<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
Amendment 2
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d)OF THE SECURITIES AND EXCHANGE ACT
OF 1934
For the fiscal year ended September 30, 1997
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE
ACT OF 1934
For the transition period from _____ to _____
Commission File No. 001-12171
CAPITOL COMMUNITIES CORPORATION
(Name of Small Business Issuer as specified in its charter)
Nevada 88-0361144
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
25550 Hawthorne Boulevard
Suite 207
Torrance, CA 90505
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (310)375-2266
Securities to be registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
Common Stock ($.01 Par Value)
(Title of Class)
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 period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
[X] YES [_] NO
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State the issuer's revenues for its most recent fiscal year. $4,139,299
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked price of such, as of a specified date within the past 60 days.
$4,682,166 based on the average of the bid and asked obtained from the National
Quotation Bureau, Inc. ("NQB") on April 15, 1998.
State the number of shares outstanding of each of the Issuer's classes of
common equity, as of the latest practicable date. 7,419,500 as of April 15,
1998.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
Transitional Small Business Disclosure Format YES [_] NO [X]
<PAGE>
PART II.
Item 7. Financial Statements.
CAPITOL COMMUNITIES CORPORATION, INC.
AND SUBSIDIARIES
AUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
<PAGE>
CAPITOL COMMUNITIES CORPORATION, INC. AND SUBSIDIARIES
------------------------------------------------------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditor's Report 3
Financial Statements
Balance Sheet 4
Statements of Operations and Retained Deficit 6
Statements of Changes in Shareholders' Equity 7
Statements of Cash Flows 8
Notes to Financial Statements 10-19
Signatures 19
</TABLE>
-2-
<PAGE>
BAUM & COMPANY, P.A.
Certified Public Accountants
1515 University Drive - Suite 209
CORAL SPRINGS, FLORIDA 33071
(954) 752-1712
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Board of Directors and Stockholders
of Capitol Communities Corporation, Inc. and Subsidiaries
We have audited the accompanying balance sheets of Capitol Communities
Corporation, Inc. and Subsidiaries as of September 30, 1997 and the related
statements of income and accumulated deficit, stockholders equity and cash flows
for the years ended September 30, 1997, and 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Capitol Communities
Corporation, Inc. and Subsidiaries as of September 30, 1997 and the results of
its operations and its cash flows for the years ended September 30, 1997 and
1996 in conformity with generally accepted accounting principles.
/s/ Joel S. Baum
Joel S. Baum
December 23, 1997
Coral Springs, Florida
-3-
<PAGE>
CAPITAL COMMUNITIES CORPORATION, INC AND SUBSIDIARIES
-----------------------------------------------------
BALANCE SHEET
-------------
September 30, 1997
------------------
<TABLE>
<CAPTION>
ASSETS
------
1997
----
<S> <C>
Current Assets:
Cash and Cash Equivalents $ 227,162
Accounts Receivable 12,096
Prepaid Assets 202,674
-----------
Total Current Assets 441,932
-----------
Fixed Assets:
Furniture and Fixtures
(Net of accumulated depreciation of $2,412) 36,260
-----------
Non-Current Assets:
Deposits 62,679
Real Estate Holdings 9,468,637
Loan Origination Fees
(Net of accumulated amortization of $295,597) 155,359
-----------
Deferred Tax Asset (Note 1) 69,425
-----------
Total Non-current Assets 9,756,100
-----------
Total Assets $10,234,292
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts Payable & Accrued Expenses $ 516,994
Accrued Interest 59,810
Notes Payable 2,099,973
-----------
Total Current Liabilities 2,676,777
Non-Current Liabilities:
Notes Payable 3,377,048
-----------
Deferred Taxes Payable 14,000
-----------
Total Liabilities 6,067,825
-----------
Shareholders' Equity:
Preferred Stock, $.01 par value, none
issued and outstanding -0-
Common Stock, $.01 par value; 40,000,000
shares authorized; 7,312,000 shares
issued and outstanding 73,120
Additional Paid in Capital 6,555,088
Accumulated Deficit (2,461,741)
-----------
Total Shareholders' Equity 4,166,467
-----------
Total Liabilities and Shareholders' Equity $10,234,292
===========
</TABLE>
See Accompanying Notes to the Financial Statements
-4-
<PAGE>
