UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
August 28, 1998
---------------
(Date of earliest event reported)
Commission File Number: 0-18201
EQUIVEST FINANCE, INC.
----------------------
(Exact name of Registrant as specified in its charter)
Florida 59-2346270
- ------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
2 CLINTON SQUARE, SYRACUSE, NEW YORK 13202
- ------------------------------------ -----
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (315) 422-9088
1
INFORMATION TO BE INCLUDED IN REPORT
Item 1. Changes in Control of Registrant
Not Applicable.
Item 2. Acquisition or Disposition of Assets
Not Applicable.
Item 3. Bankruptcy or Receivership
Not Applicable.
Item 4. Changes in Registrant's Certifying Accountant
Not Applicable.
Item 5. Other Events
Not Applicable.
Item 6. Resignation of Registrant's Directors
Not Applicable.
Item 7. Financial Statements and Exhibits
Listed below are the financial statements, pro forma financial information
and exhibits filed as part of this report:
a. Financial Statements of Business Acquired
The financial statements for the Acquired Company listed in the
accompanying Index to Financial Statements and Pro Forma Financial
Information are filed as part of this Current Report on Form 8-K/A.
b. Pro Forma Financial Information
The pro forma financial information of Equivest Finance, Inc. listed
in the accompanying Index to Financial Statements and Pro Forma
Financial Information are filed as part of this Current Report on
Form 8-K/A.
c. Exhibits
None.
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EQUIVEST FINANCE, INC.
Date: November 10, 1998 By: /s/ Gerald L. Klaben, Jr.
----------------------------------
Name: Gerald L. Klaben, Jr.
Title: Senior Vice President and Chief
Financial Officer
3
INDEX TO FINANCIAL STATEMENTS AND
PRO FORMA FINANCIAL INFORMATION
The following financial statements and pro forma financial statements are
included in Item 7 of this Current Report on Form 8-K/A.
Eastern Resorts Company, LLC
- ----------------------------
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Income and Members' Equity for the Years Ended
December 31, 1997 and 1996
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997 and
1996
Notes to Consolidated Financial Statements December 31, 1997 and 1996
Unaudited Financial Statements
Consolidated Balance Sheet as of June 30, 1998
Consolidated Statements of Income and Members' Equity for the Six Months
Ended June 30, 1998 and 1997
Consolidated Statements of Cash Flows for the Six Months Ended June 30,
1998 and 1997
Notes to Consolidated Financial Statements June 30, 1998 and 1997
Equivest Finance, Inc. Pro Forma Financial Information
- ------------------------------------------------------
Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 1998
Unaudited Pro Forma Condensed Combined Income Statement for the Six Months ended
June 30, 1998
Unaudited Pro Forma Condensed Combined Income Statement for the Year ended
December 31, 1997
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
4
INDEPENDENT AUDITORS' REPORT
To the Members
Eastern Resorts Company, LLC
Newport, Rhode Island
We have audited the accompanying consolidated balance sheets of Eastern Resorts
Company, LLC and subsidiary as of December 31, 1997 and 1996, and the related
consolidated statements of income and members' equity, and cash flows for the
years then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Eastern
Resorts Company, LLC and subsidiary as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
DONOVAN, SULLIVAN & RYAN
Westwood, Massachusetts
March 5, 1998
F-1
EASTERN RESORTS COMPANY, LLC AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
1997 1996
----------- -----------
ASSETS
Cash $ 998,142 $ 888,447
Mortgage notes receivable, net 13,804,065 12,145,417
Promissory note receivable 750,000 702,549
Receivable - other 497,633 715,050
Inventory and construction-in-progress 8,942,301 2,270,862
Property and equipment, net 1,661,678 1,437,780
Deposits 55,480 43,300
Other assets 264,604 274,858
----------- -----------
$26,973,903 $18,478,263
=========== ===========
LIABILITIES AND MEMBERS' EQUITY
LIABILITIES
Notes payable $18,954,301 $ 3,031,132
Accounts payable 744,124 476,608
Accrued expenses and withholdings 559,374 416,354
Customer deposits 41,846 51,157
----------- -----------
TOTAL LIABILITIES 20,299,645 13,975,251
----------- -----------
COMMITMENTS AND CONTINGENCIES
MEMBERS' EQUITY 6,674,258 4,503,012
----------- -----------
$26,973,903 $18,478,263
=========== ===========
See accompanying notes.
F-2
EASTERN RESORTS COMPANY, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND MEMBERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
------------ ------------
REVENUES
Sales of time intervals $ 8,635,564 $ 7,062,085
Resort operations 6,701,503 6,106,539
Food and beverage sales 1,354,579 1,295,168
Interest 2,602,250 2,346,984
Miscellaneous 82,515 110,073
------------ ------------
19,376,411 16,920,849
------------ ------------
COSTS AND EXPENSES
Cost of time intervals 1,927,672 1,491,636
Selling 3,868,349 3,507,181
Resort operations 6,046,060 5,367,481
Cost of food and beverage sales 1,301,349 1,245,234
General and administrative 1,782,221 1,617,777
Interest 1,395,310 1,274,641
Bad debt expense 353,204 532,701
------------ ------------
16,674,165 15,036,651
------------ ------------
INCOME FROM OPERATIONS BEFORE
OTHER INCOME 2,702,246 1,884,198
OTHER INCOME
Gain on sale of development rights -- 1,618,659
------------ ------------
NET INCOME 2,702,246 3,502,857
MEMBERS' EQUITY, BEGINNING OF YEAR 4,503,012 1,302,155
MEMBERS' DRAWINGS (531,000) (302,000)
------------ ------------
MEMBERS' EQUITY, END OF YEAR $ 6,674,258 $ 4,503,012
============ ============
See accompanying notes.
