hernando U.S. # 19 Commerce Center.
(e) Excluded 84 Citrus Springs and 65 Marion Oaks improved lots deeded to a
purchaser of the Company's
contracts receivable as exchange inventory to be available for customers who
pre-pay their contracts prior to the installation of water service lines within
one mile of their homesite and who wish to commence immediate construction.
Unused exchanged inventory will be reconveyed to the Company when
all purchased receivables have matured and are paid in full.
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(f) Excludes 850 improved and 844 unimproved platted lots and tracts held
for retail sale by Citony Development Corporation ("Citony"), an affiliate of
Yasawa. Also excludes 272 improved and 76 unimproved platted lots and tracts
owned by Citony that may be subject to certain adverse soil conditions and/or
drainage conditions that render the subject properties unuseable for retail
sales purposes. The property acquired by Citony in December 1992 was marketed
by the Company during 1993 and early 1994 pursuant to a joint venture agreement
between the Company and Citony. The Company and Citony agreed to terminate
the joint venture agreement in April 1994; however, the Company is providing
certain assistance to Citony during the transition period.
(g) Excludes 17 improved lots held by SunBank/Miami, N.A., as Trustee for
the Marco Shores Trust.
(h) Excludes 18 unplatted acres in existing communities and 3,829 acres of
unplatted natural preserves restricted for recreational park use which cannot
be sold.
(i) Included are improved lots deeded to a collateral trustee on behalf of a
purchaser of the Company's contract receivables; excluded is 1 lot in St.
Augustine Shores, 3 lots in Pine Ridge, 247 lots in
Citrus Springs and 277 lots in Marion Oaks, which are presently owned by a
purchaser of the Company's contract receivables and which are, pursuant to the
contract with such purchaser, to be deemed to the collateral trustee on
behalf of said purchaser so they may be sold by the Company to
create additional collateral.
LAND
In selecting sites for its communities, the Company examined
various demographic and economic factors, the regulatory climate,
the availability of governmental services and medical,
educational and commercial facilities, and estimated development
costs. Its communities are accessible to major highways and
Florida's major metropolitan areas and are near at least one
large body of water that can be used for recreational purposes.
Other criteria used by the Company in site selection are the
suitability of the land for natural or engineered drainage and
the availability of a sufficient supply of potable water to
support the community's anticipated population.
The master plans of the Company's communities have been
designed to provide for amenities such as golf courses, greenbelt
areas, parks and recreational areas, as well as for the basic
infrastructure, such as roads and water, and in selected
development areas, sewer lines. Sites are set aside for shopping
centers, schools, houses of worship, medical centers and public
facilities such as libraries and fire stations.
In its major planned communities, the Company offers for
sale lot and house "packages" situated on paved streets. In
other areas of these communities, the Company historically has
sold single-family lots and multi-family and commercial tracts on
an installment basis. Prior to 1991, the Company sold such land,
subject to a future development obligation, accepting down
payments as low as 5% of the sales price, with the balance
payable over periods ranging from 2 to 15 years, depending on the
payment plan selected. When the applicable rescission period
expired and the Company received at least 10% of the contracted
sales price, a substantial portion of the revenue and related
profit on the sale was recognized, with the remaining revenue and
profit deferred and recognized as land improvements such as
street paving occurred.
Due to various factors, since 1986, the Company had utilized
a deed and mortgage format for effecting sales in certain
communities upon receipt of a down payment equal to at least 25%
of the sales price. Beginning September 29, 1990, the Company
changed its method of recognizing land sales by recording the
sale of lots, subject to a future development obligation, under
the deposit method; since January 1, 1991, no sale has been
recognized until the Company receives at least 20% of the
contracted sales price; and beginning in the fourth quarter of
1991, the Company limited the sale of lots to those which front
on a paved street and are ready for immediate building. See Note
1 to Consolidated Financial Statements.
A portion of the contract purchase price is discounted and
treated as interest income to be amortized over the life of the
contract. Interest income is also earned in accordance with the
interest rate stated in the installment land sales contract. The
Company further provides an allowance for contract cancellations
based on the historical experience of the Company for such
cancellations.
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Substantially all of the Company's single-family lot and
multi-family and commercial tract sales have been made on an
installment basis. Of the over 150,000 lots and tracts sold
since the Company's inception, contracts receivable presently
exist with respect to approximately 879 lots and tracts with an
outstanding balance of approximately $7,830,000 at December 31,
1994, excluding contracts receivable of which the Company is a
guarantor. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 2 to
Consolidated Financial Statements.
HOUSING
Historically, the Company has been involved in the design,
construction and marketing of single-family homes and
multi-family housing, including both condominium apartment
complexes and a vacation ownership (timesharing) project. Since
commencing operations, the Company has constructed and sold over
13,000 single-family homes and over 4,300 multi-family housing
units in its communities, with much of the actual construction
performed by subcontractors. Revenues, as well as related costs
and expenses, from single-family home and vacation ownership
sales are recorded at the time of closing.
SINGLE-FAMILY HOUSING
Although the Company had discontinued its single-family
housing activities at the end of 1984, in December, 1992, the
Company re-entered the single-family housing business at its
Marion Oaks community. Two and three bedroom moderately-priced
homes are being constructed by an exclusive independent builder
at the Company's FeatherNest housing village in this community
and sold in the local markets and through the Company's
independent dealer network. These homes include, as standard
features, cathedral ceilings, attached garages, lanais, breakfast
nooks and spacious walk-in closets. The housing village is
planned to feature its own recreational complex, including a
swimming pool, tennis courts and other amenities. The Company
also offers the same model line in Marion Oaks outside of the
FeatherNest village in a suburban program as well as build on
your own lot program for those purchasers who have previously
acquired a lot. During the third quarter of 1993, the Company
introduced its "House of the Year," a two-bedroom home, currently
priced from as low as $49,800 on the purchaser's already-owned
lot. The Company approved an Agreement of Purchase and Sale with
Conquistador Development Corporation for the sale of the
remaining lot inventory in FeatherNest in consideration for the
satisfaction of $2,599,300 in debt. Other housing programs are
unaffected by this transaction. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
MULTI-FAMILY HOUSING
The Company has designed, constructed and sold more than
4,300 condominium apartment units at its communities in buildings
ranging from garden-style apartment complexes to luxury high-rise
towers. Every condominium complex constructed by the Company
includes at least one pool and patio area; many feature tennis
courts and other recreational amenities.
Substantially all of the Company's remaining inventory in
its vacation ownership complex, The Surf Club, located on the
Gulf of Mexico at Marco Island, was sold in 1990.
MARKETING
The Company has historically sold land and housing products
on a national and international basis through independent dealers
in the United States, Canada and overseas, as well as through
Company-affiliated salespeople.
7
For the year ended December 31, 1994, sales by independent
dealers in the United States accounted for approximately 16.4%
(in dollar volume) of new land sales contracts; while overseas
dealers accounted for approximately 14.9% of such contracts; and
Company-affiliated salespeople accounted for approximately 68.7%
of such contracts.
The financing and debt restructuring completed in 1992 and
the first half of 1993 enabled the Company to commence
implementation of its 1993 business plan by undertaking a new
marketing program which provided for the strengthening of the
Company's marketing organization, the rebuilding of its retail
land sales business and its re-entry into the single-family home
business. During 1993, the Company concentrated on bolstering
and expanding its existing network of independent dealers,
particularly in the northeastern and midwestern regions of the
United States, and during the latter part of the year, overseas.
The Company also established a Company-affiliated sales office in
Chicago during the second half of 1993.
The marketing program initiated in 1993 did not produce the
level of sales necessary in order that the Company's future
working capital requirements could be obtained through the sale
of newly generated contracts and mortgages receivables. Selex,
Yasawa and their affiliates, upon whom the Company had been
dependent to meet its working capital needs since December, 1992,
concluded that they would not provide any further funds to the
Company to be utilized in such marketing program. Consequently,
the Company severely curtailed its marketing program in 1994.
During the first quarter of 1995, the Company initiated a new
land sales program, which utilizes a limited group of independent
dealers. During March 1995, the Company reached a lot sales
volume of over $800,000.
EXISTING COMMUNITIES
DELTONA LAKES
Deltona Lakes is located 26 miles northeast of Orlando, with
its popular tourist attractions of Disney World and Sea World,
and is bordered on the northwest by Interstate 4. Opened in 1962,
Deltona Lakes now has a population of approximately 63,000. Over
30,000 lots and tracts and over 4,500 single and multi-family
housing units have been sold at this community.
Recreational amenities constructed by the Company include
tennis courts, a golf course and country club (which were sold in
1983), and a recreational complex on the shores of Lake Monroe.
A 133-room motel, an industrial park, a medical complex, several
shopping centers, numerous houses of worship, a fire station, a
public library and a junior high school are located in the
community. The Company has virtually completed development of
this community.