CAPITOL COMMUNITIES CORPORATION, INC. AND SUBSIDIARIES
------------------------------------------------------
STATEMENTS OF OPERATIONS AND RETAINED DEFICIT
---------------------------------------------
Years Ended September 30, 1997 AND 1996
---------------------------------------
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Revenues:
Sales (Note 11) $4,139,299 $ 31,676
Cost of Sales 1,895,825 -0-
----------- -----------
Gross Profit 2,243,474 31,676
Operating Costs and Expenses:
Selling, General &
Administrative 1,687,329 610,820
----------- -----------
Income (Loss) Before
Interest Income (Expense) 556,145 (579,144)
Interest Income 71,543 245,905
Interest Expense (826,881) (775,814)
----------- -----------
Net (Loss) Before Provision
For Income Taxes (199,193) (1,109,053)
Provision for Income Taxes (Note 1)
Tax Benefit of Change in
Prior Year Valuation Allowance 69,425 -0-
Deferred Taxes (14,000) -0-
----------- -----------
55,425 -0-
----------- -----------
Net (Loss) (143,768) (1,109,053)
Accumulated Deficit - Beginning
of Year (2,317,973) (1,208,920)
----------- -----------
Accumulated Deficit - End of Year $(2,461,741) $(2,317,973)
=========== ===========
Income (Loss) Per Common Share (.02) (0.158)
=========== ===========
Weighted Average
Common Shares Outstanding 7,171,014 7,000,000
=========== ===========
</TABLE>
See Accompanying Notes to the Financial Statements
-5-
<PAGE>
CAPITOL COMMUNITIES CORPORATION, INC. AND SUBSIDIARIES
-----------------------------------------------------
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
---------------------------------------------
September 30, 1997
------------------
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN ACCUMULATED
# SHARES AMOUNT CAPITAL DEFICIT
---------- -------- ---------- -----------
<S> <C> <C> <C> <C>
September 30, 1995 $7,000,000 $ 7,000 $4,764,108 $(1,208,920)
Adjustment to Par
From $.001 to $.01
due to Merger on
January 30, 1996
(See Note 1A) 63,000 (63,000)
Net Loss -0- -0- -0- $(1,109,053)
---------- --------- ---------- -----------
September 30, 1996 7,000,000 70,000 4,701,108 (2,317,973)
Additional Paid-In
Capital Attributed to
Forgiveness of Debt -0- -0- 240,000 -0-
Additional Stock
Issued (Net) 312,000 3,120 1,613,980 -0-
Net (Loss) -0- -0- -0- (143,768)
---------- -------- ---------- -----------
September 30, 1997 7,312,000 $ 73,120 $6,555,088 $(2,461,741)
========== ======== ========== ===========
</TABLE>
See Accompanying Notes to the Financial Statements
-6-
<PAGE>
CAPITOL COMMUNITIES CORPORATION, INC. AND SUBSIDIARIES
-----------------------------------------------------
STATEMENTS OF CASH FLOWS
------------------------
Years Ended September 30, 1997 and 1996
---------------------------------------
<TABLE>
<CAPTION>
1997 1996
------- ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (143,768) $(1,109,053)
Adjustments to Reconcile Net
Income (Loss) to Cash Used in
Operating Activities:
Depreciation 2,412 -0-
Amortization 155,344 57,232
Forgiveness of Accrued
Compensation Credited To
Additional Paid in Capital 240,000 -0-
(Increase) Decrease in Accounts
Receivable (11,039) (38,191)
(Increase) Decrease in Prepaid
Assets (195,781) 535
(Increase) Decrease in Accrued
Interest Receivable 62,140 -0-
(Increase) Decrease in Deposits (62,550) -0-
(Increase) Decrease in Real
Estate Holdings (312,280) (254,936)
(Increase) Decrease in Loan
Obligation Fees (99,102) -0-
(Increase) Decrease in
Investments 3,500,000 -0-
Increase (Decrease) in Accounts
Payable and Accrued Expenses (784,793) 906,631
Increase (Decrease) in Short
Term Notes Payable 135,567 -0-
(Increase) in Deferred Tax Asset (69,425) -0-
Increase in Deferred Taxes
Payable 14,000 -0-
---------- -----------
Net Cash Provided (Used) in
Operating Activities 2,430,725 (437,782)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Furniture and
Fixtures (38,672) -0-
---------- -----------
Net Cash Provided (Used) in
Investing Activities (38,672) -0-
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (Decrease) in Long Term
Debt (3,596,080) (13,832)
Issuance of Common Stock 312 -0-
Proceeds of Additional Paid in
Capital 1,616,788 -0-
---------- -----------
Net Cash Provided (Used) by
Financing Activities (1,978,980) (13,832)
---------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 413,073 (451,614)
CASH AND CASH EQUIVALENTS -
BEGINNING OF YEAR (185,911) 265,703
---------- -----------
CASH AND CASH EQUIVALENTS -
END OF YEAR $ 227,162 $ (185,911)
========== ===========
</TABLE>
See Accompanying Notes to the Financial Statements
-7-
<PAGE>
