U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1997
--------------------
|_| Transition report under Section 13 or 15(d) of the Exchange Act.
For the transition period from ______________ to ______________
Commission file no. 33-21443
CAPITAL GROWTH HOLDINGS, LTD.
-----------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-1489574
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
660 Steamboat Road, Greenwich, CT 06830
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(203) 861-7750
- --------------------------------------------------------------------------------
Issuer's telephone number, including area code
- --------------------------------------------------------------------------------
(Former name, former address and formal 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 [ ]
The number of shares outstanding of each of the issuer's classes of common
equity as of November 14, 1997 was as follows: 3,398,496 shares of common stock
and 16,431,000 shares of class B common stock.
Transitional Small Business Disclosure Format (check one):
YES [ ] NO [X]
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
- ------- ---------------------
The interim financial statements required by this Item are included in
this quarterly report on Form 10-QSB immediately following the signature page
hereto.
Item 2. Management's Discussion and Analysis.
- ---------------------------------------------
Overview
International Capital Growth, Ltd. ("ICG"), a Delaware corporation and the
only operating subsidiary of Capital Growth Holdings, Ltd. (the "Company"), was
formed in February 1996 to develop a diversified financial services company to
pursue business opportunities in investment banking in the United States and the
United Kingdom and merchant banking, money management and securities brokerage
in the United States. ICG commenced formal operations in October 1996 when it
became registered as a broker-dealer with the Securities and Exchange Commission
(the "SEC") and obtained membership with the National Association of Securities
Dealers, Inc. (the "NASD"). On March 14, 1997, ICG consummated a share exchange
transaction with the Company and became the Company's wholly-owned subsidiary.
In June 1997, the Company reincorporated to the State of Delaware and had its
common stock listed on The Nasdaq Stock Market, Inc.'s OTC Bulletin Board under
the symbol "CGHL". During the first quarter of 1997 the Company ceased being a
development stage company.
During the first nine months of fiscal year 1997, the Company has
generated revenues and earnings from ICG's investment banking activities. To
remain profitable, the Company must generate revenues in excess of operating
expenses anticipated to be incurred in connection with ICG's business, and the
expansion of its business into other activities. During the quarter ended
September 30, 1997, the Company generated a net loss. When acting as a placement
agent of securities for its company clients, ICG is typically compensated upon
the successful closing of the sale of a company clients' securities. Such
agency financings typically take from 90 to 120 days to consummate after ICG is
retained as a placement agent. During the quarter ended September 30, 1997,
certain activities were undertaken and certain expenses were incurred in
connection with such a financing, although a fee, if paid, will not be paid
unless and until such transaction is closed. The closing of such transaction is
anticipated to occur in the fourth quarter of 1997.
From time to time the Company may publish forward-looking statements,
including statements regarding, among other things, (i) the Company's growth
strategy or potential, (ii) anticipated trends in the Company's businesses,
(iii) the Company's ability to compete with its competitors and (iv) the
Company's profitability and projected financial condition. Any statements
contained in this report that are not statements of historical fact may be
deemed to be forward-looking statements. These statements are based upon
management's beliefs at the time they are made as well as assumptions made by
management based upon information available to it. The current assumptions
regarding the Company's operations, performance, development and results of its
business include (i) the accuracy of estimates of anticipated increases in the
Company's expenses due to implementation of the Company's business plan, (ii)
successful completion of securities offerings anticipated to be consummated
through ICG, (iii) maintenance of market conditions affecting the Company's
services
2
<PAGE>
and (iv) appropriate regulatory approvals. Forward-looking statements
are inherently subject to various risks and uncertainties, including those
described above, as well as potential changes in economic or regulatory
conditions that are largely beyond the Company's control. Should one or more of
these risks materialize or changes occur, or should management's assumptions
prove to be incorrect, the Company's actual results may materially vary from
those anticipated or projected.
As ICG, the Company's only operating subsidiary, did not commence business
activities until October 1996, the Company believes that a period to period
comparison of results of operations would not be meaningful.
