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 March 31, 2002
---------------
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
-----------------------------
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 March 31, 2002.
PART I- FINANCIAL INFORMATION
-----------------------------
ITEM 1. FINANCIAL STATEMENTS
THE DELTONA CORPORATION AND SUBSIDIARIES
----------------------------------------
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
-----------------------------------------------
MARCH 31, 2002 AND DECEMBER 31, 2001
------------------------------------
($000 Omitted)
March 31, December 31,
2002 2001
--------- ------------
ASSETS
------
Cash and cash equivalents, including escrow deposits
and restricted cash of $428 in 2002 and $561 in 2001 . $ 607 $ 923
-------- --------
Contracts receivable for land sales - net ............. 1,000 1,213
-------- --------
Mortgages and other receivables - net ................. 69 248
-------- --------
Inventories (b):
Land and land improvements ........................... 7,852 7,941
Other ................................................ 1,664 1,261
-------- --------
Total inventories ...................... 9,516 9,202
-------- --------
Property, plant, and equipment at cost - net .......... 625 623
Investment in Venture ................................. 60 53
Prepaid expenses and other (g) ........................ 946 1,168
-------- --------
Total .......................................... $ 12,823 $ 13,430
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
-------------------------------------------------
Mortgages and similar debt(c):
Mortgage notes payable ............................... $ 3,900 $ 4,200
Other loans .......................................... 6,768 6,077
-------- --------
Total mortgages and similar debt ................... 10,668 10,277
Accounts payable, accrued expenses,
customers' deposits .................................. 6,357 7,045
Deferred revenue ...................................... 3,958 4,425
-------- --------
Total liabilities ..................................... 20,983 21,747
-------- --------
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 ...................................... 52,465 52,440
Accumulated deficit .................................. (74,169) (74,301)
-------- --------
Total stockholders' equity(deficiency).. (8,160) (8,317)
-------- --------
Total .................... $ 12,823 $ 13,430
======== ========
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)
Three Months Ended
-------------------------
March 31, March 31,
2002 2001
----------- -----------
Revenues (a):
Net land sales ............................. $ 1,644 $ 1,894
House and apartment sales .................. 973 981
Recognized improvement revenue /
prior period sales ........................ 42 29
Gain on Recovery of Bad Debt ............... -0- 178
Interest income ............................ 69 174
Other revenues ............................. 202 151
----------- -----------
Total .................................. 2,930 3,407
----------- -----------
Costs and expenses (a):
Cost of sales and improvements ............. 1,251 1,333
Selling, general and administrative
and other expenses ........................ 1,450 1,737
Loss in Joint Venture....................... 4 -0-
Interest expense (c)(e) .................... 92 276
----------- -----------
Total .................................. 2,797 3,346
----------- -----------
Net Income .................................. $ 133 $ 61
=========== ===========
Net Income per common share ................. $ 0.01 $ 0.01
=========== ===========
Number of common and common equivalent shares 13,544,277 13,544,277
=========== ===========
See accompanying notes.
3
THE DELTONA CORPORATION AND SUBSIDIARIES
----------------------------------------
UNAUDITED CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
---------------------------------------------------------
FOR THE THREE MONTHS ENDED
--------------------------
MARCH 31, 2002 AND MARCH 31, 2001
---------------------------------
($000 Omitted)
Three Months Ended
-----------------------
March 31, March 31,
2002 2001
---------- ----------
Cash flows from operating activities ............... $(1,283) $(1,783)
------- -------
Cash flows from investing activities:
Payment for acquisition of equipment ............. $ (18) $ -0-
------- -------
Cash flows from financing activities:
Repayment of borrowings........................... (15) -0-
New borrowings ................................... 1,000 1,750
------- -------
Net cash provided by financing activities....... 985 1,750
======= =======
Net increase (decrease) in cash and cash equivalents
(including escrow deposits and restricted cash) ... (316) (33)
Cash and cash equivalents beginning of period ...... 923 680
------- -------
Cash and cash equivalents end of period ............ $ 607 $ 647
======= =======
See accompanying notes.
4
THE DELTONA CORPORATION AND SUBSIDIARIES
----------------------------------------
UNAUDITED CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
---------------------------------------------------------
FOR THE THREE MONTHS ENDED
--------------------------
MARCH 31, 2002 AND MARCH 31, 2001
---------------------------------
($000 Omitted)
Three Months Ended
-----------------------
March 31, March 31,
2002 2001
---------- ----------
Reconciliation of net income to net cash
provided by (used in) operating activities:
Net income ........................................ $ 133 $ 61
------- -------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ..................... 20 16
Provision for estimated uncollectible sales-net ... 357 670
Contract valuation discount, net of amortization .. (45) (79)
Imputed interest on debt with related party ....... 25 56
Loss on Joint Venture.............................. 4 -0-
Net change in assets and liabilities .............. (1,777) (2,507)
------- -------
Total adjustments .................... $(1,416) $(1,844)
------- -------
Net cash provided by (used in) operating activities $(1,283) $(1,783)
======= =======
Supplemental disclosure of non cash investing
and financing activities:
Reduction of debt as a result of the conveyance
of contracts receivable .............. $ 594 $ 1,027
======= =======
See accompanying notes.