MARCO ISLAND
The Company's resort community of Marco Island is located
104 miles west of Miami and approximately 17 miles south of
Naples, Florida. Over 8,500 lots and tracts and over 4,200
single and multi-family housing units have been sold in this
community.
More than 10,000 persons reside at Marco Island year-round,
with the population more than tripling 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.
8
Since the community's opening in January, 1965, the Company
has built and operated a yacht club and marina, the Marco Beach
Hotel & Villas, and a golf course and country club, all of which
have been sold. The Company has also constructed over 3,300
condominium units and The Surf Club, a 44 unit vacation ownership
complex, on the island. In 1990, the Company completed the sale
of substantially all of its remaining vacation ownership weeks.
Since its inventory at Marco Island is virtually sold out,
1995 revenues are expected to be generated from collections on
existing contracts receivable.
The community's planned growth was interrupted in 1976 by
denial of certain federal permits needed to complete the
development of approximately 14,500 units. The Settlement
Agreement between the Company, the State of Florida and various
environmental interest groups (the "Settlement Agreement") which
became effective on March 14, 1985, allowed for the potential
development of additional dwelling units at Marco Island, Horr's
Island and Marco Shores, located two miles from Marco Island.
The bulk of these properties have subsequently been sold or
transferred to the Company's lenders or to the trustee pursuant
to the 1992 settlement of the class action litigation. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources" and Note
9 to Consolidated Financial Statements.
SPRING HILL
Spring Hill, with an estimated population of approximately
60,700, is located 45 miles north of Tampa-St. Petersburg. Over
32,000 lots and tracts and over 4,000 single-family homes have
been sold in this community. The Company has constructed a
recreation complex, a country club, and two golf courses. The
Company has sold its country club and golf courses. Several
shopping centers and medical centers, two elementary schools, a
junior high school, a senior high school, numerous houses of
worship and two fire stations are located in the community. The
Company has completed the development of this community.
CITRUS SPRINGS
Citrus Springs, with an estimated population of 6,200, is
located 28 miles southwest of Ocala and 25 miles from the Gulf of
Mexico. Over 30,000 lots and tracts and over 700 single-family
homes have been sold at this community. A golf course and a
clubhouse (sold in 1990) and a community center have been
completed by the Company. Several churches and a convenience
shopping area are located in the community. The Company has
completed 400 miles of road. In 1992, most of the Company's
remaining inventory at this community was sold to Citony for
approximately $6,500,000. The Company and Citony then entered
into a joint venture agreement with respect to the property,
providing for the Company to market the property and receive an
administration fee from the venture. The Company and Citony
terminated the joint venture agreement in April 1994; however,
the Company is providing certain assistance to Citony during the
transition period. The Company is negotiating with a third party
for the purchase and sale of the second Citrus Springs Golf
Course, which is undeveloped. The Purchase and Sale agreement
contemplates the completion of the course by the buyer by
December 31, 1996. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
ST. AUGUSTINE SHORES
St. Augustine Shores, with a population estimated to be
approximately 7,000, is located seven miles south of St.
Augustine, between the Intracoastal Waterway and U.S. Highway 1.
Only commercial and multi-family tracts, house and lot packages
and condominium apartment units had been sold in this community
before 1987, but that year St. Augustine Shores was opened for
the retail sale of single-family lots. Approximately 1,000
additional single-family lots became available during 1988
through the platting of 641 acres adjacent to the existing
platted properties. Over 2,000 single and multi-family housing
units and lots and tracts have been sold.
9
The Company has completed 28 miles of road. Certain common areas
of the community, such as parks and swale areas, are maintained
by the St. Augustine Shores Service Corporation, a non-profit
corporation, of which all property owners are members. A golf
course and country club and a recreation building have been
completed by the Company. Several houses of worship and shopping
facilities are also located in the community. In October 1991,
the country club and golf course was transferred to the Company's
lenders. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital
Resources" and Note 5 to Consolidated Financial Statements.
Pursuant to the June, 1992 transaction with Selex, the
Company purchased certain multi-family and commercial property at
this community from Mr. Muyres and entities affiliated with
Messrs. Muyres and Zwaans. Also in conjunction with the June,
1992 transaction, an affiliate of Selex was granted an option to
repurchase certain of the property for $312,000, which option was
exercised by the affiliate in March, 1994. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations". Retail land sales will not resume at the community
until certain improvements are completed, as the Company is
selling only fully improved lots. See also "Regulation -
Community Development and Environmental".
The Company approved a Purchase and Sale Agreement with
Conquistador Development Corporation ("Second Conquistador
Acquisition") for the sale of an administration building and
multi-family site in the Company's St. Augustine Shores
community, as well as other property, in consideration for the
satisfaction of $2,599,300 of principal and accrued interest on
the Second and Third Selex Loans. In a separate transaction,
Conquistador Development Corporation and the Company approved a
Purchase and Sale Agreement ("Third Conquistador Acquisition")
for the sale of four single family residential lots in the St.
Augustine Shores community for $100,000 in cash. The Second and
Third Conquistador Acquisitions are anticipated to close by April
30, 1995.
SUNNY HILLS
Sunny Hills, with a population of approximately 1,300
residents, is located in the Florida Panhandle, 45 miles north of
the Gulf of Mexico and 35 miles north of Panama City. Over
12,000 lots and tracts and 300 single-family homes have been sold
at this community. It includes several houses of worship and a
convenience shopping center. The Company has completed or under
construction 165 miles of road. The community also has a golf
course and country club, which was sold by the Company for
$1,000,000 in the first quarter of 1993.
The Company reopened Sunny Hills for retail lot sales in
mid-1989. Revenues in 1995 will be generated from collections on
existing contracts receivable, from retail land sales and from
the recognition of deferred revenue as land development and lot
exchanges proceed.
PINE RIDGE
Pine Ridge, with a population of approximately 2,250, is
located 34 miles southwest of Ocala. The community's facilities
include an equestrian club and tennis courts. In May, 1987, the
Company completed the $8,500,000 sale of its remaining inventory
and golf course at Pine Ridge. Prior to the sale, the Company
had sold over 3,500 lots and tracts and over 53 single-family
homes in Pine Ridge.
MARION OAKS
Marion Oaks, with a population of approximately 7,500
residents, is located 18 miles south of Ocala. Over 20,000 lots
and tracts and over 2,700 single-family homes have been sold in
the community. The community includes playgrounds, two golf
courses (one of which was sold in 1988 and the second which was
transferred to the Company's lenders on October 11, 1991) and
several recreation buildings. A shopping center and several
houses of worship are located in the community. The Company has
completed 311 miles of road. The Company re-entered the
single-family housing business at this community in December,
1992 with the opening of its
10
FeatherNest housing village. The Company approved a Purchase and
Sale Agreement with Conquistador Development Corporation ("Second
Conquistador Acquisition") for the sale of the remaining lot
inventory in the Company's Feather Nest community at Marion Oaks
, as well as other property, in consideration for the
satisfaction of $2,599,300 of principal and accrued interest on
the Second and Third Selex Loans, which is anticipated to close
by April 30, 1995. See "Housing" and "Marketing". Revenues in
1995 will be generated from the sale of land inventory, from
housing sales, from the recognition of deferred revenue as land
development and lot exchanges proceed, from collections on
existing contracts receivable and from the Company's real estate
brokerage operation.
SEMINOLE WOODS
Seminole Woods, with a population of approximately 370, is
comprised of 1,554 acres of property located 20 miles north of
Orlando. The community, comprised of 262 single-family lots,
each a minimum of five acres, has been sold out and development
completed.
TIERRA VERDE
Tierra Verde, with a population of approximately 4,000, is a
666-acre waterfront subdivision located eight miles south of St.
Petersburg. It was developed and marketed pursuant to a 50% joint
venture between a wholly-owned subsidiary of the Company and an
unaffiliated corporation which filed a petition for bankruptcy
under the Bankruptcy Code in 1985. The community has been sold
out and development completed. The venture, which extended until
December 31, 1990, provided for the Company's subsidiary to
receive a management fee and to share in the venture's results of
operations equally with its venture partner. The venture was
extended for the purposes of winding down operations which were
completed in 1993.
OTHER PROPERTIES
OTHER LAND ASSETS
The Company also owns 92 acres of land in Florida adjacent
to its existing communities which is being marketed by the
Company's commercial sales division.
OTHER BUSINESSES
The Company's title insurance subsidiary was established in
1978 in order to reduce title insurance, legal and certain
related closing costs incurred by the Company in transferring
title of its land and housing products to its purchasers. The
subsidiary serves as an agent for TICOR Title Insurance Company,
Chicago Title Insurance Company and other title insurers. The
Company's realty subsidiary performs real estate brokerage and
rental services at the Company's Marion Oaks and Sunny Hills
communities.
