U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
MONTGOMERY REALTY GROUP, INC.
NEVADA 88-0377199
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
400 Oyster Point Blvd., Suite 415
South San Francisco, CA 94080
(Address of principal executive offices)
(650) 266-8080
(Registrant's telephone number)
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. Yes [X] No [ ]
The number of shares outstanding of the registrant's common stock as of November
13, 2000: 16,500,000
<PAGE>
MONTGOMERY REALTY GROUP, INC.
INDEX TO FORM 10-QSB
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of September 30, 2000 and December 31,
1999..............................................................3
Statements of Operations for the nine months ended
September 30, 2000 and 1999.......................................4
Statements of Operations for the three months ended
September 30, 2000 and 1999.......................................5
Statements of Cash Flows for the nine months ended
September 30, 2000 and 1999.......................................6
Notes to Financial Statements.......................................7
Item 2. Management's Discussion and Analysis or Plan of Operations..........9
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K..................................13
Signatures.................................................................13
2
<PAGE>
<TABLE>
<CAPTION>
MONTGOMERY REALTY GROUP, INC.
BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
-------------------------------------------------------------------------------------------------------------------------
September 30, December 31,
2000 1999
ASSETS
PROPERTY:
<S> <C> <C>
Land $ 2,699,500 $2,699,500
Building 5,040,000 5,040,000
Improvements 3,279,384 3,279,384
------------ -----------
Total 11,018,884 11,018,884
Less accumulated depreciation (2,664,610) (2,505,378)
------------ -----------
Property, net 8,354,274 8,513,506
CASH 166,981 134,361
TENANT RECEIVABLES 11,268 31,137
PREPAID EXPENSES AND OTHER ASSETS 2,983 36,949
DEFERRED LEASE COMMISSIONS 12,356 13,995
DEFERRED LOAN COSTS 130,828 134,906
DEFERRED RENT RECEIVABLE 29,106 40,425
DEFERRED TAX ASSET 1,577,060 1,492,435
------------ -----------
TOTAL ASSETS $ 10,284,856 $10,397,714
============ ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES:
Notes payable $ 12,419,526 $12,338,166
Accounts payable 9,709 67,292
Accrued interest 67,017 68,112
Security deposits and prepaid rent 63,877 103,150
------------ -----------
TOTAL LIABILITIES 12,560,129 12,576,720
------------ -----------
STOCKHOLDERS' DEFICIT:
Common stock, $0.001 par value; authorized 80,000,000 shares;
issued and outstanding, 16,500,000 shares at September 30, 2000 and
December 31, 1999 16,500 16,500
Preferred stock, $0.001 par value; authorized 20,000,000 shares; no
shares issued and outstanding at September 30, 2000 and December 31, 1999 - -
Additional capital 1,692,742 1,692,742
Accumulated deficit (3,984,515) (3,888,248)
------------ -----------
TOTAL STOCKHOLDERS' DEFICIT (2,275,273) (2,179,006)
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 10,284,856 $10,397,714
============ ===========
</TABLE>
See notes to the financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
MONTGOMERY REALTY GROUP, INC.
STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
------------------------------------------------------------------------------------------------------------------------
2000 1999
<S> <C> <C>
REVENUES:
Rent $1,092,457 $1,060,446
Other 753
---------- ----------
Total revenues 1,093,210 1,060,446
---------- ----------
EXPENSES:
Real estate taxes 147,541 79,086
Utilities 11,134 8,891
Repairs and maintenance 19,274 6,320
General building 13,399 13,305
Administration 70,247 58,277
Insurance 21,905 14,735
Management fee 77,500 61,289
Depreciation 159,234 165,259
Amortization 38,231 42,125
---------- ----------
Total expenses 558,465 449,287
---------- ----------
INCOME BEFORE INTEREST EXPENSE, EXTRAORDINARY
ITEM AND INCOME TAXES 534,745 611,159
INTEREST EXPENSE, NET (715,642) (683,919)
---------- ----------
LOSS BEFORE EXTRAORDINARY ITEM
AND INCOME TAXES (180,897) (72,760)
EXTRAORDINARY ITEM, EARLY EXTINGUISHMENT
OF DEBT (25,262)
---------- ----------
LOSS BEFORE INCOME TAXES (180,897) (98,022)
INCOME TAX BENEFIT 84,625 -
---------- ----------
NET LOSS $ (96,272) $ (98,022)
LOSS PER COMMON SHARE BEFORE EXTRAORDINARY
ITEM, BASIC AND DILUTED $ (0.006) $ (0.004)
EXTRAORDINARY ITEM PER COMMON SHARE,
BASIC AND DILUTED - (0.002)
---------- ----------
NET LOSS PER COMMON SHARE, BASIC AND DILUTED $ (0.006) $ (0.006)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES,
BASIC AND DILUTED 16,500,000 16,208,791
========== ==========
</TABLE>
See notes to the financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
MONTGOMERY REALTY GROUP, INC.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
------------------------------------------------------------------------------------------------------------------------
2000 1999
REVENUES:
<S> <C> <C>
Rent $ 379,625 $ 376,906
Other 449
---------- ----------
Total revenues 380,074 376,906
---------- ----------
EXPENSES:
Real estate taxes 94,955 26,154
Utilities 3,493 2,963
Repairs and maintenance 3,998 2,106
General building 3,344 4,435
Administration 9,061 21,492
Insurance 10,587 4,911
Management fee 30,000 20,031
Depreciation 51,804 55,085
Amortization 7,718 14,041
---------- ----------
Total expenses 214,960 151,218
---------- ----------
INCOME BEFORE INTEREST EXPENSE,
EXTRAORDINARY ITEM AND INCOME TAXES 165,114 225,688
INTEREST EXPENSE, NET (244,273) (227,973)
---------- ----------
LOSS BEFORE EXTRAORDINARY ITEM AND
INCOME TAXES (79,159) (2,285)
EXTRAORDINARY ITEM, EARLY EXTINGUISHMENT
OF DEBT (25,262)
---------- ----------
LOSS BEFORE INCOME TAXES (79,159) (27,547)
INCOME TAX BENEFIT 35,860 -
---------- ----------
NET LOSS $ (43,299) $ (27,547)
LOSS PER COMMON SHARE BEFORE
EXTRAORDINARY ITEM, BASIC AND DILUTED $ (0.003) $ -
========== ==========
EXTRAORDINARY ITEM PER COMMON SHARE,
BASIC AND DILUTED (0.002)
---------- ----------
NET LOSS PER COMMON SHARE, BASIC AND DILUTED $ (0.003) $ (0.002)
========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES, BASIC AND DILUTED 16,500,000 16,500,000
========== ==========
</TABLE>
See notes to the financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
MONTGOMERY REALTY GROUP, INC.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
------------------------------------------------------------------------------------------------------------------------
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (96,272) $ (98,022)
Depreciation and amortization 197,465 207,384
Deferred rent receivable 11,319 37,608
Deferred taxes (84,625)
Write-off of deferred loan costs 1,201
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Tenant receivables 19,869 (879)
Prepaid expenses and other assets 30,743 5,884
Accounts payable (57,585) 31,380
Accrued interest (1,095) 25,660
Security deposits and prepaid rent (39,273) 48,752
--------- ---------
Net cash (used in) provided by operating activities (19,454) 258,968
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property (18,492)
Payment of lease commissions and loan costs (29,286)
--------- ---------
Net cash used in investing activities: (29,286) (18,492)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable 133,990
Payments on notes payable (718,640) (105,970)
Proceeds from notes payable 800,000
Distributions - (75,222)
--------- ---------
Net cash provided by (used in) financing activities 81,360 (47,202)
--------- ---------
INCREASE IN CASH 32,620 193,274
CASH, BEGINNING OF PERIOD 134,361 130
--------- ---------
CASH, END OF PERIOD $ 166,981 $ 193,404
========= =========
</TABLE>
See notes to the financial statements.
6
<PAGE>
MONTGOMERY REALTY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The interim financial data is unaudited. However, in the opinion of
management, the interim data includes all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the
Company's financial position and results of operations for the interim
period. Such statements have been prepared from the Company's accounting
records in accordance with the instructions to Form 10-QSB, and should be
used in conjunction with Montgomery's Registration Statement on Form
10-SB, as amended, including the financial statements and notes thereto.
2. TRANSACTIONS WITH AFFILIATE
Property management fees of $77,500 and $61,289 were paid to an affiliate
of the majority stockholder for the nine months ended September 30, 2000
and 1999, respectively.
