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                Annual Report For Small Business Issuers Subject 
                     to the 1934 Act Reporting Requirements

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-KSB

[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934
                      For the Year Ended December 31, 1997

[ ]  TRANSITION  REPORT  PURSUANT  TO SECTION  13 OR 15(d) OF THE  SECURITIES
     EXCHANGE ACT OF 1934 
                          Commission File No. 0-21417

                            CAPITAL TITLE GROUP, INC.
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                 (Name of Small Business Issuer in its charter)

           Delaware                                       87-0399785
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(State or other jurisdiction of                (IRS Employer Identification No.)
incorporation or organization)

14555 North Scottsdale Rd. Suite 320, Scottsdale, Arizona      85254
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(Address of principal executive offices)                     (Zip Code)

                    Issuer's telephone number: (602) 483-8868
                                              -----------------
              Securities registered under Section 12(b) of the Act:
                                      NONE

              Securities registered under Section 12(g) of the Act:

                          Common Stock, $.001 par value
                          -----------------------------
                                (Title of class)

Check  whether  the issuer  (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 [ ].

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference in Part III of this Form 10-KSB,  or any amendment to
this Form 10-KSB. [ ]

On March 15,  1998,  the  aggregate  market  value of the  voting  stock held by
non-affiliates of the issuer was $27,375,000. This figure was estimated based on
March 13,  1998 close of the  Company's  common  stock.  The number of shares of
Common Stock outstanding on March 15, 1998 was 11,231,029.  As of March 20, 1998
the Company had received  subscriptions for 433,500 units in a private placement
offering.  Each unit is  comprised  of two shares of Common Stock and one Common
Stock Warrant.  The shares and warrants  issued in conjunction  with the private
placement were not considered issued and outstanding as of March 15, 1998.

                       DOCUMENTS INCORPORATED BY REFERENCE

The information in Part II Item 7 Financial Statements and Supplementary Data is
incorporated herein by reference to Form 10-KSB

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                                     PART I

ITEM 1. BUSINESS

COMPANY HISTORY AND OVERVIEW

     Capital  Title  Group,  Inc.,  a Delaware  corporation  (the  "Company"  or
"Capital  Title  Group"),  through its wholly owned  subsidiary,  Capital  Title
Agency, Inc., an Arizona corporation ("Capital Title"),  operates an independent
title agency and escrow business with headquarters in Phoenix,  Arizona. Capital
Title  Group  was  formed  under  the  laws of Utah in 1983 and  redomiciled  in
Delaware in 1989. Capital Title was formed as an Arizona corporation in 1981 and
has engaged in business as an independent  title agency and escrow company since
that time.

     On May 23, 1996,  the Board of Directors of Capital Title Group,  (formerly
Norvex,  Inc.),  and the Board of Directors of Capital  Title,  approved a share
exchange  transaction  between  Capital  Title and  Capital  Title  Group  ("the
Acquisition  Transaction"),  pursuant to which  Capital Title Group issued 5.781
shares of Capital  Title's,  $.001 par value,  common stock in exchange for each
share held by Capital Title's shareholders. Immediately prior to the Acquisition
Transaction, Capital Title Group had 1,686,164 shares issued and outstanding and
approximately 75  shareholders.  In the Acquisition  Transaction,  Capital Title
Group issued 6,734,865 shares to the existing shareholders of Capital Title. The
share  exchange ratio was  determined by arm's length  negotiations  between the
respective  boards of directors of Capital Title Group and Capital Title,  based
on a number of factors, including the business prospects and financial condition
of the respective entities.

     Prior to the  merger,  Capital  Title  Group  had no  significant  business
operations  or holdings.  As a result of the  Acquisition  Transaction,  Capital
Title Group now operates Capital Title as a wholly owned subsidiary.

     Since 1981,  Capital  Title has provided  continuous  title  insurance  and
escrow services to the real estate industry in Yavapai County,  Arizona. In July
1996,  Capital  Title  expanded its  operations  into the  metropolitan  area of
Phoenix,  Arizona located in Maricopa County.  As of March 15, 1998, the Company
has seventeen branch offices,  seven are located in Yavapai County,  Arizona and
ten are in the Phoenix  metropolitan  area.  The Company  plans to continue  its
growth in Yavapai and Maricopa Counties and, as conditions merit, expand outside
Arizona.  The Company  intends to  accomplish  this  planned  expansion  through
acquisition or recruitment of escrow officers with significant  existing revenue
production  based upon their  relationships  with real estate brokers,  mortgage
lenders and other  industry  participants.  The Company  will attempt to attract
these  significant  producers  through  employment  packages  that include stock
options and stock purchase programs as substantial motivational incentives.

     The  principal  executive  offices of the  Company  are located at 14555 N.
Scottsdale  Road,  Suite  320,  Scottsdale,  Arizona  85254  and  the  Company's
telephone number is: (602) 483-8868.

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COMPANY OPERATIONS

     Capital Title is an independent title agency providing escrow services and,
as an agent for First  American  Title  Insurance  Company  ("First  American"),
United General Insurance Company ("United  General") and Old Republic  Insurance
Company ("Old Republic"),  issuing title insurance  policies to service the real
estate industry in Yavapai County and Maricopa County, Arizona.  Capital Title's
operations commenced in 1981 in Prescott, Arizona. During 1995 and 1996, Capital
Title began an  expansion  program,  opening  additional  offices in the Yavapai
County population centers of Prescott Valley, Cottonwood and Sedona. During 1996
and 1997, Capital Title opened seven branch offices in Maricopa County, Arizona.
As  conditions  and  operating  results  warrant,  the  Company  plans  to  open
additional  branch offices in Maricopa and Yavapai Counties in addition to other
counties throughout Arizona.

     According to the BANK ONE ECONOMIC OUTLOOK CENTER, Arizona ranked among the
top  five  states  in the  nation  in the rate of new job  creation,  population
growth, and gains in personal income for 1997. Additionally,  Phoenix was one of
the top five single family housing  markets in the nation and the leading single
family  market in all the Western  States.  Phoenix is currently the 7th largest
city in the United States with an estimated population of 1.08 million. The BANK
ONE ECONOMIC  OUTLOOK  CENTER has  projected  the Phoenix  population  growth to
continue  through the year 2000,  adding more than  600,000  new  residents  and
making  Phoenix the 6th largest  city in the nation.  The Company  believes  the
surrounding  metropolitan areas in Maricopa County have the potential to grow at
an even more accelerated pace. Yavapai County has a current estimated population
of 139,000  which is expected to increase to  approximately  154,000 by the year
2000 according to the NORTHERN ARIZONA ECONOMIC MONITOR.

     Capital  Title's  expansion  plans  also call for the  opening  of  offices
outside of Arizona.  California  has the  distinction of creating more jobs than
any other state in nation in 1997 and was the only Western state to record gains
in single family housing  construction  permits in 1997.  Nevada's  construction
employment  was up nine percent (9%) and non-farm jobs  increased  seven percent
(7%) in 1997.  Nevada has the  distinction  of being the number one growth state
for jobs in 1997  compared  to  1996.  Management  believes  these  trends  will
continue and expects the Western states to lead the nation in population growth,
job growth, and housing activity in 1998.

     The most recent market-share  reports from December 1997 show Capital Title
as one of the top two title  insurers in Yavapai  County with a market  share of
approximately  32%. As of December  31,  1997,  Capital  Title  ranked  tenth in
Maricopa  County  market  share,  having  moved  up from  twentieth  in the last
eighteen months. Since expanding into Maricopa County, the Company has more than
doubled its number of employees and branch offices.

INDUSTRY OVERVIEW

     Title  Insurance  has  become  accepted  as the  most  efficient  means  of
determining  title to, and the priority of  interests  in, real estate in nearly
all parts of the United  States.  Virtually  all real property  lenders  require
their  borrowers to obtain title  insurance  policies at the time mortgage loans
are made.

     The title  insurance  industry has  undergone  some changes in the past few
years associated with revenues  fluctuating  based on changes in interest rates.
Companies have focused on advancing technology in order to reduce costs, improve
accuracy,  and  respond  to the  continuing  pressures  within  the real  estate
industry for faster and more cost  effective  processing  of  transactions.  The

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major expense of a title agency company is the search and  examination  function
in preparing preliminary title reports, commitments, and title policies, and not
from claim losses  associated  with said  policies.  Technology has improved the
accuracy and  consistency of information,  and allowed  companies to maintain or
increase their number of closings with the same number of or fewer employees.

     Capital  Title  implemented  its  advanced  proprietary  technology  in its
expansion  into  Maricopa  County  and has  competitively  positioned  itself by
possessing  technology that successfully  combines title  information  available
from multiple  sources via electronic data exchange.  Further,  as Capital Title
continues  to  establish  new  operations,   it  is  not  hindered  by  existing
operational  limitations,  but  rather  is free to  begin  expansion  operations
utilizing its advanced  system that to date appears to outperform the technology
of major title  companies that possess  greater  resources than those of Capital
Title.

     In the past twenty years, several large, national companies have captured a
little over fifty percent of the market by securing the capital required to meet
the regulatory requirements of an insurance company combining with the retention
of independent agency operations. Larger companies, like Chicago Title and Trust
Company, First American Financial Corporation,  and Fidelity National Financial,
Inc., began on the local level,  operating in a single city or county. From this
small starting point,  these companies grew to regional leaders and finally into
national leaders in the industry.

     TITLE  POLICIES.  Title  insurance  policies state the terms and conditions
upon  which  a  title  underwriter  will  insure  title  to  real  estate.   The
beneficiaries of title insurance  policies are generally buyers of real property
or secured lenders.

     Title  insurance  is  different  from other types of  insurance  because it
relates to past events that affect  title to property at the time of closing and
not  unforeseen  future  events.  Prior to issuing  policies,  underwriters  can
eliminate future losses by accurately performing searches and examinations.  The
major  expense of a title  company is the search  and  examination  function  in
preparing  preliminary  reports,  commitments and policies and is not from claim
losses.  The premium for title  insurance  is due in full on the closing date of
the real estate transaction and is based upon the purchase price of the property
insured or the amount of the secured loan.  Coverage under the policy  generally
terminates upon resale or refinance of the property.  The terms of coverage have
become standardized in accordance with forms approved by trade associations such
as American Land Title Association and Land Title Association of Arizona.

     Title insurance policies are issued on the basis of a preliminary report or
commitment.  These reports are prepared after a search of public  records,  maps
and other relevant  documents to ascertain  title ownership and the existence of
easements,  restrictions,  rights  of way,  conditions,  encumbrances  or  other
matters affecting the title to, or use of real property.  A visual inspection of
the property may also be made prior to the issuance of certain  title  insurance
policies.

     To facilitate the preparation of preliminary  reports without the necessity
of manually searching public records,  copies of public records,  maps and other
relevant historical  documents are compiled and indexed in a "title plant." Each
title plant  relates to a  particular  county and is kept  current on a daily or
other frequent basis by the addition of copies of recorded documents that affect

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rights  in  real  property  in the  particular  county.  Title  companies  often
subscribe to independent title information services to assist in the updating of
their title plants and the maintenance of title records.

     DIRECT VS. AGENCY SALES.  Preliminary  reports and  commitments  to issue a
policies are prepared by title  underwriters  (direct  sales) or by  independent
agents on behalf of the  underwriters  (agency sales).  The terms and conditions
upon which the real property will be insured are  determined in accordance  with
the standard policies and procedures of the title underwriter.  In direct sales,
the title underwriter  issues the preliminary  report and commitment and retains
the entire title  premium paid in  connection  with the  transaction.  In agency
sales, the search and examination function is performed by the independent agent
and the  majority of the premium  collected  is retained by the agent,  with the
balance remitted to the title  underwriter.  Independent agents may select among
several title underwriters based upon the amount of the premium "split" offered,
the  overall   terms  and   conditions  of  the  agency   agreement,   including
indemnification  obligations of the agent,  and the scope of services offered to
the agent by the title underwriter. Agent commissions vary by geographic region.

     THE TITLE POLICY PROCESS.  A brief  description of the process of issuing a
title insurance policy is as follows:

     (i)   The customer, typically a real estate  salesperson or broker,  escrow
           agent or lender, places an order for a title policy.

     (ii)  Sales  personnel note the  specifics of the order and place a request
           with the title department for a preliminary report.

     (iii) After the relevant  historical  data on the property is compiled, the
           title  officer  prepares a preliminary  report that documents (a) the
           current  status  of  title  to  the  property,  (b)  any  exemptions,
           exceptions and/or  limitations that  might be  attached to the policy
           and (c) specific issues that need to be addressed and resolved by the
           parties  to the transaction  before the title  policy  will be issued
           (such as removal of prior tax liens and payment of prior loans on the
           property). The  preliminary report  is  circulated to all the parties
           for satisfaction of any specific issues.

     (iv)  After all specific issues  identified in the  preliminary  report are
           satisfied, the escrow agent closes the transaction in accordance with
           the instructions of the parties and the policy conditions.

     (v)   Once the transaction is closed and all moneys have been released, the
           policy  is  issued  (a)  to the  owner  and  the  lender  on a resale
           transaction or (b) to the lender only on a refinancing transaction.

     LOSSES  AND  RESERVES.  The  maximum  amount  of  liability  under  a title
insurance  policy is  usually  the face  amount of the  policy  plus the cost of
defending the insurer's  title against an adverse  claim.  The reserve for claim
losses is based upon known claims as well as losses the insurer expects to incur
based on historical  experience and other factors,  including industry averages,
claims loss history,  current legal environment,  geographic  considerations and
type of policy written.

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     ECONOMIC FACTORS  AFFECTING  INDUSTRY.  Title insurance  revenue is closely
related to the level of activity in the real estate market and the average price
of  real  estate  sales.   Real  estate  sales  are  directly  affected  by  the
availability of money to finance purchases.  Other factors affecting real estate
activity  include  demand,  mortgage  interest  rates,  family income levels and
general economic conditions.

     It is estimated that title industry revenue for 1996 was approximately $5.6
billion,  which is slightly less than 1995  estimated  industry  revenue of $6.0
billion. Sales of single-family  dwellings in 1997 increased  approximately 5.4%
from 1996, to an estimated 4.32 million units.

COMPANY STRATEGY

     The  Company's  strategy  is to  pursue  aggressive  growth  in  the  title
insurance industry in the Southwestern United States.  Essential elements of the
Company's strategy are as follows:

     COMMITMENT TO SERVICE. The Company is built on three basic  entrepreneurial
premises: (1) every employee is a salesperson for the Company; (2) the Company's
services are a one-stop,  computer-based  contact point for complete real estate
transactions;  and (3) success is achieved through focus on an unequaled quality
of customer service.  Because title insurance  policies and escrow functions are
generally standardized, the level of service provided is the key differentiating
factor among  competitors in the title industry.  One of the Company's  foremost
objectives  is  to  issue  written  title  reports  in  substantially   all  its
transactions  within two working  days from the  opening of escrow.  Through its
commitment to customer service, the Company seeks to build lasting relationships
with its real estate industry clients.

     MARKET  FOCUS.  The  Company's  market focus is on real estate  brokers and
mortgage lenders,  which the Company believes generate  approximately 70% of the
transactions  involving  title and escrow fees. To set itself apart as a service
company,  Capital Title has developed industry specific  information  technology
that it provides to its clients. The Company trains real estate agents and their
administrative  assistants  in the use of a customized  computer  program  which
enhances  their  client  presentations.  The Company has also  developed  "Plain
Language  Escrow  Instructions"  in an effort to simplify the escrow process and
minimize  the numerous  questions  that can arise in the  preparation  of escrow
documents.  These simplified instructions have been well received in the Yavapai
County real estate  community and have provided the Company with an  opportunity
to conduct educational seminars directed at its real estate agent clients.

