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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[MARK ONE]
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 1998
OR
[ ] 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: 0-17597
CONCAP, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
(State or other Jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
TEXAS 76-0252296
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(Address of principal executive offices) (Zip Code)
3700 CRESTWOOD PARKWAY 30096
SUITE 1000
DULUTH, GA
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(770) 638-1019
Indicate by check mark whether the Registrant (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 __ No X
The number of shares of the issuer's class of capital stock as of November 30,
1998, the latest practicable date, is as follows: 11,869,000 shares of Common
Stock $.001 par value.
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PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Balance Sheet
Income Statement
Statement of Cash Flow
1. CONCAP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOVEMBER
30, 1998 (UNAUDITED)
Organization
Concap, Inc., ("the "Company") was established in 1988 in the State of Texas.
The Company is a holding company seeking the acquisitions of companies that
provide technical and non-technical services to business internationally.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash or cash equivalents.
Furniture and Equipment
Furniture and equipment are recorded at cost and are depreciated primarily
using straight line depreciation over three to seven years.
Revenue Recognition
The Company's revenue are results of the revenue received by its subsidiary
corporations. Revenue from subsidiary corporations is recognized upon signing
of a contract for services, provided that amounts are due within one year and
collection is considered probable. If significant delays are expected in
collecting more than 50% of the contract value, the revenue from the sale of
the contract is recognized using contract accounting.
Deferred Revenues
Revenue may be deferred due to installation, delivery or fulfillment not yet
performed.
Deferred Liabilities
Liabilities may be deferred due to expected expenditure of labor costs.
Payroll Taxes Payable
Payroll Taxes payable includes a liability of approximately $460,000.00, the
assumption of which was part of the agreement to acquire Intuitive Technology
Consultants, Inc.. No liens exist against the company currently related to this
liability. Management has entered into an installment agreement with the
Internal Revenue Service to satisfy this Liability and has been funding
payments from the cash generated by operations. Management believes it can
continue to reduce the liability accordingly without adversely affecting the
continuing operations of the company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the Financial
Statements and Notes thereto included elsewhere in this filing. Certain
statements made in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations are forward-looking statements. The
forward-looking statements contained herein are based on current expectations
and entail various risks and uncertainties that could cause actual results to
differ materially from those expressed in such forward-looking statements.
Overview
Concap, Inc. is a holding company seeking to acquire corporations whose primary
focus is technical, including software development, staffing and consulting. It
should be noted that the Company is limiting itself to these areas. The
Company's revenue consists of revenue as results of operations of its
subsidiary corporations. The financial results referred to herein reflect the
historical results of the Company.
Prior to June 8, 1998, the Company had no material assets or operations. On
July 8, 1998, the Company acquired all of the issued and outstanding capital
stock of Intuitive Technology Consultants, Inc. ("ITC"). ITC is composed of two
operating divisions. ITC's product division provides software solutions on an
outsourced basis to companies
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seeking to upgrade or create new business solutions. These solutions are
primarily project based. ITC's products are developed internally. ITC's
services division provides temporary and permanent personnel to technology
companies. ITC provides personnel on a fee basis (hourly basis for temporary
personnel and flat fee basis for permanent personnel). ITC's clients are
responsible for the management of such personnel on the job.
On November 5, 1998, the Company acquired a 100% of Troxtel Holding Company,
LLC d/b/a Temporary Help Connection ("THC"). THC provides light industrial
temporary staffing services. THC provides temporary personnel on a fees basis
(hourly).
On November 15, 1998, the company incorporated Temporary Help Connection ,
Inc., as a Delaware Corporation. THC was merged with the new corporation, with
Temporary Help Connection, Inc. being the surviving member.
On November 15, 1998, the Company incorporated Elite Technologies, Inc. as a
Delaware Corporation. ITC was merged with the new corporation with Elite being
the surviving member.
RESULTS OF OPERATIONS
Three Months Ended November 30, 1998 Compared to Three Months Ended November
30, 1997
Revenue
Total revenue increased as a result of the acquisition of Intuitive Technology
Consultants, Inc. and Troxtel Holding Company d/b/a Temporary Help Connection
as wholly owned subsidiaries. Total revenue of the subsidiary companies
consists of software programming, permanent and temporary placement fees and
consulting fees.
Software Programming Fees. Software programming fee revenue accounted
for 64% of the revenue of ITC. Revenue for software programming fees of the
subsidiary increased by 23% as result of the procurement of contracts with
Ernst and Young, LLP.
