UNITED STATES
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 JUNE 30, 2000
[ ] 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 registrant as specified in its charter)
Delaware 87-0399785
------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2901 East Camelback Road, Phoenix, AZ 85016
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(Address of principal executive offices) (Zip Code)
(602) 954-0600
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(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (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 [ ].
Indicate the number of shares outstanding for each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.001 par value 17,392,349 shares as of August 3, 2000.
<PAGE>
FORM 10-QSB
For the Quarter ended June 30, 2000
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 June 30,
2000 (unaudited) and December 31, 1999 3
B. Consolidated Statements of Operations
for the three month and six month periods
ended June 30, 2000 and 1999 (unaudited) 4
C. Consolidated Statements of Cash Flows
for the six month periods ended
June 30, 2000 and 1999 (unaudited) 5
D. Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
Part II: OTHER INFORMATION
Items 1 - 3, and 5 of Part II have been omitted because
they are not applicable with respect to the current
reporting period.
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2000 1999
------------ ------------
ASSETS (unaudited)
Current Assets:
Cash $ 1,088,783 $ 1,884,059
Accounts receivable, net 223,146 110,796
Notes and other receivables 325,763 291,262
Other current assets 318,405 410,711
------------ ------------
Total Current Assets 1,956,097 2,696,828
Property and equipment, net 11,249,130 11,259,054
Other Assets:
Notes receivable 48,339 72,608
Investment in title plant 521,278 521,278
Deposits and other assets 281,157 403,224
Goodwill 239,820 246,399
------------ ------------
Total Assets $ 14,295,821 $ 15,199,391
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 934,597 $ 717,507
Accounts payable 269,621 362,786
Accrued expenses 1,359,995 1,018,974
------------ ------------
Total Current Liabilities 2,564,213 2,099,267
Long-Term Debt 4,046,093 4,173,032
Other Liabilities 176,185 383,236
Stockholders' Equity:
Common stock, $.001 par value, 50,000,000 shares
authorized, 16,967,901 and 17,011,841 shares
issued and outstanding in 2000 and 1999,
respectively 16,968 16,948
Paid-in capital 10,687,157 10,667,177
Accumulated deficit (3,194,795) (2,140,269)
------------ ------------
Total Stockholders' Equity 7,509,330 8,543,856
------------ ------------
Total Liabilities and Stockholders' Equity $ 14,295,821 $ 15,199,391
============ ============
See Notes to Consolidated Financial Statements
3
<PAGE>
CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE:
Title insurance premiums $ 6,726,159 $ 6,264,297 $ 12,164,412 $ 11,951,410
Escrow and related fees 3,071,230 3,002,447 5,433,550 5,715,566
Interest and other income 732,315 588,468 1,375,068 1,141,177
------------ ------------ ------------ ------------
10,529,704 9,855,212 18,973,030 18,808,153
------------ ------------ ------------ ------------
EXPENSES:
Personnel costs 5,607,100 5,509,308 10,939,573 10,710,358
Escrow commissions 927,830 760,702 1,474,327 1,471,556
Title remittance fees 672,951 581,349 1,201,953 1,120,744
Rent 713,089 499,970 1,324,924 946,722
Other operating expenses 2,641,974 2,276,235 4,919,188 4,117,387
Interest expense 83,074 45,354 167,591 83,890
------------ ------------ ------------ ------------
10,646,018 9,672,918 20,027,556 18,450,657
------------ ------------ ------------ ------------
Income (loss) before income taxes (116,314) 182,294 (1,054,526) 357,496
Income tax provision -- 72,997 -- 142,997
------------ ------------ ------------ ------------
Net income (loss) $ (116,314) $ 109,297 $ (1,054,526) $ 214,499
============ ============ ============ ============
Net income (loss) per common share:
Basic $ (0.01) $ 0.01 $ (0.06) $ 0.01
============ ============ ============ ============
Diluted $ (0.01) $ 0.01 $ (0.06) $ 0.01
============ ============ ============ ============
Weighted average shares outstanding:
Basic 16,977,901 17,175,292 16,965,868 16,968,080
============ ============ ============ ============
Diluted 16,977,901 18,946,521 16,965,868 18,758,184
============ ============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the six months ended
June 30,
--------------------------
2000 1999
