<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 June 30, 1999
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)
Delaware 13-3617377
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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 June 30, 1999, 417,301 shares of common stock of the Registrant were
outstanding.
<PAGE> 2
INDEX
RESOURCE CAPITAL GROUP, INC.
<TABLE>
<CAPTION>
Part I. Financial Information Page
Number
------
<S> <C>
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheet - June 30, 1999
and December 31, 1998 3
Consolidated Statement of Operations - For the
Three Months and Six Months Ended
June 30, 1999 and 1998 4
Consolidated Statement of Cash Flows - For the
Six Months Ended June 30, 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
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
a) Consolidated Balance Sheet
RESOURCE CAPITAL GROUP, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Cash and cash equivalents $ 2,703,091 $ 2,212,570
Investment in marketable equity securities-at market 19,635
Deposit on property acquisition 75,000
Investments in and receivables from partnerships 109,976 1,352,941
Real and personal property, at cost
Land 2,254,005 2,254,005
Buildings and improvements 5,758,075 5,611,061
Furniture and equipment 342,189 311,784
Construction in progress 670,346 102,218
------------ ------------
9,024,615 8,279,068
Less accumulated depreciation (441,708) (333,269)
------------ ------------
8,582,907 7,945,799
Deferred charges - net of accumulated amortization 184,461 160,065
Other assets 162,928 128,392
------------ ------------
$ 11,818,363 $ 11,819,402
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable $ 57,099 $ 44,082
Accrued expenses
Interest 40,282 29,778
Payroll 20,425 78,770
Professional fees 21,000 48,000
Property Taxes 44,573
Income Taxes 239,489 170,594
Other 37,376 34,586
------------ ------------
403,145 362,628
Security deposits and other 91,124 86,210
Mortgages payable 6,344,584 5,859,857
Deferred tax liability 265,824
------------ ------------
Total Liabilities 6,895,952 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 888,889 776,859
Treasury stock, at cost, 103,669 shares (190,647) (190,647)
Unrealized gain on investment 2,009
------------ ------------
Total Stockholders' Equity 4,922,411 5,200,801
------------ ------------
$ 11,818,363 $ 11,819,402
============ ============
</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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- --------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income
Rental operations $ 372,024 $ 241,204 $ 746,318 $ 459,641
Interest - affiliated entity 111,637 309,397 120,360 362,542
Equity in earnings of
unconsolidated partnerships 98,427 321,855 179,929 333,381
Management fees - affiliated entity 1,644 27,488 7,206 66,656
Interest - investments 22,526 26,932 43,823 37,125
Gain on sale of marketable equity securities 158
Other income 1,142 3,007 2,506 6,716
--------- --------- ----------- -----------
Total Income 607,400 929,883 1,100,300 1,266,061
--------- --------- ----------- -----------
Expenses
Rental operations 106,012 66,754 210,272 112,521
General and administrative 174,563 210,054 366,748 373,690
Interest 119,774 89,788 238,159 170,257
Depreciation and amortization 58,112 39,671 115,379 96,762
--------- --------- ----------- -----------
Total Expenses 458,461 406,267 930,558 753,230
--------- --------- ----------- -----------
Income before income taxes 148,939 523,616 169,742 512,831
Provision for income taxes (50,639) (178,030) (57,712) (174,363)
--------- --------- ----------- -----------
Net income $ 98,300 $ 345,586 $ 112,030 $ 338,468
========= ========= =========== ===========
Basic earnings per share $ .24 $ .83 $ .27 $ .81
========= ========= =========== ===========
Weighted average shares outstanding 417,301 416,726 413,726 416,726
========= ========= =========== ===========
</TABLE>
See notes to consolidated financial statements
4
<PAGE> 5
b) Consolidated Statement of Cash Flows
RESOURCE CAPITAL GROUP, INC.
