<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
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 0-16886
SEMELE GROUP INC.
-----------------
(Name of Small Business Issuer in its charter)
DELAWARE 36-3465422
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
ONE CANTERBURY GREEN, STAMFORD, CONNECTICUT 06901
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code : (203) 363-0849
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES X . NO .
Shares of common stock outstanding as of August 6, 1999: 1,170,811
Transitional Small Business Disclosure Format: YES . NO X .
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SEMELE GROUP INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
Cash and Cash Equivalents ........................................ $ 4,134,884 $ 7,788,124
Rents Receivable ................................................. 6,038 91,038
Accounts Receivable - Affiliates ................................. 1,507,540 6,652
Interest Receivable - Affiliates ................................. 280,821 125,382
Note Receivable - Affiliates ..................................... 2,725,695 2,725,695
Foreclosed Real Estate Held for Sale, Net ........................ 10,024,793 9,961,991
Other Investments ................................................ 750,000 --
Investment in Partnerships and Trusts ............................ 3,771,782 3,884,755
Land ............................................................. 1,929,000 1,929,000
Building, net of accumulated depreciation of $998,318 and $820,478
at June 30, 1999 and December 31, 1998, respectively ............ 10,934,680 11,112,519
Other Assets ..................................................... 528,755 543,763
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Total Assets ..................................................... $ 36,593,988 $ 38,168,919
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Notes Payable - Affiliates ....................................... $ 14,869,500 $ 14,869,500
Notes Payable .................................................... 6,823,661 7,011,202
Accrued Interest - Affiliates .................................... -- 243,833
Accrued Interest ................................................. 63,304 67,659
Accrued Expenses - Affiliate ..................................... 71,118 71,118
Accounts Payable and Accrued Expenses ............................ 785,648 853,189
Distributions Payable ............................................ 52,780 48,875
Minority Interest ................................................ 3,762,959 3,722,131
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Total Liabilities ................................................ 26,428,970 26,887,507
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Stockholders' Equity
Shares of Common Stock, $0.01 Par Value,
5,000,000 Authorized, 2,080,185 Shares Issued .................. 170,663,365 170,663,365
Accumulated Deficit .............................................. (144,289,372) (143,172,978)
Deferred Compensation, 88,203 and 56,883 Shares at
June 30, 1999 and December 31, 1998, respectively .............. (1,499,444) (967,004)
Treasury Stock at Cost, 914,005 and 945,325 Shares at
June 30, 1999 and December 31, 1998, respectively .............. (14,709,531) (15,241,971)
------------- -------------
Total Stockholders' Equity ....................................... 10,165,018 11,281,412
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Total Liabilities and Stockholders' Equity ....................... $ 36,593,988 $ 38,168,919
------------- -------------
------------- -------------
Book Value Per Share of Common Stock
(1,166,180 and 1,134,860 Shares Outstanding at
June 30, 1999 and December 31, 1998, respectively) ............. $ 8.72 $ 9.94
------------- -------------
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</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
2
<PAGE>
SEMELE GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
INCOME
Income From Lending and Investing Activities:
Interest on Loans Receivable ................................... $ -- $ 24,705
Income on Investments .......................................... 147,499 196,704
----------- -----------
Total Income From Lending and Investing Activities ............... 147,499 221,409
----------- -----------
Other Income:
Lease Revenue .................................................. 587,558 --
Interest on Note Receivable - Affiliates ....................... 155,439 --
Gain on Sale of Equipment ...................................... 11,325 --
Other Income ................................................... 19,132 --
----------- -----------
Total Other Income ............................................... 773,454 --
----------- -----------
Total Income ..................................................... 920,953 221,409
----------- -----------
EXPENSES
Expenses From Property Operating Activities:
Net Loss From Operations of Foreclosed Real Estate Held for Sale 292,921 357,893
----------- -----------
Total Expenses From Property Operating Activities ................ 292,921 357,893
----------- -----------
Other Expenses:
Stockholder Expenses ........................................... 24,387 34,924
Directors' Fees, Expenses, and Insurance ....................... 92,456 103,369
Other Professional Fees ........................................ 163,071 61,692
General and Administrative ..................................... 202,275 139,890
Administrative Reimbursement - Affiliate ....................... 76,318 75,431
Interest Expense - Affiliates .................................. 584,909 222,203
Depreciation and Amortization Expense .......................... 270,734 --
Interest Expense ............................................... 273,026 --
Recovery of Losses on Loans, Notes and Interest Receivable ..... -- (108,176)
----------- -----------
Total Other Expenses ............................................. 1,687,176 529,333
----------- -----------
Total Expenses ................................................... 1,980,097 887,226
----------- -----------
Net Loss ......................................................... $(1,059,144) $ (665,817)
----------- -----------
----------- -----------
Net Loss Per Share of Common Stock Basic
(Based on the Weighted Average Number of Shares
Outstanding of 1,148,544 and 1,215,472, respectively) .......... $ (0.92) $ (0.55)
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
3
<PAGE>
SEMELE GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
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<S> <C> <C>
INCOME
Income From Lending and Investing Activities:
Interest on Loans Receivable ................................... $ -- $ 1,109