     MANAGEMENT.  The Company  recognizes that its aggressive  growth plan calls
for executive  management  with  extensive  industry  operational  and expansion
experience.  Capital Title was co-founded by Donald R. Head, the Chairman of the
Board and Chief Executive  Officer since Capital Title's  inception in 1981. Mr.
Head has extensive  experience as a developer and  entrepreneur  within the real
estate industry.  Additionally,  he served as a board member on several U.S. and
Canadian public  companies and ran a successful  attorney  practice in Prescott,
Arizona.  Mr. Head holds a  Bachelor's  Degree in Business  Administration  from
Arizona  State  University  and is a graduate of the  University  of Arizona law
school.
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     Capital Title  appointed Mr. Andrew Johns as President  effective April 16,
1996.  Mr.  Johns,  the  former  President  of  Stewart  Title  for the State of
California, has over 28 years of industry experience, including the expansion of
United  Title's  Orange County  operations  throughout  the Southern  California
market.  The Company believes that Mr. Johns has the leadership,  experience and
industry  contacts  required  to  effect  Capital  Title's  expansion  into  the
California Market.

     In February,  1998, the Company appointed Milton  Ferrantelli,  Senior Vice
President of Capital  Title Group and  President of Capital  Title Agency Inc.'s
Arizona operations.  Mr. Ferrantelli  purchased United Title Insurance Agency in
1986 with two active  partners and served as its President  and Chief  Executive
Officer,  prior to its  acquisition by Norwest  Financial in 1994.  United Title
held the number  one market  share for title and  escrow  services  in  Maricopa
County from 1984 through 1994. Mr.  Ferrantelli  has over  twenty-five  years of
experience in the title and escrow industry in the Arizona marketplace.

     James A. Clifford and Nick  Velimirovich,  two  experienced  executives who
combined  have  almost 35 years of  experience  in escrow  and title  operation,
together  run the  Maricopa  County,  Arizona  operations.  Prior to joining the
Capital Title team,  Clifford and  Velimirovich,  were key  executives at United
Title Insurance Agency.

     Cynthia  Schleicher,  who has 14 years of  experience  in escrow  and title
operations,  runs the Yavapai County,  Arizona  operations.  The Company employs
several additional  experienced and dedicated  executive officers to support the
above  mentioned  executives.  See  Item  9 -  "Directors,  Executive  Officers,
Promoters and Control Persons."

     EQUITY  PARTICIPATION  BY ESCROW  OFFICERS.  Escrow  officers are the major
revenue producers for title insurance companies.  It is their relationships with
real estate brokers,  lenders and other industry participants that are primarily
responsible for the direction of escrow and title  business.  Capital Title will
seek to attract the most successful  escrow  officers (and the related  revenue)
through  employment  packages  that  include  stock  options and stock  purchase
programs in the Company as added motivational  incentives.  The Company believes
such programs will also promote Company loyalty, which will help to insulate the
Company's escrow officers from competitive recruiting efforts.

     EXPANSION.  The Company intends to accomplish its planned expansion through
acquisitions  of existing title  agencies and opening  operations in California,
Nevada, and other states throughout the southwest. These expanded operations are
expected to be enhanced by utilizing the Company's  recruiting  ability that has
proven extremely successful in Arizona.

     The Company is also  evaluating a strategy for the  integration  of related
real estate  services to enhance the services it already offers to its customers
and the formation of a property and casualty  insurance  agency  operation  that
would  benefit from the built-in  client bases  established  by title  insurance
activity.
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COMPANY OPERATIONS

     The Company  reported record revenues for each quarter in 1997 with revenue
up 223% for the year ended  December 31, 1997  compared to the fiscal year ended
October 31, 1996. Revenue was $8.35 million for the year ended December 31, 1997
compared  to $2.58  million  for the fiscal year ended  October  31,  1996.  The
Company  changed its October fiscal year end to a December fiscal year end to be
consistent with the year ends of most major companies in the title industry. The
Company  set a record for monthly  revenue in December of 1997 with  revenue for
the month of $1.05 million.

     For the fiscal years ended December 31, 1997 and October 31, 1996, revenues
from  the  issuance  of  title  insurance  policies  represented  64%  and  56%,
respectively,  of the Company's consolidated revenues. Escrow fees for the years
ended  December  31,  1997  and  October  31,  1996  represented  26%  and  27%,
respectively,  of  the  Company's  consolidated  revenue.  The  Company's  other
principal revenue source is derived from account servicing. The Company reported
revenue  from  account  servicing  during the years ended  December 31, 1997 and
October 31, 1996 of approximately $341,000 and $315,000, respectively.

     MARKETING.  The Company believes that the primary source of its business is
from  referrals  from  participants  in the real estate  industry,  such as real
estate brokers,  mortgage lenders,  developers and attorneys. In addition to the
referral  market,   Capital  Title  markets  its  services  directly  to  larger
brokerages and real property lenders.  Marketing activities are performed by the
escrow  officers  of Capital  Title and a  marketing  representative  whose sole
function  is the  solicitation  of business  from major real estate  brokers and
lenders.  Escrow officers, in addition to their escrow service duties,  maintain
and further develop relationships  established with current clients for on-going
business.  The  marketing  representative  holds  educational  seminars for real
estate brokers, offers the use of "Dataquick" as a service that provides ease in
placing  valuations  on  surrounding   property  and  trains  brokers  or  their
assistants  in  the  use  of  Capital  Title's  proprietary   industry  specific
information technology.

     ESCROW  SERVICE.  Capital  Title's  escrow  department is  responsible  for
handling the consummation of real estate sales, exchanges and a variety of other
transactions  involving the sale or encumbrance  of real property,  refinance of
real  property,  sales of assets of  businesses  and sales of  promissory  notes
secured by deeds of trust.

     The  escrow  officer  and  assistant  typically  prepare  escrow  documents
pursuant to the real estate contract.  The escrow instructions  provide guidance
to all  concerned  parties as to the  conditions  required  for the real  estate
transaction.  Furthermore, the instructions provide authorization for the escrow
agent to request information concerning matters appearing of record, the receipt
of all earnest moneys and closing funds,  the  disbursement of seller  proceeds,
payoff of underlying liens,  judgments,  real property taxes,  insurance and any
other  disbursement  as set forth in the  instructions  or by the parties to the
transaction.  The instructions also include  authorization to prepare and obtain
documents necessary to complete the real estate transaction.

     The escrow agent is held  accountable  by state  governmental  agencies for
strict  compliance  with its fiduciary  responsibilities  outlined by the escrow
instructions.  The officer must possess a high degree of skill,  professionalism
and confidentiality in the handling, preparation,  collecting and recordation of
all escrow  matters  between the buyer,  seller,  real estate  brokers and their
agents, developers, lenders and investors.

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     TITLE  DEPARTMENT.  The  primary  function of the title  department  is the
accumulation  and analysis of various  documents from the many sources that make
up the  public  record.  From this  analysis,  a  preliminary  report is written
showing  the  present  condition  of title.  This  report is given to the escrow
officer  who, in turn,  distributes  it to the parties  involved in the purchase
agreement.  After the  preliminary  report has been read and approved by all the
parties and the requirements of the report have been fulfilled,  the escrow will
proceed to closing and a final title insurance policy will be issued.

     Capital Title owns a "title plant," a listing and history of each parcel of
ground in a particular  county,  for Yavapai County,  Arizona.  In 1996, Capital
Title  entered into a five (5) year  service  agreement  for a "title  plant" in
Maricopa  County,  Arizona.  The Company  can use the  services of a third party
title  plant  provider  or  acquire  additional  title  plants for  purposes  of
conducting its title research as it expands into  additional  geographic  areas.
The cost of obtaining "title plants" varies with economic and market  conditions
in the geographic area to which the title plants relate. The Company believes it
will  be able to  obtain  "title  plants"  on  terms  and  conditions  that  are
acceptable  to it through  the  acquisition  of title  companies  as the Company
expands into other markets. However, there can be no assurance in this regard.

     CLAIMS AND UNDERWRITING. Capital Title provides title insurance as an agent
of First American,  United General Insurance  Company,  and Old Republic.  These
services are provided  pursuant to Underwriting  Agreements with First American,
United  General and Old  Republic,  which state the  conditions on which Capital
Title is  authorized  to  issue a title  insurance  policy  on  behalf  of First
American,  United General or Old Republic and prescribe the circumstances  under
which  Capital Title may be liable to First  American,  United  General,  or Old
Republic if a policy loss is attributable  to errors made by Capital Title.  The
underwriting  agreements with First American,  United General,  and Old Republic
provide that the Company:  (1) must fully comply with all requirements  relating
to the  issuance of title  insurance  within  each of the  counties in which the
Company  does  business  and must comply with  generally  accepted  standards of
underwriting;  (2) will be liable for any losses payable on a basis of erroneous
reports or in excess of the stated liability on the policy when an insured makes
a successful claim based on negligence;  (3) may not write a policy in excess of
the stated  contract  amount without prior approval from the insurance  company;
and (4) will be liable for the first  $5,000 of each loss,  unless  specifically
waived by the  insurance  company.  The  Company  is not a sole  agent for First
American, United General or Old Republic.

     Claims  against the policy of title  insurance  normally arise out of human
error.  During the process of  accumulation  and analysis of the public  record,
certain  inaccuracies and  inconsistencies are encountered that sometimes result
in a situation in which interpretation of these documents could lead to a claim.
Such claims are reviewed by Capital Title's staff and, if warranted, sent to the
insurance carrier for final disposition.

     Underwriting  is  the  process  of  analyzing  risk  assumption.   As  each
individual situation arises, the local staff makes a risk analysis. If the local
underwriting  staff decides that the risk assumption is outside its underwriting
authority, the insurance carrier is contacted for its underwriting approval.

                                       9
<PAGE>

     ACCOUNT SERVICING. The account servicing department handles the receipt and
disbursement  of moneys for accounts with respect to which Capital Title acts as
servicing agent for a transaction.  Its  responsibility  as trustee includes the
maintenance of all records reflecting receipts and disbursements, calculation of
total  interest,  principal  and  any  other  sums  due as  required  under  the
agreement/note  between the buyer and the seller. This information is summarized
and reported to the Internal  Revenue  Service  with the  appropriate  Form 1098
and/or  1099  supplied  to the buyer and the  seller.  Following  the  payoff of
accounts,  the servicing  agent prepares and records the  appropriate  documents
necessary  to  substantiate  accounts as paid in full in the  applicable  county
records.  Typically,  transactions  serviced by Capital Title include promissory
notes secured by deeds of trust and agreements of sale.

     FORECLOSURES.   Both  promissory  notes  secured  by  deeds  of  trust  and
agreements of sale can be foreclosed  non-judicially  by the servicing agent. As
trustee of the  documents  being  serviced by Capital  Title,  the seller and/or
beneficiary can direct the servicing  agent, at the time of default,  to proceed
with foreclosure of the lien.

     The  maintenance  of  accurate  up-to-date  accounting  and  control of all
original   documents  enable  the   trustee/servicing   agent  to  expedite  the
non-judicial trustee sale or foreclosure.

     ADMINISTRATION.   Capital  Title's  administrative  staff  handles  general
accounting and finance,  human  resources,  purchasing,  management  information
systems and regulatory compliance.

CUSTOMERS

     Capital Title is not dependent upon any single  customer or single group of
customers. The loss of any one customer would not have a material adverse effect
on the Company.

SEASONALITY

     The title  insurance  business is closely related to overall levels of real
estate  activity.  Historically,  real estate  activity slows down in the winter
months with volumes  showing  significant  improvements in the spring and summer
months. In addition,  the title insurance business is cyclical due to the effect
of interest rate  fluctuations on the level of real estate activity.  Periods of
high interest rates adversely effect real estate activity and therefore  premium
and escrow revenues.

COMPETITION

     The  title  insurance  business  is  highly  competitive.   Companies  with
significant  market share in Arizona  include  First  American  Title,  Security
Title, ATI Title Agency,  Fidelity Title,  Lawyers Title, and Chicago Title. The
number and size of competing companies varies in different  geographic areas. In
those areas where the Company operates and intends to operate,  the Company will
face   competition  from  major  national   insurance   underwriters  and  other
independent  agencies,  many of which have greater financial and other resources
than the Company.  The Company  believes that quality and  timeliness of service
are the key  competitive  factors  in the  industry,  because  parties to a real

                                       10
<PAGE>

estate   transaction  are  usually  concerned  with  time  schedules  and  costs
associated  with delays in the closing of  transactions.  In those  states where
prices are not  established by regulation,  the price of title insurance is also
an important competitive factor.

REGULATION

     Capital Title  conducts its business  under  licenses  granted by the State
Banking and Insurance  Departments of the State of Arizona.  The title insurance
and escrow  businesses  generally  are  subject to  extensive  regulation  under
applicable  state laws.  These laws  establish  supervisory  agencies with broad
administrative  powers  relating to issuing and  revoking  licenses,  regulating
trade  practices,  licensing  agents,  approving policy forms and approving rate
schedules. Failure to comply with these regulations or an inability to secure or
maintain any required  licenses could materially  adversely affect the Company's
business. The Company believes that it is in material compliance with applicable
laws and regulations, and that it will maintain and obtain all licenses required
for the conduct of its business.

EMPLOYEES

     As of December 31, 1997, the Company had a total of 175 employees, of which
101 (including officers of the Company) were in the marketing/escrow department,
34 were in the title department,  8 were in customer  service,  2 was in trustee
sales,  6 were in account  services and 24 were in  administration.  The Company
believes that its relations with its employees are excellent.

ITEM 2. PROPERTIES

     The Company conducts its business  operations in leased office space. As of
December  31,  1997,  the Company  leases  approximately  16,640  square feet in
Yavapai  County and  approximately  29,825 square feet in Maricopa  County.  The
Company  currently  leases offices at seventeen  locations with remaining  lease
periods ranging from one to sixty months.  The Company's monthly rental payments
at the foregoing locations are approximately $65,000.

ITEM 3. LEGAL PROCEEDINGS

     The Company is involved in certain  legal actions which arise in the normal
course of its title business. The Company believes that none of these claims are
material, either individually or in the aggregate.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were  submitted to a vote of security  holders during the fourth
quarter of the fiscal year ended December 31, 1997.

                                       11
<PAGE>
                                     PART II

ITEM 5. MARKET FOR REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDER MATTERS

     On May 15, 1997, Capital Title Group, as a fully reporting company with the
Securities  and Exchange  Commission,  received  approval to publicly  trade its
common stock on the NASDAQ Over-The -Counter  Electronic  Bulletin Board market,
utilizing the symbol "CTGI." Capital Title Group became a public company for two
reasons:  to gain access to additional growth capital available in the financial
markets and to motivate its employees with a public stock ownership program.

     The following  table sets forth high and low bid price  quotations for each
quarter since the Company began trading on May 15, 1997:

             Date                         High/Bid    Low/Bid      Shares Traded
             ----                         --------    -------      -------------
     May 15 through June 30, 1997         $ 3.00      $ 2.5             30,500
     July 1 through September 30, 1997     2.375        1.5            133,900
     October 1 through December 31, 1997   1.8125       1.5            114,600
     January 1 through March 15, 1998      2.4375       1.5625         145,700

     The quotations set forth above reflect inter-dealer prices,  without retail
mark-up, mark-down or commissions and may not represent actual transactions.

