U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
[ ] 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: 0-27552
OAK RIDGE CAPITAL GROUP, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Minnesota 85-0316176
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
701 Xenia Avenue South, Suite 130, Golden Valley, MN 55416
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(Address of principal executive offices) (Zip code)
(763) 923-2266
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(Registrant's telephone number, including area code)
REALCO, INC.
1650 University Blvd., N.E. Suite 5-100 Albuquerque, New Mexico 87102
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by the Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 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 [ ]
As of August 14, 2002 the Company had 4,840,642 shares outstanding of its no par
value common stock, the Company's only class of common stock.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OAK RIDGE CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
June 30,
2002 September 30,
(unaudited) 2001
------------ ------------
ASSETS
Cash and cash equivalents $ 2,448 $ 3,547
Restricted cash 256 481
Available for sale securities 136 307
Securities owned 94 443
Accounts and notes receivable, net 1,750 1,060
Costs and estimated earnings in excess of billings on
uncompleted contracts 366 12
Inventories 7,146 10,835
Property & equipment - at cost, net 539 580
Investments - equity method 665 472
Goodwill 1,617 1,637
Other assets 1,052 1,083
------------ ------------
$ 16,069 $ 20,457
============ ============
LIABILITIES
Notes payable $ 2,931 $ 3,740
Construction advances and notes payable, collateralized by
inventories 2,302 4,593
Accounts payable and accrued liabilities 2,563 3,410
Billings in excess of cost and estimated earnings on
uncompleted contracts 77 41
Escrow funds held for others 256 481
------------ ------------
Total liabilities 8,129 12,265
STOCKHOLDERS' EQUITY
Preferred stock - authorized, 500,000 shares Series D -
issued and outstanding, none and 484,000 shares, stated
at liquidation value -- 2,087
Common stock - no par value; authorized, 50,000,000
shares; issued 4,840,642 and 3,388,642 shares 13,165 11,078
Accumulated deficit (5,281) (5,109)
Accumulated other comprehensive income 58 138
------------ ------------
7,942 8,194
Less 700 shares common stock held in treasury - at cost 2 2
------------ ------------
7,940 8,192
------------ ------------
$ 16,069 $ 20,457
============ ============
See accompanying notes.
2
OAK RIDGE CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended June 30,
(Dollars in thousands, except per share amounts)
(Unaudited)
2002 2001
------------ ------------
REVENUES
Real estate brokerage commissions and fees $ 510 $ 221
Securities brokerage commissions and fees 1,498 619
Construction sales 3,824 3,984
Sales of developed lots 264 653
Equity in net earnings of investees 57 96
Interest and other, net 157 29
------------ ------------
6,310 5,602
COSTS AND EXPENSES
Cost of real estate brokerage revenue 299 114
Cost of securities brokerage revenue 1,354 360
Cost of construction sales 3,615 3,514
Cost of developed lots sold 195 508
Selling, general, administrative and other 1,199 1,134
Impairment of cost method investment -- 1,210
Depreciation and amortization 108 165
Interest 82 176
------------ ------------
6,852 7,181
------------ ------------
Loss from continuing operations before income taxes (542) (1,579)
INCOME TAX EXPENSE (BENEFIT) 88 (86)
------------ ------------
LOSS FROM CONTINUING OPERATIONS (630) (1,493)
DISCONTINUED OPERATIONS
Loss from discontinued operations, net of income taxes -- (147)
Gain on disposal of discontinued operations, including
provision of $705 for abandonment of leased properties,
net of income taxes -- 420
------------ ------------
NET LOSS (630) (1,220)
PREFERRED STOCK DIVIDEND REQUIREMENT -- 65
------------ ------------
NET LOSS APPLICABLE TO COMMON SHARES $ (630) $ (1,285)
============ ============
LOSS PER COMMON SHARE
Loss per common share from continuing operations - basic $ (.13) $ (.46)
============ ============
Net loss per common share - basic $ (.13) $ (.38)
============ ============
Loss per common share from continuing operations - diluted $ (.13) $ (.46)
============ ============
Net loss per common share - diluted $ (.13) $ (.38)
============ ============
See accompanying notes.
3
OAK RIDGE CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine months ended June 30,
(Dollars in thousands, except per share amounts)
(Unaudited)
2002 2001
------------ ------------
REVENUES
Real estate brokerage commissions and fees $ 1,320 $ 2,091
Securities brokerage commissions and fees 4,089 928
Construction sales 18,014 11,808
Sales of developed lots 1,665 1,305
Equity in net earnings of investees 291 318
Interest and other, net 569 99
------------ ------------
25,948 16,549
COSTS AND EXPENSES
Cost of real estate brokerage revenue 772 1,318
Cost of securities brokerage revenue 3,660 605
Cost of construction sales 16,012 10,440
Cost of developed lots sold 1,260 998
Selling, general, administrative and other 3,804 2,990
Impairment of cost method investment -- 1,210
Depreciation and amortization 281 275
Interest 278 590
------------ ------------
26,067 18,426
------------ ------------
Loss from continuing operations before income taxes (119) (1,877)
INCOME TAX EXPENSE 53 557
------------ ------------
LOSS FROM CONTINUING OPERATIONS (172) (2,434)
DISCONTINUED OPERATIONS
Loss from discontinued operations, net of income taxes -- (557)
Gain on disposal of discontinued operations, including
provision of $705 for abandonment of leased properties,
net of income taxes -- 420
------------ ------------
NET LOSS (172) (2,571)
PREFERRED STOCK DIVIDEND REQUIREMENT (NEGATIVE
RETURN) - NET (154) (2,093)
------------ ------------
NET LOSS APPLICABLE TO COMMON SHARES $ (18) $ (478)
============ ============
LOSS PER COMMON SHARE
Loss per common share from continuing operations - basic -- $ (.11)
============ ============
Net loss per common share - basic -- $ (.15)
============ ============
Loss per common share from continuing operations - diluted -- $ (.11)
============ ============
Net loss per common share - diluted -- $ (.15)
============ ============
See accompanying notes.
