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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, 1997
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
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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.)
</TABLE>
419 Crossville Road Suite 204 Roswell, Georgia 30075
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(Address of principal executive offices) (Zip Code)
770-649-7000
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(Issuer's telephone number, including area code)
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(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, 1997, 406,726 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>
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheet - March 31, 1997
and December 31, 1996 3
Consolidated Statement of Operations - For the
Three Months Ended March 31, 1997 and 1996 4
Consolidated Statement of Cash Flows - For the
Three Months Ended March 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis or
Plan of Operation 10
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 14
</TABLE>
2
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PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
a) Consolidated Balance Sheet
RESOURCE CAPITAL GROUP, INC.
Consolidated Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
1997 1996
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<S> <C> <C>
Cash and cash equivalents $ 425,878 $ 298,655
Investment in marketable equity securities-at market 21,581 104,375
Escrow deposits 9,773 61,639
Investments in and receivables from partnerships (note 2) 2,705,693 2,719,316
Receivables 34,000 181,122
Real and personal property, at cost (notes 4 and 5)
Land 1,111,231 1,106,231
Buildings and improvements 6,090,179 6,070,520
Furniture and equipment 292,725 284,199
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7,494,135 7,460,950
Less accumulated depreciation (249,995) (181,500)
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7,244,140 7,279,450
Deferred charges-net of accumulated amortization 266,201 269,670
Other assets 202,567 116,661
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$ 10,909,833 $ 11,030,888
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Note payable $ 138,580 $ 155,828
Accounts payable 67,026 59,684
Accrued expenses
Interest 46,157 46,243
Payroll 14,588 35,418
Professional fees 17,000 36,000
Taxes 30,795 76,289
Other 18,934 25,438
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127,474 219,388
Security deposits 63,632 71,351
Mortgages payable 5,690,301 5,711,237
Deferred tax liability 81,607 81,607
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Total Liabilities 6,168,620 6,299,095
Commitments and contingencies
Minority interest 113,738 109,409
Stockholders' equity
Common stock - authorized 1,000,000 shares
$.01 par value per share, issued 498,608 4,986 4,986
Additional paid-in capital 4,459,034 4,459,034
Stock warrants outstanding (note 7) 24,690
Retained earnings 266,603 273,829
Treasury stock, at cost, 91,822 shares (131,712) (131,712)
Unrealized gain on investment 3,874 16,247
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Total Stockholders' Equity 4,627,475 4,622,384
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$ 10,909,833 $ 11,030,888
============ ============
</TABLE>
See notes to consolidated financial statements
3
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b) Consolidated Statement of Operations
RESOURCE CAPITAL GROUP, INC.
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
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1997 1996
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<S> <C> <C>
Income
Rental operations $ 444,134 $ 59,599
Interest - affiliated entity 53,145 53,145
Equity in earnings (loss) of
unconsolidated partnerships 12,613 (5,226)
Management fees - affiliated entity 15,000 15,000
Interest - investments 2,108 12,097
Gain on sale of marketable equity securities (note 8) 18,521
Other income 419 291
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Total Income 545,940 134,906
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Expenses
Rental operations 211,407 18,597
General and administrative 130,733 124,564
Interest 138,506 11,471
Depreciation and amortization 71,964 11,468
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Total Expenses 552,610 166,100
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(Loss) before minority share of (income) (6,670) (31,194)
Minority share of (income) (4,279) (5,388)
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(Loss) before income taxes (10,949) (36,582)
Benefit of income taxes (note 6) 3,723 12,438
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Net (loss) $ (7,226) $ (24,144)
========= =========
Net (loss) per share $ (0.02) $ (0.06)
========= =========
</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,
--------------------------
1997 1996
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<S> <C> <C>
Cash flows from operating activities
Net (loss) $ (7,226) $ (24,144)
Adjustments to reconcile net (loss) to net
cash provided (used) by operating activites
Depreciation and amortization 71,964 11,468
Interest - affiliated entity 21,236 21,236
Equity in (earnings) loss of unconsolidated partnerships (12,613) 5,226
Minority share of income (loss) 4,279 5,388
Gain on sale of marketable equity securities (18,521)
Changes in certain other accounts
Investment in marketable securities, net (1,363) (251)
Escrow deposits 51,866
Other assets (19,156) (7,320)
Receivables 147,122
Accounts payable 7,342 (7,982)
Accrued expenses (91,914) (92,538)
Other liabilities 5,352