     As of December 31, 1997, the Company had issued and outstanding  11,231,029
shares of common stock. In addition,  1,300,000 shares are reserved for issuance
under the Company's  1996 Stock Option Plan and 200,000  shares are reserved for
issuance under the Company's Directors Non-Employee Plan. (See Item 11 "Security
Ownership  of Certain  Beneficial  Owners  and  Management.")  Of the  Company's
11,231,029  shares of common stock issued and  outstanding on December 31, 1997,
1,211,197  shares are  eligible for resale under Rule 144. At December 31, 1997,
there were approximately 169 record holders of the Company's Common Stock.

     Between  September  26, 1997 and  December  31,  1997,  the Company  issued
$250,000 in convertible  notes for the purpose of obtaining  capital to open two
new branches in Maricopa County,  Arizona. The convertible notes require payment
of interest only for eighteen (18) months at an interest rate equal to the prime
rate (in effect) plus 2 1/2%. At any time within the eighteen  (18) months,  the
note holders will have the option of converting the obligation into common stock
of the  Company  at $1.00  per  share.  The  convertible  notes are  secured  by
furniture and equipment in the respective branches.

     On March 11, 1997, the Company's Board of Directors  authorized the sale of
up to 2,500,000 shares of the Company's common stock to accredited  investors at
$1.00 per share.  Beginning in June 1, 1996 and continuing  through December 31,
1997,  the Company sold an aggregate of 2,220,000  shares  common stock  through
private placements to accredited investors.

     In December 1997, the Company's  Board of Directors  authorized the private
placement sale of units  (consisting of common stock and warrants) to accredited
investors  at $3.00  per  unit.  A unit is  comprised  of two (2)  shares of the

                                       12
<PAGE>

company's common stock and one warrant to purchase an additional share at $2.50.
The warrants  must be exercised  within two years  following  the closing of the
offering.  The Company began  marketing the private  placement in February 1998.
Accordingly  as of  December  31,  1997,  the Company had not sold any shares in
accordance with the new private placement.

     In December 1997, the Company's  Board of Directors  authorized the sale of
an additional $125,000 in convertible notes for the purpose of obtaining capital
to open one additional branch in Maricopa County, Arizona. The convertible notes
require  payment of interest  only for eighteen  (18) months at an interest rate
equal to the prime rate (in effect) plus 2 1/2%. At any time within the eighteen
(18) months,  the note holders will have the option of converting the obligation
into common stock of the Company at $2.00 per share.  The convertible  notes are
secured by furniture and equipment in the respective branch.

     The Company has never paid a dividend on its Common Stock. The Company does
not  anticipate  paying any  dividends  on its Common  Stock in the  foreseeable
future.  Rather,  the Company  anticipates  that its  earnings,  if any, will be
retained to fund the Company's  working capital needs and the planned  expansion
of its  business.  The  payment  of any  dividends  will be  dependent  upon the
discretion of the Board of Directors. Furthermore, under Delaware corporate law,
in the absence of current or retained  earnings,  the Company may be  prohibited
from paying dividends (whether in cash or otherwise).


                                       13
<PAGE>

ITEM 6. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     The  following  discussion of the results of the  operations  and financial
condition  of the  Company  should  be read in  conjunction  with the  Company's
Consolidated  Financial  Statements and Notes thereto included elsewhere in this
report.  Historical results and percentage  relationships among accounts are not
necessarily an indication of trends in operating  results for any future period.
The discussion of the results of operations and financial condition for the year
ended October 31, 1996 excludes the activity of Capital Title Group prior to May
23, 1996, the Acquisition  Transaction  date.  Additionally,  these  discussions
compare the year beginning November 1, 1995 through October 31, 1996 to the year
beginning  January 1, 1997 through  December 31, 1997.  The Company  changed its
October fiscal year end to a December  fiscal year end to be consistent with the
year end closing of most major companies in the title  industry.  Where relevant
these discussions will include results of the two (2) month transitional  period
November 1, 1996 through December 31, 1996.

OVERVIEW

     Capital Title's primary  business is providing title and escrow services in
Maricopa and Yavapai County, Arizona. The Company experienced a 223% increase in
revenue for the fiscal year ended  December 31, 1997 compared to the fiscal year
ended October 31, 1996. This increase is largely due to the Company's  expansion
into  Maricopa  County,  Arizona.  Other  factors  which have  attributed to the
Company's  explosive  growth in 1997  include  the  increased  market  share the
Company has been able to achieve in Yavapai County,  Arizona,  and the favorable
overall real estate market in Maricopa and Yavapai Counties, Arizona.

     In June 1996,  the Company began the first phase of its  aggressive  growth
plan which is expected to take several  more years to complete.  In August 1996,
the Company  moved its  corporate  headquarters  to Phoenix and opened three (3)
branches in Maricopa  County.  By the end of the first quarter of 1997,  Capital
Title had opened two (2) additional  branches in Maricopa County and,  according
to the SYKES REPORT,  the Company was ranked  thirteenth  (13) in overall market
share in Maricopa  County,  Arizona.  By the end of 1997, the Company opened two
(2) more branch offices in Maricopa County, relocated its corporate headquarters
to Scottsdale, Arizona, and moved into the number ten (10) market share position
in  Maricopa  County.  The  Company  expects to open four (4) more  branches  in
Maricopa  County during the next twelve (12) months.  The Company  currently has
ten (10) branches in Maricopa County.

     The Company has been  operation in Yavapai  County  since 1981.  Coinciding
with the Maricopa  expansion,  Capital Title  expanded its operations in Yavapai
County in 1996 and 1997 by  opening  a branch in Chino  Valley  and  opening  an
additional  branch  in the city of  Prescott.  From  1996 to 1997,  the  Company
increased  its  Yavapai  market  share  moving  into the  number  one (1) market
position with  approximately 31% of the overall market.  Capital Title currently
has seven (7) branches in Yavapai County, Arizona.

     The  successful  growth  into  Maricopa  County,  Arizona  and the  further
expansion  and market  share  increase in Yavapai  County,  Arizona was possible
because of a recruitment  program which allows each employee of Capital Title to

                                       14
<PAGE>

become an owner of the company through the Company's  employee stock option plan
and a management  philosophy  which allows each branch  manager to operate their
branch as if it was their own  company.  The Company  will  continue to use this
philosophy as it expands throughout Arizona and the Southwest.

RESULTS OF OPERATIONS

     CHANGE IN YEAR END. In  December  1996,  the Company  elected to change its
year end from  October to  December.  The  Company  filed a 10-QSB  Transitional
Report for the two (2) month period ended December 31, 1996.  These  discussions
compare  the fiscal  year ended  October  31,  1996 to the  calendar  year ended
December 31, 1997.

     REVENUE.  The  Company's  revenues  increased by $5,765,849 or 223% for the
fiscal year ended December 31, 1997 as compared to the fiscal year ended October
31, 1996. The following table presents  information  regarding the components of
the Company's revenue:

                             For The Years Ended,
                           ------------------------
                           December 31,  October 31,
                              1997          1996
                           -----------   ----------
Title Insurance Premiums   $5,359,001   $1,451,479
Escrow Fees                 2,190,641      695,995
Account Servicing             341,292      314,939
Other Fees and Revenue        186,151       16,947
Interest Income               271,419      103,295
                           ----------   ----------
                           $8,348,504   $2,582,655
                           ==========   ==========
Orders Closed                   8,298        2,748
                           ==========   ==========
Average Fee Per file       $      910   $      780
                           ==========   ==========

     Title  insurance  premium and escrow fees revenue  increased  approximately
$5,402,168  or 252% from 1996.  The  revenue  increase  is  attributable  to the
Company's expansion into and increased market share in Maricopa County, Arizona,
increased  market  share in Yavapai  County,  Arizona,  a favorable  real estate
market, and favorable interest rates.

     The  Company's  revenue  from title  insurance  premiums and escrow fees is
primarily from three  sources.  The largest  revenue source is from  residential
resells.  Residential  resells made up approximately  65% of the Company's title
and escrow  revenue  during 1997  compared  to  approximately  55% in 1996.  The
current  residential  resell  marketing  projections  for  Maricopa  and Yavapai
Counties  predict that the resell market should continue  improving as new house
prices  continue to climb and mortgage  interest  rates remain at their  current
historical  low levels.  The Company's  marketing  plan for Maricopa and Yavapai
Counties,  is for approximately 80% of the Company's title and escrow revenue to

                                       15
<PAGE>

be derived from the resell business.  Historically, the resell business has been
the most  consistent  and does not  fluctuate as much as  commercial,  new homes
sells, or refinancing  segments of the market.  The commercial,  new home sells,
and  refinancing  markets tend to be more influenced by interest rates and other
economic conditions.

     Refinancing  made up  approximately  30% of the Company's  title and escrow
revenue during 1997 compared to  approximately  40% in 1996. The December market
share reports showed the Company ranked eighth in Maricopa County, and second in
Yavapai County for refinancing transactions. Management believes the Company has
such a large percentage of the refinance market due to our  technological  title
search advantage and the outstanding reputation and customer service provided by
our title department.  The current refinance marketing projections indicate that
refinancing  transactions  should  reach an all time high as the  United  States
experiences the lowest mortgage  interest rates in current history.  The Company
is in an ideal position,  due to our  technological and service  reputation,  to
take advantage of the current refinance market.

     Commercial transactions made up approximately 5% of the Company's title and
escrow revenue during both 1997 and 1996. The Company has a separate  commercial
escrow unit in Maricopa  County which accounts for a majority of Capital Title's
commercial business. The commercial business forecast is optimistic for 1998 due
to the expectations  that interest and  unemployment  rates will remain at their
current levels through the second quarter of 1998.

     EXPENSES.  The  following  table  presents the  components of the Company's
expenses.
                                For The Years Ended
                             -------------------------
                              December 31,  October 31,
                                 1997          1996
                             ------------   ----------
Personnel Cost               $4,650,618     $1,958,292
General and administrative    2,206,402      1,059,321
Acquisition costs                    --        103,441
Title remittance fees           494,776        170,933
Escrow commissions              519,670         24,768
Rent                            692,732        296,058
Interest Expense                 71,458         17,835
                             ----------     ----------
                             $8,635,656     $3,630,648
                             ==========     ==========

     Personnel costs, including commissions,  are the most significant component
of the  Company's  operating  expenses.  Due to the growth the  Company has been
experiencing  since  initiating its growth plan,  personnel costs have increased
137% for the fiscal year ended  December  31,  1997  compared to the fiscal year
ended October 31, 1996. The number of people  employed by the Company  increased
from 112 on December 31, 1996 to 175 on December  31, 1997.  For the fiscal year
ended December 31, 1997,  personnel  costs equaled  $4,650,618 or 55.7% of total
revenue  compared  to  $1,958,292  or 75.8% of total  revenue for the year ended
October  31,  1996.  Management  believes  that as the  Company  implements  its
expansion plan,  personnel costs should be approximately  fifty percent (50%) of

                                       16
<PAGE>

total  revenue.  Personnel  costs are  greater  during the  growth  phase of the
Company since title  revenues are not  recognized  until the escrow  transaction
closes.  Therefore,  revenues  usually  lag 45 to 90 days  behind  the  expenses
incurred to generate the revenue.

     The significant  components of other operating expenses include,  supplies,
utilities,  insurance,  depreciation,  title plant  maintenance and access,  and
postage and delivery charges. General and administrative expenses increased from
$1,059,321  or 41% of total  revenue  to  $2,206,402  or 26.4% of total  for the
fiscal year ended  December 31, 1997  compared to the fiscal year ended  October
31,  1996.  Other  operating  expenses  increased  due to the increase in escrow
orders, and the fixed costs associated with opening additional branches in 1997.

     Acquisition  cost write down  relates to costs  incurred  when the  Company
initiated its expansion  program.  The Company initially  anticipated  expanding
into the  California  and  Texas  markets  by  December,  1996.  Management  has
postponed expansion outside of Arizona until 1998, if conditions warrant, and is
now considering the California and Nevada markets.

     The Company previously implemented and remains committed to aggressive cost
control programs  intended to strictly  monitor its level of operating  expenses
while preserving the Company's high level of service and a budgeting program for
capital  expenditures  that is  calculated  to support the  Company's  plans for
continued expansion.

     OPEN  ESCROW  ORDER  INVENTORY.   In  accordance  with  generally  accepted
accounting  principles,  revenue from title and escrow  services is not recorded
until the transaction is completed. The receipt of cash for the title and escrow
services occurs  simultaneous with the completion of the transaction.  Expenses,
on the other hand,  are  expensed as  incurred.  Title and escrow  revenues  are
therefore  recorded  on the cash basis,  whereas  the  related  title and escrow
expenses are recorded on the accrual basis. During an expansion program, such as
the one the  Company is  currently  undertaking,  expenses  as a  percentage  of
revenue will be greater then normal  until the  inventory of open escrow  orders
reaches its normal  equilibrium  point.  Based on the  Company's  history in the
title industry,  the normal equilibrium point is where approximately  seventy to
seventy-five  percent of all opened escrow orders are subsequently closed. As of
December 31,  1997,  the Company had an  inventory  of opened  escrow  orders of
approximately $2,300,000.

LIQUIDITY AND CAPITAL RESOURCES

     Capital Title Group requires capital to expand its geographical  base, make
acquisitions,  further  implement its market  penetration  program,  recruit and
train new personnel, and purchase additional property and equipment to implement
its  expansion  program.  During the year ended  December 31, 1997,  the Company
financed it operating  and business  development  activities  primarily  through
operating revenue,  borrowing approximately $150,000 against a credit line, sold
convertible  debentures of $250,000, and through the private placement of shares
of common stock which  resulted in net proceeds to the Company of  approximately
$897,000.  During the year ended  October 31,  1996,  the Company  financed  its
operating  and  business  development  activities  primarily  through  operating
revenue,  obtaining a $150,000  term loan,  a $75,000  short term loan,  and the
private  placement of shares of common  stock,  resulting in net proceeds to the
Company of $1,257,000.
                                       17
<PAGE>

     On March 11, 1997, Capital Title Group's Board of Directors  authorized the
sale of up to  2,500,000  shares of the  Company's  common  stock to  accredited
investors.  The Company sold an  aggregate  of 2,220,000  shares of common stock
through  the  private  placement  resulting  in net  proceeds  to the Company of
$2,084,299.

     On January 12, 1998,  Capital  Title  Group's  Board of Directors  voted to
commence a second private  placement of common stock intending to sell a minimum
of 400,000 shares,  and a maximum of 3,500,000 shares. Two (2) common shares and
a warrant to  purchase  one share of common  stock at a per share price of $2.50
within  two (2) years  make up each unit.  The  Company  will sell each unit for
$3.00.  The Company will use the proceeds from the second  private  placement to
purchase new computer  equipment  for its Yavapai  County  operations,  fund the
expansion  in  Maricopa  County and  throughout  Arizona,  and fund its  planned
expansion into California. (See Recent Developments).

     The Company believes that the net proceeds of this offering,  together with
its existing  cash  resources  and  financing,  will be  sufficient  to meet the
Company's  working capital needs for the next 12 months.  The Company,  however,
may raise capital  through the issuance of long-term or  short-term  debt or the
issuance  of  securities  in  private  or  public  transactions  to fund  future
expansion of its business either before or after the end of the 12 month period.
There can be no assurance that financing for future transactions can be obtained
on terms acceptable to the Company.

     As of December 31, 1997, the Company had net operating  loss  carryforwards
of approximately  $1,350,000 that will be available to offset future federal and
state income taxes.  The state net operating  carryforwards  will expire October
31, 2001. The federal net operating  carryforwards will expire October 31, 2011.
The federal net operating  carryforwards  maybe further  restricted  due to code
section 382 of the IRS  Regulations  which restrict the amount of  carryforwards
which can be utilized  in any single  year if the  Company  has a fifty  percent
(50%) or greater ownership change.

