U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1997
[ ] TRANSITION REPORT PURSUANT SECTION 13 OF 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 215, 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) 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 _X_ No ___
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the last practicable date:
546,045 SHARES OF CLASS A COMMON STOCK, NO PAR VALUE, AS OF
SEPTEMBER 30, 1997
Transitional Small Business Disclosure Format (check one); Yes__ No_X_
Exhibit index on page 10 Page 1 of 18 pages
1
<PAGE>
Independent Accountants' Report
Board of Directors
Capital Reserve Corporation
The accompanying consolidated balance sheet of Capital Reserve Corporation as of
September 30, 1997, and the related consolidated statements of operations for
the three months and nine months ended September 30, 1997, and cash flows for
the nine months ended September 30, 1997, were not audited by us, and
accordingly, we do not express an opinion on them. The 1996 consolidated
financial statements of Capital Reserve Corporation were compiled by other
accountants whose report dated October 18, 1996, stated that they did not
express an opinion or any other form of assurance on those statements.
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.
/s/BRADEEN, CAMPBELL & CLAAR, CPA'S
Bradeen, Campbell & Claar, CPA's
Denver, Colorado
October 23, 1997
2
<PAGE>
<TABLE>
<CAPTION>
CAPITAL RESERVE CORPORATION
Consolidated Balance Sheet
September 30, 1997
(Unaudited)
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 24,831
Accounts receivable 93
Marketable securities 83,165
-----------
Total currents assets 108,089
EQUIPMENT - AT COST
Furniture and equipment 34,701
Less accumulated depreciation ( 13,321)
-----------
21,380
OTHER ASSETS
TOTAL ASSETS $ 129,469
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 65,529
-----------
Total current liabilities 65,529
-----------
STOCKHOLDERS' EQUITY
Class A common stock 3,138,102
Class B preferred stock 50,000
Accumulated deficit (3,124,162)
63,940
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 129,469
==========
</TABLE>
See accountants report and notes to financial statements
3
<PAGE>
<TABLE>
CAPITAL RESERVE CORPORATION
Consolidated statements of operations
(Unaudited)
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------------------- ------------------------------------
1997 1996 1997 1996
---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Insurance residuals $ 4,759 $ 4,532 $ 13,314 $ 13,648
Consulting revenues - - 2,500 -
Interest and dividends 168 878 1,941 5,941
Investment gains (Loss) (12,275) (17,284) 57,083 32,332
Loss on sales of vehicles - - (16,168) -
Other 1,888 240 13,838 945
------- --------- ----------
Total revenues ( 5,460) (11,634) 72,508 52,866
------ ------ --------
Expenses
General and administrative 13,936 89,150 184,286 275,974
Interest - - - 1,294
Other - - - 12,462
----------- ----------- --------
Total expenses 13,936 89,150 184,286 289,730
------ ------ -------
Net (loss) from continuing (19,396) (100,784) (111,778) (236,864)
operation
Gain on sale of building - 122,042 - 122,042
Loss from discontinued rental
operations - (11,135) - ( 13,006)
----------- ------ --------
Net income (loss) $ (19,396) $ 10,123 $ (111,778) $ (127,828)
-----====== ====== ======= =======
Net (loss) per common share
Continuing operations $ (.04) $ (.18) $ (.21) $ (.42)
Discontinued operations - .20 - .19
----------- --------- ------------ -----------
Net (loss) per common share $ (.04) $ .02 $ (.21) $ (.23)
========= ========= =========== ===========
</TABLE>
See accountants report and notes to financial statements
4
<PAGE>
<TABLE>
CAPITAL RESERVE CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Nine months ended
September 30,
---------------------------------------------------
1997 1996
------------------------- ------------------------
<S> <C> <C>
Operations activities:
Net loss $ (111,778) $ (127,828)
Reconciling adjustments:
Depreciation and amortization 6,218 14,591
Gain on Investment (57,083) (32,332)
Loss on sale of assets 16,168 (122,042)
Loss (gain) on extinguishment of debt - 12,462
Changes in assets and liabilities:
Other current assets 32,511 27,546
Accounts payable and accrued liabilities (180,451) ( 35,134)
------- --------
Total adjustments (182,637) (134,909)
------- -------
Net cash used for operating activities (294,415) (262,737)
