As filed with the Securities and Exchange Commission on August 3, 1999
Registration No. 333-71089
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
AMENDMENT 3
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------
RAMPART CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Texas 6159 76-0427502
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of Industrial Identification
incorporation or organization) Classification Code Number)
Number)
</TABLE>
Rampart Capital Corporation
700 Louisiana, Suite 2550
Houston, Texas 77002
(713) 223-4610
(Address, including zip code and telephone number,
including area code, of registrant's principal executive offices
and principal place of business)
J. H. Carpenter
Rampart Capital Corporation
700 Louisiana, Suite 2550
Houston, Texas 77002
(713) 223-4610
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------
Copies To:
Maurice J. Bates, Esq. Norman R. Miller, Esq.
Maurice J. Bates, L. L. C. Wolin, Ridley & Miller LLP
8214 Westchester, Suite 500 3100 Bank One Center
Dallas, Texas 75225 1717 Main Street
(214) 692-3566 Dallas, Texas 75201-4681
(214) 939-4906
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective. If this Form is
filed to register additional securities for an offering pursuant to Rule 462(b)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the
earlier effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering If delivery of the prospectus is expected to be made
pursuant to Rule 434, please check the following box.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
maximum maximum
Amount to be offering aggregate offering Amount of
Title of each class of securities to be registered price price(1) registration fee
registered per share(1)
<S> <C> <C> <C> <C>
Common Stock, $.01 par value (2)......... 1,725,000 $10.00 $17,250,000 $5088.75
Representatives' Warrants................ 150,000 $.001 150 $1.00
Common Stock included in Underwriters' 150,000 $12.00 $1,800,000 $ 531.00
Warrants (3)
TOTAL $5,620.75
</TABLE>
(1) Estimated solely for purposes of calculating the amount of the registration
fee pursuant to Rule 457 under the Securities Act of 1933, as amended.
(2) Includes 225,000 Shares of Common Stock issuable pursuant to the
Representative's over-allotment option.
(3) Represents shares of common stock issuable upon exercise of the
Representatives' Warrants, together with such additional indeterminate number of
shares of Common Stock as may be issued upon exercise of such Representatives'
Warrants by reason of the anti-dilution provisions contained therein.
------------
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
SUBJECT TO COMPLETION DATED August3, 1999
1,500,000 Shares
Common Stock
Rampart Capital Corporation
700 Louisiana Street, Suite 2510
Houston, Texas 77002
This is an initial public offering of 1,500,000 shares of common stock
of Rampart Capital Corporation. Currently, there is no public market
for our common stock.
This is a firm commitment underwriting. The underwriters have an
option to purchase an additional 225,000 shares to cover
over-allotments This is an initial public offering of 1,500,000 shares
of common stock of Rampart Capital Corporation. Currently, there is no
public market for our common stock.
The Offering:
Per Share Total
Public Offering Price $10.00 $15,000,000
Underwriting discounts $ 0.975 $ 1,462,500
Proceeds to Rampart $ 9.025 $13,537,500
- -----------------------
This investment involves a high degree of risk. See "Risk Factors" beginning on
page 6.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
-----------------
REDSTONE SECURITIES, INC.
Prospectus dated 1999
<PAGE>
TABLE OF CONTENTS
Page
Prospectus Summary...................... . 3
Selected Consolidated Financial Information......... .. 5
Risk Factors................................ ...... 6
Changing Economic Conditions Could Cause a Decline in the Value of Our
Collateral and Paying Loans............ 6
The Asset Acquisition and Resolution Business is Maturing, Becoming More
Competitive and Uncertain........... 6
The NOLs Acquired in the MCorp Acquisition Could Be Potentially Unavailable. 6
The Loss of the Services of One or More of Our Executive Officers Could
Adversely Affect Our Business......... 7
Our Method of Revenue Recognition Will continue to Result in Period to Period
Variances............................ 7
We Cannot Assure That We Will Continue to Locate and Acquire Suitable Debt
Portfolios and Real Estate......... 7
If We Need Additional Capital, We Will Be Limited in the Use of Equity
Financing Because of the Tax Laws
Relating to Change in Equity Ownership.......................... ... 7
Two of Our Executive Officers and Directors Own 60% of Our Voting Stock
and Will Be Able to Exert
Significant Influence Over Matters Requiring Stockholder Approval..... . 8
Our American Stock Exchange Listing Has Not Been Approved and Even If It Is
Approved, We Cannot Assure An
Active Trading Market................................ .. 8
Our Option Stock May Hinder Future Equity Financing........ .. 8
The Underwriters' Warrants May Hinder Future Equity Financing and Exercise
Could Cause Dilution to
Shareholders..................................................... 8
Some of The Real Estate We Acquire May Be Subject to Environmental Problems. 8
Use of Proceeds................................................... ... 9
Dividend Policy....................................... ......... ... 10
Dilution....................................................... 10
Capitalization........................................................ 11
Management's Discussion and Analysis of Financial Condition and Results Of
Operations......................................................... ... 12
Business........................................................... 18
Additional Information................................................... 24
Management........................................................ ...... 26
Certain Relationships and Related Transactions......................... 30
Principal shareholders.............................................. . . 31
Certain Federal Income Tax Matters.................................. 32
Description of Capital Stock......................................... 35
Shares Eligible For Future Sale.......................................... .. 36
Plan of Distribution..........................................................37
Legal Matters................................................................ 39
Experts.................................................................. 39
Index to Consolidated Financial Statements.............................. F-1
<PAGE>
PROSPECTUS SUMMARY
Unless otherwise indicated, the information herein has been adjusted to reflect
a 3,000 to 1 stock split in December 1998, and assumes the underwriters'
over-allotment option and the underwriters' warrants are not exercised.
Profile of Rampart's Business Activities
Rampart Capital Corporation is a specialty financial services company that
acquires undervalued financial assets, primarily in the form of commercial
debt portfolios and real estate;
manages and services its asset portfolios;
collects the debt and sells real estate and other assets for profit; and
provides short-term funding for real estate projects.
We purchase:
non-performing asset pools, consisting primarily of commercial loans and
other commercial obligations at substantial discounts from their legal
balances by competitive bids and negotiated purchases; and
real estate and other assets in distressed situations at substantial
discounts below market values.
Historically, the majority of our real estate has been sold at market value
in the market place. Because our cost basis in most properties is low, we
have not realized a loss on any property sold. In order to optimize
profitability, we will sometimes hold and manage properties with
significant upside market potential for current operating profit and future
liquidation at optimum prices. Currently, our principal real estate holding
is the Newport Golf Club and Conference Center in Houston, Texas.
Potential Availability of Tax Loss Carryforwards
In July 1997 we acquired certain assets and corporations of the MCorp
Liquidating Trusts. As a result of this acquisition and pre-acquisition
losses, management believes that currently there may be approximately $56.0
million of net operating loss carryforwards and built-in-losses
(collectively, "NOLs") subject to certain possible limitations, available
to offset future taxable income of the acquired corporations for federal
and state income tax purposes. If we are able to utilize the NOLs, they
must be utilized against profits occurring in the acquired corporations
which are operated as wholly-owned subsidiaries, as opposed to consolidated
profits realized by Rampart. We cannot assure that sufficient profits, if
any, can be generated in the acquired corporations prior to the expiration
of some or all of the potential NOLs. However, most of our income is now
generated through these subsidiaries, and all of our acquisitions and asset
purchases since July 1997 have been made through these subsidiaries. Most
notable was our acquisition of the Newport assets in February 1999 through
Rampart Properties Corporation, our subsidiary with the greatest NOL
carryforward.
Our Offices
Rampart is a Texas Corporation whose principal executive offices are
located at 700 Louisiana, Suite 2510, Houston, Texas 77002; telephone
number (713) 223-4610; facsimile: (713) 223-4814. The electronic mail
address is [email protected].
<PAGE>
The Offering
<TABLE>
<S> <C>
Shares offered ............................. 1,500,000 shares of common stock
Common Stock to be outstanding
after the Offering........................ 3,750,000 shares (1)
Use of Proceeds............................. Purchase of discounted asset portfolios, temporarily reduce
debt, working capital and other general corporate purposes
American Stock Exchange Symbol.............. "RAC"
- -----------------
</TABLE>
(1) Does not include:
Up to 225,000 shares to be issued upon exercise of the
underwriters' over-allotment option,
150,000 shares to be issued upon exercise of the underwriters'
warrants, and
375,000 shares reserved for issuance under the 1998 Stock
Compensation Plan.
<PAGE>
Selected Consolidated Financial Information
The following selected financial data has been derived from our audited balance
sheets and income statements for the fiscal years ended December 31, 1997 and
1998, and our unaudited balance sheets and income statements for the three
months ended March 31, 1998 and 1999. This selected financial data should be
read in conjunction with the consolidated financial statements of Rampart and
related footnotes included at the end of this prospectus.
<TABLE>
<CAPTION>
Years Ended December 31, Quarters Ended March 31,
<S> <C> <C> <C> <C>
--------------------------------- --------------------------------
1997 1998 1998 1999
----------------- --------------- ------------- ------------------
Operating Data: (Unaudited)
Revenues $2,935,283 $6,843,785 $2,717,139 $1,616,083
Cost of revenues 1,134,044 2,241,702 1,013,028 392,881
Operating expenses 2,186,720 2,043,037 537,056 587,421
--------- --------- ------- -------
Earnings (loss) before income tax (385,481) 2,559,046 1,167,055 635,781
Income tax benefit (expense) 325,020 (484,891) (200,000) 37,804
------- --------- --------- ------
Net income (loss) (60,461) 2,074,455 967,055 673,585
Basic net income (loss) per common share $ (0.03) $ .92 $ .43 $ .30
Weighted average common shares outstanding 2,250,000 2,250,000 2,250,000 2,250,000
</TABLE>
<TABLE>
<CAPTION>
As of December 31, As of March 31,
--------------------------------- -------------------------------------------
Adjusted
<S> <C> <C> <C> <C> <C>
1997 1998 1998 1999 1999 (1)
--------------------------------- -------------------------------------------
(Unaudited)
Balance Sheet:
Working capital (2) - - -
Current assets (2) - - -
Current liabilities (2) - - -
Total assets $ 6,245,871 $ 7,011,708 $ 5,375,498 $ 9,894,287 $ 17,357,158
Total liabilities 5,791,542 4,482,924 3,954,114 6,691,918 1,117,289
Shareholders' equity 454,329 2,528,784 1,421,384 3,202,369 16,239,869
Weighted average common shares outstanding 2,250,000 2,250,000 2,250,000 2,250,000 3,750,000
Book value per share $ 0.20 $ 1.12 $ .63 $ 1.42 $ 4.33
- -------
</TABLE>
(1) Adjusted to reflect the sale of 1,500,000 shares offered by this prospectus
at an offering price of $10.00 per share and application of the net
proceeds of $13,037,500.
(2) In our industry, short-term obligations are met by cash flow generated from
assets of indeterminable term. Consequently, consistent with industry
practice, our consolidated balance sheet is presented on an unclassified
basis.
<PAGE>
RISK FACTORS
Investing in our shares involves a high degree of risk. Prospective investors
should consider the following factors in addition to other information set forth
in the prospectus before purchasing the our common stock.
Changing Economic Conditions Could Cause a Decline in the Value of Our
Collateral and Paying Loans
Our lines of business are particularly subject to
periods of economic slowdown or recession,
rising interest rates, and
declining demand for real estate.
Although these conditions may increase the number of non-performing debt
and undervalued real estate portfolios available for acquisition at
discounted prices, such conditions could
reduce marketability of our paying loans and real estate, thereby
increasing the time required to liquidate our assets;
reduce the value or demand for collateral securing paying loans, thereby
increasing the risk of paying loans becoming non-paying, and increase the
cost of capital invested; and
reduce the return on assets by lengthening the time that capital is
invested.
The Asset Acquisition and Resolution Business is Maturing, Becoming more
Competitive and Uncertain
This industry developed approximately ten years ago. Initially, very little
was known about the profit potential of this industry, and there were few
competitors. As the industry has matured, participants have become
increasingly knowledgeable and more sophisticated in evaluating and pricing
assets. As a result,
the competition for asset portfolios has increased, resulting in higher
prices and lower resulting gross yields;
the number of portfolios available for purchase has declined since 1995;
the majority of the sellers in today's market are not governmental
entities, therefore, more negotiated transactions and fewer bid situations
are available.
Because of state and federal regulations, commercial banks, thrifts and
insurance companies are required to allocate more regulatory capital to
non-performing assets. Consequently, it is often preferable from a
regulatory capital perspective for these entities to sell assets at
substantial discounts from legal balances. In the aggregate, these entities
are among the most active sellers of assets. If regulations were changed in
the future to decrease the regulatory capital required to be allocated to
non-performing assets, these entities would have less incentive to dispose
of assets. To the extent these entities retain non-performing assets rather
than selling them, there would be a decreased supply of assets available
for purchase by Rampart and its competitors. Any significant decrease in
the supply of non-performing assets available for purchase would likely
result in significant decreases in revenues in the discounted asset
acquisition industry. We cannot assure that regulatory changes will not be
adopted.
<PAGE>
The Nols Acquired in the MCorp Acquisition Could Be Potentially Unavailable
In the MCorp Acquisition, we acquired
entities having potentially utilizable NOLs in the amount of approximately
$55.8 million. There is little or no legal authority governing many of the
tax aspects of the MCorp Acquisition since many determinations involving
the use of the NOLs after such acquisitions are questions of fact. We have
not obtained a private letter ruling from the Internal Revenue Service or
an opinion of counsel regarding the availability of the NOLs. Therefore, we
cannot assure that the IRS will not successfully challenge the availability
of some or all of the NOLs. The utilization of certain of the NOLs could
also potentially be limited or unavailable in the future in the event of
the occurrence of a second ownership change as defined in the Tax Code.
(Certain of our NOLs are currently limited due to a previous ownership
change concerning the acquisition of certain of the subsidiaries of
Rampart.) In order to insure that a second change of ownership does not
occur, our existing shareholders have agreed to certain restrictions on the
transfer of their shares so as to avoid an ownership change and the
application of Section 382 of the Tax Code which defines such changes.
If we are able to utilize the NOLs, they must be utilized against profits
occurring in the acquired corporations as opposed to consolidated profits
realized by Rampart. We cannot assure that sufficient profits, if any, can
be generated in the acquired corporations prior to the expiration of some
or all of the potential NOLs or that the IRS will not deny use of all or
part of the NOLs. However, most of our income is now generated through the
acquired corporations, and all of our acquisitions and asset purchases
since July 1997 have been made through these subsidiaries.
The Loss of the Services of One or More of Our Executive Officers Could
Adversely Affect Our Business
Rampart is dependent on the efforts of its senior management, particularly
Charles W. Janke (Chairman of the Board and Chief Executive Officer), J. H.
Carpenter (President and Chief Operating Officer), Charles F. Presley (Vice
President, Treasurer and Chief Financial Officer) and Eileen Fashoro, (Vice
President and Assistant Secretary). If one or more of these individuals
become unable or unwilling to continue in his/her present role, our
business operations or prospects could be adversely impacted. We cannot
assure that any of the foregoing individuals will continue to serve in his
or her current capacity or for what time period this service might
continue. We do not have employment agreements with any of our executive
officers.
Our Method of Revenue Recognition Will Continue to Result in Period to
Period Variances
Our method of revenue recognition for purchased asset pools is based upon
actual cash collections received. Such collections have historically varied
and will likely continue to vary significantly from period to period.
Consequently, period to period reported revenue has historically varied and
will likely continue to vary. These variations may cause significant
fluctuations in earnings reported from period to period and, therefore,
significant fluctuations in the trading price of Rampart's shares.
We Cannot Assure That We Will Continue to Locate and Acquire Suitable Debt
Portfolios and Real Estate
We plan to grow through acquisitions of debt portfolios, real estate, and
other assets. Currently we do not have any negotiations for acquisitions
pending.
Further, we cannot assure or represent that we will be successful in
consummating any acquisitions on beneficial terms.
<PAGE>
If We Need Additional Capital, We Will Be Limited in the Use of Equity
Financing Because of the Tax Laws Relating to Change in Equity Ownership
A substantial portion of the proceeds of this offering will be utilized for
acquisitions of debt portfolios, real estate, and other assets. Therefore,
we may require additional capital to expand our operations. We may be
limited in the use of equity financing due to the restrictions on ownership
changes occasioned by Section 382 of the Tax Code. These limitations may
require additional debt financing. There can be no assurance that any such
debt financing will be available on favorable terms.
Execution of our business strategy depends to a significant degree on our
ability to obtain additional financing. Factors which could adversely
affect access to the capital markets, or the costs of such capital, include
changes in interest rates, general economic conditions and the perception
in the capital markets of our business, results of operations, leverage,
financial condition and business prospects.
Most of our indebtedness bears interest at floating rates which change when
certain short term benchmarks increase. If these benchmark rates increase
beyond what we had originally projected, our profitability will be
adversely affected. Additionally, if interest rates increase significantly,
we may be unable to meet these obligations. Even if we are able to service
our asset acquisition debt, significant increases in interest rates will
depress margins on the resolution of such asset portfolios, thereby
decreasing overall earnings which may prevent meeting debt obligations we
have incurred or may incur in the future. Although we may be able to
negotiate ceilings on interest rates or otherwise hedge against such risk,
we cannot assure that we will be able to do so, or that we will be able to
so hedge against this risk at a reasonable cost.
Two of Our Executive Officers and Directors Own 60% of Our Voting Stock and
Will Be Able to Exert Significant Influence Over Matters Requiring Stockholder
Approval
Upon completion of this offering, Charles W. Janke and J. H. Carpenter,
officers and directors, will own approximately 60.0% of the outstanding
shares. Although there are no agreements or arrangements between such
persons with respect to voting their shares, if they act together, they
will be able to control the vote on any election of directors and to
substantially impact the vote on other matters submitted to shareholders
and thereby exert considerable influence over the affairs of Rampart.
Our American Stock Exchange Listing Has Not Been Approved and Even If It Is
Approved, We Cannot Assure An Active Trading Market
Prior to this offering, there was no public market for our common stock. We
have applied for listing of the shares on the American Stock Exchange. We
cannot assure that our listing application will be approved. Such listing,
if approved, does not imply that there will be a meaningful, sustained
market for the shares. We cannot assure that an active trading market for
the shares will develop or continue.
<PAGE>
Our Option Stock May Hinder Future Equity Financing
We have reserved 375,000 shares of common stock for issuance to key
employees, officers, directors, and consultants under The 1998 Stock
Compensation Plan. To date no options have been granted under the 1998
Stock Compensation Plan. The existence of these options may prove to be a
hindrance to future equity financing.
The Underwriters' Warrants May Hinder Future Equity Financing and Their Exercise
Could Cause Dilution to Shareholders
The holders of the underwriters' warrants have four years starting one year
from the effective date of this offering to profit from a rise in the
market price of the shares causing dilution in the interests of the other
shareholders. Further, the terms on which we might obtain additional
financing during that period may be adversely affected by the existence of
the underwriters' warrants. The holders of the underwriters' warrants may
exercise their warrants at a time when we might be able to obtain
additional capital through a new offering of shares on terms more favorable
than those provided herein. We have agreed that, under certain
circumstances, we will register under federal and state securities laws the
shares to be issued thereunder. Exercise of these registration rights could
involve expense at a time when we could not afford the expenditures and may
adversely affect the terms upon which we may obtain financing.