Income on Investments .......................................... 70,122 98,076
----------- -----------
Total Income From Lending and Investing Activities ............... 70,122 99,185
----------- -----------
Other Income:
Lease Revenue .................................................. 296,085 --
Interest on Note Receivable - Affiliates ....................... 78,149 --
Gain on Sale of Equipment ...................................... 6,000 --
Other Income ................................................... 6,936 --
----------- -----------
Total Other Income ............................................... 387,170 --
----------- -----------
Total Income ..................................................... 457,292 99,185
----------- -----------
EXPENSES
Expenses From Property Operating Activities:
Net Loss From Operations of Foreclosed Real Estate Held for Sale 253,979 92,977
----------- -----------
Total Expenses From Property Operating Activities ................ 253,979 92,977
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Other Expenses:
Stockholder Expenses ........................................... 9,901 19,670
Directors' Fees, Expenses, and Insurance ....................... 46,307 50,916
Other Professional Fees ........................................ 42,570 39,394
General and Administrative ..................................... 88,296 68,650
Administrative Reimbursement - Affiliate ....................... 37,328 36,977
Interest Expense - Affiliates .................................. 293,060 111,715
Depreciation and Amortization Expense .......................... 135,105 --
Interest Expense ............................................... 135,904 --
----------- -----------
Total Other Expenses ............................................. 788,471 327,322
----------- -----------
Total Expenses ................................................... 1,042,450 420,299
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Net Loss ......................................................... $ (585,158) $ (321,114)
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----------- -----------
Net Loss Per Share of Common Stock Basic
(Based on the Weighted Average Number of Shares
Outstanding of 1,156,647 and 1,219,374, respectively) .......... $ (0.51) $ (0.26)
----------- -----------
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</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
4
<PAGE>
SEMELE GROUP INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
------------------- ACCUMULATED DEFERRED TREASURY
SHARES AMOUNT DEFICIT COMPENSATION STOCK TOTAL
--------- ------------ -------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Stockholder's Equity,
December 31, 1998 ................. 2,080,185 $170,663,365 $(143,172,978) $ (967,004) $(15,241,971) $11,281,412
Deferred Compensation
31,320 Shares of Stock ............ -- -- -- (532,440) 532,440 --
Distributions Declared By Subsidiary -- -- (57,250) -- -- (57,250)
Net Loss ........................... -- -- (1,059,144) -- -- (1,059,144)
--------- ------------ -------------- ----------- ------------ -----------
Stockholder's Equity,
June 30, 1999 ..................... 2,080,185 $170,663,365 $(144,289,372) $(1,499,444) $(14,709,531) $10,165,018
--------- ------------ -------------- ----------- ------------ -----------
--------- ------------ -------------- ----------- ------------ -----------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
5
<PAGE>
SEMELE GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss .................................................................. $(1,059,144) $ (665,817)
Adjustments to Reconcile Net Loss to Net Cash Used In Operating Activities:
Depreciation and Amortization Expense ................................... 270,734 --
Minority Interest ....................................................... 40,828 --
Net Change In:
Interest Receivable on Loans ............................................ -- 3,565
Rents Receivable ........................................................ 85,000 --
Accounts Receivable - Affiliates ........................................ (1,500,888) --
Interest Receivable - Affiliates ........................................ (155,439) --
Foreclosed Real Estate Held For Sale, Net ............................... (62,802) --
Investment in Partnerships and Trusts ................................... 112,973 --
Other Assets ............................................................ (77,887) (69,155)
Accrued Interest - Affiliates ........................................... (243,833) --
Accrued Interest ........................................................ (4,355) --
Accrued Expenses - Affiliate ............................................ -- (12,189)
Accounts Payable and Accrued Expenses ................................... (67,541) 55,847
----------- -----------
Net Cash Used In Operating Activities ..................................... (2,662,354) (687,749)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Other Investments ....................................................... (750,000) --
Collection of Loans Receivable .......................................... -- 250,000
----------- -----------
Net Cash Provided By (Used In) Investing Activities ....................... (750,000) 250,000
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal Payments on Notes Payable ..................................... (187,541) --
Distributions Paid By Subsidiary ........................................ (53,345) --
----------- -----------
Net Cash Used In Financing Activities ..................................... (240,886) --
----------- -----------
Net Decrease in Cash and Cash Equivalents ................................. (3,653,240) (437,749)
Cash and Cash Equivalents at Beginning of Period .......................... 7,788,124 7,884,593
----------- -----------
Cash and Cash Equivalents at End of Period ................................ $ 4,134,884 $ 7,446,844
----------- -----------
----------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest ................................ $ 1,106,123 $ 222,203
----------- -----------
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</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
6
<PAGE>
SEMELE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
Readers of this quarterly report should refer to the audited consolidated
financial statements of Semele Group Inc. (the "Company"), formerly known as
Banyan Strategic Land Fund II, for the year ended December 31, 1998, which are
included in the Company's 1998 Annual Report on Form 10-KSB, as certain footnote
disclosures which would substantially duplicate those contained in such audited
statements have been omitted from this report.