CAPITOL COMMUNITIES CORPORATION, INC. AND SUBSIDIARIES
------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
SEPTEMBER 30, 1997
------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
A. BACKGROUND
----------
The Company was originally incorporated in the State of New York on
November 8, 1968 under the name of Century Cinema Corporation. In
1983, the Company merged with a privately owned company, Diagnostic
Medical Equipment Corp. and as a result changed its name to that of the
acquired company. By 1990, the Company was an inactive publicly held
corporation. In 1993, the Company changed its name to AWEC Resources,
Inc. and commenced operations. On February 11, 1994 the Company formed
a wholly owned subsidiary AWEC Development Corp, an Arkansas
Corporation, which later changed its name to Capitol Development of
Arkansas. The Company is currently in the business of developing and
selling real estate properties.
In February, 1994 Petro Source Energy Corporation transferred the
majority of its holdings in the common shares of the predecessor
corporation, AWEC Resources, Inc., to Prescott Investments Limited
Partnership and Charlie Corporation, both of which were then and
currently are affiliates of Michael Todd, Herbert Russell and John
DeHaven, the beneficial owners of the Company. These shares were
transferred in consideration for public relations services provided by
Prescott Limited Partnership and Charlie Corporation to Petro Source.
Such services were deemed by Petro Source to be integral and
indispensable to the concurrent acquisition of approximately 2,041
acres of land in Maumelle, Arkansas by the Company's Operating
Subsidiary. The Company was not a party to the transfer of shares.
The Company did not issue any new shares pursuant to the acquisition of
the land. Accordingly, the transfer of shares did not affect the
capitalization of the Company, and was non-dilutive to all other
shareholders.
In order to effectuate a change in domicile and name change approved by
a majority of the Predecessor Corporation shareholders, the Predecessor
Corporation merged, effective January 30, 1996, into Capitol
Communities Corporation, a Nevada corporation formed in August 1995
solely for the purpose of the merger.
-8-
<PAGE>
CAPITOL COMMUNITIES CORPORATION, INC. AND SUBSIDIARIES
------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
SEPTEMBER 30, 1997
------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
-------------------------------------------
B. PRINCIPLES OF CONSOLIDATION
---------------------------
The Consolidated financial statements include accounts of its wholly-
owned subsidiaries. All material intercompany transactions have been
eliminated.
C. REAL ESTATE HOLDINGS
--------------------
Real estate investments are stated at the lower of cost or market.
Acquisition costs are allocated to respective properties based on
appraisals of the various properties acquired in the acquisition.
The Statement of Financial accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long Lived Assets and for Long Lived
Assets to be Disposed Of," was issued by the Financial Accounting Board
(FASB) in March 1995, and was effective for fiscal years beginning
after December 15, 1995. SFAS 121 requires that long-lived assets be
reviewed for impairment and written down to fair value whenever events
or changes in circumstances indicate that the carrying value might not
be recoverable. Under the provisions of SFAS 121, impairment losses
are recognized when future expected cash flows are less than the
assets' carrying value. The Company has completed a review and has
concluded that no impairment expense is required. The Company has not
recorded any expense related to impairment losses since adoption of
SFAS 121.
D. INCOME TAXES
------------
In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting standards 109 of "Accounting for
Income Taxes." Under FASB 109, deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. The
Company has NOL's of approximately 2,000,000 expiring in the years 2009
through 2012.
<TABLE>
<S> <C>
Deferred Tax Benefit $688,000
Valuation Allowances 618,575
--------
$ 69,425
========
</TABLE>
-9-
<PAGE>
CAPITOL COMMUNITIES CORPORATION, INC. AND SUBSIDIARIES
-----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
SEPTEMBER 30, 1997
------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
-------------------------------------------
E. REVENUE RECOGNITION
-------------------
Revenue is recognized under the full accrual method of accounting upon
the completed sale of real property held for development and sale.
