1
U. S. 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, 1995
------------------------------
[ ] 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 0-4408
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RESOURCE AMERICA, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 72-0654145
------------------------------- --------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1521 Locust Street, Philadelphia, Pennsylvania 19102
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(Address of principal executive offices)
(215) 546-5005
--------------------------------
(Issuer's telephone number)
----------------------------------------
(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.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 678,549
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2
RESOURCE AMERICA, INC.
INDEX
PAGE
NUMBER
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet (Unaudited) June 30, 1995, and
September 30, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 & 2
Consolidated Statement of Operations (Unaudited) - Three
Months and Nine Months Ended June 30, 1995, and 1994 . . . . . . . . . . . . . . 3
Consolidated Statement of Cash Flows (Unaudited) - Nine
Months Ended June 30, 1995, and 1994. . . . . . . . . . . . . . . . . . . . . . 4
Notes to Consolidated Financial Statements (Unaudited) . . . . . . . . . . . . . . 5 - 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 - 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3
PART I. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEET (UNAUDITED)
RESOURCE AMERICA, INC., AND SUBSIDIARIES
June 30, 1995, and September 30, 1994
================================================================================
June 30, September 30,
1995 1994
------------- --------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . $ 2,960,623 $ 2,597,556
Accounts and notes receivable . . . . . . . . . . . . . . . . . . 886,245 1,136,656
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139,621 135,614
Prepaid expenses and other current assets . . . . . . . . . . . . 254,983 115,345
----------- -----------
Total Current Assets . . . . . . . . . . . . . . . 4,241,472 3,985,171
PROPERTY AND EQUIPMENT
Oil and gas properties and equipment
(successful efforts) . . . . . . . . . . . . . . . . . . . . . . 28,951,450 28,682,497
Gas gathering and transmission facilities . . . . . . . . . . . . 1,510,496 1,485,323
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,093,425 1,018,609
----------- -----------
31,555,371 31,186,429
Less - accumulated depreciation, depletion,
and amortization . . . . . . . . . . . . . . . . . . . . . . . . (18,748,041) (17,841,564)
----------- -----------
Net Property and Equipment . . . . . . . . . . . 12,807,330 13,344,865
INVESTMENTS IN REAL ESTATE LOANS . . . . . . . . . . . . . . . . . . . 17,577,784 9,783,436
RESTRICTED CASH . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,885,170 5,768,439
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,803,007 1,913,771
----------- -----------
$38,314,763 $34,795,682
=========== ===========
The accompanying notes are an integral part of these financial statements.
1
4
CONSOLIDATED BALANCE SHEET (UNAUDITED)
RESOURCE AMERICA, INC., AND SUBSIDIARIES
June 30, 1995, and September 30, 1994
================================================================================
June 30, September 30,
1995 1994
------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade . . . . . . . . . . . . . . . . . . . . . $ 447,600 $ 739,777
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . 202,964 160,807
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . 80,000 265,833
Accrued income taxes . . . . . . . . . . . . . . . . . . . . . . . 87,817 100,000
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . - -
Current portion of long-term debt . . . . . . . . . . . . . . . . 88,000 88,000
----------- -----------
Total Current Liabilities . . . . . . . . . . . . 906,381 1,354,417
LONG-TERM DEBT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,561,075 8,627,014
DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . 890,000 674,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value, 1,000,000
authorized, none issued . . . . . . . . . . . . . . . . . . . . - -
Common stock, $.01 par value, 3,500,000
authorized shares, 817,912 issued and
outstanding shares (including 139,363
and 131,402 treasury shares) at June 30,
1995, and September 30, 1994, respectively . . . . . . . . . . . 8,179 8,179
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . 19,214,210 19,136,420
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . 9,782,232 7,979,509
Less cost of treasury shares . . . . . . . . . . . . . . . . . . . (2,533,040) (2,437,437)
Less loan receivable from ESOP . . . . . . . . . . . . . . . . . . (514,274) (546,420)
----------- -----------
Total Stockholders' Equity . . . . . . . . . . . . . . 25,957,307 24,140,251
----------- -----------
$38,314,763 $34,795,682
=========== ===========
The accompanying notes are an integral part of these financial statements.
