UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM - 10QSB
[ x ] QUARTERLY REPORT UNDER SECTION 13 0R 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition from ___________ to _________
Commission File Number: 1-15277
Rampart Capital Corporation
(Exact Name of Registrant as specified in its charter)
TEXAS 6159 76-0427502
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification
Number)
700 Louisiana
Suite 2510
Houston, Texas
(Address of Principal Executive Office)
77002
(Zip Code)
713-223-4610
(Registrant's Telephone Number)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities 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 [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date:
As of Oct 24, 2001, the number of shares outstanding of the
registrant's only class of common stock was 2,905,143 after deducting
144,857 shares of common stock held in treasury.
Transitional Small Business Disclosure Format (check one):
Yes [ ]
No [ x ]
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements
Consolidated Balance Sheets at September 30, 2001 (Unaudited) and December 31, 2000 (Audited). . . . . . . . 2
Unaudited Consolidated Statements of Operations for the Three Months and Nine Months ended
September 30, 2001 and 2000. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Unaudited Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2001 and 2000. . . . 4
Notes to the Unaudited Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition. . . . . . . . . . . . 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
RAMPART CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEET
SEPTEMBER DECEMBER
30, 2001 31, 2000
----------- ------------
(UNAUDITED) (AUDITED)
ASSETS
Cash $ 940,014 $ 174,223
Purchased asset pools, net 1,643,870 2,156,214
Commercial ventures, net 7,785,443 8,237,288
Investment real estate 2,452,400 2,286,667
Notes receivable from related parties, net 151,799 489,901
Notes receivable project financing 8,256,272 3,502,622
Property and equipment, net 458,151 518,861
Other assets 647,397 256,300
Minority interest 190,413 83,298
------------ ------------
Total assets $22,525,759 $17,705,374
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 8,145,340 $ 7,259,332
Notes payable to related parties 1,745,304 -
Accounts payable and accrued expenses 996,832 1,048,254
Deferred tax liability 204,000 279,000
------------ ------------
Total liabilities 11,091,476 8,586,586
------------ ------------
Commitments and contingencies
Stockholders' equity
Preferred Stock, $0.01 par value; 10,000,000
shares authorized; none issued. - -
Common stock, $0.01 par value; 10,000,000
shares authorized; 3,050,000 shares issued. 30,500 30,500
Paid-in-capital 6,194,255 6,194,255
Retained earnings 5,588,027 3,272,532
Treasury stock, 144,857 shares, at cost (378,499) (378,499)
------------ ------------
Total stockholders' equity 11,434,283 9,118,788
------------ ------------
Total liabilities and stockholders' equity $22,525,759 $17,705,374
------------ ------------
2
RAMPART CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Net gain on collections on asset pools $1,736,766 $ 205,650 $2,409,104 $ 638,234
Investment real estate income 37,917 13,200 1,991,476 40,698
Commercial ventures income 526,218 733,293 2,095,935 1,656,652
Project financing income (loss), net (49,445) 43,720 285,003 113,820
Other income (expense) 6,909 22,689 13,900 43,680
----------- ----------- ----------- -----------
Total revenue 2,258,365 1,018,552 6,795,418 2,493,084
Costs of real estate sales 9,881 145,579 1,173,169 193,049
Operating and other costs 481,496 512,269 1,425,159 1,461,042
General and administrative expenses 669,058 508,293 1,750,071 1,645,595
Interest expense 37,501 28,514 313,640 52,166
Minority interests 11,212 - (107,116) -
----------- ----------- ----------- -----------
Total operating expense 1,209,148 1,194,655 4,554,923 3,351,852
----------- ----------- ----------- -----------
Net income (loss) before income tax benefit 1,049,217 (176,103) 2,240,495 (858,768)
Income tax benefit 25,000 - 75,000 23,000
----------- ----------- ----------- -----------
Net income (loss) $1,074,217 $ (176,103) $2,315,495 $ (835,768)
----------- ----------- ----------- -----------
Basic net income (loss) per common share $ 0.37 $ (0.06) $ 0.80 $ (0.28)
----------- ----------- ----------- -----------
Diluted net income (loss) per common share $ 0.37 $ (0.06) $ 0.80 $ (0.28)
----------- ----------- ----------- -----------
Average common shares outstanding 2,905,143 2,916,550 2,905,143 2,986,137
----------- ----------- ----------- -----------
3
RAMPART CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------------------
2001 2000
------------------- ------------------
Cash flows from operating activities:
Net income (loss) $ 2,315,495 $ (835,768)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation 151,711 121,898
