<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: 06/30/95
[ ] 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 84-0888594
(State or other jurisdiction of (IRS Employer
incorporation or organization) 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.
612,711 SHARES OF CLASS A COMMON STOCK, NO PAR VALUE, AS OF
JUNE 30, 1995
Exhibit index on page 10 Page 1 of __ pages
<PAGE>
Board of Directors
Capital Reserve Corporation
Independent Accountants' Report
The accompanying consolidated balance sheet of Capital Reserve
Corporation as of June 30, 1995, and the related consolidated statements of
operations for the three months and six months ended June 30, 1995 and 1994
and cash flows for the six months ended June 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
July 26, 1995
2
<PAGE>
CAPITAL RESERVE CORPORATION
CONSOLIDATED BALANCE SHEET
JUNE 30, 1995
(UNAUDITED)
ASSETS
<TABLE>
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 658,254
Cash investments 93,000
Other current assets 65,449
----------
Total current assets 816,703
RENTAL PROPERTY AND EQUIPMENT - AT COST
Rental real estate $361,285
Other property 147,983
-------
509,268
Less accumulated depreciation (74,913) 434,355
-------
OTHER ASSETS 35,441
----------
$1,286,499
----------
----------
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C>
CURRENT LIABILITIES
Notes payable - related party (Note B) $ 325,077
Accounts payable and accrued liabilities 61,827
----------
Total current liabilities 386,904
STOCKHOLDERS' EQUITY
Class A common stock 3,144,102
Class B preferred stock 50,000
Accumulated deficit (2,292,507)
-----------
901,595
Less treasury stock - at cost (Note B) (2,000)
----------
Total stockholders' equity 899,595
----------
$1,286,499
----------
----------
</TABLE>
See accountants' report and notes to financial statements
3
<PAGE>
CAPITAL RESERVE CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------- --------------------
1995 1994 1995 1994
--------- --------- --------- ---------
(Restated)
<S> <C> <C> <C> <C>
Revenue
Rental $ 26,042 * $ 45,211 30,529
Commissions 3,813 8,747 8,321
Interest and dividends 12,775 24,949 339
Other 9,320 12,254 14,385
-------- --------- ---------
51,950 91,161 $ 53,574
Expenses
General and administrative 95,334 172,338 112,401
Rental 21,834 45,583 39,370
Interest (Note B) - - 28,890
Depreciation 1,493 2,986 2,473
-------- --------- ---------
118,661 220,907 183,134
-------- --------- ---------
Net loss from continuing
operations $(66,711) $(129,746) $(129,560)
Loss from discontinued
operations (net of
applicable income taxes) - - (220,249)
-------- --------- ---------
Net (loss) before extraordinary
item (66,711) (129,746) (349,809)
Extraordinary item - gain
on extinguishment of debt
(net of applicable income
taxes) (Note B) 68,538 68,538 -
-------- --------- ---------
Net income (loss) $ 1,827 $ (61,208) $(349,809)
-------- --------- ---------
-------- --------- ---------
*See separate Consolidated Statement of Operations three months ended June 30, 1994
</TABLE>
See accountants' report and notes to financial statements
4
<PAGE>
CAPITAL RESERVE CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------ ----------------
1995 1994 1995 1994
---- ---- ---- ----
(Restated)
<S> <C> <C> <C> <C>
Net income (loss) per common share
Loss from continuing
operations $(.10) $(.20) $(.20)
Loss from discontinued
operations - - (.34)
----- ----- ----- -----
Net (loss) before
extraordinary item (.10) (.20) (.54)
Extraordinary item .10 .10 -
----- ----- ------ -----
Net income (los) $.00 $(.10) $(.54)
----- ----- ------ -----
----- ----- ------ -----
</TABLE>
See accountants' report and notes to financial statements
5
<PAGE>
CAPITAL RESERVE CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1994
(UNAUDITED)
<TABLE>
<S> <C>
Revenue
Premiums earned $ 356,290
Less premiums ceded (3,712)
---------
Net premiums earned 352,578
Net investment income 90,500
Commissions and other income 4,443
Loss on investments (373,525)
---------
73,996
Expenses
Death and other benefits 177,137
Less reinsurance recoveries -
---------
Net death and other benefits 177,137
Change in future policy benefits (17,805)
Commissions 74,468
General expenses 59,535
Taxes, licenses and fees 7,204
Interest expense 12,261
Coinsurance expense 143
---------
312,943
---------
Loss from operations before income taxes (238,947)
Income taxes credit
Deferred (30,665)
---------
Net loss $(269,612)
---------
---------
Net loss per common share $ (.42)
---------
---------
</TABLE>
See accountants' report and notes to financial statements
6
<PAGE>
CAPITAL RESERVE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended
June 30,
---------------------
1995 1994
-------- ---------
(Restated)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(61,208) $(349,808)
