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 SEPTEMBER 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 17,392,849 shares as of November 10, 2000.
<PAGE>
FORM 10-QSB
For the Quarter ended September 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 September 30, 2000
(unaudited) and December 31, 1999 3
B. Consolidated Statements of Operations
for the three month and nine month periods
ended September 30, 2000 and 1999 (unaudited) 4
C. Consolidated Statements of Cash Flows
for the nine month periods ended
September 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 - 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 11
2
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2000 1999
------------ ------------
ASSETS (unaudited)
Current Assets:
Cash $ 767,555 $ 1,884,059
Accounts receivable, net 331,330 110,796
Notes and other receivables 300,319 291,262
Other current assets 235,108 410,711
------------ ------------
Total Current Assets 1,634,312 2,696,828
Property and equipment, net 11,024,492 11,259,054
Other Assets:
Notes receivable 47,456 72,608
Investment in title plant 521,278 521,278
Deposits and other assets 695,978 403,224
Goodwill 236,531 246,399
------------ ------------
Total Assets $ 14,160,047 $ 15,199,391
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 826,379 $ 717,507
Accounts payable 303,040 362,786
Accrued expenses 1,602,377 1,018,974
------------ ------------
Total Current Liabilities 2,731,796 2,099,267
Long-Term Debt 4,066,030 4,173,032
Other Liabilities 176,431 383,236
Stockholders' Equity:
Common stock, $.001 par value, 50,000,000 shares
authorized, 17,392,349 and 16,947,901 shares
issued and outstanding in 2000 and 1999,
respectively 17,393 16,948
Paid-in capital 11,109,680 10,667,177
Accumulated deficit (3,941,283) (2,140,269)
------------ ------------
Total Stockholders' Equity 7,185,790 8,543,856
------------ ------------
Total Liabilities and Stockholders' Equity $ 14,160,047 $ 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 September 30, Nine months ended September 30,
-------------------------------- -------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE:
Title insurance premiums $ 6,314,193 $ 5,708,713 $ 18,478,605 $ 17,660,123
Escrow and related fees 2,839,027 2,913,685 8,272,577 8,876,367
Interest and other income 670,504 450,445 2,045,572 1,344,506
------------ ------------ ------------ ------------
9,823,724 9,072,843 28,796,754 27,880,996
------------ ------------ ------------ ------------
EXPENSES:
Personnel costs 5,549,529 5,152,247 16,489,102 15,479,792
Escrow commissions 794,775 786,811 2,269,102 2,258,367
Title remittance fees 641,728 559,170 1,843,681 1,679,914
Rent 740,353 587,620 2,065,277 1,534,342
Other operating expenses 2,758,849 2,584,237 7,678,037 7,084,437
Interest expense 84,978 105,209 252,569 189,099
------------ ------------ ------------ ------------
10,570,212 9,775,294 30,597,768 28,225,951
------------ ------------ ------------ ------------
Income (loss) before income taxes (746,488) (702,451) (1,801,014) (344,955)
Provision (benefit) for income tax -- (142,997) -- --
------------ ------------ ------------ ------------
Net income (loss) $ (746,488) $ (559,454) $ (1,801,014) $ (344,955)
============ ============ ============ ============
Net income (loss) per common share:
Basic $ (0.04) $ (0.03) $ (0.11) $ (0.02)
============ ============ ============ ============
Diluted $ (0.04) $ (0.03) $ (0.11) $ (0.02)
============ ============ ============ ============
Weighted average shares outstanding:
Basic 17,304,887 17,032,137 17,079,699 16,989,667
============ ============ ============ ============
Diluted 17,304,887 17,032,137 17,079,699 16,989,667
============ ============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the nine months ended
September 30,
---------------------------
2000 1999
----------- -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Net income (loss) $(1,801,014) $ (344,955)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization 1,304,330 1,022,609
Changes in assets and liabilities:
Accounts receivable (220,534) 168,893
Notes and other receivables (34,157) 119,286
Other current assets 175,603 (429,258)
Deposits and other assets 131,694 (65,645)
Marketable securities -- 426,631
Accounts payable (59,746) (340,721)
Accrued expenses and other liabilities 376,598 (1,474,726)
----------- -----------
Net Cash Flows - Operating Activities (127,226) (917,886)
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NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES:
Purchase of property and equipment (1,059,900) (2,602,760)
Cash received from sale of fixed assets -- 1,156,982
Disbursements from loans receivable -- (170,035)
Collection of notes receivable 50,252 286,562
Other investing activities -- 94,545
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Net Cash Flows - Investing Activities (1,009,648) (1,234,706)
----------- -----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net 18,500 130,112
Borrowings 200,000 --
Repayment of debt (198,130) (462,912)
----------- -----------
Net Cash Flows - Financing Activities 20,370 (332,800)
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NET INCREASE (DECREASE) IN CASH (1,116,504) (2,485,392)
CASH AT THE BEGINNING OF THE PERIOD 1,884,059 4,833,826
----------- -----------
CASH AT THE END OF THE PERIOD $ 767,555 $ 2,348,434
=========== ===========
See Notes to Consolidated Financial Statements
5
<PAGE>
CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 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.
