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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 1999
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period _________ to _________
Commission file number 0-20272
RESOURCE CAPITAL GROUP, INC.
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(Name of Small Business Issuer in its Charter)
DELAWARE 13-3617377
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or 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
Securities registered under Section 12(b) of the Exchange Act:
None
----
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.01 per share
--------------------------------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 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.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year.
$2,068,605
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of December 31, 1999.
Not applicable
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes of
common equity, as of December 31, 1999.
Common stock, par value $.01 per share 416,935 shares
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TABLE OF CONTENTS
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PART I PAGE
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Item 1. Description of Business 1
Item 2. Description of Properties 2
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of 7
Security Holders
PART II
Item 5. Market for Common Equity and Related 7
Stockholder Matters
Item 6. Management's Discussion and Analysis or 8
Plan of Operation
Item 7. Financial Statements 9
Item 8. Changes in and Disagreements with 9
Accountants on Accounting and
Financial Disclosure
PART III
Item 9. Directors, Executive Officers, Promoters 9
and Control Persons; Compliance with
Section 16(a) of the Exchange Act
Item 10. Executive Compensation 11
Item 11. Security Ownership of Certain Beneficial 12
Owners and Management
Item 12. Certain Relationships and Related 12
Transactions
PART IV
Item 13. Exhibits and Reports on Form 8-K 13
Signatures 15
</TABLE>
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Part I
ITEM 1. DESCRIPTION OF BUSINESS
General
Resource Capital Group, Inc. (the Company), was organized as a
Delaware Corporation in November, 1990 to become successor in interest to AGS
Properties (AGS) and assumed various general and limited partnership interest of
AGS. From 1991 through 1999, the Company gradually disposed of all of the
mortgage receivables and the partnership interests acquired from AGS. From 1995
to 1999, the Company made real estate investments resulting in the ownership and
operation of various office buildings. During 1999, the Company's remaining two
partnership investments (acquired from AGS in 1991), were liquidated (see note
3 to the Consolidated Financial Statements included under Item 7).
The Company's investments as of December 31, 1999 include the
following:
8050 ROSWELL ASSOCIATES LLC (8050 ROSWELL), a Georgia Limited Liability
Company formed in 1995 and owns a 9,000 square foot office building in
Fulton County, Georgia.
419 CROSSVILLE ASSOCIATES LLC (CROSSVILLE), a Georgia Limited Liability
Company formed in 1995 and owns a 19,000 square foot office building in
Fulton County, Georgia.
COLONIAL PARK COMMONS LLC (COLONIAL), a Georgia Limited Liability
Company formed in 1996 and owns a 18,387 square foot office building in
Fulton County, Georgia.
HEIDE LOT LLC (HEIDE), a Georgia Limited Liability Company formed in
1996 and owns a 10,400 square foot office building, which was
constructed in 1999, in Fulton County, Georgia.
8046 ROSWELL ROAD LLC (8046 ROSWELL), a Georgia Limited Liability
Company formed in 1997 and owns an 8,000 square foot office building in
Fulton County, Georgia.
WOODSTOCK OFFICE I, LLC (WOODSTOCK), a Georgia Limited Liability
Company formed in 1997 and owns a 11,250 square foot office building in
Cherokee County, Georgia.
HUNTER MANAGEMENT COMPANY (HUNTER), acquired in 1997 and owns the
minority interest in various subsidiaries of the Company. Additionally,
Hunter manages the properties owned by the Company's subsidiaries.
920 HOLCOMB BRIDGE LLC (HOLCOMB BRIDGE), a Georgia Limited Liability
Company formed in 1998 and owns a 14,400 square foot office building in
Fulton County, Georgia.
RCGI OAKMONT LLC (OAKMONT), a Georgia Limited Liability Company formed
in 1998 and owns a 20,000 square foot office building in Jefferson
County, Alabama.
RCGI MONTCLAIR I, LLC (MONTCLAIR), a Georgia Limited Liability Company
formed in 1998 and owns a 22,248 square foot office building in
Jefferson County, Alabama.
RCGI MILLWOOD, LLC (MILLWOOD), a Georgia Limited Liability Company
formed in 1999 and owns an 8,886 square foot office building in Cobb
County, Georgia.
RCGI OLD CANTON, LLC (OLD CANTON), a Georgia Limited Liability Company
formed in 1999 and owns an 11,804 square foot office building in Cobb
County, Georgia.
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WILTON CENTER, LLC (WILTON), a Georgia Limited Liability Company formed
in 1999 and owns approximately 2.9 acres of unimproved land in Fulton
County, Georgia.
The Company is actively seeking new real estate acquisitions and
investments. Although the Company is currently in negotiations it is not
committed to make any other real property acquisitions. However, the Company is
evaluating various potential property acquisitions and is engaging in
discussions with sellers regarding the purchase of properties for the Company.
Purchase agreements are subject to various terms and conditions, including
receipt of satisfactory closing documentation. There can be no assurance that
all of the terms and conditions of any agreement will be satisfied and therefore
it is possible that certain investments will not be acquired.
In addition, the Company also plans to construct four office buildings
containing approximately 45,000 square feet on a 2.9 acre parcel which it owns
in Fulton County, Georgia. The Company is not contractually obligated to
construct the buildings.
Other Business Factors
The business of the Company is not seasonal and the Company does no foreign or
export business.
Personnel
As of December 31, 1999, the Company had nine employees. The Company
has contracted with ADP Total Source (ADP) to provide professional employer and
administrative services to the Company. ADP is the employer of record for tax
reporting purposes and provides various benefits to the employees including
life, medical, dental and vision insurance coverage, worker's compensation
insurance coverage and other services. One of the Company's staff is employed on
a part-time basis. The employees are not represented by a collective bargaining
unit.
Offices
The Company's headquarters are located at 419 Crossville Road, Suite
204, Roswell, Georgia 30075 where the Company leases approximately 1,300 square
feet of space from Crossville.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company's office is located at 419 Crossville Road, Suite 204,
Roswell, Georgia, 30075 where the Company leases approximately 1,300 square feet
of space from Crossville.
In August, 1999, the Company completed construction of Colonial Park
II, a 10,400 square foot office building located in Roswell, Fulton County,
Georgia. Title to the property was acquired in 1996 by Heide Lot, LLC (Heide)
which is owned 99% by the Company and 1% by Hunter. Heide leases office space to
various tenants at rates ranging from $17 to $18 per square foot and terms
ranging from 3 to 5 years. At December 31, 1999 the property was 88% occupied
with 1999 rental revenue since the building was constructed of $55,933. The
gross potential rent for the building based on December 1999 rents is $181,500
annually. The 1999 real estate taxes on this property totaled $2,630.
In November 1999, the Company purchased Millwood which is an 8,886
square foot office building located in Marietta, Cobb County, Georgia. Title to
Millwood is held by RCGI Millwood, LLC, which is 100% owned by the Company.
Millwood leases office space to various tenants at
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rates ranging from $12 to $18 per square foot and terms ranging from 2 to 5
years. At December 31, 1999, the property was 100% occupied with 1999 rental
revenue since acquisition of $13,937. The gross potential rent for the building
based on December 1999 rents is $131,803 annually. The 1999 real estate taxes on
this property totaled $7,088.
In November 1999, the Company purchased Old Canton which is an 11,804
square foot office building located in Marietta, Cobb County, Georgia. Title to
Old Canton is held by RCGI Old Canton, LLC, which is 100% owned by the Company.
Old Canton leases office space to various tenants at rates ranging from $13 to
$16 per square foot and terms ranging from 1 to 5 years. At December 31, 1999,
the property was 100% occupied with 1999 rental revenue since acquisition of
$16,726. The gross potential rent for the building based on December 1999 rents
is $158,028 annually. The 1999 real estate taxes on this property totaled
$8,871.
