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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
X ACT OF 1934
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For the fiscal year ended June 30, 2000
OR
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
----- ACT OF 1934
COMMISSION FILE NUMBER: 0-28511
CAPRI CORP.
(Name of Small Business Issuer in its Charter)
MINNESOTA 41-1704533
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2651 WARRENVILLE ROAD, SUITE 560 (630) 874-5500
DOWNERS GROVE, ILLINOIS 60515 (Registrant's Telephone Number,
(Address of Principal Executive Offices, Including Area Code)
including Zip Code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.01 par value
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 of 15(d) of the Securities Exchange Act 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
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B, and no disclosure will 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. [ ]
Issuer's revenues for fiscal 2000: $7,575,160.
The aggregate market value of the voting common equity held by
non-affiliates of the issuer was approximately $4,088,697, based on the average
bid and asked price of $.685 per share as reported on the NASD OTC bulletin
board on September 21, 2000.
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding as of September 28, 2000 was 12,908,901.
Transitional Small Business Disclosure Format: Yes X No
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents of the registrant are incorporated
herein by reference:
DOCUMENT PART OF FORM 10-K
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Proxy Statement for the 2000 regular I and II
meeting of shareholders
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PART I
The Issuer has elected to follow Form 10-KSB, Disclosure Alternative 2.
ITEM 6. DESCRIPTION OF BUSINESS.
GENERAL. Capri Corp. is engaged in developing computer software that
records, organizes and provides access to real-time, integrated manufacturing
information for use by printed circuit board (PCB) manufacturers. The software
provides access to information at the manufacturing plant level as it is
created, such as engineering information, production scheduling, quality control
reports and levels and types of inventory being produced. Licenses to use the
software are marketed and sold under the trademarks Paradigm(R) and Paradeim(R).
In addition, the Company provides technical support and user training and
distributes certain hardware and third party software.
Capri Corp. carries on all of its business through its predecessor
entity and wholly-owned operating subsidiary, Cimnet Systems, Inc., formed in
1988, ("Cimnet") and Cimnet's subsidiaries, all of which are wholly-owned.
Cimnet's subsidiaries are Cimnet Informationssysteme GmbH, a German limited
liability corporation, Cimnet Systems (I) Private Limited, an India private
limited company and Cimnet Systems Asia Pacific Limited, a corporation formed
under the laws of Hong Kong. In this report, the term "Company" is used to refer
collectively to Capri Corp., Cimnet and Cimnet's subsidiaries.
Since September 20, 1991, the Company's common stock, par value $0.01
per share ("Common Stock"), has been quoted on the NASD OTC Bulletin Board under
the symbol "CAPI", except from October 8, 1999 through early May, 2000, when it
was quoted on the electronic "pink sheets" of the National Quotation Bureau,
also under the symbol "CAPI".
The Company's principal executive offices are located at 2651
Warrenville Road, Suite 560, Downers Grove, Illinois 60515, its telephone number
is (630) 874-5500 and its website address is www.cimnetsys.com.
In 1988, the founders of the Company recognized the following:
- The market conditions within the manufacturing software marketplace
were creating an opportunity for highly specialized information
systems designed for the PCB industry;
- The increasing need for manufacturing organizations to become more
efficient due to increasing global competition;
- The increasing use of client/server platforms as opposed to
mini/mainframe operating systems; and
- The increasing access to information processing due to the decreased
cost of computing power.
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The Company sought to capitalize on these conditions by offering
Paradigm(R), one of the first information systems designed to be used on a
manufacturer's own personal computer network. Paradigm(R) records and provides
access to real time information on manufacturing activities that are plant
specific. Traditional personal computer networked information systems have
operated at the enterprise level, as opposed to the specific plant level, and
were designed to concentrate on supply chain management, finance and automation
of management's business processes. These traditional "horizontal" information
systems are often referred to as "enterprise resource planning" systems, or
"ERP" systems, to reflect their more generic and less manufacturer-specific
functionality. Alternatively, Paradigm(R), which the Company refers to as a
"specialized" enterprise resource planning system, or "S/ERP", concentrates on
the integration of information for a specific type of manufacturer, presently
manufacturers of printed circuit boards. The manufacture of printed circuit
boards, which involves the embedding of conducting metal in patterns on an
insulated board with semiconductors to create electric circuits, requires
engineering to a customer's specific order requirements. Paradigm(R)
incorporates software technologies along with manufacturing concepts such as
"Total Quality Management" and "Just In Time" production scheduling and
inventory control which fit how PCB manufacturers operate their manufacturing
facilities to serve their customers. The Paradigm(R) system includes features
such as automation of the engineering design process, statistical process
control, plant maintenance, and real-time scheduling, which reduce manufacturing
cycle times, reduce the level of inventories that need to be carried by the
manufacturer, improve purchasing efficiency and allow for the more effective
deployment of personnel and productive assets through access to current,
specific and relevant information in the manufacturing process. The Company
believes that this set of features and functionalities has provided the Company
with a significant competitive advantage over other system suppliers.
The Company is investigating additional marketing initiatives to support
growth and long term viability. Strategies currently under consideration include
diversification outside of the PCB industry and improving market share within
the PCB industry, both geographically and through new product offerings.
PRODUCTS AND SERVICES. The Company believes its software product,
Paradigm,(R) provides a fully integrated set of superior capabilities that
improves speed, cost, efficiency and flexibility in the manufacturing of printed
circuit boards. Some of the critical success factors in the PCB manufacturing
industry, such as reducing manufacturing cycle time, eliminating manufacturing
waste and inefficiency, tightening manufacturing process controls, and achieving
superior customer responsiveness, can be greatly improved by the real time
information gathering, organizing and access capabilities built into
Paradigm(R).
The components of the Company's offerings are:
- Software
- Installation, Training, and Consultation
- Software Maintenance
- Custom Programming Services
- Hardware and Network Services
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Software. Paradigm(R) supports state-of-the-art manufacturing concepts
such as "Just in Time" and "Activity Based Management". The Company believes
Paradigm(R) is the most advanced engineering, production, planning, and material
control software ever developed for the PCB manufacturing industry. The full
Paradigm(R) system is comprised of the following set of 20 integrated programs,
called "modules", which provide the following functions:
- Data Control - Sales Forecasting
- Sales Control - Lot/Serial Tracking
- Material Control - JIT ("Just-In-Time") Delivery
Performance
- Production Control - Cycle-Time Performance
- Master Scheduling - Plant Maintenance
- Financial Control - Statistical Process Control
- Intelligent Engineering - EDI (Electronic Data Interchange)
Interface
- Report Generation - RFQ (Request For Quotation)
Interface
- Executive Information System - Shop Floor Monitor
- Bar Coding and Data Collection - System Administration
These modules are priced individually and licensed for a specific number
of authorized users. Typical software license fees for a small installation (10
users) are approximately $100,000 while a large installation (100 users) may
exceed $500,000.
The Company has recently introduced Paradigm(R) LT - an entry-level
system designed for smaller and emerging PCB manufacturing companies. This new
product offers some of the basic core functionality at a lower cost to companies
that in the past have been unable to consider installing the full Paradigm(R)
system at their facilities. The Paradigm(R) LT product is limited to a maximum
of 15 users with an average list price of $50,000. In addition, the Company has
also recently introduced "Paradigm(R) On-Line," which allows users to utilize
the functionalities of Paradigm(R) via an on-line interface for a periodic fee,
rather than through the purchase and installation of the traditional Paradigm(R)
system.
