<PAGE>   1
 
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON D.C. 20549
 
                            ------------------------
 
                                   FORM 10-Q
                            ------------------------
 
(MARK ONE)
 
      [X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
            EXCHANGE ACT OF 1934
 
                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
 
      [ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
            EXCHANGE ACT OF 1934
 
                         FOR THE TRANSITION PERIOD FROM
                               --------------- TO
                               --------------- .
 
                        COMMISSION FILE NUMBER 000-21193
 
                            ------------------------
 
                              SUNTERRA CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
<TABLE>
<S>                                            <C>
                  MARYLAND                                      95-4582157
          (STATE OF INCORPORATION)                           (I.R.S. EMPLOYER
                                                            IDENTIFICATION NO.)
</TABLE>
 
                       1875 SOUTH GRANT STREET, SUITE 650
                          SAN MATEO, CALIFORNIA 94402
          (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)
 
                                  650-312-7171
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
 
                            ------------------------
 
                            SIGNATURE RESORTS, INC.
                  (FORMER NAME, IF CHANGED SINCE LAST REPORT.)
 
     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
 
                               [X] Yes     [ ] No
 
     Number of shares of common stock outstanding of the issuer's Common Stock,
par value $0.01 per share as of August 1, 1998: 35,885,279.
 
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<PAGE>   2
 
                              SUNTERRA CORPORATION
 
                                     INDEX
 
<TABLE>
<CAPTION>
                                                                       PAGE
                                                                       ----
<S>      <C>                                                           <C>
                       PART I. FINANCIAL INFORMATION
 
Item 1.  Financial Statements
         Consolidated Statements of Income for the three and six
         months ended June 30, 1998 and June 30, 1997................    3
         Consolidated Balance Sheets as of June 30, 1998 and December
         31, 1997....................................................    4
         Consolidated Statements of Cash Flows for the six months
         ended June 30, 1998 and June 30, 1997.......................    5
         Notes to the Consolidated Financial Statements..............    6
Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results
         of Operations...............................................    9
 
                        PART II. OTHER INFORMATION
 
Item 4.  Submission to a Vote of Security Holders....................   14
 
Item 6.  Exhibits and Reports on Form 8-K............................   15
 
Signatures...........................................................   16
</TABLE>
 
                                        2
<PAGE>   3
 
                         PART I. FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
                              SUNTERRA CORPORATION
 
                       CONSOLIDATED STATEMENTS OF INCOME
               THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
       (AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA, UNAUDITED)
 
<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED           SIX MONTHS ENDED
                                                                     JUNE 30,                    JUNE 30,
                                                             -------------------------   -------------------------
                                                                1998          1997          1998          1997
                                                             -----------   -----------   -----------   -----------
<S>                                                          <C>           <C>           <C>           <C>
REVENUES:
  Vacation ownership sales.................................  $    86,055   $    69,961   $   157,542   $   130,346
  Interest income..........................................       12,696         9,527        24,771        18,041
  Other income.............................................        7,500         3,668        13,687         6,664
                                                             -----------   -----------   -----------   -----------
         Total revenues....................................      106,251        83,156       196,000       155,051
                                                             -----------   -----------   -----------   -----------
COSTS AND OPERATING EXPENSES:
  Vacation ownership cost of sales.........................       20,181        18,538        37,637        34,738
  Advertising, sales and marketing.........................       38,650        31,995        72,377        59,039
  Loan portfolio:
    Interest expense -- treasury...........................        1,958         3,838         4,176         7,938
    Other expenses.........................................        1,087         1,883         2,203         3,312
    Provision for doubtful accounts........................        3,860         1,545         6,160         3,735
  General and administrative...............................       11,874        10,304        24,065        20,562
  Depreciation and amortization............................        2,647         1,506         4,810         2,665
  Merger and acquisition costs.............................           --         4,204            --         5,897
                                                             -----------   -----------   -----------   -----------
         Total costs and operating expenses................       80,257        73,813       151,428       137,886
                                                             -----------   -----------   -----------   -----------
  Income from operations...................................       25,994         9,343        44,572        17,165
  Interest expense -- other, net of capitalized interest...        9,716         1,512        16,598         2,856
  Equity loss (gain) on investment in joint ventures.......          210            50           (31)          120
  Minority interest in income of consolidated limited
    partnership............................................           --            99            --           123
                                                             -----------   -----------   -----------   -----------
  Income before provision for income taxes and
    extraordinary item.....................................       16,068         7,682        28,005        14,066
  Provision for income taxes...............................        6,266         2,934        10,922         5,445
                                                             -----------   -----------   -----------   -----------
  Income before extraordinary item.........................        9,802         4,748        17,083         8,621
  Extraordinary item, net of income taxes..................          129           518           129           518
                                                             -----------   -----------   -----------   -----------
  Net income...............................................  $     9,673   $     4,230   $    16,954   $     8,103
                                                             ===========   ===========   ===========   ===========
Earnings per share:
  Basic:
    Income before extraordinary item.......................  $      0.27   $      0.13   $      0.47   $      0.24
    Extraordinary item, net of taxes.......................           --         (0.01)           --         (0.01)
                                                             -----------   -----------   -----------   -----------
    Net income.............................................  $      0.27   $      0.12   $      0.47   $      0.23
                                                             ===========   ===========   ===========   ===========
  Diluted:
    Income before extraordinary item.......................  $      0.27   $      0.13   $      0.47   $      0.24
    Extraordinary item, net of taxes.......................           --         (0.01)           --         (0.01)
                                                             -----------   -----------   -----------   -----------
    Net income.............................................  $      0.27   $      0.12   $      0.47   $      0.23
                                                             ===========   ===========   ===========   ===========
  Weighted average number of common shares outstanding.....   35,885,000    35,435,000    35,880,000    35,081,000
  Weighted average number of common and potentially
    dilutive common shares outstanding.....................   36,448,000    36,142,000    36,580,000    35,853,000
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                        3
<PAGE>   4
 
