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U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-8662
eResource Capital Group, Inc.
(formerly flightserv.com)
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 23-2265039
(State of Incorporation) (IRS Employer Identification No.)
</TABLE>
3353 PEACHTREE ROAD NE
SUITE 130
ATLANTA, GA 30326
(404) 760-2570
(Address of registrant's principal executive
offices including zip code and telephone number,
including area code)
Check whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
twelve months (or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Check whether the issuer filed all reports required to be filed by Section 12,
13 or 15(d) of the Exchange Act after the distribution of securities under a
plan confirmed by a court. Yes [X] No [ ]
The number of shares outstanding of the Registrant's Common Stock as of
November 14, 2000: 50,888,654
Transitional Small Business Disclosure Format: Yes [ ] No [X]
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eResource Capital Group, Inc.
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TABLE OF CONTENTS PAGE NO.
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PART I FINANCIAL INFORMATION
ITEM 1 Condensed Consolidated Financial
Statements (Unaudited)
Condensed Consolidated Balance Sheets
September 30, 2000 and June 30, 1999 3
Condensed Consolidated Statements of
Operations For the Three Months
Ended September 30, 2000 and 1999 4
Condensed Consolidated Statements of
Cash Flows For the Three Months Ended
September 30, 2000 and 1999 5
Notes to Condensed Consolidated
Financial Statements 6-10
ITEM 2 Management's Discussion and Analysis Of
Financial Condition and Results of
Operations 10-13
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings 13
ITEM 2 Changes in Securities 13
ITEM 3 Defaults Upon Senior Securities 13
ITEM 4 Submission of Matters to a Vote of Security
Holders 13
ITEM 5 Other Information 14
ITEM 6 Exhibits and Reports on Form 8-K 14
</TABLE>
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eResource Capital Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share amounts)
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<CAPTION>
ASSETS
September 30, June 30,
2000 2000
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(Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 2,448 $ 526
Accounts and notes receivable 16 56
Prepaid expenses - compensation 2,513 4,616
Prepaid expenses - other 79 120
-------- --------
Total current assets 5,056 5,318
Net assets (liabilities) of discontinued operations 126 (6)
Deferred costs and other assets 882 925
Predevelopment costs 1,164 1,164
Property and equipment, net 9,487 9,562
Goodwill 6,735 --
-------- --------
Total assets $ 23,450 $ 16,963
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LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable - current portion $ 132 $ 129
Accounts payable and accrued expenses 701 839
-------- --------
Total current liabilities 833 968
-------- --------
Notes payable 7,549 7,583
Accrued interest payable 848 848
Commitments and contingent liabilities
Shareholders' equity:
Common stock, $.04 par value, 100,000,000 shares authorized,
51,324,584 and 33,554,584 issued, respectively 2,053 1,342
Additional paid-in capital 88,630 78,148
Accumulated deficit (76,325) (71,788)
Treasury stock - at cost (435,930 shares) (138) (138)
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Total shareholders' equity 14,220 7,564
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Total liabilities and shareholders' equity $ 23,450 $ 16,963
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</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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eResource Capital Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Three Months Ended September 30,
-------------------------------------
2000 1999
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<S> <C> <C>
Revenue and other income:
Sales $ 12 $ --
Lease income - commercial real estate 263 273
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Total revenues 275 273
------------ ------------
General and administrative expenses 842 900
Expenses related to issuance of stock
options and warrants 3,328 7,731
Depreciation and amortization 285 142
Interest expense 357 79
------------ ------------
Net loss $ (4,537) $ (8,579)
============ ============
Basic and diluted net loss per share $ (.12) $ (.28)
============ ============
Weighted average shares outstanding 38,510,176 30,543,235
============ ============
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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eResource Capital Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
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<CAPTION>
Three Months Ended September 30,
--------------------------------
2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net loss before discontinued operations $(4,537) $(8,579)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 285 142
Deferred debt amortization interest 205 --
Expense related to issuance of stock options and warrants 3,328 7,731
Loss on disposal of fixed assets 5 --
Changes in operating assets and liabilities:
Accounts and notes receivables 40 (122)
Prepaid expenses 41 --
Deferred costs and other assets (200) (199)
Accounts payable and accrued expenses (138) (414)
Accrued interest payable -- (91)
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Cash used in operating activities before discontinued operations (971) (1,532)
Discontinued operations, net (132) 490
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Net cash used in operating activities (1,103) (1,042)
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Cash flows from investing activities:
Purchases of property and equipment (19) (283)
Predevelopment costs -- (5)
Cash acquired in connection with the purchases of businesses 416 --
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Net cash provided by (used in )investing activities 397 (288)
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Cash flows from financing activities:
Principal debt payments (31) (29)
Sales of common stock 2,659 --
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Net cash provided by (used in) financing activities 2,628 (29)
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Net increase (decrease) in cash and cash equivalents 1,922 (1,359)
Cash and cash equivalents at beginning of period 526 3,486
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Cash and cash equivalents at end of period $ 2,448 $ 2,127
======= =======
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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eResource Capital Group, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements (Unaudited)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These financial statements include the operations of eResource Capital Group,
Inc. and its subsidiaries (collectively the "Company"). In October 2000,
flightserv.com changed its name to eResource Capital Group, Inc. ("eRCG") to
reflect its new business direction. eRCG is engaged in the operation of an
Internet-based, private aviation travel services business, a leisure charter
travel service business, a telecommunications call center business, and certain
limited commercial real estate activities.