Results of Operations for the Quarter ended September 30, 1997
Revenues
The Company generated $659,652 in revenues during the quarter ended
September 30, 1997, of which $372,366 resulted from unrealized gains on its
securities portfolio. In addition, the Company generated $259,020 in private
placement fees, $7,500 in consulting fees and $20,766 in interest income.
Operating Expenses
Operating expenses for the quarter ended September 30, 1997 were $944,339,
consisting of equity in net loss of Capital Growth Europe, Limited, an
unconsolidated affiliate of the Company, of $10,000, selling expenses of $33,232
and general and administrative expenses of $901,107, approximately 33% of which
was management and employee salaries.
Net Loss
As a result of the foregoing, and after a tax benefit of $150,000, the
Company had a net loss of $134,687 for the quarter ended September 30, 1997.
Results of Operations for the Nine Months ended September 30, 1997
Revenues
The Company generated $4,025,457 in revenues during the nine months ended
September 30, 1997, of which $1,650,268 resulted from fees in connection with an
$11.1 million private placement consummated by ICG as placement agent for a
publicly held company in the second quarter. In addition, the Company generated
$409,019 in other private placement fees, $351,434 in consulting fees,
$1,540,880 in unrealized gains on its securities portfolio, principally from the
securities of one company, and $73,856 in interest income.
3
<PAGE>
Operating Expenses
Operating expenses for the nine months ended September 30, 1997 were
$2,987,237, consisting of selling expenses of $504,332, general and
administrative expenses of $2,386,790, approximately 40% of which consisted of
management and employee salaries, and the recognition of the equity in the net
loss of the Company's unconsolidated affiliate, Capital Growth Europe, Limited,
of $96,115.
Net Income
As a result of the foregoing, and after provision for taxes of $250,000,
the Company had net income of $788,220 for the nine months ended September 30,
1997.
Liquidity and Capital Resources
Capital for the Company has been provided by the investments made by the
initial shareholder group and through private placements of the Company's
securities. In March 1997, the Company raised net proceeds of approximately $1.0
million in a private placement of 549,496 shares of its common stock, par value
$.001 per share ("Common Stock").
To date, the Company has used its capital for merchant banking (securities
investments), working capital and general corporate purposes. In addition, in
March 1997, the Company loaned $200,000 to an entity controlled by Messrs.
Ronald Koenig and Stanley Hollander, two of the Company's directors, officers
and principal shareholders. The loan, which was approved by a majority of
disinterested directors, bears interest at the rate of 6% per annum and is due
on March 26, 1998.
On September 15, 1997, the Company loaned $25,000 to Capital Growth
International LLC, an affiliate of the Company, which was repaid on October 2,
1997 without interest.
In March 1997, the Company acquired marketable securities with a value of
$1.65 million at June 30, 1997 for a total cost of $450,000.
The Company is currently evaluating its options in connection with the
establishment of its securities brokerage business. The Company's objective is
to enter this business with minimal capital investment. The Company has no
material capital commitments other than annual salaries to its executive
officers and employees of approximately $1,237,000 and a letter of credit in the
amount of $100,000 to secure future rent payments and leasehold improvements at
the London office of Capital Growth Europe, Limited, a subsidiary of the
Company. The Company believes that its current cash resources and anticipated
cash flow from operations will be adequate to satisfy its capital commitments
during 1997.
On September 30, 1997, the Company paid a $.05625 per share dividend to
holders of its Common Stock which dividend totaled $191,166 in the aggregate.
The dividend represented payment for the three month period from July 1, 1997
through September 30, 1997 of a two year $.225 annual per share dividend. The
aggregate dividend that has been paid through September 30, 1997 is
approximately $573,000. The balance of the dividend is anticipated to be paid on
a quarterly basis at a rate of $.05625 per share from December 31, 1997 through
December 31, 1998.