EMPLOYEES
At December 31, 1994, the Company had 32 employees, of whom
28 were involved in executive, administrative, sales and
community maintenance capacities and 4 were involved with the
title insurance subsidiary. Certain of the Company's development
activities are carried out by subcontractors who separately
employ additional personnel. Given the 78% reduction in staffing
levels and the cutbacks in employee benefits that have been
required since December, 1993 by the Company's liquidity
situation, the Company's employee relations are somewhat tenuous.
11
COMPETITION
The Company faces competition primarily from property owners
in the Company's communities seeking to resell their land. The
Company is also facing competition, on a regional level, with
other builders and developers in the sale of single-family
housing. Such competition is generally based upon location,
price, reputation, quality of product and the existence of
commercial and recreational facilities and amenities.
REGULATION
The Company's real estate business is subject to regulation
by various local, state and federal agencies. The communities are
increasingly subject to substantial regulation as they are
planned, designed and constructed, the nature of such regulation
extending to improvements, zoning, building, environmental,
health and related matters. Although the Company has been able
to operate within the regulatory environment in the past, there
can be no assurance that such regulations could not be made more
restrictive and thereby adversely affect the Company's
operations.
COMMUNITY DEVELOPMENT
In Florida, as in many growth areas, local governments have
sought to limit or control population growth in their communities
through restrictive zoning, density reduction, the imposition of
impact fees and more stringent development requirements.
Although the Company has taken such factors into consideration in
its master plans by agreeing, for example, to make improvements,
construct public facilities, and dedicate certain property for
public use, the increased regulation has lengthened the
development process and added to development costs.
The implementation of the Florida Growth Management Act of
1985 (the "Act") has now commenced. The Act precludes the
issuance of development orders or permits if public facilities
such as transportation, water and sewer services will not be
available concurrent with development. Development orders have
been issued for, and development has commenced in, the Company's
existing communities (with development being virtually completed
in certain of these communities). Thus, such communities are
less likely to be affected by the new growth management policies
than future communities. Any future communities developed by the
Company will be strongly impacted by new growth management
policies. Since the Act and its implications are consistently
being re-examined by the State, together with local governments
and various state and local governmental agencies, the Company
cannot further predict the timing or the effect of new growth
management policies, but anticipates that such policies may
increase the Company's permitting and development costs.
On September 30, 1988, the Company entered into an agreement
with Citrus County, Florida to establish the procedure for
transferring final maintenance responsibilities for roads in the
Company's Citrus Springs subdivision to Citrus County. The
agreement obligated the Company to perform certain remedial work
on previously completed improvements within the Citrus Springs
subdivision by June 1, 1991. The Company was unable to complete
this work due to the lack of available funds and negotiated a
final settlement with Citrus County for the transfer of final
maintenance responsibility for the roads to the County. The
Agreement principally requires the Company to pay $400,000 over a
two year period. It is anticipated that this Agreement will be
signed in April 1995.
The Company's present development schedule for completing
improvements to approximately 600 acres at its St. Augustine
Shores community does not coincide with the current development
requirements of the Planned Unit Development ("PUD") approved by
St. Johns County. The Company is seeking a modification of the
PUD
development requirements to be coincident with the Company's
development plans at St. Augustine Shores.
The Company's corporate performance bonds to assure the
completion of development at its St. Augustine Shores community
expired in 1993. Such bonds cannot be renewed due to a change in
the policy of the Board of County Commissioners of St. Johns
County which precludes allowing any developer to secure the
performance of
12
development obligations by the issuance of corporate bonds. In
the event that St. Johns County elects to undertake the
completion of such development work, the Company would be
obligated with respect to 1,000 unimproved lots at St. Augustine
Shores in the amount of approximately $6,200,000. The Company
has proposed the formation of a community development district as
a funding source and submitted an alternative assurance program
for the completion of such development and improvements.
In the third quarter of 1991, St. Johns County, Florida
acquired the St. Augustine Shores utility company, formerly owned
by Topeka, under an action framed as a condemnation suit. The
County has contended that it is not obligated, as was Topeka, to
extend utility lines at its cost to future residents of the
Company's St. Augustine Shores community. The Company has had
discussions with Topeka and the County in attempt to reach a
resolution to this dispute. If a satisfactory resolution is not
achieved, it may be necessary for the Company to institute
appropriate legal proceedings to assure the installation of
utility lines.
ENVIRONMENTAL
To varying degrees, certain permits and approvals will be
necessary to complete the development of all of the Company's
communities. Despite the fact that the Company has obtained
substantially all of the permits and authorizations necessary to
proceed with its development work on communities presently being
marketed, additional approvals may be required to develop certain
platted properties in certain communities to be marketed in the
future. Although the Company cannot predict the impact of such
requirements, they could result in delays and increased
expenditures. In addition, the continued effectiveness of
permits and authorizations already granted is subject to many
factors, some of which, including changes in policies, rules and
regulations and their interpretation and application, are beyond
the Company's control.
Certain of the Company's development permits for a portion
of its St. Augustine Shores community issued by the St. Johns
Water Management District and the U.S. Army Corps of Engineers
are due to expire on dates prior to the Company's planned
completion of improvements within the community. The Company has
submitted new permit applications that will coincide with the
Company's development plans. Since there can be no assurance
that the Company will be successful in obtaining such new permits
in a timely manner, the Company may be required to alter its
development plans for this community.
The Company is aware of studies indicating that prolonged
exposure to radon gas may be hazardous to one's health. Such
studies further indicate that radon gas is apparently associated
with mining and earth moving activities, particularly in
phosphate-bearing geological formations. Since phosphate mining
has, over the years, constituted a significant industry in
Florida, various state and local governmental agencies are in the
process of attempting to determine the nature and extent of
indoor radon gas intrusion throughout the state. Similar studies
undertaken by the Company at its Citrus Springs community
indicate that less than 1% of its property in that community may
be affected by radon gas; studies conducted at the Company's
Marion Oaks community revealed no indications of potential indoor
radon gas problems. None of the other properties owned by the
Company are situated over geological formations which are
suspected of causing radon gas problems. Consequently, the
existence of radon gas in Florida is not expected to materially
affect the business or financial condition of the Company.
The Company owns and operates above ground and underground
fuel storage tanks at its communities. The Florida Department of
Environmental Regulation ("DER") is responsible not only for
regulating these tanks, but for developing and implementing plans
and programs to prevent the discharge of pollutants by such
facilities. The Company has registered its storage tanks with
the DER, installed monitoring wells at all underground
facilities, constructed containment devices around above ground
storage tanks, replaced or properly abandoned faulty tanks or
equipment and conducts periodic inspections and monitoring of all
facilities. All underground tanks will be replaced, retrofitted
or abandoned pursuant to schedules established under Florida law.
13
In December, 1988, the Company surveyed all of its fuel
facilities and reported any facility which exhibited evidence of
potential soil contamination to the DER prior to the deadline for
acceptance into the Early Detection Incentive ("EDI") Program.
The EDI Program provides for the State to assume the financial
responsibility for any necessary clean-up operations when
suspected contamination has been voluntarily reported by the
facility owner and accepted into the program by the DER.
Although all of the Company's sites have not yet been inspected
by the DER to verify the existence of significant contamination,
many sites have already been accepted into the EDI program.
MARKETING
The Company is also subject to a number of statutes imposing
registration, filing and disclosure requirements with respect to
homesites and homes sold or proposed to be sold to the public.
On the state level, the Company's land sales activities are
subject to the jurisdiction of the Division of Florida Land
Sales, Condominiums and Mobile Homes (the "Division") which
requires registration of subdividers and subdivided land; reviews
the contents of advertising and other promotional material;
inspects the Company's land and development work; exercises
jurisdiction over sales practices; and requires full disclosure
to prospective purchasers of pertinent information relating to
the property offered for sale.
OTHER OBLIGATIONS
As a result of the delays in completing the land
improvements to certain property sold in certain of its Central
and North Florida communities, the Company fell behind in meeting
its contractual obligations to its customers. In connection with
these delays, the Company, in February, 1980, entered into a
Consent Order with the Division which provided a program for
notifying affected customers. The Consent Order, which was
restated and amended, provided a program for notifying affected
customers of the anticipated delays in the completion of
improvements (or, in the case of purchasers of unbuildable lots
in certain areas of the Company's Sunny Hills community, the
transfer of development obligations to core growth areas of the
community); various options which may be selected by affected
purchasers; a schedule for completing certain improvements; and a
deferral of the obligation to install water mains until requested
by the purchaser. Under an agreement with Topeka, Topeka's
utility companies have agreed to furnish utility service to the
future residents of the Company's communities on substantially
the same basis as such services were provided by the Company.
