UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _________________
Commission File No. 0-28067
FIRST RESERVE, INC.
-------------------
(Exact name of registrant as specified in its charter)
Florida 86-0740730
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1360 South Dixie Highway, Coral Gables, FL 33146
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(305) 667-8871
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Issuer's Telephone Number, Including Area Code:
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(Former Name, Former Address and Former Fiscal Year, if changed since
last report)
Indicate by a 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. [X ] Yes [ ] No
As of June 30, 2000, 6,767,050 shares of the Registrant's Common Stock,
no par value per share, were outstanding.
<PAGE>
FIRST RESERVE, INC. AND SUBSIDIARIES
INDEX TO FORM 10-QSB
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements
Condensed Consolidated Balance Sheets
June 30, 2000 and December 31, 1999.............................................1
Liabilities and Stockholders' Equity
June 30, 2000 and December 31, 1999.............................................1
Condensed Consolidated Statements of Income and Accumulated Deficit
Six Month-Period Ended June 30, 2000 and June 30, 1999..........................1
Condensed Consolidated Statements of Income and Accumulated Deficit
Three Month-Period Ended June 30, 2000 and June 30, 1999........................1
Condensed Consolidated Statements of Cash Flows
Six Month-Period Ended June 30, 2000 and June 30, 1999..........................1
Notes to Condensed Consolidated Financial Statements............................1
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................................1
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...............................................................4
Item 6. Exhibits and Reports on Form 8-K ...............................................4
Signatures..................................................................................5
</TABLE>
ii
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
Immediately following the signature page in this Form 10-QSB.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included herein should be read in conjunction with the Condensed
Consolidated Financial Statements of First Reserve, Inc. and subsidiaries, as of
June 30, 2000, and the related notes to the Condensed Consolidated Financial
Statements as of June 30, 2000 and 1999, and December 31, 1999, and the related
Notes to the Consolidated Financial Statements. The Company's Financial
Statements have been prepared in accordance with generally accepted accounting
principles in the United States.
The financial information in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" refers to the continuing operations of the
Company.
Results of Operations
Our real estate brokerage business is subject to seasonal fluctuations because
more home sale transactions tend to close during the second and third quarters
of the year. As a result, our operating results and profitability are typically
higher in the second and third quarters relative to the remainder of the year.
Revenues. Our revenues increased approximately 29.3% for the six-month period
ended June 30, 2000, over those for the six-month period ended June 30, 1999.
The percentage increase resulted from the following sources: (i) new Plantation
office (8.9%); (ii) Columbia Title acquisition (3.0%); (iii) existing sales
offices (84.0%); and (iv) mortgage company operations (4.1%).
Operating Expenses. Our operating costs and expenses increased to approximately
$14.7 million for the six-month period ended June 30, 2000, as compared to $11.6
million for the six-month period ended June 30, 1999. The significant components
of our operating expenses are: commissions to real estate associates (68.0%),
officer and staff salaries (10.9%), office rental costs (3.5%), advertising
expenses (4.4%), promotional expenses (0.5%) and insurance (1.0%). Our operating
expenses also increased as a result of costs incurred by us in connection with
the creation of its two Broward County sales offices.
Interest. Interest income decreased slightly from $18,615 for the six-month
period ended June 30, 2000 to $12,580 for the six-month period ended June 30,
2000 primarily due to lower average daily cash balances.
1
<PAGE>
Net Income from Continuing Operations. We had a net income from operations of
approximately $586,299 for the six-month period ended June 30, 2000 as compared
to a net gain of approximately $436,057 for the six-month period ended June 30,
1999. This increase in net gain from continuing operations resulted primarily
from the operations of the Plantation office in Broward County, more closings in
the Coral Gables and Miami Beach offices, more activity in Columbia Title and
more income in the mortgage broker operations.
Liquidity and Capital Resources
Net cash provided from our operations was approximately $664,015 for the
six-month period ended June 30, 2000. This was primarily due to an increase in
the amount of cash received from customers, decrease in mortgage loans held for
sale, offset by an increase in cash paid to sales respresentatives and
employees.
