U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
Amendment No. 4 to
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b)
OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
CAPITAL DEVELOPMENT GROUP, INC.
-------------------------------
(Name of Small Business Issuer in Its Charter
Oregon 93-1113777
- ------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation organization) Identification no.)
4129 Main Street, Suite 100A, Riverside, CA 92501-3625
- ------------------------------------------- ----------
(Address of Principal Executive offices) (Zip Code)
(909) 276-0873
---------------------------
(Issuer's Telephone Number)
Securities to be registered under Section 12(b) of the Act:
----------------------------------------
(Title of Class)
----------------------------------------
(Title of Class)
Securities to be Registered under Section 12(g) of the Act:
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
------------------- ------------------------------
Common Stock NASDAQ OTC BBS
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<PAGE>
PART I
Forward-Looking Statements. This Registration Statement includes
"forward-looking statements." Forward looking statements contained in this
registration statement are based on our beliefs and assumptions and on
information currently available to us. Forward-looking statements include
statements in which words such as "expect, " "anticipate," "intend," "plan,"
"believe," "estimate," "consider," or similar expressions are used.
You should not construe any forward-looking statement as a guarantee of future
performance. These statements inherently involve risks, uncertainties and
assumptions. Our future results and stockholder values will differ from those
expressed in these forward-looking statements, and those variations may be
material and adverse. Many of the factors that will affect these results and
values are beyond our ability to control or predict.
ITEM 1. DESCRIPTION OF BUSINESS
(a) Business Development
Capital Development Group, Inc. ("CDG" or the "Registrant") is an
Oregon corporation incorporated on May 19, 1993. Its authorized capital
consists of 25,000,000 shares of common stock, of which 7,159,058
shares were issued and outstanding as of the effective date of this
Registration Statement (the "Effective Date"), and 1,000,000 shares of
preferred stock, of which no shares were issued and outstanding as of
the Effective Date. Shares of CDG common stock have traded on the
Nasdaq Stock Market - OTC Bulletin since September 1994 under the
symbol "CDVG."
CDG has never been the subject of a bankruptcy, receivership, or any
similar proceeding. However, in late 1998 and early 1999, we resolved
and settled claims with a majority of our creditors, in which the
aggregate value of the resolved claims was reduced from approximately
$460,000 to approximately $15,000 plus 144,600 shares of our common
stock. We were unable to locate creditors holding claims totaling, in
the aggregate, approximately $90,000 (with no individual claim larger
than $20,000). To our best knowledge, none of these latter creditors
have actively pursued their claims since 1995, and none have contacted
us since early 1996. Therefore, we do not plan to pursue the creditors
or pay any claims they might assert. Except as described above, we have
not been involved in any material reclassifications, mergers,
consolidations, or purchases or sales of significant amounts of assets
not in the ordinary course of business.
(b) Business of Issuer
CDG was formed to purchase medical accounts receivables ("MARs") from
healthcare providers at a discount and to collect the MARs from payers,
primarily including third party healthcare insurers and managed care
organizations. Healthcare providers are willing to sell MARs at a
discount primarily because of liquidity needs. Due to claims procedures
and coordination of benefits among various payers of health care
claims, MARs cannot typically be collected within a short time period.
This is particularly true for providers without collection expertise.
By selling their MARs to us, the providers eliminate the negative cash
flow effects of the long collection period, and simultaneously
relinquish the challenges associated with collection. For those
providers who are not concerned with collection time, but wish to
delegate the collection challenges, we also may accept engagement as a
collection manager to collect MARs on behalf of healthcare providers.
<PAGE>
CDG owns a proprietary, custom software package called Administrator I
that tracks and facilitates the collection each MAR. Although we have
not yet purchased any MARs, we have tested Administrator I successfully
on MARs owned by third parties. Moreover, we granted a non-exclusive
license of Administrator I to Medcap, Inc. in 1994, and Medcap used
Administrator I in 1994 and 1995 to collect at least 1,000 claims per
month. We also have received a licensing commitment (described below)
from Vahl Software Group ("VSG") for Administrator II, which is a new
software package that is functionally similar to Administrator I but,
we believe, will be more flexible and easier to use. VSG is an assumed
business name of Michael Vahl, the majority owner and President of CDG,
and the person from whom we originally licensed our rights to
Administrator I in 1994. The license agreement for Administrator II
will require us to pay VSG a royalty of $0.25 (twenty-five cents) for
each MAR we process through Administrator II.
We plan to market our concepts and services to healthcare providers
interested in selling MARs or hiring a collection manager for their
MARs. We also expect to attract a diverse portfolio of MARs by
acquiring receivables from a variety of healthcare providers, including
physician groups, ancillary service providers, hospitals, and other
providers. We plan to contact healthcare providers by paying
commissions to independent brokers for locating providers with whom we
ultimately contract to provide collection services. Each broker's
commission will be negotiated, depending in large part on the volume of
MARs generated by the broker, but commissions will generally range from
1% to 3% of the amount of revenue generated by CDG from MARs that are
acquired through the broker. We have contacted a number of brokers who
have relationships with healthcare providers or with access to
information about healthcare providers, but we have not yet reached
agreement with any brokers regarding brokerage services or commissions.
CDG anticipates entering into the necessary relationships during
calendar year 1999. To promote our diversification strategy, we hope to
enter into agreements with a large number of brokers, thereby
minimizing dependence on any individual broker.
The price at which we purchase the MARs from providers is based on our
assessment of the amount of time and expertise needed to collect the
MARs. The typical discounted purchase price ranges from 95% to 99.5% of
the amount of the MARs, and payment is made only for MARS that are
ultimately collected. If a particular MAR is not collected, the
contributing provider must replace the MAR with an equivalent MAR or
refund the price paid for the MAR. During our formative stage, we plan
to obtain the funds to purchase MARs by raising private equity funds,
and upon receipt of adequate equity investment, by obtaining a
substantial line of credit.
