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Quarterly Report For Small Business Issuers Subject
to the 1934 Act Reporting Requirements
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarter Ended March 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-21417
CAPITAL TITLE GROUP, INC.
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(Name of Small Business Issuer in its charter)
DELAWARE 87-0399785
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4808 N. 22ND STREET, PHOENIX, ARIZONA 85016
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (602) 954-0022
Check whether the issuer (1) has filed all reports required to be filed
by 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 [ ].
Number of shares outstanding for each of the issuer's classes of common
stock, as of the latest practicable date.
$.001 par value common stock 10,966,029 shares as of March 31, 1997.
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<PAGE>
FORM 10-QSB
For the Quarter ended March 31, 1997
TABLE OF CONTENTS
Part I: FINANCIAL INFORMATION PAGE NUMBER
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Item 1. Condensed Consolidated Financial Statements
A. Consolidated Balance Sheets as of
March 31, 1997 and December 31, 1996 3
B. Consolidated Statements of Operations
for the three month periods ended
March 31, 1997 and 1996 4
C. Consolidated Statements of Cash Flows
for the three month periods ended
March 31, 1997 and 1996 5
D. Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7 - 8
Part II: OTHER INFORMATION
Items 1. - 4. of Part II have been omitted because they are not
applicable with respect to the current reporting period.
Item 5. Other Information 8
Item 6. Exhibits and Reports on Form 8-K 8
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.
CAPITAL TITLE GROUP, INC.
(Registrant)
By: /s/ Donald R. Head
------------------------------------------
Donald R. Head
Chairman of the Board,
Chief Executive Officer
Date: May 9, 1997
By: /s/ Michael J. Benjamin
------------------------------------------
Michael J. Benjamin
Vice President
(Principal Finance and Accounting Officer)
<PAGE>
PART 1: FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL TITLE GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31 December 31,
1997 1996
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<S> <C> <C>
ASSETS
Current Assets:
Cash $ 166,082 $ 76,363
Accounts receivable, net 38,681 18,709
Income taxes receivable 25,796 25,796
Prepaid expenses 61,856 56,493
----------- -----------
Total Current Assets 292,415 177,361
Property and Equipment, net 1,050,301 953,403
Other Assets:
Investment in title plant 175,000 175,000
Deposits 58,699 58,699
----------- -----------
Total Assets $ 1,576,415 $ 1,364,463
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities:
Notes payable - current portion $ 183,822 $ 173,926
Accounts payable 475,786 549,566
Accrued expenses 86,427 71,210
----------- -----------
Total Current Liabilities 746,035 794,702
Long-Term Liabilities:
Notes payable - long-term portion 375,202 404,650
Stockholders' Equity:
Common stock, $.001 par value, 50,000,000 shares
authorized, 10,966,029 and 10,316,029 shares issued
and outstanding, respectively 10,966 10,316
Paid-in capital 2,388,996 1,757,346
Accumulated deficit (1,944,784) (1,602,551)
----------- -----------
Total Liabilities and Stockholders' Equity $ 1,576,415 $ 1,364,463
=========== ===========
</TABLE>
See Notes to
Consolidated Financial Statements
3
<PAGE>
CAPITAL TITLE GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED
MARCH 31,
1997 1996
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REVENUE:
Title insurance premiums $ 902,330 $ 278,079
Escrow fees 388,270 131,238
Account servicing 81,727 75,437
Other fees and revenue 32,519 4,590
Interest income 39,044 18,961
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1,443,890 508,305
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EXPENSES
Personnel costs 995,509 340,174
Other operating expenses 706,599 233,975
Escrow commissions 70,767 3,477
Interest expense 13,248 4,848
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1,786,123 582,474
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Loss before provision for income taxes (342,233) (74,169)
Income tax benefit -- --
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Net Loss $ (342,233) $ (74,169)
============ =========
Loss per share $ (.03) N/A
============ =========
Weighted average shares outstanding 10,792,140 N/A
============ =========
See Notes to
Consolidated Financial Statements
4
<PAGE>
CAPITAL TITLE GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED
MARCH 31,
1997 1996
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Cash flows from operating activities:
