UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
[ ] 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. 0-23450
CAPITOL COMMUNITIES CORPORATION
(Exact 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.)
900 North Federal Highway
Suite 410
Boca Raton, FL 33432
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (561) 417-7115
Check whether the issuer (1) filed all reports required to be filed by Section
12, 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
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common Stock ($.01 Par Value) 25,550,361
(Title of Class) Shares Outstanding as of August 4, 2003
Transitional Small Business Disclosure Format: [ ] YES [X] NO
CAPITOL COMMUNITIES CORPORATION
Form 10-QSB
QUARTER ENDED June 30, 2003
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements(Unaudited)..................................... F-1
Consolidated Balance Sheet June 30,2003................................. F-1
Consolidated Statement of Cash Flows For the Nine Months Ended
June 30, 2003 and 2002 ................................................ F-2
Consolidated Statement of Operations For the Nine Months Ended
June 30, 2003 and 2002................................................. F-3
Consolidated Statement of Operations For the Three Months Ended
June 30, 2003 and 2002................................................. F-4
Notes to Consolidated Financial Statements June 30, 2003................ F-5
Item 2. Management's Discussion And Analysis or Plan of Operation........... 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................... 11
Item 3. Defaults Upon Senior Securities..................................... 11
Item 5. Other Information................................................... 11
Item 6. Exhibits and Reports on Form 8-K.................................... 12
Signatures.......................................................... 12
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
--------------------------------
CAPITOL COMMUNITIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2003
UNAUDITED
Current Assets
Cash $ 15,286
Accounts Receivable
Accrued Interest Receivable 41,935
Notes receivable-Current 1,000,000
Other Current Assets 2,633
-----------------
Total Current Assets 1,059,854
-----------------
Property and equipment
Furniture and Equipment, net of accumulated depreciation of $12,639
5,983
-----------------
Other Assets
Land and Real Estate Holdings
Deferred Tax Benefit 7,049,942
1,203,000
-----------------
Total Other Assets -----------------
8,252,942
-----------------
Total Assets
$ 9,318,779
=================
Current Liabilities
Notes Payable
Note Payable- Related Party $ 4,272,698
Accounts Payable & Accrued Expenses 227,374
603,181
Total Current Liabilities -----------------
5,103,253
-----------------
Long Term Liabilities
Notes Payable Non Current-Related Party
Total Long Term Liabilities 1,230,626
Total Liabilities 1,230,626
6,333,879
-----------------
Stockholders' Equity
Preferred Stock-$.01 par value, 10,000,000 shares
authorized; 4,112,591 shares issued and outstanding
Common Stock-$.01 par value, 40,000,000 shares 41,126
authorized; 29,090,050 shares issued and outstanding
Additional Paid in Capital 290,900
Preferred Stock Dividend 14,092,388
Note Receivable for Class A Common Stock- Related Party (270,558)
Treasury Stock; 3,629,989 shares (38,692)
Accumulated Deficit (4,805,229)
(6,325,035)
-----------------
Total Stockholders' Equity
2,984,900
-----------------
Total Liabilities and
Stockholders' Equity
$ 9,318,779
=================
-UNAUDITED-
-PREPARED INTERNALLY-
F-1
CAPITOL COMMUNITIES CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 2003 AND 2002
UNAUDITED
2003 2002
---- ----
Cash Flows from Operating Activities:
Net Income (Loss) $ (254,368) $ 1,719,305
Depreciation 821 1,367
Services paid by Issuance of Common Stock - 1,712,718
Preferred Stock for Accrued Interest 127,901
Common Stock Options granted for Services - 19,545
Unconsolidated Subsidiary 75,000
Loss on Discount of Note 70,298
Gain from Extinguishment of Notes (726,779)
Collection of Note Receivable by forgiveness of Accrued Expenses 261,308
