<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
FORM 10-SB
AMENDMENT NO. 2
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b)
OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
CAPRI CORP.
(Name of Small Business Issuer in Its Charter)
MINNESOTA 41-1704533
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2301 WEST 22ND STREET, SUITE 203, OAK BROOK, ILLINOIS 60523
(Address of Principal Executive Offices) (Zip Code)
(630) 645-0145
Issuer's Telephone Number
Securities to be registered pursuant to Section 12(b) of the Act:
None
(Title of Class)
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value per share
<PAGE> 2
PART I
The Issuer has elected to follow Form 10-SB, 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 Registration Statement, the term "Company"
is used to refer collectively to Capri Corp., Cimnet and Cimnet's subsidiaries.
Capri Corp.'s common stock is currently quoted on the electronic "Pink
Sheets" of the National Quotation Bureau and, upon the effectiveness of this
Registration Statement, Capri Corp. intends to apply to have its common stock
quoted on the NASD OTC Bulletin Board, where it was quoted prior to October,
1999.
The Company's principal executive offices are located at 2301 West 22nd
Street, Suite 203, Oak Brook, Illinois 60523, its telephone number is (630)
645-0145 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")
- Production Control Delivery Performance
- Master Scheduling - Cycle-Time Performance
- Financial Control - Plant Maintenance
- Intelligent Engineering - Statistical Process Control
- Report Generation - EDI (Electronic Data
- Executive Information System Interchange) Interface
- Bar Coding and Data Collection - RFQ (Request For Quotation)
Interface
- Shop Floor Monitor
- 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 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, 1999 and June 30, 1998, the Company invested approximately
$739,000 and $524,000, respectively, in research and development activities, of
which approximately $380,000 and $227,000, respectively, were charged to
expense. The remaining balances of $359,000 and $297,000, 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 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.
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The Company's principal assets are cash and accounts receivable, which
are in turn used to fund payroll and growth. During the fiscal year ended June
30, 1999, and continuing into the current fiscal year, the Company has 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 has established subsidiaries in India and Hong
Kong in order to provide a more focused approach to customer service in the
Pacific Rim countries. Additionally, the Company has 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 is currently negotiating a Japanese
distributorship relationship, the terms of which have yet to be agreed upon. The
Company expects to recognize revenues, which will be limited to the amount the
Company can charge the distributor under the terms of a distributor agreement
currently under consideration, when the distributor finalizes a sale with its
customer.
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 current
fiscal year, the Company has begun 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
March 14, 2000, the Company has utilized $160,000 of the line in the form of an
irrevocable letter of credit issued as security against renovations to the
Company's new headquarters location, as described in Item 7. Assuming no events
of default occur, the letter automatically reduces by $40,000 every six months,
and fully expires in 2002.
EMPLOYEES AND LABOR RELATIONS. As of June 30, 1999, the Company had 33
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, 1999 and none are expected in the fiscal year ending June 30, 2000.
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<PAGE> 7
CUSTOMERS. Current customers of the Company include several of the
largest PCB producers in the world today.
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.
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 48% and 50%
of the Company's revenues in 1999 and 1998, 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.
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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 India Private Limited.
This office will be the base for future growth within the Pacific Rim. In
addition to providing a direct presence in the Asian market, India offers a
highly talented workforce at a lower cost. 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.
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.
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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 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.
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.
ITEM 7. DESCRIPTION OF PROPERTY.
The Company is headquartered in approximately 5300 square feet of
leased space at 2301 West 22nd Street, Suite 203, Oak Brook, Illinois. The
Company has entered into a lease for approximately 9000 square feet of office
space in Downers Grove, Illinois where the Company plans to relocate its
headquarters during the second calendar quarter of 2000. The Company also leases
office space in Munich, Germany, Bangalore, India and Hong Kong.
ITEM 8. DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES.
Below are the names, ages, positions with the Company and business
experience for the last five years of the executive officers and directors of
Capri Corp.
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<TABLE>
<CAPTION>
NAME POSITION AGE
---- -------- ---
<S> <C> <C>
Mehul J. Dave President and Chairman of the Board of Directors 44
P. Balasubramanian Executive Vice President, Secretary, Treasurer and 43
Director
David L. Harris Vice President (Cimnet) 57
Robert W. Heller Director 53
Thomas Mueller Director 58
Jason W. Levin Director 41
</TABLE>
MEHUL J. DAVE, Director, Chairman of the Board and President of the
Company, from 1992 to present and President and Chief Executive Officer of
Cimnet from 1988 to present. Mr. Dave holds a Masters Degree in Environmental
Systems from Governors State University, a Bachelors Degree in Mechanical
Engineering from Illinois Institute of Technology, and has completed coursework
towards a Ph.D. in Space Physics at the University of Michigan. Mr. Dave is
responsible for the overall operation of the Company including product
development, marketing and sales, financing and accounting and administration.
P. BALASUBRAMANIAN, Director, Executive Vice President, Secretary and
Treasurer of Company, from 1992 to present; Vice President of Software
Engineering of Cimnet, from 1988 to present. Mr. Balasubramanian holds a Masters
Degree in Computer Science from Illinois Institute of Technology and a Bachelors
Degree in Mechanical Engineering from Annamalai University. Mr. Balasubramanian
is responsible for the development staff of software engineers of Cimnet.
