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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, 1993
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: $1,097,602 BASED AVERAGE BID AND ASKED PRICES
OF SUCH STOCK AS TRADED ON THE OVER-THE-COUNTER ON SEPTEMBER 9, 1994. (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: 6,664,156 SHARES OF COMMON
STOCK, $1 PAR VALUE, AS OF AUGUST 31, 1994.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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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.................................... 11
Regulation..................................... 11
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 III
Items 10, 11 and 13 ... Directors and Executive Officers................ 62
Directors of the Company..................... 62
Executive Officers of the Company.............. 68
Executive Compensation......................... 69
Item 12 ............... Ownership of Voting Securities of the Company... 77
PART IV
Item 14 ............... Exhibits, Financial Statement Schedules and
Reports on Form 8-K........................... 80
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 174,000. The Company plans, designs and develops roads, waterways,
recreational amenities, grading and drainage systems within these communities.
Since 1962, the Company has sold over 137,000 single-family lots and
multi-family and commercial tracts in its communities, in addition to
approximately 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 19,500 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
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.
1
Mr. Gram, who had served as a director of the Company and Vice Chairman
of the Board from June, 1992 through April 6, 1994, holds a controlling interest
in Yasawa Holdings N.V., a Netherlands Antilles Corporation ("Yasawa") and
Wilbury International N.V., a Netherlands Antilles Corporation ("Wilbury"),
which holds all of the issued and outstanding capital stock of Selex
International B.V., a Netherlands Corporation ("Selex"). As a consequence, Mr.
Gram is deemed to be the beneficial owner of 3,109,703 shares of Common Stock of
the Company (46.7% 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
August 19, 1994).
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, which resulted in the infusion of additional funds into the Company and
in a change in control of the Company.
In conjunction with the Selex 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")
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 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 (42.3% 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 August 19, 1994). 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. 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 the first quarter of 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
2
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
$1,549,000, as of August 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 76% 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 Common Stock
was formally removed from listing and registration on the New York Stock
Exchange. As of August 31, 1994, the Company's Common Stock was traded on a
limited basis in the over-the-counter markets.
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 August 31, 1994, advanced an aggregate
amount of $1,200,000 to the Company ("the second Yasawa loan") at an interest
rate of 8% per annum. 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 an alternative business plan that would
provide 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 an alternative business
plan will be developed and successfully implemented. Consequently, there can be
no assurance that the Company can continue as a going concern. In the event that
these matters are not successfully addressed, the Company's Board of Directors
will consider other appropriate action given the severity of the Company's
liquidity position, including, but not limited to, filing for protection under
the federal bankruptcy laws. Alternatively, the Company could be subject to the
filing of an involuntary bankruptcy proceeding in the event it is unable to
resolve and settle pending litigation, satisfy settlement commitments and other
unpaid creditor claims. 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.
3
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 12 to Consolidated Financial Statements:
YEARS ENDED
--------------------------------------------------------------------
DECEMBER 31, DECEMBER 25, DECEMBER 27, DECEMBER 28, DECEMBER 29,
1993 1992 1991 1990 1989
-------- --------- --------- --------- --------
(IN THOUSANDS)
REVENUES
Real estate:
Net land sales(a) .. $ 2,432 $ 2,092 $ 1,154 $ 11,612 $ 38,475
Housing revenues ... 344 -0- 120 1,919 5,718
Improvement revenues(b) 4,725 2,404 -0- 2,152 7,559
Interest income(c) . 1,197 3,584 5,270 8,236 9,102
Other .............. 67 -0- -0- -0- 50
-------- --------- --------- --------- --------
Total real estate 8,765 8,080 6,544 23,919 60,904
Other(d) ............. 3,447 4,372 4,510 5,436 6,370
Intersegment sales(e) (113) (235) (270) (322) (395)
-------- --------- --------- --------- ---------
TOTAL ............ $ 12,099 $ 12,217 $ 10,784 $ 29,033 $ 66,879
======== ========= ========= ========= =========
OPERATING PROFITS (LOSSES)
Real estate .......... $ (3,073) $ 1,486 $ (6,750) $ (798) $ 19,114
Other ................ 279 2,209 1,928 1,789 1,305
General corporate expense (4,721) (7,057) (7,811) (10,602) (12,190)
Merger expense ....... -0- -0- -0- -0- (500)
Interest expense ..... (1,257) (3,356) (6,896) (7,397) (6,858)
-------- --------- --------- --------- ---------
INCOME (LOSS) FROM
CONTINUING OPERATIONS
BEFORE INCOME TAXES
AND EXTRAORDINARY ITEMS $ (8,772) $ (6,718) $ (19,529) $ (17,008) $ 871
======== ========= ========= ========= =========
- - --------------------
(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.