Investing activities:
Investments in common stock (17,767) (184,766)
Sales of investments in common stock 91,138 174,550
Proceeds from sale of assets 16,500 501,275
Proceeds from other investments - 8,637
Purchase of property - ( 28,564)
------------ --------
Net cash provided by investing activities 89,871 471,132
-------- --------
Financing activities:
Payment on note payable - related party - (196,000)
Purchase of treasury stock - ( 2,000)
------------ ---------
Net cash used for financing activities - (198,000)
------------ -------
Net change in cash and cash equivalents (204,544) 10,395
Cash and cash equivalents at beginning of period 229,375 346,304
------- -------
Cash and cash equivalents at end of period $ 24,831 $ 356,699
======== =======
</TABLE>
See accountants report and notes to financial statements
5
<PAGE>
CAPITAL RESERVE CORPORATION
Notes to Consolidated Financial Statements
September 30, 1997
(Unaudited)
NOTE A - MANAGEMENT'S STATEMENT
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, 1997, and the results of operations for the
three months and nine months ended September 30, 1997, and 1996, and cash flows
for the nine months ended September 30, 1997, and 1996. 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.
NOTE B - NOTE PAYABLE
In May 1996, the Company settled a disputed note payable to a stockholder. The
Company paid the stockholder $73,000 cash and issued a new $123,000 note payable
in settlement of the $183,538 recorded payable balance. A settlement expense of
$12,462 was recorded. The new $123,000 note was paid upon the sale of the
building on July 3, 1996.
NOTE C - BUILDING SALE
On July 3, 1996, the Company sold the building which was the source of its
rental revenue. The Company has a gain on sale of $122,042 in the third quarter
of 1996. Net rental revenues and expenses have been classified as discontinued
operations in these financial statements.
The Company has leased space from the new owners of the building through July
1998 for an average rate of $1,375 per month.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (ITEM 303)
LIQUIDITY AND CAPITAL RESOURCES
Working capital at September 30, 1997, was $42,560, as compared to $99,254 at
December 31, 1996. Since the Company has no significant source of revenue,
working capital will continue to be depleted by operating expenses. Furthermore,
if the Company should generate an operating loss for the current year comparable
to the loss incurred for the year ended December 31, 1996, a substantial portion
of the Company's remaining cash and working capital will be depleted.
Current liabilities were $65,529 at September 30, 1997 as compared to $245,890
at December 31, 1996. The change in current liabilities is primarily due to the
payment of a note payable to a shareholder, expenses incurred with the
settlement of a lawsuit regarding a former subsidiary of the Company and the
indemnification expenses associated therewith.
RESULTS OF OPERATIONS
Due to the sale of the Company's rental real estate, the Company no longer
receives rental revenues. Rental operations are reflected as discontinued
operations in the statement of operations. While the Company has continued to
receive income (and losses) from insurance residuals, interest and dividends,
and investments, these items are not a significant source of income compared to
the Company's operating expenses.
The Company had total revenues of $72,508 and $52,866 for the nine months ended
September 30, 1997 and 1996, respectively. For the three months ended September
30, 1997, the Company's revenues were ($5,460). As the result of the sale of
marketable securities, for the nine months ended September 30, 1997, the Company
recorded investment gains of $57,083, as compared to $32,332 for the same period
during 1996. The Company also generated other revenues of $13,838 in 1997, which
was largely due to the recognition of partnership income received during 1996
from the Company's 2.25% interest in Andrews Partners I, Ltd. ("Andrews"), a
Colorado limited partnership, engaged in real estate transactions.
General and administrative expenses for the nine months ended September 30,
1997, include legal expenses of $57,339, the majority of which have been
incurred in connection with a lawsuit regarding a former subsidiary of the
Company initiated in September, 1995, which was dismissed on April 10, 1997.
