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 March 31, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period 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)
16401 Country Club Drive
Crosby, Texas
(Address of Principal Executive Office)
77532
(Zip Code)
713-223-4610
(Registrant's Telephone Number)
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date:
As of May 9, 2003, the registrant had 2,905,143 shares of common stock
outstanding after deduction of 144,857 shares of treasury stock.
Transitional Small Business Disclosure Format (check one):
Yes [ ]
No [x]
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page No.
Consolidated Balance Sheets at March 31, 2003 (unaudited) and December 31, 2002 (audited) . . . . . 1
Unaudited Consolidated Statements of Operations for the Three Months ended March 31, 2003 and 2002. 3
Unaudited Consolidated Statements of Cash Flows for the Three Months ended March 31, 2003 and 2002. 4
Notes to the Unaudited Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis or Plan of Operation . . . . . . . . . . . . . . . . . . . . . 7
Item 3. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RAMPART CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
MARCH 31, 2003 DECEMBER 31, 2002
---------------- -------------------
(UNAUDITED) (AUDITED)
Current assets
Cash and cash equivalents $ 437,322 $ 558,559
Purchased asset pools 402,960 717,960
Commercial real estate 3,272,344 3,611,683
Investment real estate 616,956 627,428
Notes receivable - real estate financing 5,430,118 5,444,811
Notes receivable - other 257,355 431,732
Notes receivable - related parties 105,819 11,597
Other current assets 246,346 193,182
---------------- -------------------
Total current assets 10,769,220 11,596,952
---------------- -------------------
Property and equipment, net 336,995 360,849
Investments and other long-term assets
Purchased asset pools, net of current portion 657,142 700,109
Commercial real estate, net of current portion 2,437,462 3,343,089
Investment real estate, net of current portion 5,890,645 1,594,380
Investment in real estate joint ventures 820,225 1,744,169
Notes receivable - related parties, net of current portion 35,419 147,347
Other long-term assets 105,818 177,090
---------------- -------------------
Total investments and other long-term assets 9,946,711 7,706,184
---------------- -------------------
Total assets $ 21,052,926 $ 19,663,985
---------------- -------------------
See Notes to Consolidated Financial Statements
1
LIABILITIES AND STOCKHOLDERS' EQUITY
MARCH 31, 2003 DECEMBER 31, 2002
---------------- -------------------
(UNAUDITED) (AUDITED)
Current liabilities
Accounts payable and accrued expenses $ 677,678 $ 814,363
Notes payable 3,621,262 6,297,203
Notes payable - related parties 2,441,004 1,056,019
---------------- -------------------
Total current liabilities 6,739,944 8,167,585
---------------- -------------------
Notes payable, net of current portion 3,215,892 53,223
---------------- -------------------
Total liabilities 9,955,836 8,220,808
---------------- -------------------
Commitments and contingencies - -
Stockholders' equity
Preferred Stock, $.01 par value; 10,000,000 shares
authorized; none issued
Common stock, $.01 par value; 10,000,000 shares
authorized; 3,050,000 shares issued and outstanding 30,500 30,500
Additional paid-in-capital 6,194,255 6,194,255
Retained earnings 5,250,834 5,596,921
Treasury stock, 144,857 shares, at cost (378,499) (378,499)
---------------- -------------------
Total stockholders' equity 11,097,090 11,443,177
---------------- -------------------
Total liabilities and stockholders' equity $ 21,052,926 $ 19,663,985
---------------- -------------------
See Notes to Consolidated Financial Statements
2
RAMPART CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
----------------------------------
2003 2002
----------------- ---------------
Net gain on collections on asset pools $ 710,578 $ 175,775
Commercial ventures income 995,455 518,147
Investment real estate income 85,093 66,187
Equity in earnings of investment real estate ventures (42,936) 27,941
Real estate bridge lending income, net 334,303 89,023
Other financing income (loss), net (10,190) (43,398)
Interest income 1,055 1,870
Other income 42,400 5,400
----------------- ---------------
Total revenue 2,115,758 840,945
----------------- ---------------
Costs of real estate sales 423,252 3,426
Operating and other costs 576,882 458,178
----------------- ---------------