Adjustments to Reconcile Income (Loss)
to Net Cash Used for operating Activities
(Increase) Decrease in Receivables
(Increase) Decrease in Accrued Interest Receivable (36,474) (34,521)
(Increase) Decrease in Real Estate Holdings - 4,057,370
(Increase) Decrease in Investments 281,433
(Increase) Decrease in Prepaid Assets 635
Increase (Decrease) in Accrued Expenses (130,556) (887,082)
Increase (Decrease) in Accrued Expenses-Related Parties (50,794)
Liabilities Subject to Compromise 14,959
----------------- -----------------
Net Cash Used for Operations (663,643) 6,885,729
----------------- -----------------
Cash Flows from Investing Activities:
Collections of Notes Receivable
(Increase) Decrease in Real Estate Holdings
(Increase) Decrease in Investments
(Increase) Decrease in Notes Receivable 1,070,000 (2,100,000)
Acquisition in Fixed Assets (2,363)
----------------- -----------------
Net Cash used in Investing Activities: 1,067,637 (2,100,000)
----------------- -----------------
Cash Flows from Financing Activities:
Proceeds from sale of Common Stock 5,000
Proceeds from Notes Payable - Related Party 242,000 298,000
Payment of Notes Payable (647,689) (4,990,806)
----------------- -----------------
Net Cash used in Financing Activities: (405,689) (4,687,806)
----------------- -----------------
Net Increase (Decrease) in Cash (1,695) 97,923
Beginning Cash 16,981 134
----------------- -----------------
Ending Cash $ 15,286 $ 98,057
================= =================
Schedule of Noncash Financing Activities
Common Stock Issued for Accrued Expenses 618,671
Common Stock Issued for Note Receivable 300,000
Common Stock Issued for Services 1,491,329
Preferred Stock Issued for Debt 408,850
Collection of Note Receivable by forgiveness of accrued expenses 261,308
Supplemental Information:
Interest paid $ 410,600 $ 1,811
-UNAUDITED-
-PREPARED INTERNALLY-
F-2
Capitol Communities Corporation and Subsidiaries
Consolidated Statements of Operations
For the Nine Months Ended June 30, 2003 and 2002
UNAUDITED
2003 2002
Revenues:
Sales $700,882 $8,201,290
---------------- ---------------
Total Revenues $700,882 $8,201,290
Cost of Sales 233,325 4,376,899
---------------- ---------------
Gross Profit 467,557 $3,824,391
Operating Expenses:
General & Administrative Expenses 390,191 2,330,921
Total Operating Expenses 390,191 2,330,921
---------------- ---------------
Net Income (Loss) Before
Other Income/(Expense) 77,366 $1,493,470
Other Income and (Expense)
Operations of Unconsolidated Investments (75,000) (281,433)
Interest Income 101,726 34,521
Other Income -
Interest Expense (939,800) (711,750)
Interest Expense- Related Parties (145,439) -
---------------- ---------------
Total Other Income and (Expense) (1,058,513) (958,662)
---------------- ---------------
Net Income (Loss) from continuing operations $ (981,147) $534,808
before Extraordinary Items
Extraordinary Items
Gain from retirement of debt at a discount,
net of income tax provision of $0 $726,779 1,184,497
---------------- ---------------
Net Income (Loss) $ (254,368) $1,719,305
================ ===============
Basic Income (Loss) per share
Income (Loss) before extraordinary item ($0.04) $0.02
Extraordinary Item
Gain from retirement of debt at a discount 0.03 0.05
---------------- ---------------
Net Income (Loss) ($0.01) $0.07
================ ===============
---------------- ---------------
Weighted average shares outstanding: 25,460,061 24,611,899
================ ===============
Fully Diluted Income (Loss) per share
Income (Loss) before extraordinary item - $0.02
Extraordinary Item - 0.05
---------------- ---------------
Net Income (Loss) - $0.07
================ ===============
Weighted average shares outstanding: - 24738650
================ ===============
-UNAUDITED-
-PREPARED INTERNALLY-
F-3
Capitol Communities Corporation and Subsidiaries
Consolidated Statements of Operations
For the Three Months Ended June 30, 2003 and 2002
UNAUDITED
2003 2002
Revenues:
Sales $700,882 $0
-------------- ---------------
Total Revenues $700,882 $0
Cost of Sales 233,325 -
-------------- ---------------