4
OAK RIDGE CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended June 30,
(Dollars in thousands)
(Unaudited)
2002 2001
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
Loss from continuing operations $ (172) $ (2,434)
ADJUSTMENTS TO RECONCILE NET LOSS FROM CONTINUING OPERATIONS TO NET
CASH PROVIDED BY (USED IN) CONTINUING OPERATIONS-
Depreciation and amortization 281 275
Accretion of discount on notes payable 21 130
Net distributions in excess of earnings of investees (earnings in
excess of distributions) (193) 296
Provision for deferred income taxes 53 523
Realized loss ( gain) on available for sale securities (8) 72
Impairment of cost method investment -- 1,210
CHANGE IN OPERATING ASSETS AND LIABILITIES, NET OF EFFECTS FROM BUSINESS
ACQUISITIONS AND DISCONTINUED OPERATIONS-
Decrease in restricted cash 225 84
Decrease in securities owned 349 --
Increase in receivables (690) (24)
Decrease in inventories 3,689 385
Change in net billings related to costs and estimated earnings on
uncompleted contracts (318) (75)
Change in other assets (125) 45
Decrease in escrow funds held for others (225) (84)
Increase (decrease) in accounts payable and accrued liabilities (847) 54
------------ ------------
Net cash provided by continuing operations 2,040 457
Net cash used in discontinued operations -- (1,424)
------------ ------------
Net cash provided by (used in) operating activities 2,040 (967)
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Purchases of property and equipment (64) (87)
Receipts on notes receivable -- 35
Purchase of available for sale securities (88) (53)
Proceeds from available for sale securities 134 81
Cash acquired in business combination -- 178
Proceeds from sale of discontinued operations -- 4,101
------------ ------------
Net cash provided by (used in) investing activities (18) 4,255
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Construction advances and notes, net (2,291) (488)
Proceeds from borrowings under revolving and notes payable 200 1,036
Payments of long term debt and capital leases (1,030) (1,068)
------------ ------------
Net cash used in financing activities (3,121) (520)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,099) 2,768
Cash and cash equivalents at beginning of period 3,547 1,650
------------ ------------
Cash and cash equivalents at end of period $ 2,448 $ 4,418
============ ============
See accompanying notes.
5
OAK RIDGE CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Oak Ridge
Capital Group, Inc. ( formerly known as Realco, Inc.) and its wholly owned
subsidiaries have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial
information and with the instructions of Form 10-Q 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. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the periods ended
June 30, 2002 are not necessarily indicative of the results that may be expected
for the fiscal year ending September 30, 2002. For further information refer to
the financial statements and footnotes included in the company's annual report
on Form 10-K for the year ended September 30, 2001.
On June 10, 2002, the Company changed its state of incorporation from New Mexico
to Minnesota and changed its name from Realco, Inc. to Oak Ridge Capital Group,
Inc., pursuant to a reincorporation proposal approved by the Company's
shareholders on June 7, 2002.
On June 2, 2001, the Company sold its residential brokerage operations. Such
brokerage operations operated under a franchise from Prudential Real Estate
Affiliates, Inc. in Albuquerque, New Mexico and Phoenix, Arizona. The financial
data related to these operations is accounted for as a discontinued operation
for all periods presented.
1. Principles of Consolidation:
The consolidated financial statements include the accounts of Oak Ridge Capital
Group, Inc. and its wholly owned subsidiaries. All material inter-company
accounts and transactions have been eliminated in consolidation.
2. Income Taxes
The Company's effective income tax rate for the periods ended June 30, 2002 and
2001 differs from the federal statutory rate due to changes in the valuation
allowance for deferred tax assets.
6
OAK RIDGE CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 2002
3. Earnings (Loss) Per Common Share:
The following shows the amounts used in computing loss per common share for the
three and nine months ended June 30:
Three Months Nine Months
Ended June 30 Ended June 30
----------------------------- -----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Loss from continuing operations $ (630,000) $ (1,493,000) $ (172,000) $ (2,434,000)
Preferred stock - (dividends) negative return -- (65,000) 154,000 2,093,000
------------ ------------ ------------ ------------
Loss from continuing operations applicable to
common shares used for basic earnings per
share (630,000) (1,558,000) $ (18,000) $ (341,000)
Effect of dilutive convertible preferred stock -- -- -- --
------------ ------------ ------------ ------------
Earnings (loss) from continuing operations
applicable to common shares used for diluted
earnings per share $ (630,000) $ (1,558,000) $ (18,000) $ (341,000)
============ ============ ============ ============
Weighted average number of common shares
outstanding used for basic earnings per share 4,839,900 3,388,000 4,520,800 3,243,000
Effect of dilutive convertible preferred stock -- -- -- --
------------ ------------ ------------ ------------
Weighted average number of common shares
outstanding used for diluted earnings per
share 4,839,900 3,388,000 4,520,800 3,243,000
============ ============ ============ ============
4. Debt:
At June 30, 2002, the Company was in violation of the minimum net worth covenant
relating to its subordinated sinking fund notes with a principal balance of
$2,525,545. Therefore, the trustee or note holders have the right to deliver a
Notice of Default to the Company. If Notice of Default is delivered and the
violation is not cured within 30 days, the notes may be declared due and payable
immediately. At June 30, 2002, the Company would be required to raise capital of
approximately $797,000 to cure this default.
The Company has continued to make the scheduled debt service payments on the
subordinated sinking fund notes. Management believes if these obligations were
declared immediately due and payable the Company's cash position and working
capital would be adversely affected but the Company would be able to satisfy the
obligations and maintain adequate working capital for the Company's operations
for a reasonable period of time.