(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 comes from the country club operations (see Note 11 to
Consolidated Financial Statements).
(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, 1993. For a detailed description
of these communities, see "Existing Communities" and "Other Properties".
EXISTING COMMUNITIES
PLATTED UNIMPROVED IMPROVED
ACREAGE INITIAL ESTIMATED LOTS & TRACTS UNSOLD PLATTED UNSOLD PLATTED
IN ACQUISITION YEAR CURRENT IN MASTERPLAN LOTS & TRACTS LOTS & TRACTS UNPLATTED
MASTERPLAN YEAR OPENED POPULATION (A) (A) (B) (A) (B) ACREAGE
---------- ----------- ------ ---------- ------------- -------------- -------------- ---------
* Deltona Lakes... 17,203 1962 1962 54,500 34,964 - 6 -
* Marco Island(c). 7,844 1964 1965 34,000 8,657 - 1 -
* Spring Hill(d).. 17,240 1966 1967 60,000 32,909 - 6 -
* Citrus Springs
(e),(f),(g)... 15,954 1969 1970 5,600 33,783 - 42(f) 2
St. Augustine
Shores ....... 1,985 1969 1970 6,700 3,130 875 6 16
Sunny Hills..... 17,743 1968 1971 1,200 26,251 12,281 842 -
* Pine Ridge...... 9,994 1969 1972 2,100 4,833 - 10 -
Marion Oaks(e).. 14,644 1969 1973 6,800 27,537 4,265 1,205 -
* Seminole Woods.. 1,554 1969 1979 290 262 - - -
JOINT VENTURE
COMMUNITY:
* Tierra Verde.... 666 1976 1977 3,000 1,036 - - -
------- ------- ------- ------ ----- --
Total............. 104,827 174,190 173,362 17,421(f) 2,118(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 340 improved and 87
unimproved lots and tracts that are required for drainage and cannot be
sold, and approximately 202 improved and 415 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 4 administration facility sites, 3 recreational
facility sites and 2 unimproved golf course sites, as well as approximately
560 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.
5
(d) Includes the South Hernando U.S. # 19 Commerce Center.
(e) Excluded 84 Citrus Springs and 65 Marion Oaks improved lots deeded to the
purchaser of the Company's contracts receivable as exchange inventory to be
available for customers who pre-pay their contracts prior to the
installation of water service lines within one mile of their homesite and
who wish to commence immediate construction. Unused exchanged inventory
will be reconveyed to the Company when all purchased receivables have
matured and are paid in full.
(f) Excludes 850 improved and 844 unimproved platted lots and tracts held for
retail sale by Citony Development Corporation ("Citony"), an affiliate of
Yasawa. The property acquired by Citony in December, 1992 had been 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.
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.
6
A portion of the contract purchase price is discounted and treated as interest
income to be amortized over the life of the contract. Interest income is also
earned in accordance with the interest rate stated in the installment land sales
contract. The Company further provides an allowance for contract cancellations
based on the historical experience of the Company for such cancellations.
Substantially all of the Company's single-family lot and multi-family and
commercial tract sales have been made on an installment basis. Of the over
137,000 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 $10,132,000 at December 31, 1993, 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 approximately
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, priced from as low as $47,900 on the
purchaser's already-owned lot.
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, 1993, sales by independent dealers in the
United States accounted for approximately 23% (in dollar volume) of new land
sales contracts; while overseas dealers accounted for approximately 31% of such
contracts; and Company-affiliated salespeople accounted for approximately 46% 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, further
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. At this time, the implementation of a revised
marketing program by the Company is dependent upon the resolution of the
financial and legal problems facing the Company, as well as the alternative
business plan to be developed.
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 54,500. 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
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.
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
8
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, in 1994 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 Notes 5 and 9 to Consolidated Financial Statements.
SPRING HILL
Spring Hill, with an estimated population of approximately 60,000, 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 5,600, 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. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 5 to Consolidated Financial
Statements.
ST. AUGUSTINE SHORES
St. Augustine Shores, with a population estimated to be approximately 6,700, 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 tracts
have been sold.
