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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 March 31, 2000
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)
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<S> <C>
DELAWARE 36-3465422
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
200 NYALA FARMS, WESTPORT, CONNECTICUT 06880
(Address of principal executive offices) (Zip Code)
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Issuer's telephone number, including area code : (203) 341-0555
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 May 15, 2000: 1,714,680
Transitional Small Business Disclosure Format: YES / /. NO /X/.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SEMELE GROUP INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 AND DECEMBER 31, 1999
(UNAUDITED)
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<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
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ASSETS
Cash and Cash Equivalents.......................................... $ 4,058,027 $ 4,896,554
Rents Receivable................................................... 95,004 95,059
Accounts Receivable - Affiliate.................................... 84,417 10,160
Interest Receivable - Affiliates................................... 21,515 438,837
Notes Receivable - Affiliates...................................... 1,036,205 2,725,695
Real Estate held for Development................................... 10,066,193 10,045,493
Other Investments.................................................. 750,000 750,000
Special Beneficiary Interests...................................... 6,506,916 9,608,916
Investment in Equis II Corporation................................. 19,525,588 19,586,000
Investment in Partnerships and Trusts.............................. 3,391,687 3,534,393
Land .............................................................. 1,929,000 1,929,000
Building, net of accumulated depreciation of $1,264,290 and
$1,175,632 at March 31, 2000 and December 31, 1999, respectively 10,668,707 10,757,365
Other Assets....................................................... 452,905 379,255
---------------- ----------------
Total Assets....................................................... $ 58,586,164 $ 64,756,727
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Notes Payable - Affiliates......................................... $ 37,009,745 $ 44,108,000
Notes Payable...................................................... 6,455,658 6,628,141
Accrued Interest - Affiliates...................................... 425,804 118,690
Accrued Interest................................................... 38,687 60,680
Accrued Expenses - Affiliates...................................... 2,153,420 71,118
Accounts Payable and Accrued Expenses.............................. 1,105,558 1,100,467
Deferred Rental Income............................................. 28,233 --
Distributions Payable.............................................. 52,063 52,063
Minority Interest.................................................. 3,761,829 3,780,960
---------------- ----------------
Total Liabilities.................................................. 51,030,997 55,920,119
---------------- ----------------
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................................................ (146,899,223) (145,617,782)
Deferred Compensation, 122,390 and 111,811 Shares at
March 31, 2000 and December 31, 1999, respectively............... (2,080,623) (1,900,780)
Treasury Stock at Cost, 879,818 and 890,397 Shares at
March 31, 2000 and December 31, 1999, respectively............... (14,128,352) (14,308,195)
---------------- ----------------
Total Stockholders' Equity........................................ 7,555,167 8,836,608
---------------- ----------------
Total Liabilities and Stockholders' Equity........................ $ 58,586,164 $ 64,756,727
================ ================
Book Value Per Share of Common Stock
(1,200,367 and 1,189,788 Shares Outstanding at
March 31, 2000 and December 31, 1999, respectively).............. $ 6.29 $ 7.43
================ ================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
2
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SEMELE GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
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2000 1999
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INCOME
Income From Lending and Investing Activities:
Income from Investment in Equis II Corporation....................... 662,380 --
Income on Investments ............................................... 62,988 77,377
---------------- ----------------
Total Income From Lending and Investing Activities..................... 725,368 77,377
---------------- ----------------
Other Income:
Rental Income........................................................ 302,671 291,473
Interest on Note Receivable - Affiliates............................. 46,153 77,290
Gain on Sale of Equipment ........................................... 3,780 5,325
Other Income ........................................................ -- 12,196
---------------- ----------------
Total Other Income..................................................... 352,604 386,284
---------------- ----------------
Total Income .......................................................... 1,077,972 463,661
---------------- ----------------
EXPENSES
Expenses From Property Operating Activities:
Net Loss From Operations of Real Estate Held for Development......... 121,620 38,942
---------------- ----------------
Total Expenses From Property Operating Activities...................... 121,620 38,942
---------------- ----------------
Other Expenses:
Stockholder Expenses ................................................ 21,021 14,486
Directors' Fees, Expenses, and Insurance ............................ 41,347 46,149
Other Professional Fees ............................................. 196,892 120,501
General and Administrative .......................................... 144,599 113,979
Administrative Reimbursement - Affiliate ............................ 39,175 38,990
Interest Expense - Affiliates ....................................... 806,297 291,849
Interest Expense .................................................... 131,446 137,122
Depreciation Expense ................................................ 128,334 129,739