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities
Net Income $ 112,030 $ 338,468
Adjustments to reconcile net income to net
cash provided (used) by operating activities
Depreciation and amortization 115,379 96,762
Equity in earnings of unconsolidated partnerships (179,929) (333,381)
Provision for deferred income taxes (265,824) 35,905
Gain on sale of marketable equity securities (158)
Issuance of stock warrants 16,528
Changes in certain other accounts
Deferred charges and other assets 48,804 139,287
Accounts payable 13,017 37,856
Accrued expenses 40,517 79,638
Security deposits 4,914 11,747
----------- -----------
Net cash provided (used) by operating activities (94,722) 406,282
----------- -----------
Cash flows from investing activities
Additions to real and personal property (177,419) (52,981)
Construction in progress costs (568,128)
Purchase of subsidiaries (1,262,167)
Proceeds from mortgage note receivable 325,554 1,657,947
Repayments from affiliated entity, net 1,014,000 185,709
Receipt from sale of marketable securities 17,784
Deposit on property purchase (75,000) 150,000
----------- -----------
Net cash provided by investing activities 536,791 678,508
----------- -----------
Cash flows from financing activities
Dividends paid (417,301)
Exercise of stock warrants 12,362
Payments on mortgage payable (836,480)
Proceeds of mortgage payable 557,940 2,070,000
Mortgage amortization payments (73,213) (44,022)
Payments on note payable (42,976)
Deferred mortgage costs (31,336) (43,755)
----------- -----------
Net cash provided by financing activities 48,452 1,102,767
----------- -----------
Net increase in cash and cash equivalents 490,521 2,187,557
Cash and cash equivalents at beginning of period 2,212,570 673,725
----------- -----------
Cash and cash equivalents at end of period $ 2,703,091 $ 2,861,282
=========== ===========
</TABLE>
See notes to consolidated financial statements
5
<PAGE> 6
Resource Capital Group, Inc.
Notes to Consolidated Financial Statements
June 30, 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 and six month periods ended June 30, 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.
6
<PAGE> 7
Note 3 Acquisition of properties
In May, 1999 the Company made an offer to purchase the 11040 Crabapple Road
Office Building for $675,000. This property is located in Roswell, Georgia and
consists of a 10,660 square foot office building. As of June 30, 1999 the
Company has submitted an earnest money deposit in the amount of $25,000 for this
acquisition. Subsequently, the Company has submitted an additional $25,000 and
has delivered a purchase contract to the seller for signature.
In May 1999, the Company entered into a contract to purchase approximately three
acres of developmental land for $1,125,000. The land is located in Roswell,
Georgia. A $50,000 earnest money deposit has been escrowed by the Company
pending inspection and approval of the property. In addition, in July 1999 the
Company has submitted earnest money deposits totaling $50,000 for the purchase
of two office buildings for $1,848,900. The sellers have accepted the Company's
offers and the Company is currently negotiating formal purchase agreements.
These buildings are located in Marietta, Georgia and total 20,690 square feet.
The purchase price includes the assumption of existing first mortgages in the
principal amount of $1,357,400.
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,
the related interest income 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 expects to report a gain for tax purposes of
approximately 1.4 million in 1999. For book purposes the Company recognized
income of $110,531.
7
<PAGE> 8
Note 6 Warrants
In January 1999 the Company issued warrants to purchase 4,132 shares of common
stock to its new director 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.
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 $829,061. As of June 30, 1999, payments
totaling $575,661 have been made on this contract and are included as 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 June 30,
1999 $557,940 has been drawn under this facility.
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
operating and investment income, its ability to obtain mortgage financing and
its ability to sell and refinance its real estate investments. These funds are
used to pay the Company's normal operating expenses and fund new acquisitions.
As of June 30, 1999 the Company had cash reserves of $2,703,091. 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 six months ended June 30, 1999 the Company received $172,522 in interest
income as well as $1,339,554 in principal reductions on amounts due from MLP.
MLP paid these amounts to the Company as a result of its sale in April 1999 of
Aspen Walk Apartments for a sales price of $2,675,000.
The Company's other real estate investments should produce future operating cash
flows and future resale values for the Company based on 1999 and future budgets
and recent property valuations.
In May 1999, the Company made an offer to purchase a 10,660 square foot office
building located in Roswell, Georgia for $675,000 in an all cash transaction. In
May 1999 the Company entered into a contract to purchase approximately three
acres of developmental land for $1,125,000. The land is located in Roswell,
Georgia. A $50,000 earnest money deposit has been escrowed by the Company
pending inspection and approval of the property. In addition in July 1999 the
Company has submitted earnest money deposits totaling $50,000 for the purchase
of two office buildings for $1,848,900. The sellers have accepted the Company's
offers and the Company is currently negotiating formal purchase agreements.