All significant intercompany balances and transactions have been eliminated.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to the rules of the Securities and Exchange
Commission. Certain prior period amounts have been reclassified to conform to
the current fiscal period presentation. In the opinion of management, all
adjustments considered necessary for a fair presentation of the financial
position of the Company as of September 30, 2000 and of the results of
operations for the periods presented have been included. The financial data at
June 30, 2000 is derived from audited financial statements which are included
in the Company's Form 10-KSB and should be read in conjunction with the audited
financial statements and notes thereto. Interim results are not necessarily
indicative of results for the full year.
Cash and Cash Equivalents
The Company classifies as cash equivalents any investments which can be readily
converted to cash and have an original maturity of less than three months. At
times cash and cash equivalent balances at a limited number of banks and
financial institutions may exceed insurable amounts. The Company believes it
mitigates its risks by depositing cash or investing in cash equivalents in
major financial institutions.
Real Estate Investments
Real estate investments are recorded at the lower of cost or estimated fair
value. Development costs and real estate taxes are capitalized while
development is in progress. Depreciation commences at the time the Company
begins collecting rental income.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, less accumulated
depreciation. Depreciation is computed on the straight-line basis over the
assets' estimated useful lives. Expenditures for maintenance and repairs are
expensed as incurred and expenditures for improvements which extend the useful
life or add value to the asset are capitalized.
Sales and disposals of assets are recorded by removing the related cost and
accumulated depreciation amounts with any resulting gain or loss reflected in
income.
Net Loss Per Share
The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings per Share" which requires dual presentations of basic earnings per
share ("EPS") and diluted EPS. Basic EPS is computed using the weighted average
number of common shares outstanding during the period. Diluted EPS is computed
using the weighted average number of common shares outstanding and potentially
dilutive shares outstanding during the period. Options and warrants to purchase
25,545,120 and 8,635,000 shares of Common Stock were outstanding at September
30, 2000 and 1999, respectively. Such options and warrants could potentially
dilute EPS in the future but have not been included in the computation of
diluted net loss per share in the reported periods as the impact would have
been antidilutive.
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Income Taxes
The Company accounts for income taxes in accordance with the liability method
as provided under Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Accordingly, deferred income taxes are
recognized for the tax consequences of differences between the financial
statement carrying amounts and the tax basis of existing assets and
liabilities. The measurement of deferred tax assets is reduced, if necessary,
by the amount of any benefits that, based on available evidence, are not
expected to be realized.
As of September 30, 2000 the Company had approximately $27,000,000 of net
operating loss carry forwards (NOL's) for federal income tax purposes, which
expire between 2019 and 2020. A deferred income tax asset valuation allowance
has been established against all deferred income tax assets as management is
not certain that the deferred income tax assets will be realized. In addition,
due to substantial limitations placed on the utilization of new operating
losses following a change in control, utilization of such NOL's could be
limited.
The Company's 1996 and one of its subsidiary's 1994 and 1995 tax returns are
currently under examination by the Internal Revenue Service, but no reports
have yet been issued.
Use of 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, 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.
Actual results could differ from those estimates.