Cash used for investing activities was approximately $627,106 for the six-month
period ended June 30, 2000, primarily attributable to the purchase of property
and equipment in connection with office openings.
Cash provided by financing activities was approximately $183,119 for the
six-month period ended June 30, 2000, principally due to loan proceeds from line
of credit.
At June 30, 2000, we had long term notes payable of approximately $452,000. We
have a $1.8 million "warehouse" line of credit to fund loans to be made in
connection with its mortgage banking operations. Each "warehouse" loan is
fully-backed by a permanent loan "take-out" commitment from a national lender of
residential financing. As of June 30, 2000, the balance of this "warehouse" line
of credit was approximately $1,011,000 with a corresponding asset of "mortgage
loans held for sale" of approximately $1,020,000.
At June 30, 2000, we had shareholder equity of $3,274,719. For the six-month
period ended June 30, 2000 our deficit in working capital (current assets minus
current liabilities) was $525,789, primarily as a result of an increase in
mortgage loans held for sale and the reclassification of a note payable from
long-term to short-term.
Our second office in Broward County was opened in April 2000. We anticipate that
our Broward County offices will result in substantially increased sales. We
anticipate that our title business will be profitable during 2000, and will
contribute to our cash flow and our overall operations.
Seasonality
Our operations are principally based on the residential real estate market in
South Florida. These markets have historically been both cyclical and seasonal.
We experience generally higher sales in the second and third fiscal quarters.
Therefore, the results of any interim period is not necessarily indicative of
the results that might be expected during a full fiscal year.
2
<PAGE>
Forward Looking Statements
From time to time, we make statements about our future results in this Form
10-QSB that may constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements are based
on our current expectations and the current economic environment. We caution you
that these statements are not guarantees of future performance. They involve a
number of risks and uncertainties that are difficult to predict. Our actual
results could differ materially from those expressed or implied in the
forward-looking statements. Important assumptions and other important factors
that could cause our actual results to differ materially from those in the
forward-looking statements, include, but are not limited to: (i) the continued
growth in the residential real estate market in South Florida; (ii) the general
availability of home mortgage financing at favorable rates; (iii) continued
positive economic climate in the United States; (iv) competition in our existing
lines of business; and (v) our ability to obtain and maintain working capital,
whether internally generated or from financing sources (on acceptable terms) in
order to finance our growth strategy.
3
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
In the ordinary course of business, the Company and its subsidiaries are
involved in legal proceedings incidental to our operations. The Company and its
subsidiaries are not currently involved in any legal proceedings that management
believes would have a material adverse effect on the operations or financial
condition of the Company and its subsidiaries taken as a whole.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit 27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
None.
4
<PAGE>
SIGNATURES
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.
Date: August 21, 2000 FIRST RESERVE, INC.
By: /S/ RONALD A. SHUFFIELD
-----------------------
Ronald A. Shuffield, President and
Principal Financial Officer
5
<PAGE>
CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999, AND DECEMBER 31, 1999
FIRST RESERVE, INC. AND SUBSIDIARIES
CORAL GABLES, FLORIDA
<PAGE>
FIRST RESERVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
2000 1999
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 947,158 $ 727,130
Interest bearing deposit from bank 125,000 125,000
Receivables 397,671 356,331
Mortgage loans held for sale 1,019,968 830,620
Prepaid expenses and other 116,860 178,297
----------- -----------
Total current assets 2,606,657 2,217,378
----------- -----------
PROPERTY AND EQUIPMENT
Furniture and equipment 1,099,707 898,579
Office equipment 891,510 762,748
Transportation equipment 28,102 28,102
Leasehold improvements 728,774 435,323
Equipment held under capital leases 35,730 35,730
----------- -----------
2,783,823 2,160,482
Less accumulated depreciation (955,998) (823,743)
----------- -----------
Net property and equipment 1,827,825 1,336,739
----------- -----------
OTHER ASSETS
Goodwill, net 1,317,528 1,348,397
Deposits and other 76,050 87,834
----------- -----------
Total other assets 1,393,578 1,436,231
----------- -----------
Total assets $ 5,828,060 $ 4,990,348
=========== ===========
</TABLE>
The accompanying notes to the condensed consolidated financial statements are an
integral part of these statements.
