UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1999
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Commission File Number: 0-18201
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EQUIVEST FINANCE, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 59-2346270
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
100 Northfield Street, Greenwich, Connecticut 06830
- --------------------------------------------- ----------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (888) 373-7678
Securities registered pursuant to Section 12(b) of the Act: None
Indicate by check mark whether the Company (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act Of 1934 during
the preceding 12 months (or for such shorter period that the Company was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
As of June 30, 1999, 25,688,351 shares of common stock of Equivest Finance,
Inc. were outstanding.
Transitional Small Business Disclosure Format. Yes |_| No |X|
1
<PAGE>
EQUIVEST FINANCE, INC. AND SUBSIDIARIES
FORM 10-QSB
QUARTER ENDED JUNE 30, 1999
INDEX
PART I FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements 3
Consolidated Financial Information:
Consolidated Balance Sheets - June 30, 1999(unaudited) and 3
December 31, 1998
Unaudited Consolidated Income Statements - Three Months Ended 4
June 30, 1999 and 1998
Unaudited Consolidated Income Statements - Six Months Ended 5
June 30, 1999 and 1998
Unaudited Consolidated Statement of Equity Accounts 6
Unaudited Consolidated Statements of Cash Flows - Six Months 7
Ended June 30, 1999 and 1998
Notes to Interim Consolidated Financial Information 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
PART II OTHER INFORMATION
Item 1. Legal Proceedings 26
Item 2. Changes in Securities 26
Item 3. Defaults Upon Senior Securities 26
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 5. Other Information 26
Item 6. Exhibits and Reports on Form 8-K 26
SIGNATURES 27
2
<PAGE>
PART I - FINANCIAL STATEMENTS
Item 1. Financial Statements
EQUIVEST FINANCE, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30,1999 December 31,
ASSETS (Unaudited) 1998
----------- ----
Cash and cash equivalents $ 3,571,430 $ 3,486,720
Receivables, net 161,584,486 142,326,363
Investment in real estate joint venture 5,016,866 2,971,207
Inventory 62,458,606 10,361,151
Deferred financing costs, net 2,793,837 3,755,600
Cash - restricted 1,380,756 1,422,459
Accrued interest receivable 1,334,295 971,026
Property and equipment, net 10,839,594 3,048,252
Goodwill, net 26,903,198 27,247,483
Stock registration costs 1,595,629 1,479,681
Other assets 1,083,633 314,521
------------ ------------
Total Assets $278,562,330 $197,384,463
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable $ 4,233,138 $ 2,212,975
Accrued expenses and other liabilities 9,151,715 3,985,402
Taxes payable 5,752,491 1,994,381
Deferred income taxes 2,568,464 2,568,465
Notes payable 197,047,951 133,116,985
------------ ------------
Total Liabilities 218,753,759 143,878,208
============ ============
CONTINGENCIES AND COMMITMENTS
STOCKHOLDERS' EQUITY
Cumulative Redeemable Preferred Stock--Series 2
Class A, $3 par value; 15,000 shares authorized,
10,000 shares outstanding 30,000 30,000
Common Stock, $.01 par value; 50,000,000
shares authorized,
25,688,351 shares outstanding in 1999 and
25,198,351 outstanding in 1998 256,884 251,984
Additional paid-in capital 51,070,566 49,115,466
Retained earnings 8,451,121 4,108,805
------------ ------------
59,808,571 53,506,255
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$278,562,330 $197,384,463
============ ============
3
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
EQUIVEST FINANCE, INC. AND SUBSIDIARIES
(UNAUDITED)
CONSOLIDATED STATEMENTS OF INCOME
3 Months Ended June 30,
-----------------------
1999 1998
---- ----
REVENUE
Interest $ 6,066,005 $ 4,938,570
Timeshare interval sales 11,411,257 -0-
Resort operations 7,607,324 -0-
Other income 354,048 256,975
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25,438,634 5,195,545
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COSTS AND EXPENSES
Interest 3,228,970 1,718,602
Cost of timeshare intervals sold 2,719,396 -0-
Sales and marketing 4,852,278 -0-
Resort management 6,395,805 -0-
Depreciation and amortization 851,356 369,264
Provision for doubtful receivables 394,500 225,000
General and administrative 2,442,699 874,429
----------- -----------
20,885,004 3,187,295
----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES 4,553,630 2,008,250
PROVISION FOR INCOME TAXES 1,800,000 785,000
----------- -----------
NET INCOME $ 2,753,630 $ 1,223,250
=========== ===========
Basic earnings per common share $ 0.10 $ 0.05
=========== ===========
Diluted earnings per common share $ 0.10 $ 0.05
=========== ===========
4
See Accompanying Notes To Consolidated Financial Statements.
<PAGE>
EQUIVEST FINANCE, INC. AND SUBSIDIARIES
(UNAUDITED)
CONSOLIDATED STATEMENTS OF INCOME
6 Months Ended June 30,
-----------------------
1999 1998
---- ----
REVENUE
Interest $11,587,098 $ 9,707,373
Timeshare interval sales 16,343,493 -0-
Resort operations 9,877,850 -0-
Other income 644,288 571,110
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38,452,729 10,278,483
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COSTS AND EXPENSES
Interest 5,450,146 3,371,830
Cost of timeshare intervals sold 3,893,724 -0-
Sales and marketing 6,969,998 -0-
Resort management 8,529,488 -0-
Depreciation and amortization 1,598,997 710,367
Provision for doubtful receivables 829,320 450,000
General and administrative 3,838,740 1,631,037
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31,110,413 6,163,234
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INCOME BEFORE PROVISION FOR INCOME TAXES 7,342,316 4,115,249
PROVISION FOR INCOME TAXES 3,000,000 1,440,000
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NET INCOME $ 4,342,316 $ 2,675,249
=========== ===========
Basic earnings per common share $ 0.16 $ 0.11
=========== ===========
Diluted earnings per common share $ 0.16 $ 0.11
=========== ===========
5
See Accompanying Notes To Consolidated Financial Statements.
<PAGE>
EQUIVEST FINANCE, INC. AND SUBSIDIARIES
(UNAUDITED)
CONSOLIDATED STATEMENT OF EQUITY ACCOUNTS
<TABLE>
<CAPTION>
Redeemable
Additional Preferred
Common Stock Paid in Stock-Series 2 Retained
Total Shares Amount Capital Class A Earnings
----------- ---------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1998 $53,506,255 25,198,351 $ 251,984 $49,115,466 $30,000 $ 4,108,805
Common stock issued
to satisfy certain
debt of Kosmas Group
International
Inc. properties
acquisition (see
Note C) 1,960,000 490,000 4,900 1,955,100
Net Income 4,342,316 4,342,316
----------- ----------- ----------- ----------- ------- -----------
Balances at June 30, 1999 $59,808,571 25,688,351 $ 256,884 $51,070,566 $30,000 $ 8,451,121
=========== =========== =========== =========== ======= ===========
</TABLE>
6
See Accompanying Notes To Consolidated Financial Statements.
