<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1996
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or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT
For the transition period from ____________ to _____________
Commission File Number 0-20272
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RESOURCE CAPITAL GROUP, INC.
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(Exact name of small business issuer as specified in its charter)
<TABLE>
<S> <C>
Delaware 13-3617377
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
3400 Peachtree Road, NE Suite 1311 Atlanta, GA 30326
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(Address of principal executive offices) (Zip Code)
</TABLE>
404-264-0600
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(Issuer's telephone number, including area code)
___________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
X Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Check whether the registrant filed all documents and reports required to be
filed by Sections 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
X Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of March 31, 1996, 419,248 shares of common stock of the Registrant were
outstanding.
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INDEX
RESOURCE CAPITAL GROUP, INC.
<TABLE>
<CAPTION>
Part I. Financial Information Page
Number
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<S> <C> <C> <C>
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheet - March 31, 1996
and December 31, 1995 3
Consolidated Statement of Operations - For the
Three Months Ended March 31, 1996 and 1995 4
Consolidated Statement of Cash Flows - For the
Three Months Ended March 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis or
Plan of Operation 9
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 12
</TABLE>
2
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PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
a) Consolidated Balance Sheet
RESOURCE CAPITAL RESOURCE CAPITAL GROUP, INC.
Consolidated Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
1996 1995
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<S> <C> <C>
Cash and cash equivalents $ 866,789 $ 1,236,202
Investment in marketable equity securities-cat market-at market 77,751 84,375
Investments in and receivables from partnerships (note 3) 2,636,913 2,579,375
Receivable from affiliated entity 225,000 225,000
Real and personal property, at cost
Land 458,035 458,035
Buildings and improvements 1,088,670 1,085,207
Furniture and equipment 71,543 68,217
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1,618,248 1,611,459
Less accumulated depreciation (35,065) (24,076)
--------- ---------
1,583,183 1,587,383
Deferred charges-net of accumulated amortization 19,635 20,114
Other assets 148,027 12,207
--------- ---------
$ 5,557,298 5,744,656
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Note payable $ 197,273 210,680
Accounts payable 15,232 23,214
Accrued expenses
Interest 3,810 3,877
Payroll 11,596 29,068
Professional fees 12,000 36,000
Income taxes 561 50,412
Other 23,173 24,321
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51,140 143,678
Security deposits 16,146 12,625
Mortgage payable 352,634 355,486
Deferred tax liability 56,553 68,991
Other liabilities 5,352
--------- ---------
Total Liabilities 694,330 814,674
Commitments and contingencies
Minority interest 287,319 283,181
Stockholders' equity
Common stock - authorized 1,000,000 shares
$.01 par value per share, issued 498,608 shares 4,986 4,986
Additional paid-in capital 4,459,034 4,459,034
Retained earnings 222,934 247,078
Less treasury stock, at cost, 79,630 shares (100,676) (60,543)
Unrealized (loss) on investment (10,629) (3,754)
--------- ---------
Total Stockholders' Equity 4,575,649 4,646,801
--------- ---------
$ 5,557,298 5,744,656
========= =========
</TABLE>
See notes to consolidated financial statements
3
<PAGE> 4
b) Consolidated Statement of Operations
RESOURCE CAPITAL GROUP, INC.
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
MARCH 31,
------------------------
1996 1995
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<S> <C> <C>
Income
Rental operations $ 59,599 $ 0
Interest - affiliated entity 53,145 320,451
Equity in earnings (loss) of
unconsolidated partnerships (5,226) 499,637
Management fees - affiliated entity 15,000 15,000
Interest - investments 12,097 8,527
Gain on settlement of note-affiliated entity 529,091
Other income 291 0
--------- -----------
Total Income 134,906 1,372,706
--------- -----------
Expenses
Rental operations 18,597 0
General and administrative 124,564 80,919
Interest 11,471 3,663
Depreciation and amortization 11,468 577
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Total expenses 166,100 85,159
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Income (loss) before minority share of (income) (31,194) 1,287,547
Minority share of (income) (5,388) 0
--------- -----------
Income (loss) before income taxes 36,582 1,287,547
(Provision for) benefit of income taxes (note 5) 12,438 (338,656
--------- -----------
Net income (loss) $ (24,144) $ 948,891
========= ===========
Net income (loss) per share $ (.06) $ 2.14
========= ===========
</TABLE>
See notes to consolidated financial statements
4
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b) Consolidated Statement of Cash Flows
RESOURCE CAPITAL GROUP, INC.
