<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: 09/30/95
[ ] 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: 0-17232
CAPITAL RESERVE CORPORATION
(Exact name of small business issuer as specified in its charter)
COLORADO
(State or other jurisdiction of 84-0888594
incorporation or organization) (IRS Employer Identification No.)
7860 EAST BERRY PLACE, SUITE 120, ENGLEWOOD, COLORADO 80111
(Address of principal executive offices)
(303) 220-5030
(Issuer's telephone number)
NOT APPLICABLE
(Former name, former address, and former fiscal year,
if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 ____
No __X__
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
579,378 SHARES OF CLASS A COMMON STOCK, NO PAR VALUE, AS OF
SEPTEMBER 30, 1995
Exhibit index on page 10 Page 1 of 11 pages
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Board of Directors
Capital Reserve Corporation
Independent Accountants' Report
The accompanying consolidated balance sheet of Capital Reserve Corporation
as of September 30, 1995, and the related consolidated statements of operations
for the three months and nine months ended September 30, 1995 and 1994 and cash
flows for the nine months ended September 30, 1995 and 1994, were not audited by
us, and, accordingly, we do not express an opinion on them.
Consistent with the requirements of Item 310(b) of Regulation S-B
management has elected to omit substantially all of the disclosures required by
generally accepted accounting principles. If the omitted disclosures were
included in the financial statements, they might influence the user's
conclusions about the Company's financial position, results of operations, and
its cash flows. Accordingly, these financial statements are not designed for
those who are not informed about such matters.
John M. Hanson & Company, P.C.
Denver, Colorado
November 6, 1995
2
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CAPITAL RESERVE CORPORATION
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1995
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 432,380
Cash investments 93,000
Other current assets 89,272
----------
Total current assets 614,652
RENTAL PROPERTY AND EQUIPMENT - AT COST
Rental real estate $361,285
Other property 147,983
----------
509,268
Less accumulated depreciation (83,331) 425,937
----------
OTHER ASSETS 35,441
----------
$1,076,030
----------
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable - related party (Note B) $ 183,538
Accounts payable and accrued liabilities 29,057
----------
Total current liabilities 212,595
STOCKHOLDERS' EQUITY
Class A common stock 3,144,102
Class B preferred stock 50,000
Accumulated deficit (2,326,667)
----------
867,435
Less treasury stock - at cost (Note B) (4,000)
----------
Total stockholders' equity 863,435
----------
$1,076,030
----------
----------
See accountants' report and notes to financial statements
3
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CAPITAL RESERVE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (PAGE 1 OF 2)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
-------------------- --------------------
1995 1994 1995 1994
-------- --------- -------- ---------
(Restated) (Restated)
Revenue
Rental $ 32,039 $ 15,174 $ 77,250 $ 45,703
Interest and dividends 8,869 360 33,818 699
Other (627) 3,068 11,627 17,453
-------- --------- -------- ---------
40,281 18,602 122,695 63,855
Expenses
General and administrative 67,012 52,475 239,350 164,875
Rental 25,766 27,990 71,349 67,360
Interest (Note B) - 1,800 - 30,690
Depreciation 2,041 2,428 5,027 4,901
-------- --------- -------- ---------
94,819 84,693 315,726 267,826
-------- --------- -------- ---------
Net loss from continuing
operations (54,538) (66,091) (193,031) (203,971)
Income (loss) from discontinued
operations (net of applicable
income taxes) 4,839 (60,108) 13,586 (272,036)
-------- --------- -------- ---------
Net (loss) before extraordinary
item (49,699) (126,199) (179,445) (476,007)
Extraordinary item - gain
on extinguishment of debt
(net of applicable income
taxes) (Note B) 15,539 - 84,077 -
-------- --------- -------- ---------
Net income (loss) $(34,160) $(126,199) $(95,368) $(476,007)
-------- --------- -------- ---------
-------- --------- -------- ---------
See accountants' report and notes to financial statements
4
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CAPITAL RESERVE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (PAGE 2 OF 2)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