All costs incurred directly or indirectly in acquiring and developing
the real property are capitalized.
F. 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 disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the period. Actual results could differ from those
estimates.
G. CASH AND CASH EQUIVALENTS
-------------------------
Cash and cash equivalents include cash on hand, cash in banks, and any
highly liquid investments with a maturity of three months or less at
the time of purchase.
The Company and its Subsidiaries maintain cash and cash equivalent
balances at several financial institutions which are insured by the
Federal Deposit Insurance Corporation up to $100,000. At September 30,
1997 there is no concentration of credit risk from uninsured bank
balances.
H. EARNINGS/LOSS PER SHARE
-----------------------
Primary earnings per common share are computed by dividing the net
income (loss) by the weighted average number of shares of common stock
and common stock equivalents outstanding during the year. The number of
shares used for the fiscal years ended September 30, 1997 and 1996 were
7,171,014 and 7,000,000, respectively.
NOTE 2 - CAPITAL TRANSACTIONS
--------------------
In July 1995, the Board of Directors of AWEC Resources, Inc., (the
"Predecessor Company") authorized the following transactions:
-10-
<PAGE>
CAPITOL COMMUNITIES CORPORATION, INC. AND SUBSIDIARIES
------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
SEPTEMBER 30, 1997
------------------
NOTE 2 - CAPITAL TRANSACTIONS(CONTINUED)
-------------------------------
(a) A one for five reverse split of the common stock of the
Predecessor Company, at the consummation of which there would be a
total of 2,227,004 shares issued and outstanding.
(b) Pursuant to an agreement, the Board authorized the issuance of
2,122,498 shares each to Prescott Investment L.P. and Charlie
Corporation. The shares were issued at par.
(c) The Board authorized the issuance of 700,000 shares of stock of
the Predecessor Company to Century Realty, Inc. in exchange for
$3,317,709 in debt owed to Century by the Company.
(d) Prescott Investment L.C. and Charlie Corporation returned a total
of 350,000 shares of stock to the Predecessor Company in order
that no more than 7,000,000 shares of the stock of the Company
would be issued and outstanding.
Net changes in common stock for fiscal year ended September 30, 1997,
consisted of the following transactions:
<TABLE>
<CAPTION>
# Shares Date Description of Transaction
-------- ---- --------------------------
<C> <C> <S>
38,000 10/7/96 Stock option exercised for
performance of consulting fees
150,000 11/12/96 Stock option exercised for
performance of consulting fees
(38,000) 4/17/97 Stock certificate canceled
(19,000) 4/25/97 Stock certificate canceled
(19,000) 5/7/97 Stock certificate canceled
100,000 7/29/97 Stock issued as consideration
for acquisition (see Note 13)
100,000 7/29/97 Stock issued for employee
compensation
-------
312,000
=======
</TABLE>
-11-
<PAGE>
CAPITOL COMMUNITIES CORPORATION, INC. AND SUBSIDIARIES
------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
SEPTEMBER 30, 1997
------------------
NOTE 3 - AGREEMENTS
----------
Currently the Company has an oral agreement with Maumelle Enterprise,
Inc. (Maumelle), an affiliated company, to provide management, sales
and administrative services for the Company's inventory of property.
Under this oral agreement, payment to Maumelle for management services
depends upon the actual services rendered in a given month and the
current liquidity of the Company. If funds are not available, Maumelle
has agreed to defer payment of its fees.
During the fiscal year ended September 30, 1997, the Company paid
Maumelle a total of $198,081 for fees accrued from prior years and
$33,367 for fees due for 1997. As of September 30, 1997, a balance of
$130,616 remained accrued and unpaid for fiscal 1997.
NOTE 4 - CONTINGENCIES
-------------
A. There was a lawsuit pending in the amount of $200,000 with interest at
5% per annum dated February 9, 1994 against Pine Ridge Improvement
District, filed by Robert D. Holloway, Inc. for engineering services,
planning, and surveying. Capitol Communities Corporation, Inc. and its
subsidiaries were not a party to the action; however, as owner of the
property, any judgement against the property could be a liability to
the Company.
B. On March 12, 1997 the Chancery Court of Pulaski County, Arkansas,
Second Division granted a summary judgement in favor of the Company,
relieving it of any liability arising from assessment or tax levy in
the matter of Robert Holloway, Inc. vs Pine Ridge Residential Property
Owners Improvement District. Robert Holloway, Inc. subsequently
appealed the summary judgment. The Company has not accrued a liability
for this contingency.
