<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 March 31, 2000
[_] 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 12, 6343 Rotkreuz, Switzerland
- --------------------------------------------------------------------------------
(Address of principal executive offices)
+ 41 41 798 33 44
---------------------------
(Issuer's telephone number)
n/a
---
(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 [X] No [_]
As of May 8, 2000 , the Company had 4,289,129 shares of its $.001 par
value common stock issued and outstanding.
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. Financial Statements
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Unaudited Condensed Consolidated Balance Sheets at
March 31, 2000 and December 31, 1999......................................... 2
Unaudited Condensed Consolidated Statements of Operations for the three month
periods ended March 31, 2000 and 1999......................................... 3
Unaudited Condensed Consolidated Statements of Cash Flows for the
three month periods ended March 31, 2000 and 1999............................. 4
Notes to Condensed Consolidated Financial Statements............................ 5
</TABLE>
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<PAGE>
COPE, INC.
Condensed Consolidated Balance Sheets
(Amounts in U.S. Dollars)
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
2000 1999
--------------- ---------------
(Unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 7,261,928 $ 653,906
Trade accounts receivable 4,326,049 4,627,287
Inventories (net of provision of $186,714 and $201,107) 2,280,412 2,111,519
Other current assets 935,997 668,756
--------------- ---------------
Total current assets 14,804,386 8,061,468
Property, plant and equipment, net 1,324,987 1,283,487
Loans receivable from related party 1,608,368 550,361
Goodwill (net of amortization of $3,175,737 and $2,367,866) 13,389,544 14,228,210
Intangible assets 80,368 81,687
Deferred income taxes 978,177 823,972
Deferred capital transactions costs 0 1,264,237
--------------- ---------------
TOTAL ASSETS $ 32,185,830 $ 26,293,422
=============== ===============
Current liabilities:
Short-term borrowings $ 837,946 $ 4,482,832
Trade accounts payable 3,758,440 6,730,851
Loans payable to related parties 0 1,081,611
Loans payable, other 0 628,180
Customer advances 130,596 0
Other current liabilities 2,496,073 2,339,600
Current income taxes payable 148,908 155,475
Deferred income taxes 95,688 96,340
--------------- ---------------
Total current liabilities 7,467,651 15,514,889
--------------- ---------------
Commitments and contingent liabilities
SHAREHOLDERS' EQUITY
Shareholders' equity:
Share capital:
Common stock, $0.001 par value 4,289 3,405
Authorized shares 30,000,000
Issued and outstanding shares 4,289,129
(3,405,423 in 1999)
Additional paid in capital 26,541,286 11,420,355
Accumulated other comprehensive income/(loss)
Cumulative translation adjustment (257,922) (183,177)
Retained earnings/(deficit) (1,569,474) (462,050)
--------------- ---------------
Total shareholders' equity 24,718,179 10,778,533
--------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 32,185,830 $ 26,293,422
=============== ===============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
COPE, INC.
Condensed Consolidated Statements of Income
(Amounts in U.S. Dollars except share amount)
For the three month periods ended March 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
Three month periods ended
-------------------------
March 31, March 31,
2000 1999
----------- -----------
<S> <C> <C>
Net Revenue
Sales of solutions $ 7,006,530 $ 7,255,307
Sales of services 1,074,866 1,282,607
----------- -----------
Total revenue 8,081,396 8,537,914
Cost of sales (5,292,765) (5,673,756)
----------- -----------
Gross profit 2,788,631 2,864,158
----------- -----------
Operating expenses
Selling, general and administrative expenses (2,984,426) (2,437,519)
Consultancy expenses (162,602) (59,290)
Depreciation (89,550) (83,869)
Amortization of goodwill and other intangible
assets (801,871) (48,675)
----------- -----------
Total operating expenses (4,038,449) (2,629,353)
Operating income/(loss) (1,249,818) 234,805
Other income (expense):
Interest expense (72,598) (64,667)
Interest expense to related party (22,308) 0
Interest income 34,208 32,939
Interest income from related party 7,947 5,337
Other 0 (3,513)
----------- -----------
(52,751) (29,904)
----------- -----------
Earnings/(loss) before taxes (1,302,569) 204,901
Current income taxes 0 (20,963)
Deferred income taxes 195,144 (35,935)
----------- -----------
195,144 (56,898)
----------- -----------
Net income/(loss) $(1,107,425) $ 148,003
=========== ===========
Basic earnings/(loss)per share (0.26) 0.05
Diluted earnings/(loss)per share (0.26) 0.04
Weighted average shares outstanding 4,181,233 3,152,861
Dilutive effect of stock options 0 163,382
----------- -----------
Diluted average shares outstanding 4,181,233 3,316,243
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements
-3-
<PAGE>
COPE, INC.