Amortization Expense ................................................ 728,682 5,890
---------------- ----------------
Total Other Expenses .................................................. 2,237,793 898,705
---------------- ----------------
Total Expenses ........................................................ 2,359,413 937,647
---------------- ----------------
Net Loss .............................................................. $ (1,281,441) $ (473,986)
================ ================
Net Loss Per Share of Common Stock Basic
(Based on the Weighted Average Number of Shares
Outstanding of 1,193,403 and 1,140,351, respectively)................ $ (1.07) $ (0.42)
================ ================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
3
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SEMELE GROUP INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
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COMMON STOCK
------------------------------- ACCUMULATED COMPENSATION
SHARES AMOUNT DEFICIT COMPENSATION
---------- -------- --------------- --------------
<S> <C> <C> <C> <C>
Stockholder's Equity,
December 31, 1999 .................... 2,080,185 $ 170,663,365 $ (145,617,782) $ (1,900,780)
Deferred Compensation
10,579 Shares of Stock................ -- -- -- (179,843)
Net Loss................................ -- -- (1,281,441) --
---------- -------------- --------------- ---------------
Stockholder's Equity,
March 31, 2000........................ 2,080,185 $ 170,663,365 $ (146,899,223) $ (2,080,623)
========== ============== =============== ===============
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<CAPTION>
TREASURY
STOCK TOTAL
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Stockholder's Equity,
December 31, 1999 .................... $ (14,308,195) $ 8,836,608
Deferred Compensation
10,579 Shares of Stock................ 179,843 --
Net Loss................................ -- (1,281,441)
-------------- ---------------
Stockholder's Equity,
March 31, 2000........................ $ (14,128,352) $ 7,555,167
============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
4
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SEMELE GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
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2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss....................................................................... $ (1,281,441) $ (473,986)
Adjustments to Reconcile Net Loss to Net Cash Provided By (Used In)
Operating Activities:
Depreciation and Amortization Expense........................................ 857,016 135,629
Minority Interest............................................................ (19,131) (8,955)
Income from Investment in Equis II Corporation............................... (662,380) --
Net Change In:
Rents Receivable............................................................. 55 29,582
Accounts Receivable - Affiliate.............................................. (74,257) (6,203)
Interest Receivable - Affiliates............................................. 417,322 (77,290)
Other Assets................................................................. (119,216) (121,099)
Accrued Interest - Affiliates................................................ 307,114 (134,859)
Accrued Interest............................................................. (21,993) (7,085)
Accrued Expenses - Affiliates................................................ 2,082,302 38,990
Accounts Payable and Accrued Expenses........................................ 5,091 (99,298)
Deferred Rental Income....................................................... 28,233 --
--------------- ---------------
Net Cash Provided By (Used In) Operating Activities............................ 1,518,715 (724,574)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Notes Receivable - Affiliates................................................ 1,689,490 --
Real Estate Held For Development............................................. (20,700) --
Special Beneficiary Interest Distribution.................................... 3,102,000 --
Investment in Partnerships and Trusts........................................ 142,706 96,869
--------------- ---------------
Net Cash Provided By Investing Activities...................................... 4,913,496 96,869
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal Payments on Notes Payable - Affiliates............................. (7,098,255) --
Principal Payments on Notes Payable.......................................... (172,483) (121,966)
---------------- ----------------
Net Cash Used In Financing Activities.......................................... (7,270,738) (121,966)
--------------- ---------------
Net Decrease in Cash and Cash Equivalents...................................... (838,527) (749,671)
Cash and Cash Equivalents at Beginning of Period............................... 4,896,554 7,788,124
--------------- ---------------
Cash and Cash Equivalents at End of Period..................................... $ 4,058,027 $ 7,038,453
============== ==============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest..................................... $ 652,622 $ 570,915
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
5
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SEMELE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(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, 1999, which are
included in the Company's 1999 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 March 31, 2000 and December 31, 1999 and results of operations for
the three month periods ended March 31, 2000 and 1999 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, effective September 1, 1998. All intercompany
balances and transactions have been eliminated in consolidation.
On December 22, 1999, the Company acquired an 85% equity interest in Equis
II Corporation ("Equis II"). In connection with this investment, the Company
acquired a Special Beneficiary interest in four Delaware Business Trusts. The
Company accounts for both investments using the equity method of accounting (See
Note 5).
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
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
RECLASSIFICATION
Certain 1999 balances have been reclassified to conform to the 2000
presentation.
