SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ending September 30, 2001
------------------
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from _______ to _______
Commission file number 1-4719
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THE DELTONA CORPORATION
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 59-0997584
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(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
8014 SW 135 STREET ROAD, OCALA, FLORIDA 34473
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (352)307-8100
-----------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No__
Indicate the number of shares outstanding of the issuer's classes of common
stock, as of the latest practicable date: 13,544,277 shares of common stock, $1
par value, excluding treasury stock, as of September 30, 2001.
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
THE DELTONA CORPORATION AND SUBSIDIARIES
----------------------------------------
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
-----------------------------------------------
SEPTEMBER 30, 2001 AND DECEMBER 31, 2000
----------------------------------------
($000 Omitted)
September 30, December 31,
2001 2000
------------- ------------
ASSETS
------
Cash and cash equivalents, including escrow
deposits and restricted cash of $513 in 2001
and $587 in 2000 .............................. $ 994 $ 680
-------- --------
Contracts receivable for land sales - net ....... 1,183 1,554
-------- --------
Mortgages and other receivables - net ........... 146 140
-------- --------
Inventories (b):
Land and land improvements ..................... 8,135 8,375
Homes under construction ....................... 1,068 1,361
-------- --------
Total inventories ................ 9,203 9,736
-------- --------
Property, plant, and equipment at cost - net .... 622 455
Prepaid expenses and other ...................... 1,354 1,403
-------- --------
Total ............................ $ 13,502 $ 13,968
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Mortgages and similar debt(c):
Mortgage notes payable ......................... $ 4,500 $ 5,400
Other loans .................................... 5,710 5,572
-------- --------
Total mortgages and similar debt ............. 10,210 10,972
Accounts payable, accrued expenses,
customers' deposits ............................ 6,856 6,490
Deferred revenue ................................ 5,101 5,345
-------- --------
Total liabilities ................ 22,167 22,807
-------- --------
Commitments and contingencies (d):
Stockholders' equity (deficiency):
Common stock, $1 par value - authorized
15,000,000 shares; outstanding: 13,544,277
shares (excluding 12,228 shares held in
treasury ...................................... 13,544 13,544
Capital surplus ................................ 52,295 52,270
Accumulated deficit ............................ (74,504) (74,653)
-------- --------
Total stockholders'(deficiency) .............. (8,665) (8,839)
-------- --------
Total ............................ $ 13,502 $ 13,968
======== ========
See accompanying notes.
2
THE DELTONA CORPORATION AND SUBSIDIARIES
----------------------------------------
UNAUDITED CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
---------------------------------------------------------
FOR THE PERIODS INDICATED
-------------------------
($000 Omitted Except Per Share Amounts)
Nine Months Ended Three Months Ended
---------------------------- ---------------------------
September 30, September 30, September 30, September 30,
2001 2000 2001 2000
------------ ------------ ------------ ------------
Revenues (a):
Net land sales................... $ 5,909 $ 4,345 $ 1,816 $ 1,483
House and apartment sales ....... 2,821 2,074 881 944
Recognized improvement revenue /
prior period sales ............. 91 207 50 68
Gain on recovery of bad debt .... 178 0 0 0
Interest income ................. 300 370 70 201
Other revenues .................. 632 388 212 98
------------ ------------ ------------ ------------
Total ....................... 9,931 7,384 3,029 2,794
------------ ------------ ------------ ------------
Costs and expenses (a):
Cost of sales and improvements .. 3,975 2,964 1,231 1,185
Selling, general, administrative
and other expenses ............. 5,129 4,127 1,617 1,304
Interest expense (c)(e) ......... 707 695 166 236
------------ ------------ ------------ ------------
Total ....................... 9,811 7,786 3,014 2,725
------------ ------------ ------------ ------------
Net Income (Loss) ................ $ 120 $ (402) $ 15 $ 69
============ ============ ============ ============
Net Income (Loss) per common share $ .01 $ (.03) $ .01 $ .01
============ ============ ============ ============
Number of common and common
equivalent shares ............... 13,544,277 13,544,277 13,544,277 13,544,277
============ ============ ============ ============
See accompanying notes
3
THE DELTONA CORPORATION AND SUBSIDIARIES
----------------------------------------
UNAUDITED CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
---------------------------------------------------------
FOR THE NINE MONTHS ENDED
-------------------------
SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000
-----------------------------------------
($000 Omitted)
Nine Months Ended
September 30, September 30,
2001 2000
------------- -------------
Cash flows from operating activities ......... $ (3,224) $ (3,627)
------------ ------------
Cash flows from investing activities:
Payment for acquisition and construction
of property, plant and equipment ........... (62) (17)
------------ ------------
Net cash provided by (used in) investing
activities ................................. (62) (17)
------------ ------------
Cash flows from financing activities:
New borrowings ............................. 3,600 4,008
------------ ------------
Net cash provided by (used in) financing
activities ................................. 3,600 4,008
------------- ------------
Net increase (decrease) in cash and cash
equivalents (including escrow deposits and
restricted cash) ............................ 314 364
Cash and cash equivalents beginning
of period ................................... 680 548
------------- -------------
Cash and cash equivalents end of period ...... $ 994 $ 912
============= =============
See accompanying notes.