In connection with the licensing of Paradigm(R), the Company is also an
authorized reseller of complementary software products such as Oracle
Corporation's Oracle(R) 7 Workgroup Server (TM) and Oracle(R) 7 Server
Enterprise Edition (TM), Cognos(R)'s Impromptu(R) and Powerplay(R), Pervasive
Software, Inc.'s PSQL(R), NextPage, LC's Folio Views(R) and certain of
Computerwise(R), Inc.'s bar code data collection products. The revenues derived
from these activities do not represent a material portion of the Company's
revenues.
The Company devotes significant resources to enhancing Paradigm(R) by
developing and expanding modules for its customers. During the fiscal years
ended June 30, 2000 and June 30, 1999, the Company invested approximately
$622,000 and $789,000, respectively, in research and development activities, of
which approximately $269,000 and $380,000, respectively, were charged to
expense. The remaining balances of $353,000 and $409,000, respectively, were
capitalized and will be charged to expense in future periods.
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Installation, Training and Consultation. These services are
provided as separate billable services for assisting customers with the
implementation of the Paradigm(R) system. Additionally, the Company offers
education covering manufacturing concepts and methodologies as well as technical
issues. Training and consultation is typically provided at the customer location
to provide hands-on assistance. Typical revenues for these services range from
$10,000 for a small installation to more than $50,000 for a large installation.
The Company believes the potential for generating additional revenues in this
area is significant.
Software Maintenance. Software maintenance is offered on a
contractual basis to each customer licensing the Paradigm(R) software. The
software maintenance entitles the customer to support and software enhancements.
The annual maintenance fee is typically 15% of the software license fee.
Custom Programming Services. Although the Company primarily
offers a standard product to its customers, special custom programming services
are available for developing interfaces to other systems. With an Asian
operation based in India, the Company will have access to highly talented
programmers at a much lower cost, creating an opportunity to expand its custom
programming services.
COMPETITION. Although the Company competes with other companies
producing software written specifically for the PCB industry, the Company
believes that its products are more comprehensive and its sales of software to
the PCB manufacturing industry are significantly greater than any of these
specialized competitors. In addition, the Company also competes with software
programs of general manufacturing application and certain non-integrated
programs which have been developed internally by PCB manufacturers.
Capital barriers to entry into competition with Paradigm(R) and other
computer software programs being developed by the Company are low. In addition,
many program development companies are larger and better financed than the
Company. There is no barrier to such companies producing programs which would
compete directly with those of the Company.
REVENUE AND WORKING CAPITAL. The Company's revenues fluctuate from
quarter to quarter throughout any fiscal year and between fiscal years. These
quarterly fluctuations are the result of two principal factors:
- Because of the relatively small number of installations each year
and the large amount of revenue derived from each installation, each
new Paradigm(R)software license agreement has a significant impact
on the Company's reported revenue. The decision to acquire a complex
information system such as Paradigm(R)requires the approval of a
company's upper management and the acceptance of its operating
managers. Achieving this level of approval typically requires
multiple meetings and product demonstrations and may even require
the installation of a test system to allow management the
opportunity to assess the functionality of the system within their
organization. Finalizing the specific terms of the software license
agreement adds additional time to the process. As a result, the
Company
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has little ability to influence the actual timing of a customer's
execution of a license agreement.
- The license agreements for Paradigm(R)entered into by the Company
set forth the terms and conditions of the system installation. These
conditions may include, for example, a phased in installation that
is dependent on a plant by plant schedule, the installation order of
specific modules together with a designated amount of training or
the completion of a custom software interface. These conditions can
impact the timing of revenue recognition and may cause that
recognition to occur over several months. For example, if the
software license agreement calls for 100 users at four plants to be
installed in a specific order and only after the previous plant is
operational, revenue associated with plants 2, 3 and 4 cannot be
recognized until those plants are installed.
The Company's principal assets are cash and accounts receivable, which
are in turn used to fund payroll and growth. In the fiscal years ended June 30,
1999 and June 30, 2000, the Company invested heavily in its professional staff,
equipment and infrastructure while aggressively pursuing its commitment to a
global growth strategy. During the current fiscal year, the Company established
a subsidiary in Hong Kong in order to provide a more focused approach to
customer service in the Pacific Rim countries. Additionally, the Company formed
strategic sales representative alliances with companies in Taiwan and Europe to
expand its sales coverage in those areas. It is expected that these sales
representative alliances will generally function as commission sales agents. All
revenues and commission expense will be recorded according to the specific
conditions of the respective license agreement and sales representative
agreement relative to the sale of each license. The Company also entered into a
distributorship relationship with a Japanese company focused entirely on
business based in Japan. Under this arrangement, the Company's revenues will be
limited to the amounts the Company can charge the distributor when the
distributor finalizes a sale with its customer.
As described herein, the Company distributed all of the shares of
InterConexus.com, Inc. ("InterConexus.com") to the shareholders of the Company
effective June 1, 2000. InterConexus.com and Cimnet have entered into a Services
Agreement whereby Cimnet provides certain services to InterConexus.com on an
as-needed basis. The fees for such services will be based on a rate designed to
reflect Cimnet's cost of providing such services, including reimbursement of
certain direct out-of-pocket expenses. InterConexus.com is free to procure such
services from outside vendors or to develop an in-house capability in order to
provide such services internally. The services to be provided to
InterConexus.com by Cimnet pursuant to such agreement include employees,
including key executives, accounting services, computer services, insurance
coverage, payroll processing services and management of employee benefits
programs, or any other similar services that InterConexus.com may require.
During the year ended June 30, 2000, Cimnet billed InterConexus.com
approximately $434,000 for services under this agreement. As InterConexus.com is
currently in the development stage of its operations, the Company has recorded a
reserve against those billings, through a charge to operations, in the amount of
$386,550, representing the balance InterConexus.com owes Cimnet, net of amounts
due InterConexus.com from a third party, which management believes are fully
collectable and are payable to Cimnet on receipt by InterConexus.com.
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The Company typically receives payment for its software licenses and
services in contracted installments during the course of a Paradigm(R) system
installation. The Company's continuing penetration of the larger user market,
while providing proportionally larger revenue per license agreement than that of
its historical smaller user customer base, requires a longer implementation
cycle. Customer information requirements are becoming more complex and the
information systems, which Paradigm(R) must interface with, tend to be
increasingly more sophisticated. This increases both the cost and complexity of
any software customization and the corresponding system implementation
timeframe. The accounts receivable cycle is naturally extended as a result of
the these factors. The Company collects revenues for maintenance services on a
quarterly basis. These revenues are based on a percentage of the software
license fee, and therefore provide a relatively stable and recurring revenue and
cash flow stream.
The Company has historically invested its excess cash in short-term cash
equivalents of less than three months through its bank. In the fiscal year just
ended, the Company began investing its excess cash in short-term government
bonds and high-grade commercial paper. These investments, while still considered
cash equivalents for reporting purposes, enable the Company to spread and reduce
investment risk while maximizing yield.