DAVID L. HARRIS, Vice President-Marketing, Sales and Services of
Cimnet. Mr. Harris has been employed by the Company since 1998. From 1997 to
1998, Mr. Harris was a principal and owner of DLH & Associates, a consulting
firm to the semiconductor, PWB and capital equipment industries. From 1995 to
1997, Mr. Harris was Vice President- Sales, Marketing and Services of Semitool,
Inc, a seller of capital equipment to the semiconductor industry, and from 1983
to 1995, Mr. Harris was a General Manager in WR Grace's photopolymer systems
business. Mr. Harris holds a Bachelor's Degree in Marketing and Economics from
the University of Maryland and a Certificate in Business Management from MIT's
Greater Boston Executive Program.
ROBERT W. HELLER, Director of the Company, September, 1996 to present.
Mr. Heller is currently an independent consultant. From 1998 to 1999, Mr. Heller
was Vice President of Operations at Fieldworks, Inc. From 1996 to 1997, Mr.
Heller was Chief Executive Officer of MiTech R&D Inc., and was Chief Executive
Officer of Advance Circuits Inc. from 1994 to 1995. Mr. Heller holds a Masters
Degree in Industrial Engineering from North Dakota State University and a
Bachelors Degree in Industrial Administration from Purdue University.
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THOMAS MUELLER, Director of the Company, 1997 to present. Mr. Mueller
has been Vice President of Finance since 1995 of Help/Systems, a manufacturer of
operations automation software for the IBM AS/400 computer. Mr. Mueller is a
Certified Public Accountant and a member of the American Institute of Certified
Public Accountants and Minnesota Society of Certified Public Accountants. Mr.
Mueller holds a Bachelors Degree in Accounting from the University of Minnesota.
JASON W. LEVIN, Director of the Company, 1997 to present. Mr. Levin has
been a partner in the law firm of Piper Marbury Rudnick & Wolfe, counsel to the
Company, from 1998 to present and a partner in the law firm of Fagel & Haber,
from 1989 to 1998. Mr. Levin is a director of Strube Celery and Vegetable
Company, a corporation engaged in the wholesale distribution of fresh fruits and
vegetables in the Midwestern United States, and a member of the Board of
Managers of the Logan Square Club of the Boys and Girls Club of Chicago. Mr.
Levin holds a Bachelor of Science Degree in Finance and a Juris Doctor degree
from Indiana University.
Each of the Company's directors were appointed to serve as directors on
May 6, 1999, and each will hold office until the next annual meeting of
shareholders. No director has resigned since May 6, 1999 and no director has
declined to stand for re-election in 2000. Each of the Company's executive
officers were elected on May 6, 1999, and each will hold office until the next
annual board of directors meeting. The term of office of each director expires
at each annual meeting of shareholders and upon the election and qualification
of his successor. Except for Messrs. Dave, Balasubramanian, and Harris, who are
subject to contracts of employment with the Company, there are no arrangements
with any director or officer regarding any election or appointment to any office
of the Company.
There are no family relationship between any director or executive
officer of the Company. No director, executive officer or significant employee
of the Company, during the prior five years, (i) has filed a petition under the
Bankruptcy Act or any State insolvency law or has had the same filed against
him, or has had a receiver, fiscal agent or similar officer appointed by a court
for the business or property of such person, or any partnership in which he was
a general partner at or within two years before the time of such filing, or any
corporation or business association of which he was an executive officer at or
within two years before the time of such filing; or (ii) has been convicted in a
criminal proceeding.
ITEM 9. REMUNERATION OF DIRECTORS AND OFFICERS.
The following table sets forth (i) the aggregate remuneration of each
of the three highest paid persons who are officers or directors of the Company
during the Company's last fiscal year (the "Named Parties") and (ii) the
aggregate remuneration of all officers and directors of the Company as a group.
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<TABLE>
<CAPTION>
NAME OF INDIVIDUAL OR CAPACITIES IN WHICH AGGREGATE
IDENTITY OF GROUP REMUNERATION WAS RECEIVED REMUNERATION
- --------------------- ------------------------- ------------
<S> <C> <C>
Mehul J. Dave President $242,022
P. Balasubramanian Secretary/Treasurer $177,767
David L. Harris Vice President (Cimnet) $ 57,936
All Officers and
Directors as a
Group (6) $479,725
</TABLE>
The above table includes all cash remuneration and is presented on an
accrual basis. The Company also pays certain automobile expenses and life
insurance premiums for Messrs. Dave and Balasubramanian. Each of Messrs. Dave,
Balasubramanian and Harris has an employment agreement with the Company which
provides for a variable annual salary and bonus. All outside directors, except
Mr. Levin, receive $1,000 for each regular Board of Directors meeting attended
and $400 for each special Board of Directors Meeting attended.
ITEM 10. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITY HOLDERS.
