UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------
FORM 10-QSB
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from __________________ to __________________
Commission file number 0-22271
CFI MORTGAGE INC.
(Exact name of registrant as specified in its charter)
Delaware 52-2023491
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3300 PGA Blvd., Suite 309
Palm Beach Gardens, Florida 33410
(Address of principal executive office) (zip code)
Registrant's telephone number, including area code: 561-625-9211
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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
--- ---
15,298,607 shares, $.001 par value, as of March 31, 2000
(Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date)
CFI MORTGAGE INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(Unaudited)
I N D E X
Page No.
Part I - Financial Information:
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets
As at March 31, 2000 and December 31, 1999 ......... F-3 - F-4
Consolidated Statements of Operations
For the Three Months Ended
March 31, 2000 and 1999 ............................ F-5
Consolidated Stockholders' Capital Deficiency
For the Three Months Ended
March 31, 2000 and 1999 ............................ F-6
Statements of Cash Flows
For the Three Months
Ended March 31, 2000 and 1999 ...................... F-7 - F-8
Notes to Consolidated Financial Statements ......... F-9 - F-16
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ...... F-?? - F-??
Part II - Other Information:
Item 3 Through Item 9 - Not Applicable ............. F-??
Signatures ......................................... F-??
F-2
CFI MORTGAGE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
A S S E T S
March 31, December 31,
2000 1999
------------ ------------
Current assets:
Cash $ 17,489 $ 7,574
Accounts receivable 161,410 -
Due from related parties 90,726 90,726
Prepaid expenses and other current assets 11,767 -
------------ ------------
Total current assets 281,392 98,300
------------ ------------
Property and equipment, at cost, less
accumulated depreciation of $117,033
and $94,059, respectively 103,712 55,418
------------ ------------
Other assets:
Capitalized software development costs, less
accumulated amortization of $163,984 163,622 -
Goodwill, less accumulated amortization
of $24,058 1,052,036 -
Notes receivable - 25,000
Security deposits 11,990 -
------------ ------------
Total other assets 1,227,648 25,000
------------ ------------
$ 1,612,752 $ 178,718
============ ============
See accompanying notes to financial statements.
F-3
CFI MORTGAGE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDERS' CAPITAL DEFICIENCY
March 31, December 31,
2000 1999
------------ ------------
Current liabilities:
Due to affiliated company $ 140,796 $ 139,735
Accrued expenses and other current liabilities 2,819,154 2,401,423
------------ ------------
Total current liabilities 2,959,950 2,541,158
Liabilities not subject to compromise:
Accounts payable of subsidiary 1,188,314 1,237,552
Liabilities under plan of reorganization:
Due to banks and sundry creditors 4,063,182 4,083,328
------------ ------------
8,211,446 7,862,038
============ ============
Commitments and contingencies - -
Stockholders' capital deficiency:
Common stock, $.01 par value
Authorized 35,000,000 shares
Issued and outstanding - 15,789,315 and
15,676,451 shares, respectively 157,893 156,764
Preferred stock, $700,000 par value
Authorized 10,000,000 shares
Issued and outstanding - 1 share 700,000 -
Additional paid-in capital 12,855,797 12,434,602
Accumulated deficit ( 20,312,384) ( 20,274,686)
------------ ------------
Total stockholders' capital deficiency ( 6,598,694) ( 7,683,320)
------------ ------------
$ 1,612,752 $ 178,718
============ ============
See accompanying notes to financial statements.
F-4
CFI MORTGAGE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three
Months Ended
March 31,
---------------------------
2000 1999
------------ ------------
Revenues:
Sales $ 124,149 $ -
------------ ------------
Expenses:
Selling 28,183 -
General and administrative 296,143 42,610
Interest 8,061 1,500
------------ ------------
Total expenses 332,387 44,110
------------ ------------
Loss from operations ( 208,238) ( 44,110)
Settlement fee from cancelled acquisition 100,000 -
------------ ------------
Loss before extraordinary gain ( 108,238) ( 44,110)
Extraordinary gain - forgiveness of debt 70,540 -
------------ ------------
Net loss ($ 37,698) ($ 44,110)
============ ============
Basic earnings per common share:
Loss before extraordinary gain ($ 108,238) ($ 44,110)
Less: Preferred stock dividends - ( 23,793)
------------ ------------
Loss available for common stockholders ( 108,238) ( 67,903)
Extraordinary gain 70,540 -
------------ ------------
Net loss available for common stockholders ($ 37,698) ($ 67,903)
============ ============
Weighted average shares 14,647,255 3,589,058
============ ============
Earnings per share - basic:
Loss per share from continuing operations
before extraordinary gain ($ .01) ($ .02)
Extraordinary gain .01 -
----- ----
Net loss $ - ($ .02)
===== =====
See accompanying notes to financial statements.
F-5
CFI MORTGAGE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' CAPITAL DEFICIENCY
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(Unaudited)
Common Stock Preferred Additional
-------------------------- ------------------------- Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit Total
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance - January 1, 2000 15,676,451 $156,764 - $ - $12,434,602 ($20,274,686) ($7,683,320)
Shares issued for payment
of prior period liability
on February 22, 2000 59,000 590 - - 21,535 - 22,125
Shares issued for payment
of prior liability on
March 10, 2000 53,864 539 - - 19,660 - 20,199
Issuance of preferred
stock for acquisition
of Inventek, Inc. - - 1 700,000 380,000 - 1,080,000
Net loss for the
three months ended
March 31, 2000 - - - - - ( 37,698) ( 37,698)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance - March 31, 2000 15,789,315 $157,893 1 $700,000 $12,855,797 ($20,312,384) ($6,598,694)
============ ============ ============ ============ ============ ============ ============
See accompanying notes to financial statements.
