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 DECEMBER 31, 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
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(763) 923-2266
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
As of February 17, 2003 the Company had 4,843,023 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)
December 31,
2002 September 30,
(unaudited) 2002
--------- ---------
ASSETS
Cash and cash equivalents $ 2,245 $ 1,873
Restricted cash 1 341
Available for sale securities 434 451
Securities owned 113 206
Accounts and notes receivable, net 2,931 2,099
Costs and estimated earnings in excess of billings on
uncompleted contracts 8 38
Inventories 1,867 5,848
Property & equipment - at cost, net 332 535
Investments - equity method 305 728
Goodwill 1,181 1,352
Other assets 699 778
--------- ---------
$ 10,116 $ 14,249
========= =========
LIABILITIES
Notes payable $ 1,941 $ 2,736
Construction advances and notes payable, collateralized by
inventories 451 1,645
Accounts payable and accrued liabilities 2,041 3,080
Billings in excess of cost and estimated earnings on
uncompleted contracts 78 204
Escrow funds held for others 1 341
--------- ---------
$ 4,512 $ 8,006
STOCKHOLDERS' EQUITY
Preferred stock - authorized, 500,000 shares Series D -
issued and outstanding, none --- ---
Common stock - no par value; authorized, 50,000,000 shares;
issued 4,843,023 shares 13,165 13,165
Accumulated deficit (7,777) (7,147)
Accumulated other comprehensive income 218 227
--------- ---------
5,606 6,245
Less common stock held in treasury - at cost, 700 shares 2 2
--------- ---------
5,604 6,243
--------- ---------
$ 10,116 $ 14,249
========= =========
See accompanying notes.
2
OAK RIDGE CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended December 31, 2002
(Dollars in thousands, except per share amounts)
(Unaudited)
2002 2001
------- -------
REVENUES
Real estate brokerage commissions and fees $ 480 $ 178
Securities brokerage commissions and fees 661 1,779
Sales of developed lots 685 699
Equity in net earnings of investees 45 25
Interest and other, net 598 140
------- -------
2,469 2,821
COSTS AND EXPENSES
Cost of real estate brokerage revenue 282 89
Cost of securities brokerage revenue 745 1,490
Cost of developed lots sold 476 537
Selling, general, administrative and other 889 922
Depreciation and amortization 79 102
Interest 126 112
------- -------
2,597 3,252
------- -------
Loss from continuing operations before income taxes (128) (431)
INCOME TAX EXPENSE 7 25
------- -------
LOSS FROM CONTINUING OPERATIONS (135) (456)
DISCONTINUED OPERATIONS
Earnings (loss) from discontinued operations, net of income taxes (453) 628
Loss on disposal of discontinued operations, net of income taxes (41) --
------- -------
NET EARNINGS (LOSS) (629) 172
PREFERRED STOCK DIVIDEND REQUIREMENT
(NEGATIVE RETURN) - NET -- (154)
------- -------
NET EARNINGS (LOSS) APPLICABLE TO COMMON SHARES $ (629) $ 326
======= =======
EARNINGS (LOSS) PER COMMON SHARE
Loss per common share from continuing operations - basic $ (.03) $ (.08)
======= =======
Net earnings (loss) per common share - basic $ (.13) $ .08
======= =======
Loss per common share from continuing operations - diluted $ (.03) $ (.09)
======= =======
Net earnings (loss) per common share - diluted $ (.13) $ .04
======= =======
See accompanying notes.
