<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number 1-9925
COPE, Inc.
- -------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 87-0427731
- ------------------------------------ ------------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
Grundstrasse 14, 6343 Rotkreuz, Switzerland
- -------------------------------------------------------------------------------
(Address of principal executive offices)
+ 41 41 798 33 33
--------------------------------
(Issuer's telephone number)
Harrier, Inc.
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(Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the past 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 No X
----- -----
As of November 19, 1998, the Company had 3,144,959 shares of its $.001 par
value common stock issued and outstanding.
<PAGE>
PART 1 - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. Financial Statements PAGE
<S> <C>
Unaudited Condensed Consolidated Balance Sheets at
September 30, 1998 (unaudited) and December 31, 1997 (audited) . . . . . . . 2
Unaudited Condensed Consolidated Statements of Operations for the three
month periods and nine month periods ended September 30, 1998 and 1997 . . . 3
Unaudited Condensed Consolidated Statements of Cash Flows for the
nine month periods ended September 30, 1998 and 1997 . . . . . . . . . . . . 4
Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . . . 5
</TABLE>
<PAGE>
COPE, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
ASSETS
SEPTEMBER 30, DECEMBER 31,
1998 1997
--------------- ---------------
(Unaudited) (Audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 680,372 $ 678,936
Trade accounts receivable, net 5,724,749 3,622,485
Inventories, net 2,342,731 1,383,191
Other current assets 814,795 318,182
Amounts receivable from related parties 29,535 0
--------------- ---------------
TOTAL CURRENT ASSETS 9,592,182 6,002,794
--------------- ---------------
Property and equipment, net 749,842 570,475
Loans receivable 480,602 394,406
Goodwill 936,816 0
Intangible assets 256,376 125,631
Deferred income taxes assets 291,233 98,606
--------------- ---------------
TOTAL ASSETS $12,307,051 $ 7,191,912
--------------- ---------------
--------------- ---------------
<CAPTION>
LIABILITIES
Current liabilities:
Short-term borrowings $ 3,199,428 $ 661,982
Trade accounts payable 4,328,119 2,779,683
Amounts due from related parties 0 97,984
Customer advances 388,614 704,915
Other payables 375,654 130,658
Accrued other liabilities 1,093,989 506,416
Current income taxes 83,324 49,349
Deferred income taxes 0 0
--------------- ---------------
TOTAL CURRENT LIABILITIES 9,469,128 4,930,987
--------------- ---------------
Commitments and contingent liabilities 0 0
Minority interests 0 0
--------------- ---------------
<CAPTION>
SHAREHOLDERS' EQUITY
Shareholders' equity:
Share capital 3,133 80,448
Common stocks, USD 0.001 (USD 75.89)
par value:
Authorized shares 30,000,000 (1,060),
issued and
outstanding shares 3,132,654 (1,060)
Additional paid-in capital 811,844 690,199
Cumulative translation adjustment (4,363) (145,731)
Retained earnings 2,027,309 1,636,009
--------------- ---------------
TOTAL SHAREHOLDERS' EQUITY 2,837,923 2,260,925
--------------- ---------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $12,307,051 $ 7,191,912
--------------- ---------------
--------------- ---------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
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COPE, INC.