F-6
CFI MORTGAGE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three
Months Ended
March 31,
---------------------------
2000 1999
------------ ------------
Cash flows from operating activities:
Net loss from operations ($ 37,698) ($ 44,110)
------------ ------------
Adjustments to reconcile net loss to net
cash provided by operating activities:
Forgiveness of debt ( 70,540) -
Depreciation and amortization 40,229 1,540
Common stock issued for salaries and other expenses 43,480 -
Interest accrued on related party loans 3,061 1,500
Increase (decrease) in cash flows as a result of
changes in asset and liability account balances:
Accounts receivable ( 364) -
Prepaid expenses and other current assets ( 3,018) 19,056
Security deposits ( 10,300) -
Accounts payable, accrued expenses
and other current liabilities 133,182 25,344
------------ ------------
Total adjustments 135,730 47,440
------------ ------------
Net cash provided by operating activities 98,032 3,330
------------ ------------
Cash flows from investing activities:
Software development costs ( 63,953) -
Expenditures for property and equipment ( 6,688) -
------------ ------------
Net cash used in investing activities ( 70,641) -
------------ ------------
Cash flows from financing activities:
Notes payable ( 17,942) -
Decrease in due to affiliate ( 2,000) -
------------ ------------
Net cash used in financing activities ( 19,942) -
------------ ------------
Net increase in cash 7,449 3,330
Cash at beginning of period 7,574 2,371
Cash of subsidiary 2,466 -
------------ ------------
Cash at end of period $ 17,489 $ 5,701
============ ============
See accompanying notes to financial statements.
F-7
CFI MORTGAGE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
For the Three
Months Ended
March 31,
---------------------------
2000 1999
------------ ------------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period:
Income taxes $ - $ -
============ ============
Interest $ - $ -
============ ============
Supplemental Schedules of Noncash Investing
and Financing Activities:
Accrued dividends on preferred stock $ - $ 23,793
============ ============
Common stock issued for salaries and other expenses $ 43,480 $ -
============ ============
See accompanying notes to financial statements.
F-8
CFI MORTGAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
NOTE 1- BASIS OF PRESENTATION.
The accompanying interim unaudited consolidated financial
statements include the accounts of CFI mortgage Inc. ("CFI"), Direct
Mortgage Partners, Inc. ("DMP") and Inventek, Inc., doing business
as Surfside Software Systems ("Surfside"). DMP and Surfside are
wholly owned and majority owned subsidiaries of CFI, respectively.
CFI and its subsidiaries are hereafter collectively referred to as
the "Company".
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with instructions
for Form 10-QSB and Article 10 and Regulation S-B. Accordingly, they
do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, the statements contain all
adjustments (consisting only of normal recurring accruals) necessary
to present fairly the financial position as of March 31, 2000 and
the results of operations and cash flows for the three months ended
March 31, 2000 and 1999. The results of operations for the three
months ended March 31, 2000 and 1999 are not necessarily indicative
of the results to be expected for the full year.
The December 31, 1999 balance sheet has been derived from the
audited financial statements at that date included in the Company's
annual report on Form 10- KSB. These unaudited financial statements
should be read in conjunction with the financial statements and
notes thereto included in the Company's annual report on Form 10-
KSB.
NOTE 2 - ACQUISITION.
On January 14, 2000, the Company acquired a 65% interest in
Inventek, Inc. (Doing business as Surfside Software Systems of
Clearwater, Fl.) ("Surfside"), in exchange for the Company's
convertible preferred stock and certain common stock purchase
warrants valued at approximately $1,080,000. The Company issued
preferred stock with a par value of $700,000 and 1,000,000 common
stock purchase warrants, to which the Company attributed a value of
$380,000. Surfside creates and markets proprietary software
products.
F-9
NOTE 2 - ACQUISITION. (Continued)
The preferred stock is convertible into shares of the
Company's common stock based on the average ask price for the five
trading days at the end of the month prior to conversion. The
preferred shares have no cumulative dividend features, but do
entitle the holders thereof to participate in any dividends payable
to holders of common stock on a pro rata basis as if the shares had
previously been converted. The warrants entitle the holders thereof
to purchase one share of the Company's common stock at an exercise
price of $.15 per share for a period of five years from the issue
date.
The Company also agreed to contribute $250,000 as additional
paid-in capital, at various dates through June 1, 2000. As of March
31, 2000, the Company has contributed $125,000 of the total due to
be contributed.
The agreement calls for a potential adjustment to the purchase
price, based on earnings of Surfside over the twenty-four month
period following the closing of the transaction. Such adjustment
would be in the form of additional convertible preferred stock up to
an additional $4,000,000.
NOTE 3 - GOING CONCERN.
The accompanying financial statements have been prepared
assuming the Company will continue as a going concern. As described
more fully in the Company's Form 10-K for the year ended December
31, 1999, the Company has recently completed a voluntary plan of
reorganization. The Company may continue to need to raise additional
capital to fund operations until such time as operating cash flows
are sufficient to sustain the operations of the Company. There are
no assurances that the Company can raise capital to sustain
operations until cash flows from operations are sustainable. Should
the Company be unable to obtain such capitalization, management
might be forced to cease operations and liquidate the Company. Such
conditions raise substantial doubt about the Company's ability to
continue as a going concern. The consolidated financial statements
contained herein do not include any adjustments that might result
from the outcome of this uncertainty.
NOTE 4 - SIGNIFICANT ACCOUNTING POLICIES.
(a) Use of Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions in determining the reported amounts of
assets and liabilities and disclosures of contingent assets and
liabilities as of the date of financial statements, and the reported
amounts of revenues and expenses during the period. Actual results
could differ from those estimates.
F-10
NOTE 4 - SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(b) Applicable Accounting Pronouncements:
The Company has previously adopted Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities"
("SFAS No. 125"), which provides accounting and reporting standards
for transfers and servicing of financial assets and extinguishments
of liabilities. The statement also provides standards for
distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. The adoption of SFAS No. 125
by the Company did not have a material impact on the Company's
financial statements.
Origination fee income is accounted for in conformity with
Statement of Financial Accounting Standards No. 91. This statement
requires that origination fees be offset by their direct loan costs
and the net deferred income be recognized over the life of the loan.
The Company has previously adopted the guidance under SFAS No. 91.
Concurrent with the acquisition of its new subsidiary,
Surfside, the Company has adopted the guidance provided under SFAS
No. 86, "Accounting for the Costs of Computer Software to Be Sold,
Leased, or Otherwise Marketed". SFAS No. 86 provides guidance for
the specific costs in the development of proprietary software
products which may be capitalized, and the stages of development
during which they may be capitalized. The adoption by the Company of
SFAS No. 86 did not have a material impact on the Company's
financial statements.