NOTE 5 - MORTGAGES
---------
On September 11, 1995, the Company entered into a promissory note with
Resure, Inc. for $3,500,000, bearing interest at 10% per annum, payable
in full on July 1, 2000 and secured by a 701.3 acre tract of land in
Maumelle, Arkansas. Effective September 30, 1997, the Company entered
into a modification of the promissory note with Resure, Inc. The
principal becomes due and payable in full, on October 1, 1999.
-12-
<PAGE>
CAPITOL COMMUNITIES CORPORATION, INC. AND SUBSIDIARIES
------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
SEPTEMBER 30, 1997
------------------
NOTE 5 - MORTGAGES (CONTINUED)
---------------------
Payments are due in the amount of $101,591.16 including principal and
interest at 10% per annum, payable quarterly. The next payment is due
January 1, 1998. (See Note 12).
NOTE 6 - LEASE AGREEMENT
---------------
The Company is subleasing office space from Dehaven & Todd Co., in
which Mike G. Todd, is a partner. The monthly lease payment began on
October 1, 1995 and is $1,900 per month. The lease expires September
30, 1998.
<TABLE>
<S> <C>
The lease commitment is as follows:
Year ended September 30, 1998 22,800
Total Minimum
Rental Payments $22,800
=======
</TABLE>
As of September 30, 1997, all amounts due under this agreement have
been paid.
NOTE 7 - EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
The Company has a five-year written agreement with Michael Todd to
perform the duties of President. Under the agreement, which became
effective on October 1, 1995, Michael Todd is to be compensated at a
rate of $20,000. per month. The agreement expires on September 30,
2000. The Company is not a party to any other employment agreements.
Michael Todd has forgiven all liability of the Company, under the
agreement for the periods ending September 30, 1996 and 1997.
NOTE 8 - NOTES PAYABLE
-------------
Notes payable consist of the following:
<TABLE>
<CAPTION>
9/30/1997
---------
<S> <C>
Note Payable - Bank of Little Rock
----------------------------------
Secured 10% Line of Credit 10% per annum;
maturing May 10, 1998 $ 399,024
</TABLE>
-13-
<PAGE>
CAPITOL COMMUNITIES CORPORATION, INC. AND SUBSIDIARIES
------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
SEPTEMBER 30, 1997
------------------
NOTE 8 - NOTES PAYABLE (CONTINUED)
-------------------------
<TABLE>
<S> <C>
Note Payable - Bank of Little Rock
----------------------------------
Secured 10% Line of Credit 10% per annum; 450,000
maturing November 5, 1997
Note Payable - Davister
-----------------------
Unsecured 9% per annum due
January 9, 1996 200,000
Notes Payable
-------------
Various Notes payable
---------------------
Unsecured notes with interest rates ranging
from 10% to 12% with maturing not to exceed
nine months. 1,001,284
Note Payable - Resure Mortgage 49,665
------------------------------ ----------
Total Current Maturities $2,099,973
----------
Note Payable - Resure Mortgage
------------------------------
Secured 10% per annum due
September 1,1999 - Quarterly
payments beginning 1/1/98
for $101,591 3,377,048
Total Non-Current 3,377,048
----------
Total Notes Payable $5,477,021
==========
Maturing of Long Term Debt
--------------------------
September 1999 $ 71,129
September 2000 3,305,919
----------
$3,377,048
==========
</TABLE>
NOTE 9 LOAN ORIGINATION FEES
---------------------
Loan origination fees were incurred in connection with the Resure, Inc.
debt refinancing September 11, 1995. These costs are being amortized on
a straight-line basis over fifty-seven months, or upon satisfaction of
the note.
-14-
<PAGE>
CAPITOL COMMUNITIES CORPORATION, INC. AND SUBSIDIARIES
------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
SEPTEMBER 30, 1997
------------------
NOTE 9 LOAN ORIGINATION FEES (CONTINUED)
---------------------------------
During the year, one of the notes was satisfied, thus the loan
origination costs related to that note were written off. The costs for
the remaining debt is being amortized over the life of the note
obligation remaining.
NOTE 10 SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------
<TABLE>
<CAPTION>
Year End 1997 1996
<S> <C> <C>
Interest Paid $826,881 $775,814
</TABLE>
On July 29, 1997, the company issued 100,000 shares for an acquisition
of Capitol Resorts of Florida, Inc. (See Note 13).