Income taxes (12,438)
Security deposit (7,719) 3,521
Stock warrants outstanding 24,690
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Net cash provided (used) by operatingt activities 169,987 (92,482)
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Cash flows from investing activities
Additions to real and personal property (33,185) (6,789)
Deposits receivable (66,750) (128,500)
Purchase of limited partner interest in
unconsolidated partnerships (7,000)
Repayments from (advances to) affiliated entity, net 5,000 (77,000)
Receipt from sale of marketable equity securities 90,305
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Net cash (used) by investing activities (4,630) (219,289)
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Cash flows from financing activities
Payments on mortgage payable (20,936) (2,852)
Payments on note payable (17,248) (13,407)
Purchase of treasury stock (40,133)
Contribution from (distribution to) minority interest 50 (1,250)
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Net cash (used) by financing activities (38,134) (57,642)
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Net increase (decrease) in cash and cash equivalents 127,223 (369,413)
Cash and cash equivalents at beginning of period 298,655 1,236,202
--------- -----------
Cash and cash equivalents at end of period $ 425,878 $ 866,789
========= ===========
</TABLE>
See notes to consolidated financial statements
5
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RESOURCE CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
Readers of this quarterly report should refer to the Company's audited
financial statements for the year ended December 31, 1996 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
subsidiaries: 8050 Roswell Associates, LLC, (Roswell) and 419 Crossville
Associates, LLC (Crossville) and its ninety-nine (99) percent owned
subsidiaries: Colonial Park Commons LLC, (Colonial), Heide Lot, LLC (Heide),
Meggan Lot, LLC (Meggan), AGS Carriage House Associates (Carriage), and AGS
Compass Pointe Associates (Compass). Hunter Management Company controls the
remaining ownership interest in each subsidiary. All intercompany transactions
and balances have been eliminated in consolidation.
Prior to June 1996, Carriage and Compass were accounted for under the equity
method. The Company's general and limited partnership interests in both AGS
Partners MLP, L.P. (MLP) and AGS Meadow Oaks Associates (Meadow) continue to be
accounted for under the equity method.
6
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Note 3 Investment in and receivables from partnerships
The balances are summarized as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
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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 1,036,678 1,041,678
Accountability to partnerships (139,280) (130,657)
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2,905,693 2,919,316
Valuation allowance 200,000 200,000
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$ 2,705,693 $ 2,719,316
=========== ===========
</TABLE>
Interest income on these notes totaled $74,381 for the three months ended March
31, 1997. Interest income reported for the corresponding period in 1996 was
$74,381.
Interest payments received on these notes totaled $74,381 for the three months
ended March 31, 1997 and 1996.
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.
Note 4 Acquisition of properties
In September, 1996 Colonial Park Commons LLC (Colonial) was formed and
capitalized with a $300,000 contribution, of which $297,000 was funded by the
Company while the remaining $3,000 was funded by Hunter Management Company
(Hunter). Colonial acquired an 18,387 square foot office building located in
Fulton County, Georgia for $1,010,000. The purchase was financed,in part, with
a $787,500 mortgage payable. Additionally in September 1996, Meggan Lot, LLC
(Meggan) and Heide lot, LLC (Heide) were also formed and capitalized with a
$100,000 contribution into each of which $99,000 was funded by the Company
while the remaining $1,000 was funded by Hunter. Meggan and Heide each paid
$100,000 to acquire approximately .8 acres of land surrounding the Colonial
Property in Fulton County. Georgia.
In June, 1996 the Company acquired a 94% limited partnership interest in
Carriage and Compass. Prior to June, 1996 the Company had only a 5% general
partnership interest in these partnerships. The mortgages on each property were
held by the US Department of
7
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Housing and Urban Development (HUD); however during 1995 HUD sold the mortgages
to an unrelated financial institution. In prior years the Carriage and Compass
Partnerships had been unable to generate sufficient cash flows to fund the
required debt service payment and, as a result, had been in technical default
under the mortgage agreement. Following the purchaes of the mortgages from HUD,
the financial institution began forclosure proceedings on each property. The
Company, acting as General Partner decided to expand the Carriage and Compass
Partnerships to raise sufficient cash to fund all unpaid and accrued debt
service payments. Additionally to expedite the process of raising capital the
Company offered to purchase from the limited partners their partnership
interest for $1,000 per unit. In this regard, during March through June 1996,
the Company paid a total of $39,325 for 74% of the limited partners interest in
Carriage and 91% of the limited partners interest in Compass. The remaining
limited partners in Carriage and Compass forfeited their interests pursuant to
the terms of their respective partnerships agreements.