In the opinion of management, all adjustments (consisting of normal and
recurring adjustments) considered necessary to present fairly the financial
position at June 30, 1999 and December 31, 1998 and results of operations for
the three and six month periods ended June 30, 1999 and 1998 have been made and
are reflected.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries and consolidated ventures which
hold title to the Company's property. In August 1998, the Company acquired
Ariston Corporation ("Ariston"), the results of which are consolidated in the
Company's financial statements. All intercompany balances and transactions have
been eliminated in consolidation.
The Company's investment in partnerships and trusts consists of limited
partner or beneficiary interests that represent less than a 20% ownership
interest in the investees and are accounted for using the cost method.
CASH EQUIVALENTS
At June 30, 1999, the Company had $3,095,037 invested in federal agency
discount notes and reverse repurchase agreements secured by U.S. Treasury Bills
or interests in U.S. Government securities.
2. OTHER ASSETS
Other assets principally include equipment on operating lease and deferred
financing costs, both of which pertain to Ariston. The deferred financing costs
are being amortized over the life of the loan to which they pertain and
equipment on operating leases is being depreciated using the straight-line
method over the equipment's remaining estimated useful life. Rental income and
interest expense associated with equipment on operating leases are recognized as
earned and incurred, respectively. Future minimum rents of $138,081 are due in
the year ending June 30, 2000 in connection with equipment on operating leases.
In addition, the Company, through its consolidation of Ariston, has an
interest in future rental income from two commercial buildings that are leased
to an investment-grade educational institution. Future minimum lease payments
pertaining to these contracts are as follows:
<TABLE>
<S> <C>
For the year ending June 30, 2000 $ 985,996
2001 1,083,209
2002 1,150,504
2003 600,710
----------
Total $3,820,419
----------
----------
</TABLE>
7
<PAGE>
SEMELE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
3. NOTES PAYABLE
Through its acquisition of Ariston, the Company acquired a limited
partnership interest in a real estate investment program and assumed related
indebtedness. The note bears a fluctuating interest rate based on Prime plus a
margin and requires quarterly payments of principal and interest. The note
matures on January 15, 2003 and is secured by the associated limited partnership
interest. Repayment of the debt is partially guaranteed by Messrs. Engle and
Coyne. In addition, the Company has consolidated certain additional indebtedness
pertaining to a commercial property leased to an investment-grade educational
institution. The interest rate on this debt is fixed at 7.86%.
Additionally, the Company assumed non-recourse debt, consisting of
installment notes that are collateralized by certain equipment held on operating
leases. The installment notes will be repaid fully by non-cancelable rents
generated by the associated lease agreements. At June 30, 1999, the interest
rate on these obligations was 7.1%.
The annual maturities of all notes payable are as follows:
<TABLE>
<S> <C>
For the year ending June 30, 2000 $ 480,066
2001 445,522
2002 569,707
2003 730,302
2004 440,749
Thereafter 4,157,315
----------
Total $6,823,661
----------
----------
</TABLE>
The notes payable balance sheet value approximates fair value at June 30,
1999.
4. FORECLOSED REAL ESTATE HELD FOR SALE
Rancho Malibu is a 274-acre parcel of undeveloped land north of Malibu,
California ("Project"). On July 1, 1992, a joint venture (the "Venture") between
the Company and Legend Properties, Inc. (f/k/a Banyan Mortgage Investment Fund)
("Legend") acquired title to the property pursuant to a deed in lieu of
foreclosure agreement. The Company owns a 98.6% general partner interest in the
Venture while Legend holds the remaining 1.4% interest as a limited partner. The
Venture's results are consolidated in the accompanying financial statements.