4
THE DELTONA CORPORATION AND SUBSIDIARIES
----------------------------------------
UNAUDITED CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
---------------------------------------------------------
FOR THE NINE MONTHS ENDED
-------------------------
SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000
-----------------------------------------
($000 Omitted)
Nine Months Ended
September 30, September 30,
2001 2000
------------- -------------
Reconciliation of net income (loss) to net cash provided by (used in) operating
activities:
Net income (loss)........................... $ 120 $ (402)
------------ ------------
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation and amortization............... 45 37
Provision for estimated uncollectible
sales-net.................................. 1,751 618
Contract valuation discount, net of
amortization............................... (82) 34
Imputed Interest on debt with related party. 24 313
Net change in assets and liabilities........ (5,082) (4,227)
------------ ------------
Total adjustments.............. $ (3,344) $ (3,225)
------------ ------------
Net cash provided by (used in) operating
activities................................. $ (3,224) $ (3,627)
============ ============
Supplemental disclosure of non cash investing and financing activities:
Purchase of equipment with note payable... 127 0
Reduction of debt as a result of the
conveyance of contracts receivable........ $ 4,486 $ 4,084
============ =============
See accompanying notes.
5
THE DELTONA CORPORATION AND SUBSIDIARIES
----------------------------------------
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------
SEPTEMBER 30, 2001
------------------
THE INFORMATION PRESENTED HEREIN AS OF SEPTEMBER 30,2001 FOR THE THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 IS UNAUDITED.
(a) BASIS OF PRESENTATION
The condensed unaudited financial statements of the Company have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission (the "Commission"). Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to Commission rules and regulations. The
information furnished reflects, in the opinion of management, all
adjustments (consisting only of normal recurring adjustments) necessary for
a fair statement of the results for the interim periods presented.
Operating results for the three and nine months ended September 30, 2001
are not necessarily indicative of the results that may be expected for the
year ending December 31, 2001. These condensed consolidated financial
statements should be read in conjunction with the financial statements and
the notes thereto included in the Company's latest Annual Report on Form
10-K.
Certain amounts have been reclassified for comparative purposes.
The accompanying financial statements of The Deltona Corporation and
subsidiaries ("The Company") have been prepared on a going concern basis,
which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. The Company has incurred
losses from operations resulting in a stockholders' deficiency as of
September 30, 2001. The Company has been dependant on its ability to obtain
financing from related companies to meet its cash requirements. There can
be no guarantee that the Company will be able to obtain sufficient
financing in the future or that related parties will continue to make loans
to the Company. The consolidated financial statements do not include any
adjustments relating to the recoverability of asset amounts or the amount
of liabilities should the Company be unable to continue as a going concern.