CDG owns a copyright for Administrator I, but holds no patents,
trademarks, franchises, concessions or labor contracts. We have issued
two non-exclusive, perpetual, irrevocable licenses of its Administrator
I software, the first to Medcap, Inc. (located in Portland, Oregon) in
1994, and the second to Aries Financial Group (also located in
Portland, Oregon) in 1997. Neither license will generate any further
revenue to CDG.
Based on research performed by Mr. Vahl, domestic healthcare claims are
currently in excess of one hundred billion dollars annually. Of that
amount, approximately 60% become MARs that could be sold to companies
like ours. A number of large claims processors will compete with CDG
for contracts, including at least one firm that processes in excess of
$1 billion in claims annually. Several other large firms, as well as
more than 100 other enterprises, also process significant numbers of
claims.
Many of CDG's competitors engage solely in receivable factoring: in
other words, they accept a fee for factoring receivables but do not
offer guidance or assistance with collection practices or techniques.
In addition to this simple claims administration, we intend to provide
consulting services that will assist our customers with the character
of their billings and the timeliness of collections. While these
services are
<PAGE>
not currently available from CDG, and while we can not assure investors
that CDG will ultimately provide these services, we believe that these
supplemental collection services will ultimately distinguish us from
our competitors.
Because we have not actively engaged in business during the past three
years, we have no employees. Our president, Mr. Michael P. Vahl,
receives no salary or other benefits, but bills us for his services at
the rate of $100 per hour. At present, we owe Mr. Vahl approximately
$45,000 for accrued hourly billings and expenses.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(a) Plan of Operation
In recent months, our president, Mike Vahl, and one of our significant
shareholders, Gordon Root, have satisfied our cash requirements by
lending funds to us in exchange for demand promissory notes. Generally,
these notes have amounted to less than $1,000 per month. Once we begin
negotiations for our initial purchase of MARs, we anticipate that our
expenses will increase to approximately $10,000 to $25,000 per month,
consisting of legal fees, travel costs, consulting fees and related
expenses. We do not, at present, possess resources to pay these
expenses, but Messrs. Vahl and Root have indicated a willingness to
continue lending essential funds to us until we complete a financing
and acquisition plan for our initial MARs, and until we begin to
receive cash flow from those MARs. However, neither Mr. Vahl nor Mr.
Root is obligated to continue lending money to us, nor is either of
them prohibited from demanding payment for outstanding loans at any
time.
During the fourth quarter of 1999, we plan to finalize our license
agreement with VSG for Administrator II. Due to the affiliated
relationship between VSG and CDG, Mr. Root and CDG counsel will
negotiate and approve the license on behalf of CDG. Although various
terms of the license agreement are yet to be negotiated, we have
received a firm commitment from VSG for a non-exclusive, royalty based
license that will require CDG to pay VSG a royalty of $0.25
(twenty-five cents) for each MAR processed through Administrator II. We
have also confirmed that VSG will warrant the Y2K readiness of
Administrator II, which VSG can confidently provide because of
Administrator II's use of the PICK operating system.
In order to process MARs, we must acquire various computer hardware
components. Initially, we plan to limit our hardware purchases to an
application server, a DSL connection to the Internet, two workstations,
and the related peripherals. If we acquire additional MARs, it may
become necessary to expand our equipment base to include additional
workstations and data storage. We also plan to acquire miscellaneous
office furniture and equipment to outfit our planned administrative
offices.
Additionally, we will be required to hire full time employees to
implement our MAR collection and claims management. We anticipate
hiring 2-3 employees in 1999 and another 3-5 employees in 2000.
In connection with the documentation of the license for Administrator
II, the purchase of hardware components and the engagement of full time
employees, we will be seeking approximately $3 million to $5 million in
additional equity investment in order to finance our initial purchase
of MARs. In connection with the purchase of the MARs (and by using the
MARs as collateral), we will seek an operating line of credit of
between $30 million and $50 million. The funds from the operating line,
together with the equity funding and operating revenues, should be
sufficient to satisfy our capital requirements for the foreseeable
future.
<PAGE>
(b) Management's Discussion and Analysis of Financial Condition and Results
of Operations
During the past four years, our directors and officers have been
working to correct problems arising from a major fraud committed
against CDG. The fraud involved $3,500,000 in counterfeit certificates
of deposit that were issued to CDG in exchange for significant equity
and $500,000 in cash. The fraud left CDG in a tenuous financial
position that we have sought diligently to correct. The only revenue we
generated during the past four years was a software license fee from
Aries Financial Group in the amount of $100,000. We used these funds,
in large part, to reach accords with most of our creditors, all of whom
were due monies for products or services provided prior to March 1995.
While we now have an accumulated deficit of $2,082,259 and negative
shareholder equity in the amount of $40,618, we believe we have
substantially reduced the likelihood of material claims by our
creditors and that our financial condition, due to the significant debt
reduction, is more stable than in the months immediately following the
fraud.
We used approximately $10,000 of the funds from the license to Aries
Financial Group to fund litigation against the perpetrators of the
fraud, none of whom are currently affiliated with CDG. We were
successful in obtaining a judgment in the litigation that resulted in a
judicial declaration that the 3,875,000 shares issued to the
perpetrators of the fraud are void for lack of consideration. As a
result, the number of shares of outstanding CDG common stock was
reduced by more than 38%, retroactively effective May 1995. We also
were awarded monetary damages against the perpetrators equal to the
cash consideration paid to the perpetrators, but the prospect of
financial recovery is remote. Significantly, all of the individuals who
approved the fraudulent transaction, including former president Tom
Morrow, are no longer affiliated with CDG.