Since 1992, the Venture has been engaged in zoning and entitlement
activities that have been opposed by the City of Malibu and various citizen
groups. The city and a neighboring homeowners association initiated several
legal actions intended to preclude the development of the property, all of
which were ultimately resolved in favor of the Venture or settled during
1998. The Venture currently is entitled to develop a 46 unit housing
community on approximately 40 acres of the property. The remaining 234 acres
will be allocated as follows: (i) 167 acres will be dedicated to a public
agency, (ii) approximately 47 acres will be deed restricted within privately
owned lots and (iii) approximately 20 acres will be preserved as private open
space.
During the six months ended June 30, 1999, the Venture incurred
approximately $293,000 of costs in connection with Rancho Malibu. These costs,
treated as capital contributions to the Venture by the Company, were included in
total expenses from property operating activities on the Company's consolidated
statements of operations. The Venture also capitalized $62,802 of costs for
transfer development credits during the six months ended June 30, 1999. At June
30, 1999, the Company's carrying balance for the property is $10,024,793.
8
<PAGE>
SEMELE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
ACQUISITION OF ARISTON CORPORATION
The Company purchased all of the common stock of Ariston from Equis
Financial Group Limited Partnership ("EFG") for cash of $2 million and a
purchase-money note of $10,450,000 (the "Note") on September 1, 1998. The total
fair value of the assets acquired was estimated to be $12,450,000. The Ariston
acquisition was accounted for under the purchase method of accounting and the
balance sheet and statement of operations of Ariston were consolidated effective
September 1, 1998. The Note bears interest at the annualized rate of 7%, payable
quarterly in arrears, and requires principal reductions based upon the cash
flows generated by Ariston. The Note matures on August 31, 2003 and is recourse
only to the common stock of Ariston. The cost of the Ariston acquisition was
allocated on the basis of the estimated fair value of the assets acquired and
liabilities assumed. In October 1998, Ariston declared and paid a cash
distribution of $2,020,000 to the Company. Until the Note is retired, future
cash distributions by Ariston require the consent of EFG.
INDEBTEDNESS
The Company obtained a loan of $4,419,500 from certain affiliates in 1997.
The loan bears interest at an annualized rate of 10% and provides for mandatory
principal reductions, if and to the extent the Company realizes any net cash
proceeds from the sale or refinancing of the Rancho Malibu property.
Notwithstanding the foregoing, the loan is scheduled to mature in full on April
30, 2000. During the six month periods ended June 30, 1999 and 1998, the Company
incurred interest expense of $219,159 and $222,203, respectively, in connection
with this indebtedness. At June 30, 1999, the carrying value of the note
approximates its estimated fair value.
ADMINISTRATIVE SERVICES
The Company's administrative functions are performed by an affiliate, EFG,
pursuant to an Administrative Services Agreement between the Company and EFG
dated May 7, 1997. EFG is reimbursed at actual cost for expenses it incurs on
the Company's behalf. Administrative expenses consist primarily of professional
and clerical salaries and certain rental expenses. The Company incurred total
administrative costs of $76,318 and $75,431 during the six month periods ended
June 30, 1999 and 1998, respectively.
6. DEFERRED COMPENSATION
The Company established an incentive compensation plan (the "Plan") for
certain executives (the "Participants"). The Plan provides for all or some of
the Participants' salary to be deferred. All such deferred compensation is held
subject to the claims of creditors of the Company in a "rabbi" trust until paid
to the Participants following the Participants' termination of employment. The
amounts deferred are invested in common stock of the Company. Pursuant to the
Plan, the Participants deferred $120,000 of compensation during each of the six
months ended June 30, 1999 and 1998 which represented 31,320 and 16,953 shares
of common stock, respectively. The deferred amounts were expensed by the Company
during 1999 and 1998 and are included in general and administrative expenses on
the consolidated statements of operations for the six months ended June 30, 1999
and 1998.