                              SUNTERRA CORPORATION
 
                          CONSOLIDATED BALANCE SHEETS
             (AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                               JUNE 30,      DECEMBER 31,
                                                                 1998            1997
                                                              -----------    ------------
                                                              (UNAUDITED)
<S>                                                           <C>            <C>
Cash and cash equivalents...................................  $   86,392       $ 38,487
Cash in escrow..............................................      25,862          9,485
Mortgages receivable, net of an allowance of $25,065 and
  $22,916 at June 30, 1998 and December 31, 1997,
  respectively..............................................     372,650        331,735
Due from related parties....................................      19,757         25,576
Other receivables, net......................................      31,167         17,669
Income tax refund receivable................................          --          4,719
Prepaid expenses and other assets...........................      18,276         13,047
Investments in joint ventures...............................      21,147         15,657
Real estate and development costs...........................     286,638        219,299
Property and equipment, net.................................      61,522         35,024
Intangible assets, net......................................      89,390         50,447
                                                              ----------       --------
          Total assets......................................  $1,012,801       $761,145
                                                              ==========       ========
 
                          LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable............................................  $   15,324       $ 25,196
Accrued liabilities.........................................      73,006         68,047
Due to related parties......................................         170          1,032
Income taxes payable........................................       4,425             --
Deferred taxes..............................................      27,763         23,752
Notes payable...............................................     667,258        435,208
                                                              ----------       --------
          Total liabilities.................................     787,946        553,235
                                                              ----------       --------
Stockholders' equity:
Preferred stock (25,000,000 shares authorized and none
  issued or outstanding)....................................          --             --
Common stock ($0.01 par value, 100,000,000 shares authorized
  and 35,885,279 outstanding at June 30, 1998 and 50,000,000
  shares authorized and 35,875,287 outstanding at December
  31, 1997).................................................         359            359
Additional paid-in capital..................................     163,153        162,969
Retained earnings...........................................      60,751         43,797
Cumulative translation adjustments..........................         592            785
                                                              ----------       --------
          Total stockholders' equity........................     224,855        207,910
                                                              ----------       --------
          Total liabilities and stockholders' equity........  $1,012,801       $761,145
                                                              ==========       ========
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                        4
<PAGE>   5
 
                              SUNTERRA CORPORATION
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                       (AMOUNTS IN THOUSANDS, UNAUDITED)
 
<TABLE>
<CAPTION>
                                                                SIX MONTHS ENDED
                                                                    JUNE 30,
                                                              ---------------------
                                                                1998        1997
                                                              ---------   ---------
<S>                                                           <C>         <C>
OPERATING ACTIVITIES:
Net income..................................................  $  16,954   $   8,103
Adjustments to reconcile net income to net cash used in
  operating activities:
  Depreciation and amortization.............................      4,810       2,665
  Provision for doubtful accounts...........................      6,160       3,735
  Equity (gain) loss on investment in joint ventures........        (31)        120
  Minority interest in income of consolidated limited
     partnership............................................         --         123
Changes in operating assets and liabilities:
  Cash in escrow............................................    (16,371)       (213)
  Due from related parties..................................        360      (1,464)
  Prepaid expenses and other assets.........................     (4,453)     (9,319)
  Real estate and development costs.........................    (51,933)      4,423
  Other receivables, net....................................    (12,608)     (7,217)
  Accounts payable and accrued liabilities..................     (2,173)    (15,988)
  Income taxes..............................................      8,886        (529)
  Deferred income taxes.....................................      4,011         333
  Due to related parties....................................       (862)       (529)
                                                              ---------   ---------
Net cash used in operating activities.......................    (47,250)    (15,757)
                                                              ---------   ---------
INVESTING ACTIVITIES:
  Cash paid for acquisition of subsidiaries.................    (41,068)         --
  Property and equipment....................................    (23,745)     (6,342)
  Intangible assets.........................................    (17,094)     (4,476)
  Mortgages receivable......................................    (40,384)    (49,025)
                                                              ---------   ---------
Net cash used in investing activities.......................   (122,291)    (59,843)
                                                              ---------   ---------
FINANCING ACTIVITIES:
  Proceeds from notes payable...............................      2,299      22,347
  Payments on notes payable.................................    (38,032)   (103,673)
  Proceeds from publicly issued debentures..................    140,000     138,000
  Proceeds from mortgage-backed securities, net of cash
     reserve................................................     99,940          --
  Proceeds from equity offering.............................         --      52,990
  Net proceeds from bank line of credit.....................     15,000           0
  Other.....................................................     (1,568)     (2,627)
                                                              ---------   ---------
Net cash provided by financing activities...................    217,639     107,037
                                                              ---------   ---------
Net increase in cash equivalents............................     48,098      31,437
Effect of exchange rates on cash and cash equivalents.......       (193)       (214)
Cash and cash equivalents, beginning of period..............     38,487      20,757
                                                              ---------   ---------
Cash and cash equivalents, end of period....................  $  86,392   $  51,980
                                                              =========   =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest......................................  $  22,848   $   8,697
Cash paid for taxes.........................................  $     512   $   4,042
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                        5
<PAGE>   6
 
                              SUNTERRA CORPORATION
 
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)
 
NOTE 1 -- BACKGROUND
 
     Sunterra Corporation and its wholly-owned subsidiaries (formerly "Signature
Resorts, Inc.") (the "Company") generate revenues from (i) marketing and selling
vacation ownership interests at its resort locations, which entitle the buyer to
use a fully-furnished vacation residence, generally for a one-week period each
year, in perpetuity ("Vacation Intervals"), and vacation points, which may be
redeemed for occupancy rights at participating resort locations ("Vacation
Points," and together with Vacation Intervals, "Vacation Ownership Interests"),
(ii) acquiring, developing and operating vacation ownership resorts and (iii)
providing consumer financing to individual purchasers for the purchase of
Vacation Ownership Interests at its resort locations. The Company also provides
resort management and maintenance services at resorts for which it receives fees
paid by the resorts' homeowners' associations.
 