In December 1999, the Company purchased Wilton. Title to Wilton is held
by Wilton Center, LLC, which is 100% owned by the Company. Wilton owns
approximately 2.9 acres of developmental land located in Roswell, Fulton County,
Georgia. The 1999 real estate taxes on this land totaled $10,778.
In February 1998 the Company purchased 920 Holcomb Bridge. Title to
Holcomb Bridge is held by 920 Holcomb Bridge, LLC, which is 100% owned by the
Company. Holcomb Bridge owns a 14,400 square foot office building located in
Roswell, Fulton County, Georgia. Holcomb Bridge leases office space to various
tenants at rates ranging from $16 to $18 per square foot and terms ranging from
1 to 5 years. At December 31, 1999 the property was 88% occupied with 1999
rental revenue of $226,839. The gross potential rent for the building based on
December 1999 rents is $246,906 annually. The 1999 real estate taxes on this
property totaled $19,769.
In July 1998 the Company purchased Oakmont. Title to Oakmont is held by
RCGI Oakmont, LLC, which is 100% owned by the Company. RCGI Oakmont owns a
20,000 square foot office building located in Birmingham, Jefferson County,
Alabama. Oakmont leases office space to various tenants at rates ranging from
$11 to $14 per square foot and terms ranging from 1 to 5 years. At December 31,
1999 the property was 95% occupied with 1999 rental revenue of $211,233. The
gross potential rent for the building based on December 1999 rents is $218,532
annually. The 1999 real estate taxes on this property totaled $14,001.
In July 1998 the Company purchased Montclair. Title to Montclair is
held by RCGI Montclair I, LLC, which is 100% owned by the Company. RCGI
Montclair owns a 22,248 square foot office building located in Birmingham,
Jefferson County, Alabama. Montclair leases office space to various tenants at
rates ranging from $10 to $16 per square foot and terms ranging from 1 to 3
years. At December 31, 1999 the property was 91% occupied with 1999 rental
revenue of $227,639. The gross potential rent for the building based on December
1999 rents is $255,426 annually. The 1999 real estate taxes on this property
totaled $21,579.
In June 1997 the Company purchased Woodstock. Title to Woodstock is
held by Woodstock Office I, LLC, which is 100% owned by the Company. Woodstock
owns an 11,250 square foot office building located in Woodstock, Cherokee
County, Georgia. Woodstock leases office space to various tenants at rates
ranging from $12 to $15 per square foot and terms ranging from 1 to 3 years. At
December 31, 1999 the property was 100% occupied with 1999 rental revenue of
$149,515. The gross potential rent for the building based on December 1999 rents
is $154,513 annually. The 1999 real estate taxes on this property totaled
$10,686.
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In June 1997 the Company purchased 8046 Roswell. 8046 Roswell owns an
8,000 square foot office building located in Atlanta, Fulton County, Georgia.
Title to 8046 Roswell is held by 8046 Roswell Road, LLC, which is 100% owned by
the Company. 8046 Roswell leases office space to various tenants at rates
ranging from $15 to $17 per square foot and terms ranging from 1 to 5 years. At
December 31, 1999 the property was 100% occupied with 1999 rental revenue of
$124,457. The gross potential rent for the building based on December 1999 rents
is $125,465 annually. The 1999 real estate taxes on this property totaled
$10,149.
In September 1997 the Company acquired all of the outstanding shares of
stock in Hunter in exchange for 10,000 shares of the Company's common stock.
Hunter owns the minority interest in 8050 Roswell, Crossville, Colonial and
Heide and manages various properties owned by the Company's subsidiaries.
Hunter's office is located at 419 Crossville Road, Suite 203, Roswell Georgia
30075 where it leases approximately 1,200 square feet of space from Crossville.
In September 1996, the Company and Hunter purchased Colonial. Title to
Colonial is held by Colonial Park Commons, LLC, which is 99% owned by the
Company and 1% by Hunter. Colonial owns an 18,387 square foot office building
located in Roswell, Fulton County, Georgia. Colonial leases office space to
various tenants at rates ranging from $12 to $16 per square foot and terms
ranging from 1 to 3 years. At December 31, 1999 the property was 100% occupied
with 1999 rental revenue of $215,776. The gross potential rent for the building
based on December 1999 rents is $256,870 annually. The 1999 real estate taxes on
this property totaled $16,623.
In 1995, the Company and Hunter purchased 8050 Roswell. Title to 8050
Roswell is held by 8050 Roswell Associates, LLC, which is 75% owned by the
Company and 25% by Hunter. 8050 Roswell owns a 9,000 square foot office building
located in Atlanta, Fulton County, Georgia. Roswell entered into a five-year
lease of the entire building to a single tenant for $88,500 annually with the
tenant being responsible for all electricity and fuel bills. The 1999 real
estate taxes on this property totaled $7,726.
In 1995, the Company and Hunter purchased Crossville. Title to 419
Crossville is held by 419 Crossville Associates, LLC, which is 75% owned by the
Company and 25% by Hunter. Crossville owns a 19,000 square foot office building
located in Roswell, Fulton County, Georgia. Crossville leases office space to
various tenants at rates ranging from $13 to $16 per square foot and terms
ranging from 1 years to 3 years. At December 31, 1999 the property was 100%
occupied with 1999 rental revenue of $283,286. Of this amount, $36,220 was paid
to Crossville by the Company and Hunter and was eliminated from rental revenue
upon consolidation. The gross potential rent for the building, if based on
December 1999 rents is $291,685 annually. The 1999 real estate taxes on this
property totaled $16,986.
The Company has obtained adequate insurance coverage for all properties
acquired.
Mortgages Payable
The mortgages payable by the Company secured by the properties
mentioned above as of December 31, 1999 consists of the following:
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8050 Roswell - The mortgage payable bears interest
at 9.53% per annum and matures in July 2010
The terms of the mortgage require that monthly
payments of $3,766 be applied first to interest
and the balance to reduction of principal. Interest
on this loan adjusts every five years commencing
on July 1, 2000 and is computed at 325 basis
points over the average yield on U.S. Treasury
securities, as defined. $ 300,866
Crossville - The mortgage payable bears interest at
7.75% per annum and matures in February 2008
The terms of the mortgage require that monthly
payments of $8,693 be applied first to interest
with the balance to reduction of principal. 1,062,570
Colonial - The mortgage payable bears interest at
9.375% per annum and matures in October 2006
The terms of the mortgage require that monthly
payments of $7,276 be applied first to interest
with the balance to reduction of principal
Interest on this loan adjusts on October 1, 2001
and is computed at 300 basis points over the average
yield on U.S. Treasury securities, as defined. 737,918
8046 Roswell - The mortgage payable bears interest
at 8.00% per annum and matures in June 1, 2009
The terms of the mortgage require that monthly
payments of $5,175 be applied first to interest with
the balance to reduction of principal. Interest
on this loan adjusts on June 1, 2002 and is computed
at 300 basis points over the average yield on U.S.
Treasury securities, as defined. 409,943
Woodstock - The mortgage payable bears interest
at 9.31% per annum and matures in December 2017
The terms of the mortgage require that monthly
payments of $5,243 be applied first to interest with
the balance to reduction of principal. Interest
on this loan adjusts every five years, commencing
on December 1, 2002 and is computed at 300 basis
points over the average yield on U.S. Treasury
securities, as defined. 550,090
Holcomb Bridge - The mortgage payable bears interest
at 8.5% per annum and matures in March 2018
The terms of the mortgage require that monthly
payments of $8,418 be applied first to interest with
the balance to reduction of principal. Interest
on this loan adjusts every five years, commencing
on March 1, 2003 and is computed at 275 basis
points over the average yield on U.S.