As of September 30, 1997, the President forgave $240,000 of accrued
compensation and credited it as additional paid in capital.
NOTE 11 SETTLEMENT
----------
On October 20, 1997, Capitol Communities Corporation, Capital
Development of Arkansas, Inc., a wholly-owned subsidiary of the Company
and Century Realty, Inc. entered into a Settlement and Release
Agreement effective September 30, 1997. The Settlement Agreement was
entered to settle the foreclosure action instituted by Century, on
August 12, 1996 against Operating Subsidiary and the Company in the
Chancery Court of Pulaski County and to settle the counterclaim filed
by the Company. In the foreclosure action, Century was seeking to
foreclose on 36 acres of the commercial lots, known as Tract D, located
in Maumelle, Arkansas, which secured a $1,400,000 Century promissory
note. As a result of cross-default provisions, an unsecured (Century
Note 1) $350,000 Century promissory note (Century Note 2) was also in
default.
Under the provisions of the Settlement Agreement, the Company paid
$17,500 to Century simultaneous to the execution of the Settlement
Agreement and delivered to an escrow agent a Warranty Deed conveying to
Century Tract D and an approximately 3.5 acre track of land adjoining
Tract D. In return, Century acknowledged that all obligations due
Century pursuant to the Century Note 1 and the Century Note 2 were
satisfied. Under the Settlement Agreement the Company has the option to
repurchase Tract D and
-15-
<PAGE>
CAPITOL COMMUNITIES CORPORATION, INC. AND SUBSIDIARIES
------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
SEPTEMBER 30, 1997
------------------
NOTE 11 - SETTLEMENT (CONTINUED)
----------------------
the Corner Tract, and the 700,000 shares of the Company's stock owned
by Century. See Discussion in Note 14. The fair value of the assets
transferred, i.e. Tract D and the Corner Lot, exceeded the carrying
value of the Century Notes and the related accrued interest.
NOTE 12 REFINANCING DEBT
----------------
Effective September 30, 1997, Capitol Communities Corporation, Capital
Development of Arkansas, Inc., a wholly-owned subsidiary of the Company
and Mark Boozell, Director of Insurance of the State of Illinois
liquidator for Resure, Inc. entered into a Debt Settlement and Release
Agreement. On October 24, 1997, Judge Ellis E. Reid of the Circuit
Court of Cook County, Illinois County Department, Chancery Division,
approved the Agreement.
Under the provisions of the Settlement Agreement, the Liquidator
modified and amended the $3,500,000 recourse note payable to Resure to
become due and payable in full on September 1, 1999. Resure applied the
amount of $525,460, to the Company's four quarterly payments that were
due October 1, 1996, January 1, 1997, April 1, 1997, and October 1,
1997. The approximately $150,000 remaining in the Resure cash
collateral account was retained by the Liquidator. As part of the
Settlement Agreement, the Liquidator released 342.22 acres of the
Company's single-family residential property of the original 1,044
acres of residential property that secured the Resure Note I. The
remaining 701.03 acres of single-family residential property was
retained by the Liquidator as collateral on the modified Resure Note I.
The Settlement Agreement further provided that (a) Resure terminate the
$3,500,000 Resure Note II and Contribution Agreement and deliver the
same to the Company. (b) The Company terminate the Resure Debenture
issued in connection with the Resure Note II and the Contribution
Agreement and deliver the same to Resure.
As additional consideration to the Liquidator to enter into the
Settlement Agreement, the Company agreed to pay a developer's fee of
$2,000 for each lot sold in Parcel 1 and Parcel 2. The Developer's fee
is secured by a written amendment to the loan mortgage securing the
Resure Note I.
-16-
<PAGE>
CAPITOL COMMUNITIES CORPORATION, INC. AND SUBSIDIARIES
------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
SEPTEMBER 30, 1997
------------------
NOTE 12 - REFINANCING DEBT (CONTINUED)
----------------------------
The Settlement Agreement did not settle the Resure debt for less than
the carrying value, and further the modification of terms did not
reduce the interest rate, extend the maturity date, reduce the amount,
or reduce the accrued interest on that debt.
The Company was considering diversifying into the insurance industry at
the time of the transaction and Resure was considered as a possible
acquisition or merger candidate. Resure required the Debenture and
Note transaction as part of the entire transaction. The Company later
determined that the insurance industry would not be a suitable
diversification.