7. OTHER INVESTMENTS
On May 1, 1999, the Company and certain affiliates formed EFG/Kirkwood
Capital LLC ("EFG/Kirkwood") for the purpose of acquiring preferred and common
stock interests in Kirkwood Associates Inc. ("KAI"). The Company purchased Class
B Interests in EFG/Kirkwood and the other affiliates purchased Class A Interests
in EFG/Kirkwood. Generally, the Class A Interest holders are entitled to certain
preferred returns prior to distributions being paid to the Company, as Class B
Interest holder. KAI owns a ski resort, a local public utility, and significant
land which is held for development. The resort is located in Kirkwood,
California and is approximately 30 miles from South Lake Tahoe, Nevada. The
Company's investment in EFG/Kirkwood had a cost of $750,000. At June 30, 1999,
the Company was owed $1,500,000 from certain affiliates related to this
transaction which is included in Accounts Receivable - Affiliates on the
consolidated balance sheet at June 30, 1999. All of this receivable was
collected in July 1999.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN
OF OPERATION
GENERAL
Certain statements in this quarterly report that are not historical fact
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Without limiting the foregoing, words
such as "anticipates", "expects", "intends", "plans" and similar expressions are
intended to identify forward-looking statements. These statements are subject to
a number of risks and uncertainties including the Company's ability to
successfully implement a growth-oriented business plan. Actual results could
differ materially from those projected in any forward-looking statements.
The Company, formerly known as Banyan Strategic Land Fund II, currently
holds an ownership interest in a 274 acre land parcel located in Southern
California known as the Rancho Malibu property. The Company also holds a 0.3%
beneficial interest in a liquidating trust, established for the benefit of a
group of unsecured creditors of a previous borrower of the Company. In August
1998, the Company acquired Ariston Corporation ("Ariston"), a holding company
having two investments: (i) a 99% limited partnership interest in AFG Eireann
Limited Partnership, a Massachusetts limited partnership having a tax interest
in a diversified pool of lease contracts owned by an institutional investor and
(ii) a 98% limited partnership interest in Old North Capital Limited
Partnership, a Massachusetts limited partnership with investments in cash and
notes, equipment leases, and limited partnerships that are engaged in either
equipment leasing or real estate. The latter includes two commercial buildings,
one located in Washington D.C. and one in Sydney, Australia that are leased to
an investment-grade educational institution. In May 1999, the Company and
certain affiliates formed EFG/Kirkwood Capital LLC ("EFG/Kirkwood") for the
purpose of acquiring preferred and common stock interests in Kirkwood Associates
Inc. ("KAI"). KAI owns a ski resort, a local public utility, and significant
land which is held for development. The resort is located in Kirkwood,
California and is approximately 30 miles from South Lake Tahoe, Nevada. See Note
7 to the financial statements for discussion of this transaction.
YEAR 2000 ISSUE
The Year 2000 Issue generally refers to the capacity of computer programming
logic to correctly identify the calendar year. Many companies utilize computer
programs or hardware with date sensitive software or embedded chips that could
interpret dates ending in "00" as the year 1900 rather than the year 2000. In
certain cases, such errors could result in system failures or miscalculations
that disrupt the operations of the affected businesses. The Company uses
information systems provided by EFG and has no information systems of its own.
EFG has adopted a plan to address the Year 2000 Issue that consists of four
phases: assessment, remediation, testing, and implementation and has elected to
utilize principally internal resources to perform all phases. EFG has completed
substantially all of its Year 2000 project at an aggregate cost of less than
$50,000 and at a di minimus cost to the Company. All costs incurred in
connection with EFG's Year 2000 project have been expensed as incurred.
EFG's primary information software was coded by a third party at the point
of original design to use a four digit field to identify calendar year. All of
the Company's lease billings, cash receipts and equipment remarketing processes
are performed using this proprietary software. In addition, EFG has gathered
information about the Year 2000 readiness of significant vendors and third party
servicers and continues to monitor developments in this area. All of EFG's
peripheral computer technologies, such as its network operating system and
third-party software applications, including payroll and electronic banking,
have been evaluated for potential programming changes and have required only
minor modifications to function properly with respect to dates in the year 2000
and thereafter. EFG understands that each of its and the Company's significant
vendors and third-party servicers are in the process, or have completed the
process, of making their systems Year 2000 compliant. Substantially all parties
queried have indicated that their systems are Year 2000 compliant.
Presently, EFG is not aware of any outside customer with a Year 2000 Issue
that would have a material effect on the Company's results of operations,
liquidity, or financial position. The Company's equipment leases were structured
as triple net leases, meaning that the lessees are responsible for, among other
things, (i) maintaining and servicing all equipment during the lease term, (ii)
ensuring that all equipment functions properly and is returned in good
condition, normal wear and tear excepted, and (iii) insuring the assets against
casualty and other events of loss. Non-compliance with lease terms on the part
of a lessee, including failure to address Year 2000 Issues, could result in lost
revenues and impairment of residual values of the Company's equipment assets
under a worst-case scenario.