     In the third quarter of 1998, the Company expects to begin the rollout of
its points-based Club Sunterra exchange system. The Club Sunterra system
provides flexibility to the customer by allowing such customers to redeem points
for occupancies of varying lengths at a unit type of their choice (studio, one-,
two-, three-bedroom) within a network of resorts, rather than a week long stay
at the same resort. The rollout is expected to be completed in the second
quarter of 1999.
 
     In the opinion of management, all adjustments considered necessary for a
fair presentation have been included and are of a normal recurring nature.
Operating results for the three and six months ended June 30, 1998 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998.
 
     On July 15, 1998, the Company changed its corporate name from "Signature
Resorts, Inc.".
 
NOTE 2 -- EARNINGS PER SHARE
 
     Basic earnings per share were calculated by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share were calculated by dividing net income available to common
stockholders after assumed conversion of dilutive securities by the sum of the
weighted average number of common shares outstanding plus all additional common
shares that would have been outstanding if potentially dilutive common shares
had been issued. The following table reconciles the number of shares utilized in
the earnings per share calculations for the three and six months ended June 30,
1998 and 1997 (amounts in thousands):
 
<TABLE>
<CAPTION>
                                                    THREE MONTHS ENDED    SIX MONTHS ENDED
                                                         JUNE 30,             JUNE 30,
                                                    -------------------   -----------------
                                                      1998       1997      1998      1997
                                                    --------   --------   -------   -------
<S>                                                 <C>        <C>        <C>       <C>
Net income........................................  $ 9,673    $ 4,230    $16,954   $ 8,103
                                                    -------    -------    -------   -------
Net income available to common stockholders after
  assumed conversion of dilutive securities(a)....  $ 9,673    $ 4,230    $16,954   $ 8,103
                                                    -------    -------    -------   -------
Weighted average number of common shares
  outstanding used in basic earnings per share
  (EPS)...........................................   35,885     35,435     35,880    35,081
Effect of dilutive stock options..................      563        707        700       772
                                                    -------    -------    -------   -------
Weighted average number of common and potentially
  dilutive common shares outstanding used in
  diluted EPS(a)..................................   36,448     36,142     36,580    35,853
                                                    =======    =======    =======   =======
</TABLE>
 
---------------
(a) The potential effect on net income and on common shares outstanding from the
    potential conversion of the Company's the 5 3/4% Convertible Subordinated
    Notes due 2007 have not been included in the calculation of net income,
    weighted average number of common shares, and potentially dilutive common
    shares outstanding used in diluted EPS. Such effect would be anti-dilutive.
 
                                        6
<PAGE>   7
                              SUNTERRA CORPORATION
 
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)
 
NOTE 3 -- NOTE OFFERING AND SECURITIZATION
 
     On April 15, 1998, the Company completed its offering (the "Senior Note
Offering") of $140.0 million aggregate principal amount of its 9 1/4% Senior
Notes due 2006 (the "Senior Notes") at a price of 100% of the principal amount.
After deducting discounts and commissions, the net proceeds to the Company were
$136.2 million. The Company used the net proceeds of the Senior Note Offering
primarily to retire $111.1 million of existing indebtedness under its Senior
Credit Facility as well as to retire other senior indebtedness. The remainder
was used for acquisition and development and general corporate purposes.
 
     On June 9, 1998, the Company completed its securitization of $100.3 million
aggregate principal amount of vacation ownership receivables -- backed notes
(the "Securitized Notes"). The issue is structured as three classes of fixed
rate notes rated as "AAA" "A" and "BBB". The Securitized Notes are secured by
first-mortgage liens bearing an average interest rate of 14.3% on Vacation
Ownership Interests at 14 of the Company's resorts in the United States,
primarily in California, Arizona, and Florida. At the time of issuance, the
principal balance of the mortgages receivable securing the Securitized Notes was
$106.3 million. The average rate of interest on the Securitized Notes is
approximately 6.7%. The Company issued the Securitized Notes through a
bankruptcy remote subsidiary, with no recourse to the Company for any defaults
experienced by the portfolio. The Securitization was treated as a financing
transaction for accounting purposes. The mortgages receivable and the
Securitized Notes remain on the Company's balance sheet and no gain or loss was
recognized on the transaction. The Company recognizes both the interest income
on the mortgages receivable and interest expense on the Securitized Notes.
 
NOTE 4 -- ACQUISITIONS
 
     During the second quarter of 1998, the Company acquired the 22-unit Carlton
Court in London, England, for a purchase price of approximately $4.5 million.
The Company is renovating the property and intends to begin Vacation Ownership
Interest sales at the property through its LSI Grand Vacation Club by the fourth
quarter of 1998.
 
     During the second quarter of 1998, the Company also acquired 65 units of
the 165-unit Vilar do Golf Resort, located in Quinta do Lago in the Algarve
region on Portugal's southern coast for a purchase price of approximately $8.4
million. The Company intends to begin Vacation Ownership Interest sales of the
Vilar do Golf Resort through its LSI Grand Vacation Club by the fourth quarter
of 1998.
 