3
OAK RIDGE CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended December 31, 2002
(Dollars in thousands)
(Unaudited)
2002 2001
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ (629) $ 172
ADJUSTMENTS TO RECONCILE NET EARNINGS (LOSS) TO NET CASH PROVIDED BY
(USED IN) OPERATIONS-
Depreciation and amortization 99 128
Accretion of discount on notes payable 6 8
Net distributions in excess of earnings of investees (earnings in
excess of distributions) 166 (72)
Provision for deferred income taxes 7 25
Realized gain on available for sale securities (5) --
Deferred gain (32) --
Loss on sale of business 41 --
CHANGE IN OPERATING ASSETS AND LIABILITIES, NET OF EFFECTS FROM
BUSINESS SOLD-
Increase (decrease) in restricted cash (20) 132
Decrease in securities owned 92 235
(Increase) decrease in receivables (19) (1,916)
Decrease in inventories 404 1,030
Change in net billings related to costs and estimated earnings on
uncompleted contracts (96) 66
Change in other assets (48) (58)
Decrease in escrow funds held for others 20 (132)
Increase (decrease) in accounts payable and accrued liabilities (118) 484
------- -------
Net cash provided by (used in) operating activities (132) 102
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (8) (27)
Contributions to equity method investments (60) --
Purchase of available for sale securities (26) --
Proceeds from available for sale securities 31 --
Proceeds from sale of discontinued operations 1,381 --
------- -------
Net cash provided by (used in) investing activities 1,318 (27)
CASH FLOWS FROM FINANCING ACTIVITIES
Construction advances and notes, net (13) (492)
Payments of long term debt (801) (1,027)
------- -------
Net cash used in financing activities (814) (1,519)
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 372 (1,444)
Cash and cash equivalents at beginning of period 1,873 3,547
------- -------
Cash and cash equivalents at end of period $ 2,245 $ 2,103
======= =======
See accompanying notes.
4
OAK RIDGE CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 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 (the "Company") 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 December 31, 2002 are not necessarily indicative of the results
that may be expected for the fiscal year ending September 30, 2003. 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, 2002.
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 December 20, 2002, the Company sold its homebuilding subsidiary, Charter
Building and Development Corp. (Charter), to a private investor group which
includes certain current employees and stockholders and former officers of the
Company. Charter was responsible for the construction operations of the
residential construction and land development segment. The Company will continue
its land development operations. The selling price was $3,129,000 consisting of
the following:
Cash funded by the private investor group $ 800,000
Cash funded by Charter, including additional draws
on construction and development lines of credit 1,200,000
Promissory note collateralized by Charter's common stock 1,129,000
-----------
$ 3,129,000
===========
Subsequent to the closing date, the Company and buyer entered into an Amendment
to the original Stock Sale Agreement, (the "Amended Agreement"), which among
other things, adjusted the selling price by $317,000 to reflect Charters'
fifty-percent (50%) interest in a land development joint venture, "Success
Ventures, Inc." (the "Joint Venture Interest") as of November 30, 2002. The
$317,000 was paid to the Company $250,000 in cash in January 2003 with the
balance of $67,000 added to the note amount in the original Stock Sale
Agreement. The new note balance after this Amendment is $1,196,000. A current
stockholder and former officer was responsible for brokering the deal between
the Company and the private investor group and received a $128,000 fee upon
completion of the sale. The Company recognized a $41,000 loss on this disposal.
The financial data related to these operations is accounted for as discontinued
operations for all periods presented.
Subsequent to September 30, 2002, management began evaluating the Company's
commercial construction segment due to continuing operating losses. As a result
of this evaluation, management has decided to terminate the operations of the
commercial construction segment. Management expects to complete termination
during the second quarter of fiscal 2003. The financial data related to these
operations is accounted for as discontinued operations 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.
5
OAK RIDGE CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2002
2. Income Taxes:
The Company's effective income tax rate for the periods ended December 31, 2002
and 2001 differs from the federal statutory rate due to changes in the valuation
allowance for deferred tax assets.