10
<PAGE>
EFG believes that its Year 2000 compliance plan will be effective in
resolving all material Year 2000 risks in a timely manner and that the Year 2000
Issue will not pose significant operational problems with respect to its
computer systems or result in a system failure or disruption of its or the
Company's business operations. However, EFG has no means of ensuring that all
customers, vendors and third-party servicers will conform ultimately to Year
2000 standards. The effect of this risk to the Company is not determinable.
LIQUIDITY AND CAPITAL RESOURCES
During recent years, the Company's operating activities have been limited to
the disposal of certain real estate assets and efforts to secure the
entitlements necessary to develop the Company's Rancho Malibu property. The
latter was accomplished successfully at the end of 1998. The Company's cash and
cash equivalents balance declined from $7,788,124 at December 31, 1998 to
$4,134,884 at June 30, 1999 principally as a result of (i) the Company's
$750,000 investment in EFG/Kirkwood, (ii) cash advances of $1,500,000 made in
connection with closing the EFG/Kirkwood transaction, all of which was collected
in July 1999, (iii) the payment of various accrued expenses pertaining to the
Rancho Malibu property, and (iv) interest expense incurred in connection with
the acquisition of Ariston.
In May 1999, the Company and certain affiliates formed EFG/Kirkwood for the
purpose of acquiring preferred and common stock interests in KAI. In June 1999,
the Company acquired a Class B equity interest in EFG/Kirkwood for $750,000 (see
Note 7 to the accompanying financial statements for additional discussion).
Affiliates of the Company acquired Class A Interests in EFG/Kirkwood that are
entitled to certain preferred returns prior to distribution payments being paid
to the Company, as Class B Interest holder. In addition, during the six months
ended June 30, 1999, the Company used $187,541 of cash to repay certain debt
obligations assumed in connection with the Ariston acquisition and $53,345 to
pay cash distributions. The latter represents customary distributions paid to
third-parties from a real estate investment in which Ariston has an ownership
interest.
The Company's principal future liquidity needs will be dependent upon, among
other things, development plans for the Rancho Malibu property, which remain
pending. In addition, the Company will continue to incur expenses for
professional services and other operating costs. The Company will realize future
cash inflows as a result of the Ariston acquisition, which will be used to
service associated acquisition indebtedness.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1998:
Total gross income for the six months ended June 30, 1999 increased to
$920,953 from $221,409 for the same period in 1998. The increase in total gross
income from 1998 to 1999 resulted principally from the acquisition of Ariston
and includes (i) rental income from property and equipment on operating leases
and (ii) interest income from a note receivable from affiliates. Interest income
on note receivable from affiliates is subordinate to the affiliate's repayment
of certain institutional indebtedness. Ariston's operating results are
consolidated in the Company's financial statements.
Total gross expenses for the six months ended June 30, 1999 increased to
$1,980,097 from $887,226 for the same period in 1998. The increase of $1,092,871
was caused mostly by the acquisition of Ariston which includes (i) interest
expense of $365,750 related to a purchase money note to EFG, (ii) depreciation
and amortization expense related to equipment on operating leases and deferred
financing costs, and (iii) interest expense incurred in connection with
equipment on operating leases. Increases in other professional fees and general
and administrative expenses further contributed to the overall increase in total
gross expenses during the six months ended June 30, 1999 compared to the same
period in 1998. Expenses during 1998 include a credit of $108,176, reflecting a
recovery of amounts previously charged to losses on loans, notes and interest
receivable. The decrease in property operating expenses for the six months ended
June 30, 1999 resulted from the settlement of the Rancho Malibu litigation in
1998.
The above discussed changes resulted in an increase in the Company's net
loss for the six months ended June 30, 1999 to $1,059,144 ($0.92 per share) from
$665,817 ($0.55 per share) for the same period in 1998. The net loss per share
for the six months ended June 30, 1999 is based on the weighted average number
of shares outstanding during the period of 1,148,544 as compared to 1,215,472
for the same period in 1998.
11
<PAGE>
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1998:
Total gross income for the three months ended June 30, 1999 increased to
$457,292 from $99,185 for the same period in 1998. The increase in total gross
income from 1998 to 1999 resulted principally from the acquisition of Ariston
and includes (i) rental income from property and equipment on operating leases
and (ii) interest income from a note receivable from affiliates. Interest income
on note receivable from affiliates is subordinate to the affiliate's repayment
of certain institutional indebtedness. Ariston's operating results are
consolidated in the Company's financial statements.