Gross Profit $467,557 $0
Operating Expenses:
General & Administrative Expenses 40,294 240,013
Total Operating Expenses 40,294 240,013
-------------- ---------------
Net Income (Loss) Before
Other Income/(Expense) $427,263 ($240,013)
Other Income and (Expense)
Operations of Unconsolidated Investments (139,133)
Interest Income 372 32,723
Loss on Discount of Note Receivable
Other Income
Interest Expense (142,892) (183,350)
Interest Expense- Related Parties (50,350) -
-------------- ---------------
Total Other Income and (Expense) (192,870) (289,760)
-------------- ---------------
Net Income (Loss) from continuing operations $ 234,393 ($529,773)
Net Income (Loss) before Extraordinary Items $ 234,393 ($529,773)
Extraordinary Items
Gain from retirement of debt at a discount,
net of income tax provision of $0 $320,652 -
-------------- ---------------
Net Income (Loss) $ 555,045 ($529,773)
============== ===============
Basic Income (Loss) per share
Income (Loss) before extraordinary item ($0.04) ($0.02)
Extraordinary Item
Gain from retirement of debt at a discount 0.01 0.00
-------------- ---------------
Net Income (Loss) ($0.03) ($0.02)
============== ===============
-------------- ---------------
Weighted average shares outstanding: 25,460,061 24,750,361
============== ===============
-UNAUDITED-
-PREPARED INTERNALLY-
F-4
CAPITOL COMMUNITIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2003
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
A. Background
----------
The consolidated balance sheet at June 30, 2003 and the related statements of
operations and cash flows for the six month period ended June 30, 2003, include
the accounts of Capitol Communities Corporation and its wholly owned
subsidiaries and are unaudited. All inter-company accounts and transactions have
been eliminated in consolidation.
These unaudited interim consolidated financial statements should be read in
conjunction with the September 30, 2002 fiscal year end financial statements and
related notes. The unaudited interim financial statements reflect all
adjustments which are, in the opinion of management, necessary for a fair
statement of results for the interim periods presented and all such adjustments
are of a normal recurring nature. Interim results are not necessarily indicative
of results for a full year.
The Company was originally incorporated in the State of New York on November 8,
1968 under the name of Century Cinema Corporation .
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. The Company is currently in the business of selling real estate
properties.
On July 21, 2000, Capitol Development of Arkansas, Inc., a wholly-owned
subsidiary of the Company which holds substantially all of the Company's assets,
filed a voluntary petition for relief under Chapter 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court, Eastern District of
Arkansas. The Company continued to operate its business as a
debtor-in-possession until September 6, 2002, when the United States Bankruptcy
Court, Eastern District of Arkansas, Little Rock Division entered an Order
Dismissing the Chapter 11 Proceedings against the Operating Company. The Company
filed a Motion to Dismiss the Bankruptcy Proceedings instead of a Plan of
Reorganization, as all claims of non-insiders of the Operating Subsidiary,
except for the claim of the Arkansas Department of Finance and Administration
had been satisfied or released.
On July 17, 2002, Boca First Capital, LLLP, a Florida limited liability limited
partnership acquired control of Capitol Communities Corporation in an exchange
of 16 million shares of Common Stock of the Company held by the Company's
president, and Prescott Investments, L.P., a Nevada limited partnership
beneficially owned by the Company's president, for a combined 50% interest in
Boca First Capital LLLP. Boca First Capital LLLP is controlled by its general
partner, Addison Capital Group LLC, a Nevada limited liability company, of which
the president of the Company is a controlling shareholder. As of the date of
this Report, Boca First Capital LLLP owns 62.6% of the Company's issued and
outstanding shares.