The Consent Order also required the establishment of an
improvement escrow account as assurance for completing such
improvement obligations. In June, 1992, the Company entered into
the 1992 Consent Order with the Division, which replaced and
superseded the original Consent Order, as amended and restated.
Among other things, the 1992 Consent Order consolidated the
Company's development obligations and provided for a reduction in
its required monthly escrow obligation to $175,000 from
September, 1992 through December, 1993. Beginning January, 1994
and until development is completed or the 1992 Consent Order is
amended, the Company is required to deposit $430,000 per month
into the escrow account. To meet its current escrow and
development obligations under the 1992 Consent Order, the Company
is required to deposit into escrow $5,160,000 in 1994 and
$3,519,000 in 1995. As part of the assurance program under the
1992 Consent Order, the Company and its lenders granted the
Division a lien on certain contracts receivable (approximately
$7,528,000 as of December 31, 1994) and future receivables. The
Company defaulted on its obligation to escrow $430,000 per month
for the period of January, 1994 through the present and, in
accordance with the 1992 Consent Order, collections on Division
receivables were escrowed for the benefit of purchasers from
March 1, 1994 through April 30, 1994. In May, 1994 the Company
implemented a program to exchange purchasers who contracted to
purchase property which is undeveloped to property which is
developed. As of March 24, 1995, approximately 75% of the
customers whose lots are currently undeveloped have opted to
exchange. The Company's goal is to eliminate its development
obligation (with the exception of its maintenance obligation in
Marion Oaks) under the 1992 Consent Order through this exchange
program, completion of two commercial areas in Marion Oaks, sale
of its second Citrus Springs Golf Course (with the buyer assuming
the development obligation) and settlement of all remaining
maintenance and improvements obligations in Citrus Springs
through a final agreement with Citrus County (scheduled for
approval in April 1995). Consequently, the Division has allowed
the Company to utilize
14
collections on receivables since May 1, 1994. Pursuant to the
1992 Consent Order, the Company has limited the sale of
single-family lots to lots which front on a paved street and are
ready for immediate building. Because of the Company's default,
the Division could also exercise other available remedies under
the 1992 Consent Order, which remedies entitle the Division,
among other things, to halt all sales of registered property. As
of December 31, 1994, the Company had estimated development
obligations of approximately $2,412,000 on sold property, an
estimated liability to provide title insurance and deeding
costing $1,300,000 and an estimated cost of street maintenance,
prior to assumption of such obligations by local governments, of
$2,948,000, all of which are included in deferred revenue. The
total cost, including the previously mentioned obligations, to
complete improvements at December 31, 1994 to lots subject to the
1992 Consent Order and to lots in the St. Augustine Shores
community was estimated to be approximately $17,600,000. As of
December 31, 1994 and December 31, 1993 the Company had in escrow
approximately $911,000 and $1,664,000, respectively, specifically
for land improvements at certain of its Central and North Florida
communities.
The Company's land sales activities are further subject to
the jurisdiction of the laws of various states in which the
Company's properties are offered for sale.
On the federal level, the Company's homesite installment
sales are subject to the Federal Consumer Credit Protection
("Truth-in-Lending") Act. In addition, the Company's activities
are subject to regulation by the Interstate Land Sales
Registration Division ("ILSRD"), which administers the Interstate
Land Sales Full Disclosure Act. That Act requires that the
Company file with ILSRD copies of applicable materials on file
with the Division as to all properties registered; certain
properties must be registered directly with ILSRD, in addition to
being registered with the Division.
The Company has either complied with applicable statutory
requirements relative to the properties it is offering or has
relied on various statutory exemptions which have relieved the
Company from such registration, filing and disclosure
requirements. If these exemptions do not continue to remain
available to the Company, compliance with such statutes may
result in delays in the offering of the Company's properties and
products to the public.
In addition, Florida and other jurisdictions in which the
Company's properties are offered for sale have recently
strengthened, or are considering strengthening, their regulation
of subdividers and subdivided lands in order to provide further
assurances to the public, particularly given the adverse
publicity surrounding the industry which existed in 1990. The
Company has attempted to take appropriate steps to modify its
marketing programs and registration applications in the face of
such increased regulation, but has incurred additional costs and
delays in the marketing of certain of its properties in certain
states and countries. For example, the Company has complied with
the regulations of certain states which require that the Company
sell its properties to residents of those states pursuant to a
deed and mortgage transaction, regardless of the amount of the
down payment. The Company intends to continue to monitor any
changes in statutes or regulations affecting, or anticipated to
affect, the sale of its properties and intends to take all
necessary and reasonable action to assure that its properties and
its proposed marketing programs are in compliance with such
regulations, but there can be no assurance that the Company will
be able to timely comply with all regulatory changes in all
jurisdictions in which the Company's properties are presently
offered for sale to the public.
Real estate salespersons must, absent exemptions which may
be available to employees of the property owner, be licensed in
the jurisdiction in which they perform their activities. Real
estate brokerage companies in Florida, as well as their brokers
and salespersons, must be licensed by the Florida Real Estate
Commission.
MISCELLANEOUS
In addition, various other subsidiaries and divisions of the
Company are subject to regulation by local, state and federal
agencies. Such regulation extends to the licensing of operations,
operating areas and personnel; the establishment of safety and
service standards; and various other matters.
15
ITEM 3
LEGAL PROCEEDINGS
In the action styled GARCIA V. DELTONA ET, AL, Case No.
86-03542, filed in the Circuit Court for Dade County, Florida, on
January 30, 1986, the plaintiff had sought to recover $2,000,000
allegedly paid to the Company on four installment land sales
contracts, claiming fraud and misrepresentation on the part of
one of the Company's independent sales representatives and other
violations of law. The Company had cancelled the contracts in
question according to their terms for default of the payment
obligations by the purchaser. Although the Company negotiated a
settlement of this action which provides for the Company to
convey to the plaintiff property which has a value equivalent to
the monies paid by the plaintiff to the Company under the
cancelled contracts, the plaintiff has asserted that the Company
has breached the settlement agreement by failing to convey
sufficient property which meets the criteria of the settlement
agreement. The Company is of the belief that the property
conveyed complies with such criteria. The plaintiff could seek a
judgment of $5,400,000, plus interest, less the value of the
property transferred. The parties are currently attempting to
resolve the dispute by reaching an agreement as to transferring
alternative property that may be used for settlement purposes.
The Company was previously sued by its landlord for breach
of lease in the action styled FIVE POINTS LIMITED V. THE DELTONA
CORPORATION, Case No. 93-22877, filed in the Circuit Court for
Dade County, Florida, which has been settled and a stipulation
filed. Although the basic matter has been settled, continuing
performance provisions of the settlement agreement are
outstanding. The Company has entered into a short term lease
agreement with the landlord and/or its affiliate for a term of
lease of one (1) year with a ninety (90) day cancellation
provision. Certain payments have been paid to the landlord and a
letter of credit in the amount of $500,000, drawable after August
31, 1995, was conveyed to the landlord. Funding of the
settlement was obtained through a loan to the Company. The Court
continues to retain jurisdiction to enforce the Writ of
Possession for removal of the Company in the event the Company
fails to vacate its premises after ninety (90) days notice is
given in accordance with the short term lease agreement with the
landlord.
In the action styled ESTATE OF BOBINGER ET AL. V. THE
DELTONA CORPORATION, the plaintiff class sued the Company in the
Circuit Court of Dade County Case No. 87-45051 for breach of
contract and for recovery of monies paid on contracts for Marco
property that will not be developed by the Company. The matter
was settled pending performance of the settlement agreement. The
court entered a final judgment approving the settlement and
retained jurisdiction to enforce the settlement. The Company
continues to have certain obligations to the class under the
settlement. The Company advises that it is negotiating with the
class concerning certain unpaid tax obligations and other
matters. In the opinion of the Company, residual obligations of
the Company that are due and payable in the future pursuant to
the settlement may approximate up to $2,000,000. The Company has
provided an allowance for Marco permit costs which encompass
these obligations. See "Management's Discussion and Analysis"
and Note 9 to the consolidated financial statements.
In the action styled BRUCE WEINER V. THE DELTONA CORPORATION
ET AL., the plaintiff, Bruce Weiner, prior Executive Vice
President of the Company, sued the Company on April 28, 1994 for
alleged breach of employment contract seeking damages of
approximately $750,000 and unspecified employee benefits. The
proceeding is pending in the Circuit Court of Dade County,
Florida, Case No. 94-7825-04. Plaintiff's Motion for Summary
Judgment has been denied and a final hearing has been requested.
The Company believes that it has defenses to the claim. In the
event that the Company is not successful in its defenses or a
settlement is not reached, a substantial judgment may be entered
against the Company in favor of the plaintiff. The Company at
the present time is unable to predict the ultimate outcome of the
litigation. The Company intends to continue settlement
discussions with plaintiff.