Some of The Real Estate We Acquire May Be Subject to Environmental Problems
Some of the real estate acquired through foreclosure or direct purchase and
real estate collateralized loans may have the risk of environmental
problems. If they exist, these problems consist primarily of underground
storage tanks and asbestos.
<PAGE>
USE OF PROCEEDS
We expect to net approximately $13,037,500 from the proceeds of this offering
($15,068,500 if the over-allotment option is exercised in full). This assumes an
initial public offering price of $10.00 per share after deducting the
underwriters' discount and $500,000 of expenses relating to the offering. We
intend to use the net proceeds as follows:
<TABLE>
<CAPTION>
Amount %
<S> <C> <C>
-------------------- ------------
Acquisitions of undervalued real estate and discounted loans (1) $6,900,000 52.9
Temporarily reduce debt (2) 5,600,000
Working capital 537,500 4.1
------- ---
$13,037,500 100.0
</TABLE>
---------------
(1) (1) We intend to use as much as $6,900,000 for future acquisitions of asset
pools of non-performing loans and undervalued real estate consistent with
our business strategy. Currently, we do not have any negotiations for
acquisitions pending.
(2) Our total debt increased by $2,875,000 for the purchase of the Newport
assets. We plan to pay down our revolving credit facility until we have use
for the funds. The credit facility incurs interest at prime rate plus one
percent. Additionally, we will pay off the $1,400,000 debt to the Janke
Family Partnership, Ltd. incurred for the purchase of the Newport assets.
This debt has a fixed interest rate of 10%.
Pending application of the net proceeds of this offering, we may invest
such net proceeds in interest-bearing accounts, United States Government
obligations, certificates of deposit or short-term interest-bearing
securities.
Our proposed use of proceeds is illustrated in the following pie chart:
The Use of Proceeds chart has been omitted from the Edgar filing:
<PAGE>
DIVIDEND POLICY
We have never paid cash or other dividends on the common stock and do not
anticipate that we will pay cash dividends in the foreseeable future. The board
of directors plans to retain earnings for the development and expansion of
business. Any future determination as to the payment of dividends will be at the
discretion of the board of directors and will depend on a number of factors,
including future earnings, capital requirements, financial condition, and any
other factors that the board of directors may deem relevant.
DILUTION
As of March 31, 1999, our net tangible book value was $3,202,369 or $1.42 per
share based on 2,250,000 shares outstanding. The net tangible book value is the
aggregate amount of our tangible assets, less our total liabilities. The net
tangible book value per share represents the total tangible assets, less total
liabilities, divided by the number of shares outstanding. After giving effect to
(i) the sale of 1,500,000 shares at an assumed offering price of $10.00 per
share, and (ii) the application of the estimated net proceeds, the pro forma net
tangible book value would increase to $16,239,869, or $4.33 per share. This
represents an immediate increase in net tangible book value of $2.91 per share
to current shareholders and an immediate dilution of $5.67 per share to new
investors or 56.7% as illustrated in the following table:
<TABLE>
<S> <C> <C>
Public offering price per share $10.00
Net tangible book value per share before this offering $1.42
Increase per share attributable to new investors 2.91
------------
Adjusted net tangible book value per share after this 4.33
offering
--------------
Dilution per share to new investors $ 5.67
--------------
Percentage dilution 56.7%
</TABLE>
The following table sets forth as of March 31,1999, the number of shares
purchased as a result of the offering, the total consideration paid, and
the average price per share paid by the current shareholders (before
deducting underwriting discounts and other estimated expenses) at an
assumed offering price of $10 per share.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average Price
------------------------------------ --------------------------------- -----------------
---------------- -------- ---------- -- ------------------ ----------- -----------------
Number Percent Amount Percent Per Share
---------------- -- -----------
---------------- ---------- ------------------ ----------- ----------- ----
<S> <C> <C> <C> <C> <C> <C>
Current Shareholders 2,250,000 60.0% $ 22,500 0% $0.00
New investors 1,500,000 (1) 40.0% 15,000,000 100.0% $10.00
--------- ----- ----------- ------ ------
Total 3,750,000 (2) 100.0% $15,022,500 100.0%
========= ====== =========== ======
--------
</TABLE>
(1) Upon exercise of the over-allotment option, the number of shares held by
new investors would increase to 1,725,000 or 43.4% of the total number of
shares to be outstanding after the offering and the total consideration
paid by new investors will increase to $17,250,000.
(2) Does not include 750,000 shares issuable upon the exercise of (i) the
underwriters' over-allotment option, (ii) the underwriters' warrants, or
(iii) employee stock options. To the extent that these options and warrants
are exercised, there will be further share dilution to new investors.
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization (i) as of March 31, 1999 and
(ii) on a pro forma as adjusted basis to give effect to the sale of 1,500,000
shares and the application of the estimated net proceeds.
<TABLE>
<CAPTION>
March 31, 1999
-------------------------------------
----------------- -- -----------------
(Actual) (As Adjusted)
----------------- -----------------
(Unaudited)
<S> <C> <C>
Liabilities:
Notes payable (1) $6,097,488 $522,859
----------------- -----------------
Shareholders' equity
Preferred Stock, $.01 par value, 10,000,000 0 0
shares authorized; no shares issued actual or
adjusted (2)
Common Stock, $.01 par value $ 22,500 $ 37,500
10,000,000 shares authorized,
2,250,000 shares issued and
outstanding, 3,750,000 as adjusted (3)
Additional paid in capital 0 13,022,500
Retained earnings 3,179,869 3,179,869
----------------- -----------------
----------------- -----------------
Total shareholders' equity $3,202,369 $16,239,869
----------------- -----------------
----------------- -----------------
Total capitalization $9,299,857 $16,762,728
----------------- -----------------
- -----------
</TABLE>
(1) Consistent with industry practice, the balance sheet is presented on an
unclassified basis. Accordingly, total capitalization as presented here
captures notes payable in their entirety.
(2) The preferred stock was authorized by the board of directors in December
1998.
(3) Does not include 750,000 shares issuable upon the exercise of (i) the
underwriters' over-allotment option, (ii) the underwriters' warrants, or
(iii) employee stock options. To the extent that these options and warrants
are exercised, there will be further share dilution to new investors.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should note that this prospectus contains certain "forward-looking
statements," including without limitation, statements containing the words
"believes," "anticipates," "expects," "intends," "plans," "should," "seeks to,"
and similar words. You are cautioned that such forward-looking statements are
not guarantees of future performance and involve risks and uncertainties. Actual
results may differ materially from those in the forward-looking statements as a
result of various factors, including but not limited to, the risk factors set
forth in this prospectus. The accompanying information contained in this
prospectus identifies important factors that could cause such differences. You
should read Rampart's Consolidated Financial Statements, related notes and other
financial information included in this prospectus in conjunction with the
following discussion of our operations.
Results of Operations
For the three month periods ended in March 1999 and 1998, earnings before tax
decreased $531,274 ($1,167,055 in 1998 to $635,781 in 1999) primarily because of
the sale of a single real estate holding in 1998 resulting in a gross profit of
$1,125,000. Except for the real estate sale in 1998, quarterly earnings would
have increased $593,726. Over the period from December 31, 1997 to December 31,
1998, we have increased net revenues by 134% to $6.8 million from $2.9 million.
As a percentage of revenues, costs decreased 5.8% (38.6% compared to 32.8%) and
operating expenses decreased 44.7% (from 74.5% to 29.8%) for the same period. A
comparative summary of the earnings statements is shown below.
<TABLE>
<CAPTION>
Operating Data: Year Ended December 31, Quarter Ended March 31,
---------------------------------------- -------------------------------------------
1997 1998 1998 1999
----------------- ---------------- ----------------- -------------------
(Unaudited)
<S> <C> <C> <C> <C>
Revenues $ 2,935,283 $6,843,785 $ 2,717,139 $ 1,616,083
Cost of revenues 1,134,044 2,241,702 1,013,028 392,881
----------------- ---------------- ----------------- -------------------
Gross profit 1,801,239 4,602,083 1,704,111 1,223,202
General and administrative expense 1,544,120 1,548,895 389,016 468,712
Interest expense 642,600 494,142 148,040 118,709
----------------- ---------------- ----------------- -------------------
Earnings (loss) before income tax (385,481) 2,559,046 1,167,055 635,781
Income tax benefit (expense) 325,020 (484,591) (200,000) 37,804
----------------- ----------------
----------------- -------------------
Net income (loss) $ (60,461) $ 2,074,455 $ 967,055 $ 673,585
----------------- -------------------
Basic net income (loss) per $ (0.03) $ .92 $ 0.43 $ 0.30
common share
----------------- -------------------
----------------- ---------------- ----------------- -------------------
Diluted net income (loss) per $ (0.03) $ .92 $ 0.43 $ 0.30
common share
----------------- ---------------- ----------------- -------------------
Weighted average common shares 2,250,000 2,250,000 2,250,000 2,250,000
outstanding
----------------- ---------------- ----------------- -------------------
</TABLE>
Graph of annual and quarterly results of operations has been omitted from Edgar
filing.
<PAGE>
The following table presents certain financial data, as a percentage of net
revenues, for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31, Quarter Ended March 31,
----------------------------- ----------------------------
1997 1998 1998 1999
<S> <C> <C> <C> <C>
------------- ------------ ----------- ------------
-------------
(Unaudited)
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenues 38.6 32.8 37.3 24.3
------------- ------------ ----------- ------------
------------- ------------
Gross profit 61.4 67.2 62.7 75.7
General and administrative expense 52.6 22.6 14.3 29.0
Interest expense 21.9 7.2 5.4 7.3
------------- ------------ ----------- ------------
Earnings (loss) before income tax (13.1) 37.4 43.0 39.4
Income tax benefit (expense) 11.1 (7.1) (7.4) 2.3
------------- ------------
------------ -----------
Net income (loss) (2.0) 30.3 35.6 41.7
------------- ------------ ----------- ------------
</TABLE>
Comparison of the Quarters Ended March 31, 1998 and March 31, 1999
Revenues for the first quarter of 1999 declined $1.1 million dollars as
compared to first quarter 1998. Collection segment revenues declined $2.1
million primarily because a large foreclosed real estate asset ($1.9
million) was sold from the purchased asset pools in 1998. The sale of
assessment rights ($.9 million) acquired in the purchase of Newport assets
was completed in 1999. Also, in 1999, we had $88,000 in revenue from
operating properties (commercial real estate segment) associated with the
acquisition of the Newport assets, and rental revenues increased by $20,000
over 1998. Collections on asset pools were down by $280,000 in 1999 because
in the first quarter 1998 there was a $300,000 down payment on a settlement
with a debtor that was not repeated in 1999.
Cost of sales also declined from $1,013,028 in the first quarter of 1998 to
$392,881 in 1999. Moreover, costs as a percentage of revenues declined from
37.3% in 1998 to 24.3% in 1999. The decline in costs as a percentage of
revenue is due to a change in the mix of revenues. The large real estate
sale in 1998 was costed at $750,000, as compared to costs of $195,000 for
the assessment rights sold in 1999. The property assessment rights were
related to the acquisition of the Newport assets and had a low cost basis.
Although gross profits declined in absolute dollars ($480,909) in 1999 as a
percentage of revenues they increased from 62.7% in 1998 to 75.7% in 1999),
as explained above. The cost per dollar of revenue on these sales in 1998
was 40% as compared to 25.5% in 1999.
General and administrative expense ($468,712 in 1999 as compared to
$389,016 in 1998) increased by $76,696. This increase is predominantly due
to the $98,000 in direct operating costs associated with the operating
assets acquired in the acquisition of the Newport assets.
Interest expense decreased $29,331 (from $148,040 in 1998 to $118,709 in
1999). The profit sharing portion of the related party loans that bore
interest and shared in the profits generated by the financed pools became
payable in 1998, thereby increasing interest costs in 1998 only. These
loans are discussed in more detail in the "Certain Relationships and
Related Transactions" section. The changes in interest expense by segment
are explained by the financing necessary to fund the capital expenditures
in the respective segments and the change in the relative proportion of
segmental assets.
In 1998 our earnings were produced primarily in subsidiaries that could not
use the NOL's acquired in the MCorp acquisition to offset earnings. This
resulted in an increase in deferred income tax expense of $200,000. In 1999
our earnings were in subsidiaries that could use the acquired NOL's. Thus,
we experienced a deferred tax benefit of $37,808.
With the exception of the commercial real estate segment, the decline in
earnings before income taxes (from $1,167,055 in 1998 to $635,781 in 1999)
is due to the same causes as discussed in the decline in revenues.
Commercial real estate earnings declined $60,300 (1998 profit of $37,700 to
a 1999 loss of $22,600) because of losses in the operating entities
acquired in the purchase of the Newport assets. These entities were managed
for many years by the bankruptcy trustee and were not actively marketed nor
properly maintained. We have hired a professional management company to
operate the acquired entities and are in the process of refurbishing
facilities, updating equipment, and establishing a marketing program.
Because of the variability in the timing of our revenues and the increased
costs in acquiring new assets, we may not be able to sustain such high
earnings percentages.
<PAGE>
Comparison of the Years Ended December 31, 1997 and December 31, 1998
In late 1996 the opportunities to purchase loan portfolios at advantageous
prices declined due to reductions in loan offerings and increased
competition. Prior to 1997, in order to accelerate collections on our
purchased asset pools, we offered substantial discounts for quick cash
settlements. The cash flow from accelerated settlements was used to acquire
additional asset pools and pay down debt. During 1997, we changed our
corporate strategy of giving substantial discounts for the accelerated
resolution of debt obligations and the sale of foreclosed real estate. We
decided to maximize collections, even if the recovery period was extended.
This strategic change was in response to the rising costs of acquiring new
asset pools. We believed that the additional costs to maximize collections
on existing assets would provide a higher yield than the potential yield to
be realized by purchasing higher cost portfolios. We also believed that the
strategy of maximizing collections was necessary to maintain viable yields
on new assets purchased.
When we acquire an asset pool, we allocate the total price we pay for it to
the individual loans and real estate assets that make up the pool based on
our initial estimate of fair value of each asset. Some of the assets may
initially be estimated as having no value, and no cost is allocated to
those loans or real estate assets. During 1998, we collected $799,926 on
notes that we originally assessed as worthless. Because of our original
assessment, none of the acquisition costs were allocated to these notes.
Collections in the future of this type may be expected to be as successful
because they are secured by collateral that is subject to foreclosure. A
comparative summary of our collections from inception to date on notes for
which no original cost was allocated and notes for which a cost basis was
allocated is set forth in the table in "Business-Investment in Discounted
Debt Portfolios and Services."
The 134% increase in net revenues from 1997 to 1998 is partially due to the
strategy change, the timing of settlement negotiations, the resolution of
litigation and the sale of a large real estate holding in the purchased
asset pools ($1,875,000 selling price/$1,125,000 gross profit). The
$167,816 increase (from $281,827 in 1997 to $449,643 in 1998) in commercial
real estate revenue is due primarily to rental increases and new leases at
our Dallas retail center, and our decision to hold and operate the San
Antonio retail center, which caused us to reclassify the asset and its
revenues from the purchased asset pools to commercial real estate. The
$2,800,844 increase in gross profit from $1,801,239 in 1997 to $4,602,083
in 1998 without a corresponding increase in General and Administrative
costs is primarily due to the sale of the large real estate holding with
the balance due to the change in strategy discussed above. We believe the
positive effects of our change in collection strategy will be increasingly
evident during future periods.
Gross profit increased from 61.4% in 1997 to 67.2% in 1998 primarily due to
a change in the relationship between revenue from collections on purchased
asset pools and the expense for the amortization of the asset pools. The
cost of each pool is amortized based on the previously unamortized cost of
the asset pool and the relationship of the collection income recognized in
that period to the aggregate of those collections and the estimated future
collections for the assets remaining in that asset pool. As a result, the
rate of amortization for an individual asset pool may vary from period to
period as a result of changes in the estimates of future collections.
Historically, actual collections have exceeded our estimates. During 1998,
the rate of amortization for several of our asset pools was decreased
because of favorable collection experience on assets within these asset
pools.
<PAGE>
General and Administrative expenses for 1998 increased by $4,775 to
$1,548,895 from $1,544,120 in 1997. These expenses were predominantly
unchanged because no additional staff was required to generate the increase
in revenues.
Interest expense decreased $148,458 in 1998 to $494,142 from $642,600 in
1997. This decrease is due to cash flow being used to reduce debt.
Liabilities, exclusive of deferred federal income taxes, decreased
$1,746,618 in 1998.
Because of the strategy change in 1997 and the timing in the sale of the
large real estate holding, earnings before income tax as a percentage of
revenues increased from a 2.0% loss in 1997 to a 30.3% profit in 1998.
Collection segment earnings accounted for $2.76 million of the $2.95
million increase in earnings ($2.56 million in 1998 compared to a loss of
$.39 million in 1997). The remaining increase is due to increased rental
income. Because of the variability in the timing of our revenues and the
increased costs in acquiring new assets, we may not be able to sustain such
high earnings percentages.
Liquidity and Capital Resources
We have financed capital requirements with bank debt and borrowings from
shareholders and related parties. As of December 31, 1998, we had no
outstanding debt to shareholders or related parties. However, on February
1, 1999, the Janke Family Partnership, Ltd. loaned $1.4 million for the
acquisition of the Newport assets.
We have a $5,000,000 revolving line of credit with Southwest Bank of Texas,
NA. The line of credit is secured by the purchased debt portfolios and
foreclosed real estate. As of December 31, 1998, the line of credit had an
outstanding balance of $3,303,000 and available credit of $1,697,000. As a
result of the acquisition of Newport assets, the balance on the line of
credit, as of March 31, 1999, was $4,174,629 with available credit of
$825,371. We are in compliance with all of the loan covenants governing the
credit facility.
Whenever acquisitions have required more funding than available through our
revolving credit facility a major shareholder and/or related parties have
provided temporary funding for acquisitions. However, we cannot assure that
this funding source will be available in the future.
Our cash requirements for calendar 1999 and in the future will depend upon
continued profitable operations and the level of future acquisitions. The
net proceeds from this offering, anticipated future profitable operations,
and temporary loans from a major shareholder are expected to provide for
capital requirements over the course of the next twelve months. We could be
required to seek additional financing prior to the end of twelve months, if
plans or assumptions change,
there are unanticipated changes in business conditions, or
the proceeds of this offering prove to be insufficient
to fund operations.
<PAGE>
Year 2000 Compliance
We are aware of the issues associated with the year 2000 as it relates to
information systems. A new information system certified by the supplier to
be Year 2000 compliant was installed in 1998. The cost of the new computers
and software was approximately $25,000. Based on the nature of our
business, we do not expect to experience material business interruption due
to the impact of Year 2000 compliance on our customers and vendors. Since
our system is Year 2000 compliant and we are not dependent on vendors,
there will not be any significant additional expenditure. Year 2000 issues
should not affect our liquidity, financial position, or results of
operations.
Accounting Standards
The Financial Accounting Standards Board periodically issues statements of
financial accounting standards. In April 1997, FASB issued Statement of
Financial Accounting Standards (SFAS) No. 128. The new standard replaces
primary and fully diluted earnings per share with basic and diluted
earnings per share. We were required to adopt SFAS No. 128 in the year
ending December 31, 1998. We have adopted SFAS No. 128 for the year ended
December 31, 1998 and for all periods presented.