In 1996 the Company made capital contributions aggregating $802,465 into
Carriage and Compass to fund the accrued and unpaid debt service payments and
fully reinstate the mortgages. As a result of the acquisition of a majority of
the limited partner interest and the forfeiture by the remaining limited
partners of their interest, effective June 1 1996, the Company owned 99% (5%
general partner interest and 94% limited partner interest) of each partnership.
The remaining 1% limited partner interest is owned by Hunter who contributed
$8,105 into Carriage and Compass.
The following summarized, unaudited pro forma results of operations for the
three months ended March 31, 1996 assumes the Colonial 6Park, Hiedi Lot, Meggan
Lot, Carriage House and Compass Point
acquisitions occurred January 1, 1996:
<TABLE>
<S> <C>
Rental operating income $ 421,717
Net loss (63,433)
Net loss per share (0.15)
</TABLE>
In March, 1997 the Company entered into a contract to purchase the Harvill
Building for $600,000. This property is located in Woodstock, Cherokee County,
Georgia and consists of an 11,250 square foot office building. A $50,000
deposit has been escrowed by the Company pending the closing of this
transaction.
8
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Note 5 Sale of properties
In 1997, the Company entered into a contract with an unrelated party for the
sale of Carriage House and Compass Pointe Apartments for a sales price of
$4,866,684. The contract provides that the price is to be paid by the purchaser
acquiring the properties subject to the existing non recourse first mortgage
liens on each property with a reduction in the cash consideration equal to the
outstanding principal balances due on each mortgage. The sale is scheduled to
close on May 15, 1997. The Company expects to receive approximately $1,150,000
in cash and realize a gain of approximately $350,000.
Note 6 Income Taxes
The benefit for income taxes of $3,723 for the three months ended March 31,
1997 is calculated by applying the statutory rate to the taxable loss
recognized in the period. The Company recorded a tax benefit of $12,438 for the
three months ended March 31, 1996.
Note 7 Stock warrants outstanding
In 1997 the Company granted stock warrants to the outside directors as a group
equal to 2% of the capitalization of the Company or 8,230 shares. The warrants
are effective through July 2001 and shares can be acquired at $1.00 per share.
The Company recognized compensation expense of $24,690 in the financial
statements for the period ended March 31, 1997 pursuant to Financial Accounting
Standards Board SFAS No. 123 "Accounting for Stock-Based Compensation".
Note 8 Gain on sale of marketable equity securities
In February 1997, the Company realized $90,305 from the sale of a portion of
the marketable equity securities owned by the Company and recognized a gain in
the amount of $18,521.
9
<PAGE> 10
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
operating and investment income, its ability to obtain mortgage financing, and
the interest income and loan repayments received on its notes receivable from
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, 1997, the Company had cash reserves of $425,878. For the three
months ended March 31, 1997 the Company received $74,381 in interest income
from MLP and advances receivable from MLP decreased $5,000. 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 4
years on the MLP properties. The net operating income at the property levels
continue to be sufficient to make full interest payments on the notes payable
to the Company. As the rental markets have continued to recover, the Company
has advanced funds to MLP 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. MLP plans to
continue to make major capital improvements during 1997 in an attempt to
maximize the resale values of the properties.
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 1997 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. In the fourth quarter of
1995, management decided to make a valuation allowance against the MLP notes of
$200,000. Based upon current cash flow projections of the MLP, management feels
the $200,000 valuation allowance is more than adequate at March 31, 1997.
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.
10
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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, Fulton County, Georgia. Hunter
Management Company owns the remaining 25% interest. The purchase price for the
Roswell property 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 1997 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 for $750,000 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
building was purchased in an all cash transaction, however in May 1996
Crossville obtained an $880,000 mortgage on the property and used the proceeds
to return $600,000 to the Company. The Company and Hunter have both guaranteed
this mortgage. Based on 1997 and future budgets and recent property valuations,
the investment should produce future operating cash flows and future resale
values for the Company.
