<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934
For the quarterly period ended September 30, 1998
Transition report pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934
For the transition period from to
--------------------- -------------------------
Commission File Number 0-8628
---------------------------------------------------------
FOUR CORNERS FINANCIAL CORPORATION (as of April 12, 1988)
- ------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 22-2044086
- ------------------------------------------------------------------------------
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
370 East Avenue, Rochester, New York 14604
- ------------------------------------------------------------------------------
(Address of principal executive offices - Zip Code)
(716) 454-2263
- ------------------------------------------------------------------------------
(Registrant's Telephone Number, including Area Code)
- ------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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
-------- --------
APPLICABLE ONLY TO CORPORATE ISSUERS
------------------------------------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
At November 12, 1998 there were 3,293,403 of the registrant's $.04 par value
common stock outstanding.
<PAGE>
FOUR CORNERS FINANCIAL CORPORATION
----------------------------------
INDEX
-----
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of 1-2
September 30, 1998 (Unaudited) and
December 31, 1997
Consolidated Statements of Operations for the 3-4
Three Months and Nine Months Ended September 30,
1998 and 1997 (Unaudited)
Consolidated Statements of Changes in 5
Stockholders' Investment for the Nine Months
Ended September 30, 1998 and 1997 (Unaudited)
Consolidated Statements of Cash Flows for the 6
Nine Months Ended September 30, 1998 and 1997
(Unaudited)
Notes to Condensed Consolidated Financial 7-13
Statements (Unaudited)
Item 2. Management's Discussion and Analysis of 14-15
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Default Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of 16
Security Holders
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURE 17
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements (Unaudited)
FOUR CORNERS FINANCIAL CORPORATION
----------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
----------------------------------------
ASSETS
------
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
----------- ----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 270,402 $ 92,623
Cash - escrow deposits 304,866 240,465
Accounts receivable - trade, net of
allowance for doubtful accounts of $174,000
and $90,000 in 1998 and 1997, respectively 519,262 573,623
Prepaid expenses 2,985 7,819
Current portion of note receivable --- 3,750
---------- ----------
Total current assets 1,097,515 918,280
---------- ----------
TITLE PLANT 419,905 419,905
---------- ----------
PROPERTY AND EQUIPMENT, net of accumulated
depreciation 174,645 110,240
---------- ----------
OTHER ASSETS:
Other assets 6,627 6,627
---------- ----------
$1,698,692 $1,455,052
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
- 1 -
<PAGE>
FOUR CORNERS FINANCIAL CORPORATION
----------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
----------------------------------------
LIABILITIES AND STOCKHOLDERS' INVESTMENT
----------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
----------- ----------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Line-of-credit $ 90,000 $ 100,000
Current portion of notes payable 21,257 102,559
Current portion of obligations under
capital leases 10,529 ---
Notes payable to officers/principal
stockholders 18,000 18,000
Accounts payable 256,020 373,843
Accounts payable - related parties -0- 19,907
Escrow deposits 304,866 240,465
Accrued income taxes 3,296 3,296
Other accrued expenses 40,499 107,779
---------- ----------
Total current liabilities 744,467 965,849
---------- ----------
LONG-TERM LIABILITIES:
Notes payable, net of current portion 32,154 91,642
Obligations under capital leases, net
of current portion 31,805 ---
Due to officer/principal stockholder 43,000 79,000
---------- ----------
Total long-term liabilities 106,959 170,642
---------- ----------
Total liabilities 851,426 1,136,491
---------- ----------
STOCKHOLDERS' INVESTMENT:
Common stock, $.04 par value, 15,000,000
shares authorized, 3,348,403 issued and
3,293,403 outstanding in 1998 and 1997 133,752 133,752
Additional paid-in-capital 835,402 835,402
Accumulated deficit (91,263) (619,968)
----------- ----------
877,891 (30,625)
Less: Treasury stock at cost (30,625) (30,625)
----------- ----------
Total stockholders' investment 847,266 318,561
----------- ----------
$1,698,692 $1,455,052
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
- 2 -
<PAGE>
FOUR CORNERS FINANCIAL CORPORATION
----------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C>
REVENUE:
Title insurance premiums $ 576,879 $ 388,884
Abstract and other fees 869,357 577,979