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
2000 1999
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 331,498 $ 297,063
Deferred mortgage fee income 27,687 22,740
Escrow deposits 8,710 4,909
Current portion of obligations under
capital leases 6,545 6,109
Current maturities of long term debt, net
of unamortized discount 1,706,428 1,011,382
----------- -----------
Total current liabilities 2,080,868 1,342,203
----------- -----------
LONG TERM LIABILITIES
Obligations under capital leases 20,896 24,299
Note payable, net of unamortized discount 451,577 930,826
----------- -----------
Total long term liabilities 472,473 955,125
----------- -----------
Total liabilities 2,553,341 2,297,328
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, no par value, 100,000,000
authorized shares; 6,767,050 shares
issued and outstanding 5,939,507 5,939,507
Accumulated deficit (2,664,788) (3,246,487)
----------- -----------
Total stockholders' equity 3,274,719 2,693,020
----------- -----------
Total liabilities and stockholders'
equity $ 5,828,060 $ 4,990,348
=========== ===========
</TABLE>
Page 1 of 11
<PAGE>
FIRST RESERVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND
ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Six-month Six-month
Period Ended Period Ended
June 30, June 30,
2000 1999
------------ ------------
<S> <C> <C>
REVENUES $ 15,323,952 $ 11,855,119
------------ ------------
COSTS AND EXPENSES
Commissions, fees and other incentives 10,061,440 7,745,597
General and administrative expenses 4,486,874 3,732,674
Depreciation and amortization 169,824 117,323
Legal and other settlements -- 4,000
------------ ------------
Total costs and expenses 14,718,138 11,599,594
------------ ------------
Income from operations before income
taxes and other income and expenses 605,814 255,525
------------ ------------
OTHER INCOME AND (EXPENSES)
Interest income 12,580 18,615
Interest expense (64,827) (58,848)
Other income 32,732 --
Other expenses -- (1,600)
Gain on disposition of property and equipment -- 222,365
------------ ------------
Total other (expenses) and income (19,515) 180,532
------------ ------------
Income before income taxes 586,299 436,057
------------ ------------
PROVISION FOR INCOME TAX 4,600 --
------------ ------------
Net income 581,699 436,057
ACCUMULATED DEFICIT, beginning of period (3,246,487) (3,801,966)
------------ ------------
ACCUMULATED DEFICIT, end of period $ (2,664,788) $ (3,365,909)
============ ============
BASIC EARNINGS PER COMMON SHARE $ .09 $ .07
============ ============
WEIGHTED AVERAGE COMMON SHARES 6,767,050 6,567,050
============ ============
DILUTED EARNINGS PER COMMON SHARES $ .09 $ .06
============ ============
WEIGHTED AVERAGE DILUTED COMMON SHARES 6,767,050 6,720,625
============ ============
</TABLE>
The accompanying notes to the condensed consolidated financial statements are an
integral part of these statements.