5
THE DELTONA CORPORATION AND SUBSIDIARIES
----------------------------------------
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------
MARCH 31, 2002
--------------
THE INFORMATION PRESENTED HEREIN AS OF MARCH 31, 2002 FOR THE THREE MONTHS ENDED
MARCH 31, 2002 AND 2001 IS UNAUDITED.
(a) BASIS OF PRESENTATION
The condensed unaudited financial statements of The Deltona Corporation and
subsidiaries ("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 accounting principles generally
accepted in the United States of America 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 months
ended March 31, 2002 are not necessarily indicative of the results that may
be expected for the year ending December 31, 2002. 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 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
consolidated financial statements do not include any adjustments relating
to the recoverability of asset amounts or the amounts of liabilities should
the Company be unable to continue as a going concern.
The Company has been dependent on its ability to sell or otherwise finance
contracts receivable and/or secure other financing sources to meet its cash
requirements. Additional financing was required in the three month period
ended March 31, 2002 and was funded through additional loans from Swan.
Additional financing will be required in the future. Although Swan has
loaned the Company additional funds to be paid back with contracts
receivable at the rate of 90% of face value, with recourse since 1999,
there can be no guarantee that the Company will be able to generate
sufficient receivables to obtain sufficient financing in the future or that
Yasawa, Scafholding, Swan and other related parties will continue to make
loans to the Company.
(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
---------------------
March 31, December 31,
2002 2001
--------- ------------
Unimproved land............................. $ 420 $ 420
Land in various stages of development....... 2,481 2,147
Fully improved land......................... 4,951 5,374
-------- --------
Total................................ $ 7,852 $ 7,941
======== ========
6
(c) MORTGAGES AND SIMILAR DEBT
The following table presents information with respect to mortgages and
similar debt (in thousands):
March 31, December 31,
2002 2001
--------- ------------
Mortgage Notes Payable ..................... $ 3,900 $ 4,200
Other Loans................................. 6,768 6,077
--------- ---------
Total mortgages and similar debt..... $ 10,668 $ 10,277
========= =========
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 ($3,900,000 at March
31, 2002); included in Other Loans is the Swan loan ($6,634,000 as of March
31, 2002).
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.
The Company's outstanding debt to Yasawa as of March 31, 2002 was
$3,900,000. The terms of repayment of the restructured Yasawa loan provide
for monthly payments of principal in the amount of $100,000 payable monthly
in cash or with contracts receivable at 100% of face value, with recourse.
Interest accrues on the declining balance at the prime rate, adjusted
semi-annually to equal the prime rate then in effect. From January 2002 to
March 31, 2002, the interest rate on the outstanding debt was 4.75%, which
was prime. Yasawa and Scafholding have not required the Company to make
interest payments since September 1, 1998. As of March 31, 2002, the total
amount of interest accrued is approximately $1,504,000, 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 was $6,634,000 as of March 31, 2002. The Company
signed a promissory note to Swan in March 1999, which provides that funds
advanced by Swan will be paid back by the Company monthly in contracts
receivables at 90% of face value, with recourse. There is no interest for
the first six months after an advance of money is received from Swan by the
Company. Currently, the interest rate is the prime rate, adjusted
semi-annually 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 2002 to
March 31, 2002, the interest rate on the outstanding debt was 4.75%, which
was prime. As of March 31, 2002, the total amount of interest accrued is
approximately $642,000, which is included in accrued expenses.
For 2002 and 2001 , the Company recorded interest expense for the first six
months of each loan advance from Swan that is non- interest bearing at the
prime rate. Since the interest is not paid to Swan, the amount calculated
is recorded as a capital contribution increase to capital surplus. For the
first three months of 2002, the Company recorded interest expense and a
capital contribution in the amount of approximately $75,000.
7
In the future, if the Company elects to do so, Yasawa and Scafholding have
agreed to purchase contracts receivable at 65% of face value, with
recourse. The Company has an agreement with Swan whereby Swan may loan the
Company funds to be repaid with contracts receivable at 90% of face value,
with recourse.