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 $69,993 are due
during the year ending March 31, 2001 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 leased to an
investment-grade educational institution. Future minimum lease payments
pertaining to these contracts are as follows:
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For the year ending March 31, 2001 $ 1,042,832
2002 1,150,504
2003 888,336
-----------
Total $ 3,081,672
===========
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6
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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
outstanding balance of this indebtedness was $692,811 at March 31, 2000. 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 additional
indebtedness pertaining to a commercial property leased to an investment-grade
educational institution. The interest rate on that debt is fixed at 7.86%. The
outstanding balance of the indebtedness was $5,696,528 at March 31, 2000.
The Company has 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 March 31, 2000, the outstanding balance and interest rate
on these obligations was $66,319 and 7.1%, respectively.
The annual maturities of all notes payable are as follows:
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For the year ending March 31, 2001 $ 421,234
2002 558,038
2003 773,427
2004 432,201
2005 467,423
Thereafter 3,803,335
-------------
Total $ 6,455,658
=============
</TABLE>
The balance of notes payable approximates fair value at March 31, 2000.
4. REAL ESTATE HELD FOR DEVELOPMENT
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.
Commencing in 1992, the Venture was engaged in zoning and entitlement
activities that had 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 three months ended March 31, 2000, the Venture incurred
approximately $122,000 of costs in connection with Rancho Malibu. The expenses
are primarily related to the Venture's efforts to successfully satisfy a number
of complex requirements imposed by various state, local and federal entities in
order to commence development. These costs were included in total expenses from
property operating activities on the Company's consolidated statements of
operations. The Venture capitalized $20,700 of costs for transfer development
credits during the three months ended March 31, 2000. At March 31, 2000, the
Company's carrying balance for the property was $10,668,707.
7
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SEMELE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
ACQUISITION OF EQUIS II CORPORATION AND SPECIAL BENEFICIARY INTERESTS
On December 22, 1999, the Company acquired an 85% equity interest in Equis
II that the Company financed by issuing purchase-money notes totaling
$19,586,000 to the selling Equis II stockholders. In connection with this
investment, the Company also acquired a Special Beneficiary interest in four
Delaware Business Trusts known as AFG Investment Trust A, AFG Investment Trust
B, AFG Investment Trust C, and AFG Investment Trust D (collectively, the
"Trusts") for $9,652,500 that the Company financed by issuing a non-recourse
purchase-money note. The Trusts are engaged principally in the business of
equipment leasing. In recent years, they each have made additional investments
in certain real estate projects, including a Class A interest in EFG/Kirkwood
Capital LLC. The Company owns a Class B interest in EFG/Kirkwood Capital LLC
that it acquired in 1999. (See "Other Investments" below.) In addition, a
subsidiary of the Company serves as general partner to a Canadian real estate
development project in which Trusts C and D are partial investors.
EQUIS II CORPORATION
The stockholders of Equis II from whom the Company acquired 85% of Equis II
are Gary D. Engle, President, Chief Executive Officer and Chairman of the Board
of Directors of the Company, James A. Coyne, President and Chief Operating
Officer of the Company, and certain trusts established for the benefit of Mr.
Engle's children. Equis II was organized in the State of Delaware in 1997 and
commenced operations on July 17, 1997. Equis II owns the following Class B
interests: AFG Investment Trust A (822,863 interests), AFG Investment Trust B
(997,373 interests), AFG Investment Trust C (3,019,220 interests), and AFG
Investment Trust D (3,140,683 interests) (collectively, the "Class B
Interests"). AFG Investment Trust A owns 20,969 shares of the Company's common
stock and has a note receivable from the Company equal to $462,353 that matures
in April 2001. Through its ownership of the Class B Interests, Equis II holds
approximately 62% of the voting interests in each of the Trusts, although on
certain matters, principally those involving transactions with related parties,
it will vote its interests with the majority of unaffiliated investors. Equis II
also owns AFG ASIT Corporation, the Managing Trustee of the Trusts. As Managing
Trustee of the Trusts, AFG ASIT Corporation has a 1% carried interest in the
Trusts and significant influence over the operations of the Trusts.
Notwithstanding the foregoing, Mr. Engle has voting control of the Class B
Interests pursuant to the terms of a Voting Trust Agreement executed in
connection with the Equis II transaction.