Treasury securities, as defined. The mortgage may
be called by the lender in March 2003. 935,445
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<TABLE>
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Montclair - The mortgage payable bears interest
at 7.14% per annum and matures in January 2019
Commencing in February 1999, the terms of the
mortgage require that monthly payments of $7,367
be applied first to interest with the balance
to reduction of principal. Interest on this
loan adjusts every five years, commencing
on January 1, 2004 and is computed at 275 basis
points over the average yield on U.S.
Treasury securities, as defined. The mortgage
may be called by the lender in January 2004. 919,727
Oakmont - The mortgage payable bears interest
at 7.14% per annum and matures in January 2019
Commencing in February 1999, the terms of the
mortgage require that monthly payments of $6,348
be applied first to interest with the balance
to reduction of principal. Interest on this
loan adjusts every five years, commencing
on January 1, 2004 and is computed at 275 basis
points over the average yield on U.S.
Treasury securities, as defined. The mortgage
may be called by the lender in January 2004. 792,531
Heide - Under the terms of the mortgage, the
Company may borrow up to the principal sum of
$900,000. The mortgage matures in March 2004
and requires interest only monthly payments through
March 2000 at the lender's base rate plus 1%,
which is currently at 9.5%. Commencing in
April 2000 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 with a floor of 8%
As of January 13, 2000, the full amount has been
drawn under this facility. 557,940
Millwood - The mortgage payable bears interest
at 7.54% per annum and matures in September 2008
The terms of the mortgage require that monthly
payments of $4,071 be applied first to interest
with the balance to reduction of principal
In addition, the mortgage payable requires
monthly escrow deposits, which currently amount to
$1,860, to be made to the mortgagee for the payment
of real estate taxes, insurance, lease reserves
and replacement reserves. 574,060
Old Canton - The mortgage payable bears interest
at 7.54% per annum and matures in September 2008
The terms of the mortgage require that monthly
payments of $5,545 be applied first to interest
with the balance to reduction of principal
In addition, the mortgage payable requires
monthly escrow deposits, which currently amount to
$3,421, to be made to the mortgagee for the payment
of real estate taxes, insurance, lease reserves
and replacement reserves. 781,908
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$7,622,998
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A schedule of future amortization payments including the full $900,000 mortgage
payable as of January 13, 2000 in Heide, at December 31, 1999 follows:
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2000 $ 189,789
2001 210,922
2002 229,129
2003 248,928
2004 1,080,703
Thereafter 6,005,587
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$7,965,058
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A majority of the mortgage notes payable have been guaranteed by the Company.
The above table excludes the callable provisions in Holcomb Bridge (2003),
Montclair (2004) and Oakmont (2004).
ITEM 3. LEGAL PROCEEDINGS
The Company is not aware of any material pending or threatened legal
proceedings against the Company or its officers and directors.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
1999.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On September 1, 1991 the Common Stock originally issued to the public,
was valued at $10 per share (denominated value). Although the Company
anticipates that it will request listing as soon as permissible and practicable,
the Company shares are not currently traded on the NASDAQ Over-the-Counter
Market.
As of December 31, 1999, there were 677 record holders of the Company's
Common Stock and 416,935 shares outstanding. At December 31, 1999, there was no
established broker-dealer price quotation for the Company's Common Stock. There
are currently no market makers for the Company's Common Stock.
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ITEM 6. 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 December 31, 1999, the Company had cash reserves of $593,863. 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.
In April 1999, MLP sold the Aspen Walk Apartments for $2,675,000. As a
result, 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.
In November 1999, the Company formed Millwood and Old Canton with
capital contributions of $229,848 and $320,732, respectively. Millwood and Old
Canton acquired 8,886 and 11,804, respectively, square foot office buildings
located in Cobb County, Georgia for $786,021 and $1,062,538, respectively. In
connection with the purchase, Millwood and Old Canton assumed a mortgage payable
in the amount of $574,521 and $782,538, respectively.
In December 1999, the Company formed Wilton with a $1,178,826 capital
contribution. Wilton acquired approximately 2.9 acres of unimproved land in
Fulton County, Georgia for $1,125,000. It is the intention of management to use
this property to construct four office buildings containing approximately 45,000
square feet. As of December 31, 1999, the Company has incurred $37,493 of costs
associated with this construction and is included in construction-in-progress in
the accompanying financial statements.
In August 1999, Heide completed the construction of a 10,400 square
foot office building. The total cost of the construction was $930,622 of which
$837,578 was incurred in 1999 and $93,044 was incurred in 1998. In order to fund
the construction of the office building, Heide obtained a mortgage payable
whereby Heide may borrow up to $900,000. As of December 31, 1999, Heide had
drawn $557,940 under this facility.
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.
In 1999, the Company utilized $89,392 in cash for operations and
$78,347 in cash from financing activities including mortgage proceeds of
$557,940 and the payment of a $417,301 dividend to the stockholders. During
1999, the Company utilized $1,450,968 in cash for investing activities which
included $1,658,158 used for investment in subsidiaries and $1,341,553 used for
property additions. These amounts were partially offset by $1,530,960 in
proceeds received from partnership investments. As a result, the Company
utilized cash of $1,618,707 for the year.
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Results of Operations
For the year ended December 31, 1999, the Company realized net income
of $21,068 compared to net income of $368,235 in 1998. Total revenue in 1999 was
$2,068,605 versus $2,287,418 in 1998. This decrease in revenue was primarily due
to the relatively low rate of return the Company had on its money market
investments versus the interest received on the notes receivable from affiliated
entity.
Total expenses for the year ended December 31, 1999 were $1,979,796
compared to $1,629,092 in 1998. The increase in expenses was the result, in part
of the July 1998 acquisitions of Oakmont and Montclair, the 1999 acquisitions of
Millwood and Old Canton and the resulting increase in rental operating expenses,
interest and depreciation expense associated with these properties.
General and administrative expenses of $745,802 increased $4,556 over
the 1998 level. This increase is considered immaterial.
Depreciation and amortization of $265,035 increased $61,615 from 1998
primarily due to the 1998 and 1999 acquisitions mentioned above.
Interest expense increased $147,122 in 1999 due to the mortgages
obtained on the 1998 and 1999 acquisitions mentioned above.
Inflation
Inflation in the future may increase rental revenues as well as
operating expenses, all in accordance with general market trends.
ITEM 7. FINANCIAL STATEMENTS
See Index to Consolidated Financial Statements on Page F-1 of Item 7 of
Form 10-KSB for financial statements.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no changes in or reported disagreements with the
accountants on any matter of accounting principles, practices or financial
statement disclosure.
Part III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
The principal officers and directors of the Company are:
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Name Age Office
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<S> <C> <C>
Albert G. Schmerge, III 55 Chairman of the Board,
Chief Executive Officer,
President and Director
Norman F. Swanton 61 Secretary and Director
Martin D. Newman 61 Director
Rodney Knowles, III 54 Director
</TABLE>
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All Directors are elected to three year terms.
Albert G. Schmerge III
Prior to the formation of the Company, Mr. Schmerge was the sole
general partner and Chief Executive Officer of AGS Properties. Mr. Schmerge
began specializing in real estate investments and acquisitions in 1970. He
combined several family owned and related businesses and co-founded AGS
Properties in 1974 which operated in the acquisition, management and operation
of many large real estate properties, primarily apartments, located throughout
the United States. In addition, his experience includes syndication, mortgage
financing and refinancing, construction, operations/management and purchase and
sales of income and investment properties.
Mr. Schmerge earned a Bachelor of Science degree from Villanova
University, and a Masters of Business Administration from Iona Graduate School
of Business. After several years in the electronics and satellite industry he
entered the financial planning and real estate investment business with his
father in 1968.
Mr. Schmerge has been the President and CEO of the Company since 1991.