NOTE 13 ACQUISITIONS
------------
On July 30, 1997, the Company acquired Capitol Resorts of Florida, Inc.
("CRF"), a Florida Corporation formed on July 22, 1997, whole sole
asset was the right to purchase a 36.301 acre parcel of land in Osceola
County, Florida formerly known as the Florida Bible College property.
On July 30, 1997, the Company entered into a reorganization agreement
with MLT Management Corp., the parent of CRF. Under the terms of the
agreement the Company acquired all of the issued and outstanding
capital shares of CRF in exchange for 100,000 shares of the Company's
voting common stock. Upon acquisition of the CRF stock, its sole
director resigned and Michael G. Todd, president and director of the
Company, was appointed the sole director of CRF. On the same day, CRF
closed on the contract to acquire Florida Bible College property for
$922,000 plus costs. The property was appraised by a third party on
May 12, 1997 at a value of $3,385,000. A subsequent appraisal by
another qualified third party appraiser, dated December 5, 1997, valued
the property at $4,570,000. A portion of the property (14.24 acres in
two parcels) is developed with a 95 room hotel and various structures.
NOTE 14 OPTION
------
The Company has the option to repurchase Tract D, the 3.5 acre parcel
tract adjoining Tract D and 700,000 shares of the Company's common
stock owned by Century. The option requires the Company to make 5
monthly option payments of $17,500 commencing November 17, 1997 and a
final payment of $2,138,087.39 on April 17, 1998.
-17-
<PAGE>
CAPITOL COMMUNITIES CORPORATION, INC. AND SUBSIDIARIES
------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
SEPTEMBER 30, 1997
------------------
NOTE 15 SUBSEQUENT EVENT
----------------
A. On April 17, 1998, the Company's Operating Subsidiary exercised its
option under the Century Settlement Agreement to purchase 36 acres of
Commercial Property, known as Tract D, the 3.5 acre tract of land
adjoining Tract D, and the 700,000 shares of the Company's voting
common stock owned by Century. The purchase price was $2,132,057.39
paid on April 17, 1998. In addition, the Company had already made five
option payments between November 17, 1997, and March 17, 1998, in the
amount of $17,500 per option payment.
B. On December 9, 1997, Capitol Resorts of Florida, Inc., a wholly owned
subsidiary of the Company, acquired the lease rights to 120 feet of
beachfront land and improvement located in Pompano Beach, Florida. The
improvements known as Ocean Palms Resort, include a 53 unit residential
complex and other common area facilities. The Company also acquired
the interest of the previous owner in several long-term tenant leases,
approximately $2,500,000 in Promissory Notes derived from the sale of
long term leasehold interests in the units to various owners and the
right to manage and operate the on-going rental of the units as hotel
rooms on behalf of the owners. The Resort Subsidiary acquired the
property, the Promissory Notes and the other rights for approximately
$868,000 in cash, the issuance of 33,500 shares of the Company's common
stock and the assumption of a $1,158,000 mortgage encumbering the
ground lease.
C. On December 9, 1997, Capitol Resorts of Florida, Inc. acquired all the
issued and outstanding stock of OPV Development Inc. OPV's primary
asset is the ground lease rights to a four lot parcel of land and
improvements located in Pompano Beach, Florida. The improvements,
known as Ocean Villas, consist of 16 residential units and common area.
The Company also acquired approximately $244,000 in Promissory Notes
derived from the prior sale of four of the units. The cost of the
acquisitions of OPV was approximately $107,000 in cash, the assumption
of a first mortgage of $375,000 and a second mortgage of $150,000
encumbering the ground leases.
D. Contingencies
On April 28, 1998 the Arkansas Court of Appeals upheld the Chancery
Court of Pulaski County, Arkansas' summary judgment in favor of the
Company. (See Note 4).
-18-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, there unto
duly authorized.
