<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 September 30, 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
-------
<TABLE>
<S> <C>
RESOURCE CAPITAL GROUP, INC.
- -----------------------------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 13-3617377
- -----------------------------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
419 Crossville Road, Suite 204 Roswell, GA 30075
- -----------------------------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
770-649-7000
- -----------------------------------------------------------------------------------------------------
(Issuer's telephone number, including area code)
- -----------------------------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last report)
</TABLE>
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 September 30, 1999, 417,301 shares of common stock
of the Registrant were outstanding.
1
<PAGE> 2
INDEX
RESOURCE CAPITAL GROUP, INC.
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
Part I. Financial Information
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheet-September 30,1999
and December 31, 1998 3
Consolidated Statement of Operations-For the
Three Months and Nine Months Ended
September 30, 1999 and 1998 4
Consolidated Statement of Cash Flows-For the
Nine Months Ended September 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
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- -------------
<S> <C> <C>
Cash and cash equivalents $ 2,279,163 $ 2,212,570
Investment in marketable equity securities - at market 19,635
Deposit on property acquisitions 150,000
Investments in and receivables from partnerships 64,635 1,352,941
Real and personal property, at cost
Land 2,263,180 2,254,005
Buildings and improvements 6,685,411 5,611,061
Furniture and equipment 435,747 311,784
Construction in progress 102,218
------------- -------------
9,384,338 8,279,068
Less accumulated depreciation (506,690) (333,269)
------------- -------------
Net real and personal property 8,877,648 7,945,799
Deferred charges - net of accumulated amortization 192,022 160,065
Other assets 154,605 128,392
------------- -------------
$ 11,718,073 $ 11,819,402
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable $ 47,859 $ 44,082
Accrued expenses
Interest 44,610 29,778
Payroll 19,641 78,770
Professional fees 33,500 48,000
Property taxes 53,496
Income taxes 185,208 170,594
Other 24,225 35,486
------------- -------------
360,680 362,628
Security deposits and other 103,556 86,210
Mortgages payable 6,306,840 5,859,857
Deferred tax liability 265,824
------------- -------------
Total Liabilities 6,818,935 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 865,616 776,859
Less treasury stock, at cost, 103,669 shares (190,647) (190,647)
Unrealized gain on investment 2,009
------------- -------------
Total Stockholders' Equity 4,899,138 5,200,801
------------- -------------
$ 11,718,073 $ 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ --------------------------------
1999 1998 1999 1998
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Income
Rental operations $ 392,553 $ 320,033 $ 1,138,871 $ 779,674
Interest - affiliated entity 8,723 120,360 371,265
Equity in earnings (loss) of
unconsolidated partnerships 31,563 (2,151) 211,492 331,230
Management fees - affiliated entity 5,067 7,206 71,723
Interest - investments 28,501 17,838 72,324 54,963
Gain on sale of marketable securities 158
Gain on sale of property 60,872 60,872
Other income 923 715 3,429 7,431
------------ ------------ ------------ ------------
Total Income 453,540 411,097 1,553,840 1,677,158
------------ ------------ ------------ ------------
Expenses
Rental operations 111,319 85,153 321,591 197,674
General and administrative 182,747 175,453 549,495 549,143
Interest 126,202 90,625 364,361 260,882
Depreciation and amortization 68,533 50,415 183,912 147,177
------------ ------------ ------------ ------------
Total Expenses 488,801 401,646 1,419,359 1,154,876
------------ ------------ ------------ ------------
Income (loss) before income taxes (35,261) 9,451 134,481 522,282
(Provision for) benefit of income taxes 11,988 (3,213) (45,724) (177,576)
------------ ------------ ------------ ------------
Net income (loss) $ (23,273) $ 6,238 $ 88,757 $ 344,706
============ ============ ============ ============
Basic earnings (loss) per share $ (.06) $ .02 $ .21 $ .83
============ ============ ============ ============
Weighted average shares outstanding 417,301 415,701 414,931 416,381
============ ============ ============ ============
</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>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net Income $ 88,757 $ 344,706
Adjustments to reconcile net income to net
cash provided (used) by operating activities
Depreciation and amortization 183,912 147,177
Equity in earnings of unconsolidated partnerships (211,492) (331,230)
Provision for deferred income taxes (265,824) 47,951
Gain on sale of property (60,872)
Gain on sale of marketable equity securities (158)
Issuance of stock warrants 16,528
Changes in certain other accounts
Deferred charges and other assets 57,127 155,547
Accounts payable 3,777 96,822
Accrued expenses (1,948) 99,133
Security deposits and other 17,346 30,025
----------- -----------
Net cash provided (used) by operating activities (111,975) 529,259
----------- -----------
Cash flows from investing activities
Distribution from partnership 76,904
Purchase of subsidiaries (2,300,684)
Additions to real and personal property (1,105,270) (156,494)
Proceeds from sale of property 62,584
Proceeds from mortgage note receivable 325,554 1,657,947
Repayments from investees 1,014,000 203,447
Receipt from sale of marketable securities 17,784
Deposit on property purchase (150,000)
----------- -----------
Net cash provided (used) by investing activities 178,972 (533,200)
----------- -----------
Cash flows from financing activities
Dividends paid (417,301)
Exercise of stock warrants 12,362
Payments on mortgage payable (110,957) (906,007)
Proceeds of mortgage payable 557,940 1,100,000
Payments on note payable (64,951)
Deferred mortgage costs (42,448) (46,021)
Purchase of treasury stock (58,920)
----------- -----------
Net cash provided (used) by financing activities (404) 24,101
----------- -----------
Net increase in cash and cash equivalents 66,593 20,160
Cash and cash equivalents at beginning of period 2,212,570 673,725
----------- -----------
Cash and cash equivalents at end of period $ 2,279,163 $ 693,885
=========== ===========
</TABLE>
See notes to consolidated financial statements
5
<PAGE> 6
RESOURCE CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 nine month
periods ended September 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 Park); Heide Lot, LLC (Heide); Woodstock Office One, LLC
(Woodstock); 8046 Roswell Road, LLC (8046); 920 Holcomb Bridge, LLC (Holcomb);
RCGI Montclair I, LLC (Montclair); RCGI Oakmont, LLC (Oakmont) and Hunter
Management Company (Hunter). 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 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 owns a 2.55% general partner interest and a 43.10% limited partner
interest in the Meadow Partnership. Management has 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 $140,213.