Condensed Consolidated Statements of Cash Flows
(Amounts in U.S. Dollars)
For the three month periods ended March 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
Three month periods ended
-------------------------
March 31, March 31,
2000 1999
----------- -----------
<S> <C> <C>
Cash flow provided/(used) by operating activities
Net income/(loss) $(1,107,425) $ 148,003
Adjustments to reconcile net income to net cash used by
operating activities
Depreciation 89,550 83,869
Amortization of goodwill and other intangibles assets 801,871 48,675
Deferred income taxes (195,144) 35,935
Effects of changes in operating assets and liabilities
Accounts receivable 71,732 1,057,511
Inventories (295,007) (310,917)
Other current assets 539,200 230,872
Accounts payable (1,330,424) (1,201,913)
Customer advances 132,179 (108,242)
Other current liabilities (668,227) 226,964
----------- -----------
Net cash flow provided/(used) by operating activities (1,961,695) 210,575
----------- -----------
Cash flow used in investing activities
Purchase of property, plant and equipment (191,159) (229,512)
Loans payables (1,119,782) (322,984)
Acquisition of businesses/net of cash acquired (277,475) 0
----------- -----------
Net cash flow used by investing activities (1,588,416) (552,496)
Cash flow provided by financing activities
Issuance of common stock 15,462,115 0
Decrease of short term borrowings (5,267,010) (304,301)
----------- -----------
Net cash flow provided/(used) by financing activities 10,195,105 (304,301)
Effect of exchange rate changes on cash (36,972) (56,210)
Net decrease of cash and cash equivalents 6,608,022 (702,250)
Cash and cash equivalents at beginning of the period 653,906 1,303,114
----------- -----------
Cash and cash equivalents at end of the period $ 7,261,928 $ 600,864
=========== ===========
Supplemental cash flow disclosure
Interest paid $ 94,906 $ 59,879
Income taxes paid 0 22,145
</TABLE>
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<PAGE>
COPE, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
As of March 31, 2000 and for the three month
periods ended March 31, 2000 and 1999
NOTE 1-BASIS OF PRESENTATION
These condensed consolidated financial statements of COPE, Inc., a Delaware
corporation ("COPE" or "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 COPE's Annual Report on Form 10-KSB
for the year ended December 31, 1999. 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.
Accounting Change
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting the Costs of Start-Up Activities", which
requires that costs related to start-up activities be expensed as incurred.
Prior to 1999, COPE capitalized its start-up costs and amortized them over four
years. COPE adopted the provisions of the SOP as of January 1. 1999. There was
no material impact on net income or financial position as a result of the
adoption of SOP 98-5.
NOTE 2 - EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings
Per Share". SFAS No. 128 replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. Basic earnings per
share is calculated by dividing net income by the weighted average shares
outstanding. The computation of diluted earnings per share is similar to basic
earnings per share except that it assumes that the weighted average shares
outstanding is increased by shares issuable upon exercise of those stock options
for which market price exceeds exercise price. Shares issuable upon exercise of
stock options have not been included in the computation of diluted earnings
(loss) per share in 2000 since their effect thereon would be anti-dilutive.