Just prior to the formation of the Company, he was a general partner of AGS
Properties, a well known and highly respected real estate owner/operator and had
acted as the general partner as it grew in the 1970's and 1980's to participate
and control more than 70 real estate partnerships and entities over the years.
In his capacity as General Partner he was responsible for the acquisition,
formation, financial structuring, financing and sale of several hundred million
dollars worth of real estate, primarily suburban apartment developments and
suburban office properties.
Norman F. Swanton
Mr. Swanton currently serves as Chairman of the Board and Chief
Executive Officer of Warren Resources, Inc. which engages in the acquisition and
development of existing oil properties. From 1989 to 1992, Mr. Swanton also
served as President and Investment Manager of Harbor View Horizons Corp., which
engaged in equity options trading. From October 1986 to June 1989, Mr. Swanton
was also an independent financial advisor managing investment funds for his own
account and outside investors.
Mr. Swanton received a B.A. Degree from Long Island University in 1962
and attended Bernard Baruch Graduate School of Business PH.D. Program in
Accountancy and Finance.
Martin D. Newman
Mr. Newman currently is a partner in the law firm of Fromme, Schwartz,
Newman & Cornicello LLP. His law expertise includes many aspects of real estate,
corporate representation of public and private companies, particularly those
engaged in the ownership, operation and management of real estate and securities
representation of public, private and not-for profit entities generally as
issuer's counsel, in connection with private placements and public offerings,
including such matters arising under the Securities Exchange Act of 1934,
periodic reporting requirements under said Act and other compliance matters.
Previously, Mr. Newman was with the law firms of Ballon, Stoll, Bader and
Nadler, PC and Wien Malkin & Bettex. He was also with the law firm of Chadbourne
& Parke from 1968 to 1977 and a staff attorney with the U.S. Securities and
Exchange Commission from 1963 to 1967. Mr. Newman is currently the principal of
four companies which own and operate over three hundred fifty apartments and
fifty retail stores in New York City.
10
<PAGE> 13
Mr. Newman received a B.A. Degree from the University of Michigan in
1960 and a JD from Harvard Law School in 1963.
Rodney Knowles, III
Mr. Knowles currently is the Chairman and CEO of Alpha-Omega Advisors,
Inc., a private investment advisory company based in Atlanta, Georgia
specializing in publicly traded bank stocks. Mr. Knowles served as Managing
Director of the Atlanta Committee for the Olympic Games in 1996 and was
Chairman, President and CEO of Chattahoochee Bank in Georgia until its
acquisition by BankSouth in 1994. Mr. Knowles brings to the Company over 25
years of experience in the financial services industry.
ITEM 10. EXECUTIVE COMPENSATION
The Company amended the employment agreement effective July 1, 1999 and
extended the term to June 30, 2003 with Albert G. Schmerge III, the Chairman of
the Board, Chief Executive Officer, President and Director of the Company. The
amended agreement calls for an annual base salary of $275,000 plus an annual
bonus equal to 10% of the Company's net income in excess of a 10% return on
shareholder equity. Salaries earned by Mr. Schmerge during 1999 amounted to
$262,500.
Outside Director Compensation
The non-salaried outside directors of the Company, Mr. Norman F.
Swanton, Mr. Martin D. Newman and Mr. Rodney Knowles III receive a stipend of
$750 for each Board of Directors meeting attended. It is anticipated that the
Board will hold four regular meetings each year. The Board appointed an audit
committee and a compensation committee, which is comprised of the Outside
Directors.
In 1997 the Company issued 4,115 common stock purchase warrants to Mr.
Norman F. Swanton and 4,115 common stock purchase warrants to Mr. Martin D.
Newman which was each equal to a 1% capitalization of the Company. In 1999 the
Company issued 4,132 common stock purchase warrants to Mr. Rodney Knowles III
which was equal to a 1% capitalization of the Company. Each warrant allows the
purchase of one share of the Company's common stock at a price of $1 per share.
The warrants were all exercised in 1999.
Officer Compensation
The Company amended the employment agreement effective July 1, 1999 and
extended the term to June 30, 2003 with Albert G. Schmerge III. The amended
agreement calls for an annual base salary of $275,000 plus an annual bonus equal
to 10% of the Company's net income in excess of a 10% return on shareholder
equity.
The employment agreement also provided for Mr. Schmerge to continue to
participate in employee benefit plans consisting of life and medical insurance
plans and to be provided long term disability coverage.
11
<PAGE> 14
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
(a) As of December 31, 1999, two persons owned of record or were known
by the Company to own beneficially more than five percent (5%) of the Common
Stock then outstanding.
(b) The following table sets forth certain information with respect to
the beneficial ownership (determined in accordance with Securities and Exchange
Commission Rule 13d-3 under the Securities Exchange Act of 1934) of the
Company's Common Stock by each person known to the Company to beneficially own
more than 5% of the Company's outstanding Common Stock, by each director of the
Company and by all officers and directors as a group.
<TABLE>
<CAPTION>
Name and Address of Amount of Percent
Beneficial Owner Beneficial Ownership of Class
-------------------- --------
<S> <C> <C>
Albert G. Schmerge III (1) 48,000 11.5126%
Norman F. Swanton (2) 5,615 1.3467%
Cullen Associates (3) 31,808 7.6290%
Schmerge Capital One LLP (4) 3,533 0.8474%
Martin D. Newman (5) 5,128 1.2299%
Rodney Knowles III (6) 4,132 0.9910%
Officers and Directors
as a Group (four people) 62,875 15.0802%
</TABLE>
(FOOTNOTES)
(1) Mr. Schmerge is an Officer and Director of the Company.
(2) Mr. Swanton is an Officer and Director of the Company.
(3) A partnership owned by a trust for the benefit of Albert G. Schmerge
III and his brothers and sisters.
(4) A Partnership owned by the family of Albert G. Schmerge, III, the
Chairman & President of the Company.
(5) Mr. Newman is a Director of the Company.
(6) Mr. Knowles is a Director of the Company.
(c) There are no other arrangements which may at a subsequent date
result in a compensatory change in control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the Notes to Consolidated Financial Statements
contained in this report for various transactions between the Company and its
affiliates.
(a) No management person is indebted to the Company.
(b) There have been no significant transactions with promoters.
12
<PAGE> 15
Part IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1)(2) The consolidated financial statements indicated in Item 7,
"Financial Statements".
An annual report will be sent to the Shareholders subsequent to this
filing and the Company will furnish copies of such report to the Commission at
that time.
(3) Exhibits
The following is a complete list of Exhibits filed as part of the Form
10-KSB Annual Report. Exhibit numbers correspond to the numbers in the Exhibit
Table of Item 601(a) of Regulation S-B, which are incorporated herein:
(2)(a) Second Amended Joint Disclosure Statement with respect to
Plans of Reorganization of AGS Northbrook Associates, AGS
Properties and Related Debtors. *
(b) First Amended Plan of Reorganization of Birchwood Associates
dated February 27, 1991. *
(c) First Amended Plan of Reorganization of AGS Aspen Walk
Associates dated February 27, 1991. *
(d) First Amended Plan of Reorganization of AGS Rolling Hills
Associates dated February 27, 1991 *
(e) First Amended Plan of Reorganization of AGS Jackson Associates
dated February 27, 1991. *
(f) First Amended Plan of Reorganization of AGS Southern Lights
Associates dated February 27, 1991. *
(g) First Amended Plan of Reorganization of AGS Fountain Lake
Associates dated February 27, 1991. *
(h) Confirmation Order dated June 12, 1991 by Chief United States
Bankruptcy Judge Burton Lifland. *
(i) Second Amended Plan of Reorganization of AGS Fountains
Associates dated January, 1992 *
(j) Confirmation Order dated March 10, 1992 by Chief United States
Bankruptcy Judge Burton Lifland. *
(3) Articles of Incorporation and By-laws. *
*The exhibit was previously included with the Form 10 filed in June,
1992.