3. Earnings (Loss) Per Common Share:
The following shows the amounts used in computing earnings (loss) per common
share for the three months ended December 31:
Three Months
Ended December 31
---------------------------
2002 2001
---------- ----------
Loss from continuing operations $ (135,000) $ (456,000)
Preferred stock - (dividends) negative return -- 154,000
---------- ----------
Loss from continuing operations applicable to common shares used for
basic earnings per share (135,000) (302,000)
Effect of dilutive convertible preferred stock - negative return -- (154,000)
---------- ----------
Loss from continuing operations applicable to common shares used for
diluted earnings per share $ (135,000) $ (456,000)
========== ==========
Weighted average number of common shares outstanding used for basic
earnings per share 4,843,023 3,892,985
Effect of dilutive convertible preferred stock -- 946,957
---------- ----------
Weighted average number of common shares outstanding used for diluted
earnings per share 4,843,023 4,839,942
========== ==========
4. Debt:
At December 31, 2002, the Company was in violation of the minimum net worth
covenant and the debt limitation covenant relating to its subordinated sinking
fund notes with a principal balance of $1,738,000. 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.
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 earnings (losses) consist primarily of net unrealized
investment gains and losses, net of income tax effects. Total comprehensive
earnings (losses) for the quarters ended December 31, 2002 and 2001 were
$(639,000) and $134,000, respectively.
6
OAK RIDGE CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2002
6. Stockholders' Equity:
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 three months
ended December 31, 2001.
7. Segment Information:
The Company operates in the following segments: commercial real estate broker,
land development, and financial services. Information concerning the Company's
continuing business segments for the quarter ended December 31 is as follows:
2002 2001
----------- -----------
Revenues
Commercial real estate broker $ 480,000 $ 178,000
Residential land development 860,000 698,000
Financial services 979,000 1,928,000
Interest and other 150,000 17,000
----------- -----------
Total $ 2,469,000 $ 2,821,000
=========== ===========
Earnings (loss) from continuing operations before taxes
Commercial real estate broker $ 13,000 $ (117,000)
Residential land development 357,000 152,000
Financial services (234,000) (148,000)
Unallocated general corporate expenses (264,000) (318,000)
----------- -----------
Loss from continuing operations before income taxes $ (128,000) $ (431,000)
=========== ===========
7
OAK RIDGE CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2002
8. New Accounting Pronouncements:
In June 2002, the FASB issued Statement of Financial Accounting Standards No.
146 ("SFAS 146"), "Accounting for Costs Associated with Exit or Disposal
Activities." SFAS No. 146 addresses significant issues regarding the
recognition, measurement, and reporting of costs that are associated with exit
and disposal activities, including restructuring activities that are currently
accounted for under EITF No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." The scope of SFAS 146 also includes costs
related to terminating a contract that is not a capital lease and termination
benefits that employees who are involuntarily terminated receive under the terms
of a one-time benefit arrangement that is not an ongoing benefit arrangement or
an individual deferred-compensation contract. The Company early adopted SFAS 146
on October 1, 2002. The effect on adoption of SFAS 146 changes the timing of
when costs associated with terminating the operations of the commercial
construction segment are recorded from a commitment date approach to when the
liability is incurred.
In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"), "Guarantor's
Accounting and Disclosure Requirements for Guarantees, including Indirect
Guarantees of Indebtedness of Others." This interpretation elaborates on the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued. It
also clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligations undertaken in
issuing the guarantee. The disclosure requirements of FIN 45 are effective for
interim and annual periods ending after December 15, 2002. The initial
recognition and initial measurement requirements of FIN 45 are effective
prospectively for guarantees issued or modified after December 31, 2002. The
Company is assessing, but at this point does not believe the adoption of the
recognition and initial measurement requirements of FIN 45 will have a material
impact on its financial position, cash flows or results of operations. See
Footnote 11 for disclosure of guarantees under this interpretation.