By reason of the exchange of securities, Addison Capital LLC, the general
partner of Boca First Capital LLLP, may be deemed to have voting power and/or
dispositive power with respect to the 16,000,000 shares of Common Stock owned by
Boca First Capital LLLP.
As part of the change of control, the Company has moved its principal place of
business from Torrance, California to Boca Raton, Florida, effective July 22,
2002.
B. Principles of Consolidation
---------------------------
The Consolidated financial statements include accounts of its wholly-owned
subsidiaries. All material intercompany transactions have been eliminated.
F-5
CAPITOL COMMUNITIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2003
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
D. 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.
E. 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.
F. 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 nine
months ended June 30, 2003 and 2002 were 25,460,061 and 24,611,899,
respectively.
NOTE 2 - CAPITAL TRANSACTIONS
--------------------
On January 10, 2003, West Maumelle L.P., retired one of the debts owed to the
Operating Subsidiary, comprised of a promissory note in the face amount of
$1,070,000. In satisfaction of Note 1, West Maumelle paid a cash payment of
$500,000.00 and assigned a $640,000 promissory note made by an unaffiliated
third party made payable to West Maumelle L.P. The $640,000 note is secured by a
mortgage to certain real property located in Maumelle, Arkansas, and pays
interest at a rate of 5.75% per annum with interest paid monthly, with a
maturity date of July 10, 2004. On June 30, 2003, the Company assigned the note,
for the discounted amount of $570,000 to a group of investors, one of whom is an
entity controlled by an officer and a controlling shareholder of the Company.
The Company renewed a second owed by West Maumelle to the Operating
Subsidiary in the face amount of $1,030,000.00. The new note has a face value of
$1,000,000.00 and bears interest at a rate of 5.75% per annum with interest due
annually, with a maturity date of January 10, 2006. The Renewal Note is secured
by a mortgage to certain real property located in Maumelle, Arkansas, and is
junior to a senior mortgage from an unaffiliated commercial bank. West Maumelle
also made an unsecured note payable to the Operating Subsidiary in the amount of
$46,170.00, with unpaid principal due and payable on April 10, 2003.
On January 24, 2003, Capitol Development of Arkansas, Inc. entered
into an Agreement with Trade Partners, Inc., a Michigan corporation. Under the
terms of the Agreement, the Company and Trade Partners, Inc., the two members of
TradeArk Properties, LLC, a Michigan limited liability company, agreed to
reacquire its real property from TradeArk.
F-6
CAPITOL COMMUNITIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2003
NOTE 2 - CAPITAL TRANSACTIONS (CONTINUED)
--------------------------------
The Company reacquired approximately 251 acres of real property in exchange for
giving TradeArk Properties LLC the Company's 35.16% membership interest in
TradeArk. The land, comprised of single family, multi-family and commercial
land, is located in the City of Maumelle, the County of Pulaski, Arkansas. The
Company assumed approximately three million five hundred thousand dollars
($3,500,000 00) in debt held by New Era Life Insurance Company, secured by the
real property and a $580,000 liability to Trade Partners
The real property received from TradeArk has been pledged as collateral to Boca
First Capital LLLP to secure its $4,000,000.00 line of credit.
On April 17, 2003, West Maumelle paid off the Differential Note owed to the
Operating Subsidiary in the amount of $46,170.
For the period April 1, 2003 through June 30, 2003, the Company exchanged
$461,460 in debt, including principal and interest, with a group of existing
promissory note security holders ("Note Holders") for $151,530 in cash.
On May 28, 2003, the Company completed the sale of approximately 19 acres of
multi-family land of the Maumelle Property. The multi-family tract was used to
partially secure a loan from New Era Insurance Company and a loan from Boca
First Capital LLLP , junior to the New Era loan. From the sale, the Company
received gross proceeds of $700,882.20, and net proceeds of $38,673.07 after
closing costs and a partial payoff in the amount of $606,674.00 to New Era.