Gain on sale of investment real estate (1,305,027) -
Gain on collections on asset pools (1,590,000) -
Deferred taxes (75,000) -
Asset pool costs deducted in net gain on collections 557,931 278,276
Change in loan loss reserve 323,937 (53,337)
Cost of real estate 1,173,169 221,548
Other costs capitalized (8,710) (124,668)
Minority interests (107,116) -
Changes in operating assets and liabilities:
Other assets (391,097) (96,471)
Accrued interest income (88,222) (183,248)
Accrued net income from joint venture (9,133) -
Accounts payable and accrued expenses (51,422) (74,114)
Accrued interest expense 68,597 -
------------------- ------------------
Net cash provided (used) by operating activities 965,113 (745,884)
------------------- ------------------
Cash flows from investing activities:
Purchase of commercial real estate (79,809) (5,346,334)
Reimbursed costs previously capitalized 111,463 -
Purchase of investment real estate (1,044,008) (239,950)
Distributions from equity investments 73,088 -
Purchase of notes receivable ( 8,052,021) (2,453,124)
Proceeds from notes receivable 6,249,009 48,504
Purchase of asset pools (756) (6,608)
Proceeds from purchased assessments 1,794 14,754
Purchase of property and equipment (23,797) (205,376)
------------------- ------------------
Net cash used by investing activities (2,762,037) (8,188,134)
------------------- ------------------
Cash flows from financing activities:
Purchase of treasury stock - (378,499)
Proceeds from notes payable to related parties 2,405,304 -
Payments on notes payable to related parties (660,000) -
Proceeds from notes payables 7,816,968 7,941,507
Payments on notes payables (6,999,557) (1,131,090)
------------------- ------------------
Net cash provided by financing activities 2,562,715 6,431,918
------------------- ------------------
Net increase (decrease) in cash 765,791 (2,502,100)
Cash at beginning of period 174,223 2,741,787
------------------- ------------------
Cash at end of period $ 940,014 $ 239,687
------------------- ------------------
4
RAMPART CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim financial information
-------------------------------
The accompanying unaudited financial statements have been
prepared without audit in accordance with accounting standards
generally accepted in the United States of America for interim
financial information on a basis consistent with the annual
audited consolidated financial statements and with the
instructions to Form 10-QSB and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in
the United States of America for complete financial statements.
The results of operations of interim periods are not necessarily
indicative of results to be expected for an entire year. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) and disclosures considered necessary for a
fair presentation of the results of operations and cash flows for
the periods presented have been included. The consolidated
financial statements should be read in conjunction with the
Company's audited consolidated financial statements included in
the Company's Annual Report on Form 10-KSB for the year ended
December 31, 2000.
Principles of Consolidation
-----------------------------
The consolidated financial statements include the assets of
Rampart Capital Corporation and its wholly owned subsidiaries
[herein referred to as "Rampart" or "The Company"]. The Company
owns a 51% interest in a partnership that is reported using the
full consolidation method. The consolidated financial statements
of the Company include 100% of the assets and liabilities of the
partnership and the ownership interests of minority participants
are recorded as minority interest.
In March and June of 2001, the Company sold a one-half ownership
interest in a majority of its residential lots and acreage within
the Newport project to a Canadian development and investment
company. The project is being reported as a joint venture between
Rampart and the Canadian company using the equity method of
accounting. All material intercompany balances have been
eliminated.
Project Financing
------------------
Revenues from project financing are reported net of direct
financing costs, primarily interest expense, associated with the
financing of each project. The gross project financing revenues
and financing costs for the nine months ending September 30, 2001
and 2000 are as follows:
Nine Months Ended
September 30,
2001 2000
----------- ----------
Gross project financing revenues $1,061,524 $ 247,988
Less: Financing costs (408,808) (134,168)
Less: Loan impairment (367,713) -
----------- ----------
Project financing income, net $ 285,003 $ 113,820
----------- ----------
Other income
-------------
Other income is comprised of investment income and miscellaneous
revenue. Other income is recognized as earned.