3. BASIC AND DILUTED INCOME (LOSS) PER SHARE OF BENEFICIAL INTEREST
Basic and diluted income (loss) per share are computed by dividing net
income (loss) by the weighted average number of shares outstanding of
16,500,000 and 16,208,791 for the nine months ended September 30, 2000 and
1999, respectively, and 16,500,000 for the three months ended September
30, 2000 and 1999.
4. REAL ESTATE TAXES
As a result of the real estate transfer to the Montgomery Realty Group,
Inc. in June of 1999 the local county taxing authorities have re-assessed
and increased the real property assessed values for both the 1999-2000 and
2000-2001 years. The Montgomery Realty Group, Inc. intends to contest the
re-assessment and has filed an assessment appeal in each case. Commencing
in the third quarter of 2000 the real estate taxes are being recorded at
the new assessed values and prior year assessments are being recorded
currently as they are due.
5. NOTES PAYABLE
On March 23, 2000, the $1,999,000 mortgage on the Eccles Project matured.
The lender, Redwood Bank, extended the term of the loan and on April 4,
2000 loan extension documents were recorded. The new maturity date on the
loan is March 31, 2001. As part of the extension, principal was reduced by
$100,000.
On August 2, 2000, the Company paid off the $545,000 mortgage on the San
Ramon Retail Center with the proceeds of a new loan in the principal
amount of $800,000 from a bank, secured by a first mortgage on the San
Ramon Retail Center. The note calls for amortized principal and interest
payments, with interest rates fixed for the first three years at 9.1%.
Amortization is based on a 30-year period, with the entire principal and
accrued and unpaid interest due on July 31, 2010.
7
<PAGE>
6. SALES CONTRACT
On July 3, 2000, the prospective purchaser of the Eccles Property proposed
either to renegotiate the purchase terms due to an easement encroaching on
the Eccles Property that the Company had not removed or to terminate the
proposed purchase. The Company has subsequently terminated the contract
with the prospective purchaser. The Company believes that the City of
South San Francisco may now approve an approximately 300,000 square foot
rather than a 200,000 square foot office building as previously planned.
Such a larger building would increase development and carrying costs until
the building is fully leased as well as the potential financial return.
The Company is continuing its plan to sell, exchange, or develop this
property.
7. SUBSEQUENT EVENTS
Extinguishment of Easements related to the Eccles Property - On November
3, 2000, the Company entered into an agreement with San Rio, Inc., (the
owner of the adjacent property), wherein San Rio, Inc. consented to the
extinguishment of certain easements related to the Eccles property that
may have limited the size of any development on the Eccles Property.
8
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operations
Forward-Looking Information May Prove Inaccurate
This report contains statements about the future, sometimes referred to
as "forward-looking" statements. Forward-looking statements are typically
identified by the use of the words "believe," "may," "will," "should," "expect,"
"anticipate," "estimate," "project," "propose," "plan," "intend" and similar
words and expressions. Statements that describe future strategic plans, goals or
objectives of the Company are also forward-looking statements. The Company
intends the forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements contained in Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Readers of this report are cautioned that any forward-looking
statements, including those regarding the Company or its management's current
beliefs, expectations, anticipations, estimations, projections, proposals, plans
or intentions are not guarantees of future performance or results of events and
involve risks and uncertainties. The forward-looking information is based on
present circumstances and on the Company's predictions respecting events that
have not occurred, which may not occur or which may occur with different
consequences from those now assumed or anticipated. Actual events or results may
differ materially from those discussed in the forward-looking statements as a
result of various factors. The forward-looking statements included in this
report are made only as of the date of this report. The Company is not obligated
to update such forward-looking statements to reflect subsequent events or
circumstances.
The following discussion should be read in conjunction with the
Financial Statements of the Company and the Notes thereto. All figures are in
dollar amounts.
Overview
The Company is a real estate company that emphasizes investment in both
development real estate assets and income-producing real estate assets. The
Company is engaged in the ownership, leasing, management, operation,
development, redevelopment, acquisition and sale of real estate assets in the
greater San Francisco Bay Area. The Company currently owns retail shopping
centers and an office building. The lease space is currently 100% occupied. The
Company also owns an undeveloped parcel of land referred to as the "Eccles
Project" in South San Francisco. As discussed in more detail below, the Company
currently proposes to engage in the development of one or more office buildings
on the property. The Company conducts all of its real property management and
brokerage activities through a written agreement with a related corporation,
Diversified Investment & Management Corporation, which is 100% owned by the
Company's majority stockholder, Mr. Maniar. Mr. Maniar currently owns in excess
of 96% of the stock of the Company.