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 September 30,
----------------------------------------------------------------------------
2000 1999
-------------------------------------- ------------------------------------
Per share Per share
Net Loss Shares amount Net Loss Shares amount
----------- ---------- ------ --------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $ (746,488) 17,304,887 $(0.04) $(559,454) 17,032,137 $(0.03)
====== ======
Effect of Dilutive Securities:
Stock options -- -- -- --
Warrants -- -- -- --
----------- ---------- --------- ----------
Diluted EPS $ (746,488) 17,304,887 $(0.04) $(559,454) 17,032,137 $(0.03)
=========== ========== ====== ========= ========== ======
For the nine month period ended September 30,
----------------------------------------------------------------------------
2000 1999
-------------------------------------- ------------------------------------
Per share Per share
Net Loss Shares amount Net Loss Shares amount
----------- ---------- ------ --------- ---------- ------
Basic EPS $(1,801,014) 17,079,699 $(0.11) $(344,955) 16,989,667 $(0.02)
====== ======
Effect of Dilutive Securities:
Stock options -- -- -- --
Warrants -- -- -- --
----------- ---------- --------- ----------
Diluted EPS $(1,801,014) 17,079,699 $(0.11) $(344,955) 16,989,667 $(0.02)
=========== ========== ====== ========= ========== ======
</TABLE>
6
<PAGE>
CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
NOTE 3 - SUPPLEMENTAL CASH FLOW INFORMATION
For the nine months
ended September 30,
----------------------
2000 1999
-------- ----------
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITY:
Building and equipment purchased through debt $ -- $3,130,000
Debt paid from sale of building -- 1,515,467
Stock issued for 9keys.com 424,448 --
Sale of New Century Insurance Company -- 25,156
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $252,569 $ 189,099
NOTE 4 - EQUITY EXCHANGE
Pursuant to an agreement dated June 6, 2000 between the Company and
9keys.com, there was an exchange of common stock on July 19, 2000 whereby the
companies received two and one-half percent of each company's issued and
outstanding common stock. This transaction resulted in the issuance of 424,448
shares of Capital Title Group, Inc. common stock. The Company's investment in
9keys.com was recorded at $424,448 and is included in the Balance Sheet
classification of Deposits and Other Assets. 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
Revenue increased by $750,881 or 8.3% for the three months ended September
30, 2000 and revenue increased by $915,758 or 3.3% for the nine months ended
September 30, 2000 compared to the same periods ended September 30, 1999,
respectively.
The following table presents information regarding the Company's operating
revenue:
For the three months ended September 30,
---------------------------------------------
% of % of
2000 total 1999 total
----------- ----- ----------- -----
Title insurance premiums $ 6,314,193 64.3% $ 5,708,713 62.9%
Escrow and related fees 2,839,027 28.9 2,913,685 32.1
Interest and other income 670,504 6.8 450,445 5.0
----------- ----- ----------- -----
Total revenue $ 9,823,724 100.0% $ 9,072,843 100.0%
=========== ===== =========== =====
For the nine months ended September 30,
---------------------------------------------
% of % of
2000 total 1999 total
----------- ----- ----------- -----
Title insurance premiums $18,478,605 64.2% $17,660,123 63.4%
Escrow and related fees 8,272,577 28.7 8,876,367 31.8
Interest and other income 2,045,572 7.1 1,344,506 4.8
----------- ----- ----------- -----
Total revenue $28,796,754 100.0% $27,880,996 100.0%
=========== ===== =========== =====
The Company's primary business is providing title and escrow services in
three counties in Arizona and four counties in California. Approximately 47% of
total revenue for the quarter ended September 30, 2000 is attributable to
Maricopa County where the Company currently operates 21 branches. The September
2000 SYKES Report places Capital Title as the third largest of the 24 title
companies in Maricopa County with approximately 8.9% market share, on a
year-to-date basis, compared to a market share of 7.5% for the same period of
the prior year. Approximately 10% of total revenue for the quarter is
attributable to Yavapai County where the Company has 7 locations and ranks first
in overall market share. The California operations accounted for approximately
36% of total revenue for the quarter ended September 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 period:
For the three months ended September 30,
------------------------------------------------
% of % of
2000 revenue 1999 revenue
----------- ------- ----------- -------