(a) The following table sets forth information as to the record
ownership of the Company's Common Stock by the (i) Named Parties, (ii) the
officers and directors as a group and (iii) each person who owns more than 10%
or more of Capri Corp.'s Common Stock.
<TABLE>
<CAPTION>
NAME OF OWNER(1) AMOUNT OWNED PERCENT OF CLASS
- ------------- ------------ ----------------
<S> <C> <C>
Mehul J. Dave 4,745,000 38.6
P. Balasubramanian 1,375,000 11.2
All Officers and
Directors as a
Group (6) 6,592,000 53.6
</TABLE>
(1) The address of each of Messrs. Dave and Balasubramanian is 2301
West 22nd Street, Suite 203, Oak Brook, Illinois.
(b) The following table sets forth information as to options, warrants
and other rights to purchase Common Stock held by the Named Parties:
<TABLE>
<CAPTION>
AMOUNT OF COMMON
STOCK SUBJECT TO OPTIONS, EXERCISE PRICE
NAME OF OWNER WARRANTS OR RIGHTS PER SHARE
- ------------- ------------------------ --------------
<S> <C> <C>
Mehul J. Dave 100,000 $0.044
P. Balasubramanian 150,000 $0.044
David L. Harris 300,000(1) $0.600
</TABLE>
(1) 75,000 currently exercisable. The remaining 225,000 options vest
in 3 equal annual installments.
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ITEM 11. INTERESTS OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS.
Jason W. Levin, a director of the Company, is a partner in the law firm
of Piper Marbury Rudnick & Wolfe, counsel to the Company. With the exception of
Mr. Levin's indirect interest, during the last two years, the Company has not
engaged in any material transaction, and there is no presently proposed
transaction, in which any director, officer or principal security holder of the
Company, any nominee for election as a director of the Company, any director or
officer of any subsidiary of the Company, or any relative or spouse of any of
the foregoing, had or is anticipated to have a direct or indirect material
interest.
ITEM 12. SECURITIES BEING REGISTERED.
Common Stock is the only class of shares of the Company currently
authorized. The following sets forth certain material terms of the Common Stock.
VOTING RIGHTS. The holder of a share of Common Stock is entitled to one
vote for all purposes. Cumulative voting is not permitted in the election of
directors. Accordingly, the holders of more than 50% of all of the outstanding
shares of Common Stock may elect all of the directors. Significant corporate
transactions such as amendments to the Certificate of Incorporation, mergers,
sale of assets and dissolution or liquidation of the Company requires the
approval by the affirmative vote of the holders of at least a majority the
outstanding shares of Common Stock. Other matters to be voted upon by the
holders of Common Stock normally require the affirmative vote of a majority of
the shares present at the particular shareholders meeting.
DIVIDEND RIGHTS. The holder of a share of Common Stock is entitled to
participate pro rata in dividends paid by the Company, which may be declared,
from time to time, by the Board of Directors out of funds of the Company legally
available for the payment of dividends. The declaration in the future of any
cash or stock dividends will be at the discretion of the Board of Directors and
will depend upon the earnings, capital requirements, and financial position of
the Company, general economic conditions, and other pertinent factors. There is
no assurance that any dividends will be paid in the near future as the Company
has no present plans to pay dividends. Receipt of dividends may also be subject
to claims of any preferred stock issued by Capri Corp. Capri Corp. is presently
not authorized to issue preferred stock and has no present plans to obtain such
authorization.
12
<PAGE> 14
LIQUIDATION RIGHTS. Each share of Common Stock shares pro rata with
each other share of Common Stock in any distribution in any liquidation of the
Company. Such rights will be subject to the prior claims of creditors of the
Company.
PREEMPTIVE RIGHTS, CONVERSION RIGHTS, REDEMPTION PROVISIONS, SINKING
FUND PROVISION AND LIABILITY TO FURTHER CALLS AND ASSESSMENTS. There are no
preemptive or conversion rights, redemption provisions, or sinking fund
provisions relating to the Common Stock. All currently outstanding shares of
Common Stock are fully paid and nonassessable. The rights of holders of the
existing class of Common Stock may in the future become subject to prior and
superior rights and preferences in the event the Board of Directors establishes
one or more classes or series of capital stock of the Company. The Board of
Directors has no present plan to establish any such class or series.
13
<PAGE> 15
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND OTHER SHAREHOLDER MATTERS.
Since October 8, 1999, the Common Stock has been quoted on the
electronic "pink sheets" of the National Quotation Bureau under the symbol
"CAPI". From September 20, 1991 through October 7, 1999, the common stock was
quoted on the NASD OTC Bulletin Board, 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
distributions have been declared on the Common Stock. The Company has a June 30
fiscal year end.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL 1998
- -----------
First Quarter $.31 $.23
Second Quarter .31 .24
Third Quarter .27 .13
Fourth Quarter .31 .15
HIGH LOW
---- ---
FISCAL 1999
- -----------
First Quarter $.19 $.13
Second Quarter .40 .16
Third Quarter .70 .40
Fourth Quarter .69 .50
HIGH LOW
---- ---
FISCAL 2000
- -----------
First Quarter $.94 $.49
Second Quarter .50 .25
Third Quarter (through February 17, 2000) 1.75 .90
</TABLE>
As of October 31, 1999, the Company's transfer agent reported 316
record holders of the Common Stock.