NOTE 3 - LEGAL PROCEEDINGS
-----------------
The Company is not involved in any other litigation, other than those actions
arising from the normal course of business. Management does not believe will
have a material effect on the Company's operations.
NOTE 4 - SUBSEQUENT EVENTS
-----------------
On July 1, 2003, the Company completed the sale of approximately 192 acres of
single-family land of the Maumelle Property, known as the Pine Ridge Tract. The
Pine Ridge tract was used to partially secure a loan from New Era and a loan
from Boca First Capitol, junior to the New Era loan. From the sale, the Company
received gross proceeds of $2,016,000.00 and net proceeds of $491,781.83 after
closing costs and a partial payoff in the amount of $1,384,492.56 to New Era.
The Company is currently offering $3,000,000 in debt securities ("Debt Notes").
The Notes bear interest at a rate of 8% per annum, with interest payable
monthly. The entire principal and any accrued interest is due and payable three
years after the closing date.. The Company has signed an agreement with the
Noble International Investments, Inc. ("Noble") to assist it in the debt
offering and will pay Noble 2% of the aggregate offering price for such services
and 2% for expenses. Approximately 250 acres of real property in Maumelle,
Arkansas will be pledged to secure the debt notes.
The Company has also signed a six-month consulting agreement with Noble to
assist the Company in structuring and determining potential acquisitions. For
such services the Company has agreed to pay Noble a fee of $10,000 a month and
1,000,000 shares of common stock with registration rights.
F-7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Forward-Looking Statements
- --------------------------
In addition to historical information, this Report contains forward-looking
statements. Such forward-looking statements are generally accompanied by words
such as "intends," "projects," "strategies," "believes," "anticipates,"plans,"
and similar terms that convey the uncertainty of future events or outcomes. The
forward-looking statements contained herein are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
reflected in the forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed in ITEM 2 of this
Report, the section entitled "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION." Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's analysis only as of the
date hereof and are in all cases subject to the Company's ability to, (1) cure
its current liquidity problems, (2) liquidate assets to meet day-to-day
operations and raise sufficient capital to commence meaningful operations. There
is no assurance that the Company will be able to raise sufficient capital or
liquidate assets to pursue the business objectives discusses herein.
The forward-looking statements contained in this Report also may be impacted by
future incidents of terrorism and the economic impact thereof. The effect of
these events on the business of the Company, if any, is currently unclear.
However, any adverse effect on general economic conditions and consumer
confidence resulting from these events may adversely affect the business of the
Company.
Capitol Communities Corporation undertakes no obligation to publicly revise
these forward-looking statements to reflect events or circumstances that arise
after the date hereof. Readers should carefully review the risk factors
described in other documents the Company files from time to time with the
Securities and Exchange Commission (the "SEC"), including without limitation
those identified in the "Risk Factors" section of the Company's Registration
Statement filed with the SEC in September 1996 on Form 10-SB.
The following discussion should be read in conjunction with the unaudited
financial statements appearing in Item 1, of this Part 1 ("the Financial
Statements"), and the information provided in this Item 2, of this Report.
Financial Condition
- -------------------
As noted below and elsewhere in this Report, the Company needs to cure its
current illiquidity in order to diversify its portfolio, acquire new business
opportunities and generate revenues. Accordingly, the Company is in the process
of liquidating all or portions of the Maumelle Property and raise sufficient
capital to commence meaningful operations. There can be no assurance, however,
that the Company will be able to sell portions and/or all of the Maumelle
Property for a fair market value or at all, or raise sufficient capital in order
to implement its growth strategy. (See "LIQUIDITY AND CAPITAL RESOURCES,"
below).
Change in Financial Condition Since the End of Last Fiscal Year. At June 30,
2003, the Company had total assets of $9,318,770, an increase of $2,346,600 or
33.6% of the Company's total assets as of the Company's fiscal year end of
September 30, 2002. The increase in total assets resulted from the reacquisition
of real property from TradeArk Properties LLC ("TradeArk"), located in Maumelle,
Arkansas (the "TradeArk Property"). The Company had cash of $15,286 at June 30,
2003 compared to $16,981 at September 30, 2002.