Consolidated Statements of Income
For the three month periods and nine month periods ended
September 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Three month periods ended Nine month periods ended
------------------------------- ----------------------------
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Sales solution 6,689,964 4,417,948 15,397,697 11,757,675
Sales services $ 850,920 328,743 1,927,236 833,690
-------------- ------------ ------------ ------------
7,540,884 4,746,691 17,324,933 12,591,365
Operating expenses:
Cost of sales 5,278,710 3,594,345 12,106,255 9,176,198
Selling, general and administrative
expenses 1,937,802 953,552 4,404,372 2,971,477
Consultancy expenses 31,546 37,845 145,206 87,085
Depreciation and amortization 96,048 50,616 175,462 147,407
Impairment of intangible assets 930 0 101,568 0
-------------- ------------ ------------ ------------
7,345,036 4,636,358 16,932,863 12,382,167
-------------- ------------ ------------ ------------
-------------- ------------ ------------ ------------
Operating income 195,848 110,333 392,070 209,198
Other income (expense):
Interest expense (39,781) (31,984) (72,483) (81,331)
Interest income 1,818 0 2,996 17,565
Other income (6) 3,333 (820) 15,326
Foreign exchange gain 0 0 (6,097)
-------------- ------------ ------------ ------------
(37,969) (28,651) (70,307) (54,537)
-------------- ------------ ------------ ------------
Income before income tax 157,879 81,682 321,763 154,661
Minority interests 0 (2,635) 0
Current income taxes (16,018) (15,806) (63,012) (30,780)
Deferred income taxes 33,192 61,548 176,879 103,727
-------------- ------------ ------------ ------------
17,174 43,107 113,867 72,947
-------------- ------------ ------------ ------------
Net income 175,053 124,789 435,630 227,608
-------------- ------------ ------------ ------------
-------------- ------------ ------------ ------------
Basic net income per share $0.056 0.045 0.148 0.077
Diluted net income per share $0.055 0.045 0.144 0.077
Weighted average number
of shares 3,132,634 2,754,000 3,132,654 2,952,218
-------------- ------------ ------------ ------------
-------------- ------------ ------------ ------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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COPE, INC.
Consolidated Statements of Cash Flows
For the nine month periods ended September 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Nine month periods ended
------------------------------
September 30, September 30,
1998 1997
------------- -------------
<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income $ 435,630 277,608
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization/Impairment of intangible assets 277,030 147,407
Deferred income taxes (176,897) (103,727)
EFFECTS OF CHANGES IN ASSETS AND LIABILITIES / NET OF EFFECTS
FROM PURCHASE OF FORUM
Accounts receivable (2,102,264) (1,033,565)
Inventories (959,540) (757,608)
Other current assets (500,218) (695,455)
Accounts payable 1,793,432 1,078,597
Customer advances (316,301) 0
Accruals 587,573 433,549
------------ ------------
Total adjustments to net income (1,397,185) (930,802)
------------ ------------
NET CASH FLOW PROVIDED BY OPERATING ACTIVITIES (961,555) (703,194)
Cash flow provided by investing activities:
Purchase of property and equipment (354,829) (329,373)
Loans repayments 937 0
Purchase of intangible assets (232,313) (21,735)
Proceeds from sale of property and equipment 0 6,334
Purchase of investment/goodwill/net cash acquired (955,277) (6,145)
------------ ------------
NET CASH FLOW PROVIDED BY INVESTING ACTIVITIES (1,541,482) (413,919)
CASH FLOW (USED IN) PROVIDED BY FINANCING ACTIVITIES:
Capital stock issued (share capital & additional paid-in capital) 0 694,312
Increase/Decrease of short term borrowings 2,537,446 994,330
------------ ------------
NET CASH FLOW (USED IN) PROVIDED BY FINANCING ACTIVITIES 2,537,446 1,688,642
Effect of exchange rate changes on cash (32,973) (21,134)
Net increase of cash and cash equivalents 1,436 550,395
Cash and cash equivalents, beginning of the period 678,936 262,047
------------ ------------
Cash and cash equivalents, end of period $ 680,372 812,442
------------ ------------
Supplemental cash flow disclosure ------------ ------------
Interest paid 72,483 81,331
Income taxes paid 32,478 21,255
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
COPE, INC.
Notes to Consolidated Financial Statements
As of September 30, 1998 and for each of the three month
periods and nine month periods ended September 30, 1998 and 1997
NOTE 1-BASIS OF PRESENTATION
These condensed consolidated financial statements of COPE, Inc., a Delaware
corporation formerly known as Harrier, Inc. (the "Company"), do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements and should be read in conjunction
with the financial statements and notes thereto included in the Company's
Registration Statement of Form S-4, as most recently amended. In the opinion of
management, the financial information set forth in the accompanying condensed
consolidated financial statements reflect all adjustments necessary for a fair
statement of the periods reported, and all such adjustments were of a normal and
recurring nature. Interim results are not necessarily indicative of results for
a full year.