In June 1997, the FASB issued SFAS No. 130 and 131. SFAS No. 130
establishes standards for reporting and display of comprehensive income and
its components. SFAS No. 131 establishes standards for reporting about
operating segments, products and services, geographic areas, and major
customers. The standards became effective for calendar years beginning
after December 15, 1997. We have adopted these standards for the year ended
December 31, 1998 and for all periods presented. SFAS No. 130 and 131 will
not have a material effect on our financial condition or reported results
of operation.
In February 1998, the Financial Accounting Standards Board issued SFAS No.
132, "Employers' Disclosures about Pensions and Other Post Retirement
Benefits - An Amendment of FASB Statements No. 87,88, and 106". This
Statement revises employers' disclosures about pension and other post
retirement benefit plans. It does not change the measurement or recognition
of those plans. Rather, it standardizes the disclosure requirements for
pensions and other post retirement benefits to the extent practicable,
requires additional information on changes in the benefit obligations and
fair values of plan assets that will facilitate financial analysis, and
eliminates certain disclosures that are no longer useful. This Statement
became effective February 1998. It will not have a material effect on our
financial condition or results of operations.
In August 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities". This
statement, which applies to all entities, requires derivative instruments
to be measured at fair value and recognized as either assets or liabilities
on the balance sheet. The statement, as amended by SFAS No. 137, is
effective for fiscal years beginning after June 15, 2000 with earlier
application encouraged but permitted only as of the beginning of any fiscal
quarter beginning after June 1998. Retroactive application is prohibited.
We do not believe this statement will be applicable to our financial
condition or our results of operations.
In December 1998, the Financial Accounting Standards Board issued SFAS No.
134 "Accounting for Mortgaged-Backed Securities Retained after the
Securitization of Mortgage Loans held for Sale by a Mortgage Banking
Enterprise", which amends SFAS No. 65. This statement is effective for the
fiscal quarter beginning after December 15, 1998. It will not have a
material effect on our financial condition or results of operations.
In April 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5 "Reporting on the Costs of Start-up Activities"
requires all start-up and organizational costs to be expensed as incurred.
It also requires all remaining historically capitalized amounts to these
costs existing at the date of adoption to be expensed and reported as the
cumulative effect of a change in accounting principles. SOP 98-5 is
effective for all fiscal years beginning after December 31, 1998. The
Company believes that the adoption of SOP 98-5 will not have a material
effect on its financial statements.
<PAGE>
BUSINESS
Organization, Operations & Strategy
We are a specialty financial services company that commenced business
operations in 1994. Our office is located at 700 Louisiana, Suite 2510,
Houston, Texas 77002. Our primary business activities are
acquiring undervalued financial assets, primarily in the form of discounted
commercial debt portfolios and real estate;
managing and servicing our purchased asset portfolios;
collecting the debt and selling the real estate for profit; and
providing short-term funding for real estate projects.
We plan to increase our business through purchases of
undervalued real estate and other assets from business bankruptcies,
portfolios of assets being sold by real estate investment trusts,
non-performing and under-performing assets from insurance companies,
real properties with delinquent property taxes from local taxing
authorities,
debt portfolios from privately-held entities in the business of acquiring
and resolving discounted assets looking for exit strategies which would
generate long-term capital gains tax treatment,
non-performing debt portfolios from financial institutions,
distressed assets in selected foreign markets,
and through the increased demand for short-term funding for selected real
estate projects.
We plan to maximize utilization of NOLs obtained from the MCorp acquisition
by
optimizing profitability within the acquired subsidiaries which have NOLs
by concentrating future asset purchases within the companies.
Principal Acquisitions
The two acquisitions described below have been our two largest purchases of
undervalued financial assets in the last two years.
<PAGE>
Acquisition of MCorp Subsidiaries and Assets
In March 1989, MCorp Inc., a large bank holding company, filed for protection
under the federal bankruptcy laws and in 1994 the bankruptcy court approved a
plan of reorganization and liquidation of MCorp. The court ordered that the
assets of MCorp be transferred into three grantor trusts for the benefit of the
creditors. In July 1997, we acquired, through competitive bid, certain corporate
subsidiaries and assets from the MCorp Liquidating Trusts. The following table
sets forth a classification of the assets, which were purchased for $1,308,723.
<TABLE>
<CAPTION>
Allocation of Purchase Price
<S> <C>
---------------------------------
Cash $ 427,589
Paying loans (principal balances of $2,432,000) 801,692
Foreclosed real property (approximate tax assessed value of $189,000) 79,442
Legal claims with unknown status __________0
-
Total purchase price $ 1,308,723
Less: cash acquired 427,589
-------
Net purchase price $ 881,134
=============
</TABLE>
Because of the unknown potential for collection of the legal balances on claims
with unknown status, we did not allocate any cost basis to those loans. As of
March 31, 1999, we had collected $1,056,758 or about 120% of the net purchase
price of the entire asset portfolio by selling some of the foreclosed real
estate, collecting some of the paying loans and collecting $174,000 on three of
the claims with unknown status. Based on our evaluation of future cash
recoveries of the remaining assets as of March 31, 1999, we presently estimate
additional recoveries of approximately $1.1 million (excluding interest) from
the sale of the real estate and collection of outstanding debt over the next
three years. If we attain our projected collections, total recoveries on the
MCorp assets would approximate $2.1 million.
Incidental to the acquisition of the assets described above, the entities
acquired in the MCorp acquisition had utilizable NOLs and built-in-losses of
approximately $55.8 million of which approximately $455,000 was utilized in
1998. We believe that these NOLs, subject to certain possible limitations, may
be used to offset future taxable income of the acquired corporations. If we are
able to utilize the NOLs, they must be utilized against profits occurring in the
acquired corporations as opposed to consolidated profits realized by Rampart. We
cannot assure that sufficient profits, if any, can be generated in the acquired
corporations prior to the expiration of some or all of the potential NOLs. Nor
can we assure that the Internal Revenue Service will not deny use of all or a
part of the NOLs.
<PAGE>
Acquisition of Newport Assets
On February 1, 1999, we acquired all of the assets of a bankruptcy liquidation
estate, including real estate, receivables, assessment rights and other assets
for $2,884,538 - the contract price of $2,875,000 and closing costs of $9,538.
The assets were acquired from a liquidating trustee in Federal Bankruptcy Court.
The acquisition was financed with $1,475,000 of bank debt and $1,400,000
borrowed from our majority shareholder. The balance was paid from available
funds. The total purchase price was allocated to the individual asset components
based on management's estimate of relative market value.
<TABLE>
<S> <C> <C>
The assets acquired include:
Acres Allocated Costs
Real estate
18-hole golf course 124.53
Clubhouse, convention center and driving range 23.34
Expansion site - 9 holes for golf course 81.18
Related golf course acreage 145.31
------
Sub total golf related acreage
and improvements 374.36 $2,000,000
------
Swimming pool and 4 tennis courts 7.17 0
-------------
Restricted recreational reserves 81.52 0
-------------
Undeveloped acreage 237.39 221,276
311 fully developed lots 61.60 311,000
286 undeveloped platted lots 56.40 71,500
Platted and unplatted reserves and sales office 77.54 49,068
-------
Total acreage 895.98
Assessment rights on 2,000 residential properties 110,000
Delinquent assessment receivables ($3.2 million legal balances) 79,469
Other assets ($ 75,000 estimated fair market value) 42,225
-----------
Total Purchase Price $2,884,538
</TABLE>
The purchase was financed by borrowing $1.475 million from our revolving credit
facility with Southwest Bank of Texas, N.A. and $1.4 million from the Janke
Family Partnership, Ltd. The Bank recorded a first lien secured by the assets,
and the Janke Family Partnership, Ltd. was granted a second lien position. The
purchase was made through Rampart Properties Corporation, our wholly-owned
subsidiary, to utilize the NOLs attributable to that subsidiary.
<PAGE>
Industry & Competition; History of Operations
Our industry, commonly called the distressed asset business, started
approximately ten years ago when the FDIC and the Resolution Trust
Corporation began liquidating large portfolios of notes and real estate
acquired from failed banks and savings institutions. Initially, there were
few participants in the business. The two principal officers of Rampart
were active participants at the start-up of the industry and were involved
in acquisitions of assets with face values in excess of $400 million while
associated with another company. As the industry matured, more
knowledgeable and sophisticated investors entered the business. Numerous
investment companies and partnerships were established to buy distressed
assets. Additionally, bank and other financial institutions have been
active purchasers of discounted assets in recent years. Since 1994,
according to the FDIC's database, over 300 separate entities have purchased
debt and/or real estate portfolios from the FDIC.
Rampart began acquiring distressed debt portfolios and other assets in
1994, primarily on a competitive bid basis from the FDIC and RTC. In 1995
we began acquiring assets from healthy financial institutions, banks, and
insurance companies interested in eliminating non-performing assets from
their portfolios. These acquisitions were made on both a competitive bid
and negotiated purchase basis. In 1996 we began to negotiate purchases of
assets, primarily debt and real estate, from bankruptcy estates and
liquidating trusts.
In July 1997, we consummated the MCorp acquisition with a net cash outlay
of $881,134 in which we acquired paying loans with principal balances of
$2.4 million, claims with unknown status with legal balances of
approximately $34 million and foreclosed real estate with a cost basis of
approximately $189,000. The subsidiaries acquired in the MCorp acquisition
had approximately $55.8 million in NOLs and built-in-losses which we
believe can be used to offset future taxable income generated by the
acquired corporate entities, subject to certain possible limitations.
On February 1, 1999, we acquired for $2.875 million all the real estate,
receivables, and other assets of the bankruptcy liquidation estate of
Newport Partners, free and clear of all liens, claims and encumbrances. The
assets included developed and undeveloped real estate, an 18-hole public
play golf course, 9 partially developed expansion holes, a clubhouse,
conference center, furniture, fixtures, inventory, equipment, $3.2 million
in delinquent property assessments, and property assessment rights.
Simultaneously, we sold the property assessment rights and approximately 88
acres of recreational reserves to the New Property Owners' Association of
Newport for an $850,000 note and other valuable consideration. The note is
payable interest only for the first year and monthly installments of
principal and interest at 10% per annum for 9 years.
Investment in Discounted Debt Portfolios & Services
Our primary business is the acquisition of non-performing financial asset
pools, primarily commercial loans and other commercial obligations. These
pools are purchased at substantial discounts from their legal balances by
competitive bids and negotiated purchases. Sources of discounted financial
asset pools are
governmental entities, such as the FDIC;
financial institutions;
insurance companies;
bankruptcy estates; and
liquidating trusts.
Typically, our discounted financial asset pools contain some or all of the
following
non-performing loans and other debt obligations, primarily secured;
under-performing loans, primarily real estate secured;
paying loans,
primarily real estate secured;
other forms of unsecured debt obligations;
real estate;
and other assets.
<PAGE>
These financial asset pools are categorized as purchased asset pools.
Initially the assets in these pools are classified as
collections-in-progress. Collections-in-progress are non-performing claims
that are in bankruptcy proceedings, litigation or post-judgment collection
status, and are being actively worked for collection. As individual assets
are resolved, they are reclassified as paying loans or foreclosed real
estate. Paying loans primarily represent previously non-performing claims
that have been resolved and are currently paying according to the
settlement agreement. Real property foreclosed against a claim is
categorized as foreclosed real estate. When Rampart forecloses on assets
that it wishes to hold for investment appreciation or commercial operation
purposes, it reclassifies those assets to different balance sheet
classifications and removes them from the purchased asset pools.
We currently own paying loans with principal balances totaling $4,686,650
as of March 31, 1999. These loans have a cost basis of $1,517,537 or 32.4
percent of outstanding principal balances. The majority of these notes are
secured by real estate and will mature within three to five years.
Additionally, we have non-performing debt, secured and unsecured, with a
cost basis of $1,220,979 as of March 31, 1999. These assets are in various
stages of resolution, including litigation and bankruptcy. While there can
be no assurance that any recoveries will be realized on these assets, we
estimate a minimum recovery of $3.5 million over the next three years.
Success in this business segment is dependent on management's ability to
assess value on the asset pools being purchased, predominantly by review of
the seller's records. Because we purchase assets primarily from failed
institutions, bankruptcies, and other distressed situations, the
information available for review prior to purchase is often aged and
incomplete. We allocate the purchase price of the asset pool to each
individual asset based on management's assessment of potential collections.
During the initial review, we allocate a zero cost basis to those
individual notes which appear to have no potential for collection. After
the purchase is consummated, subsequent in-depth reviews are performed on
each of the note files. Based on the more current information derived from
the in-depth reviews, we decide whether or not to pursue collection. Our
success in assessing value under these circumstances is shown in the
analysis below:
<PAGE>
<TABLE>
<CAPTION>
Original Cost Estimated
No. of Basis Collections Remaining
Assets Allocation to Date Collections
<S> <C> <C> <C> <C>
------------- ----------------- ----------------- ---------------
Assets originally assessed as worthless and 33 $ 0 $ 1,605,456 $ 1,754,000
subsequently collected
Assets originally assessed as collectible and 47 406,894 33,817 0
subsequently impaired
------------- ----------------- ----------------- ---------------
Subtotal 80 $ 406,894 $ 1,639,273 $ 1,754,000
Remaining assets acquired 1,462 13,043,848 19,874,491 14,522,246
------------- ----------------- ----------------- ---------------
All assets purchased from inception to March 31, 1999 1,542 $13,450,742 $21,513,764 $16,276,246
------------- ----------------- ----------------- ---------------
</TABLE>
As noted in the schedule above, we have made significant collections
($1,605,456 through March 31,1999) on 33 notes that we initially assessed
to be worthless. Conversely, we have written off or written down 47 notes
with a cost basis of $406,894 with cumulative collections of $33,817, thus
realizing a loss of $373,077. Overall, we have collected $1,232,379 in
excess of the allocated costs on 80 loans where management's original
assessment of value was based on incomplete information. The estimated
remaining collections of $1,754,000 are predominantly secured by real
estate. We cannot assure that this performance will continue in the future;
however, we think our valuation procedures are conservative and therefore
should result in valuation exceptions being generally favorable.
Investment in Real Estate and other Assets
A portion of our business is managing real estate and other assets acquired
by foreclosure on non-performing debt and real estate purchased below our
assessment of market values. We sell the majority of the real estate and
other assets in an orderly manner in the marketplace. However, some of our
real estate properties, in our opinion, have significant potential for
operating income or increased market value. We manage these properties for
future liquidation at optimum price levels, and the earnings from these
properties are significant contributors to our current profitability. We
believe that the ultimate sale of these properties will generate
significant future earnings. Only one asset has a cost basis greater than
ten percent of total assets. The recently acquired Newport Golf Club and
Conference Center cost $2 million, and represents 20.2% of our total
assets.
Some of our more significant real estate properties are summarized below:
Classified as Commercial Property:
Newport Golf Club and Conference Center, Houston, Texas
18 hole championship golf course
9 expansion holes partially completed
club house and convention center
( 32,000 square feet combined area)
allocated cost basis of $2 million (acquired February 1, 1999)
market value of $3 million based on recent offer to purchase
held for market appreciation, earnings and future sale
<PAGE>
Retail Center, Dallas, Texas -
40,000 square foot retail center,
100% occupied;
$250,000 annual net cash flow;
substantial upside potential on rents and market value;
cost basis of $390,203 after depreciation;
market value of $1,500,000 based on broker's opinion of value;
and held for market appreciation, earnings and future sale.
Retail Center, San Antonio, Texas -
15,000 square foot retail center prime location, 100% occupied;
$125,000 annual net cash flow;
cost basis of $360,000 after depreciation;
market value of $1 million based on broker's opinion of value,
and held for market appreciation, earnings and future sale. Classified as
Purchased asset pools:
12 acres on South Padre Island, Texas
undeveloped commercial waterfront property,
allocated cost basis on this property is zero,
market value of $750,000 based on broker's opinion of value,
and currently offered for sale.
Underground storage facility, Montgomery County, Texas
- -
40,000 square foot underground storage facility;
37 acres of land;
cost basis of $75,000;
market value of $900,000, based on a broker's opinion of value;
and currently offered for sale.
Classified as Investment real estate:
None of our investment real estate has been owned long enough for
significant appreciation over original costs.
We classify improved real estate held for appreciation and the production
of income as Commercial Real Estate. Revenues from Commercial Real Estate
is comprised of rental income and golf and event related income. When a
commercial property is sold, the sale amount is recorded as real estate
sales. Investment real property is comprised of unimproved real estate
purchased and held for sale or appreciation and unimproved real estate
reclassified from purchased asset pools and held for appreciation and
rental income. Revenues associated with investment real estate are recorded
as rental income or real estate sales. Purchased asset pool real estate is
improved or unimproved real estate acquired by foreclosure and available
for immediate sale. The sale of foreclosed real estate classified as
purchased asset pools is recorded as collection income.
<PAGE>
Environmental Issues
We determine that the properties we foreclose or purchase do not have
significant environmental problems before we acquire title to these
properties. Some of the real estate acquired had remedial environmental
problems. These problems consisted primarily of underground storage tanks
and asbestos. When environmental issues are identified, we notify the
appropriate state agency and engage a certified environmental
consultant/contractor to evaluate and remedy the problem. Once the problems
are remedied and the proper certifications are obtained from the agencies,
we sell or manage the properties. We have never suffered a loss on a
property that had environmental issues. As of the date of this prospectus,
the remedial costs have not been significant and we attempt to recover all
environmental costs in our selling price.
All of the real estate properties are insured for property damage based on
replacement value and all of the properties have liability insurance
coverage up to $10 million.
Short-term Funding on Real Estate Projects
A newer business activity includes short-term funding for selected
real estate projects. Our typical funding situation requires that
A developer identify and bring to us a potential real estate project;
we purchase 100% fee ownership in the real estate;
the developer purchase the real estate from us or arrange for sales to
third parties, subject to our approval;
as compensation for identifying and managing the project, the
developer is assigned a net profit interest in the real estate until
the sale to a third party, the default date, or the developer
purchases the real estate; and
the developer's net profit interest decreases pursuant to a
contractual timetable and is forfeited on a default date.
In 1998, we acquired land at a cost of $1,100,731 to provide funding
for developers. A portion of the projects have been sold for
development, leaving $879,716 of investment real estate at March 31,
1999.
Legal Proceedings
We are not parties in any lawsuit, pending or threatened, which
management believes should have a material effect on our financial
position, liquidity or results of operations.
<PAGE>
Employees
We have a permanent staff of seven employees - two executive officers,
four professional staff, which includes two administrative officers,
and one clerical staff. Additionally, we have established a network of
contract due diligence professionals and field support personnel to
perform fieldwork and supplement our permanent staff, when needed. We
believe that we have solid relationships with our employees. None of
our employees are members of any labor union.
Office Facilities
Our corporate offices are located in the Bank of America building
(previously the NationsBank building), 700 Louisiana, Suite 2510,
Houston, Texas, 77002. We have about 2,000 square feet of office
space. Of this space, a major law firm provides about 1,200 square
feet to Rampart. We also have use of the law firm's meeting rooms, law
library, reception facilities, and other facilities within the firm on
an as needed basis. We estimate the fair market value of the provided
rental space and facilities to be approximately $1,200 per month. The
value of these facilities has not been recognized as either income or
expense. The law firm performs approximately 60% of our legal work
and, as an accommodation, provides the space and facilities without
charge. The balance of our space is leased on a month to month basis.