Page 2 of 11
<PAGE>
FIRST RESERVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND
ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Three-month Three-month
Period Ended Period Ended
June 30, June 30,
2000 1999
----------- -----------
<S> <C> <C>
REVENUES $ 9,463,680 $ 6,832,790
----------- -----------
COSTS AND EXPENSES
Commissions, fees and other incentives 6,277,000 4,392,549
General and administrative expenses 2,335,406 2,031,108
Depreciation and amortization 95,688 72,720
Legal and other settlements -- --
----------- -----------
Total costs and expenses 8,708,094 6,496,377
----------- -----------
Income from operations before income
taxes and other income and expenses 755,586 336,413
----------- -----------
OTHER INCOME AND (EXPENSES)
Interest income 6,211 11,521
Interest expense (32,610) (39,984)
Other income 15,915 --
Other expenses -- (892)
Gain on disposition of property and equipment -- 222,365
----------- -----------
Total other (expenses) and income (10,484) 193,010
----------- -----------
Income before income taxes 745,102 529,423
----------- -----------
PROVISION FOR INCOME TAX 4,600 --
----------- -----------
Net income 740,502 529,423
ACCUMULATED DEFICIT, beginning of period (3,405,290) (3,895,332)
----------- -----------
ACCUMULATED DEFICIT, end of period $(2,664,788) $(3,365,909)
=========== ===========
BASIC EARNINGS PER COMMON SHARE $ .11 $ .08
=========== ===========
WEIGHTED AVERAGE COMMON SHARES 6,767,050 6,567,050
=========== ===========
DILUTED EARNINGS PER COMMON SHARES $ .11 $ .08
=========== ===========
WEIGHTED AVERAGE DILUTED COMMON SHARES 6,767,050 6,720,625
=========== ===========
</TABLE>
The accompanying notes to the condensed consolidated financial statements are an
integral part of these statements.
Page 3 of 11
<PAGE>
FIRST RESERVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Six-month Six-month
Period Ended Period Ended
June 30, June 30,
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 15,324,092 $ 11,809,943
Interest received 12,580 15,844
Interest paid (35,116) (21,005)
Cash paid to suppliers and employees (14,443,593) (11,469,922)
Net increase in mortgage loans held for
sale (189,348) (1,284,450)
Settlements paid -- (4,000)
Income tax paid (4,600) --
------------ ------------
Net cash provided by (used in)
operating activities 664,015 (953,590)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Advances to employees (850) --
Net increase in deposits (2,915) (16,757)
Purchases of property and equipment (623,341) (813,718)
Purchase of interest bearing deposit with bank -- (125,000)
Payment for purchase of acquired companies;
net of cash received -- (185,397)
Proceeds from disposition of property and equipment -- 225,000
------------ ------------
Net cash used in investing activities (627,106) (915,872)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings on loan payable -- 500,000
Net proceeds from line of credit 190,732 1,258,761
Payment on loan payable (4,646) (592)
Payment of capital lease obligation (2,967) --
------------ ------------
Net cash provided by financing
activities 183,119 1,758,169
------------ ------------
Net increase (decrease) in cash 220,028 (111,293)
CASH, beginning of period 727,130 1,055,160
------------ ------------
CASH, end of period $ 947,158 $ 943,867
============ ============
</TABLE>
The accompanying notes to the condensed consolidated financial statements are an
integral part of these statements.
Page 4 of 11
<PAGE>
FIRST RESERVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Six-month Six month
Period Ended Period Ended
June 30, June 30,
2000 1999
----------- -----------
<S> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income $ 581,699 $ 436,057
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 132,255 84,898
Amortization 37,569 32,425
Gain on disposition of property and equipment -- (222,365)
Increase in accounts receivable (41,340) (45,176)
Increase in mortgage loans held for sale (189,348) (1,284,450)
Decrease in prepaid expenses and
other assets 70,286 76,524
Increase (decrease) in accounts and notes
(operating) payable and accrued expenses 64,146 (31,503)
Increase in deferred mortgage fee income 4,947 --
Increase in escrow deposits 3,801 --
----------- -----------
Net cash provided by (used in)
operating activities $ 664,015 $ (953,590)
=========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
On March 31, 1999 the Company purchased all the stock of Columbia Title of
Florida, Inc. ("Columbia") for $191,300. As a result of this merger,
accounted for as purchase, assets of $104,267, goodwill of $257,340, and
liabilities of $170,257 were recorded.
The accompanying notes to the condensed consolidated financial statements are an
integral part of these statements.