Basis of Presentation of Financial Information
The Company's financial condition and results of operations were
substantially changed by the acquisition of its four properties from Mr. Maniar
in June 1999. The acquisition of the four properties was accounted for as a
"reverse acquisition" whereby, for accounting purposes, the properties acquired
the Company under the purchase method of accounting and due to the lack of
significant business operations by the Company prior to the June 8, 1999
acquisition, the transaction was reported as a recapitalization. Accordingly,
the historical financial statements were prepared to give retroactive effect to
the reverse acquisition completed June 8, 1999. Consistent with reverse
acquisition accounting: (a) the comparative results of operations show revenue
and expense from the properties for a comparative period,
9
<PAGE>
with operations subsequent to June 8, 1999, also reflecting the Company's
additional expenses of conducting business as a public company; (b) all
properties, assets, liabilities and accumulated deficit are reflected at the
properties' combined historical cost (as the accounting acquiror); and (c) the
preexisting outstanding shares of the Company (the accounting acquiree) are
reflected at their net cash value as if issued on June 8, 1999. In addition, the
benefit of deferred tax assets generated by the contribution of the properties
to the Company with a tax basis in excess of book basis has been recorded as
additional paid-in capital.
Results of Operations
Nine Months Ended September 30, 2000 and 1999:
The Company's net loss for the nine months ended September 30, 2000,
decreased to $96,272 from $98,022 for the nine months ended September 30, 1999,
or 1.8%.
The Company's total revenues for the nine months ended September 30,
2000, increased to $1,093,210 from $1,060,446 for the nine months ended
September 30, 1999, or 3.0%. This increase is primarily attributable to two
factors: (a) rental payments commencing November 1999, under a new lease with
AlphaGraphics 503 at the San Ramon Retail Center; and (b) rental increases that
took effect December 1, 1999, in the base rent paid by Keker & Van Nest, the
sole tenant at that property. With the exception of the Eccles Project land, all
of the Company's properties are 100% leased under lease terms extending beyond
the end of 2000, so that no rent reductions due to vacancies are expected for
the balance of the year nor are significant rent increases likely, absent early
termination of an existing lease and a releasing. Revenues will vary slightly
due to changes in the amount of expenses reimbursable under net leases.
Total operating expenses for the nine months ended September 30, 2000,
increased to $558,465 from $449,287 during the nine months ended September 30,
1999, or 24.3%. While most operating expenses showed expected variations due to
variable costs, such as utilities and insurance, administrative costs increased
from $58,277 for the nine months ended September 30, 1999, to $70,247 for the
nine months ended September 30, 2000. This increase was due primarily to the
increased costs of outside accounting and legal services that are associated
with the public company status of the Company. Real estate tax expenses also
rose from $79,086 for the nine months ended September 30, 1999 to $147,541 for
the nine months ended September 30, 2000, or 86.6% This increase was due to a
reassessment of the real property that was transferred to the Company, based
upon California's property tax laws which permit a revaluation and reassessment
of real estate values when a change of ownership occurs. The transfer of the
real estate assets from Mr. Maniar to the Company on June 8, 1999, caused the
reassessment. The Company believes this is in error and has filed an assessment
appeal in each case. Currently, the real estate taxes are being recorded at the
new assessed values.
Net interest expense for the nine months ended September 30, 1999, was
$683,919 and increased to $715,642 for the nine months ended September 30, 2000,
or 4.6%, due primarily to increases in the prime interest rate on the Eccles
Project loan with Redwood Bank together with the refinancing of the San Ramon
Retail Center. The refinancing retired the existing $545,000 Gross Mortgage
Company loan and replaced it with a five-year loan from Affinity Bank, with a
30-year amortization schedule, with interest fixed for three years at 9.10% per
annum.
10
<PAGE>
Quarter ended September 30, 2000 and 1999:
The Company's net loss for the three months ended September 30, 2000,
increased to $43,299 from $27,547 for the three months ended September 30, 1999,
or 57.2%.
The Company's total revenues for the three months ended September 30,
2000, increased to $380,074 from $376,906 for the three months ended September
30, 1999, or 1.0%.