Total cost of sales 1,000,134 461,604
----------------- ---------------
Gross Profit 1,115,624 379,341
----------------- ---------------
General and administrative expenses 631,954 601,550
Interest expense 87,583 37,243
Minority interests - (8,272)
Loss on impairment of long-lived assets 742,174 -
----------------- ---------------
Total operating expense 1,461,711 630,521
----------------- ---------------
Loss before income tax benefit
and extraordinary item (346,087) (251,180)
Income tax benefit - 50,000
----------------- ---------------
Net loss before extraordinary item (346,087) (201,180)
----------------- ---------------
Extraordinary item, extinguishment of debt,
net of taxes - 430,000
----------------- ---------------
Net income (loss) $ (346,087) $ 228,820
----------------- ---------------
Basic and diluted earnings (loss) per common share:
Net loss from operations before
extraordinary item $ (0.12) $ (0.07)
Extraordinary item - 0.15
----------------- ---------------
Net income (loss) per common share $ (0.12) $ 0.08
----------------- ---------------
Basic and diluted weighted average common
shares outstanding 2,905,143 2,905,143
----------------- ---------------
See Notes to Consolidated Financial Statements
3
RAMPART CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS
ENDED MARCH 31,
--------------------------
2003 2002
------------ ------------
Cash flows from operating activities:
Net income (loss) $ (346,087) $ 228,820
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Depreciation 57,584 50,309
Amortization of cost of asset pools 357,100 74,205
Amortization of deferred gain on joint venture assets (26,137) (47,968)
Cost of commercial real estate sold 386,336 -
Cost of investment real estate sold 36,916 -
Change in loan loss reserve, related parties 21,866 120,000
Equity in (earnings) loss of real estate joint ventures 42,936 (27,941)
Loss on impairment of long-lived assets 742,174 -
Minority interests - (8,272)
Deferred Taxes - (50,000)
Extraordinary item - (430,000)
Changes in operating assets and liabilities
Other assets 18,108 (246,950)
Accrued interest income 9,887 318
Accrued interest income, related parties (4,924) (4,373)
Accounts payable and accrued expenses (136,685) (219,957)
Accrued interest expense 52,868 8,724
------------ ------------
Net cash provided by (used in) operating activities 1,211,942 (553,085)
------------ ------------
Cash flows from investing activities:
Purchase of commercial real estate (14,026) (662,153)
Purchase of investment real estate (57,480) (41,366)
Real estate joint ventures:
Investments (240,977) (126,000)
Distributions 180,020 88,929
Notes receivable:
Advances - (525,000)
Collections 179,181 204,376
Proceeds from notes receivable from related parties 764 -
Purchase of notes receivable from related parties - (110,000)
Purchase of property and equipment (3,507) (19,778)
------------ ------------
Net cash provided by (used in) investing activities 43,975 (1,190,992)
------------ ------------
Cash flows from financing activities:
Proceeds from notes payable to related parties 1,400,000 100,000
Payments on notes payable to related parties (15,015) (20,841)
Proceeds from notes payable - 950,522
Payments on notes payable (2,762,139) (9,915)
------------ ------------
Net cash provided by (used in) financing activities (1,377,154) 1,019,766
------------ ------------
Net decrease in cash (121,237) (724,311)
Cash at beginning of period 558,559 1,071,223
------------ ------------
Cash at end of period $ 437,322 $ 346,912
------------ ------------
See Notes to Consolidated Financial Statements
4
RAMPART CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim financial information
-------------------------------
The accompanying unaudited consolidated 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, 2002.
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"). As of March
31, 2002 the Company owned a 100% interest in a partnership that
is reported using the full consolidation method. Before March 31,
2002 the Company owned a 51% interest in the partnership and
reported the ownership interests of minority participants as
minority interest. The consolidated financial statements of the
Company include 100% of the assets and liabilities of the
partnership. As of March 31, 2002, when the Company became the
100% owner of the partnership interest, all minority interest was
eliminated and became part of the Company's investment in the
partnership.