(b) INVENTORIES
Information with respect to the classification of inventory of land and
improvements including land held for sale or transfer is as follows (in
thousands):
Land and Improvements
---------------------
September 30, December 31,
2001 2000
------------- ------------
Unimproved land............................. $ 420 $ 420
Land in various stages of development....... 1,143 2,316
Fully improved land......................... 6,572 5,639
-------- --------
Total................................ $ 8,135 $ 8,375
======== ========
(c) MORTGAGES AND SIMILAR DEBT
The following table presents information with respect to mortgages and
similar debt (in thousands):
September 30, December 31,
2001 2000
------------- ------------
Mortgage Notes Payable ...................... $ 4,500 $ 5,400
Other Loans.................................. 5,710 5,572
--------- ---------
Total mortgages and similar debt...... $ 10,210 $ 10,972
========= =========
6
From June 19, 1992 through March 1999, the Company had entered into loan
agreements with Selex International B.V., a Netherlands corporation
("Selex"), Yasawa Holdings, N.V., a Netherlands Antilles corporation
("Yasawa"), Swan Development Corporation ("Swan") and related parties,
including Scafholding B.V. ("Scafholding"). Since December 1992, the
Company has been dependent on loans and advances from Selex, Yasawa, Swan
and their affiliates in order to meet its working capital requirements.
Included in Mortgage Notes Payable is the Yasawa loan ($4,500,000 at
September 30, 2001); included in Other Loans is the Swan loan ($5,586,000
as of September 30, 2001).
Indebtedness under various purchase money mortgages and loan agreements is
collateralized by substantially all of the Company's assets, including
stock of certain wholly-owned subsidiaries. The Company's outstanding debt
to Yasawa is secured by a first lien on the Company's receivables and a
mortgage on all of the Company's property; and the Company's outstanding
debt to Swan is secured by a second lien on the Company's receivables.
As of December 31, 1999, the Company had satisfied its principal debt
obligation to Scafholding. The Company's outstanding debt to Yasawa as of
September 30, 2001 was $4,500,000. The terms of repayment of the
restructured Yasawa loan provide for monthly payments of principal in the
amount of $100,000 payable monthly in cash or with contracts receivable at
100% of face value, plus interest payable monthly on the declining balance
at the rate, effective January 1, 1999, of 6% per annum in cash or with
contracts receivable at 65% of face value. The interest rate was again
changed effective January 1, 2001 to the prime rate, to be adjusted
semi-annually thereafter, to equal the prime rate then in effect. From
January 2001 to June 2001, the interest rate on the outstanding debt was
9.5%, which was prime. As of July 2001, the interest rate on the
outstanding debt has been adjusted to 6.5%, which equals the prime rate as
of July 1, 2001. Yasawa and Scafholding did not require the Company to make
interest payments for the period September 1, 1998 to September 30, 2001.
As of September 30, 2001, the total amount of interest accrued is
approximately $1,384,000, which is included in accrued expenses.
From October 9, 1998 through the present, Swan continued to loan the
Company funds to meet its working capital requirements. The Company's
outstanding debt to Swan, which is secured by a second lien on the
Company's receivables, was $5,586,000 as of September 30, 2001. The Company
signed a promissory note to Swan in March 1999 which provides that funds
advanced by Swan will be paid back by the Company monthly in contracts
receivables at 90% of face value, with recourse. There is no interest for
the first nine months after an advance of money is received from Swan by
the Company; thereafter the interest was 6% per annum on the outstanding
balance of the advance. The interest rate was changed effective January 1,
2001 to the prime rate, to be adjusted semi-annually thereafter, to equal
the prime rate then in effect. Each time an advance is made, a supplemental
note is signed. The amount of each monthly payment will vary and will be
dependent upon the amount of contracts receivable in the Company's
portfolio, excluding contracts receivable held as collateral for prior
receivable sales. Pursuant to the terms of the promissory note, the Company
is required to transfer to Swan monthly as debt repayment all current
contracts receivable in the Company's portfolio in excess of the aggregate
sum of $500,000. Funds advanced by Swan were used by the Company to meet
the Company's working capital requirements. From January 2001 to June 2001,
the interest rate on the outstanding debt was 9.5%, which was prime. As of
July 2001, the interest rate on the outstanding debt has been adjusted to
6.5%, which equals the prime rate as of July 1, 2001. As of September 30,
2001, the total amount of interest accrued is approximately $522,000, which
is included in accrued expenses.