Temporary and Permanent Placement Fees. Fees dropped by 24% as a
result of the reorganization of the operations of the subsidiary which focus on
placement services. Management believes it can expect to rebound from this
decrease in the next quarter.
Cost of Revenue
The cost of revenue consists primarily of consultant and employee salaries and
other personnel expenses incurred in the implementation of projects and
placements. Costs of revenue increased proportionately primarily due to the
increase of obligations under contracts for services.
Operating Expenses
Sales and Marketing. Sales and marketing expenses include salaries, commissions
and other personnel related costs, travel expenses, advertising programs and
other promotional activities. Sales and marketing expenses increased by 14% to
24,000.00 as a result of additional sales and marketing personnel, increase in
sales commissions and expanded marketing program activities, as well as the
acquisition of Troxtel Holding Company, LLC d/b/a Temporary Help Connection..
General and Administrative. General and administrative expenses consist
primarily of salaries and other personnel related costs of executive, financial
and secretarial personnel, as well as facilities, legal, insurance, accounting
and other administrative expenses. The increase in general and administrative
expenses was principally due to increased legal fees as a result of the
acquisition of the subsidiary Intuitive Technology Consultants, Inc. and
Troxtel Holding Company d/b/a Temporary Help Connection.
The Company's operations and related revenue and operating results could vary
substantially from quarter to quarter. Among the factors causing these
potential variations are fluctuations in the demand for the Company's services,
price competition in the Company's markets, the length of the Company's sales
process, the Company's success in expanding its services as well as its direct
sales force, commercial strategies adopted by competitors and general economic
conditions. A substantial portion of the Company's operating expenses,
particularly personnel and facilities costs, are relatively fixed in advance of
any particular operating results in any particular quarter.
THC and ITC's ability to undertake new projects and increase revenue is
substantially dependant on the availability of consultants in the marketplace.
As a result of the foregoing and other factors, the Company believes that
Quarter to Quarter comparisons of results are not necessarily meaningful, and
such comparisons should not be relied upon as indications of future
performance.
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LIQUIDITY AND CAPITAL RESOURCES
Since inception, ITC has funded its operations to date primarily through cash
generated form operations. In addition, ITC has received approximately
$350,000.00 from its former parent corporation, Phoenix International
Industries, Inc. of West Palm Beach, Florida.
The Company has guaranteed a line of credit for Accounts Receivable financing
from American Factors Corporation of Dallas, Texas for a maximum of up to
$1,000,000.00. As of November 30, 1998, the Company had $755,000.00 outstanding
borrowings under the line of credit.
The Company believes that its existing liquidity and capital resources,
including the cash generated from operations during fiscal 1998 will be
sufficient to satisfy its cash requirements for at least the next twelve
months. To the extent that such amounts are insufficient, the Company will be
required to raise additional funds through equity or debt financing. There can
be no assurance that the Company will be successful in raising additional funds
on favorable terms or at all.
IMPACT OF THE YEAR 2000 ISSUE
On January 1, 2000, computer systems and software products worldwide may
interpret the date as January 1, 1900 or some other random date, unless such
products are coded to accept the four digit format in the date code field. This
is generally referred to as the "year 2000 issue." Before the Year 2000
arrives, many computers and/or software packages will have to be upgraded to
address the year 2000 issue. Therefore, significant uncertainty exists in the
software industry concerning the potential effects associated with such
compliance.
The Company has designed all of its products to properly convert to the year
2000 ("Year 2000 Ready"). Therefore, it is not expected that the Company's
products will be adversely affected by date changes in the year 2000. However,
these can be no assurance that the Company's products contain and will contain
all features and functionality considered necessary by the customers,
distributors, resellers and systems integrators to be Year 2000 ready or that
any difficulties will not have a material adverse effect on the operation of
the Company's resulting business, financial condition and results of
operations.
The Company believes that the year 2000 issue may affect the purchasing habits
of its present and potential customers. Due to the significant amount of
resources being allocated by companies to address the year 2000 issue, they may
have less money to spend on software products such as those offered by the
Company. Customers may defer or accelerate their purchases of software
products. Furthermore, they might switch to other systems or suppliers after
evaluating their software needs as a result of the year 2000 issue. Finally,
the Company's software could be integrated with a customer's non-year 2000
ready compliant system, which could lessen the effectiveness of the Company's
solutions. Any of the foregoing could result in a material adverse effect on
the company's business, operating results and financial condition.