<PAGE>
EQUIVEST FINANCE, INC. AND SUBSIDIARIES
(UNAUDITED)
CONSOLIDATED STATEMENTS OF CASH FLOW
6 Months Ended June 30,
-----------------------------
1999 1998
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CASH FLOWS PROVIDED BY (USED IN) OPERATING
ACTIVITIES
Net Income $ 4,342,316 $ 2,675,249
Adjustments to reconcile net income to
net cash
(used in) operating activities:
Amortization and depreciation 1,605,673 708,283
Provision for doubtful receivables 829,320 450,000
Provision for deferred taxes -0- 80,000
Changes in assets and liabilities, net of
effects from purchase of KGI
Other assets 234,554 (686,128)
Inventory 817,447 -0-
Accounts receivable - related parties -0- (10,952)
Restricted cash 134,691 (111,091)
Accounts payable and accrued expenses (3,006,734) 2,420,901
Accounts payable--related parties -0- (11,235)
Income taxes payable 1,807,496 -0-
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NET CASH PROVIDED BY OPERATING ACTIVITIES 6,764,763 5,515,027
CASH FLOWS USED IN INVESTING ACTIVITIES
Increase in receivables, net (15,095,992) (15,554,442)
Sale (purchase) of equipment (489,330) -0-
Investment in joint venture (2,045,659) -0-
Partial payment on purchase of KGI, net
of cash acquired of $762,706 (1,941,492) -0-
------------ ------------
NET CASH (USED IN) INVESTING ACTIVITIES (19,572,473) (15,554,442)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes receivable - related
party 564,505 2,438,035
Proceeds from recourse notes payable 49,224,186 18,678,331
Payments on recourse notes payable (34,195,281) (13,364,013)
Proceeds from non-recourse notes payable -0- 1,224,572
Payments on non-recourse notes payable (2,700,990) (2,385,804)
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 12,892,420 6,591,121
------------ ------------
INCREASE (DECREASE) IN CASH 84,710 (3,448,294)
------------ ------------
Cash at beginning of period 3,486,720 4,620,479
------------ ------------
CASH AT END OF PERIOD $ 3,571,430 $ 1,172,185
============ ============
7
See Accompanying Notes To Consolidated Financial Statements.
<PAGE>
EQUIVEST FINANCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Basis of Presentation
The accompanying consolidated interim financial statements as of June 30,
1999 and December 31, 1998 and for the three-month and six-month periods ended
June 30, 1999 and 1998 have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-QSB and Rule 10-01 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal accruals) considered
necessary for fair presentation have been included. Operating results for the
three-month and six-month periods ended June 30, 1999 are not necessarily
indicative of the results expected for the year ended December 31, 1999. For
further information, please refer to the consolidated financial statements and
footnotes thereto included in Equivest Finance, Inc.'s (the "Company") Form
10-KSB for the year ended December 31, 1998.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries, Equivest Capital Funding, Inc. (inactive),
Resort Funding, Inc. ("Resort Funding") and its subsidiary, BFICP Corporation,
Eastern Resorts Corporation and its subsidiary, Long Wharf Marina Restaurant,
Inc. (collectively, "Eastern Resorts") and, as of March 26, 1999, Bluebeard's
Castle, Inc., Castle Acquisition, Inc., Avenue Plaza LLC, Ocean City Coconut
Malorie, Inc., St. Augustine Resort Development Group, Inc. and EFI D.C.
Acquisition, Inc. (see Note C). All significant intercompany balances and
transactions have been eliminated in consolidation.
B. Summary of Significant Accounting Policies
Use of Estimates
The preparation of these financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and costs and expenses during
the reporting period. Actual results could differ from the Company's estimates.
Interest Income
The Company recognizes interest income on consumer financing contracts
using the interest method over the term of the contract. The Company recognizes
interest income on outstanding resort acquisition and development loans when
earned, based on the terms of the loan agreements. The accrual of interest on an
impaired loan is discontinued when accrued and unpaid interest, together with
the loan principal outstanding, exceeds the loan's projected cash flow or the
loan's net collateral value.
8
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Vacation Ownership
Vacation ownership revenue represents sales of timeshare intervals on the
accrual basis. Revenue is recognized after a binding sales contract has been
executed, a 10% minimum down payment has been received, and the statutory
rescission period has expired. If all other criteria are met but construction of
the unit to which the timeshare interval relates is not substantially complete,
revenue is recognized on the percentage of completion basis.
Resort Operations
Resort operations income represents income received by the Company for
management services provided to homeowners associations at various resort
properties and income generated from non-real property sales assets, inclusive
of restaurants. These revenues are recognized on the accrual basis in the period
in which the services are provided.
Other Income
Other income primarily represents fees which are recognized as income
when the Company performs the related service. These services include billing
services for developers and loan commitment, chargeback and collection fees
charged to resorts.
Allowance for Doubtful Receivables
Receivables have been reduced by an allowance for doubtful receivables.
The allowance is an amount which management believes will be adequate to absorb
possible losses on existing receivables. The evaluation incorporates past loss
experience, known and inherent risks in the portfolio, adverse conditions that
may affect the borrower's ability to repay, the estimated value of underlying
collateral, and current economic conditions. Receivables are charged against the
allowance when management believes that collectibility is unlikely. Because of
uncertainties in the estimation process, it is at least reasonably possible that
management's estimate of loan losses inherent in the loan portfolio and the
related allowance will change in the near term.
The Company follows Statement of Financial Accounting Standards No. 114
(SFAS 114) "Accounting by Creditors for Impairment of a Loan". Under SFAS 114,
the allowance for doubtful receivables for loans identified as impaired is
specifically determined using the loan's projected discounted cash flow or its
net collateral value.
Inventory and Cost of Property Sold
Inventory is stated at the lower of cost or market and consists of
timeshare intervals held for sale and construction in progress of new timeshare
units, including the cost of land for future timeshare units. These costs are
charged to cost of property sold based upon the relative sales values of the
intervals sold. Intervals reacquired are placed back into inventory at the lower
of their original historical cost basis or market value.