     The Company also acquired the 25-unit Sunterra Kawaguchiko Resort, located
approximately 100 miles from Tokyo, Japan, at the foot of Mount Fuji. The resort
was purchased for $1.8 million and is the Company's first resort in Asia.
 
NOTE 5 -- SUBSEQUENT EVENTS
 
     In July 1998, the Company acquired Harich Tahoe Developments ("HTD"), the
developer of The Ridge at Lake Tahoe, for a purchase price of approximately
$77.5 million. As part of such acquisition, the Company concurrently sold $69.1
million face value of HTD's mortgages receivable portfolio for its $66.3 million
book value and retained a majority interest in the portfolio's excess spread.
The sale is without recourse to the Company for any defaults experienced by the
portfolio. The net purchase price, after giving effect to the concurrent sale of
the mortgages receivable, was $11.2 million.
 
NOTE 6 -- COMPREHENSIVE INCOME
 
     On January 1, 1998 the Company adopted SFAS No. 130, Reporting
Comprehensive Income ("SFAS 130"). SFAS 130 establishes new standards for the
reporting and display of comprehensive income and its components. Comprehensive
income, as defined, includes all changes in equity (net assets) during a
                                        7
<PAGE>   8
                              SUNTERRA CORPORATION
 
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)
 
period from non-owner sources. Adoption of this Statement had no impact on the
Company's consolidated financial position, results of operations or cash flows.
The reconciliation of net income to comprehensive net income is as follows
(amounts in thousands):
 
<TABLE>
<CAPTION>
                                                 THREE MONTHS ENDED    SIX MONTHS ENDED
                                                      JUNE 30,             JUNE 30,
                                                 ------------------    -----------------
                                                  1998       1997       1998       1997
                                                 -------    -------    -------    ------
<S>                                              <C>        <C>        <C>        <C>
Net income.....................................  $9,673     $4,230     $16,954    $8,103
Foreign currency translation adjustments.......      10         38        (193)     (213)
                                                 ------     ------     -------    ------
     Total comprehensive income................  $9,683     $4,268     $16,761    $7,890
                                                 ======     ======     =======    ======
</TABLE>
 
                                        8
<PAGE>   9
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 
     COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1998 TO THE THREE MONTHS
ENDED JUNE 30, 1997
 
     Total revenues for the three months ended June 30, 1998 were $106.3 million
compared with $83.2 million in the three months ended June 30, 1997, an increase
of $23.1 million, or 28%. Vacation ownership revenues increased 23% in the
second quarter of 1998, to $86.1 million from $70.0 million in the second
quarter of 1997. The increase in vacation ownership revenues reflects increased
prices for both points and intervals at the Company's resorts, increased sales
activities at certain of the Company's resorts, the recording of Vacation Points
sales at the Company's Vacation Internationale ("VI") and Global Development
Ltd.'s ("Global") points-based vacation clubs, both of which were acquired in
the fourth quarter of 1997, and the recording of Vacation Interval sales at
resorts previously owned by MMG Development Corp. ("MMG"), which were acquired
in February 1998. The Company also recorded Vacation Interval sales for the
first time at the Company's newly acquired Santa Fe, New Mexico, Gatlinburg,
Tennessee, and Miami, Florida resorts.
 
     Interest income increased 33% to $12.7 million in the second quarter of
1998 from $9.5 million in the second quarter of 1997, reflecting the increase in
net mortgages receivable to $372.7 million from $260.8 million in the comparable
period in 1997. Other income increased 103% during the second quarter of 1998 to
$7.5 million from $3.7 million in the second quarter of 1997, reflecting a
significant increase in recurring resort management fee revenues due to a larger
number of resorts under management. At June 30, 1998, the Company managed 84
resorts, including those acquired in the VI, Global and MMG acquisitions,
compared with 33 at June 30, 1997. Other income includes rental income,
commissions on the sale of European receivables, and interest income from
short-term investments. As a percentage of total revenue, other income increased
to 7.1% during the second quarter of 1998, as compared with 6.9% in the first
quarter of 1998 and 4.4% in the second quarter of 1997.
 
     As a percentage of total revenues, total costs and operating expenses,
excluding merger costs in 1997, improved to 76% during the second quarter of
1998 from 84% during the second quarter of 1997. The overall improvement in
margins reflects increased economies of scale, higher-margin sales to current
owner families and improving operations at acquired companies and locations.
Total costs and operating expenses, excluding merger costs in 1997, increased
15% to $80.3 million during the second quarter of 1998 from $69.6 million during
the second quarter of 1997.
 
     As a percentage of vacation ownership sales, vacation ownership cost of
sales improved to 23.5% during the second quarter of 1998 from 26.5% in the
second quarter of 1997. This improvement was largely the result of favorable
product cost reductions at the Company's more mature resorts, along with a
greater percentage of revenue coming from the Company's comparatively lower
product cost European operations. Vacation ownership cost of sales increased 9%
to $20.2 million in the second quarter of 1998 from $18.5 million in the second
quarter of 1997.
 
     As a percentage of vacation ownership sales, advertising, sales and
marketing expenses improved to 44.9% from 45.7%, reflecting the Company's
ability to reduce advertising, sales and marketing costs at many of the
Company's mature resorts in general, and in the Company's Orlando, Florida
resorts in particular, while absorbing the higher startup costs at recently
acquired resorts. Advertising, sales and marketing expenses increased 21% to
$38.7 million during the second quarter of 1998 from $32.0 million in the second
quarter of 1997.
 
     Interest expense -- treasury improved to $2.0 million during the second
quarter of 1998, or 1.8% of total revenues, from $3.8 million, or 4.6%, during
the second quarter of 1997, reflecting the Company's continued practice of
prepaying higher cost hypothecated debt when allowed contractually, as well as
financing the mortgages receivable portfolio with the proceeds of securities
offerings and borrowings under the Company's bank credit facilities. Interest
expense relating to these offerings is classified as interest expense -- other.
 