NOTE 3 - BUSINESS ACQUISITION
On April 19, 1999, COPE acquired Hicomp Software Systems GmbH ("Hicomp"), a
German software company, in a stock transaction accounted for by the purchase
method of accounting. COPE issued 420,000 new shares in exchange for all
outstanding Hicomp shares. Accordingly, the operating results of Hicomp have
been included in the consolidated operating results from the date of
acquisition. The excess of the purchase price over the fair value of net assets
acquired was $15,417,264 and has been recorded as goodwill, which is being
amortized on a straight line basis over five years. Hicomp, headquartered in
Hamburg, Germany, develops back-up and retrieval software products. Its leading
products, Hiback and Hibars, are multi-platform back-up solutions recognized for
performance and flexibility.
Additionally, the former shareholder of Hicomp granted the Company a purchase
option, expiring June 30, 2000, to acquire all of the capital shares of two U.S.
corporations owned by the shareholder, which are engaged in the business of
distributing Hiback and Hibars software in the U.S., at the then market price
based on negotiations between the two parties. No consideration was paid for the
option. The option represents a right of first refusal only and gives the
company no price advantage since this is stipulated to be based on the market
price at the date of acquisition. Accordingly, no value has been allocated to
the option as part of the allocation of the purchase price of Hicomp.
-5-
<PAGE>
In October 1999, the Company repurchased from the former shareholders of Hicomp
200,000 of the common shares issued by the Company in the acquisition at a price
of DEM 7,200,000 ($3,598,000).
The Hicomp assets acquired and liabilities assumed have been recorded at their
estimated fair values at the date of the Hicomp acquisition. A summary of the
assets acquired, liabilities assumed and consideration paid follows:
<TABLE>
<CAPTION>
<S> <C>
Accounts receivable......................................... $ 102,005
Other current assets........................................ 22,544
Property, plant and equipment............................... 146,399
Other assets................................................ 215,614
Short-term borrowings (132,652)
Accounts payable............................................ (240,262)
Other current liabilities................................... (444,353)
Noncurrent liabilities...................................... (264,159)
-----------
Net fair value of assets acquired and liabilities assumed (594,864)
Goodwill.................................................... 15,626,069
-----------
Purchase Price.............................................. 15,031,205
===========
Value of the securities issued.............................. $14,582,400
Estimated acquisition costs................................. 448,805
-----------
Purchase price.............................................. 15,031,205
===========
Estimated annual amortization
(based on amortization period of five years)................ $3,125,214
</TABLE>
The Company paid in the last quarter 1999 $171,330 of the acquisition cost. In
the first quarter 2000 the Company paid $277,475 acquisition costs.
The pro forma unaudited results of operations for the three months ended March
31, 2000 and March 31, 1999, assuming consummation of the purchase as of the
beginning of the periods presented, are as follows:
<TABLE>
<CAPTION>
Three month periods ended
March 31,
2000 1999
--------- ---------
<S> <C> <C>
Net revenue 8,081,396 9,015,030
Net loss (1,107,425) (710,142)
Per share data:
Basic earnings (loss) (0.26) (0.20)
</TABLE>
-6-
<PAGE>
NOTE 4 - COMMON STOCK AND STOCK OPTION PLAN
During 1998, COPE adopted the 1998 Stock Option Plan ("1998 Plan") which
provides for the granting of either incentive stock options or non-qualified
stock options to employees, officers, directors, consultants and independent
contractors of COPE. Under the 1998 Plan, COPE is authorized to grant a maximum
of 400,000 stock options for terms of up to ten 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
COPE and the 1998 Plan terminates in August 2008.
NOTE 5 - SEGMENT AND GEOGRAPHIC DATA
In 1998, COPE adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information" which superceded SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise." SFAS No. 131 established standards for the
way that public business enterprises report information about operating segments
in annual financial statements. SFAS No. 131 also established standards for
related disclosures about products and services, geographic areas, and major
customers. The adoption of SFAS 131 did not effect results of operations or
financial position, but did effect the disclosure of segment information.
Management, via country managing directors, controls operations on a geographic
basis with subsidiaries located in Switzerland, Germany and Austria and uses
earnings before interest, taxes, depreciation and amortization (EBITDA) as its
measure of segment profit or loss. Management decided to change the measurement
from EBIT (Earnings before interest and taxes) to EBITDA after the Hicomp
acquisition because of the high goodwill amortization COPE will have in the next
five years. Earnings before interest, taxes, depreciation and amortization is
defined as net income plus the following:
. extraordinary items and cumulative effect of accounting change;
. provision for income taxes;
. interest expense; and
. Depreciation and amortization
Earnings before interest, taxes, depreciation and amortization is presented not
as an alternative measure of operating results or cash flow operations as
determined in accordance with generally accepted accounting principles, but
because it is a widely accepted financial indicator of a company's ability to
incur and service debt.