NOTE 2. BUSINESS SEGMENTS
Aviation Travel Services
In fiscal 1999 and 2000 the Company developed its Private Seats(TM) program to
provide, as agent, Internet access to private jet flight and related travel
services. The Company commenced charter flight reservations in March 2000 and
charter flights booked by the Company began operating on April 17, 2000. Due to
limited capital availability, the Company did not actively pursue development
of the Private Seats(TM) program in recent months and, as a result, did not
realize any revenue from this business in the quarter ended September 30, 2000.
On August 25, 2000, the Company completed the acquisition of Internet Aviation
Services, Ltd. ("IASL") in accordance with a definitive purchase agreement
dated August 11, 2000, which provided for the exchange of 1,750,000 shares of
the Company's Common Stock for all of IASL's common stock. On August 11, 2000,
the 1,750,000 shares of common stock issued for IASL had a market value of
$984,375. Including direct acquisition costs, the aggregate purchase price for
IASL was $1,176,905. The excess value of the purchase price over the fair value
of IASL's net assets on the acquisition date aggregating $1,126,905 has been
allocated to goodwill which will be amortized over five years.
IASL is a new, leisure and business travel services company, which offers
charter services. IASL has an agreement with a tour operator to provide air
charter services between Charlotte, North Carolina and Cancun, Mexico for a
12-month period commencing December 21, 2000. IASL has an agreement with
Southeast Airlines to operate the aircraft. Also, IASL has entered into a
contract with Southeast Airlines to charter two additional DC-9-30 jet aircraft
with charter service which commenced in October 2000 for the first aircraft and
will commence in January, 2001 for the second. Additionally, IASL has signed a
contract with Casino Express Airline to charter a 122 seat B-737-200 jet
aircraft to provide air lift for casinos in Tunica, Mississippi and additional
Cancun service for a major tour operator.
Telecommunications Call Center
On September 7, 2000, the Company completed the acquisition of DM Marketing,
Inc. ("DMM") in accordance with a definitive purchase agreement dated August
16, 2000 which provided for the exchange of 8,450,000 shares of the Company's
Common Stock for all of the common stock of DMM. On August 16, 2000, the
8,450,000 shares of common stock issued for DMM had a market value of
$5,281,250. Including direct acquisition costs, the aggregate purchase price
for DMM was $6,210,897. The excess value of the
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purchase price over the fair value of DMM's net assets on the acquisition date
aggregating $5,722,267 has been allocated to goodwill which will be amortized
over five years.
DMM operates a telecommunications call center providing telemarketing, help
desk and other services for Internet related companies. DMM's call center
operations may be used to provide back office support for eRCG's aviation
travel services business.
Commercial Real Estate Investments
The Company owns two shopping center properties in the Atlanta, Georgia area.
The mortgage financing on the shopping center properties includes additional
interest agreements which provides that the lender receive 50% of the net cash
flows on a quarterly basis and 50% of the excess of appraised value over the
mortgage loan balance at the time of any sale of the property or maturity of
the mortgage. The Company has recorded deferred debt discount and accrued
interest payable to reflect the lenders allocations of excess cash flows and of
the excess appraisal value over the loans. The deferred debt discount was fully
amortized at September 30, 2000. In September 2000, the Company extended the
balloon principal payments of these mortgage loans from October 2000 to October
2001.
Stratos Inns Concept
The Company owns PDK Properties, Inc. ("PDK") which holds a long-term ground
lease at Dekalb-Peachtree Airport in Dekalb County, Georgia and owns Stratos
Inns, a hotel and hospitality business concept. The lease provides for a 54
month development period and a 30 year lease term after a hotel is constructed
and opened.
The Company has completed a preliminary study for development of its first
Stratos Inns hotel and is evaluating its options in connection with PDK. At
September 30, 2000 and June 30, 1999, the Company's investment in
predevelopment costs of PDK was $1,164,000.