In the action styled JOSEPH MANCILLA, JR. V. THE DELTONA
CORPORATION, the plaintiff, Joseph Mancilla, Jr., prior Senior
Vice President of the Company, sued the Company on May 17, 1994
for alleged breach of employment contract seeking damages in
excess of $391,000 plus an unspecified amount in employee
benefits, costs and
16
attorneys' fees. The proceeding is pending in the Circuit Court
of Dade County, Florida, Case No. 94-09116. A final hearing has
been set for the week of May 8, 1995. If a settlement is not
reached and the Company is not successful in its defenses, a
substantial judgment may be entered against the Company. The
Company at the present time is unable to predict the ultimate
outcome of the litigation. The Company intends to continue
settlement discussions with plaintiff.
In the action styled MICHELLE GARBIS V. THE DELTONA
CORPORATION, the plaintiff, Michelle Garbis, prior Senior Vice
President and Corporate Secretary of the Company, sued the
Company on August 18, 1994 for alleged breach of employment
contract. The Company settled the matter and a general release
is expected to be entered into.
In an action styled THEODORE MAUREAU V. THE DELTONA
CORPORATION, the Company has been sued by a former Vice President
and employee asserting breach of an oral contract and a claim
based on fraud. The plaintiff asserts unspecified damages and
punitive damages. A Motion to Dismiss is pending. The Company
believes that the proceeding is without merit.
The Company is also a party to certain other legal and
administrative proceedings arising in the ordinary course of
business. The outcome will not, in the opinion of the Company,
have a material adverse effect on the business or financial
condition of the Company.
17
ITEM 5
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Company's Common Stock was traded on the New York and
Pacific Stock Exchanges under the ticker symbol DLT until trading
was suspended on April 6, 1994. The following table sets forth
the reported high and low sales prices for the Company's Common
Stock during the periods indicated as reported in the record of
composite transactions for NYSE listed securities.
QUARTER HIGH LOW
_______ ____ ___
1993 - First Quarter................. 3 3/8 2 1/2
Second Quarter................ 3 1/2 1 7/8
Third Quarter................. 2 7/8 1 7/8
Fourth Quarter................ 3 1 7/8
1994 - First Quarter................. 1 1/4 1 1/8
On April 6, 1994, both the New York and Pacific Stock
Exchanges suspended the Company's Common Stock from trading and
instituted procedures to delist the Company's Common Stock. On
June 16, 1994, the Company's Common Stock was formally removed
from listing and registration on the New York Stock Exchange. As
of December 31, 1994, the Company's Common Stock was traded on a
limited basis in the over-the-counter markets. The bid was 1/8
and the ask was 3/8 at the end of the second, third and fourth
quarters of 1994.
The Company has never paid any cash dividends on its Common
Stock. The Company's loan agreements contain certain
restrictions which currently prohibit the Company from paying
dividends on its Common Stock.
18
ITEM 6
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table summarizes selected consolidated
financial information and should be read in conjunction with the
Consolidated Financial Statements. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations".
CONSOLIDATED INCOME STATEMENT DATA
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
YEARS ENDED
____________________________________________________________________________________
DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER
31, 1994 31, 1993 25, 1992 27, 1991 28, 1990
-------- --------- -------- -------- --------
Revenues .....................$ 8,541 $ 12,099 $ 12,217 $ 10,784 $ 29,033
Costs and expenses............ 12,447 20,871 18,935 30,313 46,041
-------- --------- -------- -------- ---------
Income (loss) from continuing
operations before taxes
and extraordinary items...... (3,906) (8,772) (6,718) (19,529) (17,008)
Provision for income taxes... -- -- 90 -- --
-------- --------- -------- ------- -------
Income (loss) from operations
before extraordinary items.. (3,906) (8,772) (6,808) (19,529) (17,008)
Extraordinary items:
Gain (loss) from debt
restructuring............... -- -- 10,161 (7,100) --
Gain on settlement related
to the Marco refund
obligation.................. -- -- 3,983 -- --
Net income (loss) applicable
to common stock............. $ (3,906) $ (8,772) $ 7,336 $(26,629) $(17,008)
======== ========= ======== ======== =========
Per common share amounts:
Continuing operations...... $ (.59) $ (1.45) $ (1.19)$ (3.45) $ (3.01)
Extraordinary items........ -- -- 2.48 (1.25) --
-------- --------- -------- -------- --------
Net income (loss)............ $ (.59) $ (1.45) $ 1.29 $ (4.70) $ (3.01)
======== ========= ======== ======== =========
Weighted average common shares
outstanding............... 6,514,988 6,056,743 5,694,236 5,660,967 5,647,790
========= ========== ========= ========= =========
CONSOLIDATED BALANCE SHEET DATA
(IN THOUSANDS)
DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER
31, 1994 31, 1993 25, 1992 27, 1991 28, 1990
--------- -------- -------- -------- --------
Total assets................ $ 22,109 $ 26,565 $ 37,050 $ 65,243 $113,003
======== ======== ======== ======== ========
Liabilities................ $ 38,930 $ 40,856 $ 42,569 $ 78,412 $ 99,543
Stockholders' equity
(deficiency).............. (16,821) (14,291) (5,519) (13,169) 13,460
-------- -------- -------- -------- --------
Total liabilities and
stockholders'
equity (deficiency)....... $ 22,109 $ 26,565 $ 37,050 $ 65,243 $113,003
======== ======== ======== ======== ========
19
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On June 19, 1992, the Company completed a transaction with
Selex, which resulted in a change in control of the Company.
Under the transaction, Selex loaned the Company $3,000,000
collateralized by a first mortgage on certain of the Company's
property in its St. Augustine Shores, Florida community (the
"First Selex Loan"). The
First Selex Loan initially bears interest at the rate of 10% per
annum with a term of four years and payment of interest deferred
for the first 18 months. Accrued interest due under the First
Selex Loan in the amount of $673,800 was unpaid and in default as
of December 31, 1994.
In conjunction with the First Selex Loan: (i) Empire sold
Selex its 2,220,066 shares of the Company's Common Stock and
assigned Selex its $1,000,000 Note from the Company, with
$225,000 of interest accrued thereon; (ii) Maurice A. Halperin,
Chairman of the Board of Empire and former Chairman of the Board
of the Company,
forgave payment of the $200,000 salary due him for the period of
April, 1990 through April, 1991, which was in arrears; and (iii)
certain changes occurred in the composition of the Company's
Board of Directors. Namely, the six directors serving on the
Company's Board who were previously designated by Empire resigned
and four Selex designees (Messrs. Marcellus H.B. Muyres, Antony
Gram, Cornelis van de Peppel and Cornelis L.J.J. Zwaans) were
elected to serve as directors in their stead. Marcellus H.B.
Muyres was appointed Chairman of the Board and Chief Executive
Officer of the Company. These directors, as well as Leonardus
G.M. Nipshagen, a Selex designee, were then elected as directors
at the Company's 1992 Annual Meeting and re-elected at the
Company's 1993 Annual
Meeting.
As part of the Selex transaction, Selex was granted an option,
approved by the holders of a majority of the outstanding shares
of the Company's Common Stock at the Company's 1992 Annual
Meeting, to convert the Selex Loan, or any portion thereof, into
a maximum of 850,000 shares of the Company's Common Stock at a
per share
conversion price equal to the greater of (i) $1.25 or (ii) 95% of
the market price of the Company's Common Stock at the time of
conversion, but in no event greater than $4.50 per share (the
"Option"). However, on September 14, 1992, Selex formally waived
and relinquished its right to exercise the Option as to 250,000
shares of the Company's Common Stock to enable the Company to
settle certain litigation involving the Company through the
issuance of approximately 250,000 shares of the Company's Common
Stock to the claimants, without jeopardizing the utilization of
the Company's net operating loss carryforward. On February 17,
1994, Selex exercised the remaining full 600,000 share Option at
a conversion price of $1.90 per share, such that $1,140,000 in
principal was repaid under the First Selex Loan through such
conversion. As a consequence of such conversion, Selex holds
2,820,066 shares of the Company's Common Stock (42.06% of the
outstanding shares of Common Stock of the Company based upon the
number of shares of the Company's Common Stock outstanding as of
March 24, 1995).
Pursuant to the Selex transaction, $1,000,000 of the proceeds
from the First Selex Loan was used by the Company to acquire
certain commercial and multi-family properties at the Company's
St. Augustine Shores community at their net appraised value, from
Mr. Muyres and certain entities affiliated with Messrs. Zwaans
and Muyres. Namely, (i) $416,000 was used to acquire 48
undeveloped condominium units (twelve 4 unit building sites) and
4 completed (and rented) condominium units from Conquistador, in
which Messrs. Zwaans and Muyres serve as directors, as well as
President and Secretary/Treasurer, respectively; (ii) $485,000
was used to acquire 4 commercial lots from Swan Development
Corporation, in which Messrs. Zwaans and Muyres also serve as
directors, as well as President and Secretary, respectively; and
(iii) approximately $99,000 was used to reacquire, from Mr.