13
<PAGE> 16
(a) Certificate of Correction to Certificate of Amendment to
Certificate of Incorporation of Resource Capital Group, Inc. *
(4) Form of certificate representing Common Stock of the Issuer. *
(10)(a) Amended and Restated Agreement of Limited Partnership of AGS
Partners MLP, L.P. dated September 1, 1991. *
(b) Stock Option Agreement dated as of July 1, 1991 between
Resource Capital Group, Inc. and Mr. Norman F. Swanton, a
Director of the Company. *
(c) Consulting Agreement dated July 1, 1991, between Resource
Capital Group, Inc. and Norman F. Swanton, a Director of the
Company. *
(d) Employment Agreement, dated as of July 1, 1991 between the
Issuer and Albert G. Schmerge, III, the Issuer's Chairman,
President, Chief Executive Officer and Director. *
(e) Minutes of Board of Directors meeting January 15, 1993. *
(e) Letter Agreement dated August 16, 1993 between Resource
Capital Group, Inc. and Household Commercial Realty, Inc.
including Assignment of Deed of Trust. *
(f) Settlement Agreement dated November 23, 1993 between Resource
Capital Group, Inc. and Eastrich Multiple Investor Fund, L.P.*
(g) Operating agreement dated April 25, 1995 for 8050 Roswell
Associates, LLC a Georgia Limited Liability Company *
(h) Operating agreement dated November 8, 1995 for 419 Crossville
Associates, LLC a Georgia Limited Liability Company. *
(27)(a) Financial Data Schedule (for SEC use only)
(99)(a) Report on Form 8-K filed February 7, 1995 regarding the sale
of Birches and Foxfire Apartments by AGS Partners MLP, L.P. *
(b) Report on Form 8-K originally filed on November 21, 1995 and
amended on January 23,1996 regarding the purchase of a 75%
interest in 419 Crossville Associates, LLC in November, 1995 *
(c) Report on Form 8-K filed May 27, 1997 regarding the sale of
Carriage House and Compass Pointe Apartments. *
(b) REPORTS ON FORM 8-K
None.
*The exhibit was previously included with the Form 10 filed in June,
1992 or the Form 10-KSB filed in 1993 through 1997.
14
<PAGE> 17
SIGNATURES
In accordance with Section 13 or 15 (d) 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.
----------------------------
By:/s/ Albert G. Schmerge III
--------------------------
Albert G. Schmerge III,
Chairman of the Board, Chief
Executive Officer, President
and Director
Date: March 30, 2000
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
----- ----
<S> <C> <C>
/s/Albert G. Schmerge III Chairman of the Board, March 30, 2000
- -------------------------
Albert G. Schmerge III Chief Executive Officer,
President and Director
/s/Norman F. Swanton Secretary-Treasurer March 30, 2000
- -------------------------
Norman F. Swanton and Director
/s/Martin D. Newman Director March 30, 2000
- -------------------------
Martin D. Newman
/s/Rodney Knowles III Director March 30, 2000
- -------------------------
Rodney Knowles III
</TABLE>
15
<PAGE> 18
RESOURCE CAPITAL GROUP, INC.
Consolidated Financial Statements
for year ended
December 31, 1999
<PAGE> 19
Item 7. Consolidated Financial Statements
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditor's Report F-2
Consolidated Balance Sheet F-3
Consolidated Statement of Operations F-4
Consolidated Statement of Stockholders' Equity F-5
Consolidated Statement of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
F-1
<PAGE> 20
Independent Auditor's Report
To the Board of Directors
Resource Capital Group, Inc.
We have audited the accompanying consolidated balance sheet of Resource Capital
Group, Inc. and Subsidiaries as of December 31, 1999, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the two years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Resource Capital
Group, Inc. and Subsidiaries at December 31, 1999, and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.
PANNELL KERR FORSTER PC
New York, NY
February 11, 2000
F-2
<PAGE> 21
RESOURCE CAPITAL GROUP, INC.
Consolidated Balance Sheet
December 31, 1999
Assets
<TABLE>
<S> <C> <C>
Cash (note 2) $ 593,863
Real and personal property, at cost (notes 1, 2, 4 and 5)
Land $ 3,721,554
Buildings and improvements 8,404,536
Furniture and equipment 472,255
Construction in progress 37,493
------------
12,635,838
Less accumulated depreciation (583,918) 12,051,920
------------
Deferred mortgage costs - net of accumulated amortization of
$32,581 (note 2) 223,339
Deferred tax asset (note 7) 19,720
Other assets 150,831
-----------
$13,039,673
-----------
Liabilities and Stockholders' Equity
Liabilities
Accounts payable $ 86,440
Accrued expenses
Interest 52,716
Payroll 122,418
Professional fees 26,000
Income taxes 145,919
Other 18,070 365,123
------------
Security deposits and other 135,493
Mortgages payable (note 5) 7,622,998
-----------
Total liabilities 8,210,054
Commitments and contingencies (notes 5 and 8)
Stockholders' equity (note 6)
Common stock - $.01 par value per share, authorized
1,000,000 shares, issued 520,970 shares 5,210
Additional paid-in capital 4,636,260
Retained earnings 380,626
Treasury stock, at cost (192,477) 4,829,619
------------ -----------
$13,039,673
-----------
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE> 22
RESOURCE CAPITAL GROUP, INC.
Consolidated Statement of Operations
<TABLE>
<CAPTION>
Year Ended
December 31
-------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Income
Rental operations (notes 1, 4 and 8) $ 1,577,621 $ 1,147,183
Income from partnership investments - net (note 3) 257,189 543,310
Management fees - affiliated entity (note 8) 7,206 84,188
Interest - affiliated entity (note 3) 120,360 379,987
Gain on sale of real property (note 4) -- 60,872
Interest and other income 106,229 71,878
----------- -----------
Total income 2,068,605 2,287,418
----------- -----------
Expenses
Rental operations (notes 1 and 4) 464,044 326,633
General and administrative 745,802 741,246
Interest (note 5) 504,915 357,793
Depreciation and amortization (note 2) 265,035 203,420
----------- -----------
Total expenses 1,979,796 1,629,092
----------- -----------
Income before provision for income taxes 88,809 658,326
Provision for income taxes (note 7) 67,741 290,091
----------- -----------
Net income $ 21,068 $ 368,235
----------- -----------
Earnings per share (note 2)
Basic earnings per share $ .05 $ .89
----------- -----------
Dilutive earnings per share $ .05 $ .88
----------- -----------
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE> 23
RESOURCE CAPITAL GROUP, INC.
Consolidated Statement of Stockholders' Equity
For Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Unrealized
Additional Gain Total
Common Paid-in Retained (Loss) on Treasury Stockholders'
Stock Capital Earnings Investment Stock Equity
------ ---------- --------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $5,086 $4,607,494 $ 408,624 $ 4,437 $(131,712) $4,893,929
Net income for year ended December 31, 1998 -- -- 368,235 -- -- 368,235
Treasury stock acquired (note 6) -- -- -- -- (58,935) (58,935)
Change in unrealized gain on investment -- -- -- (2,428) -- (2,428)
------ ---------- --------- --------- --------- ----------
Balance, December 31, 1998 5,086 4,607,494 776,859 2,009 (190,647) 5,200,801
Net income for year ended December 31, 1999 -- -- 21,068 -- -- 21,068
Issuance of warrants (note 6) -- 16,528 -- -- -- 16,528
Exercise of warrants (note 6) 124 12,238 -- -- -- 12,362
Treasury stock acquired (note 6) -- -- -- -- (1,830) (1,830)
Dividends paid (note 6) -- -- (417,301) -- -- (417,301)
Change in unrealized gain on investment -- -- -- (2,009) -- (2,009)
------ ---------- --------- --------- --------- ----------
Balance, December 31, 1999 $5,210 $4,636,260 $ 380,626 $ -- $(192,477) $4,829,619
------ ---------- --------- --------- --------- ----------
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE> 24
RESOURCE CAPITAL GROUP, INC.