The Company has completed 28 miles of road. Certain common areas of the
community, such as parks and swale areas, are maintained by the St. Augustine
Shores Service Corporation, a non-profit corporation, of which all property
owners are members. 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
9
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".
SUNNY HILLS
Sunny Hills, with a population of approximately 1,200 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
1994 will be generated from collections on existing contracts receivable, from
retail land sales and from the recognition of deferred revenue as land
development proceeds.
PINE RIDGE
Pine Ridge 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 6,800 residents, is located 18
miles south of Ocala. Over 20,000 lots and tracts and over 13,000 single-family
homes have been sold in the community. The community includes playgrounds, two
golf courses (one of which was sold in 1988 and the second which was transferred
to the Company's lenders on October 11, 1991) and several recreation buildings.
A shopping center and several houses of worship are located in the community.
The Company has completed 311 miles of road. The Company re-entered the
single-family housing business at this community in December, 1992 with the
opening of its FeatherNest housing village. See "Housing" and "Marketing".
Revenues in 1994 will be generated from the sale of land inventory, from housing
sales, from the recognition of deferred revenue as land development proceeds,
from collections on existing contracts receivable and from the Company's real
estate brokerage operation.
SEMINOLE WOODS
Seminole Woods 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.
10
TIERRA VERDE
Tierra Verde, a 666-acre waterfront subdivision located eight miles south of
St. Petersburg, has been 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 perform real estate brokerage and rental services at the Company's
Marion Oaks and Sunny Hills communities.
EMPLOYEES
At August 31, 1994, the Company had 35 employees, of whom 31 were involved in
executive, administrative, marketing 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 76% 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.
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.
11
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 is negotiating with Citrus County for the transfer of final
maintenance responsibility for the roads to the County.
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 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.
12
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.
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.
13
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
(the "1992 Consent Order"), 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. 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 1995. As part of the assurance program under the 1992
Consent Order (as amended in February, 1993), the Company and its lenders
granted the Division a lien on certain contracts receivable (approximately
$8,915,000 as of December 31, 1993) and future receivables. Beginning January,
1994 and until development is completed or the 1992 Consent Order is amended,
the Company was required to deposit $430,000 per month into the escrow account.
The Company defaulted on its obligation to escrow $430,000 per month for the
period 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. Consequently, the Division
has allowed the Company to utilize collections on receivables since May 1, 1994.
At August 31, 1994, the amount collected on fully paid-for lots under the 1992
Consent Order was approximately $1,340,000. 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 so as not to increase its
development obligation. 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.
14
As of December 31, 1993, the Company had estimated development obligations of
approximately $2,825,000 on sold property, an estimated liability to provide
title insurance costing $951,000 and an estimated cost of street maintenance,
prior to assumption of such obligations by local governments, of $3,852,000, all
of which are included in deferred revenue. The total cost, including the
previously mentioned obligations, to complete improvements at December 31, 1993
to lots subject to the 1992 Consent Order and to lots in the St. Augustine
Shores community was estimated to be approximately $18,574,000. As of December
31, 1993, and August 31, 1994 the Company had in escrow approximately $1,664,000
and $913,000 respectively, specifically for land improvements, which are the
subject of the 1992 Consent Order.
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 parties are currently attempting to resolve the dispute by
reaching an agreement as to alternative property that may be used for settlement
purposes.
In the action styled FIVE POINTS LIMITED V. THE DELTONA CORPORATION, Case No.
93-22877, filed in the Circuit Court for Dade County, Florida and served upon
the Company on December 8, 1993, the plaintiff is seeking damages against the
Company for an alleged breach of the lease for its office building. The
complaint alleges that the Company has defaulted in its obligation to make
payments under the lease and seeks damages in excess of $272,000 for additional
past due rent, plus damages for acceleration of lease payments in excess of
$4,000,000. On February 17, 1994 the Court entered an Order requiring the
Company to pay uncontested back rent of approximately $240,000, plus uncontested
monthly rents of approximately $48,000, commencing on March 1, 1994. As of
August 31, 1994, approximately $41,500 had been garnished by the Court under
this Order. The Plaintiff has obtained multiple judgments in the amount of
$647,000 as of August 31, 1994. These judgments have been recorded in certain of
the Company's communities. On September 1, 1994 the Company entered into a
settlement agreement with plaintiff to be consummated on or before October 17,
1994. New financing is essential for the Company to consummate the settlement
agreement. Failure to fund this agreement will result in continued litigation
and a likely substantial judgment against the Company. As part of the settlement
agreement, the Company will be evicted from the premises and must vacate its
occupancy by January 6, 1995.