NOTE 2 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted net income
per share for the three months and nine months ended September 30, 1998 and
1997.
<TABLE>
<CAPTION>
Three Months Ended
September 30, Nine Months
-------------------------- Ended September 30
1998 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Numerator:
Net income $ 175,053 $ 124,789 $ 435,630
Denominator:
Denominator for basic net income per
share - weighted average shares 3,132,654 2,754,000 2,952,218
Dilutive potential common shares from
Team Member (employee) stock options 74,450 0 74,450
Denominator for diluted net income per
share - adjusted weighted average shares
and assumed conversion
3,207,104 2,754,000 3,026,668
Basic net income per share 0.056 0.045 0.148
Diluted net income per share 0.055 0.045 .0144
</TABLE>
NOTE 3 - COPE REORGANIZATION
On September 11, 1998, the shareholders of the Company approved a series of
transactions (referred to as the "COPE Reorganization") undertaken pursuant to
an Amended and Restated Securities Purchase Agreement and Plan of Reorganization
dated July 24, 1998 ("Reorganization Agreement") by and among the Company, COPE
AG, a Swiss corporation ("COPE"), and the shareholders of COPE ("COPE
Shareholders"), as described below.
On September 11, 1998, the Company filed a Certificate of Amendment to its
Certificate of Incorporation in order to change its name from Harrier, Inc. to
COPE, Inc. and to effect a 1 for 58 reverse split of its outstanding common
stock. As a result of the reverse split, the shares of common stock of the
Company outstanding immediately prior to the COPE Reorganization were reduced to
approximately 270,654 shares.
Pursuant to the Reorganization Agreement, on September 25, 1998, the Company
issued 2,862,000 shares (post-split) of its common stock in exchange for all of
the outstanding capital shares of COPE. At the completion of the COPE
Reorganization, the Company had approximately 3,132,634 shares (post-split) of
its common stock outstanding, approximately 91.4% of which were held by the
former COPE shareholders.
5
<PAGE>
Also, on September 25, 1998, and immediately prior to the Company's issuance of
2,862,000 shares (post-split) of its common stock in exchange for all of the
outstanding capital shares of COPE, the Company consummated the transactions
under that certain Common Stock Purchase Agreement dated September 11, 1998
between the Company and the New Capital Investment Fund, a Cayman Islands
Investment fund ("NCIF"), and that certain Assignment and Assumption Agreement
dated September 11, 1998 between the Company and Glycosyn Pharmaceuticals, Inc.,
a Delaware corporation ("Glycosyn") (collectively, the "Glycosyn Agreements").
Pursuant to the terms of the Glycosyn Agreements, NCIF purchased from the
Company 2,850,000 shares of the common stock of the Company's subsidiary,
Glycosyn, in consideration of NCIF's cancellation of all of the indebtedness
owed to it by the Company ($610,167 as of March 31, 1998), and (ii) Glycosyn
acquired all of the assets and assumed all of the liabilities of the Company as
they existed immediately prior to the consummation of the COPE Reorganization on
September 25, 1998.
Since the COPE Shareholders owned approximately 91.4% of the outstanding shares
of the common stock of the Company after giving effect to the COPE
Reorganization, COPE was deemed the accounting acquiror and the Company's
acquisition of COPE has been accounted for as a reverse merger under the
purchase method. Accordingly, from an accounting standpoint, COPE's equity is
carried forward as the equity of the combined entity. There has been no step up
in the Company's accounting bases and, as a result, COPE is assumed to have
acquired the Company at the Company's book value of $0, after giving effect to
the consummation of the transactions under the Glycosyn Agreements. This
adjustment reflects the elimination of the Company's equity and accumulated
deficit.
NOTE 4 - FORUM ACQUISITION
On June 25, 1998, COPE acquired all of the capital shares of Forum GmbH
("Forum"), a German data storage company, for $962,977. The acquisition of
Forum has been accounted for by the purchase method of accounting in accordance
with Accounting Principles Board Opinion No. 16 "Business Combinations."