F-3
EASTERN RESORTS COMPANY, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,702,246 $ 3,502,857
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of development rights -- (1,618,659)
Promissory note receivable increase - imputed interest (47,451) (22,406)
Receivable - other, increase - imputed interest (32,583) (26,534)
Depreciation 83,922 43,342
Changes in operating assets and liabilities:
Increase in mortgage notes receivable, net (1,658,648) (1,181,614)
Decrease in inventory 1,301,230 1,128,434
(Increase) decrease in deposits (12,180) 94,238
Decrease (increase) in other assets 10,254 (124,700)
Increase (decrease) in accounts payable 267,516 (351,164)
Increase in accrued expenses and withholdings 143,020 14,422
(Decrease) increase in customer deposits (9,311) 35,612
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,748,015 1,493,828
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to construction-in-progress (1,392,518) (1,849,883)
Purchase of property and equipment (237,820) (133,551)
Proceeds from receivable - other 250,000 250,000
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (1,380,338) (1,733,434)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt 6,231,001 6,870,778
Payments of debt (6,957,983) (5,724,781)
Members' drawings (531,000) (302,000)
----------- -----------
NET CASH (USED) PROVIDED BY
FINANCING ACTIVITIES (1,257,982) 843,997
----------- -----------
NET INCREASE IN CASH 109,695 604,391
CASH, BEGINNING OF YEAR 888,447 284,056
----------- -----------
CASH, END OF YEAR $ 998,142 $ 888,447
=========== ===========
See accompanying notes.
F-4
EASTERN RESORTS COMPANY, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business - Eastern Resorts Company, LLC (the "Company") a limited
liability company was formed on October 4, 1994 and commenced operations of
February 1, 1995, under the laws of the State of Rhode Island. The latest date
on which the limited liability company is to dissolve is December 31, 2023. The
Company acquires and operates real estate properties in Newport and Jamestown,
Rhode Island, and Hancock, Massachusetts, and sells and finances timeshare
interests in these properties primarily to customers in New England.
Basis of Accounting - The Company presents its financial statements on the
accrual basis of accounting in compliance with generally accepted accounting
principles.
Basis of Consolidation - The accompanying consolidated financial statements
include the accounts of the Company and its wholly owned subsidiary, Long Wharf
Marina Restaurant, Inc. Intercompany transactions and balances have been
eliminated in consolidation.
Management believes that it is not meaningful to prepare a consolidated balance
sheet in which current and noncurrent assets and liabilities are displayed. The
unclassified balance sheet utilized by real estate ventures and financial
institutions has been adopted by the Company.
Estimates - The presentation of 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
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.
Revenues - Revenues from the sale of timeshare interests are recognized at the
time of closing. Revenues from resort operations and food and beverage sales are
recognized when earned.
Amortization of Discount - Certain mortgage notes receivable were purchased by
the Company at a discount in the acquisition of Inn Group Associates. The
discount is recognized on mortgages which are making payments over the remaining
term of the mortgage. The amortization of discount is included in interest
income. For the years ended December 31, 1997 and 1996, the amount of amortized
discount included in interest income is $116,206 and $138,501, respectively.
Inventory - Inventory consists of timeshare interests and is stated at cost on
the basis of specific identification. Costs associated with the acquisition of
specific timeshare properties are capitalized and charged to cost of time
intervals when the properties are sold. Costs include building costs, furniture
and equipment, legal fees and capitalized construction period interest.
F-5
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Property and Equipment - Property and equipment is recorded at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets.
Restaurant condominiums 39 years
Office building 39 years
Warehouse 39 years
Computers 5 years
Marina 7 -10 years
Furniture and fixtures 7 years
Motor vehicle 5 years
Equipment 7 years
Advertising - The Company expenses advertising as incurred. Advertising expense
was $111,596 and $77,824 for the years ended December 31, 1997 and 1996,
respectively.
Federal Income Taxes - The Company is treated as a partnership for federal
income tax purposes. Consequently, federal income taxes are not payable by, or
provided for, the Company. Members are taxed individually on their shares of the
Company's earnings. The Company's net income is allocated among the members in
accordance with the Company's operating agreement. The financial statements do
not reflect a provision for income taxes.
Fair Value of Financial Instruments - The carrying value of cash, mortgage notes
receivable, promissory note receivable and notes payable, none of which are held
for trading purposes, is a reasonable estimate of the fair value based on
instruments with similar terms and maturities.
Reclassifications - Certain amounts in the prior year financial statements have
been reclassified to conform with current year presentation.
NOTE 2 - RELATED PARTY TRANSACTIONS
During the years ended December 31, 1997 and 1996, the Company incurred
compensation expense of $322,000 and $352,000, respectively, for R. Perry
Harris, and $49,000 and $20,000, respectively, for Karen G. Harris,
stockholders' of Eastern Resorts Corporation.
As of December 31, 1997, R. Perry Harris owes the Company $15,337.