The Company entered into a revolving credit agreement with American
National Bank and Trust Company of Chicago, dated October 30, 1999, which
provides an open line of credit of up to five hundred thousand dollars
($500,000). This line of credit, which expires on October 30, 2000, provides for
interest at one percent over the published prime rate of the bank on funds used,
and is secured by the assets of the Company and it's domestic subsidiary. As of
June 30, 2000, the Company had utilized $160,000 of the line in the form of an
irrevocable letter of credit issued as security against tenant improvements to
the Company's new headquarters location, as described in Item 7. Assuming no
events of default occur, the letter of credit automatically reduces by $40,000
every six months, and fully expires in 2002.
EMPLOYEES AND LABOR RELATIONS. As of June 30, 2000, the Company had 50
employees. The Company believes that this staffing will be sufficient to manage
the Company and carry out its current base of business. Staffing will need to be
increased to meet future operational requirements. The employees are not members
of any collective bargaining unit. The Company believes that relations with its
employees are good. There were no work stoppages in the fiscal year ended June
30, 2000 and none are expected in the fiscal year ending June 30, 2001.
CUSTOMERS. Current customers of the Company include several of the
largest PCB producers in the world.
MARKETING. The Company's fundamental marketing strategy has been to
focus on printed circuit board manufacturers, a specific vertical segment within
the manufacturing industry. The Company competes within the global manufacturing
software market by providing goods and services that have specific capabilities
for the printed circuit board manufacturing industry. The Company believes that
this approach has allowed it to gain market leadership in this targeted process
flow manufacturing niche by providing products and services which meet the
specific needs of these manufacturers.
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In order to gain market share and visibility within the PCB
manufacturing industry the Company continues to attend numerous trade shows in
North America, Europe, and Asia. The Company has been successful in selling its
products to many PCB manufacturing companies around the world, with 56% and 48%
of the Company's revenues in 2000 and 1999, respectively, being derived from
outside the United States.
The Company has entered into agreements with sales representatives to
market licenses for its products in Belgium, China, France, Germany, Hong Kong,
Italy, Korea, Malaysia, Netherlands, Portugal, Scandinavia, Singapore, South
Korea, Spain, Switzerland, Thailand and the United Kingdom. These companies
operate as contracted sales representatives for the Company and perform specific
services within defined territories on a commission basis. Sales revenues and
commission expenses are recognized by the Company when the Company enters into a
license agreement with a customer that a representative has identified and
qualified as a potential licensee of the Company's products. The remaining
markets are being pursued mainly through direct sales efforts.
The Company and certain of its customers have created an active
Paradigm(R) Users Group which discusses product enhancements, future releases
and new features. The users group conducts regularly scheduled conference calls
and holds an annual meeting. The Company believes that the existence of such a
users group creates increased customer goodwill and also serves as an important
source for product critiques and suggestions for future product enhancements.
Having successfully installed Paradigm(R) at nearly 100 different
locations, the Company believes it is the leading information systems supplier
to the PCB manufacturing market. Future marketing plans within the PCB
manufacturing market involve the following:
- Marketing services to large PCB producers who have grown through
acquisitions.
- Addressing the large concentrations of PCB companies in Taiwan,
Japan, and the emerging markets in China.
FOREIGN OPERATIONS. The Company conducts its foreign operations
primarily through its subsidiaries. The Company's foreign sales efforts are
augmented by certain strategic alliances with local companies in key market
areas. These companies operate as commissioned sales representatives for the
Company and perform specific services within defined territories.
In the summer of 1991, the Company formed a wholly owned subsidiary,
Cimnet Informationssysteme GmbH in Munich, Germany, to address the requirements
of the European PCB market. Today, the Paradigm(R) system has been fully
translated into German. Currently, Cimnet Informationssysteme GmbH is staffed
with a highly technical, multi-lingual staff capable of installing, training,
and supporting the Company's European customers.
On July 3, 1999, the Company formed an Asian sales and support office
based in Bangalore, India, incorporated as Cimnet Systems (I) Private Limited.
It is anticipated that this
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office will be the base for future growth within the Pacific Rim. In addition to
providing a direct presence in the Asian market, the Company believes India
offers a highly talented workforce at a lower cost when compared to the cost of
the workforce in the United States. Future plans include the potential of
expanding product development capabilities into India by taking advantage of
this lower cost labor supply.
In November, 1999, the Company formed a wholly owned subsidiary in Hong
Kong, to provide a local presence in the important PCB manufacturing community
in the Far East. Through hiring skilled local programming and other technical
personnel, the Company plans to provide local technical and installation support
to its customers. In addition, the Company has established sales representative
relationships to serve the Far East marketplace and is negotiating a
distributorship arrangement to serve the Japanese market, as described under
"Revenue and Working Capital." Paradigm(R) is currently being translated into
Chinese and Japanese.
PATENTS, TRADEMARKS AND LICENSES. The Company's performance and its
ability to compete are dependent, to a significant degree, on its proprietary
products. The Company relies on a combination of copyright, trade secret and
trademark laws, with parallel contractual provisions incorporated into the
software license agreements in place with all customers, as well as proprietary
rights assignment, confidentiality, non-disclosure, and non-compete agreements
executed by employees and consultants as a means of establishing and protecting
its proprietary interests. Paradigm(R), the registered U.S. trademark of Cimnet,
was granted to Cimnet on January 26, 1993. In Germany, the software carries the
registered trademark of Paradeim(R).
In connection with the licensing of Paradigm(R), the Company is also an
authorized reseller of complementary software products such as Oracle
Corporation's Oracle(R) 7 Workgroup Server (TM) and Oracle(R) 7 Server
Enterprise Edition (TM), Cognos(R)'s Impromptu(R) and Powerplay(R), Pervasive
Software, Inc.'s PSQL(R), NextPage, LC's Folio Views(R) and certain of
Computerwise(R), Inc.'s bar code data collection products. No officer, director
or employee of the Company or any of its operating subsidiaries holds any
license or trademark that is critical to the operation of the Company.
RECENT EVENTS. On March 31, 2000, the Company announced that its newly
formed wholly-owned subsidiary, InterConexus.com, had filed a Registration
Statement to register its common stock under Section 12(g) of the Securities
Exchange Act of 1934, as amended. The Company distributed all the shares of
InterConexus.com to the shareholders of the Company in a taxable distribution
effective June 1, 2000. InterConexus.com was formed in order to pursue certain
e-commerce opportunities within the global electronic interconnect industry. The
Company's shareholders as of June 1, 2000 received one share of InterConexus.com
common stock for each share of Company Common Stock they owned.
RISK FACTORS. The Common Stock of the Company involves a high degree of
risk and is intended for long term investment. The following specific risk
factors should be read in light of the more complete discussion elsewhere in
this Registration Statement.
Possible Conflicts of Interest and Related Party Transactions.
The directors and officers of the Company are also the directors and officers of
InterConexus.com. Accordingly,
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conflicts of interest could arise for such persons. In addition, as part of its
ongoing business and operations, the Company will engage in certain transactions
with InterConexus.com. Due to the relationships between the Company and
InterConexus.com, the terms of such transactions may not necessarily be
effectuated through arms-length negotiations. However, all such transactions
will be subject to review by the Board of Directors of the Company.
Mehul J. Dave, the Chairman of the Board, President and Chief
Executive Officer of the Company, holds the same positions at InterConexus.com.