In December 2002, the FASB issued Statement of Financial Accounting Standards
No. 148 ("SFAS 148"), "Accounting for Stock-Based Compensation - Transition and
Disclosure." SFAS 148 amends Statement of Financial Accounting Standards No. 123
("SFAS 123"), "Accounting for Stock-Based Compensation," and provides
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. SFAS 148 also amends
the disclosure requirements of SFAS 123 to require more prominent and frequent
disclosures in financial statements about the effects of stock -based
compensation. The transition guidance and annual disclosure provisions of SFAS
148 are effective for financial statements issued for fiscal years ending after
December 15, 2002. The interim disclosure provisions are effective for financial
reports containing financial statements for interim periods beginning after
December 15, 2002. Adoption of SFAS 148 is not expected to have a material
impact on the Company's financial position, cash flows 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 April 2003, 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 its furnishings. This liability totaled $667,000 and
$736,000 at December 31, 2002 and September 30, 2002, respectively.
8
OAK RIDGE CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2002
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
former 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. A hearing on the motion to
dismiss the lawsuit was held in March 2002; the outcome of this motion was a
partial dismissal of claims however; the remaining complaint items are still
under the courts consideration. As of February 17, 2003, the remaining complaint
items have not as yet been dismissed. If they are not dismissed, 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.
10. Discontinued Operations
Residential Construction Operation
- ----------------------------------
On December 20, 2002, the Company sold its homebuilding subsidiary, Charter
Building and Development Corp. (Charter), to a private investor group which
includes certain current employees and stockholders and former officers of the
Company. Charter was responsible for the construction operations of the
residential construction and land development segment. Subsequently, the
above sale was amended to include the Company's fifty-percent (50%) interest in
a land development joint venture called "Success Ventures". The selling price
was originally $3,129,000 and amended to $3,446,000 consisting of the following:
Charter Success Total
---------- ---------- ----------
Cash funded by the private investor group $ 800,000 $ 250,000 $1,050,000
Cash funded by Charter, including additional draws
on construction and development lines of credit 1,200,000 -- 1,200,000
Promissory note collateralized by
Charter's common stock 1,129,000 67,000 1,196,000
---------- ---------- ----------
$3,129,000 $ 317,000 $3,446,000
========== ========== ==========
A current stockholder and former officer were responsible for brokering the deal
between the Company and the private investor group and received a $128,000 fee
upon completion of the sale. The Company continues to be a guarantor on the
former subsidiary's construction and development lines of credit based on the
homes in inventory at November 30, 2002. These guarantees will terminate upon
renewal of each line by the respective financial institution. The Company
recognized a $41,000 loss on this disposal.
The disposal of the Company's homebuilding construction operations has been
accounted for as discontinued operations and, accordingly, the related operating
results are segregated and reported as discontinued operations in the
accompanying consolidated statements of operations and cash flows for all
periods presented.
9
OAK RIDGE CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2002
Information relating to the discontinued operations of the Company's
homebuilding construction operations for the three months ended December 31 is
as follows:
Three Months Three Months
Ended Ended
December 31, December 31,
2002 2001
----------- -----------
Revenues $ 1,697,000 $ 5,922,000
=========== ===========
Earnings (Loss) from operations before income
taxes $ (85,000) $ 597,000
Income tax expense -- --
----------- -----------
Earnings (Loss) from discontinued operations $ (85,000) $ 597,000
=========== ===========
Termination of Commercial Construction Segment
- ----------------------------------------------
In October 2002, management decided to terminate the operations of the
commercial construction segment due to its continuing operating losses.
Management expects the termination of operations to be completed during the
second quarter of fiscal 2003. Management has not yet determined any additional
costs of this termination that may be required to be recognized pursuant to
SFAS 146.
This wholly-owned subsidiary is currently the general contractor for a $3.5
million medical center renovation project in southern New Mexico. The project is
behind schedule and the contract provides for financial penalties if the project
is not completed on time. The project delays have been for various reasons, some
that were under the subsidiary's control, and some that were not. The project is
currently scheduled for completion at the end of February 2003. If additional
delays should occur the owner of the project has the right to seek damages for
the delay. As of this filing, the project is expected to be completed by the
deadline. The Company's subsidiary has the right to "put down" to respective
sub-contractors any costs which the subsidiary may incur as a result of
inadequate or non-timely performance by the sub-contractor. The subsidiary, if
penalized, will use that remedy to contain project costs. The Company currently
expects the project to show a minimal loss once completed.