ITEM 2. LEGAL PROCEEDINGS.
In September, 1999, the Company's wholly-owned subsidiary, Cimnet
Systems, Inc., received a letter on behalf of Cimnet, Inc., alleging Cimnet's
use of its tradename, Cimnet Systems, Inc., appeared to present a source of harm
to Cimnet, Inc. While Cimnet is still investigating the allegation of Cimnet,
Inc., Cimnet believes it has superior rights in its tradename, Cimnet Systems,
Inc., to those rights, if any, of Cimnet, Inc. To the Company's knowledge, no
legal process has been instituted by Cimnet, Inc. against Cimnet with respect to
this matter.
14
<PAGE> 16
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
During the last three year period, the following unregistered sales of
Common Stock were made by the Company. The following table sets forth the
individuals, the date purchased, and the number of shares. All transactions were
for exercised stock options. The Company relied on the exemptions provided by
Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act")
and Rule 701 promulgated under the Securities Act in making these unregistered
sales.
<TABLE>
<CAPTION>
DATE OF NUMBER EXERCISE PRICE PER
NAME EXERCISE OF SHARES PER SHARE
---- -------- --------- ------------------
<S> <C> <C> <C>
John Kim July, 1996 150,000 $0.04
Harish Padukone January, 1997 20,000 $0.04
Bryce Crapse August, 1997 30,000 $0.35
Harish Padukone January, 1999 10,000 $0.04
</TABLE>
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 302A.521 of the Minnesota Statutes permits indemnification of
officers and directors of domestic or foreign corporations under certain
circumstances and subject to certain limitations. Capri Corp.'s Certificate of
Incorporation and Bylaws contain provisions for indemnification of the Company's
directors, officers, and employees consistent with the provisions of Section
302A.521 of the Minnesota Statutes.
15
<PAGE> 17
PART F/S
The following financial statements of the Company are included herein:
AUDITED ANNUAL FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 1999
AND 1998
(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
UNAUDITED INTERIM FINANCIAL STATEMENTS
(a) Consolidated Balance Sheet for the Six Months ended December 31,
1999
(b) Consolidated Statements of Income for the Three Months and Six
Months ended December 31, 1999 and 1998
(c) Consolidated Statements of Stockholders' Equity for the Six Months
ended December 31, 1999 and 1998
(d) Consolidated Statements of Cash Flows for the Three and Six Months
ended December 31, 1999 and 1998
16
<PAGE> 18
Independent Auditor's Report
To the Board of Directors of
Capri Corp.
Oak Brook, Illinois
We have audited the consolidated balance sheets of Capri Corp. and Subsidiary as
of June 30, 1999 and 1998, 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 provides 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, 1999 and 1998, 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
August 20, 1999
<PAGE> 19
Capri Corp. and Subsidiary
Consolidated Balance Sheets
June 30, 1999 and 1998
<TABLE>
<CAPTION>
Assets
1999 1998
----------- -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,769,628 $ 1,225,667
Trade receivables, net of allowance
for doubtful accounts of $192,639
in 1999 and $123,244 in 1998 2,083,508 1,770,384
Other current assets 33,671 28,031
----------- -----------
Total current assets 3,886,807 3,024,082
Fixed assets, net 293,415 270,019
Unamortized software development costs 638,288 442,000
Other assets 98,000 --
----------- -----------
Total assets $ 4,916,510 $ 3,736,101
=========== ===========
Liabilities and stockholders' equity
Liabilities:
Current liabilities:
Accounts payable $ 8,339 $ 59,271
Accrued expenses 458,964 214,002
Customer advances and deferred sales 204,000 229,056
Other current liabilities 516,469 385,581
----------- -----------
Total current liabilities 1,187,772 887,910
Non-current liabilities:
Deferred income taxes 207,534 154,877
----------- -----------
Total liabilities 1,395,306 1,042,787
----------- -----------
Stockholders' equity:
Common stock 122,853 122,753
Additional paid-in capital 1,197,538 1,197,238
Retained earnings 2,269,577 1,425,376
Foreign currency translation (68,764) (52,053)
----------- -----------
Total stockholders' equity 3,521,204 2,693,314
----------- -----------
Total liabilities and
stockholders' equity $ 4,916,510 $ 3,736,101
=========== ===========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
<PAGE> 20
Capri Corp. and Subsidiary
Consolidated Statements of Operations
Years Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Sales revenue:
Hardware $ 198,240 $ 144,245
Software 3,050,175 1,409,078
Software maintenance 1,314,761 1,083,741
Other 816,897 359,145
----------- -----------
Total sales revenue 5,380,073 2,996,209
Cost of sales 1,940,882 1,190,867
----------- -----------
Gross profit 3,439,191 1,805,342
Selling and marketing expenses 695,433 532,974
General and administrative expenses 1,419,370 846,091
----------- -----------
Operating income 1,324,388 426,277
----------- -----------
Other income (expense):
Interest income 81,194 66,658
Other income (expense) (19,439) 7,292
----------- -----------
Total other income (expense) 61,755 73,950
----------- -----------
Income before income taxes 1,386,143 500,227
Income taxes 541,942 208,051
----------- -----------
Net income $ 844,201 $ 292,176
=========== ===========
Earnings per share:
Basic $ 0.07 $ 0.02