----------- -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Net income (loss) $(1,054,526) $ 214,499
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 864,854 617,506
Changes in assets and liabilities:
Accounts receivable (112,350) 26,264
Other receivables (57,501) 128,906
Other current assets 92,306 (449,738)
Marketable securities -- 426,631
Deposits and other assets 122,067 12,071
Accounts payable (93,165) (389,304)
Accrued expenses 133,970 (1,111,098)
----------- -----------
Net Cash Flows - Operating Activities (104,345) (524,263)
----------- -----------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES:
Collection of notes receivable 47,269 286,529
Purchase of property and equipment (848,351) (1,419,697)
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Net Cash Flows - Investing Activities (801,082) (1,133,168)
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NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net 20,000 85,000
Borrowings 250,000 --
Repayment of debt (159,849) (182,726)
----------- -----------
Net Cash Flows - Financing Activities 110,151 (97,726)
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NET DECREASE IN CASH (795,276) (1,755,157)
CASH AT THE BEGINNING OF THE PERIOD 1,884,059 4,833,826
----------- -----------
CASH AT THE END OF THE PERIOD $ 1,088,783 $ 3,078,669
=========== ===========
See Notes to Consolidated Financial Statements
5
<PAGE>
CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
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 accounting principles generally accepted in the United States
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 accounting principles generally
accepted in the United States 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, 1999.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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. Certain reclassifications have been made to the prior
period financial statements to conform to the current period presentation.
NOTE 2 - 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 June 30,
--------------------------------------------------------------------------------
2000 1999
-------------------------------------- -------------------------------------
Per share Per share
Net loss Shares amount Net income Shares amount
-------- ------ ------ ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $ (116,314) 16,977,901 $ (0.01) $ 109,297 17,175,292 $ .01
======= ======
Effect of Dilutive Securities:
Stock options -- -- -- 1,488,490
Warrants -- -- -- 282,739
----------- ----------- --------- -----------
Diluted EPS $ (116,314) 16,977,901 $ (0.01) $ 109,297 18,946,521 $ .01
=========== =========== ======= ========= =========== ======
For the six month period ended June 30,
-------------------------------------------------------------------------------
2000 1999
--------------------------------------- ------------------------------------
Per share Per share
Net loss Shares amount Net income Shares amount
-------- ------ ------ ---------- ------ ------
Basic EPS $(1,054,526) 16,965,868 $ (0.06) $ 214,999 16,968,080 $ .01
======= ======
Effect of Dilutive Securities:
Stock options -- -- -- 1,507,309
Warrants -- -- -- 282,795
----------- ----------- --------- -----------
Diluted EPS $(1,054,526) 16,965,868 $ (0.06) $ 214,999 18,758,184 $ .01
=========== =========== ======= ========= =========== ======
</TABLE>
6
<PAGE>
CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
NOTE 3 - SUPPLEMENTAL CASH FLOW INFORMATION
For the six months
ended June 30,
------------------------
2000 1999
--------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 167,591 $83,890
Cash paid during the period for taxes -- --
NOTE 4 - EQUITY EXCHANGE
Pursuant to an agreement dated June 6, 2000 between the Company and 9keys.com,
there will be an exchange of common stock whereby the companies will receive two
and one-half percent of each companies issued and outstanding common stock. This
transaction will result in the issuance of 424,448 shares of Capital Title
Group, Inc. common stock. 9keys.com is a privately held financial and real
estate organization providing a one-stop-realty-shopping concept to the southern
California real estate market.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT
OF OPERATIONS
The 1999 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 $674,492 or 6.8% for the three months ended
June 30, 2000 and revenue increased by $164,877 or 0.9% for the six months ended
June 30, 2000 compared to the same periods ended June 30, 1999, respectively.