The Company has communicated with some, but not all, of its vendors, suppliers
and other relevant third parties to determine whether the products and services
they provide to the Company will be affected by the Year 2000 issue. To the
Company's knowledge, the products and services of such third parties will not
be adversely affected in any material respect by the Year 2000 issue. There can
be no assurance, however, that all of the products and services supplied by
third parties on which the Company's business relies have been or will continue
to be Year 2000 ready or will not otherwise be materially and adversely
affected by the Year 2000 issue. Such failures could have a material adverse
affect on the Company's financial condition and results of operations.
The cost for being Year 2000 ready has been immaterial to the Company's
business, operating results and financial condition. Further, the Company does
not anticipate incurring material cost in the future relating to the Year 2000
issue since the costs of developing products that are Year 2000 ready is a
normal part of development. As a result, the Company does not currently have a
contingency plan relating to the Year 2000 issue and it does not anticipate
developing one in the future.
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FORWARD LOOKING STATEMENTS
Certain statements contained in this filing are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995..
Such forward-looking statements are subject to risks, uncertainties and other
factors that could cause actual results to differ materially from future
results expressed or implied by such forward-looking statements. Investors are
cautioned that any forward-looking statements are not guarantees of future
performance and involve risks and uncertainties and that actual results may
differ materially from those contemplated by such forward-looking statements.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company, through its subsidiaries is subject to legal proceedings and
claims which arise in the ordinary course of business. In the opinion of
management, the amount of potential liability with respect to these potential
actions would not materially affect the financial position or results of
operations of the Company.
ITEM 2. CHANGES IN SECURITIES. NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. NONE
ITEM 5. OTHER INFORMATION.
In connection with the foregoing acquisition the Registrant effectuated a
1-for-100 reverse stock split. As a result of the reverse stock split, and
other issuance of stock in connection with the acquisitions, the Registrant now
has outstanding 11,869,000 shares of common stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K-
(a) The Following exhibits are filed with this Report:
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Exhibit 2.1 Agreement dated June 24, 1998, by and among
Concap, Inc. and Intuitive Technology Consultants,
Inc. (incorporated by reference from the
Registrant's Current Report on Form 8-K, dated June
8, 1998), and Agreement dated November 5, 1998, by
and among Concap, Inc. and Troxtel Holding Company
d/b/a Temporary Help Connection (incorporated by
reference from the Registrant's Current Report on
Form 8-K, dated November 15, 1998)
Exhibit 27.1 Financial Data Schedule (to be filed by amendment)
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(b) Reports to be filed on Form 8-K
The Company filed a Current Report on Form 8-K, dated June 8, 1998,
reporting its acquisition of ITC. The Company filed a Current Report
on Form 8-K, dated November 15, 1998, reporting the acquisition of
Troxtel Holding Company, LLC d/b/a Temporary Help Connection.
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Date: January 15, 1999 By: /s/ Scott Schuster
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Scott Schuster, President
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CONCAP, INC.
Consolidated Balance Sheet
2nd Quarter Ending 11/30/98
(000's omitted)
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<CAPTION>
CURRENT ASSETS 11/30/98 11/30/97
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Cash 92 0
Accounts Receivable 1,050 0
Less Allowable Doubtful Accounts (5) 0
Total A/R 1,045 0
Factoring Reserve 22 0
Office Supplies 3 0
Loans to Officers 266 0
Prepaid Expenses 52 0
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Total Current Assets 1,480 0
FIXED ASSETS
Funiture, Fixtures, Equip 36 0
Equipment- Computer 289 0
Software 32 0
Vehicles 82 0
Leasehold Improvements 16 0
Accum Depreciation - Furniture (7) 0
Accum Depreciation - Equipement (53) 0
Accum Depreciation - Software (14) 0
Accum Depreciation - Vehicles (13) 0
Accum Depreication - Leashold (5) 0
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Total Fixed Assets 363 0
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TOTAL ASSETS 1,843 0
==================== ================
CURRENT LIABLITIES
Accounts Payable 176 6
Accrued Expenses 0 195
Loans Payable Officers 0 1
Wages Payable 79 0
** Factoring - American Factors 755 0
* Payroll Taxes Payable 905 0
(Due from Seller per Purchase Agreement) (215) 0
Total Taxes Due 690 0
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Total Current Liablities 1,700 202
LONG TERM LIABLITIES 37 0
TOTAL LIABLITIES 1,737 202
CAPTIAL
Common Stock 1 5
Paid In Captial 391 700
Retained Earnings (183) 0
Deficit Accum. During Dev. Stage -907
*** Net Income (103) 0
Total Captial 106 (202)
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TOTAL LIABILITES + CAPTIAL 1,843 0
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NOTES TO FINANCIAL STATEMENTS
* Payroll Taxes payable includes a libity of
approximately $460,000.00, the assumuption of which
was part of the agreement to acquire Intuitive
Technology Consultants, Inc.. No liens exist against
the company currently related to this liability.