Mr. Vahl, CDG's president, has indicated a willingness to continue to
loan money to CDG until we become operational and profitable, but he is
under no obligation to do so, and he may therefore withdraw his lending
commitment at any time. Assuming that Mr. Vahl continues to provide
necessary capital, we expect to become operational in the second half
of 1999. Prior to that time, we expect to:
1) License Administrator II from VSG.
2) Line up a network of brokers to provide a steady stream of MARs.
3) Secure equity funding and a line of credit or alternative
financing arrangement necessary to purchase MARs or secure MARs
management agreements.
4) Start operations.
In light of the significant delays in the payment of healthcare
receivables, we believe that healthcare providers remain anxious to
liquidate their claims in exchange for immediate payment. The state of
the healthcare industry is such that medical insurers are delaying
payments to the healthcare providers by 60 to 90 days or more, which
often creates significant cash flow difficulties for the providers.
However, a number of uncertainties may have an effect on our business,
financial conditions and operations, and those effects may be material
and adverse. These uncertainties include the following.
We will require additional funding to commence operations.
<PAGE>
We currently have no cash reserves and have accumulated significant
liabilities. If we do not receive additional capital during the second
half of 1999, we will be unable to implement our business plan and we
will not generate revenues sufficient to satisfy our existing
liabilities. The result is that our stock price could fluctuate
significantly and could become valueless.
We may be subject to claims by creditors for claims arising before
1995.
We have searched for and reached accord with what we believe to be most
of our creditors. However, we believe other creditors exist and that
some of them may have claims that have not lapsed or been extinguished
by statutes of limitation or similar legal principles. Some of these
creditors may later bring claims against us for amounts owed or claimed
to be owed from prior obligations. If one or more of these claims is
significant in comparison to our operations, we may be forced into a
bankruptcy or similar proceeding. Such an event would affect our
operations, business and financial condition materially and adversely.
We may be unable to continue borrowing money from Messrs. Vahl and
Root, and one or both of them may call our outstanding obligations.
We recently have met our current expenses by borrowing money from two
of our controlling shareholders, Messrs. Mike Vahl and Gordon Root, in
exchange for demand promissory notes. We anticipate continuing to fund
our necessary expenses by borrowing additional funds from these
individuals until we acquire MARs and begin to generate revenues
sufficient to satisfy our current obligations. However, neither Mr.
Vahl nor Mr. Root is subject to a binding obligation to lend additional
funds to CDG, and there can be no assurance that either of them will
continue to do so. If we fail to obtain the necessary capital by
borrowing money from these individuals or from other sources, our
business, financial condition and operation will be affected materially
and adversely.
Additionally, we owe substantial sums of money to both Mr. Vahl and Mr.
Root, under terms that require payment on demand. If either or both of
them should demand repayment of all or a portion of the loans before we
generate sufficient revenues to fund these payments, such a demand
would have a material adverse effect on our business, operations and
financial condition.
We are entering into a market that currently is experiencing
significant competition.
The market for medical billing services and related entities currently
is served by a substantial number of businesses, including both medical
practice management companies and billing and collection services. Many
entities with which we will compete are substantially better funded and
have gathered significant market share. Moreover, some of these
enterprises have significant cash reserves and can better fund
shortfalls in collections that might have a more pronounced impact on
companies such as ours. Some of these companies also have greater
experience and/or more efficient collection methods than we might
develop. If we fail to compete effectively with businesses that provide
similar services, our business operations and financial condition will
be affected materially and adversely.
ITEM 3. DESCRIPTION OF PROPERTY
The Registrant does not currently own or lease any real property. While
we anticipate leasing up to 1,000 square feet office space in
Riverside, California to conduct our operations, there can be no
<PAGE>
assurance that adequate space can be obtained on terms and conditions
that will be acceptable to the Company.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Class Name and Address of Beneficial Owner Amount Owned % Class
- ----- ------------------------------------ ------------ -------
Common Michael P. Vahl 120,084 71.51%
7126 Stanhope Lane
Riverside, CA 92506
Common Gordon C. Root 1,105,500 15.44%
2413 Remington Dr.
West Linn, OR 97068
All officers and directors as a
group (one individual) 5,084,635 1.51%
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Michael P. Vahl, age 41, is the President, Secretary and sole director of CDG.
Mr. Vahl's one-year term as a director has been renewed annually at each of the
last three shareholder meetings. Mr. Vahl is compensated on an hourly basis as
an independent contractor for his activities on behalf of CDG. CDG has no other
employees. Mr. Vahl has been with the Registrant since its inception in 1993.
From its inception until January 1996, he was the Executive Vice president and
Chief Operating Officer. In January of 1996, he became the Registrant's
President and Chief Executive Officer. Since 1988, Mr. Vahl has also owned and
operated The Vahl Software Group, a sole proprietorship that provides software
development and consulting services. Mr. Vahl is not an officer or director of
any other entities, and has never been involved in any bankruptcies or criminal
matters.
ITEM 6. EXECUTIVE COMPENSATION
Michael P. Vahl is the President of CDG, but he currently receives no salary or
other benefits. He bills CDG on an hourly basis of $100 per hour for time he
spends on behalf of CDG. In the last three years, CDG has paid the following
amounts to Mr. Vahl: 1996 - $0, 1997 - $0, 1998 - $17,300. CDG currently is
indebted to him for approximately $45,000 in loans and unpaid services, and
anticipates that this indebtedness will grow to approximately $75,000 by the end
of 1999. In addition, in December 1996, CDG issued 151,542 shares of preferred
stock to Mr. Vahl in exchange for unpaid salary and accrued benefits of $530,396
that dated from 1992. This preferred stock was converted to 497,946 shares of
CDG common stock in December 1998.