In the action styled LEE, ET.AL. V. THE DELTONA CORPORATION, Case No. 94-3808,
filed in the Circuit Court for Dade County, Florida and served upon the Company
on February 28, 1994, the plaintiff had alleged that the liquidated damages
provision in the Company's contracts for the sale of its properties is
unenforceable under Florida law and contests the method utilized by the Company
to calculate actual damages in the event of contract cancellations. As part of
its complaint, the plaintiff was seeking certification as a class action, as
well as unspecified compensatory damages, together with interest, costs and
fees. The Company has reached a settlement with the plaintiff and proceedings
have been dismissed.
In the action styled BRUCE WEINER V. THE DELTONA CORPORATION, the plaintiff,
Bruce Weiner, prior Executive Vice President of the Company, has sued the
Company on April 28, 1994 for alleged breach of employment contract seeking
damages of approximately $750,000.00 and unspecified employee benefits. The
proceeding is pending in the Circuit Court of Dade County, Florida, Case No.
94-7825-04. The Company has filed a response to the plaintiff's complaint and
discovery is pending. No final hearing has been set. 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.
Although settlement discussions have commenced, no resolution of the matter has
been consummated. Any ultimate settlement will require the Company to obtain
financing for payment.
16
In the action styled JOSEPH MANCILLA, JR. V. THE DELTONA CORPORATION, the
plaintiff, Joseph Mancilla, Jr., prior Senior Vice President of the Company, has
sued the Company on May 17, 1994 for alleged breach of employment contract
seeking damages in excess of $391,000,000 plus unspecified employee benefits,
costs and other claims. The proceeding is pending in the Circuit Court of Dade
County, Florida, Case No. 94-09116. The Company has filed a responsive pleading
and no final hearing has been set. If a settlement is not reached and the
Company is not successful in its defenses, a substantial portion of the
plaintiff's claim may be entered as a judgment against the Company. The Company
at the present time is unable to predict the ultimate outcome. The Company
intends to begin settlement discussions with plaintiff. Any settlement funding
would require the Company to obtain financing to meet settlement commitment.
In the action styled MICHELLE GARBIS V. THE DELTONA CORPORATION, the plaintiff,
Michelle Garbis, prior Senior Vice President and Corporate Secretary of the
Company, has sued the Company on August 18, 1994 for alleged breach of
employment contract seeking damages of approximately $280,000.00. The Company
disputes the plaintiff's claim which is pending in the Circuit Court of Dade
County, Florida, Case No. 94-15531 CA (11). The Company and plaintiff have
reached a resolution and settlement of the claim and have entered into a
stipulation requiring installment payments through December 1994. Failure of the
Company to obtain financing and perform under the stipulation, would result in
continued litigation and potential judgment against the Company for the unpaid
portion of the settlement amount.
The Company is subject to various litigation involving claims by certain trade
creditors. The Company has entered into individual compromise and settlement
agreements or stipulations, for payments at discounted amounts on or before
September 30, 1994. Failure to obtain financing to make the committed payments
may result in judgments of up to $500,000.00.
The Company is also a party to certain other legal and administrative
proceedings arising in the ordinary course of its 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
- - ------- ------ -----
1992 - First Quarter........................................ 1-1/2 5/8
Second Quarter....................................... 2-3/4 7/8
Third Quarter........................................ 2-1/4 1-7/8
Fourth Quarter....................................... 4-1/8 1-3/4
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
On March 18, 1994 the last reported sales price of the shares of Common Stock
on the NYSE was 1-1/4. There were 1,704 holders of record of the Company's
Common Stock.
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 August 31, 1994, the Company's Common Stock was traded on a limited basis
in the over-the-counter markets. The high bid was 12-1/2(cent) and the low ask
price was 50(cent) at September 6, 1994 on the over-the-counter markets.