Muyres, all of his rights, title and interest in that certain
contract with the Company for the purchase of a commercial tract
in St. Augustine Shores, Florida. None of the commercial land
and multi-family property acquired by the Company from Mr. Muyres
and certain entities affiliated with Messrs. Zwaans and Muyres
collateralizes the First Selex Loan. In March, 1994, Conquistador
exercised its right to repurchase certain of the multi-family
property from the Company (which right had been granted in
connection with the June, 1992
20
transaction) at a price of $312,000, of which $260,000 was paid
in cash to the Company and $52,000 was applied to reduce interest
due to Selex under the Second Selex Loan ("First Conquistador
Acquisition").
In December, 1992, Mr. Gram, a director of the Company and
beneficial owner of the Common Stock of the Company held by
Selex, acquired all of the Company's outstanding bank debt and
then assigned same to Yasawa, of which Mr. Gram is also the
beneficial owner. Yasawa simultaneously completed a series of
transactions with the Company which involved the transfer of
certain assets to Yasawa or its affiliated companies, the
acquisition by Yasawa of 289,637 shares of the Company's Common
Stock through the exercise of warrants previously held by the
banks, the provision of a $1,500,000 line of credit to the
Company and the restructuring of the remaining debt as a
$5,106,000 Yasawa Loan. Principal repayments aggregating
$341,000 were made in 1993 and 1994 to reduce the Yasawa Loan to
$4,765,000 as of December 31, 1994. On April 30, 1993, Selex
loaned the Company an additional amount of $1,000,000 pursuant to
the Second Selex Loan and since July 1, 1993 made further loans
to the Company aggregating $4,400,000 under the Third Selex Loan.
Principal of $39,000 had been repaid under the
Second Selex Loan through December 31, 1994. As of December 31,
1994, Yasawa has loaned the Company an additional sum of
$2,122,000 pursuant to the Second Yasawa Loan. As a consequence
of these transactions, the Company had loans outstanding from
Selex, Yasawa and their affiliates on December 31, 1994 in the
aggregate amount of approximately $19,470,000, including
interest. The Company has approved a Purchase and Sale Agreement
with Conquistador Development Corporation ("Second Conquistador
Acquisition") for the sale of an administration building and
multi-family site in the Company's St. Augustine Shores community
as well as the remaining lot inventory in the Company's Feather
Nest community at Marion Oaks in consideration for the
satisfaction of $2,599,300 of principal and accrued interest on
the Second and Third Selex Loans. The amount of debt reduction
is equivalent to the amount of Mr. Marcel Muyres' participation
in those loans as of January 31, 1995. In a separate
transaction, Conquistador Development Corporation and the Company
approved a Purchase and Sale Agreement ("Third Conquistador
Acquisition") for the sale of four single family residential lots
in the St. Augustine Shores community for $100,000 in cash. The
Second and Third Conquistador Acquisitions are anticipated to
close by April 30, 1995. The loans from Selex, Yasawa and their
affiliates are secured by substantially all of the assets of the
Company. See Note 5 to Consolidated Financial Statements.
The Company has stated in previous filings with the Commission
that the obtainment of additional funds to implement its
marketing program and achieve the objectives of its business plan
is essential to enable the Company to maintain operations and
continue as a going concern. Since December, 1992, the Company
has been dependent on loans and advances from Selex, Yasawa and
their affiliates in order to implement its marketing program and
assist in meeting its working capital requirements. As stated
above, during the last six months of 1993, Selex, Yasawa and
their affiliates loaned the Company an aggregate of $4,400,000
pursuant to Third Selex Loan. Funds advanced under the Third
Selex Loan enabled the Company to commence implementation of the
majority of its marketing program in the third quarter of 1993.
The full benefits were not realized in 1993 and the Company was
unable to secure financing. As of December 31, 1994, Yasawa had
advanced ("Second Yasawa Loan") a total of $2,122,000 to meet the
Company's minimum working capital requirements, pay settlements
of outstanding amounts due certain trade creditors reducing the
Company's accounts payable by more than $1,000,000 and settle
certain litigation reducing the Company's exposure in excess of
$5,000,000.
On March 10, 1994, the Company was advised that Selex filed
Amendment No. 2 dated February 17, 1994 to its Schedule 13D (the
"Amendment") with the Commission. In the Amendment, Selex
reported that it, together with Yasawa and their affiliates were
uncertain as to whether they would provide any further funds to
the Company.
The Amendment further stated that Selex, Yasawa and their
affiliates, were seeking third parties to provide financing for
the Company and that as part of any such transaction, they would
be willing to sell or restructure all or a portion of their loans
and Common Stock in the Company.
Inasmuch as funding is not presently available to the Company
from external sources and, as stated in their Amendment, Selex,
Yasawa and their affiliates have not determined whether they will
provide any further funds to the Company, the Company is facing a
severe cash shortfall. As a consequence of its liquidity
position, the
21
Company has defaulted on certain obligations, including its
escrow obligations to the Division pursuant to the Company's 1992
Consent Order and its obligation to make required interest
payments under loans from Selex, Yasawa and their affiliates.
Furthermore, the Company has not paid delinquent real estate
taxes aggregating approximately $2,676,000 at December 31, 1994
and is also subject to certain pending litigation by former
employees, which may adversely affect the financial condition of
the Company. See "Legal Proceedings."
The Company is continuing to seek third parties to provide
financing. As part of any such transaction, Selex, Yasawa and
their affiliates have indicated that they are willing to sell or
restructure all or a portion of their loans and Common Stock in
the Company. They have also indicated that they are willing to
sell their interests in the Company at a significant discount.
Consummation of any such transaction may result in a change in
control of the Company. There can be no assurance, however, that
any such transaction will result or that any financing will be
obtained. Accordingly, the Company's Board of Directors is also
considering other appropriate action given the severity of the
Company's liquidity position including but not limited to filing
for protection under the federal bankruptcy laws. See "Business:
Recent Developments", "Legal Proceedings" and Notes 1, 5 and 8 to
Consolidated Financial Statements.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994 AND DECEMBER 31, 1993
REVENUES
Total revenues were $8,541,000 for 1994 compared to
$12,099,000 for 1993.
Gross land sales were $2,994,000 for 1994 versus $3,170,000
for 1993. Net land sales (gross land sales less estimated
uncollectible installment sales and contract valuation discount)
decreased to $2,058,000 for 1994 from $2,432,000 for 1993. The
decrease in sales reflects the curtailment of the Company's
marketing program in 1994.
Bulk land sales were $315,000 in 1994 as compared to bulk land
sales of $113,000 in 1993. In light of the Company's diminished
bulk land sales inventory it is anticipated that in the future,
the Company will produce a negligible volume of bulk land sales.
See "Liquidity and Capital Resources: Mortgages and Similar
Debt".
The Company re-entered the single-family housing business in
December, 1992. Revenues are not recognized from housing sales
until the completion of construction and passage of title.
Housing revenues were $2,543,000 for 1994 compared to $344,000 in
1993.
The following table reflects the Company's real estate product
mix for 1994 and 1993 (in thousands):
YEARS ENDED
------------------------------------
DECEMBER 31, DECEMBER 31,
1994 1993
------------ ------------
Gross Land Sales:
Bulk sales................... $ 315 $ 113
Retail sales*................ 2,679 3,057
------ -------
Total...................... 2,994 3,170
------ -------
Housing Sales:
Single Family................ 2,506 314
Vacation Ownership........... 37 30
------ -------
Total...................... 2,543 344
------ -------
Total Real Estate.......... $5,537 $ 3,514
====== =======
_____________
* New retail land sales contracts entered into, including deposit sales on
which the Company has received less than 20% of the sales price, net of
cancellations, for the years ended December 31, 1994 and December 31,
1993 were $1,910,000 and $4,106,000, respectively. Such contracts are
not included in retail land sales until the applicable rescission period
has expired and the Company has received payments totalling 20% of the
contract sales prices. See Note 1 to the Consolidated Financial
Statements.
22
Improvement revenues result from recognition of revenues
deferred from prior period sales. Recognition occurs as
development work proceeds on the previously sold property or
customers are exchanged to a developed lot. Improvement revenues
totalled $1,214,000 in 1994 as compared to $4,725,000 for 1993.
The decrease was due to the Company's financial condition which
caused the Company to stop development in the first quarter of
1994.
Interest income was $1,046,000 for 1994 compared to $1,197,000
for 1993. This decrease is the result of lower contracts
receivable balances.