Total gross expenses for the three months ended June 30, 1999 increased to
$1,042,450 from $420,299 for the same period in 1998. The increase of $622,151
was caused mostly by the acquisition of Ariston which includes (i) interest
expense of $182,875 related to a purchase money note to EFG, (ii) depreciation
and amortization expense related to equipment on operating leases and deferred
financing costs, and (iii) interest expense incurred in connection with
equipment on operating leases. Increases in property operating expenses further
contributed to the overall increase in total gross expenses during the three
months ended June 30, 1999 compared to the same period in 1998. The increase in
property operating expenses resulted from development costs related to the
Rancho Malibu property, including legal fees, engineering studies, and
consulting fees, among others.
The above discussed changes resulted in an increase in the Company's net
loss for the three months ended June 30, 1999 to $585,158 ($0.51 per share) from
$321,114 ($0.26 per share) for the same period in 1998. The net loss per share
for the three months ended June 30, 1999 is based on the weighted average number
of shares outstanding during the period of 1,156,647 as compared to 1,219,374
for the same period in 1998.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) A list of exhibits filed or incorporated by reference is as follows:
<TABLE>
<S> <C>
3.1 Certificate of Amendment to Amended and Restated Certificate of
Incorporation (filed with the Securities and Exchange Commission as
Exhibit (3.1) to the Registrant's Quarterly Report on Form 10-QSB for
the quarter ended June 30, 1998 and incorporated by reference)
3.2 Restated Certificate of Incorporation (filed with the Securities and
Exchange Commission as Exhibit (3)(i) to the Registrant's Report on
Form 8-K dated October 21, 1997 and incorporated by reference)
3.3 Amended and Restated By-Laws (filed with the Securities and Exchange
Commission as Exhibit (3)(ii) to the Registrant's Report on Form 8-K
dated October 21, 1997 and incorporated by reference)
4 Form of new stock certificate (filed with the Securities and Exchange
Commission as Exhibit (4) to the Registrant's Quarterly Report on Form
10-QSB for the quarter ended September 30, 1997 and incorporated by
reference)
10.1 Executive Employment Agreement for Gary D. Engle (filed with the
Securities and Exchange Commission as Exhibit 10.1 to the Registrant's
Annual Report on Form 10-KSB for the year ended December 31, 1997 and
incorporated by reference)
10.2 Executive Employment Agreement for James A. Coyne (filed with the
Securities and Exchange Commission as Exhibit 10.2 to the Registrant's
Annual Report on Form 10-KSB for the year ended December 31, 1997 and
incorporated by reference)
10.3 Amended 1994 Executive and Director Stock Option Plan (filed with the
Securities and Exchange Commission as Exhibit 10.3 to the Registrant's
Annual Report on Form 10-KSB for the year ended December 31, 1997 and
incorporated by reference)
10.4 Incentive Compensation Plan (filed with the Securities and Exchange
Commission as Exhibit 10.4 to the Registrant's Annual Report on Form
10-KSB for the year ended December 31, 1997 and incorporated by
reference)
10.5 Trust under Semele Group Inc. Incentive Compensation Plan (filed with
the Securities and Exchange Commission as Exhibit 10.5 to the
Registrant's Annual Report on Form 10-KSB for the year ended December
31, 1997 and incorporated by reference)
10.6 Qualified Stock Option Agreement Executive Option Grant Program dated
December 30, 1997 between Semele Group Inc. and Gary D. Engle (filed
with the Securities and Exchange Commission as Exhibit 10.6 to the
Registrant's Annual Report on Form 10-KSB for the year ended December
31, 1997 and incorporated by reference)
10.7 Qualified Stock Option Agreement Executive Option Grant Program dated
December 30, 1997 between Semele Group Inc. and James A. Coyne (filed
with the Securities and Exchange Commission as Exhibit 10.7 to the
Registrant's Annual Report on Form 10-KSB for the year ended December
31, 1997 and incorporated by reference)
10.8 Director Stock Option Agreement Director Option Grant Program (filed
with the Securities and Exchange Commission as Exhibit 10.8 to the
Registrant's Annual Report on Form 10-KSB for the year ended December
31, 1997 and incorporated by reference)
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
10.9 Amendment to Director Stock Option Agreement Director Option Grant
Program dated December 30, 1997 between Semele Group Inc. and Gerald L.