Accordingly, the operating results of Forum have been included in the
consolidated operating results from the date of acquisition.
NOTE 5 - COMMON STOCK AND STOCK OPTION PLAN
In November 1998, the Company issued 11,805 shares of common stock upon the
exercise of outstanding common stock purchase warrants for the gross proceeds of
$89,010.
On August 18, 1998, the Company adopted a 1998 Stock Option Plan (the "Plan")
which permits the grant to officers, directors, employees and consultants of
non-qualified stock options and stock options to employees that qualify as
incentive stock options under Section 422 of the Internal Revenue Code of 1986.
Options may be granted for terms of up to 10 years (five years in the case of
incentive stock options granted to greater than 10% stockholders). Options are
subject to forfeiture upon termination of employment or other relationship with
the Company and the Plan terminates in August 2008. 300,000 shares of the
Company's common stock have been reserved for issuance pursuant to the Plan. As
of August 18, 1998, options to purchase 75,000 shares have been granted, at
exercise prices ranging from $8.40 to $12.00. No options have been exercised as
of November 15, 1998.
6
<PAGE>
ITEM 2. Management's Discussion and Analysis or Plan of Operation
OVERVIEW
GENERAL. The Company is a Swiss-based provider of data storage and information
management consulting services and solutions. The Company's principal
operations consist of the design and implementation of information systems in
the areas of data storage, data security and data warehousing. The Company
presently conducts business throughout Switzerland, Germany and Austria.
COPE REORGANIZATION. On September 25, 1998, the Company consummated a series of
transactions (referred to as the "COPE Reorganization") undertaken pursuant to
an Amended and Restated Securities Purchase Agreement and Plan of Reorganization
dated July 24, 1998 ("Reorganization Agreement") by and among the Company, COPE
AG, a Swiss corporation ("COPE"), and the shareholders of COPE ("COPE
Shareholders"), pursuant to which, among other things, (i) the Company effected
a 1 for 58 reverse split of its shares of common stock issued and outstanding
immediately prior to the close of the COPE Reorganization, thus reducing its
issued and outstanding shares of common stock to approximately 270,654; (ii) the
Company sold a controlling interest in its subsidiary, Glycosyn Pharmaceuticals,
a Delaware corporation ("Glycosyn"), and otherwise divested itself of
substantially all of its assets and liabilities on hand immediately prior to the
close of the COPE Reorganization; and (iii) the Company issued 2,862,000 shares
(post-split) of its common stock in exchange for all of the outstanding capital
shares of COPE. See "Note 4 - COPE Reorganization" to the Company's unaudited
condensed consolidated financials statements for a more complete description of
the COPE Reorganization.
Since the COPE Shareholders owned approximately 91.4% of the outstanding shares
of the common stock of the Company after giving effect to the COPE
Reorganization, COPE was deemed the accounting acquiror and the Company's
acquisition of COPE has been accounted for as a reverse merger under the
purchase method. Accordingly, from an accounting standpoint, COPE's equity is
carried forward as the equity of the combined entity. There has been no step up
in the Company's accounting bases and, as a result, COPE is assumed to have
acquired the Company at the Company's book value of $0, after giving effect to
the consummation of the COPE Reorganization. This adjustment reflects the
elimination of the Company's equity and accumulated deficit.
On June 25, 1998, COPE acquired all of the capital shares of Forum GmbH
("Forum"), a German data storage company, for $962,977. The acquisition of
Forum has been accounted for by the purchase method of accounting in accordance
with Accounting Principles Board Opinion No. 16 "Business Combinations."
Accordingly, the operating results of Forum have been included in the
consolidated operating results from the date of acquisition.
CURRENCY EXCHANGE RATES. The Company regularly enters into certain financial
commitments payable in Swiss Francs, the unit of currency of Switzerland. All
Swiss Franc based amounts are designated by the symbol SFr. As of November 13,
1998, the Swiss Franc-Dollar exchange rate was 1.37 Swiss Franc to 1 U.S.