In addition, P. Balasubramanian, a Director, Executive Vice President, Secretary
and Treasurer of the Company, is also a Director, Secretary and Treasurer of
InterConexus.com. Messrs. Dave and Balasubramanian intend to divide their time
between the Company and InterConexus.com, and therefore will be unable to devote
their attention solely to the operations of the Company.
Dependence on One Product. The Company is currently
marketing/licensing only one product, Paradigm(R). In addition to fees collected
from licensing Paradigm(R), the Company also collects fees for support and
maintenance, enhancement, and implementation of the software and training. There
is no assurance that it will be able to successively develop or market any
additional products or that it will be able to continue to successfully market
its current product.
Competition. The business of developing, marketing and licensing
computer software programs is fiercely competitive and entry barriers into this
business are relatively minimal. The vast majority of current and potential
competitors of the Company are better capitalized, have greater name
recognition, and are better staffed than the Company.
No Dividends. The Company intends to retain all working capital
for the growth of the Company and, as a result, has not, and does not intend to,
pay any cash dividends within the foreseeable future.
Dependence on Current Management. The Company depends upon the
current management for the development and marketing of computer software
programs. In particular, the loss of Mehul J. Dave or P. Balasubramanian would
seriously hamper the operations and continued viability of the Company. In
addition, Messrs. Dave and Balasubramanian intend to divide their time between
the Company and InterConexus.com, and therefore will be unable to devote their
attention solely to the operations of the Company.
Financial Position of the Company. The Company will have a
continuing need for working capital in the future for the development of new
computer software programs; however, the management of the Company has no
definitive plans at this time for obtaining such working capital.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Forward-looking statements under the caption "Description of Business"
in this Annual Report on Form 10-KSB, as well as oral statements that may be
made by the officers, directors or employees of the Company acting on the
Company's behalf, are intended to be made pursuant
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to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. The words "believes", "expects" and "anticipates" and other similar
expressions which are predictions of or indicate future events and trends and
which do not relate solely to historical matters identify forward-looking
statements. Such forward-looking statements are subject to risks and
uncertainties which could cause actual results, performance, or achievements of
the Company to differ materially from anticipated future results, performance or
achievements expressed or implied by such forward-looking statements. Factors
that might cause such differences include, but are not limited to, the factors
discussed herein under the caption "Risk Factors."
Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release any revisions to these
forward-looking statements, which may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
ITEM 7. DESCRIPTION OF PROPERTY.
The Company is headquartered in approximately 11,000 square feet of
leased space at 2651 Warrenville Road, Suite 560, Downers Grove, Illinois. The
Company also leases office space in Munich, Germany, Bangalore, India and Hong
Kong.
ITEM 8. DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES.
Information with respect to directors and officers of the Company is
incorporated herein by reference to the information under the caption "Board of
Directors" in the Company's definitive proxy statement for its 2000 Regular
Meeting of Shareholders, as filed with the SEC (SEC File No. 0-28511).
ITEM 9. REMUNERATION OF DIRECTORS AND OFFICERS.
Information with respect to the renumeration of directors and officers
of the Company is incorporated herein by reference to the information under the
caption "Executive Compensation" in the Company's definitive proxy statement for
its 2000 Regular Meeting of Shareholders, as filed with the SEC (SEC File No.
0-28511).
ITEM 10. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITY HOLDERS.
Information with respect to security ownership in the Company is
incorporated herein by reference to the information contained under the caption
"Principal Shareholders" in the Company's definitive proxy statement for its
2000 Regular Meeting of Shareholders, as filed with the SEC (SEC File No.
0-28511).
ITEM 11. INTERESTS OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS.
Information with respect to interests of management of the Company and
others in certain transactions is incorporated herein by reference to the
information under the caption
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"Certain Transactions" in the Company's definitive proxy statement for its 2000
Regular Meeting of Shareholders, as filed with the SEC (SEC File No. 0-28511).
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
Since September 20, 1991, the Company's Common Stock has been quoted on
the NASD OTC Bulletin Board under the symbol "CAPI", except from October 8, 1999
through early May, 2000, when it was quoted on the electronic "pink sheets" of
the National Quotation Bureau, also under the symbol "CAPI". The following table
provides the quarterly high and low bids per share of Common Stock reported on
the pink sheets or the OTC Bulletin Board, as applicable. The following
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission, and may not represent actual transactions. No cash distributions
have been declared on the Common Stock. The Company has a June 30 fiscal year
end.
HIGH LOW
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FISCAL 1999
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First Quarter $.19 $.13
Second Quarter .40 .16
Third Quarter .70 .40
Fourth Quarter .69 .50
HIGH LOW
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FISCAL 2000
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First Quarter $.94 $.49
Second Quarter .50 .25
Third Quarter 2.00 .50
Fourth Quarter 2.00 1.01
As of June 1, 2000, there were 63 record holders of the Common Stock.
ITEM 2. LEGAL PROCEEDINGS.
None.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of the holders of the
Company's Common Stock during the fourth quarter of fiscal 2000.
11
<PAGE> 13
ITEM 5. COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Information with respect to compliance with Section 16(a) of the
Exchange Act is incorporated herein by reference to the information under the
caption "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Company's definitive proxy statement for its 2000 Regular Meeting of
Shareholders, as filed with the SEC (SEC File No. 0-28511).
ITEM 6. REPORTS ON FORM 8-K.
The Company filed a report on Form 8-K dated June 1, 2000, in
connection with the distribution by the Company to the holders of Common Stock
of all the common shares of InterConexus.com, Inc. then owned by the Company.
12
<PAGE> 14
PART F/S
The following financial statements of the Company are included herein:
AUDITED ANNUAL FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
(a) Independent Auditor's Report
(b) Consolidated Balance Sheets
(c) Consolidated Statements of Operations
(d) Consolidated Statements of Stockholders' Equity
(e) Consolidated Statements of Cash Flows
(f) Notes to Consolidated Financial Statements
13
<PAGE> 15
Independent Auditor's Report
To the Board of Directors of
Capri Corp.
Downers Grove, Illinois
We have audited the consolidated balance sheets of Capri Corp. and Subsidiary as
of June 30, 2000 and 1999, and the related consolidated statements of
operations, stockholders' equity and cash flows for the years then ended. 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.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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
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 financial position of Capri Corp. and
Subsidiary as of June 30, 2000 and 1999, and the results of their operations and
their cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ KLESMAN, HALPER & CO., P.C.
