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 MARCH 31, 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.
------------------------------------------------
(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, Arizona 85016
- ------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
(602) 954-0600
---------------------------------------------------
(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 16,977,901 shares as of May 11, 2000.
<PAGE>
CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES
INDEX
Part I. FINANCIAL INFORMATION Page Number
-----------
Item 1. Condensed Consolidated Financial Statements
A. Consolidated Balance Sheets as of
March 31, 2000 (unaudited) and
December 31, 1999 3
B. Consolidated Statements of Operations
for the three month periods ended
March 31, 2000 and 1999 (unaudited) 4
C. Consolidated Statements of Cash Flows
for the three month periods ended
March 31, 2000 and 1999 (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 10
2
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2000 1999
----------- -----------
ASSETS (unaudited)
Current Assets:
Cash $ 1,196,170 $ 1,884,059
Accounts receivable, net 170,284 110,796
Notes and other receivables 283,977 291,262
Other current assets 323,747 410,711
----------- -----------
Total Current Assets 1,974,178 2,696,828
Property and equipment, net 11,380,661 11,259,054
Other Assets:
Notes receivable 48,392 72,608
Investment in title plant 521,278 521,278
Deposits and other assets 335,249 403,224
Goodwill 243,109 246,399
----------- -----------
Total Assets $14,502,867 $15,199,391
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 1,004,171 $ 717,507
Accounts payable 332,475 362,786
Accrued expenses 1,274,764 1,018,974
----------- -----------
Total Current Liabilities 2,611,410 2,099,267
Long-Term Debt 4,073,899 4,173,032
Other Liabilities 181,914 383,236
Stockholders' Equity:
Common stock, $.001 par value, 50,000,000
shares authorized, 16,977,901 and 16,947,901
shares issued and outstanding in 2000
and 1999, respectively 16,978 16,948
Paid-in capital 10,697,147 10,667,177
Accumulated deficit (3,078,481) (2,140,269)
----------- -----------
Total Stockholders' Equity 7,635,644 8,543,856
----------- -----------
Total Liabilities and Stockholders' Equity $14,502,867 $15,199,391
=========== ===========
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,
------------------------------
2000 1999
------------ ------------
REVENUE:
Title insurance premiums $ 5,438,253 $ 5,539,369
Escrow and related fees 2,362,320 2,799,740
Account servicing 124,583 115,790
Interest and other income 518,170 498,042
------------ ------------
8,443,326 8,952,941
------------ ------------
EXPENSES:
Personnel costs 5,156,933 5,006,310
Escrow commissions 546,497 710,854
Title remittance fees 529,002 539,395
Rent 611,835 446,752
Other operating expenses 2,452,754 2,035,892
Interest expense 84,517 38,536
------------ ------------
9,381,538 8,777,739
------------ ------------
Income (loss) before income taxes (938,212) 175,202
Income tax provision -- 70,000
------------ ------------
Net income (loss) $ (938,212) $ 105,202
============ ============
Net income (loss) per common share:
Basic $ (0.06) $ 0.01
============ ============
Diluted $ (0.06) $ 0.01
============ ============
Weighted average shares outstanding:
Basic 16,953,835 16,947,680
============ ============
Diluted 16,953,835 18,755,328
============ ============
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,
--------------------------
2000 1999
----------- -----------
NET CASH PROVIDED FROM OPERATING ACTIVITIES:
Net income (loss) $ (938,212) $ 105,202
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 420,610 301,173
Changes in assets and liabilities:
Accounts receivable (59,488) 105,026
Other receivables (17,496) 5,184
Other current assets 86,964 (57,818)
Marketable securities -- 426,631
Deposits and other assets 67,975 106,834
Accounts payable (30,311) (286,365)
Accrued expenses 54,468 (707,701)
----------- -----------
Net Cash Flows - Operating Activities (415,490) (1,834)
----------- -----------
NET CASH FROM INVESTING ACTIVITIES:
Collection of notes receivable 48,997 26,299
Purchase of property and equipment (538,927) (276,697)
----------- -----------
Net Cash Flows - Investing Activities (489,930) (250,398)
----------- -----------
NET CASH FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net 30,000 43,000
Borrowings 300,000 --
Repayment of debt (112,469) (120,297)
----------- -----------
Net Cash Flows - Financing Activities 217,531 (77,297)
----------- -----------
NET INCREASE (DECREASE) IN CASH (687,889) (329,529)
CASH AT THE BEGINNING OF THE PERIOD 1,884,059 4,833,826
----------- -----------
CASH AT THE END OF THE PERIOD $ 1,196,170 $ 4,504,297
=========== ===========
See Notes to Consolidated Financial Statements
5
<PAGE>
CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 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 March 31,
---------------------------------------------------------------------------
2000 1999
------------------------------------ ------------------------------------
Per share Per share
Net (loss) Shares amount Net income Shares amount
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $ (938,212) 16,953,835 (0.06) $ 105,202 16,947,680 $ 0.01
========== ==========
Effect of Dilutive
Securities:
Stock options -- -- -- 1,524,909
Warrants -- -- -- 282,739
---------- ---------- ---------- ----------
Diluted EPS $ (938,212) 16,953,835 (0.06) $ 105,202 18,755,328 $ 0.01
========== ========== ========== ========== ========== ==========
</TABLE>
NOTE 3 - SUPPLEMENTAL CASH FLOW INFORMATION
For the three months
ended March 31,
---------------------
2000 1999
-------- --------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 84,517 $ 38,536
Cash paid during the period for taxes -- 43,000
6
<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 decreased by $509,615 or 5.7% for the three months ended
March 31, 2000 compared to the same period ended March 31, 1999. Even though the
Company experienced increased market share in its primary operations, overall
revenue declined due to a significant reduction in the volume of refianance
activity. Refinance transactions remained relatively strong through the three
months ended March 31, 1999 but decreased in the second half of 1999 and into
2000 due to increases in mortgage interest rates.
