U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[XX] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the transition period from ---------- to----------
Commission file number 0-27552
REALCO, INC.
(Exact name of small business issuer as specified in its charter)
New Mexico 85-0316176
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1650 University Blvd., N.E., Suite 100
Albuquerque, New Mexico 87102
(Address of principal Executive offices)
(505) 242-4561
(Issuer's telephone number)
---------------------------
(Former name, former address and former three-months, if changed
since last report)
Check whether the issuer has (1) filed all documents and
reports required to be filed by Sections 13 or 15(d) of the
Securities Exchange Act of 1934 during the past 12 months (or
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 XX No
------- -------
The number of shares of the registrants no par value
common stock, the issuers only class of common stock,
outstanding as of February 12, 1996, was: 2,845,000
Transitional Small Business Format (check one) Yes [ ] No[XX]
<PAGE>
PART I. FINANCIAL INFORMATION.
Item 1. FINANCIAL STATEMENTS
REALCO, INC.
CONDENSED BALANCE SHEET
December 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash and cash equivalents $ 4,429,203
Restricted cash 2,418,005
Securities available for sale 267,790
Accounts and notes receivable 4,511,958
Inventories 10,436,541
Property & equipment (net) 770,505
Investments - equity method 990,908
Deferred income taxes 141,389
Other assets 1,239,840
-----------
$25,206,139
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 5,671,938
Lease obligations 164,697
Billings in excess of costs
and estimated earnings on
uncompleted contracts 114,367
Construction advances and notes
payable, collateralized by inventories 4,108,818
Accounts payable and accrued
liabilities 1,575,575
Escrow funds held for others 2,418,005
-----------
Total liabilities 14,053,400
Stockholders' equity
Series A preferred stock - authorized
83,000 shares; issued and
outstanding, 82,569 shares 825,690
Series B preferred stock - authorized
230,000 shares; issued and
outstanding, 217,859 shares 2,178,590
Series C preferred stock - authorized
80,000 shares, issued and
outstanding, none --
Series D preferred stock - authorized
24,297 shares:issued and
outstanding, 24,297 shares 242,970
Common stock no par value;
authorized, 6,000,000 shares, issued
and outstanding, 2,845,000 shares 7,712,461
Retained earnings 177,236
Unrealized gains on available-for-sale
securities, net of tax 15,792
-----------
11,152,739
-----------
$25,206,139
===========
</TABLE>
<PAGE>
REALCO, INC.
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months Three months
Ended Ended
December 31, December 31,
1996 1995
REVENUES
<S> <C> <C>
Brokerage commissions and fees $ 2,328,530 $ 2,488,423
Sales of homes 4,323,231 2,430,474
Sales of developed lots 121,000 639,092
Equity in net earnings of investees 174,097 46,398
Interest and other, net 333,671 91,027
----------- -----------
7,280,529 5,695,414
COSTS AND EXPENSES
Cost of brokerage revenue 1,776,720 1,774,532
Cost of home sales 3,971,868 2,193,427
Cost of developed lots sold 118,475 644,838
Selling, general and administrative 1,105,070 1,055,762
Depreciation and amortization 96,720 67,335
Interest and other expense 158,741 16,444
----------- -----------
7,227,594 5,752,338
----------- -----------
Income (loss) before provision
for income taxes 52,935 (56,924)
INCOME TAX EXPENSE (BENEFIT) 21,169 (21,180)
----------- -----------
NET EARNINGS (LOSS) $ 31,766 $ (35,744)
=========== ===========
NET EARNINGS (LOSS) BEFORE PREFERRED
STOCK DIVIDEND REQUIREMENT $ 31,766 $ (35,744)
PREFERRED STOCK DIVIDEND REQUIREMENT 30,547 29,100
----------- ---------
NET EARNINGS AVAILABLE FOR COMMON
SHARES $ 1,219 (64,844)
========== =========
Earnings (loss) per common share $ 0.01 $ (0.02)
Earnings (loss) after preferred
stock dividend requirement $ -- $ (0.04)
========= =========
Weighted average shares outstanding 2,845,000 1,845,000
----------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
REALCO, INC.