Deferred Financing Costs
Deferred financing costs represent unamortized expenses associated with
issuing certain debt, fees payable pursuant to certain bank settlement
transactions and debt associated with the acquisition of Eastern Resorts.
Amortization of these costs is computed on a straight-line basis over the term
of the associated debt and does not differ materially from that computed using
the effective interest method.
9
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Goodwill Amortization
Goodwill related to the acquisition of Eastern Resorts is being amortized
over a 40-year period.
Property and Equipment
Property and equipment (including equipment under capital lease) net of
accumulated depreciation, are stated at cost. The Company computes depreciation
using the straight-line method over the estimated useful lives of the assets
which have been estimated as follows:
Restaurant/condominiums/office building/warehouse 20-39 years
Computers 5 years
Marina 7-10 years
Furniture and fixtures 5-7 years
Motor vehicles 5 years
Equipment 7 years
Leasehold improvements 31.5 years
Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes" (SFAS 109). SFAS 109
is an asset and liability approach to accounting for deferred income taxes. This
method requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. In estimating future tax
consequences, the Company generally considers all expected future events other
than enactments of changes in tax laws or rates. A valuation allowance reduces
deferred tax assets when it is more likely than not that some portion or all of
the deferred tax assets will not be realized.
Earnings Per Share
The Company computes earnings per share under Statement of Financial
Accounting Standards No. 128 "Earnings Per Share" (SFAS 128). SFAS 128 requires
the presentation of earnings per share by all entities that have common stock or
potential common stock (such as options, warrants or convertible securities)
outstanding that trade in a public market. Those entities that have only common
stock outstanding present basic earnings per share amounts. All other entities
present basic and diluted per share amounts. Diluted per share amounts assume
the conversion, exercise or issuance of all potential common stock instruments
unless the effect is to reduce a loss or increase the income per common share
from continuing operations.
C. Acquisition of Properties from Kosmas Group International, Inc.
On March 26, 1999, the Company completed its previously announced
acquisition of six timeshare vacation resorts, one resort development site,
management contracts and consumer notes receivable from Kosmas Group
International, Inc. ("KGI").
Bluebeard's Castle, Bluebeard's Beach Club and Resort and the Elysian
Beach Hotel and Resort, three of the resorts acquired by the Company, are
located in St. Thomas, U.S.V. I. These three properties currently include 311
units, with the ability to construct significant additional units. In addition,
the Company acquired the Avenue Plaza Hotel and Resort in New Orleans,
10
<PAGE>
Louisiana, which currently has 265 units. The Avenue Plaza is located on St.
Charles Avenue in the Garden District of New Orleans. The Coconut Malorie Hotel
and Resort in Ocean City, Maryland has 85 units in an all-suite configuration,
and is located directly on the intra-coastal waterway. Finally, the Ocean Gate
Resort in St. Augustine, Florida, includes 24 two-and three-bedroom units on a
beachfront property. The Company also purchased rights to acquire two tracts of
additional contiguous land that will enable it to construct an additional 60
units in St. Augustine. The Company also acquired land on Pennsylvania Avenue in
Washington, D.C. on which it intends to construct a new timeshare resort of
approximately 65 units, using existing permits and plans.
The Company's acquisition involved cash consideration of $4 million, less
certain adjustments, and the assumption of approximately $72 million in debt or
other liabilities relating to the acquired resorts. In addition, the Company
agreed to purchase the interest of a third party with prior outstanding debt
relating to the St. Thomas properties, together with additional inventory in one
of the St. Thomas resorts, for $2 million in cash and 490,000 shares of Equivest
stock. The Company will also issue an additional 250,000 shares of its common
stock to KGI if the Company has at least $6 million in net income from the
acquired properties during the twelve months ending March 31, 2000. KGI and the
Company agreed to indemnify each other with respect to certain liabilities.
The purchase price and its allocation to assets acquired follows:
Purchase price
Cash $ 4,000,000
490,000 shares of common stock at $4.00 per share 1,960,000
Liabilities assumed 71,858,000
Other acquisition costs 750,000
===========
$78,568,000
===========
Estimated fair value of identifiable assets
including cash of $762,706 $78,568,000
===========
D. Contingencies, Commitments and Liquidity
In September 1997, Resort Funding commenced foreclosure proceedings
against a resort property located in Hilton Head, South Carolina which was
approximately four months delinquent in payment of its obligations to Resort
Funding under an acquisition and development loan agreement. On March 17, 1998,
the developer filed an answer and counterclaims in the foreclosure action
alleging, among other things, that it was not in default of the loan agreements.
Resort Funding intends to pursue vigorously its claims and defend the
counterclaims. On September 30, 1998, the developer agreed to deposit all
past-due interest amounts into an escrow account accessible only by order of the
court. Additionally, the developer agreed to pay into the escrow account all
future interest payments as they become due, pending the outcome of the
foreclosure action. In the event that any such payments are not timely received,
Resort Funding shall have the right to have a receiver appointed to operate the
resort. As of June 30, 1999, the principal balance owed to Resort Funding under
the referenced loan was approximately $3.4 million. The promissory note matured
on February 28, 1999. Resort Funding's acquisition and
11
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development loan agreement provides that principal will be repaid through
release fees on interval units sold. As of June 30, 1999, the developer had not
sold any interval units. There can be no assurance Resort Funding will receive
principal payments relating to this obligation in the short term, or that it
will not incur a loss on this loan.
When it acquired Eastern Resorts, the Company obtained the cash portion of
the purchase price in large part through the proceeds of a $12.2 million
short-term bridge loan (the "Bridge Loan") from Credit Suisse First Boston
Mortgage Capital LLC ("CSFB"). Also in connection with the Eastern Resorts
acquisition, approximately $11 million in acquisition and development loans and
consumer receivable loans previously extended by Resort Funding to the
predecessor corporation of Eastern Resorts were transferred out of the Company's
existing revolving credit facilities into a new short-term facility established
by CSFB (the "Affiliate Paper Facility"). In connection with the acquisition of
the properties from KGI, CSFB agreed to permit the Company to modify the
financial terms of the Affiliate Paper Facility to be consistent with the terms
of the Company's existing revolving credit facilities with CSFB. The Company
originally anticipated repaying the Bridge Loan through a public offering. In
the interim, the Company has been paying the facility down through payments
received on the notes pledged as collateral for the Bridge Loan. The Bridge Loan
matures on December 11, 1999.
As of June 30, 1999, the balance on the Bridge Loan was approximately $2.4
million, down from the original borrowing of $12.2 million. The Bridge Loan is
collateralized in part with notes receivable and in part with a general lien on
unpledged assets of Eastern Resorts. The Bridge Loan contains cross default
provisions linked to the Company's pre-existing CSFB debt facilities.