The following table presents information regarding the Company's operating
revenue:
For the three months ended March 31,
----------------------------------------------
2000 % of total 1999 % of total
---------- ----- ---------- -----
Title insurance premiums $5,438,253 64.4% $5,539,369 61.9%
Escrow and related fees 2,362,320 28.0 2,799,740 31.3
Account servicing 124,583 1.5 115,790 1.3
Interest and other income 518,170 6.1 498,042 5.5
---------- ----- ---------- -----
Total revenue $8,443,326 100.0% $8,952,941 100.0%
========== ===== ========== =====
The Company's primary business is providing title and escrow services in
three counties in Arizona and five counties in California. Approximately 49% of
total revenue for the quarter ended March 31, 2000 is attributable to Maricopa
County, Arizona where the Company currently operates 23 locations. The March
2000 SYKES REPORT shows Capital Title as the 3rd largest of the 26 title
companies in Maricopa County. Approximately 11% of total revenue for the quarter
is attributable to Yavapai County, Arizona where the Company has seven locations
and ranks first in overall market share. The Company's California operations
accounted for approximately 32% of total revenue for the quarter ended March 31,
2000. The Company experienced market share increases in March 2000 compared to
March 1999 in both San Diego County and Alameda County, which accounts for the
majority of the Company's California operations.
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 March 31,
----------------------------------------------------
2000 % of revenue 1999 % of revenue
---- ------------ ---- ------------
Personnel costs $5,156,933 61.1% $5,006,310 55.9%
Escrow commissions 546,497 6.5 710,854 7.9
Title remittance fees 529,002 6.3 539,395 6.0
Rent 611,835 7.2 446,752 5.0
Other operating expenses 2,452,754 29.0 2,035,892 22.8
Interest expense 84,517 1.0 38,536 0.4
---------- ----- ---------- -----
$9,381,538 111.1% $8,777,739 98.0%
========== ===== ========== =====
7
<PAGE>
Overall operating expenses have increased by $603,799 for the three months
ended March 31, 2000 compared to the same period in 1999 as a result of
expansion of the Company's operations. Operating expenses also increased as a
percentage of revenue to 111.1% in the three months ended March 31, 2000 from
98.0% in the comparable period in 1999 due to the Company continuing to build
its operating base in California. The costs required to expand its
infrastructure and branch offices in California have increased the Company's
operating costs as a percent of revenue, compared to its more mature operations
in Arizona. In addition, operating costs as a percent of revenue have increased
due to the relatively fixed nature of many operating expenses given the decline
in revenue resulting from significantly less refinance transactions.
Personnel costs, including commissions, are the most significant component
of the Company's operating expenses. Personnel costs including commissions
increased as a percentage of revenue to 67.6% in the three months ended March
31, 2000 from 63.8% in the comparable period in 1999. This increase is primarily
due to the Company's California operations, where personnel have been hired to
expand operations but have not yet begun to generate revenue at levels
experienced in the Company's Arizona operations. The number of employees has
decreased to 463 as of March 31, 2000 compared to 520 as of March 31, 1999, as
staffing levels were reduced to bring costs in line with a lower volume of
revenue.
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 as a percentage of revenue have remained
relatively unchanged when comparing 2000 results with comparable periods in
1999.
Rent expense increased as a percentage of revenue in the three months ended
March 31, 2000 to 7.2% from 5.0% for the comparable period in 1999. This
increase was the result of the fixed nature of these costs in relation to the
decrease in revenue along with additional office space being leased.
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 29.0% in the three months ended March 31, 2000 from 22.8% in
the comparable period in 1999 as a result of expenses related to the expanding
operations discussed above and due to the fixed nature of many of these costs in
relation to the decrease in revenue.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000 the Company had current assets totaling $1,974,178
compared to current liabilities which totaled $2,611,410. 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 March 31, 2000, $800,000 had
been drawn against this credit facility, in addition to $150,000 which is
committed for a standby letter of credit pursuant to an office lease. This
credit facility matures in February 2001.
8
<PAGE>
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.
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, 2000.
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, 2000
-------------------------------------------
Donald R. Head
Chairman of the Board, President and
Chief Executive Officer
By: /s/ Mark C. Walker Date: May 11, 2000
-------------------------------------------
Mark C. Walker
Chief Financial Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,196,170
<SECURITIES> 0
<RECEIVABLES> 170,284
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,974,178
<PP&E> 16,999,321
<DEPRECIATION> (5,618,660)
<TOTAL-ASSETS> 14,502,867
<CURRENT-LIABILITIES> 2,611,410
<BONDS> 4,073,899
0
0
<COMMON> 16,978
<OTHER-SE> 10,697,147
<TOTAL-LIABILITY-AND-EQUITY> 14,502,867
<SALES> 0
<TOTAL-REVENUES> 8,443,326
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 9,297,021
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 84,517
<INCOME-PRETAX> (938,212)
<INCOME-TAX> 0
<INCOME-CONTINUING> (938,212)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (938,212)
<EPS-BASIC> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