NOTE 4 ACQUISITION OF PROPERTIES
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
September 1999, the Company entered into contracts to purchase two office
buildings for $1,848,900. The 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. The Company is
awaiting approval from the lender for assumption of the mortgages. The Company
has placed earnest money deposits totaling $100,000.
NOTE 5 EARNINGS PER SHARE
Net earning 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 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.
7
<PAGE> 8
NOTE 7 DIVIDEND
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 September 30, 1999,
payments totaling $746,155 have been made on this contract and are included as
part of the building costs 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 1%. From
the thirteenth month until maturity, monthly principal and interest payments
based on a twenty 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 September 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 September 30, 1999, the Company had cash reserves of $2,279,163. 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 nine months ended September 30, 1999 the Company received $172,522 in
interest income, $76,904 in partner distribution as well as $1,339,554 in
principal reductions on amounts due from MLP. These amounts were paid to the
Company by MLP as a result of its sale in April 1999 of Aspen Walk Apartments
for a sales price of $2,675,000.
Based on 1999 and future budgets and recent property valuations it appears the
Company's other real estate investments should produce future operating cash
flows and future resale values for the Company.
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
September 1999, the Company entered into contracts for the purchase of two
office buildings for $1,848,900. 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 nine months ended September 30, 1999 the Company utilized $111,975 in
cash for operations, principally from the provision for deferred income taxes
relating to the Meadow disposition. The Company utilized $404 in cash for the
same period for financing activities, principally from the dividends paid to
stockholders net of the mortgage proceeds. Investing activities generated
$178,972 in cash for the period principally from the proceeds of the $1,339,554
principal reductions from MLP. These activities resulted in a net increase in
cash of $66,593 for the period.
Results of Operations
For the three months ended September 30, 1999, the Company recognized a net
loss of $23,273 compared to net income of $6,238 during the same period last
year. For the nine months ended September 30, 1999, the Company recognized net
income of $88,757 compared to net income of $344,706 for the corresponding
period in 1998.
9
<PAGE> 10
Total revenue for the three months ended September 30, 1999 was $453,540 versus
$411,097 for the same period in 1998. This increase in revenue was primarily
the result of the July 1998 acquisitions of Montclair and Oakmont properties
and the resulting increase in rental operating income associated with these two
properties. Total revenue for the nine months ended September 30, 1999 was
$1,553,840 versus $1,677,158 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 from affiliated entity
and equity in earnings of unconsolidated partnerships.
Total expenses for the three months ended September 30, 1999 were $488,801
compared to $401,646 for the same period in 1998. The increase in expenses was
primarily the result of the July 1998 acquisitions of Montclair and Oakmont
properties and the resulting increase in rental operating expenses, interest
and depreciation expense associated with these two properties. Total expenses
for the nine months ended September 30, 1999 were $1,419,359 compared to
$1,154,876 for the same period in 1998. This increase in expenses was also the
result, in part, of the July 1998 acquisitions of the Montclair and Oakmont
properties.
General and administrative expenses for the three months ended September 30,
1999 of $182,747 increased $7,294 from the same period last year. General and
administrative expenses of $549,495 for the nine months ended September 30,
1999 increased $352 over the same period in 1998. The increases are
attributable to the increased directors' insurance and increased staff.
Depreciation and amortization of $68,533 for the three months ended September
30, 1999 increased $18,118 over the same period in 1998 due primarily to the
1998 acquisitions of the Montclair and Oakmont properties and the resulting
increase in depreciation expense. Depreciation and amortization of $183,912 for
the nine months ended September 30, 1999 increased $36,735 over the same period
in 1998 primarily due to the same acquisitions.
Interest expense increased $35,577 for the three months ended September 30,
1999 as compared to the corresponding period in 1998 due primarily to the
mortgages obtained on the 920 Holcomb Bridge, Montclair and Oakmont properties.
Interest expense of $364,361 for the nine months ended September 30, 1999
increased $103,479 over the same period in 1998 for the same reason.
Year 2000 Conversion
The Company has installed 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. The cost of the software and hardware, including
implementation and data conversion costs was 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 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.
10
<PAGE> 11
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, believes 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 it 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: November 11, 1999
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 2,279,163
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 9,384,338
<DEPRECIATION> 506,690
<TOTAL-ASSETS> 11,718,073
<CURRENT-LIABILITIES> 0
<BONDS> 6,306,840
0
0
<COMMON> 5,210
<OTHER-SE> 4,893,928
<TOTAL-LIABILITY-AND-EQUITY> 11,718,073
<SALES> 1,553,840
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 321,591
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 364,361
<INCOME-PRETAX> 134,481
<INCOME-TAX> 45,724
<INCOME-CONTINUING> 88,757
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 88,757
<EPS-BASIC> .21
<EPS-DILUTED> 0
</TABLE>