Each geographic area's operations comprise the following products and services:
(1) Solutions which consist of the design, implementation and management of
storage and security solutions including the sale of related software and
hardware; and (2) Services which consist of consulting, training and integration
services including operations and maintenance support. The enterprise-wide
disclosures regarding products and services are contained in the income
statement.
-7-
<PAGE>
Information concerning COPE's reportable segments is summarized as follows by
location of operations (Switzerland: COPE Holding AG, COPE AG; Germany: COPE
GmbH and Hicomp Software Systems GmbH, Austria: COPE Handelsges.mbH; Other:
COPE, Inc.; intercompany sales are generally at purchase cost):
<TABLE>
<CAPTION>
Three months period ended March 31,
-----------------------------------
2000 1999
------------- -------------
<S> <C> <C>
Total revenue:
Switzerland $ 4,298,182 $ 3,262,701
Germany 3,099,072 4,680,720
Austria 778,794 594,493
------------ -----------
$ 8,176,048 $ 8,537,914
============ ===========
Sales between geographic areas:
Switzerland $ 0 $ 0
Germany (56,878) 0
Austria (37,774) 0
------------ ------------
$ (94,652) $ 0
============ ============
Total revenue from external customers:
Switzerland $ 4,298,182 $ 3,262,701
Germany 3,042,194 4,680,720
Austria 741,020 594,493
------------ ------------
$ 8,081,396 $ 8,537,914
============ ============
Depreciation and amortization:
Switzerland $ 51,330 69,308
Germany 58,240 37,129
Austria 13,100 26,107
Other 768,751 0
------------ ------------
$ 891,421 132,544
============ ============
Earnings before interest, taxes,
depreciation and amortization (EBITDA):
Switzerland $ (54,959) $ 77,012
Germany (121,888) 324,322
Austria 10,554 (529)
Other (192,104) (36,969)
------------ ------------
$ (358,397) $ 363,836
============ ============
Reconciliation of EBITDA to earnings
before taxes:
Earnings before interest, taxes,
depreciation and amortization (EBITDA):
Switzerland $ (54,959) $ 77,012
Germany (121,888) 324,322
Austria 10,554 (529)
Other (192,104) (36,969)
------------ ------------
$ (358,397) $ 363,836
============ ============
Depreciation and amortization:
Switzerland $ (51,330) $ (69,308)
Germany (58,240) (37,129)
Austria (13,100) (26,107)
Other (768,751) 0
------------ ------------
$ (891,421) $ (132,544)
============ ============
</TABLE>
-8-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Interest, net:
Switzerland $ (32,980) $ (5,553)
Germany (13,005) (20,481)
Austria (1,190) (357)
Other (5,576) 0
------------ ------------
$ (52,751) $ (26,391)
------------ ------------
Earnings before taxes $ (1,302,569) $ 204,901
============ ============
</TABLE>
<TABLE>
<CAPTION>
March 31, December 31,
------------ ------------
2000 1999
------------ ------------
<S> <C> <C>
Total assets:
Switzerland $ 6,519,920 $ 4,986,345
Germany 4,507,659 5,246,029
Austria 1,036,295 1,227,224
Other 20,121,956 14,833,824
------------ ------------
$ 32,185,830 $ 26,293,422
============ ============
</TABLE>
NOTE 6 - SUBSEQUENT EVENT
On May 1, 2000, the Company acquired all of the outstanding capital shares
of Multicom Software in a combined shares/cash transaction. COPE paid the
shareholders of Multicom EURO 1,795,000. An additional EURO 800,000 ("Earnout
Portion") will be payable by COPE based on the results of operations of Multicom
for the fiscal years ending December 31, 2000 and December 31, 2001. COPE also
issued to the Multicom shareholders 24,957 COPE common shares having an agreed
market value of EURO 1,565,000.