=========== ===========
Diluted $ 0.06 $ 0.02
=========== ===========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
<PAGE> 21
Capri Corp. and Subsidiary
Consolidated Statements of Stockholders' Equity
Years Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
Stock
----------------------- Additional Foreign
Common Paid-In Retained Currency
Shares Amount Capital Earnings Translation
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1997 12,225,257 $ 122,253 $1,186,438 $1,133,200 $ (40,379)
Net income -- -- -- 292,176 --
Translation adjustment resulting from
exchange rate changes and
intercompany transactions -- -- -- -- (11,674)
Common stock issued 50,000 500 10,800 -- --
---------- ---------- ---------- ---------- ----------
Balance, June 30, 1998 12,275,257 122,753 1,197,238 1,425,376 (52,053)
Net income -- -- -- 844,201 --
Translation adjustment resulting from
exchange rate changes and
intercompany transactions -- -- -- -- (16,711)
Common stock issued 10,000 100 300 -- --
---------- ---------- ---------- ---------- ----------
Balance, June 30, 1999 12,285,257 $ 122,853 $1,197,538 $2,269,577 $ (68,764)
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
<PAGE> 22
Capri Corp. and Subsidiary
Consolidated Statements of Cash Flows
Years Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 844,201 $ 292,176
----------- -----------
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 294,682 213,121
Provision for bad debts 123,869 159,198
Loss on sale or disposal of equipment 4,626 1,298
Foreign currency translation
adjustment (15,932) (11,071)
(Increase) decrease in:
Receivables (436,993) (842,594)
Unamortized software development
costs (409,000) (347,000)
Other current assets (10,640) (19,174)
Other assets (60,000) --
Increase (decrease) in:
Accounts payable (50,932) (49,480)
Deferred sales (25,056) 103,556
Accrued expenses 244,962 42,381
Other current liabilities 6,201 3,703
Accrued and deferred income
taxes payable 176,942 70,154
----------- -----------
Total adjustments (157,271) (675,908)
----------- -----------
Net cash provided by (used in)
operating activities 686,930 (383,732)
----------- -----------
Cash flows from investing activities:
Advance to India company (33,000) --
Purchase of fixed assets (110,369) (87,877)
----------- -----------
Net cash used in investing
activities (143,369) (87,877)
----------- -----------
Cash flows from financing activities:
Issuance of common stock 400 11,300
----------- -----------
Net cash provided by financing
activities 400 11,300
----------- -----------
Net increase (decrease) in cash
and cash equivalents 543,961 (460,309)
Cash and cash equivalents, beginning
of year 1,225,667 1,685,976
----------- -----------
Cash and cash equivalents, end of
year $ 1,769,628 $ 1,225,667
=========== ===========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
<PAGE> 23
Capri Corp. and Subsidiary
Notes to Consolidated Financial Statements
Years Ended June 30, 1999 and 1998
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 wholly-owned foreign subsidiary, Cimnet
Informationssysteme GmbH, a German corporation.
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 and
Eurodollar overnight and time deposits with maturities of three months
or less to be cash and cash equivalents.
At June 30, 1999, cash and cash equivalent deposits exceeded federally
insured limits by approximately $1,500,000. In addition, approximately
$118,000 of the balance of cash and cash equivalents is held in foreign
bank accounts.
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.
<PAGE> 24
Capri Corp. and Subsidiary
Notes to Consolidated Financial Statements
Years Ended June 30, 1999 and 1998
Note 1. Summary of significant accounting policies (continued)
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. 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 bear to the total of current and
anticipated future gross revenue 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 new realizable
value, as determined by management.
Fixed assets, net
Fixed assets are stated at cost less an allowance for depreciation,
which is computed using the double-declining balance and straight-line
methods 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 3-4
Office furniture and fixtures 7
Revenue recognition
Revenue is recognized when it is earned, net of any discounts granted
to the customer.
The Company recognizes revenue from its software using the provisions
of the American Institute of Certified Public Accountants (AICPA)
Statement of Position (SOP) 97-2, "Software Revenue Recognition".
Revenue from software sales is recognized when all of the following
elements are met: pervasive evidence of an arrangement exists, delivery
of the software has occurred, the fee is fixed or determinable and
collectibility is probable. 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.
<PAGE> 25
Capri Corp. and Subsidiary
Notes to Consolidated Financial Statements
Years Ended June 30, 1999 and 1998
Note 1. Summary of significant accounting policies (continued)
Software maintenance is provided to the customer through an open-end
contract, for as long as the customer pays for the maintenance.
Maintenance is usually billed to the customer quarterly in the amount
of a percentage of the original, undiscounted software price. Revenue
from software maintenance is recognized on a straight-line basis over
the period it covers.