     Other loan portfolio expenses, which are primarily costs incurred in
servicing the Company's loan portfolio, decreased to $1.1 million in the second
quarter of 1998, from $1.9 million in the second quarter of 1997, due largely to
cost savings associated with combining the servicing efforts of Plantation
Resorts Group,
 
                                        9
<PAGE>   10
 
Inc. ("PRG") and AVCOM International, Inc. ("AVCOM"), acquired by merger during
the first half of 1997.
 
     The provision for doubtful accounts increased $2.4 million to $3.9 million
during the second quarter of 1998, from $1.5 million in the second quarter of
1997. As a percentage of total revenues, the provision for doubtful accounts was
3.6% for the second quarter of 1998, compared with 2.6% in the first quarter of
1998 and 1.8% for the second quarter of 1997. The increase in the provision as a
percentage of revenues, as compared with the prior period, is related primarily
to the Company's internal review of the aging and collectability of accrued
interest at certain of its properties during the quarter. Based on this review,
the Company increased its reserve for doubtful accounts by $1.0 million.
 
     The allowance for doubtful accounts as a percentage of gross mortgages
receivable remained at 6.3% at June 30, 1998, unchanged from March 31, 1998, and
down from 6.5% at December 31, 1997 and 6.8% at June 30, 1997. As of June 30,
1998, approximately 4.2% of the Company's consumer loans were delinquent
(scheduled payment past due by 60 days or more), compared with 4.7% at March 31,
1998, 4.6% at December 31, 1997, and 4.3% at June 30, 1997. In addition, the
Company had commenced deed-in-lieu of foreclosure action on approximately 2.4%
of its consumer loans as of June 30, 1998, compared with 2.2% at March 31, 1998
and December 31, 1997, and 2.3% at June 30, 1997.
 
     As a percentage of total revenues, general and administrative expenses
improved to 11.2% in the second quarter of 1998 from 12.4% in the second quarter
of 1997, reflecting the continued elimination of duplicative overhead costs in
consolidating acquisitions and greater efficiencies resulting from the Company's
larger size. General and administrative expenses increased 16% to $11.9 million
during the second quarter of 1998 from $10.3 million during the second quarter
of 1997. The increase in general and administrative expenses was due primarily
to the acquisition of several additional resorts, offset partially by savings
resulting from increased efficiencies.
 
     Depreciation and amortization increased $1.1 million, or 73%, to $2.6
million in the second quarter of 1998 from $1.5 million in the second quarter of
1997. As a percentage of revenues, depreciation and amortization increased to
2.5% for the second quarter of 1998 from 1.8% during the second quarter of 1997.
The increase in depreciation and amortization was driven by the amortization of
goodwill associated with the Company's purchases of VI, Global, Marc Hotels &
Resorts ("Marc") and MMG, and additional depreciation expense from an increase
in capital expenditures to support a larger base of resorts.
 
     Interest expense -- other, reported net of capitalized interest, increased
$8.2 million, to $9.7 million for the second quarter of 1998 from $1.5 million
for the second quarter of 1997. The increase was due primarily to increases in
debt from public securities offerings and borrowings under the Company's bank
credit facilities.
 
     Excluding merger costs of $2.5 million in the second quarter of 1997 and
extraordinary charges of $0.1 million in the second quarter of 1998 and $0.5
million in the second quarter of 1997, all net of taxes, income before provision
for income taxes increased 35% to $16.1 million in the second quarter of 1998
from $11.9 million in the second quarter of 1997.
 
     The Company's income tax rate was 39% for both periods, resulting in net
income of $9.7 million and $4.2 million for the quarters ending June 30, 1998
and 1997, respectively.
 
     COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1998 TO THE SIX MONTHS ENDED
JUNE 30, 1997
 
     Total revenues for the six months ended June 30, 1998 were $196.0 million
compared with $155.1 million in the first half of 1997, an increase of $40.9
million, or 26%. Vacation ownership revenues increased 21% to $157.5 million
from $130.3 million. The increase in vacation ownership revenues reflects
increased prices for both points and intervals at the Company's resorts,
increased sales activities at certain of the Company's resorts, the recording of
Vacation Points sales at the Company's VI and Global points-based vacation
clubs, both of which were acquired in the fourth quarter of 1997, and the
recording of Vacation Interval sales at MMG, which was acquired in February
1998. The Company also recorded Vacation Interval sales for the first time at
the Company's newly acquired Santa Fe, Bent Creek, Town Square and Savoy
resorts.
 
                                       10
<PAGE>   11
 
     Interest income increased 38% to $24.8 million in the first half of 1998
from $18.0 million in the first half of 1997, reflecting the increase in net
mortgages receivable to $372.7 million at June 30, 1998 from $260.8 million at
June 30, 1997. The average mortgage receivable note carries a 14.4% interest
rate and is fully amortizing over an average eight-year term. Other income
increased 104% to $13.7 million in the first half of 1998 from $6.7 million in
the first half of 1997, reflecting a significant increase in recurring resort
management fees due to a larger number of resorts under management. At June 30,
1998, the Company managed 84 resorts, including those acquired in the VI, Global
and MMG acquisitions, compared with 33 at June 30, 1997. Other income also
includes rental income, commissions on the sale of European receivables, and
interest income from short-term investments. As a percentage of total revenue,
other income increased to 7.0% in the first half of 1998, as compared with 4.3%
in the first half of 1997.
 