5. Comprehensive Earnings (Loss):
Other comprehensive losses consist primarily of net unrealized investment gains
and losses, net of income tax effects. Total comprehensive losses for the
periods ended June 30 are as follow:
2002 2001
------------- --------------
Three Months ended June 30 $ (762,000) $ (1,367,000)
Nine Months ended June 30 $ (252,000) $ (3,355,000)
7
OAK RIDGE CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 2002
6. Stockholders' Equity:
During the quarter ended December 31, 2000, all the then outstanding preferred
stock of the Company was converted into 464,804 shares of common stock. The
excess carrying value of the preferred stock, including cumulative undeclared
dividends, over the fair value of the common stock given was approximately
$2,180,000, which is reflected as a negative return on preferred stock for
determining earnings applicable to common shares in the statement of operations
for nine months ended June 30, 2002.
On December 20, 2001, the Company issued 1,452,000 shares of its Common Stock
upon the conversion of 484,000 shares of its Series "D" Preferred Stock. The
Series "D" Preferred Stock was issued on March 1, 2001, pursuant to the terms of
a merger in which the Company acquired Equity Securities Investments, Inc.
("ESI"). The Series "D" Preferred Stock was not initially convertible into
Common Stock. However, the terms of the Series "D" Preferred Stock provided that
each share would automatically be converted into three shares of Common Stock if
the shareholders of the Company approved such conversion, and that the
conversion, if approved, would occur automatically on the twenty-first (21st)
day following the date on which the shareholders approved the conversion. The
Company agreed in the merger agreement to ask its shareholders to approve the
conversion and, at the Annual Meeting of Shareholders of the Company held on
November 29, 2001, the shareholders voted upon and approved the conversion of
the Series "D" Preferred Stock into Common Stock. In connection with this
conversion, Preferred Stock dividends in arrears of $211,000 at the date of
conversion were waived by the shareholders. The elimination of these dividends,
net of dividends incurred during the quarter ended December 31, 2001 is
reflected as a negative return on preferred stock for determining earnings
applicable to common shares in the statement of operations for the nine months
ended June 30, 2002.
8
OAK RIDGE CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 2002
7. Segment Information:
The Company operates in the following segments: commercial real estate broker,
residential construction and land development, commercial construction, and
financial services. Information concerning the Company's business segments for
the periods ended June 30 is as follows:
2002 2001
------------ ------------
THREE MONTHS ENDED JUNE 30
- --------------------------
Revenues
Commercial real estate broker $ 510,000 $ 221,000
Residential construction and land development 2,705,000 4,050,000
Commercial construction 1,420,000 631,000
Financial services 1,518,000 671,000
Interest and other
Sales to unaffiliated customers 157,000 29,000
Inter-segment sales 52,000 125,000
Eliminations (52,000) (125,000)
------------ ------------
Total $ 6,310,000 $ 5,602,000
============ ============
Earnings (loss) from continuing operations before taxes
Commercial real estate broker $ (7,000) $ (114,000)
Residential construction and land development 89,000 188,000
Commercial construction (232,000) 159,000
Financial services (392,000) (1,770,000)
Unallocated general corporate expenses -- (42,000)
------------ ------------
Loss from continuing operations before income taxes $ (542,000) $ (1,579,000)
============ ============
2002 2001
------------ ------------
NINE MONTHS ENDED JUNE 30
- -------------------------
Revenues
Commercial real estate broker $ 1,320,000 $ 2,091,000
Residential construction and land development 16,129,000 9,531,000
Commercial construction 3,766,000 3,659,000
Financial services 4,165,000 1,169,000
Interest and other
Sales to unaffiliated customers 568,000 99,000
Inter-segment sales 176,000 501,000
Eliminations (176,000) (501,000)
------------ ------------
Total $ 25,948,000 $ 16,549,000
============ ============
Earnings (loss) from continuing operations before taxes
Commercial real estate broker $ (24,000) $ 83,000
Residential construction and land development 1,415,000 168,000
Commercial construction (192,000) 141,000
Financial services (1,318,000) (1,990,000)
Unallocated general corporate expenses -- (279,000)
------------ ------------
Loss from continuing operations before income taxes $ (119,000) $ (1,877,000)
============ ============
9
OAK RIDGE CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 2002
8. New Accounting Pronouncements:
In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards (SFAS) No. 141, "Business Combinations" and No.
142, "Goodwill and Other Intangible Assets". These standards prohibit the
application of the pooling of interests method of accounting for business
combinations effective June 30, 2001 and require companies to stop amortizing
existing goodwill and intangible assets with indefinite lives. Under the new
rules, companies would only adjust the carrying amount of goodwill or indefinite
life intangible assets upon an impairment of the goodwill or indefinite life
intangible assets. The Company adopted these standards effective October 1, 2001
and as such, has not subsequently recorded any amortization of goodwill.
Initial adoption of these standards required that the first step of a goodwill
impairment test be completed by March 31, 2002. The Company retained an
independent outside valuation expert to develop the fair value analysis to
assist the Company in conducting the testing for impairment. The results of the
analysis indicated that no impairment of goodwill had occurred as of October 1,
2001. The Company has set the beginning of the fourth quarter (July) as the
annual period for goodwill impairment testing. The results will be reported no
later than September 30 of each year.