Net income (loss) $(342,233) $ (74,169)
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Depreciation 51,840 12,183
Changes in Assets and Liabilities:
Accounts receivable (19,972) (9,002)
Income taxes receivable -- 51,575
Prepaid expenses (5,363) (4,695)
Accounts payable (73,780) 1,138
Accrued expenses 15,219 2,532
Income taxes payable -- (10,513)
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(32,056) 43,218
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Net Cash used by
Operating Activities (374,289) (30,951)
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Cash flows from investing activities:
Purchase of property and equipment (124,330) (5,459)
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Net cash used by investing activities (124,330) (5,459)
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Cash flows from financing activities:
Proceeds from issuance of common stock, net 632,300 100,000
Repayment of notes payable (43,962) (13,911)
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Net cash provided by financing activities 588,338 86,089
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Net increase in cash and cash equivalents 89,719 49,679
Cash and cash equivalents at beginning of year 76,363 34,556
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Cash and cash equivalents at end of year $ 166,082 $ 84,235
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See Notes to
Consolidated Financial Statements
5
<PAGE>
CAPITAL TITLE GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - INTERIM FINANCIAL INFORMATION
The unaudited consolidated financial information included in this
report has been prepared in conformity with the accounting principles and
practices reflected in the Consolidated Financial Statements included in the
Form 10-KSB for the year ended October 31, 1996 filed with the Commission under
the Securities Exchange Act of 1934. This report should be read in conjunction
with the aforementioned Form 10-KSB. In the opinion of management, all
adjustments consisting of normal recurring accruals, necessary for a fair
presentation of this information have been made. The results of operations for
the interim periods are not necessarily indicative of results for a full year.
NOTE 2 - PRIVATE PLACEMENT OF COMMON STOCK
On March 11, 1997, the Company's Board of Directors ("The Board")
authorized the sale of up to 2,500,000 shares of the Company's common stock to
accredited investors at $1.00. The Board further resolved that all private
placement sales efforts should terminate on June 11, 1997. For the three month
period ended March 31, 1997, the Company sold 650,000 common stock shares
netting $632,300. Beginning in June 1, 1996 and continuing through April 30,
1997, the Company has sold 1,980,000 shares of common stock through private
placements.
NOTE 3 - SUBSEQUENT EVENTS
On April 15, 1997, the Company entered into two $50,000 convertible
note obligations for the purpose of opening a new branch. The convertible notes
require payment of interest only for eighteen (18) months at an interest rate of
prime plus 2 1/2%. At any time within the eighteen (18) months, payee will have
the option of converting the obligation to the Company's common stock at $1.00
per share. The convertible notes are secured by equipment.
NOTE 4 - EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No 128 "Earnings per Share" ("SFAS
128") which specifies the computation, presentation and disclosure requirements
for EPS. SFAS 128 replaces the presentation of primary and fully diluted EPS
pursuant to Accounting Principles Board Opinion No. 15 - "Earnings per Share"
("APB 15") with the presentation of basic and diluted EPS. Basic EPS excludes
dilution and is computed by dividing net income available to common stockholders
by the weighted average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared in the
earnings of the entity. The Company is required to adopt SFAS 128 with its
December 31, 1997 financial statements and restate all prior-period EPS data.
The Company will continue to account for EPS under APB 15 until that time. The
Company does not believe there will be a material change under the reporting
requirements of SFAS 128.
6
<PAGE>
CAPITAL TITLE GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT
OF OPERATIONS
The 1996 Form 10-KSB and the Annual Report should be read in
conjunction with the following discussion since they contain important
information for evaluating the Company's operating results and financial
condition.
OPERATING REVENUES
Operating revenues increased by $935,585 or 184.1% for the three month
period ended March 31, 1997 compared to the same period ended March 31, 1996.