Revenue from the sale of hardware and other services are recognized at
the time of delivery of the product or service. When the arrangement
with the customer includes other services such as installation,
implementation, training or customization, the Company allocates a
portion of the purchase price to these services, based on the fair
values of the services, and defers recognition of that portion of the
contract until such time as the services are rendered.
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.
Foreign currency translation
Assets and liabilities of the foreign subsidiary 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.
Note 2. Unamortized software development costs
Changes in the unamortized software development costs for the years
ended June 30, 1999 and 1998 follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Balance, beginning of year $442,000 $236,328
Current year:
Total expenses 789,723 574,499
Less - research and development
costs 380,723 227,499
-------- --------
Net costs capitalized 409,000 347,000
-------- --------
Total amortizable cost available 851,000 583,328
Less - current year amortization 212,712 141,328
-------- --------
Balance, end of year $638,288 $442,000
======== ========
</TABLE>
<PAGE> 26
Capri Corp. and Subsidiary
Notes to Consolidated Financial Statements
Years Ended June 30, 1999 and 1998
Note 2. Unamortized software development costs (continued)
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.
Note 3. Fixed assets, net
Fixed assets at June 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Office equipment $ 80,437 $ 74,946
Computer hardware and software 355,197 481,278
Office furniture and fixtures 110,018 110,018
--------- ---------
545,652 666,242
Accumulated depreciation (252,237) (396,223)
--------- ---------
$ 293,415 $ 270,019
========= =========
</TABLE>
Depreciation and amortization expense was $81,970 and $71,793 for the
years ended June 30, 1999 and 1998, respectively.
Note 4. Income taxes
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Income tax expense (benefit):
Current:
Federal $ 374,214 $ (62,001)
State 86,768 (11,033)
Foreign (5,390) --
Deferred:
Federal 69,870 232,264
State 16,480 48,821
--------- ---------
$ 541,942 $ 208,051
========= =========
</TABLE>
A reconciliation of income taxes calculated using the Federal statutory
income tax rate of 34% to the income taxes as reported on the
consolidated statements of operations follows:
<PAGE> 27
Capri Corp. and Subsidiary
Notes to Consolidated Financial Statements
Years Ended June 30, 1999 and 1998
Note 4. Income taxes (continued)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Income tax expense at the
Federal statutory rate $471,288 $170,077
State income tax, net of
Federal benefit 68,144 26,079
Other, net 2,510 11,895
-------- --------
$541,942 $208,051
======== ========
</TABLE>
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, and
the differences related to the depreciation methods and lives used for
financial reporting and income tax reporting. The components of the
Company's net deferred tax liabilities at June 30, 1999 and 1998
follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Cash basis adjustments $ 286,321 $ 214,800
----------- -----------
Deferred tax liabilities:
Cash basis adjustments (991,719) (843,026)
Depreciation (38,589) (29,412)
----------- -----------
Total deferred tax
liabilities (1,030,308) (872,438)
----------- -----------
Total net deferred
tax liabilities $ (743,987) $ (657,638)
=========== ===========
</TABLE>
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, 1999 and 1998, there were
12,285,257 and 12,275,257 shares of common stock issued, respectively.
There were no shares of undesignated stock issued as of June 30, 1999
and 1998.
Note 6. Operating leases
The Company has entered into operating leases for its office
facilities, and these leases are scheduled to expire in the coming
fiscal year. Total rental expense for the operating leases was $110,821
and $98,215 for the years ended June 30, 1999 and 1998, respectively.
There is approximately $78,000 of minimum rental payments remaining in
the next fiscal year under these operating leases.
<PAGE> 28
Capri Corp. and Subsidiary
Notes to Consolidated Financial Statements
Years Ended June 30, 1999 and 1998
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 401(k) portion of the Plan calls for employer
contributions of 50% of the amounts contributed by the employee,
limited to 3% of each eligible employee's wages. 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 $41,000 for 1999 and
$36,000 for 1998.
Note 8. Other cash flow information
Income taxes paid during the years ended June 30, 1999 and 1998 were
$365,000 and $137,851, respectively. There were no cash payments for
interest during 1999 or 1998.
Note 9. Common stock option plan
The Company adopted incentive and nonqualified stock option plans 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, 1997 639,000 $0.04-0.35 $ 0.1236
Granted 46,000 0.35 0.3500
Exercised (50,000) 0.04-0.35 0.2260
Cancelled or expired -- -- --
------- ---------- ----------
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
=======
</TABLE>
<PAGE> 29
Capri Corp. and Subsidiary
Notes to Consolidated Financial Statements
Years Ended June 30, 1999 and 1998
Note 9. Common stock option plan (continued)
The following table summarizes information about the stock options
outstanding at June 30, 1999:
<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>
$0.040 - 0.044 430,000 1.25 $ 0.04 430,000 $ 0.04
0.080 10,000 1.50 0.08 10,000 0.08
0.350 - 0.400 312,500 3.04 0.35 193,500 0.35
0.600 8,334 4.80 0.06 8,334 0.06
</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 assumptions of an expected life of five,
no dividends, volatility of .30 and a discounted interest rate of 8.0%.