(c) Property and Equipment:
Property and equipment are stated at cost less accumulated
depreciation. The Company's policy is to provide for depreciation
over the estimated useful lives of the assets ranging from three to
seven years. Expenditures for leasehold improvements are capitalized
and amortized over their estimated useful lives or the life of the
lease, whichever is shorter in duration. Expenditures for
betterments are capitalized and depreciated as described above.
Expenditures for repairs, maintenance and minor renewals are
charged to operations as incurred. Upon retirement or abandonment of
the property and equipment, the carrying value and related
accumulated depreciation and amortization are removed from the
accounts.
Depreciation expense attributable to property and equipment
and charged to operations for the three months ended March 31, 2000
and 1999 amounted to $5,526 and $ , respectively.
F-11
NOTE 4 - SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(d) Capitalized Software Development Costs:
Capitalized software costs, which represent the costs incurred
by the Company to develop its proprietary software products
subsequent to determining the programs' technical feasibility and
prior to availability for sale to the general public, are
capitalized and amortized over a period of five years. Any remaining
unamortized costs relating to program development which is
considered obsolete is written off in the period of obsolescence.
Amortization of capitalized software development costs
amounted to $10,645 and $ 0, for the three months ended March 31,
2000 and 1999, respectively.
(e) Goodwill:
In conjunction with the Company's acquisition of a majority
interest in Surfside, the value of assets exchanged, which was in
excess of the value of assets received, net of liabilities, resulted
in the creation of goodwill in the amount of $1,076,094. The Company
amortizes goodwill over a period of ten years. Amortization expense
charged to operations for the three months ended March 31, 2000 and
1999 amounted to $24,058 and $0, respectively.
Management will periodically review the value of all
long-lived assets, including goodwill, to determine if there has
been any impairment in the carrying value of the asset. Should
management determine that such an impairment has occurred, an
appropriate allowance will be set up to reflect the impairment of
said asset.
(f) Income Taxes:
The Company complies with SFAS No.109, "Accounting for Income
Taxes", which requires an asset and liability approach to financial
accounting and reporting for income taxes. Deferred income tax
assets and liabilities are computed for differences between
financial statement and tax basis of assets and liabilities that
will result in future taxable or deductible amounts, based on the
enacted tax laws and rates in the periods in which differences are
expected to effect taxable income. Valuation allowances are
established, when appropriate, to reduce deferred tax assets to the
amount to be realized.
F-12
NOTE 4 - SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(g) Loss Per Common Share:
Loss per common share is based on the weighted average number
of common shares outstanding. SFAS No. 128, "Earnings Per Share",
requires dual presentation of basic and diluted earnings per share
on the face of the statements of operations. Basic earnings (loss)
per share excludes any dilutive common stock equivalents and is
computed by dividing net income or loss, less any accretion for
preferred stock discounts and dividends, which totaled $0 and
$23,793 in 2000 and 1999, respectively, by the weighted average
number of shares outstanding for the period. Diluted earnings per
share reflect the potential dilution to common shareholders as if
all common stock equivalents were converted into equivalent shares
of common stock, thereby diluting net income available to holders of
the common stock.
Diluted loss per share has not been presented in the financial
statements herein, as the effect of including the common stock
equivalents would be antidilutive for all periods presented.
NOTE 5 - RELATED PARTY TRANSACTIONS.
The Company has made advances to three individuals, two of
whom are officers of the Company. The balance amounted to $90,726 at
each of March 31, 2000 and December 31, 1999. The advances are due
on demand and there has been no interest charged on the outstanding
balances.
The Company has a revolving line of credit with an affiliate,
whereby it can borrow up to $150,000, with interest charged at 9%
per annum. The loan is due on demand. The Company was liable under
this credit facility for $140,796 and $139,735, at March 31, 2000
and December 31, 1999, respectively.
As an inducement to make the loan, the affiliate was
previously granted warrants to purchase 150,000 shares of the
Company's common stock at an exercise price of $.25 per share, which
represented 105 % of the closing bid price on the date of the grant.
NOTE 6 - LIABILITIES NOT SUBJECT TO COMPROMISE.
As described more fully in the notes to the audited financial
statements included in the Company's Form 10- KSB for the period
ended December 31, 1999, certain liabilities which were attributable
to the Company's wholly owned subsidiary, DMP, were not subject to
compromise under the Company's confirmed plan of reorganization.
During the period ended March 31, 2000, management determined that a
portion of these liabilities were guaranteed by the Company either
directly, or through indemnification of certain officers and
directors of the Company.
During the three months ended March 31, 2000, the Company
issued 59,000 shares of its common stock in satisfaction of one such
obligation, resulting in recognition of forgiveness of debt in the
amount of $36,875.
F-13
NOTE 7 - DUE TO BANKS AND SUNDRY CREDITORS.
As described more fully in the notes to the audited financial
statements included in the Company's Form 10- KSB for the period
ended December 31, 1999, the Plan included claims from two financial
institutions in the amount of $4,000,000, as well as certain non-
priority claims from present and former employees for unpaid
compensation up to the petition date amounting to $83,328. During
the three months ended March 31, 2000, the Company issued 53, 864
shares of its common stock in satisfaction of two such claims, which
resulted in the recognition of forgiveness of debt amounting to
$33,665.
NOTE 8 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES.
Accrued expenses and other current liabilities are comprised
of the following:
March 31, December 31,
2000 1999
----------- -----------
Professional fees $ 223,000 $ 241,300
Accrued compensation of employees 127,000 127,000
Accrued compensation of officers 2,075,055 2,002,731
General and administrative expenses 394,099 30,392
----------- -----------
$ 2,819,154 $2,401,423
=========== ==========
Included in accrued compensation of officers is $1,818,074 and
$1,775,750 at March 31, 2000 and December 31, 1999, respectively,
which represent the compensatory element of stock bonuses to be
issued pursuant to employment agreements entered into subsequent to
the effective date of the Plan. The accrued compensation to officers
also includes $119,000 due to officers of the Company as part of the
administrative expenses approved by the court under the plan.
F-14
NOTE 9 - COMMITMENTS AND CONTINGENCIES.
(a) Leases:
In January 2000, the Company's majority owned subsidiary,
Surfside, entered into a lease for office space which runs through
December 31, 2004. Minimum annual rents under the lease are as
follows:
Years Ending
March 31,
---------
2001 $144,489
2002 151,623
2003 159,141
2004 167,088
2005 129,933
---------
$752,274
=========
(b) Employment Contracts:
In August 1999, the Company entered into employment contracts
with four officers. The contracts are for a period of three years,
and are described in greater detail in the notes to the audited
financial statements included in the Company's Form 10-KSB for the
year ended December 31, 1999.