The Company has an undivided 50% ownership interest in the
Newport real estate project. The project is being reported as a
joint venture and is being accounted for using the equity method
of accounting since the Company exercised significant influence,
but not financial or operating control over the joint venture.
In December of 2001, the Company purchased a 50% interest in a
real estate development partnership. During the first quarter of
2003 the Company became the 100% owner of the partnership
interest. Before becoming the 100% owner the Company accounted
for this entity using the equity method of accounting. During the
first quarter of 2003, as a result of becoming the 100% owner of
the partnership interest, the Company began using the full
consolidation method of accounting for the assets and liabilities
of this entity.
Real estate financing
---------------------
Revenues from real estate financing, which include both real
estate bridge lending and other financing, are reported net of
direct financing costs, primarily interest expenses, associated
with the financing of each project. The gross real estate
financing revenues and financing costs for the three months
ending March 31, 2003 and 2002 were as follows:
5
RAMPART CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
------------------------
2003 2002
---------- ------------
Gross real estate bridge lending revenues $ 445,878 $ 166,368
Less: Bridge lending costs (111,575) (77,345)
---------- ------------
Real estate bridge lending income, net $ 334,303 $ 89,023
========== ============
Gross other financing revenues $ 11,676 $ 76,602
Less: Other financing costs (21,866) (120,000)
---------- ------------
Other financing income (loss), net $ (10,190) $ (43,398)
========== ============
Other income
--------------
Other income is comprised of investment income and miscellaneous
revenue. Revenue is recognized as earned.
Impairment of long-lived assets
-----------------------------------
In October 2001, the Financial Accounting Standards Board
("FASB") issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," applicable to financial
statements issued for fiscal years beginning after December 15,
2001. The FASB's new rules on asset impairment supersede SFAS No.
121 and portions of Accounting Principles Board Opinion ("APB")
30, "Reporting the Results of Operations of Businesses to be
Disposed of." SFAS No. 144 provides a single accounting model for
long-lived assets to be disposed of and significantly changes the
criteria that would have to be met to classify an asset as
held-for-sale. Classification as held-for-sale is an important
distinction since such assets are not depreciated and are stated
at the lower of fair value and carrying amount. SFAS No. 144 also
requires expected future operating losses from discontinued
operations to be displayed in the period(s) in which the losses
are incurred, rather than as of the measurement date, as
previously required.
The Company evaluates its portfolio of long-lived assets for
impairment on a periodic basis or when there is an indication
that an impairment has occurred. During the first quarter of
2003, the Company recognized an impairment loss of $742,174 on
the Newport Golf Course and Conference Center. Despite
significant marketing efforts and improvements made to the Golf
Course and Conference Center after it was acquired in 1999, and
recent improvements made to the golf course in late 2002, the
Company continues to incur losses managing this operation. The
impairment was based on a current restricted appraisal dated May
5, 2003, which valued the Golf Course and Conference Center at
between $2,200,000 and $2,500,000. The decline in appraised value
is due to the suppressed golf market in the entire Houston area
resulting from a downturn in the overall economy and an
overbuilding of golf courses in the Houston market.
Assets held for sale
-----------------------
A large portion of the Company's operations is comprised of the
acquisition for resale of various types of commercial and
investment real estate assets. The Company has a portfolio of
commercial and investment real estate assets that are actively
being marketed for immediate sale. In addition, the Company,
through its investment in the Newport Joint Venture, has various
residential lots that are being actively marketed to individuals
and reputable housing developers. The Company's portfolio of
assets held for sale that are expected to qualify for sale
recognition within one year are classified as a current asset.
6
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.
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 townhome
redevelopment project (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 bank loan in
the amount of $2.9 million and additional loans of $1.4 million from
the partners. Subsequently, the bank loan was reduced by flood
insurance proceeds and renewed at $1.8 million. On March 31, 2002, the
minority partners forgave $660,000 in debt to the Partnership and the
Company assumed a 100% ownership interest in the Partnership. The
extraordinary gain was recorded net of an adjustment of approximately
$230,000 representing the holding cost of the townhome units, which
are reported at the lower of cost or market value.