Page 5 of 11
<PAGE>
FIRST RESERVE, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNT POLICIES
In the opinion of management, the accompanying unaudited condensed
consolidated interim financial statements reflect all adjustments
(consisting of only normal and recurring adjustments) necessary to
present fairly the financial position of First Reserve, Inc. and
Subsidiaries ("the Company") as of June 30, 2000 and the results of
their operations and cash flows for the periods then ended. The
results of operations for such interim periods are not necessarily
indicative of the results for a full year. The accompanying unaudited
condensed consolidated interim financial statements have been prepared
in accordance with generally accepted accounting principles for
interim financial reporting and with instructions to Form 10-QSB and,
accordingly, do not include all disclosures required by generally
accepted accounting principles. The condensed consolidated financial
statements should be read in conjunction with the audited consolidated
financial statements and the notes to the audited consolidated
financial statements included in the Company's Form 10-KSB annual
report for 1999 filed with the Securities and Exchange Commission.
The accounting policies followed for interim financial reporting are
the same as those disclosed in Note 1 of the notes to the consolidated
financial statements included in the Company's Form 10-KSB annual
report for the year ended December 31, 1999.
NOTE 2 - ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates.
NOTE 3- BUSINESS COMBINATIONS
On March 31, 1999, the Company acquired all the stock of Columbia
Title of Florida, Inc. ("Columbia") in a business combination
accounted for as purchase. Columbia is engaged in the business of
closing real estate and mortgage loan transactions, primarily in the
South Florida area. Columbia has two branches, Miami and Key Largo,
Florida. Under the terms of the agreement, the shareholder of Columbia
(seller) received $100 for the stock of Columbia. The agreement also
provided for additional consideration if the assets of the Key Largo
branch were sold within ninety days of the acquisition date. If this
condition was met, the seller would receive eighty- five percent (85%)
of the net proceeds of the sale of the assets of the Key Largo branch.
If the sale did not effectuate within the ninety days, all the assets
of the Key Largo branch would be transferred back to the seller. The
sale of the Key Largo branch was made within the ninety day period. As
a result, additional consideration of $191,250 for the acquisition of
the stock was recorded after March 31, 1999. The total cost of the
acquisition was approximately $191,350. Goodwill of approximately
$257,340 resulting from this transaction is being amortized on the
straight-line method over 20 years. The results of operations of
Columbia are included in the condensed consolidated statements of
income from January 1, 2000 to June 30, 2000.
Page 6 of 11
<PAGE>
FIRST RESERVE, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 - BUSINESS COMBINATIONS (CONTINUED)
The unaudited pro forma information for the period set forth below
gives effect to the 1999 Columbia acquisition accounted for under the
purchase method of accounting as if it had occurred on January 1, 1999
after giving effect to certain adjustments, including increased
goodwill amortization generated from the acquisition. The proforma
adjustments are based upon available information and certain
assumptions that the Company believes are reasonable. The pro forma
information is presented for informational purposes only and is not
necessarily indicative of the results of operations that actually
would have been achieved had this transaction been consummated at the
beginning of the period presented:
Six-Month
Period Ended
June 30,
1999
-----------
Total revenue $11,998,176
===========
Net income $ 416,106
===========
Earnings per share
Basic $ .06
===========
Weighted average shares 6,567,050
===========
Diluted $ .06
===========
Weighted average shares 6,720,625
===========
NOTE 4 - CASH HELD IN TRUST
The Company maintains separately designated Trust accounts for home
buyers' earnest money, property owners, tenants and other third
parties. The Company holds such funds until sold properties are closed
and leases have expired. Funds are disbursed in accordance with the
settlement instructions or rental management agreements. These funds
are not recorded in the Company's financial statements as they are
held in a fiduciary capacity. At June 30, 2000, the Company held
$7,299,113 of funds in trust.
NOTE 5 - MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale consist primarily of residential mortgage
loans made in connection with Embassy's mortgage banking operations
and are reported at the lower of cost or market value. The method used
to determine this amount is the commitment price from national lenders
utilizing the individual loan method. Net unrealized losses, if any,
are recognized through a valuation allowance by charges to income.
Each loan is fully backed by a permanent loan "take-out commitment"
from a national lender of residential financing. The mortgage loans
are purchased by the national lender once permanent financing is
secured, usually within five to twelve days of original funding.