In connection with the purchase, the Company entered into a put and call
agreement with Messrs. Engle and Coyne and the Engle family trusts, which gave
the Company a call right to purchase from these Equis II stockholders, and gave
these Equis II stockholders a put right to sell to the Company, subject to
shareholder approval, the 15% of Equis II that Messrs. Engle and Coyne and the
Engle family trusts continue to own. A special committee of the Board of
Directors of the Company, consisting of Messrs. Auch, Bartlett and Ungerleider,
the Company's independent directors, unanimously approved the purchase by the
Company of 85% of Equis II and the entering into of the put and call agreement
to purchase the remaining 15% balance. On March 6, 2000, the Company obtained
shareholder approval for the issuance of 510,000 shares of common stock to
purchase the remaining 15% interest of Equis II. Subsequently, the selling Equis
II shareholders elected to exercise their rights to put their remaining 15%
ownership interests in Equis II to the Company in exchange for 510,000 shares of
the Company's common stock (see Note 8, Subsequent Event).
The Company's investment in Equis II is accounted for under the equity
method of accounting. Under the equity method of accounting, the Company's
investment is (i) increased (decreased) to reflect the Company's share of income
(loss) of the investee and (ii) decreased to reflect any distributions the
Company received from the investee. The Company increased its investment in
Equis II by $662,380 during the three months ended March 31, 2000, reflecting
its share of income from Equis II. The cost of the Company's investment in Equis
II was based on the estimated discounted future cash flows of Equis II. The
Company's cost basis in this investment was approximately $17,347,000 greater
than its equity interest in the underlying net assets at December 31, 1999. This
difference is being amortized over a period of 6 years beginning January 1,
2000. The amount amortized is included as an offset to Investment in Equis II
and was $722,792 for the three months ended March 31, 2000.
8
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SEMELE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SPECIAL BENEFICIARY INTERESTS
The Special Beneficiary interests were purchased from an affiliate, Equis
Financial Group Limited Partnership ("EFG"), for $9,652,500 and represent an
8.25% non-voting, carried interest in each of the Trusts. The Special
Beneficiary interests were purchased with a non-recourse note having a 10 year
term that bears interest at 7% per year. Interest and principal payments are
required to be paid only out of and to the extent of cash distributions paid to
the Company on account of the Special Beneficiary interests. In January 2000,
the Company received cash distributions of $3,102,000 from its Special
Beneficiary interests and paid EFG an equal amount of principal and accrued
interest in connection with the note. The outstanding balance of this note was
$6,634,544 at March 31, 2000.
The Company accounts for this investment using the equity method of
accounting. The Company decreased its investment by $3,102,000 during the three
months ended March 31, 2000 reflecting distributions received from the Special
Beneficiary Interests.
EQUIS II CORPORATION - TRANSACTION TERMS AND SOURCE OF FUNDS
The Company purchased 85% of the common stock of Equis II by delivering
promissory notes to the selling Equis II stockholders having a total principal
value of $19,586,000. In connection with the acquisition, Messrs. Engle and
Coyne delivered back to the Company, and the Company canceled, the options that
each of them held to purchase 40,000 shares of Common Stock of the Company at an
exercise price of $9.25 per share that were granted to them on December 30,
1997. A portion of the notes, having an aggregate principal amount of
$14,600,000, mature on October 31, 2005, and bear interest at the annual rate of
7%, of which 3% is due and payable on a current quarterly basis and 4% accrues
to the maturity date. Principal payments of $3,600,000, $4,000,000, $4,000,000
and $3,000,000 are due and payable on May 31, 2000, October 31, 2002, May 31,
2003, and the maturity date, respectively. The $14,600,000 of notes are
prepayable without penalty.
The balance of the promissory notes issued to the Equis II stockholders in
connection with the purchase of 85% of Equis II, which have a total principal
value of $4,986,000, have terms identical to the terms of promissory notes
payable by Messrs. Engle and Coyne to Equis II ($1,901,000) and to Old North
Capital Limited Partnership ($3,085,000). (The Company, through its subsidiary
Ariston Corporation, has a 98% limited partnership interest in Old North Capital
Limited Partnership.) Therefore, the Company is effectively the payee of notes
and accrued interest from Messrs. Engle and Coyne of $4,986,000, and it is the
payor of notes to Messrs. Engle and Coyne and the Engle family trusts in the
same amount. Of the $4,986,000 of promissory notes issued by the Company to the
selling Equis II stockholders, promissory notes having a total principal value
of $1,901,000 have terms identical to promissory notes payable to Equis II from
Messrs. Engle ($1,260,997) and Coyne ($640,003). These notes bear interest at
the annual rate of 7.5% payable quarterly, and all outstanding principal and
interest is due on August 8, 2007. The $3,085,000 balance of the promissory
notes issued by the Company to the selling Equis II stockholders have terms
identical to a promissory note payable to Old North Capital Limited Partnership
by Messrs. Engle ($2,046,383) and Coyne ($1,038,617), which bears interest at
the annual rate of 11.5% and is payable on demand. The Company intends to make
the payments on the $4,986,000 of promissory notes from the proceeds of payments
made by Messrs. Engle and Coyne on their indebtedness to Equis II and Old North
Capital Limited Partnership. If either individual fails to make timely payments,
the Company will be relieved of its obligations on the $4,986,000 of notes until
the default is cured. On January 26, 2000, Messrs. Engle and Coyne paid
principal and accrued interest of $1,381,260 and $701,042, respectively, to Old
North Capital Limited Partnership in partial payment of their respective notes.