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Year Ended
December 31
---------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 21,068 $ 368,235
Adjustments to reconcile net income to net cash provided
(used) by operating activities
Depreciation and amortization 265,035 203,420
Income from partnership investments - net (178,427) (372,883)
Provision for deferred income taxes (285,544) 94,587
Gain on sale of real property -- (60,872)
Gain on sale of marketable equity securities (157) --
Issuance of stock warrants 16,528 --
Changes in certain other accounts, net of acquisitions
Other assets (22,031) 1,744
Accounts payable 24,942 27,972
Accrued expenses 19,911 182,122
Security deposits and other 49,283 47,763
------------ ------------
Net cash provided (used) by operating activities (89,392) 492,088
------------ ------------
Cash flows from investing activities
Net repayments from investees 1,343,723 1,861,394
Proceeds from sale of real property -- 62,584
Additions to real and personal property (1,341,553) (210,257)
Construction in progress costs -- (60,350)
Investments in subsidiaries (1,658,158) (2,300,684)
Proceeds from sale of marketable equity securities 17,783 --
Proceeds from disposition of partnership investments 187,237 --
------------ ------------
Net cash (used) by investing activities (1,450,968) (647,313)
------------ ------------
Cash flows from financing activities
Repayment of mortgages payable -- (836,480)
Proceeds from mortgages payable 557,940 2,850,000
Note amortization payments -- (85,258)
Mortgage amortization payments (151,858) (96,017)
Purchase of treasury stock (1,830) (58,935)
Deferred mortgage costs (77,660) (79,240)
Dividends paid (417,301) --
Exercise of warrants 12,362 --
------------ ------------
Net cash provided (used) by financing activities (78,347) 1,694,070
------------ ------------
Net increase (decrease) in cash (1,618,707) 1,538,845
Cash at beginning of year 2,212,570 673,725
------------ ------------
Cash at end of year $ 593,863 $ 2,212,570
------------ ------------
Supplemental disclosures of cash flow information
Cash paid during the year for interest (net of $7,686 interest
capitalized in 1999) $ 481,977 $ 351,732
------------ ------------
Cash paid during the year for income taxes $ 365,067 $ 43,361
------------ ------------
Details of investments in subsidiaries
Prior year deposit applied to current year purchase $ -- $ 200,000
Real and personal property (3,015,217) (3,470,684)
Mortgages payable 1,357,059 970,000
------------ ------------
(1,658,158) (2,300,684)
------------ ------------
Consideration given for purchases of subsidiaries
Cash $ 1,658,158 $ 2,300,684
------------ ------------
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE> 25
RESOURCE CAPITAL GROUP, INC.
Notes to Consolidated Financial Statements
December 31, 1999
Note 1 - Organization and description of business
Resource Capital Group, Inc. (the Company) was organized as a Delaware
Corporation in November 1990 to become successor in interest to AGS Properties
(AGS) and assumed various general and limited partnership interest of AGS. From
1991 through 1999, the Company gradually disposed of all of the mortgage
receivables and the partnership interests acquired from AGS. From 1995 to 1999
the Company made real estate investments resulting in the ownership and
operation of various office buildings. During 1999, the Company's two remaining
partnership investments (acquired from AGS in 1991), were liquidated (see note
3).
As of December 31, 1999, the Company's investments include:
8050 ROSWELL ASSOCIATES LLC (8050 ROSWELL), formed in 1995 and owns an
office building in Fulton County, Georgia.
419 CROSSVILLE ASSOCIATES LLC (CROSSVILLE), formed in 1995 and owns an
office building in Fulton County, Georgia.
COLONIAL PARK COMMONS LLC (COLONIAL), formed in 1996 and owns an
office building in Fulton County, Georgia.
HEIDE LOT LLC (HEIDE), formed in 1996 and owns an office building,
which was constructed in 1999 in Fulton County, Georgia (see note 4).
8046 ROSWELL ROAD LLC (8046 ROSWELL), formed in 1997 and owns an
office building in Fulton County, Georgia.
WOODSTOCK OFFICE I, LLC (WOODSTOCK), formed in 1997 and owns an office
building in Cherokee County, Georgia.
HUNTER MANAGEMENT COMPANY (HUNTER), formed in 1997 and owns the
minority interest in various investees of the Company. Additionally,
Hunter manages the properties owned by the Company's subsidiaries.
RCGI OAKMONT LLC (OAKMONT), formed in 1998 and owns an office building
in Jefferson County, Alabama.
RCGI MONTCLAIR I, LLC (MONTCLAIR), formed in 1998 and owns an office
building in Jefferson County, Alabama.
920 HOLCOMB BRIDGE LLC (HOLCOMB BRIDGE), formed in 1998 and owns an
office building in Fulton County, Georgia.
RCGI MILLWOOD, LLC (MILLWOOD), formed in 1999 and owns an office
building in Cobb County, Georgia.
RCGI OLD CANTON, LLC (OLD CANTON), formed in 1999 and owns an office
building in Cobb County, Georgia
WILTON CENTER, LLC (WILTON), formed in 1999 and owns unimproved land
in Fulton County, Georgia.
F-7
<PAGE> 26
RESOURCE CAPITAL GROUP, INC.
Notes to Consolidated Financial Statements (continued)
December 31, 1999
Note 2 - Significant accounting policies
Basis of accounting
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, 8050 Roswell, Crossville, Colonial, Heide, 8046
Roswell, Woodstock, Hunter, Oakmont, Montclair, Holcomb Bridge, Millwood, Old
Canton and Wilton. All intercompany transactions and balances have been
eliminated in consolidation.
The Company's general and limited partnership interests in both MLP and Meadow
were accounted for under the equity method. (See note 3.)
Use of estimates
The consolidated financial statements of the Company are prepared in conformity
with generally accepted accounting principles, which require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. The most significant area which requires the use
of management's estimates relate to the determination of the carrying value of
the Company's equity investments in partnerships. Actual results could differ
from those estimates.
Long-lived assets
Management evaluates the Company's long-lived assets, which consist primarily
of its investments in real and personal property, for impairment based on the
recoverability of their carrying amounts. When it is probable that undiscounted
cash flows will not be sufficient to recover the carrying amount of a specific
property, the assets will be written down to its fair value. No such
write-downs were required in 1999 and 1998.
Disclosure about fair value of financial instruments
The carrying amount of the Company's cash, receivables, mortgages and notes
payable is a reasonable approximation of fair value.
Depreciation and amortization
Depreciation of real and personal property is being provided on straight-line
and accelerated methods over estimated service lives ranging from 5 to 39
years. Depreciation expense for the years ended December 31, 1999 and 1998
amounted to $256,649 and $169,975, respectively.
Deferred mortgage costs are being amortized on a straight-line basis over the
term of the respective mortgages. As a result of the refinancing of
Crossville's mortgage during 1998, deferred mortgage costs in the amount of
$22,554 have been fully amortized and reflected in the 1998 consolidated
statement of operations.
Income taxes
Deferred tax assets and liabilities are recognized for both the expected future
tax impact of differences between the financial statement and tax basis of
assets and liabilities, and for the expected future tax benefit to be derived
from tax loss and tax credit carryforwards. Deferred tax assets are reflected
at their likely realizable amount.
F-8
<PAGE> 27
RESOURCE CAPITAL GROUP, INC.