2
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CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
RESOURCE AMERICA, INC., AND SUBSIDIARIES
Three Months and Nine Months Ended June 30, 1995, and 1994
================================================================================
Three Months Nine Months
Ended June 30, Ended June 30,
-------------------------------- -----------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
REVENUES
Oil and gas production . . . . . . . $ 823,400 $ 802,936 $2,485,046 $2,280,541
Gas gathering and transmission . . . 98,061 83,502 295,101 267,402
Well services. . . . . . . . . . . . 225,124 276,120 739,946 853,414
Real estate finance. . . . . . . . . 1,983,164 1,477,067 4,439,813 2,178,099
Financial services . . . . . . . . . 127,766 64,597 298,498 277,759
Interest . . . . . . . . . . . . . . 9,178 21,077 102,084 46,533
------------ ----------- ----------- -----------
3,266,693 2,725,299 8,360,488 5,903,748
COSTS AND EXPENSES
Production and transmission. . . . . 369,147 343,830 1,178,987 1,002,463
Well services. . . . . . . . . . . . 186,399 219,206 591,847 643,310
Real estate finance. . . . . . . . . 296,215 51,784 654,841 160,840
Financial services . . . . . . . . . 45,799 53,611 140,851 160,299
Exploration. . . . . . . . . . . . . 45,651 287,018 105,609 589,614
General and administrative . . . . . 511,965 451,424 1,628,828 1,352,126
Depreciation and amortization. . . . 365,399 356,605 1,045,448 999,516
Interest . . . . . . . . . . . . . . 304,651 85,971 844,277 97,460
Other - net . . . . . . . . . . . . (3,121) 3,315 (3,632) 3,623
------------ ----------- ----------- -----------
2,122,105 1,852,764 6,187,056 5,009,251
------------ ----------- ----------- -----------
INCOME FROM OPERATIONS . . . . . . . . 1,144,588 872,535 2,173,432 894,497
OTHER INCOME
Gain on sale of property . . . . . . 2,749 - 1,291 2,390
------------ ----------- ----------- -----------
Income before income taxes . . . . . . 1,147,337 872,535 2,174,723 896,887
Benefit (provision) for income taxes . (218,000) 161,000 (372,000) 280,000
------------ ----------- ----------- -----------
NET INCOME . . . . . . . . . . . . . $ 929,337 $ 1,033,535 $ 1,802,723 $ 1,176,887
============ ============ ============ ===========
NET INCOME PER COMMON SHARE . . . . . . $ 1.17 $ 1.46 $ 2.39 $ 1.66
============ ============ =========== ==========
Weighted average common shares
outstanding . . . . . . . . . . . . . . 794,300 707,100 753,100 707,500
============ ============ =========== ==========
The accompanying notes are an integral part of these financial statements.
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6
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
RESOURCE AMERICA, INC., AND SUBSIDIARIES
Nine Months Ended June 30, 1995, and 1994
================================================================================
Nine Months
Ended June 30,
---------------------------------
1995 1994
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 1,802,723 $ 1,176,887
Adjustments to reconcile net income to net cash. . . . . .
provided by operating activities:
Depreciation and amortization. . . . . . . . . . . . . . 1,045,448 999,516
Amortization of discount on senior note. . . . . . . . . 8,749 -
Property impairments and abandonments. . . . . . . . . . 38,500 529,253
Deferred income taxes. . . . . . . . . . . . . . . . . . 216,000 (280,000)
Gain on dispositions and investments . . . . . . . . . . (1,231,027) (1,098,159)
Change in operating assets and liabilities:
Decrease in accounts receivable. . . . . . . . . . . . 250,411 219,790
(Increase) decrease in prepaid expenses and
other current assets . . . . . . . . . . . . . . . . . (139,638) 52,300
Increase (decrease) in accounts payable. . . . . . . . (292,177) 93,571
Increase (decrease) in other current liabilities . . . (155,859) 152,204
Increase in inventory. . . . . . . . . . . . . . . . . (4,007) (13,352)
(Increase) decrease in other assets. . . . . . . . . . 23,918 (553,338)
------------ -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES. . . . . . . . 1,563,041 1,278,672
INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . . . . . . . . . . . (632,686) (404,566)
Proceeds from sale of properties and investments . . . . . 5,790,905 2,148,246
Increase in other assets . . . . . . . . . . . . . . . . . (32,107) (209,189)
Increase in investments in real estate loans . . . . . . . (12,142,822) (1,912,297)
------------ -----------
NET CASH USED IN INVESTING ACTIVITIES. . . . . . . . . . (7,016,710) (377,806)
FINANCING ACTIVITIES:
Short-term borrowings. . . . . . . . . . . . . . . . . . . 2,500,000 -
Long-term borrowings . . . . . . . . . . . . . . . . . . . 2,000,000 8,000,000
Decrease in other assets . . . . . . . . . . . . . . . . . 46,612 -
(Increase) decrease in restricted cash . . . . . . . . . . 3,883,268 (5,169,437)
Principal payments on debt . . . . . . . . . . . . . . . . (2,517,541) (15,549)
Purchase of treasury stock . . . . . . . . . . . . . . . . (95,603) (6,890)
------------ -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES. . . . . . . . 5,816,736 2,808,124
INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . 363,067 3,708,990
CASH AT BEGINNING OF YEAR . . . . . . . . . . . . . . . . . . 2,597,556 761,804
------------ -----------
CASH AT JUNE 30 . . . . . . . . . . . . . . . . . . . . . . . $ 2,960,623 $ 4,470,794
============ ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Accounting policies: Cash includes highly liquid investments with a maturity of three months or less.