(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. Interest expense was $129,000 and $276,000 for the
three months ended March 31, 2002 and 2001, respectively. Interest in the
amount of $37,000 and $-0- was capitalized for the three months ended March
31, 2002 and 2001, 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) CAPITAL TRANSACTION
On December 13, 2001, the Board of Directors approved a 1 for 500,000
reverse split of the Company's common stock and a related amendment to the
Company's Articles of Incorporation reducing the number of authorized
shares to 30. Both actions are subject to stockholder approval. The Company
has filed a Form 13E(3) and a preliminary proxy statement related to the
proposals. The effect of the reverse split will be to reduce the number of
the Company's stockholders to two stockholders: Selex International, B.V.,
a Netherlands corporation ("Selex") and Yasawa Holdings, N.V., a
Netherlands Antilles corporation ("Yasawa"). The date of the meeting of
stockholders to consider both matters will be determined upon the
conclusion of SEC review.
(h) RELATED PARTY TRANSACTION
During 2001, the Company entered into a joint venture agreement (the
"Venture") with Scafholding for the purchase of property tax certificates,
application of tax deeds, administration and the acquisition and sale of
land. The Company provides administrative, managerial, sales and marketing
services to the Venture. The Company is reimbursed by the Venture for all
commissions and marketing costs plus an administrative fee of 10% of all
sales consummated. Scafholding provides financing to the Venture and has
loaned the Venture approximately $1,200,000 as of March 31, 2002. There
were no reimbursements or administrative fees earned for the three months
ended March 31, 2002. Interest on the outstanding debt accrues at prime
plus one percent (5.75% at March 31, 2002). Net income is to be distributed
equally between the Company and Scafholding. The Company records its
investment in the Venture using the equity method of accounting as control
of the Venture rests with Scafholding as specified in the joint venture
agreement.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This report on Form 10-Q of the Company for the quarter ended March 31, 2002
contains certain forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, which are intended to be covered by the safe
harbors created thereby. To the extent that such statements are not recitations
of historical fact, such statements constitute forward-looking statements which,
by definition, involve risks and uncertainties. In particular, statements under
Item 2, Management's Discussion and Analysis of Financial Condition and Results
of Operation, contain forward-looking statements. Where, in any forward-looking
statement, the Company has an expectation or belief as to future results or
events, such expectation or belief is expressed in good faith and believed to
have reasonable basis, but there can be no assurance that the statement of
expectation or belief will result or be achieved or accomplished.
RESULTS OF OPERATIONS
---------------------
For the three months ended March 31, 2002 and March 31, 2001.
Revenues
--------
Total revenues were $2,930,000 for the first three months of 2002 compared to
$3,407,000 for the comparable 2001 period.
Gross land sales were $2,064,000 for the first three months of 2002 versus
$2,515,000 for the comparable 2001 period. Net land sales (gross land sales less
estimated uncollectible installment sales and contract valuation discount)
decreased to $1,644,000 the first three months of 2002 from $1,894,000 for the
first three months of 2001. The decrease in sales reflects lower sales by the
Company's independent dealers for the period.
Housing revenues were $973,000 for the first three months of 2002 versus
$981,000 for the comparable 2001 period. Revenues are not recognized from
housing sales until the completion of construction and passage of title. Housing
revenues decreased as of result of less homes being closed in the period. The
backlog of houses under contract was $6,282,000 and $5,639,000 as of March 31,
2002 and 2001, respectively.
The following table reflects the Company's real estate product mix for the
periods indicated (in thousands):
Three Months Ended
-----------------------
March 31, March 31,
2002 2001
---------- ----------
Gross Land Sales:
Retail Sales* $ 2,064 $ 2,515
Housing Sales: 973 981
--------- ----------
Total Real Estate $ 3,037 $ 3,496
========= ==========
--------
* 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 three months ended March 31, 2002 and March 31, 2001
were $1,604,000 and $2,395,000, respectively. The Company had a backlog of
approximately $2,809,000 in unrecognized sales as of March 31, 2002. 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 $42,000 for the first three months of 2002 versus $29,000 for
the comparable 2001 period.
Interest income was $69,000 for the first three months of 2002 versus $174,000
for the comparable period in 2001. The decrease is the result of a favorable
adjustment to the valuation allowance being recognized in 2001 as a result of
the cancellation of a large contract receivable in the first quarter of 2001.
9
Other revenues were $202,000 for the three months of 2002 versus $151,000 for
the comparable period in 2001. Other revenues are principally generated by the
Company's title insurance and real estate brokerage subsidiaries.
Costs and Expenses
------------------
Costs and expenses were $2,797,000 for the first three months of 2002 versus
$3,346,000 for the comparable period in 2001.
Cost of sales were $1,251,000 for the first three months of 2002, versus
$1,333,000 for the comparable period in 2001.