The contracts include provisions for salary escalations for
each year of service under the contract, which are accrued ratably
throughout the year and payable at the end of the fiscal year. This
escalation may be paid to the individuals in the form of the
Company's common stock, with the share values discounted at a rate
of 50% of the average closing bid price of the stock for the five
trading days after the close of the fiscal year.
The contracts also include a provision which essentially
grants each of the individuals a stock bonus equal to the amount
necessary to assure that they each remain 5% shareholders after
giving effect to all shares issued during the year. The agreements
also provide that the individuals may receive discretionary bonuses
as determined by the Company's Board of Directors.
Included in the results of operations for the three months
ended March 31, 2000 and 1999 are $72,324 and $-0-, respectively,
for unpaid compensation due the officers under the terms of these
contracts.
F-15
NOTE 9 - COMMITMENTS AND CONTINGENCIES. (Continued)
(c) Contingent Liabilities of the Company:
Certain officers and stockholders of the Company were
guarantors of liabilities incurred by CFI and/or its wholly owned
subsidiaries. Many of the guarantees were made prior to CFI's
acquisition of these entities. The Company has indemnified these
individuals against any liabilities arising as a result of these
guarantees.
Some of these creditors have made claims against these
individuals, including creditors who were specifically under the
Plan. The Company has been working in conjunction with the Trustee
to attempt to reach settlements of these claims. The settlement
proposals include the potential issuance of CFI common stock in
satisfaction of these claims.
In the event that these settlements, as approved by the
Trustee, require issuance of CFI's common shares, it would result in
a further dilution in the pro rata interest of all other
shareholders. An exception would be the Company's four executive
officers, who would be entitled to an incremental adjustment to the
number of shares issued to them, under the terms of their existing
employment contracts described above. The Company cannot quantify
the effect of these potential settlements on the interests of
existing shareholders due to their contingent nature.
NOTE 10 - INCOME TAXES.
The Company and its wholly owned subsidiaries file a
consolidated federal income tax return. As of March 31, 2000, the
Company and its subsidiaries had a net operating loss carryforward
of approximately $19,000,000 available to reduce future taxable
income through the year 2019. The Company's ability to utilize its
net operating loss carryforward could be limited following a change
in ownership in excess of 50%, which resulted from the Company's
reorganization and recapitalization under the Plan. The Company has
fully reserved its deferred tax asset due to the uncertainity about
its ability to utilize it in future periods.
NOTE 11 - SUBSEQUENT EVENTS.
On April 11, 2000, the Company completed a private placement
of its securities with Ronco Funding, Inc., an affiliate of the
Company. The Company raised $500,400 in exchange for 1,787,143
shares of its common stock and warrants to acquire an additional
1,787,143 shares of the Company's common stock at an exercise price
of $1.44 per share.
F-16
NOTE 11 - SUBSEQUENT EVENTS. (Continued)
On May 1, 2000, the Company acquired two commercial office
buildings from Flamingo Financial Services, Inc. The buildings have
been appraised at a value of $2,500,000 and the Company assumed the
related collateral mortgages, which amount to approximately
$1,500,000. In exchange, the Company gave the sellers the Company's
convertible preferred stock with a par value of $1,000,000 and
warrants to purchase 750,000 shares of the Company's common stock.
The agreement also provides for a potential adjustment to the
purchase price, based on earnings derived from the rental property
over the eighteen month period following the closing of the
transaction.
The preferred stock is convertible into shares of the
Company's common stock based on the average asking price for the
five trad`ing days at the end of the month prior to conversion. The
preferred shares have no cumulative dividends rights, but permit the
holders thereof to participate in any dividends payable to holders
of common stock on a pro rata basis, as if the shares had been
converted. The warrants consist of three classes, each for a total
of 250,000 shares of the Company's common stock. The first 250,000
are exercisable at a price of $.35 per share. The last 250,000 are
exercisable at a price of $.50 per share. The warrants are
exercisable for a period of five years from the date of issuance.
On May 4, 2000, the Company acquired a 40% interest in First
Mortgage Securities, Inc., of Clearwater Florida in exchange for
400,000 shares of its common stock and common stock purchase
warrants to acquire 400,000 shares of the Company's common stock at
an exercise price of $.67 per share.
On May 11, 2000, the Company executed a letter of intent to
acquire RJ Systems, Inc., a software development company. The
Company is in the process of performing its due diligence.
F-17
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RUSULTS
OF OPERATIONS.
FORWARD LOOKING STATEMENTS
Certain of the matters discussed in this Form 10-QSB may constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. As such, these forward-looking statements may
involve known and unknown risks and uncertainties and other factors that may
cause the actual results, performance or achievements of the Company to be
materially different from any future results, performance, or achievements
expressed or implied by such forward-looking statements.
GENERAL BUSINESS
CFI Mortgage Inc. (the "Company") is a financial services company headquartered
in Florida. The Company provides mortgages and mortgage-related services to
individuals indirectly through mortgage brokers and mortgage lenders. The
Company originates, processes, underwrites and funds residential mortgage loans
that are sold on either an individual or bulk basis to institutional and private
investors. The Company originates and purchases loans originated that do not
conform to agency guidelines (non-conforming loans). Non-conforming loans
typically fail to meet agency guidelines due to credit impairment, higher
loan-to-value ratios and debt-to-income ratios, and are priced to compensate for
the additional credit risk.
With the acquisition of Surfside Software Systems the Company is in the business
of providing PC-based, DOS and WINDOWS 95 solutions, under the name TranWare to
the taxi, courier, para-transit, shuttle and limousine industries. TranWare
consists of the following products: dispatch management, scheduling and
reservations, account billing/accounts receivable, driver cashiering/shifting,
insurance claims management and vehicle maintenance. It interfaces with a number
of different wireless technologies as well as stand-alone financial products.
Surfside provides the base products, customization, product support and product
training.
Substantially all Surfside Software customers subscribe to service and support
programs, which provide ongoing product and, where applicable, updates. The
Company's cost structure is relatively fixed and the cost of generating, in
aggregate, does not vary significantly with changes in revenue. As a result, the
Company typically generates significantly greater profit margins from
incremental sales once fixed costs are covered.