Other revenues were $629,000 for 1994 compared to $3,401,000
in 1993. This decrease was the result of the termination of its
lease on the Marco Shores Country Club on December 31, 1993 and
the sale of the Marco Island Realty in November, 1993.
Included in 1994 results is a gain of $1,051,000 from the
termination of the lease on the Company's corporate headquarters
in Miami.
COSTS AND EXPENSES
Costs and expenses were $12,447,000 for 1994 compared to
$20,871,000 in 1993. Cost of sales totalled $3,845,000 for 1994
versus $6,441,000 for 1993. These decreases are primarily due to
the termination of development work in the first quarter of 1994
and the sale of the Marco Island Realty and the termination of
the lease of the Marco Shores Country Club in 1993.
Additionally, the Company completed the first phase of its
Compromise and Settlement Agreement program with its trade
creditors during the third quarter of 1994. Costs and expenses
were reduced by approximately $430,000 as a result of these
settlements. Gross profit margins increased to 55.0% from 46.7%.
Profit margins are increasing primarily due to increased margins
on improvement revenues resulting from favorable cost variances.
Commissions, advertising and other selling expenses totalled
$2,608,000 for 1994 versus $6,008,000 for 1993. Advertising and
promotional expenditures decreased to $275,000 in 1994 from
$1,521,000 in 1993 as a result of the reduction in the Company's
marketing programs.
General and administrative expenses were $2,984,000 in 1994
versus $3,790,000 for 1993. General and administrative expenses
have decreased primarily due to overhead reductions implemented
in the first quarter of 1994 and settlement of the Company's
lease obligation on its corporate headquarters in October 1994.
Real estate tax expense was $1,163,000 in 1994 compared to
$975,000 in 1993. Included in real estate tax expense is
delinquent interest and administrative fees on 1992 and 1993
delinquent taxes, which accrue interest at 18% per annum.
Interest expense was $1,847,000 for 1994, as compared to
$1,257,000 for 1993, or a 47% increase. Total interest costs
(including capitalized interest) were $1,847,000 and $1,421,000
for 1994 and 1993, respectively. The increase in interest
expense is primarily the result of the increase in debt. No
interest was capitalized in 1994 since the Company had stopped
land development work at its communities.
NET INCOME
The Company reported a net loss of $3,906,000 for 1994,
compared to a net loss of $8,772,000 for 1993. The 1993 results
include a provision for contract cancellations of $2,400,000.
Included in 1994 results is a gain of $1,051,000 from the
termination of the lease on the Company's corporate headquarters
in Miami.
23
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993 AND DECEMBER 25, 1992
REVENUES
Total revenues were $12,099,000 for 1993 compared to
$12,217,000 for 1992. Included in 1992 revenues is a third
quarter gain of $448,000 from the sale of the administration
building at the Company's Citrus Springs community.
Gross land sales were $3,170,000 for 1993 versus $2,515,000
for 1992. Net land sales (gross land sales less estimated
uncollectible installment sales and contract valuation discount)
increased to $2,432,000 for 1993 from $2,092,000 for 1992. The
modest increase in sales reflects the introduction of the
Company's marketing program which was delayed until the third
quarter of the year.
Retail land sales increased to $3,057,000 from $2,289,000, a
33.5% increase. This increase was due to the third quarter
introduction of the Company's marketing program and reflects
increased spending in 1993 on advertising and promotional
programs to strengthen the Company's marketing organization,
rebuild its retail land sales business and re-enter the
single-family home business.
The Company re-entered the single-family housing business in
December, 1992. The Company recognized revenues from housing
sales of $344,000 for 1993, primarily during the fourth quarter
of the year, and had a backlog of housing sales of $899,000 as of
December 31, 1993.
The following table reflects the Company's real estate product
mix for 1993 and 1992 (in thousands):
YEARS ENDED
-----------------------------------
DECEMBER 31, DECEMBER 25,
1993 1992
------------ ------------
Gross Land Sales:
Bulk sales............. $ 113 $ 226
Retail sales*.......... 3,057 2,289
------- -------
Total.............. 3,170 2,515
------- -------
Housing Sales:
Single Family.......... 314 -0-
Vacation Ownership..... 30 -0-
------- -------
Total.............. 344 -0-
------- -------
Total Real Estate.. $ 3,514 $ 2,515
======= =======
__________
* 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, 1993 and December 25, 1992 were
$4,106,000 and $2,154,000, respectively. Such contracts are
not included in retail land sales until the applicable
rescission period has expired and the Company has received
payments totalling 20% of the contract sales prices. See
Note 1 to the Consolidated Financial Statements.
Improvement revenues resulted from the recognition of revenue
deferred from prior period sales. Recognition occurs as
development work proceeds on previously sold property.
Improvement revenues totalled $4,725,000 in 1993 as compared to
$2,404,000 for 1992. The increase was due to the Company's
resumption of development work in the third quarter of 1992.
Interest income was $1,197,000 for 1993 compared to $3,584,000
for 1992. This decrease is the result of lower contracts
receivable balances.
24
Other revenues were $3,401,000 for 1993 compared to $4,137,000
in 1992. Included in other revenues for 1992 is the previously
mentioned gain of $448,000 on the sale of the administration
building at the Company's Citrus Springs community, as well as
revenues from the Company's Sunny Hills golf and country club
which was sold in the first quarter of 1993.
COSTS AND EXPENSES
Costs and expenses were $20,871,000 for 1993 compared to
$18,935,000 in 1992. Cost of sales totalled $6,441,000 for 1993
versus $4,605,000 for 1992, primarily due to the resumption of
development work in the third quarter of 1992. Gross profit
margins decreased from 46.7% to 40.9%.
The 1993 results include a provision for contract
cancellations of $2,400,000. Included in the provision is
$1,400,000 for contracts sold in prior years to third parties
which the Company is obligated to repurchase. See Note 2 to
Consolidated Financial Statements.
Commissions, advertising and other selling expenses totalled
$6,008,000 for 1993 versus $3,917,000 for 1992. Advertising and
promotional expenditures increased from $580,000 in 1992 to
$1,521,000 in 1993, reflecting the Company's implementation of
its marketing program.
General and administrative expenses were $3,790,000 in 1993
versus $5,844,000 for 1992. General and administrative expenses
have decreased primarily due to overhead reductions, as part of
the Company's efforts to stabilize its liquidity situation.
Interest expense was $1,257,000 for 1993, as compared to
$3,356,000 for 1992, or a 62.5% decrease. Total interest costs
(including capitalized interest) were $1,421,000 and $3,456,000
for 1993 and 1992, respectively. The decrease in interest cost
is due to lower debt balances.
NET INCOME
The Company reported a net loss of $8,772,000 for 1993,
compared to a net income of $7,336,000 for 1992. The 1993 results
include a provision for contract cancellations of $2,400,000. The
1992 results include a gain of $448,000 on the sale of the
administration building at the Company's Citrus Springs
community, as well as a $10,161,000 extraordinary gain from debt
restructuring and a $3,983,000 extraordinary gain from the
settlement related to the Company's Marco refund obligation.
REGULATORY DEVELOPMENTS WHICH MAY AFFECT FUTURE OPERATIONS
In Florida, as in many growth areas, local governments have
sought to limit or control population growth in their communities
through restrictive zoning, density reduction, the imposition of
impact fees and more stringent development requirements.
Although the Company has taken such factors into consideration in
its master plans, the increased regulation has lengthened the
development process and added to development costs.
On a statewide level, the Florida Legislature adopted and
implemented the Florida Growth Management Act of 1985 (the "Act")
to aid local governments efforts to discourage uncontrolled
growth in Florida. The Act precludes the issuance of development
orders or permits if public facilities such as transportation,
water and sewer services will not be available concurrent with
development. Development orders have been issued for, and
development has commenced in, the Company's existing communities
(with development being virtually completed in certain of these
communities). Thus, such communities are less likely to be
affected by the new growth management policies than future
communities. Any future communities developed by the Company
will be strongly impacted by new growth management policies.
Since the Act and its implications are consistently being
re-examined by the State, together with local governments and
various state and local governmental agencies, the Company
25
cannot further predict the timing or the effect of new growth
management policies, but anticipates that such policies may
increase the Company's permitting and development costs.
In addition to Florida, other jurisdictions in which the
Company's properties are offered for sale have recently
strengthened, or are considering strengthening, their regulation
of subdividers and subdivided lands in order to provide further
assurances to the public, particularly given the adverse
publicity surrounding the industry which existed in 1990. The
Company has attempted to take appropriate steps to modify its
marketing programs and registration applications in the face of
such increased regulation, but has incurred additional costs and
delays in the marketing of certain of its properties in certain
states and countries. For example, the Company has complied with
regulations of certain states which require that the Company sell
its properties to residents of those states pursuant to a deed
and mortgage transaction, regardless of the amount of the down
payment. The Company intends to continue to monitor any changes
in statutes or regulations affecting, or anticipated to affect,
the sale of its properties and intends to take all necessary and
reasonable action to assure that its properties and its proposed
marketing programs are in compliance with such regulations, but
there can be no assurance that the Company will be able to timely
comply with all regulatory changes in all jurisdictions in which
the Company's properties are presently offered for sale to the
public.