5
RAMPART CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
Reclassifications
-----------------
Certain reclassifications have been made to the 2000 financial
statements to conform to the 2001 presentation. Financing costs
incurred in financing projects are reported as reductions in
project financing revenues, whereas in 2000 these financing costs
had been reported as interest expense. These reclassifications
had no effect on the 2000 net loss or stockholders' equity.
NOTE 2 - NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share has been computed for all periods
presented and is based on the weighted average number of shares of
common stock and common stock equivalents outstanding during each
period. There are no common stock equivalents resulting from dilutive
stock purchase warrants or options, thus basic and diluted earnings
(loss) per share are the same for all periods presented.
NOTE 3 - ACQUISITIONS
On January 7, 2000, the Company finalized the acquisition of a 51%
interest in Greater Houston Gulf Partners, LTD (the "Partnership").
The Partnership was formed to acquire, own, and manage a condominium
redevelopment project located in Houston, Texas (the "Project"). In
connection with the Project's initial acquisition, the Company made a
loan to the Partnership for $1.1 million to provide financing for the
acquisition of the Project. The balance of the Project purchase price
and developmental funds were provided to the Partnership by a secured
bank loan in the amount of $2.9 million and additional loans of
$700,000 by the partners.
NOTE 4 - SEGMENT REPORTING
The Company operates in four business segments: (i) purchased asset
pools, (ii) commercial ventures, (iii) investment real estate, and
(iv) project financing. The purchased asset pools segment involves the
acquisition, management, servicing and realization of income from
collections on or sales of portfolios of undervalued financial assets,
and in some instances real estate the Company may acquire as part of
an asset pool or foreclosing on the collateral underlying an acquired
real estate debt. The commercial ventures segment involves holding
foreclosed and acquired improved real estate for appreciation and the
production of income. The investment real estate segment involves
holding foreclosed and acquired unimproved real estate for future
appreciation and acquiring unimproved real estate in conjunction with
short-term funding for developers. The project financing segment is
comprised of short-term financing of real estate at high yields and
real estate notes held by the Company from financing the sale of
Company assets. The notes are fully secured by real estate or other
collateral. "Unallocated" represents activities that are general
corporate in nature and do not relate specifically to any one segment.
The unallocated segment assets are comprised of cash, a related party
note receivable, prepaid assets and property and equipment.
Unallocated revenue is comprised of interest income generated from
overnight money market invested funds and miscellaneous other income.
Financial information by reportable operating segment is as follows:
6
As of and for the Nine Months ended September 30, 2001
--------------------------------------------------------------------------------
Purchased Commercial Investment Project
Asset Pools Ventures Real Estate Financing Unallocated Totals
------------ ----------- ------------ ----------- ------------- -----------
Revenue $ 2,409,104 $2,095,935 $ 1,991,476 $ 285,003 $ 13,900 $ 6,795,418
Segment profit (loss) 2,058,239 (464,994) 723,901 241,895 (318,546) 2,240,495
Identifiable assets 1,643,870 8,206,105 2,452,400 8,406,766 1,816,618 22,525,759
Depreciation and amortization - 137,917 - - 13,794 151,711
Capital expenditures - 79,809 - - 23,797 103,606
Investment in segment assets 756 - 1,049,870 10,930,331 - 11,980,957
Interest expense 432 205,766 44,912 - 62,530 313,640
As of and for the Nine Months ended September 30, 2000
---------------------------------------------------------------------------------
Purchased Commercial Investment Project
Asset Pools Ventures Real Estate Financing Unallocated Totals
------------ ----------- ------------- ---------- ------------- ------------
Revenue $ 638,234 $1,656,652 $ 40,698 $ 113,820 $ 43,680 $ 2,493,084
Segment profit 298,301 (922,007) (138,445) 80,577 (177,194) (858,768)
Segment assets 2,214,109 8,743,596 2,235,840 3,898,622 427,571 17,519,738
Depreciation and amortization - 108,597 - - 13,301 121,898
Capital expenditures - 5,288,723 - - 33,325 5,322,048
Investment in segment assets 6,647 - 364,617 2,453,125 - 2,824,389
Interest expense - 35,174 16,992 - - 52,166
7
RAMPART CAPITAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2000
Revenues increased $4,302,334 from $2,493,084 during the nine months ending