If we are successful at implementing our operational plan in 1999, we expect to
pay Mr. Vahl additional consulting fees, but we will not pay salary or benefits
to a CEO until we generate cash flow from MAR administration. Once cash flow is
generated, we anticipate hiring a CEO to oversee CDG's operations.
CDG has not established and does not anticipate establishing any benefit plans,
option plans or other forms of alternative compensation.
<PAGE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In December 1996, CDG issued 151,542 shares of preferred stock to our President,
Michael P. Vahl, in return for unpaid salary and accrued benefits of $530,396
that dated from 1992. Mr. Vahl, as the sole director of CDG, independently
approved this transaction by making the determination that the conversion would
benefit CDG by reducing the debt on CDG's balance sheet.
In December 1998, Mr. Gordon Root loaned CDG $20,000 to facilitate the payment
of creditors and provide short-term working capital. The loan is a demand loan
that bears interest at 8.5% and which Mr. Root may call at any time. Mr. Root is
not obligated to loan any additional funds to CDG.
Mr. Vahl has also advanced approximately $15,000 to CDG that also bears interest
at 8.5% to pay current operating expenses, and he may, but is not required to,
continue to do so until CDG becomes operational and profitable. These advances
are reflected in the accrued salary and expense obligations described under
"Executive Compensation" above. CDG may borrow additional funds from Mr. Vahl
during the remainder of 1999, but Mr. Vahl is not obligated to make such loans.
These loans, if made, will be payable on demand.
Mr. Vahl also is the sole owner of VSG, a software enterprise that has committed
to license the Administrator II software to CDG. If the license is consummated,
VSG will receive a transaction-based royalty of $0.25 for each MAR processed
using Administrator II. The fee is based solely on the number of MARs collected
through use of Administrator II, regardless of the size of the MARs (i.e.
collection of a $100 MAR requires the same $0.25 fee as collection of a $1,000
MAR). Every claim will be charged the $.25 fee one time. Based on the fact that
VSG has been offered a similar royalty by a competing MARs purchaser, CDG
believes this fee is reasonable and reflects arms' length consideration and
terms.
Except for the anticipated software license for Administrator II, we do not
anticipate entering into any contracts or arrangements with officers, directors
or other affiliates of CDG.
ITEM 8. DESCRIPTION OF SECURITIES
The Registrant's authorized capital consists of 25,000,000 shares of common
stock, of which 7,159,058 shares were issued and outstanding as of the effective
date of this Registration Statement, and 1,000,000 shares of preferred stock, of
which no shares are issued and outstanding as of the effective date of this
Registration Statement.
Holders of common stock are entitled to one vote per share at all meetings of
stockholders. In the event of liquidation, dissolution or winding up of the
Registrant, holders of common stock are entitled to receive, on a prorata basis,
all of the assets of the Registrant remaining after satisfaction of all
liabilities and payment of any preferential liquidation rights to preferred
stockholders.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANTS COMMON EQUITY
AND OTHER SHAREHOLDER MATTERS
(a) Market Information
<PAGE>
The common stock of Capital Development Group, Inc. is currently traded on the
NASDAQ Bulletin Board under the symbol CDVG. The stock has traded sporadically,
the most recent reported trade being in mid-August 1999. Over the most recent 52
week period the stock has traded in a range of $0.0625 (low) and $0.75 (high)
per share. The trading history of the stock for the past two years is summarized
below.
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QUARTER LOW TRADE HIGH TRADE
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Q3 1999 5/32 1/4
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Q2 1999 1/4 3/4
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Q1 1999 1/16 1/2
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Q4 1998 1/16 1/16
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Q3 1998 1/4 1/4
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Q2 1998 1/4 1/4
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Q1 1998 1/8 1/8
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Q4 1997 1/32 5/32
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Q3 1997 5/32 1/4
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The quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.
Approximately 225,643 of the Registrant's shares are held in street name. The
remaining shares of common stock are held by approximately 52 individual
shareholders of record. We have not paid dividends on our common stock and do
not anticipate paying dividends in the future.
ITEM 2. LEGAL PROCEEDINGS
The Registrant is not currently involved in any legal proceedings.
ITEM 3. CHANGES WITH AND DISAGREEMENTS WITH ACCOUNTANTS
We engaged the accounting firm of Porter & Co. in December of 1998 to audit our
financial records for the fiscal years ending December 31, 1997 and 1998. Prior
to that time we did not have an auditing firm, and we have never dismissed an
auditor or had an auditor resign or stand for reelection because of a dispute
over accounting practices, financial statement disclosure, or auditing scope or
procedure.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
No unregistered securities have been sold in the past three years, except to
three creditors of CDG, all of whom had a pre-existing business relationship
with CDG: Mr. William Struthers, Mr. Dave Novak and Mr. Ron Peterson. All three
creditors have been due monies from CDG for at least two years, and have
participated as visitors in all shareholder and board meetings of CDG held
during that time. As such, they have been provided access to all information
relating to CDG, including the information described in this registration
statement. No advertising or general solicitation occurred in connection with
the sales. Effective December 31, 1998, each of these individuals accepted
common stock in exchange for debt (which aggregated to $72,013), at a conversion
rate of $.50 per share. Mr. Struthers exchanged $34,800 of debt for 69,600
shares of common stock, Mr. Novak exchanged $17,000 of debt for 34,000 shares of
common stock, and Mr. Peterson exchanged $20,213 of debt for 40,426 shares of
common stock. CDG received no proceeds from the conversion. The sale of stock to
these creditors in exchange for debt relief was exempt from registration
requirements under both Section 3(b) and Section 4(2) of the Securities Act of
1933.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Articles of Incorporation, effective May 19, 1993, as amended
on January 25, 1994, provide for limitation of liability for officers and
directors by requiring that no director have any personal liability to the
Registrant or its shareholders for money damages other than (1) breaches of the
director's duty of loyalty to the Registrant; (2) acts or omissions not in good
faith or involving intentional misconduct or knowing violation of law; (3)
unlawful distributions; (4) transactions resulting in an improper personal
benefit to the director; or (5) acts or omissions occurring prior to the date of
incorporation.