NOTE 3 - CASH
Cash consists of the following at December 31, 1997 and 1996:
1997 1996
-------- --------
Cash in banks $609,252 $655,145
Petty cash 6,850 6,250
Restricted balances - notes payable (see Note 7) 247,007 227,052
Restricted cash - construction-in-progress 135,033 --
-------- --------
$998,142 $888,447
======== ========
F-6
NOTE 4 - MORTGAGE NOTES RECEIVABLE, NET
The Company's mortgage notes receivable are due from purchasers of timeshare
intervals. These notes, which are for five, seven, or ten years, bear interest
at 16.5 percent and require monthly installments of principal and interest. An
allowance for losses on uncollectible notes receivable of $731,906 and $651,126
and the discount on purchased mortgage notes receivable, net of amortization, of
$192,772 and $308,977 have been established at December 31, 1997 and 1996,
respectively, based on management's estimates. A majority of these notes have
been pledged as collateral on notes payable (see Note 7).
NOTE 5 - PROMISSORY NOTE RECEIVABLE
Promissory note receivable consists of the following at December 31, 1997 and
1996:
1997 1996
---------- ---------
Promissory note receivable from a corporation,
interest payable monthly commencing February 1998 at a
rate equal to the lesser of LIBOR plus One Hundred
Fifty basis points or "The Wall Street Journal" prime
rate, principal payable in five equal annual
installments of $150,000 effective February 1998,
unsecured, due February 2002. Under certain
conditions, the note payments may be accelerated under
the agreement. An imputed interest rate of 6.5% has
been established for the period July 1996 to December
1997.
At December 31, 1997, the promissory note receivable
was pledged as collateral for promissory note
payable to Jiminy Peak, Inc. (see Note 7). $ 750,000 $ 702,549
========== =========
NOTE 6 - INVENTORY AND CONSTRUCTION IN PROGRESS
Inventory currently available for sale and construction in progress consists of
the following at December 31, 1997 and 1996:
1997 1996
---------- ----------
Inventory $ 904,243 $1,202,669
Construction in progress 8,038,058 1,068,193
---------- ----------
$8,942,301 $2,270,862
========== ==========
F-7
NOTE 7 - PROPERTY AND EQUIPMENT, NET
Property and equipment consists of the following at December 31, 1997 and 1996:
1997 1996
---------- ----------
Restaurant condominiums $ 664,852 $ 664,852
Office building 527,390 527,390
Warehouse 184,071 --
Computers 149,026 133,552
Marina 98,813 37,831
Land 81,489 61,037
Furniture and fixtures 79,825 69,913
Motor vehicle 16,929 --
Equipment 7,546 7,546
---------- ----------
1,809,941 1,502,121
Less accumulated depreciation 148,263 64,341
---------- ----------
$1,661,678 $1,437,780
========== ==========
NOTE 8 - NOTES PAYABLE
Notes payable consists of the following at December 31, 1997 and 1996:
1997 1996
----------- -----------
Promissory note payable to Resort Funding, Inc. with
interest at 11.25%, payable in monthly installments
of interest only, secured by a mortgage in real
property and a security agreement in personal
property relating to the mortgage premises. This
note will convert to an amortized note due April
2002 if certain interval release fees and or
principal payments are not timely paid $5,092,051 $ --
Note payable to Textron Financial Corporation with
interest at 2.5% over prime, payable in monthly
installments equal to the proceeds from installment
mortgage notes that collateralize this note, due
October 2001 4,046,681 3,492,893
Revolving promissory note payable to Resort Funding,
Inc. with interest at 2.5% over prime, payable in
monthly installments equal to the proceeds from
installment mortgage notes that collateralize this
note, due 60 months after last advance 3,916,638 --
F-8
NOTE 8 - NOTES PAYABLE - continued
1997 1996
----------- -----------
Revolving credit note payable to Liberty Bank
with interest at 2.25% over prime, but not less
than 10% or in excess of 15%, payable in monthly
installments equal to the proceeds from
installment mortgage notes that collateralize
this note and also secured by a security
interest in certain restaurant equipment,
furniture, furnishings and inventory, due
February 2000 2,000,004 3,276,155
Revolving credit facility with Textron Financial
Corporation. The note is payable with interest
at 2% over prime, payable in monthly
installments of interest and a timeshare sale
payment of $2,600 for each sale of timeshare
interest, secured by a first mortgage on two
parcels, personal property, and a second
mortgage on the third parcel which is subject to
a Fleet National Bank lien of $200,000, due
December 2000, with an option to renew for an
additional year 881,800 --
Note payable to Textron Financial Corporation
with interest at 3% over prime, but not less
than 9.25% or in excess of 14.5%, payable in
monthly installments equal to the proceeds from
installment mortgage notes that collateralize
this note, due October 2000 838,024 1,178,339
Note payable to Textron Financial Corporation
with interest at 3.25% over prime, but not less
than 9.25% or in excess of 14.5%, payable in
monthly installments equal to the proceeds from
installment mortgage notes that collateralize
this note, due October 2000 694,889 1,201,077
Promissory note payable to Fleet National Bank
with interest at 8.82%, payable in monthly
installments of principal and interest of
$5,168, based upon a fifteen year amortization
schedule, secured by a mortgage and security
agreement on Unit C-1 of the Long Wharf Resort
Condominium, due June 2007 507,062 --
Promissory note payable to Jiminy Peak, Inc.