-9-
<PAGE>
ITEM 2. Management's Discussion and Analysis or Plan of Operation
OVERVIEW
COPE, Inc. ("COPE") is a provider of enterprise data storage and security
consulting, services and solutions to customers located primarily in Western
Europe. COPE's storage and security business consists of the analysis, design
and implementation of storage and security systems that integrate the software
and hardware products that best meet the identified objective. COPE generally
provides its data storage and security systems on a turn-key basis and purchases
for resale the software and hardware components made part of the systems
solutions. The company resells software and hardware products offered by the
major vendors in the data storage and security industry. COPE also offers its
own proprietary storage software products, Hiback and Hibars. COPE provides
enterprise data storage and security systems and solutions to a variety of
companies in the financial, insurance, pharmaceutical and telecommunication
industries located primarily in Germany, Switzerland, and Austria.
In the first quarter of 2000, COPE commenced the provision of consulting,
services and solutions to the e-platform industry, including the design,
development and operation of application infrastructure and managed web sites.
COPE intends to act as an application infrastructure provider (AIP) and managed
web host provider (MHP).
COPE's goal is to become the leading independent provider of enterprise data
storage and security services and solutions and e-platforms in Western Europe.
The key elements of COPE's strategy are:
. Continue to Emphasize Storage and Security Consulting Services. By
emphasizing the quality of its consulting services in the area of data
storage and security, COPE believes that it can establish and foster a
reputation in Western Europe as a leading provider of enterprise services
and solutions.
. Foster a Reputation for Independence. COPE intends to foster the reputation
and image in the storage and security industry of an independent
organization firm dedicated to providing storage and security services and
solutions to the enterprise data storage market only.
. Expand Through Targeted Acquisitions. COPE intends to aggressively seek out
and acquire high quality independent consulting firms throughout Western
Europe.
. Leverage off its Core Competence to Develop an E-Platform Solution. COPE has
a unique standing in Central Europe due to its experience and reputation in
the date storage industry. Data storage and security are key elements in the
Internet age and COPE's core competence in this area provides it with an
advantage in designing, developing and operating application infrastructure
and managed web sites. COPE intends to leverage off it reputation and
success in the data storage and security industry to develop and market an
e-platform solution to its clientele.
Proposed Merger of COPE and Mount10.com Holding AG
COPE, Inc. and Mount10.com Holding AG have entered into a letter of intent on
March 17, 2000 to merge their business activities. The proposed merger would
encompas a consolidation or "Verschmelzung" of COPE, Inc. and Mount10.com into a
new Swiss holding company. The parties expect that the new company will be owned
approximately 80% by the present COPE shareholders and approximately 20% by the
present Mount10.com shareholders. The merger proposal is subject to approval of
the directors and shareholders of both companies and relevant authorities.
Mount10.com is engaged in the business of protecting strategic data from
manipulation, loss unauthorized access and damage by external or hostile groups
and individuals. Mount10.com operates its own data center in a high-security,
inviolable underground vault. The vault is located in the heart of the Swiss
Alps and embedded in an operational defense force facility. The vault is
believed to be able to withstands all know risks to the security of the
customers data during peace and times of war. COPE's Chairman of the Board,
Adrian Knapp, and President and Chief Executive Officer, Stephan Isenschmid,
each own approximately 16.3% of Mount10.com.
-10-
<PAGE>
Public Offering
In February 2000, COPE conducted a public offering of 800,000 shares of its
common stock, at an offering price EURO 21.00 ($20.54) per share on the
Frankfurt Stock Exchange, "Neuer Markt".
Hicomp Acquisition
On April 19, 1999, COPE, Inc. acquired Hicomp Software Systems GmbH, a German
software company. Based on the Sale and Assignment of Business Shares entered
into on December 21, 1998 between COPE, Inc. and Mr. Uwe Hinrichs, the president
and sole shareholder of Hicomp, COPE issued 420,000 shares of common stock in
exchange for all of the outstanding capital shares of Hicomp. COPE also granted
Mr. Hinrichs securities registration rights which allowed him to sell up to
200,000 shares of his common stock alongside COPE within the framework of a
secondary public offering to be conducted on the Frankfurt Stock Exchange,
"Neuer Markt". In October 1999, COPE agreed to repurchase from Mr. Hinrichs
200,000 of the common shares issued by COPE in the acquisition at a price of DEM
7,200,000 ($3,958,000) which fulfilled its obligations under the registration
rights.