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 31, DECEMBER 25, DECEMBER 27, DECEMBER 28, DECEMBER 29,
1993 1992 1991 1990 1989
----------- ----------- ----------- ----------- -----------
Revenues .................................... $ 12,099 $ 12,217 $ 10,784 $ 29,033 $ 66,879
Costs and expenses .......................... 20,871 18,935 30,313 46,041 66,008
----------- ----------- ----------- ----------- ----------
Income (loss) from continuing operations
before taxes and extraordinary items ....... (8,772) (6,718) (19,529) (17,008) 871
Provision for income taxes .................. -- 90 -- -- 343
----------- ----------- ----------- ----------- ----------
Income (loss) from continuing operations
before extraordinary items ................. 8,772 (6,808) (19,529) (17,008) 528
Discontinued operations (net of taxes):
Income from operations of utility
segment ................................... -- -- -- -- 904
Gain on sale of utility segment ............ -- -- -- -- 1,670
----------- ----------- ----------- ----------- ----------
Income (loss) before extraordinary items .... (8,772) (6,808) (19,529) (17,008) 3,102
Extraordinary items:
Gain (loss) from debt restructuring ....... -- 10,161 (7,100) -- --
Gain on settlement related to the
Marco refund obligation ................. -- 3,983 -- -- --
Utilization of net operating loss
carryforward ............................. -- -- -- -- 1,929
----------- ----------- ----------- ----------- ----------
Net income (loss) ........................... (8,772) 7,336 (26,629) (17,008) 5,031
Cumulative redeemable preferred stock
dividend ................................... -- -- -- -- 1,315
----------- ----------- ----------- ----------- ----------
Net income (loss) applicable to common
stock ...................................... $ (8,772) $ 7,336 $ (26,629) $ (17,008) $ 3,716
=========== =========== =========== =========== ==========
Per common share amounts:
Continuing operations ................... $ (1.45) $ (1.19) $ (3.45) $ (3.01) $ .09
Discontinued operations ................. -- -- -- -- .46
Extraordinary items ..................... -- 2.48 (1.25) -- .35
Preferred stock dividend ................ -- -- -- -- (.23)
----------- ----------- ----------- ----------- ----------
Net income (loss) ........................... $ (1.45) $ 1.29 $ (4.70) $ (3.01) $ .67
=========== =========== =========== =========== ==========
Weighted average common shares
outstanding ................................ 6,056,743 5,694,236 5,660,967 5,647,790 5,584,425
=========== =========== =========== =========== ==========
CONSOLIDATED BALANCE SHEET DATA
(IN THOUSANDS)
DECEMBER 31, DECEMBER 25, DECEMBER 27, DECEMBER 28, DECEMBER 29,
1993 1992 1991 1990 1989
----------- ----------- -----------
Total assets............................. $ 26,565 $ 37,050 $ 65,243 $ 113,003 $ 137,691
========== ========== ========= ========= =========
Liabilities.............................. $ 40,856 $ 42,569 $ 78,412 $ 99,543 $ 107,573
Stockholders' equity (deficiency)........ (14,291) (5,519) (13,169) 13,460 30,118
---------- --------- --------- --------- ---------
Total liabilities,preferred stock and
stockholders' equity (deficiency)....... $ 26,565 $ 37,050 $ 65,243 $ 113,003 $ 137,691
========== ========== ========= ========= =========
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 $604,312 (including $463,562 due December 31, 1993) was unpaid and in
default as of August 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
(43.1% 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 18, 1994.
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, 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
20
from the Company (which right had been granted in connection with the June, 1992
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 Third
Selex Loan.
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. 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 $33,000 had been repaid under the Second Selex Loan through
August 31, 1994. As of August 31, 1994, Yasawa has loaned the Company an
additional sum of $l,200,000 pursuant to the Second Yasawa Loan. As a
consequence of these transactions, the Company had loans outstanding from Selex,
Yasawa and their affiliates on August 31, 1994 in the aggregate amount of
approximately $17,976,000, including interest. 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 in 1994 to meet
its working capital requirements.
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 Company has defaulted on certain obligations, including its escrow
obligations to 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 interest payments under loans from Selex, Yasawa and their affiliates.
Furthermore, the Company has not paid certain real estate taxes which are
approximately $1,549,000 at August 31, 1994 and is also subject to certain
pending litigation by former employees and others, 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
21
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
under the federal bankruptcy laws. Alternatively, the Company could be subject
to the filing of an involuntary bankruptcy proceeding in the event it is unable
to resolve and settle pending litigation, satisfy settlement commitments and
other unpaid creditor claims. See "Business: Recent Developments", "Legal
Proceedings" and Notes 1, 5 and 8 to Consolidated Financial Statements.
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.
The Company had a 90.6% increase in retail land sales contracts entered into in
1993 over 1992. This increase was due to the third quarter introduction of the
Company's marketing program and reflects increased spending 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.