Page 7 of 11
<PAGE>
FIRST RESERVE, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 - LEGAL AND OTHER SETTLEMENTS
Included in legal and other settlements amounts are costs incurred by
EWM in settling various disputes arising with customers or tenants in
the ordinary course of business.
NOTE 7 - CONTINGENT SHARES
Under the terms of the September 30, 1998 merger agreement between the
Company and Gerard International Realty, Inc. ("Gerard"), the former
shareholders of Gerard would receive an additional 200,000
"contingent" shares of common stock of the Company, pending future
gross commission income to be generated by the former shareholders of
Gerard over a 24 month "review" period, beginning September 30, 1998.
These contingent shares were held in escrow. At September 30, 1999,
the former shareholders of Gerard had met the gross commission income
requirements stated in the agreement and 200,000 of contingent shares
were issued as common stock and valued at $1 per share. As a result,
goodwill and common stock of $200,000 was recorded.
NOTE 8 - EARNINGS PER SHARE
Basic earnings per share ("EPS") was computed by dividing net income
by the weighted average number of common shares outstanding during the
period. Diluted EPS were determined on the assumption that the
contingent shares where excised at the beginning of the period, or at
time of issuance, if later.
The following is the calculation of earnings per share:
<TABLE>
<CAPTION>
Six-Month Six-Month
Period Ended Period Ended
June 30, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
Basic earnings per common share:
Numerator
Net income before extraordinary
items applicable to common
stockholders $ 581,699 $ 436,057
Extraordinary items, net -- --
---------- ----------
Income applicable to common
stockholders $ 581,699 $ 436,057
========== ==========
Denominator
Weighted average common shares 6,767,050 6,567,050
---------- ----------
Basic EPS $ .09 $ .07
========== ==========
</TABLE>
Page 8 of 11
<PAGE>
FIRST RESERVE, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 8 - EARNINGS PER SHARE (CONTINUED)
Diluted earnings per common share:
<TABLE>
<CAPTION>
Six-Month Six-Month
Period Ended Period Ended
June 30, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
Numerator
Net income before extraordinary
items applicable to common
stockholders $ 581,699 $ 436,057
Extraordinary items, net -- --
---------- ----------
Income applicable to common
stockholders $ 581,699 $ 436,057
========== ==========
Denominator
Weighted average common shares 6,767,050 6,567,050
Contingent shares -- 153,575
---------- ----------
Diluted EPS 6,767,050 6,720,625
---------- ----------
$ .09 $ .06
========== ==========
<CAPTION>
Three-Month Three-Month
Period Ended Period Ended
June 30, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
Basic earnings per common share:
Numerator
Net income before extraordinary
items applicable to common
stockholders $ 740,502 $ 529,423
Extraordinary items, net -- --
---------- ----------
Income applicable to common
stockholders $ 740,502 $ 529,423
========== ==========
Denominator
Weighted average common shares 6,767,050 6,567,050
---------- ----------
Basic EPS $ .11 $ .08
========== ==========
Diluted earnings per common share:
Numerator
Net income before extraordinary
items applicable to common
stockholders $ 740,502 $ 529,423
Extraordinary items, net -- --
---------- ----------
Income applicable to common
stockholders $ 740,502 $ 529,423
========== ==========
Denominator
Weighted average common shares 6,767,050 6,651,629
Contingent shares -- 68,996
---------- ----------
Diluted EPS 6,767,050 6,720,625
---------- ----------
$ .11 $ .08
========== ==========
</TABLE>
Page 9 of 11
<PAGE>
FIRST RESERVE, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 8 - EARNINGS PER SHARE (CONTINUED)
Warrants to purchase 500,000 shares of common stock at $2.57 per share
and 500,000 shares of common stock at $2.96 per share were outstanding
for the six- month period ended June 30, 2000 and 1999, but were not
included in the computation of diluted EPS because the warrants'
exercise price was greater than the average market price of the common
shares. The warrants, which expire on August 31, 2003, were still
outstanding at the end of the six-month periods ending June 30, 2000
and 1999.
