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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 June 30, 2000
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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 incorporation or (I.R.S. Employer
organization) Identification No.)
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, 2000, 416,310 shares of common stock of the Registrant were
outstanding.
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INDEX
RESOURCE CAPITAL GROUP, INC.
Part I. Financial Information
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C> <C>
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheet - June 30, 3
2000 and December 31, 1999
Consolidated Statement of Operations - For the Three 4
Months and Six Months Ended June 30, 2000 and 1999
Consolidated Statement of Cash Flows - For the 5
Six Months Ended June 30, 2000 and 1999
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis or 8
Plan of Operation
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 10
</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
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
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(unaudited)
<S> <C> <C>
Cash and cash equivalents $ 805,860 $ 593,863
Real and personal property, at cost (Note 4)
Land 3,722,895 3,721,554
Buildings and improvements 8,640,560 8,404,536
Furniture and equipment 507,467 472,255
Construction in progress 121,994 37,493
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12,992,916 12,635,838
Less accumulated depreciation (741,869) (583,918)
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12,251,047 12,051,920
Deferred tax asset 66,347 19,720
Deferred charges - net of accumulated amortization 214,926 223,339
Other assets 252,908 150,831
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$ 13,591,088 $ 13,039,673
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable $ 81,876 $ 86,440
Accrued expenses
Interest 50,455 52,716
Payroll -- 122,418
Professional fees 10,500 26,000
Property taxes 68,587 --
Income taxes -- 145,919
Other 750 18,070
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130,292 365,123
Security deposits and other 145,567 135,493
Mortgages payable (Note 5) 8,497,371 7,622,998
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Total Liabilities 8,855,106 8,210,054
Stockholders' equity
Common stock - authorized 1,000,000 shares
$.01 par value per share, issued 520,970 shares 5,210 5,210
Additional paid-in capital 4,636,260 4,636,260
Retained earnings 290,114 380,626
Treasury stock, at cost, 104,660 shares (195,602) (192,477)
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Total Stockholders' Equity 4,735,982 4,829,619
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$ 13,591,088 $ 13,039,673
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</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 Six Months Ended
June 30, June 30,
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2000 1999 2000 1999
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Income
Rental operations $ 505,857 $ 372,024 $ 1,002,365 $ 746,318
Interest - affiliated entity -- 111,637 -- 120,360
Equity in earnings of
unconsolidated partnerships -- 98,427 -- 179,929
Management fees - affiliated entity -- 1,644 -- 7,206
Interest - investments 12,365 22,526 21,095 43,823
Gain on sale of marketable equity securities -- -- -- 158
Other income 4,411 1,142 24,884 2,506
--------- --------- ----------- -----------
Total Income 522,633 607,400 1,048,344 1,100,300
--------- --------- ----------- -----------
Expenses
Rental operations 148,155 106,012 282,817 210,272
General and administrative 188,279 174,563 381,205 366,748
Interest 165,825 119,774 325,795 238,159
Depreciation and amortization 107,960 58,112 193,596 115,379
--------- --------- ----------- -----------
Total Expenses 610,219 458,461 1,183,413 930,558
Income (loss) before income taxes (87,586) 148,939 (135,069) 169,742
(Provision for) benefit of income taxes 29,779 (50,639) 44,557 (57,712)
--------- --------- ----------- -----------
Net income (loss) $ (57,807) $ 98,300 $ (90,512) $ 112,030
========= ========= =========== ===========
Basic earnings (loss) per share $ (0.14) $ 0.24 $ (0.22) $ 0.27
========= ========= =========== ===========
Weighted average shares outstanding 416,310 417,301 416,521 413,726
========= ========= =========== ===========
</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>
Six Months Ended
June 30,
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2000 1999
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<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ (90,512) $ 112,030
Adjustments to reconcile net income (loss) to net
cash (used) by operating activities
Depreciation and amortization 193,596 115,379
Equity in earnings of unconsolidated partnerships -- (179,929)
Provision for deferred income taxes -- (285,544)
Gain on sale of marketable equity securities -- (158)
Issuance of stock warrants -- 16,528
Changes in certain other accounts
Deferred charges and other assets (148,704) 68,524
Accounts payable (4,564) 13,017
Accrued expenses (234,831) 40,517
Security deposits and other 10,074 4,914
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Net cash (used) by Operating activities (274,941) (94,722)
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Cash flows from investing activities
Additions to real and personal property (272,577) (177,419)
Construction in progress costs (84,501) (568,128)
Proceeds from mortgage note receivable -- 325,554
Repayments from affiliated entity, net -- 1,014,000
Receipt from sale of marketable securities -- 17,784
Deposit on property purchase -- (75,000)
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Net cash provided (used) by investing activities (357,078) 536,791
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Cash flows from financing activities
Dividends paid (417,301)
Exercise of stock warrants 12,362
Payments on mortgage payable (1,278,670) --
Proceeds of mortgages and notes payable 2,242,060 557,940
Mortgage amortization payments (89,017) (73,213)
Purchase of treasury stock (3,125) --
Deferred mortgage costs (27,232) (31,336)
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Net cash provided by financing activities 844,016 48,452
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Net increase in cash and cash equivalents 211,997 490,521
Cash and cash equivalents at beginning of period 593,863 2,212,570
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Cash and cash equivalents at end of period $ 805,860 $ 2,703,091
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Supplemental disclosures of cash flow information
Cash paid during the period for interest $ 328,056 $ 227,655
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Cash paid during the period for income taxes $ 221,880 $ 270,008
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</TABLE>
See notes to consolidated financial statements
5
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RESOURCE CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(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, 2000, are not necessarily indicative of the results that
may be expected for the year ending December 31, 2000. For further information,
refer to the financial statements and footnotes thereto included in the
Company's annual report on Form 10-KSB for the year ended December 31, 1999.