Information related to business segments is as follows (in thousands):
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Three Months Ended September 30, 2000
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Aviation Shopping Stratos Call
Travel Services Centers Inns Center Total
--------------- -------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
Revenues $ -- $ 263 $ -- $ 12 $ 275
Net loss (4,209) (204) -- (124) (4,537)
Identifiable assets 7,662 8,512 1,164 6,112 23,450
Capital expenditures -- -- -- 19 19
Depreciation and amortization 118 68 -- 99 285
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended September 30, 1999
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Aviation Shopping Stratos Call
Travel Services Centers Inns Center Total
--------------- -------- ------- ------ -----
<S> <C> <C> <C> <C> <C>
Revenues $ -- $ 273 $ -- $ -- $ 273
Net loss (8,573) (6) -- -- (8,579)
Identifiable assets 3,266 9,122 1,090 -- 13,478
Capital expenditures 283 -- 5 -- 288
Depreciation and amortization 6 137 -- -- 142
</TABLE>
Following is pro forma consolidated financial information reflecting the
Company's acquisitions of IASL and DMM as of the beginning of the three
month periods ended September 30, 2000 and 1999 (in thousands, except
per share amounts):
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<CAPTION>
2000 1999
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<S> <C> <C>
Revenue $ 309 $ 294
Net loss (4,791) (8,958)
Net loss per share (.10) (.22)
</TABLE>
NOTE 3. DISCONTINUED OPERATIONS
In fiscal 1999, the Company discontinued its residential real estate
development operations. Residential real estate operations include developed
lots, undeveloped land, and equity investments in residential real estate
development companies, partnerships, and joint ventures. The Company has made
certain estimates regarding the fair asset values and costs to dispose of the
remaining assets of the discontinued operations.
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Following is a summary of the net assets (liabilities) of discontinued
operations (in thousands):
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September 30, June 30,
2000 2000
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Real estate inventories $ 633 $ 633
Accounts and notes receivable 899 899
Notes and accrued interest payable (300) (402)
Estimated expenses and other liabilities (1,106) (1,136)
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$ 126 $ (6)
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</TABLE>
NOTE 4. ISSUANCE OF COMMON STOCK
In August 2000, the Company issued 500,000 shares of Common Stock in connection
with the exercise of warrants with an exercise price of $0.50.
Also in August 2000, the Company acquired IASL for 1,750,000 shares of Common
Stock.
Further, in August 2000, the Company sold 7,070,000 shares of Common Stock at
$0.375 per share in a private placement transaction. After fees and expenses,
the Company realized $2,409,000 from the private placement.
In September 2000, the Company issued 8,450,000 shares of Common Stock in
connection with the DMM acquisition.
NOTE 5. STOCK OPTIONS AND WARRANTS
The Company has issued nonqualified stock options to purchase its Common Stock
to certain officers and consultants. The following table summarizes the
outstanding options and related exercise prices:
<TABLE>
<CAPTION>
September 30, 2000 June 30, 2000
-------------------------- ------------------------
Exercise Exercise
Shares Price Shares Price
------ -------- ------ --------
<S> <C> <C> <C>
2,000,000 $ 0.04 -- $ --
3,000,000 0.25 -- --
400,000 0.44 1,800,000 0.44
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5,400,000 1,800,000
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</TABLE>
All of the above options have a 10 year term and are exercisable.
During the three months ended September 30, 2000, the Company's Chairman agreed
to cancel his outstanding options to purchase 700,000 shares and the Company's
former Chief Executive Officer agreed to cancel his outstanding options to
purchase 700,000 shares. The options set forth above do not include
approximately 5 million options to certain employees that were previously
granted subject to shareholder approval which has not been obtained.
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In connection with its aviation travel services business, the Company issued in
fiscal 1999 and 2000 warrants to purchase its Common Stock in exchange for
consulting and legal services and for strategic vendor alliances provided by
outside third parties and in connection with the private placement of Common
Stock.
<TABLE>
<CAPTION>
September 30, 2000 June 30, 2000
-------------------------------------- ------------------------------------
Exercise Exercise
Shares Price Term Shares Price Term
--------- --------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
5,556,377 $ 0.04 54 mos. 5,556,377 $ 0.04 54 mos.
200,000 0.42 120 200,000 0.42 120
200,000 0.44 120 200,000 0.44 120
450,000 0.50 120 450,000 0.50 120
400,000 0.75 120 400,000 0.75 120
2,985,000 1.75 120 2,985,000 1.75 120
1,000,000 2.00 120 1,000,000 2.00 120
400,000 2.50 120 400,000 2.50 120
4,600,000 4.00 120 5,100,000 4.00 120
2,063,386 6.06 18 2,063,386 6.06 18
742,817 9.77 18 742,817 9.77 18
1,547,540 9.77 60 1,547,540 9.77 60
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20,145,120 20,645,120
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</TABLE>
The above warrants with an exercise price of $9.77 per share contain a variable
pricing clause that permits the price to be reduced at the time of exercise
based on the market price of the stock. All of the above warrants are
exercisable, except for 25,000 with an exercise price of $0.50 that vest over
one year and 5,556,377 with an exercise price of $0.04 that vest in stages over
periods ranging from 6 to 30 months.