Because of a change in market conditions, the Company delayed the original
schedule of its proposed public offering in the Fall of 1998. The Company is
discussing replacing the Bridge Loan with other lenders, and has received
proposals for new and expanded liquidity facilities. However, it currently
anticipates that it will complete repayment of the Bridge Loan predominantly out
of internal cash flow.
As a result of the KGI acquisition, the Company's VOI sales have expanded
considerably. The combined sales of Eastern Resorts and the former KGI resorts,
all of which were acquired since August, 1998, have, along with increases in
RFI's third-party lending business, resulted in an expanded growth rate of the
Company's loan portfolio. As a result, the utilization of the 1997 Credit
Facility for both acquisition and development loans and consumer receivables
financing has expanded, and both such facilities are close to their capacity
limits. The Company is seeking to replace the consumer credit facility and to
augment the acquisition and development facility. The Company has received
preliminary proposals for new credit facilities that in the aggregate are larger
than its existing facilities from several institutions, and the Company expects
to complete one or more new facilities during the remainder of 1999. However,
there can be no assurance that the Company will be successful in obtaining new
sources of financing on terms acceptable to it, or that modifications of the
current terms of existing indebtedness will not result in materially less
favorable terms. Failure to obtain new sources of financing or to expand
existing sources would force the Company to curtail vacation ownership sales and
third party lending, resulting in a materially adverse effect on the Company's
business. If the CSFB consumer credit facility is not replaced in full by
December 11, 1999, the interest rate on the remaining balance will increase by
150 basis points.
12
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E. Segment Information
Financial information with respect to the financing and resort development
segments in which the Company operates follows for the three months ended June
30, 1999:
- --------------------------------------------------------------------------------
Resort
Financing Development Total
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Revenues from external
customers $ 325,851 $ 19,018,581 $ 19,344,432
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Intersegment revenues 320,439 291,262 611,701
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Segment profit 1,259,732 3,700,045 4,959,777
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Segment assets 192,510,279 106,274,031 298,784,310
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Expenditures for segment
assets 17,495 381,931 399,426
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Reconciliation of total
segment profit to
consolidated income before
income taxes:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total segment profit 4,959,777
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Unallocated corporate expenses 406,147
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,553,630
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For the three months ended June 30, 1998, the Company operated only in the
financing business.
13
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-looking Statements
Certain matters discussed or incorporated herein by reference contain
forward-looking statements. These statements may be identified by the use of
words or phrases such as "believe," "expect," "anticipate," "should," "planned,"
"estimated," and "potential." Forward-looking statements are based on the
Company's current expectations. The Private Securities Litigation Reform Act of
1995 provides a "safe harbor" for such forward-looking statements. In order to
comply with the terms of the safe harbor, the Company notes that a variety of
factors could cause actual results and experience to differ materially from the
anticipated results or other expectations expressed in such forward-looking
statements. These factors include, among others, general economic and business
conditions, industry trends, changes in business strategy or development plans,
availability and quality of management, a downturn in the real estate cycle or
other factors which result in lower sales of vacation ownership interests,
possible financial difficulties of one or more of the developers with whom the
Company does business (such as the risk of carrying non-performing assets or
losses if defaulted loans prove to have insufficient collateral backing),
fluctuations in interest rates, prepayments by consumers of indebtedness,
prepayments by developers, inability of developers to honor replacement
obligations for defaulted consumer notes, and competition from organizations
with greater financial resources.
THREE MONTHS ENDED JUNE 30, 1999
Net income
Income before provision for income taxes increased 127% to $4.6 million
for the three months ended June 30, 1999, as compared to $2.0 million for the
same period in 1998. Net income increased 125% to $2.8 million for the three
months ended June 30, 1999 from $1.2 million for the same period in 1998. The
increase in net income is primarily attributable to the inclusion of operating
results for Eastern Resorts and Kosmas Properties, coupled with increased
interest income resulting from growth in the consumer finance portfolio.
Total revenue rose 390% to $25.4 million for the three months ended June
30, 1999 as compared to $5.2 million for the same time period in 1998. Revenue
growth is largely due to the addition of revenue associated with Eastern Resorts
and Kosmas Properties, totaling $8.9 million and $11.5 million, respectively,
coupled with increased portfolio growth in consumer receivables financing.
Revenue generated from Eastern Resorts and Kosmas Properties represents 81% of
total revenues.
Interest income
Interest income on loans increased 23% to $6.1 million for the three
months ended June 30, 1999, from $4.9 million for the same period in 1998,
mainly due to the inclusion of interest income related to the acquisitions of
Eastern Resorts and the Kosmas Properties, totaling $0.8 million and $0.6
million, respectively. In addition, growth in the consumer portfolio held for
investment also contributed to the increase in interest income, which was
slightly offset by a decline in interest rates. Interest income on consumer
notes rose 4% to $3.5 million for the three months ended June 30, 1999 as
compared to $3.3 million for the same time period in 1998, and is attributable
to the growth in the loan portfolio. The average amount outstanding on the
consumer receivables portfolio for the second quarter of 1999 was approximately
$11 million higher than the
14
<PAGE>
same period in 1998, although the average interest rate dropped about 0.4%.
Interest on acquisition, development and construction loans ("A D & C Loans")
decreased 26% to $1.1 million for the three months ended June 30, 1999,
primarily due to lower average outstanding balances due to the elimination of
loans in consolidation (from the acquisitions of Eastern Resorts and the Kosmas
Properties). In addition, the average interest rates on A D & C loans declined
approximately 0.9%.
Although third party consumer receivable originations rose 27% for the
three months ended June 30, 1999 compared with the same period in 1998, total
loan originations declined 1% to $29.9 million for the three months ended June
30, 1999, compared to $30.1 million for the three months ended June 30, 1998.
The decline in total loan originations is primarily due to a decline in
acquisition and development loans.
Timeshare interval sales
During the second quarter of 1999, vacation ownership revenue totaled
$11.4 million on sales of 1,075 VOIs at an average sales price of $10,600. The
income associated with vacation ownership is a result of the acquisition of
Eastern Resorts and Kosmas Properties, totaling $5.0 million and $6.4 million,
respectively. Therefore, there is no corresponding amount for the same time
period in 1998. Also, during the quarter ended June 30, 1999, the Company
recorded $1.9 million of previously deferred vacation ownership revenue due to
the completion of two resort buildings in St. Thomas. The Company now owns or
manages thirteen timeshare resorts with a completed VOI inventory available for
sale of slightly more than 26,000 intervals, up from zero during the comparable
period in 1998.
