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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, 1999
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT
For the transition period from ____________ to _____________
Commission File Number 0-20272
RESOURCE CAPITAL GROUP, INC.
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(Exact name of small business issuer as specified in its charter)
<TABLE>
<CAPTION>
Delaware 13-3617377
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<S> <C>
(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
As of March 31, 1999, 417,301 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, 1999
and December 31, 1998 3
Consolidated Statement of Operations - For the
Three Months Ended March 31, 1999 and 1998 4
Consolidated Statement of Cash Flows - For the
Three Months Ended March 31, 1999 and 1998 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 GROUP, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
MARCH 31, DECEMBER 31,
1999 1998
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<S> <C> <C>
Cash and cash equivalents $ 1,278,372 $ 2,212,570
Investment in marketable equity securities-cat market-at market 19,635
Investments in and receivables from partnerships 1,428,519 1,352,941
Real and personal property, at cost
Land 2,254,005 2,254,005
Buildings and improvements 5,669,536 5,611,061
Furniture and equipment 332,325 311,784
Construction in progress 358,690 102,218
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8,614,556 8,279,068
Less accumulated depreciation (387,149) (333,269)
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8,227,407 7,945,799
Deferred charges-net of accumulated amortization 188,014 160,065
Other assets 134,185 128,392
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$ 11,256,497 $ 11,819,402
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable $ 45,708 $ 44,082
Accrued expenses
Interest 40,282 29,778
Payroll 33,340 78,770
Professional fees 15,500 48,000
Property taxes 22,528 -0-
Income Taxes 279,163 170,594
Other 53,513 35,486
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444,326 362,628
Security deposits and other 92,991 86,210
Mortgages payable 5,849,361 5,859,857
Deferred tax liability 265,824
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Total Liabilities 6,432,386 6,618,601
Stockholders' equity
Common stock - authorized 1,000,000 shares
$.01 par value per share, issued 520,970 shares 5,210 5,086
Additional paid-in capital 4,636,260 4,607,494
Cash dividends paid (417,301)
Retained earnings 790,589 776,859
Treasury stock, at cost, 103,669 shares (190,647) (190,647)
Unrealized gain on investment 2,009
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Total Stockholders' Equity 4,824,111 5,200,801
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$ 11,256,497 $ 11,819,402
============ ============
</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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1999 1998
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Income
<S> <C> <C>
Rental operations $ 374,294 $ 218,437
Interest - affiliated entity 8,723 53,145
Equity in earnings of
unconsolidated partnerships, net 81,502 11,526
Management fees - affiliated entity 5,562 39,168
Interest - investments 21,297 10,193
Gain on sale of marketable equity securities 158
Other income 1,364 3,709
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Total Income 492,900 336,178
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Expenses
Rental operations 104,260 45,767
General and administrative 192,185 163,636
Interest 118,385 80,469
Depreciation and amortization 57,267 57,091
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Total Expenses 472,097 346,963
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Income (loss) before income taxes 20,803 (10,785)
(Provision for) benefit of income taxes (7,073) 3,667
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Net income (loss) $ 13,730 $ (7,118)
========= =========
Basic earnings (loss) per share $ 0.3 $ (0.2)
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Weighted average shares outstanding 410,111 416,726
========= =========
</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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1999 1998
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<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 13,730 $ (7,118)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities
Depreciation and amortization 57,267 57,091
Equity in earning of unconsolidated partnerships (81,502) (11,526)
Provision for deferred income taxes (265,824) (3,667)
Gain on sale of marketable equity securities (158)
Issuance of stock warrants 16,528
Changes in certain other accounts
Deferred charges and other assets 131 (13,663)
Accounts payable 1,626 31,687
Accrued expenses 81,698 (40,619)
Security deposits and other 6,781 9,342
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Net cash provided (used) by operating activities (169,723) 21,527
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Cash flows from investing activities
Additions to real and personal property (79,016) (9,850)
Construction in progress costs (256,472)
Deposits receivable 200,000
Purchase of subsidiaries (1,262,167)
Advances to affiliated entity, net (63,447)
Receipt from sale of marketable equity securities 17,784
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Net cash (used) by investing activities (317,704) (1,135,464)
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Cash flows from financing activities
Dividends paid (417,301)
Exercise of stock warrants 12,362
Repayment of mortgage payable (836,480)
Proceeds of mortgages payable 24,765 2,070,000
Mortgage amortization payments (35,261) (17,974)
Payments on note payable (21,327)
Deferred mortgage costs (31,336) (42,854)
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Net cash provided (used) by financing activities (446,771) 1,151,365
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Net increase (decrease) in cash and cash equivalents (934,198) 37,428
Cash and cash equivalents at beginning of period 2,212,570 673,725
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Cash and cash equivalents at end of period $ 1,278,372 $ 711,153
============ ============
</TABLE>
See notes to consolidated financial statements
5
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RESOURCE CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
Note 1 Basis of Presentation
The accompanying unaudited consolidated financial statements of Resource Capital
Group Inc. have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of the management
of Resource Capital Group Inc., all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 1999, are not necessarily
indicative of the results that may be expected for the fiscal year ending
December 31, 1999. For further information, refer to the financial statements
and footnotes thereto included in the Company's annual report on Form 10-KSB for
the fiscal year ended December 31, 1998.