Information relating to the discontinued operations of the Company's commercial
construction operations for the three months ended December 31 is as follows:
Three Months Three Months
Ended Ended
December 31, December 31,
2002 2001
----------- -----------
Revenues $ 505,000 $ 851,000
=========== ===========
Earnings (Loss) from operations before income
taxes $ (368,000) $ 31,000
Income tax benefit -- --
----------- -----------
Earnings (Loss) from discontinued operations $ (368,000) $ 31,000
=========== ===========
Earnings (Loss) per common share information relating to these discontinued
operations is as follows for the three months ended December 31:
2002 2003
---- ----
Earnings (Loss) per common share from (.10) .16
Discontinued operations - basic
Earnings (Loss) per common share from (.10) .12
Discontinued operations - diluted
10
OAK RIDGE CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2002
11. Guarantees
The Company currently is guarantor on certain construction and development lines
of credit related to Charter with outstanding balances at December 31, 2002
totaling approximately $1,100,000. The maximum potential amount of future
payments under the guarantees is approximately $2,600,000. These guarantees were
required in the normal course of transacting residential homebuilding and are
collateralized by both the home and the lot on which the home is built. The
financial institutions require a separate individual note for each home built
which is paid off when the home closes and requires paydown on lot lines of
credit as lots are transferred to construction lines of credit. On November 30,
2002, the residential homebuilding subsidiary was sold to outside investors; one
of the terms and conditions of the sale was the Company would continue its
existing guarantees. The guarantee amount will be declining each month as the
homes are sold and the construction advances are paid off or as lots are
transferred to construction lines of credit. Based on the inventory in place at
the time of sale of the subsidiary and the normal time required to build a home
(about 90 days), the guarantees required as part of the sale are expected to
terminate by the end of fiscal 2003.
The Company is also guarantor of a bank line of credit on a land development
joint venture in which the Company is a fifty-percent owner. The venture is a
169 homesite project with a bank line of credit of $5,000,000 of which $970,000
was outstanding at December 31, 2002. The bank debt is to be paid down as lots
are completed and sold. If not otherwise paid, the bank debt is due September
30, 2004.
12. Subsequent Events
Sale of commercial real estate brokerage subsidiary
- ---------------------------------------------------
On February 7, 2003, the Company entered into a Stock Sale Agreement effective
January 31, 2003 with FCRES, Inc. a newly formed New Mexico corporation pursuant
to which FCRES, Inc. agreed to purchase all the Common Stock of the Company's
commercial real estate brokerage subsidiary. The owners of the newly formed
corporation include certain current employees and stockholders of the Company.
Under the terms of the Agreement, the selling price was $160,000 consisting of
$115,000 in cash and a promissory note of $45,000, collateralized by First
Commercial's common stock.
A current stockholder and former officer was responsible for brokering the deal
between the Company and private investor group and received a $8,000 fee upon
closing of the sale. Management does not anticipate any significant gain or loss
will result from this sale.
Grant of Stock Options to Employees
- ------------------------------------
On January 13, 2003, the Board of Directors granted key employees options to
acquire 449,500 shares of the Company's stock at a $0.55 per share exercise
price. The Company has reserved a total of 1,250,000 shares for issuance under
the Employee Incentive Stock Option Plan. Prior to this grant, 620,000 shares
were available for grant; after this grant, 170,500 shares remain reserved for
grants in the future.
11
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
Land Development Segment (previously known as Residential Construction and
Land Development Segment)
Financial Services Segment which includes unallocated corporate expenses
The Company's continuing operations are primarily within the metropolitan and
surrounding areas of Minneapolis, Minnesota and Albuquerque, New Mexico.