Dollar.
Although the Company reports its results in US dollars, virtually all of its
sales are denominated in other currencies, including, primarily, Swiss francs
and, to a lesser extent, Deutsche marks and the Austrian schillings. A
significant amount of the Company's cost of sales (i.e., hardware and software
purchases) on the other hand, are denominated in US dollars. Consequently, the
Company's cost of doing business is directly affected by any changes in the
exchange rate between the US dollar, on the one hand, and the Swiss franc and,
to a lesser extent, the Deutsche mark and Austrian schilling, on the other hand.
The financial position and results of operations of the Company and its foreign
subsidiaries are measured using local currency as the functional currency.
Assets and liabilities of the Company and its subsidiaries are translated at the
exchange rate in effect at each year-end. Income statement accounts are
translated at the average rate of exchange prevailing during the year.
Translation adjustments arising from differences in exchange rates from period
to period are included in the cumulative translation adjustment account in
stockholders' equity.
The Company typically enters into forward exchange contracts covering fifty
percent (50%) of its hardware and software purchases for its client contracts in
order to mitigate the adverse effects of currency exchange fluctuations.
However, these actions generally provide only a partial mitigation of the
adverse effects of changes in currency rates and there can be no assurance that
changes in currency rates in the future will not have a material adverse affect
on the Company's business, financial condition and results of operations.
7
<PAGE>
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARE TO NINE MONTHS ENDED SEPTEMBER 30,
1997
NET SALES. During the nine months ended September 30, 1998, the Company had net
sales of $17,324,933, which amounts to an increase of 38% over the net sales of
$12,591,365 during the prior year period. The increase in net sales is due in
part to the consolidation of the Forum, which was acquired by COPE on June 25,
1998 and has been included in the consolidated operating results of the Company
for the periods subsequent to June 25, 1998. Forum had net sales of $4,333,477
for the period June 25, 1998 through September 30, 1998. Without giving effect
to the consolidation of Forum, the Company had 3% increase in net sales during
the nine months ended September 30, 1998 over the prior year period. Sales of
solutions (revenue from resale of hardware and software components along with
associated consulting services) increased 30% during the nine months ended
September 30, 1998 over the prior year period reaching $15,397,697 as compared
to $11,757,675. The reason for the increase in sales of solution is the
integration of Forum. Sales of services (revenue from stand-alone consulting
services) increased 131% during the nine months ended September 30, 1998
reaching $1,927,236 as compared to $833,690 for the prior year period. The
reason for the increase in sales of services is an increase in market share in
this business. Without giving effect to the consolidation of Forum, the Company
had 81% increase in sales of services during the nine months ended September
30, 1998 over the prior year period. This increase is the result of the
Company's decision to emphasize sales of services because of its potential for
higher profit margins.
COST OF SALES. During the nine months ended September 30, 1998, cost of sales
was $12,106,255 compared to $9,176,198 for the prior period, 69.9% and 72.9% of
the total revenues, respectively, which amounts to an increase of 31%. The cost
of sales as a percentage of net sales (total of "sales solution" and "sales
services") decreased during the nine months ended September 30, 1998 because
sales of services increased as a percentage of net sales from 6.2% up to 11.1%.
Cost of sales consists exclusively of the Company's cost for the hardware
acquired for resale as part of its information systems solutions.
GROSS PROFIT. The Company's gross profit margin for the nine months ended
September 30, 1998 was 30.1% compared to 27.1% for the prior year period. The
increase in gross margin is due to the Company's strategy of demphasizing the
lower margin sale of solutions and emphasizing the higher margin sale of
services.
SELLING, GENERAL, ADMINISTRATIVE AND CONSULTING EXPENSES. The Company's
selling, general, administrative and consulting expenses as a percentage of net
sales increased between the nine months ended September 30, 1998 (25.4%) and
the prior year period (23.5%). This trend is the consequence of the Company's
strategy to increase sales of services which required that the Company hire
additional service and consulting personnel.