<PAGE>
PART F/S
Capital Development Group, Inc.
Balance Sheet
As of March 31, 1999
(Unaudited Interim Financial Statements)
March 31, 1999 March 31, 1998
ASSETS
Current Assets
Checking/Savings
Trust Account 6,027.72 31,163.67
Total Checking/Savings 6,027.72 31,163.67
Total Current Assets 6,027.72 31,163.67
TOTAL ASSETS 6,027.72 31,163.67
LIABILITIES & EQUITY
Liabilities
Current Liabilities
Accounts Payable
*Accounts Payable 89,359.00 102,859.00
Total Accounts Payable 89,359.00 102,859.00
Other Current Liabilities
Loan from Gordon Root 20,000.00 0.00
Accounts Payable 0.00 396,657.41
Due to Bill Struthers 0.00 34,800.00
Due to DWT 2,702.15 (2,287.30)
Due to Mike Vahl 39,893.90 23,679.72
Total Other Current Liabilities 62,596.05 452,849.83
Total Current Liabilities 151,955.05 555,708.83
Total Liabilities 151,955.05 555,708.83
Equity
Accrued Dividends 0.00 187,841.69
Paid in Capital 2,040,941.73 1,728,356.94
Offering Expenses (9,149.50) (9,149.50)
Common Stock 698.95 613.17
Treasury Stock - common for resale (0.10) (0.10)
Preferred Stock - Series C 0.00 25.69
Dividends Accrued 0.00 (187,841.69)
Retained Earnings (2,162,467.54) (2,238,107.03)
Net Income (15,950.87) (6,284.33)
Total Equity (145,927.33) (524,545.16)
TOTAL LIABILITIES & EQUITY 6,027.72 31,163.67
Page 1
<PAGE>
Capital Development Group, Inc.
Income Statement
January through March 1999
(Unaudited Interim Financial Statements)
March 31, 1999 March 31, 1998
Ordinary Income/Expense
Expense
Management Fees 9,450.00 5,350.00
Professional Fees
Legal Fees 4,748.59 0.00
Total Professional Fees 4,748.59 0.00
Rent 450.00 675.00
Telephone 207.89 259.33
Travel & Entertainment 1,094.39 0.00
Total Expense 15,950.87 6,284.33
Net Ordinary Income (15,950.87) (6,284.33)
Net Income (15,950.87) (6,284.33)
Earnings per share on Income (Loss)
from Operations -0.0022 -0.0010
Average number of shares outstanding 7,158,535 6,388,565
Page 2
<PAGE>
Capital Development Group, Inc.
Statement of Cash Flows
January through March 1999
(Unaudited Interim Financial Statements)
March 31, 1999 March 31, 1998
Increase (decrease) in Cash
Cash Flows from operating activities
Net loss (15,951) (6,284)
Change in current liabilities
(Decrease) increase in:
Accounts Payable (9,888) 0
Due to Bill Struthers 0 (8,000)
Due to DWT 665 0
Due to Mike Vahl 11,202 6,284
Net cash used for operating activities (13,972) (8,000)
Net decrease in cash (13,972) (8,000)
Cash, beginning of quarter 20,000 39,164
Cash, end of quarter 6,028 31,164
Page 3
<PAGE>
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
Organizational Data:
- --------------------
Capital Development Group, Inc. (the Company) was incorporated on May 19, 1993
as an Oregon corporation. The Company was organized to engage in the business of
purchasing healthcare receivable from hospitals and other healthcare
institutions at a discount and administering the collection process of such
receivables. The source of funding for such purchases will be its wholly owned
subsidiary, CDG Credit Corporation which has not yet commenced operations. The
Company has developed its own "Administrator One" software to monitor purchase
and collections of accounts receivable.
Accounting Method
- -----------------
The Company maintains its books of account on the accrual basis of accounting.
Under this method of accounting, revenue is recognized when they are earned, or
billed, and expenses are recognized when goods or services are received, whether
paid or not.
Cash and Cash Equivalents
- -------------------------
For purposes of the statement of cash flows, cash and cash equivalents include
cash on hand, funds on deposit with financial institutions, and investments with
original maturities of three months or less. The Company maintains an account in
trust with their attorney in Portland Oregon.
Property & Equipment:
- ---------------------
Property and equipment owned by the Company are fully depreciated. The Company
does not anticipate that future cash flows will be generated from its property
and equipment. Therefore, property and equipment is considered impaired, with a
net value of zero, and is not reflected on the balance sheet. The original cost
of computer equipment and software development is $155,010. The Company has not
purchased any additional equipment.
Income Taxes:
- -------------
Income tax expense is based on pre-tax financial accounting income and includes
deferred taxes for the effects of timing differences between financial
accounting and taxable earnings. Tax credits are accounted for as a reduction of
tax expense in the years in which the credits reduce taxes payable.
The Company currently has net operating loss carry-forwards to future periods
for book and tax purposes of approximately $2,178,000 in the first quarter of
1999. A deferred tax asset for the NOL carry forwards has not been recorded as
its realization in future periods is questionable at this time. Net operating
losses may be carried forward for 15 years for loss years prior to August 6,
1997 and twenty years for loss years after August 6, 1997.
Earnings Per Share
- ------------------
Earnings per share are computed based on net income and the number of shares
of stock outstanding at the end of March 1999.