NOTE 4 - NOTES RECEIVABLE IN DEFAULT
During March 2003, a borrower defaulted under the terms of two real
estate bridge financing notes totaling $3,751,969 and immediately
filed for bankruptcy protection to prevent foreclosure on the
underlying collateral by the Company. The Company has a first lien and
security position in two parcels of real estate that secure the notes
receivable. The borrower is currently evaluating other sources of
capital to repay the amounts borrowed. Management of the Company
believes that if foreclosure should occur the value of the real estate
collateral will exceed the amount of the notes receivable balances and
no impairment will result.
As referred to in Note 5, in conducting its real estate bridge lending
activities, the Company generally secures financing of up to 80% of
the amount of the note receivable advance which in turn is secured by
the underlying real estate. As of March 31, 2003, the Company had
notes payable of $1,300,000 outstanding with third party financial
institutions related to the notes receivable that are in default of
which $1,040,000 is guaranteed by an officer of the Company (see Note
5).
NOTE 5 - RELATED PARTY ACTIVITIES
Related party transactions
----------------------------
A director and an officer of the Company are partners, along with
other non-related individuals, in a partnership which holds a 6.75%
net cash profits interest in two of the Company's purchased asset
pools. As of March 31, 2003, undistributed net profits of $115,505 are
owed to this partnership and will be paid when collections are
received. During the three months ended March 31, 2003, the Company
paid a total of $0 representing the partnership's participation in
cash collections on these asset pools.
During October 2002, the Company secured a $1,300,000 note from a
financial institution. As a component of the terms of the loan, an
officer of the Company pledged 600,000 shares of personally owned
common stock of the Company to guarantee $1,040,000 of the loan
amount. The officer received compensation of $52,000 during 2002, or
5% of the guaranteed amount, as a fee for the pledge.
Notes payable related parties
--------------------------------
From time to time, the Company enters into note payable agreements
with certain related parties, some of which are officers and directors
of the Company, to provide working capital necessary to conduct its
ongoing business affairs. Generally these second lien notes have a
term not to exceed 12 months and bear interest at a fixed rate of 18%
per annum. During the three months ended March 31, 2003 and 2002, the
Company received proceeds from borrowings of $1,400,000 and $100,000,
respectively, and repaid $15,015 and $20,841, respectively, under the
terms of these related party note agreements. The total outstanding as
of March 31,2003 was $2,441,004. For the three months ended March 31,
2003 and 2002, total interest accrued and paid was $87,746 and
$37,492, respectively.
7
Notes receivable related parties
-----------------------------------
During June 1998, the Company sold real estate property from its asset
pool to related parties in exchange for four notes receivable totaling
$525,000. These notes are secured by certain investments in common
stock held by the related parties. Principal plus interest at 10% per
annum was due June 2001 for each of the notes. During June 2001, the
Company elected to extend the terms of the notes to mature on June 30,
2004 and to reduce the interest rates from 10% to 4.07% per annum.
The outstanding notes receivable from related parties plus accrued
interest was $540,074 and $544,447 at December 31, 2002 and March 31,
2003, respectively. During the year ended December 31, 2002, and again
during the first quarter of 2003, the fair value of the underlying
collateral of these notes was determined to be impaired. In accordance
with SFAS No. 114, the Company provided an allowance of $120,000
during 2002 and an additional allowance of $21,866 during the first
quarter of 2003 to reduce the notes to their estimated net realizable
value. There were no principal or interest payments received during
the year ended December 31, 2002 or during the first quarter ended
March 31, 2003.
During the year ended December 31, 2002, the Company entered into a
15-year note receivable of $110,000 with an officer of the Company.
The note bears interest at a rate of prime plus 2% (6.25% at March 31,
2003) and matures on March 15, 2017. The note is secured by
residential real estate. Total principal and interest payments
received on this note were $1,886 during the three months ended March
31, 2003. Total interest income earned on this note during the three
months ended March 31, 2003 was $1,660. This note was paid in full
during April, 2003.