IMPACT OF NEW ACCOUNTING STANDARDS

     In October,  1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 123 (SFAS 123), "Accounting for Stock-Based  Compensation",  which
establishes a fair value-based method of accounting for stock-based compensation
plans and requires additional  disclosures for those companies that elect not to
adopt the new method of  accounting.  The Company  will  continue to account for
employee purchase rights and stock options under APB Opinion No.25,  "Accounting
for Stock Issued to  Employees."  SFAS 123  disclosures  will be  effective  for
fiscal years beginning after December 31, 1995.

     In 1997, FASB issued Statement No. 128, "Earnings per Share." Statement 128
replaced the  calculation  of primary and fully diluted  earnings per share with
basic and diluted  earnings per share.  Unlike primary earning per share,  basic
earnings per share,  basic earnings per share  excludes any dilutive  effects of
options, warrants and convertible securities. Diluted earnings per share is very
similar to the  previously  reported  fully  diluted  earnings  per  share.  All
earnings  per share  amounts  for all  periods  have been  presented,  and where
appropriate, restated to conform to the Statement 128 requirements.

                                       18
<PAGE>

     Additionally,  in June 1997, FASB issued Statement of Financial  Accounting
Standards No. 130, "Reporting  Comprehensive  Income" (FAS 130) and Statement of
Financial  Accounting  Standards  No.  131,  "Disclosures  about  Segments of an
Enterprise and Related  Information (FAS 131). FAS 130 and FAS 131 are effective
for fiscal periods beginning after December 15, 1997.  Management believes there
will be no material  effect an the  consolidated  financial  statements from the
adoption of either of these statements.

YEAR 2000 ISSUE

     Many existing  computer  programs use only two digits to identify a year in
the date field.  These programs were designed and developed without  considering
the  impact  of the  upcoming  change in the  century.  If not  corrected,  many
computer  applications  could fail or create erroneous results by or at the year
2000.  The Company has  examined its  operating  systems and should be year 2000
compliant by the end of 1998 with no material  adverse  effect on the  Company's
financial  position,  results  of  operation,  or  liquidity.  The  Company  has
initiated formal  communications with all of its significant  suppliers,  larger
customers,  and other parties of which the Company  electronically  interacts to
determine the extent to which the Company's  interface systems are vulnerable to
those  third  parties'  failure to  remediate  their own year 2000  issues.  The
Company's  total year 2000 project costs and  estimates to complete  include the
estimated  costs and time  associated  with the impact of third  party year 2000
issues  based on  presently  available  information.  However,  there  can be no
guarantee  that the systems of other  companies on which the  Company's  systems
rely  will be timely  converted  and  would  not have an  adverse  effect on the
Company's systems.

RECENT DEVELOPMENTS

     On January 12, 1998,  Capital  Title  Group's  Board of Directors  voted to
commence a second private  placement of common stock intending to sell a minimum
of 400,000 shares,  and a maximum of 3,500,000 shares. Two (2) common shares and
a warrant to  purchase  one share of common  stock at a per share price of $2.50
within  two (2) years  make up each unit.  The  Company  will sell each unit for
$3.00.  The Company will use the proceeds from the second  private  placement to
purchase  new  computer  equipment  for Yavapai  County,  fund the  expansion in
Maricopa  County and  throughout  Arizona,  and fund its planned  expansion into
California.  As of March 20, 1998, the Company sold 433,500 units which provides
proceeds to the Company, net of offering costs, of approximately $1.2 million.

     On January 19, 1998,  Capital Title Group filed  Articles of  Incorporation
for New Century Insurance  Services,  Inc. ("NCIS") a wholly owned subsidiary of
Capital  Title Group,  Inc. NCIS will take  advantage of the extensive  customer
base of Capital Title Agency to sell property and casualty insurance.  NCIS will
be an  independent  agency  which will allow them to solicit  various  insurance
agencies and provide their customers  competitive insurance rates. NCIS plans to
begin  operations in the second  quarter of 1998.  The Company  expects to incur
various  costs and  expenses  in the  start-up of NCIS and in the conduct of its
initial business  operations.  Management currently estimates that the amount of
these costs and expenses will exceed NCIS's  revenues during the initial six (6)
months of operations,  and this will have an adverse effect on the Company's net
income  and cash  flow.  There  can be no  assurance  that  NCIS  will  generate
sufficient  operating  profit to fund its  start-up  costs and future  operating
expenses.

                                       19
<PAGE>

     On February 2, 1998, the Company issued  $125,000 in convertible  notes for
the  purpose  of  obtaining  capital to open a new  branch in  Maricopa  County,
Arizona.  The  Convertible  note requires  payment of interest only for eighteen
(18) months at an interest rate equal to the prime rate (in effect) plus 2 1/2%.
At any time within the eighteen months, the note holders will have the option of
converting the  obligation  into common stock of the Company at $1.00 per share.
The  convertible  notes are secured by furniture and equipment in the respective
branch.

ITEM 7. FINANCIAL STATEMENTS



                                       20
<PAGE>


                         Report of Independent Auditors


Shareholders and Board of Directors
Capital Title Group, Inc.

We have audited the  accompanying  consolidated  balance  sheet of Capital Title
Group,  Inc. and  Subsidiary  (Company) as of December 31, 1997, and the related
consolidated statements of operations,  stockholders' equity, and cash flows for
the year then ended, and for the two month period ended December 31, 1996. These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits. The consolidated  financial statements
of the  Company  for the year ended  October  31,  1996,  were  audited by other
auditors whose report dated December 30, 1996,  expressed an unqualified opinion
on those statements.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable  assurance about whether the  consolidated  financial  statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and disclosures in the  consolidated  financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
consolidated  financial  statement  presentation.  We  believe  that our  audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the consolidated  financial  position of the
Company at December 31, 1997, and the  consolidated  results of their operations
and their  cash  flows for the year then  ended and the two month  period  ended
December 31, 1996, in conformity with generally accepted accounting principles.

/s/ Ernst & Young LLP
---------------------

February 26, 1998



                                       21
<PAGE>

                    CAPITAL TITLE GROUP, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 1997

ASSETS
Current Assets:
      Cash                                                          $   198,903
      Accounts receivable less allowance for doubtful accounts
           of $13,752                                                   109,906
      Interest receivable                                                36,287
      Prepaid expenses                                                   16,554
                                                                    -----------
                 Total Current Assets                                   361,650

Property and Equipment, net                                           1,560,655

Other Assets:
      Investment in title plant                                         175,000
      Deposits                                                           90,823
      Property held for sale                                             65,696
                                                                    -----------

                 Total Assets                                       $ 2,253,824
                                                                    ===========

LIABILITIES AND STOCKHOLDERS'  EQUITY
Current Liabilities:
      Notes payable and obligations under
           capital leases - current portion                         $   553,119
      Accounts payable                                                  317,003
      Accrued expenses                                                  150,647
                                                                    -----------
                 Total Current Liabilities                            1,020,769

Long-Term Liabilities:
      Notes payable and obligations under
           capital leases - long-term portion                           415,362

Stockholders' Equity:
      Common stock, $.001 par value, 50,000,000 shares
      authorized, 11,231,029  shares issued
      and outstanding                                                    11,231
      Additional paid-in capital                                      2,653,731
      Accumulated deficit                                            (1,847,269)
                                                                    -----------
                 Total Stockholders' Equity                             817,693

                 Total Liabilities and Stockholders' Equity         $ 2,253,824
                                                                    ===========


                   The Accompanying Notes are an Integral Part
                    of the Consolidated Financial Statements

                                       22
<PAGE>
                    CAPITAL TITLE GROUP, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                                        Two
                                     Year Ended       Year Ended    Months Ended
                                     December 31,     October 31,   December 31,
                                        1997             1996           1996
                                   -------------    ------------    ------------
REVENUE:
  Title insurance premiums          $  5,359,001    $ 1,451,479    $    485,840
  Escrow fees                          2,190,641        695,995         204,776
  Account servicing                      341,292        314,939          49,710
  Other fees                             186,151         16,947           4,400
  Interest income                        271,419        103,295          24,790
                                    ------------    -----------    ------------
                                       8,348,504      2,582,655         769,516
                                    ------------    -----------    ------------
EXPENSES:
  Personnel costs                      4,650,618      1,958,292         585,501
  General and administrative           2,206,402      1,059,321         270,457
  Acquisition costs                           --        103,441              --
  Title remittance fees                  494,776        170,933          59,045
  Escrow commissions                     519,670         24,768          27,086
  Rent                                   692,732        296,058          97,408
  Interest expense                        71,458         17,835          10,813
                                    ------------    -----------    ------------
                                       8,635,656      3,630,648       1,050,310
                                    ------------    -----------    ------------

  Loss before income tax benefit        (287,152)    (1,047,993)       (280,794)

  Income tax benefit                      42,434             --           9,438
                                    ------------    -----------    ------------

  Net loss                          $   (244,718)   $(1,047,993)   $   (271,356)
                                    ============    ===========    ============
  Net loss per common share
       basic and diluted            $      (0.02)   $     (0.11)   $      (0.03)
                                    ============    ===========    ============
  Weighted average shares
       outstanding                    11,088,029      9,281,440      10,311,029
                                    ============    ===========    ============

                   The Accompanying Notes are an Integral Part
                    of the Consolidated Financial Statements

                                       23
<PAGE>
                    CAPITAL TITLE GROUP, INC. AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                           Common Stock          Additional
                                       --------------------       Paid-in     Accumulated
                                        Shares       Amount       Capital       Deficit
                                        ------       ------       -------       -------
<S>                                  <C>         <C>          <C>          <C>         
Balance at October 31, 1995            1,000,000   $ 480,663    $       --   $  (283,202)

Shares issued to officer                 165,000     100,000            --            --

Restructure in reverse merger
 with Capital Title Group, Inc.        7,846,029    (571,652)      571,652            --

Shares issued in private placement,
 net of costs of $118,001              1,275,000       1,275     1,155,724            --

Net loss                                      --          --            --    (1,047,993)

                                      ----------   ---------    ----------   -----------
Balance at October 31, 1996           10,286,029      10,286     1,727,376    (1,331,195)

Shares issued in private placement,
 no issuance cost incurred                30,000          30        29,970            --

Net loss                                      --          --            --      (271,356)

                                      ----------   ---------    ----------   -----------
Balance at December 31, 1996          10,316,029      10,316     1,757,346    (1,602,551)

Shares issued in private placement,
net of costs of $17,700                  915,000         915       896,385            --

Net loss                                      --          --            --      (244,718)
                                      ----------   ---------    ----------   -----------
Balance at December 31, 1997          11,231,029   $  11,231    $2,653,731   $(1,847,269)
                                      ==========   =========    ==========   ===========
</TABLE>
                   The Accompanying Notes are an Integral Part
                    of the Consolidated Financial Statements

                                       24
<PAGE>
                    CAPITAL TITLE GROUP, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
                                            For the year  For the year  For the Two
                                               Ended         Ended         Months
                                            December 31,   October 31,  December 31,
                                               1997          1996          1996
                                            -----------   -----------   -----------
<S>                                         <C>          <C>            <C>       
Cash flows from operating activities:
Net loss                                    $ (244,718)  $(1,047,993)   $(271,356)

Adjustments to reconcile net loss to
 net cash used by operating activities:
    Depreciation and amotization               293,212       110,746       32,560

Changes in Assets and Liabilities:
    Accounts receivable                        (91,197)      (10,628)       6,014
    Income taxes receivable                     25,796        35,217       (9,438)
    Interest receivable                         36,287            --           --
    Prepaid expenses                           (32,635)      (16,055)     (38,834)
    Refundable deposits                        (32,124)      (58,699)          --
    Deferred income tax asset                       --        16,358           --
    Accounts payable                          (232,563)      264,673      113,836
    Accrued expenses                            79,437        43,305        1,309
    Income taxes payable                            --       (15,249)          --
                                            ----------    ----------    ---------
Net cash used by operating activities         (198,505)     (678,325)    (165,909)
                                            ----------    ----------    ---------
Cash flows from investing activities:
    Purchase of property and equipment        (746,922)     (724,436)     (55,332)
    Property held for sale                     (21,500)           --           --
                                            ----------    ----------    ---------
Net cash used by investing activities         (768,422)     (724,436)     (55,332)
                                            ----------    ----------    ---------
Cash flows from financing activities:
   Proceeds from notes to related party             --       225,000           --
   Borrowings                                  401,126            --      350,000
   Debt service payments                      (174,292)      (66,876)     (27,868)
   Proceeds from the issuance of stock, net    897,300     1,256,999       30,000
   Repayment of notes to related party         (34,667)       (5,052)     (79,192)
                                            ----------    ----------    ---------
Net cash provided by financing activities    1,089,467     1,410,071      272,940
                                            ----------    ----------    ---------

Net increase in cash and cash equivalents      122,540         7,310       51,699

Cash at the beginning of the period             76,363        17,354       24,664
                                            ----------    ----------    ---------

Cash at the end of the period               $  198,903    $   24,664    $  76,363
                                            ==========    ==========    =========
</TABLE>
                   The Accompanying Notes are an Integral Part
                    of the Consolidated Financial Statements

                                       25
<PAGE>
                    CAPITAL TITLE GROUP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   Summary of Significant Accounting Policies:

     Nature of Corporation:

     Capital Title Group,  Inc. (the "Company"  formerly known as Norvex,  Inc.)
     was organized on September 12, 1983 in the State of Utah. In May, 1989, the
     Company was redomiciled as a Delaware corporation.  The Company was largely
     inactive  until May 23,  1996,  at which  time it  acquired  Capital  Title
     Agency, Inc. in a reverse merger (See Note 4). The accompanying  historical
     consolidated  financial  statements  are based  solely on the  activity  of
     Capital Title Agency,  Inc. through the date of acquisition,  May 23, 1996,
     since that was the only  active  business  at the time of the  merger.  The
     intent of Capital Title Group, Inc. is to act as the parent holding company
     of Capital Title Agency, Inc.

     Capital Title Agency,  Inc.  ("Capital  Title") is a corporation  which has
     been duly formed and organized under the laws of the State of Arizona,  and
     operates under the authority of the State Banking Commission. Capital Title
     was approved by the State of Arizona on November 1, 1981.  Capital Title is
     an independent  title agency providing escrow services and, as an agent for
     two title insurance  companies,  issuing title insurance  policies to serve
     the real estate industry in Maricopa and Yavapai Counties in Arizona. As of
     February  26, 1998 Capital  Title  operated  sixteen  (16) offices  located
     throughout Maricopa and Yavapai Counties in Arizona.

     Basis of Presentation:

     The accompanying  consolidated financial statements include the accounts of
     the Company and its wholly-owned subsidiary, Capital Title Agency, Inc. All
     material  inter-company  accounts and transactions  have been eliminated in
     consolidation.

     The  preparation of  consolidated  financial  statements in conformity with
     generally  accepted  accounting  principles  requires  management  to  make
     estimates  and  assumptions   that  affect  the  amounts  reported  in  the
     consolidated  financial  statements  and  the  accompanying  notes.  Actual
     results could differ from those estimates.

     Cash and Cash Equivalents:

     Cash and cash equivalents  include all highly liquid investments  purchased
     with an initial maturity of three (3) months or less.

                                       26
<PAGE>
                    CAPITAL TITLE GROUP, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


1.   Summary of Significant Accounting Policies: (Continued)

     Accounts Receivable:

     The  Company  uses the  allowance  method to  account  for  non-collectible
     accounts  receivable.  The allowance is established  based upon a review of
     the individual accounts and the Company's prior collection history.