The revenue increase is attributable to the expansion into Maricopa County,
Arizona, and increased market share in Yavapai County, Arizona.
The Company began operations in Maricopa County on August 1, 1996.
Since beginning operations in Maricopa County, the Company has opened Maricopa's
headquarters and five (5) branch sites. The March Sykes Report has listed
Capital Title as the 13th largest title company in Maricopa County with 2.38% of
the overall market share. The following table presents information regarding the
approximate monthly revenue, escrows opened, and escrows closed from Maricopa
operations:
Escrows Escrows
For the Month Ended Revenue Opened Closed
------------------- ------- ------ ------
December 31, 1996 $215,000 335 186
January 31, 1997 230,000 386 224
February 28, 1997 223,000 443 200
March 31, 1997 309,000 559 320
April 30, 1997 316,000 598 340
Revenues from Maricopa operations have been growing at a constant rate
since Maricopa operations began in August, 1996. Management expects the trend to
continue as additional branches are opened.
Revenues from Yavapai operations increased approximately $111,000 or
21.9% for the three month period ended March 31, 1997 compared to the same
period ended March 31, 1996. The increase in revenue is due to an increase in
the Company's market share which went from approximately 21% in March, 1996 to
27.81% in March, 1997. Since December, 1996, the Company's market share in
Yavapai County has increased from 23.01% to 27.81%.
OPERATING EXPENSES
Expenses increased from $582,000 to $1,786,000 for the three month
period ended March 31, 1996, and 1997, respectively. Expenses for Yavapai
7
<PAGE>
operations increased from $582,000 to $788,000. The increase in Yavapai County
is due primarily to increased personnel costs, an increase of approximately
$100,000 from the comparative period. The remaining increase is due to the
Company expanding into Maricopa County, Arizona and the operating expenses from
the Maricopa operations.
LIQUIDITY AND CAPITAL RESOURCES
As the Company expanded into Maricopa County, Arizona, the Company's
liquidity requirements have also increased as a result of working capital needs.
The Company generated $588,000 in cash from financing activities in the three
month period ended March 31, 1997 compared to $86,089 in the same period of
1996. The cash generated was used to pay for operations and purchase equipment.
The short and long term liquidity requirements of the Company and its
subsidiary are monitored regularly. Management believes the Company can meet
both its short and long-term capital needs as of March 31, 1997.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
The Company has selected the firm of Ernst & Young, LLP as the
Company's independent auditors for the calendar years 1997, 1998 and 1999. As
reported in a previously filed 8-K report, the firm of Semple & Cooper, LLP
("Semple & Cooper"), the firm's former independent auditors, resigned effective
March 31, 1997.
The Company has not consulted with Ernst & Young regarding the
accounting principles which apply to specific transactions or the type of audit
opinion that might be rendered with respect to the Company's financial
statements during the two most recent fiscal years through the present.
The Company has authorized Semple & Cooper to respond to any inquiries
from Ernst & Young. The change of auditors was approved by the Audit Committee
and the Board of Directors of the Company on May 2, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
On December 12, 1996, the Registrant filed a Form 8-K reporting its
decision to change the Company's year end from October 31 to December 31.
On March 31, 1997, the Registrant filed a Form 8-K reporting the
decision of Semple & Cooper, to resign as the Company's primary accountants.
8
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 166082
<SECURITIES> 0
<RECEIVABLES> 38681
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 292415
<PP&E> 1551325
<DEPRECIATION> 501024
<TOTAL-ASSETS> 1576415
<CURRENT-LIABILITIES> 746035
<BONDS> 375202
0
0
<COMMON> 10966
<OTHER-SE> 444212
<TOTAL-LIABILITY-AND-EQUITY> 455178
<SALES> 0
<TOTAL-REVENUES> 1443890
<CGS> 0
<TOTAL-COSTS> 1786123
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13248
<INCOME-PRETAX> (342233)
<INCOME-TAX> 0
<INCOME-CONTINUING> (342233)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (342233)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
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