Management has entered into an installment agreement
with the Internal Revenue Service to satisfy this
Liability and has been funding payments from the
cash generated by operations. Management believes it
can continue to reduce the liability accordingly
without adversely affecting the continuing
operations of the company.
** This amount is advanced against receiveables.
Amounts shown here are paid upon receipt by
customer. The average balance is less than 30 days
old
*** Loss shown is due to expenses incurred in
acquisition of subsidiary companies and change in
control to current management.
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CONCAP, INC.
Consolidated Income Statement
2nd Quarter Ending 11/30/98
(000's omitted)
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REVENUES 11/30/98 Year to Date 11/30/97
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Fees 2,499 4,347 0
Other Income 36 53 0
Refunds (14) (17) 0
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TOTAL REVENUES 2,521 4,383 0
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OPERATING EXPENSES
Accrued Expenses 0 0 (9)
Adverstising 14 23 0
Bad Debt 3 68 0
Bank Charges 0 2 0
Charitable Contributions 0 0 0
Commissions 4 10 0
Computer Equipment 22 62 0
Contract Labor 15 22 0
Depreciation 16 36 0
Dues and Subscriptions 1 1 0
Employee Education 0 2 0
Employee Expenses 1 1 0
Factoring 54 111 0
Forms/Printing 3 5 0
Gifts and Donations 3 4 0
Insurance 53 88 0
Late Fees 1 2 0
Lease 8 17 0
Lease on Autos 6 14 0
Lease on Furniture 5 14 0
Legal and Professional 36 99 0
Lodging 1 1 0
Maintenance 8 11 0
Meals and Enter. 4 8 0
Medical Benefits 38 66 0
Misc 28 29 0
Office Supplies 3 7 0
Officer Benefit Programs 1 2 0
Office Expense 9 11 0
Officer Loan Expense 67 97 0
Payroll Tax Expenses 187 334 0
Postage & Deliver 1 3 0
Recruiting 11 13 0
Rent 60 107 0
Salaries 498 930 0
Selling Expenses 24 29 0
Telecommuncations 1 1 0
Telephone 15 37 0
Telephone - ISP 1 2 0
Transporation 55 100 0
Travle Expenses 26 44 0
Utilities 0 0 0
Wages 1,184 2,073 0
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TOTAL OPERATING EXPENSES 2,467 4,486 (9)
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INCOME BEFORE TAXES 54 (103) (9)
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EARNINGS (LOSS) PER SHARE $0.0045 ($0.0087) NIL
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CONCAP, INC.
Consolidated Cash Flow Statement
2nd Quarter Ending 11/30/98
(000's omitted)
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<CAPTION>
Cash Flows from Operating Activites 11/30/98 11/30/97
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Net Income 54 (9)
Adjustment to reconcile net
income to net cash provided by
operating activities
Accum. Depreciation - Furniture 0 0
Accum. Depreciation - Equipment 2 0
Accum Depreciation - Vehicles 7 0
Accum Depreciation - Software 0 0
Accum. Depreceiation - Leasehold 0 0
Accounts Receiable (327) 0
A/R American Factors (8) 0
Loans to Officers (81) 0
Accounts Payable 92 0
N/P American Factors 264 0
Payroll Taxes 175 0
Medical Withheld 1 0
---- --
Total Adjustments 125 0
Net Cash provided by Operations 179 (9)
---- --
Cash Flows used from Investment Activitives
Equipment - Computers (40) 0
Software (2) 0
Vehicles (26) 0
---- --
Net Cash Used in Investing (68) 0
---- --
Cash Flows from Financing
Paid In Captial (8) 0
Loans 0 0
Paid In Captial 0 0
---- --
Net Cash Used in Fianncing (8) 0
---- --
Net Increase (decrease) in Cash 103 (9)
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