Additional lease space is available in the event expansion is
required. Currently, we do not have a written lease agreement.
Additional Information
Rampart has not previously been subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended. We have filed with
the Securities and Exchange Commission a registration statement on
Form SB-2 (including any amendments thereto) under the Securities Act
with respect to the shares offered. This prospectus does not contain
all of the information, exhibits, and schedules contained in the
registration statement. For further information about Rampart and the
shares, read the registration statement, the exhibits and any
schedules attached. Statements made in this prospectus regarding the
contents of any contract or document filed as an exhibit to the
registration statement are not necessarily complete and, in each
instance, you are referred to a copy of each contract, document or
exhibit filed with the registration statement. Each such statement is
qualified in its entirety by such reference. The registration
statement, the exhibits, and the schedules filed with the Commission
may be inspected, without charge, at the Commission's public reference
facilities. These facilities are located at
Room 1024, Judiciary Plaza, 450 Fifth Street, NW, Washington, D.C.
20549;
Northwestern Atrium Center, 500 West Madison Street, Room 1400,
Chicago, Illinois 60661; and
Suite 1300, Seven World Trade Center, New York, New York 10048.
Copies of the materials may also be obtained at prescribed rates by
writing to the Commission, Public Reference Section, 450 Fifth Street,
NW, Washington, D.C. 20549. The Commission maintains a web site that
contains reports, proxy and information statements and other
information regarding issuers that file electronically with the
Commission at http://www.sec.gov.
As a result of this offering, Rampart will become subject to the
reporting requirements of the Exchange Act. Therefore, we will file
periodic reports, proxy statements, and other information with the
Commission. Following the end of each calendar year, we will furnish
our shareholders with annual reports containing audited consolidated
financial statements certified by independent public accountants and
proxy statements. For the first three quarters of each calendar year,
we will provide quarterly reports containing unaudited consolidated
financial information.
Rampart has applied for listing of the shares on the American Stock
Exchange. We cannot assure that our shares will be accepted for
listing. Our reports, proxy statements, and other information will be
available for inspection at the principal office of the Amex at 86
Trinity Place, New York, New York 10006.
<PAGE>
MANAGEMENT
Directors and Executive Officers
Our directors and executive officers as of March 31, 1999 are identified below:
Name Age Position
<TABLE>
<S> <C> <C>
Charles W. Janke 54 Chairman, Chief Executive Officer, & Director
J. H. (Jim) 57 President, Chief Operating Officer, Secretary &
Carpenter Director
Charles F. Presley 49 Vice-President, Chief Financial Officer,
Treasurer & Controller
James W. Christian 45 Director
James J. Janke 45 Director
</TABLE>
Our directors are elected at each annual meeting of shareholders. The
officers are elected annually by the board of directors. Officers and
directors hold office until their respective successors are elected
and qualified or until their earlier resignation or removal.
Charles W. Janke was Chairman, President, Chief Executive Officer, and
director of Rampart since its organization in March 1994. He
relinquished his position as President to Mr. Carpenter effective
January 1, 1999 and continues as a director. Prior to the organization
of Rampart, Mr. Janke `s primary activity was private investments.
During 1992 and 1993, Mr. Janke invested in Laidlaw Holdings, Inc., a
securities investment firm. During this period he provided mezzanine
and bridge financing for several firms, all of which became listed on
the NASDAQ Exchange. Mr. Janke's ownership in Laidlaw Holdings, Inc.
was less than 1% and he has no current ownership. During the period
1989 through 1992, Mr. Janke provided acquisition funding for a
company that acquired in excess of $400 million in residential
mortgage portfolios in association with a major securities firm. After
a brief retirement, he funded the start-up of Rampart and became
active in its management. For the period 1975 through 1985, Mr. Janke
was a stockholder and officer in Centurian National Group, Inc., a
cemetery and funeral home holding company, which was acquired by
Service Corporation International, a public corporation.
J. H. Carpenter was elected President and Chief Operating Officer in
December 1998 to become effective January 1, 1999. He has been Vice
President and a director since the organization of Rampart in March
1994. For the period October 1991 through March 1994, Mr. Carpenter
was a shareholder and president of two closely held corporations that
acquired commercial debt from the RTC. During the period, 1989 to
October 1991, Mr. Carpenter was associated with a company that
acquired, in conjunction with a major securities firm, purchased and
sold over $400 million in residential mortgage portfolios. From 1970
through 1981, Mr. Carpenter was Vice President and Treasurer of Camco,
Incorporated, a publicly traded oil tool manufacturing company.
Charles F. Presley was elected Vice President and Chief Financial
Officer in December 1998 to become effective January 1, 1999 and has
been the controller for Rampart since March 1996. He is responsible
for accounting, federal and state tax compliance, internal controls,
and also has investigation and litigation support responsibilities.
For the 15 years prior to his tenure with Rampart, Mr. Presley was the
principal practitioner in a Certified Public Accounting practice in
Houston, Texas.
<PAGE>
James W. Christian was elected a director of Rampart in December 1998
to become effective January 1, 1999. Mr. Christian is a member of the
Houston, Texas law firm, Christian & Smith L. L. P. where he has
practiced since 1990. Mr. Christian specializes in litigation,
corporate and real estate law.
James J. Janke was elected a director of Rampart in 1996. Mr. Janke is
Vice President and General Manager of a top 100 Ford dealership where
he has been employed since 1976. He serves on the Board of Directors
of the Houston Auto Dealers Association, the Houston Livestock Show
and Rodeo, a charitable organization, and the Better Business Bureau
of Houston. Charles W. Janke and James J. Janke are brothers.
Outside Directors
We will appoint one director who is not an officer, employee, or 5%
shareholder upon conclusion of the offering as designated by the
representative of the underwriters. The director nominee designated by
the representative of the underwriters is Robert A. Shuey, III. Mr.
Shuey is a director and Chief Executive Officer of Institutional
Equity Holdings, Inc. (formerly Euromed, Inc.), which owns all of the
outstanding stock of Redstone Securities, Inc., the representative of
the underwriters in this offering. Mr. Shuey has been a director of
Institutional Equity Holdings since July 1996 and Chief Executive
Officer since December 1998. Prior thereto, he had been Manager of
Investment Banking with Tejas Securities Group, Inc. since September
1997. He has been in the investment banking business for more than the
past five years, with National Securities Corporation from September
1996 until August 1997; with La Jolla Securities Corporation from
April 1995 until August 1996, with Dillon Gage Securities Corporation
from January 1994 until April 1995 and Dickinson & Co. from March 1993
to December 1993. Mr. Shuey is a member of the Board of Directors of
AutoBond Corporation, Westower Corporation and Transnational Financial
Corporation. Mr. Shuey is a graduate of Babson with a degree in
Economics and Finance.
Compensation of Directors
Directors who are also employees will not receive any remuneration in
their capacity as directors. Outside directors will receive travel
expense reimbursement and $1,000 per meeting attended.
Executive Compensation
The following table sets forth the compensation awarded to, earned by,
or paid to the Chief Executive Officer and the other officer of
Rampart who received compensation of over $100,000 for the fiscal
years ended December 31, 1998, 1997 and 1996.:
<TABLE>
<CAPTION>
Summary Compensation Table
Name and Annual Compensation All Other
-----------------------------------------------
Principal Position Fiscal Year Salary Bonus Compensation
<S> <C> <C> <C>
- --------------------------- ------------------------ -------------------- -------------------- ---------- ----
Charles W. Janke 1998 $132,886 -- --
Chief Executive 1997 123,562 -- --
Officer
1996 226,824
- --------------------------- ------------------------ -------------------- -------------------- --------- -----
J. H. Carpenter 1998 131,659 -- --
President 1997 122,437 -- --
1996 120,222
- --------------------------- ------------------------ -------------------- -------------------- --------- ----
</TABLE>
In the future, we intend to compensate officers in accordance with the
recommendations of a compensation committee consisting entirely of
outside directors.
Restrictions on Transfer
On January 21, 1999, Charles W. Janke and J.H. Carpenter entered into
a Share Transfer Restriction Agreement with Rampart. Janke and
Carpenter agreed, for a period of three years and one day from the
consummation of this offering, not to sell, assign, transfer, or
otherwise dispose of any shares of Rampart in a transaction which
would cause an ownership change under Section 382 of the Internal
Revenue Code of 1986. Rampart agreed not to issue any new shares of
common stock or preferred stock for the same period.
<PAGE>
Employment Agreements
We do not have employment agreements with any employees.
Indemnification and Limitation of Liability
As permitted by the Texas Business Corporation Act, we intend to
maintain insurance against any liability incurred by our officers and
directors in defense of any actions to which they may be made parties
by reason of their positions as officers and directors if it can be
obtained at a reasonable cost.
Rampart has been advised that it is the position of the Securities and
Exchange Commission that insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of Rampart pursuant to the
foregoing provisions, or otherwise, such indemnification is against
public policy as expressed in the Act and is therefore unenforceable.
1998 Stock Compensation Plan
In December 1998, the board of directors adopted the 1998 Stock
Compensation Plan. The plan was also approved by the shareholders in
December 1998. Under the plan, up to 375,000 shares of our common
stock may be granted as incentive compensation to
employees;
officers;
directors; and
consultants to Rampart or any parent, subsidiary or affiliate of
Rampart.
The number of shares reserved and the shares granted are subject to
adjustment in the event of any subdivision, combination, or
reclassification of shares. The plan will terminate in 2008. Either
incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended, or non-qualified options,
or both may be granted at the discretion of the board of directors or
a committee of the board of directors. The exercise price of any
option will not be less than the fair market value of the shares at
the time the option is granted. The options granted are exercisable
within the times or upon the events determined by the board or
committee set forth in the grant, but no option is exercisable beyond
ten years from the date of the grant. The board of directors or
committee administering the plan will determine
whether each option is to be an ISO or non-qualified stock option,
the number of shares,
the exercise price,
the period during which the option may be exercised,
and any other terms and conditions of the option.
The holder of an option may pay the option price in cash,
shares of Rampart with a fair market value equal to the purchase
price,
or partly in shares and partly in cash.
The options can only be transferred by will or by the laws of descent
and distribution. Except in the case of death, disability or change in
control, no option shall be exercisable after an employee ceases to be
an employee unless extended for not more than 90 days by the
committee. An optionee who was a director or advisor to Rampart may
exercise his options at any time within three months after his status
as a director or advisor is terminated, unless his termination was due
to death or disability. If an optionee's employment as an employee,
director, or advisor, is terminated because of permanent disability,
the committee shall have the right to extend the exercise period for
not longer than one year from the date of termination.
The plan also permits the award of Stock Appreciation Rights to
optionees. The committee may award to an optionee, with respect to
each share of common stock covered by an option, a related SAR
permitting the optionee to be paid the appreciation on the related
option. A SAR granted with respect to an ISO must be granted together
with the related option. A SAR granted with respect to a non-qualified
option may be granted together with or subsequent to the grant of the
related option. The exercise of the SAR shall cancel and terminate the
right to purchase an equal number of shares covered by the related
option.
The plan can be amended or terminated at any time. The plan is to be
administered by the compensation committee of the board of directors
which is composed entirely of directors who are "disinterested
persons" as defined in Rule 16b-3 of the Securities Exchange Act of
1934, as amended. Currently, options have not been granted to anyone.
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1996, Charles W. Janke, Chairman and Chief Executive Officer, and members
of his immediate family or trusts loaned funds to Rampart as shown below as part
of the funds required to purchase two loan portfolios. The lenders were paid
interest and given a participation in the net cash profits of the recovery from
the portfolios. Net cash profits for purposes of profit participation were
defined as gross collections less direct collection costs.
<TABLE>
<CAPTION>
Date Lending Party Amount Stated Profit Effective
Interest Participation % Interest Rate
Rate
<S> <C> <C> <C> <C> <C>
January 1, 1996 Janke Family Partnership, Ltd. $100,000 12% 0% 12%
May 22, 1996 C.W. Janke Trust $112,500 12% 1.4625%, 27.1%
6.5825%
May 22, 1996 H. Y. Janke Trust $112,500 12% 1.4625%, 27.1%
6.5825%
May 22, 1996 Alfred Janke $112,500 12% 3.655% 23.9%
</TABLE>
All of the above loans , including interest and profit participation of
$171,588, were paid in 1997 and 1998.
Furthermore, the Janke Family Limited Partnership, Ltd. has pledged certificates
of deposits as collateral for our bank financing. We could not have received the
amount of financing without this pledge. In order to compensate the family
limited partnership for the reduced yield on the money invested in the
certificates and pledged as collateral, we have paid an additional 6% interest
per year on the certificates pledged. We paid additional interest of $102,000 in
1997 and $84,000 in 1998, as the amount pledged as collateral has been reduced.
During 1998, InSource Financial Corporation, a company owned and controlled by
J. H. Carpenter, President and director, sold its interest in a real estate
mortgage and judgment lien to Rampart for $334,000. Rampart collected
approximately $375,000 on this mortgage and judgment during 1998. InSource
purchased the lien in 1995 for approximately $250,000, including capitalized
costs.
In 1998 we sold a property for $525,000 to a consortium of buyers consisting of
Mr. Carpenter, Mr. Janke, trusts for two of Mr. Janke's children, the Janke
Family Limited Partnership, Ltd., and Southwest Commerce Partners No. 1, Ltd., a
partnership in which Mr. Janke has a 25% interest. The sales price was equal to
the highest third party offer received on the property. We took 10% interest
bearing notes that mature in three years as payment for the property. We
purchased the property in 1994 as part of a debt portfolio purchased from the
FDIC and allocated a cost basis of $100,000 to the property.
In 1994, Southwest Commerce Partners No. 1, Ltd., a limited partnership in which
Mr. Janke has a 25% interest, contributed approximately $52,000 for its interest
in the purchase of two portfolios of non-performing debt from the FDIC. The
partnership received a 6.25% profit interest in the acquired portfolios. As of
December 31, 1998, all of the funds contributed by the partnership have been
repaid and the partnership retains a 6.25% profit interest in the assets
remaining in the acquired portfolios.
On February 1, 1999, we acquired through Rampart Properties Corporation, our
wholly-owned subsidiary, the real estate and other assets from the bankruptcy
estate of Newport Partners, LLC for $2,875,000. The Janke Family Partnership,
Ltd. loaned $1,400,000 to Rampart Properties Corporation to provide a portion of
the funding for the purchase. The balance of the purchase price was advanced by
Southwest Bank of Texas, N.A. against our revolving line of credit. The Janke
Family Partnership, Ltd. was secured by a real estate note secured by a deed of
trust which was secondary to the security interest of Southwest Bank. The real
estate note provides for monthly payments of interest only at a 10% annual
interest rate, commencing March 31, 1999. As of March 31, 1999, $24,165 of
interest had been paid on this note. The maturity date of the note is December
31, 1999. We intend to retire the Janke Family Partnership, Ltd. note from the
proceeds of this offering.
We believe that all of the foregoing transactions were on terms no less
favorable than would have been received at the time of the transaction if
transacted with unaffiliated third parties. Any future transactions between
Rampart and its officers and directors, principal shareholders and affiliates,
will be approved by a majority of the board of directors, including a majority
of the independent, disinterested outside directors. These future transactions
will be on terms no less favorable to Rampart than could be obtained from
unaffiliated third parties.
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table identifies the beneficial ownership of our common
stock as of March 31, 1999 by
each beneficial owner of more than 5% of the outstanding shares of
common stock,
each director of Rampart,
the named executive officers,
and all directors and executive officers as a group.
Unless noted, each beneficial owner has sole investment and voting power for the
shares beneficially owned.
<TABLE>
<CAPTION>
Shares Owned
-------------------------------------------------------------------------------
Prior to Offering After Offering
--------------------------------------- -- ------------------------------------
Name and Address of Owner Number Percent Number Percent
<S> <C> <C> <C> <C>
- --------------------------------------------- ------------------ ----------------- ---------------- --------------
Charles W. Janke (1) 1,500,000 66.7% 1,500,000 40.0%
2147 Del Monte, Houston, Texas 77019
J. H. Carpenter (2) 750,000 33.3% 750,000 20.0%
700 Louisiana, Suite 2510, Houston, Texas
77002
Charles F. Presley -- --
4119 Tasselwood Lane, Houston, Texas 77014
James J. Janke -- --
1145 North Shepherd, Houston, Texas 77008
James W. Christian -- --
5 Martin Lane, Houston, Texas 77055
------------------ ----------------- ----------------- --------------
------------------ ----------------- ----------------- --------------
All Executive Officers and Directors as a 2,250,000 100.0% 2,250,000 60.0%
group (5 persons)
------------------ ----------------- ----------------- --------------
</TABLE>
- ----------
(1) Mr. Janke's shares are owned by a family limited partnership in which Mr.
Janke is the general partner.
(2) The majority of Mr. Carpenter's shares (600,000 shares) is owned by a
family limited partnership. The general partner is a closely held
corporation whose stock is owned by trusts for the benefit of Mr.
Carpenter's children and grandchildren. Mr. Carpenter is sole director and
officer of this corporation and has voting power over its stock. The
balance of Mr. Carpenter's shares (150,000 shares) is held by a corporation
which is solely owned and controlled by Mr. Carpenter.
<PAGE>
CERTAIN FEDERAL INCOME TAX MATTERS
The following discussion is a summary of certain of the significant
federal income tax matters with respect to the availability of the
NOLs acquired by Rampart in the MCorp Acquisition. We have not
obtained a private letter ruling from the IRS or an opinion of counsel
regarding the availability of the NOLs. The following discussion also
does not address any aspect of state and local taxation, including,
without limitation, the effect of state law limitations on the use of
NOLs. This summary is based on the Internal Revenue Code, Treasury
Regulations promulgated and proposed thereunder, judicial decisions,
and published administrative rules and pronouncements of the IRS as in
effect on the date hereof. Changes in such rules or new
interpretations thereof may have retroactive effect and could
therefore significantly affect the tax consequences described below.
Basis for Availability of NOLs
On July 10, 1997, we acquired five corporate subsidiaries of the MCorp
Liquidating Trusts. The five corporate subsidiaries had existing NOLs
on the acquisition date. Generally, corporations that have experienced
an ownership change under code section 382 can utilize NOLs only to a
limited extent. However, there is an exception to the general rule
when the loss corporations are under the jurisdiction of a bankruptcy
court and the acquiring corporation is a creditor of the entity in
bankruptcy. Our ability to utilize the NOLs is based for the most part
upon this exception. In addition to the NOLs that may be utilized
under the bankruptcy exception, we also have NOLs that are subject to
the limitations of code section 382. In addition to code section 382,
other limitations arising out of the consolidated federal income tax
regulations can also work to limit the use of the NOLs.
How Certain Ownership Changes Effect NOLs
In general, whenever there is a more than 50% ownership change of a
corporation during a three-year testing period, the ownership change
rules in code section 382 limit the corporation's utilization of
pre-change NOLs on an annual basis following the ownership change to
the product of the fair market value of the stock of the corporation
immediately before the ownership change and the long-term tax exempt
rate then in effect (which is an interest rate published monthly by
the IRS). A more than 50% ownership change occurs when the percentage
of stock of the corporation owned by one or more five-percent
shareholders has increased by more than 50 percentage points
(determined by value) over the lowest percentage of the corporation's
stock owned by the same shareholders during the three-year testing
period. In any given year, the annual limitation imposed by section
382 of the code may be decreased by built-in losses or increased by
built-in gains realized after, but accruing economically before, the
ownership change.