Notes to Consolidated Financial Statements (continued)
December 31, 1999
Cash
Cash includes cash on hand and in banks and money market funds which are
available for current operations. Substantially, all of the Company's cash is
maintained in a money market account on deposit with one bank. The Company has
not experienced any losses on its cash deposits.
Earnings per share
The Company follows the provisions of the Financial Accounting Standards Board
Statement No. 128 (SFAS 128), Earnings per Share. The following table sets
forth the computation of basic and diluted earnings per share:
<TABLE>
<CAPTION>
Year Ended
December 31
--------------------------
1999 1998
--------- ---------
<S> <C> <C>
Numerator used for both basic and diluted
earnings per share $ 21,068 $ 368,235
--------- ---------
Denominator for basic earnings per share
Weighted average shares outstanding 415,284 413,780
--------- ---------
Denominator for dilutive earnings per share
Denominator for basic earnings per share 415,284 413,780
Effect of dilutive securities - warrants - 6,584
--------- ---------
415,284 420,364
--------- ---------
Basic earnings per share .05 .89
--------- ---------
Dilutive earnings per share $ .05 $ .88
--------- ---------
</TABLE>
Investment in marketable equity securities
The Company's investment in marketable equity securities was classified as
available for sale and accordingly was stated at fair value with the related
unrealized gains and losses included as a separate component of stockholders'
equity. During 1999 the Company sold its investment for $17,783. All realized
and unrealized gains/losses were not material.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 (SFAS 130) "Reporting Comprehensive
Income". SFAS 130 requires a company to report comprehensive income and its
components in a full set of financial statements. Comprehensive income is the
change in equity during a period from transactions and other events and
circumstances from nonowner sources, such as unrealized gains (losses) on
available-for-sale securities. Changes in unrealized gains (losses) during 1999
and 1998 amounted to ($2,428) and ($2,009), respectively. Accordingly,
comprehensive income for the years ended December 31, 1999 and 1998 amounted to
$19,059 and $365,807, respectively.
F-9
<PAGE> 28
RESOURCE CAPITAL GROUP, INC.
Notes to Consolidated Financial Statements (continued)
December 31, 1999
Investments in partnerships
The Company used the equity method of accounting for its partnership interests
(see note 3), whereby the original costs were adjusted by the Company's share
of the undistributed earnings or losses.
The equity in earnings (loss) of the Partnerships was adjusted annually to
eliminate transactions with the Company.
Note 3 - Partnership investments
As discussed in note 1, upon formation, the Company acquired the following
partnership investments from AGS:
- - AGS PARTNERS MLP, LP (MLP) - The Company had a 1% general and a 27.55%
limited partnership interest in MLP which owned and operated various
residential real estate.
- - AGS MEADOW OAKS ASSOCIATES (MEADOW) - The Company had a 2.55% general and
a 43.10% limited partnership interest in Meadow which owned residential
real estate property.
During 1999, both MLP and Meadow disposed of their remaining properties and
liquidated the partnerships. In connection with the liquidation of MLP, the
Company received a cash distribution of $76,904 and reimbursement of certain
advances, notes, accrued interest receivable in the amount of $1,499,967. Upon
the liquidation of Meadow, the Company received a cash distribution of
$110,333. The following is a summary of the Company's partnership investment
activity included in the accompanying statement of operations for the years
ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Equity in earnings (loss)
MLP $ 446,563 $ 379,325
Meadow 1,511,199 (6,442)
------------ ------------
Subtotal 1,957,762 372,883
Elimination of interest on notes payable
and management and other fees 78,762 170,427
------------ ------------
Total equity in earnings 2,036,524 543,310
------------ ------------
(Loss) on disposition of partnership investments
MLP (454,047) --
Meadow (1,325,288) --
------------ ------------
(1,779,335) --
------------ ------------
Net partnership investment activity $ 257,189 $ 543,310
------------ ------------
</TABLE>
F-10
<PAGE> 29
RESOURCE CAPITAL GROUP, INC.
Notes to Consolidated Financial Statements (continued)
December 31, 1999
Note 4 - Property acquisitions and dispositions
1999 Acquisitions
In November 1999, the Company formed Millwood and Old Canton with capital
contributions of $229,848 and $320,732, respectively. Millwood and Old Canton
acquired 8,886 and 11,804, respectively, square foot office buildings located
in Cobb County, Georgia for $786,021 and $1,062,538, respectively. In
connection with the purchase, Millwood and Old Canton assumed a mortgage
payable in the amount of $574,521 and $782,538, respectively.
In December 1999, the Company formed Wilton with a $1,178,826 capital
contribution. Wilton simultaneously acquired approximately 2.9 acres of
unimproved land in Fulton County, Georgia for $1,125,000. It is the intention
of management to use this property to construct an office complex. As of
December 31, 1999, the Company has incurred $37,493 of costs associated with
the cost of constructing an office complex which is included in
construction-in-progress in the accompanying financial statements.
In August 1999, Heide completed the construction of an office building. The
total cost of the construction was $930,622 of which $837,578 was incurred in
1999 and $93,044 was incurred in 1998. In order to fund the construction of the
office building, Heide obtained a mortgage payable whereby Heide may borrow up
to $900,000 (see note 5). During the period the office building was under
construction, $7,686 of interest was capitalized and is included in the cost of
the office building.
1998 Acquisitions
In February 1998, Holcomb Bridge was formed and capitalized with a $273,692
contribution. Holcomb Bridge simultaneously acquired a 14,400 square foot
office building located in Fulton County, Georgia for $1,250,000. The purchase
was financed in part, with a $970,000 mortgage payable on the property.
In July 1998, the Company formed Oakmont and Montclair with capital
contributions of $1,014,880 and $1,182,271, respectively. Oakmont and Montclair
simultaneously acquired 20,000 and 22,248, respectively, square foot office
buildings located in Jefferson County, Alabama, for $1,009,000 and $1,175,000,
respectively. Subsequent to the purchase of the office buildings, Oakmont and
Montclair obtained mortgages payable on each of the properties amounting to
$810,000 and $940,000, respectively.
1998 Dispositions
During 1998, the Company sold a small portion of the Woodstock land to the
State of Georgia for $62,584. As a result, the Company realized a gain on sale
in the amount of $60,872.
The following summarized unaudited pro forma results of operations for the year
ended December 31, 1999 assume each of the three 1999 acquisitions occurred on
January 1, 1999.
<TABLE>
<CAPTION>
<S> <C>
Total income $ 2,027,625
Net income 66,617
Basic earnings per share .16
Dilutive earnings per share .16
</TABLE>
F-11
<PAGE> 30
RESOURCE CAPITAL GROUP, INC.
Notes to Consolidated Financial Statements (continued)
December 31, 1999
Note 5 - Mortgages payable
The mortgages payable as of December 31, 1999 consist of the following:
<TABLE>
<S> <C>
8050 Roswell - The mortgage payable bears interest at 9.53% per annum and
matures in July 2010. The terms of the mortgage require that monthly payments
of $3,766 be applied first to interest and the balance to reduction of principal
Interest on this loan adjusts every five years, commencing on July 1, 2000 and is
computed as 325 basis points over the average yield on U.S. Treasury securities,
as defined. $ 300,866
Crossville - The mortgage payable bears interest at 7.75% per annum and matures
in February 2008. The terms of the mortgage require that monthly payments of
$8,693 be applied first to interest with the balance to reduction of principal. 1,062,570
Colonial - The mortgage payable bears interest at 9.375% per annum and matures
in October 2006. The terms of the mortgage require that monthly payments of
$7,276 be applied first to interest with the balance to reduction of principal.