The Company recorded interest expense on all outstanding debt balances to
Yasawa and Swan at the Company's incremental borrowing rate. The difference
between interest calculated at the Company's incremental borrowing rate and
the amount accrued under the terms of the respective notes was recorded as
capital contribution increase to capital surplus. Effective January 1,
2001, the Company's incremental borrowing rate is adjusted semi-annually to
equal the prime rate.
7
(d) COMMITMENTS AND CONTINGENCIES
Homesite sales contracts provide for the return of all monies paid in
(including paid-in interest) should the Company be unable to meet its
contractual obligations after the use of reasonable diligence. If a refund
is made, the Company will recover the related homesite and any improvement
thereto.
(e) CAPITALIZED INTEREST
The Company capitalizes interest cost incurred during a project's
construction period. Of the total interest cost incurred of $744,000 and
$756,000 for the nine months ended September 30, 2001 and September 30,
2000, respectively, interest in the amount of $37,000 and $61,000 was
capitalized for the nine months ended September 30, 2001 and 2000,
respectively.
(f) EARNINGS OR LOSS PER SHARE
Basic earnings (loss) per common and common equivalent share were computed
by dividing net income (loss) by the weighted average number of shares of
Common Stock and common stock equivalents outstanding during each period.
(g) RELATED PARTY TRANSACTION
In January 2000, the Company purchased 16 lots and homes under construction
from Scafholding for approximately $862,000. This amount represents
Scafholding's lot cost and payments to date to the home builder. This
transaction was 100% financed by Swan under its existing note payable
arrangement.
In September 2001, the Company entered into a joint venture with
Scafholding with each entity owning 50%. The venture is for the purchase
and sale of property for profit. The venture agreement provides for
financing to be provided by Scafholding and venture management to be
provided by the Company. The Company is providing administrative and
managerial services to the venture, as well as providing sales and
marketing access. The Company will be reimbursed for all commissions and
marketing costs plus an administrative fee of 10% of all sales consummated.
Interest on outstanding debt from Scafholding financing will accrue at the
prime rate plus one percent (1%). Any distribution of net proceeds/profit
is based upon ownership interest. The equity method is used for accounting
and reporting purposes, as Scafholding has contractual authority over the
operations of the venture. Investment in the venture at September 30, 2001
is $24,000 and is included in prepaid expenses and other.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
---------------------
For the nine months ended September 30, 2001 and September 30, 2000.
Revenues
--------
Total revenues were $9,931,000 for the first nine months of 2001 ($3,029,000 for
the quarter ending September 30, 2001) compared to $7,384,000 for the comparable
2000 period ($2,794,000 for the quarter ending September 30,2000).
Gross land sales were $7,758,000 for the first nine months of 2001($2,305,000
for the quarter ending September 30, 2001) compared to $5,184,000 for the first
nine months of 2000 ($1,687,000 for the quarter ending September 30, 2000). Net
land sales (gross land sales less estimated uncollectible installment sales and
contract valuation discount) increased to $5,909,000 for the first nine months
of 2001($1,816,000 for the quarter ending September 30, 2001) compared to
$4,345,000 for the first nine months of 2000 ($1,483,000 for the quarter ending
September 30, 2000). The increase in sales reflects higher sales by the
Company's independent dealers.
Housing revenues were $2,821,000 for the first nine months of 2001 versus
$2,074,000 for the comparable 2000 period. Revenues are not recognized from
housing sales until the completion of construction and passage of title. Housing
revenues increased as of result of higher sales by the Company's independent
dealer network. The backlog of houses under contract was $3,019,000 and
$6,736,000 as of September 30, 2001 and September 30, 2000, respectively.