Commissions, advertising and other selling expenses totaled $959,000 for the
three months of 2002 versus $1,211,000 for the comparable period in 2001. Lower
retail land sales resulted in decreased commission expense. Other selling
expenses decreased to $249,000 for the first three months of 2002 versus
$276,000 for the comparable period in 2001 as a result of decreased jobsite
expenses. Advertising and promotional expenses decreased to $34,000 for the
first three months of 2002 versus $88,000 for the comparable period in 2001.
General and administrative expenses were $347,000 for the first three months of
2002 versus $381,000 for the comparable period in 2001. General and
administrative expenses decreased primarily due to decreased overhead expenses.
Real estate tax expenses were $144,000 for the first three months of 2002 and
2001.
Interest expense was $96,000 for the first three months of 2002 versus $276,000
for the comparable period in 2001. The decrease in interest expense is a result
of debt balances accruing interest at a lower interest rate.
Net Income
----------
The Company reported net income of $133,000 for the first three months of 2002
versus $61,000 for the comparable period in 2001.
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 to operate within
the regulatory environment in the past, there can be no assurance that such
regulations could not be made more restrictive and thereby adversely affect the
Company's operations.
10
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
MORTGAGES AND SIMILAR DEBT
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.
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.
The Company's outstanding debt to Yasawa as of March 31, 2002 was $3,900,000.
The terms of repayment of the restructured Yasawa loan provide for monthly
payments of principal in the amount of $100,000 payable monthly in cash or with
contracts receivable at 100% of face value, with recourse. Interest accrues on
the declining balance at the prime rate, adjusted semi-annually to equal the
prime rate then in effect. From January 2002 to March 31, 2002, the interest
rate on the outstanding debt was 4.75%, which was prime. Yasawa and Scafholding
have not required the Company to make interest payments since September 1, 1998.
As of March 31, 2002, the total amount of interest accrued is approximately
$1,504,000, 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 was $6,634,000 as of March 31, 2002. The Company signed a promissory
note to Swan in March 1999, which provides that funds advanced by Swan will be
paid back by the Company monthly in contracts receivables at 90% of face value,
with recourse. There is no interest for the first six months after an advance of
money is received from Swan by the Company. Currently, the interest rate is the
prime rate, adjusted semi-annually 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 2002 to March 31,
2002, the interest rate on the outstanding debt was 4.75%, which was prime. As
of March 31, 2002, the total amount of interest accrued is approximately
$642,000, which is included in accrued expenses.
The following table presents information with respect to mortgages and similar
debt (in thousands):
March 31, December 31,
2002 2001
--------- ------------
Mortgage Notes Payable ..................... $ 3,900 $ 4,200
Other Loans................................. 6,768 6,077
--------- ---------
Total mortgages and similar debt..... $ 10,668 $ 10,277
========= =========
--------
Included in Mortgage Notes Payable is the Yasawa loan ($3,900,000 at March
31, 2002); included in Other Loans is the Swan loan ($6,634,000 as of March
31, 2002).
CONTRACTS AND MORTGAGES RECEIVABLE SALES
In 1990 and 1992, the Company sold contracts and mortgages receivable to third
parties. These transactions, among other things require that the Company replace
or repurchase any receivable that becomes 90 days delinquent upon the request of
11
the purchaser. Such requirement can be satisfied from contracts in which the
purchaser holds a security interest (approximately $1,081,000 as of March 31,
2002). The Company has reserved for the estimated future cancellations based on
the Company's historical experience for receivables the Company services and
believes these reserves to be adequate. The Company did not replace any
delinquent receivables in 2001 or 2002. As of March 31, 2002 and December 31,
2001, $1,040,000 and $1,060,000 in receivables were delinquent, respectively.
Since 1997, the Company sold or transferred for debt repayment 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 is the guarantor of approximately $19,607,000 of contracts
receivable sold or transferred as of March 31, 2002, 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 $2,950,000 remains at March 31, 2002. The Company has
been in compliance with all receivable transactions since the consummation of
receivable sales.
The Company has an agreement with Scafholding and Citony Development Corporation
for the servicing of their receivable portfolios. The Company received
approximately $58,000 and $73,000 in 2002 and 2001, respectively, in revenue
pursuant to these agreements.
In the future, if the Company elects to do so, Yasawa and Scafholding have
agreed to purchase contracts receivable at 65% of face value, with recourse. The
Company has an agreement with Swan whereby Swan may loan the Company funds to be
repaid with contracts receivable at 90% of face value, with recourse.
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 nor can
there be any guarantee 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: May 13, 2002 By: /s/John Battle
------------------ ------------------
John Battle
Treasurer
(Principal Financial Officer)
13