Resort operations
Resort operations for the three months ended June 30, 1999 totaled $7.6
million. The revenue from resort operations is a result of the acquisition of
Eastern Resorts and Kosmas Properties, totaling $3.1 million and $4.5 million,
respectively. Therefore, there is no corresponding amount for the same time
period in 1998.
Other income
Other income increased 38% to $0.35 million for the second quarter of
1999, as compared to $0.26 million for the same period in 1998. The increase in
other income is due to an increase in service income associated with consumer
receivables.
Interest expense
Interest expense increased 88% to $3.2 million for the second quarter of
1999, from $1.7 million for the same period in 1998, primarily due to the
inclusion of interest expense associated with Eastern Resorts and Kosmas
Properties, totaling $0.2 million and $0.9 million, respectively, which
represents approximately 75% of the entire increase in interest expense. The
Company's consumer receivables financing facility had higher average outstanding
balances of almost $13 million during the second quarter of 1999, compared to
the same period in 1998, but interest rates were approximately 70 basis points
lower. Consequently, overall interest expense on the Company's consumer
receivables financing facility increased 19% to $1.0 million for the second
quarter of 1999 from $0.9 million for the second quarter of 1998.
The average interest rate on other bank notes remained at 6.1% for both
the second quarter of 1999 and the second quarter of 1998. Nevertheless,
interest expense on other bank
15
<PAGE>
notes increased 32% to $1.0 million for the second quarter of 1999, from $0.8
million for the same period in 1998, due to a higher average outstanding balance
of approximately $15 million.
Depreciation and amortization
Depreciation and amortization increased 131% from $0.4 million for the
second quarter of 1998 to $0.8 million for the same period in 1999. The increase
is primarily due to $0.2 million associated with financing costs and $0.2
million of goodwill amortization, both resulting from the acquisition of Eastern
Resorts. Goodwill is being amortized on a straight-line basis over 40 years.
Provision for doubtful receivables
The provision for doubtful receivables increased 75% to $0.4 million for
the three months ended June 30, 1999, compared to $0.2 million for the same
period in 1998. This increase is due primarily to an increase in the receivables
generated from the acquisition-related properties. Management maintains an
allowance for doubtful receivables that, in the opinion of management, provides
adequately for current and estimated future losses of existing receivables. The
aggregate allowance for doubtful accounts at June 30, 1999 was $6.6 million, an
increase of 129% from $2.9 million at June 30, 1998.
Cost of timeshare intervals sold
The cost of property sold for the second quarter of 1999 totaled $2.7
million, or 23.8% of timeshare interval sales. The inclusion of cost of property
sold is a result of the acquisition of Eastern Resorts and Kosmas Properties,
totaling $1.2 million and $1.5 million, respectively. Therefore, there is no
corresponding amount for the second quarter of 1998. Also, during the quarter
ended June 30, 1999, the Company recorded approximately $.4 million relating to
the cost of property for the previously deferred vacation ownership intervals
revenue due to the completion of two resort buildings in St. Thomas.
Sales and marketing
Sales and marketing expense for the three months ended June 30, 1999
totaled $4.9 million, or 42.5% of timeshare interval sales. The inclusion of
sales and marketing expense is a result of the acquisition of Eastern Resorts
and Kosmas Properties, totaling $2.3 million and $2.6 million, respectively.
Therefore, there is no corresponding amount for the same time period in 1998.
Also, during the quarter ended June 30, 1999, the Company recorded approximately
$.7 million relating to the sales and marketing expense for the previously
deferred vacation ownership revenue due to the completion of two resort
buildings in St. Thomas.
Resort management
Resort management expenses for second quarter of 1999 totaled $6.4
million, or 84.1% of resort operations revenue. The inclusion of resort
management expenses is a result of the acquisition of Eastern Resorts and Kosmas
Properties, totaling $2.7 million and $3.7 million, respectively. Therefore,
there is no corresponding amount for the same time period in 1998.
General and administrative costs
General and administrative costs increased 179% to $2.4 million for the
second quarter of 1999, from $0.9 million for the same period in 1998. However,
general and administrative costs fell to 10% of revenues for the second quarter
of 1999, compared to 17% for the same period in 1998. The increased costs are
mainly due to the inclusion of general and administrative expenses associated
with Eastern Resorts and Kosmas Properties totaling $0.5 million and $0.9
million, respectively, which represents approximately 88% of the increase in
general and administrative costs. The following items also contributed to the
increase in general and administrative costs:
16
<PAGE>
payroll, servicing, office, outside services, and travel costs. Payroll and
payroll-related expenses increased 15% for the three months ended June 30, 1999
due to a reduction in payroll costs that were allocated to the estate in the
bankruptcy case of a major shareholder of the Company for certain of the
Company's employees, an increase in the number of employees, and an increase in
compensation for certain employees. Servicing costs increased 19% to $0.09
million for the three months ended June 30, 1999 from $0.07 million for the
three months ended June 30, 1998, primarily due to an increased customer base.
Travel and entertainment and office-related costs increased 93% and 25%,
respectively, primarily due to growth and the acquisitions of the Company.
Provision for income taxes
The provision for income taxes for the three months ended June 30, 1999
increased 129% to $1.8 million from $0.8 million for the same period in 1998.
17
<PAGE>
Selected Financial Data of Equivest Finance, Inc.