NOTE 6 - SEGMENT REPORTING
The Company operates in four business segments: (i) collections of
purchased asset pools, (ii) commercial real estate ventures, (iii)
investment real estate and joint ventures and (iv) real estate
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 by foreclosing on the collateral underlying an acquired real
estate debt. The commercial real estate ventures segment involves
holding foreclosed and acquired improved real estate for appreciation
and the production of income. The investment real estate and joint
ventures 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 real
estate financing segment is comprised of short-term financing of real
estate ("bridge lending") 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. Unallocated segment assets
consist of cash, prepaid assets and non-segmental property and
equipment. Unallocated revenue consists of interest income generated
from overnight money market invested funds and miscellaneous other
income. Financial information by reportable operating segment is as
follows:
As of and for the Three Months Ended March 31, 2003
-----------------------------------------------------------------------
Purchased Commercial Investment Real Estate
Asset Pools Real Estate Real Estate Financing Unallocated Totals
------------ ------------- ------------- ------------ ------------- ------------
Revenue $ 710,578 $ 995,455 $ 42,157 $ 324,113 $ 43,455 $ 2,115,758
Equity in losses of
real estate joint ventures - - (42,936) - - (42,936)
Segment profit (loss) 574,123 (1,078,727) (114,320) 284,766 (11,929) (346,087)
Assets of real estate joint
ventures, equity method - - 1,270,225 - - 1,270,225
Identifiable assets 1,060,102 6,007,855 7,327,826 5,828,711 828,432 21,052,926
Depreciation and amortization - 53,150 - - 4,434 57,584
Capital expenditures - 14,026 - - 3,507 17,533
Investment in segment assets - - 298,457 - - 298,457
Interest expense - 59,461 26,653 - 1,469 87,583
8
As of and for the Three Months Ended March 31, 2002
---------------------------------------------------------------------
Purchased Commercial Investment Real Estate
Asset Pools Real Estate Real Estate Financing Unallocated Totals
------------ ------------- ------------- ---------- ------------- ------------
Revenue $ 175,775 $ 518,147 $ 94,128 $ 45,625 $ 7,270 $ 840,945
Equity in earnings of
real estate joint ventures - - 27,941 - - 27,941
Segment profit (loss) 85,330 (266,843) (17,668) 29,469 (81,468) (251,180)
Extraordinary item - 430,000 - - - 430,000
Assets of real estate joint
ventures, equity method - - 1,879,910 - - 1,879,910
Identifiable assets 1,499,411 7,427,057 3,553,324 6,371,085 1,381,049 20,231,926
Depreciation and amortization - 46,344 - - 3,965 50,309
Capital expenditures - 860,743 - - 19,778 880,521
Investment in segment assets - - 170,791 635,000 - 805,791
Interest expense - 21,372 6,219 - 9,652 37,243
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THREE MONTHS ENDED MARCH 31, 2002
Revenues increased $1,274,813 from $840,945 during the quarter ending March 31,
2002 to $2,115,758 during the first quarter of 2003. The increase in revenues
consisted of higher net gains on collections on asset pools of $534,803,
increased commercial ventures revenues of $477,308, higher real estate financing
revenues, net of $278,488, and higher unallocated revenues of $36,185, offset by
reduced investment real estate revenues of $51,971. Higher net gains on
collections on asset pools were due primarily to the collection of two major
litigation claims which produced net gains of approximately $700,000 during the
first quarter of 2003 for which there was no corresponding major collection on
asset pools in the first quarter of 2002. Increased commercial ventures revenue
was due to the sale of eight residential units at our townhome redevelopment
project for $616,500 during the first quarter of 2003 for which there were no
corresponding sales during the first quarter of 2002. This increase was offset
by lower revenues from Newport Golf Club and Conference Center of $120,289 and
lower rental revenues from our Dallas and San Antonio retail centers of $18,903
during the first quarter of 2003 as compared to the same quarter of 2002. The
increase in real estate financing net revenues is due to higher yield spreads
between our lending and borrowing rates, which resulted in higher net revenues
of $180,354 during the first quarter of 2003 as compared to the same quarter in
2002. In addition, the Company reported loan loss impairments of $21,866 during
the first quarter of 2003 compared to loan loss impairments of $120,000 reported
during the first quarter of 2002. A loan loss impairment is 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, appropriate impairment
losses were 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. On March 31, 2003 we had $5,828,713 in project loans compared
to $6,371,085 on March 31, 2002. The decrease in investment real estate
revenues was due to a decrease in real estate sales from the Newport project of
approximately $39,000 and lower revenues from our Conroe properties of
approximately $13,000. Although sales of residential lots to our joint venture
partner was higher by approximately $54,000 during the first quarter of 2003 as
compared to the first quarter of 2002, the Company reported a loss of
approximately $93,000 from our share of the Newport joint venture which was
primarily due to the incurring of over $200,000 in rollback taxes on one of its
properties. The decrease in revenues from the Conroe properties was due to the
fact that the Company sold these properties during 2002 and so had no
corresponding rental revenues from them in the first quarter of 2003 as compared
to the same quarter of 2002.