Palos Heights, Illinois
September 6, 2000
14
<PAGE> 16
Capri Corp. and Subsidiary
Consolidated Balance Sheets
June 30, 2000 and 1999
<TABLE>
<CAPTION>
Assets
2000 1999
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,767,872 $ 1,769,628
Trade receivables, net 1,907,195 2,083,508
Other current assets 72,275 33,671
----------- -----------
Total current assets 5,747,342 3,886,807
Fixed assets, net 582,655 293,415
Unamortized software development costs 773,802 638,288
Deferred income taxes 120,095 --
Other assets, net 134,610 98,000
----------- -----------
Total assets $ 7,358,504 $ 4,916,510
=========== ===========
Liabilities and stockholders' equity
Liabilities:
Current liabilities:
Accounts payable $ 313,941 $ 8,339
Accrued expenses 498,499 458,964
Deferred sales 986,831 204,000
Other current liabilities 952,806 516,469
----------- -----------
Total current liabilities 2,752,077 1,187,772
Non-current liabilities:
Deferred income taxes -- 207,534
----------- -----------
Total liabilities 2,752,077 1,395,306
----------- -----------
Stockholders' equity:
Common stock 129,081 122,853
Additional paid-in capital 1,307,010 1,197,538
Retained earnings 3,277,232 2,269,577
Other accumulated comprehensive income:
Foreign currency translation (106,896) (68,764)
----------- -----------
Total stockholders' equity 4,606,427 3,521,204
----------- -----------
Total liabilities and
stockholders' equity $ 7,358,504 $ 4,916,510
=========== ===========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
15
<PAGE> 17
Capri Corp. and Subsidiary
Consolidated Statements of Operations
Years Ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Sales revenue:
Software $ 4,205,243 $ 3,050,175
Software maintenance 1,691,886 1,314,761
Other 1,678,031 1,015,137
----------- -----------
Total sales revenue 7,575,160 5,380,073
Cost of sales 2,354,181 1,560,159
----------- -----------
Gross profit 5,220,979 3,819,914
Research and development expenses 269,116 380,723
Selling and marketing expenses 1,014,936 695,433
General and administrative expenses 1,946,190 1,419,370
----------- -----------
Operating income 1,990,737 1,324,388
----------- -----------
Other income (expense):
Interest income 111,098 81,194
Other income 21,158 --
Other expense (397,825) (19,439)
----------- -----------
Total other income (expense) (265,569) 61,755
----------- -----------
Income before income taxes 1,725,168 1,386,143
Income taxes 716,222 541,942
----------- -----------
Net income $ 1,008,946 $ 844,201
=========== ===========
Earnings per share:
Basic $ 0.08 $ 0.07
=========== ===========
Diluted $ 0.07 $ 0.06
=========== ===========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
16
<PAGE> 18
Capri Corp. and Subsidiary
Consolidated Statements of Stockholders' Equity
Years Ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
Additional Foreign
Common Paid-In Retained Currency
Total Stock Capital Earnings Translation
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1998 $ 2,693,314 $ 122,753 $ 1,197,238 $ 1,425,376 $ (52,053)
Comprehensive income:
Net income 844,201 -- -- 844,201 --
Other comprehensive
income:
Foreign currency
translation adjustment (16,711) -- -- -- (16,711)
----------- ----------- ----------- ----------- -----------
Total comprehensive
income 827,490 -- -- 844,201 (16,711)
Common stock issued 400 100 300 -- --
----------- ----------- ----------- ----------- -----------
Balance, June 30, 1999 3,521,204 122,853 1,197,538 2,269,577 (68,764)
Comprehensive income:
Net income 1,008,946 -- -- 1,008,946 --
Other comprehensive
income:
Foreign currency
translation adjustment (38,132) -- -- -- (38,132)
----------- ----------- ----------- ----------- -----------
Total comprehensive
income 970,814 -- -- 1,008,946 (38,132)
Common stock issued 115,700 6,228 109,472 -- --
Dividends paid (1,291) -- -- (1,291) --
----------- ----------- ----------- ----------- -----------
Balance, June 30, 2000 $ 4,606,427 $ 129,081 $ 1,307,010 $ 3,277,232 $ (106,896)
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
17
<PAGE> 19
Capri Corp. and Subsidiary
Consolidated Statements of Cash Flows
Years Ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,008,946 $ 844,201
----------- -----------
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 346,383 294,682
Loss provisions 451,723 123,869
Loss on sale or disposal of assets 10,000 4,626
Foreign currency translation adjustment (37,784) (15,932)
(Increase) decrease in:
Receivables 111,140 (436,993)
Unamortized software development costs (352,982) (409,000)
Other current assets (40,314) (10,640)
Other assets (note 13) (436,539) (60,000)
Increase (decrease) in:
Accounts payable 300,695 (50,932)
Deferred sales 782,831 (25,056)
Accrued expenses 36,567 244,962
Other current liabilities (4,999) 6,201
Accrued and deferred income taxes payable 124,014 176,942
----------- -----------
Total adjustments 1,290,735 (157,271)
----------- -----------
Net cash provided by operating activities 2,299,681 686,930
----------- -----------
Cash flows from investing activities:
Investment in other companies (11,291) (33,000)
Purchase of fixed assets (405,846) (110,369)
----------- -----------
Net cash used in investing activities (417,137) (143,369)
----------- -----------
Cash flows from financing activities:
Issuance of common stock 115,700 400
----------- -----------
Net cash provided by financing activities 115,700 400
----------- -----------
Net increase in cash and cash equivalents 1,998,244 543,961
Cash and cash equivalents, beginning of year 1,769,628 1,225,667
----------- -----------
Cash and cash equivalents, end of year $ 3,767,872 $ 1,769,628
=========== ===========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
18
<PAGE> 20
Capri Corp. and Subsidiary
Notes to Consolidated Financial Statements
Years Ended June 30, 2000 and 1999
Note 1. Summary of significant accounting policies
Principles of consolidation
The consolidated financial statements include the accounts of Capri
Corp. (the "Company") and its subsidiary, after eliminating material
intercompany balances and transactions. The subsidiary consists of
Cimnet Systems, Inc. and its three wholly-owned foreign subsidiaries -
Cimnet Informationssysteme GmbH, a corporation formed in Germany,
Cimnet Systems (I) Private Limited, a corporation formed in India and
Cimnet Systems Asia Pacific Limited, a corporation formed in Hong Kong.
Basis of accounting
The Company recognizes income and expense on the accrual basis for
financial reporting purposes.
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from the estimates.
Industry operations
The Company's subsidiaries are in the business of developing computer
software and then selling the license rights for the use of its
software product. In addition, the subsidiaries distribute computer
hardware and provide technical support and training for their software
product. The computer software is primarily designed for companies
engaged in the manufacture of printed circuit boards. The subsidiaries
grant credit to their customers who are located throughout the world.
Cash and cash equivalents
For purposes of the consolidated balance sheets and consolidated
statements of cash flows, the Company considers demand deposits,
eurodollar overnight time deposits, investments in various Federal
government agency notes and other corporate notes having maturities of
three months or less to be cash and cash equivalents. Cash and cash
equivalents at June 30, 2000 and 1999 consists of approximately
$3,290,000 and $1,000,000, respectively, which are held in eurodollar
overnight time deposits, Federal government agency notes and other
corporate notes. These amounts are recorded at amortized cost, which
approximates market value.
In addition, approximately $300,000 of the balance of cash and cash
equivalents is held in foreign bank accounts.
19
<PAGE> 21
Capri Corp. and Subsidiary
Notes to Consolidated Financial Statements
Years Ended June 30, 2000 and 1999
Note 1. Summary of significant accounting policies (continued)
Trade receivables
An allowance for doubtful accounts is established, through a provision
charged to expense, when management believes that the collectibility of
an account receivable is unlikely. The allowance for doubtful accounts
amounts to $45,037 in 2000 and $192,639 in 1999.
Software development costs
The Company accounts for its software development costs in accordance
with Statement of Financial Accounting Standards (SFAS) No. 86,
"Accounting for the cost of computer software to be sold, leased, or
marketed". Initial costs are charged to operations as research and
development until such time as the Company has established
technological feasibility of the computer software product.