On January 14, 2000, the Company acquired a 65% interest in Inventek, Inc.
(doing business as Surfside Software Systems of Clearwater, FL.) ("Surfside"),
in exchange for the Company's convertible preferred stock and certain common
stock purchase warrants valued at $1,080,000. The Company issued preferred stock
with a par value of $700,000 and 1,000,000 common stock purchase warrants, to
which the Company attributed a value of $380,000. Surfside creates and markets
proprietary software products.
The preferred stock is convertible into shares of the Company's common stock
based on the average ask price for the five trading days at the end of the month
prior to conversion. The preferred shares have no cumulative dividend features,
but do entitle the holders thereof to participate in any dividends payable to
holders of common stock on a pro rata basis as if the shares had previously been
converted. The warrants entitle the holders thereof to purchase one share of the
Company's common stock at an exercise price of $.15 per share for a period of
five years from the issue date.
The Company also agreed to contribute $250,000 as additional paid in capital, at
various dates through June 1, 2000. As of March 31, 2000, the Company has
contributed $125,000 of the total due to be contributed. As of June 7, 2000, the
Company had competed the entire $250,000 contibution.
The agreement calls for a potential adjustment to the purchase price, based on
earnings from Surfside over the twenty-four month period following the closing
of the transaction. Such adjustment would be in the form of additional
convertible preferred stock and may be for up to an additional $4,000,000.
On or about December 15, 1999, CFI entered into a Stock Exchange Agreement to
acquire all of the capital stock of MG Investments, Inc. ("MGI"). MGI does
business as Pyramid Mortgage Corporation, PMC Mortgage and Premier Mortgage, and
is a full service mortgage company. During 1999, MGI had a maximum of 29 offices
in 11 states, and focused primarily on the retail sub prime mortgage business.
MGI's principal place of business is in Evansville, Indiana, and last year
employed a maximum of approximately 1301 employees. While performing due
diligence on the Company's books and records, CFI recognized that the
significant earnings that had characterized MGI's performance in the first half
of 1999 and in 1998 were not sustainable, and accordingly, on March 31, 2000,
the Stock Exchange Agreement was terminated.
BANKRUPTCY PROCEEDING
On March 10, 1999, CFI Mortgage Inc. ("CFI") commenced a voluntary petition for
relief under Chapter 11 of Title 11 of the United States Bankruptcy Code in the
Southern District of Florida. On July 6, 1999, the bankruptcy court confirmed a
Plan of Reorganization pursuant to which CFI was discharged from any debt that
arose before the date of confirmation. As a result of the confirmation of the
Plan, CFI is no longer threatened by any litigation, claims, and assessments,
which may have existed as of December 31, 1998.
The Company's Reorganization Plan provided for an infusion of $800,000 by a
lender, which was secured by CFI's assets. The Company received $311,920, net of
expenses of $106,900, of funding under the Plan. The lender has the option of
converting the loan to common stock of CFI at a rate of 2% of the Company per
$80,000 funded to the Company after the effective date of the Plan. Each general
creditor shall receive one share of common stock for each dollar of debt in the
reorganized CFI.
On November 29, 1999, Ronco Funding, Inc., had funded debentures in an amount of
$311,000 net of expenses of $106,900. The 15% convertible debentures were
converted into 2,004,986 shares of the Company's common stock.
The preferred stockholders of Series "A" and "B" convertible preferred stock
received 2,000,000 shares of common stock in exchange for the preferred stock in
the reorganized CFI. The preferred stockholders of Series "C" convertible
preferred stock have received 2,500,000 shares of common stock in exchange for
the preferred stock in the reorganized CFI.
The Company's subsidiary, Direct Mortgage Partners, Inc. (DMP) was not a party
to the Petition for Relief under Chapter 11. Only debts that were guaranteed by
CFI and two other creditors shall be satisfied by issuance of common stock for
each dollar of debt in the reorganized CFI.
The effective date of the Plan was August 2, 1999. The only additional
liabilities the Company can incur would be the issuance of additional common
stock to creditors with disputes approved by the Court. In the event that the
Company looses some or all of the Claims Objections the existing shareholders
would be further diluted to the degree that the award to the creditor exceeds
the amount scheduled on the companies Bankruptcy filings. The overage to these
creditors would be paid in the Company's Common Stock.
EVENTS LEADING TO THE CHAPTER 11 PETITION
Beginning in September 1998, as a result of a number of factors, cash prices in
the sub-prime mortgage market significantly deteriorated and in some cases
investor yield requirements increased some 200 basis points. This in turn
significantly devalued the Company's loans held for sale and subsequent
revenues.
The Company previously had a warehouse line of $15 million with Bank One, Texas,
NA., which was discontinued as of September 30, 1998. The Company's other
warehouse line, which was with Nikko Financial Services, was terminated
effective November 30, 1998. As of September 30, 1998, the Company was in
violation of the net worth covenant of this agreement. In addition, the Company
previously had a purchase facility agreement with Fidelity Bank and Trust
aggregating $25 million. As of September 30, 1998 the use of that facility was
terminated. Upon termination of the warehouse line with Nikko, further
advances for new loan funding could only be under a repurchase agreement which
provided Nikko with the ability to evaluate whether or not it would enter into
any new transactions with the Company. The Company no longer had a committed
warehouse facility. Given that Nikko could decline the Company's request to fund
loans after November 30, 1998, the Company was not able to make loan-funding
commitments beyond November 30, 1998.
As of March 31, 1998 and again as of June 30, 1998, the Company did not meet the
required minimum standards for continued inclusion in the NASDAQ Small-Cap
Market in that its net tangible assets had fallen below $2,000,000 and so the
Company received a formal notice of de-listing from NASDAQ. On July 31, 1998 the
Company appealed the notice of de-listing at an oral hearing and awaited a final
decision from NASDAQ. On November 17, 1998 NASDAQ informed the Company by letter
that a determination had been made to de-list the Company's securities from the
NASDAQ Stock Market effective with the close of business on November 17, 1998.
The Company attempted a non-bankruptcy workout with its creditors. The Company
received a commitment from an investor to re-capitalize the Company with up to
$2 million if the Company could restructure its then-existing liabilities.