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 I, LLC (Woodstock); 920 Holcomb Bridge, LLC (Holcomb); RCGI
Montclair I, LLC (Montclair); RCGI Oakmont, LLC, (Oakmont); RCGI Millwood, LLC
(Millwood); RCGI Old Canton,LLC (Old Canton); Wilton Center, LLC, (Wilton) 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 Earnings (loss) per share
Basic earnings (loss) per share of common stock is computed by dividing net
earnings (loss) by the weighted average number of shares outstanding during the
period. The diluted earnings (loss) per share for each period presented were
the same as the basic earnings (loss) per share.
Note 4 Construction of an office complex
During 1999, the Company acquired its Wilton Center property for the purpose of
constructing an office complex. As of June 30, 2000, work in the amount of
$121,994 has been completed on this project and is included as a part of
construction in progress in the accompanying financial statements.
Note 5 Mortgages and notes payable
On June 23, 2000 the Company closed a mortgage note in the amount of $1,350,000
secured by the Colonial property. The note bears interest at 10% per annum and
matures on June 23, 2005. The terms of the note require that monthly payments
of $13,158 be applied first to interest and the balance to reduction of
principal. Proceeds of the loan were used to repay the existing first mortgage
on the property in the amount of $728,670.
In March, 2000, the Company closed a ninety day bank note in the amount of
$550,000 secured by the Wilton Center property in order to partially finance
its acquisition costs. The note was repaid in June 2000 and required interest
only monthly payments at the lender's base rate plus l%, which was 10.5% at
maturity.
In addition, in January 2000 the remaining $342,060 in mortgage proceeds were
drawn under the Heide credit facility. The $900,000 mortgage requires interest
only monthly payments through March 2000 at the lender's base rate plus 1%.
Commencing in April 2000 the note bears interest at 9.38% per annum until
maturity in March 2004. The terms of the note require that monthly payments of
$8,319 be applied first to interest and the balance to reduction of principal.
7
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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 plus 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, 2000, the Company had cash reserves of $805,860. Management
believes 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.
Based on 2000 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.
For the six months ended June 30, 2000 the Company utilized $274,941 in cash
from operating activities, principally from the reduction in accrued expenses.
The Company generated $844,016 in cash from financing activities, principally
from the net proceeds of mortgages payable. The Company utilized $357,078 in
cash from investing activities, principally from the additions to real and
personal property. These activities resulted in an overall net increase in cash
of $211,997 for the six months ended June 30, 2000.
Results of Operations
For the three months ended June 30, 2000 the Company realized a net loss of
$57,807 compared to net income of $98,300 for the same period in 1999. For the
six months ended June 30, 2000 the Company realized a net loss of $90,512
compared to net income of $112,030 for the same period in 1999.
These figures reflect a decrease in net income of $156,107 for the three month
period ending June 30, 2000 and $202,542 for the six month period ending June
30, 2000 when compared to the same periods in 1999. This decline was caused
primarily by the loss in revenues associated with the Company's final
transition from apartment type partnership and mortgage investments with
affiliated entities to constructing, owning, and operating specialized office
buildings. Revenues from these affiliated entities dropped by $211,708 and
$307,495 for the latest quarter and 6 month periods respectively when compared
to 1999 results for the same periods. These
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decreases resulted from the transitioning of the Company's assets from income
producing partnership and mortgage holdings into the acquisition of development
land and office construction and reconstruction projects that will not begin
producing revenues until construction is completed and the properties are
leased up.
These decreases, however, were partially offset by increases in rental revenues
of $133,833 and $256,047 respectively for the second quarter and six month
periods ending June 30, 2000 when compared to the same periods of 1999. These
increases were due primarily to the acquisitions of Old Canton and Millwood and
substantial completion of the construction and lease up of Colonial Park II
(Heide) at the end of 1999.
The net result of the increase in rental income and the decrease in income from
affiliates was that total revenue only slightly decreased for the six months
ended June 30,2000($1,048,344 versus $1,100,300) when compared to the same
period in 1999.
The increase in rental income however was accompanied by an increase in rental
operating expenses, interest and depreciation and amortization expenses. Total
expenses for the three months ended June 30, 2000 were $610,219 compared to
$458,461 for the same period in 1999. This increase in expenses was the result,
in part, of the November 1999 Old Canton and Millwood acquisitions and the
substantial completion of the Heide development in 1999. Rental operating
expenses increased by $42,143, interest expense increased by $46,051 and
depreciation and amortization expense increased by $49,848 primarily as a
result of these additions. In addition, unamortized loan costs on the Colonial
mortgage in the amount of $26,550 were amortized in June 2000 when the mortgage
was repaid.
Total expenses for the six months ended June 30, 2000 were $1,183,413 versus
$930,558 for the same period in 1999. This increase in expenses is also
attributable, in part, to the November 1999 acquisitions of Old Canton and
Millwood, the substantial completion of the Heide development in 1999 and the
amortization of the remaining loan costs in the amount of $26,550 on the
Colonial mortgage that was repaid in June 2000. Rental operating expenses
increased by $72,545, interest expense increased by $87,636 and depreciation
and amortization expense increased by $78,217 when compared to the same period
in 1999.
General and administrative expenses for the three months ended June 30, 2000 of
$188,279 increased $13,716 from the same period last year. This increase in
expenses is attributable to increased wages and professional fees. For the six
months ended June 30, 2000 general and administrative expenses increased
$14,457 from the corresponding period in 1999 for the same reason.
Inflation
Inflation in the future may increase rental revenues as well as operating
expenses, all in accordance with general market trends.
9
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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
10
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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
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Albert G. Schmerge III
President, CEO and
Chairman of the Board
Date: August 14, 2000
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