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Net income:
As reported $ 844,201 $ 292,176
Pro forma $ 838,523 $ 290,256
Basic earnings per share:
As reported $ 0.07 $ 0.02
Pro forma $ 0.07 $ 0.02
Diluted earnings per shares:
As reported $ 0.06 $ 0.02
Pro forma $ 0.06 $ 0.02
</TABLE>
The weighted average fair value of options granted during 1999 and 1998
was approximately $0.05 and $0.02 per share, respectively.
<PAGE> 30
Capri Corp. and Subsidiary
Notes to Consolidated Financial Statements
Years Ended June 30, 1999 and 1998
Note 10. Available line of credit
At June 30, 1999, the Company had $150,000 of credit available under a
line of credit arrangement. Any amounts drawn against this line of
credit would require monthly payments of interest on the unpaid balance
at a rate of one percent over the bank's prime lending rate. The line
of credit is collateralized by the cash and cash equivalents of Cimnet
Systems, Inc., the Company's subsidiary, and is due on demand.
Note 11. Earnings per share
A reconcilation 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, 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
========== ========== =====
For the year ended June 30, 1998:
Basic earnings per share $ 292,176 12,257,065 $0.02
=====
Effect of Dilutive Securities:
Stock option plan -- 653,192
---------- ----------
Diluted earnings per share $ 292,176 12,910,257 $0.02
========== ========== =====
</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.
<PAGE> 31
Capri Corp. and Subsidiary
Notes to Consolidated Financial Statements
Years Ended June 30, 1999 and 1998
Note 12. Operating segments and enterprise-wide information (continued)
The Company does however operate in multiple, geographic areas. Net
revenue, by geographic areas follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
U.S. $2,815,162 $1,494,345
Europe 690,512 326,235
Asia 1,222,669 903,411
Other countries 651,730 272,218
---------- ----------
$5,380,073 $2,996,209
========== ==========
</TABLE>
For the year ended June 30, 1999, sales to a major customer amounting
to more that 10% of total sales was $883,000. The accounts receivable
balance for the major customer was $308,000 as of June 30, 1999. During
1998, sales to major customers were $380,000 and accounts receivable
balances to major customers were $513,000 as of June 30, 1998.
Note 13. Subsequent event
On July 3, 1999, the Company's subsidiary acquired all the common stock
of a company with operations similar to the Company's subsidiary and
located in Bangalore, India. The purchase price of the company's common
stock is immaterial to the consolidated financial statements. During
the year ended June 30, 1999, in anticipation of this acquisition, the
Company's subsidiary provided working capital to the India operation
totaling $33,050.
The Company's subsidiary purchased services from this company during
the year ended June 30, 1999 in the amount of approximately $40,000.
This amount has been reflected in cost of goods sold in the
accompanying statement of operations.
<PAGE> 32
Capri Corporation and Subsidiary
Consolidated Balance Sheet
December 31, 1999
(Unaudited)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,288,887
Accounts receivable, net 2,757,318
Other current assets 80,915
-----------
Total current assets 4,127,120
Unamortized software costs 725,288
Fixed assets, net 381,676
Other assets 77,072
-----------
Total assets $ 5,311,156
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Current Liabilities:
Accounts payable and accrued expenses $ 346,365
Deferred sales 74,805
Accrued and deferred income taxes 666,602
-----------
Total current liabilities 1,087,772
Non-current liabilities:
Accrued and deferred income taxes 169,587
-----------
Total liabilities 1,257,359
-----------
Stockholders' equity:
Common stock 122,853
Additional paid in capital 1,197,538
Retained earnings 2,815,763
Accumulated other comprehensive income:
Foreign currency translation adjustments (82,357)
-----------
Total stockholders' equity 4,053,797
-----------
Total liabilities and
stockholders' equity $ 5,311,156
===========
</TABLE>
<PAGE> 33
Capri Corporation and Subsidiary
Consolidated Statements of Operations
For the Three Months and Six Months Ended December 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------- --------------------------
1999 1998 1999 1998
------------------------- --------------------------
<S> <C> <C> <C> <C>
REVENUE:
Software sales $ 1,330,726 $ 903,960 $ 1,712,849 $ 1,690,799
Software maintenance 426,533 308,273 797,352 601,546
Other 316,781 317,483 695,634 557,733
----------- ----------- ----------- -----------
Total revenues 2,074,040 1,529,716 3,205,835 2,850,078
COST OF REVENUES 470,859 456,094 908,410 830,741
----------- ----------- ----------- -----------
Gross profit 1,603,181 1,073,622 2,297,425 2,019,337
OTHER OPERATING COST:
Research and development 144,516 94,015 232,142 178,989
Selling and marketing 234,209 140,929 452,562 276,602
General and administrative 421,595 407,147 741,084 680,054
----------- ----------- ----------- -----------
Operating income 802,861 431,531 871,637 883,692