The following table presents information regarding the Company's operating
revenue:
For the three months ended June 30,
------------------------------------------------
2000 % of total 1999 % of total
----------- ---------- ----------- ----------
Title insurance premiums $ 6,726,159 63.9% $ 6,264,297 63.6%
Escrow and related fees 3,071,230 29.2 3,002,447 30.5
Interest and other income 732,315 6.9 588,468 5.9
----------- ----- ----------- -----
Total revenue $10,529,704 100.0% $ 9,855,212 100.0%
=========== ===== =========== =====
For the six months ended June 30,
------------------------------------------------
2000 % of total 1999 % of total
----------- ---------- ----------- ----------
Title insurance premiums $12,164,412 64.1% $11,951,410 63.6%
Escrow and related fees 5,433,550 28.6 5,715,566 30.4
Interest and other income 1,375,068 7.3 1,141,177 6.0
----------- ----- ----------- -----
Total revenue 18,973,030 100.0% $18,808,153 100.0%
========== ===== =========== =====
The Company is licensed to provide title and escrow services in three
counties in Arizona and 10 counties in California. Approximately 51% of total
revenue for the quarter ended June 30, 2000 is attributable to Maricopa County
where the Company currently operates 22 locations. The June 2000 SYKES REPORT
shows Capital Title as the 3rd largest of the 26 title companies in Maricopa
County with approximately 9.6% market share. Approximately 10% of total revenue
for the quarter is attributable to Yavapai County where the Company has seven
locations and ranks first in overall market share. The California operations
accounted for approximately 31% of total revenue for the quarter ended June 30,
2000.
8
<PAGE>
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 periods:
For the three months ended June 30,
------------------------------------------------
2000 % of total 1999 % of total
----------- ---------- ----------- ----------
Personnel costs $ 5,607,100 53.2% $5,509,308 55.9%
Escrow commissions 927,830 8.8 760,702 7.7
Title remittance fees 672,951 6.4 581,349 5.9
Rent 713,089 6.8 499,970 5.1
Other operating expenses 2,641,974 25.1 2,276,235 23.1
Interest expense 83,074 0.8 45,354 0.5
----------- ----- ---------- -----
$10,646,018 101.1% $9,672,918 98.2%
=========== ===== ========== ====
For the six months ended June 30,
------------------------------------------------
2000 % of total 1999 % of total
----------- ---------- ----------- ----------
Personnel costs $10,939,573 57.7% $10,710,358 56.9%
Escrow commissions 1,474,327 7.8 1,471,556 7.8
Title remittance fees 1,201,953 6.3 1,120,744 6.0
Rent 1,324,924 7.0 946,722 5.0
Other operating expenses 4,919,188 25.9 4,117,387 21.9
Interest expense 167,591 0.9 83,890 0.5
----------- ----- ----------- -----
$20,027,556 105.6% $18,450,657 98.1%
=========== ===== =========== ====
Overall operating expenses have increased by $973,100 and $1,576,899 for
the three and six-month periods ended June 30, 2000, respectively, compared to
the same periods ended June 30, 1999. Operating expenses increased as a
percentage of revenue to 101.1% in the three months ended June 30, 2000 from
98.2% in the comparable period in 1999. Operating expenses increased as a
percentage of revenue to 105.6% in the first six months of 2000 from 98.1% in
the same period of 1999. These increases in operating costs as a percent of
revenue were primarily the result of costs associated with the Company's
continued expansion of its California operations. The costs required to expand
the Company's presence in California have increased operating costs as a percent
of revenue, compared to the Company's more mature and profitable operation in
Arizona where pretax profits were approximately 15.5% for the quarter ended June
30, 2000. During the quarter, the Company opened three new offices with
approximately 30 employees in southern California as part of its expansion
efforts.