These buildings are located in Marietta, Georgia and total 20,690 square feet.
The purchase price includes the assumption of existing first mortgages with
principal balances of $1,357,400. Proceeds from the sale of Aspen Walk
Apartments by MLP as well as other Company cash reserves will be utilized to
close these transactions.
For the six months ended June 30, 1999 the Company utilized $94,722 for
operations, principally from the provision for deferred income taxes relating to
the Meadow disposition. The Company generated $48,452 from financing activities
for the same period, principally from the proceeds of the construction loan in
the amount of $557,940. Investing activities generated $536,791 for the period,
principally from the repayments by MLP of the mortgage note receivable and
advances receivable totalling $1,339,554. These activities resulted in a net
increase in cash of $490,521 for the six months ended June 30, 1999.
9
<PAGE> 10
Results of Operations
For the three months ended June 30, 1999 the Company realized net income of
$98,300 compared to net income of $345,586 for the same period in 1998. For the
six months ended June 30, 1999 the Company realized net income of $112,030
compared to net income of $338,468 for the same period in 1998.
Total revenue for the three months ended June 30, 1999 was $607,400 versus
$929,883 in 1998. Rental income increased $130,820, primarily due to the Oakmont
and Montclair acquisitions in July 1998. Management fee income decreased $25,844
due to the April 1999 sale of Aspen Walk Apartments by MLP and the disposition
of the Meadow interest. Interest income-affiliated entity and equity in earnings
of unconsolidated partnerships decreased $421,188 due to the April 1998 sale of
Rolling Hills Apartments by MLP.
Total revenue for the six months ended June 30, 1999 was $1,100,300 verses
$1,266,061 for the same period in 1998. This decrease in revenue was primarily
the result of the April 1998 sale of Rolling Hills Apartments by MLP and the
resulting decrease in interest-affiliated entity and equity in earnings of
unconsolidated partnerships.
Total expenses for the three months ended June 30, 1999 were $458,461 compared
to $406,267 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 $39,258 for the three months ended June 30, 1999
as a result of these acquisitions. Total expenses for the six months ended June
30, 1999 were $930,558 verses $753,230 for the same period in 1998. This
increase in expenses is also attributable to the July 1998 acquisitions of
Oakmont and Montclair.
General and administrative expenses for the three months ended June 30, 1999 of
$174,563 decreased $35,491 from the same period last year. The decrease in
expenses is attributable to professional fees paid in 1998 relating to the
Company's disposition of its apartments and other investments. For the six
months ended June 30, 1999 general and administrative expenses decreased $6,942
from the corresponding period in 1998 for the same reason.
Depreciation and amortization of $58,112 for the three months ended June 30,
1999 increased $18,441 from the same period in 1998 primarily due to the Oakmont
and Montclair acquisitions mentioned above. For the six months ended June 30,
1999 depreciation and amortization expenses increased by $18,617 over the 1998
amount due to the Oakmont and Montclair acquisitions in July 1998.
Interest expense increased $29,986 for the three months ended June 30, 1999 as
compared to the corresponding period in 1998 due to the mortgages obtained on
the July 1998 acquisitions of Oakmont and Montclair. Interest expense increased
$67,902 for the six months ended June 30, 1999 as compared to the corresponding
period in 1998 for the same reason.
10
<PAGE> 11
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 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
<PAGE> 12
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
<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: August 12, 1999
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 2,703,091
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 9,024,615
<DEPRECIATION> 441,708
<TOTAL-ASSETS> 11,818,363
<CURRENT-LIABILITIES> 0
<BONDS> 6,344,584
0
0
<COMMON> 5,210
<OTHER-SE> 4,917,201
<TOTAL-LIABILITY-AND-EQUITY> 11,818,363
<SALES> 0
<TOTAL-REVENUES> 1,100,300
<CGS> 0
<TOTAL-COSTS> 210,272
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 238,159
<INCOME-PRETAX> 169,742
<INCOME-TAX> 57,712
<INCOME-CONTINUING> 112,030
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 112,030
<EPS-BASIC> .27
<EPS-DILUTED> 0
</TABLE>