September 30, 2000 to $6,795,418 during the first nine months of 2001. The
increase in revenues consisted of growth in commercial ventures revenues of
$439,283, in investment real estate revenues of $1,950,778, in project financing
revenues of $171,183, and in net gain on collections on asset pools of
$1,770,870. These increases were partially offset by a decrease in unallocated
revenues of $29,780. The increase in commercial ventures revenues of $439,283
was primarily due to increases of approximately $49,000 at the Newport Golf Club
and Conference Center operations, of approximately $107,000 in rentals from our
Dallas and San Antonio retail centers, and of approximately $283,000 in
residential unit sales from the condominium redevelopment project. The increase
in investment real estate revenues of $1,950,778 was mainly due to the sale of a
50% ownership interest in 778 residential lots and 8 tracts of land within the
Newport project to a Canadian development and investment company and the sale of
12 additional lots to a local real estate developer, for which there were no
corresponding sales in the first nine months of 2000. The increase in revenues
for project financing of $171,183 was due to increased lending activity combined
with a wider spread between our cost of capital and our lending rates on
financing projects. On September 30, 2001, we had approximately $4.5 million
more in project loans outstanding as compared to September 30, 2000. Revenues
from net gain on collections on asset pools increased by $1,770,870 in the first
three quarters of 2001 compared to the same period in 2000 because of higher
collection activities in that segment, including a single large collection that
produced a net gain of approximately $1,576,000.
Costs of real estate sales were $980,120 higher in the nine-month period ending
September 30, 2001 compared to the same period in 2000. The primary reason for
this increase was the cost of investment real estate sold from the Newport
project of $805,213 during the first nine months of 2001 compared to no cost of
sales of investment real estate in the corresponding period in 2000. The cost
of commercial real estate sold in the first nine months of 2001 was $367,956
compared to $193,049 in the same period in 2000. This $174,907 increase was due
to sales of condominiums in 2001 for which there were no sales in 2000.
Operating and other costs decreased by $(35,883) from $1,461,042 during the nine
months ending September 30, 2000 to $1,425,159 for the same period in 2001.
Costs of operations at Newport decreased by $(95,453) during the first three
quarters of 2001 compared to the same period in 2000. The decrease in
operational and other costs at Newport Golf Club and Conference Center was
primarily due to increased operating efficiencies resulting from the
discontinued use of an outside management company in favor of internal
management. These decreases in operational and other direct costs at Newport
Golf Club and Conference Center occurred even with increases in revenues of
approximately $49,000 from the first three quarters of 2001 compared to the same
period in 2000. Operating and other costs increased at the condominium project
by $56,320 from $28,499 for the nine months ended September 30, 2000 to $84,819
for the corresponding period in 2001 due to increased selling expenses. The
condominiums were being redeveloped during the first half of 2000 and were not
available for sale until the third quarter of 2000. Sales continued from
January through June of 2001 when much of the condominium complex was
significantly damaged by flooding from tropical storm "Allison". Flood
restoration work began immediately after the flood and is expected to be
completed by the first quarter of 2002. The homeowner's association has
received approximately $2.9 million in insurance proceeds for which
approximately $2.3 million has been segregated for our units. Some of the units
are expected to be ready for sale in the fourth quarter of 2001.
General and administrative expenses ("G&A") increased $104,476 from $1,645,595
in the first nine months of 2000 to $1,750,071 in the same period of 2001.
Labor expenses increased approximately $68,000 due to the hiring of an
additional employee to assist with collections, commissions paid to employees
related to specific collections agreements, general wage increases and
replacement of personnel at higher rates of pay. Franchise tax expense
increased by approximately $53,000 due to higher earnings. Legal expense
increased by approximately $39,000 due to increased collection activities.
Property taxes decreased by approximately $(47,000) due to the sale of a 50%
interest in most of the residential lots and acreage at the Newport project.