Personnel costs, including commissions, are the most significant component
of the Company's operating expenses. Personnel costs including commissions
decreased as a percentage of revenue to 62.0% in the three months ended June 30,
2000 from 63.6% in the comparable period in 1999. Personnel costs including
commissions increased as a percentage of revenue to 65.5% in the first six
months of 2000 from 64.7% in the same period of 1999. The decrease in personnel
costs as a percent of revenue in the quarter ended June 30, 2000 is evidence of
the Company's efforts to increase productivity and bring its costs in line with
revenue generated.
9
<PAGE>
Title remittance fees relate to the amounts paid pursuant to title
insurance underwriting agreements the Company has with six national title
companies. Title remittance fees increased as a percent of revenue to 6.4% from
5.9% for the three months ended June 30, 2000 and to 6.3% from 6.0% for the six
months ended June 30, 2000, as compared to the same periods in 1999. This
increase was the result of an increase in the mix of title revenue as a
percentage of total revenue.
Rent expense increased as a percent of revenue to 6.8% from 5.1% for the
three months ended June 30, 2000 and to 7.0% from 5.0% for the six months ended
June 30, 2000 as compared to the same periods in 1999. This increase was the
result of additional office space being leased and increased rent costs.
The significant components of other operating expenses include supplies,
utilities, insurance, depreciation, title plant maintenance and access, postage,
and professional fees. Other operating expenses increased as a percentage of
total revenue to 25.1% in the three months ended June 30, 2000 from 23.1% in the
comparable period in 1999. Other operating expenses increased as a percentage of
revenue to 25.9% in the first six months of 2000 from 21.9% in the same period
of 1999. These increases were primarily the result of costs associated with the
expanding operations discussed above and an overall increase in operating costs.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, the Company had current assets totaling $1,956,097
compared to current liabilities which totaled $2,564,213. Management believes
that cash on hand, future cash receipts and borrowings available under its
credit facility will be sufficient to pay all obligations as they become due.
The Company has a $2,000,000 revolving line of credit, which bears interest
on any outstanding balance at the prime rate. At June 30, 2000, $750,000 had
been drawn against this credit facility, in addition to $150,000, which is
committed for a standby letter of credit required pursuant to an office lease.
This credit facility matures in February 2001. The Company received a waiver
from the bank, with respect to a financial covenant related to this line of
credit, for the quarter ended June 30, 2000. In addition, the bank has agreed to
modify certain financial covenants for future periods.
SAFE HARBOR STATEMENT
Certain statements contained in this discussion and analysis with respect
to factors which may affect future earnings, including management's beliefs and
assumptions based on information currently available, are forward-looking
statements made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements that are not
historical facts involve risks and uncertainties, and results could vary
materially from the descriptions contained herein. For more details on risk
factors, see the Company's annual reports on Form 10-KSB and other filings with
the Securities and Exchange Commission.
10
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on May 16, 2000. The
matters voted on at the Annual Meeting were as follows:
(a) Election of a slate of directors to serve a three year term.
(b) Ratification of Ernst & Young LLP to serve as independent auditors for
the Company.
All matters voted on at the Annual Meeting were approved by
stockholders as follows:
Votes Votes
Votes For Against Abstained
--------- ------- ---------
Board of Director nominees:
Robert B. Liverant 11,720,878 0 266,417
Stephen A McConnell 11,920,878 0 66,417
Ratification of Ernst & Young LLP 11,978,225 9,000 0
The Company's Board of Directors currently consists of seven members and is
divided into three classes, each with three year terms. The following are board
members with terms not expiring on the May 16, 2000 annual meeting: Richard A.
Alexander, David C. Dewar, Donald R. Head, Theo F. Lamb and Ben T. Morris.
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 June 30, 2000.
11
<PAGE>
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 Date: August 8, 2000
------------------------------------
Donald R. Head
Chairman of the Board, President
and Chief Executive Officer
By: /s/ Mark C. Walker Date: August 8, 2000
------------------------------------
Mark C. Walker
Chief Financial Officer
12