without interest, promissory note receivable
pledged as collateral, subject to a ski lift
agreement, due June 1998 400,000 --
F-9
NOTE 8 - NOTES PAYABLE - continued
1997 1996
----------- -----------
Adjustable rate note payable to Citizens Bank of
Massachusetts in monthly installments of $1,129,
based upon a twenty-year amortization schedule,
plus interest at the bank's prime rate plus
1.25%, due November 2004, collateralized by a
condominium unit and certain timeshare
intervals. This note is adjustable in November,
and every 12 months thereafter based on the
bank's prime rate plus 1.25% 236,742 250,292
Revolving credit note payable to Fleet National
Bank with interest at .5% over prime, payable in
monthly installments of interest only,
unsecured, due June 1999 200,000 --
Note payable to Citizens Bank of Massachusetts
with interest at 8%, payable in monthly
installments of principal and interest of
$6,958, due February 1999, secured by a mortgage
in real property, and certain unsold time share
intervals 70,410 146,875
Promissory note payable to Stephen A. Kirby with
interest at 7%, payable in monthly installments
of interest only, unsecured, due April 1998 25,133 --
Promissory note payable to West's Automotive
Services, Inc. with interest at 8%, payable in
monthly installments of interest only, $20,000
paid on August 15, 1997, secured by a purchase
money mortgage in real property, due April 1998 24,867 --
Promissory note payable to John K. Irwin without
interest, payable in monthly installments of
$1,000, unsecured, due August 1999 20,000 32,000
Revolving promissory note payable to Resort
Funding, Inc. with interest at 4% over prime,
payable in monthly installments equal to the
proceeds from installment mortgage notes that
collateralize this note, due October 1997 -- 1,569,968
Promissory note payable to Resort Funding, Inc.
with interest at 13%, payable in monthly
installments of interest only, secured by a
first mortgage in real property, due November
2000 -- 1,562,799
F-10
NOTE 8 - NOTES PAYABLE - continued
1997 1996
----------- -----------
Mortgage promissory note payable to NOS Real
Estate, Inc. with interest at 7.5%, payable in
monthly installments of principal and interest
of $19,694, based upon a five-year amortization
schedule, due January 1998, secured by a
mortgage in real property -- 196,201
Adjustable rate note payable to Citizens Bank of
Massachusetts with interest at 10.125%, payable
in monthly installments of principal and
interest of $8,473, collateralized by a mortgage
and security agreement on the Company's Bay
Voyage property, due October 2016 -- 120,119
Note payable to Ford Motor Credit Corporation
with interest at 7.75%, payable in monthly
installments of principal and interest of $360,
collateralized by a motor vehicle, due January
1998 -- 4,414
----------- -----------
$18,954,301 $13,031,132
=========== ===========
The following is a summary of estimated maturities due on notes payable as of
December 31, 1997:
Year ending December 31,
------------------------
1998 $ 7,255,519
1999 7,378,500
2000 3,359,868
2001 353,640
2002 39,221
Thereafter 567,553
-----------
$18,954,301
===========
The estimated maturities due on notes payable as of December 31, 1997 are based
upon payments made on notes payable in 1997.
Cash payments of interest during the years ended December 31, 1997 and 1996 were
approximately $1,535,000 and $1,391,000, respectively. For the year ended
December 31, 1997 and 1996, $150,871 and $95,089 of interest was capitalized
into inventory, construction-in-progress and office building, respectively.
NOTE 9 - MEMBERS' EQUITY
On December 12, 1997, Eastern Resorts Corporation issued 9,400 and 500 shares of
its no par value common stock to R. Perry Harris and Karen G. Harris, in
exchange for the transfer and assignment to the Corporation of their entire 94%
and 5% percentage interests in Eastern Resorts Company, LLC, respectively.
F-11
NOTE 10 - COMMITMENTS AND CONTINGENCIES
Lease Commitments - Eastern Resorts Company, LLC leases office space in Newport,
Rhode Island as a tenant-at-will at $1,500 per month. The Company is also
required to pay certain utilities.
The Company leases telemarketing space in Middletown, Rhode Island under a
one-year operating lease, which expires November 1998, at $900 per month. The
terms of the lease also require that the Company pay certain common area
maintenance expenses. The Company has an option to renew the lease for an
additional two years. If the Company chooses not to exercise their option to
extend the term of the lease, the Company will reimburse the landlord $3,000 as
partial payment for improvements to the leased premises.
The Company leased office space under an operating lease that expired June 1996.
The lease for office space was assumed by the Company on March 28, 1995 for the
period February 1, 1995 to December 31, 1995, payable in monthly installments of
$4,562. The lease was renewed for an additional six months expiring June 1996,
payable in monthly installments of $4,653. The terms of the lease also required
that the Company pay certain utilities, insurance and maintenance fees.
Total rental expense under operating leases for the years ended December 31,
1997 and 1996, were $900 and $32,570, respectively.
The Company leases equipment under operating leases that expire at various dates
through April 2001.
The Company also leases an automobile under an operating lease that expires
October 1999. The amount charged to office equipment rental expense during the
years ended December 31, 1997 and 1996 was $13,156 and $9,719, respectively.
Future minimum lease payments as of December 31, 1997 are:
Operating
Year ending December 31, Leases
------------------------ ---------
1998 $ 47,028
1999 25,659
2000 11,067
2001 2,501
---------
$ 86,255
=========
Use and Occupancy Agreement - Eastern Resorts Company, LLC also occupies sales
space in Hancock, Massachusetts under a two-year use and occupancy agreement,
which expires October 1999. The Company has an option to extend the agreement
for an additional two years. The Company also has the right to terminate the
agreement at any time. The Company pays an occupancy charge of $1,500 and a
cleaning fee of $200 per month.
Acquisition and Development Loan Agreement - In October 1995, the Company
entered into an "Acquisition and Development Loan Agreement" with Resort
Funding, Inc. with respect to a loan in the amount of $4,500,000 for the
acquisition and development of a project on Washington Street and Long Wharf in
Newport, Rhode Island. In April 1997, the "Acquisition and Development Loan
Agreement" was increased to $9,500,000. As of December 31, 1997 and 1996,
advances on the loan amounted to $7,513,351 and $2,249,199, respectively.