     Income Recognition:

     Title  insurance  premiums and escrow fees are recognized as revenue at the
     time of  closing  of the  related  real  estate  transaction.  Income  from
     accounts  servicing  and  other  fees is  recognized  when the  service  is
     performed.  Income from insurance recoveries is recognized when the dispute
     is settled and the money is received.

     Property and Equipment:

     Property and equipment are stated at cost and are being  depreciated  using
     the  straight-line  and  double-declining   methods  of  depreciation  over
     estimated  useful  lives of five (5) to seven (7)  years.  Maintenance  and
     repairs  that  neither  materially  add to the  value of the  property  nor
     appreciably   prolong  its  life  are  charged  to  expense  as   incurred.
     Betterments or renewals are capitalized as they are incurred. For the years
     ended  December  31, 1997 and October 31,  1996,  depreciation  expense was
     $293,212  and  $110,746,  respectively.  For the  two  month  period  ended
     December 31, 1996, depreciation expense was $32,560.

     Capital Lease Obligation:

     The  Company  is  the  lessee  of  office  equipment  under  capital  lease
     agreements  which expire  throughout the year 2000. The asset and liability
     under the capital  lease are recorded at the lower of the present  value of
     the minimum lease payments or the fair market value of the asset. The asset
     is  amortized  over the lower of its  related  lease term or its  estimated
     productive  life.  Amortization  of  the  asset  under  the  capital  lease
     agreement is included in depreciation expense noted above.

     Title Plant:

     Title  plants are recorded at the cost  incurred to construct  and organize
     historical  title  information to the point it can be used to perform title
     searches.  Cost  incurred to maintain,  update and operate title plants are
     expensed as incurred. Title plants are not amortized as they are considered
     to have an indefinite life if maintained.

                                       27
<PAGE>

1.   Summary of Significant Accounting Policies: (Continued)

     Income Taxes:

     The Company and its subsidiary file  consolidated  federal and state income
     tax  returns.  The Company  accounts for income  taxes in  accordance  with
     Statement of Financial  Accounting  Standards  Statement No. 109 ACCOUNTING
     FOR INCOME  TAXES.  The  standard  provides  that  deferred  tax assets and
     liabilities are recognized for the future tax consequences  attributable to
     differences  between the financial  statement  carrying amounts of existing
     assets and liabilities and their  respective tax basis, and the utilization
     of  the  net  operating  loss   carryforwards.   Deferred  tax  assets  and
     liabilities  are  measured  using  enacted  tax rates  expected to apply to
     taxable  income  in the  years in which  those  temporary  differences  are
     expected to be recovered or settled.

     Loss Per Share:

     In 1997, the Financial Accounting Standards Board issued Statement No. 128,
     EARNINGS PER SHARE.  Statement 128 replaced the  calculation of primary and
     fully diluted earnings per share with basic and diluted earnings per share.
     Unlike  primary  earnings per share,  basic earnings per share excludes any
     dilutive effects of options,  warrants and convertible securities.  Diluted
     earnings per share is very similar to the previously reported fully diluted
     earnings per share.  All  earnings  per share  amounts for all periods have
     been presented, and where appropriate, restated to conform to the Statement
     128  requirements.  The loss per share for the year ended October 31, 1996,
     is presented  after giving  retroactive  effect to the reverse  merger (see
     Note 4).

     Fair Value of Financial Instruments:

     The Company discloses fair value  information  about financial  instruments
     where  it is  practicable  to  estimate  their  value  in  accordance  with
     Statement No. 107,  DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL  INSTRUMENTS.
     The Company estimates that the carrying value of its Financial Instruments,
     consisting  of cash and notes payable and  obligations  under capital lease
     agreements, approximate their fair values at December 31, 1997.

     Impact of Recently Issued Accounting Standards

     In June 1997, the FASB issued  Statement No. 130,  REPORTING  COMPREHENSIVE
     INCOME,   which   establishes   standards  for  reporting  and   displaying
     comprehensive  income  and its  components  (revenue,  expenses,  gains and
     losses) in a full set of general purpose  financial  statements.  Statement
     No. 130 also  requires all items that are required to be  recognized  under
     accounting standards as components of comprehensive  income, be reported in
     financial  statements  and be  displayed  with  equal  prominence  as other
     general-purpose financial statements.

                                       28
<PAGE>

1.   Summary of Significant Accounting Policies: (Continued)

     This Statement is effective for periods  beginning after December 13, 1997.
     Reclassification  of financial  statements for earlier periods provided for
     comparative purposes is required.

     Also in June 1997,  the FASB issued  Statement No. 131,  DISCLOSURES  ABOUT
     SEGMENTS  OF AN  ENTERPRISE  AND  RELATED  INFORMATION,  which  establishes
     standards for the way that public business  enterprises  report information
     about operating  segments in annual financial  statements and requires that
     those enterprises  report selected  information about operating segments in
     interim  financial  reports  issued to  stockholders.  This  Statement also
     establishes  standards for related disclosures about products and services,
     geographic  areas, and major customers.  Statement No. 131 is effective for
     periods beginning after December 31, 1997. Comparative information provided
     for earlier periods is required to be restated.

     Management  believes there will be no material  effect on the  consolidated
     financial  statements  form the adoption of either  Statements  Nos. 130 or
     131.

     Reclassifications:

     Certain  reclassifications  have been made to the  prior  period  financial
     statements to conform to the current period presentation.

2.   Cash in Escrow:

     The Company is the custodian of cash  deposited by customers  with specific
     instructions as to its disbursement  from active escrow,  trust and account
     servicing.  The balances in these  accounts have not been included in these
     financial  statements.  As of December  31, 1997,  the  accounts  contain a
     reserve  balance  of  approximately  $18,136,876  in the  escrow  accounts,
     $10,046  in the trust  accounts,  and  $695,871  in the  account  servicing
     accounts, respectively.

3.   Concentration of Credit Risk:

     The Company  maintains  cash and cash  equivalents  with various  financial
     institutions.  Deposits  not to exceed  $100,000  at each  institution  are
     insured by the Federal Deposit Insurance Corporation. At December 31, 1997,
     the  Company  had  uninsured  cash and cash  equivalents  of  approximately
     $51,412.

                                       29
<PAGE>

4.   Business Combination:

     Capital  Title  Group,  Inc.  (formerly  Norvex,  Inc.)  was  organized  on
     September  12,  1983,  in the State of Utah.  On May 8, 1989,  Articles  of
     Merger  were  filed  in the  State  of  Utah,  merging  Norvex,  Inc.  into
     Pharmaceutics  International,  Inc., a Delaware corporation.  Pharmaceutics
     International, Inc. was the survivor corporation. On or about July 9, 1993,
     the Company  amended its  Certificate of  Incorporation,  changing its name
     back to Norvex,  Inc.,  a Delaware  corporation.  The  Company  was largely
     inactive  from that time until May,  1996.  On May 23,  1996,  the  Company
     acquired  Capital  Title Agency,  Inc. in a transaction  accounted for as a
     reverse acquisition, wherein the stockholders of Capital Title Agency, Inc.
     obtained  control of the consolidated  entity.  The intent of Capital Title
     Group,  Inc.  is to act as the parent  holding  company  of  Capital  Title
     Agency, Inc. As such, Norvex, Inc. changed its name to Capital Title Group,
     Inc.

     Capital Title Group,  Inc.  (formerly  Norvex,  Inc.) had 1,686,164  shares
     issued and  outstanding,  after a one for 10 (1-10) reverse stock split, at
     the acquisition date.  Capital Title Group, Inc. issued 6,734,865 shares of
     its common stock to the shareholders of Capital Title Agency,  Inc. for one
     hundred  percent  (100%) of the  issued  and  outstanding  common  stock of
     Capital Title Agency, Inc.

     As part of the  Acquisition  Agreement,  the Company agreed to sell 590,000
     shares of its  common  stock for the total  price of $100 to its  financial
     advisor.  The  stock  was  valued  at $.01 per  share  in the  accompanying
     financial statements.

5.   Property and Equipment:

     Property and equipment consist of the following:

                                            December 31,
                                               1997
                                               ----
     Office equipment                       $1,683,472
     Leasehold improvements                    285,113
     Furniture and fixtures                    273,048
     Vehicles                                   61,418
                                            ----------
                                             2,303,051
     Less:  accumulated depreciation and      (742,396)
          amortization                      ----------
                                            $1,560,655
                                            ==========

                                       30
<PAGE>

6.   Income Taxes:

     The income tax benefit consists of the following:

                                                          Two Months
                            Year Ended     Year Ended       Ended
                            December 31,   December 31,   December 31,
                               1997          1996            1996
                               ----          ----            ----

     Current tax benefit     $42,434        $   --          $9,438
     Deferred tax benefit         --            --              --
                             -------        ------          ------
                             $42,434        $   --          $9,438
     
     The income tax  benefit  for the year ended  December  31, 1997 and the two
     month period ended December 31, 1996, relate to income tax refunds received
     from the IRS due to NOL carrybacks the Company utilized.

     Deferred income taxes reflect the net tax effects of temporary  differences
     between  the  carrying  amounts of assets  and  liabilities  for  financial
     reporting  purposes  and the  amounts  used for  income tax  purposes.  For
     financial  reporting  purposes,  a valuation allowance of $283,117 has been
     recognized  to offset the  Company's  deferred  tax assets.  The  valuation
     allowance was increased by $61,972 during the year ended December 31, 1997.
     Significant  components of the Company's deferred tax assets as of December
     31, 1997 are as follows:

                                          December 31,
                                              1997
                                              ----
     Accounts receivable                   $   3,160
     Property and equipment                  (32,183)
     Loss carryforwards                      312,140
                                           ---------
                                             283,117
     Less:  valuation allowance             (283,117)
                                           --------- 
                                           $      --
                                           =========

     At December 31, 1997, the Company has net operating loss  carryforwards  of
     approximately  $1,350,000  for federal and state income tax  purposes  that
     expire in years 1999  through  2012.  Based on the  number of common  stock
     shares the Company anticipates selling in its 1998 private placement,  (see
     note 15), the Company will exceed the limits allowable under the Tax Reform
     Act of 1986 related to changes in  ownership  percentage  governing  future
     utilization  of net  operating  loss  carryforwards.  The  effect  of  this
     occurrence  will limit the annual  utilization  of the net  operating  loss
     carryforwards.
                                       31
<PAGE>

7.   Notes Payable and Obligations Under Capital Leases:

     Notes payable are summarized as follows:

                                                                   December 31,
                                                                      1997
                                                                   ------------
     8.75% note payable to Primus Automotive, with 
     monthly installments of $299, including principal 
     and interest, due June, 1998; secured by a vehicle.           $   1,749

     8.2% note payable to Imperial Bank of Arizona,
     with monthly installments of $11,000, including  
     principal and interest, due November, 1999;
     secured by furniture and equipment.                             223,980

     8.5% credit line to Imperial Bank of Arizona,
     with monthly installments of accrued interest,
     credit line matures November 1999; secured by 
     furniture and equipment. The maximum credit 
     line limit is $250,000.                                         151,126
     
     9.9% note payable to Norwest Bank, with monthly 
     installments of $384, including principal
     and interest, due May, 2000; secured by an auto.                  9,876

     8% note payable to an individual, with monthly 
     installments of $435, including principal and
     interest, due October, 2011; secured by land.                    42,972

     10.5% note payable to Wells Fargo, with monthly 
     installments of $309, including principal and 
     interest, due January, 1999; secured by a vehicle.                3,780
                                                                  ----------
                                                                     433,483

     Less:  current portion                                         (270,257)
                                                                  ----------
                                                                  $  163,226
                                                                  ==========

                                       32
<PAGE>

7.   Notes Payable and Obligations Under Capital Leases: (Continued)

     The maturities of long-term notes payable are as follows:

                          Year Ended
                          October 31       Amount
                          ----------       ------
                             1998        $270,257
                             1999         122,342
                             2000           3,592
                             2001           2,259
                             2001           2,446
                          Subsequent       32,587
                                         --------
                                         $433,483
                                         ========

     Capital Lease Obligations:

     The Company is the lessee of office  equipment  with an  aggregate  cost of
     $255,246 under capital lease  agreements  which expire  throughout the year
     2000.  Minimum future lease payments due under the capital lease  agreement
     for the next five (5) years, are as follows:

                          Year Ended
                          October 31       Amount
                          ----------       ------
                             1998        $  96,371
                             1999           85,172
                             2000           29,888
                             2001               --
                             2002               --
                                         ---------
     Net minimum lease payments            211,431

     Less:  amount representing interest   (27,548)
                                         ---------
     Present value of net minimum lease 
     payments                              183,883

     Less:  current portion                (78,403)
                                         ---------
     Long-term maturities of capital 
     lease obligation                    $ 105,480
                                         =========

                                       33
<PAGE>

7.   Notes Payable and Obligations Under Capital Leases: (Continued)

     The interest rate is imputed based on the lessor's  implicit rate of return
     at the inception of the lease.

     Convertible Notes:

     During the year ended  December 31, 1997,  the Company  issued  convertible
     notes for the purpose of obtaining capital to open two new escrow branches.
     As of December  31,  1997,  convertible  notes  payable was  $250,000.  The
     convertible notes require payment of interest only for eighteen (18) months
     at an interest rate equal to the prime rate (in effect) plus 2 1/2%. At any
     time within the eighteen (18) months, the note holders will have the option
     of converting the obligation  into common stock of the Company at $1.00 per
     share. The convertible  notes are secured by furniture and equipment in the
     respective branches.

     The maturities of convertible notes payable, are as follows:

                                Year Ended
                               December 31,        Amount
                               ------------        ------
                                   1998           $175,000
                                   1999             75,000
                                                  --------
                                                  $250,000
                                                  ========

     Notes Payable to Related Parties:

     The  Company  has a 10%  note  payable  to a  related  corporation  with an
     outstanding  balance as of December 31, 1997 of $101,115.  The Company pays
     monthly  installments  of principal  and interest of $3,187 over 60 months.
     The note is due in the year 2001 and is unsecured.

     The  maturities  of  long-term  note  payable  to related  parties,  are as
     follows:
                                Year Ended
                               December 31,        Amount
                               ------------        ------
                                   1998           $ 29,459
                                   1999             32,544
                                   2000             35,951
                                   2001              3,161
                                                  --------
                                                  $101,115
                                                  ========

                                       34
<PAGE>

8.   Operating Lease Commitments:

     The Company leases offices at fifteen (15)  locations.  The remaining lease
     periods  range from  twenty-seven  (27)  months to sixty (60)  months  with
     renewal  options up to ten (10)  years.  For the years ended  December  31,
     1997,  and October 31, 1996,  and the two month  period ended  December 31,
     1996, rental expense was $692,732, $296,058, and $97,408, respectively.

     The  future  minimum  lease  commitments  during the next five years are as
     follows:
                                Year Ended
                               December 31,       Amount
                               ------------       ------
                                   1998         $  795,147
                                   1999            626,297
                                   2000            415,423
                                   2001            320,947
                                   2002            226,124
                                                ----------
                                                $2,383,938
                                                ==========
9.   Related Party Transactions:

     The Company  received  management  and  consulting  services from a related
     business.  Charges  for these  services  were $0 for the fiscal  year ended
     December 31, 1997 and $48,000 for the fiscal year ended October 31, 1996.

     In April, 1996, a corporate officer purchased 165,000 shares for $100,000.

     During the year ended  December 31, 1997,  the year ended October 31, 1996,
     and the two month period ended  December 31, 1996 Capital Title Agency paid
     $41,260,  $43,319,  and  $7,249,  respectively,  to Dale A.  Head for legal
     services rendered to Capital Title Agency. Dale A. Head is Donald R. Head's
     brother. In September,  1996, the Company granted an option to Dale A. Head
     to acquire  20,000  shares of Common  Stock of the  Company at an  exercise
     price of $1.00 per share.