CAPITOL COMMUNITIES CORPORATION
By: /s/ Michael G. Todd
Michael G. Todd, Chairman,
President and Chief Executive Officer
-19-
<PAGE>
EXHIBIT A
CAPITOL COMMUNITIES CORPORATION
CASH FLOWS AND NPV OF HOMEBUILDING AT MAUMELLE
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Lots to Develop 4,500
Beginning Year 1999
Avg. Sq. Footage/Unit 1,625 1,625 1,625 1,625 1,625 1,625 1,625
Sales Price/Ft. $80.00 $83.69 $85.51 $87.06 $88.62 $91.28 $94.02
Improvement Costs/Lot $19,500 $17,122 $15,490 $15,955 $15,964 $16,456 $16,950
Construction Costs/Ft. $49.00 $50.00 $51.00 $52.00 $53.00 $54.59 $56.23
Marketing/Sales Costs 6.20%
Transfer Costs 0.80%
G&A Costs 8.00%
Discount Rate 0.00%
Inflation Rate 3.00%
Interest Rate 9.00% 70% Utilization
</TABLE>
<TABLE>
<S> <C> <C> <C>
Lots to Develop
Beginning Year
Avg. Sq. Footage/Unit 1,625 1,625 1,625
Sales Price/Ft. $96.84 $99.74 $102.73
Improvement Costs/Lot $17,458 $17,982 $18,521
Construction Costs/Ft. $57.91 $59.65 $61.44
Marketing/Sales Costs
Transfer Costs
G&A Costs
Discount Rate
Inflation Rate
Interest Rate
</TABLE>
DISCOUNTED CASH FLOW ANALYSIS FOR DEVELOPMENT OF 2,055 OF A POSSIBLE 4,500 HOMES
BY CAPITOL HOMES
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Year 1 2 3 4 5 6 7
Units Developed 90 165 200 200 200 200 250
Avg. Sales Price 130,000 135,996 138,954 141,473 144,008 148,328 152,778
Gross Sales 11,700,000 22,439,381 27,790,750 28,294,500 28,801,500 29,665,545 38,194,389
Lot Premiums 234,000 448,788 555,815 565,890 576,030 593,311 763,888
Gross Revenues 11,934,000 22,888,169 28,346,565 28,860,390 29,377,530 30,258,856 38,958,277
Expenses:
Lot Improvments 1,755,000 2,825,130 3,098,000 3,190,940 3,192,800 3,291,200 4,237,420
Construction Costs 7,166,250 13,406,250 16,575,000 16,900,000 17,225,000 17,741,750 22,842,503
Marketing/Sales Costs 725,400 1,391,242 1,723,027 1,754,259 1,785,693 1,839,264 2,368,052
Transfer Costs 93,600 179,515 222,326 226,356 230,412 237,324 305,555
G&A Costs 936,000 1,795,151 2,223,260 2,263,560 2,304,120 2,373,244 3,055,551
Interest Costs 621,007 1,135,671 1,379,464 1,408,334 1,431,481 1,474,590 1,898,535
Total Expenses 11,297,257 20,732,959 25,221,077 25,743,449 26,169,506 26,957,372 34,707,616
Net Profit 636,743 2,155,210 3,125,488 3,116,942 3,208,024 3,301,484 4,250,661
Net Cash Flow 636,743 2,155,210 3,125,488 3,116,942 3,208,024 3,301,484 4,250,661
Cumulative Cash Flow 636,743 2,791,954 5,917,442 9,034,383 12,242,407 15,543,891 19,794,552
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Totals
Year 8 9 10 ------
Units Developed 250 250 250 2,055
Avg. Sales Price 157,361 162,082 166,944 $147,792
Gross Sales 39,340,221 40,520,427 41,736,040 $308,482,754
Lot Premiums 786,804 810,409 834,721 $6,169,655
Gross Revenues 40,127,025 41,330,836 42,570,761 $314,652,409
Expenses:
Lot Improvments 4,364,543 4,495,479 4,630,343 $35,080,855
Construction Costs 23,527,778 24,233,612 24,960,620 $184,578,763
Marketing/Sales Costs 2,439,094 2,512,267 2,587,634 $19,125,931
Transfer Costs 314,722 324,163 333,888 $2,467,862
G&A Costs 3,147,218 3,241,634 3,338,883 $24,678,620
Interest Costs 1,955,491 2,014,156 2,074,580 $15,393,309
Total Expenses 35,748,845 36,821,310 37,925,950 $261,325,340
Net Profit 4,378,180 4,509,526 4,644,812 $33,327,070
Net Cash Flow 4,378,180 4,509,526 4,644,812 $33,327,070
Cumulative Cash Flow 24,172,732 28,682,258 33,327,070
</TABLE>
- --------------------------------------------------
Estimated partial build out 10 Years
- ---------------------------
Term of Cash Flow/Years 10
Present Value of NCF $33,327,070
- --------------------------------------------------