Reconciling adjustments:
Depreciation and amortization 15,142 6,462
Gain on sale of assets (12,244) (9,292)
Gain on extinguishment of debt (68,538)
Changes in assets and liabilities:
Other current assets 8,895 (1,744)
Accounts payable and accrued liabilities 5,887 3,214
-------- ---------
Total adjustments (50,858) (1,360)
-------- ---------
Net cash used for continuing operations (112,066) (351,168)
Discontinued operations - 330,456
-------- ---------
Net cash used for operating activities (112,066) (20,712)
Cash flows from investing activities:
Investment in common stock (27,385) (17,918)
Proceeds from sale of assets 36,601 58,829
Purchase of property (66,613) -
Purchase of treasury stock (2,000) -
-------- ---------
Net cash provided by investing activities 40,603 40,911
Cash flows from financing activities:
Payment on note payable - related party (115,000) -
-------- ---------
Net cash used for financing activities (115,000) -
-------- ---------
Net change in cash and cash equivalents (186,463) 20,199
Cash and cash equivalents at beginning of period 844,717 12,958
-------- ---------
Cash and cash equivalents at end of period $658,254 $33,157
-------- ---------
-------- ---------
</TABLE>
See accountants' report and notes to financial statements
7
<PAGE>
CAPITAL RESERVE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30,1995
(UNAUDITED)
NOTE A - MANAGEMENT'S STATEMENTS
In the opinion of management, the accompanying unaudited consoli-
dated 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 June
30, 1995, and the results of operations and cash flows for the
three months and six months ended June 30, 1995 and 1994, except
as stated in the following paragraph. The Notes to the Consoli-
dated Financial Statements which are contained in the Form 10-K
should be read in conjunction with these consolidated financial
statements.
In October, 1994, the Company sold 100% of the outstanding stock
of First West Life Insurance Company and its subsidiary First
West Life Insurance Company of New Mexico. Generally accepted
accounting principles (GAAP) require that the consolidated
statement of operations as of June 30, 1994 be restated to
reflect the operations of the companies sold as discontinued
operations. The statement of operations for the three months
ended June 30, 1994 has not been restated herein. The consoli-
dated statements of operations and cash flows for the six months
ended June 30, 1994 have been restated as required by GAAP.
The accumulated deficit as of December 31, 1994, has been restat-
ed to reflect prior period adjustments which increase equity by
$39,141.
NOTE B - ACQUISITION OF LIFE INSURANCE COMPANY
Effective June 29, 1988, the Company acquired 100% of the out-
standing stock of First West Financial Services and its subsid-
iary, 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 is 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 follow-
ing 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 shareholders, owning a one third
interest, $117,000 during the quarter ended June 30, 1995, in
full satisfaction of his debt and to acquire his stock in the
Company. Two thousand dollars has been recorded as the cost of
this treasury stock.
8
<PAGE>
An extraordinary gain of $68,538 was recorded related to this settlement. The
Company is contesting the remaining liabilities.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
LIQUIDITY AND CAPITAL RESOURCES
Working capital at June 30, 1995 was $429,799, 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 June 30, 1995, the Company reached a settlement with one of
the shareholders of the related party. Accordingly, at June 30,
1995, the note payable is reflected as $325,077. 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.
During the quarter ended June 30, 1995, the Company expended
funds aggregating $27,023 for certain improvements made to the
rental property (approximately $18,500) and for computer equip-
ment for the office (approximately $8,500).
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 six months ended June
30, 1995 include legal fees of $42,632, respectively, incurred in
connection with the dispute over the note payable described above
and certain matters related to the disposition of the life
insurance subsidiary. Subsequent to June 30, 1995, the Company
reached an agreement with another shareholder involved in the
dispute over the note payable, leaving one remaining shareholder
involved in the dispute. Accordingly, management of the Company
expects to incur a significant amount of legal fees in the third
quarter.
Also included in general and administrative expenses for the six
month period are accounting and actuary fees of $29,777 which
related primarily to the disposition of the life insurance
subsidiary.