Interest expense increased $261,474 from $52,166 in the first three quarters of
2000 to $313,640 for the same period in 2001. Much of this increase in interest
expense was attributable to the condominium redevelopment project, which
reported an interest expense increase of $143,524. The increased interest from
the condominium project was the result of capitalizing the interest costs during
the construction period during 2000 through September of that year, and
expensing interest from October of 2000 through the beginning of the flood
restoration period in June of 2001. Since June 2001 an additional $58,155 in
interest expense has been capitalized while the condominium redevelopment
project is under restoration, which is anticipated to be complete by the first
quarter of 2002. Increased borrowing on the working capital line of credit in
2001 as compared to 2000 resulted in increased interest of approximately
$118,000.
8
Minority interests expense reduced total operating expenses by $107,116 for the
nine months ended September 30, 2001 with no corresponding expense reported for
the comparable 2000 period. Minority interests expense represents the minority
partners' share of the condominium redevelopment project's revenues and
expenses. Minority interest expense did not occur during the first nine months
of 2000 because the construction phase of the condominium project was not
completed until September 30, 2000.
Net income before income taxes increased $3,099,263 from a loss of $(858,768)
during the first three quarters of 2000 to net income before income taxes of
$2,240,495 for the same period in 2001. The increase in net income consisted of
$457,013 from commercial ventures, $862,346 from investment real estate,
$161,318 from project financing activities, and $1,759,938 from net gain on
collections on asset pools. Increased net income before income taxes in the
commercial venture segment primarily resulted from a smaller loss from Newport
Golf Course and Conference Center of approximately $406,000, increased profits
from the Dallas and San Antonio retail centers of approximately $82,000, offset
by increased losses from the condominium project of approximately $(12,000) and
an increase in line of credit interest of $(19,000) assigned to this business
segment. The increase from investment real estate was due primarily to
increased sales of residential lots and tracts of land from the Newport project,
which resulted in higher net income before income taxes of approximately
$902,000 offset by an increase of approximately $(16,000) in carrying costs on
other investment assets, and an increase of approximately $(24,000) in line of
credit interest assigned to this segment. The increased net income from the
project financing segment was due to increased loan activity. The increase in
net income from net gains on collections on asset pools was mainly due to
increased collection activities, including a single collection that produced a
net gain of approximately $1,576,000.
Income tax benefit was $23,000 in 2000 compared to $75,000 in 2001. We have
available a significant net operating loss carryforward which was primarily
generated from the acquisition of certain corporate subsidiaries and assets of
MCorp Trusts. Due to the availability of net operating loss carry forwards and
other net deferred tax assets, we offset our taxable income during 2000 and 2001
and adjusted its valuation allowance accordingly.
THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2000
Revenues increased $1,239,813 from $1,018,552 during the three months ending
September 30, 2000 to $2,258,365 during the third quarter of 2001. The increase
in revenues consisted of growth in net gain on collections on asset pools of
$1,531,116 and investment real estate revenues of $24,717, offset by lower
revenues from commercial ventures revenues of $207,075, project financing net
revenues of $(93,165), and other income of $(15,780). The increase in net gain
on collections on asset pools was principally due to the timing of collections
in normal business operations. The increase in investment real estate revenues
was due to an approximately $14,000 increase in sales of residential lots in
2001 as compared to 2000 and an increase in rentals received on investment
assets of approximately $10,000. The decrease in commercial ventures revenues
was primarily due to decreased revenues from Newport of $(81,443), from the
condominium project of $(175,837), offset by increases in revenues and from the
Dallas and San Antonio retail centers of $50,205. Project financing gross
revenues were up approximately $366,000 due to higher lending levels during the
third quarter of 2001 compared to the same quarter in 2000. Project financing
net revenues decrease by $(93,164) because of a loan loss impairment required
when the value of the asset securing the loan declines to less than the amount
due on the loan. Some of our loans are secured by publicly traded stock which
declined below the carrying value of the loans and, as such, an impairment of
approximately $(368,000) was recognized. The amount of the impairment will be
increased for any further declines in the value of the collateral, and decreased
for any increases in the value of the collateral or principal reductions in the
amounts of the notes receivable.
Cost of real estate sales decreased by $(135,698) from $145,579 for the three
months ending September 30, 2000 to $9,881 for the same period in 2001. The
decrease consisted of $(145,579) costs of residential units sold by the
condominium project in 2000 for which there were no corresponding costs of sales
in the third quarter of 2001, offset by an increase of $9,881 in cost of sales
from investment real estate, for which there were no corresponding sales in the
same quarter of 2000.