4
<PAGE>
On October 12, 1997, each share of the Company's 4,001,334 shares of 5%
Cumulative Convertible Series A Preferred Stock, par value $.001 per share
("Series A Preferred Stock"), and 1,080,000 shares of 5% Cumulative Convertible
Series B Preferred Stock, par value $.001 per share ("Series B Preferred Stock")
(collectively the "Designated Preferred Stock"), converted into one share of the
Company's Class B common stock, par value $.001 per share ("Class B Common
Stock"), at which time the 5% per share annual dividend that accrued thereon
ceased to accrue as of October 12, 1997 and became due and payable on October
24, 1997 out of funds legally available therefor. The dividend due and payable
to the former holders of the Designated Preferred Stock is approximately $38,000
in the aggregate. As a result of such conversion, the Company has a total of
3,398,496 shares of Common Stock and 16,431,000 shares of Class B Common Stock
currently outstanding.
Variability of Results
The Company anticipates that a substantial portion of its future revenues
will originate from ICG's activities as placement agent in private financings.
When acting as placement agent, ICG is typically compensated upon the successful
closing of a financing. Agency financings typically take from 90 to 120 days to
consummate after ICG is retained as placement agent. Activities may be
undertaken and expenses incurred in one fiscal period although a fee may not be
earned until a subsequent period. As a result, the financial results of the
Company may vary dramatically from quarter to quarter. Further, the Company's
operating results will also vary as a result of the marking to market of its
portfolio of securities.
PART II
OTHER INFORMATION
Item 3. Defaults Upon Senior Securities.
- ------- --------------------------------
As of September 30, 1997, the Company had 4,001,334 shares of Series A Preferred
Stock and 1,080,000 shares of Series B Preferred Stock outstanding, all of which
automatically converted on a one-for-one basis into shares of the Company's
Class B Common Stock on October 12, 1997. Pursuant to the terms of the
Certificates of Designation of such preferred stock, the holders thereof are
entitled to cumulative dividends on such shares prior to payment of dividends on
any other class of capital stock of the Company. The cumulative dividends on
such preferred stock have accrued from October 12, 1996 through October 12, 1997
and were due and payable on a quarterly basis commencing December 31, 1996 and
on October 24, 1997, ten business days after the conversion thereof. The
aggregate amount of such arrearage owed by the Company to the former holders of
such preferred stock is approximately $38,000 as of October 12, 1997.
Item 6. Exhibits and Reports on Form 8-K.
- ------- ---------------------------------
(a) Exhibits
11 Computation of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter for
which this report was filed.
5
<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 GROWTH HOLDINGS, LTD.
Date: November 14, 1997 By: /s/ Ronald B. Koenig
----------------- ------------------------
Ronald B. Koenig
President and Chief Executive
Officer
(Principal Executive Officer)
Date: November 14, 1997 By: /s/ Michael S. Jacobs
----------------- -------------------------
Michael S. Jacobs
Senior Vice President
(Chief Accounting Officer)
6
<PAGE>
CAPITAL GROWTH HOLDINGS, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
A S S E T S
-----------
September 30, 1997 December 31, 1996
(unaudited) (audited)
Assets:
Cash................................. $1,333,375 3.060,255
Investment in Marketable Securities.. 1,929,076 0
Prepaid Expenses and other assets.... 74,039 0
Loan to Affiliate.................... 225,000 0
Investments in Non-Marketable Securities 936,958 120,000
Fixed Assets, Net.................... 250,537 464
Customer List........................ 90,000 120,000
Investment and advance to unconsolidated
affiliate.......................... 90,000 186,115
--------- ---------
TOTAL ASSETS......................... $4,928,985 $3,486,834
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Accrued expenses and other liabilities $ 66,000 $ 51,000
Deferred tax liability............... 250,000 0
Dividends payable.................... 36,947 0
---------- ----------
Total Liabilities.................... 352,947 51,000
Stockholders' equity:
Series A Preferred Stock - $.001 par
value, 4,001,334 shares authorized;
4,001,334 and 4,365,000 shares issued
and outstanding at September 30,1997
and December 31, 1996, respectively at
liquidation value of $.14 per share 560,187 611,100
Series B Preferred Stock - $.001 par
value, 1,080,000 shares authorized;
1,080,000 and 1,200,000 shares issued
and outstanding at September 30, 1997
and December 31, 1996, respectively,
at liquidation value of $.21 per share 226,800 252,000
Common Stock - $.001 par value,
25,000,000 shares authorized;
3,398,496 and 13,415,000 shares issued
and outstanding at September 30, 1997
and December 31, 1996, respectively 3,398 13,415
Class B Common Stock - $.001 par
value, 25,000,000 shares authorized;
11,349,666 and 0 shares issued and
outstanding at September 30, 1997 and
December 31, 1996, respectively 11,350 0
Additional Paid in Capital................ 4,399,697 3,333,535
Accumulated Deficit....................... (541,794) (718,616)
Subscriptions Receivable ................. (53,600) (55,600)
Treasury Stock (15,000 Shares)............ (30,000) 0
----------- ------------
Total stockholders' equity........... 4,576,038 3,435,834
----------- ------------
T O T A L............................ $ 4,928,985 $ 3,486,834
=========== ============
F-1
<PAGE>
Capital Growth Holdings, Ltd.