------------------- ------------------
1995 1994 1995 1994
------- -------- ------ -------
(Restated)
Net income (loss) per common share
Loss from continuing
operations $ (.09) $ (.10) $ (.30) $ (.32)
Earnings (loss) from
discontinued operations .01 (.09) .02 (.42)
------- -------- ------ -------
Net (loss) before
extraordinary item (.08) (.19) (.28) (.74)
Extraordinary item .02 - .13 -
------- -------- ------ -------
Net income (loss) $ (.06) $ (.19) $ (.15) $ (.74)
------- -------- ------ -------
------- -------- ------ -------
See accountants' report and notes to financial statements
5
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CAPITAL RESERVE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended
September 30,
------------------------
1995 1994
---------- ----------
(Restated)
Cash flows from operating activities:
Net loss from continuing operations $(193,031) $(203,971)
Reconciling adjustments:
Proceeds on investments held for trading - 40,912
Depreciation and amortization 23,560 10,883
Gain on sale of assets (10,458) (9,337)
Changes in assets and liabilities:
Other current assets 12,295 (4,790)
Accounts payable and accrued liabilities (3,501) 98,125
---------- ----------
Total adjustments 21,896 135,793
---------- ----------
Net cash used for continuing operations (171,135) (68,178)
Discontinued operations 13,586 328,165
Cash flows from investing activities:
Investment in common stock (79,776) -
Proceeds from sale of assets 136,601 -
Purchase of property (66,613) (14,209)
---------- ----------
Net cash used for investing activities (9,788) (14,209)
Cash flows from financing activities:
Payment on note payable - related party (241,000) -
Purchase of treasury stock (4,000) -
---------- ----------
Net cash used for financing activities (245,000) -
---------- ----------
Net change in cash and cash equivalents (412,337) 245,778
Cash and cash equivalents at beginning of period 844,717 522,320
---------- ----------
Cash and cash equivalents at end of period $432,380 $768,098
---------- ----------
---------- ----------
See accountants' report and notes to financial statements
6
<PAGE>
CAPITAL RESERVE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(Unaudited)
NOTE A - MANAGEMENT'S STATEMENTS
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments (all of which are normal and recurring in
nature) necessary to present fairly the financial position of Capital Reserve
Corporation as of September 30, 1995, and the results of operations and cash
flows for the three months and nine months ended September 30, 1995 and 1994.
The Notes to the Consolidated Financial Statements which are contained in the
Form 10-K should be read in conjunction with these consolidated financial
statements.
The accumulated deficit as of December 31, 1994, has been restated to reflect
prior period adjustments which increase equity by $39,141. The 1994 statements
of operations have been restated to reflect prior period adjustments.
NOTE B - ACQUISITION OF LIFE INSURANCE COMPANY
Effective June 29, 1988, the Company acquired 100% of the outstanding stock of
First West Financial Services and its subsidiary, First West Life Insurance
Company, in exchange for 100,000 shares of the Company's Class A common stock
with an estimated fair market value of $1,000,000. The Company paid $931,304 in
cash and recorded a liability to the shareholders of the life insurance company
of $459,000, accruing interest at 9%. The due date of this liability was
contingent upon the life insurance company creating a minimum stated surplus or
a sale of certain business assets at a minimum stated amount.
In connection with the acquisition of a life insurance company, the Company had
agreed to pay the sellers an additional $150,000 if a certain price and
marketability of the stock issued in the acquisition was not attained at the end
of the two years following the date of purchase.
Prior to adjustment, the balance of these liabilities at December 31, 1994 was
$559,000 plus $224,869 in accrued interest. The Company contested these
liabilities and adjusted the balance owed in its December 31, 1994, financial
statements to $508,615 with no accrued interest.
The Company paid one of these stockholders, with a recorded liability of
$183,538, $117,000 during the quarter ended June 30, 1995, in full satisfaction
of all obligations and to acquire his stock in the Company. Two thousand
dollars has been recorded as the cost of this treasury stock. An extraordinary
gain of $68,538 was recorded related to this settlement.