                                       35
<PAGE>

10.  Contingencies and Uncertainties:

     The  Company is a defendant  in various  lawsuits  and claims,  which it is
     vigorously defending. It is management's contention that such matters arise
     out of the normal course of business, primarily related to title and escrow
     disputes.  While  the  results  of  litigation  cannot  be  predicted  with
     certainty,  management believes, based on the advice of legal counsel, that
     the final  outcome of such  lawsuits  and  claims  will not have a material
     adverse effect on the Company's financial position,  results of operations,
     or liquidity.  As of December 31, 1997, the Company had accrued $37,200 for
     possible title and escrow losses.

11.  Cash Flow Information:

     Cash paid  (refunded)  for  interest  and income taxes for the fiscal years
     ended December 31, 1997, October 31, 1996 and the two months ended December
     31, 1996, is as follows:
                                                       Two Months
                      Year Ended      Year Ended         Ended
                      December 31,    October 31,     December 31,
                         1997            1996             1996
                         ----            ----             ----
      Interest         $ 71,458        $ 17,835         $10,813
                       ========        ========         =======
      Income taxes     $(68,230)       $(36,326)        $    --
                       ========        ========         =======

     The Company's  investing and financing  activities that affected assets and
     liabilities, but did not result in cash receipts or payments, as follows:

          During the years ended  December 31, 1997,  and October 31, 1996,  and
          the two month period ended December 31, 1996, the Company financed the
          purchase  of  property  and  equipment  in  the  amount  of  $141,612,
          $107,136,  and $15,999 under  capital lease and financing  agreements,
          respectively.

          In May 1996,  the Company issued  6,734,865  shares of common stock to
          purchase  all the  issued  and  outstanding  shares of  Capital  Title
          Agency, Inc.

          During 1997, the Company  settled an escrow claim in which the Company
          acquired  land in  exchange  for a note on the land in the  amount  of
          $44,196.

          During 1997, the Company financed the purchase of an automobile in the
          amount of $11,930.

                                       36
<PAGE>

12.  Employee Benefit Plans:

     Profit Sharing Plan:

     The Company  maintains a profit  sharing plan under  Section  401(K) of the
     Internal  Revenue  Code.  Under  this  plan,  substantially  all  full-time
     employees  may elect to defer up to fifteen  percent (15%) of their salary.
     The Company contributes $.25 for every $1 the employee contributes, up to a
     maximum of one percent (1%) of the employee's earnings. Vesting of matching
     contributions is based on certain service requirements. Employees are fully
     vested after six (6) years of service.

     Employer  contributions for the years ended December 31, 1997,  October 31,
     1996 and the two month period ended December 31, 1996,  were  approximately
     $6,200, $4,500, and $1,750, respectively.

     Cafeteria Plan:

     The Company  maintains an Internal  Revenue Code Section 125 Cafeteria Plan
     as a benefit to its employees. The plan provides for employee and dependent
     coverage  to be paid from  before tax  compensation.  As such,  there is no
     effect on the financial statements.

13.  Private Placement Memorandum:

     In May 1996, the Company's Board of Directors ("The Board")  authorized the
     sale of  common  stock  through a Private  Placement  Memorandum  at $1 per
     share,  with an intended  maximum  offering of  1,500,000  shares.  Through
     October 31, 1996,  1,275,000  common shares were sold in the offering.  The
     net  proceeds  received  from  the  offering  as of  October  31,  1996 was
     $1,156,699.  In the two month period ended December 31, 1996, an additional
     30,000 shares were sold resulting in net proceeds of $30,000.  On March 11,
     1997,  the Board  authorized  the  Private  Placement  to be  increased  to
     2,500,000 shares of common stock.  During the year ended December 31, 1997,
     the Company sold an additional  915,000 share of common stock which,  after
     deducting commissions and other offering expenses, resulted in net proceeds
     to the Company of $897,300.

     In December 1997, the Board authorized another sale of common stock through
     a Private Placement Memorandum. As of December 31, 1997, no shares had been
     sold in the second private placement. See note 17.

                                       37
<PAGE>

14.  Stock Option Plans:

     The Company has elected to follow  Accounting  Principles Board Opinion No.
     25,  ACCOUNTING  FOR  STOCK  ISSUED TO  EMPLOYEES  ("APB  25") and  related
     Interpretations  in  accounting  for its  1996  Stock  Option  Plan and the
     Company's  Non-Employee  Directors Stock Option Plan because,  as discussed
     below,  the  alternative  fair  value  accounting  provided  for under FASB
     Statement No. 123, "Accounting for Stock-Based  Compensation," requires use
     of options  valuation  models  that were not  developed  for use in valuing
     stock  options.  Under APB 25,  because the exercise price of the Company's
     stock options equals the market price of the  underlying  stock on the date
     of grant, no compensation expense is recognized.

     The Company's  1996 Stock Option Plan ("The Plan") has authorized the grant
     of common stock options to all the Company's employees.  As of December 31,
     1997,  approximately 1,620,000 shares have been granted under the the Plan.
     All options  granted have 5 year terms.  Fifty percent (50%) of the options
     can be exercised after two (2) years, the remaining shares can be exercised
     after three (3) years  provided  the  optionee  remains  employed  with the
     Company  at such  vesting  date.  Options  granted  under  the Plan are not
     transferable  and the per share exercise price of an incentive stock option
     granted  under the Plan may not be less than the fair  market  value of the
     common stock on the date of grant.  At the Company's  1997 annual  meeting,
     the  shareholders  approved the  reservation of 1,300,000  shares of Common
     Stock for  issuance  pursuant  to the Plan.  The  Company  intends  to seek
     shareholder  approval at its 1998 annual  meeting to increase the number of
     shares reserved for issuance pursuant to the Plan to 2,000,000 shares.

     The Company's  Non-Employee  Directors Stock Option Plan has authorized the
     grant of options to non-employee members of the Board of Directors of up to
     200,000 shares of the Company's  common stock.  All options  granted have 5
     year terms.  Fifty percent (50%) of the options can be exercised  after two
     (2) years,  the  remaining  shares can be  exercised  after three (3) years
     provided the optionee  remains an eligible  director at such vesting  date.
     Upon  election to the Board of  Directors  each board member is granted the
     option to  purchase  15,000  shares of common  stock.  In  addition  to the
     foregoing   option   grants,   each  year   every   non-employee   director
     automatically  receives an option to acquire 10,000 shares of the Company's
     common  stock on the third  business  day  following  the date the  Company
     publicly  announces  its  annual  financial  results;  provided  that  such
     director  has  attended  at  least  75% of the  meetings  of the  Board  of
     Directors and the Board of Committees of which such  non-employee  director
     is a member in the preceding fiscal year.

                                       38
<PAGE>

14.  Stock Option Plans: (Continued)

     Pro forma  information  regarding  net  income  and  earnings  per share is
     required by Statement  123, and has been  determined  as if the Company had
     accounted  for its employee  stock  options  under the fair value method of
     that statement.  The fair value for these options was estimated at the date
     of grant using a  Black-Scholes  option  pricing  model with the  following
     weighted-average  assumptions for 1996 and 1997; risk-free interest rate of
     5.25%;  dividend  yields of 0%;  volatility  factors of the expected market
     price of the Company's common stock of .30; and a weighted-average expected
     life of the option of 5 years.

     The  Black-Scholes   option  valuation  model  was  developed  for  use  in
     estimating  the  fair  value  of  traded  options  which  have  no  vesting
     restrictions and are fully  transferable.  In addition,  options  valuation
     models  require the input of highly  subjective  assumptions  including the
     expected stock price  volatility.  Because the Company's stock options have
     characteristics  significantly  different from those of traded options, and
     because changes in the subjective input  assumptions can materially  affect
     the fair value estimate,  in management's  opinion,  the existing models do
     not necessarily  provide a reliable single measure of the fair value of its
     stock options.  For purposes of pro forma  disclosures,  the estimated fair
     value of the options is  amortized  to expense  over the  options'  vesting
     period. The Company's pro forma information follows:
                                                                 Two Months  
                                 Year Ended      Year Ended         Ended    
                                 December 31,    October 31,     December 31,
                                    1997            1996            1996
                                    ----            ----            ----
     Pro forma loss              $(457,335)     $(1,103,362)     $ (299,487)
     Pro forma loss per share:   $   (0.04)     $     (0.12)     $    (0.03)

     A summary of the Company's  stock option activity for the 1996 Stock Option
     Plan,  and related  information  for the years ended  December 31, 1997 and
     October 31, 1996,  and the two month  period ended  December 31, 1996 is as
     follows:

                                       39
<PAGE>

14.  Stock Option Plans: (Continued)
<TABLE>
<CAPTION>
                                                                                        For the two month
                                    For the year ended         For the year ended          period ended        
                                      December 31,1997          October 31, 1996         December 31, 1996  
                                 ------------------------- ------------------------- ------------------------
                                          Weighted-average         Weighted-average          Weighted-average
                                  Options  Exercise Price  Options  Exercise Price   Options  Exercise Price
                                  -------  --------------  -------   --------------  -------   --------------
    <S>                         <C>        <C>             <C>           <C>           <C>         <C>  
     Outstanding - beginning of
     year                        1,140,100                        --                 1,107,700

     Granted                       552,850    $ 1.33       1,107,700     $ 1.00         42,800      $ 1.00

     Exercised                          --    $   --              --     $   --             --      $   --

     Forfeited                      72,800    $ 1.35              --     $ 1.00         10,400      $ 1.00

     Outstanding-end of year     1,620,150    $ 1.10       1,107,700     $ 1.00      1,140,100      $ 1.00

     Exercisable at end of year         --                        --                        --

     Weighted-average fair value
     of options granted during
     the year                    $    0.35                 $    0.36                 $    0.36
</TABLE>

     Exercise  prices for options  outstanding as of December 31, 1997 was $1.00
     and $2.00. The weighted average remaining contractual life of those options
     is 4 years.

                                       40
<PAGE>

14.  Stock Option Plans: (Continued)

     A summary of the  Company's  stock  option  activity  for the  Non-Employee
     Directors  Stock Option Plan, and related  information  for the years ended
     December 31 follows:
<TABLE>
<CAPTION>
                                                                                     For the two month
                                   For the year ended        For the year ended         period ended        
                                     December 31,1997         October 31, 1996       December 31, 1996  
                                ------------------------- ------------------------ ------------------------
                                         Weighted-average         Weighted-average         Weighted-average
                                 Options  Exercise Price  Options  Exercise Price  Options  Exercise Price
                                 -------  --------------  -------  --------------  -------  --------------
    <S>                         <C>        <C>            <C>           <C>           <C>         <C>  
     Outstanding - beginning of
     year                         75,000                       --                    75,000

     Granted                      65,000     $ 1.00        75,000       $ 1.00           --     $   --

     Exercised                        --     $   --            --       $   --           --     $   --

     Forfeited                        --     $   --            --       $   --           --     $   --

     Outstanding-end of year     140,000     $ 1.00        75,000       $ 1.00       75,000     $ 1.00

     Exercisable at end of year       --                       --                        --

     Weighted-average fair value
     of options granted during
     the year                    $  0.35                   $ 0.36                    $ 0.36
</TABLE>

     Exercise prices for options  outstanding as of December 31, 1997 was $1.00.
     The  weighted  average  remaining  contractual  life of those  options is 4
     years.

15.  Subsequent Events:

     On January 12, 1998,  Capital  Title  Group's  Board of Directors  voted to
     commence a second  private  placement of common  stock  intending to sell a
     minimum  of 400,000  shares,  and a maximum of  3,500,000  shares.  Two (2)
     common  shares and a warrant to purchase one share of common stock at a per
     share  price of $2.50  within two (2) years make up each unit.  The Company
     will sell each unit for $3.00.

                                       41
<PAGE>

15.  Subsequent Events: (Continued)

     The Company  will use the  proceeds  from the second  private  placement to
     purchase new computer  equipment for Yavapai County,  fund the expansion in
     Maricopa County and throughout Arizona, and fund its planned expansion into
     California.  As of March 20, 1998,  the Company  sold  433,500  units which
     provides  proceeds to the Company,  net of offering costs, of approximately
     $1.2 million.

     On January 19, 1998,  Capital Title Group filed  Articles of  Incorporation
     for New Century Insurance Services, Inc. ("NCIS") a wholly owned subsidiary
     of Capital  Title Group,  Inc.  NCIS will take  advantage of the  extensive
     customer  base of  Capital  Title  Agency  to sell  property  and  casualty
     insurance. NCIS will be an independent agency which will allow them to shop
     various  insurance   agencies  and  provide  their  customers   competitive
     insurance rates. NCIS will begin operations in the second quarter of 1998.

     On February 2, 1998, the Company issued  $125,000 in convertible  notes for
     the purpose of obtaining  capital to open a new branch in Maricopa  County,
     Arizona.  The  Convertible  note  requires  payment  of  interest  only for
     eighteen  (18)  months at an  interest  rate  equal to the  prime  rate (in
     effect)  plus 2 1/2%.  At any time  within the  eighteen  months,  the note
     holders will have the option of converting the obligation into common stock
     of the  Company at $1.00 per share.  The  convertible  notes are secured by
     furniture and equipment in the respective branch.


                                       42
<PAGE>

ITEM 8.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE

     On March 31, 1997,  the Company  filed a Form 8-K reporting the decision of
Semple  &  Cooper  PLC,   ("Semple")  to  resign  as  the  Company's   principal
accountants.  The Company  appointed the accounting firm Ernst & Young LLP ("E &
Y") as the Company's principal accountants.

     In connection with the audit of the Company's financial  statements for the
year ended  October  31,  1996 there were no  disagreements  with  Semple on any
matters of accounting principle or practices, financial statement disclosure, or
auditing  scope and  procedures,  which if not resolved to the  satisfaction  of
Semple,  would  have  caused  them to make  reference  to the  matter  in  their
respective reports

     The  Company has  authorized  Semple to  respond fully to any inquires from
E & Y.

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(A) OF THE EXCHANGE ACT

     The following  table sets forth the names,  ages and positions of directors
and  executive  officers of the Company as of January 15, 1998. A summary of the
background  and  experience of each of these  individuals is set forth after the
table.

     The directors and executive officers of the Company are:

Name                           Age               Position
----                           ---               --------
Donald R. Head                 59       Chairman of the Board; Chief 
                                        Executive Officer

Andrew A. Johns                60       President; Director

Milton Ferrantelli             49       Senior Vice President

Nick Velimirovich              47       Vice President

James Clifford                 37       Vice President

James P. Stamas                37       Vice President

Michael J. Benjamin            36       Vice President, Controller

                                       43
<PAGE>

Name                           Age               Position
----                           ---               --------
Deborah Campbell               40       Treasurer

Kimberly Sue DeJong            29       Secretary

Jeffrey P. Anderson            47       Director

David Dewar                    35       Director

Theo F. Lamb                   55       Director

Robert B. Liverant             68       Director

Stephen A McConnell            45       Director

     Directors  hold office  until the next annual  meeting of  stockholders  or
until their successors have been duly elected and qualified. Officers are chosen
by and serve at the discretion of the Board of Directors.