Condensed Consolidated
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
-------------------------- -------------------------
September 30, 1997 September 30, 1996 September 30, 1997 September 30, 1996
------------------ ------------------ ------------------ ------------------
Since inception 2/26/97
<S> <C> <C> <C> <C>
Revenues:
Consulting fees $7,500 0 $351,434 0
Private placement fees 259,020 0 2,059,287 0
Unrealized gains on securities 372,366 0 1,540,880 0
Interest Income 20,766 1,107 73,856 1,243
------ ----- ------------ -----
Total revenue $ 659,652 $1,107 $ 4,025,457 $1,243
========== ====== ============ ======
Operating expenses
Equity in net loss of
unconsolidated affiliate 10,000 0 96,115 0
Selling Expenses 33,232 0 504,332 0
General and administrative 901,107 5,216 2,386,790 15,472
-------- ----- ------------ ------
Total operating expenses 944,339 5,216 2,987,237 15,472
-------- ----- ------------ ------
Net Income (loss) before taxes $ (284,687) $(4,109) $1,038,220 $(14,229)
Provision for taxes (150,000) 0 250,000 0
Net income (loss) $(134,687) $(4,109) $788,220 $(14,229)
=========== ======== ========= =========
Less cumulative preferred dividend (9,241) 0 (28,417) 0
------- -------- --------- ---------
Net income (loss)attributable to
Common stockholders $(143,928) $(4,109) $759,803 $(14,229)
========== ======== ========= =========
Primary:
Net income (loss) per common
share ($0.00) ($0.00) $0.05 $0.00
======= ======= ======== =========
Weighted average number of
shares outstanding 14,733,162 12,027,094 14,576,409 11,210,550
=========== ========== =========== ==========
Fully diluted:
Net income per common share $0.04
==========
Weighted average number of
shares outstanding 19,676,184
==========
</TABLE>
F-2
<PAGE>
CAPITAL GROWTH HOLDINGS, LTD
Consolidated Statement of Cash Flows
(UNAUDITED)
Nine Months Ended September 30,
--------------------------------
1997 1996
---- ----
since inception 2/26/96
Cash flows from operating activities:
Net income (loss) $788,220 $(14,229)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Amortization and Depreciation
Expense 54,670
Equity in loss of unconsolidated
affiliate 96,115
Valuation of Warrant for consulting 35,417
Deferred Tax Expense 250,000
Changes in operating assets and liabilities:
Other Assets (74,039)
Accrued expenses & other
liabilities 15,000
Net cash provided by (used in)
operating activities 1,165,383 (14,229)
--------- --------
Cash flows from investing activities:
Investment in Marketable
Securities (1,929,076)
Investment in Non-Marketable
Securities (816,958)
Investment in Fixed Assets (274,743)
Loan to Affiliate (225,000)
----------
Net cash (used in)
investing activities (3,245,777) 0
---------- --------
Cash flows from financing activities:
Net proceeds from sales
of common stock 957,965 175,950
Dividends Paid (574,451)
Purchase of Treasury Stock (30,000)
---------- --------
Net cash provided by
financing activities 353,514 175,950
---------- --------
Net Increase or (Decrease) in Cash (1,726,880) 161,721
Cash at Beginning of Period 3,060,255 0
Cash at end of period $1,333,375 $161,721
========== ========
F-3
<PAGE>
CAPITAL GROWTH HOLDINGS, LTD.