---------- ----------
1,446,236 966,863
---------- ----------
DIRECT COSTS OF REVENUE:
Title insurance (147,939) (73,395)
Abstract and other services (127,999) (130,514)
---------- -----------
(275,938) (203,909)
---------- -----------
Gross profit 1,170,298 762,954
OPERATING EXPENSES: (921,302) (656,633)
---------- ----------
Income from operations 248,996 106,321
---------- ----------
INTEREST, NET: (7,336) (11,008)
---------- ----------
NET INCOME BEFORE TAXES 241,660 ---
PROVISION FOR INCOME TAXES (131,102) ---
----------- ----------
NET INCOME $ 110,558 $ 95,313
=========== ==========
NET INCOME PER SHARE $ .03 $ .03
=========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
- 3-
<PAGE>
FOUR CORNERS FINANCIAL CORPORATION
----------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
-----------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
REVENUE:
Title insurance premiums $1,474,172 $ 929,437
Abstract and other fees 2,475,351 1,836,125
---------- ----------
3,949,523 2,765,562
---------- ----------
DIRECT COSTS OF REVENUE:
Title insurance (429,453) (224,042)
Abstract and other services (321,816) (328,290)
---------- -----------
(751,269) (552,332)
---------- -----------
Gross profit 3,198,254 2,213,230
OPERATING EXPENSES: (2,506,604) (1,972,220)
---------- ----------
Income from operations 691,650 241,010
---------- ----------
INTEREST, NET: (27,128) (37,465)
---------- ----------
NET INCOME BEFORE TAXES 664,522 ---
PROVISION FOR INCOME TAXES (135,817) ---
----------- ----------
NET INCOME $ 528,705 $ 203,545
========== ==========
NET INCOME PER SHARE $ .16 $ .06
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
- 4 -
<PAGE>
FOUR CORNERS FINANCIAL CORPORATION
----------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' INVESTMENT
--------------------------------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
-----------------------------------------------------
<TABLE>
<CAPTION>
----- Common Stock ----- Additional Total
Paid-in- Accumulated Treasury Stockholders'
Shares Amount Capital Deficit Stock Investment
---------- --------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996 3,293,403 $ 133,752 $ 835,402 $ (822,206) $ (30,625) $ 116,323
Net income for the nine months ended
September 30, 1997 (Unaudited) --- --- --- 203,545 --- 203,545
---------- --------- --------- ------------ ---------- ----------
BALANCE, September 30, 1997 (Unaudited) 3,293,403 $ 133,752 $ 835,402 $ (618,661) $ (30,625) $ 319,868
========== ========= ========= =========== ========== ==========
BALANCE, December 31, 1997 3,293,403 $ 133,752 $ 835,402 $ (619,968) $ (30,625) $ 318,561
Net income for the nine months ended
September 30, 1998 (Unaudited) --- --- --- 528,705 --- 528,705
---------- --------- --------- ----------- ---------- ----------
BALANCE, September 30, 1998 (Unaudited) 3,293,403 $ 133,752 $ 835,402 $ (91,263) $ (30,625) $ 847,266
========== ========= ========= =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
- 5 -
<PAGE>
FOUR CORNERS FINANCIAL CORPORATION
----------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
-----------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOW OPERATING ACTIVITIES:
Net income $ 528,705 $ 203,545
Adjustments to reconcile net loss to
net cash flow from operating activities:
Depreciation and amortization 41,445 46,654
Decrease/(increase) in accounts receivable 54,361 (49,590)
Decrease/(increase) in other current assets 8,584 (1,674)
Decrease in accounts payable (137,730) (70,826)
Decrease in other current liabilities (67,280) (29,622)
---------- ----------
Net cash flow from operating activities 428,085 98,487
---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of property and equipment,
net of disposals (105,850) (9,292)
Decrease in other assets --- 2,134
Divestiture of cash value of life insurance --- 18,618
---------- ----------
Net cash flow from investing activities (105,850) 11,460
---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES:
Decrease in notes payable, net (140,790) (63,361)
Increase in obligations under
capital leases, net 42,334 ---
Increase/(decrease) in line-of-credit (10,000) (10,000)
Increase/(decrease) in amount due to
officer/principal stockholder (36,000) (32,618)
---------- ----------
Net cash flow from financing activities (144,456) (105,979)
---------- ----------
NET INCREASE IN CASH AND EQUIVALENTS: 177,779 3,968
CASH AND EQUIVALENTS - beginning of period 92,623 36,612
---------- ----------
CASH AND EQUIVALENTS - end of period $ 270,402 $ 40,580
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
- 6 -
<PAGE>
FOUR CORNERS FINANCIAL CORPORATION
----------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
SEPTEMBER 30, 1998 AND 1997
---------------------------
(Unaudited)
(1) General
-------
The financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate in order that
the information presented is not misleading. All adjustments for a
fair presentation of financial information contained herein have been
made.