F-12
NOTE 10 - COMMITMENTS AND CONTINGENCIES - continued
Hypothecation Loan Agreement - In October 1995, the Company entered into a
"Hypothecation Loan Agreement" whereby the Company shall offer Resort Funding,
Inc., on an exclusive basis, the right of first refusal to finance all
receivables representing installment obligations of consumers for timeshare
intervals at the Long Wharf Resort property.
Management Agreements - The Company has management agreements with seven
associations of timeshare interval owners (the Associations). The Company is
required to provide and incur expenses necessary for the operation and
maintenance of the timeshares for which they receive a management fee from the
Associations. One management agreement expired December 31, 1997 and the other
six management agreements expire at various dates through December 2002.
NOTE 11 - TAX DEFERRED SAVINGS
The Company has a tax deferred savings plan, whereby the employees may elect to
make contributions pursuant to a salary reduction agreement upon meeting age and
length-of-service requirements. Employees may elect to defer up to 15 percent of
their yearly compensation, up to statutory limits. The Company makes a matching
contribution of 10 percent for every dollar the employee contributes from 5
percent up to 10 percent of employees pay. The Company's contribution to the
plan for the years ended December 31, 1997 and 1996 was $30,313 and $19,716,
respectively.
NOTE 12 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
As of December 31, 1997, the Company has more than $100,000 in one bank that
exceeds FDIC insurance coverage.
NOTE 13 - SUPPLEMENTARY CASH FLOW INFORMATION
Non-cash investing and financing activities for the years ended December 31,
1997 and 1996 consist of the following:
1997 1996
---------- ----------
Additions to construction-in-progress $6,580,151 $ -
Additions to property and equipment $ 70,000 $ -
F-13
Eastern Resorts Company, LLC and Subsidiary
Condensed Consolidated Balance Sheets (Unaudited)
June 30, 1998 and 1997
Assets
1998 1997
Assets
Cash $ 872,889 $ 914,818
Mortgage notes receivable, net 15,066,274 13,085,671
Promissory notes receivable 600,000 702,549
Receivables, other 0 465,050
Inventory and Construction in progress 9,408,822 2,523,695
Property and equipment, net 2,765,131 1,601,666
Other assets 364,984 111,107
----------- -----------
$29,078,100 $19,404,556
=========== ===========
Liabilities and Members Equity
Liabilities
Notes payable $20,631,642 $13,016,512
Accounts payable and accrued expenses 1,335,550 982,115
----------- -----------
Total Liabilities 21,967,192 13,998,627
----------- -----------
Member's Equity 7,110,908 5,405,929
----------- -----------
$29,078,100 $19,404,556
=========== ===========
See Notes to Financial Statements
F-14
Eastern Resorts Company, LLC and Subsidiary
Condensed Consolidated Statements of Income and Member's Equity (Unaudited)
Six Months Ended June 30, 1998 and 1997
1998 1997
Revenues
Sales of time intervals $ 5,898,647 $ 4,345,300
Resort operations 3,934,225 2,992,424
Food and beverage sales 609,366 575,947
Interest 1,368,659 1,241,674
Miscellaneous 38,674 28,252
----------- -----------
11,849,571 9,183,597
----------- -----------
Cost and Expenses
Cost of time intervals 1,487,313 978,781
Selling and marketing 2,582,193 1,834,250
Resort operations 3,443,391 2,683,818
Cost of food and beverage sales 631,917 611,658
General and administrative 957,827 919,460
Interest 962,280 706,713
Bad debt expense 354,000 270,000
----------- -----------
10,418,921 8,004,680
----------- -----------
Net income 1,430,650 1,178,917
Member's equity, beginning of period 6,674,258 4,503,012
Member's drawings 994,000 276,000
----------- -----------
Member's equity, end of period $ 7,110,908 $ 5,405,929
=========== ===========
See Notes to Financial Statements
F-15
Eastern Resorts Company, LLC and Subsidiary
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 1998 and 1997
1998 1997
Cash Flows From Operating Activities
Net Income $ 1,430,650 $ 1,178,917
Adjustments to reconcile income to net cash
provided by operating activities:
Receivable-other, increase-imputed interest (2,367) 0
Depreciation 56,101 37,658
Changes in operating assets and liabilities:
Increase in mortgage notes receivable, net (1,262,209) (940,254)
Decrease in inventory 1,122,838 680,179
(Increase) Decrease in other assets (44,901) 207,051
Increase (Decrease) in accounts payable
and accrues liabilities (9,793) 37,995
----------- -----------
Net Cash Provided by Operating Activities 1,290,319 1,201,546
----------- -----------
Cash Flows from Investing Activities
Additions to constuction in progress (1,589,359) (933,012)
Purchase of property and equipment (1,159,554) (201,544)
Proceeds from note receivable 150,000 0
Proceeds from receivable-other 500,000 250,000
----------- -----------
Net Cash Used by Investing Activities (2,098,913) (884,556)
----------- -----------
Cash Flows from Financing Activities
Proceeds from debt 5,859,934 3,551,748
Payments of debt (4,182,593) (3,566,368)
Member drawings (994,000) (276,000)
----------- -----------
Net Cash Provided (Used) by Financing Activities 683,341 (290,619)
----------- -----------
Net (Decrease) Increase in Cash (125,253) 26,371
Cash, Beginning of Period 998,142 888,447
----------- -----------
Cash, End of Period $ 872,889 $ 914,818
=========== ===========
See Notes to Financial Statements
F-16
EASTERN RESORTS COMPANY, LLC AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
There have been no significant changes in the disclosures per the audited
financial statements of December 31, 1997.