The Company is the General Partner and also a Limited Partner of AGS Carriage
House Associates and AGS Compass Pointe Associates. In 1996, the Company
expanded both partnerships to raise additional capital. In this regard the
Company has contributed $807,415 to these two properties and has obtained a 94%
limited partner interest in the partnerships. Hunter contributed $8,155 and has
obtained a 1% limited partner interest. The capital was utilized by the
partnerships to satisfy debt requirements. In 1997 the Company entered into a
contract for the sale of Carriage House and Compass Pointe Apartments for a
sales price of $4,866,684. The closing of the sale is scheduled for May 15,
1997. The Company expects to receive approximately $1,150,000 in cash and
realize a gain of approximately $350,000.
In September 1996, the Company purchased for $297,000 a 99% interest in
Colonial Park Commons, LLC (Colonial Park) which owns a 18,387 square foot
office building in Roswell, Fulton County, Georgia. Hunter Management
contributed $3,000 and owns the remaining 1%. Colonial Park obtained a $787,500
mortgage on the office building. The mortgage is guaranteed by the Company and
Hunter. In addition, the Company acquired for $198,000 a 99% interest in Heide
Lot, LLC and Meggan Lot, LLC which owns the two developmental building lots
adjacent to the Colonial Park office building. Hunter contributed $2,000 and
owns the remaining 1%. Based on 1997 and future budgets and recent property
valuation,
11
<PAGE> 12
these investments should produce future operating cash flows and future resale
values for the Company. For the three months ended March 31, 1997 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 1997, the Company submitted an earnest money deposit in the amount of
$50,000 for the purchase of a 11,250 square foot office building in Woodstock,
Cherokee County, Georgia for $600,000 in an all cash transaction. Proceeds from
the sale of Carriage House and Compass Pointe will be utilized to close this
transaction.
Results of Operations
The Company's business plan includes a transition from its current asset base
of mortgage receivables from MLP and general and limited partner interests in
apartment buildings located throughout the country, into small apartment
properties and suburban office buildings concentrated in Atlanta, Georgia and
other fast growing metropolitan areas in the southeast. Consistent with this
transition, for the period ended March 31, 1997 the Company recorded an
increase of $384,535 in rental income over the $59,599 reported in 1996.
This increase is due primarily to the September 1996 acquisition of Colonial
Park Commons and the June 1996 acquisition of Carriage House and Compass Pointe
Apartments. For the three months ended March 31, 1997, the Company recognized a
loss of $7,226 compared to a loss of $24,144 for the corresponding period in
1996. Total revenue for the three months ended March 31, 1997 was $545,940
versus $134,906 in 1996. The Company recognized a gain of $18,521 from the sale
of marketable equity securities for the three months ended March 31, 1997.
Total expenses for the three months ended March 31, 1997 were $552,610 compared
to $166,100 for the same period in 1996. This increase in expenses from 1997 to
1996 was the result, in part, of the 1996 acquisitions of Colonial Park,
Carriage House and Compass Pointe Apartments. Rental operating expenses
increased by $192,810 as a result of these acquisitions.
General and administrative expenses for the three months ended March 31, 1997
of $130,733 increased $6,169 from the same period last year. The increase is
attributable to the 1997 recognition of $24,690 in compensation expense
relating to the issuance of stock warrants to the outside directors.
Depreciation and amortization of $71,964 for the three months ended March 31,
1997 increased $60,496 from the same period in 1996
12
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primarily due to the acquisitions mentioned above.
Interest expense increased $127,035 for the three months ended March 31, 1997
as compared to the corresponding period in 1996 due to the mortgages obtained
or assumed on the 1996 acquisitions and on the mortgage obtained in May 1996 on
the 419 Crossville property.
Inflation
Inflation in the future may increase rental revenues as well as operating
expenses, all in accordance with general market trends.
13
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PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - 27 Financial Data Schedule (for SEC use only)
(b) Reports - None
14
<PAGE> 15
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, 1997
15
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000888242
<NAME> RESOURCE CAPITAL GROUP INC.
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 425,878
<SECURITIES> 21,581
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 7,494,135
<DEPRECIATION> 249,995
<TOTAL-ASSETS> 10,909,833
<CURRENT-LIABILITIES> 0
<BONDS> 5,690,301
0
0
<COMMON> 4,986
<OTHER-SE> 4,622,489
<TOTAL-LIABILITY-AND-EQUITY> 10,909,833
<SALES> 0
<TOTAL-REVENUES> 545,940
<CGS> 0
<TOTAL-COSTS> 211,407
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 138,506
<INCOME-PRETAX> (10,949)
<INCOME-TAX> (3,723)
<INCOME-CONTINUING> (7,226)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,226)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> 0
</TABLE>