Operating and other costs decreased by $(30,773) from $512,269 incurred during
the quarter ending September 30, 2000 and $481,496 for the same period in 2001.
This decrease consisted of a decline in selling costs at the condominium
redevelopment project of $(21,395) and a decrease of operating and other costs
at Newport Golf Course and Conference Center by $(9,378).
General and administrative expenses ("G&A") increased $160,765 from $508,293 in
the third quarter of 2000 to $669,058 in the same period of 2001. Those expense
categories showing increases in 2001 over 2000 were labor costs of approximately
$33,000, legal expense of approximately $48,000, and franchise taxes of
approximately $97,000, offset by a decrease of approximately $(20,000) in
professional fees. Labor costs increased due to the hiring of an additional
employee to assist with collections and general wage increases to non-management
personnel. Legal expenses increased primarily due to increased collection
activities. The increase in franchise taxes is related to the increased
profits. Professional fees declined due to replacing an outside management
company with internal management at Newport Golf Club and Conference Center.
9
Because of increased borrowing on our line of credit, interest expense increased
by $8,987 from $28,514 during the third quarter of 2000 to $37,501 during the
same period in 2001.
Minority interests expense increased total operating expenses by $11,212 during
the third quarter of 2001. There was no minority interests expense during the
third quarter of 2000. Minority interests expense represents the minority
partners' share of the condominium redevelopment project's revenues and
expenses. Minority interest expense did not occur during the third quarter of
2000 because the construction phase of the condominium project was not completed
until September 30, 2000.
Net income before income taxes increased $1,225,320 from a net loss of
$(176,103) during the third quarter of 2000 to a net income before taxes of
$1,049,217 for the same period in 2001. The increased net income consists of
$1,390,589 from net gain on collections on asset pools, and $133,931 from
commercial ventures, which increases were partially offset by a net loss of
$(73,233) from investment real estate, $(93,854) from project financing and by
an increased loss from unallocated profits of $(132,113). The increased net
income before income taxes on net gain on collections on asset pools was related
to increased activities in this segment, primarily the collection of one large
item. The increased earnings on commercial ventures was primarily due to
reduced losses of approximately $27,000 from Newport Golf Course and Conference
Center, and of approximately $79,000 from the condominium redevelopment project
during the third quarter of 2001 as compared to the same period in 2000. In
addition, the Dallas and San Antonio retail centers reported higher earnings of
approximately $39,000. These increases were partially offset by higher
unallocated expenses in the commercial ventures by approximately $(11,000). The
decrease in earnings from investment real estate was predominantly due to the
carrying costs for investment land exceeding sales for the quarter by
approximately $(73,000). The decrease in earnings from project financing was
mainly due to the impairment of a loan whose underlying collateral decreased in
value by approximately $(368,000).
Income tax benefit was $25,000 in the third quarter of 2001 compared to no
income tax benefit recorded in the third quarter of 2000.
LIQUIDITY AND CAPITAL RESOURCES
We had cash and cash equivalents of $940,014 at September 30, 2001 compared to
$174,223 at December 31, 2000.
During 2001, we continued to invest a substantial portion of our cash reserves
in various projects, most notably was an $11.0 million investment in several
short-term project financing loans and the financing of sales of properties.
This short-term project financing of real estate are high yield loans and are
fully secured by real estate or other collateral. Cash flow from project
financing activities during the first three quarters of 2001 was $7.2 million.
Borrowings to fund our project financing activities for the nine months ended
September 30, 2001 consisted of several first lien notes, from a national
lending institution totaling $5.3 million having interest rates ranging from
prime plus 2% to prime plus 2.5% and $1,745,304 in second lien notes from
related parties bearing 18% interest, with both the first and second lien notes
secured by the real estate secured project financing loans we originated. The
remainder of the financing consisted of $2.2 million in draws against our
revolving credit facility, of which $250,000 was used to provide secured project
financing loans with the balance used to purchase additional lots at Newport and
to provide general working capital to fund operations.
Due to the capital-intensive nature of our business, we have experienced, and
expect to continue to experience substantial working capital needs. Future cash
flows from operations and future borrowings available under our revolving credit
facility will be sufficient to fund our capital expenditures and working capital
requirements, as they currently exist. However, demand for our real estate
secured bridge financing exceeds our funds available from current sources.