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income 15,192 24,133 35,943 42,196
Other income/expense 1,622 (329) 1,584 (541)
----------- ----------- ----------- -----------
Total income (expense) 16,814 23,804 37,527 41,655
----------- ----------- ----------- -----------
Net income before income taxes 819,675 455,335 909,164 925,347
INCOME TAX EXPENSE 345,978 157,627 362,978 337,627
----------- ----------- ----------- -----------
Net income $ 473,697 $ 297,708 $ 546,186 $ 587,720
=========== =========== =========== ===========
Earnings per share:
Basic $ 0.03 $ 0.03 $ 0.04 $ 0.05
=========== =========== =========== ===========
Diluted $ 0.03 $ 0.03 $ 0.04 $ 0.05
=========== =========== =========== ===========
</TABLE>
<PAGE> 34
CAPRI CORPORATION AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
For the Six Months Ended December 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
FOREIGN
ADDITIONAL CURRENCY
COMMON PAID-IN RETAINED TRANSLATION
TOTAL STOCK CAPITAL EARNINGS ADJUSTMENTS
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, July 1, 1999 $ 3,521,204 $ 122,853 $ 1,197,538 $ 2,269,577 $ (68,764)
Comprehensive income:
Net income 546,186 -- -- 546,186 --
Other comprehensive income:
Foreign currency translation adjustment (13,593) -- -- -- (13,593)
----------- ----------- ----------- ----------- -----------
Total comprehensive income 532,593 -- -- 546,186 (13,593)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1999 $ 4,053,797 $ 122,853 $ 1,197,538 $ 2,815,763 $ (82,357)
=========== =========== =========== =========== ===========
Balance, July 1, 1998 $ 2,693,314 $ 122,753 $ 1,197,238 $ 1,425,376 $ (52,053)
Comprehensive income:
Net income 587,720 -- -- 587,720 --
Other comprehensive income:
Foreign currency translation adjustment 28,356 -- -- -- 28,356
----------- ----------- ----------- ----------- -----------
Total comprehensive income 616,076 -- -- 587,720 28,356
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 $ 3,309,390 $ 122,753 $ 1,197,238 $ 2,013,096 $ (23,697)
=========== =========== =========== =========== ===========
</TABLE>
<PAGE> 35
CAPRI CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
For Three Months and Six Months Ended December 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 473,697 $ 297,708 $ 546,186 $ 587,720
----------- ----------- ----------- -----------
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Depreciation and amortization 55,715 52,145 105,153 99,290
Provision for bad debt 6,000 6,000 12,000 12,000
Foreign currency translation
adjustment (25,268) (2,606) (13,593) 28,356
(Increase) decrease in:
Accounts receivables (782,543) (291,424) (685,810) (216,022)
Unamortized software
development costs (75,000) (70,000) (150,000) (140,000)
Other current assets (45,188) (19,333) (47,244) (42,405)
Other assets 20,928 -- 20,928 --
Increase (decrease) in:
Accounts payable and accrued expenses (16,198) 157,653 (130,842) 307,961
Deferred sales (12,414) -- (129,195) (229,056)
Accrued and deferred income
taxes payable 220,090 73,999 122,090 255,791
----------- ----------- ----------- -----------
Total adjustments (653,878) (93,566) (896,513) 75,915
----------- ----------- ----------- -----------
Net cash provided by
(used in) operating activities (180,181) 204,142 (350,327) 663,635
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (59,682) (42,080) (130,414) (72,510)
----------- ----------- ----------- -----------
Net cash used in investing activities (59,682) (42,080) (130,414) (72,510)
----------- ----------- ----------- -----------
Net increase (decrease) in cash
and cash equivalents (239,863) 162,062 (480,741) 591,125
CASH AND CASH EQUIVALENTS:
Beginning of period 1,528,750 1,654,730 1,769,628 1,225,667
----------- ----------- ----------- -----------
End of period $ 1,288,887 $ 1,816,792 $ 1,288,887 $ 1,816,792
=========== =========== =========== ===========
</TABLE>
<PAGE> 36
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.*
6.2 Mehul J. Dave Employment Agreement*
6.3 P. Balasubramanian Employment Agreement*
6.4 David L. Harris Employment Agreement*
6.5 Promissory Note (Secured) by and among American
National Bank and Trust of Chicago, Capri Corp. and
Cimnet dated October 30, 1999*
10.1 Consent of Klesman, Halper & Co., P.C.**
21.1 Subsidiaries of the Registrant*
27.1 Financial Data Schedule*
- --------------
* Previously filed.
** Filed herewith.
<PAGE> 37
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this Amendment to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
CAPRI CORP.
(Registrant)
Date: March 15, 2000 By: /s/ Mehul J. Dave
---------------------------------
Mehul J. Dave
Chairman of the Board, President
and Chief Executive Officer
<PAGE> 1
EXHIBIT 10.1
CONSENT OF ACCOUNTANT
We hereby consent to the use of our report dated August 20, 1999, on the
financial statements of Capri Corp. and Subsidiary for the years ended June 30,
1999 and 1998. Such report is being included in the Registration Statement
(Amendment No. 2 to Form 10-SB) of Capri Corp.
/s/ Klesman, Halper & Co., P.C.
Palos Heights, Illinois
March 15, 2000