Total operating expenses for the three months ended September 30, 2000,
increased to $214,960 from $151,218 during the three months ended September 30,
1999, or 42.2%. While most operating expenses showed expected variations due to
variable costs, the major factor contributing to the increase was the increase
in real property taxes, which increased from $26,154 for the three months ended
September 30, 1999, to $94,955 for the three months ended September 30, 2000, or
263.1%, as discussed above.
Net interest expense for the three months ended September 30, 1999, was
$227,973 and increased to $244,273 for the three months ended September 30,
2000, or 7.1%, due primarily to increases in the prime interest rate on the
Eccles Project loan with Redwood Bank.
Liquidity and Capital Resources
The Company has met its requirements for liquidity and capital
resources principally from cash provided by operations, refinancing and
realization of equity.
Operating Activities
Operating activities for the nine months ended September 30, 2000, used
net cash of $19,454, compared to net cash provided by operating activities for
the nine months ended September 30, 1999, of $258,968, a decrease of $278,422.
This decrease represents increases in cash operating expenses, together with
various balance sheet factors, such as decreases in prepaid rent, accounts
payable and prepaid expenses, together with other factors. Noncash expenses
related to depreciation and amortization were $207,384 and $197,465 for the
third quarters of 1999 and 2000, respectively. Deferred tax benefits, which
reduced the Company's net loss for 2000, were $84,625.
Investing Activities
Cash used in investing activities for the period ended September 30,
1999 was $18,492. Cash used in investing activities for the period ended
September 30, 2000 was $29,286, consisting principally of loan costs associated
with the new mortgage loan on the San Ramon Retail Center.
Financing Activities
Cash generated by financing activities was $81,360 for the period ended
September 30, 2000, as compared to cash used in financing activities of $47,202,
for the period ended September 30, 1999. The cash generated during the current
nine-month period arises substantially from the refinancing of the San Ramon
Retail Center whereby the former mortgage of $545,000 to Gross Mortgage Company
was paid off, and a new loan from Affinity Bank in the amount of $800,000 was
obtained. This increased loan amount reflects the Company's ability to obtain
cash from its increased real estate equity.
11
<PAGE>
The statements of cash flows for the nine-month period ended September
30, 1999, disclosed distributions of $75,222 in that year. Those distributions
related to the distribution of loan proceeds during the period prior to Mr.
Maniar's sale of the real properties to Montgomery, and therefore represent
pre-incorporation funds. No distributions have been made to Mr. Maniar since his
sale of the real estate to the company in June 1999, and no such distributions
are planned in the future.
Eccles Property
The contract between the Company and Peter Pau, d/b/a Sand Hill
Property Company, has been terminated, and the Company currently intends to
proceed with the development of the site. A seismic refraction study has been
performed to ascertain soil densities, and the geotechnical study, also known as
a soils study, which provides information as to the exact locations of bedrock,
the exact nature of the soils for purposes of planning excavation and other
relevant data, has been performed. When a written report has been issued, the
Company's project architect can begin to lay out detailed drawings of the
proposed project.
Preliminary entitlement investigations have indicated that the City of
South San Francisco may approve up to 300,000 square feet of building, a figure
substantially larger than the 200,000 square feet initially envisioned. Current
conceptual designs call for a ten-story tower of approximately 175,000 square
feet and a shorter five-story tower, consisting of approximately 125,000 square
feet. The owner of the adjacent property, San Rio, Inc., has consented to an
extinguishment of certain easements, which might otherwise have limited the size
of the proposed project.
Current estimates place the cost of construction of a 300,000 square
foot building at approximately $45,000,000. Construction is likely to proceed in
two phases, with the first phase consisting of the five-story tower, with
construction costs of approximately $22,500,000.
The Company remains open to a sale or exchange of the Eccles property
in lieu of development.
12
<PAGE>
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibits are included as part of this report:
Exhibit SEC Reference
Number Number Title of Document
------ ------ -----------------
Item 27 Financial Data Schedule
----------- ---------- ----------------------------------------
27.01 27 Financial Data Schedule
(b) Reports on Form 8-K
During the quarter ended September 30, 2000, the Company did not file
any reports on Form 8-K.
Signature
In accordance with the Securities Exchange Act of 1934, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
MONTGOMERY REALTY GROUP, INC.
(Registrant)
Date: November 14, 2000 By: /s/ Dinesh Maniar
---------------------------
Dinesh Maniar
President
13