The current portion of Notes Receivable increased from $500,000 on
September 30, 2002 to $1,000,000 of June 30, 2003, an increase of $500,000. The
increase was due to the satisfaction of a promissory note with a face value of
$1,070,000 due from West Maumelle, LP to the Company and the reclassification of
a note from the same party from non-current to current.
The carrying value of the Company's real estate holdings increased
during the nine months, from $1,300,140 to $7,049,942, due to the reacquisition
of the TradeArk Property.
8
Total liabilities of the Company at June 30, 2003 were $6,333,879, an
increase of $2,042,872 from the September 30, 2002 total of $4,291,007. The
current liability for notes payable increased by $1,254,904 during the nine
months, from $3,245,168 to $4,500,072. Notes payable increased due to the
reacquisition of the TradeArk Property and the accompanying liability due to New
Era Life Insurance Company ("New Era") collateralized by the TradeArk Property.
Accounts payable and accrued expenses decreased by $391,864, due to a
consolidation of operational facilities and a decrease in overhead. At September
30, 2002, the liability for accounts payable and accrued expenses totaled
$995,045, and $603,181, at June 30, 2003. Accrued Interest Payable decreased by
$191,381 from $437,195 at September 30, 2002 to $245,814 at June 30, 2003, due
to the settlement of certain defaulted promissory notes owed by the Company.
Shareholders' Equity increased by $303,728. The increased resulted
primarily from the settlement of certain defaulted promissory notes owed by the
Company for the nine month period ending June 30, 2003.
Results of Operations
- ---------------------
Comparison of the Nine Months Ended June 30, 2003 to the Nine Months
Ended June 30, 2002. For the nine months ended June 2003, the Company
experienced a net loss of $254,368 compared with a gain of $1,719,305 for the
nine months ended June 30, 2002. Sales from continuing operations decreased by
$7,500,408 from $8,201,290 to $700,882, general and administrative expenses
decreased by $1,940,730 from $2,330,921 to $390,191, while interest expense
increased by $228,050 from $711,750 to $939,800, resulting in the increase in
net losses due to lower sales.
Sales decreased by $7,500,408 to $700,882 for the nine months ended
June 30, 2003 from $8,201,290 for the nine months ended June 30, 2002, due to
lack of sales during the current nine month period. During the nine months ended
June 30, 2003, there were sales of $700,882 , with net proceeds of $467,557, and
during the nine months ended June 30, 2002 there were sales of $8,201,290, with
net proceeds of $3,824,391.
General and administrative expenses decreased to $390,191 for the nine
months ended June 30, 2003 from $2,330,921 for the nine months ended June 30,
2002. The major cause of the decrease in general and administrative expense was
a decrease in operating expenses, consolidating facilities, decrease in
overhead, and the president of the Company canceling all salary for the nine
month period ended June 30, 2003.
Interest income increased from $34,521 for the nine months ended June
30, 2002 to $101,726 for the nine- month period ended June 30, 2003.
Interest expense increased by $373,489 from $711,750 for the nine
months ended June 30, 2002 to $1,085,239 for the nine months ended June 30,
2003. The increase interest expense resulted from the Company's borrowing on its
line of credit from Boca First Capital.
The operating loss for unconsolidated subsidiaries accounted for under
the Equity method totaled $75,000 for the nine months ended June 30, 2002, from
$281,433 in the period ended June 30, 2002. The operating loss was primarily a
result of the Company's minority interest in TradeArk. This will no longer be
relevant due to the reacquisition of the TradeArk Property in exchange for the
Company's minority membership interest.