The Company paid another of these stockholders, with a recorded liability of
$141,539, $128,000 during the quarter ended September 30, 1995 in full
satisfaction of all obligations, and to acquire his stock in the Company. Two
thousand dollars has been recorded as the cost of this treasury stock. An
extraordinary gain of $15,539 was recorded related to this settlement.
7
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CAPITAL RESERVE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,1995
(Unaudited)
NOTE B - ACQUISITION OF LIFE INSURANCE COMPANY (CONTINUED)
The third stockholder, with a recorded liability of $183,538, has filed a civil
action naming the Company as defendant seeking to recover approximately $354,000
for various claims. The Company intends to vigorously defend these claims, and
believes the risk of liability for the total amount is slight.
NOTE C - CONTINGENCIES
The Company is a defendant in a lawsuit filed by shareholders of a subsidiary
corporation for alleged securities violations. The suit asks for damages of up
to $2.4 million. The Company believes the suit is completely without merit and
intends to vigorously defend its position.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
LIQUIDITY AND CAPITAL RESOURCES
Working capital at September 30, 1995 was $402,057, as compared to $516,193 at
December 31, 1994. Current liabilities at December 31, 1994 included notes
payable to a related party of $508,615, which is being contested by the Company.
During the quarter ended September 30, 1995, the Company reached a settlement
with the second of three of the shareholders of the related party, having
settled with the first shareholder during the preceding quarter. Accordingly,
at September 30, 1995, the note payable is reflected as $183,538. The
settlement also resulted in the shareholder returning his 33,333 shares of Class
A common stock back to the Company. See Note B to the financial statements.
RESULTS OF OPERATIONS
The Company's only operations at this time consist of the rental of office
space. Such rental operations are generating positive cash flow; however, the
depreciation attributed to the rental property (which is included in rental
expense) results in a loss.
General and administrative expenses for the nine months ended September 30, 1995
include legal fees of $54,342, incurred in connection with the dispute over the
note payable described above and certain matters related to the disposition of
the life insurance subsidiary. As the Company has settled with two of the three
shareholders involved in the dispute over the note payable, there remains one
shareholder involved in the dispute. In addition, certain litigation was
initiated against the Company in October, 1995. Accordingly, management of the
Company expects to incur a significant amount of legal fees in the fourth
quarter.
Also included in general and administrative expenses for the nine-month period
are accounting and actuary fees of $32,605 which related primarily to the
disposition of the life insurance subsidiary.
The settlements with regard to the note payable described above resulted in an
extraordinary gain of $84,077 for the nine-month period. See Note B to the
financial statements.
Results of operations for the periods ended September 30, 1995 cannot be
compared to the periods ended September 30, 1994. As indicated in Note A to the
financial statements, the Company sold its life insurance subsidiary, First West
Life Insurance Company, in October 1994.
9
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On September 29, 1995, various individuals filed a suit in the United
States District Court for the District of Nebraska against Premier
Capital Investment Corporation, Capital Reserve Corporation, Ralph W.
Newton, Jr., Henry W. Hall, Philip A. Bates, Donald Yee, Linda M.
Opfer, and Dennis G. Haley. The litigation relates to the offer and
sale of securities of Premier Capital Investment Corporation ("PCIC"),
which was formerly a subsidiary of Capital Reserve Corporation, during
the period of approximately 1988 through 1992. The complaint
generally alleges fraud in connection with the sale of the securities
of PCIC and asserts liability under the Racketeering Influenced and
Corrupt Organizations Act ("RICO"), as well as several common law
theories. Capital Reserve Corporation is vigorously defending the
suit. Plaintiffs are seeking damages against all defendants in an
aggregate amount of up to $2,400,000, together with interest, costs,
and attorneys fees.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS. None.
REGULATION
S-K NUMBER EXHIBIT
10.1 Settlement Agreement and Mutual General Release by
and between Donald Yee, Sheung K. Yee, Capital
Reserve Corporation, and Ralph Newton
27 Financial Data Schedule
10
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(b) REPORTS ON FORM 8-K. None.
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CAPITAL RESERVE CORPORATION
(Registrant)
Date: November 13, 1995 By: /S/ Ralph W. Newton, Jr.
-------------------------
Ralph W. Newton, Jr.