General and administrative expenses for the nine months ended September 30,
1997, also include salaries of $49,500 and related payroll tax expenses of
$4,484. Also included in general and administrative expenses for the nine months
ended September 30, 1997, are accounting and auditing expenses of $11,730,
entertainment and development expenses of $4,149, and insurance expenses of
$18,406.
7
<PAGE>
As compared to the nine months ended September 30, 1996, operating expenses for
the current period were 36% lower. The net loss from continuing operations for
the nine months ended September 30, 1997, decreased by 53%, generally
attributable to a decrease in expenses.
The Company's present business operations do not generate sufficient revenues to
cover its operating expenses. The Company, through a subsidiary named Wall
Street Investment Corp. ("Wall Street"), is attempting to start a financial
consulting company. Whether Wall Street will prove to be viable and a source of
revenue is unknown. For the nine months ended September 30, 1997, Wall Street
contributed $2,500 in revenue to the Company's operations; however, for the
three months ended September 30, 1997, Wall Street did not contribute any
revenue to the Company's operations.
On October 22, 1997, Wall Street entered into a sub-contracting agreement with
Columbia Financial Group ("Columbia") pursuant to which Wall Street has agreed
to provide public relations services in connection with Columbia's contract with
Winner's Internet Network, Inc. ("Winners"). In consideration for Wall Street's
services, Columbia has agreed to transfer to Wall Street stock purchase warrants
for 50,000 shares of Winner's stock, with a purchase price of $2.50 per share,
exercisable for 12 months. As of November 13, 1997, the Company had not received
the stock purchase warrants from Columbia. Columbia has transferred 5,000 shares
of free trading Winner's common stock to Wall Street, with another 5,000 shares
to be transferred by November 20, 1997. Columbia must also transfer an
additional 6,000 shares of Winner's common stock to Wall Street, at a rate of
1,000 shares every thirty days, beginning December 6, 1997. As of November 5,
1997, Winner's common stock (quoted on the Over-the-Counter Bulletin Board
System, operated by the National Association of Securities Dealers, under the
symbol "WINR") had bid and ask prices of $1.875 and $2.125, respectively.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS (ITEM 103)
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
8
<PAGE>
ITEM 5. OTHER INFORMATION
On November 10, 1997, the Company engaged the services of
Bradeen, Campbell & Claar CPA's, P.C. to audit its financial
statements for the fiscal year ending December 31, 1997.
During the Company's two most recent fiscal years and the
subsequent interim period preceding the engagement of this
firm, the Company did not consult this firm regarding any of
the matters identified in Item 304(a)(2) of Regulation S-K.
The engagement of Bradeen, Campbell & Claar CPA's, P.C.
coincided with the announcement by John M. Hanson & Company,
P.C. of its resignation on November 10, 1997.
John M. Hanson & Company, P.C. audited the Company's financial
statements for each of the years ending December 31, 1995 and
1996. For the fiscal year ended December 31, 1995, John M.
Hanson & Company, P.C. issued a qualified report on the
Company's financial statements. The first qualification
related to the scope of the audit and the lack of audited
financial statements for First West Life Insurance Company and
the inability to verify the information pertaining thereto.
The second qualification related to an uncertainty in
connection with the calculation of life insurance reserves and
actuarial items, which may not have been calculated according
to generally accepted accounting principles. A third
qualification related to the Company's not separately
disclosing the loss from operations and the loss from the
disposal of the life insurance segment, along with the
exclusion of all footnote disclosures related to the
discontinued life insurance operations, all of which were
required by generally accepted accounting principles.
For the fiscal year ended December 31, 1996, the report on the
financial statements contained an explanatory paragraph
regarding the Company's ability to continue as a going
concern.
The decision to change auditors was approved by the board of
directors. During the two most recent fiscal years and the
subsequent period preceding the engagement of Bradeen,
Campbell & Claar CPA's, P.C., there were no disagreements with
John M. Hanson & Company, P.C. on any matter of accounting
principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not
resolved to the satisfaction of that firm, would have caused
it to make reference to the subject matter of the
disagreements in connection with its report, other than as set
forth above.