The following discussions are based on the resulting "continuing operations"
which no longer includes Charter, the residential homebuilding subsidiary,
Realco Construction, Inc., the commercial construction subsidiary of the
Company, and Success Ventures in which the Company held 50% ownership interest
in a land development joint venture.
Consolidated For the Quarter Ended December 31, 2002
- ----------------------------------------------------
The Company experienced a consolidated pre-tax quarterly loss of $128,000 from
continuing operations compared to a pre-tax loss of $431,000 for the same period
in fiscal 2002. Consolidated revenues decreased $352,000 or 12% to $2,469,000
from $2,821,000 in the same quarter a year ago. The overall revenue net decrease
is the result of revenue increases in commercial brokerage revenue of $478,000,
and interest and other of $282,000 all of which were offset by a revenue
decrease of approximately $1,118,000 from the securities brokerage operation.
The decrease in the revenue from the securities brokerage segment was the result
of minimal revenue from investment banking activities in 2002 compared to
approximately $900,000 of investment banking revenues in 2001.
The consolidated selling, general and administrative expenses from the
continuing segments showed an overall decrease of approximately $33,000; these
expenses were $889,000 for the quarter ended December 31, 2002 compared to
$922,000 for the quarter ended December 31, 2001. The change was a reduction in
expenses at ESI of approximately $147,000 offset by increases totaling $106,000
in unallocated corporate expense.
The Company's effective income tax rate for the periods ended December 31, 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 ENDED DECEMBER 31, 2002
- ---------------------------------------------------------------------
COMMERCIAL REAL ESTATE BROKERAGE SEGMENT:
- -----------------------------------------
The commercial real estate brokerage segment consists of First Commercial Real
Estate Services, Inc. The Company was approached in late January 2003 by
management of the subsidiary with a proposal to purchase the subsidiary. After
careful evaluation, the Company deemed it in the best interest of the Company to
sell the subsidiary. The sale was completed on February 7, 2003. The terms of
the sale consist of a purchase price of $160,000 (net book value at January 1,
2003) with $115,000 paid in cash and the remaining $45,000 in a note. This event
will be reflected as a discontinued operation for the quarter ending March 31,
2003.
For the Quarter Ended December 31, 2002
- ---------------------------------------
This segment experienced pre-tax earnings of $13,000 for the quarter ended
December 31, 2002 as compared to a pre-tax loss of $117,000 for the same period
in fiscal 2002. The current period revenues were $480,000 compared
12
to $178,000 in the same quarter in 2002. 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 $22,000 or 10% in the quarter ended December 31, 2002 as compared to
the same quarter a year ago.
LAND DEVELOPMENT SEGMENT (PREVIOUSLY KNOWN AS RESIDENTIAL CONSTRUCTION AND LAND
- -------------------------------------------------------------------------------
DEVELOPMENT SEGMENT):
- ---------------------
The residential construction operations were sold effective November 30, 2002.
The two months of activity generated $1,697,000 of revenues and an operating
loss of $85,000; these amounts are reported as Discontinued Operations. This
segment now only includes land 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,
were eliminated in consolidation until the lot was removed from Charter's
inventory. As a result of the sale of Charter's stock to an outside investment
group, $231,000 of deferred gain was recognized and included in the gain or loss
on disposal of discontinued operations.
For the Quarter Ended December 31, 2002
- ---------------------------------------
This segment experienced pre-tax earnings of $357,000 for the quarter ended
December 31, 2002 from land development activities; construction activities are
reported in discontinued operations.
Lot sales decreased $14,000 or 2% to $685,000 in the quarter ended December 31,
2002. The gross margin on sales increased $47,000 or 29% to $209,000. The gross
profit percentage of sales increased from 23% to 30% in the comparable quarter
last year.