The following reconciles reported net loss and related per share amounts to
amounts that would have been presented exclusive of amortization expense
recognized for goodwill that is no longer being amortized:
Three Months Nine Months
Ended June 30 Ended June 30
------------------------------- -------------------------------
2002 2001 2002 2001
------------- ------------- ------------- -------------
REPORTED NET LOSS FOR PERIOD $ (630,000) $ (1,220,000) $ (172,000) $ (2,571,000)
Goodwill amortization -- 29,000 -- 50,000
------------- ------------- ------------- -------------
Adjusted net loss $ (630,000) $ (1,191,000) $ (172,000) $ (2,521,000)
============= ============= ============= =============
NET LOSS PER SHARE - BASIC-
Reported net loss $ (.13) $ (.36) $ -- $ (.15)
Goodwill amortization -- .01 -- .02
------------- ------------- ------------- -------------
Adjusted net loss $ (.13) $ (.35) $ -- $ (.13)
============= ============= ============= =============
NET LOSS PER SHARE - DILUTED-
Reported net (loss $ (.13) $ (.36) $ -- $ (.15)
Goodwill amortization -- .01 -- .02
------------- ------------- ------------- -------------
Adjusted net earnings loss $ (.13) $ (.35) $ -- $ (.13)
============= ============= ============= =============
10
OAK RIDGE CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 2002
8. New Accounting Pronouncements (continued):
SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets",
(SFAS 144) is effective for the Company for the fiscal year beginning October 1,
2002, and addresses accounting and reporting for the impairment or disposal of
long-lived assets. SFAS 144 supersedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and
APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects
of Disposal of a Segment of a Business." SFAS 144 retains the fundamental
provisions of SFAS No. 121 and expands the reporting of discontinued operations
to include all components of an entity with operations that can be distinguished
from the rest of the entity and that will be eliminated from the ongoing
operations of the entity in a disposal transaction. The Company estimates that
the new standard will not have a material effect on its financial statements but
is still in the evaluation process.
In June 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". SFAS No. 143 requires entities to record the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred and a corresponding increase in the carrying amount of the related
long-lived asset. Subsequently, the asset retirement cost should be allocated to
expense using a systematic and rational method. SFAS No. 143 is effective for
fiscal years beginning after June 15, 2002. The Company is currently assessing
the impact of SFAS No. 143. However, at this time, the Company does not believe
the effect of this statement will be material to its consolidated financial
position or results of operations.
9. Contingencies:
In connection with the Company's disposition of its residential brokerage
operations, a leased office facility is no longer being used for operating
purposes. This facility and furnishings are sublet under an agreement expiring
in December 2002, which provides for rental payments based upon a percentage of
tenant revenues.
In connection with the disposition, the Company recorded an estimated loss
relating to its remaining costs in the facility, furnishings and improvements,
including leasehold improvements and remaining rental payments, reduced by
sublease income. Sublease income has been estimated based on the existing
sublease and on management's estimate of probable future sublease income which
is predicated on current economic conditions. Adverse changes in economic
conditions could negatively affect management's estimate of probable future
sublease income which could result in the Company recognizing additional losses
on this facility and it furnishings.
In December 2001, the Company was named as a defendant in a lawsuit in the
District Court for Hennepin County, Minnesota. The plaintiffs are certain
institutional and individual customers of Miller & Schroeder Financial, Inc.
(MSF), a broker-dealer. The lawsuit was commenced against MSF, Miller &
Schroeder, Inc. (MSI), the parent corporation of MSF, and certain officers,
directors, and shareholders of MSI who are alleged to be controlling persons of
MSI and MSF. The Company is a shareholder of MSI. James A. Arias, the Company's
former Chief Executive Officer, is also named as a defendant. Mr. Arias served
as a director of MSI during the period covered by the plaintiffs' complaint. The
plaintiffs, on their own behalf and on behalf of a class of investors they seek
to represent, are seeking rescission or compensatory damages with respect to
debentures issued by United Homes, Inc. and purchased by the plaintiffs from or
through MSF. The plaintiffs assert numerous claims against MSF and the other
defendants, including claims based on negligence, negligent misrepresentation,
common law fraud, and violations of the Minnesota Securities Act, the Minnesota
Consumer Fraud Act, the U.S. Securities Act of 1933, and the Minnesota Uniform
Fraudulent Transfer Act. In January 2002, the Company and Mr. Arias filed a
motion to dismiss the lawsuit with respect to them. In June 2002, the Court
entered an order dismissing some but not all of the claims against the Company
and Mr. Arias. The lawsuit is now in the discovery stage with respect to the
remaining claims. The Company and Mr. Arias intend to defend the lawsuit
vigorously. At present, the Company is unable to predict the outcome of this
litigation or any exposure to loss.
11
OAK RIDGE CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 2002
10. Discontinued Operations:
On June 2, 2001, the Company sold its residential real estate brokerage
operations. Certain information with respect to the discontinued operations of
the Company's residential real estate brokerage is as follows:
Three months Nine months
Ended Ended
June 30, 2001 June 30, 2001
------------- -------------
Revenues $ 5,433,000 $ 18,188,000
============ ============
Earnings (loss) from discontinued operations, net of
income taxes $ 273,000 $ (137,000)
============ ============
Earnings (loss) per common share from discontinued
operations - basic and diluted $ .08 $ (.04)
============ ============
12
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW OF CONSOLIDATED CONTINUING OPERATIONS
Based upon the various lines of business in which the Company is engaged, it has
defined the following operating segments for purposes of financial accounting
and reporting: Commercial Real Estate Brokerage Segment, Residential
Construction and Land Development Segment, Commercial Construction Segment, and
Financial Services Segment.
The Company's continuing operations are primarily within the metropolitan and
surrounding areas of Minneapolis, Minnesota and Albuquerque, New Mexico.
Consolidated For the Quarter Ended June 30, 2002
The Company experienced a consolidated pre-tax loss of $542,000 from continuing
operations for the quarter ended June 30, 2002 compared to a pre-tax loss of
$1,579,000 for the same period in fiscal 2001. The primary components of the
current quarter pre-tax loss is $392,000 and $232,000 in pre-tax losses from the
financial services and commercial construction segments, respectfully. During
the quarter ended June 30, 2001, the Company recorded a $1,210,000 impairment on
a cost method investee, which affected comparability between the periods. See
the financial services segment discussion of operations for more information on
this impairment.
Total revenues increased $708,000 or 13% for the quarter ended June 30, 2002
compared to revenues for the same period in fiscal 2001. Construction sales
decreased $160,000 or 4%, which was offset partially by an increase in real
estate brokerage commissions and fees of $289,000 or 131%. Securities brokerage
service revenues increased $879,000 or 142%. The primary component for the
increase was brokerage commissions and fees derived from the March 1, 2001
acquisition of Equity Securities Investments, Inc. (ESI), the Company's
securities brokerage subsidiary. Gross profits on commissions, construction and
lot sales decreased $347,000 or 35% compared to the same period in fiscal 2001.