In the opinion of management, the condensed consolidated financial statements
reflect all adjustments which would be necessary for a fair presentation of the
results of operations for the interim periods presented.
NOTE 2 - INVENTORY AND CONSTRUCTION IN PROGRESS
Inventory currently available for sale and construction in progress consists of
the following at June 30, 1998 and 1997:
1998 1997
---- ----
Inventory $8,046,988 $ 522,490
Construction in progress 1,361,834 2,001,205
---------- ----------
$9,408,822 $2,523,695
========== ==========
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment at June 30, 1998 and 1997 consists of the following:
1998 1997
---- ----
Balance at January 1, 1998 and 1997 $1,809,941 $1,502,121
Buildings 1,149,017 --
Equipment 10,537 201,544
---------- ----------
2,969,495 1,703,665
Less, accumulated depreciation (204,364) (101,999)
---------- ----------
$2,765,131 $1,601,666
========== ==========
F-17
NOTE 4 - NOTES PAYABLE
In the normal course of business, the Company procures financing for various
projects including construction of time share units. The following is the
summarization of the additional borrowings and principal payments on the various
notes at June 30, 1998 and 1997:
1998 1997
---- ----
Balance of notes payable at January 1, 1998
and 1997 $18,954,301 $13,031,132
Additional borrowings 5,859,934 3,551,748
Payments of debt (4,182,593) (3,556,368)
---------- ----------
Balance $20,631,642 $13,016,512
=========== ===========
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Lease Commitments - Eastern Resorts Company, LLC and Subsidiary leases office
space in Newport, Rhode Island as a tenant-at-will at $1,500 per month. The
Company is also required to pay certain utilities.
The company leases telemarketing space in Middletown, Rhode Island under a
one-year operating lease, which expires November 1998, at $900 per month. The
terms of the lease also require that the Company pay certain common area
maintenance expenses. The Company has an option to renew the lease for an
additional two years. If the Company chooses not to exercise their option to
extend the term of the lease, the Company will reimburse the landlord $3,000 as
partial payment for improvements to the leased premises.
The Company leases equipment under operating leases that expire at various dates
through April 2001.
Use and Occupancy Agreement - Eastern Resorts Company, LLC and Subsidiary also
occupies sales space in Hancock, Massachusetts under a two-year use and
occupancy agreement, which expires October 1999. The Company has an option to
extend the agreement for an additional two years. The Company also has the right
to terminate the agreement at any time. The Company pays an occupancy charge of
$1,500 and a cleaning fee of $200 per month.
Acquisition and Development Loan Agreement - In October 1995, the Company
entered into an "Acquisition and Development Loan Agreement" with Resort
Funding, Inc. with respect to a loan in the amount of $4,500,000 for the
acquisition and development of a project on Washington Street and Long Wharf in
Newport, Rhode Island. In April 1997, the "Acquisition and Development Loan
Agreement" was increased to $9,500,000.
F-18
Hypothecation Loan Agreement - In October 1995, the Company entered into a
"Hypothecation Loan Agreement" whereby the Company shall offer Resort Funding,
Inc., on an exclusive basis, the right of first refusal to finance all
receivables representing installment obligations of consumers for timeshare
intervals a the Long Wharf Resort property.
Management Agreements - The Company has management agreements with seven
associations of timeshare interval owners (the Associations). The Company is
required to provide and incur expenses necessary for the operation and
maintenance of the timeshares for which they receive a management fee from the
Associations. One management agreement expired December 31, 1997 and the other
six management agreements expire at various dates through December 2002.
NOTE 6 - FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK
As of June 30, 1998 the Company has more than $100,000 in one bank that exceeds
FDIC Insurance coverage.
F-19
EQUIVEST FINANCE, INC. and SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Equivest Finance, Inc. ("Equivest") purchased Eastern Resorts Corporation on
August 28, 1998 for $15 million in cash and 3,200,000 shares of common stock.
Eastern Resorts Corporation owns 100% of Eastern Resorts Company, LLC. All
financial results referred to represent the activities of Eastern Resorts
Company, LLC and its wholly owned subsidiary Long Wharf Marina, Inc.
(collectively, "Eastern"). Equivest borrowed most of the funds to pay the cash
portion of the purchase price.
The unaudited pro forma combined balance sheet as of June 30, 1998 presents the
historical consolidated balance sheets of Equivest and Eastern. The purchase
accounting adjustments, as described in the related notes and below, are
calculated as if the Eastern acquisition had been effective June 30, 1998.
The unaudited pro forma combined statement of income for the six months ended
June 30, 1998 and for the year ended December 31, 1997 present the consolidated
results of operations of Equivest and Eastern. The purchase accounting and other
pro forma adjustments, as described in the related notes and below, are
calculated as if the Eastern acquisition had been effective as of the beginning
of such period. The pro forma adjustments are based upon currently available
information and certain assumptions that Equivest's management believes are
reasonable under current circumstances.
The unaudited pro forma combined financial statements are based on historical
financial statements of Equivest and Eastern and should be read in conjunction
with their respective financial statements and notes. The pro forma data is not
necessarily indicative of the results of operations or financial condition of
Equivest had these transactions occurred on the dates indicated, nor the results
of future operations. Equivest anticipates cost savings and additional benefits
as a result of certain of the transactions contemplated in the pro forma
financial statements. Such benefits and any other changes that might have
resulted from management of the combined companies have not been included as
adjustments to the pro forma condensed financial statements.