Principal Financial and Accounting
Officer and President
12:09-30-95.10q
11
<PAGE>
SETTLEMENT AGREEMENT
AND
MUTUAL GENERAL RELEASE
This Settlement Agreement and Mutual General Release ("Agreement")
is entered into by and between Donald Yee ("Yee") and Sheung K. Yee
(collectively "Yees"), Capital Reserve Corporation, a Colorado Corporation
and its subsidiaries (the "Corporation"); and Ralph Newton ("Newton")
collectively the "Parties".
WHEREAS, Yee has entered into certain transactions involving
the Corporation, its subsidiaries and Ralph Newton, including but not limited
to a stock exchange agreement; loans; promissory notes and Termination
Agreement, and;
WHEREAS, Yee served at various times as an officer, director and
employee of the Corporation, and was a party to a Termination Agreement of
December 1992, and;
WHEREAS, Yee has made demand upon the Corporation and
Newton concerning certain disputes and claims, and;
WHEREAS, the Parties have, through settlement negotiations, determined
that it is not in the Parties' best interest to adjudicate the matters which
gave rise to the differences between them, and wish to enter into a full and
final settlement of all matters which could have been adjudicated by them
without further cost or expense and without any findings of fact
or conclusions of law.
NOW THEREFORE, in consideration of the promises, mutual general release,
relinquishment of certain legal rights, payment of the sums set forth in
herein and other good and valuable consideration which is hereby
acknowledged, the Parties hereby agree as follows:
1. It is stipulated and agreed by the Parties that this matter shall be
fully and finally settled upon the following terms:
A. Yees shall be paid a total of $128,000 by way of two (2) checks
drawn on the trust account of Alexander Law Firm, P.C. in the amount of
$117,000.00 and $11,000.00 respectively, in full and complete settlement
of all of Yees' claims. Such monies shall be paid on or before the 25th
day of August, 1995.
i. Yees shall be paid $117,000.00 as sole and complete payment for
any and all claims released by Yees under paragraph 2 herein
relating to the Stock Exchange Agreement, Addenda and Supple-
ments thereto, notes or other
<PAGE>
related agreements of whatever kind and nature.
ii. Donald Yee shall be paid $11,000.00 as sole and complete
payment for any and all claims released by Yee, under
paragraph 2 herein, relating in any way to his employment by
the Corporation or the December 1992 Termination Agreement.
B. Each party shall be and remain responsible for its own costs and
attorney's fees.
C. Yees agree to return to the treasury of the Corporation 333,334
shares of stock of Capital Reserve Corporation at the time of the
payment of $128,000.00 and hereby warrant that they do not own any
other shares of stock in the Corporation.
D. The Parties agree that this Agreement is for the purpose of
effecting an amicable end to all disputes between the Parties and
that this Agreement may not be construed in any manner as an
admission of liability or wrongdoing on the part of any Parties to
this Agreement, which wrongdoing all Parties specifically deny.
E. Yee agrees to and has executed, as demonstrated by EXHIBIT A
attached hereto, an affidavit swearing and affirming to the
authenticity and veracity of the statements contained therein
concerning certain transactions surrounding the 1988 Stock Exchange
Agreement which gave rise to certain of the disagreements between
the Parties.
F. The Parties agree that all tax consequences arising from this
Agreement shall be the sole responsibility of the party paying and
the party receiving any benefit or proceeds by any act of this
Agreement which may be deemed by the Internal Revenue Service to be
a taxable event and no party has made any representation to the
other regarding the taxation consequences of this Agreement.