as a Percentage of Total Revenues
<TABLE>
<CAPTION>
Three
Months
Ended
Year Ended December 31, June 30,
1996 1997 1998 1999 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues
Interest from:
Acquisition and development
loans 29.8% 25.1% 18.2% 4.4% 28.8%
Purchased consumer receivables 59.6% 64.4% 41.8% 12.1% 58.2%
Hypothecation loans 0.4% 1.9% 4.0% 1.5% 5.9%
Consumer loans -- -- -- -- --
Other loans 1.3% 5.8% 4.8% 5.8% 2.1%
----- ----- ----- ----- -----
Total interest on Loans 91.1% 97.2% 68.8% 23.8% 95.0%
Timeshare interval sales -- -- 15.4% 44.9% --
Resort operations -- -- 12.3% 29.9% --
Other income 8.9% 2.8% 3.5% 1.4% 5.0%
----- ----- ----- ----- -----
Total revenue 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and Expenses Interest 58.0% 50.6% 25.2% 12.7% 33.1%
Cost of timeshare intervals sold -- -- 3.9% 10.7% --
Sales and marketing -- -- 7.3% 19.1% --
Resort management -- -- 11.0% 25.1% --
Depreciation and amortization 6.3% 6.7% 7.3% 3.3% 7.1%
Provision for doubtful
receivables 1.3% 5.8% 2.7% 1.6% 4.3%
General and administrative 22.6% 15.5% 13.9% 9.6% 16.8%
----- ----- ----- ----- -----
Total costs and expenses 88.2% 78.6% 71.3% 82.1% 61.3%
----- ----- ----- ----- -----
Income before provision for
income taxes 11.8% 21.4% 28.7% 17.9% 38.7%
Provision for income taxes 0.2% 1.2% 11.0% 7.1% 15.1%
----- ----- ----- ----- -----
Net income 11.6% 20.2% 17.7% 10.8% 23.6%
===== ===== ===== ===== =====
</TABLE>
18
<PAGE>
SIX MONTHS ENDED JUNE 30, 1999
Net income
Income before provision for income taxes increased 78% to $7.3 million for
the first six months of 1999, as compared to $4.1 million for the same period in
1998. Net income increased 62% to $4.3 million for the first six months of 1999
from $2.7 million for the same period in 1998. The increase in net income is
primarily attributable to the inclusion of operating results for Eastern Resorts
and Kosmas Properties and increased interest income resulting from growth in the
consumer portfolio.
Total revenue rose 274% to $38.5 million for the first six months of 1999
as compared to $10.3 million for the same time period in 1998. Revenue growth is
largely due to the addition of income associated with Eastern Resorts and the
Kosmas Properties totaling $17.0 million and $11.5 million, respectively,
coupled with increased portfolio growth in consumer receivables financing.
Revenue generated from Eastern Resorts and Kosmas Properties represents 74% of
total revenue. Revenue and income relating to Eastern Resorts includes the
entire six month period, while the comparable figures from the former KGI
properties relate only to the period after March 26, 1999.
Interest income
Interest income on loans increased 19% to $11.6 million for the first six
months of 1999, from $9.7 million for the same period in 1998, mainly due to the
inclusion of $1.7 million in interest income related to the acquisition of
Eastern Resorts and $0.6 million related to the acquisition of Kosmas
Properties. In addition, growth in the consumer portfolio held for investment
also contributed to the increase in interest income, which was slightly offset
by a decline in interest rates. Interest income on consumer notes rose 5% to
$7.0 million for the first six months of 1999 as compared to $6.6 million for
the same time period in 1998, and is attributable to the growth in the loan
portfolio. The average amount outstanding on the consumer receivables portfolio
for the first six months of 1999 was approximately $12 million higher than the
same period in 1998, although the average interest rate dropped about 0.5%.
Interest on acquisition, development and construction loans ("A D & C Loans")
decreased 20% to $2.3 million primarily due to lower average outstanding
balances due to the elimination of loans in consolidation (from the acquisitions
of Eastern Resorts and the Kosmas Properties). In addition, the average interest
rates on A D & C loans declined approximately 0.8%. Total third party loan
originations rose 14% to $56.2 million for the six months ended June 30, 1999,
compared to $49.5 million for the six months ended June 30, 1998.
Timeshare interval sales
During the second quarter of 1999, vacation ownership revenue totaled
$16.3 million. The income associated with vacation ownership is a result of the
acquisition of Eastern Resorts and Kosmas Properties, totaling $10.0 million and
$6.3 million, respectively. Therefore, there is no corresponding amount for the
same time period in 1998. Also, during the six months ended June 30, 1999, the
Company recorded approximately $1.9 million of previously deferred vacation
ownership revenue due to the completion of two resort buildings in St. Thomas.
19
<PAGE>
Resort operations
Resort operations for the first six months of 1999 totaled $9.9 million.
The revenue from resort operations is a result of the acquisition of Eastern
Resorts and Kosmas Properties, totaling $5.3 million and $4.6 million,
respectively. Therefore, there is no corresponding amount for the same time
period in 1998.
Other income
Other income increased 13% to $0.64 million for the first six months of
1999, as compared to $0.57 million for the same period in 1998. The increase is
primarily due to increased service income associated with consumer financing
receivables.
Interest expense
Interest expense increased 62% to $5.4 million for the first six months of
1999, from $3.4 million for the same period in 1998, primarily due to the
inclusion of interest expense associated with Eastern Resorts and Kosmas
Properties totaling $0.4 million and $0.9 million, respectively, which
represents approximately 65% of the entire increase in interest expense. The
Company's consumer receivables financing facility had higher average outstanding
balances of approximately $12 million during the first six months of 1999,
compared to the same period in 1998, but interest rates were approximately 70
basis points lower. Consequently, overall interest expense on the Company's
consumer receivables financing facility increased 16% to $1.9 million for the
first six months of 1999 from $1.7 million for the first six months of 1998.
The average interest rate on other bank notes decreased to 6.1% for the
first six months of 1999, from 6.8% for the same period in 1998. Nevertheless,
interest expense on other bank notes increased 34% to $2.0 million for the first
six months of 1999, from $1.5 million for the same period in 1998, due to a
higher average outstanding balance of approximately $20 million.
Depreciation and amortization
Depreciation and amortization increased 125% from $0.7 million for the
first six months of 1998 to $1.6 million for the same period in 1999. The
increase is primarily due to $0.4 million associated with financing costs and
$0.3 million for goodwill amortization, both resulting from the acquisition of
Eastern Resorts. Goodwill is being amortized on a straight-line basis over 40
years.
Provision for doubtful receivables
The provision for doubtful receivables increased 84% to $0.8 million for
the second quarter of 1999, compared to $0.4 million for the same period in
1998. This increase is due primarily to an increase in the receivables generated
from the acquisition-related properties. Management maintains an allowance for
doubtful receivables that, in the opinion of management, provides adequately for
current and estimated future losses of existing receivables.
Cost of timeshare intervals sold
The cost of property sold for the six months ending June 30, 1999 totaled
$3.9 million, or 23.8% of timeshare interval sales. The inclusion of cost of
property sold is a result of the
20
<PAGE>
acquisition of Eastern Resorts and Kosmas Properties, totaling $2.4 million and
$1.5 million, respectively. Therefore, there is no corresponding amount for the
same period in 1998. Also, during the six months ended June 30, 1999, the
Company recorded approximately $.4 million relating to the cost of property for
the previously deferred vacation ownership intervals revenue due to the
completion of two resort buildings in St. Thomas.