Personnel costs $ 5,549,529 56.5% $ 5,152,247 56.8%
Escrow commissions 794,775 8.1 786,811 8.7
Title remittance fees 641,728 6.5 559,170 6.1
Rent 740,353 7.5 587,620 6.5
Other operating expenses 2,758,849 28.1 2,584,237 28.5
Interest expense 84,978 0.9 105,209 1.1
----------- ----- ----------- -----
$10,570,212 107.6% $ 9,775,294 107.7%
=========== ===== =========== =====
For the nine months ended September 30,
------------------------------------------------
% of % of
2000 revenue 1999 revenue
----------- ------- ----------- -------
Personnel costs $16,489,102 57.2% $15,479,792 55.5%
Escrow commissions 2,269,102 7.9 2,258,367 8.1
Title remittance fees 1,843,681 6.4 1,679,914 6.0
Rent 2,065,277 7.2 1,534,342 5.5
Other operating expenses 7,678,037 26.7 7,084,437 25.4
Interest expense 252,569 0.9 189,099 0.7
----------- ----- ----------- -----
$30,597,768 106.3% $28,225,951 101.2%
=========== ===== =========== =====
Overall operating expenses have increased by $794,918 and $2,371,817 for
the three and nine-month periods ended September 30, 2000 respectively, compared
to the same periods ended September 30, 1999. This increase resulted from the
Company's commitment to internal expansion of its regional operations. In the
three months ended September 30, 2000, operating expenses decreased as a
percentage of revenue to 107.6% from 107.7% in the comparable period in 1999.
Operating expenses increased as a percentage of revenue to 106.3% in the first
nine months of 2000 from 101.2% in the same period of 1999. The increases in
operating costs as a percent of revenue for the nine-month period was primarily
the result of costs associated with the Company's California operations. This
approach to internal growth utilizes the same formula that was employed in
growing the Arizona market. Pretax profits, as a percentage of revenue, for the
Company's more mature operations in Arizona were 8.5% for the quarter ended
September 30, 2000.
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 64.6% in the three months ended
September 30, 2000 from 65.5% in the comparable period in 1999. Personnel costs
including commissions increased as a percentage of revenue to 65.1% in the first
nine months of 2000 from 63.6% in the same period of 1999. The increase for the
nine-month period was the result of higher personnel costs in California
relative to 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 increased slightly as a percent of revenue to
approximately 6.5% from approximately 6.0% for the three and nine months ended
September 30, 2000 as compared to the same periods in 1999. This increase is due
primarily to title premiums comprising a larger component of total revenue in
the periods ended September 30, 2000 than in the comparable periods of 1999.
9
<PAGE>
Rent expense increased as a percent of revenue to 7.5% from 6.5% for the
three months ended September 30, 2000 and to 7.2% from 5.5% for the nine months
ended September 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 decreased as a percentage of
total revenue to 28.1% in the three months ended September 30, 2000 from 28.5%
in the comparable period in 1999. Other operating expenses increased as a
percentage of revenue to 26.7% in the first nine months of 2000 from 25.4% in
the same period of 1999. The increase for the nine-month period was the result
of costs associated with opening new offices during the nine months ended
September 30, 2000, coupled with the relatively fixed nature of many of these
costs relative to the level of revenue in the California operations.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company had current assets totaling $1,634,312
compared to current liabilities which totaled $2,731,796. Management believes
that cash on hand, future cash receipts and its credit facility will be
sufficient to pay all obligations as they become due.
The Company has a $1,500,000 revolving line of credit, which bears interest
on any outstanding balance at the prime rate. At September 30, 2000, $700,000
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 May 2001. The Company received a waiver from the
bank, with respect to certain financial covenants related to this line of
credit, for the quarter ended September 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-K and other filings with
the Securities and Exchange Commission.
10
<PAGE>
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 September 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: November 14, 2000
-------------------------------------
Donald R. Head
Chairman of the Board,
Chief Executive Officer
By: /s/ Mark C. Walker Date: November 14, 2000
-------------------------------------
Mark C. Walker
Chief Financial Officer
12