Comparison of the Three Months Ended June 30, 2003 to the Three Months Ended
June 30, 2002 For the three months ended June 30, 2003 the Company experienced
net income of $555,045 compared with a loss of $529,773 for the three months
ended June 30, 2002, due to the sale of land and the settlement of certain
defaulted promissory notes. Sales from continuing operations increased by
$700,882 from $0 to $700,882, general and administrative expenses decreased by
$199,716, from $240,013 to $40,294, and interest expense increased by $193,242,
from $183,350 to $193,242.
Sales increased by $700,882 from $0 for the three months ended June 30,
2002 to $700,882 for the from the three months ended June 30, 2003. During the
three months ended June 30, 2003, 19 acres were sold for total sale proceeds of
$700,882 and net proceeds of $38,673.
9
General and administrative expenses decreased by $199,719 from $240,013
for the three months ended June 30, 2002 to $40,294 for the three months ended
June 30, 2003. The decrease was primarily due to the consolidation of operations
and a decrease in overhead.
Interest income decreased from $32,723 for the three months ended June
30, 2002 to $372 for the three month period ended June 30, 2003.
Interest expense increased by $9,892 from $183,350 for the three months
ended June 30, 2002 to $193,242 for the three months ended June 30, 2003. The
increase resulted primarily from the assumption of the New Era loan.
Liquidity and Capital Resources
- -------------------------------
Cash and cash equivalents amount to $ 15,285 as of June 30, 2003, as compared
with $16,981 at September 30, 2002.
As of June 30, 2003, and August 1, 2003, the Company was in default on
non-recourse promissory notes in the amount of $274,278. Since the last quarter
ended on March 31, 2003, the Company has negotiated settlements with certain
promissory note holders to exchange $461,460 in debt and accrued interest for
cash and notes of $151,530.
As of June 30, 2003, the Company has drawn $1,428,000 on a $4,000,000.00 credit
line from Boca First Capital ( the "Boca Credit Line"), a Florida limited
liability limited partnership beneficially owned and controlled by the President
and a controlling shareholder of the Company, and $1,428,000, as of August 15,
2003. The loan is evidenced by a note (the "the Boca Note") secured by
substantially all of the assets of the Operating Subsidiary. The Boca Credit
Line matures on November 1, 2004, and has an initial interest rate of ten
percent (10%) per annum and will, on a quarterly basis, adjust to a rate which
is equal to the greater of ten percent per annum or one percent (1%) above the
prime rate, as published in The Wall Street Journal, in effect on that date. As
of June 30, 2003, the Boca Credit Line has an interest rate of 10 percent per
annum. In January, Boca First secured a mortgage junior to New Era, a $3,500,000
loan assumed in the reacquisition of the TradeArk Property.
On May 28, 2003, the Company sold 19 acres of multi-family property, formerly
part of the TradeArk properties for gross proceeds of $700,882.20. After payment
of closing costs, commissions and a reduction in a loan from New Era Life
Insurance Inc. ("New Era"), in the amount of $606,209.13, which partially was
secured by the 19 acres, the Company received net proceeds of $38,673.07. The 19
acres was part of the TradeArk Property and was part of the TradeArk Property
pledged to New Era.
The Company, without liquidating all or portions of the Maumelle Property, does
not have sufficient capital to meet its day-to-day operations or commence any
meaningful operations. This illiquidity may prevent the Company from realizing
or consummating any of its business plans, objectives, strategies, or
transactions discussed in this and other Reports.
Except for the Company's credit line with Boca First, the Company has minimal
operating income and its primary source of funds to meet operating expenses for
the last two years has been the liquidation of its real property inventory. If
the Company has to liquidate portions of its Maumelle Property during fiscal
year 2003 to service its debt, it may be at less than fair market value.
If the Company is able to liquidate the property discussed above and raise
sufficient capital, the Company will retire additional secured debt and
contemplates acquiring and/or developing real estate projects in fast growing
areas such as Florida, or acquiring business opportunities that generate
revenues. There can be no assurance that the Company will be able raise
sufficient capital and/or sell the Maumelle Property in order to diversify its
portfolio or that the Company will be able to acquire real estate projects and
other business opportunities that will generate progressive revenues.