     As a percentage of total revenues, total costs and operating expenses,
excluding merger costs in 1997, improved to 77% during the first half of 1998,
from 85% during the first half of 1997. The overall improvement in margins
reflects increased economies of scale, higher-margin sales to current owner
families, and improving operations at acquired companies and locations. Total
costs and operating expenses, excluding merger costs in 1997, increased 15% to
$151.4 million in the first half of 1998 from $132.0 million in the first half
of 1997.
 
     As a percentage of vacation ownership sales, vacation ownership cost of
sales improved to 23.9% during the first half of 1998 from 26.6% during the
first half of 1997. This improvement was largely the result of favorable product
cost reductions at the Company's more mature resorts, along with a greater
percentage of revenue coming from the Company's comparatively lower product cost
European operations. Vacation ownership cost of sales increased 8% to $37.6
million in the first half of 1998 from $34.7 million in the first half of 1997.
 
     As a percentage of vacation ownership sales, advertising, sales and
marketing expenses increased to 46% from 45%, due to higher marketing expenses
incurred to increase sales at VI, acquired during the fourth quarter of 1997. In
addition, the Company is building infrastructure in offsite sales centers in the
U.S. and Europe, the costs of which were expensed during the first half of 1998,
as well as other marketing initiatives to support the transition to a
points-based club product. Advertising, sales and marketing expenses increased
23% to $72.4 million during the first half of 1998 from $59.0 million in the
first half 1997.
 
     Interest expense -- treasury improved to $4.2 million during the first half
of 1998, or 2.1% of total revenues, from $7.9 million, or 5.1% in the first half
of 1997, reflecting the Company's continued practice of prepaying higher cost
hypothecated debt when allowed contractually, as well as financing the mortgages
receivable portfolio with the proceeds of securities offerings and borrowings
under the Company's bank credit facilities. Interest expense relating to these
offerings is classified as interest expense -- other. Other loan portfolio
expenses decreased to $2.2 million from $3.3 million.
 
     The provision for doubtful accounts increased $2.5 million to $6.2 million
for the first half of 1998 from $3.7 million in the first half of 1997. As a
percentage of total revenues, the provision for doubtful accounts was 3.2% for
the first half of 1998, compared with 2.4% in the first half of 1997. The
increase in the provision as a percentage of revenues, as compared with the
prior period, is related primarily to the Company's internal review of the aging
and collectability of accrued interest at certain of its properties during the
second quarter of 1998. Based on this review, the Company increased its reserve
for doubtful accounts by $1.0 million.
 
     The allowance for doubtful accounts as a percentage of gross mortgages
receivable decreased to 6.3% at June 30, 1998, compared with 6.8% at June 30,
1997. As of June 30, 1998, approximately 4.2% of the Company's consumer loans
were delinquent (scheduled payment past due by 60 days or more), compared with
4.3% at June 30, 1997. In addition, the Company had commenced deed-in-lieu of
foreclosure action on approximately 2.4% of its consumer loans as of June 30,
1998, compared with 2.3% at June 30, 1997.
 
     As a percentage of total revenues, general and administrative expenses
improved to 12.3% in the first half of 1998 from 13.3% in the first half of
1997, reflecting the continued elimination of duplicative overhead costs in
consolidating acquisitions and greater efficiencies resulting from the Company's
larger size. General and administrative expenses increased 17% to $24.1 million
during the first half of 1998 from $20.6 million during
 
                                       11
<PAGE>   12
 
the first half of 1997. The increase in general and administrative expenses was
due primarily to the acquisition of additional resorts in the past year.
 
     Depreciation and amortization increased $2.1 million, or 78%, to $4.8
million in the first half of 1998 from $2.7 million in the first half of 1997.
As a percentage of revenues, depreciation and amortization increased to 2.4% for
the first half of 1998 from 1.7% for the first half of 1997. The increase in
depreciation and amortization was due to increased amortization of goodwill
associated with the Company's purchases of VI, Global, Marc, and MMG, and
additional depreciation expense from an increase in capital expenditures to
support a larger base of resorts.
 
     Interest expense -- other, reported net of capitalized interest, increased
$13.7 million, or 472%, to $16.6 million for the first half of 1998 from $2.9
million in the first half of 1997. The increase was due primarily to increases
in debt from public securities offerings and borrowings under its bank credit
facilities.
 
     Excluding merger costs of $3.5 million in the first half of 1997 and
extraordinary charges of $0.1 million in the first half of 1998 and $0.5 million
in the first half of 1997, all net of taxes, income before provision for income
taxes increased 40% to $28.0 million for the six months ended June 30, 1998 from
$20.0 million for the six months ended June 30, 1997.
 
     The Company's income tax rate was 39% for both six month periods ending
June 30, 1998 and 1997, resulting in net income of $17.0 million for the six
months ending June 30, 1998 and $8.1 million for the six months ended June 30,
1997.
 
YEAR 2000
 
     The Company uses software that will be affected by the date change in the
year 2000 and recognizes that the arrival of the year 2000 poses challenges that
will require modifications of portions of its software to enable it to function
properly. As the year 2000 approaches, date sensitive systems will recognize the
year 2000 as 1900, or not at all. This may cause systems to process critical
financial and operational information incorrectly. The Company, like many other
companies, is incurring expenditures over the next few years to address this
issue. The Company has several information system improvement initiatives under
way to determine the full scope and related costs to insure that the Company's
systems continue to meet its needs and those of its customers. These initiatives
include upgrading and replacing some computer systems and the conversion of
others to be Year 2000 compliant. Although final cost estimates have yet to be
determined, it is anticipated that these Year 2000 costs will result in an
increase in Company expenses during 1998 and 1999. Suppliers, customers,
mortgage receivable servicers and creditors of the Company also face Year 2000
issues. Their failure to successfully address the Year 2000 issue could
adversely affect the Company's business or results of operations.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     The Company generates cash from (i) cash sales and cash down payments from
sales of Vacation Ownership Interests, (ii) interest from its mortgages
receivable portfolio, (iii) rental of unsold Vacation Ownership Interests, (iv)
receipt of management, reservations and club fees, and (v) commissions received
on the sale of its European mortgages receivable, where the Company is paid a
commission of 14% of the face value of certain mortgages originated for a third
party financial institution. In the first half of 1998, approximately 50% of
total reported revenues were comprised of cash revenues from these sources.
Additionally, financed vacation ownership sales provide the Company with a
substantial stream of scheduled principal payments and customer prepayments of
principal from its mortgages receivable portfolio.
 