Bulk land sales were $113,000 in 1993 as compared to bulk land sales of
$226,000 in 1992. In light of the Company's diminished bulk land sales inventory
and the properties transferred to the Company's lenders on October 11, 1991, it
is anticipated that 1994 will also produce a low 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.
Since revenues are not recognized from housing sales until the completion of
construction and passage of title, no significant housing revenues will be
recognized in 1994. 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
======= =======
22
- - --------------------
* 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 result 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.
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.
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.
23
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 25, 1992 AND DECEMBER 27, 1991
REVENUES
Total revenues were $12,217,000 for 1992 compared to $10,784,000 for 1991.
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 $2,515,000 for 1992 versus $1,539,000 for 1991. Net land
sales (gross land sales less estimated uncollectible installment sales and
contract valuation discount) increased to $2,092,000 for 1992 from $1,154,000
for 1991. Retail land sales contracts written increased $851,000 from $1,438,000
in 1991 to $2,289,000 in 1992, a 60% increase. The increase in sales is
primarily due to the resale, during the first quarter of 1992, of property which
was the subject of a previously cancelled contract; however, sales for the year
reflected the economic slowdown and the Company's inability to bolster marketing
efforts due to its liquidity situation. Bulk land sales were $226,000 in 1992 as
compared to bulk land sales of $101,000 in 1991. See "Liquidity and Capital
Resources: Mortgages and Similar Debt".
Although the Company re-entered the single-family housing business in December,
1992, since revenues are not recognized from housing sales until the completion
of construction and passage of title, no housing revenues were expected to be
recognized until late 1993.
The following table reflects the Company's real estate product mix for 1992 and
1991 (in thousands):
YEARS ENDED
-----------------------------
DECEMBER 25, DECEMBER 27,
1992 1991
------------- ------------
Gross Land Sales:
Bulk sales........................................................... $ 226 $ 101
Retail sales*........................................................ 2,289 1,438
------- -------
Total........................................................... 2,515 1,539
------- -------
Housing Sales:
Condominium.......................................................... -0- 37
Vacation Ownership................................................... -0- 83
------- -------
Total........................................................... -0- 120
------- -------
Total Real Estate............................................... $ 2,515 $ 1,659
======= =======
- - --------------------
* 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 25, 1992 and December 27, 1991
were $2,154,000 and $4,087,000, 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.
24
Improvement revenues result from the recognition of revenue deferred from prior
period sales. Recognition occurs as development work proceeds on previously sold
property. Improvement revenues totalled $2,404,000 in 1992 as compared to $-0-
for 1991. The increase was due to the Company's resumption of development work
in the third quarter of 1992.
Interest income was $3,584,000 for 1992 compared to $5,270,000 for 1991. This
decrease is the result of lower contracts receivable balances.
Other revenues were $4,137,000 for 1992 compared to $4,240,000 in 1991.
Included in other revenues is the previously mentioned gain of $448,000 on the
sale of the administration building at the Company's Citrus Springs community.
COSTS AND EXPENSES
Costs and expenses were $18,935,000 for 1992 compared to $30,313,000 in 1991.
Included in costs and expenses for 1991 was a provision of $8,900,000 caused by
an addition to the allowance for uncollectible contracts for previously
recognized sales of $12,200,000. Cost of sales totalled $4,605,000 for 1992
versus $2,599,000 for 1991, primarily due to the resumption of development work
in the third quarter of 1992. Gross profit margins decreased from 53.1% to
46.7%.
Commissions, advertising and other selling expenses totalled $3,917,000 for
1992 versus $4,107,000 for 1991. Advertising expenditures increased from
$259,000 in 1991 to $580,000 in 1992, reflecting the Company's efforts to
stimulate sales and implement its marketing program. Additional working capital
was expected to be allocated during the year for advertising and promotional
purposes to strengthen the Company's marketing organization, rebuild its retail
land sales business and re-enter the single-family home business.
General and administrative expenses were $5,844,000 in 1992 versus $6,165,000
for 1991. General and administrative expenses decreased primarily due to
overhead reductions, as part of the Company's efforts to stabilize its liquidity
situation.
Interest expense was $3,356,000 for 1992, as compared to $6,896,000 for 1991,
or a 51% decrease. Total interest costs (including capitalized interest) were
$3,456,000 and $6,896,000 for 1992 and 1991, respectively. The decrease in
interest cost is due to substantially lower debt balances, as well as lower
prime rates of interest charged by the Company's lenders.