This substantial decrease in gross profits is primarily attributable to paying
higher commissions to the securities brokerage sales staff. An increase in
selling, general and administrative expenses of $66,000 or 5% also affected
comparability between the periods. This increase is primarily attributable to
selling, general and administrative expenses of ESI and increased corporate
expense primarily attributable to executive compensation of additional corporate
officers and increased insurance costs.
Consolidated For the Nine Months Ended June 30, 2002
The Company experienced a consolidated pre-tax loss of $119,000 from continuing
operations for the nine months ended June 30, 2002 compared to a pre-tax loss of
$1,877,000 for the same period in fiscal 2001. However, consistent with the
aforementioned quarterly operating results, operations for the nine months ended
June 30, 2001 were impacted by a $1,210,000 impairment charge. Without the
impairment charge, continuing operations improved $548,000 or 82%. The primary
component of this improvement is $1,415,000 in pre-tax earnings from the
residential construction and land development segment offset by the losses from
the commercial construction and financial services segments.
Total revenues increased $9,399,000 or 57% to $25,948,000 for the nine months
ended June 30, 2002 when compared to continuing operations revenues for the same
period in fiscal 2001. Construction sales increased $6,206,000 or 53% to
$18,014,000. This increase was partially offset by a decrease in real estate
brokerage commissions and fees of $771,000 or 37% down to $1,320,000. Securities
brokerages services revenues increased 341% to $4,089,000, an increase of
$3,161,000. This increase is attributable to the March 1, 2001 acquisition of
Equity Securities Investments, Inc. (ESI), the Company's securities brokerage
subsidiary. Although gross profits on commissions, construction and lot sales
increased $613,000 or 22%, gross profit margins actually decreased 4% to 13%.
Similar to the quarterly results of operations, this decrease is primarily
attributable to paying higher commissions to securities brokerage sales staff.
Selling, general and administrative expenses increased $814,000 or 27%. This
expense increase is directly attributable to the ESI acquisition in March 2001.
As a result of this acquisition, the company's corporate expense increased
because of executive compensation, additional new corporate officers and
increased insurance costs.
13
Income Taxes
The Company's effective income tax rate for the periods ended June 30, 2002 and
2001 differs from the federal statutory rate due to changes in the valuation
allowance for deferred tax assets.
SEGMENT RESULTS OF OPERATIONS FOR THE
QUARTER AND NINE MONTHS ENDED JUNE 30, 2002
COMMERCIAL REAL ESTATE BROKERAGE SEGMENT:
The commercial real estate brokerage segment consists of First Commercial Real
Estate Services, Inc. (First Commercial).
FOR THE QUARTER ENDED JUNE 30, 2002
This segment experienced a pre-tax loss of $7,000 for the quarter ended June 30,
2002 as compared to a pre-tax loss of $114,000 for the same period in fiscal
2001. The current period revenues are $289,000 more than in the same quarter in
2001 (a 131% increase). These increases are typical of a small commercial real
estate brokerage, as timing of significant closings can affect comparability
between periods. Selling, general and administrative expenses declined $34,000
or 16% in the quarter ended June 30, 2002 as compared to the same period in
fiscal 2001.
FOR THE NINE MONTHS ENDED JUNE 30, 2002
This segment experienced a pre-tax loss of $24,000 for the nine months ended
June 30, 2002 as compared to pre-tax earnings of $83,000 in the same period in
fiscal 2001. The current period revenues are $771,000 less than in the same nine
month period in 2001 (a 37% decline). These declines are typical of a small
commercial real estate brokerage, as timing of significant closings can affect
comparability between periods. Selling, general and administrative expenses
declined $203,000 or 31% in the nine months ended June 30, 2002 as compared to
the same period in fiscal 2001.
RESIDENTIAL CONSTRUCTION AND LAND DEVELOPMENT SEGMENT:
The residential construction operations are conducted in metropolitan
Albuquerque, New Mexico and the surrounding areas of Rio Rancho and Los Lunas.
Such operations are conducted by Charter Building & Development Corp. (Charter)
and Success Venture, a joint venture. This segment also includes development
activities consisting of the acquisition of raw land for development into
residential home sites, which are sold to Charter or to other builders. Such
land development projects may be performed under joint venture agreements or
entirely by the Company. Profits on lots sold to Charter, either directly, by a
subsidiary or by a joint venture, are eliminated in consolidation of this
segment until the lot is removed from Charter's inventory.
FOR THE QUARTER ENDED JUNE 30, 2002
This segment experienced a decrease in pre-tax earnings of $99,000 to $89,000
for the quarter ended June 30, 2002. Overall profitability declined due to
increased operating expenses in the areas of rent, marketing, health insurance
and model furnishings. In addition, sales of developed lots decreased $389,000
or 60%.
Residential construction sales decreased $949,000 or 28% to $2,404,000 in the
quarter ended June 30, 2002. This decline in sales is the lag effect of a
general slowdown in the economy earlier in the year as the construction period
for homes is approximately 120 days. Such decline is thought to be temporary,
based upon current sales activity.
Gross profits on residential construction sales increased $59,000 or 25% to
$291,000 for the quarter ended June 30, 2002. Gross profit margin percents were
12.1% in the quarter ended June 30, 2002 compared to 6.9% in the quarter ended
June 30, 2001. The overall margin dollar increase is due to delivery of more
homes (volume) and fewer sales of older speculative homes and model homes at
lesser discounts.
14
The Company's ownership and management of a joint venture in a large subdivision
also contributes to the increase in residential construction sales. As
operations are conducted in a joint venture, equity earnings are recognized from
the operations, as opposed to recognizing gross results of operations. Sales
from this venture totaled $1,455,000 for the quarter ended June 30, 2002 and
resulted in net equity earnings of $37,000 as compared to sales for the same
period in fiscal 2001 which totaled $966,000 and equity earnings of $43,000. The
decline as compared to the prior period is attributable primarily to the fact
that gross margins decreased from 12.6% in the same period in fiscal 2001 to
9.5% in the quarter ended June 30, 2002.