The effect of the ownership change rules of section 382 of the code
may be ameliorated by an exception that applies in the case of federal
bankruptcy reorganizations. Under the bankruptcy exception to section
382 of the code, if the reorganization results in an exchange by
qualifying creditors and stockholders of their claims and interests
for at least 50% of the debtor corporation's stock (determined by vote
and value), then the general ownership change rules will not apply.
Instead, the debtor corporation will be subject to a different tax
regime under which NOLs are not limited on an annual basis but are
reduced by certain provisions which are not applicable to the MCorp
acquisition. However, because the bankruptcy exception is based upon
factual determination and upon legal issues with respect to which
there is uncertainty, there can be no assurance that the IRS will not
challenge the amount or availability of the NOLs of the acquired
corporations. Moreover, if the bankruptcy exception applies, the Tax
Code provides that any more than 50% ownership change of the debtor
within a two year period will result in forfeiture of all of the
debtor's NOLs incurred through the date of such second ownership
change.
<PAGE>
Certain Limitations to Use of NOLs
The regulations provide limits on the use of NOLs when corporations
that were members of a former consolidated group join in the filing of
a consolidated federal income tax return of another group. Since the
MCorp corporations were acquired from a consolidated group, and
Rampart will file a consolidated federal income tax return, the
separate return limitation year ("SRLY") rules apply to these NOLs.
Generally, these NOLs are available only to the extent that the
acquired corporation generates taxable income in the Rampart
consolidated group. In addition, the SRLY limitations operate after
any annual limitations imposed by code section 382.
Rampart's Basis for NOLs Availability
Because of the application of the bankruptcy exception, we believe
that the general ownership change rules of section 382 do not apply to
limit the utilization of certain of our NOLs. In addition, we believe
that we have not experienced a more than 50% ownership change since
the prior ownership change. Therefore, our NOLs have not been
forfeited under section 382(1)(5)(D). However, while the bankruptcy
exception applies to most of the NOLs, the remaining NOLs are subject
to the operation of section 382 of the code. In order to prevent a
second change in ownership, Rampart's shareholders have agreed to
certain restrictions on the transfers of stock within the appropriate
time limits.
Our 1997 Consolidated Federal Income Tax Return identified
approximately $51.2 million of NOLs. In addition, we have identified
approximately $8.4 million of items that had no fair market value as
of the acquisition date. These built-in-losses were written off for
tax purposes in 1998. The following is a list of our NOLs and built-in
losses:
<TABLE>
<S> <C>
Pre-acquisition NOLs of Rampart $ 1,400,000
NOLs subject to 382 limitation and
SRLY limitations 2,400,000
NOLs and built-in losses not
subject to 382 limitation but
subject to SRLY limitations 55,800,000
Total NOLs and built-in-losses $59,600,000
Less: NOLs subject to 382 limitation
and SRLY limitations 2,400,000
Less: NOLs estimated to be utilized
in 1998 (1) 1,122,000
Remaining utilizable NOLs $56,078,000
-----------
</TABLE>
(1) NOLs utilized in 1998 are estimated at $667,000 of pre-acquisition
NOLs of Rampart and $455,000 of acquired NOLs.
<PAGE>
Although we have $59.6 million in total NOLs, our code section 382
limitation NOLs, for all practical purposes, are not utilizable.
Further, we utilized approximately $1,122,000 of NOL in 1998. Hence,
we expect $56.0 million of the NOLs to be available. However, the
$56.0 million of the NOLs will only be available to the extent that
the specific acquired subsidiaries with the NOLs have taxable income
in the future to offset their NOLs under the SRLY rules. Since July
1997, all of our acquisitions and asset purchases have been made
through our acquired subsidiaries and most of our income is generated
through these subsidiaries. We plan to continue to maximize
utilization of the NOLs by making acquisitions and purchases through
our acquired subsidiaries.
NOLs Expiration Schedule
NOLs can be carried forward for 15 years from the date they arise. If
the NOLs are not used within the 15-year period, they expire. The
following is a summary of our NOLs and these expiration dates:
Year Amount
1999 $1,458,000
2000 1,894,000
2001 0
2002 10,377,000
2003 13,305,000
2004 -2013 29,044,000
----------
$ 56,078,000
Our NOLs and built-in-losses will not fully expire until 2013.
Existing Shareholder Restrictions to Protect NOLs
Certain changes in the ownership of Rampart could cause an additional
limitation of the use of the NOLs acquired with the MCorp
Corporations. We have taken precautions to prevent these ownership
changes from happening. Prior to this offering, Charles W. Janke and
J. H. Carpenter were the only two 5% shareholders. If they retain
ownership of more than 50% of Rampart for at least three years
following this offering, an ownership change causing a limitation on
the use of the NOLs will not occur. The shareholders have entered into
a Share Transfer Restriction Agreement with Rampart not to reduce
their ownership to less than 50% ownership as defined in the code and
regulations for three years and one day following this offering.
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Common Stock
We are authorized to issue 10,000,000 shares of common stock, $0.01
par value.
As of March 31, 1999, there were 2,250,000 shares of common stock
issued, outstanding and held by three holders of record. Shareholders
are entitled to share ratably in any dividends paid on the common
stock when, as and if declared by the board of directors. Each share
of common stock is entitled to one vote. Cumulative voting is denied.
There are no preemptive or redemption rights available to shareholders
of common stock. Upon liquidation, dissolution or winding up of
Rampart, the holders of common stock are entitled to share ratably in
the net assets legally available for distribution. All outstanding
shares of common stock and the shares to be issued in this offering
will be fully paid and non-assessable.
Preferred Stock
The board of directors, without further action by the shareholders, is
authorized to issue up to 10,000,000 shares of preferred stock, $.01
par value. The preferred shares may be issued in one or more series.
The terms as to any series, as relates to any and all of the relative
rights and preferences of shares, including without limitation,
preferences, limitations or relative rights with respect to redemption
rights, conversion rights, voting rights, dividend rights and
preferences on liquidation will be determined by the board of
directors. The issuance of preferred stock with voting and conversion
rights could have an adverse affect on the voting power of the holders
of the common stock. The issuance of preferred stock could also
decrease the amount of earnings and assets available for distribution
to holders of the common stock. In addition, the issuance of preferred
stock may have the effect of delaying, deferring or preventing a
change in control. We have no plans or commitments to issue any shares
of preferred stock.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the common stock will be American
Stock Transfer & Trust Company, 40 Wall Street, New York, New York
10005.
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 3,750,000 shares of
common stock issued and outstanding. Of these shares, the 1,500,000
shares sold in this offering (1,725,000 if the over-allotment option
is exercised in full) will be freely tradable in the public market
without restriction under the Securities Act, except shares purchased
by an "affiliate" (as defined in the Securities Act) of Rampart. The
remaining 2,250,000 shares, will be "restricted shares" within the
meaning of the Securities Act. Restricted shares cannot be publicly
sold unless registered under the Securities Act or sold in accordance
with an applicable exemption from registration, such as that provided
by Rule 144 under the Securities Act. In general, under Rule 144, as
currently in effect, a person (or persons whose shares are aggregated)
is entitled to sell restricted shares if at least one year has passed
since the later of the date such shares were acquired from Rampart or
any affiliate of Rampart. Rule 144 provides, however that within any
three-month period such person may only sell up to the greater of 1%
of the then outstanding shares of common stock (approximately 37,500
shares following the completion of this offering) or the average
weekly trading volume in our shares during the four calendar weeks
immediately preceding the date on which the notice of the sale is
filed with the Commission. Sales pursuant to Rule 144 also are subject
to certain other requirements relating to manner of sale, notice of
sale and availability of current public information. Anyone who is not
an affiliate for a period of at least 90 days is entitled to sell
restricted shares under Rule 144 without regard to the limitations if
at least two years have passed since the date such shares were
acquired from us or any affiliate. Any affiliate is subject to such
volume limitations regardless of how long the shares have been owned
or how they were acquired. After this offering, the two executive
officers will own 2,250,000 shares of the common stock. Our officers,
directors and shareholder directors will enter into an agreement with
the underwriters agreeing not to sell or otherwise dispose of any
shares for three years after the date of this prospectus without the
prior written consent of the underwriters. We cannot predict the
effect, if any, that an offer or sale of these shares would have on
the market price. Nevertheless, sales of significant amounts of
restricted shares in the public markets could adversely affect the
fair market price of the shares, as well as impair our ability to
raise capital through the issuance of additional equity shares.
<PAGE>
PLAN OF DISTRIBUTION
Underwriters
Under the terms and conditions of the underwriting agreement, we have
agreed to sell to the underwriters named below and each of the
underwriters for whom Redstone Securities, Inc. is acting as the
representative, have severally agreed to purchase the number of shares
set forth opposite its name in the following table.
Underwriters Number of Shares
Redstone Securities, Inc.
====== ===================
Total 1,500,000
============ =============
The underwriters have advised us that they propose to offer the shares
to the public at the initial public offering price per share set forth
on the cover page of this prospectus and to certain dealers at such
price less a concession of not more than $___ per share. These dealers
may re-allow $____ to other dealers. The representative will not
reduce the public offering price, concession and re-allowance to
dealers until after the offering is completed. Regardless of any
reduction, we will receive the amount of proceeds set forth on the
cover page of this prospectus.
We have granted to the underwriters an option, exercisable during the
45-day period after the date of this prospectus, to purchase up to
225,000 additional shares to cover over-allotments, if any. The option
purchase price is the same price per share we will receive for the
1,500,000 shares that the underwriters have agreed to purchase. If the
underwriters exercise such option, each of the underwriters will
purchase its pro-rata portion of such additional shares. The
underwriters will sell the additional shares on the same terms as
those on which the 1,500,000 shares are being sold.
The underwriters can only offer the shares through licensed securities
dealers in the United States who are members of the National
Association of Securities Dealers, Inc. and may allow the dealers any
portion of its nine and three-quarters (9.75%) percent commission.
The underwriters will not confirm sales to any discretionary accounts
without the prior written consent of their customers.
Under the terms of the underwriting agreement, the holders of the
2,250,000 restricted shares have agreed that for one year after the
date of this prospectus and subject to certain limited exceptions,
without the prior written consent of the representative, they will not
sell;
contract to sell; or
otherwise dispose of any shares, any options to purchase shares, or
any securities convertible into, exercisable for, or exchangeable for
shares.
Substantially all of such shares would be eligible for immediate
public sale following expiration of the lock-up periods, and subject
to the provisions of Rule 144. However, the holders of such 2,250,000
shares have agreed with Rampart that they will not dispose of their
shares to the extent such disposition would jeopardize the NOLS. In
addition, Rampart has agreed that until 365 days after the date of
this prospectus and subject to certain exceptions, without the prior
written consent of the representative, Rampart will not
issue;
sell;
contract to sell; or
otherwise dispose of any shares, any options to purchase any shares,
or any securities convertible into, exercisable for, or exchangeable
for shares in this offering, the issuance of common stock upon the
exercise of outstanding options or warrants or the issuance of options
under its employee stock option plan are not included in the
restrictions we agreed to.
<PAGE>
We have agreed to pay the representative a non-accountable expense
allowance of 2.00% of the gross amount of the shares sold ($300,000 on
the sale of the shares offered) at the closing of the offering. The
representative will pay the underwriters' expenses in excess of the 2%
allowance. If the expenses of underwriting are less than the 2%
allowance, the excess shall be additional compensation to the
underwriters. If this offering is terminated before its successful
completion, we may be obligated to pay the representative a maximum of
$50,000 on an accountable basis for expenses incurred by the
underwriters in connection with this offering. In addition to the
non-accountable expense allowance, we estimate that we will incur
other costs of approximately $200,000 for legal, accounting, listing,
printing, and filing fees.
We have agreed that, for a period of five years from the closing of
the sale of the shares, we will nominate for election as a director a
person designated by the representative. If the representative has not
exercised that right, the representative shall have the right to
designate an observer, who shall be entitled to attend all meetings of
the board and receive all correspondence and communications sent by us
to the members of the board. The representative has designated one of
its officers to be the person who is to be nominated for election as a
director or designated as an observer.
The underwriting agreement provides for indemnification among Rampart
and the underwriters against certain civil liabilities, including
liabilities under the Securities Act. In addition, the underwriters'
warrants provide for indemnification among Rampart and the holders of
the underwriters' warrants and underlying shares against certain civil
liabilities, including liabilities under the Securities Act, and the
Exchange Act.
Underwriters' Warrants
Upon the closing of this offering, we have agreed to sell to the
underwriters for nominal consideration, the underwriters' warrants.
The underwriters' warrants are exercisable at 165% of the public
offering price for a four-year period starting one year from the
effective date of this offering. The underwriters' warrants may not be
sold, transferred, assigned or hypothecated for a period of one year
from the date of this offering except to the officers of the
underwriters and their successors and dealers participating in the
offering and/or their partners or officers. The underwriters' warrants
will contain anti-dilution provisions providing for appropriate
adjustment of the number of shares subject to the warrants under
certain circumstances. The holders of the underwriters' warrants have
no voting, dividend or other rights as shareholders of Rampart with
respect to shares underlying the underwriters' warrants until the
underwriters' warrants have been exercised.
For four years from the one year anniversary of this offering, we have
granted to the holders of the underwriters' warrants or underlying
shares "piggyback" registration rights with respect to any
registration statement we may file, other than in connection with
employee stock options, mergers, or acquisitions. The holders of the
underwriters' warrants and underlying shares shall have the right to
require us to include their shares in such registration statement at
our expense.
For the term of the underwriters' warrants, the holders of the
warrants will be given the opportunity to profit from a rise in the
market value of our shares, with a resulting dilution in the interest
of other shareholders. The holders of the underwriters' warrants can
be expected to exercise the underwriters' warrants at a time when we
would, in all likelihood, be able to obtain needed capital by an
offering of our unissued shares on terms more favorable than those
provided by the underwriters' warrants. This could adversely affect
the terms on which we could obtain additional financing. Any profit
realized by the underwriters on the sale of the underwriters' warrants
or shares issuable upon exercise of the underwriters' warrants will be
additional underwriting compensation.
Determination of Offering Price
The initial public offering price was determined by negotiations
between the representative and us. The factors considered in
determining the public offering price include
our revenue growth since organization,
the industry in which we operate,
our business potential and earning prospects, and
the general condition of the securities markets at the time
of the offering.
The offering price does not bear any relationship to our assets, book
value, net worth or other recognized objective criteria of value.
Prior to this offering, there was no public market for the shares, and
we cannot assure that an active market will develop.
<PAGE>
Stabilization; Passive Market Making Transactions
Certain persons participating in this offering may engage in
transactions that stabilize, maintain or otherwise affect the price of
the shares, including overallotment, entering stabilization bids,
effecting syndicate covering transactions, and imposing penalty bids.
In connection with this offering, certain underwriters may engage in
passive market making transactions in the shares on the Amex in
accordance with Rule 103 of Regulation M.
American Stock Exchange
Listing
We will apply for listing of the common stock on the American Stock
Exchange under the trading symbol "RAC." The listing is contingent,
among other things, upon our obtaining 400 shareholders.
LEGAL MATTERS
Maurice J. Bates L.L.C., Dallas, Texas, will pass on the validity of
the issuance of the shares. Wolin, Ridley & Miller L.L.P., Dallas,
Texas, will pass on certain legal matters for the underwriters in
connection with the sale of the shares.
EXPERTS
Pannell Kerr Forster of Texas P. C., independent certified public
accountants, has audited our financial statements for the fiscal years
ended December 31, 1997 and 1998. Our financial statements are
included in this prospectus and registration statement, in reliance
upon the report of said firm and upon their authority as experts in
accounting and auditing.
<PAGE>
RAMPART CAPITAL CORPORATION
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
Interim Consolidated Financial Statements - Unaudited
<S> <C>
Consolidated Balance Sheets as of March 31, 1999 and 1998 .....................................................F-2
Consolidated Statements of Operations for the Three Months Ended March 31, 1999 and 1998.......................F-3
Consolidated Statements of Shareholders' Equity for the Three Months Ended
March 31, 1999 and 1998........................................................................................F-4
Consolidated Statements of Cash Flows for the Three Months Ended March 31,
1999 and 1998..................................................................................................F-5
Notes to Consolidated Financial Statements.....................................................................F-6
Audited Financial Statements
Report of Pannell Kerr Forster of Texas, P.C., Independent Public Accountants.................................F-11
Consolidated Balance Sheets as of December 31, 1998 and 1997..................................................F-12
Consolidated Statements of Operations for the Years Ended December 31, 1998
and 1997......................................................................................................F-13
Consolidated Statements of Shareholders' Equity for the Years Ended December
31, 1998 and 1997.............................................................................................F-14
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998
and 1997......................................................................................................F-15
Notes to Consolidated Financial Statements....................................................................F-16
</TABLE>
<PAGE>
RAMPART CAPITAL CORPORATION
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(Unaudited)
March 31,
1998 1999
------------- --------
<S> <C> <C>
Assets
Cash $ 52,359 $ 260,176
Purchased asset pools, net 4,606,638 3,471,050
Commercial real estate, net 379,329 2,758,328
Investment real estate 224,985 1,695,046
Notes receivable from related parties 28,738 564,375
Notes receivable other - 850,000
Property and equipment, net 19,222 69,522
Other assets 64,227 225,790
----------- -----------
Total assets $5,375,498 $9,894,287
---------- ----------
Liabilities and Shareholders' Equity
Notes payable $3,608,165 $4,697,488
Notes payable to related parties - 1,400,000
Accounts payable and accrued expenses 145,949 190,206
Income Taxes Payable - 4,124
Deferred tax liability 200,000 400,100
----------- -----------
Total liabilities 3,954,114 6,691,918
---------- ----------
Commitments and contingencies
Shareholders' equity
Common stock ($.01 par value;
10,000,000 shares authorized;
2,250,000 shares issued and
outstanding) 22,500 22,500
Retained earnings 1,398,884 3,179,869
---------- ----------
Total shareholders' equity 1,421,384 3,202,369
---------- ----------
Total liabilities and shareholders' equity $5,375,498 $9,894,287
---------- ----------
</TABLE>
<PAGE>
RAMPART CAPITAL CORPORATION
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1998 1999
-------------- ---------
<S> <C> <C>
Collections on asset pools $2,570,076 $ 17,573
Real estate sales - 60,624
Sale of assessment rights and easements - 850,000
Net rental income 126,937 146,571
Other income 20,126 141,315
------------- ------------
Total revenue 2,717,139 1,616,083
Asset pool amortization (1,013,028) (140,219)
Costs of real estate sales - (37,500)
Costs of assessment rights - (195,000)
Other Costs - ( 20,162)
------------- -------------
Gross profit 1,704,111 1,223,202
General and administrative expenses (389,016) (468,712)
Interest expense (148,040) (118,709)
------------- ------------
Income before income tax benefit (expense) 1,167,055 635,781
Income tax benefit (expense) (200,000) 37,804
------------- ------------
Net income $ 967,055 $ 673,585
------------- ------------
Basic net income per common share $.43 $.30
---- ----
Diluted net income per common share $.43 $.30
---- ----
Average common shares outstanding 2,250,000 2,250,000
------------- ------------
</TABLE>
<PAGE>
RAMPART CAPITAL CORPORATION
Consolidated Statements of Shareholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Common Retained
Stock Earnings Total
<S> <C> <C> <C>
Balance, December 31, 1997 $ 22,500 $ 431,829 $ 454,329
Net income - 967,055 967,055
------------ --------- -----------
Balance, March 31, 1998 $ 22,500 $ 1,398,884 $ 1,421,384
--------- ----------- -----------
Balance, December 31, 1998 $ 22,500 $ 2,506,284 $ 2,528,784
Net income - 673,585 673,585
------------ ----------- -----------
Balance, March 31, 1999 $ 22,500 $ 3,179,869 $ 3,202,369
-------- ----------- -----------
</TABLE>
<PAGE>
RAMPART CAPITAL CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1998 1999
<S> <C> <C>
Cash flows from operating activities
Net income $ 967,055 $673,585
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Depreciation 2,826 11,254
Accrued interest income - (39,375)
Asset pool amortization 1,013,028 140,219
Cost of sales - 252,662
Purchase of asset pools (81,607) (52,778)
Other costs capitalized ( 7,970) (96,970)
Decrease (increase) in other assets 3,679 229,500
Increase (decrease) in accounts payable
and accrued expenses 18,719 (101,606)
Increase (decrease) in taxes payable - (8,500)
Increase (decrease) in deferred tax liability 200,000 (37,900)
------------ -----------
Net cash provided by operating activities 2,115,730 970,091
----------- ----------
Cash flows from investing activities
Note receivable from related party (28,738) -
Purchase of commercial real estate - (2,025,000)
Purchase of investment real estate - (627,844)
Purchase of assessment rights - (110,000)
Purchase of property and equipment - (37,700)
--------------- ------------
Net cash used by investing activities (28,738) (2,800,544)
----------- ----------
Cash flows from financing activities
Proceeds from notes payable to related parties - 1,400,000
Payments on notes payable to related parties (331,147) -
Proceeds from notes payable - 1,657,000
Payments on notes payable (1,725,000) (700,000)
Financed asset sales - (850,000)
---------------- -----------
Net cash provided (used) by financing activities (2,056,147) 1,507,000
----------- -----------
Net increase (decrease) in cash 30,845 (323,453)
Cash at beginning of period 21,514 583,629
------------- ------------
Cash at end of period $ 52,359 $ 260,176
------------- -----------
</TABLE>
<PAGE>
RAMPART CAPITAL CORPORATION
Notes to Consolidated Financial Statements
March 31, 1999
(Unaudited)
Note 1 - Notes to Consolidated Financial Statements
Interim financial information
The unaudited interim financial statements as of March 31, 1998
and 1999 for the three month periods ended March 31, 1998 and 1999
have been prepared on the same basis as the Company's audited
financial statements as of and for the years ended December 31,
1997 and 1998. In the opinion of management, all adjustments,
consisting of normal, recurring accruals, necessary to present
fairly the financial position of the Company at March 31, 1998 and
1999, and the results of operation and cash flows for the three
month periods ended March 31, 1998 and 1999 have been included.