     For the six months ended June 30, 1998 and 1997, the Company used $47.3
million and $15.8 million in cash flows from operations, respectively. Excluding
real estate and development costs, the Company generated cash flows from
operations of $4.6 million and used $20.2 million for the six months ended June
30, 1998 and June 30, 1997, respectively. Approximately 80% of the Company's
total revenues in the first half of 1998 were from vacation ownership sales
during which period the Company financed approximately 65% of its vacation
ownership sales. The Company generally chooses to finance vacation ownership
sales, and to hold the related
 
                                       12
<PAGE>   13
 
mortgages receivable, to generate profit from such financing activities. The
Company's significant financing activity typically results in its operating
costs exceeding the initial cash proceeds received from sales of Vacation
Ownership Interests.
 
     The Company has a number of alternatives to raise cash from its mortgages
receivable portfolio. For example, the Company may sell mortgages receivable for
cash, as the Company recently did with its acquisition of HTD; originate them
for a third party financial institution, and receive a fee, which the Company
does in its European operations; convert them into cash through a securitization
such as the one completed by the Company in June 1998; pledge them against its
bank credit facility; or pursue other alternatives.
 
     When the Company draws on various credit facilities to meet its operating
cash outlays, the Company borrows against or otherwise pledges its mortgages
receivable. Such facilities enable the Company to generate positive cash flows
from financed sales. The Company repays its credit facilities through cash flows
from operations, the sale of mortgages receivable, the principal and interest
payment stream on its mortgages receivable portfolio, or proceeds from the
issuance of pass-through mortgage-backed securities in which the Company sells
certain mortgages receivable and their related principal and interest payments.
 
     Consistent with its growth-oriented strategy, the Company also requires
funds to finance the development of its vacation ownership properties and the
acquisition of additional vacation ownership assets. Such assets include, but
are not limited to, developed and undeveloped vacation ownership resorts,
vacation ownership mortgages receivable portfolios, vacation ownership operating
companies and management contracts. Capital to fund this acquisition and
development activity typically has been provided from the proceeds of public and
private securities offerings and borrowings under its various credit facilities.
 
     During the first quarter of 1998, the Company entered into a $117.5 million
senior bank credit facility (the "Senior Credit Facility"). The Senior Credit
Facility has a variable borrowing rate based on the percentage of the Company's
mortgages receivable pledged under such facility and the amount of funds
advanced thereunder. The interest rate will vary between LIBOR plus  7/8% and
LIBOR plus 1 3/8%, depending on the amount advanced against mortgages
receivable. The Senior Credit Facility has a three-year term and contains
customary covenants, representations and warranties and conditions to borrow. As
of August 7, 1998, $15 million was outstanding on the Senior Credit Facility.
 
     In April, the Company completed its offering of $140 million aggregate
principal amount of its 9 1/4% Senior Notes due 2006. The Company used the
proceeds to retire existing indebtedness under the Senior Credit Facility. The
balance of the net proceeds were used primarily to finance the acquisition and
development of additional resorts and vacation ownership-related assets, and for
working capital and other general corporate purposes.
 
     In June, the Company completed its securitization of $100.3 million
aggregate principal amount of vacation ownership receivables -- backed notes
(the "Securitized Notes"). The issue is structured as three classes of fixed
rate notes rated as "AAA" "A" and "BBB". The Securitized notes are secured by
first-mortgage liens bearing an average interest rate of 14.3% on Vacation
Ownership Interests at 14 of the Company's resorts in the United States,
primarily in California, Arizona, and Florida. At the time of issuance, the
principal balance of the mortgages receivable securing the Securitized Notes was
$106.3 million. The average rate of interest on the Securitized Notes is
approximately 6.7%. The Company issued the Securitized Notes through a
bankruptcy remote subsidiary, with no recourse to the Company for any defaults
experienced by the portfolio. The Securitization was treated as a financing
transaction for accounting purposes. The mortgages receivable and the
Securitized Notes remain on the Company's balance sheet and no gain or loss was
recognized on the transaction. The Company recognizes both the interest income
on the mortgages receivable and interest expense on the Securitized Notes. The
proceeds were used primarily to finance the acquisition and development of
additional resorts and vacation ownership-related assets, and for working
capital and other general corporate purposes. Pending any such additional uses,
the Company invests the excess proceeds in commercial paper, bankers'
acceptances, other short-term investment-grade securities and money-market
accounts.
 
                                       13
<PAGE>   14
 
     As of June 30, 1998, the Company had approximately $102.5 million of
additional borrowing capacity available under the Senior Credit Facility at
rates ranging from LIBOR plus  7/8% to LIBOR plus 1 3/8%. The Company also had
approximately $83.1 million of additional borrowing capacity under its
hypothecated debt lines at prime plus 2%. These hypothecated lines expire
between October 1998 and April 1999 and the Company does not intend to renew
these lines or borrow from these lines. As of June 30, 1998, excluding the
Senior Credit Facility and the Securitization, the Company had $70.3 million
outstanding under its notes payable collateralized by mortgages receivable and
$5.7 million outstanding under its notes payable collateralized by unsold
Vacation Ownership Interest inventory or other assets.
 