Page 4
<PAGE>
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
Estimates
- ---------
The preparation of 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 financial statements and
the reported amounts of revenues and expenses during the reporting period.
NOTE 2 - RELATED PARTY TRANSACTIONS:
The Company President who is also a 72% shareholder, provides management
services for a fee, and is also reimbursed for expenses incurred for Company
related activities. The company has been unable to compensate and reimburse the
President in a consistent manner, and has therefore recorded accrued liabilities
of $39,894 in 1999. Total charges to the Company for management and expenses are
$11,202 in the first quarter of 1999.
Long-term accounts payable in 1997 and the note payable in 1998 are also payable
to various shareholders and an investment consultant of the company. $44,300 of
the long-term accounts payable in 1997 were converted to 103,600 shares of
common stock at the end of 1998. The remaining $12,000 was paid in cash in 1998.
The terms of the note payable include annual interest payable at 8.5 %, and is
unsecured. The note is due December 31, 1999.
The Company has received a licensing commitment from The Vahl Software Group, an
assumed name of the Company President, for Administrator II, which is a new
software package that is functionally similar to Administrator I. The license
agreement for Administrator II will require the Company to pay The Vahl Software
Group a royalty of $0.25 for each medical account receivable processed through
Administrator II.
NOTE 3 - PREFERRED STOCK AND COMMON STOCK ISSUANCES:
The Company has authorized third series preferred stock, none of which is issued
and outstanding at March 31, 1999.
The third series preferred stock has no voting rights, is entitled to a
preference to common shares of stock in liquidation and is convertible to one
share of common stock under certain conditions. The stated conversion price at
which the preferred stock could be converted to common stock is $2.40 per share,
or fraction thereof. The third series preferred stock had accumulated dividends
at the rate of 8.5% of the purchase price of the stock.
In 1998, common stock was issued in three separate occasions; All 256,865 shares
of third series preferred stock outstanding were completely converted to common
stock at a rate of 1.75 shares of common stock for each share of preferred stock
held.
Page 5
<PAGE>
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
In addition, all accrued dividends payable on the preferred stock were converted
into common stock at the rate if $1.00 per share, resulting in the issuance of
264,259 shares of stock issued in exchange for $264,259 dollars of preferred
dividends accrued, but never declared and paid.
The company also converted $44,300 in accounts payable to 103,600 shares of
common stock as part of its settlements with creditors.
Had these conversions occurred at the beginning ot the year, the per share
earnings would have been decreased by $.0006 on income before extraordinary
items, and $.0039 on net income.
NOTE 4 - LONG-TERM NOTES PAYABLE
At March 31, 1999, long-term notes payable consisted of a $20,000 demand note
payable to a stockholder of the Company. Interest accrues at a rate of 8.5% and
is due upon demand. The note is not secured by Company assets.
NOTE 5 - EXTRAORDINARY ITEMS AND COMMITMENTS AND CONTINGENCIES:
At December 31, 1998, the Company made a good faith effort with its creditors to
settle debts incurred in prior years. Creditors representing the majority of the
outstanding debt accepted the settlement, resulting in an extraordinary gain of
$293,324. However, several creditors did not respond. These vendors may seek
payment from the Company in the future, although the Company views this as
unlikely. Moreover, the Company will resist claims for past obligations by
raising defenses of estoppel and time limitation, among others.
NOTE 6 - JUDICIAL DECLARATION
In 1994 and 1995, the Company issued 3,875,000 shares of stock to various
corporations for certificates of deposit and consulting services to be
performed. In 1995, the Company discovered that the certificates, valued at
$3,500,000, were fraudulent. In addition, the consulting services had not been
performed. Therefore, the original recording of shares for certificates of
deposit was reversed in 1995, removing assets of $3,500,000 from the balance
sheet, and voiding the entire 3,875,000 shares of stock. These shares were
legally cancelled in the Circuit Court of the State of Oregon in July, 1998
Page 6
<PAGE>
Capital Development Group, Inc.
Balance Sheet
As of June 30, 1999
(Unaudited Interim Financial Statements)
June 30, 1999 June 30, 1998
ASSETS
Current Assets
Checking/Savings
Trust Account 0.00 4,057.89
Total Checking/Savings 0.00 4,057.89
Total Current Assets 0.00 4,057.89
TOTAL ASSETS 0.00 4,057.89
LIABILITIES & EQUITY
Liabilities
Current Liabilities
Accounts Payable
*Accounts Payable 89,359.00 89,359.00
Total Accounts Payable 89,359.00 89,359.00
Other Current Liabilities
Due to Porter & Co. 1,637.58 0.00
Loan from Gordon Root 20,000.00 0.00
Accounts Payable 0.00 396,657.41
Due to Bill Struthers 0.00 34,800.00
Due to DWT 3,907.40 (734.18)
Due to Mike Vahl 50,249.42 11,759.33
Total Other Current 75,794.40 442,482.56
Liabilities
Total Current Liabilities 75,794.40 451,982.56
Total Liabilities 165,153.40 541,341.56
Equity
Accrued Dividends 0.00 187,841.69
Paid in Capital 2,040,941.73 1,728,356.94
Offering Expenses (9,149.50) (9,149.50)
Common Stock 698.95 613.17
Treasury Stock - common for resale (0.10) (0.10)
Preferred Stock - Series C 0.00 25.69
Dividends Accrued 0.00 (187,841.69)
Retained Earnings (2,162,467.54) (2,238,107.02)
Net Income (35,176.94) (19,022.84)
Total Equity (165,153.40) (537,283.66)
TOTAL LIABILITIES & EQUITY 0.00 4,057.89
Page 1
<PAGE>
Capital Development Group, Inc.