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1997
NET SALES. During the three months ended September 30, 1998, the Company had
net sales of $7,540,884, which amounts to an increase of 58% over the net sales
of $4,746,691 during the prior year period. The increase in sale of solution is
attributable to inclusion of Forum in the Company's consolidated operating
results of the Company for three months ended September 30, 1998. Forum had net
sales of $3,927,234 for the three months ended September 30, 1998. Sales of
services revenue increased approximately 159% during the three months ended
September 30, 1998 over the prior year period ($850,920 in 1998 compared to
$328,743 in 1997). Without giving effect to the consolidation of Forum, the
Company had 83% increase in sales of services during the three months ended
September 30, 1998 over the prior year period. This increase is the result of
the Company's decision to emphasize sales of services because of its potential
for higher profit margins.
COST OF SALES. During the three months ended September 30, 1998, cost of sales
was $5,278,710 compared to $3,594,345 for the prior year period, 70% and 75.7%
of the total revenues, respectively, which amounts to an increase of 46%. Cost
of sales consists exclusively of the Company's cost for the hardware and
software acquired for resale as part of its information systems.
8
<PAGE>
GROSS PROFIT. The Company's gross profit margin for the three months ended
September 30, 1998 was 30% compared to 24.3% for the prior year period. The
increase is primarily attributable to the large internal growth in sales of
services as a percentage of total revenue.
SELLING, GENERAL, ADMINISTRATIVE AND CONSULTING EXPENSES. The Company's
selling, general, administrative and consulting expenses as a percentage of net
sales was increased from 25.7% for the three months ended September 30, 1998
from 20% for the prior year period. The increase is primarily attributable to
the hiring of additional personnel necessary to support the growth in sales of
services.
LIQUIDITY AND FINANCIAL CONDITION
The Company's historical working capital requirements include the financing of
all costs involved in the design, implementation and sale of information
systems. The Company generally contracts to deliver information systems,
including all hardware and software, on a turn-key basis pursuant to fixed price
contracts. Consistent with industry practice, the Company generally is not able
to obtain significant up-front or progress payments on its contracts providing
for the design, implementation and sale of information systems. Accordingly, the
Company is generally required to finance its clients' contracts, including the
purchase of the hardware and software components of the information systems. The
Company's principal sources of working capital are cash from operations and an
operating line of credit from Credit Suisse and Commerzbank in the maximum
amount of $2,400,00. The Company has been successful to date in securing
extensions on its line with Credit Suisse for purposes of financing certain
client contracts as needed, however there can be no assurance that the Company
will continue to do so in the future.
As of September 30, 1998, the Company had working capital of approximately
$123,054, compared to a working capital position of $1,071,807 as of December
31, 1997. The principal reason for the decrease in working capital is the
increase in short-term borrowings which were used to purchase Forum and
additional property and equipment.
While the Company believes that its available working capital, including
presently available credit lines, is adequate for its current working capital
requirements, the Company believes that it will require significant additional
working capital in order to finance continued growth. The Company intends to
seek additional debt or equity capital through additional bank lines of credit
or the sale of shares of the equity securities of the Company. At the present
time, there are no firm commitments or agreements on the part of any party at
this time to provide any additional debt or equity capital to the Company and
there can be no assurance that the Company will be able to obtain additional
capital.
YEAR 2000 ISSUE
The Company has developed a plan to modify its information technology to
recognize the Year 2000 and has begun converting its critical data processing
systems. The Company is mainly using internal resources to address this issue,
and believes that these resources will be sufficient to mitigate any potentially
significant problems. Related expenses are charged to income as incurred. The
Company believes that its critical internal software is year 2000 compliant and
that its complete line of products are year 2000 compliant. The Company expects
its year 2000 project to be completed on a timely basis.