9
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (ITEM 601)
<TABLE>
A) EXHIBITS
<CAPTION>
REGULATION S-B CONSECUTIVE
NUMBER EXHIBIT PAGE NUMBER
<S> <C> <C>
2 Plan of purchase, sale, reorganization
arrangement, liquidation, succession N/A
3(i) Articles of Incorporation as Amended(1) N/A
3(ii) Bylaws as Amended(2) N/A
4 Instruments defining the rights of security
holders, including indentures N/A
10.1 Settlement Agreement(3) N/A
10.2 Sub-Contracting Agreement with Columbia
Financial Group 12
11 Statement re computation of per share earnings(4) N/A
15 Letter on unaudited financial information(5) N/A
16.1 Letter from John M. Hanson & Company, P.C.
regarding change in certifying accountants 15
18 Letter on change in accounting principles N/A
19 Report furnished to security holders N/A
22 Published report regarding matters submitted
to vote of security holders N/A
23 Consents of experts and counsel N/A
24 Power of Attorney N/A
27 Financial Data Schedule 17
- --------------------------------
(1) Incorporated by reference to the Exhibits previously filed with the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1990.
(2) Incorporated by reference to the Exhibits previously filed with the
Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1994.
(3) Incorporated by reference to the Exhibits previously filed with the
Company's Annual Report on Form 10-KSB/A Amendment No. 1 for the fiscal
year ended December 31, 1996.
(4) See Part I - Financial Statements.
(5) See Part I - Financial Statements.
</TABLE>
B) REPORTS ON FORM 8-K: None
10
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CAPITAL RESERVE CORPORATION
(Registrant)
Date: NOVEMBER 14, 1997 By: /S/RALPH W. NEWTON, JR.
----------------- -----------------------
Ralph W. Newton, Jr.
Principal Financial and Accounting
Officer and President
93097.10Q
11
<PAGE>
Exhibit 10.2
Sub-Contacting Agreement
Between
Wall Street Investment Corp.
and
Columbia Financial Group
12
<PAGE>
SUB CONTRACTING AGREEMENT
Agreement made this 22nd day of October, 1997 between Wall Street
Investments Corporation a Colorado 1997 Corporation (hereinto referred to as Sub
Contractor) and Columbia Financial Group (hereinto referred to as Consultant).
AGREEMENT
The respective duties and obligations of this contracting parties shall
be for a period of six (6) months commencing on the date first appearing above.
SERVICES
Sub Contractor will provide consulting services in connection with
Consultants Contract with Winner's Internet Network. The consulting activity
involves the "public relations" dealings with NASD broker/dealers and the
investing public. (At no time shall the Sub Contractor provide services which
would require the Sub Contractor to be registered and licensed with any federal
or state regulatory body or self- regulating agency). During the term of this
agreement to the Sub Contractor will provide these services customarily provided
for a public relations company.
COMPENSATION
In consideration for the services provided by Sub Contractor to the
Consultant. The Consultant shall deliver to the Sub Contractor 50,000 Winner's
Internet Network stock purchase warrants within seven to ten business days.
These warrants entitle the Consultant and now the Sub Contractor to
purchase shares of Winner's Internet Network at $2.50 per share and have an
expiration of twelve months.
Also at the signing Consultant shall deliver 5,000 shares free trading
common stock to the Sub Contractor and in 30 days of signing another 5,000
shares shall be delivered to Sub Contractor.
Starting on the 45th day of signing and every thirty day thereafter for
the next six months Consultant will deliver to Sub Contractor 1,000 shares of
free trading common stock, for a total of 6,000 additional shares.