Income Statement
April through June 1999
(Unaudited Interim Financial Statements)
Apr - Jun 1999 Apr - Jun 1998
Ordinary Income/Expense
Expense
Management Fees 7,150.00 4,800.00
Postage and Delivery 14.00 0.00
Professional Fees
Accounting Fees 5,079.75 600.00
Legal Fees 4,470.55 6,663.51
Total Professional Fees 9,550.30 7,263.51
Rent 450.00 675.00
Telephone 168.27 0.00
Travel & Entertainment 1,893.50 0.00
Total Expense 15,950.87 6,284.33
Net Ordinary Income (19,226.07) (12,738.51)
Net Income (19,226.07) (12,738.51)
Earnings per share on Income(Loss)
from Operations -0.0027 -0.0020
Average number of shares outstanding 7,158,535 6,388,565
Page 2
<PAGE>
Capital Development Group, Inc.
Statement of Cash Flows
April through June 1999
(Unaudited Interim Financial Statements)
June 30, 1999 June 30, 1998
Increase (decrease) in Cash
Cash Flows from operating activities
Net loss (19,227) (12,739)
Change in current liabilities
(Decrease) increase in:
Accounts Payable 0 (4,000)
Due to Porter & Co. 1,638 0
Due to Bill Struthers 0 0
Due to DWT 1,205 1,553
Due to Mike Vahl 10,356 (11,920)
Net cash used for operating activities (6,028) (27,106)
Net decrease in cash (6,028) (27,106)
Cash, beginning of quarter 6,028 31,164
Cash, end of quarter 0 4,058
Page 3
<PAGE>
Capital Development Group, Inc.
Income Statement
January through June 1999
(Unaudited Interim Financial Statements)
Jan - Jun 1999 Jan - Jun 1998
Ordinary Income/Expense
Expense
Management Fees 16,600.00 10,150.00
Postage and Delivery 14.00 0.00
Professional Fees
Accounting Fees 5,079.75 600.00
Legal Fees 9,219.14 6,663.51
Total Professional Fees 14,298.89 7,263.51
Rent 900.00 1,350.00
Telephone 376.16 259.33
Travel & Entertainment 2,987.89 0.00
Total Expense 15,950.87 6,284.33
Net Ordinary Income (35,176.94) (19,022.84)
Net Income (35,176.94) (19,022.84)
Earnings per share on Income(Loss) from Operations -0.0049 -0.0030
Average number of shares outstanding 7,158,535 6,388,565
Page 4
<PAGE>
Capital Development Group, Inc.
Statement of Cash Flows
January through June 1999
(Unaudited Interim Financial Statements)
June 30, 1999 June 30, 1998
Increase (decrease) in Cash
Cash Flows from operating activities
Net loss (35,177) (12,739)
Change in current liabilities
(Decrease) increase in:
Accounts Payable (9,888) (4,000)
Due to Porter & Co. 1,638 0
Due to Bill Struthers 0 0
Due to DWT 1,870 1,554
Due to Mike Vahl 21,557 (11,921)
Net cash used for operating activities (20,000) (27,106)
Net decrease in cash (20,000) (27,106)
Cash, beginning of quarter 20,000 31,164
Cash, end of quarter 0 4,058
Page 5
<PAGE>
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
Organizational Data:
- --------------------
Capital Development Group, Inc. (the Company) was incorporated on May 19, 1993
as an Oregon corporation. The Company was organized to engage in the business of
purchasing healthcare receivable from hospitals and other healthcare
institutions at a discount and administering the collection process of such
receivables. The source of funding for such purchases will be its wholly owned
subsidiary, CDG Credit Corporation which has not yet commenced operations. The
Company has developed its own "Administrator One" software to monitor purchase
and collections of accounts receivable.
Accounting Method
- -----------------
The Company maintains its books of account on the accrual basis of accounting.
Under this method of accounting, revenue is recognized when they are earned, or
billed, and expenses are recognized when goods or services are received, whether
paid or not.
Cash and Cash Equivalents
- -------------------------
For purposes of the statement of cash flows, cash and cash equivalents include
cash on hand, funds on deposit with financial institutions, and investments with
original maturities of three months or less. The Company maintains an account in
trust with their attorney in Portland Oregon.
Property & Equipment:
- ---------------------
Property and equipment owned by the Company are fully depreciated. The Company
does not anticipate that future cash flows will be generated from its property
and equipment. Therefore, property and equipment is considered impaired, with a
net value of zero, and is not reflected on the balance sheet. The original cost
of computer equipment and software development is $155,010. The Company has not
purchased any additional equipment.
Income Taxes:
- -------------
Income tax expense is based on pre-tax financial accounting income and includes
deferred taxes for the effects of timing differences between financial
accounting and taxable earnings. Tax credits are accounted for as a reduction of
tax expense in the years in which the credits reduce taxes payable.
The Company currently has net operating loss carry-forwards to future periods
for book and tax purposes of approximately $2,198,000 in the first quarter of
1999. A deferred tax asset for the NOL carry forwards has not been recorded as
its realization in future periods is questionable at this time. Net operating
losses may be carried forward for 15 years for loss years prior to August 6,
1997 and twenty years for loss years after August 6, 1997.
Page 6
<PAGE>
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
Earnings Per Share
- ------------------
Earnings per share are computed based on net income and the number of shares
of stock outstanding at the end of June 1999.
Estimates
- ---------
The preparation of 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 financial statements and
the reported amounts of revenues and expenses during the reporting period.
NOTE 2 - RELATED PARTY TRANSACTIONS:
The Company President who is also a 72% shareholder, provides management
services for a fee, and is also reimbursed for expenses incurred for Company
related activities. The company has been unable to compensate and reimburse the
President in a consistent manner, and has therefore recorded accrued liabilities
of $50,249 in 1999. Total charges to the Company for management and expenses are
$10,355 in the second quarter of 1999. Long-term accounts payable in 1997 and
the note payable in 1998 are also payable to various shareholders and an
investment consultant of the company. $44,300 of the long-term accounts payable
in 1997 were converted to 103,600 shares of common stock at the end of 1998. The
remaining $12,000 was paid in cash in 1998.