(2) Organization
------------
The Company -
Four Corners Financial Corporation (FCFC) and its Subsidiaries, Four
Corners Abstract Corporation (FCAC) and Proper Appraisal Specialists,
Inc. provide services and products including real estate title
searching, preparation of abstracts of title, issuance of title
insurance as an agent for certain national underwriting companies and
real estate appraisals, primarily in western and central New York
State. All of these services and products are required in connection
with the mortgaging, sale or purchase of real property.
Unless otherwise indicated, the term "Company" refers to Four Corners
Financial Corp. and its Subsidiaries. The Company operates in one
business segment.
(3) Summary of Significant Accounting Policies
------------------------------------------
Principles of Consolidation -
The consolidated financial statements include the accounts of FCFC
and all of its subsidiaries. All significant intercompany
transactions and balances have been eliminated.
Cash and Equivalents -
Cash and equivalents include time deposits and other instruments with
a maturity of three months or less at the time of purchase. The
Company maintains cash balances at several banks. Accounts at each
institution are insured by The Federal Deposit Insurance Corporation
up to $100,000.
- 7 -
<PAGE>
(3) Summary of Significant Accounting Policies (Continued)
Property and Equipment -
Property and equipment is stated at cost and is depreciated using
accelerated and straight-line methods over the following useful
lives:
Buildings 15 - 31.5 years
Furniture and Equipment 3 - 10 years
Vehicles 5 years
Leasehold Improvements Life of lease
At the time of retirement or other disposition of property, the cost
and accumulated depreciation are removed from the accounts and any
gain or loss is reflected in the statements of operations. Repairs
and maintenance costs are charged to expense when incurred.
Intangible Assets -
Intangible assets consist of goodwill and covenants not-to-compete
resulting from the 1987 acquisition of the Albany branch, the 1989
acquisition of Livingston Abstract Corporation, the 1990 acquisition
of Picciano Abstract Company, Inc. and the 1991 acquisition of Proper
Appraisal Specialists, Inc. These assets were fully amortized during
1995.
Title Plant -
Title plant consists of copies of public records, maps and other
relevant historical documents which facilitate the preparation of
title abstract reports without the necessity of manually searching
official public records.
The Company has incurred identifiable costs related to the activities
necessary to construct a title plant which are reflected as assets. A
title plant is regarded as a tangible asset having an indefinite
economic life; accordingly, title plant costs are not depreciated.
Revenue Recognition -
Title insurance is provided to purchasers or financiers of real
property purchases. The related revenue is recognized when policies
become effective, generally at the property or mortgage loan closing.
Under terms of the Company's agreements with its title insurance
underwriters, a commission of 15% to 20% is paid to its underwriter
on all title insurance policies written. Pricing is based on a rate
schedule established by the Insurance Department of the State of New
York which provides for varying rates for services rendered.
Commission expense is reflected as a direct cost of title insurance
revenue in the statement of operations.