Costs of real estate sales were $419,826 higher in the quarter ended March 31,
2003 compared to the corresponding quarter in 2002. Cost of real estate sales
from the townhome redevelopment project was $386,336 for the first quarter of
2003. There were no sales at the townhome project during the first quarter of
2002. In the same comparative quarters, the Company also experienced an
increase in cost of real estate sales at the Newport project of $33,490 in 2003,
which resulted from increased lot sales to the Company's joint venture partner.
Operating and other costs increased by $118,704 from $458,178 for the quarter
ending March 31, 2002 to $576,882 for the same period in 2003. These operating
cost increases were primarily the result of higher selling costs of
approximately $220,000 at the townhome redevelopment project, which resulted
mostly from significant selling expenses incurred on the sale of the townhome
units. This increase in operating costs was partially offset by lower operating
costs at Newport Golf Club and Conference Center of approximately $101,000,
which was achieved by various cost cutting measures
9
General and administrative ("G&A") expenses increased $30,404 from $601,550 in
the first quarter of 2002 to $631,954 in the same quarter of 2003. G&A expenses
that increased significantly included:
- insurance expenses, which increased by approximately $16,000 due to
higher casualty and directors' and officers' liability premium rates;
- maintenance and repair expenses, which increased by approximately
$16,000 due to the Company's undertaking of a special preventive
maintenance project at the townhome redevelopment project; and
- property expenses of approximately $26,000 due to higher homeowner fee
assessments at the townhome redevelopment project during 2003 compared
to no such expenses during the first quarter of 2002 when such fees
were being capitalized, and higher maintenance expenses at our Dallas
and San Antonio retail centers.
These increases were partially offset by decreases in G&A expenses related to:
- State of Texas franchise taxes, which were lower by approximately
$28,000 in 2003 due to a lower taxable income base as compared to the
taxable income base for 2002.
Minority interests expense was eliminated after the end of the first quarter of
2002 when the Company became the 100% owner of the townhome redevelopment
project. During the three months ended March 31, 2002, the Company reported a
reduction in total operating expenses of $8,272 from minority interest
allocations for which there was no corresponding minority interest expense
during the same period of 2003. Minority interests expense represents the
minority partners' share of the townhome redevelopment project's revenues and
expenses. The Company held a 51% ownership interest in the Partnership until
March 31, 2002, when it assumed a 100% ownership interest. As a result of
assuming full ownership in the project, no further minority expense from the
project will be recorded in the future.
Interest expense increased $50,340 from $37,243 in the first quarter of 2002 to
$87,583 for the same period in 2003. There was $30,761 more interest expense
incurred at the townhome redevelopment project during the first quarter of 2003
compared to the same quarter in 2002 when interest was being capitalized while
the flood restoration work was being completed. During the first quarter of
2002 approximately $96,000 in interest expense was capitalized and no interest
was expensed compared to approximately $31,000 of interest expense incurred
during the first quarter of 2003. Interest expense also increased at the West
Lake Houston real estate project by approximately $20,000 during the first
quarter of 2003 as compared to the first quarter of 2002 when the interest from
this project was recorded as part of net revenues from real estate financing.