Accordingly, the Company presented a voluntary, non-bankruptcy plan of
reorganization to all its creditors (and those of its subsidiaries) wherein all
creditors were offered one share of the Company's common stock for each dollar
owed.
The success of that reorganization plan was dependent on full acceptance by all
of the Company's creditors and the consent of its underwriters to issue the
related common shares. All creditors did not accept the Company's common shares
in lieu of payment, and the underwriters did not consent to the issuance of the
underlying shares, which resulted in the investor not agreeing to re-capitalize
the Company.
COMPARISON OF QUARTERS ENDED MARCH 31, 2000 AND MARCH 31, 1999
With the loss of the Company's credit facilities the Company was unable fund
loans after November 30, 1998, and subsequently discontinued its
mortgage-banking operations. On March 10, 1999, CFI Mortgage Inc. ("CFI")
commenced a voluntary petition for relief under Chapter 11 of Title 11 of the
United States Bankruptcy Code. As such the Company did not have any operating
subsidiaries during the quarter ended March 31, 1999 and subsequently did not
record any revenues. On January 14, 2000, the Company acquired a 65% interest in
Surfside Software Systems. As such, the following comparisons reflect the
consolidated operations of Surfside Software Systems for the current quarter and
no operating subsidiaries for the quarter ended March 31, 1999.
EXPENSES
The Company recorded total expenses of $332,387 for the quarter ended March 31,
2000 as compared to total expenses of $44,110 for the quarter ended March 31,
1999. The $288,277 increase in general and administration expenses were
primarily attributed to the acquisition of Surfside Software Systems in the
current quarter as opposed to having no operating subsidiaries for the quarter
ended March 31, 1999.
NET INCOME (LOSS)
The Company generated net loss before taxes of $37,698 in the quarter ended
March 31, 2000 as compared to a net loss before taxes of $67,903 in the quarter
ended March 31, 1999. The net loss for the quarter ended March 31, 2000 was
reduced primarily due to an extraordinary gain on the forgiveness of debt of
$70,540 in current period as opposed to $0.00 for the quarter ended March 31,
1999. The increase of $64,128 to $108,238 in loss before extraordinary gain of
$70,540 was primarily attributed to the acquisition of Surfside Software
Systems.
LIQUIDITY AND CAPITAL RESOURCES
The Company is dependent on stock sales or third party borrowings to sustain
operations. The Company did not raise any additional capital during the first
quarter of 2000.
On April 11, 2000 the Company sold through a private placement of its securities
to Ronco II. Ronco II invested $500,400 and received 1,787,143 shares of common
stock of CFI, plus 1,787,143 warrants to purchase one share of CFI common stock
at $1.44 per share. The Company has relied upon Section 4(2) for an exemption
from registration afforded by Section 4(2) of the Securities Act of 1933, as
amended.
The Company believes that the funds to be generated by the Company's operations,
comined with the second quarter capital raise will provide the Company with
sufficient funds to finance its operations. However, if additional funds were
needed to support working capital or to complete acquisitions, the Company would
seek to raise such funds through one or more public or private financings of
equity, or from other sources. Additional financing may not be available or, if
may not be obtainable on terms favorable to the Company.
RISK FACTORS
FINANCIAL SERVICES:
SEASONALITY
The mortgage banking industry is subject to seasonal trends. These trends
reflect the general pattern of re-sales of homes, which sales typically peak
during the spring and summer seasons and decline from January through March. In
addition, the primary home market in Florida tends to increase during the fourth
quarter, while the second home market increases from October through April.
Refinancing tend to be less seasonal and more closely related to changes in
interest rates. The mortgage servicing business is generally not subject to
seasonal trends, except to the extent that growth of a mortgage-servicing
portfolio is generally higher in periods of greater mortgage loan originations.
COMPETITION
The mortgage banking industry is highly competitive. The Company competes with
financial institutions, mainly mortgage companies, commercial banks and savings
and loan associations and, to a certain extent, credit unions and insurance
companies, depending upon the type of mortgage loan product offered. The Company
competes principally by purchasing or originating a variety of types of mortgage
loans, emphasizing the quality of its service and pricing the loans at
competitive rates. Many of the Company's competitors have financial resources
substantially greater than that of the Company. Many of the nation's largest
mortgage companies and commercial banks have a significant number of branch
offices in areas in which the Company's correspondents and wholesale and retail
branches operate. Increased competition for mortgage loans from larger lenders
may result in a decrease in the volume of loans originated and purchased by the
Company, thereby possibly reducing the Company's revenues. The top five
competitors in the market are a) The Associates, b) Household Financial, c)
Conseco, d) Saxon Mortgage and e) The Money Store.
REGULATION
The operations of the Company are subject to extensive regulation by federal and
state governmental authorities and are subject to various laws and judicial and
administrative decisions that, among other things, regulate credit activities,
require disclosures to customers, govern secured transactions and establish
collection, repossession and claims handling procedures and other trade
practices. The Company is subject to the rules and regulations of the Federal
Housing Administration ("FHA"), Federal National Mortgage Association ("FNMA")
and the Department of Veteran Affairs (the "VA") and state regulatory
authorities with respect to originating, processing, underwriting, selling,
securitizing and servicing mortgage loans.
In addition, there are other federal and state statutes and regulations, as well
as judicial decisions, affecting the Company's operations. Those rules and
regulations, among other things, impose licensing obligations on the Company,
establish eligibility criteria for mortgage loans, prohibit discrimination and
establish underwriting guidelines which include provisions for inspections and
appraisals, require credit reports on
prospective borrowers and fixed maximum loan amounts, and with respect to the VA
loans, fixed maximum interest rates. Moreover, lenders such as the Company are
required to submit annually to the FHA, FNMA and VA audited financial
statements, and each regulatory entity has its own financial requirements. The
Company's affairs also are subject to examination by the FHA, FNMA and VA at all
times to assure compliance with all applicable regulations, policies and
procedures. Mortgage origination activities are subject to, among other
regulatory requirements, the Equal Credit Opportunity Act, the Federal
Truth-in-Lending Act, the Home Mortgage Disclosure Act and the Real Estate
Settlement and Procedures Act ("RESPA") and the regulations promulgated there
under which prohibit discrimination and require the disclosure of certain basic
information to mortgagors concerning credit terms and settlement costs. Many of
the aforementioned regulatory requirements are designed to protect the interests
of consumers, while others protect the owners or insurers of mortgage loans.