During the quarter ended December 31, 2002, the company provided financing to an
affiliated land development joint venture. In connection therewith, the Company
recognized other income of $175,000 relating to gains on loan participations
sold to other investors.
Selling, general and administrative expenses for this segment increased $43,000
to $60,000 for the period. There was no one significant factor that accounted
for the increase.
FINANCIAL SERVICES SEGMENT:
- ---------------------------
The financial services segment consists primarily of the operations of the
Company, 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 December 31, 2002
- ---------------------------------------
The Financial Services segment realized pre-tax loss of $234,000 for the quarter
ended December 31, 2002 as compared to a pre-tax loss of $148,000 in the same
period in fiscal 2002.
ESI incurred a pre-tax loss of $33,000 in the quarter ended December 31, 2002 as
compared to a pre-tax loss of $50,000 in the quarter ended December 31, 2001.
Revenues from commissions decreased $1,117,000 to $661,000 for the quarter ended
December 31, 2002. The primary cause
13
for this decline was in 2001 ESI had completed two investment banking projects
that provided approximately $900,000 of revenue; in 2002 they did not have any
projects completed.
Selling, general and administrative expenses decreased $147,000 or 37% to
$246,000. The decrease is due to a concerted effort by management to reshape
operational costs to better accommodate growth initiatives in the fiscal 2003
period.
Net equity earnings recognized from PHS Mortgage Company were $46,000, as
compared to $25,000 in the same period in fiscal 2002. 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.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At December 31, 2002, the Company was in violation of the minimum net worth and
debt limitation covenants relating to its subordinated sinking fund notes with a
principal balance of $1,738,000. 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 However, 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. Establish new lines of credit related to land development activities
using the land as collateral.
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.
Overall for the quarter ended December 31, 2002 the Company showed a $372,000
increase in its cash and cash equivalents. The breakdown of the quarterly cash
flow indicated that $132,000 was used in operating activities , $814,000 was
utilized in financing activities, primarily $801,000 in debt service on the
subordinated notes. These utilizations were offset by $1,318,000 of cash
received from the sale of discontinued operations.
In comparison to the same three month period a year ago, the Company showed cash
utilization of $1,444,000. The components of this include, $102,000 was provided
from operations, $27,000 was used for capital expenditures and $1,519,000 was
used for reduction of long term debt ($1,027,000) and paybacks of construction
notes and advances of $492,000.
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 land
development lines 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 2003.
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.
14
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 or 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, 2002.
ITEM 4: CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures. The term "disclosure controls
and procedures" is defined in Rules 13a-14(c) and 15d-14(c) of the Securities
Exchange Act of 1934 ("Exchange Act"). These rules refer to the controls and
other procedures of a company that are designed to ensure that information
required to be disclosed by the company in the reports that it files under the
Exchange Act is recorded, processed, summarized and reported within the required
time periods. The Company's Chief Executive Officer and Chief Financial Officer
have evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days before the filing of this quarterly
report (the "Evaluation Date"), and have concluded that, as of the Evaluation
Date, such controls and procedures were effective at ensuring that required
information will be disclosed in the Company's reports filed under the Exchange
Act.
Changes in internal controls. There were no significant changes in the Company's
internal controls or in other factors that could significantly affect these
controls subsequent to the Evaluation Date.
15
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
former 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. A hearing on the motion to
dismiss the lawsuit was held in March 2002; the outcome of this motion was a
partial dismissal of claims however, the remaining complaint items are still
under the courts consideration. As of February 19, 2003, the remaining complaint
items have not as yet been dismissed. If they are not dismissed, 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.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On January 24, 2003 the Board of Directors approved the reduction of the current
exercise price of its outstanding registered warrants to $2.00, from the current
exercise price of $4.20 and simultaneously extended the maturity date of the
warrants to February 1, 2005. The warrants were to expire on February 6, 2003.