Note 2 Summary of significant accounting policies
Principles 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 subsidiaries: 8050 Roswell Associates, LLC,
(Roswell); 419 Crossville Associates, LLC (Crossville); Colonial Park Commons
LLC, (Colonial); Heide Lot, LLC (Heide); 8046 Roswell Road, LLC (8046);
Woodstock Office One, LLC (Woodstock); 920 Holcomb Bridge, LLC (Holcomb); RCGI
Montclair I, LLC (Montclair); RCGI Oakmont, LLC, (Oakmont) and Hunter Management
Company. Where subsidiaries were acquired or disposed of during the period the
operating results are included from the date of acquisition or the date of sale.
All intercompany transactions and balances have been eliminated in
consolidation.
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Note 3 Acquisition of properties
In April, 1999 the Company submitted an earnest money deposit in the amount of
$25,000 for the purchase of the 11040 Crabapple Road Building for $675,000. This
property is located in Roswell, Georgia and consists of a 10,660 square foot
office building.
Note 4 Earnings per share
Net earnings per share of Common Stock is computed by dividing net earnings by
the weighted average number of shares outstanding. The dilutive effect of stock
warrants is not significant and is therefore excluded from the calculation.
Note 5 Investments in and receivables from partnerships
In April 1999 MLP sold the Aspen Walk Apartments for a sales price of
$2,675,000. The Company received approximately $1,500,000 in proceeds from the
sale including the principal balance of the $325,554 note receivable from MLP
and the repayment of the advances to MLP.
The Company has a 2.55 percent general partner interest and a 43.10 percent
limited partner interest in the Meadow Partnership. Management determined that
the revenue to be derived for the Meadow property operations would not be
sufficient to continue to operate the property on a profitable basis.
Accordingly, on March 22, 1999, Meadow deeded its real and personal property to
a third party in exchange for a nominal sum, and also received a release of all
liabilities relating to the mortgage from the first mortgage holder. As a result
of this transaction, the Company realized a taxable gain of approximately 1.4
million in 1999.
Note 6 Warrants
In January 1999 the Company issued, to one of its directors, warrants to
purchase 4,132 shares of common stock for $1 per share. These warrants along
with previously issued warrants to purchase 8,230 shares of the Company's common
stock for $1 per share, were exercised in February 1999.
Note 7 Dividends
In January 1999, the Board of Directors approved a cash dividend of $1 per share
of common stock, which was paid to the stockholders on March 25, 1999 in the
amount of $417,301.
7
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Note 8 Construction of an office complex
During 1998, the Company entered into a contract for the construction of an
office complex on its Heide property for $792,326. As of March 31, 1999, work in
the amount of $358,690 has been completed on this project and is included as a
part of construction in progress in the accompanying financial statements. In
connection with this project, in March, 1999 the Company closed a construction
loan in the amount of $900,000, but not to exceed 75% of total development cost.
The loan will mature March 1, 2004 and will require interest only payments for
the first twelve months at the lender's base rate plus l%. From the thirteenth
month until maturity, monthly principal and interest payments based on a 20 year
amortization will be required and interest will be fixed at the five year
Treasury Constant Maturity plus 275 basis points with a floor of 8%. At March 31
1999 $24,765 has been drawn under this facility.
8
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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 income, its ability to obtain mortgage financing, its ability to sell
and refinance its real estate investments, plus 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, 1999, the Company had cash reserves of $1,278,372. 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.
For the three months ended March 31, 1999 the Company received $12,208 in
interest income from MLP. Subsequently, in April 1999, MLP sold the Aspen Walk
Apartments for $2,675,000. As a result, in April, 1999 the Company received
$160,314 in interest income as well as $1,339,554 in principal reductions on
amounts due from MLP.
Based on 1999 and future budgets and recent property valuations it appears the
Company's real estate investments should produce future operating cash flows and
future resale values for the Company.