Lot sales decreased $389,000 or 60% to $264,000 in the quarter ended June 30,
2002. This decrease is directly related to the aforementioned decrease in
construction sales. Gross profits on lot sales decreased $75,000 or 52% to
$69,000. Such decrease is directly attributable to the decrease in sales. Gross
profit margins increased 4% to 26.1% which is attributable to the product mix,
as a higher portion of lot sales came from a subdivision having higher profit
margins.
Other significant items affecting operating results include selling, general and
administrative expenses, which increased $124,000 or 70% to $300,000 in the
quarter ended June 30, 2002. Interest expense, which decreased $23,000 or 88% to
$3,000 in the quarter ended June 30, 2002. This decline is due to principal
reductions, lower bank borrowings and use of internal financing.
FOR THE NINE MONTHS ENDED JUNE 30, 2002
This segment experienced an increase in pre-tax earnings of $1,247,000 to
$1,415,000 for the nine month period ended June 30, 2002. Year to date
residential construction sales of $14,248,000 represents a 75% increase from the
2001 period. Gross profits on such sales totaled $1,662,000 which represents a
111% increase from $789,000 in the 2001 period. Overall profit margins increased
from 9.7% in the 2001 period to 11.7% in the 2002 period, as a result of
improved cost controls, repricing of sales options and additional value
engineering.
The Company's ownership and management of a joint venture in a large subdivision
also contributed to the increase in residential construction sales. As
operations are conducted in a joint venture, equity earnings are recognized from
the operations, as opposed to recognizing gross results of operations. Sales
from this venture totaled $5,481,000 for the nine month period ended June 30,
2002 and resulted in net equity earnings of $215,000 as compared to sales for
the same period in fiscal 2001 which totaled $2,948,000 and equity earnings of
$77,000. The gain as compared to the prior period is attributable primarily to
the fact that gross margins improved from 9.5% in the same period in fiscal 2001
to 10.3% in the nine month period ended June 30, 2002.
Sales of developed lots increased $360,000 or 27.6% to $1,665,000 for the nine
months ended June 30, 2002. This increase is directly related to the
aforementioned increase in construction sales. Gross profits on lot sales
increased $98,000 or 31.9 % to $405,000. Such increase is attributable to the
product mix, as a higher portion of lot sales came from a subdivision having
higher profit margins.
Other significant items affecting operating results include selling, general and
administrative expenses, which increased $46,000 or 5.9% to $827,000 in the nine
months ended June 30, 2002. Interest expense decreased $112,000 or 89.6% to
$13,000 in the nine months ended June 30, 2002 due to principal reductions,
lower bank borrowings and use of internal financing. Additionally, interest and
other income increased $52,000 to $200,000 primarily due to additional
construction management fees in the 2002 period.
COMMERCIAL CONSTRUCTION SEGMENT:
Commercial construction operations are conducted by Realco Construction, Inc.
(Realco Construction), an Albuquerque based general contractor. Additionally,
the Company has commenced operations in California under a joint venture
arrangement.
15
FOR THE QUARTER ENDED JUNE 30, 2002
Operating results for the quarter ended June 30, 2002 resulted in a pre-tax loss
of $232,000 as compared to pre-tax earnings of $159,000 in the same period in
fiscal 2001. This decline in operating results was largely due to a significant
decrease in gross profit margins and a change in estimated completion costs
associated with several large construction projects.
Sales increased $789,000 or 125% to $1,420,000 for the quarter ended June 30,
2002. The increase in revenues was offset by a substantial increase in the
aforementioned estimated completion costs of several large construction
projects. Additionally, selling, general and administrative expenses increased
$67,000 or 93% to $139,000 as compared to the 2001 period. The increase is
primarily attributable to increased staff requirements, professional fees and
insurance costs.
FOR THE NINE MONTHS ENDED JUNE 30, 2002
Operating results for the nine months ended June 30, 2002 resulted in a pre-tax
loss of $192,000 as compared to pre-tax earnings of $141,000 in the same period
in fiscal 2001. This decline in operating results was largely attributable to
unstable overhead costs as well as performing jobs with substantially lower
gross profit margins.
Sales increased $107,000 or 3% to $3,766,000; however, gross profits actually
decreased $239,000 or 41% to $340,000 in the nine month period ended June 30,
2002. The increase in revenues is the result of timing of significant projects
between the periods, while the decrease in gross profits is primarily
attributable to a change in estimated completion costs on several projects as
well as the project mix including jobs with lower built-in gross profit margins.
FINANCIAL SERVICES SEGMENT:
The financial services segment consists primarily of the operations of the
parent company (Realco, Inc.), Equity Securities, Inc. (ESI), and PHS, Inc.
(PHS).
ESI, a Minneapolis, Minnesota based broker and dealer in securities, was
acquired effective March 1, 2001 through the issuance of 484,000 shares of
Series D preferred stock. On December 20, 2001, the holders of the 484,000
shares of series D preferred stock exchanged their shares under the terms of the
conversion provision of the stock, into 1,452,000 shares of common stock of the
Company. This acquisition is a key component of the Company's plan to expand its
financial services operations. The Company is currently identifying and
evaluating other growth opportunities to complement this segment.
In addition to financial services performed directly by the Company, operations
also include the Company's share of earnings from its 49.99% equity interest in
PHS Mortgage Company, a full service residential mortgage banker.
FOR THE QUARTER ENDED JUNE 30, 2002
The Financial Services segment realized a pre-tax loss of $392,000 for the
quarter ended June 30, 2002 as compared to a pre-tax loss of $1,500,000 in the
same period in fiscal 2001. The primary cause for the decreased loss is due to
the Company fully impairing its investment in MI through a charge to operations
of $1,210,000 which is reflected in operations for the quarter ended June 30,
2001. Without this impairment charge, the pre-tax loss for the quarter ended
June 30, 2001 would have been $290,000. Other significant items affecting
operating results are discussed below.