FASB No. 144 requires the impairment of costs of long -lived assets when
circumstances occur that would cause the Company to realize less than the costs
capitalized for that asset. The golf market in the Houston area has been
affected by overbuilding and a drop in overall play resulting in continued
losses and significant declines in golf property values. Despite increased
marketing efforts and significant improvements to the course, the Company has
experienced significant losses for the last three years. During the first
quarter of 2003, the Company recognized an impairment loss of $742,174 on the
Newport Golf Course and Conference Center. The impairment was based on a
current restricted appraisal dated May 5, 2003, which valued the Golf Course and
Conference Center at between $2,200,000 and $2,500,000. The Company expects to
receive a non-restricted appraisal within the next 30 days. There was no
corresponding loss impairment of any long-lived asset during the first quarter
of 2002. The decline in appraised value is due to the suppressed golf market in
the entire Houston area.
Our income before income taxes and extraordinary items decreased $94,907 from a
loss before taxes of $(251,180) during the first quarter of 2002 to a loss of
$(346,087) for the same period in 2003. The decreased income consisted of a
decrease of $811,884 from commercial real estate, and a decrease of $96,652 from
investment real estate. These decreases in income before taxes were offset by
an increase of income of $488,793 from net gains on collections on purchased
asset pools, an increase of income of $255,297 from real estate financing
activities, and an increase of $69,539 in income before income taxes from
revenues and expenses not allocated in any specific segment. The decrease in
income before income taxes in the commercial venture segment resulted primarily
from the large impairment loss of $742,174 recorded at Newport Golf Club and
Conference Center during the first quarter of 2003. In addition, there was
lower income of $100,123 from the townhome redevelopment project due to higher
operating and maintenance costs being incurred at this project during the first
quarter of 2003 as compared to the first quarter of 2002 when most expenses were
still being capitalized during the flood restoration. The decrease in income
before income taxes from investment real estate was almost entirely due to
decreased income from the Newport joint venture of approximately $98,000 which
was caused primarily by the large property rollback tax expense incurred in the
first quarter of 2003 for which there was no rollback tax expense in the first
quarter of 2002. The increase in income from net gains on collections of
purchased asset pools was mainly due to the collection of two major litigation
claims during the first quarter of 2003 for which there were no corresponding
large collections on asset pools in the first quarter of 2002. Real estate
financing reported higher income before taxes due to wider yield spreads between
our lending and borrowing interest rates of approximately $157,000 and reduced
loan impairment expenses of approximately $98,000.
Income tax benefit was $50,000 in 2002 compared to no tax benefit in 2003.
10
We recorded a gain on an extraordinary item of $430,000 during the first quarter
of 2002 for which there was no corresponding gain in the same quarter of 2003.
The gain arose from the forgiveness of debt owed by the townhome redevelopment
project to one of its minority interest partners. The debt was forgiven in
exchange for a sales option granting exclusive sales rights to the former
minority partners of the townhome project and limiting our gain on the sale of
the project for a period of 90 days, or until June 30, 2002. As part of the
same option agreement, and as consideration for our not immediately foreclosing
our senior debt, we were granted the remaining 49% interest in the townhome
redevelopment project. The extraordinary gain was recorded net of an adjustment
of approximately $230,000 representing the holding cost of the townhome units,
which are reported at the lower of cost or market value.
LIQUIDITY AND CAPITAL RESOURCES
We had cash and cash equivalents of $437,322 at March 31, 2003 compared to
$558,559 at December 31, 2002.
During the first quarter of 2003, we continued to invest a substantial portion
of our cash reserves in various projects, most notably was an investment of
approximately $241,000 in the Newport project in order to purchase additional
properties for future resale. Cash flow from real estate financing activities
during the first quarter of 2003 was $179,000. Borrowings to fund our real
estate financing activities for the quarter ended March 31, 2003 consisted of
two renewed first lien notes from a national lending institution resulting in
$2,200,000 of additional funds, bearing interest at the rate of 7% and of prime
plus 1%. We also borrowed an additional $1,400,000 in first lien notes from a
related group of individual investors including Charles W. Janke, our chairman
and chief executive officer, In Source Financial Corporation, which is
controlled by James H. Carpenter, our president and chief operating officer, and
Alfred Janke, the father of Charles W. Janke. These notes bear interest at 18%,
are due on January 31, 2004, and are secured by the real estate secured
financing loans we originated.