Cash paid during the first nine months of 1995 for interest: $987,591
Cash paid during the first nine months of 1995 for federal income taxes: 168,182
The accompanying notes are an integral part of these financial statements.
4
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
================================================================================
NOTE 1 - MANAGEMENT'S OPINION REGARDING INTERIM FINANCIAL STATEMENTS
In the opinion of management, all adjustments (consisting of normal
recurring accruals) necessary for a fair statement of the results of operations
for the interim period included herein have been made.
The accounting policies followed by the Company are set forth in Note
1 to the Company's consolidated financial statements for the fiscal year ended
September 30, 1994, included in the Company's Annual Report on Form 10-KSB.
NOTE 2 - TRANSACTIONS WITH RELATED PARTIES
During the first quarter of fiscal 1995, the Company acquired limited
partners' interests in various oil and gas partnerships for which the Company
served as the general partner. The aggregate purchase price of these
acquisitions was $178,000.
A law firm in which an officer of the Company holds "of counsel"
status provides legal services to the Company. The Company believes that such
services are provided on terms no less favorable to the Company than those
which would be obtainable from third parties providing similar services.
The Company holds real estate loans with respect to fourteen
properties owned by third parties. These properties are managed by a
corporation in which an officer of the Company is an officer and minority
shareholder. Management fees payable under the management agreements (which
the Company believes are competitive with fees charged by unrelated persons in
the areas in which the properties are located) are subordinated to receipt by
the Company of minimum required debt service payments under the loans.
Accordingly, the Company believes that the agreements are on terms more
favorable to the Company than those which could be obtained from third parties
providing similar services.
The Company maintains depository and investment accounts in a bank
subsidiary of JeffBanks, Inc., in which the Chairman of the Company serves as a
director. The Chairman's wife is a director and executive officer of
JeffBanks, Inc. The Company holds 5,000 shares of JeffBanks' 8% Series E
convertible preferred stock with a book cost of $100,000 and a current market
value of $150,000. During the first quarter of fiscal 1995, the Company
borrowed $2,500,000 from Jefferson Bank, a subsidiary of JeffBanks, Inc. which
was repaid in the second quarter of fiscal 1995. The Company believes that
the terms of the loan were no less favorable to the Company or the bank than
those which would be obtainable from unrelated financial institutions.
5
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
================================================================================
NOTE 3 - LONG-TERM DEBT
Long-term debt consists of the following:
June 30, September 30,
1995 1994
-------------- ---------------
Mortgage note payable to a bank, secured by real
estate, monthly installments of approximately $4,000
including interest at 3/4% above the prime rate through
May 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 247,719 $ 265,262
Employee Stock Ownership loan payable to a bank, 20
equal semiannual installments of $32,143 and quarterly
payments of interest at 84% of the prime rate through
July 1996, at which time the rate converts to 1/2%
above the prime rate through 2003 . . . . . . . . . . . . . . . . 514,274 546,419
9.5% senior secured note payable, interest due semi-
annually, principal due May 2004 . . . . . . . . . . . . . . . . . 7,910,832 7,903,333
Loan guarantee, interest due monthly, principal due
December 2004 (referred to below) . . . . . . . . . . . . . . . . 1,976,250 -
------------ -------------
10,649,075 8,715,014
Less amounts payable in one year . . . . . . . . . . . . . . . . . 88,000 88,000
------------ -------------
$ 10,561,075 $ 8,627,014
============ =============
The long-term debt maturing over the next five years is as follows:
1996 - $88,000; 1997 - $91,000; 1998 - $94,000; 1999 - $97,000; and 2000 -
$101,000.