The foregoing issuances of stock options and warrants were effected in reliance
on the registration exemption provided for by Section 4(2) of the Securities
Act of 1933, as amended (the "Securities Act"), as sales by an issuer not
involving a public offering. In addition, the private placement of 7,070,000
shares was effected in reliance on the provisions of Rule 506 of Regulation D
of the Securities Act.
The Company accounts for options issued to employees under APB No. 25 and
options and warrants issued to nonemployees under FASB No. 123. The total
compensation cost recognized during the three month periods ended September 30,
2000 and 1999 for these awards was $3,328,000 and $7,731,000, respectively.
NOTE 6. SUBSEQUENT EVENTS
The Company executed a definitive share exchange purchase agreement on October
20, 2000 and executed the first amendment to the agreement on November 8, 2000,
with closing subject to certain conditions, for the acquisition of Avenel
Ventures, Inc. for 10 million shares of Common Stock. On October 20, the closing
market price of the Company's Common Stock was $1.15 per share. The Company
anticipates closing the Avenel acquisition on or before January 31, 2001. Avenel
Ventures provides investment services to technology companies, and through its
wholly-owned subsidiary, Avenel Alliance, Inc. provides e-commerce, business
development, and advisory services. Avenel Alliance provides services to clients
implementing innovative strategies in e-commerce and Internet marketing.
Michael Pruitt, the Company's Chief Executive Officer and Director is an
officer, director, and shareholder of Avenel Ventures, Inc. and was a
shareholder, director and officer of DMM at the time it was acquired by the
Company.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
In the three months ended September 30, 1999, the Company's continuing
operations included development of an Internet-based, private aviation travel
services business, limited commercial real estate operations, and other
investments. In addition to these businesses, the Company acquired leisure and
business travel services and telecommunication call center businesses in the
three months ended September 30, 2000.
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Results of Continuing Operations
The Company's revenues in the three months ended September 30, 2000 were
$275,000 compared to $273,000 in the September 30, 1999 quarter. A decline in
shopping center revenue due to higher vacancies was offset by revenue of the
newly acquired call center business. The Company did not generate any revenue
from its aviation travel services business during the three months ended
September 30, 2000.
General and administrative expenses in the three months ended September 30,
2000 were $842,000 compared to $900,000 in the comparable 1999 period. Legal
and consulting expenses were lower in the current period due to completion of
the development phase of the Private Seats(TM) program. These savings were
partially offset by higher systems and other costs related to implementing the
aviation travel services business.
In the three month periods ended September 30, 2000 and 1999, the Company
recognized $3,328,000 and $7,731 000, respectively, of non-cash compensation
expense related to stock options to officers and directors and warrants to
outside third parties.
Depreciation and amortization expense for the three months ended September 30,
2000 was $285,000 compared to $142,000 for the comparable 1999 period. The
increase in the current quarter is due to amortization of costs related to the
Company's Web site and amortization of the goodwill related to the Company's
recent business acquisitions.
Interest expense in the three months ended September 30, 2000 was $357,000
compared to $79,000 in the comparable 1999 period. The increase is due to
amortization of debt discount related to the shopping center operations.
Liquidity and Capital Resources
The net operating loss in the three months ended September 30, 2000 of
$4,537,000 was offset by a $7,309,000 increase in stockholder's equity due to
the stock purchases of DMM and IASL. Also, a $1,225,000 increase in paid-in
capital related to the issuance of stock options and warrants with an exercise
price below market and $2,659,000 from the sale of Common Stock and exercise of
warrants resulted in a net increase in stockholders' equity of $6,656,000.
In the three months ended September 30, 2000, continuing operations used
$971,000 of cash and discontinued operations used $132,000 of cash. Including
the net cash provided from business acquisitions and stock sales, the net
increase in cash was $1,922,000 for the three months ended September 30, 2000.
The Company began generating revenue from its newly acquired leisure aviation
travel service operations in November 2000. Management believes revenues will
increase in subsequent periods as the Company expands this business, realizes
additional revenues from current travel services contracts, expands its
telecommunications call center operations and acquires additional businesses.
However, the Company will continue to incur operating losses as it implements
its new business acquisition strategy. The Company's current monthly cash usage
rate will increase as the Company implements additional marketing and
advertising programs for its existing businesses and adds employees to execute
its new business strategy.