On June 30, 2001, we renewed our revolving credit facility to mature on December
31, 2001. This revolving credit facility is secured by notes receivable and
real estate in purchased asset pools, commercial and investment real estate,
notes receivable from project financing, and equipment. Principal is payable at
maturity with interest payable monthly at the bank's prime rate plus 1.0% per
annum (6.00% and 10.50% as of September 30, 2001 and December 31, 2000,
respectively). Management is negotiating with other financial institutions to
increase the amount of credit facilities available. The revolving credit
facility provides for certain financial covenants. As of the filing date of
this quarterly report, we are in compliance with these covenants.
STOCK REPURCHASES
On January 11, 2000, the Board of Directors approved a stock repurchase plan
under Rule 10b-18 promulgated under the Securities Exchange Act of 1934, for the
purchase of up to $2.0 million worth of our outstanding common stock in open
market transactions. Acquired shares will be held as treasury stock, and will
be available for future acquisitions and financing or for awards granted under
our 1998 Stock Compensation Plan. As of September 30, 2001, we had acquired
144,587 shares at a total cost of $378,499 or $2.62 per share. We intend to
continue repurchasing shares subject to SEC restrictions and the American Stock
Exchange continued listing requirements.
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FORWARD LOOKING STATEMENTS
This quarterly report on Form 10-QSB contains "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All statements
other than statements of historical facts included in this report including,
without limitation, statements regarding our business strategy, plans,
objectives, expectations, intent, and beliefs of management for future
operations are forward-looking statements. Such statements are based on certain
assumptions and analyses made by our management in light of their experience and
their perception of historical trends, current conditions, expected future
developments and other factors they believe to be appropriate. The
forward-looking statements included in this report are also subject to a number
of material risks and uncertainties. Important factors that could cause actual
results to differ materially from our expectations include (1) tightening of the
credit markets, (2) volatility in the real estate markets and interest rates,
(3) emerging competition, (4) changes in regulations in the industries we serve,
(5) general economic declines, particularly within the regions in which we
operate, and (6) terrorist activities. Forward-looking statements are not
guarantees of future performance and actual results, as developments and
business decisions may differ from those contemplated by such forward-looking
statements.
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None this quarter.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - See "Index of Exhibits" below which lists the documents filed as
exhibits herewith.
(b) Reports on Form 8-K - No reports on Form 8-K were filed during the quarter
ended September 30, 2001.
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Signatures
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Rampart Capital Corporation
By: /s/ C. W. JANKE November 13, 2001
C. W. Janke
Chairman of the Board
Chief Executive Officer
(Principal Executive Officer)
By: /s/ J. H. CARPENTER November 13, 2001
J. H. Carpenter
President
Chief Operating Officer
By: /s/ CHARLES F. PRESLEY November 13, 2001
Charles F. Presley
Vice-President
Chief Financial Officer
Treasurer
(Principal Financial Officer)
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RAMPART CAPITAL CORPORATION
EXHIBITS TO FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 2001
INDEX OF EXHIBITS
EXHIBIT
NO. DESCRIPTION
--- -----------
3.1 Restated Articles of Incorporation (Exhibit 3.1 to Rampart's
Registration Statement on Form SB-2 (Reg. No. 333-71089) and
incorporated herein by reference).
3.2 Bylaws (Exhibit 3.2 to Rampart's Registration Statement on Form SB-2
(Reg. No. 333-71089) and incorporated herein by reference).
4.1 Form of Warrant Agreement Between Rampart and American Stock Transfer
and Trust Company (Exhibit 4.1 to Rampart's Registration Statement on
Form SB-2 (Reg. No. 333-71089) and incorporated herein by reference).
4.2 First Amendment of Warrant Agreement (Exhibit 4.1 to Rampart's Form
8-K filed April 12, 2001 (File No. 1-15277) and incorporated herein by
reference).
10.3 Eleventh Amendment to Loan Agreement with Southwest Bank of Texas N.
A., amended June 30, 2001. (Exhibit to Rampart's Form 10-QSB filed
August 13, 2001 and incorporated herein by reference).
- ----------------------------------
* Filed herewith.
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