Currency Exchange Rates.
COPE regularly enters into contracts payable in Swiss Francs and EURO. Although
COPE reports its results in US Dollars, virtually all of its sales are
denominated in either Swiss Francs or EURO. A significant amount of COPE's cost
of sales (i.e., hardware and software purchases) on the other hand, are
denominated in US Dollars. Consequently, COPE'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 or EURO, on the other hand. The financial
position and results of operations of COPE and its foreign subsidiaries are
measured using local currency as the functional currency. Assets and liabilities
of COPE 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.
-11-
<PAGE>
RESULTS OF OPERATIONS
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Net Revenue. During the three months ended March 31, 2000, the Company had net
- -----------
revenue of $8,081,396, which amounts to a decrease of 5.3% over the net revenue
of $8,537,914 during the prior year period. The decrease in net revenue is due
in the stronger US Dollar compared to the prior year period and decreased
activity in the first quarter of 2000 due to concerns over the Y2K issue. During
the three months ended March 31, 2000, the Company had net revenue of EURO
8,264,375, which amounts to a increase of 8.1% over the net revenue of EURO
7,646,218 during the prior year period. COPE acquired Hicomp on April 19, 1999
and Hicomp has been included in the consolidated operating results for period
subsequent to April 19, 1999.
Sales of solutions decreased 3.4% (increase in EURO 10.4.%) during the
three months ended March 31, 2000 over the prior year period reaching
$7,006,530 (EURO 7,176,705) as compared to $7,255,307 (EURO 6,498,382). Sales of
solutions consist of revenue from the resale of hardware and software components
along with associated consulting services. Sales of services decreased 16.2%
(decrease in EURO 4.2%) during the three months ended March 31, 2000 reaching
$1,074,866 (EURO 1,099,211) as compared to $1,282,607 (EURO 1,147,836) for the
prior year period. Sales of services consist of revenue from stand-alone
consulting and integration services. The decrease in sales of solutions was due
primarily to decreased activities in the first quarter of 2000 as a result of
concerns over the Y2K issue.
Cost of Sales. During the three months ended March 31, 2000, cost of sales
- --------------
decreased by 3.2% (in EURO increase 6.5%) to $5,292,765 (EURO 5,412,612)
compared to $5,673,756 (EURO 5,081,713) for the prior year period, representing
65.5% (in EURO 65.5%) and 66.5% (in EURO 66.5), respectively, of the total
revenue from the sale of solutions. Cost of sales consists exclusively of the
cost of software and hardware acquired for resale.
Gross Profit. COPE's gross profit margin for the three months ended March 31,
- ------------
2000 was 34.5% (in EURO 34.5%) compared to 33.5% (in EURO 33.5%) for the prior
year period.
Selling, General, Administrative and Consulting Expenses. COPE's selling,
- --------------------------------------------------------
general, administrative and consulting expenses as a percentage of net sales
increased between the three months ended March 31, 2000 (38.9%; in EURO 38.9%)
compared to the prior year period (29.2%; in EURO 29.2%).
Net Income/(Loss). During the three months ended March 31, 2000, COPE had a
- -----------------
net loss of $1,107,425 (EURO 1,115,105) as compared to net income of $148,003
(EURO 144,115) during the prior year period. Earnings before interest, taxes,
depreciation and amortization for the three months ended March 31, 2000 was
$(358,397) , which amounts to an decrease of 198.5% over earnings before
interest, taxes, depreciation and amortization of $363,836 for the prior year
period. The decrease in income is mainly attributable due to the amortization of
goodwill involved with COPE's acquisition of Hicomp in April 1999 and Forum in
June 1998
-12-
<PAGE>
LIQUIDITY AND FINANCIAL CONDITION
COPE's historical working capital requirements include the financing of all
costs involved in the design, implementation and sale of information systems.