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
(Unaudited)
(1) Financial Statement Presentation
The unaudited financial statements of Capital Growth Holdings, Ltd. (the
"Company" or "CGH") have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission ("SEC") and, in the opinion of
management, reflect all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the results of operations for the interim
periods presented. 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. However, management believes that the disclosures are adequate to
make the information presented not misleading. The results for the interim
periods are not necessarily indicative of the results of the full fiscal year.
During the first quarter of 1997 the Company ceased being a development stage
company.
(2) Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, International Capital Growth, Ltd. ("ICG"). All
significant intercompany transactions and balances have been eliminated.
(3) Valuation of Securities
Securities owned and securities sold not yet purchased, which are listed
on a national securities exchange, are valued at their last reported sales
price. Securities which trade over-the-counter are valued at the "bid" price if
held long by the company and at the "asked" price if sold short by the Company.
Securities which do not have a ready market are valued by the Company at cost
which approximates fair value.
In circumstances where the Company owns securities, and the Company
believes the disposition of such securities would adversely affect the market
price of the securities due to the volume traded, the company will discount the
market value accordingly. Unrealized gains and losses on all securities are
reflected in the statement of operations.
In addition, the Company earns fees in the form of securities. These
securities are valued at market on the date they are earned. Thereafter, any
increase or decrease in said value is reflected in unrealized gains/losses on
securities.
(4) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
F-4
<PAGE>
(5) Acquisition of International Capital Growth, Ltd.
On March 14, 1997, CGH, an inactive company, acquired 100% of the
outstanding capital stock of International Capital Growth, Ltd. ("ICG"), a
Delaware corporation and member of the National Association of Securities
Dealers, Inc. (the "NASD"). The acquisition was consummated through a share
exchange transaction (the "Share Exchange").
The Share Exchange resulted in a change in control of the Company. After
the Share Exchange, the former shareholders of the Company owned approximately
2%, and the former stockholders of ICG owned approximately 98% of the
outstanding capital stock of the Company. The transaction has been treated as a
recapitalization. In connection therewith, ICG's historic capital accounts were
retroactively adjusted to reflect the equivalent number of shares issued by CGH
in the transaction while ICG's historical deficit accumulated during the
development stage is carried forward.
The 18,982,906 shares of capital stock of the Company that were issued in
connection with the Share Exchange consisted of (a) 2,551,906 shares of common
stock ("Common Stock"), (b) 11,349,666 shares of newly authorized class B common
stock ("Class B Common Stock"), (c) 4,001,334 shares of newly-designated 5%
Cumulative Convertible Series A Preferred Stock ("Series A Preferred Stock") and
(d) 1,080,000 shares of newly-designated 5% Cumulative Convertible Series B
Preferred Stock ("Series B Preferred Stock"), all of which classes of capital
stock voted together as one class. Each share of Series A Preferred Stock and
the Series B Preferred Stock converted into one share of Class B Common Stock on
October 12, 1997. The Class B Common Stock is junior in priority with respect to
dividends to the Common Stock and automatically converts into Common Stock on a
one-for-one basis on December 31, 1998.
(6) Subscriptions Receivable
Subscriptions receivable represent amounts to be collected the Company
from a Series A Preferred stockholder.
(7) Preferred Stock Conversion
On October 12, 1997, each share of the Company's 4,001,334 shares of
Series A Preferred Stock and 1,080,000 shares of Series B Preferred Stock
(collectively the "Designated Preferred Stock") converted into one share of
Class B Common Stock, at which time the 5% per share annual dividend that
accrued thereon ceased to accrue and became due and payable on October 24, 1997,
out of funds legally available therefor. The dividend payable to the holders of
the Designated Preferred Stock as of October 12, 1997 is approximately $38,000
in the aggregate. As a result of such conversion, the Company has a total of
3,398,496 shares of Common Stock and 16,431,000 shares of Class B Common Stock
currently outstanding.