     DONALD R. HEAD is  co-founder  of  Capital  Title  Agency and has served as
Chairman of the Board since its inception.  Mr. Head is also the Chairman of the
Board and Chief Executive  Officer of Capital Title Group.  Mr. Head has engaged
in a number of  entrepreneurial  activities within the real estate industry.  He
was a co-founder of the Prescott  Mining  Company  Restaurant  and developed the
Prescott Air Park, a 35,000 square foot  industrial  and office park,  the Plaza
West Commerce Centre, a five acre office park, and a 112 unit townhouse complex,
all in Prescott, Arizona. Since 1988, Mr. Head has lived in Scottsdale,  Arizona
where he has continued  his real estate  development.  He  co-founded  Centurian
Development  and  Investments,  Inc.,  which is a custom designer and builder of
residential  homes for some of the most prestigious  residential  communities in
the exclusive North  Scottsdale area. Mr. Head is also a partner in America West
Capital One LC, which acquired 677 acres of land currently under  development as
a residential community in Verde Valley in Yavapai County, Arizona. Mr. Head has
served as a board  member on both U.S. and Canadian  public  companies.  He is a
graduate  of Arizona  State  University  with a BA in  Business  and holds a law
degree from the University of Arizona.

     ANDREW A. JOHNS  joined  Capital  Title in April 1996 as Vice  President in
charge of Special Projects and shortly thereafter was named President. Mr. Johns
has also been a Director of Capital Title since March 1996 and a Director of the
Company since the  Acquisition  Transaction  in May 1996.  Mr. Johns is also the
President of the Company.  Mr. Johns has more than 28 years of experience in the
title insurance  industry.  Prior to joining the Company,  Mr. Johns served in a
senior management position with United Title Company for 12 years, expanding its
operational  presence  from Orange  County,  California  to encompass the entire
Southern California market.  United Title purchased TRW Title, Inc. changing its
name to Nations Title,  Inc. When Nations Title,  Inc.  expanded into Arizona in
1994 through  Nations Title of Arizona,  Mr. Johns was selected to establish and

                                       44
<PAGE>

implement  its  operations.  Nations  Title of Arizona was merged  into  Network
Escrow Title Agency,  which later changed its name to Nations Title Insurance of
Arizona,  Inc.,  and operated under Mr. Johns as Executive  Vice  President.  In
January  1996,  Nations  Title  Insurance of Arizona,  Inc.,  and its  operating
entities were acquired by Fidelity  National Title  Company,  one of the top ten
title  companies in the nation,  for in excess of $30  million.  Prior to United
Title  Company,  Mr. Johns was employed by Stewart Title of California  for nine
years holding several executive positions including  President.  He was directly
responsible for developing  fourteen  profitable  branches for Stewart Title. He
began his career with First American Title Insurance Company in California.  Mr.
Johns is a graduate of Compton College.

     MILTON FERRANTELLI joined Capital Title in November, 1997 as Vice President
and as Assistant to the Chairman of Capital  Title's  Maricopa  County,  Arizona
operations. Prior to joining the Company, Mr. Ferrantelli purchased United Title
Insurance  Agency in 1986 with two active  partners and served as its  President
and Chief Executive  Officer until its acquisition by Norwest Financial in 1994.
Mr.  Ferrantelli  has over twenty  years of  experience  in the title and escrow
industry  in the  Arizona  marketplace.  He holds a Bachelor of Arts degree form
Arizona State University and has completed post-graduate work.

     NICK  VELIMIROVICH  joined  Capital  Title in July 1996 and was named  Vice
President of the Company in June 1996. Mr. Velimirovich also serves as the Chief
Executive Officer of Capital Title's Maricopa County, Arizona operations.  Prior
to joining the Company,  Mr.  Velimirovich  was employed by United Title Agency,
Inc.  for more  than 23 years,  where he most  recently  served  as the  Arizona
District Manager.

     JIM CLIFFORD  joined Capital Title in July 1996 as a Vice President and was
named Vice  President of the Company in June 1996.  Mr.  Clifford also serves as
the President of Capital Title's  Maricopa County  operations.  Prior to joining
the Company,  Mr.  Clifford was employed by United Title  Agency,  Inc. for more
than 17 years, where he most recently served as the Chief Operating Officer.

     JAMES P. STAMAS joined the Company in July 1996 as Vice  President and also
serves as the Executive Vice  President-Legal of Capital Title. Prior to joining
Capital Title Agency,  Mr. Stamas worked for United Title Agency for nine years.
Mr. Stamas served as United  Title's Senior Vice  President/General  Counsel for
over a year prior to joining  Capital  Title.  Mr. Stamas has over nine years of
experience  in the  industry.  He is also an  active  member  of the Land  Title
Association  of Arizona,  its  Legislative  Committee and  California  Trustee's
Association.

     MICHAEL  J.  BENJAMIN  joined  the  Company  in  November,  1996  as a Vice
President and serves as the Corporate  Controller and is the principal financial
and  accounting  officer for Capital  Title's  operations.  Prior to joining the
Company,  Mr. Benjamin was employed by Semple & Cooper, PLC. Mr. Benjamin was an
Audit  Manager  with  Semple & Cooper  from 1995 to 1996.  He is a  graduate  of
Florida  Atlantic  University with a BA in Accounting and is a Certified  Public
Accountant.
                                       45
<PAGE>

     DEBORAH L. CAMPBELL is a Vice President of Capital Title.  Ms. Campbell has
been  employed  by  Capital  Title for more  than 13 years and has held  various
positions,  including  serving as a trust officer and  overseeing all compliance
regulations.  Ms. Campbell is also the Company's  Treasurer.  Ms. Campbell is an
active member of the Arizona Trustee  Association and Land Title  Association of
Arizona.

     KIMBERLY SUE DEJONG is the Secretary and Accounting  Manager of the Company
responsible for the accounting services, including escrow accounting, of Capital
Title.  Ms. DeJong has been with Capital Title since 1992.  Prior to joining the
Company in 1992, Ms. DeJong was employed by Lifeline Ambulance.

     JEFFREY P.  ANDERSON  has been a  Director  of Capital  Title  Group  since
December  1997.  Mr.  Anderson  originally  joined  the  Board of  Directors  in
September  1996.  In June of 1997 Mr.  Anderson  resigned  from the board due to
other commitments.  He subsequently rejoined the Board in December 1997. In From
1992 until 1996, Mr.  Anderson was Executive Vice President,  Southwest  Region,
for First Interstate Bank in Phoenix,  Arizona.  He also served  concurrently as
Chairman  of the Board of First  Interstate  Bank of  Colorado.  From 1986 until
1992,  Mr.  Anderson was  employed by Security  Pacific  Corporation  serving at
various   periods  as  Senior  Vice  President  or  Managing   Director  in  the
Energy/Utilities  Group,  Corporate  Finance and Banking  Department and Special
Industries Department.  Mr. Anderson holds a BS degree in Finance and Management
from the  University of Southern  California  and an MBA from  California  State
University, Long Beach.

     DAVID  DEWAR has been a Director of Capital  Title  Group  since  August 1,
1997.  Mr.  Dewar is the  President  and Chief  Executive  Officer  of  Magellan
Corporations,   a  fully  integrated  real  estate  organization  that  provides
comprehensive investment management services. Mr. Dewar is a graduate of Ryerson
University,  in Toronto,  Canada,  where he  received a Bachelor  of  Technology
Degree in Architecture and Project Management and a diploma in Economics.

     THEO F. LAMB is  co-founder  of Capital  Title and has served as a Director
since its  inception.  Mr.  Lamb has been a Director  of the  Company  since the
Acquisition Transaction in May 1996. He is the owner of Lamb Chevrolet,  Inc. in
Prescott, Arizona, a retail car dealership for Cadillac, Oldsmobile,  Chevrolet,
Subaru and Nissan  automobiles.  He has served as a member of the  Chevrolet and
Subaru  National Dealer Counsels and was elected to the Regional Dealer Counsels
for Oldsmobile and Cadillac.  He was the managing partner in several  successful
land and commercial  property  developments  in the Prescott area. Mr. Lamb is a
graduate of Southern Methodist University holding a BS degree in Business.

     ROBERT B. LIVERANT has been a Director of Capital Title Group since May 23,
1996. Mr. Liverant is a retired Chartered Accountant who was a Senior Partner in
the Firm of Liverant Yip and Co. in British Columbia for 20 years,  specializing
in audits of public  companies.  Mr.  Liverant was also a partner in the firm of
Smythe  Ratcliffe  and  Associates  and a  member  of the firm of  Pannell  Kerr
Forester, an international accounting firm. Mr. Liverant has several real estate
investments  including  significant  holdings in Saturna  Beach  Estates LTD, an
80-acre  recreation and vineyard  development in British Columbia,  for which he
also serves as a director.  He has served as a director of more than 15 Canadian
public  companies.  Mr.  Liverant holds a BA degree with an economics major from
the University of British Columbia. He now resides in Cave Creek, Arizona.

                                       46
<PAGE>

     STEPHEN A  MCCONNELL  has been a Director  of  Capital  Title  Group  since
September  1996.  He is the  President of Solano  Ventures,  a firm  involved in
private capital investments.  He has served between 1991 and 1997 as Chairman of
the Board and majority shareholder in Mallco Lumber & Building Materials,  Inc.,
a wholesale distributor of construction lumber and doors. From 1991 to 1995, Mr.
McConnell  was President of Belt Perry  Associates,  Inc., a property tax appeal
firm.  He was  President  and Chief  Executive  Officer  of N-W Group,  Inc.,  a
publicly held  corporation,  from 1985 through  1991.  Mr.  McConnell  presently
serves on the board of directors for Pilgrim America Group, Vodavi Technologies,
and Unitech Industries.

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

     Section  16(a) of the  Exchange Act  requires  the  Company's  officers and
directors,  and persons who beneficially own more than 10% of a registered class
of the Company's equity securities,  to file reports of ownership and changes in
ownership with the SEC.  Officers,  directors and greater than 10%  shareholders
are required by Exchange Act  regulations  to furnish the Company with copies of
all Section  16(a) forms they file.  Based solely upon its review of Forms 3, 4,
and 5 and any  amendments  thereto  furnished to the Company in compliance  with
Section  16 of the  Securities  Exchange  Act of 1934,  as  amended,  or written
representations  from the  applicable  reporting  persons  that filings were not
required,  the Company  believes  that all such  reports  were filed on a timely
basis by the Company's reporting persons during 1997.

ITEM 10. EXECUTIVE COMPENSATION

     The following table summarizes all compensation paid to the Company's Chief
Executive Officer and four other most highly  compensated  officers whose annual
salary and bonus exceeds $100,000 (the "Named Executive Officer"),  for services
rendered in all  capacities to the Company  during the years ended  December 31,
1997, 1996, 1995:

                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
                                                                  Long Term Compensation
                                                             --------------------------------
                                     Annual Compensation            Awards            Payouts 
                                ---------------------------- ----------------------- -------
                                                             Restricted  Securities
    Name And                                    Other Annual   Stock     Underlying   LTIP    All Other
Principal Position      Year    Salary   Bonus  Compensation  Award(s)    Option(s)  Payouts Compensation
------------------      ----    ------   -----  ------------  --------    ---------  ------- ------------
<S>                    <C>     <C>       <C>     <C>         <C>          <C>        <C>      <C> 
Donald R. Head
Chairman of the         1997   $121,240   $0        $-0-       $-0-           0        $-0-      $-0-
Board and Chief         1996   $ 64,000   $0        $-0-       $-0-           0        $-0-      $-0-
Executive Officer       1995   $ 48,000   $0        $-0-       $-0-           0        $-0-      $-0-

Andrew A. Johns         1997   $ 92,026   $0        $-0-       $-0-           0        $-0-      $-0-

Nick Velimirovich       1997   $120,000   $0        $-0-       $-0-           0        $-0-      $-0-

Jim Clifford            1997   $120,000   $0        $-0-       $-0-           0        $-0-      $-0-
</TABLE>

                                       47
<PAGE>

COMPENSATION OF DIRECTORS

     Directors who are not employees of the Company are not currently  receiving
cash  compensation  for their  services other than  reimbursement  of reasonable
expenses if any. Directors who are not employees of the Company also participate
in the Company's  Non-Employee  Directors  Stock Option Plan.  Directors who are
employees of the Company do not receive compensation for such services.

EMPLOYMENT CONTRACTS

     DONALD R. HEAD:

     On June 1, 1996,  Donald R. Head entered into an Employment  Agreement with
the Company,  which provides for his services as Chairman of the Board and Chief
Executive Officer (the "Head Agreement"). The initial term of the Head Agreement
expires on May 31, 2001. The Head Agreement is subject to automatic  renewal for
additional  ten-year  terms on the initial  expiration  date and on each renewal
date thereafter  unless notice of termination is provided to Mr. Head sixty days
prior  to the  expiration  date  or if  Mr.  Head  provides  written  notice  of
resignation  to the Board  sixty days  prior to the  expiration  date.  The Head
Agreement  may be  terminated  by the  Company  for  cause  including  upon  (i)
conviction of a willful or  intentional  crime,  (ii) absence from work for more
than 180 consecutive  days and (iii) the material failure by Mr. Head to perform
his duties.

     The Head Agreement  provides for an initial salary of $96,000 for the first
year and an annual salary of $150,000 for the second and each  succeeding  year,
plus an annual  bonus  equal to 6% of the  Company's  pretax net  profits on all
Company  operations,  calculated  according  to  generally  accepted  accounting
principles  applicable to title insurance agencies  consistently  applied.  Such
bonus shall be prorated in the first year of employment for the period remaining
in the  Company's  fiscal year if less than twelve  months.  Such bonus shall be
determined  and paid within three months  following the end of each fiscal year.
Beginning with the second year of employment, estimated compensation can be paid
with appropriate adjustments spread over twelve months in the event of any under
or over estimated payments.  In addition,  the Head Agreement provides for a car
allowance of $800 per month.

     The  Head  Agreement  provides  that if Mr.  Head  resigns  or if the  Head
Agreement  is  terminated  by the  Company for any reason  during a  sixty-month
period following a  Change-in-Control  (as defined in the Head Agreement) of the
Company, the Company shall continue to pay to Mr. Head all compensation which he
is entitled to under the Head Agreement for its remaining term.

     ANDREW A. JOHNS:

     On June 1, 1996, Andrew A. Johns entered into an Employment  Agreement with
the  Company,   which  provides  for  his  services  as  President  (the  "Johns
Agreement").  The initial term of the Johns  Agreement  expires on May 31, 2001.
The Johns  Agreement is subject to  automatic  renewal for  additional  ten-year

                                       48
<PAGE>

terms on the initial  expiration date and on each renewal date thereafter unless
notice  of  termination  is  provided  to Mr.  Johns  sixty  days  prior  to the
expiration  date. The Johns Agreement may be terminated by the Company for cause
including upon (i) conviction of a willful or  intentional  crime,  (ii) absence
from work for more than 180 consecutive  days and (iii) the material  failure by
Mr. Johns to perform his duties.

     The Johns Agreement provides for an initial salary of $72,000 for the first
year and an annual salary of $114,000 for the second and each  succeeding  year,
plus an annual  bonus  equal to 4% of the  Company's  pretax net  profits on all
Company  operations,  calculated  according  to  generally  accepted  accounting
principles  applicable to title insurance agencies  consistently  applied.  Such
bonus shall be prorated in the first year of employment for the period remaining
in the  Company's  fiscal year if less than twelve  months.  Such bonus shall be
determined  and paid within three months  following the end of each fiscal year.
Beginning with the second year of employment, estimated compensation can be paid
with appropriate adjustments spread over twelve months in the event of any under
or over estimated payments. In addition,  the Johns Agreement provides for a car
allowance of $800 per month.

     The Johns  Agreement  provides  that if Mr.  Johns  resigns or if the Johns
Agreement  is  terminated  by the  Company for any reason  during a  sixty-month
period  following  a  Change-in-Control  (as  defined in the  Agreement)  of the
Company,  the Company shall continue to pay to Mr. Johns all compensation  which
he is entitled to under the Johns Agreement for its remaining term.