     Additionally, the Company had approximately $190 million of mortgages
receivable which were unpledged to any financial institutions and which could be
sold or pledged to raise additional cash as needed. The Company is also
currently negotiating with one of its hypothecated debt lenders to sell
approximately $30 million in mortgages receivable to a lender. These receivables
are currently pledged against hypothecated debt. The Company expects to sell
these mortgages receivable at 100% of par value and retain a majority of the
portfolio's excess spread.
 
     The Company believes that, with respect to its current operations, the
Senior Credit Facility and borrowing capacity under certain third-party lending
agreements, together with cash on hand and cash generated from operations,
future borrowings, or the sale of receivables, will be sufficient to meet the
Company's working capital and capital expenditure needs for the next twelve
months. However, depending upon conditions in the capital and other financial
markets, the Company's growth, development and expansion plans, and other
factors, the Company may from time to time consider the issuance of other debt
or equity securities, the proceeds of which would be used to finance
acquisitions, refinance debt, finance mortgages receivable or meet other
operational needs. Any debt incurred or issued by the Company may be secured or
unsecured, may bear interest at fixed or variable rates and may be subject to
such terms, as management deems prudent. As of June 30, 1998, the Company was in
compliance with all applicable covenants in its debt agreements, or had received
appropriate amendments.
 
     The preceding discussion should be read in conjunction with the financial
statements and notes included elsewhere in this Form 10-Q. The preceding
Management's Discussion and Analysis of Financial Condition and Results of
Operations may contain forward looking statements, which include the Company's
growth and expansion plans, financing plans, future prospects and other
forecasts and statements of expectations. Actual results might differ materially
from those expressed in any forward looking statements due to, among other
things, factors related to the timing and terms the company's new product
development, mortgages receivable financing, integration of acquired properties
and companies, future acquisitions and those factors identified in the Company's
filings with the Securities and Exchange Commission, including those set forth
in the Company's Annual Report on Form 10-K for the year ended December 31,
1997, as amended.
 
                          PART II -- OTHER INFORMATION
 
ITEM 4. SUBMISSION TO A VOTE OF SECURITY HOLDERS
 
     The Company submitted to stockholder vote and its stockholders approved the
following items at the Company's Annual Meeting of Stockholders held on May 15,
1998:
 
     (a) Election of six directors of the Company:
 
<TABLE>
<CAPTION>
          NAME             TERM EXPIRING    VOTES FOR     WITHHELD AUTHORITY
          ----             -------------    ----------    ------------------
<S>                        <C>              <C>           <C>
Andrew J. Gessow.........      2001         28,934,737          23,517
Joshua S. Friedman.......      2001         28,934,587          23,667
W. Leo Kiely.............      2001         28,934,587          23,667
Michael A. Depatie.......      2001         28,944,185          14,069
Adam M. Aron.............      2000         28,934,587          23,667
J. Taylor Crandall.......      1999         28,934,587          23,667
</TABLE>
 
          In addition to the six directors listed above, the terms of the
     following four directors continued after the meeting: Osamu Kaneko, Steven
     C. Kenninger, Sanford Climan and James E. Noyes.
 
                                       14
<PAGE>   15
 
          (b) Amendment of the Company's Articles of Incorporation to change the
     Company's corporate name to Sunterra Corporation, by a vote of 28,906,482
     "for", 26,932 "against", and 24,840 "abstain".
 
          (c) Amendment of the Company's 1996 Equity Participation Plan, as
     amended, to increase the number of shares authorized for issuance
     thereunder, by a vote of 21,884,300 "for", 7,017,583 "against", and 56,371
     "abstain".
 
          (d) Amendment of the Company's Articles of Incorporation to increase
     the Company's authorized share capital, by a vote of 28,720,423 "for",
     211,798 "against", 3,934 "abstain", and 22,099 "broker non-votes".
 
          (e) Ratification of the appointment of Arthur Andersen LLP as the
     Company's independent public accountants for the year ending December 31,
     1998, by a vote of 28,895,926 "for", 10,723 "against", 29,505 "abstain",
     and 22,100 "broker non-votes".
 
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
 
(a) Exhibits
 
<TABLE>
<C>     <S>
10.1    Indenture dated as of May 1, 1998, by and between Sunterra
        Finance L.L.C. as issuer of the bonds, Signature Resorts,
        Inc as Servicer, and LaSalle National Bank as Trustee and
        Back-up Servicer for Signature Resorts Vacation Ownership
        Receivables-Backed Notes 1998-A
10.2    Servicing Agreement dated as of May 1, 1998, by and between
        Sunterra Finance L.L.C. as issuer of the bonds, Signature
        Resorts, Inc as Servicer, and LaSalle National Bank as
        Trustee and Back-up Servicer for Signature Resorts Vacation
        Ownership Receivables-Backed Notes 1998-A
27.1    Financial Data Schedule
</TABLE>
 
(b) Reports on Form 8-K
 
     (1) Current Report on Form 8-K, dated April 15, 1998, filed with the
Commission on April 21, 1998, announcing the completion of the Company's Senior
Note Offering.
 
                                       15
<PAGE>   16
 
                                   SIGNATURES
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
 
Dated: August 14, 1998                    By:    /s/ MICHAEL A. DEPATIE
 
                                            ------------------------------------
                                                     Michael A. Depatie
                                            Director, Executive Vice President,
                                                And Chief Financial Officer
                                               (Principal Financial Officer)
 
Dated: August 14, 1998                    By:      /s/ JAMES D. WHEAT
 
                                            ------------------------------------
                                                       James D. Wheat
                                                     Vice President and
                                                    Corporate Controller
 
                                       16