(8) Warrants
In October 1996, the Company raised $3,250,000 through the sale of units
in a private placement. Each unit was sold for $25,000 and consisted of 12,500
shares of Common Stock and 12,500 redeemable warrants. As a result, the Company
has 1,625,000 redeemable warrants issued and outstanding.
F-5
<PAGE>
(8) Warrants (continued)
Each redeemable warrant entitles the registered holder to purchase one
share of Common Stock at an initial exercise price of $4.00 per share (subject
to adjustment for stock splits, combinations and reclassifications) at any time
prior to redemption from October 3, 1996 and October 15, 1996 until October
3,1999 and October 15, 1999, respectively.
In addition, the Company issued 24,985 redeemable warrants to
sub-placement agents in connection with the Company's March private placement.
Each warrant initially is exercisable at a price of $4.00 per share at any time
prior to redemption from March 20, 1997 and March 27, 1997 until March 20, 2000
and March 27, 2000, respectively.
Additionally, the Company has 52,083 redeemable warrants outstanding, each
exercisable to purchase one share of Class B Common Stock at $2.00 per share
(subject to adjustment) at any time until November 1999. The warrants are
exercisable at $2.00 per share and have resulted in a charge to operations based
on their fair value over the number of months that such consulting services were
provided.
(9) Stock Option Plan
The Company's 1997 Stock Option Plan has authorized the grant of options
to management personnel for up to 1,500,000 shares of the Company's Common
Stock. All options granted have 10 year terms and carry certain vesting
requirements.
A summary of the Company's stock option activity and related information
for the period December 31, 1996 through September 30, 1997 is as follows:
Weighted-Average
Options Exercise Price
------- --------------
Outstanding-the beginning of period................... 660,000 $2.00
Granted............................................... 150,000 2.25
Exercised............................................. 0 0
Forfeited............................................. 25,000 2.00
Outstanding-end of period............................. 785,000 2.05
Exercisable-end of period............................. 785,000 2.05
(10) Related Party Transactions
The Company is affiliated with Capital Growth International LLC ("CGI")
and CGI is utilizing space at the Company's offices without the allocation of
rent.
In March 1997, the Company loaned $200,000 to an entity controlled by
Messrs. Ronald B. Koenig and Stanley Hollander, two the Company's Directors. The
transaction was approved by the independent members of the Board of Directors.
On September 15, 1997, the Company loaned $25,000 to CGI which was repaid
on October 2, 1997 without interest.
F-6
<PAGE>
(11) Net Capital Requirements
ICG is subject to the Securities and Exchange Commission Uniform Net
Capital Rule (Rule 15c3-1), which requires the maintenance of minimum net
capital and requires that the ratio of aggregate indebtedness to net capital,
both as defined, shall not exceed 15 to 1. (8 to 1 for the first 12 months of
operations). At September 30, 1997 the Company had net capital of $1,556,330
which was $1,510,580 in excess of its required net capital.
(12) Commitments
The Company has issued a letter of credit in the amount of $100,000 to
secure future rent payments and leasehold improvements at the London office of
Capital Growth Europe, Limited, a subsidiary of the Company.
(13) Recently Issued Accounting Pronouncements:
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("FAS 128"), "Earnings per
Share". This new standard requires dual presentation of basic and diluted
earnings per share ("EPS") on the face of the statements of income and requires
reconciliation of the numerators and the denominators of the basic and diluted
EPS calculations. This statement will be effective for the Company's 1997 year
end. The Company has not yet quantified what effect the adoption of SFAS 128
will have on its loss/earnings per share of common stock.
The Financial accounting Standards Board has recently issued Statements of
Financial Accounting Standards No. 129, "Disclosure of Information about Capital
Structure," No. 130, "Reporting Comprehensive Income," and No. 131, "Disclosures
about Segments of an Enterprise and Related Information." The above
pronouncements will not have a significant effect on the information presented
in the financial statements.
(14) Private Placements
On March 27, 1997, the Company completed a private offering of its Common
Stock at $2.25 per share. The Company issued a total of 549,496 shares of Common
Stock which yielded net proceeds of approximately $1,000,000. A placement fee of
approximately $74,000 was paid to CGI. In connection therewith, the Company
agreed to issue warrants to purchase 24,984 shares of Common Stock as partial
compensation to certain nonaffiliated sub-placement agents. Each warrant is
exercisable to purchase one share at $4.00 per share (subject to adjustment)
through March 2000.