The following table reflects the Company's real estate product mix for the
periods indicated (in thousands):
Nine Months Ended Three Months Ended
---------------------------- ---------------------------
September 30, September 30, September 30, September 30,
2001 2000 2001 2000
------------- ------------- ------------- -------------
Gross Land Sales:
Retail Sales* $ 7,758 $ 5,184 $ 2,305 $ 1,687
------- --------- ------- -------
Housing Sales: 2,821 2,074 881 944
------- --------- ------- -------
Total Real Estate $10,579 $ 7,258 $ 3,186 $ 2,631
======= ========= ======= =======
---------------------
* 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 nine months ended September 30, 2001 and September
30, 2000 were $8,602,000 and $6,715,000, respectively and $2,887,000 and
$2,775,000 for the three months ended September 30, 2001 and 2000,
respectively. The Company had a backlog of approximately $4,396,000 in
urecognized sales as of September 30, 2001. Such contracts are not included
in retail land sales until the applicable rescission period has expired and
the Company has received payments totaling 20% of the contract sales price.
Improvement revenues result from recognition of revenues deferred from prior
period sales. Recognition occurs as development work proceeds on the previously
sold property or customers are exchanged to a developed lot. Improvement
revenues totaled $91,000 for the first nine months of 2001 ($50,000 for the
third quarter of 2001) versus $207,000 for the comparable 2000 period ($68,000
for the third quarter of 2000).
Interest income was $300,000 for the first nine months of 2001 ($70,000 for the
third quarter of 2001) versus $370,000 for the comparable 2000 period ($201,000
for the third quarter of 2000).
Other revenues were $632,000 for the first nine months of 2001 ($212,000 for the
third quarter of 2001) versus $388,000 for the comparable 2000 period ($98,000
for the third quarter of 2000). Other revenues are principally generated by the
Company's title insurance and real estate brokerage subsidiaries.
9
Costs and Expenses
------------------
Costs and expenses were $9,811,000 for the first nine months of 2001 ($3,014,000
for the third quarter of 2001) versus $7,786,000 for the comparable 2000 period
($2,725,000 for the third quarter of 2000). Cost of sales were $3,975,000 for
the first nine months of 2001 ($1,231,000 for the third quarter of 2001) versus
$2,964,000 for the comparable 2000 period ($1,186,000 for the third quarter of
2000).
Commissions, advertising and other selling expenses totaled $3,637,000 for the
first nine months of 2001 ($1,231,000 for the third quarter of 2001) versus
$2,709,000 for the comparable 2000 period ($857,000 for the third quarter of
2000). Higher retail land sales resulted in increased commission expense. Other
selling expenses increased to $948,000 for the first nine months of 2001
($318,000 for the third quarter of 2001) versus $906,000 for the comparable 2000
period ($333,000 for the third quarter of 2000) as a result of increased jobsite
expenses. Advertising and promotional expenses decreased to $168,000 for the
first nine months of 2001 ($33,000 for the third quarter of 2001) versus
$280,000 for the comparable 2000 period ($53,000 for the third quarter of 2000).
General and administrative expenses were $1,061,000 for the first nine months of
2001 ($331,000 for the third quarter of 2001) versus $987,000 for the comparable
2000 period ($303,000 for the third quarter of 2000). General and administrative
expenses increased primarily due to increased overhead expenses.
Real estate tax expenses were $431,000 for the first nine months of 2001
($144,000 for the third quarter of 2001) versus $431,000 for the comparable 2000
period ($144,000 for the third quarter of 2000).
Interest expense was $707,000 for the first nine months of 2001 ($166,000 for
the third quarter of 2001) versus $695,000 for the comparable 2000 period
($236,000 for the third quarter of 2000). The year to date increase in interest
expense is a result of the debt balances accruing interest at a higher interest
rate for the first two quarters of the 2001 period. The decrease in the third
quarter interest expense is a result of lower interest rates being charged on
the debt balance.
Net Income (Loss)
-----------------
The Company reported a profit of $120,000 for the first nine months of 2001 (a
profit of $15,000 for the third quarter of 2001) versus a net loss of ($402,000)
for the comparable 2000 period (a profit of $69,000 for the third quarter of
2000).
Regulatory Developments which may affect Future Operations
----------------------------------------------------------
In Florida, as in many growth areas, local governments have sought to limit or
control population growth in their communities through restrictive zoning,
density reduction, the imposition of impact fees and more stringent development
requirements. Although the Company has taken such factors into consideration in
its master plans by agreeing, for example, to make improvements, construct
public facilities and dedicate certain property for public use, the increased
regulation has lengthened the development process and added to development
costs.