LIQUIDITY AND CAPITAL RESOURCES
MORTGAGES AND SIMILAR DEBT
Indebtedness under various purchase money mortgages and loan
agreements is collateralized by substantially all of the
Company's assets, including stock of certain wholly-owned
subsidiaries.
The following table presents information with respect to
mortgages and similar debt (in thousands):
YEARS ENDED
_____________________________________
DECEMBER 31, DECEMBER 31,
1994 1993
------------- -------------
Mortgage Notes Payable ......... $ 14,070 $ 13,284
Other Loans..................... 2,500 2,500
-------- --------
Total Mortgages and
Similar Debt... $ 16,570 $ 15,784
======== ========
Included in Mortgage Notes Payable is the $3,000,000 First
Selex Loan ($1,860,000 as of December 31, 1994), the $1,000,000
Second Selex Loan ($961,000 as of December 31, 1994) the
$4,400,000 Third Selex Loan ($4,362,400 as of December 31, 1994),
and the $4,900,000 Yasawa Loan ($4,764,600 as of December 31,
1994) and the Second Yasawa Loan ($2,122,000 as of December 31,
1994). Other loans include the $1,000,000 Empire note and the
$1,500,000 Scafholding Loan.
These mortgage notes payable and other loans are in default as
of December 31, 1994 due to the non-payment of interest and
principal. The lenders have not taken any action as a result of
these defaults.
On June 19, 1992, Selex loaned the Company the sum of
$3,000,000 pursuant to the First Selex Loan. The First Selex
Loan is collateralized by a first mortgage on certain of the
Company's unsold, undeveloped property in its St. Augustine
Shores, Florida community. The Loan matures on June 15, 1996 and
provides for principal to be repaid at 50% of the net proceeds
per lot for lots requiring release from the mortgage, with the
entire unpaid balance becoming due and payable at the end of the
four year term. It initially bears interest at the rate of 10%
per annum, with payment of interest deferred for the initial 18
months of the Loan and interest payments due quarterly
thereafter. As part of the Selex transaction, Selex was granted
an option, approved by the holders of a majority of the
outstanding shares of the Company's Common Stock at the Company's
1992 Annual Meeting,
26
which, as modified, enabled Selex to convert the First Selex
Loan, or any portion thereof, into a maximum of 600,000 shares of
the Company's Common Stock at a per share conversion price equal
to the greater of (i) $1.25 or (ii) 95% of the market price of
the Company's Common Stock at the time of conversion, but in no
event greater than $4.50 per share (the "Option"). On February
17, 1994, Selex exercised the Option, in full, at a conversion
price of $1.90 per share, such that $1,140,000 in principal was
repaid under the First Selex Loan through such conversion. As of
March 24, 1995, the Company was in default of the First Selex
Loan inasmuch as accrued interest in the amount of $716,700
(including $673,800 due December 31, 1994) remained unpaid.
One million dollars of the proceeds from the First Selex Loan
was used by the Company to acquire certain commercial and
multi-family properties at the Company's St. Augustine Shores
community at their net appraised value, from Mr. Muyres and
certain entities affiliated with Messrs. Zwaans and Muyres.
Namely, (i) $416,000 was used to acquire 48 undeveloped
condominium units (twelve 4 unit building sites) and 4 completed
(and rented) condominium units from Conquistador, in which
Messrs. Zwaans and Muyres serve as directors, as well as
President and Secretary/Treasurer, respectively; (ii) $485,000
was used to acquire 4 commercial lots from Swan, in which Messrs.
Zwaans and Muyres also serve as directors, as well as President
and Secretary, respectively; and (iii) approximately $99,000 was
used to reacquire, from Mr. Muyres, all of his rights, title and
interest in that certain contracts with the Company for the
purchase of a commercial tract in St. Augustine Shores, Florida.
None of the commercial and multi-family property acquired by the
Company from Mr. Muyres and certain entities affiliated with
Messrs. Zwaans and Muyres collateralizes the First Selex Loan.
In March, 1994, Conquistador exercised its right to repurchase
certain multi-family property from the Company (which right had
been granted in connection with the June, 1992 Selex transaction)
at a price of $312,000, of which $260,000 was paid in cash to the
Company and $52,000 was applied to reduce interest due to Selex
under the Second Selex Loan ("First Conquistador Acquisition").
On December 2, 1992, the Company entered into various
agreements relating to certain of its assets and the
restructuring of its debt with Yasawa, which is beneficially
owned by Mr. Gram. The consummation of these agreements, which
are further described below, was conditioned upon the acquisition
by Gram of the Company's outstanding bank loan.
On December 4, 1992, Gram entered into an agreement with the
lenders, pursuant to which he acquired the bank loan of
approximately $25,150,000 (including interest and fees) for a
price of $10,750,000. In conjunction with such transaction, the
lenders transferred to Gram the warrants which they held that
entitled the holder to purchase an aggregate of 277,387 shares of
the Company's Common Stock at an exercise price of $1.00 per
share. Immediately after the acquisition of the bank loan, Gram
transferred all of his interest in the bank loan, including the
warrants, to Yasawa.
On December 11, 1992, the Company consummated the December 2,
1992 agreements with Yasawa. Under these agreements, Yasawa, its
affiliates and the Company agreed as follows: (i) the Company
sold certain property at its Citrus Springs community to an
affiliate of Yasawa in exchange for approximately $6,500,000 of
debt reduction credit; (ii) an affiliate of Yasawa and the
Company entered into a joint venture agreement with respect to
the Citrus Springs property, providing for the Company to market
such property and receive an administration fee from the venture
(in March, 1994, the Company and the affiliate agreed to
terminate the venture); (iii) the Company sold certain contracts
receivable at face value to an affiliate of Yasawa for debt
reduction credit of approximately $10,800,000; (iv) the Company
sold the Marco Shores Country Club and Golf Course to an
affiliate of Yasawa for an aggregate sales price of $5,500,000,
with the affiliate assuming an existing first mortgage of
approximately $1,100,000 and the Company receiving debt reduction
credit of $2,400,000, such that the Company obtained cash
proceeds from this transaction of $2,000,000, which amount was
used for working capital; (v) an affiliate of Yasawa agreed to
lease the Marco Shores Country Club and Golf Course to the
Company for a period of approximately one year; (vi) an affiliate
of Yasawa and the Company agreed to amend the terms of the
warrants to increase the number of shares issuable upon their
exercise from 277,387 shares to 289,637 shares and to adjust the
exercise price to an aggregate of approximately $314,000; (vii)
Yasawa exercised the warrants in exchange for
27
debt reduction credit of approximately $314,000; (viii) Yasawa
released certain collateral held for the bank loan; (ix) an
affiliate of Yasawa agreed to make an additional loan of up to
$1,500,000 to the Company, thus providing the Company with a
future line of credit (all of which was drawn and outstanding as
of March 24, 1995); and (x) Yasawa agreed to restructure the
payment terms of the remaining $5,106,000 of the bank loan as a
loan from Yasawa (the "Yasawa Loan").
The Yasawa Loan bears interest at the rate of 11% per annum,
with payment of interest deferred until December 31, 1993, at
which time only accrued interest became payable. Commencing
January 31, 1994, principal and interest became payable monthly,
with all unpaid principal and accrued interest being due and
payable on December 31, 1997. During 1994, an assignment of a
mortgage receivable and miscellaneous sales of collateral reduced
the Yasawa Loan to $4,764,600 as of December 31, 1994. As of
March 24, 1995, $5,418,300 in principal and accrued interest was
in default under the Yasawa Loan.
On April 30, 1993 Selex loaned the Company an additional
$1,000,000 collateralized by a first mortgage on certain of the
Company's property in its Marion Oaks, Florida community (the
"Second Selex Loan"). The Second Selex Loan bears interest at
11% per annum, with interest deferred until December 31, 1993.
The Second Selex Loan provides for principal to be repaid at
$3,000 per lot for lots requiring release from the mortgage, with
the entire unpaid principal balance and interest accruing from
January 1, 1994 to April 30, 1994 due and payable on April 30,
1994. Although Selex had certain conversion rights under the
Second Selex Loan in the event the Company sold any Common Stock
or Preferred Stock prior to payment in full of all amounts due to
Selex under the Second Selex Loan, such rights were voided as of
December 31, 1993. As of March 24, 1995, $39,000 in principal and
$52,000 in accrued interest had been repaid under the Second
Selex Loan, but accrued interest of $154,600 due under the L