- 8 -
<PAGE>
(3) Summary of Significant Accounting Policies (Continued)
------------------------------------------------------
Revenue Recognition - (Continued)
The Company also performs title abstract research and provides
appraisals on real properties under an exclusive arrangement with a
local appraisal company. Abstract and appraisal revenue is recognized
as earned. Direct costs of abstract and appraisal revenue reflects
the cost of work performed by subcontractors in geographical areas
where the Company does not maintain an office, among other direct
costs.
(4) Acquisitions
------------
The Company acquired Proper Appraisal Specialists, Inc. (1991),
Picciano Abstract Company, Inc. (1990), Livingston Abstract
Corporation (1989) and Mid-State (1988) for cash, notes and common
stock totalling approximately $185,000. These acquisitions were
accounted for as purchases. Goodwill, representing the excess of
purchase price over the fair value of tangible assets acquired
related to these acquisitions, totalled approximately $66,000 and was
being amortized over five years. These companies were subsequently
merged into FCAC.
(5) Income Taxes
------------
During 1993, the Company adopted Statement of Financial Accounting
Standards No. 109 (SFAS 109), "Accounting for Income Taxes". SFAS 109
requires an asset and a liability approach to measuring deferred
income taxes. Previous standards required an income statement
approach.
There were no material temporary differences at December 31, 1997 or
at September 30, 1998. Therefore, no deferred taxes have been
provided.
(6) Escrow Deposits
---------------
As a service to its customers, FCAC administers escrow deposits
representing undisbursed amounts received for settlements of mortgage
loans or property sales and indemnities against specific title risks.
These funds, totalling $304,866 and $240,465 at September 30, 1998
and December 31, 1997, respectively, are recorded as both a current
asset and a current liability in the accompanying consolidated
balance sheets.
- 9 -
<PAGE>
(7) Notes Payable
Notes Payable -
The note payable to the bank requires the company to meet certain
financial covenants at December 31, 1996 as follows:
a. Working capital of at least $20,000
b. Current ratio of 1.1 to 1
c. Minimum tangible net worth of at least $400,000
d. Total liabilities to tangible net worth of not more than 1.9 to 1.
e. Net income before taxes of $110,000, and
f. Debt service ratio of not less than 1.75 to 1.
The agreement also limits the Company's ability to make acquisitions,
pay dividends and make capital expenditures, and requires the Company
to submit certain financial information. At December 31, 1997 and
1996 the Company was not in compliance with certain of the covenants.
Subsequent to year end, the Company obtained a waiver from the bank
for these covenants as of December 31, 1997 and 1996.
Notes payable consisted of the following:
September 30, December 31,
1998 1997
------------- ------------
Note payable to Marine Midland Bank,
due in monthly installments of $7,674
through October, 1997 and $6,230
through October, 1999 plus interest at
the bank's prime rate plus 1.25%. This
note is guaranteed by the officers/
stockholders of the Company and is
collateralized by substantially all of $ -- $ 134,167
the Company's assets.
Term note payable to a bank with
monthly principal payment of $1,542
through October, 1999, plus interest
at the bank's prime rate plus 1%. The
note is also guaranteed by the
officers/stockholders of the Company
and is collateralized by substantially $ -- $ 30,000
all of the Company's assets.
Various notes payable in aggregate
monthly installments of $1,116 and
$1,989 for December 1997 and September
1998 respectively, including interest
at rates ranging from 9.5% to 11.5%.
These notes mature through August 2002
and are collateralized by the related $ 53,411 $ 30,034
equipment. --------- ---------
53,411 194,201
Less: Current Portion (21,257) (102,559)
--------- ---------
$ 32,154 $ 91,642
========= =========
- 10 -
<PAGE>
Obligations Under Capital Leases -
The Company has entered into several capital lease agreements for
equipment. These obligations consist of the following:
September 30, December 31,
1998 1997
------------- ------------
Various leases payable in aggregate
monthly installments of $1,258
including interest at rates ranging
from 11.63% to 12.16%. These leases
mature through March, 2002 and are
collateralized by the equipment. $ 42,334 $ ---
Less: Current Portion (10,529) ---
-------- ---------
$ 31,805 $ ---
======== =========
(8) Lines-of-Credit
---------------
The Company may borrow up to $100,000 under the terms of an unsecured
line-of-credit. Amounts borrowed bear interest at the bank's prime
interest rate plus 1%. Borrowings under this line-of-credit are
personally guaranteed by the Company's principal
officers/stockholders. At December 31, 1997 and September 30, 1998,
there was $100,000 and $90,000, respectively, outstanding under the
terms of this line-of-credit.