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH, 31
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1996 1995
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<S> <C> <C>
Cash flows from operating activities
Net Income (loss) $ (24,144) $ 948,891
Adjustments to reconcile net income (loss) to net
cash provided by operating activites
Depreciation and amortization 11,468 577
Interest - affiliated entity 21,236
Equity in (earnings) loss of unconsolidated partnerships 5,226 (499,637)
Minority share of income (loss) 5,388
Changes in certain other accounts
Investment in marketable securities, net (251)
Accrued interest receivable 1,066,672
Other assets (7,320)
Net deferred tax asset 265,406
Accounts payable (7,982) (382)
Accrued expenses (92,538) (819)
Other liabilities 5,352
Income taxes (12,438) 73,250
Security deposit 3,521
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Net cash provided (used) by operating activities (92,482) 1,853,958
----------- -----------
Cash flows from investing activities
Additions to real and personal property (6,789)
Deposits receivable (128,500) (872,702)
Purchase of limited partner interest in
unconsolidated partnerships (7,000)
Repayments from (advances to) affiliated entity, net (77,000) 166,920
Receipt of notes and mortgage receivables from MLP 675,133
----------- -----------
Net cash (used) by investing acitivites (219,289) (30,649)
----------- -----------
Cash flows from financing activities
Payments on mortgage payable (2,852)
Payments on note payable (13,407) (9,788)
Purchase of treasury stock (40,133)
Distribution to minority interest (1,250)
----------- -----------
Net cash (used) by financing activities (57,642) (9,788)
----------- -----------
Net increase (decrease) in cash and cash equivalents (369,413) 1,813,521
Cash and cash equivalents at beginning of period 1,236,202 64,595
----------- -----------
Cash and cash equivalents at end of period $ 866,789 $ 1,878,116
=========== ===========
</TABLE>
See notes to consolidated financial statements
5
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RESOURCE CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
Readers of this quarterly report should refer to the Company's audited
financial statements for the year ended December 31, 1995 as certain footnote
disclosures which would substantially duplicate those contained in such audited
financial statements have been omitted from this report.
Note 1 Adjustments
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments necessary to present the Company's financial
position, results of operations and cash flows for the periods indicated. Such
adjustments consisted only of normal recurring items.
Note 2 Summary of significant accounting policies
Principals of Consolidation
The consolidated financial statements of Resource Capital Group, Inc. have been
prepared in accordance with generally accepted accounting principles and
reflect the policies detailed below.
The consolidated financial statements of the Company include the accounts of
Resource Capital Group, Inc. and its seventy-five (75) percent owned
subsidiary, 8050 Roswell Associates, LLC, (Roswell) and 419 Crossville
Associates, LLC (Crossville). The remaining twenty-five (25) percent ownership
of Roswell and Crossville is controlled by Hunter Management Company. All
intercompany transactions and balances have been eliminated in consolidation.