     MILTON FERRANTELLI:

     On June 17, 1997, Milton Ferrantelli  entered into an Employment  Agreement
(the "Ferrantelli  Agreement") with the Company.  The Ferrantelli  Agreement was
based on certain  conditions  which were met on November 10, 1997, the effective
date of the Ferrantelli Agreement,  which provides for his services as Assistant
to the Chairman of Capital Title Agency's Maricopa County  operations.  The term
of the  Ferrantelli  Agreement is for a period of three (3) years.  Compensation
under  the   Ferrantelli   Agreement  is  $120,000  per  year  plus   additional
compensation  equal to three and  one-third  percent  (3 1/3%) of the  Company's
pre-tax net profit on operations in Maricopa  County.  On February 3, 1998,  the
Ferrantelli  Agreement  was  modified to increase  Mr.  Ferrantelli's  salary to
$132,000 per year plus five percent (5%) of pretax  income on all other  Arizona
title agency operations.

     NICK VELIMIROVICH:

     On May 17, 1996,  Nick  Velimirovich  entered into an Employment  Agreement
(the "Velimirovich  Agreement") with the Company. The Velimirovich Agreement was
based on certain  conditions  which were met on July 1, 1996, the effective date
of the  Velimirovich  Agreement,  which  provides  for  his  services  as  Chief
Executive Officer of Capital Title Agency's Maricopa County operations. The term
of the Velimirovich  Agreement is for a period of three (3) years.  Compensation
under  the   Velimirovich   Agreement  is  $120,000  per  year  plus  additional
compensation  equal to five percent (5%) of the Company's  pre-tax net profit on
operations in Maricopa County. On June 17, 1997, the Velimirovich  Agreement was
modified to reduce the additional compensation to three and one-third percent (3
1/3%) of the Company's pre-tax income on operations in Maricopa County.

                                       49
<PAGE>

     JAMES A. CLIFFORD:

     On May 17, 1996,  James A. Clifford  entered into an  Employment  Agreement
(the "Clifford  Agreement")  with the Company which provides for his services as
President of Capital Title Agency's  Maricopa  County  operations.  The Clifford
Agreement was based on certain  conditions  which were met on July 1, 1996,  the
effective date of the Clifford Agreement.  The term of the Clifford Agreement is
for a period of three (3) years.  Compensation  under the Clifford  Agreement is
$120,000 per year plus additional compensation equal to five percent (5%) of the
Company's pre-tax net profit on operations in Maricopa County. On June 17, 1997,
the Clifford  Agreement was modified to reduce the  additional  compensation  to
three  and  one-third  percent  (3  1/3%) of the  Company's  pre-tax  income  on
operations in Maricopa County.

     JAMES P. STAMAS:

     On July 22, 1996, James P. Stamas entered into an Employment Agreement (the
"Stamas  Agreement")  with the  Company,  which  provides  for his  services  as
Executive Vice  President/General  Counsel for general  business  operations for
Maricopa  County.  The term of the Stamas Agreement is for a period of three (3)
years. Compensation under the Stamas Agreement is $75,000 per year.

STOCK OPTION PLANS

     1996 STOCK OPTION PLAN

     The Company's 1996 Stock Option Plan (the "1996 Plan") authorizes the Board
to grant  options to  employees of the Company to purchase up to an aggregate of
1,300,000  shares of Common Stock.  Officers and other  employees of the Company
who, in the opinion of the Board of Directors, are responsible for the continued
growth and development and the financial  success of the Company are eligible to
be granted options under the 1996 Plan.  Options may be  non-qualified  options,
incentive  stock  options,  or any  combination  of the  foregoing.  In general,
options granted under the 1996 Plan are not  transferable  and expire five years
after the date of grant.  The per share  exercise  price of an  incentive  stock
option granted under the 1996 Plan may not be less than the fair market value of
the  Common  Stock on the date of grant.  Incentive  stock  options  granted  to
persons who have voting control over 10% or more of the Company's  capital stock
are granted at 110% of the fair  market  value of the  underlying  shares on the
date of grant. No option may be granted after May 23, 2006.

     The 1996  Plan  provides  the Board of  Directors  with the  discretion  to
determine  when  options  granted  thereunder  will become  exercisable.  Unless
otherwise provided,  50% of the options granted may be exercised after two years
from the date of grant and the  remaining  50% of the options  may be  exercised
after  three  years from the date of grant at any time prior to  expiration,  so
long as the optionee  remains  employed by the Company.  No option granted under

                                       50
<PAGE>

the 1996 Plan is  transferable by the optionee other than by will or the laws of
descent and distribution,  and each option is exercisable during the lifetime of
the optionee only by the optionee.

     As of December 31, 1997,  the Board has authorized the grant under the 1996
Plan of options to purchase  1,620,150 shares of Common Stock, with the exercise
prices  of all such  options  being  either  $1.00 or $2.00 per  share.  Of such
options,  150,000 were granted to Mr. Head,  125,000 were granted to Mr.  Johns,
200,000  were  granted to Nick  Velimirovich,  and 200,000  were  granted to Jim
Clifford. An aggregate of 200,000 common stock options were granted to the other
executive officers of the Company.

     NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN

     The  Company  also has a  Non-Employee  Directors  Stock  Option  Plan (the
"Directors  Plan"),  under which only  non-employee  directors  are  eligible to
receive  options.  Options to purchase up to 200,000  shares are  authorized for
issuance under the Directors Plan. As of December 31, 1997, 140,000 options have
been granted under the Directors  Plan at an exercise  price of $1.00 per share.
All options granted under the Directors Plan will be subject to the same vesting
schedule  applicable to options granted under the 1996 Plan. All options granted
or to be granted under the Directors Plan are non-qualified stock options.

     Each non-employee director who joins the Board of Directors will receive an
option to acquire  15,000 shares of the Company's  Common Stock.  In addition to
the  foregoing   option  grants,   each  year,   every   non-employee   director
automatically  receives  an option to  acquire  10,000  shares of the  Company's
Common Stock on the third  business day following the date the Company  publicly
announces its annual financial results; provided that such director has attended
at  least  75% of the  meetings  of the  Board  of  Directors  and of the  Board
Committees  of which such  non-employee  director  is a member in the  preceding
fiscal year. The exercise price of all options  granted under the Directors Plan
is the fair market value of the Company's Common Stock on the date of grant.

     No option granted under the Directors Plan is  transferable by the optionee
other than by will or the laws of descent and  distribution,  and each option is
exercisable during the lifetime of the optionee only by the optionee.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth the beneficial ownership of shares of Common
Stock of the Company as of  December  31, 1997 by each  director  and  executive
officer,  by all directors and executive  officers as a group and by all persons
known  by the  Company  to be the  beneficial  owners  of  more  than  5% of the
Company's Common Stock.
                                       51
<PAGE>
                                               Number of Shares      Percent of
Name and Address(6)                           Beneficially Held(1)   Ownership
-------------------                           --------------------   ----------
Donald R. Head(2)                                2,417,345(3)           21.5%

Andrew A. Johns                                    890,865               7.9%

Theo F. Lamb(4)                                  2,225,205              19.8%

Robert B. Liverant                                 100,000                .9%

Jeffrey P. Anderson                                     --               0.0%

Stephen A McConnell                                 50,000                .4%

Dorothy Eichbaum, Trustee of
William and Dorothy Orth Eichbaum                  603,791               5.4%
Trust Dated November 19, 1986

David Dewar(7)                                      60,000                .5%

John M. Redfield, Jr. and Linda N                  600,490               5.3%
Redfield, as Trustees under a Revocable
Declaration of Trust dated October 29, 1982

Mark A. Scharmann                                  751,334               6.7%

Rudy Miller(5)                                     684,000               6.1%

All directors and executive officers as a
group (5 persons)                                5,743,415              51.1%
----------
(1)  Does not include options to purchase shares of the Company's  Common Stock,
     none of which are currently vested. See "Executive Compensation."

(2)  Shares beneficially held in The Head Revocable Trust Dated April 1, 1975.

(3)  Includes  301,895  and  300,245  shares of Common  Stock which Mr. Head has
     options to  purchase  from The William  and  Dorothy  Eichbaum  Trust dated
     November  19, 1986 and from John N.  Redfield,  Jr. and Linda N.  Redfield,
     respectively,  anytime  during the period  ending May 23, 1999 for $.52 per
     share.

(4)  Shares beneficially held in The Lamb Trust Dated October 11, 1983.

(5)  Includes  510,000  shares of Common  Stock which are  beneficially  held by
     Miller Capital Corporation.

(6)  14555 North Scottsdale Road, Suite 320, Phoenix, Arizona 85254, C/O Capital
     Title Group, Inc.

(7)  Includes  25,000  and 25,000  shares of Common  Stock  which Mr.  Dewar has
     options to  purchase  from Mr.  Head and Mr.  Lamb,  respectively,  anytime
     during the period ended June 30, 1998.

                                       52
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     In January 1996,  Capital Title assumed a 10% note from PWCC,  Inc. to Bank
One Arizona, NA in the amount of $150,000.  At December 31, 1997, the balance of
the note was $101,115. The terms of the note require Capital Title to make sixty
equal  monthly  installment  payments to Bank One  Arizona,  NA in the amount of
$3,187.05.  In consideration of such  assumption,  PWCC contributed  $150,000 to
Capital Title.  PWCC, Inc. is a corporation wholly owned equally by Mr. Head and
Mr. Lamb.

     During fiscal 1997 and 1996, Capital Title Agency paid $41,260 and $43,319,
respectively,  to Dale A. Head for legal  services  rendered  to  Capital  Title
Agency.  Dale A. Head is Donald R.  Head's  brother.  In  September,  1996,  the
Company  granted  an option to Dale A. Head to acquire  20,000  shares of Common
Stock of the  Company  at an  exercise  price of $1.00 per  share.  The  options
granted to Mr. Head will be subject to the same vesting  schedule  applicable to
options granted under the 1996 Employee Stock Option Plan and are  non-qualified
stock options.

     Theo F.  Lamb has  advanced  the  Company  $8,000  for  operating  purposes
pursuant to a Note Agreement. The eight and one half percent (8.5%) note was due
October 31, 1997 and has been paid.

     Donald R. Head advanced the Company $8,000 for operating  purposes pursuant
to a Note  Agreement.  The eight and a half percent  (8.5%) note was due October
31, 1997 and has been paid.

     The  Company  received   management  and  consulting   services  from  Head
Management Group, a Company owned by Donald R. Head.  Charges for these services
were $28,800 for the year ended October 31, 1996.  The agreement was  terminated
May, 1996.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

     (a) Index to Exhibits

Exhibit                                                                Method of
  No.                    Description                                    Filing
------                   -----------                                   ---------
2     Share Exchange Agreement between Capital Title Agency,               **
      Inc. and Norvex, Inc. dated May 23, 1996

3.1   Certificate of Incorporation                                         **

3.2   Amended and Restated Bylaws                                          **

10.1  Underwriting Agreement between Capital Title Agency, Inc.            **
      and Old Republic National Title Insurance Company dated 
      March 1, 1996

10.2  Underwriting Agreement between Capital Title Agency, Inc.            **
      and First American Title Insurance Company dated 
      August 16, 1996

10.3  Image Service Agreement between Capital Title Agency, Inc.           **
      and Security Union Title Insurance Company dated June 5, 1996

10.4  Title Plant Service Agreement between Capital Title Agency, Inc.     **
      and Diversified Information Services Corporation dated 
      March 1, 1996
                                       53
<PAGE>

Exhibit                                                                Method of
  No.                    Description                                    Filing
------                   -----------                                   ---------
10.5  Office Lease between Capital Title Agency, Inc.and 4808              **
      Corporation dated June 7, 1996

10.6  Promissory Note between PWCC, Inc. and BankOne Arizona, NA           ** 
      dated January 5, 1996

10.7  Assumption Agreement between Capital Title Agency, Inc. and          **
      PWCC, Inc. dated January 5, 1996

10.8  Employment Agreement between Capital Title Group, Inc.and            **
      Donald R. Head dated June 1, 1996

10.9  Employment Agreement between Capital Title Group, Inc. and           **
      Andrew A. Johns dated June 1, 1996

10.10 Employment Agreement between Capital Title Agency, Inc. and          ** 
      James A. Clifford dated May 17, 1996

10.11 Employment Agreement between Capital Title Agency, Inc. and          ** 
      James P. Stamas dated July 22, 1996

10.12 Employment Agreement between Capital Title Agency, Inc. and          ** 
      Nick Velimirovich dated May 17, 1996

10.13 Financial Advisor Agreement between Capital Title Agency, Inc.        *
      and Miller Capital Corporation dated June 17, 1997.

10.14 Employment Agreement between Capital Title Agency, Inc. and           *
      Milt Ferrantelli dated June 17, 1997

10.15 Underwriting Agreement between Capital Title Agency, Inc. and         *
      United General Insurance Company dated January 21, 1998.

10.16 Promissory Note between Capital Title Group, Inc. and                 *
      Imperial Bank, dated November 15, 1996

10.17 CreditLine Agreement between Capital Title Group, Inc.                *
      and Imperial Bank, dated November 17, 1997

10.18 Acquisition Consulting Agreement between Capital Title Group,         *
      Inc. and Miller Capital Corporation, dated January 28, 1997.

16.1  Letter from Duane V. Midgley dated September 23, 1996                **

16.2  Letter from Schvaneveldt & Company dated September 23, 1996          **

16.3  Letter from John E. Jones dated September 23, 1996                   **

                                       54
<PAGE>

Exhibit                                                                Method of
  No.                    Description                                    Filing
------                   -----------                                   ---------
21    Subsidiaries                                                         **

27    Financial Data Schedule                                               *

----------
*    Filed herewith

**   Incorporated  by  reference  to Form 10-SB  filed with the  Securities  and
     Exchange Commission on September 20, 1996.

***  Incorporated  by reference to Amendment  No. 1 to Form 10-SB filed with the
     Securities and Exchange Commission on January 9, 1997.

     (b)  Reports on Form 8-K

     The Company did not file any 8-K reports  during the quarter ended December
31, 1997.




                                       55
<PAGE>

                                   SIGNATURES

     In accordance  with Section 13 or 15(d) of the  Securities  Exchange Act of
1934,  the  registrant  caused  this  report to be  signed on its  behalf by the
undersigned, thereunto duly authorized.

                                      CAPITAL TITLE GROUP, INC.

                                      By /s/ Donald R. Head
                                        -------------------------------
                                             Donald R. Head
                                             Chief Executive Officer
Date:  March 24, 1998

     In accordance with the requirements of the Securities Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities and on the dates indicated.

     Signatures                        Title                          Date
     ----------                        -----                          ----

/s/ Donald R. Head             Chairman of the Board
-------------------------               and                       March 24, 1998
    Donald R. Head             Chief Executive Officer


/s/ Andrew A. Johns             President, Director               March 24, 1998
-------------------------
    Andrew A. Johns

/s/ Michael J. Benjamin         Vice President, Controller
-------------------------       (Principal Financial and          March 24, 1998
    Michael J. Benjamin         Accounting Officer)

/s/ Jeffrey P. Anderson         Director                          March 24, 1998
-------------------------
    Jeffrey P. Anderson

/s/ David Dewar                 Director                          March 24, 1998
-------------------------
    David Dewar

/s/ Theo F. Lamb                Director                          March 24, 1998
-------------------------
    Theo F. Lamb

/s/ Robert B. Liverant          Director                          March 24, 1998
-------------------------
    Robert B. Liverant

/s/ Stephen A McConnell         Director                          March 24, 1998
-------------------------
    Stephen A McConnell


                                       56