On the same date, the Company paid principal and accrued interest to Messrs.
Engle and Coyne of $1,381,260 and $701,042, respectively, in partial payment of
notes issued to them by the Company in connection with the Equis II transaction.
The outstanding balance on the promissory notes issued to the Equis II
stockholders was $17,537,205 at March 31, 2000.
The $19,586,000 of promissory notes are general obligations of the Company
secured by a pledge to the selling Equis II stockholders of the shares of Equis
II owned by the Company. In the case of the $14,600,000 of promissory notes,
those notes issued to Mr. Engle and to the Engle family trusts become
immediately due and payable if Mr. Engle ceases to be the Chief Executive
Officer and a director of the Company, except if he resigns voluntarily or is
terminated for cause, and those notes issued to Mr. Coyne become immediately due
and payable if Mr. Coyne ceases to be the President and a director of the
9
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SEMELE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Company, except if he resigns voluntarily or is terminated for cause, as cause
is defined in the executives' employment agreements with the Company.
ACQUISITION OF ARISTON CORPORATION
The Company purchased all of the common stock of Ariston from 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. On January 26, 2000, the Company paid $2,082,302 of principal and accrued
interest in partial payment of this Note. The outstanding balance of this
indebtedness was $8,418,496 at March 31, 2000.
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 its Rancho Malibu property. The loan,
which was to mature on April 30, 2000, was extended to April 30, 2001. During
each of the three month periods ended March 31, 2000 and 1999, the Company
incurred interest expense of $110,185 and $108,974, respectively, in connection
with this indebtedness. At March 31, 2000, 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 $39,175 and $38,990 during the three months ended March
31, 2000 and 1999, respectively.
6. OTHER INVESTMENTS
On May 1, 1999, the Company and the Trusts formed EFG/Kirkwood Capital LLC
("EFG/Kirkwood") for the purpose of acquiring preferred and common stock
interests in Kirkwood Associates Inc. ("KAI"). EFG/Kirkwood's investment
consists of a common stock interest in KAI of approximately 16% as well as
preferred stock and convertible debt. The Company purchased a Class B interest
in EFG/Kirkwood and the Trusts 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 land that is held for
development. The resort is located in Kirkwood, California and is approximately
30 miles from South Lake Tahoe, Nevada. Subsequent to making its investment in
KAI, EFG/Kirkwood made a 50% investment in Mountain Springs Resorts LLC, an
entity formed for the purpose of acquiring an ownership interest in a Colorado
ski resort. The Company's investment in EFG/Kirkwood had a cost of $750,000.
7. 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 $60,000 of compensation during both the three
months ended March 31, 2000 and 1999 which represented 10,579
10
<PAGE>
SEMELE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
and 16,265 shares of common stock, respectively. The deferred amounts were
expensed by the Company during 2000 and 1999 and are included in general and
administrative expenses on the consolidated statements of operations for the
three months ended March 31, 2000 and 1999.
8. SUBSEQUENT EVENT
On April 20, 2000, the Company issued 510,000 shares of common stock to the
selling Equis II stockholders. (See also Note 5.)
11
<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 described in any forward-looking statements.
OVERVIEW
The Company was established in 1987 to invest primarily in short-term,
junior, pre-development and construction mortgage loans. Subsequently, the
Company became owner of various real estate assets through foreclosure
proceedings in connection with its mortgages. For the years 1993, 1994 and 1995,
the Company elected to be treated as a real estate investment trust (REIT) for
income tax purposes. Effective January 1, 1996, the Company revoked its REIT
status and became a taxable "C" corporation. Since then, the Company has
attempted to seek out ways to maximize shareholder value and take advantage of
investment opportunities where its significant loss carryforwards for federal
income tax purposes (approximately $90 million at December 31, 1999) can make it
a value-added buyer. In 1999 and 1998, the Company made certain investments with
affiliated parties where its income tax loss carryforwards could be utilized and
otherwise enable the Company to expand and diversify its asset mix beyond its
principal real estate asset, an ownership interest in a 274 acre land parcel
located in Southern California known as Rancho Malibu. The Company intends to
develop the Rancho Malibu property in the future and is in the process of
obtaining various permits that are necessary to commence development. In
addition, the Company 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. The Company continues to look for indirect new
investment opportunities on behalf of itself and the Trusts.