The results of operation for such interim periods are not
necessarily indicative of the results expected for the full year
ending December 31, 1999.
As permitted by the rules of the Securities and Exchange
Commission, the unaudited interim financial statements do not
include all disclosures that might normally be required for
interim financial statements prepared in accordance with generally
accepted accounting principles. The unaudited interim financial
statements should be read in conjunction with the audited
financial statements, including the notes thereto, appearing
elsewhere in this Prospectus.
Commercial real estate
As of March 31, 1999, the Company changed the caption for this
asset classification from "Commercial rental property" to
"Commercial real estate" due to the acquisition during the first
quarter of 1999 of real estate which produces operating revenue as
opposed to rental revenue (see Note 2). Rents collected on
commercial rental property are recognized as rental income as
collected, and other revenues from the operation of commercial
properties is recognized as earned. Expenses of operating
commercial properties are charged to operations as incurred. Sales
of commercial real estate are generally recorded using the full
accrual method of accounting for sales of real estate, assuming
the conditions for recognition are met.
Other income
Other income is comprised of interest income, operating revenues
from the golf course and convention center acquired in the
acquisition described in Note 2, and miscellaneous revenue.
Revenue is recognized as earned.
<PAGE>
RAMPART CAPITAL CORPORATION
Notes to Consolidated Financial Statements
March 31, 1999
(Unaudited)
Note 2 - Acquisitions
On February 1, 1999, the Company acquired all of the assets of a
bankruptcy liquidation estate, including real estate, receivables,
assessment rights and other assets for $2,884,538, comprised of
the contract price of $2,875,000 and acquisition costs of $9,538.
The assets were acquired from a liquidating trustee in Federal
Bankruptcy Court. The acquisition was financed with $1,475,000 of
bank debt and $1,400,000 borrowed from the Company's majority
shareholder. The balance was paid from Company funds. The total
purchase price was allocated to the individual asset components
based on management's estimate of relative market value. None of
the purchase price was allocated to the community swimming pool
and tennis courts or to the restricted recreational reserves
because the costs to rehabilitate these properties to operational
status was estimated to exceed the market value of these assets
and the restricted usage of these assets impaired market value.
<TABLE>
<CAPTION>
The assets acquired include:
Acres Allocated Costs
<S> <C> <C>
Commercial real estate
18-hole golf course 124.53
Club house, convention center and driving range 23.34
Expansion site - 9 holes for golf course 81.18
Related golf course acreage 145.31
Sales Office 2.0
---------
Sub total 376.36 $2,025,000
------
Investment real estate
Undeveloped acreage 237.39
311 fully developed lots 61.60
286 undeveloped platted lots 56.40
Platted and unplatted reserves 75.54
-------
Sub total 430.93 627,844
------
Amenities
Swimming pool and 4 tennis courts 7.17
Restricted recreational reserves 81.52
Subtotal 88.69 0
-------
Total acreage 895.98
Assessment Rights
Assessment rights on 2,000 residential properties 110,000
Purchased Asset Pools Legal Balances
Delinquent assessment receivables $3.2 million 79,469
Other Estimated Value
Other assets $ 75,000 42,225
Total Purchase Price $2,884,538
</TABLE>
<PAGE>
RAMPART CAPITAL CORPORATION
Notes to Consolidated Financial Statements
March 31, 1999
(Unaudited)
Note 3 - Sale of Assessment Rights
In February 1999, the Company sold property maintenance and
assessment rights of $480 per lot, per year, on a total of 2,000
lots ("Rights") for $1,000,000 to an unrelated buyer in exchange
for an $850,000 note and other consideration with an estimated
value of $150,000. The rights were acquired by the Company in
conjunction with the acquisition described in Note 2. The buyer
acquired the Rights subject to the obligation to perform the
required property maintenance. As a requirement to the buyer's
purchase of the Rights, the Company also deeded to the buyer the
amenities described in Note 2 to which the Company had allocated
no portion of the purchase price because of the needed
rehabilitation and restricted usage, subject to the buyer's
obligation to expend $150,000 to renovate those amenities.
The note is secured by a collateral assignment of the Rights, the
related assessment receivables, and associated real property
foreclosure rights. Interest is payable monthly at 10% per annum
on the note through December 1999, at which time monthly principal
and interest payments of $12,030 are due through December 2008.
The Rights provide the buyer with an enforceable lien on the
underlying properties, and the historical and anticipated cash
flows from the collection of the fees, which is reasonably assured
because of the lien, provide for the buyer's performance of the
required maintenance and the repayment of the note in accordance
with its terms. The sale did not require any contingent
performance by the Company as a condition of the buyer's repayment
of the note and, accordingly, revenue has been recognized by the
Company in the full amount of the note.
The other consideration received by the Company consisted of a
waiver (the "Waiver") of all fee and assessments payable on lots
it owns, presently or in the future, within the jurisdiction of
the development for which the Rights apply. The Waiver includes
$75,000 of assessments payable at the time of sale. The present
value of future assessments waived is estimated to be $75,000. No
accounting recognition was given to the Waiver, and accordingly
the gain on the sale does not include any value related thereto.
The Company's carrying value of the Rights at the time of sale was
$195,000, including $110,000 of cost allocated at the time of
acquisition and subsequent costs of $85,000 directly related to
the sale of the Rights. Accordingly, the Company's gain on the
sale of the Rights amounted to $655,000.
<TABLE>
<CAPTION>
Note 4 - Notes Payable - Related Parties
March 31,
1998 1999
-------------- --------
(Unaudited)
<S> <C> <C>
Promissory note payable to a family limited partnership affiliated
with a Company shareholder, interest at 10% per annum paid on the
first of each month, with all
outstanding principal and interest due December 31, 1999. $ - $1,400,000
--------------- ----------
$ - $1,400,000
--------------- ----------
</TABLE>
<PAGE>
RAMPART CAPITAL CORPORATION
Notes to Consolidated Financial Statements
March 31, 1999
(Unaudited)
Note 4 - Notes Payable - Related Parties (Continued)
Interest paid during 1999 and 1998 to related parties was $20,176
and $31,814, respectively. Of the amounts paid to related parties
during 1999 and 1998, $7,500 and $25,500, respectively, were to a
shareholder's family limited partnership for the pledge of
partnership's assets as collateral against the Company's notes
payable to bank.
Note 5 - Related Party Transactions
In January 1999, the Company borrowed $1,400,000 from the family
limited partnership of the Company's majority shareholder pursuant
to the terms described in Note 4. The funds were used to complete
the acquisition described in Note 2.
Note 6 - Segment Reporting
The Company operates in three business segments (i) purchased
asset pools, (ii) commercial real estate, and (iii) investment
real estate. The purchased asset pools segment involves the
acquisition, management, servicing and realization of income from
collections on or sales of portfolios of undervalues financial
assets, and in some instances real estate the Company may acquire
as part of an asset pool or as the result of foreclosing on the
collateral underlying an acquired real estate debt. The commercial
real estate segment involves holding foreclosed and acquired
improved real estate for appreciation and the production of
income. The investment real estate segment involves holding
foreclosed and acquired unimproved real estate for future
appreciation and acquiring unimproved real estate in conjunction
with short-term funding for developers. Financial information by
reportable operating segment is as follows:
<TABLE>
<CAPTION>
As of and for the quarter ended March 31, 1999
Purchased Commercial Investment
Asset Pools Real Estate Real Estate Other Totals
<S> <C> <C> <C> <C> <C>
Revenue $470,260 $223,499 $ 72,324 $ 850,000 $1,616,083
Segment profit 114,207 (22,593) (110,833) 655,000 635,781
Segment assets 4,035,425 3,608,328 1,695,046 - 9,338,799
Depreciation and amortization - 6,828 - - 6,828
Capital expenditures 60,778 2,025,000 826,814 - 2,912,592
Net interest expense 64,138 33,192 21,379 - 118,709
</TABLE>
<TABLE>
<CAPTION>
As of and for the quarter ended March 31, 1998
Purchased Commercial Investment
Asset Pools Real Estate Real Estate Totals
<S> <C> <C> <C> <C>
Revenue $2,621,740 $85,749 $ 9,650 $2,717,139
Segment profit 1,217,828 37,720 1,506 1,167,055
Segment assets 4,606,638 379,329 224,986 5,210,953
Depreciation and amortization - 1,526 - 1,526
Capital expenditures 89,577 - - 89,577
Net interest expense 132,251 9,918 5,871 148,040
</TABLE>
<PAGE>
RAMPART CAPITAL CORPORATION
Notes to Consolidated Financial Statements
March 31, 1999
(Unaudited)
Note 6 - Segment Reporting (Continued)
Reconciliation of reportable segment assets to the Company's
consolidated totals as of March 31 are as follows:
<TABLE>
<CAPTION>
Assets 1998 1999
------ -------------------------------
<S> <C> <C>
Total assets for reportable segments $5,210,953 $9,338,799
Cash not allocated to segments 52,359 260,176
Other assets not allocated to segments 112,186 295,312
------------ ------------
Consolidated total assets $5,375,498 $9,894,287
---------- ----------
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Rampart Capital Corporation
We have audited the accompanying consolidated balance sheets of Rampart Capital
Corporation and subsidiaries (the "Company") as of December 31, 1998 and 1997,
and the related consolidated statements of operations, stockholders' equity and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Rampart Capital
Corporation and subsidiaries as of December 31, 1998 and 1997, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
Houston, Texas
January 29, 1999, except for PANNELL KERR FORSTER OF TEXAS, P.C.
Note 15, as to which the date
is February 12, 1999
<PAGE>
RAMPART CAPITAL CORPORATION
<TABLE>
<CAPTION>
Consolidated Balance Sheets
December 31,
1997 1998
Assets
<S> <C> <C>
Cash $ 21,514 $ 583,629
Purchased asset pools, net 5,530,088 3,558,491
Commercial rental property, net 380,854 732,156
Investment real estate 224,986 1,100,731
Notes receivable from related parties - 525,000
Property and equipment, net 20,522 36,249
Other assets 67,907 475,452
------------ -----------
Total assets $6,245,871 $7,011,708
---------- ----------
Liabilities and Stockholders' Equity
Notes payable $5,333,164 $3,740,488
Notes payable to related parties 331,147 -
Accounts payable and accrued expenses 127,231 291,812
Federal income taxes payable - 12,624
Deferred tax liability - 438,000
---------------- -----------
Total liabilities 5,791,542 4,482,924
---------- ----------
Commitments and contingencies
Stockholders' equity
Common stock ($.01 par value;
10,000,000 shares authorized;
2,250,000 shares issued and
outstanding) 22,500 22,500
Retained earnings 431,829 2,506,284
----------- ----------
Total stockholders' equity 454,329 2,528,784
----------- ----------
Total liabilities and stockholders' equity $6,245,871 $7,011,708
---------- ----------
</TABLE>
See notes to consolidated financial statements
F-17
<PAGE>
RAMPART CAPITAL CORPORATION
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1998
<S> <C> <C>
Collections on asset pools $2,555,363 $6,099,296
Net rental and other income 379,920 744,489
----------- -----------
Total revenue 2,935,283 6,843,785
Asset pool amortization (1,134,044) (2,241,702)
---------- ----------
Gross profit 1,801,239 4,602,083
General and administrative expenses (1,544,120) (1,548,895)
Interest expense (642,600) (494,142)
------------ -----------
Income (loss) before income tax benefit (expense) (385,481) 2,559,046
Income tax benefit (expense) 325,020 (484,591)
------------ -----------
Net income (loss) $ (60,461) $2,074,455
------------ ----------
Basic net income (loss) per common share $ (.03) $ .92
-------------- --------------
Diluted net income (loss) per common share $ (.03) $ .92
-------------- --------------
Average common shares outstanding 2,250,000 2,250,000
------------ ----------
</TABLE>
<PAGE>
RAMPART CAPITAL CORPORATION
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Common Retained
Stock Earnings Total
<S> <C> <C> <C>
Balance, December 31, 1996 $22,500 $ 492,290 $ 514,790
Net loss - (60,461) (60,461)
------------ ------------- -------------
Balance, December 31, 1997 22,500 431,829 454,329
Net income - 2,074,455 2,074,455
------------ ------------ -----------
Balance, December 31, 1998 $22,500 $2,506,284 $2,528,784
------- ---------- ----------
</TABLE>
<PAGE>
RAMPART CAPITAL CORPORATION
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1998
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ (60,461) $2,074,455
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities
Depreciation 13,852 15,394
Asset pool amortization 1,018,956 2,319,364
Change in loan loss reserve 115,088 (77,662)
Purchase of asset pools (299,961) (504,373)
Other costs capitalized with asset pools (314,695) (125,732)
Decrease (increase) in other assets 1,410 (407,545)
Increase (decrease) in accounts payable
and accrued expenses (133,413) 164,581
Increase in federal income taxes payable - 12,624
Increase (decrease) in deferred tax liability (325,020) 438,000
----------- -----------
Net cash provided by operating activities 15,756 3,909,106
------------ ----------
Cash flows from investing activities
Acquisition of subsidiaries, net of cash
acquired (881,134) -
Purchase of investment real estate - (875,745)
Purchase of property and equipment - (22,423)
----------------- -----------
Net cash used by investing activities (881,134) (898,168)
------------ -----------
Cash flows from financing activities
Payments on notes payable to related
parties (100,000) (331,147)
Proceeds from notes payable 1,931,601 1,664,334
Payments on notes payable (1,003,000) (3,257,010)
Financed asset sales to related parties - (525,000)
----------------- -----------
Net cash provided (used) by financing activities 828,601 (2,448,823)
------------ ----------
Net increase (decrease) in cash (36,777) 562,115
Cash at beginning of year 58,291 21,514
------------- ------------
Cash at end of year $ 21,514 $ 583,629
------------- -----------
</TABLE>
<PAGE>
RAMPART CAPITAL CORPORATION
Notes to Consolidated Financial Statements
December 31, 1998
Note 1 - Nature of Business and Summary of Significant Accounting Policies
Description of business
Rampart Capital Corporation (the "Company"), established in March
1994, is a specialized financial services company which acquires,
manages, services and realizes income from collection or sale of
portfolios of undervalued financial assets, primarily
non-performing commercial debt and other forms of legal
obligations (purchased asset pools). A significant portion of the
debts are secured by real estate or other assets. The purchased
asset pools acquired by the Company may also include real estate,
or the Company may acquire real estate as the result of
foreclosing on the collateral underlying an acquired debt. The
Company generally seeks to immediately sell foreclosed real
estate, but in some instances may elect to hold a property for
appreciation and/or the production of income. The Company
purchases these asset pools at substantial discounts from their
outstanding legal principal amounts from financial institutions,
regulatory agencies and bankruptcy courts. Purchased asset pools
are primarily acquired by public sealed bid sales of portfolios of
loans, by sealed bid sales limited to a small number of invited
participants and by negotiated transactions on behalf of the
Company. Additionally, the Company provides short-term funding for
real estate projects.
Basis of consolidation
The consolidated financial statements include the accounts of
Rampart Capital Corporation and all of its subsidiaries.
Intercompany accounts and transactions have been eliminated.
Purchased asset pools
Purchased asset pools consist of pools of assets, which, when
purchased, are comprised of non-performing debts or other legal
obligations which are not performing pursuant to the contractual
terms of the underlying agreements (collectively "debt assets"),
and in some cases incidental real estate. Each purchased asset
pool represents the assets purchased by the Company as a pool in a
single transaction. The Company acquires the pools at substantial
discounts from the outstanding legal balances under the loan or
debt agreements.
At the acquisition date, the aggregate cost of a purchased asset
pool is allocated to individual debt and real estate assets
comprising the asset pool at the time of purchase on the basis of
management's estimate of relative fair values of the individual
debt and real estate assets comprising the asset pool. However,
for financial reporting purposes, each asset pool, rather than the
individual debt and real estate assets within the asset pool, is
treated as the asset, and the individual debt and real estate
assets comprising an asset pool remain within that asset pool,
except a real estate asset may be removed from the asset pool and
reclassified as commercial rental property (developed properties)
or investment real estate (unimproved properties) if the Company
determines to hold the real estate for appreciation and/or the
production of income. Additionally, income and expenses relating
to the individual debt and real estate assets comprising an asset
pool is recognized, as described below, on the basis of the asset
pool as a single asset, except that the recoverability of the
Company's investments in the assets comprising the purchased asset
pools is assessed on the basis of individual assets within the
asset pool.
