CFI MORTGAGE INC (CFIM.OB) Quarterly Report (SEC form 10QSB)
ITEM 2: Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
The following discussion contains certain "forward-looking statements" (rather than historical facts) which are subject to the
safe harbor provision created by the "Private Securities Litigation Reform Act of 1995" (the "Act") and regulations and
interpretations there under, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements and other information contained herein including such words as "may," "will," "expect," "believe," "plan," "estimate," "goal," "anticipate," "intend," and other similar terminology and use of future tense, constitute forward-looking statements. These forward-looking statements represent management's current
expectations and are subject to business and economic uncertainties and risks. Actual results could differ materially from
those set forth in and suggested by the forward-looking statements. This discussion should be read in conjunction with the
consolidated financial statements of the Company and the related notes thereto.
Company Overview
CFI Mortgage, Inc. (the "Company") is engaged in two lines of business: First, residential mortgage lending; and, second,
development and licensing of proprietary computer software solutions, primarily for the ground transportation industry. The
Company is incorporated in Delaware, and may be described as a holding company. Its executive offices and operations are
located in Clearwater, Florida. The Company conducts its operations through two wholly owned subsidiaries. First United
MortgageBanc, Inc., a Florida corporation founded by the Company, conducts the Company's mortgage lending business.
Inventek, Inc., a Florida corporation doing business as Surfside Software Systems, conducts the Company's computer
software business.
Three Months Ended March 31, 2001 Compared to Three Months Ended March 31, 2000
Results of Operations
The results of operations for the three months ended March 31, 2000 reflect no mortgage related revenue, as the Company
did not begin any mortgage operations until June 2000.
The Company recognized a loss from operations of $417,210 for the three months ended March 31, 2001 compared to
$208,238 for the comparable period in 2000 an increase of $208,972. The increase is primarily the result of a significant
drop in revenue from the mortgage operation that is the direct result of the termination of the warehouse line of credit that was due in part to the unauthorized misrepresentations by a former officer of the Company in the initial credit application. This resulted in a loss per share of $0.02 from continuing operations for the three months ended March 31, 2001 compared to a loss per share of $0.01 from continuing operations for the same period in 2000. The net loss for the three months ended
March 31, 2001 is $442,210 compared to $37,698 for the same period in 2000. The increase is the result of one-time gains
attributable to forgiveness of debt and a cancellation penalty for the three months ended March 31, 2000.
Total revenues increased $671,403 or 84% to $795,552 for the three months ended March 31, 2001 compared to $124,149 for the same period in 2000. The increase is the direct result of revenues from the mortgage operation for the three months ended March 31, 2001 compared to no mortgage related operations for the same period in 2000. The increase, while dramatic, is much less than the Company would have achieved had it not been for the unauthorized misrepresentation on the credit application with the Company's warehouse lender perpetrated by a former officer, which resulted in the termination of the Company's warehouse line. In February 2001, the Company discovered that this same officer who was responsible for overseeing the Company's mortgage lending operations had diverted approximately $40,000 in mortgage payment checks due to the Company to his own company. The Company is seeking a criminal prosecution of this person for embezzlement. The Company believes that all the funds are in an account that has been frozen and is confident that it will be able to recover the funds in civil litigation.
Total operating expenses increased $880,375 or 72% to $1,212,762 for the three months ended March 31, 2001 compared to $332,387 for the same period in 2000. Selling expenses increased $321,931 or 91% to $350,114 for the three months ended March 31, 2001 compared to $28,183 for the same period in 2000. The primary reason for this was an increase of $313,266 or 97% for salaries and broker commissions related to the mortgage operation compared to none for the same period in 2000. General and administrative expenses increased $338,870 or 52% to $635,013 for the three months ended March 31, 2001 compared to $296,143 for the same period in 2000. Office and computer expenses increased $57,849 or 81% to $71,166 for the three months ended March 31, 2001 compared to $13,317 for the same period in 2000, which is
the direct result of increased operations. Employee benefits and related payroll taxes increased $91,189 or 85% to $106,902
for the three months ended March 31, 2001 compared to $15,713 for the same period in 2000. The increase is the result of
the addition of employees related to the mortgage operations. Rent expense increased $23,177 or 58% to $39,310 for the
three months ended March 31, 2001 compared to $16,133 for the same period in 2000, due to the renting of additional
office space resulting from increased operations. Depreciation and Amortization expense increased $52,292 or 56% to
$92,521 for the three months ended March 31, 2001 compared to $40,229 for the same period in 2000. Interest expense
increased $219,574 or 96% to $227,635 for the three months ended March 31, 2001 compared to $8,061 for the same
period in 2000. The increase is the result of interest expense charged for loans on the warehouse line until sold for the three
months ended March 31, 2001 compared to none for the same period in 2000.
Liquidity and Capital Resources
The Company has been dependent on stock sales and third party borrowings to sustain its operations. In April 2000, the
Company sold 1,787,143 shares of common stock plus 1,787,143 warrants to purchase one share of CFI common stock at
$1.67 per share in a private placement for $500,400. Going forward, the Company believes that cash flow from operations will be sufficient to fund operations. However, if additional funds are needed to support working capital or to complete acquisitions, the Company would seek to raise such funds through one or more public or private financing of equity, or from
other sources. There is no assurance any such additional financing, if needed, will be available or, if available, that it would be on terms acceptable to the Company.
Net cash provided by operating activities was $10,631,814 for the three months ended March 31, 2001 compared to net
cash provided by operations of $98,032 for the comparable period in 2000. The increase is primarily due to the selling of the
mortgage loans held for resale on the Company's warehouse line.
Net cash of $14,127 was used in investing activities for the three months ended March 31, 2001 compared to net cash used
in investing activities of $70,641 for the comparable period in 2000. The change is due to no expenses generated for software development costs for the three months ended March 31, 2001 compared to $63,953 for the comparable period in 2000.
Net cash of $10,632,015 was used in financing activities for the three months ended March 31, 2001 compared to net cash
used in investing activities of $19,942 for the comparable period in 2000. This was primarily the result of selling the majority
of the loans on the warehouse line of credit, and paying down the line.
Working capital at March 31, 2001 was a deficit of $1,393,421 as compared with a deficit of $1,066,324 at December 31, 2000. The increase of $327,097 or 30% in the deficit is primarily the result of selling off the mortgage loans from the warehouse line. Without the warehouse line, the deficit would have decrease by $41,176 at March 31, 2001.
In April 2001, the Company signed a letter of intent with Tidalwave Holdings, Inc., to form a joint venture which will provide
the Company with $10,000,000 non-conforming (sub prime), and conforming revolving warehouse lines of credit. This joint
venture will enable the Company to establish and operate a national wholesale mortgage conduit that will purchase loans on a wholesale basis. The loans will be processed, underwritten and funded by FUMB for sale in institutional private placement
transactions.
Under the terms of the Agreement with FAMS, FUMB is provided warehouse funding by FAMS at interest rates ranging
from (New York) Prime to Prime plus 2%, and utilizing compensating balances on deposit at FAMS's participating
warehouse banks, and receives 100% advances on loans funded. The company has executed a Letter of Intent that will allow
the Company to participate in mortgage securitization issues with one of its investment mortgage bankers that will allow the company to retain an interest in the servicing rights for loans securitized per that Agreement.