Sales and marketing
Sales and marketing expense for the first six months of 1999 totaled $7.0
million, or 42.6% of timeshare interval sales. The inclusion of sales and
marketing expense is a result of the acquisition of Eastern Resorts and Kosmas
Properties, totaling $4.4 million and $2.6 million, respectively. Therefore,
there is no corresponding amount for the same time period in 1998. Also, during
the six months ended June 30, 1999, the Company recorded approximately $.7
million relating to the sales and marketing expense for the previously deferred
vacation ownership intervals revenue due to the completion of two resort
buildings in St. Thomas.
Resort management
Resort management expenses for the first six months of 1999 totaled $8.5
million or 86.3% of resort operations revenue. The inclusion of resort
management expenses is a result of the acquisition of Eastern Resorts and Kosmas
Properties, totaling $4.9 million and $3.6 million, respectively. Therefore,
there is no corresponding amount for the same time period in 1998.
General and administrative costs
General and administrative costs increased 135% to $3.8 million for the
first six months of 1999, from $1.6 million for the same period in 1998.
However, general and administrative costs fell to 10% of revenues for the second
quarter of 1999, compared to 16% for the same period in 1998. The increased
costs are mainly due to the inclusion of general and administrative expenses
associated with Eastern Resorts and Kosmas Properties of $1.0 million and $0.9
million, respectively, which represents approximately 83% of the increase in
general and administrative costs. The following items also contributed to the
increase in general and administrative costs: payroll, servicing, office,
advertising, and travel costs. Payroll and payroll-related expenses increased
19% for the first six months of 1999 due to a reduction in payroll costs that
were allocated to the estate in the bankruptcy case of a major shareholder of
the Company for certain of the Company's employees, an increase in the number of
employees, and an increase in compensation for certain employees. Servicing
costs increased 43% to $0.2 million for the first six months of 1999 from $0.1
million for the first six months of 1998, primarily due to an increased customer
base. Travel and entertainment, advertising, and office-related costs increased
primarily due to growth of the Company.
Provision for income taxes
The provision for income taxes for the first six months of 1999 increased
108% to $3.0 million from $1.4 million for the same period in 1998.
21
<PAGE>
Selected Financial Data of Equivest Finance Inc.
as a Percentage of Total Revenues
Six
Months
Ended
Year Ended December 31, June 30,
1996 1997 1998 1999 1998
---- ---- ---- ---- ----
Revenues
Interest from:
Acquisition and development loans 29.8% 25.1% 18.2% 5.9% 27.5%
Purchased consumer receivables 59.6% 64.4% 41.8% 16.2% 59.5%
Hypothecation loans 0.4% 1.9% 4.0% 2.0% 5.0%
Consumer loans -- -- -- -- --
Other loans 1.3% 5.8% 4.8% 6.0% 2.4%
----- ----- ----- ----- -----
Total interest on Loans 91.1% 97.2% 68.8% 30.1% 94.4%
Timeshare interval sales -- -- 15.4% 42.5% --
Resort operations -- -- 12.3% 25.7% --
Other income 8.9% 2.8% 3.5% 1.7% 5.6%
----- ----- ----- ----- -----
Total revenue 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and Expenses
Interest 58.0% 50.6% 25.2% 14.2% 32.8%
Cost of timeshare intervals sold -- -- 3.9% 10.1% --
Sales and marketing -- -- 7.3% 18.1% --
Resort management -- -- 11.0% 22.2% --
Depreciation and amortization 6.3% 6.7% 7.3% 4.2% 6.9%
Provision for doubtful receivables 1.3% 5.8% 2.7% 2.1% 4.4%
General and administrative 22.6% 15.5% 13.9% 10.0% 15.9%
----- ----- ----- ----- -----
Total costs and expenses 88.2% 78.6% 71.3% 80.9% 60.0%
----- ----- ----- ----- -----
Income before provision for income
taxes 11.8% 21.4% 28.7% 19.1% 40.0%
Provision for income taxes 0.2% 1.2% 11.0% 7.8% 14.0%
----- ----- ----- ----- -----
Net income 11.6% 20.2% 17.7% 11.3% 26.0%
===== ===== ===== ===== =====
22
<PAGE>
Year 2000 Update
General
The software and embedded microchips in certain computer systems identify
dates only by the last two digits of a year. For example, 1999 would be coded as
"99," 1998 as "98" and so on. The Year 2000 problem arises from the inability of
certain software programs and microchips to distinguish between dates in the
year 2000 and dates in the year 1900. As a result, a date entered "00" may be
read as 1900 instead of 2000. If uncorrected, functions using these systems
would not work properly in the year 2000. Problems which may occur as a result
of uncorrected software programs or microchips include system failures,
miscalculations or errors causing disruptions of operations.
Beginning in 1997, the Company undertook to assess its Year 2000 readiness
by identifying those computer systems used by the Company which may not be Year
2000 compliant. The Company is also assessing the Year 2000 readiness of other
entities with whom it has a material relationship.
Risks
Resort Funding. Resort Funding relies more on information systems for
servicing its loans than for any other individual function.
The computer software and hardware platform for Resort Funding's loan
servicing program is owned by The Processing Center, Inc. ("TPC"), a wholly
owned affiliate of the Company's largest shareholder. The Company understands
that, as of June 30, 1999, the platform is Y2K compliant. The Company has
entered into an agreement for the purchase of the TPC platform and consummation
of this transaction is pending. There is no assurance that the Company will
close on this purchase. The Company has previously used unaffiliated third
parties on occasion to perform its loan servicing. Consequently, the Company
believes it will be able to make arrangements with a third-party to perform such
services if necessary, but such arrangements are currently not in place. As a
contingency, the Company expects to identify potential parties to perform its
loan servicing by the end of the third quarter of 1999.
Resort Funding's own computer systems consist primarily of networked
personal computers ("PCs") used for accounting and word processing, which Resort
Funding recently acquired in the ordinary course of business. Resort Funding's
PCs and the software they use are substantially Year 2000 compliant.
23
<PAGE>
Eastern Resorts. Eastern Resorts uses a third-party database server as its
primary software system for resort reservations, timeshare sales, and
homeowners' association receivables. Eastern Resorts recently installed an
upgraded version of this software, which is Year 2000 compliant. Communications
hardware between the main office of Eastern Resorts and certain of its resort
properties is not Year 2000 compliant. This equipment will be replaced, at an
estimated cost of $15,000, during the third quarter of 1999. The collections
system utilized by Eastern Resorts is not compliant; however Eastern Resorts'
collections will be transferred to Resort Funding before December 31, 1999. The
voice mail system utilized by Eastern Resorts is not compliant. A new system
will be installed during the third quarter of 1999 at an estimated cost of
$10,000.