REPRESENTATION OF CORPORATION
The Consultant upon entering this agreement with Sub Contractor passes
on the representation of Winner's Internet Network here after referred
"Corporation" to the Sub Contractor in that all information is subject to the
following:
13
<PAGE>
The Corporation, upon entering this agreement, hereby warrants and
guarantees to the Consultant that all statements, either written or oral, made
by the Corporation to the Consultant are true and accurate, a contain no
misstatements of a material fact. The Corporation acknowledges that the
information it delivers to the Consultant will be used by the Consultant in
preparing materials regarding the Company's business, including but not
necessarily limited to, its financial condition, for dissemination to the
public. Therefore, in accordance with Paragraph 6, below, the Corporation shall
hold harmless the Consultant from any and all errors, omissions, misstatements,
negligent or intentional misrepresentations, in connection with all information
furnished by Corporation to Consultant, in accordance with and pursuant to the
terms and conditions of this Agreement for whatever purpose or purposes the
Consultant sees fit to use said information. The Corporation further represents
and warrants that as to all matters set forth within this Agreement, the
Corporation has had independent legal counsel and will continue to maintain
independent legal counsel to advise the Corporation of all matters concerning,
but not necessarily limited to, corporate law, corporate relations, investor
relations, all manners concerning and in connection with Company's activities
regarding the Securities Act of 1933 and 1934, and state Blue Sky laws.
All information that Sub Contractor utilizes his efforts shall come
from the Corporation and shall be approved by the Corporation for their use.
NOTICES
Notices to be sent pursuant to the terms and conditions of this
Agreement, shall be sent as follows:
Wall Street Investment Corp.
c/o Ralph Newton
7860 East Berry Place, Suite 215
Inglewood, CO 80111
Columbia Financial Group
c/o Tim Rieu
10015 Old Columbia Rd., Suite B-215
Columbia, MD 21046
HEADINGS
Headings used throughout this Agreement are for reference and
convenience, and in no way define, limit to describe the scope or intent of this
Agreement or effect its provisions.
IN WITNESS WHEREOF, the parties have set their hands and seal as of the
date written above.
BY: /S/ TIMOTHY J. RIEU
Timothy J. Rieu, President
Columbia Financial Group
BY: /S/ RALPH W. NEWTON, PRESIDENT
Wall Street Investment Corp.
14
<PAGE>
Exhibit 16.1
Letter from John M. Hanson & Company, P.C.
regarding change in certifying accountants
15
<PAGE>
[LETTERHEAD OF JOHN M. HANSON & COMPANY, P.C. ON LEFT SIDE OF PAGE]
Securities and Exchange Commission 450 5th Street, N.W.
Washington, D.C. 20549
Dear Sir/Ma'am:
We have read and agree with the comments in Item 5 of Form 10-QSB relating to
the change of auditors of Capital Reserve Corporation, which will be filed on
November 14, 1997.
/s/John M. Hanson & Company, P.C.
Denver, Colorado
November 12, 1997
cc: FAX (303)777-3823
Craig A. Stoner
Dill Dill Carr Stonbraker & Hutchings
455 Sherman St., Suite 300
Denver, CO 80203
16
<PAGE>
Exhibit 27
Financial Data Schedule
17
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENTS OF OPERATIONS, CONSOLIDATED
STATEMENTS OF CASH FLOWS, AND THE NOTES THERETO, WHICH MAY BE FOUND ON PAGES 2
THROUGH 6 OF THE COMPANY'S FORM 10-QSB FOR THE PERIOD ENDED SEPTEMBER 30, 1997,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 24,831
<SECURITIES> 83,165
<RECEIVABLES> 93
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 108,089
<PP&E> 34,701
<DEPRECIATION> 13,321
<TOTAL-ASSETS> 129,469
<CURRENT-LIABILITIES> 65,529
<BONDS> 0
0
50,000
<COMMON> 3,138,102
<OTHER-SE> (3,124,162)
<TOTAL-LIABILITY-AND-EQUITY> 129,469
<SALES> 0
<TOTAL-REVENUES> 72,508
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 184,286
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (111,778)
<INCOME-TAX> 0
<INCOME-CONTINUING> (111,778)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (111,778)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