In May 1994, the Company privately placed an $8,000,000 senior secured
note and immediately exercisable detachable warrants with an insurance company.
The warrants grant the holder the right to purchase, at any time through May
24, 2004, 160,000 shares, subject to adjustment, of the Company's common stock
at an exercise price of $9.50 per share. The value assigned to the warrants
($100,000) has been accounted for as paid-in capital, resulting in a discount
which is being amortized on a straight-line basis over the life of the note.
The senior secured note payable is collateralized by substantially all
of the Company's oil and gas properties and certain of the Company's real
estate loans. Certain credit agreements require the Company to comply with
certain restrictive covenants. At June 30, 1995, the Company was in compliance
with such covenants.
The loan guarantee results from a transaction which closed in December
1994, pursuant to which the Company purchased for $1,650,000 a note and
mortgage in the original principal amount of $3,000,000 which were resold to an
insurance company for $2,000,000. In connection with the resale, the Company
guaranteed that the holder would receive a return of the $2,000,000 invested
plus a specified rate of interest, and in addition issued to the holder
warrants to purchase 40,000 shares of the Company's common stock at a price of
$9.50 per share, the market price of the Company's common stock at that time.
The Company treated the sale and guaranty transaction, for accounting purposes,
as a loan to the Company.
6
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
================================================================================
NOTE 4 - FORMATION OF LIMITED PARTNERSHIPS
In 1989 and 1990, the Company sponsored two pipeline income program
limited partnerships (the "1989 Program" and "1990 Program") which purchased
pipeline systems from the Company.
The Company had guaranteed that the limited partners in these programs
would receive cash distributions during each of the first two years of the
operation of the programs equal to 12% of their capital contributions to the
programs. To the extent that cash flow to the programs was less than 12%, the
Company contributed sufficient capital to allow the guaranteed distributions to
the limited partners to be made. The Company believes the amount contributed
for such distributions ($693,000), for which it is entitled to be repaid on a
preferential basis upon termination of the programs, will be realized upon
final disposition of the pipelines.
The limited partners in both programs have the right to sell their
interests in the programs to the Company following the fifth anniversary of the
respective program's closing at a price equal to 4.5 times the cash flow per
unit during the fifth year of partnership operations, subject to a maximum sale
price of $50,000 per unit. The limited partners may also cause the sale of the
pipelines after the fifth year of the respective partnership's operations.
During the first half of fiscal 1995, in accordance with the terms of the 1989
Pipeline Income Program limited partnership agreement, the Company fully
satisfied its obligation to repurchase units tendered by limited partners of
the Program by repurchasing 20 units, out of a total of 91 units available, for
a total cost of $240,000. Similar offers will be made during fiscal 1996 to
limited partners in the 1990 Pipeline Income Program to repurchase their
interests in that program. The Company cannot now predict the cost per unit,
nor the number of units out of a total of 57 available, that will be
repurchased.
NOTE 5 - INVESTMENTS IN REAL ESTATE LOANS
At June 30, 1995, the Company held real estate loans having an
aggregate face value of $43,446,000, which were being carried at an aggregate
cost of $17,577,784.