Note 3 Investment in and receivables from partnerships
The balances are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
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<S> <C> <C>
Notes receivable from MLP $ 1,983,501 $ 1,983,501
Accrued interest receivable
from MLP 24,794 24,794
Advances receivable from MLP 921,177 844,177
Accountability to partnerships (99,559) (73,097)
Purchase of limited partner
interest in AGS Carriage House/
AGS Compass Pointe 7,000
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2,836,913 2,779,375
Valuation allowance 200,000 200,000
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$ 2,636,913 $ 2,579,375
========== ==========
</TABLE>
6
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In January 1995, MLP completed the sale of two of its properties, the Birchwood
and FoxFire Apartments. As a result of this sale, MLP was able to repay the
Company $942,581 covering the principal and accrued interest due on the
Birchwood and FoxFire notes receivable and a portion of the advances
receivable due to the Company. In addition, MLP refinanced the mortgage loans
on Aspen Walk Apartments and Rolling Hills Apartments on March 17, 1995. Cash
proceeds of $1,833,765 from this refinancing were sufficient to cover a
substantial portion of the remaining accrued interest receivable on the MLP
notes, and the $600,000 mortgage note receivable (see note 4).
Interest income on these notes for the three months ended March 31, 1996
amounted to $74,381. Interest income reported for the corresponding period in
1995 was $250,927.
Interest payments received on these notes for the three months ended March 31,
1996 and 1995 amounted to $74,381 and $1,387,123 respectively.
Based upon an evaluation of the Company's notes receivable from MLP management
has provided a $200,000 valuation allowance to reflect its estimate of their
realizability.
In March 1996 the Company acquired six (6) limited partner units of AGS Compass
Pointe Associates for $6,000 and 1 limited partner unit of AGS Carriage House
Associates for $1,000. These assignments represent 22.8% ownership of AGS
Compass Pointe and 4.75% ownership of AGS Carriage House. Subsequent to March
1996 the Company acquired an additional 67.7% ownership of AGS Compass Pointe
and 23.75% ownership of AGS Carriage House for $17,800 and $5,000 respectively.
Note 4 Mortgage note receivable - affiliated entity
In March 1995, the Company received $659,524 in full settlement of its $600,000
second mortgage note and accrued interest receivable due from MLP. This note,
which carried a face value of $600,000 along with accrued interest thereon and
54,317 shares of its common stock was purchased from a finance company in 1993
for $100,000. The Company carried the note on its books at its cost basis of
$70,909 and accordingly reflected a gain of $529,091 in the 1995 statement of
operations. Interest income on this note for the three months ended March 31,
1995 amounted to $62,524.
Note 5 Acquisition of properties
In 1995 the Company purchased 75% interests in both Roswell and Crossville,
each of which was accounted for as a purchase. The entire purchase price was
allocated to real and personal property since this amount was less than the
fair value of the properties. The remaining 25% interest in each entity was
purchased by Hunter Management Company (Hunter). Hunter provides management
services to Roswell, Crossville and the Company's Partnership investees.
Additionally, the sole shareholder of Hunter is a minority shareholder of the
Company.
7
<PAGE> 8
The purchase price for Roswell approximated $440,000 of which $330,000 was
contributed by the Company with the remaining $110,000 being contributed by
Hunter. Operations of Roswell have been included in the Company's 1995
financial statements since May 1995. The purchase price of Crossville
approximated $1,000,000, of which the Company contributed $750,000 while Hunter
contributed $250,000. Of the $250,000 contributed by Hunter, $225,000 was
advanced by the Company. Operations of Crossville have been included in the
Company's 1995 financial statements since November, 1995.
In June 1995, Roswell obtained a mortgage in the amount of $360,000 and with
the proceeds returned $247,500 to the Company and $82,500 to Hunter. In
addition, Crossville has obtained a mortgage commitment of $880,000 on its
property. The loan is scheduled to close on May 30, 1996. A substantial
portion of the proceeds from the mortgage are expected to be returned to the
Company (75%) and Hunter (25%). Proceeds returned to Hunter would be used to
satisfy the $225,000 advance from the Company.
The Following summarized, unaudited pro forma results of operations for the
three months ended March 31, 1995 assumes both the Roswell and Crossville
acquisitions occurred January 1, 1995:
<TABLE>
<S> <C>
Rental operating income $ 54,340
Net income 963,781
Net income per share 2.17
</TABLE>
On March 15, 1996 the Company entered into a contract to purchase the Colonial
Park Commons for $1,210,000. This property is located in Fulton County,
Georgia and consists of an 18,387 square foot office building and two building
lots. A $128,500 deposit has been escrowed by the Company pending the closing
of this transaction. The purchase is conditional upon the Company obtaining a
first mortgage on the property in the amount of $1,028,000.
