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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, 1998
[ ] 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.
----------------------------------------------
(Name of Small Business Issuer in its charter)
Delaware 87-0399785
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
14555 North Scottsdale Road, Suite 320, Scottsdale , Arizona 85254
- ------------------------------------------------------------ -----
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (602) 483-8868
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 15,871,732 shares as of May 11, 1998.
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<PAGE>
FORM 10-QSB
For the Quarter ended March 31, 1998
TABLE OF CONTENTS
Part I: FINANCIAL INFORMATION Page Number
Item 1. Condensed Consolidated Financial Statements -----------
A. Consolidated Balance Sheets as of
March 31, 1998 (unaudited)and
December 31, 1997 3
B. Consolidated Statements of Operations
for the three month periods ended
March 31, 1998 and 1997 (unaudited) 4
C. Consolidated Statements of Cash Flows
for the three month periods ended
March 31, 1998 and 1997 (unaudited) 5
D. Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Part II: OTHER INFORMATION
Items 1.-5. of Part II have been omitted because they are not
applicable with respect to the current reporting period.
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 9
2
<PAGE>
PART 1: FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1998 1997
----------- -----------
ASSETS (unaudited)
Current Assets:
Cash $ 1,610,372 $ 198,903
Accounts receivable, net 119,804 109,906
Interest receivable 42,612 36,287
Prepaid expenses 25,599 16,554
----------- -----------
Total Current Assets 1,798,387 361,650
Property and equipment, net 1,961,876 1,560,655
Other Assets:
Investment in title plant 175,000 175,000
Deposits 101,738 90,823
Property held for sale 65,696 65,696
----------- -----------
Total Assets $ 4,102,697 $ 2,253,824
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable - current portion $ 378,233 $ 553,119
Accounts payable 292,827 317,003
Accrued expenses 371,910 150,647
----------- -----------
Total Current Liabilities 1,042,970 1,020,769
Long-Term Liabilities:
Notes payable - long-term portion 476,570 415,362
Stockholders' Equity:
Common stock, $.001 par value, 50,000,000
shares authorized, 12,168,029 and
11,231,029 shares issued and outstanding
in 1998 and 1997, respectively 12,168 11,231
Paid-in capital 3,914,757 2,653,731
Accumulated deficit (1,343,768) (1,847,269)
----------- -----------
Total Stockholders' Equity 2,583,157 817,693
----------- -----------
Total Liabilities and Stockholders' Equity $ 4,102,697 $ 2,253,824
=========== ===========
See Notes to Consolidated Financial Statements
3
<PAGE>
CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the three month period ended
March 31,
1998 1997
----------- ------------
REVENUE:
Title insurance premiums $ 2,489,047 $ 902,330
Escrow fees 1,016,444 388,270
Account servicing 104,272 81,727
Other fees and revenue 301,914 32,519
Interest income 105,389 39,044
----------- ------------
4,017,066 1,443,890
----------- ------------
EXPENSES:
Personnel costs 1,816,603 995,509
Escrow commissions 343,847 70,767
Title remittance fees 256,995 92,085
Rent 215,752 152,403
Other operating expenses 854,693 462,111
Interest expense 25,675 13,248
----------- ------------
3,513,565 1,786,123
----------- ------------
Income loss before provision for
income taxes 503,501 (342,233)
Provision for income taxes -- --
----------- ------------
Net income (loss) $ 503,501 $ (342,233)
=========== ============
Net income (loss) per share-basic $ 0.04 $ (0.03)
=========== ============
Weighted average shares outstanding-basic 11,554,196 10,792,140
=========== ============
Net income (loss) per share-assuming dilution $ 0.04 $ (0.03)
=========== ============
Weighted average shares
outstanding-assuming dilution 12,716,807 10,792,140
=========== ============
See Notes to Consolidated Financial Statements
4
<PAGE>
CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
For the three months ended
March 31,
1998 1997
----------- ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Net income (loss) $ 503,501 $(342,233)
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Depreciation and amortization 70,186 51,840
Changes in assets and liabilities:
Accounts receivable (9,898) (19,972)
Interest receivable (6,325) --
Prepaid expenses (9,045) (5,363)
Deposits (10,915) --
Accounts payable (24,176) (73,780)
Accrued expenses 221,263 15,219
---------- ---------
Net Cash Flows - Operating Activities 734,591 (374,289)
---------- ---------
NET CASH USED BY INVESTING ACTIVITIES:
Purchase of property and equipment (400,342) (124,330)
---------- ---------
Net Cash Flows - Investing Activities (400,342) (124,330)
---------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net 1,261,963 632,300
Borrowings 225,000 --
Repayment of debt (409,743) (43,962)
---------- ---------
Net Cash Flows - Financing Activities 1,077,220 588,338
---------- ---------
NET INCREASE IN CASH 1,411,469 89,719
CASH AT THE BEGINNING OF THE PERIOD 198,903 76,363
---------- ---------
CASH AT THE END OF THE PERIOD $1,610,372 $ 166,082
========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for interest $ 25,675 $ 13,248
========== =========
See Notes to Consolidated Financial Statements
5
<PAGE>
CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
NOTE 1 - INTERIM FINANCIAL INFORMATION
The accompanying unaudited consolidated financial statements of Capital
Title Group, Inc. and Subsidiaries (the Company) have been prepared in
accordance with generally accepted accounting principles for interim financial
information and pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management all adjustments (consisting
of only normal recurring accruals) necessary for a fair presentation have been
included. For further information, refer to the consolidated financial
statements and footnotes hereto included in the Company's annual report on Form
10-KSB for the year ended December 31, 1997.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and the accompanying notes. Actual results could differ from these
estimates.