The implementation of the Florida Growth Management Act of 1985 (the "Act")
precludes the issuance of development orders or permits if public facilities
such as transportation, water and sewer services will not be available
concurrent with development. Development orders have been issued for, and
development has commenced in, the Company's existing communities (with
development being completed in certain of these communities). Thus, the
Company's communities are less likely to be affected by the new growth
management policies than future communities. Any future communities developed by
the Company will be strongly impacted by new growth management policies. Since
the Act and its implications are consistently being re- examined by the State,
together with local governments and various state and local governmental
agencies, the Company cannot further predict the timing or the effect of new
growth management policies, but anticipates that such policies may increase the
Company's permitting and development costs.
The Company's 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
10
to operate within the regulatory environment in the past, there can be no
assurance that such regulations could not be made more restrictive and thereby
adversely affect the Company's operations.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
MORTGAGES AND SIMILAR DEBT
From September 19, 1992 through March 1999, the Company had entered into loan
agreements with Selex International B.V., a Netherlands corporation ("Selex"),
Yasawa Holdings, N.V., a Netherlands Antilles Corporation ("Yasawa"), Swan
Development Corporation ("Swan") and related parties, including Scafholding B.V.
("Scafholding"). Since December, 1992, the Company has been dependent on loans
and advances from Selex, Yasawa, Swan and their affiliates in order to meet its
working capital requirements.
As of December 31, 1999, the Company had satisfied its principal debt obligation
to Scafholding. The Company's outstanding debt to Yasawa as of September 30,
2001 was $4,500,000. The terms of repayment of the restructured Yasawa loan
provide for monthly payments of principal in the amount of $100,000 payable
monthly in cash or with contracts receivable at 100% of face value, plus
interest payable monthly on the declining balance at the rate, effective January
1, 1999, of 6% per annum in cash or with contracts receivable at 65% of face
value. The interest rate was again changed effective January 1, 2001 to the
prime rate, to be adjusted semi-annually thereafter, to equal the prime rate
then in effect. From January 2001 to June 2001, the interest rate on the
outstanding debt was 9.5%, which was prime. As of July 2001, the interest rate
on the outstanding debt has been adjusted to 6.5%, which equals the prime rate
as of July 1, 2001. Yasawa and Scafholding did not require the Company to make
interest payments for the period September 1, 1998 to September 30, 2001. As of
September 30, 2001, the total amount of interest accrued is approximately
$1,384,000, which is included in accrued expenses.
From October 9, 1998 through the present, Swan continued to loan the Company
funds to meet its working capital requirements. The Company's outstanding debt
to Swan, which is secured by a second lien on the Company's receivables, was
$5,586,000 as of September 30, 2001. The Company signed a promissory note to
Swan in March 1999 which provides that funds advanced by Swan will be paid back
by the Company monthly in contracts receivables at 90% of face value, with
recourse. There is no interest for the first nine months after an advance of
money is received from Swan by the Company; thereafter the interest was 6% per
annum on the outstanding balance of the advance. The interest rate was changed
effective January 1, 2001 to the prime rate, to be adjusted semi-annually
thereafter, to equal the prime rate then in effect. Each time an advance is
made, a supplemental note is signed. The amount of each monthly payment will
vary and will be dependent upon the amount of contracts receivable in the
Company's portfolio, excluding contracts receivable held as collateral for prior
receivable sales. Pursuant to the terms of the promissory note, the Company is
required to transfer to Swan monthly as debt repayment all current contracts
receivable in the Company's portfolio in excess of the aggregate sum of
$500,000. Funds advanced by Swan were used by the Company to meet the Company's
working capital requirements. From January 2001 to June 2001, the interest rate
on the outstanding debt was 9.5%, which was prime. As of July 2001, the interest
rate on the outstanding debt has been adjusted to 6.5%, which equals the prime
rate as of July 1, 2001. As of September 30, 2001, the total amount of interest
accrued is approximately $522,000, which is included in accrued expenses.