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 March 28, 2003, we renewed our revolving credit facility of $3,000,000 to
mature on June 26, 2003. This revolving credit facility is secured by notes
receivable and real estate in purchased asset pools, commercial and investment
real estate, notes receivable from real estate financing, and equipment.
Principal is payable at maturity with interest payable monthly at the bank's
prime rate plus 1.0% per annum (5.25% as of March 31, 2003). 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.
INVESTMENTS IN REAL ESTATE JOINT VENTURES
The Company currently has an investment in a real estate joint venture which is
accounted for using the equity method of accounting. Our proportionate interest
in the total assets and total debt of this joint venture is approximately $3.0
million and $0.7 million, respectively. In the event of default on the debt by
the joint venture, the debt of this joint venture is non-recourse to the
Company.
STOCK REPURCHASE PLAN
On January 11, 2000, the Board of Directors approved a stock repurchase plan
under Rule 10b-18 of 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, financing or awards as granted under our 1998
Stock Compensation Plan. At March 31, 2003, our treasury share holdings were
144,857 shares at a cost of $378,499, or $2.61 per share. We intend to continue
repurchasing shares subject to SEC restrictions.
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,
and (5) general economic declines, particularly within the regions in which we
operate. Forward-looking statements are not guarantees of future performance
and actual results, developments and business decisions may differ from those
contemplated by such forward-looking statements.
11
ITEM 3. CONTROLS AND PROCEDURES
Our management, including our Chief Executive Officer, Chief Operating Officer,
and Chief Financial Officer, have conducted an evaluation of the effectiveness
of our disclosure controls and procedures (as defined in Rule 13a-14(c)
promulgated under the Securities and Exchange Act of 1934, as amended) as of a
date (the "Evaluation Date") within 90 days prior to the filing date of this
report. Based upon that evaluation, our Chief Executive Officer, Chief
Operating Officer, and Chief Financial Officer have concluded, that our
disclosure controls and procedures are effective for timely gathering, analyzing
and disclosing the information we are required to disclose in our reports filed
under the Securities Exchange Act of 1934, as amended. There have been no
significant changes made in our internal controls or in other factors that could
significantly affect our internal controls subsequent to the Evaluation Date.
PART II. OTHER INFORMATION
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 - registrant was not required to file a Form 8-K during
the quarter ended March 31, 2003.
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 May 14, 2003
C. W. Janke
Chairman of the Board
Chief Executive Officer
(Principal Executive Officer)
By: /s/ J. H. CARPENTER May 14, 2003
J. H. Carpenter
President
Chief Operating Officer
By: /s/ CHARLES F. PRESLEY May 14, 2003
Charles F. Presley
Vice-President
Chief Financial Officer
Treasurer
(Principal Financial Officer)
12
CERTIFICATIONS
I, Charles W. Janke, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Rampart Capital
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
By: /s/ C. W. JANKE
C. W. Janke
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
13
I, James H. Carpenter, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Rampart Capital
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
By: /s/ J. H. CARPENTER
J. H. Carpenter
President and
Chief Operating Officer
14
I, Charles F. Presley, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Rampart Capital
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
By: /s/ CHARLES F. PRESLEY
Charles F. Presley
Vice-President,
Chief Financial Officer and
Treasurer
(Principal Financial Officer)
15
RAMPART CAPITAL CORPORATION
EXHIBITS TO FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 2003
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).
*10.1 Fourteenth Amendment to Loan Agreement with Southwest Bank of Texas N.
A., amended March 28, 2003.
*10.2 Modification Agreement between Southwest Bank of Texas and Greater
Houston Gulf Partners, Ltd.
*99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
- ----------------------
* Filed herewith.
16