NOTE 2 - PRIVATE PLACEMENT OF COMMON STOCK
On March 31, 1998, the Company completed a private placement of 463,500
units at $3.00 per unit. Each unit consisted of two shares of common stock and a
warrant to purchase one share of common stock at a per share price of $2.50
within a two year period. The net proceeds from this private placement were
approximately $1.3 million.
NOTE 3 - SUBSEQUENT EVENTS
On April 6, 1998 the Company signed a definitive agreement for the
purchase of 100% of the outstanding stock of California Coast Title Company, a
California licensed title insurance agency conducting limited operations in the
San Diego area, for $17,500 in cash and up to 45,000 shares of its common stock.
The transaction is subject to normal closing conditions, including the Company
obtaining regulatory approval. Subject to satisfaction of such conditions, the
transaction is currently anticipated to close by June 1, 1998.
On April 30, 1998 the Company completed a $5.0 million private placement
of common stock in which 3,703,703 shares of common stock were issued at $1.35
per share. In addition, the Company issued three-year warrants to purchase an
additional 308,642 shares of common stock at $1.62 per share to an investment
banking firm that acted as placement agent in the transaction. The net proceeds
from this private placement of approximately $4.3 million are expected to be
used by the Company to support expansion of its business in Arizona and
California and for working capital and general corporate purposes.
6
<PAGE>
NOTE 4 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share ("EPS"):
<TABLE>
<CAPTION>
For the Three month period ended March 31,
------------------------------------------
1998 1997
--------------------------------- ------------------------------
Per share Per share
Net Income Shares amount Net loss Shares amount
---------- ------ --------- -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $503,501 11,554,196 $0.04 $(342,233) 10,792,140 $(0.03)
===== ======
Effect of Dilutive
Securities:
Convertible debentures 8,325 289,583 -- --
Stock options -- 873,028 -- --
-------- ---------- --------- ----------
Diluted EPS $511,826 12,716,807 $0.04 $(342,233) 10,792,140 $(0.03)
======== ========== ===== ========= ========== ======
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT
OF OPERATIONS
The 1997 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 REVENUE
Operating revenue increased by $2,573,176 or 178.2% for the three months
ended March 31, 1998 compared to the same period ended March 31, 1997. The
revenue increase is attributable to a favorable real estate market, the
expansion of the Company's operations in Maricopa County, Arizona and increased
market share in Yavapai County, Arizona.
The following table presents information regarding the Company's
operating revenue:
For the three months ended March 31,
------------------------------------
1998 % of total 1997 % of total
---------- ---------- ---------- ----------
Title insurance premiums $2,489,047 62.0% $ 902,330 62.5%
Escrow fees 1,016,444 25.3 388,270 26.9
Account servicing 104,272 2.6 81,727 5.7
Other fees 301,914 7.5 32,519 2.2
Interest income 105,389 2.6 39,044 2.7
---------- ----- ---------- -----
Total revenue $4,017,066 100.0% $1,443,890 100.0%
Orders closed 4,063 1,475
Average fee per order $ 863 $ 875
7
<PAGE>
The Company's primary business is providing title and escrow services in
Maricopa and Yavapai Counties, Arizona. Approximately 71.4% of total revenue is
attributable to Maricopa County where the Company currently operates 11
locations. The March 1998 SYKES REPORT shows Capital Title as the 10th largest
title company in Maricopa County with 4.9% of the overall market share, compared
to a market share of 2.3% for the same period of the prior year. The Company has
7 locations in Yavapai County where the Company has approximately 32.0% of the
overall market share. During mid-1998, the Company plans to expand its
operations into Mohave County, Arizona and San Diego County, California.