Technological feasibility is established when a product and detail
program design is complete, resources have been allocated to the
project, the detail program specifications are confirmed to be
consistent with the product design and the detail program design does
not contain any high risk development issues. Thereafter, the Company
capitalizes certain payroll costs, payroll related costs, outside
contracted services and costs to obtain certain third-party licenses
associated with the development of the software program.
Amortization of capitalized costs starts when the product is available
for general release to the public. The Company's policy is to amortize
capitalized costs by the greater of (a) the ratio that the current
gross revenue for a product bears to the total of current and
anticipated future gross revenues for that product, or (b) the
straight-line method over the remaining estimated economic life of the
product including the period being reported upon. Unamortized software
costs are carried at the lower of book value or the net realizable
value, as determined by management.
Fixed assets, net
Fixed assets are stated at cost less an allowance for depreciation.
Depreciation is computed using either the double-declining balance or
straight-line method for equipment, and the straight-line method for
purchased computer software, over the estimated useful lives of the
assets as indicated in the following tabulation:
Years
-----
Office equipment 5
Computer hardware 5
Computer software 4
Office furniture and fixtures 5-7
20
<PAGE> 22
Capri Corp. and Subsidiary
Notes to Consolidated Financial Statements
Years Ended June 30, 2000 and 1999
Note 1. Summary of significant accounting policies (continued)
Revenue recognition
The Company recognizes revenue from software using the provisions of
the American Institute of Certified Public Accountants (AICPA)
Statement of Position (SOP) 97-2, "Software Revenue Recognition" and
Statement of Position (SOP) 98-9, "Modification of SOP 97-2, Software
Revenue Recognition, With Respect to Certain Transactions". Under these
provisions, revenue from software sales is recognized when all of the
following criteria are met: pervasive evidence of an arrangement
exists, delivery of the software has occurred, the fee is fixed or
determinable, and collectibility is probable.
The Company has identified the elements that may exist within a sales
arrangement as software, software maintenance, hardware and services.
The Company uses vendor specific objective evidence ("VSOE") to
determine the fair value to assign to the software maintenance,
hardware and service elements when it exists within the sales
arrangement. VSOE is established by using the price the Company charges
other customers when the same element is sold separately. The Company
uses the residual method to determine the value of the sale arrangement
to assign to the software sale. Under this method, all other elements
within the sales arrangement are identified and valued using VSOE. The
total of all the identified elements are pulled-out of the total sales
arrangement value and the remaining amount is assigned to the software.
Revenue from software sales is recognized when the software is
delivered and has been installed onto the customer's computer. In the
event a customer is granted a right to return the software, recognition
of revenue is deferred until such time as the right to return expires.
Software maintenance is charged to the customer as an annual fee, based
on a predetermined percentage of the original software costs and is
recognized monthly, on a straight-line basis. Maintenance is usually
billed to the customer quarterly and continues to be provided to the
customer for as long as they pay for the maintenance.
Revenue from the sale of hardware and other services, such as
installation, implementation, training or customization is recognized
at the time the product or service is delivered.
Income taxes
Income taxes are provided for the tax effects of the transactions
reported in the consolidated financial statements, and consist of taxes
currently due plus deferred taxes related to differences between
financial and income tax reporting. The deferred tax assets and
liabilities represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets
and liabilities are recovered or settled.
21
<PAGE> 23
Capri Corp. and Subsidiary
Notes to Consolidated Financial Statements
Years Ended June 30, 2000 and 1999
Note 1. Summary of significant accounting policies (continued)
Foreign currency translation
Assets and liabilities of the foreign subsidiaries are translated at
the current exchange rate, and income statement items are translated at
the average exchange rate. Resulting translation adjustments are
recorded as a separate component of stockholders' equity.
Comprehensive income (loss)
As of July 1, 1999, the Company adopted SFAS 130, "Reporting
Comprehensive Income." SFAS 130 establishes standards for the reporting
and display of comprehensive net income and its components. However, it
has no impact on the net income or stockholders' equity as presented in
the consolidated financial statements. The only item of comprehensive
income (loss) that the Company currently reports is foreign currency
translation gain (loss). Comprehensive income for 1999 has been
presented for comparison purposes.
Reclassifications
Certain reclassifications of the 1999 balances have been made to
conform to the 2000 presentation. There was no impact on net income or
stockholders' equity.
Note 2. Unamortized software development costs
Changes in the unamortized software development costs for the years
ended June 30, 2000 and 1999 follows:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Balance, beginning of year $638,288 $442,000
Current year:
Total expenses 622,098 789,723
Less - research and development
costs 269,116 380,723
-------- --------
Net costs capitalized 352,982 409,000
-------- --------
Total amortizable cost available 991,270 851,000
Less - current year amortization 217,468 212,712
-------- --------
Balance, end of year $773,802 $638,288
======== ========
</TABLE>
In management's opinion, the net realizable value of future sales
exceeds the carrying value of the unamortized software development
costs, therefore, no adjustment to the carrying value is required.
Should the estimates of future gross revenues, the remaining estimated
economic life of the product, or both be reduced significantly in the
near term, the carrying amount of the capitalized software cost would
be reduced accordingly.
22
<PAGE> 24
Capri Corp. and Subsidiary
Notes to Consolidated Financial Statements
Years Ended June 30, 2000 and 1999
Note 3. Fixed assets, net
Fixed assets at June 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Office equipment $ 133,088 $ 80,437
Computer hardware and software 534,544 355,197
Office furniture and fixtures 295,399 110,018
--------- ---------
963,031 545,652
Accumulated depreciation (380,376) (252,237)
--------- ---------
$ 582,655 $ 293,415
========= =========
</TABLE>
Depreciation and amortization expense was $128,139 and $81,970 for the
years ended June 30, 2000 and 1999, respectively.
Note 4. Income taxes
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Income tax expense (benefit):
Current:
Federal $ 860,251 $ 374,214
State 213,872 86,768
Foreign 137,599 (5,390)
Deferred:
Federal (413,235) 69,870
State (82,265) 16,480
--------- ---------
$ 716,222 $ 541,942
========= =========
</TABLE>
A reconciliation of income taxes calculated using the Federal statutory
income tax rate of 34% to the income taxes as reported in the
consolidated statements of operations follows:
<TABLE>
<CAPTION>
% of % of
2000 pretax 1999 pretax
Amount income Amount income
------ ------ ------ ------
<S> <C> <C> <C> <C>
Income tax expense at the
Federal statutory rate $ 586,557 34.0 $ 471,288 34.0
State income tax, net of
Federal benefit 89,584 5.2 68,144 4.9
Change in deferred tax
valuation allowance 25,000 1.4 -- --
Other, net 15,081 .9 2,510 .2
--------- ---- --------- ----
$ 716,222 41.5% $ 541,942 39.1%
========= ==== ========= ====
</TABLE>
23
<PAGE> 25
Capri Corp. and Subsidiary
Notes to Consolidated Financial Statements
Years Ended June 30, 2000 and 1999
Note 4. Income taxes (continued)
Deferred income taxes are a result of the Company's recognition of
income and expense on the accrual basis for financial reporting
purposes and on the cash basis for income tax reporting purposes, the
differences related to the depreciation methods and lives used for
financial reporting and income tax reporting, and loss valuation
reserves. The components of the Company's net deferred tax liabilities
at June 30, 2000 and 1999 follows:
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Deferred tax assets:
Cash basis adjustments:
Accounts payable and
accrued expenses $ 277,508 $ 202,067
Deferred sales 407,562 84,254
Loss valuation reserve 159,645 -
Net operating loss 30,000 -
---------- ----------
874,715 286,321
---------- ----------
Deferred tax liabilities:
Cash basis adjustments:
Accounts receivable (727,830) (726,040)
Capitalized software (319,580) (263,613)
Other (4,236) (2,066)
Depreciation (41,556) (38,589)
---------- ----------
(1,093,202) (1,030,308)
---------- ----------
Deferred tax valuation
allowance (25,000) -
---------- ----------
Net deferred
tax liabilities $ (243,487) $ (743,987)
========== ==========
</TABLE>
The foreign subsidiaries of the Company's wholly-owned subsidiary have
net operating loss carryovers available to offset against their future
taxable income. At June 30, 2000, the approximate amounts of these net
operating losses available by country are as follows:
Germany $ 50,000
India 8,000
Hong Kong 110,000
---------
$ 168,000
=========
The net operating losses all have indefinite carryover periods for
which the net operating losses may be utilized. Management believes,
however, that portions of the net operating losses may not be utilized
and, accordingly, have provided a valuation allowance against those
benefits.