Failure to comply with these requirements can lead to loss of approved status,
termination of servicing contracts without compensation to the servicer, demands
for indemnification or loan repurchases, class action lawsuits and
administrative enforcement actions.
There are various state and local laws and regulations affecting the Company's
operations. The Company is in possession of all licenses required by the State
of Florida to conduct its business operations and for the states were it
transacts business. Conventional mortgage operations also may be subject to
state usury statutes. FHA and VA mortgage loans are exempt from the effect of
such statutes.
ENVIRONMENTAL MATTERS
To date, the Company has not been required to perform any investigation or
remediation activities, nor has it been subject to any environmental claims.
There can be no assurance, however, that this will remain the case in the
future. In the ordinary course of its business, the Company from time to time
forecloses on the properties securing loans. Although the Company primarily
lends to owners of residential properties, there is a risk that the Company
could be required to investigate and clean up hazardous or toxic substances or
chemical releases at such properties after acquisition by the Company, and may
be held liable to a governmental entity or to third parties for property damage,
personal injury and investigation and clean up costs incurred by such parties in
connection with the contamination. In addition, the owner or former owners of a
contaminated site may be subject to common law claims by third parties based on
damages and costs resulting from environmental contamination emanating from such
property.
SOFTWARE RISK FACTORS:
MARKET CHANGES.
The market for the Company's software products and services is characterized by
technological advances and evolving standards. In addition, changes in the
transportation requirements and new product introductions could render the
Company's existing products unmarketable. The Company's future success depends
upon its ability to enhance current products in a timely fashion and to develop
and introduce new products that keep pace with technological developments and
changes in the transportation industry. Further, the Company's future success
depends on ground fleet transportation companies to adopt new technologies for
acceptance in this evolving market
NEED FOR ADDITIONAL FINANCING
The Company believes that the funds to be generated by the Company's operations
will provide the Company with sufficient funds to finance its operations.
However, if additional funds were needed to support working capital or to
complete acquisitions, the Company would seek to raise such funds through one or
more public or private financings of equity or from other sources. Additional
financing may not be available or if may not be obtainable on terms favorable to
the Company.
GROWTH
The growth in the size and complexity of the Company's and the expansion of its
product lines and its customer base have and are expected to continue to place a
significant strain on all aspects of the Company's business. The Company will be
required to upgrade or implement operational and financial systems, procedures
and controls. The future success will depend on its ability to expand its
support and infrastructure commensurate with its expanding base of products and
on its ability to attract, hire and retain skilled employees.
KEY EMPLOYEES AND SOFTWARE ENGINEERS
The Company believes that the future success will depend to a significant extent
upon the contributions of executive officers and key sales, engineering,
marketing and technical personnel. The Company does not have "key person" life
insurance on any of its employees. Competition for highly skilled personnel,
particularly qualified development engineers and systems implementation experts
is intense. The Company has, at times, experienced difficulty in locating
personnel with requisite levels of expertise and experience
SALES AND IMPLEMENTATION CYCLES
The license of the Company's software generally requires the Company to educate
prospective customers the use and benefits of the Company's products. In
addition, the purchase of the Company's products involves a significant
commitment by prospective customers and can be associated with substantial time
in workflow, processing or the configuration of hardware. The license of the
Company's software products can often require a level or executive decision by
prospective customers. The period between initial indications of interest by a
customer in the Company's product and the ultimate sale and implementation of
the Company's product to the customer can be lengthy (often ranging from three
months to six months) and is subject to a number of significant delays over
which the Company has little or no control.
COMPETITION
The market for the Company's products is intensely competitive and ever
changing. A number of companies offer competitive products addressing some of
the Company's target markets. A number of prospective and existing customers of
the Company have the capability to provide alternative solutions to the
Company's products and may, therefore, be viewed as competing with the Company.
Some of the Company's competitors have significantly greater financial,
technical, sales and resources than the Company.
GROUND FLEET TRANSPORTATION INDUSTRY
Substantially all of the Company's revenues are derived from licenses and
services, and its future success is dependent on increased sales to the ground
fleet transportation industry. Demand for the Company's products and services
can be disproportionately affected by instability or downturns in the
transportation industry, which may cause existing or potential customers to
delay, cancel or reduce planned expenditures for technology, including those
offered by the Company
LIABILITY RISKS; SOFTWARE DEFECTS
The Company's software products are complex and sophisticated and could, from
time to time, contain designer software errors that could be difficult to detect
and correct. The implementation of the Company's products may involve a
significant amount of customer-specific customization and may involve
integration with systems developed by third parties. Such errors could give rise
to warranty or liability of the Company and cause delays in product introduction
and require design modifications, which could result in loss of or the delay in
marketing of the Company's products or loss of existing customers
DEPENDENCE UPON PROPRIETARY TECHNOLOGY; INTELLECTUAL PROPERTY RIGHTS
The Company's success and ability to compete are dependent in part upon its
technology. The Company relies primarily on a combination of copyright,
trademark laws, confidentiality procedures and contractual provisions to protect
its proprietary rights. Despite the Company's efforts to protect its rights,
other parties may attempt to reverse, engineer, copy or engage in unauthorized
use of the Company's proprietary information. Technology or proprietary
information incorporated in the Company's products can be licensed from third
parties, generally on a non-exclusive basis. The failure of the third-party
licensors to maintain or update their products could result in delays in the
Company's ability to ship certain of its products. While it may be necessary in
the future to obtain rights to third party technology, there can be no assurance
that the Company will be able to do so.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As a result of the confirmation of the Bankruptcy Plan, the Company is no longer
threatened with any litigation, claims and assessments, which may have existed
as a result of the bankruptcy filing.
ITEM 2. CHANGES IN SECURITIES
The preferred stockholder of Series "A" and "B" convertible preferred stock
received 2,000,000 shares of common stock in exchange for the preferred stock in
the reorganized CFI.
During the year ended December 31, 1999, 75 shares of preferred stock were
converted into 525,521 shares of common stock and accordingly additional paid-in
capital decreased by $5,255.
On November 29, 1999, Ronco Funding, Inc., had funded debentures in an amount of
$311,000 net of expenses of $106,900. The 15% convertible debentures were
converted into 2,004,986 shares of the Company's common stock.