OPERATING EXPENSES
The following table presents the components of the Company's expenses
and the percentage they bear to the total revenue for the respective period:
For the three months ended March 31,
------------------------------------
1998 % of total 1997 % of total
---------- ---------- ---------- ----------
Personnel costs $1,816,603 45.2% $ 995,509 69.0%
Escrow commissions 343,847 8.6 70,767 4.9
Title remittance fees 256,995 6.4 92,085 6.4
Rent 215,752 5.4 152,403 10.5
Other operating expenses 854,693 21.3 462,111 32.0
Interest expense 25,675 0.6 13,248 0.9
---------- ---- ---------- -----
3,513,565 87.5% 1,786,123 123.7%
Overall operating expenses have increased by $1,727,442 for the three
months ended March 31, 1998 compared to the same period ended March 31, 1997 as
a result of expansion of the Company's operations. Operating expenses decreased
as a percentage of revenue to 87.5% in the three months ended March 31, 1998
from 123.7% in the comparable period in 1997 due to the relatively fixed nature
of many of these expenses in relation to the increase in revenue. The Company
anticipates an increase in both the overall amount of operating expenses and the
percentage they bear to total revenue in the second quarter resulting from start
up costs for the Company's San Diego, California and Mohave County, Arizona
title insurance operations, and from costs associated with the Company's
recently formed property and casualty insurance company.
Personnel costs, including commissions, are the most significant
component of the Company's operating expenses. Due to the Company's expansion,
the number of employees has increased to 221 as of March 31, 1998 compared to
125 as of March 31, 1997. Personnel costs including commissions decreased as a
percentage of revenue to 53.8% in the three months ended March 31, 1998 from
73.9% in the comparable period in 1997.
The significant components of other operating expenses include supplies,
utilities, insurance, depreciation, title plant maintenance and access, postage,
and professional fees. Other operating expenses decreased as a percentage of
total revenue to 21.3% in the three months ended March 31, 1998 from 32.0% in
the comparable period in 1997 due to the relatively fixed nature of most of
these expenses in relation to the increase in revenue.
No income tax provision was recorded for the three months ended March
31, 1998 due to the availability of net operation loss carryforwards which
totaled approximately $1,350,000 at December 31, 1997. Due to the private
placement transactions described below, the Company will exceed the limits
allowable under the Tax Reform Act of 1986 related to changes in ownership
percentage governing future utilization of net operating loss carryforwards. The
effect of this occurrence will limit the annual utilization of the net operation
loss carryforwards.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
On March 31, 1998, the Company completed a private placement of 463,500
units at $3.00 per unit. Each unit consisted of two shares of common stock and a
warrant to purchase one share of common stock at a per share price of $2.50
within a two year period. The net proceeds from this private placement were
approximately $1.3 million.
On April 30, 1998 the Company completed a $5.0 million private placement
of common stock in which 3,703,703 shares of common stock were issued at $1.35
per share. In addition, the Company issued three-year warrants to purchase an
additional 308,642 shares of common stock at $1.62 per share to an investment
banking firm that acted as placement agent in the transaction. The net proceeds
from this private placement of approximately $4.3 million are expected to be
used by the Company to support expansion of its business in Arizona and
California and for working capital and general corporate purposes.
At March 31, 1998, the Company had current assets totaling $1,798,387,
which will increase to approximately $6,100,000 after giving effect to the
private placement transaction completed on April 30, 1998. At March 31, 1998,
current liabilities totaled $1,042,970. The Company currently has a $250,000
available under a credit facility with its primary lender. Management believes
that cash on hand and future cash receipts will be sufficient to meet the
Company's expansion plans and to pay all obligations as they become due.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during the
three months ended March 31, 1998.
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.
By: /s/ Donald R. Head Date: May 11, 1998
-------------------------
Donald R. Head
Chairman of the Board,
Chief Executive Officer
By: /s/ Mark C. Walker Date: May 11, 1998
-------------------------
Mark C. Walker
Chief Financial Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This exhibit shall be deemed filed for purposes of Section 11 of the Securities
Act of 1933 and Section 18 of the Securities Exchange Act of 1934, or otherwise
subject to the liability of such sections, nor shall it be deemed a part of any
other filing which incorporates this report by reference, unless such other
filing expressly incorporates this Exhibit by reference.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 1,610,372
<SECURITIES> 0
<RECEIVABLES> 133,554
<ALLOWANCES> (13,750)
<INVENTORY> 0
<CURRENT-ASSETS> 1,798,387
<PP&E> 2,774,457
<DEPRECIATION> (812,581)
<TOTAL-ASSETS> 4,102,697
<CURRENT-LIABILITIES> 1,042,970
<BONDS> 476,570
0
0
<COMMON> 12,168
<OTHER-SE> 2,570,989
<TOTAL-LIABILITY-AND-EQUITY> 4,102,697
<SALES> 0
<TOTAL-REVENUES> 4,017,066
<CGS> 0
<TOTAL-COSTS> 3,487,890
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,675
<INCOME-PRETAX> 503,501
<INCOME-TAX> 0
<INCOME-CONTINUING> 503,501
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 503,501
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