Nudo (filed with the Securities and Exchange Commission as Exhibit 10.9
to the Registrant's Annual Report on Form 10-KSB for the year ended
December 31, 1997 and incorporated by reference)
10.10 Amendment to Director Stock Option Agreement Director Option Grant
Program dated December 30, 1997 between Semele Group Inc. and Robert M.
Ungerleider (filed with the Securities and Exchange Commission as
Exhibit 10.10 to the Registrant's Annual Report on Form 10-KSB for the
year ended December 31, 1997 and incorporated by reference)
10.11 Amendment to Director Stock Option Agreement Director Option Grant
Program dated December 30, 1997 between Semele Group Inc. and Walter E.
Auch (filed with the Securities and Exchange Commission as Exhibit
10.11 to the Registrant's Annual Report on Form 10-KSB for the year
ended December 31, 1997 and incorporated by reference)
10.12 Third Amended and Restated Employment Agreement for Leonard G. Levine
dated May 1, 1997 (filed with the Securities and Exchange Commission as
Exhibit (10)(i) to the Registrant's Quarterly Report on Form 10-QSB for
the quarter ended June 30, 1997 and incorporated by reference)
10.13 Amendment No. 1 to Exchange Agreement dated August 7, 1997 (filed with
the Securities and Exchange Commission as Exhibit (10)(ii) to the
Registrant's Quarterly Report on Form 10-QSB for the quarter ended June
30, 1997 and incorporated by reference)
10.14 Exchange Agreement dated April 30, 1997 by and among AFG Hato Arrow
Limited Partnership, AFG Dove Arrow Limited Partnership, AIP/Larkfield
Limited Partnership, Equis Exchange LLC, Equis Financial Group Limited
Partnership and the Registrant and related exhibits (filed with the
Securities and Exchange Commission as Exhibit (10)(i) to the
Registrant's Quarterly Report on Form 10-QSB for the quarter ended June
30, 1997 and incorporated by reference)
10.15 Directors Stock Option Agreement dated July 15, 1994
10.16 Executive Stock Option Agreements dated July 1, 1994, July 11, 1995 and
April 16, 1996
10.17 Agreement for Purchase and Sale of Stock dated August 31, 1998 between
Semele Group Inc. and Equis Financial Group Limited Partnership (filed
with the Securities and Exchange Commission as Exhibit (10)(17) to the
Registrant's Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1998 and incorporated by reference)
10.18 Promissory Note dated August 31, 1998 between Semele Group Inc. and
Equis Financial Group Limited Partnership (filed with the Securities
and Exchange Commission as Exhibit (10)(18) to the Registrant's
Quarterly Report on Form 10-QSB for the quarter ended September 30,
1998 and incorporated by reference)
10.19 Security Agreement dated August 31, 1998 between Semele Group Inc. and
Equis Financial Group Limited Partnership (filed with the Securities
and Exchange Commission as Exhibit (10)(19) to the Registrant's
Quarterly Report on Form 10-QSB for the quarter ended September 30,
1998 and incorporated by reference)
21 Subsidiaries of the Company
27 Financial Data Schedule (such schedule is not deemed filed as part of
this report)
99.1 Press Release dated October 21, 1997 (filed with the Securities and
Exchange Commission as Exhibit (99)(i) to the Registrant's Report on
Form 8-K dated October 21, 1997 and incorporated by reference)
</TABLE>
(b) No report on Form 8-K was filed by the Registrant during the quarter
ended June 30, 1999.
14
<PAGE>
SIGNATURES
PURSUANT to the requirements of the Exchange Act, the Issuer has duly caused
this Report to be signed on its behalf by the undersigned thereunto duly
authorized.
SEMELE GROUP INC.
By: /s/ Gary D. Engle Date: August 6, 1999
Gary D. Engle, Chairman, Chief Executive
Officer and Director
By: /s/ Gary M. Romano Date: August 6, 1999
Gary M. Romano, Vice President and
Chief Financial Officer
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Semele Group
Inc.'s Form 10QSB for the six months ended June 30, 1999 and is qualified in its
entirety by reference to such Form 10QSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 4,134,884
<SECURITIES> 0
<RECEIVABLES> 4,520,094
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,648,462
<PP&E> 22,888,473
<DEPRECIATION> 0
<TOTAL-ASSETS> 36,593,988
<CURRENT-LIABILITIES> 1,381,798
<BONDS> 21,213,095
10,165,018
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 36,593,988
<SALES> 0
<TOTAL-REVENUES> 920,953
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,980,097
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,059,144)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,059,144)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,059,144)
<EPS-BASIC> (0.92)
<EPS-DILUTED> (0.92)
</TABLE>