The settlement with regard to the note payable described above
resulted in an extraordinary gain of $68,538. See Note B to the
financial statements.
Results of operations for the periods ended June 30, 1995 cannot
be compared to the periods ended June 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
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
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 Agreement of Non-Adjudicated Settlement with Dennis G. Haley
27 Financial Data Schedule
(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: August 14, 1995 By: /s/ Ralph W. Newton, Jr.
--- -------------------------
Ralph W. Newton, Jr.
Principal Financial and Accounting
Officer and President
10
<PAGE>
Exhibit 10.1
DISTRICT COURT, DENVER COUNTY, STATE OF COLORADO
Case No.: Not Filed
-------------------------------------------------------------------------------
AGREEMENT OF NON-ADJUDICATED SETTLEMENT
-------------------------------------------------------------------------------
DENNIS G. HALEY,
Plaintiff,
vs.
CAPITAL RESERVE CORPORATION, a Colorado Corporation and its subsidiaries
and; RALPH NEWTON, and; ALEXANDER LAW FIRM, P.C., and; HUGH ALEXANDER and
ASSOCIATES, and; LINDA M. OPFER, and; SANDRA O'DONNELL,
Defendants.
-------------------------------------------------------------------------------
WHEREAS, Dennis G. Haley, has entered into certain transactions involving
Capital Reserve Corporation, a Colorado corporation and its subsidiaries;
Ralph Newton; the Alexander Law Firm, P.C.; Hugh Alexander and Associates,
Ltd; Linda M. Opfer; and Sandra O'Donnell, and;
WHEREAS, Dennis G. Haley served at various times as an officer,
director, and employee of Capital Reserve Corporation, and;
WHEREAS, Mr. Haley has affirmed with the above-mentioned parties his
intent to sue concerning certain disagreements and has provided a signed
copy of the Verified Complaint, which Mr. Haley intended to file in the event
a settlement was not achieved, and;
WHEREAS, Mr. Haley and the above-listed parties have, through extensive
settlement negotiations, determined that it is not in the parties interest to
adjudicate the matters which give rise to the differences between them, and;
WHEREAS, the parties wish to enter into a non-adjudicated settlement of
all matters which would have or could have been litigated between them, and;
WHEREAS, the parties have agreed to enter into a mutual release attached
hereto as Exhibit A, which exhibit has been fully executed and is intended to
be a mutual release of any obligations, claims, or liabilities as set forth
therein, and;
1
<PAGE>
WHEREAS, the parties above recognize that in the event of litigation,
matters could have been set forth by the respective sides of the litigation
which may have given rise to liability between the parties.
NOW THEREFORE, in consideration of the mutual general release attached
hereto, the relinquishment of certain legal rights, the payment of the sums
set forth in the mutual general release and other good and valuable
consideration which is hereby acknowledged, the parties set forth above hereby
agree as follows:
1. Any and all matters set forth in the verified complaint signed by
Dennis Haley on the 31st day of May, 1995, a copy of which has been provided to
the parties set forth above, are deemed fully resolved and any and all
liabilities which would or could have arisen as a result of such matters are
discharged by the mutual general release attached hereto as Exhibit A.
2. It is stipulated and agreed by Dennis G. Haley, the proposed plaintiff
in this matter and the defendants, Capital Reserve Corporation, a Colorado
Corporation and its subsidiaries; Ralph Newton; Alexander Law Firm, P.C.;
Hugh Alexander and Associates, Ltd.; Linda M. Opfer, and Sandra O'Donnell,
that this matter shall be settled upon the following terms:
A. Mr. & Mrs. Haley shall be paid $117,000.00 by way of a check drawn on
the trust account of Alexander Law Firm, P.C. in full and complete
settlement of all claims. Such monies shall be paid on or before
5:00 p.m., the 22nd day of June, 1995.
B. Each party shall be and remain responsible for its own costs and
attorney's fees.
C. Mr. & Mrs. Haley agree to return to the treasury of Capital Reserve
33,333 shares of stock pursuant to Internal Revenue Codes and Regulation
Section 1.302, at the time of the payment of the $117,000.00.
D. The parties agree that the settlement is for the purpose of effecting
an amicable end to all disputes between parties and those matters
reflected in that certain Verified Complaint dated 31 May 1995, signed
by Dennis G. Haley and this settlement may not be construed in any
manner as an admission of liability or wrongdoing on the part of any
parties to this settlement agreement, which wrong doing all parties
specifically deny.