The following table presents information with respect to mortgages and similar
debt (in thousands):
September 30, December 31,
2001 2000
------------- ------------
Mortgage Notes Payable ...................... $ 4,500 $ 5,400
Other Loans.................................. 5,710 5,572
--------- ---------
Total mortgages and similar debt...... $ 10,210 $ 10,972
========= =========
-------------
Included in Mortgage Notes Payable is the Yasawa loan ($4,500,000 at
September 30, 2001); included in Other Loans is the Swan loan ($5,586,000
as of September 30, 2001).
11
CONTRACTS AND MORTGAGES RECEIVABLE SALES
In 1990 and 1992, the Company sold contracts and mortgages receivable to
unrelated third parties. These transactions, among other things, require that
the Company replace or repurchase any receivable that becomes 90 days delinquent
upon the request of the purchaser. Such requirement can be satisfied from
contracts in which the purchaser holds a security interest (approximately
$1,206,000 as of September 30, 2001). The Company has reserved for the estimated
future cancellations of these contracts based on the Company's historical
experience for receivables the Company services and believes these reserves to
be adequate. The Company did not replace any delinquent receivables in 2000 or
2001. As of September 30, 2001 and December 31, 2000, $1,124,000 and $1,210,000
of these receivables were delinquent, respectively.
Since 1997, the Company sold contracts and mortgages receivable to related third
parties, Scafholding and Swan. These transactions, among other things, require
that the Company replace any receivable that becomes eligible to be canceled.
Such requirement is satisfied monthly from contracts in the Company's receivable
portfolio not otherwise secured to unrelated third parties. The Company has
reserved for the estimated future cancellations of these contracts based on the
Company's historical experience for receivables the Company services and
believes these reserves to be adequate.
The Company was the guarantor of approximately $19,081,000 of contracts
receivable sold or transferred as of September 30, 2001, for the transactions
described above. There are no funds on deposit with purchasers of the
receivables as security to assure collectibility as of such date. A provision
has been established for the Company's obligation under the recourse provisions
of which approximately $2,733,000 remains at September 30, 2001. The Company has
been in compliance with all receivable transactions since the consummation of
receivable sales.
In the future, if the Company elects to do so, Yasawa and Scafholding have
agreed to purchase contracts receivable at 65% of face value, with recourse. The
Company has an agreement with Swan whereby Swan will loan the Company funds to
be repaid with contracts receivable at 90% of face value, with recourse.
ACQUISITION OF HOMES UNDER CONSTRUCTION
In January 2000, the Company purchased 16 lots and homes under construction from
Scafholding for approximately $862,000. This amount represents Scafholding's lot
cost and payments to date to the home builder. This transaction was 100%
financed by Swan under its existing note payable arrangement.
LIQUIDITY
Retail land sales have traditionally produced negative cash flow through the
point of sale as a result of a regulatory requirement to sell fully developed
lots and the additional requirement to pay marketing and selling expenses prior
to or shortly after the point of sale. In an effort to offset the negative cash
flow effects of installment land sales, the Company is directing a greater
portion of its marketing efforts to the sale of lots with homes and is now
offering lots for sale in compulsory building areas where a lot purchaser must
complete payments for the lot and construct a home within a limited period of
time.
The Company has been dependent on its ability to sell or otherwise finance its
contracts receivable and/or secure other financing to meet its cash
requirements. Since 1992, the Company has been largely dependent on Yasawa,
Scafholding and Swan and related parties for the financing of its operations.
Although Scafholding has purchased contracts receivables at the rate of 65% of
face value, with recourse, and Swan has loaned the Company additional funds to
be paid back with contracts receivable at the rate of 90% of face value, with
recourse, there can be no guarantee that the Company will be able to generate
sufficient receivables to obtain sufficient financing in the future or that
Yasawa, Scafholding, Swan and other related parties will continue to make loans
to the Company.
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PART II - OTHER INFORMATION
===========================
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
SIGNATURE
=========
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE DELTONA CORPORATION
Date: October 31, 2001 By: /s/John Battle
------------------ -------------------------------
John Battle
Treasurer
(Principal Financial Officer)
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