The unaudited pro forma combined financial statements will change due to certain
changes in the purchase accounting adjustments included in the pro forma once
all valuations of assets and liabilities are final.
F-20
EQUIVEST FINANCE, INC. and SUBSIDIARIES
Unaudited Pro Forma Condensed Combined Balance Sheet
June 30, 1998
(Amounts in Thousands Except for Per Share Data)
Historic Historical Pro
Equivest Eastern forma Pro
Finance, Resorts Interco Consol. Acquis. forma
ASSETS Inc. Company Elim. Balances Adj. total
- ---------------------------------------------------- --------- -------- -------- ----------- --------
Cash $ 1,172 $ 873 $ -- $ 2,045 $ -- $ 2,045
Total receivables, net 134,675 15,666 (11,604) 138,737 -- 138,737
Inventory -- 9,409 -- 9,409 -- 9,409
Deferred financing costs, net 3,763 -- -- 3,763 315 b) 4,078
Cash - restricted 966 -- -- 966 -- 966
Accrued interest receivable 672 -- -- 672 -- 672
Deferred income taxes 1,222 -- -- 1,222 -- 1,222
Property & Equipment 64 2,765 -- 2,829 -- 2,829
Goodwill -- -- -- -- 28,394 c) 28,394
Other Assets 171 365 -- 536 -- 536
-------- -------- -------- -------- ----------- --------
Total Assets $142,705 $ 29,078 $(11,604) $160,179 $ 28,709 $188,888
======== ======== ======== ======== =========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Accounts Payable and Other
Liabilities:
Accounts payable $ 1,080 $ 667 $ -- $ 1,747 $ -- $ 1,747
Deferred incomes taxes -- -- -- -- 3,475 d) 3,475
Accrued expenses and other
liabilities 2,294 668 -- 2,962 1,985 e) 4,947
-------- -------- -------- -------- ----------- --------
Total Accounts Payable and Other
Liabilities 3,374 1,335 -- 4,709 5,460 10,169
Notes payable 104,114 20,632 (11,604) a) 113,142 15,000 f) 128,142
-------- -------- -------- -------- ----------- --------
Total Liabilities 107,488 21,967 (11,604) 117,851 20,460 138,311
STOCKHOLDERS' EQUITY
Cumulative Redeemable Preferred
Stock--Series 2 Class A 30 -- -- 30 -- 30
Common Stock, $.05 par value 1,095 -- -- 1,095 160 g) 1,255
Additional paid-in capital 32,402 -- -- 32,402 15,200 g) 47,602
Member's equity -- 7,111 -- 7,111 (7,111) h) --
Retained earnings 1,690 -- -- 1,690 -- 1,690
-------- -------- -------- -------- ----------- --------
35,217 7,111 -- 42,328 8,249 50,577
-------- -------- -------- -------- ----------- --------
Total Liabilities and
Stockholders' Equity $142,705 $ 29,078 $(11,604) $160,179 $ 28,709 $188,888
======== ======== ======== ======== =========== ========
a) Reflects the elimination of the notes receivable and the notes payable
between the two merging companies.
b) Reflects costs associated with obtaining financing for the acquisition of
$315.
c) Reflects goodwill.
d) Reflects a deferred tax liability assumed by the acquiring company.
e) Reflects accrued acquisition costs of $1,985, including $315 of costs
associated with obtaining financing.
f) Reflects bank borrowings of $15,000 to finance the purchase.
g) Reflects the issuance of 3,200,000 shares of common stock at $4.80 per
share.
h) Reflects the elimination of the investment in the purchased company's
equity.
See Accompanying Notes To Condensed Combined Financial Statements.
F-21
EQUIVEST FINANCE, INC. and SUBSIDIARIES
Unaudited Pro Forma Condensed Combined Income Statement
For the Six months ended June 30, 1998
(Amounts in Thousands Except for Per Share Data)
Historical Historical Pro
Equivest Eastern forma Pro
Finance, Resorts Interco Consol. Acquis. forma
Inc. Company Elim. Balances Adj. total
---------- --------- -------- -------- ----------- ----------
Revenue:
Interest $ 9,663 $ 1,369 $ (585) a) $ 10,447 $ -- $ 10,447
Vacation ownership -- 5,899 -- 5,899 -- 5,899
Resort operations -- 4,582 -- 4,582 -- 4,582
Other income 615 -- -- 615 -- 615
---------- -------- -------- -------- ----------- ----------
Total Revenue 10,278 11,850 (585) 21,543 -- 21,543
---------- -------- -------- -------- ----------- ----------
Costs and Expenses:
Provision for doubtful accounts 450 354 -- 804 -- 804
Interest 3,372 962 (585) a) 3,749 660 b) 4,409
Cost of property sold -- 1,488 -- 1,488 -- 1,488
Debt related costs incl. amort
of fin. costs 710 -- -- 710 158 c) 868
Goodwill amortization -- -- -- -- 360 d) 360
Sales and marketing -- 2,582 -- 2,582 -- 2,582
Resort management -- 4,075 -- 4,075 -- 4,075
General and administrative 1,631 958 -- 2,589 -- 2,589
---------- -------- -------- -------- ----------- ----------
Total Costs and Expenses 6,163 10,419 (585) 15,997 1,178 17,175
---------- -------- -------- -------- ----------- ----------
Income Before Provision for Taxes 4,115 1,431 -- 5,546 (1,178) 4,368
Provision for Income Taxes 1,440 570 e) -- 2,010 (330) e) 1,680
---------- -------- -------- -------- ----------- ----------
---------- -------- -------- -------- ----------- ----------
Net Income $ 2,675 $ 861 $ -- $ 3,536 $ (848) $ 2,688
========== ======== ======== ======== =========== ==========
Earnings per common share:
Basic $ .11 $ .09
========== ==========
Diluted $ .11 $ .09
========== ==========
Weighted avg. number of common shares
outstanding:
Basic 21,875,772 3,200,000 25,075,772
Diluted 22,335,685 3,200,000 25,535,685
a) Reflects the elimination of the interest income and the interest expense
between the two merging companies.