NET INCOME
The Company reported net income of $7,336,000 for 1992, compared to a net loss
of $26,629,000 for 1991. 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. The 1991 results included a provision of approximately
$8,900,000 related to a $12,200,000 addition to the allowance for uncollectible
contracts, as well as a $7,100,000 extraordinary loss from debt restructuring
related to the Sixth Restatement. Exclusive of the extraordinary items, the loss
from operations for 1992 was $6,808,000, as compared to the prior year's loss of
$19,529,000.
25
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 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 25,
1993 1992
------------ ------------
Mortgage Notes Payable .................. $ 13,284 $ 8,165
Other Loans.............................. 2,500 1,000
--------- --------
Total Mortgages and Similar Debt..... $ 15,784 $ 9,165
========= ========
Included in Mortgage Notes Payable is the $3,000,000 First Selex Loan
($1,860,000 as of August 31, 1994), the $1,000,000 Second Selex Loan ($967,000
as of August 31, 1994) the $4,384,000 Third Selex Loan and the
26
$4,900,000 Yasawa Loan ($4,765,000 as of August 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 August 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, the Company completed a transaction with Selex whereby, among
other things, Selex loaned the Company $3,000,000 (the First Selex Loan). The
First Selex Loan is collateralized by a first mortgage on certain of the
Company's 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 eighteen months of the Loan and interest
payments due quarterly thereafter. On February 17, 1994, principal in the amount
of $1,140,000 was repaid under the First Selex Loan when Selex exercised its
previously described Option to convert a portion of the Loan into 600,000 shares
of the Company's Common Stock at a conversion price of $1.90 per share. Accrued
interest in the amount of $604,300 (including $463,600 due December 31, 1993)
was unpaid and in default under the First Selex Loan as of August 31, 1994.
The Company had defaulted on its bank debt in the third quarter of 1990, and
was engaged in negotiating the repayment and restructuring of such debt through
1991 and the first half of 1992. As of December 27, 1991, the Company's bank
debt had been reduced by the assignment of mortgages receivables and, on October
11, 1991, the transfer of certain properties to its principal lending banks
pursuant to a Conveyance Agreement with such lenders. The Conveyance Agreement
not only provided for the partial repayment of the bank debt, but also
encompassed an agreement in principle providing for the restructuring and
repayment of the remaining bank debt.
On June 18, 1992, the Company completed the restructuring of its bank debt by
entering into the Sixth Amended and Restated Credit and Security Agreement (the
"Sixth Restatement") with its lenders. The terms of the Sixth Restatement
provided for the Company's remaining debt in the principal amount of
approximately $25,300,000 to be repaid by June 30, 1997, with specified interim
repayments and benchmarks to be achieved. Among other things, the Sixth
Restatement provided for: (i) interest to accrue on the remaining debt at
Citibank's alternate base rate ("ABR") plus 4% per annum, subject to a minimum
interest rate of 11% per annum and a maximum interest rate of 14% per annum,
with no interest payments due until June 30, 1996; (ii) accrued, but unpaid
interest on $10,000,000 of the restructured debt to be forgiven provided that
the principal balance outstanding on the restructured debt as of June 30, 1996
was less than $9,000,000; and (iii) the issuance to the lenders of warrants to
acquire up to 277,387 shares of the Company's Common Stock at a price of $1.00
per share.
In conjunction with the completion of the Sixth Restatement, the lenders
released or subordinated their lien on certain assets of the Company, to enable
the Company to complete the First Selex Loan, to complete the $13,500,000 sale
of contracts receivable described below, to enter into the 1992 Consent Order
with the Division, and to secure working capital needed to pay real estate taxes
which were, at the time, delinquent and meet its customer obligations for
improvement work at certain of the Company's communities. During the third
quarter of 1992, the lenders also released their lien on certain other contracts
receivable to allow the Company to complete a sale of such receivables, which
generated $600,000 in proceeds. These proceeds were, in turn, paid to the
lenders, with the lenders allowing the Company $1,000,000 in debt reduction
credit, and resulting in an extraordinary gain of $400,000.