2. In consideration of the release contained herein and the total sum of
$128,000.00, the receipt and sufficiency of which is hereby acknowledged,
Yees, for themselves and their successors and assigns, hereby fully and
forever release and discharge the Corporation and Newton, their
successors, assigns, heirs, personal representatives, employees, officers,
directors, agents and their counsel ("Releasees") from any and all claims,
demands, obligations, actions, liabilities and damages of every kind and
nature whatsoever, in law or in equity, whether known or unknown to them,
which they may have against Releasees, by reason of any act or omission by
them in any capacity, from January 1, 1988, including, without limitation,
those arising from or based upon any transaction arising from a Stock
Exchange Agreement dated April 28, 1988, its amendments, supplements, and
addenda thereto, any loan agreements or trust agreements, Termination
Agreement or other contractual or fiduciary relationships between the parties
hereto, for any claims for damages asserted or which could have been asserted
by Yees against Releasees as well as any acts which any Releasees, may
have performed or failed to perform in their capacity as counsel to the
Corporation and its subsidiaries or as members of the Board of Directors
2
<PAGE>
of the Corporation and its subsidiaries, and arising from or based upon any
activities in connection with the Corporation and its subsidiaries.
3. In consideration of the release contained herein, and the return to the
corporate treasury of 33,334 shares of Corporation stock, the sufficiency of
which is hereby acknowledged, the Corporation and Newton for themselves, their
employees, officers, directors, agents, counsel, heirs, personal
representatives, successors and assigns, hereby fully and forever release and
discharge Yees and their heirs and personal representatives, successors and
assigns from any and all claims, demands, obligations, actions,
liabilities, and damages of any kind and nature whatsoever in law or equity
whether known or unknown to them which they may have against Yees by any act
or omission by Yees in any capacity from January 1, 1988, including without
limitation those arising from or based upon the Stock Exchange Agreement
dated April 28, 1988, its Amendments, Supplements or Addenda thereto, or based
upon Yee's employment by the Corporation and by his acting as an officer and
director of the Corporation and its subsidiaries.
4. The Parties warrant that no assignment or transfer of any claim released
herein has occurred and agree to indemnify and hold harmless the other from
any released claim brought by any third party whether by way of assignment,
transfer or otherwise.
5. The Parties agree that the terms and conditions of this Agreement are
contractual in nature and shall be enforceable in an action at law. Any
proceedings necessary to enforce the terms of this Agreement shall be
resolved by way of binding arbitration. The final resolution of the
arbitrator(s) shall be binding on all Parties to this Agreement. In the event
that any Party is required to enforce any of the terms or provisions of this
Agreement, the prevailing Party shall be entitled to recover all costs and
reasonable attorney's fees related to such action.
6. If any judicial body determines that any provision, paragraph, sentence
or sub part of this Agreement is invalid, that provision, paragraph, sentence
or sub part shall be severable from the remainder of this Agreement and shall
not affect the validity of the remaining portions of this Agreement.
7. This Agreement constitutes the entire agreement between the Parties and
may not be amended unless in writing and signed by all parties hereto.
8. All Parties confirm that they have fully read and understand this
Agreement and enter into same voluntarily and have consulted with legal
counsel of their own choosing as they deem necessary.
9. This Agreement may be signed in counterparts which shall collectively
represent the agreement of all the Parties.
3
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IN WITNESS WHEREOF, this instrument was executed this 21st day of
August, 1995.
/s/ Donald Yee /s/ Ralph Newton
__________________________________ __________________________________
Donald Yee Ralph Newton
/s/ Sheung K. Yee CAPITAL RESERVE CORPORATION
__________________________________
Sheung K. Yee By: /s/ Ralph Newton
_______________________________
Its: President
______________________________
4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 525,380
<SECURITIES> 87,583
<RECEIVABLES> 48,481
<ALLOWANCES> (14,558)
<INVENTORY> 0
<CURRENT-ASSETS> 614,652
<PP&E> 509,268
<DEPRECIATION> (83,331)
<TOTAL-ASSETS> 1,076,030
<CURRENT-LIABILITIES> 212,595
<BONDS> 0
<COMMON> 3,144,102
0
50,000
<OTHER-SE> (2,330,667)
<TOTAL-LIABILITY-AND-EQUITY> 1,076,030
<SALES> 77,250
<TOTAL-REVENUES> 122,695
<CGS> 0
<TOTAL-COSTS> 315,726
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (193,031)
<INCOME-TAX> 0
<INCOME-CONTINUING> (193,031)
<DISCONTINUED> 13,586
<EXTRAORDINARY> 84,077
<CHANGES> 0
<NET-INCOME> (95,368)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> 0
</TABLE>