Investments in Real Estate Loans at June 30 consists of:
June 30, September 30,
1995 1994
-------------- ---------------
Subordinated wraparound note, face value of $4,500,000,
secured by residential real estate located in Pittsburgh,
PA, interest at 14.5%, due October 31, 1998 . . . . . . . . . . . $2,025,114 $2,025,114
Mortgage note, face value of $1,080,000, secured
by residential real estate located in Philadelphia, PA,
interest at 12%, due October 31, 1998. In June 1995, the
Company sold a senior participation in this mortgage for
$600,000, resulting in a gain of $100,000 and a face value
due the Company of $480,000 . . . . . . . . . . . . . . . . . . . 130,680 467,280
7
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
================================================================================
Mortgage note, face value of $1,312,000, secured
by residential real estate located in Philadelphia, PA,
interest at 2 1/2% over the monthly national median
annualized cost of funds for SAIF-insured institutions as
announced by the Federal Deposit Insurance Corporation,
due October 31, 1998. In June 1995, the Company sold a
senior participation in this mortgage for $896,000, resulting
in a gain of $209,000 and a face value due the Company of
$416,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180,204 803,977
Mortgage note, face value of $4,234,000, secured
by commercial real estate located in Pittsburgh, PA,
interest at 10.6%, due October 31, 1998. In June 1995,
the Company sold a senior participation in this mortgage for
$840,000, resulting in a gain of $416,000 and a face value due
the Company of $3,394,000 . . . . . . . . . . . . . . . . . . . . 636,110 1,072,606
Mortgage note, face value of $4,629,000, secured
by commercial real estate located in Alexandria, VA,
interest at 1/2% over the Maryland National Bank
prime rate, due October 31, 1998 . . . . . . . . . . . . . . . . . - 2,132,921
Note, face value of $4,116,000, relating to real
estate located in Alexandria, VA, interest at 1/2%
over the Maryland National Bank prime rate, due
October 31, 1998 . . . . . . . . . . . . . . . . . . . . . . . . 1,422,812 -
Wraparound note, face value of $12,000,000 consisting
of a first mortgage held by the Company of $9,000,000
secured by commercial real estate located in Washington,
D.C., and a $3,000,000 second mortgage held by an
unrelated party, interest at 12%, due November 30,
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000,000 -
Mortgage note, face value of $1,211,000, secured
by residential real estate located in Philadelphia, PA,
interest at 3% over the Federal Home Loan Bank of
Pittsburgh rate, due September 2, 1999. In June 1995,
the Company sold a senior participation in this mortgage for
$600,000, resulting in a gain of $226,000 and a face
value due the Company of $611,000 . . . . . . . . . . . . . . . . 99,032 350,000
Mortgage note, face value of $900,000, secured by
commercial real estate located in Washington, D.C.,
interest at 1 1/2% over the First Union National
Bank rate, due September 30, 1999. In June 1995,
the Company sold a senior participation in this mortgage for
$685,000, resulting in a gain of $76,000 and a face
value due the Company of $215,000 . . . . . . . . . . . . . . . . 267,639 -
8
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
================================================================================
Mortgage notes, face value of $1,485,000, secured
by residential real estate located in Philadelphia, PA,
interest at 2% over the Mellon Bank prime rate, due
October 31, 1999 . . . . . . . . . . . . . . . . . . . . . . 1,370,819 -
Mortgage notes, face value of $1,962,000, secured
by residential real estate located in Philadelphia, PA,
varying interest rates from 9 1/2% to 14.5%, due
December 2, 1999. In June 1995, the Company sold a
senior participation in this mortgage for $1,160,000,
resulting in a gain of $380,000 and a face value due the
Company of $802,000 . . . . . . . . . . . . . . . . . . . . 150,890 -
Mortgage note, face value of $3,000,000, secured by
commercial real estate located in Pasadena, CA, interest
at 2.75% over the average cost of funds to FSLIC-
insured savings and loan associations, 11th District
(but not less than 5.5% nor greater than 15.5%), due
May 1, 2001 . . . . . . . . . . . . . . . . . . . . . . . . 1,671,695 -
Mortgage note, face value of $4,389,000, secured
by residential real estate located in Philadelphia, PA,
interest at 2% over the yield of one-year United States
Treasury securities, due July 31, 1998 . . . . . . . . . . . - 1,330,198
Note, face value of $3,559,000, secured by an unrecorded
deed on real estate located in Philadelphia, PA, interest
at 2% over the yield of one-year United States Treasury
securities, due February 1, 2002 . . . . . . . . . . . . . . . 724,422 -
Mortgage note, face value of $1,798,000, secured by
residential real estate located in Margate, NJ, interest
at the Chase Manhattan Bank prime rate (but not less
than 9% nor greater than 15.5%), due January 1,
2003. In June 1995, the Company sold a senior participation
in this mortgage for $685,000, resulting in a gain of $92,000
and a face value due the Company of $1,113,000 . . . . . . . . 409,171 985,364
Note, face value of $1,776,000, secured by a judgment
lien, relating to real estate located in St. Cloud, MN,
interest at 10%, due December 31, 2014 . . . . . . . . . . . . 489,196 615,976
------------ -----------
$ 17,577,784 $ 9,783,436
============ ===========
As referenced above, in June 1995, the Company sold senior participations in
seven real estate loans to an insurance company, pursuant to which the Company
guaranteed that the insurance company would receive a return of its investment
plus a specified rate of interest. In addition, the Company issued to the
insurance company warrants to purchase 84,465 shares of the Company's common
stock at the then market price of $11.75 per share.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
REVENUES
A comparison of the Company's revenues, daily production volumes, and
average sales prices follows:
QUARTER ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- -----------------------
REVENUES (in thousands) 1995 1994 1995 1994
-----------------------------------------------------------------------------------------
Gas $ 610 $ 656 $1,986 $1,908
Oil 190 130 452 327
PRODUCTION VOLUMES
-----------------------------------------------------------------------------------------
Gas (Mcf/day) 2,914 2,819 3,088 2,819
Oil (Bbls/day) 119 97 98 81
AVERAGE SALES PRICE
-----------------------------------------------------------------------------------------
Gas (per Mcf) $ 2.30 $ 2.56 $ 2.36 $ 2.48
Oil (per Bbl) 17.58 14.63 16.96 14.82
Natural gas revenues decreased 7% for the quarter and increased 4% for
the nine months ended June 30, 1995, compared to the same periods a year ago.