All terms and conditions associated with the outstanding registered warrants
will remain unchanged, including the right of the Company to call the warrants
upon thirty days notice, at a price of $0.01 per warrant, should the common
shares of the Company trade at 25% above the $2.00 strike point ($2.50 per
share) for ten consecutive trading days.
ITEM 3. DEFAULTS IN SENIOR SECURITIES
The Company is in violation of certain covenants relating to the subordinated
sinking fund notes. 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.
The Company has continued to make the scheduled debt service payments on the
subordinated sinking fund notes and the principal balance of these notes was
reduced to $1,738,000 in December 2002.
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. Sell or otherwise dispose of nonessential assets.
3. Drawing additional funds available under existing land development
loans.
4. Utilization of expected positive cash flow provided by operations.
5. Reducing operating expenses and other expenditures.
16
6. Securing funds from other lenders as may become available.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITIES HOLDERS
NONE
ITEM 5. OTHER INFORMATION
Board Changes
- -------------
On October 1, 2002 Gregory E. Spitzer resigned as a Board Member for personal
reasons. No disagreements exist between Mr. Spitzer and the Company relating to
operations, policies or practices which led to this resignation.
On October 2, 2002 Brad J. Buscher resigned as a Board Member for personal
reasons. No disagreements exist between Mr. Buscher and the Company relating to
operations, policies or practices which led to this resignation.
Management Changes
- ------------------
On January 13, 2003, the Board of Directors of Oak Ridge Capital named Edward S.
Adams as Vice Chairman of the Board of Oak Ridge Capital Group, Inc. and Marc H.
Kozberg assumed the position of Chief Executive Officer. Since October 1, 2002
Mr. Kozberg was the Chief Operating Officer of the Company and prior to that
date was President and Chief Executive Officer of Equity Securities Advisors,
Inc., an operating division of the Company's wholly-owned subsidiary, ESI.
NASDAQ Delisting
- ----------------
On December 10, 2002 the Company received a Nasdaq Staff Determination
Notification that the Company has failed to maintain a minimum market value of
publicly held shares ("MVPHS") of $5,000,000 over the previous 30 consecutive
trading days, and, as a result, did not comply with Marketplace Rule 4450(e)(1).
In addition, the Staff also cited the Company has not complied with the minimum
$1.00 bid price as set forth in Marketplace Rule 4450(a)(5) requirement(s).
Because of these two non-compliance items the Company's securities are,
therefore, subject to delisting from the NASDAQ National Market. The Company
requested a hearing before a Nasdaq Listing Qualifications Panel to review the
Staff Determination. The hearing was held on January 23, 2003. the Company
expects to receive a formal notice that the panel made a decision to delist the
Company's securities.
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 on December 31, 2002 regarding the
sale of Charter, its wholly-owned residential home construction subsidiary
in New Mexico.
The Company filed a Report on Form 8-K on February 12, 2003 regarding the
Amended Sale for Charter with Pro-Forma Financial Statements and the
termination of operations of the Company's construction subsidiary, Realco
Construction, Inc.
17
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: February 19, 2003 /s/ Marc H. Kozberg
----------------------------------
Marc H. Kozberg, Chief Executive Officer
Date: February 19, 2003 /s/ James A. Coryea II
----------------------------------
James A. Coryea II, Chief Financial Officer
18
CERTIFICATION UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Marc H. Kozberg, the Chief Executive Officer, hereby certify that:
1. I have reviewed this quarterly report on Form 10-Q of Oak Ridge Capital
Group, Inc.;
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 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.
/s/ Marc H. Kozberg
------------------------
Marc H. Kozberg
Chief Executive Officer
Dated: February 19, 2003
19
CERTIFICATION UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, James A. Coryea II, the Chief Financial Officer, hereby certify that:
1. I have reviewed this quarterly report on Form 10-Q of Oak Ridge Capital
Group, Inc.;
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 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.
/s/ James A. Coryea II
------------------------
James A. Coryea II
Chief Financial Officer
Dated: February 19, 2003
20