During the 1991 second quarter, the Company incurred extraordinary expenses of
$3,500,000 for debt restructuring, based upon the transfer value of the assets
involved in the first phase of its debt restructuring. During the fourth quarter
of 1991, the Company provided for an additional $3,600,000 of extraordinary
expenses for debt restructuring based upon the Company's assessment of the
ultimate costs that would result from the
27
restructuring of its debt pursuant to the Sixth Restatement. The fourth
quarter addition included the anticipated professional fees, bank charges and
other costs related to the Sixth Restatement, as well as the loss on the sale of
contracts receivable discussed below. The completion of the Sixth Restatement
was dependent upon the completion of the sale of contracts receivable;
therefore, the loss on such sale was included as an extraordinary item.
On December 2, 1992 the Company entered into various agreements relating to
certain of its assets and the restructuring of its debt with Yasawa. The
consummation of these agreements was conditioned upon the acquisition by Mr.
Gram of the bank debt under the Sixth Restatement (the "Bank Loan") described
above. On December 4, 1992, Gram acquired the Bank Loan of approximately
$25,150,000 (including interest and fees) for a price of $10,750,000, as well as
the warrants which the lenders held. Immediately thereafter, Gram transferred
all of his interest in the Bank Loan, including the warrants, to Yasawa. See
Notes 5 and 10 to Consolidated Financial Statements.
On December 11, 1992 the Company consummated the December 2, 1992 agreements
with Yasawa. Under these agreements, Yasawa, its affiliates and the Company
agreed as follows: (i) the Company sold certain property at its Citrus Springs
community to an affiliate of Yasawa in exchange for approximately $6,500,000 of
debt reduction credit; (ii) an affiliate of Yasawa and the Company entered into
a joint venture agreement with respect to the Citrus Springs property, providing
for the Company to market such property and receive an administration fee from
the venture (in March, 1994, the Company and the affiliate agreed to terminate
the venture); (iii) the Company sold certain contracts receivable at face value
to an affiliate of Yasawa for debt reduction credit of approximately
$10,800,000; (iv) the Company sold the Marco Shores Country Club and Golf Course
to an affiliate of Yasawa for an aggregate sales price of $5,500,000, with the
affiliate assuming an existing first mortgage of approximately $1,100,000 and
the Company receiving debt reduction credit of $2,400,000, such that the Company
obtained cash proceeds from this transaction of $2,000,000, which amount was
used for working capital; (v) an affiliate of Yasawa agreed to lease the Marco
Shores Country Club and Golf Course to the Company for a period of approximately
one year; (vi) an affiliate of Yasawa and the Company agreed to amend the terms
of the warrants to increase the number of shares issuable upon their exercise
from 277,387 shares to 289,637 shares and to adjust the exercise price to an
aggregate of approximately $314,000; (vii) Yasawa exercised the warrants in
exchange for debt reduction credit of approximately $314,000; (viii) Yasawa
released certain collateral held for the Bank Loan; (ix) an affiliate of Yasawa
agreed to make an additional loan of up to $1,500,000 to the Company, thus
providing the Company with a future line of credit (all of which was drawn and
outstanding as of August 31, 1994); 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 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. A portion of the proceeds from a March, 1993 sale
of contracts receivable was applied to reduce the Yasawa Loan to $4,900,000
during the first quarter of 1993 and the assignment of a mortgage receivable to
Yasawa reduced the Yasawa Loan to $4,764,000 as of August 31, 1994. Accrued
interest due under the Yasawa Loan in the amount of $355,196 was unpaid and in
default as of August 31, 1994.
In February, 1994, Yasawa loaned the Company an additional amount of $437,500
at an interest rate of 8% per annum (the "Second Yasawa Loan"). As of August 31,
1994, a total of $1,200,000 had been advanced under the 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
28
to be 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 since the regulations set forth in proposed Treasury Decision CO-18-90
relative to Section 382 of the Internal Revenue Code were not adopted by such
date. As of August 31, 1994, $33,000 in principal had been repaid under the
Second Selex Loan, but accrued interest of $93,344 due under the Loan as of
August 31, 1993 remained unpaid and in default.
From July 9, 1993 through December 31, 1993, Selex loaned the Company an
additional $4,400,000 collateralized by a second mortgage on certain of the
Company's property on which Selex and/or Yasawa hold a first mortgage pursuant
to a Loan Agreement dated July 14, 1993 and amendments thereto (the "Third Selex
Loan"). The Third Selex Loan bears interest at 11% per annum, with interest
deferred until December 31, 1993. Principal is to be repaid at $3,000 per lot
for lots requiring release from the mortgage, with the entire unpaid principal
balance and interest accruing from January 1, 1994 to April 30, 1994 becoming
due and payable on April 30, 1994. As of Augu