EQUIS II CORPORATION
In December 1999, the Company acquired an 85% equity interest in Equis II
Corporation ("Equis II") that the Company financed by issuing purchase-money
notes totaling $19,586,000 to the selling Equis II stockholders. In connection
with this investment, the Company also acquired a Special Beneficiary interest
in four Delaware Business Trusts known as AFG Investment Trust A, AFG Investment
Trust B, AFG Investment Trust C, and AFG Investment Trust D (collectively, the
"Trusts") for $9,652,500 that the Company financed by issuing a non-recourse
purchase-money note. The stockholders of Equis II from whom the Company acquired
85% of Equis II are Gary D. Engle, President, Chief Executive Officer and
Chairman of the Board of Directors of the Company, James A. Coyne, President and
Chief Operating Officer of the Company, and certain trusts established for the
benefit of Mr. Engle's children. Equis II Corporation was organized in the State
of Delaware in 1997 and commenced operations on July 17, 1997. Equis II owns the
following Class B interests: AFG Investment Trust A (822,863 interests), AFG
Investment Trust B (997,373 interests), AFG Investment Trust C (3,019,220
interests), and AFG Investment Trust D (3,140,683 interests) (collectively, the
"Class B Interests"). AFG Investment Trust A owns 20,969 shares of the Company's
common stock and has a note receivable from the Company equal to $462,353 that
matures in April 2001. Through its ownership of the Class B Interests, Equis II
holds approximately 62% of the voting interests in each of the Trusts. However,
Mr. Engle has voting control of the Class B Interests pursuant to the terms of a
Voting Trust Agreement executed in connection with the Equis II transaction.
Equis II also owns AFG ASIT Corporation, the Managing Trustee of the Trusts. As
Managing Trustee of the Trusts, AFG ASIT Corporation has a 1% carried interest
in the Trusts and significant influence over the operations of the Trusts.
In connection with the purchase, the Company entered into a put and call
agreement with Messrs. Engle and Coyne and the Engle family trusts, which gave
the Company a call right to purchase from these Equis II stockholders, and gave
these Equis II stockholders a put right to sell to the Company, subject to
shareholder approval, the remaining 15% of Equis II owned by Messrs. Engle and
Coyne and the Engle family trusts. A special committee of the Board of Directors
of the Company, consisting of Messrs. Auch, Bartlett and Ungerleider, the
Company's independent directors, unanimously approved the purchase by the
Company of 85% of Equis II and the entering into of the put and call agreement
to purchase the remaining 15% balance. On March 6, 2000, the Company obtained
shareholder approval for the issuance of 510,000 shares of common stock to
purchase the remaining 15% interest of Equis II. Subsequently, the selling Equis
II shareholders elected to exercise their rights to put their remaining 15%
ownership interests in Equis II to the Company in exchange for 510,000
12
<PAGE>
shares of the Company's common stock. On April 20, 2000, the Company issued
510,000 shares of common stock to the selling Equis II stockholders.
EFG/KIRKWOOD CAPITAL LLC
On May 1, 1999, the Company and the Trusts formed EFG/Kirkwood Capital LLC
("EFG/Kirkwood") for the purpose of acquiring preferred and common stock
interests in Kirkwood Associates Inc. ("KAI"). EFG/Kirkwood's investment
consists of a common stock interest in KAI of approximately 16% as well as
preferred stock and convertible debt. The Company purchased a Class B interest
in EFG/Kirkwood and the Trusts 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 land that is held for
development. The resort is located in Kirkwood, California and is approximately
30 miles from South Lake Tahoe, Nevada. Subsequent to making its investment in
KAI, EFG/Kirkwood made a 50% investment in Mountain Springs Resorts LLC, an
entity formed for the purpose of acquiring an ownership interest in a Colorado
ski resort. The Company's investment in EFG/Kirkwood had a cost of $750,000.