COPE generally contracts to deliver information systems, including all hardware
and software, on a turn-key basis based on fixed price contracts. Consistent
with industry practice, COPE 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, COPE is generally
required to finance its clients' contracts, including the purchase of the
hardware and software components of the information systems. As of March 31,
2000, COPE had established short-term overdraft facilities under which COPE and
its subsidiaries could borrow up to $1,307,628. Amounts drawn down under these
facilities are due on demand and collateralized by COPE's investments in Cope AG
and Cope GmbH. COPE has been successful to date in securing extensions on its
lines for purposes of financing certain client contracts and in the most recent
months, however there can be no assurance that COPE will continue to do so in
the future.
As of March 31, 2000, COPE had a working capital of approximately $7,336,735,
compared to a working capital deficit of $7,453,421 as of December 31, 1999. In
February 2000 COPE completed a secondary public offering of 800,000 common
shares at EURO 21.00 ($20.54) per share on the Frankfurt Stock Exchange, "Neuer
Markt". The net proceeds in that offering were approximately $14,200,000. During
fiscal 1999, COPE supplemented its working capital with a series of short term
loans in the total aggregate amount of $3,700,000, including an advance of
$767,521 and $314,090 from COPE's Chairman of the Board, Adrian Knapp and COPE's
President and Chief Executive Officer Stephan Isenschmid, respectively. COPE
applied approximately $3,700,000 of the net proceeds from its secondary pubic
offering towards the repayment of the short term loans and the repayment of
$2,100,000 of bank indebtedness under its short-term overdraft facilities.
COPE believes that the proceeds from its secondary public offering, together
with its existing capital resources, will be sufficient to meet its capital
requirements and finance its continued growth during fiscal year 2000. However,
if its capital requirements vary materially from those currently planned, COPE
may require additional financing sooner than anticipated. Additional financing
may not be available when needed on terms favorable to COPE or at all. In
addition, as disclosed throughout the annual report, COPE intends to conduct
additional acquisitions in order to expand its revenue base and product line.
These acquisitions will undoubtedly require significant additional capital.
However, it is impossible to predict right now how much capital COPE will need
or when it will need it.
YEAR 2000 ISSUE
As of the date of this quaterly report, nothing has come to COPE's attention
that would indicate that any of its computer software applications, or those of
its information suppliers, are unable to operate accurately after January 1,
2000. However, COPE has been advised that the consequences of a Year 2000
failure may not become apparent for several weeks following January 1, 2000.
FORWARD LOOKING STATEMENTS
This Form 10-QSB contains certain forward-looking statements that are based on
COPE's beliefs as well as assumptions made by and information currently
available to COPE. 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 COPE'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. COPE caution shareholders of COPE and potential investors not to
place undue reliance on any such forward-looking statements, all of which speak
only as of the date made.
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<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
In 1999, Cope engaged a Swiss software development company to design,
implement and maintain a company-wide enterprise resource planning solution for
COPE. The system was to be completed in January 2000, however in April 2000 COPE
served notice that it would refuse to accept the system due to problems that
materially impaired the systems's quality of operation. The software supplier
has served COPE with notice of its intent to sue COPE for the remaining $500,000
owed the supplier under its contract with COPE. Cope believes that the supplier
has breached the contract and, therefore, COPE is not obligated to pay the
supplier any additional amounts under the contract. If the supplier institutes
legal action, COPE intends to counter-claim for damages in excess of $1,000,000,
representing payments made to the supplier, additional costs incurred by COPE in
connection with the supplier's activities and damages incurred by COPE due to
the supplier's failure to deliver the promised operating system by the required
due date.
Item 2. Changes in Securities.
---------------------
Inapplicable.
Item 3. Defaults Upon Senior Securities.
-------------------------------
Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
Inapplicable.
Item 5. Other Information.
-----------------
Inapplicable.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits
--------
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K
-------------------
Inapplicable.
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<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: May 15, 2000 By: /s/ MARKUS BERNHARD
------------------------
Markus Bernhard
Chief Financial Officer
-15-
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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SUCH FINANCIAL STATEMENTS.
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