During the Chapter 11 Bankruptcy Proceeding in 1999, certain non-management
employees were issued 750,000 warrants for the purchase of one share of common
stock of CFI at $.39 per share. The price represents 125 percent of the bid
price of CFI stock on the effective date of the Bankruptcy Plan, August 2, 1999.
During the third quarter of 1999, after the bankruptcy confirmation, CFI was
short of cash for operational expenses, and accordingly, entered into two loans.
One loan was from Footbridge LTD Trust in the amount of $100,000 on a balloon
note at 10% interest, which has been subsequently repaid. As part of the
consideration for that loan, the lender was granted 100,000 warrants to purchase
one share of common stock of CFI at $.20 per share, which represents 110% of the
bid price of CFI stock on date of the loan agreement. Also, as part of that
transaction, a finders fee of $10,000 was paid together with 10,000 warrants to
purchase one share of CFI common stock at $.20) per share. Again this warrant
price represents 110% of the bid price of CFI stock on the date of the loan
agreement.
Additional financing was provided by a Company owned by the Chairman of the
Company, Vincent C. Castoro who made a loan to the Company in the amount of
$140,796 at 9% interest. As an inducement to make this loan, Mr. Castoro was
granted 150,000 warrants for the purchase of one share of CFI common stock at
.25(cent) per share, which represents 105% of the bid price as of the date of
the loan. This loan has not yet been repaid by CFI.
After the confirmation of the bankruptcy but before the end of the year, the
Company sold through a private placement of securities to Mr. Frank LaForgia. He
invested $300,000 and received 2,000,000 shares of common stock of CFI, plus
150,000 warrants to purchase one share of CFI common stock at $.25 per share,
which represents the 125% of the bid price on the date of the investment,
November 8, 1999. The Company has relied upon Section 4(2) for an exemption from
registration afforded by Section 4(2) of the Securities Act of 1933, as amended.
As a result of the Reorganization Plan and additional 2,269,980 common shares
have been issued to creditors of the bankruptcy petition.
As described more fully in the notes to the audited financial statements
included in the Company's Form 10- KSB for the period ended December 31, 1999,
certain liabilities which were attributable to the Company's wholly owned
subsidiary, DMP, were not subject to compromise under the Company's confirmed
plan of reorganization. During the period ended March 31, 2000, management
determined that a portion of these liabilities were guaranteed by the Company
either directly, or through indemnification of certain officers and directors of
the Company.
During the three months ended March 31, 2000, the Company issued 59,000 shares
of its common stock in satisfaction of one such obligation, resulting in
recognition of forgiveness of debt in the amount of $36,875.
As described more fully in the notes to the audited financial statements
included in the Company's Form 10- KSB for the period ended December 31, 1999,
the Plan included claims from two financial institutions in the amount of
$4,000,000, as well as certain non- priority claims from present and former
employees for unpaid compensation up to the petition date amounting to $83,328.
During the three months ended March 31, 2000, the Company issued 53, 864 shares
of its common stock in satisfaction of two such claims, which resulted in the
recognition of forgiveness of debt amounting to $33,665.
On April 11, 2000 the Company sold through a private placement of its securities
to Ronco II. Ronco II invested $500,400 and received 1,787,143 shares of common
stock of CFI, plus 1,787,143 warrants to purchase one share of CFI common stock
at $1.44 per share. The Company has relied upon Section 4(2) for an exemption
from registration afforded by Section 4(2) of the Securities Act of 1933, as
amended.
The following table sets forth the range of high and low closing prices per
share of the Common stock during the period since December 31, 1998.
1999 High Low
First Quarter $ 0.34 $ 0.07
Second Quarter $ 0.34 $ 0.06
Third Quarter $ 0.42 $ 0.17
Fourth Quarter $ 0.68 $ 0.18
2000
First Quarter $ 1.60 $ 0.312
Second Quarter (through 6/7/00) $ 1.65 $ 0.375
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION - SUBSEQUENT EVENTS
On April 11, 2000 the Company sold through a private placement of its securities
to Ronco II. Ronco II invested $500,400 and received 1,787,143 shares of common
stock of CFI, plus 1,787,143 warrants to
purchase one share of CFI common stock at $1.44 per share. The Company has
relied upon Section 4(2) for an exemption from registration afforded by Section
4(2) of the Securities Act of 1933, as amended.
On May 1, 2000 the Company acquired two commercial office buildings from
Flamingo Financial Services, Inc. valued at $2.5 million, and assumed $1.5
million in underlying liens in exchange for the Company's convertible preferred
stock and certain common stock purchase warrants valued at approximately
$1,000,000. The Company issued preferred stock with a par value of $1,000,000
and 750,000 common stock purchase warrants.
The preferred stock is convertible into shares of the Company's common stock
based on the average asking price for the five trading days at the end of the
month prior to conversion. The preferred shares have no cumulative dividend
features, but do entitle the holders thereof to participate in any dividends
payable to holders of common stock on a pro rata basis as if the shares had
previously been converted. The warrants entitle the holders thereof to purchase
one share of the Company's common stock at an exercise price of $.15 per share
for the initial 250,000 shares, $.35 for the next 250,000 shares and $.50 for
the next 250,000 shares, for a period ending five years after the issue date.
The agreement calls for a potential adjustment to the purchase price, based on
earnings over the eighteen-month period following the closing of the
transaction.
On May 4, 2000 the Company acquired a 40% interest in First Mortgage Securities,
Inc., of Clearwater Florida in exchange for 400,000 shares of common stock of
CFI, plus 400,000 warrants to purchase one share of CFI common stock at $.67 per
share.
On May 11, 2000 the Company executed a Letter of Intent to acquire RJ Systems
Inc., the creators of OrganizeIt!, PublishIt! and the Genesis technology tools
for rapid application development. The acquisition will include all of the
proprietary products of RJ Systems Inc. Due diligence is currently being
performed.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Not Applicable
SIGNATURE
In accordance with the requirements of the Securities and Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CFI MORTGAGE INC.
(Registrant)
CFI MORTGAGE INC.
(Registrant)
Date: June 7, 2000 /s/ Stephen E. Williams
-----------------------
Stephen E. Williams
(President, CEO)
Date: June 7, 2000 /s/ Rodger W. Stubbs
--------------------
Rodger W. Stubbs
(Principal Administrative Officer)