Equity Securities, Inc. (ESI) operations, which were acquired effective March 1,
2001, resulted in a pre-tax loss of $38,000 in the quarter ended June 30, 2002
as compared to a pre-tax loss of $214,000 in the quarter ended June 30, 2001.
Commissions earned increased $879,000 or 142% to $1,498,000 for the quarter
ended June 30, 2002. Gross profits on commissions decreased $115,000 or 44% to
$144,000. The primary cause for this decline was paying securities brokers
higher commissions. Additionally, interest and other income increased $88,000 or
977% to $97,000 as a result management's growth initiatives for this operation.
Selling, general and administrative expenses
16
decreased $267,000 or 51% to $253,000. The decrease is due to this operation
incurring costs to accommodate growth initiatives in the 2001 period.
Net equity earnings recognized from PHS Mortgage Company were $20,000, as
compared to $58,000 in the same period in fiscal 2001. In the past, this equity
method investee received the majority of its business from the Company's
residential real estate brokerage operations which were sold in June 2001.
Management is attempting to maintain the referral relationship with the sales
agents, however the buyers of these operations also promote mortgage services.
Additionally, management is planning to promote the operations of PHS to other
residential real estate brokerage firms. There can be no assurance that these
efforts will be successful. In the event new sources of business cannot be
secured, this equity investee will no longer contribute earnings to the Company.
FOR THE NINE MONTHS ENDED JUNE 30, 2002
The Financial Services segment realized a pre-tax loss of $1,318,000 for the
nine months ended June 30, 2002 as compared to a pre-tax loss of $2,009,000 in
the same period in fiscal 2001. The primary cause for the decreased loss is an
impairment charge of $1,210,000 for the 2001 period as previously discussed.
Without this charge, the 2001 pre-tax loss would have been $799,000. The
resulting increased loss of $519,000 is attributable to increased executive
payroll, increased general liability and health insurance costs.
Equity Securities, Inc. (ESI) operations, which were acquired effective March 1,
2001, resulted in a pre-tax loss of $366,000 in the nine months ended June 30,
2002 as compared to a pre-tax loss of $280,000 for the 2001 period. Commissions
earned were $4,089,000 which were offset by related costs of $3,660,000.
Additional interest and other income of $318,000 was offset by operating
expenses totaling $1,113,000 resulting in the operating loss. Management is in
the process of expanding these operations and is currently incurring costs to
accommodate growth initiatives, such as facilities, relocation costs, broker
recruiting, and segment infrastructure building. This operation is expected to
be profitable in the near term.
Net equity earnings recognized from PHS Mortgage Company were $88,000, as
compared to $200,000 in the same period in fiscal 2001. In the past, this equity
method investee received the majority of its business from Company's residential
real estate brokerage operations which were sold in June 2001. Management is
attempting to maintain the referral relationship with the sales agents, however
the buyers of these operations also promote mortgage services. Additionally,
management is planning to promote the operations of PHS to other residential
real estate brokerage firms. There can be no assurance that these efforts will
be successful. In the event new sources of business cannot be secured, this
equity investee will no longer contribute earnings to the Company.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2002, the Company was in violation of the minimum net worth covenant
relating to its subordinated sinking fund notes with a principal balance of
$2,525,545. Therefore, the Trustee or Note holders have the right to deliver a
Notice of Default to the Company. If Notice of Default is delivered and the
violation is not cured within thirty days, the notes may be declared due and
payable immediately. To cure this default, the Company would be required to
raise capital of approximately $797,000.
If these obligations were declared immediately due and payable the Company's
cash position and working capital would be adversely affected. If demand payment
is required, management believes it will be able to satisfy the obligation and
maintain adequate working capital for the Company's operations over the ensuing
twelve months as follows:
1. Utilization of existing cash reserves.
2. Drawing additional funds available under existing construction loans.
3. Utilization of expected positive cash flow provided by operations.
4. Reducing operating expenses and other expenditures.
5. Securing funds from other lenders as may become available.
The Company's working capital consists primarily of cash, accounts receivable,
and borrowings under construction advances and notes payable collateralized by
inventory.
17
In 2001, the Company used $1,424,000 of its cash for its discontinued real
estate brokerage operation. Operations for the nine months ended June 30, 2002,
however, showed $2,440,000 of cash being provided by continuing operations,
primarily from home sales. In comparison to the same period a year ago, the
amount was $457,000. During the nine months ended June 30, 2002, the Company
used $3,521,000 of cash for repayment of construction advances and debt.
The Company intends to apply its capital resources to expand its business by
establishing or acquiring complementary operations and to reducing its
outstanding debt. It is expected that future cash needs will be financed by a
combination of cash flows from operations, future advances under construction
loans, and if needed, other financing arrangements, which may be made available
to the Company. The Company does not have any material commitments for capital
expenditures for fiscal 2002.
The Company's projection of future cash requirements is affected by numerous
factors, including but not limited to, changes in customer receipts, consumer
industry trends, sales volume, operating cost fluctuations, acquisitions of
existing businesses and unplanned capital spending.
COMPETITION AND MARKET FACTORS
The business in which the Company is engaged is highly competitive. Many of the
Company's competitors have nationwide operations. As such, a number of the
Company's competitors have greater financial resources. It is for that reason
that the Company continues to pursue strategic alliances with other companies.
The real estate and financial services industries, and therefore, the Company's
operations, can be cyclical and are affected by consumer confidence levels,
prevailing economic conditions and interest rates. Other factors affecting
business include increases in construction costs, increases in costs associated
with home ownership such as interest rates, property taxes, and changes in
consumer preferences and demographic trends.
FORWARD LOOKING STATEMENTS
Investors are cautioned that certain statements contained in this document are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (the Act). Statements which are predictive in
nature, which depend upon or refer to future events or conditions constitute
forward-looking statements. In addition, any statements concerning future
financial performance, ongoing business strategies or prospects, and possible
future Company actions, which may be provided by management are also
forward-looking statements as defined by the Act. Forward-looking statements are
based on current expectations and projections about future events and are
subject to risks, uncertainties, assumptions, and economic and market conditions
in the real estate and financial services industry, among other things.