<PAGE>
Note 1 - Nature of Business and Summary of Significant Accounting Policies
(Continued)
Purchased asset pools (continued)
For the purposes of assessing the recoverability of the Company's
investment, and additionally to provide information on the
progress of resolving and recovering on the individual debt and
real estate assets comprising an asset pool, the Company
classifies the assets within an asset pool as (i)
"Collections-in-Progress", (ii) "Paying Loans", or (iii)
"Foreclosed Real Estate". Initially all debt assets acquired in
the purchase of an asset pool are classified as
Collections-in-Progress. Collections-in-Progress represents
non-performing debt assets being actively evaluated for
resolution, and debts or judgments that are in bankruptcy
proceedings, litigation, or post-judgment collection status. Those
debt assets that are resolved by the debtor either (i) resuming
the payments required under the original agreement, or (ii)
executing with the Company a settlement agreement which involves
payments to the Company over time, are at that time reclassified
as Paying Loans within the asset pool. In those instances where
the Company forecloses on the real estate securing either a
Collection-in-Progress or a Paying Loan, the asset is reclassified
as Foreclosed Real Estate. Additionally, any real estate acquired
with the initial purchase of an asset pool is classified as
Foreclosed Real Estate. Foreclosed Real Estate is held by the
Company for immediate sale. See Note 3.
Income from collections on asset pools represents any cash
proceeds received on account of an individual debt or real estate
asset within an asset pool. Cash proceeds received my be a
settlement payment, the proceeds of the sale of an asset, or a
principal or interest payment under the terms of a debt agreement.
No interest income or any other yield component of revenue is
recognized separately on any debt asset in an asset pool. Income
from collections on asset pools is recognized as received.
The aggregate cost of each asset pool is amortized in relation to
the income from collections on that asset pool. Amortization
expense is recorded in each period based on the previously
unamortized cost of the asset pool and the relationship of the
collection income recognized in that period to the aggregate of
those collections and the estimated future collections for the
assets remaining in that asset pool. As a result, the rate of
amortization for an individual asset pool may vary from period to
period as the result of (i) changes in the estimates of future
collections, and (ii) impairment allowances previously recorded as
described below.
The Company continually assesses the recoverability of its
investments in the assets comprising the asset pools, on the basis
of the individual assessment of the recoverability of the
remaining balance of the investment allocated to each individual
debt or real estate asset comprising an asset pool. Consistent
with the requirements of Statement of Financial Accounting
Standards ("SFAS") No. 114, Accounting by Creditors for Impairment
of a Loan, the debt assets within the asset pool are assessed
based on the comparison of the investment allocated to the debt
asset, net of a pro-rata portion of accumulated amortization, to
the present value of management's estimate of the future cash
flows from the debt asset, or, in the case of a in-Progress debt
asset that management estimated will be collected through
foreclosure, the fair value of the underlying collateral. For
Paying Loans the estimated future cash flows are
<PAGE>
Note 1 - Nature of Business and Summary of Significant Accounting Policies
(Continued)
Purchased asset pools (continued)
discounted to a present value using the interest rate implicit in
the difference between the investment in the debt asset and the
cash flows to the Company required under the debt agreement being
complied with. For Collections-in-Progress debt assets the
estimated future cash flows are discounted to a present value
using the interest rate implicit in the difference between the
investment allocated to the debt asset and management's initial
estimate, made at the time the asset pool was purchased, of the
cash flows to be recovered. Where such comparisons indicate an
excess of the investment over the present value of cash flows or
fair value, an impairment allowance (loan loss allowance) is
recorded by a charge to operations in the form of an increase in
that period's asset pool amortization. See Note 3.
Foreclosed Real Estate is assessed on the basis of a comparison of
the investment allocated to the real estate asset, net of a
pro-rata portion of accumulated amortization, to management's
estimate of the fair value of the real estate. Where such
comparisons indicate an excess of the investment over the fair
value, an impairment allowance is recorded by a charge to
operations in the form of an increase in that period's asset pool
amortization. Through December 31, 1998 the Company has not been
required to record an impairment allowance on Foreclosed Real
Estate.
The Company's purchased asset pools are free of beneficial
interests by, and liabilities of, the transferor of the pool
assets. Accordingly, the provisions of SFAS No. 125, Accounting
for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, do not presently impact the
Company's accounting for purchased asset pools.
Commercial rental property
Commercial rental property consists of foreclosed real property
that management has determined to hold for appreciation and/or the
production of income. The property is reclassified from purchased
asset pools at its carrying value, prior to any impairment
allowance, if any, when management determines to hold the property
for the appreciation and/or production of income. The property's
carrying value is depreciated over its estimated useful life.
In the event a commercial rental property's carrying value exceeds
the sum of the undiscounted future cash flows from the asset, an
impairment allowance is recorded to reduce its carrying amount to
the fair value of the property.
Rents collected on commercial rental property are recognized as
rental income as collected. Sales of commercial rental property
are generally recorded using the full accrual method of accounting
for sales of real estate, assuming the conditions for recognition
are met.
<PAGE>
Note 1 - Nature of Business and Summary of Significant Accounting Policies
(Continued)
Investment real estate
The Company's investment real estate portfolio is comprised of
unimproved real estate transferred from purchased asset pools, or
acquired for appreciation and, if possible, income, as well as
unimproved real estate acquired for the purpose of short-term
funding of real estate projects. The Company provides short-term
funding by acquiring an undeveloped property which a developer has
identified as having development potential. The Company will
acquire a 100% fee ownership in the property, and will compensate
the developer for identifying the property and managing the sale
or development of the project with a profit interest in the
project. Properties are not acquired from developers or entities
related to developers. Revenues, net of any developer's profit
interest, and associated costs are recognized at the time of sale
by the Company assuming the criteria for sales recognition are
met. The Company does not retain any interest in the real estate
upon its sale.
In the event an investment real estate asset's carrying value
exceeds its fair value less estimated costs to sell, an impairment
allowance is recorded to reduce its carrying amount to its fair
value less estimated costs to sell.
Property and equipment
Property and equipment is stated at cost less accumulated
depreciation. Depreciation for financial reporting purposes is
provided using the straight-line method over the estimated useful
lives of the assets. Estimated useful lives of the assets range
from three to five years. Commercial rental property is
depreciated over 40 years.
Expenditures for major acquisitions and improvements are
capitalized; expenditures for maintenance and repairs are charged
to expense as incurred. When property and equipment are sold or
retired, the cost and related accumulated depreciation are removed
from the accounts and any gain or loss is reflected in income.
Income taxes
The Company accounts for income taxes in accordance with SFAS No.
109, Accounting for Income Taxes. This statement requires the use
of an asset and liability approach for financial accounting and
reporting purposes and also requires deferred tax balances to be
adjusted to reflect the tax rates in effect when those amounts are
expected to be payable or refundable.
Deferred income taxes are provided for differences in the basis of
assets and liabilities for financial reporting and income tax
purposes. Basis differences result primarily from the difference
between the method used to recognize income and amortization
related to asset pools for financial reporting purposes, as
described above, and the use of the cost recovery method for
income tax purposes.
<PAGE>
Note 1 - Nature of Business and Summary of Significant Accounting Policies
(Continued)
Estimates
The preparation 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. Significant estimates include the estimation of future
collections on purchased asset pools used in determining the value
of pools of assets within the purchased asset pool and the
periodic revaluation for possible loss. Actual results could
differ materially from those estimates.
Concentration of credit risk
The Company maintains its cash with major U.S. banks and, from
time to time, these amounts exceed the Federally insured limit of
$100,000. The terms of these deposits are on demand to minimize
risk. The Company has not incurred losses related to these
deposits.
The majority of the debt assets included in the asset pools are
concentrated in Texas and substantially all of the real estate is
located in Texas.
Fair value of financial instruments
SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments," requires that the Company disclose estimated fair
values of its financial instruments. Fair value estimates, methods
and assumptions are set forth below.
The carrying amount of cash and accounts payable and accrued
expenses approximates fair value at December 31, 1997 and 1998 due
to the short-term nature of such accounts. The carrying amount of
notes receivable from related parties approximates fair value as
of December 31, 1998.
Purchased asset pools , which are comprised principally of
financial instruments, are carried at amortized costs, which
includes any required impairment allowance. The net carrying value
of the purchased asset pools is $5,530,088 and $3,558,491 as of
December 31, 1997 and 1998, respectively. The estimated fair value
of the purchased asset pools is $15,336,000 and $12,379,000 as of
December 31, 1997 and 1998, respectively. The fair value of the
asset pools was estimated based on management's estimates of the
future cash flows to be derived from the asset pools, discounted
to a present value using interest rates that reflect current
interest rate and asset risk conditions.
The Company's notes payable carry both fixed and variable interest
rates. Management estimates that the interest rates in effect
under both the fixed and variable rate notes approximate the
current market rates for instruments with similar terms and credit
risk, and that therefore the carrying amount of notes payable
approximates fair value.
<PAGE>
Note 1 - Nature of Business and Summary of Significant Accounting Policies
(Continued)
Reclassifications
Certain reclassifications have been made to the 1997 financial
statements to conform with the 1998 presentation. These
reclassifications had no effect on the 1997 net income or
stockholders' equity.
New accounting standards
In November 1998, the Financial Accounting Standards Board
("FASB") issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which established accounting
and reporting standards for derivative instruments and hedging
activities. It requires that entities recognize all derivatives as
either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The
provisions of this statement, as amended by SFAS No. 137, are
effective for all fiscal quarters of all fiscal years beginning
after June 15, 2000. In December 1998, the FASB issued SFAS No.
134 "Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage
Banking Enterprise", which amended SFAS No. 65. This statement is
effective for the first fiscal quarter beginning after December
15, 1998. The Company believes that neither standard will have a
material impact on their financial statements or disclosures
thereto. In April, 1998, the Accounting Standards Executive
Committee issued Statement of Position ("SOP") 98-5 "Reporting on
the Costs of Start-up Activities". SOP 98-5 requires all start-up
and organizational costs to be expensed as incurred. It also
requires all remaining historically capitalized amounts of these
costs existing at the date of adoption to be expensed and reported
as the cumulative effect of a change in accounting principles. SOP
98-5 is effective for all fiscal years beginning after December
31, 1998. The Company believes that the adoption of SOP 98-5 will
not have a material effect on its financial statements.
Note 2 - Acquisitions
During 1997, the Company acquired certain corporate subsidiaries
and assets of MCorp Trust, MCorp Financial Trust, and MCorp
Management Trust (collectively the "MCorp Trusts"). The MCorp
Trusts were created pursuant to a confirmed Plan of Reorganization
in the Chapter 11 bankruptcy estates of MCorp, Inc., MCorp
Management, Inc., and MCorp Financial, Inc.
The acquisition (the "MCorp Acquisition") has been accounted for
as a purchase. The purchase price of $881,134, net of cash
acquired of $427,589, was allocated to purchased asset pools. The
results of the operations of the acquired businesses have been
included in the Company's consolidated results of operations from
the date of acquisition. The impact of these acquisitions on the
results of operations for 1997 is not material, except as
described in Note 7.
Additionally, in 1997, the Company acquired 100% of the
outstanding common stock of two other unrelated entities by
executing against a judgment creditor.
<PAGE>
Note 3 - Purchased Asset Pools
Purchased asset pools consist of the following at December 31,:
<TABLE>
<CAPTION>
Balance at
December 31,
1997 1998
<S> <C> <C>
Collections-in-progress $ 1,751,153 $ 1,297,228
Paying loans 2,073,552 1,609,666
Loan loss allowance (200,151) (122,489)
------------ ------------
3,624,554 2,784,405
Foreclosed real estate 1,905,534 774,086
----------- ------------
Purchased asset pools, net $5,530,088 $3,558,491
---------- ----------
</TABLE>
Specific allowances for losses on debt assets included in the
asset pools determined to be impaired under SFAS No. 114,
Accounting by Creditors for Impairment of a Loan amounted to
$200,151 and $122,489 at December 31, 1997 and 1998, respectively.
The related expense amount is included in asset pool amortization
in the statements of operations. The loan loss allowance related
to specific loans which had aggregate carrying amounts of $485,596
and $256,103 at December 31, 1997 and 1998, respectively. The
average balance of loans for which the loan loss allowances have
been provided was $18,205 and $10,205, respectively for the years
ended December 31, 1997 and 1998.
Activity in the Company's allowance for loan losses for the
years ended December 31, 1997 and 1998 is as
follows:
<TABLE>
<CAPTION>
1997 1998
----------- -------
<S> <C> <C>
Allowance at beginning of year $ 90,003 $200,151
Additions charged(credited) to operations 117,015 (60,669)
Direct write downs charged against
the allowance (6,867) (16,993)
----------- ------------
Allowance at end of year $200,151 $122,489
-------- --------
</TABLE>
<PAGE>
Note 4 - Commercial Rental Property
Commercial rental property consists of the following at December
31:
<TABLE>
<S> <C> <C>
1997 1998
----------- -------
Commercial rental property $390,203 $750,203
Accumulated depreciation (9,349) (18,047)
---------- ---------
Commercial rental property, net $380,854 $732,156
-------- --------
</TABLE>
Gross rental income from the commercial rental property amounted
to $340,629 and $713,286 for 1997 and 1998,
respectively.
Non-cash transaction
During the year ended December 31, 1998, the Company reclassified
a single asset with a cost basis of $360,000 from purchased asset
pools to commercial real estate. The cost basis of these assets
while held for sale was lower than the fair value less the
estimated costs to sell, therefore no allowance had been
established by the Company. Accordingly, no basis adjustment was
recognized in connection with the reclassification.
Note 5 - Notes Receivable From Related Parties
During June 1998, the Company sold a property from its asset pool
to related parties in exchange for five notes receivable totaling
$525,000. Note principal plus interest at 10% per annum is due
June 2001 for each of the notes. The Company recognized $210,000
of asset pool amortization in connection with this sale. The cost
basis originally allocated to this property at the time of sale
approximated $268,000.
Note 6 - Property and Equipment
Property and equipment consists of the Company's furniture and
equipment and is recorded at cost. Accumulated depreciation on the
Company's furniture and equipment amounted to $35,751 and $42,446
as of December 31, 1997 and 1998, respectively.
<PAGE>
<TABLE>
<CAPTION>
Note 7 - Notes Payable (Continued)
December 31,
1997 1998
Notes payable consist of the following:
<S> <C> <C>
Notes payable
$5,000,000 bank line of credit, secured by notes receivable and
real estate comprising the purchased asset pools and a
shareholder's certificate of deposit; principal payable based on
proceeds from disposition and payments received on the purchased
asset pools; interest payable monthly at the bank's prime rate
plus 1.0% per annum (10% and 8.8% as of December 31, 1997 and
1998, respectively), with the remaining unpaid principal and
interest due December 31, 1999 $3,933,164 $3,302,629
$2,000,000 term note payable to bank, secured by notes receivable
and real estate comprising the purchased asset pools and a
shareholder's certificate of deposit; principal payments of
$100,000 due quarterly beginning December 1997; interest payable
monthly at the bank's prime rate plus 1.5% per annum.
Entire principal and interest paid September 30, 1998 1,400,000 -
$441,705 term note payable to a third party corporation, secured
by real estate; principal and interest payments of $24,827 due
semi-annually beginning December 1998; bearing a stated interest
rate of 9.5% per annum, with the
remaining unpaid principal and interest due June 2002 - 437,859
----------------- -----------
$5,333,164 $3,740,488
---------- ----------
Notes payable to related parties
December 31,
1997 1998
Unsecured promissory notes payable to various trusts and
individuals affiliated with a Company officer, accruing interest
at 12% per annum, with all outstanding principal and interest
due December 31, 1998, paid February 1998 $ 331,147 -
----------- ------------
$ 331,147 $ -
----------- -----------
</TABLE>
<PAGE>
Note 7 - Notes Payable (Continued)
Interest paid during 1997 and 1998 on all of the Company's debt
instruments, approximated $642,000 and $449,000, respectively,
including $152,000 and $90,000 paid to related parties during 1997
and 1998, respectively. Of the amounts paid to related parties
during 1997 and 1998, $102,000 and $84,000, respectively, were to
a shareholder for the pledge of the shareholder's personal
collateral against the Company's notes payable to bank.
Non-cash transaction
During the year ended December 31, 1998, the Company acquired
investment real estate for $585,117, comprised of a cash payment
of $143,412 and a $441,705 non-recourse note payable to the
seller.
Note 8 - Income Taxes
The deferred tax liability as of December 31, 1997 and 1998 arises
from the use of different methods of recognition of asset pool
amortization for financial statement purposes and Federal tax
purposes. A modified cost recovery method, whereby the
amortization recognized in conjunction with collections on
individual asset pool components is recognized in the ratio of
total asset pool acquisition costs to total asset pools
collections, is used for financial statement purposes. The cost
recovery method is used for Federal income tax purposes. The
Company's deferred tax asset as of December 31, 1997 and 1998
consists of net operating loss carryforwards ("NOLs") of
approximately $2,481,000 and $56,000,000 which expire from 2008
through 2012.
At December 31, 1998, based upon further review of the MCorp
Acquisition (see Note 2) and completion of the Company's 1997 Federal
income tax return, management believes the Company has a reasonable
position to support full utilization of the NOLs related to the MCorp
Acquisition. Accordingly, management believes the Company has
available NOLs of approximately $56,000,000 at December 31, 1998.The
ultimate realization of the resulting net deferred tax asset is
dependent upon generating sufficient taxable income within the
appropriate subsidiaries prior to expiration of the NOLs. Due to the
nature of these NOLs and since realization is not assured, management
has established a valuation allowance relating to the deferred tax
asset. The ability of the Company to realize the deferred tax asset is
periodically reviewed and the valuation allowance adjusted
accordingly.
<PAGE>
Note 8 - Income Taxes (Continued)
Deferred income taxes have been established for the effects of
differences in the bases of assets and liabilities for financial
reporting and income tax purposes. The provision for income tax
expense (benefit), consisting entirely of deferred income taxes,
is reconciled with the Federal statutory rate as follows:
<TABLE>
<CAPTION>
1997 1998
------------------------- -------------
Amount Rate Amount Rate
<S> <C> <C> <C> <C>
Tax at statutory rate $(131,064) (34.0)% $870,075 34.0%
Utilization/recognition of net operating
loss carryforward (200,000) (51.9) (385,484) (15.1)
State and other, net 6,044 1.6 - -
------------ ------- -- ------
Income tax (benefit) expense $(325,020) (84.3)% $484,591 18.9%
--------- ------ -------- -----
</TABLE>
Significant components of the Company's deferred tax assets and
liabilities are summarized as follows:
<TABLE>
<CAPTION>
December 31,
1997 1998
------------- ----------
<S> <C> <C>
Book basis of purchased asset pools,
net, in excess of tax basis $(808,543) $ (1,143,354)
Net operating loss carryforwards 955,000 19,075,000
Valuation allowance (146,457) (18,369,646)
---------- ------------
Deferred tax liability, net $ - $ (438,000)
-------------- ------------
</TABLE>
The Company has recorded a valuation allowance against a majority
of the deferred tax assets because the realization of the deferred
tax assets is contingent on the future profitability of the
Company. The changes in the valuation account applicable to the
deferred tax asset primarily relate to management's position taken
during 1998 with regard to the availability of NOLs related to the
MCorp Acquisition (see Note 2).