FORWARD LOOKING STATEMENTS
This Form 10-QSB contains certain forward-looking statements that are based on
the Company's beliefs as well as assumptions made by and information currently
available to the Company. When used herein, the words "believe," "expect,"
"anticipate," "estimate" and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks,
uncertainties and assumptions, including (i) the intense competition in the
Company's industry; (ii) future developments and changes in prevailing
technologies and standards in the data storage industry; (iii) availability of
additional capital as required; and (iv) general economic conditions. Should one
or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, estimated, or projected. The Company caution shareholders of the
Company and potential investors not to place undue reliance on any such
forward-looking statements, all of which speak only as of the date made.
9
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PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
Inapplicable.
Item 2. CHANGES IN SECURITIES.
In connection with the Company's acquisition of COPE AG, a Swiss stock
corporation ("COPE"), the Company issued a total of 2,592,000 shares of its
common stock to the founders and principal shareholders of COPE, Adrian Knapp
and Stephan Isenschmid, in exchange for their transfer of a total of 960 shares
of the capital stock of COPE, representing approximately 91% of the issued and
outstanding capital shares of COPE. The issuance of the common shares of the
Company to Messrs. Knapp and Isenschmid was conducted pursuant to Section 4(2)
of the Securities Act of 1933. There were no underwriters involved in the
transaction.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
Inapplicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On September 11, 1998, the Company held a special meeting of
shareholders at which the shareholders voted on those matters identified and
described in the Company's Proxy Statement dated August 20, 1998. At the
meeting, the shareholders voted to:
A. Approve the Reorganization Proposal (such term and all other
defined terms in this Item 4 to have the same meaning ascribed to them in the
Proxy Statement), with 8,246,709 shares voting in favor, 118,850 shares voting
against and 6,601 shares abstaining from voting.
B. Approve the Glycosyn Proposal, with 8,226,909 shares voting in
favor, 118,850 shares voting against and 26,401 shares abstaining from voting.
C. Approve the Amendment Proposal, with 8,245,409 shares voting in
favor, 113,350 shares voting against and 6,401 shares abstaining from voting.
D. Approve the election of Adrian Knapp, Stephan Isenschmid, Peter
Koch, Markus Stalder and Kevin DeVito as directors of the Company, to hold
office until their successors are duly elected and qualified or their earlier
resignation, with 8,341,909 shares in favor of each nominee, 23,251 shares
abstaining from voting on Messrs. Knapp, Isenschmid, Koch and Stalder, 20,251
shares abstaining from voting on Mr. DeVito and 3,000 shares voting against Mr.
DeVito.
E. Approve the appointment of Atag Ernst & Young as the Company's
independent auditors for the fiscal year ending December 31, 1998, with
8,234,634 shares voting in favor and 130,256 shares abstaining from voting.
Item 5. OTHER INFORMATION.
Inapplicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
Exhibit 27 - Financial Data Schedule.
10
<PAGE>
(b) REPORTS ON FORM 8-K
On October 5, 1998, the Company filed a Current Report on Form
8-K for purposes of disclosing the consummation of its
acquisition of the COPE AG, a Swiss stock corporation, and
certain related transactions.
11
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
COPE, Inc.
(Registrant)
Dated: November 24, 1998 By: /s/ MARKUS BERNHARD
---------------------------
Markus Bernhard
Chief Financial Officer
12
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 680,372
<SECURITIES> 0
<RECEIVABLES> 5,724,749
<ALLOWANCES> 844,330
<INVENTORY> 2,342,731
<CURRENT-ASSETS> 9,592,182
<PP&E> 749,842
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,307,051
<CURRENT-LIABILITIES> 9,469,128
<BONDS> 0
0
0
<COMMON> 814,977
<OTHER-SE> 2,022,946
<TOTAL-LIABILITY-AND-EQUITY> 12,307,051
<SALES> 17,324,933
<TOTAL-REVENUES> 17,324,933
<CGS> 12,106,255
<TOTAL-COSTS> 16,510,627
<OTHER-EXPENSES> 145,206
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 72,483
<INCOME-PRETAX> 321,763
<INCOME-TAX> 113,867
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 435,630
<EPS-PRIMARY> 0.148
<EPS-DILUTED> 0.144
</TABLE>