Actual events and results may differ materially from those expressed or
forecasted in the forward-looking statements made by the Company or Company
management due to a number of factors. Important factors that could cause such
differences include but are not limited to, changes in general economic
conditions either nationally or in regions in where the Company operates or may
commence operations, employment growth or unemployment rates, availability and
costs of land and homebuilding materials, labor costs, interest rates,
prevailing rates for sales associate commissions, industry competition and
regulatory developments.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have not been any material changes in the sources and effects of the
Company's market risk since September 30, 2001.
18
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In December 2001, the Company was named as a defendant in a lawsuit in the
District Court for Hennepin County, Minnesota. The plaintiffs are certain
institutional and individual customers of Miller & Schroeder Financial, Inc., a
broker-dealer ("MSF"). The lawsuit was commenced against MSF, Miller &
Schroeder, Inc., the parent corporation of MSF ("MSI"), and certain officers,
directors and shareholders of MSI who are alleged to be controlling persons of
MSI and MSF. The Company is a shareholder of MSI. James A. Arias, the Company's
Chief Executive Officer, is also named as a defendant. Mr. Arias served as a
director of MSI during the period covered by the plaintiff's complaint. The
plaintiffs, on their own behalf and on behalf of a class of investors they seek
to represent, are seeking rescission or compensatory damages with respect to
debentures issued by United Homes, Inc. and purchased by the plaintiffs from or
through MSF. The plaintiffs assert numerous claims against MSF and the other
defendants including claims based on negligence, negligent misrepresentation,
common law fraud, and violations of the Minnesota Securities Act, the Minnesota
Consumer Fraud Act, the U.S. Securities Act of 1933, and the Minnesota Uniform
Fraudulent Transfer Act. In January 2002, the Company and Mr. Arias filed a
motion to dismiss the lawsuit with respect to them. In June 2002, the Court
entered an order dismissing some but not all of the claims against the Company
and Mr. Arias. The lawsuit is now in the discovery stage with respect to the
remaining claims. The Company and Mr. Arias intend to defend the lawsuit
vigorously. At present, the Company is unable to predict the outcome of this
litigation or any exposure to loss.
The Company is engaged in various other legal proceedings incidental to its
normal business activities. Management of the Company does not believe that the
outcome of each such proceeding or all of them combined will have a material
adverse effect on the Company's operations or financial position.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
NONE
ITEM 3. DEFAULTS IN SENIOR SECURITIES
At June 30, 2002, the Company was in violation of the minimum net worth covenant
relating to its subordinated sinking fund notes with a principal balance of
$2,525,545. Therefore, the Trustee or Note holders have the right to deliver a
Notice of Default to the Company. If Notice of Default is delivered and the
violation is not cured within thirty days, the notes may be declared due and
payable immediately. At June 30, 2002, the Company would be required to raise
capital of more than $797,000 to cure this default.
If these obligations were declared immediately due and payable the Company's
cash position and working capital would be adversely affected. If demand payment
is required, management believes it will be able to satisfy the obligation and
maintain adequate working capital for the Company's operations over the ensuing
twelve months as follows:
1. Utilization of existing cash reserves.
2. Drawing additional funds available under existing construction loans.
3. Utilization of expected positive cash flow provided by operations.
4. Reducing operating expenses and other expenditures.
5. Securing funds from other lenders as may become available.
19
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITIES HOLDERS
At the Annual Meeting of Shareholders of the company held on June 7, 2002, the
shareholders voted on and approved the following items:
(1) Election of Directors: The following persons were elected to the Board
of Directors for a term of one year.
Edward S. Adams FOR: 4,341,058 WITHELD: 58,700
Brad J. Buscher FOR: 4,391,058 WITHELD: 8,700
Gregory E. Spitzer FOR: 4,341,058 WITHELD: 58,700
Alan R. Woinski FOR: 4,341,058 WITHELD: 58,700
Laurence S. Zipkin FOR: 4,341,058 WITHELD: 58,700
(2) Amendment to Stock Option Plan: The shareholders approved an amendment
to the company's 1997 Employee Incentive Stock Plan to increase the
number of shares reserved for issuance under the plan from 800,000
shares to 1,250,000 shares.
FOR: 2,895,440 AGAINST: 360,689 ABSTAIN: 150
(3) Reincorporation Proposal: The shareholders approved an Agreement and
Plan of Merger providing for the merger of Realco, Inc. into a newly
formed Minnesota corporation for the purpose of changing the state of
incorporation of the company from New Mexico to Minnesota, and changing
the name of the corporation from "Realco, Inc." to "Oak Ridge Capital
Group, Inc."
FOR: 3,235,411 AGAINST: 20,718 ABSTAIN: 150
ITEM 5. OTHER INFORMATION
On May 6, 2002 Martin S. Orland resigned as a Board Member for personal reasons.
No disagreements exist between Mr. Orland and the Company relating to
operations, policies or practices which led to this resignation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 99.1 Certification Pursuant to 18 U.S.C Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 by Chief Executive Officer
Exhibit 99.2 Certification Pursuant to 18 U.S.C Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 by Chief Financial Officer
(b) Reports on Form 8-K:
The company filed a Report on Form 8-K dated June 7, 2002 regarding the
change in the state of its incorporation from New Mexico to Minnesota,
and the change in its name from "Realco, Inc." to "Oak Ridge Capital
Group, Inc."
20
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.
OAK RIDGE CAPITAL GROUP, INC.
Date: August 14, 2002 /s/ EDWARD S. ADAMS
-------------------------------------------
Edward S. Adams, Chief Executive Officer
Date: August 14, 2002 /s/ JAMES A. CORYEA II
-------------------------------------------
James A. Coryea II, Chief Financial Officer
21