(15) Dividends
As of March 25, 1997, the Company's Board of Directors declared an annual
cumulative dividend of $.225 per share on the Common Stock for the calendar
years 1997 and 1998, subject to (i) the payment of dividends on any classes of
capital stock with priority over the Common Stock and (ii) restrictions under
applicable law (the "Common Stock Dividend"). The Common Stock Dividend, which
began accruing as of January 1, 1997, is currently payable on a quarterly basis
ending on December 31, 1998.
On October 12, 1997, each share of the Company's 4,001,334 shares of
Series A Preferred Stock and 1,080,000 shares of Series B Preferred Stock
(collectively the "Designated Preferred Stock") converted into one share of
Class B Common Stock. Pursuant to the terms of the Certificates of Designation
of such preferred
F-7
<PAGE>
stock, the holders thereof are entitled to 5% per share annual cumulative
dividends prior to payment of dividends on any other class of capital stock of
the Company. The cumulative dividends on such preferred stock have accrued from
October 12, 1996 through October 12, 1997 and were payable on a quarterly basis
commencing December 31, 1996 and on October 24, 1997, ten business days after
the conversion thereof. The aggregate amount of such arrearage owed by the
Company to the former holders of such preferred stock as of October 12, 1997 is
approximately $38,000. As a result of such conversion, the Company has a total
of 3,398,496 shares of Common Stock and 16,431,000 shares of Class B Common
Stock currently outstanding.
F-8
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
11 Computation of Per Share Earnings
27 Financial Data Schedule
<PAGE>
EXHIBIT 11
Capital Growth Holdings, Ltd.
Computation of Net Income Per Common Share
(Unaudited)
Three Months Ended Three Months Ended
September 30, 1997 September 30, 1996
------------------ ------------------
Primary:
Net Income $ (134,687) $ (4,109)
Less cumulative preferred dividend (28,417) 0
----------- ---------
NET INCOME USED FOR E.P.S.
COMPUTATION (759,803) (4,109)
========= =========
Weighted average number of
common shares outstanding 14,733,162 12,027,094
========== ==========
Net loss per common share $ (0.00) $ (0.00)
========== ==========
<PAGE>
Capital Growth Holdings, Ltd.
Computation of Net Income Per Common Share
(Unaudited)
Nine Months Ended Nine Months Ended
September 30, 1997 September 30, 1996
------------------ ------------------
Since inception
2/26/96
Primary:
Net Income $ 788,220 $ (14,229)
Less cumulative preferred dividend (28,417) 0
-------- ------------
NET INCOME USED FOR E.P.S.
COMPUTATION 751,273 (14,229)
======== ========
Weighted average number of
Common shares outstanding 14,447,378 11,210,550
Shares issuable upon exercise of stock
Options and warrants, net of shares
assumed to be repurchased (at the Avg.
Market price for the period) 129,031 0
-------- -----------
Shares used for computation 14,576,409 11,210,550
========== ==========
Net income per common share $ .05 $ .00
========== ==========
Fully Diluted:
NET INCOME USED FOR E.P.S.
COMPUTATION 788,220
----------
Weighted Average number of
Common shares outstanding 14,447,378
Shares issuable upon exercise of stock
Options and warrants, net shares
Assumed to be repurchased (at closing
Market price for the period) 147,472
Convertible Series A & B Preferred 5,081,334
Shares ----------
Shares used for computation 19,676,184
==========
Net Income per Common Share $ .04
==========
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 1,333,375
<SECURITIES> 2,866,034
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 250,537
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,928,985
<CURRENT-LIABILITIES> 352,947
<BONDS> 0
0
786,987
<COMMON> 14,748
<OTHER-SE> 3,774,303
<TOTAL-LIABILITY-AND-EQUITY> 4,928,985
<SALES> 0
<TOTAL-REVENUES> 4,025,457
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,038,220
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 788,220
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.04
</TABLE>