STATEMENT OF CASH FLOWS
(Unaudited)
For the three months ended
December 31,
1996 1995
<S> <C> <C>
Cash flows from operating activities
Net earnings (loss) $31,766 $ (35,744)
Adjustments to reconcile net earnings (loss)
to net cash used by operating activities
Depreciation and amortization 96,720 67,335
Accretion of discount on notes payable 13,809 --
(Net earnings of investees in excess of
distributions)distributions in excess
of earnings (174,097) 89,172
(Gain) on sale of securities (45,365) --
Change in operating assets and liabilities
(Increase) in restricted cash (1,931,446) --
(Increase) in accounts receivable (308,380) (255,715)
(Increase) in inventories (115,008) 715,453
Decrease in net billings related to costs
and estimated earnings on uncompleted
contracts 421,800 --
Increase in other assets 85,268 21,817
Decrease in accounts payable and
accrued liablilities (209,342) (311,498)
Increase in escrow funds held for others 1,931,446 --
Increase in deferred tax asset (57,938) (50,070)
---------- ---------
Net cash (used) provided by operating
activities (260,767) 240,750
---------- ---------
Cash flows from investing activities
Purchases of property and equipment (44,437) (60,807)
Proceeds from sale of securities 41,411 --
Advances on notes receivable (484,752) --
Purchases of investments - equity method (100) --
---------- ---------
Net cash used in investing activities (487,878) (60,807)
---------- ---------
Cash flows from financing activities
Construction advances and notes
payable, net 719,806 (297,310)
Payments on capital lease obligations (22,838) (21,444)
--------- ---------
Net cash provided (used in) financing
activities 696,968 (318,754)
--------- ---------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (51,677) (138,811)
Cash and cash equivalents at beginning
of period 4,480,880 642,829
--------- --------
Cash and cash equivalents at end
of period $ 4,429,203 $ 504,018
============ ============
</TABLE>
<PAGE>
The condensed balance sheet as of December 31, 1996, the
statements of operations for the three month periods ended
December 31, 1996 and 1995 and the statements of cash flows for
the three month periods ended December 31, 1996 and 1995 have
been prepared by the Company without audit. In the opinion of
Management all adjustments (which include normal recurring
adjustments) necessary to present fairly the financial position
as of December 31,1996 and results of operations and cash flows
for the three month periods ended December 31, 1996 and 1995
have been made.
Certain information and footnotes normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted.
It is suggested that these consolidated financial statements
be read in conjunction with the consolidated financial
statements and notes thereto included in the Form 10KSB for
the fiscal year ended September 30, 1996. The results of
operations for the period ended December 31, 1996 are not
necessarily indicative of the operating results for a full year.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following is Management's discussion and analysis of
the financial condition and results of operations of the Company
during the quarter ended December 31, 1996.
Revenues of the Company are generated through commercial
and residential real estate brokerage services, commercial and
residential home construction sales, and various financing
activities.
During this reporting period, gross non-restricted cash and
cash equivalents decreased by $51,677, while inventories
increased by $115,008 for the period. Liabilities increased by
$2,854,681 for the quarter ended December 31, 1996. The
increase in liabilities for the current period was primarily due
to an increase in escrow funds held for others of $2,000,000,
of which $1,550,000 were funds advanced by outside investors in
anticipation of closing the purchase of approximately 90 acres
of land to be developed into 125 building home sites. On
November 25, 1996, the land purchase was completed through a
combination of seller financing, bank borrowings and utilization
of the restricted cash set aside for the purchase.
The quarterly results for the three months ended December
31, 1996, improved over the December 31, 1995 reporting period.
The improvement was due to the recognition of net income
from new operations which were non-existing during the period
ended December 31, 1995. The residential construction company
experienced continued slowness of new sales and construction
during this reporting period, however, closings as a result of
backlog were within the expected range. The real estate
brokerage company which typically reports decreased earnings
during this reporting period experienced a greater than
anticipated loss, while the real estate development joint
ventures experienced improved net earnings.
With the exception of the real estate brokerage subsidiary,
all segments of the Company were profitable.
QUARTER ENDED DECEMBER 31, 1996 COMPARED TO QUARTER ENDED
DECEMBER 31, 1995
REVENUES:
Brokerage commissions and fees were $2,328,530 compared to
$2,488,423, construction and lot sales were $4,444,231 compared
to $3,069,566, and other income including interest was $507,768
compared to $137,425, during the quarter ended December 31 1996
compared to the quarter ended December 31, 1995. Net revenues
from Company financing activities for the period ended December
31, 1996 were $309,266, compared to $72,316 for the period ended
December 31, 1995.