24
<PAGE> 26
Capri Corp. and Subsidiary
Notes to Consolidated Financial Statements
Years Ended June 30, 2000 and 1999
Note 5. Stockholders' equity
The Company's certificate of incorporation authorizes 20,000,000 shares
of common stock and 10,000,000 shares of undesignated stock, each with
a par value of $.01. As of June 30, 2000 and 1999, there were
12,908,091 and 12,285,257 shares of common stock issued, respectively.
There were no shares of undesignated stock issued as of June 30, 2000
and 1999.
Note 6. Operating leases
The Company has entered into long-term operating leases for two of its
office facilities. Approximate minimum future lease payments under
these leases are as follows:
June 30,
2001 $ 166,000
2002 178,200
2003 155,500
2004 157,800
2005 160,200
2006 and thereafter 341,400
-----------
$ 1,159,100
===========
In addition, the Company is leasing two other office facilities on a
month-to-month basis.
Total rental expense for operating leases was approximately $121,000
and $111,000 for the years ended June 30, 2000 and 1999, respectively.
Note 7. Profit sharing plan
Cimnet Systems, Inc. has a qualified profit sharing retirement plan
with a 401(k) deferred compensation provision for all of its eligible
US employees. The Plan also provides for discretionary employer profit
sharing contributions as determined annually by the Company's Board of
Directors. Contributions charged to operations for the Plan amounted to
approximately $ 65,000 for 2000 and $41,000 for 1999.
Note 8. Other cash flow information
Income taxes paid during the years ended June 30, 2000 and 1999 were
$592,760 and $365,000, respectively. There were no cash payments for
interest during 2000 or 1999.
25
<PAGE> 27
Capri Corp. and Subsidiary
Notes to Consolidated Financial Statements
Years Ended June 30, 2000 and 1999
Note 9. Common stock option plan
The Company adopted an incentive and nonqualified stock option plan for
certain directors and employees beginning on October 1, 1995. The
incentive stock option plan is intended to qualify under Section 422 of
the Internal Revenue Code. Under the terms of the plan, options to
purchase common stock are granted at prices not less than the estimated
fair market value at the date of the grant and are exercisable during
specified future periods.
A summary of the stock option plan transactions is as follows:
<TABLE>
<CAPTION>
Price per share
------------------------
Number of Weighted
shares Range average
--------- ---------- -----------
<S> <C> <C> <C>
Balance, June 30, 1998 635,000 $0.04-0.35 $ 0.1319
Granted 135,834 0.35-0.60 0.3699
Exercised (10,000) 0.04 0.0400
Cancelled or expired -- -- --
-------
Balance, June 30, 1999 760,834 0.04-0.60 0.1761
Granted 576,667 0.60 0.6000
Exercised (622,834) 0.04-0.60 0.1858
Cancelled or expired -- -- --
-------
Balance, June 30, 2000 714,667 0.35-0.60 0.5097
=======
</TABLE>
The following table summarizes information about the stock options
outstanding at June 30, 2000:
<TABLE>
<CAPTION>
Outstanding options Exercisable options
----------------------------- --------------------
Remaining Weighted Weighted
Range of Number life average Number average
exercise prices of shares (in years) price of shares price
--------------- -------------------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
$0.035 258,000 2.50 $ 0.35 139,000 $ 0.35
0.600 456,667 4.31 0.60 16,667 0.60
</TABLE>
The Company follows Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" to account for the stock
option plan. Accordingly, compensation costs are not recorded in the
financial statements when stock options are granted to employees since
the exercise price of the options are not less than the estimated fair
market value of the stock when the options are granted.
An alternative method of accounting for stock options is Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation". Under SFAS 123, employee stock options are
valued at the grant date using the Black-Scholes valuation model and
the value of the stock options are recognized ratably over the vesting
period as compensation cost. Pro forma information follows to reflect
the effect this method would have on net income and earnings per share
had SFAS 123 been adopted. The values of stock options granted in both
years were estimated using the
26
<PAGE> 28
Capri Corp. and Subsidiary
Notes to Consolidated Financial Statements
Years Ended June 30, 2000 and 1999
Note 9. Common stock option plan (continued)
assumptions of an expected life of five years, no dividends, volatility
of .30 and a discounted interest rate of 9.0% (8.0% in 1999).
<TABLE>
<CAPTION>
2000 1999
------------- -----------
<S> <C> <C>
Net income:
As reported $ 1,088,946 $ 844,201
Pro forma $ 985,946 $ 838,523
Basic earnings per share:
As reported $ 0.08 $ 0.07
Pro forma $ 0.08 $ 0.07
Diluted earnings per shares:
As reported $ 0.07 $ 0.06
Pro forma $ 0.07 $ 0.06
</TABLE>
The weighted average fair value of options granted during 2000 and 1999
was approximately $0.18 and $0.05 per share, respectively.
Note 10. Available line of credit
The Company entered into a revolving credit agreement with American
National Bank and Trust Company of Chicago, dated October 30, 1999,
which provides an open line of credit of up to five hundred thousand
dollars ($500,000). This line of credit, which expires on October 30,
2000, provides for interest at one percent over the published prime
rate of the bank on funds used, and is secured by the assets of the
Company and its domestic subsidiary. As of June 30, 2000, the Company
has utilized $160,000 of the line in the form of an irrevocable letter
of credit issued as security against tenant improvements to the
Company's new headquarters location. Assuming no events of default
occur, the letter of credit automatically reduces by $40,000 every six
months, and fully expires in 2002.