(9) Stockholders' Investment
------------------------
Stock Options -
In July, 1992, the Company's Board of Directors adopted and the
stockholders approved the 1992 Stock Option Plan (1992 Plan) which
replaced the 1988 Stock Incentive Plan (1988 Plan).
Under the 1992 Plan, the Company may issue incentive stock options,
non-statutory options, non-employee director options and reload
options. The exercise price of incentive, non-statutory and reload
options will not be less than fair market value at date of grant.
Incentive and non-statutory options will generally expire ten years
from date of grant. Reload options will have a term equal to the
remaining option term of the underlying option.
The 1992 Plan also provides for annual grants of stock options to
purchase 500 shares of the Company's common stock to non-employee
directors of the Company with an exercise price not less than fair
market value at date of grant. These options will expire ten years
from date of grant.
Options issued under the 1992 and 1988 Plans expire in 1995. No
further options will be granted under the 1988 Plan. The Company has
reserved 647,500 common shares for issuance under the 1992 plan. The
Company did not have any outstanding options under the 1992 plan as
of September 30, 1998 and December 31, 1997.
- 11 -
<PAGE>
(10) Related Party Transactions
--------------------------
Due to Officers/Principal Stockholders -
During 1997, 1996 and 1995, one of the Company's principal officers/
stockholders made advances to the Company. These advances were
$97,000, $234,500 and $227,500 at December 31, 1997, 1996 and 1995,
respectively. Amounts borrowed bear interest at the prime rate plus
3% and repayment is subordinated to the amounts outstanding under all
other bank debt agreements. Principal repayment in future years is
scheduled for $18,000 per year.
Note Payable to Officers/Principal Stockholders -
At December 31, 1997 and 1996 the Company owed approximately $4,907
and $3,300 respectively to a law firm for which the Company's
principal stockholder is a partner for legal fees paid on behalf of
the Company. These amounts have been included in accounts payable to
related parties for these periods on the accompanying balance sheets.
Office Lease Commitment -
The Company leases its Rochester facility from a party related
through common management. The Company has a five year lease
agreement through June 30, 2000 at an annual rental of $72,000. Rent
and common area charges were approximately $72,000 in 1997, 1996 and
1995, respectively. The Company owed approximately $15,000 and
$18,100 for unpaid rent at December 31, 1997 and 1996, respectively.
During 1997, total unpaid rent of $18,100 was forgiven by another
related party. This amount has been reflected as an extraordinary
item, net of income taxes, of $4,000.
Significant Customer -
In each of 1997, 1996 and 1995, approximately 8%, 4% and 4%
respectively of revenue was derived from a related party.
(11) Lease Commitments
-----------------
FCAC leases other office facilities under lease agreements expiring
through December, 2002.
Minimum lease payments under non-cancelable lease agreements are as
follows at December 31, 1997:
1998 ........................................ 103,101
1999 ........................................ 42,771
2000 ........................................ 28,046
2001 ........................................ 28,046
2002 ........................................ 28,046
--------
$230,010
========
- 12 -
<PAGE>
Rent expense related to these operating leases was approximately
$126,101, $121,000 and $124,000 for the years ended December 31,
1997, 1996 and 1995, respectively.
(12) Reverse Stock Split
-------------------
In July, 1992, the Company's stockholders approved a one-for-four
reverse stock split. In conjunction with this reverse stock split,
the authorized number of shares was reduced to 15,000,000 and par
value was increased to $.04 per share. These actions have been
retroactively reflected in the financial statements.
- 13 -
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
- -------------------------------
The Company's cash flow results from operations, bank loans, advances made by
principal stockholders and from sales of common stock.