NOTE 9 - BUSINESS SEGMENT INFORMATION
The Company's operations are principally managed on a product services
basis and are comprised of three reportable segments: Esslinger,
Wooten and Maxwell, Inc. ("EWM"), Embassy Financial Services, Inc.
("Embassy") and Columbia Title of Florida, Inc. ("Columbia"). EWM's
product services consists of residential and commercial real estate
brokerage and relocation services. Embassy's product services have
been in the capacity of a mortgage lender and mortgage broker in the
South Florida area, specializing in conventional, FHA and VA
mortgages. Columbia's product has been in the capacity of a title
company. Revenue, net income and identifiable assets for these
segments are as follows:
<TABLE>
<CAPTION>
Six-month Period Ended June 30, 2000:
Esslinger, Embassy Columbia
Wooten, Financial Title of First
Maxwell, Inc. Services, Inc. Florida, Inc. Reserve, Inc. Total
------------- -------------- ------------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Revenue $14,244,797 $ 621,019 $ 458,136 $ -- $15,323,952
Net income
(loss) $ 734,123 $ 15,395 $ (75) $ (167,744) $ 581,699
Identifiable
assets at
period end $ 4,005,470 $ 1,378,632 $ 187,857 $ 256,101 $ 5,828,060
<CAPTION>
Three-month Period Ended June 30, 2000:
Esslinger, Embassy Columbia
Wooten, Financial Title of First
Maxwell, Inc. Services, Inc. Florida, Inc. Reserve, Inc. Total
------------- -------------- ------------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Revenue $ 8,781,767 $ 376,963 $ 304,950 $ -- $ 9,463,680
Net income
(loss) $ 783,589 $ 32,779 $ 52,087 $ (127,953) $ 740,502
Identifiable
assets at
period end $ 4,005,470 $ 1,378,632 $ 187,857 $ 256,101 $ 5,828,060
</TABLE>
Page 10 of 11
<PAGE>
FIRST RESERVE, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 9 - BUSINESS SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
Six-month Period Ended June 30, 1999:
Esslinger, Embassy Columbia
Wooten, Financial Title of First
Maxwell, Inc. Services, Inc. Florida, Inc. Reserve, Inc. Total
------------- -------------- ------------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Revenue $11,134,579 $ 577,146 $ 142,741 $ 653 $11,855,119
Net income
(loss) $ 421,122 $ (2,720) $ 209,821 $ (192,166) $ 436,057
Identifiable
assets at
period end $ 3,456,050 $ 1,559,544 $ 424,094 $ 17,077 $ 5,456,765
<CAPTION>
Three-month Period Ended June 30, 1999:
Esslinger, Embassy Columbia
Wooten, Financial Title of First
Maxwell, Inc. Services, Inc. Florida, Inc. Reserve, Inc. Total
------------- -------------- ------------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Revenue $ 6,387,824 $ 301,572 $ 142,741 $ 653 $ 6,832,790
Net income
(loss) $ 437,560 $ 11,964 $ 209,821 $ (129,922) $ 529,423
Identifiable
assets at
period end $ 3,456,050 $ 1,559,544 $ 424,094 $ 17,077 $ 5,456,765
</TABLE>
NOTE 10 - REGULATORY MATTERS
HUD Requirements
Embassy is a nonsupervised loan correspondent for purposes of the U.S.
Department of Housing and Urban Development ("HUD"). As such, 24 -CFR
Part 202 of the HUD handbook requires Embassy to have an Adjusted Net
Worth of at least $50,000. Embassy is in compliance with this
requirement.
State of Florida Requirements
Embassy is also a licensed mortgage lender under Chapter 494 of the
State of Florida. As such, Embassy is required to have a minimum net
worth of $250,000. Embassy is in compliance with this requirement.
Page 11 of 11
<PAGE>
Exhibit Index
Exhibit No. Exhibit Description
----------- -------------------
27.1 Financial Data Schedule