Production volumes increased 4% for the quarter and 10% for the nine months.
Production volumes in the Company's Ohio fields of operation increased 17% for
the quarter and 24% for the nine months compared to the same periods of the
prior year, as a result of the acquisition of additional interests in existing
wells from limited partners and other third parties. The Company spent
$623,000 in the fourth quarter of fiscal 1994 and $178,000 in the first quarter
of fiscal 1995 to acquire these interests. The Company also participated in
the drilling of three successful wells during fiscal 1994 and the first three
quarters of fiscal 1995 which have recently begun production. The Company
intends to participate in the drilling of additional wells during the remainder
of fiscal 1995 in both Ohio and New York. Production volumes in the Company's
New York fields of operation were down 26% for the quarter and 16% for the nine
months ended June 30, 1995, due to the natural decline in production from
existing wells. The net increase in total natural gas volumes was offset by a
decrease in the average price received by the Company--gas prices fell 10% for
the quarter and 5% for the nine months ended June 30, 1995, compared to the
same periods a year ago.
Oil revenues increased 46% for the quarter and 38% for the nine months
ended June 30, 1995, compared to the same periods a year ago. Production
volumes increased 22% for the quarter and 21% for the nine months ended June
30, 1995, as a result of the acquisitions mentioned above. The average price
received for oil increased 20% for the quarter and 14% for the nine months
ended June 30, 1995.
The Company's revenues have been and will continue to be affected by
changes in oil and gas prices. The Company is unable to control or accurately
predict these changes in prices. The Company's proved developed reserves are
predominantly natural gas.
Gas gathering and transmission revenues increased 17% for the quarter
and 10% for the nine months ended June 30, 1995, from the same periods a year
ago. This increase resulted primarily from the repurchase of limited
partnership interests in a pipeline operated by the Company (see Note 4).
Well services revenues decreased 18% for the quarter and 13% for the
nine months ended June 30, 1995, as compared to the same periods a year ago, as
a result of a decrease in the number of wells operated for limited partners.
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Real estate finance revenues represent interest earned and gains
recognized on real estate loans owned by the Company. Through fiscal 1994, the
Company had invested $9,783,000 in nine loans (see Note 5). During the first
six months of fiscal 1995, the Company invested $12,985,000 in five loans. In
addition, the Company added $508,000 and $767,000 to existing loans in the
quarter and nine months ended June 30, 1995, respectively. By selling
participation interests in seven loans during the third quarter of fiscal 1995,
the Company received $5,431,000 in cash and recognized $1,230,000 in gains.
The Company intends to pursue similar real estate investment opportunities as
they become available to the extent allowed by the Company's investment
capability.
Financial services revenues increased 98% for the quarter and 7% for
the nine months ended June 30, 1995, as compared to the prior period. The
increase for the quarter was the result of a delay in timing of financial and
tax reporting services provided to certain oil and gas partnerships as compared
to the prior year.
Interest income decreased for the quarter and increased for the nine
months ended June 30, 1995, as compared to the prior periods. These
fluctuations are due to changes in the amount of funds temporarily invested.