b) Reflects interest expense on bank borrowings of $15 million at 8.75%.
c) Reflects the amortization of the financing costs associated with the bank
borrowings.
d) Reflects amortization of goodwill.
e) Reflects the effect of income taxes on (i) the 1998 historical income
statement of Eastern, a limited liability company, and (ii) the tax
deductible pro forma acquisition adjustments.
See Accompanying Notes To Condensed Combined Financial Statements.
F-22
EQUIVEST FINANCE, INC. and SUBSIDIARIES
Unaudited Pro Forma Condensed Combined Income Statement
For the Year ended December 31, 1997
(Amounts in Thousands Except for Per Share Data)
Historical Historical Pro
Equivest Eastern forma Pro
Finance, Resorts Interco Consol. Acquis. forma
Inc. Company Elim. Balances Adj. total
---------- -------- -------- -------- ----------- ----------
Revenue:
Interest $ 15,109 $ 2,602 $ (576) a) $ 17,135 $ -- $ 17,135
Vacation ownership -- 8,635 -- 8,635 -- 8,635
Resort operations -- 8,056 -- 8,056 -- 8,056
Gains on sales of contracts 30 -- -- 30 -- 30
Other income 826 83 (80) b) 829 -- 829
---------- -------- -------- -------- ----------- ----------
Total Revenue 15,965 19,376 (656) 34,685 -- 34,685
---------- -------- -------- -------- ----------- ----------
Costs and Expenses:
Provision for doubtful accounts 925 353 -- 1,278 -- 1,278
Interest 8,077 1,395 (576) a) 8,896 1,331 c) 10,227
Cost of property sold -- 1,928 -- 1,928 -- 1,928
Debt related costs incl. amort
of fin. costs 1,063 -- -- 1,063 158 d) 1,221
Goodwill amortization -- -- -- -- 775 e) 775
Sales and marketing -- 3,868 -- 3,868 -- 3,868
Resort management -- 7,348 -- 7,348 -- 7,348
General and administrative 2,475 1,782 (80) b) 4,177 -- 4,177
---------- -------- -------- -------- ----------- ----------
Total Costs and Expenses 12,540 16,674 (656) 28,558 2,264 30,822
---------- -------- -------- -------- ----------- ----------
Income Before Provision for Taxes 3,425 2,702 -- 6,127 (2,264) 3,863
Provision for Income Taxes: 193 1.080 f) -- 1,273 (600) f) 673
---------- -------- -------- -------- ----------- ----------
---------- -------- -------- -------- ----------- ----------
Net Income $ 3,232 $ 1,622 $ -- $ 4,854 $ (1,664) $ 3,190
========== ======== ======== ======== =========== ==========
Earnings per common share:
Basic $ .22 $ .17
========== ==========
Diluted $ .15 $ .12
========== ==========
Weighted avg. number of common shares
outstanding:
Basic 11,582,587 3,200,000 14,782,587
Diluted 17,913,902 3,200,000 21,113,902
a) Reflects the elimination of the interest income and the interest expense
between the two merging companies.
b) Reflects the elimination of fee income and fee expense between the two
merging companies
c) Reflects interest expense on bank borrowings of $15 million at 8.75%.
d) Reflects the amortization of the financing costs associated with the bank
borrowings.
e) Reflects amortization of goodwill.
f) Reflects the effect of income taxes on (i) the 1998 historical income
statement of Eastern, a limited liability company, and (ii) the tax
deductible pro forma acquisition adjustments.
See Accompanying Notes To Condensed Combined Financial Statements.
F-23
EQUIVEST FINANCE, INC. and SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
NOTE A: BASIS OF PRESENTATION
On August 28, 1998 Equivest acquired all of the outstanding ownership in Eastern
for approximately $15 million in cash and 3,200,000 shares of Equivest common
stock. The transaction has been recorded as a purchase.
NOTE B: GOODWILL
Following is a calculation of goodwill:
Acquisition Costs: ($ amounts in thousands)
------------------ ------------------------
Cash $15,000
Stock (3,200,000 at $4.80 per share) 15,360
Cost of acquisition 1,670
-------
Subtotal 32,030
Fair value of assets acquired, net 3,636
-------
Goodwill $28,394
-------
At this time, Equivest's management believes that the fair value of net assets
acquired approximates the acquired company's book value.
NOTE C: AMORTIZATION PERIOD OF GOODWILL
The goodwill as a result of the acquisition of Eastern will be amortized over a
40 year period.
NOTE D: NOTE PAYABLE
The borrowing to finance the cash portion of the purchase price bears interest
at LIBOR plus 3%, which amounted to 8.75% at the acquisition date. The borrowing
is a bridge loan which matures December 11, 1998.
Amortization of deferred financing costs has been based on the maturity date of
the loan.
NOTE E: INCOME TAXES
The pro forma total effective tax rate was assumed to be 40%.
F-24