During the first nine months of 1998, cash reserves of $92,623 and cash flow
from operating activities of $428,085 were sufficient to fund the Company's
negative cash flow from investing activities of $105,850 as well as the
negative cash flow position of $144,456 which arose from financing activities.
Cash Flow from Operations: The Company had positive cash flow from operating
activities through the first nine months of 1998 of $428,085 compared to
$98,487 for the same period in 1997. Despite the large decrease in accounts
payable and other current liabilities which far exceeded that of previous
years, total operating cash flows increased by $329,598 for the nine month
period ended September 30, 1998. This change was primarily due to a large
increase in net income. In 1998, net income of $528,705 was $325,160 higher
than the $203,545 amount that was realized in 1997.
Cash Flow from Investing Activities: The Company incurred capital expenditures
of $105,850 during the first nine months of 1998 relating to capital
improvements or equipment for the Rochester office location. The Company made
no title plant investment during the first three quarters of 1998. At
September 30, 1998 the Company had no material purchase commitments.
Cash Flow from Financing Activities: Primary cash flows from financing
activities relate to changes in financing under lines-of-credit, notes payable
and advances made by principal stockholders. Despite the effort to support the
ongoing operations during the first nine months of 1998, the Company was able
to repay a portion of its borrowings from its principal officer/stockholder by
$36,000. Additional payments of $140,790 were made under notes payable
arrangements during the third quarter of 1998. Unlike 1997, the Company
incurred net additional borrowings in 1998 under capital lease arrangements in
the amount of $42,334. This total negative cash flow was adequately funded by
the cash reserve available at the beginning of 1998 and the significant amount
of positive cash flow from operations.
The Company expects that the cash flow generated from operations and bank
lines-of-credit currently available will be adequate to meet its working
capital and capital expenditure needs for the remainder of 1998.
- 14 -
<PAGE>
Results of Operations
- ---------------------
Total revenues for the first nine months of 1998 were $3,949,523 as compared
to $2,765,562 for the same nine month period of 1997. This increase of
$1,183,961 or 42.8% resulted from the recent activity upstart in housing sales
and other positive general economic conditions. The revenues generated from
title insurance premiums increased by 58.6% to $1,474,172 as compared to
$929,437 for the first three quarters of 1997. Revenues from abstract fees also
increased significantly in 1998 by $639,226 to $2,475,351. This compares to
revenues of $1,836,125 for the same period in 1997.
Due to the increased real estate activity and resultant increased sales order
volume experienced in recent months, the need for subcontractor services for
title, abstract and other orders escalated during the first nine months of
1998. Accordingly, for the nine month period ended September 30, 1998 total
direct costs of revenue increased by 36% from $552,332 in 1997 to $751,269 in
1998. As a result of the changes shown above, gross profit for the first three
quarters ended September 30, 1998 was $3,198,254 or 80.9% of revenue as
compared to $2,213,230 or 80.1% of revenue for the same quarters of the
previous year. Operating expenses through September 30, 1998 amounted to
$2,506,604 or 63.5% of revenue as compared to $1,972,220 or 71.3% of revenue
for the same nine month period in 1997. This increase of 27% is primarily due
to an increase in the variable expenses which are driven by increased sales
volumes. The Company anticipates an increase in revenues and stable operating
costs during the remaining portion of 1998. This would further enhance the
sizeable net profit realized in the first nine months of the 1998 calendar year.
The Company's ratio of current assets to current liabilities at September 30,
1998 and December 31, 1997 was 1.47:1 and .95:1, respectively. Accordingly,
the Company had a working capital surplus of $353,048 as of September 30, 1998
compared to a deficit of $47,569 as of December 31, 1997.
- 15 -
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Default Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
None
b. Reports on Form 8-K
None
- 16 -
<PAGE>
SIGNATURE
---------
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.
FOUR CORNERS FINANCIAL CORPORATION
----------------------------------
Date November 13, 1998 By /s/ William S. Gagliano
---------------------------- -----------------------
William S. Gagliano
Executive Vice President and
Chief Accounting Officer
- 17 -
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