COSTS AND EXPENSES
Production and transmission expenses increased 7% for the quarter and
18% for the nine months ended June 30, 1995. These increases were primarily
attributable to the acquisition of limited partners' interests in oil and gas
partnerships for which the Company serves as the general partner and increased
workover costs in the Company's Ohio fields of operation. Production costs as
a percentage of oil and gas revenues were constant at 42% for the quarter and
increased from 42% to 46% for the nine months ended June 30, 1995, as compared
to similar periods of the prior year.
Real estate finance expenses rose significantly for both the quarter
and nine months ended June 30, 1995, as compared to the same periods a year
ago. These increases are the result of higher legal and personnel costs
associated with the growth of the Company's real estate activities.
Exploration costs decreased significantly for both the quarter and
nine months ended June 30, 1995, as compared to the same periods a year ago due
to property impairments of approximately $529,000 in the prior year versus
$38,500 in the current year.
General and administrative expenses increased 13% in the quarter and
20% in the nine months ended June 30, 1995, as compared to the same periods of
the prior year. These increases are a result of the payment of incentive
compensation and a reduction in administrative fees earned. Administrative
fees charged to wells operated by the Company represent a direct reduction to
the Company's general and administrative expense. The number of wells operated
for third parties by the Company has decreased as compared to the prior year as
a result of the liquidation of some partnerships in which the Company earned
fees associated with its duties as general partner.
Depreciation and amortization consists primarily of amortization of
oil and gas properties. Amortization of oil and gas properties as a percentage
of oil and gas revenues decreased from 33% to 31% in the third quarter of
fiscal 1995, and from 32% to 29% for the nine months ended June 30, 1995,
compared to the same periods in the prior year. This variance is attributable
to changes in the Company's oil and gas reserve quantities, product prices, and
fluctuations in the depletable cost basis of oil and gas properties.
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LIQUIDITY AND CAPITAL RESOURCES
Funds provided by operations and funds borrowed under long-term and
short-term debt have been the principal sources of working capital during the
past two fiscal years. Total funds provided increased $284,000 or 22%. The
increase in funds provided are primarily attributable to an increase in net
income for fiscal 1995 as compared to the prior year.
The Company invested $12,985,000 in the acquisition of five real
estate loans and advanced $767,000 on existing loans held by the Company during
the first nine months of fiscal 1995 as compared to the investment of
$1,168,000 during the similar prior period. In addition, participation
interests were sold in seven loans generating $5,431,000 in cash for the
Company. As a result, the Company's cash used in investing activities
increased $6,639,000 during the first nine months of fiscal 1995, as compared
to the prior year.
The Company's cash flow provided by financing activities increased
$3,009,000 during the first nine months of fiscal 1995 as compared to the prior
year. This increase was a result of the sale of a $2,000,000 note and the
release for corporate investment purposes of $3,925,000 in previously
restricted cash serving as partial collateral security for the Company's
$8,000,000 senior secured note. In order to complete these transactions, the
Company has pledged substantially all of its energy and real estate assets and
certain of its real estate loans as collateral (see Note 3).
The Company's capital spending is predominantly discretionary--the
ultimate level of spending will depend on, among other things, the Company's
assessment of investment opportunities in the energy and real estate finance
industries. In energy, the Company will seek to add to its reserve base
through selected acquisition of producing properties and further development of
the Company's mineral interests. In real estate, the Company will continue to
expand its real estate loan portfolio as, and when, economically attractive
opportunities become available. To the extent required by its capital
investments, the Company will seek new financing or additional sources of
funding.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
Exhibit No. Description
----------- -----------
10.1 Warrant to Purchase 49,275 Shares of Common Stock of Resource
America, Inc., Issued to Physicians Insurance Company of Ohio
dated June 1, 1995
10.2 Warrant to Purchase 35,190 Shares of Common Stock of Resource
America, Inc., Issued to Physicians Insurance Company of Ohio
dated June 20, 1995
11.1 Calculation of Primary and Fully Diluted Earnings per Share
27 Financial Data Schedule
b) Reports on Form 8-K:
There were no Reports on Form 8-K filed by the Company for the
quarter ending June 30, 1995.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RESOURCE AMERICA, INC.
(Registrant)
Date August 11, 1995 By /s/ Michael L. Staines
---------------------------- --------------------------------------
Michael L. Staines
Senior Vice President and Secretary
Date August 11, 1995 By /s/ Nancy J. McGurk
----------------------------- --------------------------------------
Nancy J. McGurk
Vice President - Finance and Treasurer
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