In April 1999, the Company submitted an earnest money deposit in the amount of
$25,000 for the purchase of a 10,660 square foot office building located in
Roswell, Georgia for $675,000 in an all cash transaction. Proceeds from the sale
of Aspen Walk Apartments by MLP will be utilized to close this transaction.
For the three months ended March 31, 1999 the Company utilized $169,723 for
operations principally for the deferred tax provision on the Meadow disposition
and utilized $446,771 for financing activities, principally for the cash
dividends paid to the stockholders in the amount of $417,301 and utilized
$317,704 for investing activities, principally for the construction of the Heide
office building for a net decrease in cash of $934,198 for the period.
Results of Operations
For the three months ended March 31, 1999 the Company realized net income of
$13,730 compared to a net loss of $7,118 for the same period in 1998.
Total revenue for the three months ended March 31, 1999 was $492,900 versus
$336,178 in 1998. Rental income increased
9
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primarily due to the Oakmont and Montclair acquisitions in July 1998. The
Company recognized a gain of $158 from the sale of marketable equity securities
for the three months ended March 31, 1999. Management fee income decreased
$33,606 due to the April 1998 sale of Rolling Hills Apartments by MLP and the
disposition of the Meadow interest.
Total expenses for the three months ended March 31, 1999 were $472,097 compared
to $346,963 for the same period in 1998. This increase in expenses was the
result, in part, of the July 1998 Oakmont and Montclair acquisitions. Rental
operating expenses increased by $58,493 as a result of these acquisitions.
General and administrative expenses for the three months ended March 31, 1999 of
$192,185 increased $28,549 from the same period last year. The increase is
attributable to increased directors insurance and increased legal, professional
and other expenses relating to the Company's disposition of its apartments and
other investments.
Depreciation and amortization of $57,267 for the three months ended March 31,
1999 increased $176 from the same period in 1998 primarily due to the
acquisitions mentioned above.
Interest expense increased $37,916 for the three months ended March 31, 1999 as
compared to the corresponding period in 1998 due to the mortgages obtained on
the July 1998 acquisitions of Oakmont and Montclair.
Year 2000 Conversion
The Company is in the process of selecting a new hardware system and software
package to facilitate the Company in the management and operations of its office
building holdings. The manufacturers have represented that the software and
hardware is Year 2000 compliant. Management expects it to be installed by
September 1999. The cost of the new software and hardware, including
implementation and data conversion costs will be less than $25,000. The
Company's other software is generally certified as Year 2000 compliant or is not
considered critical to its operations.
Other than the costs of the new software and hardware to be installed in the
corporate office, the Company has spent only nominal amounts on the Year 2000
issue, and does not expect any significant future expenditures. Although
management believes its estimates to be accurate, no assurance can be given that
these estimates will not increase or that the proposed solutions will be
installed on schedule.
The Company has addressed the Year 2000 preparedness of its critical suppliers
and major customers and related electronic data interfaces with these third
parties. The only suppliers that are critical to the Company's operations are
its banks providing banking services and the utility companies supplying
utilities to the Company's office buildings. Management has contacted the
Company's primary banks and utility companies and as a result, believe they are
or will be compliant by
10
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the year 2000. The Company does not interface electronically with its banks or
utility companies or any other major suppliers. Management does not believe that
its business is itself Y2K sensitive because of the wide range, size, diversity
of business and primarily non-technical nature of its tenant base.
For the same reason it is impossible to evaluate what effect, if any, year 2000
will have on the Company's customer's (primarily tenant's) suppliers and
customers. Consequently, management does not know whether Y2K problems will
have adverse affects on its tenants and their ability to pay rent or fees.
At present, the Company has not developed any contingency plans, but will
determine whether to develop such plans when its assessment of any potential
problem areas is complete.
Inflation
Inflation in the future may increase rental revenues as well as operating
expenses, all in accordance with general market trends.
11
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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 on Form 8-K
None
12
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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 11, 1999
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 1,278,372
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 8,614,556
<DEPRECIATION> 387,149
<TOTAL-ASSETS> 11,256,497
<CURRENT-LIABILITIES> 0
<BONDS> 5,849,361
0
0
<COMMON> 5,210
<OTHER-SE> 4,818,901
<TOTAL-LIABILITY-AND-EQUITY> 11,256,497
<SALES> 0
<TOTAL-REVENUES> 492,900
<CGS> 0
<TOTAL-COSTS> 104,260
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 118,385
<INCOME-PRETAX> 20,803
<INCOME-TAX> 7,073
<INCOME-CONTINUING> 13,730
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,730
<EPS-PRIMARY> .03
<EPS-DILUTED> 0
</TABLE>