In 1996, both AGS Carriage House and AGS Compass Pointe Associates
intend to expand their Parnterships and raise additional capital. It is the
Company's intention to acquire any non- participating limited partner
interests.
Note 6 Income Taxes
The provision for income taxes of $338,656 for the three months ended March 31,
1995 is based on the tax obtained by applying the statutory rate to the taxable
income earned in the period. In 1995 the Company utilized its net operating
loss carry forwards for income tax purposes of approximately $739,000 and
accordingly utilized the corresponding deferred tax asset of $265,406. The
difference of $73,250 was recorded by the Company as deferred income taxes. In
1996 the Company recorded a tax benefit of $12,438 for the three months ended
March 31, 1996.
8
<PAGE> 9
Item 2. Management's Discussion and Analysis or Plan of Operation
Liquidity and Capital Resources
The Company's liquidity is based primarily on its cash reserves, real estate
investment income, ability to obtain mortgage financing, and the interest
income and loan repayments received on its notes receivable from its affiliate,
AGS Partners MLP, L.P. (MLP). These funds are used to pay the Company's normal
operating expenses and fund new acquisitions.
As of March 31, 1996, the Company had cash reserves of $866,789. For the three
months ended March 31, 1996, the advances receivable from MLP increased $77,000
for major capital improvements. This amount will be refunded to the Company by
MLP from escrows held by the first mortgage lender. The Company's cash
reserves and current level of income are sufficient to meet the Company's
current level of operating expenses on an ongoing basis.
Occupancy levels and rental rates have increased substantially over the past 3
years. The net operating income at the property levels combined with MLP
reserves are presently sufficient to make full interest payments to the
Company. In the past, the Company allowed MLP to defer interest payments to
make capital improvements, replacements and upgrades to the individual
apartment units, buildings and mechanical systems. As a result of this
program, in January, 1995 MLP successfully sold two of its properties, the
Birchwood and FoxFire Apartments at a substantial profit and refinanced in
March, 1995 Aspen Walk and Rolling Hills Apartments.
During the three months ended March 31, 1996, the Company received $74,381 in
interest income from MLP. The ultimate realization of the Company's investment
in and receivable from MLP is dependent on the future operations and/or sale of
the MLP properties. However based on 1996 and future budgets and recent
property valuations, management believes that the two remaining MLP properties
have potential for future operating cash flows and future re-sale values.
None-the- less management decided to make a valuation allowance against the MLP
notes of $200,000.
The operating properties of the MLP and the various other real estate
partnerships in which the Company is the general partner are financed with
non-recourse debt. The Company is not liable for the principal or interest on
the mortgages and the other assets of the partnerships are more than adequate
to satisfy other recourse liabilities. Therefore, the Company's liquidity
should not be adversely affected by these general partner obligations.
9
<PAGE> 10
In May 1995, the Company acquired for $330,000 a 75% interest in 8050 Roswell
Associates, LLC (Roswell) a Georgia limited liability Company which owns a
9,000 square foot office building in Atlanta, Georgia. Hunter Management
Company owns the remaining 25% interest. The purchase price for Roswell
approximated $440,000 and was financed, in part, with a $360,000 mortgage on
the building. The Company was repaid $247,500 in capital from the proceeds of
the mortgage. Based on 1996 and future budgets and recent property valuations
the investment should produce future operating cash flows and future resale
values for the Company.
In November, 1995 the Company purchased a 75% interest in 419 Crossville
Associates, LLC (Crossville) a Georgia limited liability Company which owns a
19,000 square foot office building in Roswell, Fulton County, Georgia. Hunter
Management Company owns the remaining 25% interest. The Company advanced
$225,000 to Hunter for this acquisition. The building was purchased in an all
cash transaction, the proceeds of which are expected to be returned to the
Company and to Hunter. Proceeds returned to Hunter would be used, in part, to
satisfy the $225,000 advance from the Company. Based on 1996 and future
budgets and recent property valuations, the investment should produce future
operating cash flows and future resale values for the Company.