E. The parties to this agreement stipulate and agree that neither Haley
nor any other party hereto or their representatives, assigns, or
attorneys shall further reveal the substance or content of legal
research, fact research, tactical decision or strategic planning made on
the part of Haley, ascertained by Haley, his agents, attorneys or others
with regard to that certain unfiled Verified Complaint dated 31 May
1995. The parties do agree that they may disclose the amount
of the settlement, the return of the stocks to the treasury of the
corporation and the contents of Mr. Haley's affidavit, which affidavit
is attached hereto as Exhibit B.
F. Dennis G. Haley agrees to and has executed as demonstrated by Exhibit B
attached hereto, an affidavit swearing and affirming to the authenticity
and veracity of the
2
<PAGE>
statements contained therein concerning certain transactions surrounding
the 1988 stock exchange agreement which gave rise to certain of the
disagreements between the parties.
G. The parties agree that disclosures deemed confidential in this
settlement agreement may be made as a result of any court ordered
testimony or disclosures required by any regulatory agency. Absent the
service of a subpoena and court ordered testimony or disclosure required
by any regulatory agency, any party violating the non-disclosure provision
other than those matters set forth in paragraph (2)(E) above shall be
subject to a civil proceeding. The parties agree that the damages would be
difficult, if not impossible to presently determine as a result of any party
breaching this non-disclosure agreement and therefore liquidate such damages
at the amount of $25,000.00
H. The parties agree that all tax consequences arising from this
stipulation 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.
I. The parties agree that the terms and conditions of this settlement
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 arbitration shall take
place through and be guided by the requirements of the Judicial Arbiter
Group of Boulder, Colorado. The final resolution of the Judicial Arbiter
Group shall be binding on all parties to this agreement. In the event that
any party files an action 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.
J. If any judicial body determines that any provision, paragraph, sentence
or sub part of this document is invalid, that provision, paragraph,
sentence or sub part shall be severable from the remainder of this
document and shall not affect the validity of the remaining portions
of this stipulation and settlement agreement.
K. This settlement agreement constitutes the entire agreement between the
parties and may not be amended unless in writing and signed by all parties
hereto.
L. All parties confirm that they have fully read and understand this
settlement agreement and enter into same voluntarily and have consulted
with legal counsel as they deem necessary.
M. This agreement may be signed in counterparts which shall collectively
represent the agreement of the parties. All original signature pages shall
be held by The Law Offices of Eugene F. Tardy, for not less than three
years.
3
<PAGE>
So agreed and stipulated on this 21 day of June, 1995.
----
CAPITAL RESERVE CORPORATION, DENNIS G. HALEY
a Colorado Corporation and its subsidiaries
/s/ Dennis G. Haley
By /s/ Ralph W. Newton, Jr., President -------------------------------
----------------------------------- AUDREY J. HALEY
/s/ Ralph Newton
-------------------------------------- /s/ Audrey J. Haley
RALPH NEWTON -------------------------------
ALEXANDER LAW FIRM, P.C.
By /s/ Hugh Alexander, President
-------------------------------------
HUGH ALEXANDER AND ASSOCIATES, LTD.
By /s/ Hugh Alexander, President
-------------------------------------
/s/ Linda M. Opfer
---------------------------------------
LINDA M. OPFER
/s/ Sandra O'Donnell
---------------------------------------
SANDRA O'DONNELL
4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 751,254
<SECURITIES> 60,362
<RECEIVABLES> 55,086
<ALLOWANCES> 14,558
<INVENTORY> 0
<CURRENT-ASSETS> 816,703
<PP&E> 509,268
<DEPRECIATION> 74,913
<TOTAL-ASSETS> 1,286,499
<CURRENT-LIABILITIES> 386,904
<BONDS> 0
<COMMON> 3,144,102
0
50,000
<OTHER-SE> (2,294,507)
<TOTAL-LIABILITY-AND-EQUITY> 1,286,499
<SALES> 0
<TOTAL-REVENUES> 91,161
<CGS> 0
<TOTAL-COSTS> 220,907
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (129,746)
<INCOME-TAX> 0
<INCOME-CONTINUING> (129,746)
<DISCONTINUED> 0
<EXTRAORDINARY> 68,538
<CHANGES> 0
<NET-INCOME> (61,208)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