The Company's cash balance at September 30, 2000 is $2,448,000 compared to
$526,000 at June 30, 2000. The Company's need for additional debt or equity
financing during the second half of fiscal year ending June 30, 2001, depends
in large part on the rate at which the revenues generated from the Company's
aviation travel services business increase and the magnitude of the costs the
Company incurs in connection with growing its aviation services business. There
can be no assurance that additional financing will be available when needed or,
if available, that it will be on terms favorable to the Company and its
stockholders. If the Company is not successful in generating sufficient cash
flow from operations, or in raising additional capital when required in
sufficient amounts and on terms acceptable to the Company, these failures could
have a material adverse effect on the Company's business, results of operations
and financial condition. If additional funds are raised through the issuance of
equity securities, the percentage ownership of its then-current stockholders
would be diluted.
FACTORS AFFECTING FUTURE RESULTS AND FORWARD-LOOKING STATEMENTS
The Company's business, results of operations, and financial condition are
subject to many risks, including those set forth below. The following
discussion highlights some of these risks and others are discussed elsewhere
herein or in other documents filed by the Company with the Securities and
Exchange Commission. In addition, statements in this quarterly report relating
to matters that are not
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historical facts are forward-looking statements based on management's belief
and assumptions using currently available information. Although the Company
believes that the expectations reflected in such forward-looking statements are
reasonable, it cannot give any assurances that these expectations will prove to
be correct. Such statements involve a number of risks and uncertainties,
including, but not limited to those set forth below.
General
eRCG's business plan is to acquire substantial interests in, operate, and
enhance the value of technology companies. eRCG's strategic focus is in five
technology industry segments: e-commerce, Internet infrastructure, technology
professional services, enabling technology, and data/communication systems. In
addition, through wholly-owned subsidiaries, eRCG plans to continue its efforts
to grow its aviation travel services business.
The Company has just recently begun implementing its expanded business strategy.
As a result, there is only limited history upon which to base an evaluation of
its business and prospects. eRCG's chances of financial and operating success
should be evaluated in view of the risks, uncertainties, expenses, delays and
difficulties associated with starting a new business and, in particular, a
business using new and unproven business models. There is no assurance that eRCG
will be successful in the development and goodwill of its business segments.
eRCG Expects To Incur Operating Losses And There Can Be No Assurance That It
Will Achieve Or Sustain Profitability
In the quarter ended September 30, 2000, the Company generated no revenue from
its aviation services business. The Company incurred operating losses in fiscal
1999 and 2000 and expects to incur operating losses in fiscal 2001 as a result
of substantial marketing and promotion costs, systems costs, and other costs
associated with developing its businesses. As a result of these costs and
uncertain revenue growth, there can be no assurance that the Company will
achieve or sustain profitability.
eRCG's Aviation Businesses Have No Operating History
While its management has significant experience in the leisure charter travel
services business, eRCG's aviation businesses have no operating history. The
success of these businesses depends on eRCG's ability to both contract with
charter operators to operate charter jet flights and to generate sufficient
passenger revenue to cover the costs associated with operating such charter
flights. eRCG intends to satisfy this demand through agreements with tour
operators and direct efforts but there can be no assurance that eRCG will be
able to generate sufficient passengers to operate profitably in the future.
eRCG May Face Difficulties Managing its Growth
eRCG expects that anticipated growth in connection with its current businesses
and future acquisitions will place significant demands on its management,
operation and financial resources. To manage this future growth, eRCG needs to
improve its operational systems and expand, train and manage a growing employee
base. eRCG will also need to maintain and expand its relationships with service
providers. If eRCG is unable to manage its growth effectively, its business and
financial condition will be adversely affected.
Loss Of Key Management Personnel Could Adversely Affect the Business
eRCG's success depends primarily on the skills of its management team. Several
of its officers have joined the Company recently and many of its key personnel
have worked together for a relatively short time. The loss of one or more of
its key management personnel may adversely affect eRCG's business and financial
condition.
eRCG Faces Significant Competition
Significant competition exists in the technology industry segments in which the
Company operates or plans to operate. Many competitors have greater financial
resources than the Company.
Government Regulation of the Travel Industry or the Internet Could Impact
eRCG's Operations
Certain segments of the travel industry are regulated by the United States
Government and certain services offered by the Company are affected by such
regulation. Aircraft operators, which eRCG depends on, and the Company as an
indirect charter operator, are subject
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to vigorous and continuous certification requirements by the Federal Aviation
Administration ("FAA"). Changes in the regulatory framework for private
aviation travel could adversely affect eRCG's business, operations and
financial condition.