Kosmas Properties. The reservations systems utilized at the Coconut
Malorie Hotel and Resort is not Y2K compliant. An upgraded reservations system
was recently purchased and will be installed by September 30, 1999.
The reservations and accounting systems utilized by the Company's St.
Thomas projects are not compliant. New equipment and software will be purchased
and installed by September 30, 1999. The total cost for the replacement of these
systems is estimated at $25,000.
The reservations and property management software installed at the Avenue
Plaza Hotel and the management accounting software utilized in the hotel spa,
are not compliant. Patches are being applied and a replacement system will be
installed by the end of the third quarter, 1999. The total cost for upgrades and
replacements is estimated to be $10,000.
Miscellaneous. Any non-compliant PC's will be replaced or upgraded in the
ordinary course prior to December 31, 1999. The Company does not anticipate that
the cost of any additional Year 2000 related corrections or replacements will be
material. However, there can be no assurance that the actual costs to make such
corrections or acquire replacements will not exceed the Company's expectations,
which may have an adverse effect on the Company's financial performance.
Third Parties. The Company's Year 2000 compliance program also includes
assessing the readiness of the Company's lenders, borrowers, major vendors,
suppliers and any other third parties with whom the Company has significant
dealings, who may be impacted by the Year 2000 problem. The extent to which such
parties have not modified their systems to address the Year 2000 issues may have
a significant, adverse impact on the operations or financial performance of the
Company. The Company has initiated contact with such third parties in order to
determine whether their systems are Year 2000 compliant and, if not, what steps
they have taken to address the problem. The Company has not yet received
sufficient confirmation from all of these parties in order to assess the
likelihood that all such parties will achieve Year 2000 compliance. If the
Company determines that a response to an inquiry is either insufficient or
otherwise indicates that the third-party will not achieve Year 2000 compliance,
the Company may follow up with personal contact with the third-party and, if
necessary, an on-site audit or testing of such party's systems. The Company
anticipates finalizing its assessment of third parties' Year 2000 readiness by
the third quarter of 1999. At that time, the Company will determine whether to
implement contingency plans to replace or supplement the services currently
provided by third parties. There can be no assurance that such third parties,
including borrowers, will be able to timely
24
<PAGE>
correct their Year 2000 problems, and the failure to do so could have a material
adverse effect on the Company's results of operations, financial condition and
liquidity.
Cost
Since Resort Funding utilizes the computer software and hardware platform
of a third-party, the cost to the Company for addressing and correcting Year
2000 issues has not been material. As of June 30, 1999, the Company estimates
that it has spent $50,000 on Year 2000 remediation. Management does not
anticipate that the Company will incur any significant additional expense in
correcting its systems. However, there can be no assurance that the Company's
expenditures will not exceed its estimates. In the event that the Company is
forced to identify and contract with parties to replace existing suppliers and
vendors, such as TPC, the cost of such replacement may have a material adverse
effect on the Company's financial condition and results. Further, if the Company
is unable to perform on its contractual obligations to its lenders and borrowers
as a result of its own or an important third-party's failure to achieve Year
2000 compliance, the potential cost and liability for such failure may have a
material adverse effect on the Company's results of operations, financial
condition and liquidity.
25
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
For information regarding certain litigation involving the Company, its
subsidiaries and affiliates, reference is made to the Company's Form 10-KSB for
the year-ended December 31, 1998, which is incorporated herein by reference.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. (a) Exhibits
The following exhibits are filed herewith:
11.1 Statement re: computation of earnings per share for the second
quarter
11.2 Statement re: computation of earnings per share for the six month
period
(b) Reports on Form 8-K The Company filed the following reports on Form
8-K during the quarter covered by this report:
(i) April 2, 1999 Form 8-K. announcing the completion of Resort
Acquisition
(ii) May 18, 1999 Form 8-K announcing 1999 first-quarter results
(iii) June 9,1999 Form 8-K/A Kosmas Acquisition Financials
26
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this Report to be signed on its
behalf by the undersigned, there unto duly authorized.
EQUIVEST FINANCE, INC.
BY: /s/ Gerald L. Klaben, Jr.
--------------------------------
Gerald L. Klaben, Jr.
Senior Vice President and Chief Information Officer
Dated: August 13, 1999
27
EQUIVEST FINANCE, INC.
Computation of Earnings Per Share
For the Quarter Ended June 30, 1999
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Net Income $ 2,753,630
Less: Preferred Stock dividends (150,000)
-----------
Basic earnings per share:
Income available to common
stockholders 2,603,630 25,688,351 $ .10
=====
Effect of dilutive securities:
Warrants 69,519
Stock options 344,557
----------- -----------
Diluted earnings per share:
Income available to common
stockholders plus assumed
conversions $ 2,603,630 26,102,427 $ .10
=========== =========== =====
For the Quarter Ended June 30, 1998
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Net Income $ 1,223,250
Less: Preferred Stock dividends (150,000)
-----------
Basic earnings per share:
Income available to common
stockholders 1,073,250 21,905,706 $ .05
=====
Effect of dilutive securities:
12.5% Redeemable Convertible
preferred stock
Warrants 91,651
Stock options 382,688
----------- -----------
Diluted earnings per share:
Income available to common
stockholders plus assumed
conversions $ 1,073,250 22,380,045 $ .05
=========== =========== ====
28
EQUIVEST FINANCE, INC.
Computation of Earnings Per Share
For the Six Months Ended June 30, 1999
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Net Income $ 4,342,316
Less: Preferred Stock dividends (300,000)
-----------
Basic earnings per share:
Income available to common
stockholders 4,042,316 25,447,412 $ .16
Effect of dilutive securities:
Warrants 88,552
Stock options 416,251
----------- -----------
Diluted earnings per share:
Income available to common
stockholders plus assumed
conversions $ 4,042,316 25,952,215 $ .16
========== =========== ====
For the Six Months Ended June 30, 1998
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Net Income $ 2,675,249
Less: Preferred Stock dividends (300,454)
-----------
Basic earnings per share:
Income available to common
stockholders 2,374,795 21,875,772 $ .11
Effect of dilutive securities:
12.5% Redeemable Convertible
preferred stock 454 6,773
Warrants 88,046
Stock options 371,867
----------- -----------
Diluted earnings per share:
Income available to common
stockholders plus assumed
conversions $ 2,375,249 22,342,458 $ .11
=========== =========== ====
29
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from EQUIVEST
FINANCE, INC. AND SUBSIDIARIES and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
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30,000
0
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