Note 11. Earnings per share
A reconciliation of net income and shares outstanding relating to the
calculation of basic and diluted earnings per share follows:
<TABLE>
<CAPTION>
Per-share
Income Shares amount
---------- ---------- ----------
<S> <C> <C> <C>
For the year ended June 30, 2000:
Basic earnings per share $1,088,946 12,379,109 $0.08
=====
Effect of Dilutive Securities:
Stock option plan -- 1,137,786
---------- ----------
Diluted earnings per share $1,088,946 13,516,895 $0.07
========== ========== =====
</TABLE>
27
<PAGE> 29
Capri Corp. and Subsidiary
Notes to Consolidated Financial Statements
Years Ended June 30, 2000 and 1999
Note 11. Earnings per share (continued)
<TABLE>
<CAPTION>
Per-share
Income Shares amount
---------- ---------- ----------
<S> <C> <C> <C>
For the year ended June 30, 1999:
Basic earnings per share $ 844,201 12,279,449 $0.07
=====
Effect of Dilutive Securities:
Stock option plan -- 766,642
----------- ----------
Diluted earnings per share $ 844,201 13,046,091 $0.06
=========== ========== =====
</TABLE>
Note 12. Operating segments and enterprise-wide information
The Company has adopted Statement of Financial Accounting Standards
(SFAS) No. 131, "Disclosures about Segments of an Enterprise and
Related Information". The Company's chief operating decision-makers
recognize that all revenue sources are dependent on the sale of its
software product, Paradigm(R). Accordingly, the Company considers it
has only one business segment.
The Company does however operate in multiple, geographic areas. Net
revenue, by geographic areas follows:
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
U.S. $ 3,361,357 $ 2,815,162
Europe 1,998,091 690,512
Asia 1,978,777 1,222,669
Other countries 236,935 651,730
----------- -----------
$ 7,575,160 $ 5,380,073
=========== ===========
</TABLE>
During the year ended June 30, 2000, the Company recorded sales to two
(2) customers that amounted to more than 10% of the Company's total
sales. Sales to these customers were approximately $2,900,000 during
the year and the accounts receivable balance for these customers was
approximately $109,000 at June 30, 2000.
During the year ended June 30, 1999, the Company recorded sales to one
customer that amounted to more than 10% of the Company's total sales.
Sales to this customer were approximately $883,000 during the year and
the accounts receivable balance for the customer was approximately
$308,000 at June 30, 1999.
The sale of an extensive software system to a specific customer
generally is nonrecurring and, accordingly, management does not believe
that the Company is dependent on any one customer.
28
<PAGE> 30
Capri Corp. and Subsidiary
Notes to Consolidated Financial Statements
Years Ended June 30, 2000 and 1999
Note 13. Transactions with InterConexus.com, Inc.
In March 2000 the Company formed a wholly-owned subsidiary,
InterConexus.com, Inc. ("ICC"). At the same time, the Company sought to
register the common stock of ICC under the provisions of section 12(g)
of the Securities Exchange Act of 1934. The registration statement
became effective on May 31, 2000. On May 18, 2000 the Company declared
a distribution of all the issued and outstanding shares of ICC common
stock to the Company's stockholders of record on May 30, 2000, payable
on June 1, 2000, through a taxable spin-off. The distribution was on
the basis of one share of ICC for each share of the Company's common
stock held on the record date.
During the year, Capri invested $11,291 and received 12,908,091 shares
of ICC common stock with a par value $.0001. At the spin-off date, the
Board of Directors declared the dividend value to be $.0001 per share.
Accordingly, the Company recorded a charge to operations of $10,000 to
adjust its investment to the value of the declared dividend of $1,291.
Related Party Transactions with ICC
The Company and ICC have common members of their respective Board of
Directors.
For the purpose of governing certain ongoing relationships between the
Company and ICC after the spin-off, the Company's domestic subsidiary,
Cimnet Systems, Inc. ("Cimnet"), and ICC have entered into a services
agreement and adopted certain policies as follows:
The services agreement enables either company to provide certain
services to the other on an as-needed basis, at cost. The services
provided under this agreement include, but are not limited to,
accounting services, computer services, insurance coverage, payroll
processing services and management of employee benefits programs, or
any other similar services. The agreement does not preclude either
party from obtaining these services from unrelated third parties or
from developing their own in-house capabilities.
Cimnet has agreed to share office space with ICC and allocates to ICC
its pro rata share of rent, common area maintenance charges and other
costs and expenses under Cimnet's lease for ICC occupied office space.
During the year ended June 30, 2000, Cimnet billed ICC $434,672 for
services under this agreement and utilized no services from ICC. ICC is
currently in the development stage of its operations. Accordingly, the
Company has recorded a reserve against those billings, through a charge
to operations, in the amount of $386,550 representing the balance ICC
owes Cimnet, net of amounts due ICC from a third party, which
management believes are fully collectible and are payable to Cimnet on
receipt by ICC. This charge is reflected in other expenses in the
accompanying consolidated statement of operations.
29
<PAGE> 31
PART III
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
2.1 Articles of Incorporation of Capri Corp. [Incorporated by
reference to Exhibit (2)(a) to the Company's Form 1-A (SEC File
No. 24-C-4467)]
2.2 Bylaws of Capri Corp. [Incorporated by reference to Exhibit
(2)(b) to the Company's Form 1-A (SEC File No. 24-C-4467)]
3.1 Specimen Certificate for Common Stock [Incorporated by reference
to Exhibit (3) to the Company's Form 1-A (SEC File No.
24-C-4467)]
6.1 Stock Option Plan of Capri Corp. [Incorporated by reference to
Exhibit 6.1 to the Company's Registration Statement on Form 10-SB
(SEC File No. 0-28511)]
6.2 Mehul J. Dave Employment Agreement [Incorporated by reference to
Exhibit 6.2 to the Company's Registration Statement on Form 10-SB
(SEC File No. 0-28511)]
6.3 P. Balasubramanian Employment Agreement [Incorporated by
reference to Exhibit 6.3 to the Company's Registration Statement
on Form 10-SB (SEC File No. 0-28511)]
6.4 David L. Harris Employment Agreement [Incorporated by reference
to Exhibit 6.4 to the Company's Registration Statement on Form
10-SB (SEC File No. 0-28511)]
6.5 Schedule A to Mehul J. Dave Employment Agreement
6.6 Schedule A to P Balasubramanian Employment
6.7 Promissory Note (Secured) by and among American National Bank and
Trust of Chicago, Capri Corp. and Cimnet dated October 30, 1999
[Incorporated by reference to Exhibit 6.5 to the Company's
Registration Statement on Form 10-SB (SEC File No. 0-28511)]
6.8 Amendment to Stock Option Plan of Capri Corp. [Incorporated by
reference to Exhibit 6.6 to the Company's Registration Statement
on Form 10-SB (SEC File No. 0-28511)]
10.1 Consent of Klesman, Halper & Co., P.C.
21.1 Subsidiaries of the Registrant
24.1 Power of Attorney
27.1 Financial Data Schedule
30
<PAGE> 32
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: September 26, 2000 CAPRI CORP.
By: /s/ Mehul J. Dave
------------------------------
Name: Mehul J. Dave
Title: Chairman of the Board,
President and Chief
Executive Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Mehul J. Dave* Director, Chairman of the Board, President and September 26, 2000
Chief Executive Officer (Principal Executive,
Financial and Accounting Officer)
P. Balasubramanian* Director, Executive Vice President, Secretary September 26, 2000
and Treasurer
Robert W. Heller* Director September 26, 2000
Thomas Mueller* Director September 26, 2000
Jason W. Levin* Director September 26, 2000
------------
*By: /s/ Mehul J. Dave Individually and as Attorney-in-Fact September 26, 2000
---------------------------
Name: Mehul J. Dave
</TABLE>
31