Brokerage commissions and fees as a percentage of total
revenues for the comparable quarters ended December 31, 1996 and
December 31, 1995 were 32.0% and 43.7%, construction and lot
sales as a percentage of total revenue for the quarter were
61.0% and 53.9%, income from equity investees as a percentage
of total revenues for the quarter was 2.4% and 0.8%, net
financing activities as a percentage of total revenues for the
quarter was 4.6% and 1.6% of total revenues in the comparable
quarters ended December 31, 1996 and 1995 respectively.
GROSS PROFIT:
The Company's gross margin from construction and lot sales
was $353,888 during the quarter ended December 31, 1996 compared
to $231,301 during the quarter ended December 31, 1995. The
Company continued to increase its lot inventory during this
period because the Company believes it needs to increase
construction sites in strategic locations within the Albuquerque
metropolitan area in preparation of increased sales activity
and satisfy the local buying trend and to maintain a reasonable
inventory to meet sales surges within the new home buying cycle.
The Company has maintained a level speculative home inventory
in various of its residential subdivisions.
The Company's gross margin from brokerage commissions and
fees, before selling, general and administrative expenses of
$792,310, for the period ended December 31, 1996 was 23.7%
compared to a gross margin of 28.7%, before selling, general
and administrative expenses of $836,470 for the period ended
December 31, 1995. The percentage of gross margin recognized
during this quarter represents a decrease of 5.0% over the gross
profit margin of commissions and fees recognized during the
quarter ended December 31, 1995. This was primarily due to a
reduction in gross commission revenues of approximately 6.5% for
the three months ended December 31, 1996 compared to the
comparable 1995 period and a lesser company dollar retention
of gross commissions caused by increased sales activity by higher
split commission agents.
The net revenues from the financing activities of the
Company continued to increase during the three months ended
December 31, 1996. Such increases are due primarily to the
increase of additional financing activities which includes
mortgage banking fees, residential construction loans to small
independent residential home builders and permanent residential
mortgage loans to individual home buyers. The Company began to
market those services during the quarter ended June 30, 1996.
It is expected at this time that these financing activities by
the Company will continue to expand and contribute to revenues
and profit.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:
The percentage of selling, general, and administrative
expenses to total revenues during the quarter ended December
31, 1996, was 15.2%, compared to 18.5% for the period ended
December 31, 1995. The decrease in selling, general and
administrative costs percentages were due to several factors,
the most significant of which, was a 27.8% increase in revenues
associated with a 4.7% reduction of expense for the comparable
periods. Depreciation, amortization, goodwill, interest and other
expenses for the quarter ended December 31, 1996 was $255,461
compared to $83,779 for the quarter ended December 31, 1995. The
increase was due primarily to interest expense associated
with the subordinated notes issued as part of the Initial Public
Offering which the Registrant completed on February 2, 1996 and
the recognition of depreciation and amortization associated with
the acquisitions previously completed by the Company.
The Company expects that the costs of selling, general and
administrative expense as a percentage of total Company revenue
will gradually decrease assuming that consolidated Company
revenues increase through the remainder of the fiscal period.
NET EARNINGS:
The percentage of net earnings to total revenues for the
quarter, before preferred stock dividend requirement, was 0.4%,
as a result of the previously noted factors.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are cash
flow from operating activities, bank borrowing under both term
and revolving credit facilities and approximately $4,430,000 of
the Registrant's current cash and cash equivalents. During the
quarter the Company had approximately $4,109,000 of revolving
interim construction and inventory lines of credit with various
banks.
The Company believes that the cash flow from its operations
and its current cash and equivalents will sustain its operations
and anticipated internal growth during fiscal 1997.
PART II: OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
The Company is subject to certain legal claims from time to time
and is involved in litigation that has arisen in the ordinary
course of business. It is the Company's opinion that it either
has adequate legal defenses to such claims or that any liability
that might be incurred due to such claims will not, in the
aggregate exceed the limits of the Company's operations or
financial position. Insofar as known to management, there is no
pending or threatened litigation involving the Company or its
assets.
Item 2. CHANGES IN SECURITIES.
None.
Item 3. DEFAULTS IN SENIOR SECURITIES.
None
Item 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
None
Item 5. OTHER INFORMATION.
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) There are no exhibits filed with this Report.
(b) There were no Forms filed during this reporting period.
SIGNATURES
Pursuant to the requirements of the Securities Act,
the registrant caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
REALCO, INC.
Date: February 13, 1997
/S/James A. Arias
------------------------
James A. Arias, President
Date: February 13, 1997
/S/ Melvin A. Hardison
------------------------
Melvin A. Hardison, Secretary/Treasurer
and Chief Financial Officer