ARISTON CORPORATION
On August 31, 1998, the Company executed an agreement to acquire all of the
common stock of Ariston Corporation ("Ariston") for a total purchase price of
$12,450,000. Ariston is a holding company having two investments: (i) a 99%
limited partnership interest in AFG Eireann Limited Partnership ("AFG Eireann"),
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 ("ONC"), 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 located in Washington
D.C. and Sydney, Australia that are leased to an investment-grade educational
institution. Gary D. Engle, Chairman, Chief Executive Officer and a director of
the Company and James A. Coyne, President, Chief Operating Officer and a
director of the Company both are affiliated with ONC and Gary D. Engle is
affiliated with AFG Eireann. Ariston was organized on July 31, 1998 as a
Delaware corporation. On August 3, 1998, EFG contributed its limited partnership
interests in AFG Eireann and ONC to Ariston in exchange for Ariston common
stock. Ariston was a wholly-owned subsidiary of EFG until its acquisition by the
Company and was formed principally to facilitate the transfer of limited
partnership interests held by EFG in AFG Eireann and ONC. Gary D. Engle controls
EFG and is the sole director of Ariston.
The Company purchased all of the common stock of Ariston from EFG for fair
value of $12,450,000. The Company's consideration consisted of cash of $2
million and a purchase-money note of $10,450,000. 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 purchase-money note bears interest at the annualized rate of 7%,
payable quarterly in arrears, and requires principal reductions based upon the
cash flows generated by the limited partnership interests owned 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 purchase-money note is retired, future cash distributions by
Ariston require the consent of EFG.
LIQUIDITY AND CAPITAL RESOURCES
The Company's recent investments, described above, were highly leveraged
transactions whereby substantially all of the near-term cash flow generated by
the underlying assets will be used to service corresponding purchase
indebtedness. Accordingly, the Company does not anticipate incremental free cash
flow, net of debt service, being generated from these investments until the
indebtedness is retired. The Company's cash and cash equivalents balance
declined from $4,896,554 at December 31, 1999 to $4,058,027 at March 31, 2000
principally as a result of higher debt service payments on indebtedness and
higher operating costs resulting from the Company's recent investment
activities.
The Company's future near-term liquidity needs will continue to be
influenced principally by debt service payments in addition to potential new
investments, operating expenses, and development of the Rancho Malibu property.
The extent and timing of additional capital investments for the Rancho Malibu
project will be dependent upon completion of the permitting and local regulatory
approval processes, which remain pending.
13
<PAGE>
RESULTS OF OPERATIONS
Total income for the three months ended March 31, 2000 increased to
$1,077,972 from $463,661 for the same period in 1999. The increase reflects
income during the three months ended March 31, 2000 from the Company's
investment in Equis II of $662,380 (see Note 5). Revenues also include the
recognition of (i) rental income from two commercial buildings and equipment on
operating leases and (ii) interest income from a note receivable from affiliates
resulting from the acquisition of Ariston. The increase from 1999 to 2000 was
partially offset by a decrease in income earned on investments due a decrease in
cash available for investment.
Total expenses for three months ended March 31, 2000 increased to
$2,359,413 from $937,647 for the same period in 1999. The increase of $1,421,766
from 1999 to 2000 was due to interest expense incurred in connection with
indebtedness related to the Company's investment in Equis II and the Special
Beneficiary interests. Interest expense incurred related to these investments
was approximately $337,000 and $131,000, respectively, for the three months
ended March 31, 2000. In addition, the Company recorded amortization expense of
$722,792 during the three months ended March 31, 2000 in connection with its
investment in Equis II (see Note 5). Increases in other professional fees and
general and administrative expenses, resulting principally from the Company's
recent investment activities, further contributed to the overall increase in
total expenses in 2000 compared to 1999.
The above changes resulted in an increase in the Company's net loss for
the three months ended March 31, 2000 to $1,281,441 ($1.07 per share) from
$473,986 ($0.42 per share) for the same period in 1999. The net loss per share
for the three months ended March 31, 2000 is based on the weighted average
number of shares outstanding during the period of 1,193,403 as compared to
1,140,351 for the same period in 1999.
14
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Registrant's Special Meeting of stockholders was held on March 6, 2000. At
the Meeting the following proposals were approved:
1. Election of Directors:
<TABLE>
<CAPTION>
NUMBER OF SHARES
---------------------------
FOR WITHHELD
---------------------------
<S> <C> <C>
Joseph W. Bartlett 787,854 11,148
Robert M. Ungerleider 787,474 11,528
</TABLE>
2. Issue 510,000 shares of the Company's common stock in connection with
the possible purchase by the Company of 15% of Equis II Corporation:
<TABLE>
<CAPTION>
NUMBER OF SHARES
-----------------
<S> <C>
For 528,487
Against 13,530
Abstain 14,775
Non-Vote 242,210
</TABLE>
3. Approval of Independent Auditors:
<TABLE>
<CAPTION>
NUMBER OF SHARES
<S> <C>
For 786,268
Against 5,792
Abstain 6,942
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A list of exhibits filed or incorporated by reference is as follows:
<TABLE>
<S> <C>
3.1 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 herein by reference).