In addition, while there are currently few laws or regulations directly
applicable to Internet commerce, the increase in Internet commerce could result
in new laws or regulations on such commerce including laws or regulations
regarding privacy, pricing and state or local taxation. Any such change could
adversely affect eRCG's business, operations and financial condition.
eRCG Maybe Unable to Meet Its Future Capital Requirements
Based on its current operating plans, eRCG may need to raise additional working
capital in the second half of fiscal year 2001. eRCG currently does not have
any binding commitments for additional financing and cannot be certain that
additional financing will be available when and to the extent required or that,
if available, it will be on acceptable terms. In addition, future financings
may be affected by the market price of its Common Stock which has been
volatile. If adequate funds are not available on acceptable terms, eRCG may not
be able to continue to fund its expansion or take other steps necessary to
enhance its business.
Volatility of Stock Price/Potential for Future Sales of Restricted Securities
The market price of the Company's Common Stock is highly volatile and is likely
to continue to be subject to wide fluctuations in response to factors,
including the announcement by the Company of business acquisitions, partnership
agreements or other corporate developments, and limited number of freely
tradable shares in public hands and the timing. Additionally, in recent years
many companies with Internet related businesses have experienced extreme price
and volume fluctuations that have often been unexplained by the operating
performance of such companies. The Company's stock price could also be
negatively effected by the future sale of shares of restricted Common Stock,
including shares of restricted Common Stock underlying options and warrants
that have been issued by the Company. Approximately 34,000,000 issued and
outstanding shares of the Company's Common Stock are believed to be restricted
securities as defined in Rule 144 promulgated under the Securities Act of 1933.
Rule 144 provides generally that restricted securities must be held for one
year prior to resale and provides certain additional limitations on the volume
of such shares that a beneficial owner may sell in any three month period. In
addition, certain holders of restricted shares have registration rights and to
the extent any shares of restricted stock are included in a registration
statement filed by the Company, these shares will become freely tradable on the
effective date of such registration statement. Generally, non-affiliated owners
may sell restricted shares that have been held for at least two years without
volume limitations. In addition, the Company has issued warrants and options
which, if exercised, could result in up to an additional 22,545,120 shares of
the Company's Common Stock.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company and its subsidiaries are involved from time to time in
various claims and legal actions in the ordinary course of business. In
the opinion of management, the Company and its subsidiaries are not
party to any legal proceedings, the adverse outcome of which, would
have any material adverse effect on its business, its assets, or
results of operations.
ITEM 2. CHANGES IN SECURITIES
The information in Notes 4 and 5 to the financial statements set forth
in Part I Item 1 hereof and in the Company's Current Report on Form 8-K
filed on September 22, 2000 is incorporated herein by reference.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
July 11, 2000, the Company held its fiscal 1999 Annual Meeting of
Stockholders at which the stockholders voted on five proposals. The
vote results are incorporated by reference to Item 4 Vote of Security
Holders in the Company's Annual Report on Form 10-KSB filed September
28, 2000.
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ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits and Index of Exhibits
2.1 Stock Purchase Agreement dated as of August 16, 2000 between
the Company, DM Marketing, Inc., Michael Pruitt and Darek
Childress (incorporated herein by reference to Exhibit 2.1 to
the Company's Current Report on Form 8-K filed September 22,
2000).
2.2 Stock Purchase Agreement dated as of August 11, 2000 between
the Company, Internet Aviation Services, Ltd. and Caliente
Consulting (incorporated herein by reference to Exhibit 2.2 to
the Company's Current Report on Form 8-K filed September 22,
2000)
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
(1) During the quarter ended September 30, 2000:
(i) The Company's Current Report on Form 8-K
filed with the Securities and Exchange
Commission on September 22, 2000 reporting
the acquisition of certain businesses and
the sale of Common Stock.
(ii) The Company's Current Report on Form 8-K/A
filed with the Securities and Exchange
Commission on November 13, 2000 reporting
the financial information related to the
acquisition of DM Marketing, Inc.
SIGNATURE
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
eResource Capital Group, Inc.
Date: November 14, 2000 By: /s/ WILLIAM L. WORTMAN
----------------------------------------
William L. Wortman
Vice President and
Chief Financial Officer
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