Interest on this loan adjusts on October 1, 2001 and is computed as 300 basis
points over the average yield on U.S. Treasury securities, as defined. 737,918
8046 Roswell - The mortgage payable bears interest at 8.00% per annum and
matures on June 1, 2009. The terms of the mortgage require that monthly
payments of $5,175 be applied first to interest and the balance to reduction of
principal. Interest on this loan adjusts on June 1, 2002 and is computed as 300
basis points over the average yield on U.S. Treasury securities, as defined. 409,943
Woodstock - The mortgage payable bears interest at 9.31% per annum and matures
in December 2017. The terms of the mortgage require that monthly payments of
$5,243 be applied first to interest with the balance to reduction of principal
Interest on this loan adjusts every five years, commencing on December 1, 2002
and is computed as 300 basis points over the average yield on U.S. Treasury
securities, as defined. 550,000
Holcomb Bridge - The mortgage payable bears interest at 8.5% per annum and matures
in March 2018. The terms of the mortgage require that monthly payments
of $8,418 be applied first to interest and the balance to reduction of principal
Interest on this loan adjusts every five years commencing on March 1, 2003 and is
computed as 275 basis points over the average yield on U.S. Treasury securities,
as defined. The mortgage may be called by the lender in March 2003. 935,445
Montclair - The mortgage payable bears interest at 7.14% per annum and matures
in January 2019. Commencing in February 1999, the terms of the mortgage
required that monthly payments of $7,367 be applied first to interest and the
balance to reduction of principal. Interest on this loan adjusts every five years
commencing on January 1, 2004 and is computed as 275 basis points over the
average yield on U.S. Treasury securities, as defined. The mortgage may be called
by the lender in January 2004. 919,727
</TABLE>
F-12
<PAGE> 31
RESOURCE CAPITAL GROUP, INC.
Notes to Consolidated Financial Statements (continued)
December 31, 1999
<TABLE>
<S> <C>
Oakmont - The mortgage payable bears interest at 7.14% per annum and matures
in January 2019. Commencing in February 1999, the terms of the mortgage
required that monthly payments of $6,348 be applied first to interest and the
balance to reduction of principal. Interest on this loan adjusts every five years
commencing on January 1, 2004 and is computed as 275 basis points over the
average yield on U.S. Treasury securities, as defined. The mortgage may be called
by the lender in January 2004. $ 792,531
Heide - Under the terms of the mortgage, the Company may borrow up to the
principal sum of $900,000. The mortgage matures in March 2004 and requires
interest only monthly payments through March 2000 at the lender's base rate plus
1%, which is currently at 9.5%. Commencing in April 2000 until maturity, monthly
principal and interest payments based on 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%. As of January 13, 2000 the full amount has been drawn
under this facility. 557,940
Millwood - The mortgage payable bears interest at 7.54% per annum and matures
in September 2008. The terms of the mortgage require that monthly payments of
$4,071 be applied first to interest with the balance to reduction of principal. In
addition, the mortgage payable requires monthly escrow deposits, which currently
amount to $1,860, to be made to the mortgagee for the payment of real estate
taxes, insurance, lease reserves and replacement reserves. 574,060
Old Canton - The mortgage payable bears interest at 7.54% per annum and matures
in September 2008. The terms of the mortgage require that monthly payments of
$5,545 be applied first to interest with the balance to reduction of principal. In
addition, the mortgage payable requires monthly escrow deposits, which currently
amount to $3,421, to be made to the mortgagee for the payment of real estate
taxes, insurance, lease reserves and replacement reserves. 781,908
----------
$7,622,998
----------
</TABLE>
A schedule of future amortization payments, including the full $900,000
mortgage payable as of January 13, 2000 in Heide, at December 31, 1999 follows:
<TABLE>
<S> <C>
2000 $ 189,789
2001 210,922
2002 229,129
2003 248,928
2004 1,080,703
Thereafter 6,005,587
--------------
$ 7,965,058
--------------
</TABLE>
A majority of the mortgage notes payable have been guaranteed by the Company.
The above table excludes the callable provisions in Holcomb Bridge (2003),
Montclair (2004) and Oakmont (2004).
F-13
<PAGE> 32
RESOURCE CAPITAL GROUP, INC.
Notes to Consolidated Financial Statements (continued)
December 31, 1999
Note 6 - Stockholders' equity
Common stock and warrants
During 1997, the Company issued 8,230 common stock purchase warrants (warrants)
valued at $24,690 to two members of the Board of Directors. In January 1999,
the Company issued an additional 4,132 warrants valued at $16,528 to one of its
members of the Board of Directors. Each warrant allowed the purchase of one
share of the Company's common stock at a price of $1 per share. During February
and March 1999, all warrants were exercised. At December 31, 1999, the Company
has issued 520,970 shares of its common stock.
Treasury stock
During 1999 and 1998, the Company acquired as treasury stock 366 and 11,787
shares for $1,830 and $58,935, respectively. At December 31, 1999, the Company
has 104,035 shares of treasury stock.
Dividends
In March 1999, The Company paid a cash dividend of $1 per share.
Note 7 - Income taxes
The provision (benefit) for income taxes for the years ended December 31, 1999
and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Current
Federal $ 292,652 $ 158,093
State 60,633 37,411
----------- ----------
353,285 195,504
----------- ----------
Deferred (285,544) 94,587
----------- ----------
$ 67,741 $ 290,091
----------- ----------
</TABLE>
The difference between the total tax provision and that obtained by applying
the statutory rate is as follows:
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
Tax provision at statutory rate $ 30,195 $ 223,831
State taxes and other 37,546 66,260
--------------- ---------------
Provision for income taxes $ 67,741 $ 290,091
--------------- ---------------
</TABLE>
A summary of the net deferred income tax asset by source at December 31, 1999
is as follows:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax asset
Incentive stock compensation $ 19,720
----------------
</TABLE>
The Company has fully utilized all available net operating loss carryforwards.
F-14
<PAGE> 33
RESOURCE CAPITAL GROUP, INC.
Notes to Consolidated Financial Statements (continued)
December 31, 1999
Note 8 - Commitments
a. Employment agreement
The Company has an employment agreement with its President which expires on
June 30, 2003. The agreement calls for an annual base salary of $275,000 plus
an annual bonus based on the Company's net income, as defined.
b. Management agreements
The real estate operations of the Company's equity investees were managed by
Hunter (see note 3) under an agreement which provides for fees equal to 5% of
revenue as defined. Management fee income for the year ended December 31, 1999
represents fees earned by Hunter from managing MLP. Management fee income for
the year ended December 31, 1998 represents fees earned by Hunter from managing
MLP and Meadow. The management fee income is net of the Company's respective
equity interest in those Partnerships.
c. Operating leases
8050 Roswell, Crossville, Colonial, Heide, 8046 Roswell, Woodstock, Oakmont,
Montclair, Holcomb Bridge, Millwood and Old Canton, each lease their office
space under operating lease agreements expiring in various years through 2005.
Future minimum annual rents to be received under operating leases currently in
effect are as follows:
<TABLE>
<S> <C>
2000 $ 1,652,798
2001 1,306,590
2002 819,514
2003 370,399
2004 185,058
Thereafter 6,813
------------
$ 4,341,172
------------
</TABLE>
F-15
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 593,863
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 12,635,838
<DEPRECIATION> 583,918
<TOTAL-ASSETS> 13,039,673
<CURRENT-LIABILITIES> 0
<BONDS> 7,622,998
0
0
<COMMON> 5,210
<OTHER-SE> 4,824,409
<TOTAL-LIABILITY-AND-EQUITY> 13,039,673
<SALES> 0
<TOTAL-REVENUES> 2,068,605
<CGS> 0
<TOTAL-COSTS> 464,044
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 504,915
<INCOME-PRETAX> 88,809
<INCOME-TAX> 67,741
<INCOME-CONTINUING> 21,068
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,068
<EPS-BASIC> .05
<EPS-DILUTED> .05
</TABLE>