3.2 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 herein 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 herein
by reference).
10.1 Executive Employment Agreement for Gary D. Engle (filed in the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1997 as Exhibit 10.1 and is incorporated herein by reference).
10.2 Executive Employment Agreement for James A. Coyne (filed in the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1997 as Exhibit 10.2 and is incorporated herein by reference).
10.3 Amended 1994 Executive and Director Stock Option Plan (filed in the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1997 as Exhibit 10.3 and is incorporated herein by reference).
15
<PAGE>
10.4 Incentive Compensation Plan (filed in the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1997 as Exhibit 10.4 and is
incorporated herein by reference).
10.5 Trust under Semele Group Inc. Incentive Compensation Plan (filed in the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1997 as Exhibit 10.5 and is incorporated herein 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 in
the Registrant's Annual Report on Form 10-K for the year ended December
31, 1997 as Exhibit 10.6 and is incorporated herein 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
in the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997 as Exhibit 10.7 and is incorporated herein by
reference).
10.8 Director Stock Option Agreement Director Option Grant Program (filed in
the Registrant's Annual Report on Form 10-K for the year ended December
31, 1997 as Exhibit 10.8 and is incorporated herein by reference).
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 in the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997 as Exhibit 10.9 and is incorporated herein 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 in the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1997 as Exhibit 10.10 and is incorporated
herein 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 in the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997 as Exhibit 10.11 and is incorporated herein 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 herein 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 herein 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
March 31, 1997 and incorporated herein 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 Stock Purchase Agreement dated December 16, 1999 between Gary D. Engle,
James A. Coyne and four trusts for the benefit of Mr. Engle's children
and the Registrant (filed as Exhibit No. 2 to the Registrant's Report
on Form 8-K dated January 6, 2000 is incorporated herein by reference).
10.18 Agreement for Purchase and Sale of Special Beneficiary Interests dated
November 18, 1999 between Equis Financial Group Limited Partnership and
the Registrant is filed herewith.
10.19 Registration Rights Agreement dated December 22, 1999 between Gary D.
Engle, James A. Coyne, four trusts for the benefit of Mr. Engle's
children and the Registrant is filed herewith.
16
<PAGE>
10.20 Security Agreement and Collateral Agency Agreement dated December 22,
1999 between Gary D. Engle, James A. Coyne, four trusts for the benefit
of Mr. Engle's children and the Registrant is filed herewith.
10.21 Security Agreement (regarding the purchase and sale of Special
Beneficiary Interests) dated January 20, 2000 between Equis Financial
Group Limited Partnership and the Registrant is filed herewith.
10.22 Put and Call Agreement dated December 22, 1999 between Gary D. Engle,
James A. Coyne, four trusts for the benefit of Mr. Engle's children and
the Registrant is filed herewith.
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 herein by reference).
(b) A current report on Form 8-K, dated December 22, 1999 was filed on
January 6, 2000 by the Registrant with the Securities and Exchange
Commission.
</TABLE>
17
<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: May 19, 2000
--------------------------------------------
Gary D. Engle, Chairman, Chief Executive
Officer and Director
By: /s/ James A. Coyne Date: May 19, 2000
-----------------------------------------------
James A. Coyne, President, Chief Operating
Officer and Director
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
"This schedule contains summary financial information extracted from Semele
Group Inc.'s Form 10QSB for the three months ended March 31, 2000 and is
qualified in its entirety by reference to such Form 10QSB."
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 4,058,027
<SECURITIES> 0
<RECEIVABLES> 1,237,141
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,258,963
<PP&E> 23,928,190
<DEPRECIATION> (1,264,290)
<TOTAL-ASSETS> 58,586,164
<CURRENT-LIABILITIES> 3,803,765
<BONDS> 43,465,403
0
0
<COMMON> 7,555,167
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 58,586,164
<SALES> 0
<TOTAL-REVENUES> 1,077,972
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,359,413
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,281,441)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,281,441)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,281,441)
<EPS-BASIC> (1.07)
<EPS-DILUTED> (1.07)
</TABLE>