Subsequent Events
- -----------------
On July 1, 2003, the Company completed the sale of approximately 192 acres of
single-family land of the TradeArk Property, known as the Pine Ridge Tract. The
Pine Ridge tract was used to partially secure a loan from New Era and a loan
from Boca First Capitol, junior to the New Era loan. From the sale, the Company
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received gross proceeds of $2,016,000.00 and net proceeds of $491,781.83 after
closing costs and a partial payoff in the amount of $1,384,492.56 to New Era.
The Company is currently offering $3,000,000 in debt securities ("Debt Notes").
The Notes bear interest at a rate of 8% per annum, with interest payable
monthly. The entire principal and any accrued interest is due and payable three
years after the closing date. The Company has signed an agreement with the Noble
International Investments, Inc. ("Noble") to assist it in the debt offering and
will pay Noble 2% of the aggregate offering price for such services and 2% for
expenses. If the offering is successful, the Company intends to use the proceeds
primarily for acquisitions, real estate development and/or collateralized
lending. Approximately $700,000 will be used for operating capital. There can be
no assurance, however, that the Company will be able to successfully complete
the offering. The Debt Notes will be secured by approximately 250 acres of the
Company's real property located in Maumelle, Arkansas, known as Tract A. Boca
First Capital has agreed that if the offering is successful, it will subordinate
its first mortgage on Tract A to the Debt Notes.
The Company also has signed a six month consulting agreement with Noble to
assist the Company in structuring and determining potential acquisitions. For
such services the Company has agreed to pay Noble a fee of $10,000 a month and
1,000,000 shares of common stock with registration rights.
PART II.
ITEM 1. LEGAL PROCEEDINGS
The Company is not involved in any litigation, other than those actions arising
from the normal course of business, and which Management does not believe will
have a material effect on the Company's operations.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company incorporates by reference the information regarding defaults of
certain debt obligations from Part I, ITEM 2 "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF PLAN OF OPERATION - Liquidity and Capital Resources," and PART II,
ITEM 1, LEGAL PROCEEDINGS."
ITEM 5. OTHER INFORMATION.
On August 15, 2003, Michael G. Todd, president of the Company and a 45% owner of
Boca First Capitol, the controlling shareholder of the Company, entered into an
agreement with MB 2002 LLC, an entity controlled by Howard Bloom and a 45% owner
of Boca First Capital. Under the terms of the agreement, Todd sold and
transferred 26.46% of his interest in Boca First Capital to MB 2002 for the
price of $10, with the understanding that MB 2002 intends to transfer the 26.46%
interest to a third party within one year from the effective date of the
agreement. If such a transfer does not occur within one year, Todd has the right
to repurchase the interest on the same terms. It is also the intent of Bloom to
transfer a portion of his beneficial ownership in the Company, not including the
purchased Todd interest, to Ashley Bloom, his son and the vice president of the
Company.
The Company incorporates by reference the information in Part I, ITEM 2,
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION - Liquidity and
Capital Resources."
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
EXHIBITS
The following Exhibits are filed as part of this Report.
31.1 Certification of principal executive officer required by Rule
13a - 14(a) or 15d-14(a) of the Exchange Act.
31.2 Certification of principal financial officer required by Rule
13a - 14(a) or 15d-14(a) of the Exchange Act.
32.1 Certification of principal executive officer and chief
financial officer required by Rule 13a - 14(b) or 15d - 14(d)
of the Exchange Act.
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b) REPORTS ON FORM 8-K
None
CAPITOL COMMUNITIES CORPORATION
Date: August 19, 2003 By: /s/ Michael G. Todd
----------------
Michael G. Todd,
President and Chief Executive Officer
Date: August 19, 2003 By: /s/ Ashley Bloom
----------------
Ashley Bloom,
Treasurer
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