<TABLE>
<CAPTION>
Changes in the valuation allowance account are as follows:
December 31,
1997 1998
<S> <C> <C>
Valuation allowance at beginning of year $ - $ 146,457
Increase (decrease) for the year 146,457 (18,223,189)
------------- ----------
Valuation allowance at end of year $ 146,457 $18,369,646
------------- ----------
No income taxes were paid during 1997 or 1998.
</TABLE>
<PAGE>
Note 9 - Commitments and Contingencies
The following is a summary of the NOLs and their expiration dates:
<TABLE>
<CAPTION>
Expiring in
December 31, Amount
<S> <C>
1999 $ 1,458,000
2000 1,894,000
2001 -
2002 10,377,000
2003 13,305,000
2004 - 2013 29,044,000
----------
$56,078,000
</TABLE>
Litigation
The Company is involved in various legal proceedings in the
ordinary course of business. In the opinion of management, the
resolution of such matters should not have a material adverse
impact on the financial condition, results of operations or
liquidity of the Company. Subsequent to December 31, 1998, the
Company evaluated its financial exposure to litigation and
environmental risks associated with the debt assets and foreclosed
real estate within its asset pools and elected to transfer and
realign its assets based upon the element of risk associated with
the different types of asset pools. Management believes that this
restructuring of its assets within existing corporate entities
will provide greater protection of its financial condition.
Operating leases (as lessee)
The Company leases vehicles under operating leases which expire
November 2000. Future minimum rental payments required by these
leases are estimated as follows:
Year Ending
<TABLE>
<CAPTION>
December 31,
<S> <C>
1999 $ 10,000
2000 9,000
---------
Total $19,000
</TABLE>
Total expense incurred under these and other month-to-month rental
agreements approximated $22,000 and $33,000 during 1997 and 1998,
respectively.
The Company's offices are located in a major downtown Houston
office building. A portion of its space is leased to the Company
on a month-to-month basis and a portion is provided as an
accommodation by the firm providing legal counsel to the Company.
<PAGE>
Note 9 - Commitments and Contingencies (Continued)
Operating leases (as lessor)
The Company has long-term lease agreements with tenants in their
San Antonio and Dallas commercial rental property locations.
Future minimum payments required under these leases are estimated
as follows:
Year Ending
December 31,
1999 $392,000
2000 314,000
2001 154,000
2002 13,000
----------
Total $873,000
Note 10 - Segment Reporting
The Company operates in three business segments (i) purchased asset
pools, (ii) commercial rental property, and (iii) investment real
estate. The purchased asset pools segment involves the
acquisition, management, servicing and realization of income from
collections on or sales of portfolios of undervalued financial
assets, and in some instances real estate the Company may acquire
as part of an asset pool or as the result of foreclosing on the
collateral underlying an acquired real estate debt. The commercial
rental property segment involves holding foreclosed and acquired
real estate for appreciation and the production of income. The
investment real estate segment involves holding foreclosed real
estate for future appreciation and acquiring unimproved real
estate in conjunction with short-term funding for developers.
Financial information by reportable operating segment is as
follows:
<TABLE>
<CAPTION>
As of and for the year ended December 31, 1998
Purchased Commercial Investment
Asset Pools Rental Property Real Estate Totals
<S> <C> <C> <C> <C>
Revenue $6,298,209 $449,643 $ 95,933 $6,843,785
Segment profit 2,313,308 232,842 12,896 2,559,046
Segment assets 4,351,963 732,156 1,100,731 6,184,850
Depreciation and amortization - 8,699 - 8,699
Capital expenditures 691,333 - 875,745 1,567,078
Net interest expense 380,755 42,173 71,214 494,142
</TABLE>
<PAGE>
Note 10 - Segment Reporting (Continued)
<TABLE>
<CAPTION>
As of and for the year ended December 31, 1997
Purchased Commercial Investment
Asset Pools Rental Property Real Estate Totals
<S> <C> <C> <C> <C>
Revenue $2,653,456 $281,827 $ - $2,935,283
Segment profit (453,222) 61,324 6,417 (385,481)
Segment assets 5,530,088 380,854 224,986 6,135,928
Depreciation and amortization - 9,349 - 9,349
Capital expenditures 1,498,939 - - 1,498,939
Net interest expense 581,269 38,555 22,776 642,600
</TABLE>
<TABLE>
<CAPTION>
Reconciliation of reportable segment assets to the Company's
consolidated totals as of December 31 are as follows:
Assets 1997 1998
------ --------------- ---------
<S> <C> <C>
Total assets for reportable segments $6,135,928 $6,184,850
Cash not allocated to segments 21,514 583,629
Other assets not allocated to segments 88,429 243,229
------------ -----------
Consolidated total assets $6,245,871 $7,011,708
---------- ----------
</TABLE>
Note 11 - Stock Split and Preferred Stock Authorization`
In December 1998, the Board of Directors approved (i) an increase
in the authorized number of shares of common stock to 10,000,000,
(ii) a 3,000-for-1 stock split of issued and outstanding common
shares and (iii) authorization of 10,000,000 shares of $.01 par
value preferred stock. All common shares, per share and option
information in the accompanying financial statements has been
restated to reflect the effect of the split and change in
authorized shares.
Note 12 - Stock Compensation Plan
In December 1998, the 1998 Stock Compensation Plan (the "Plan")
was approved by the Board of Directors ("Board") and by the
shareholders. The provisions of the Plan provide for 375,000
shares of Company common stock to be granted as incentive
compensation to employees, officers, directors and/or consultants
of the Company and its subsidiaries. The number of shares and the
shares granted are subject to adjustment in the event of any
change in the capital structure of the Company. Further, the Plan
provides for issuance, at the discretion of the Board, of (i)
incentive stock options ("ISO's") within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended, or (ii)
non-qualified options. The exercise price of any option will not
be less than the fair market value of the shares at the time the
option is granted, and exercise will be required within 10 years
of the grant date. The Plan will terminate in 2008.
<PAGE>
Note 12 - Stock Compensation Plan (Continued)
The Plan permits the award of Stock Appreciation Rights ("SARs")
to optionees. The Committee may award to an optionee, with respect
to each share of Common Stock covered by an option (a "Related
Option"), a related SAR permitting the optionee to be paid the
appreciation on the Related Option. A SAR granted with respect to
an ISO must be granted together with the Related Option. A SAR
granted with respect to a non-qualified option may be granted
together with or subsequent to the grant of the Related Option.
The exercise of the SAR shall cancel and terminate the right to
purchase an equal number of shares covered by the Related Option.
There have been no options granted under the Plan.
Note 13 - Related Party Transactions
During 1998, the Company acquired, for $334,000, an interest in a
real estate mortgage and judgment lien from an entity controlled
by a Company officer. Collections are expected to exceed $375,000.
Note 14 - Revenue Concentrations
During 1997, collections from a single debtor accounted for
approximately 15% of the total revenue of the Company. During
1998, proceeds from a single transaction amounted to 26% of total
revenue of the Company.
Note 15 - Subsequent Events
Proposed public offering
In January 1999, the Company filed a Registration Statement with
the SEC for the sale of 1,500,000 shares of common stock.
Asset acquisition (unaudited)
On February 1, 1999, the Company acquired all of the assets of a
bankruptcy liquidation estate, including real estate, receivables,
property assessment rights and other assets for $2,875,000. The
assets were acquired from the Liquidating Trustee in Federal
Bankruptcy Court. The acquisition was financed with $1,475,000 of
bank debt and $1,400,000 borrowed from the Company's majority
shareholder. The purchase price will be allocated to the
individual asset components based on management's estimate of
relative market value.
<PAGE>
Note 15 - Subsequent Events (Continued)
Condensed pro forma financial information to give effect as if the
transaction occurred as of December 31, 1998 is as follows:
<TABLE>
<CAPTION>
December 31, Proforma December 31,
1998 Adjustments 1998 (Pro forma)
<S> <C> <C> <C>
Total Assets $7,011,708 $2,875,000 $9,886,708
Total Liabilities 4,482,924 2,875,000 7,357,924
Shareholders' Equity 2,528,784 - 2,528,784
</TABLE>
The pro forma consolidated income and earnings per share would not
have been materially different from the reported amounts during
1997 or 1998 and, accordingly, are not presented.
Asset acquisition (unaudited) (continued)
The assets acquired include:
<TABLE>
<CAPTION>
Acres
Real estate
<S> <C>
18-hole golf course 124.53
Country Club and driving range 23.34
Expansion site - 9 holes for golf course 81.18
Undeveloped acreage 382.70
311 fully developed lots 61.60
286 undeveloped platted lots 56.40
Acres
Platted and unplatted reserves 77.54
Pool and 4 tennis courts 7.17
Restricted reserves 81.52
-------
Total acreage 895.98
Amount
Developer's property assessment rights n/a
Delinquent assessment receivables(Legal balances) $3.2 million
Other assets $ 75,000
</TABLE>
In February 1999, the Company sold property maintenance assessment
rights ("Rights") for $1,000,000 to an unrelated party in exchange
for an $850,000 note and other consideration with an estimated
value of $150,000. The Rights were acquired by the Company in
conjunction with the acquisition described above.
<PAGE>
Note 16 - Year 2000 Issues
The Company developed and implemented a plan to modify its
information technology to be ready for the Year 2000 and has
converted its critical data processing systems. The costs of the
conversion were not significant. Management believes that the
nature of the Company's business does not give rise to significant
exposure from noncompliance by vendors or suppliers. While
additional testing will be conducted on its systems through the
Year 2000, the Company does not expect the year 2000 issues to
have a significant effect on operating activities.
<PAGE>
No dealer, sales person, or other person has been authorized to give any
information or to make any representation not contained in this prospectus in
connection with the offer contained herein, and if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or any Underwriters. The Prospectus does not constitute an offer
to sell or a solicitation of an offer to buy the shares of common stock offered
hereby by anyone in any jurisdiction in which such offer or solicitation is not
qualified to do so, or to any person to whom it is unlawful to make such
solicitation or offer. Neither the delivery of this prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company since the date hereof or that the
information contained herein is correct as of any time subsequent to its date.
1,500,000 Shares
of Common Stock
Offering Price
$
Per Share
Rampart Capital Corporation
Prospectus
,1999
Redstone Securities, Inc.
(800) 426-7346
(214) 692-3544
Until ______, 1999 (25 days from the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligations of the dealers to deliver a Prospectus
when acting as Underwriters and with respect to their unsold allotment or
subscriptions.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Pursuant to Section 2.02-1 of the Texas Business Corporation Act, a
corporation may indemnify an individual made a party to a proceeding because the
individual is or was a director against liability incurred in his official
capacity with the corporation including expenses and attorneys fees.
Article VI of the Restated Articles of Incorporation provides as
follows:
"The Corporation shall indemnify any director or officer, or former
director or officer of the Corporation, or any person who may have served at its
request as a director or officer of another corporation of which this
Corporation owns shares of capital stock or of which it is a creditor to the
fullest extent permitted by the Texas Business Corporation act and as provided
in the By-laws of the Corporation."
Article VII of the by-laws provides as follows:
"Section 1. Indemnification.
The corporation shall indemnify its present or former directors and
officers, employees, agents and other persons to the fullest extent permissible
by, and in accordance with, the procedures contained in Article 2.02 of the
Texas Business Corporation Act. Such indemnification shall not be deemed to be
exclusive of any other rights to which a director, officer, agent or other
person may be entitled, consistent with law, under any provision of the articles
of Incorporation or By-laws of the corporation, any general or specific action
of the board of directors, the terms of any contract, or as may be permitted or
required by law."
"Section 2. Insurance and Other Arrangements
"Pursuant to Section R of Article 2.02-1of the Texas Business
Corporation Act, the corporation may purchase and maintain insurance or another
arrangement on behalf of any person who is or was a director, officer, employee,
or agent or the corporation or who is or was serving at the request of the
corporation a a director, officer, partner, venturer, proprietor, trustee,
employee, agent or similar functionary of another foreign or domestic
corporation, partnership, jpin venture, sole proprietorship, trust, employee
benefit plan, or other enterprise, against any liability asserted against him or
her and incurred by him or her in such capacity or arising out of his or her
status as such person, whether or not the corporation would have the power to
indemnify him or her against that liability under article 2.02-1 of the Texas
Business Corporation Act." Item 25. Other Expenses of Issuance and Distribution
Estimated expenses in connection with the public offering by the Company of
the securities offered hereunder are
as follows:
Securities and Exchange Commission Filing Fee $5,088.75
NASD Filing Fee* 2,432.00
American Stock Exchange Application and Listing Fee 20,000.00
Accounting Fees and Expenses* 40,000.00
Legal Fees and Expenses 80,000.00
Printing* 40,000.00
Fees of Transfer Agent and Registrar* 5,000.00
Underwriters' Non-Accountable Expense Allowance 300,000.00
Miscellaneous* 27,479.25
---------
Total* $500,000.00
==========
- ----------------
* Estimated.
Item 26. Recent Sales of Unregistered Securities
There were no transactions by the Registrant during the last three
years involving the sale of securities which were not registered under the
Securities Act:.
<PAGE>
Item 27. Exhibits
Exhibit No Item
Exhibit 1.1 Form of Underwriting Agreement.(3)
Exhibit 1.2 Form of Underwriters' Warrant Agreement.(3)
Exhibit 3.1 Restated Articles of Incorporation of the
Registrant. (3)
Exhibit 3.2 Bylaws of the Registrant (3)
Exhibit 5.1 Opinion of Maurice J. Bates L.L.C.(3)
Exhibit 10.1 1998 Stock Compensation Plan (3)
Exhibit 10.2 Share Transfer Restriction Agreement. (3)
Exhibit 10.3 Opinion of REOC Corp. as to value of Jefferson Street
Property. (3)
Exhibit 10.4 Opinion of REOC Corp as to value of San Antonio
Property. (3)
Exhibit 10.5 Opinion of John Thobe, M.S. as to value of South Padre
Island Property. (3)
Exhibit 10.6 Opinion of Top Guns Land Company, Inc. as to value of
Montgomery County, Texas Property. (3)
Exhibit 10.7 Sixth (current) Amendment to Loan Agreement with
Southwest Bank of Texas N. A.(3)
Exhibit 10.8 Purchase and Sale Agreement for Newport Assets. (3)
Exhibit 10.9 Copy of Janke Family Partnership, Ltd. Note for
Newport Assets purchase. (3)
Exhibit 10.10 Copy of Purchase Agreement for Newport Assets. (3)
Exhibit 21 Subsidiaries of the Registrant. (3)
Exhibit 23.1 Consent of Pannell Kerr Forster of Texas, P. C.,
Certified Public Accountants.(1)
Exhibit 23.2 Consent of Maurice J. Bates, L.L.C. is contained in
his opinion filed as Exhibit 5.1 to
this registration statement.(3)
Exhibit 23.3 Consent of Robert A. Shuey, III
as director-designee.(3)
Exhibit 27 Financial Data Schedule (1)
--------------
(1) Filed herewith (2) To be filed by amendment (3) Previously filed.
Item 28. Undertakings
The undersigned registrant hereby undertakes as follows:
(1) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
(3) For the purpose of determining any liability under the
Securities Act, treat each post-effective amendment that
contains a form of prospectus as a new registration statement
relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the
initial bona fide offering of those securities.
(4) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or
persons controlling the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised
that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy, as
expressed in the Act and is, therefore, unenforceable.
(5) In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
shares of the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
(6) For the purposes of determining any liability under the
Securities Act, the information omitted from the form of
prospectus filed as part of a registration statement in
reliance upon Rule 430A and contained in the form of
prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to
be part of this Registration Statement as of the time it was
declared effective.
II-2
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorizes this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas on August 2 1999.
Rampart Capital Corporation.
By: /s/ Charles W. Janke
Charles W. Janke, Chairman of the Board
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose
signature appears below constitutes and appoints Charles W. Janke and J. H.
Carpenter, and each for them, his true and lawful attorney-in-fact and agent,
with full power of substitution and re-substitution, for him and in his name,
place and stead, in any and all capacities (until revoked in writing), to sign
any and all further amendments to this Registration Statement (including
post-effective amendments), and to file same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto such attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person thereby ratifying and
confirming all that said attorneys-in-fact and agents, and each of them, or
their substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Charles W. Janke Chairman of the Board August 2, 1999
- ------------------------
Charles W. Janke (Principal Executive Officer)
/s/ J. H. Carpenter President August 2, 1999
- --------------------
J. H. Carpenter Director
/s/ Charles W. Presley Vice President, Chief Financial August 2, 1999
- ----------------------
Charles W. Presley Officer, Treasurer
(Principal Financial Officer)
/s/ James J. Janke Director August 2, 1999
- ------------------
James J. Janke
/s/ James W. Christian Director August 2, 1999
- ----------------------
James W. Christian
</TABLE>
Consent of Independent Public Accountants
We consent to the inclusion in this registration statement of Rampart Capital
Corporation on Form SB2 of our report dated January 29, 1999, except for Note 14
as to which the date is February 12, 1999, on our examinations of the financial
statements of Rampart Capital Corporation. We also consent to the reference to
our firm under the caption "Experts".
PANNELL KERR FORSTER OF TEXAS, P.C.
Houston, Texas
August 2, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0001074681
<NAME> RAMPART CAPITAL
<CURRENCY> U.S. DOLLARS
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997 DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-1-1998 JAN-1-1997 JAN-1-1999 JAN-1-1998
<PERIOD-END> DEC-31-1998 DEC-31-1997 MAR-31-1999 MAR-31-1998
<EXCHANGE-RATE> 1 1 1 1
<CASH> 583,629 21,514 260,176 52,359
<SECURITIES> 0 0 0 0
<RECEIVABLES> 525,000 0 1,414,375 28,738
<ALLOWANCES> 0 0 0 0
<INVENTORY> 4,659,222 5,755,074 5,166,096 4,831,623
<CURRENT-ASSETS> 0 0 0 0
<PP&E> 828,898 446,476 2,899,957 446,477
<DEPRECIATION> 60,493 45,100 72,107 47,926
<TOTAL-ASSETS> 7,011,708 6,245,871 9,894,287 5,375,498
<CURRENT-LIABILITIES> 0 0 0 0
<BONDS> 3,740,488 5,664,311 6,097,488 3,608,165
0 0 0 0
0 0 0 0
<COMMON> 22,500 22,500 22,500 22,500
<OTHER-SE> 2,506,284 431,829 3,179,869 1,398,884
<TOTAL-LIABILITY-AND-EQUITY> 7,011,708 6,245,871 9,894,287 5,375,498
<SALES> 6,099,296 2,555,363 1,328,197 2,570,076
<TOTAL-REVENUES> 6,843,785 2,935,283 1,616,083 2,717,139
<CGS> 2,319,364 1,118,956 396,431 1,047,616
<TOTAL-COSTS> 2,319,364 1,118,956 396,431 1,047,616
<OTHER-EXPENSES> 1,548,895 1,544,120 468,712 389,016
<LOSS-PROVISION> (77,662) 15,088 (3,550) (34,588)
<INTEREST-EXPENSE> 494,142 642,600 118,709 148,040
<INCOME-PRETAX> 2,559,046 (385,481) 635,781 1,167,055
<INCOME-TAX> 484,591 (325,020) (37,804) 200,000
<INCOME-CONTINUING> 2,074,455 (60,461) 673,585 967,055
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 2,074,455 (60,461) 673,585 967,055
<EPS-BASIC> 0.92 (0.03) 0.30 0.43
<EPS-DILUTED> 0.92 (0.03) 0.30 0.43
</TABLE>