For the three months ended March 31, 1996 the Company received 15,000 in fees
from Hunter Management Company for management supervisory services provided in
connection with the various MLP properties.
In March 1996, the Company submitted an earnest money deposit in the amount of
$128,500 for the purchase of a 18,387 square foot office building and two
building lots in Roswell, Georgia for $1,210,000. The purchase of the building
is conditioned upon the Company obtaining a first mortgage on the property in
the amount of $1,028,000.
The Company is the General Partner and also a Limited Partner of AGS Carriage
House Associates and AGS Compass Pointe Associates. The Company is in the
process of expanding both partnerships to raise additional capital in the
amount of $200,000. In order for the Company to maintain its present ownership
interests it will be required to contribute $129,000 and presently intends to
acquire the interests of any non-contributing Limited Partners.
Results of Operations
For the three months ended March 31, 1996, the Company recognized a loss of
$24,144 compared to income of $948,891 for the corresponding period in 1995.
Total revenue for the three months ended March 31, 1996 was $134,906 versus
$1,372,706 for the same period in 1995. This decrease in revenue was caused
substantially by the March, 1995 refinance of Rolling Hills Apartments by MLP
10
<PAGE> 11
which resulted in income in the amount of $529,091 from the payoff of the
$600,000 face second mortage note receivable held by the Company, additional
interest due per the terms of the note in the amount of $56,691 and the January
1995 sale of Birchwood and FoxFire Apartments by MLP resulting in approximately
$500,000 in income from partnerships from the sale of Birchwood and FoxFire.
Interest income - affiliated entity decreased in 1996 due to the additional
interest received as described above and the payoff of the Birchwood and
FoxFire notes receivable in 1995. Rental income increased $59,599 in 1996 due
to the May 1995 acquisition of Roswell and the November 1995 acquisition of
Crossville.
Total expenses for the three months ended March 31, 1996 were $166,100 compared
to $85,159 for the same period in 1995. The increase in expenses from 1996 to
1995 was caused by the rental operating expenses incurred from the acquisition
of Roswell and Crossville in 1995.
General and administrative expenses for the three months ended March 31, 1996
of $124,919 increased $44,000 from the same period last year. The increase is
attributable to the hiring of an additional staff person in April 1995 and
state income taxes paid in 1996.
Depreciation and amortization of $11,468 for the three months ended March 31,
1996 increased $10,891 from the same period in 1995.
Interest expense increased $7,808 for the three months ended March 31, 1996 as
compared to the corresponding period in 1995 due to the amortization of the
mortgage payable obtained on the Roswell property acquisition.
Inflation
Inflation in the future may increase rental revenues as well as operating
expenses, all in accordnace with general market trends.
11
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PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
(a) Exhibits - None
(b) Reports - None
12
<PAGE> 13
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Resource Capital Group, Inc.
(Registrant)
By: /s/Albert G. Schmerge III
-------------------------
Albert G. Schmerge III
President, CEO and
Chairman of the Board
Date: May 14, 1996
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 866,789
<SECURITIES> 77,751
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,618,248
<DEPRECIATION> 35,065
<TOTAL-ASSETS> 5,557,298
<CURRENT-LIABILITIES> 0
<BONDS> 352,634
0
0
<COMMON> 4,986
<OTHER-SE> 4,570,663
<TOTAL-LIABILITY-AND-EQUITY> 5,557,298
<SALES> 0
<TOTAL-REVENUES> 134,906
<CGS> 0
<TOTAL-COSTS> 18,597
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,471
<INCOME-PRETAX> (36,582)
<INCOME-TAX> (12,438)
<INCOME-CONTINUING> (24,144)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (24,144)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> 0
</TABLE>