The terms of the note payable include annual interest payable at 8.5 %, and is
unsecured. The note is due December 31, 1999.
The Company has received a licensing commitment from The Vahl Software Group, an
assumed name of the Company President, for Administrator II, which is a new
software package that is functionally similar to Administrator I. The license
agreement for Administrator II will require the Company to pay The Vahl Software
Group a royalty of $0.25 for each medical account receivable processed through
Administrator II.
NOTE 3 - PREFERRED STOCK AND COMMON STOCK ISSUANCES:
The Company has authorized third series preferred stock, none of which is issued
and outstanding at June 30, 1999.
The third series preferred stock has no voting rights, is entitled to a
preference to common shares of stock in liquidation and is convertible to one
share of common stock under certain conditions. The stated conversion price at
which the preferred stock could be converted to common stock is $2.40 per share,
or fraction thereof. The third series preferred stock had accumulated dividends
at the rate of 8.5% of the purchase price of the stock.
Page 7
<PAGE>
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
In 1998, common stock was issued in three separate occasions; All 256,865 shares
of third series preferred stock outstanding were completely converted to common
stock at a rate of 1.75 shares of common stock for each share of preferred stock
held.
In addition, all accrued dividends payable on the preferred stock were converted
into common stock at the rate if $1.00 per share, resulting in the issuance of
264,259 shares of stock issued in exchange for $264,259 dollars of preferred
dividends accrued, but never declared and paid.
The company also converted $44,300 in accounts payable to 103,600 shares of
common stock as part of its settlements with creditors.
Had these conversions occurred at the beginning ot the year, the per share
earnings would have been decreased by $.0006 on income before extraordinary
items, and $.0039 on net income.
NOTE 4 - LONG-TERM NOTES PAYABLE
At June 30, 1999, long-term notes payable consisted of a $20,000 demand note
payable to a stockholder of the Company. Interest accrues at a rate of 8.5% and
is due upon demand. The note is not secured by Company assets.
NOTE 5 - EXTRAORDINARY ITEMS AND COMMITMENTS AND CONTINGENCIES:
At December 31, 1998, the Company made a good faith effort with its creditors to
settle debts incurred in prior years. Creditors representing the majority of the
outstanding debt accepted the settlement, resulting in an extraordinary gain of
$293,324. However, several creditors did not respond. These vendors may seek
payment from the Company in the future, although the Company views this as
unlikely. Moreover, the Company will resist claims for past obligations by
raising defenses of estoppel and time limitation, among others.
NOTE 6 - JUDICIAL DECLARATION
In 1994 and 1995, the Company issued 3,875,000 shares of stock to various
corporations for certificates of deposit and consulting services to be
performed. In 1995, the Company discovered that the certificates, valued at
$3,500,000, were fraudulent. In addition, the consulting services had not been
performed. Therefore, the original recording of shares for certificates of
deposit was reversed in 1995, removing assets of $3,500,000 from the balance
sheet, and voiding the entire 3,875,000 shares of stock. These shares were
legally cancelled in the Circuit Court of the State of Oregon in July, 1998.
Page 8
<PAGE>
PORTER & COMPANY
Certified Public Accountant
3585 Maple Street, Suite 244
Ventura, California 93003
(805) 650-5090 ? FAX (805) 650-0511
Member 72-875 Fred Waring Drive, #A Gary A. Porter, CPA
American Institute of CPA's Palm Desert, California 92260
California Society of CPA's (800) 304-6700 R. Michelle Pope, CPA
To the Shareholders and Board of Directors of
Capital Development Group, Inc.
Report of the Independent Public Accountant
I have audited the accompanying balance sheets of Capital Development
Group, Inc., (the Company) an Oregon corporation, as of December 31, 1998 and
1997 and the related statements of income, shareholders' equity and cash flows
for the years then ended as listed in the table of contents. These financial
statements are the responsibility of the Company's management. My responsibility
is to express an opinion on these financial statements based on my audit.
I conducted my audits in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the general purpose financial statements are
free of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. I believe that my
audits provide a reasonable basis for my opinion.
In my opinion, the accompanying financial statements referred to in the
first paragraph above present fairly, in all material respects, the financial
position of Capital Development Group, Inc. as of December 31, 1998 and 1997,
and the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
/S/
Porter & Company
March 30, 1999
<PAGE>
Capital Development Group, Inc.
Balance Sheet
December 31, 1998 and 1997
1998 1997
---------- ----------
ASSETS
------
Current Assets
- --------------
Cash (Note 1) $ 20,000 $ 39,164
Other Assets - 2,287
---------------- ----------------
Total Current Assets 20,000 41,451
---------------- ----------------
Total Assets $ 20,000 $ 41,451
================ ================
LIABILITIES AND EQUITY
----------------------
Current Liabilities
- -------------------
Accounts Payable(Notes 1 and 5) $ 99,247 $ 396,657
Accrued Liabilities(Note 2) 30,730 17,395
---------------- ----------------
Total Current Liabilities 129,977 414,052
---------------- ----------------
Long-Term Liabilities
- ---------------------
Accounts Payable Long-Term (Note 2) - 56,300
Note Payable (Note 4) 20,000 -
---------------- ----------------
Total Long-Term Liabilities 20,000 56,300
---------------- ----------------
Total Liabilities 149,977 470,352
---------------- ----------------
Stockholders Equity
- -------------------
Redeemable convertible preferred stock with
$.0001 par value Third Series;
1,000,000 shares authorized; 0 and 256,865
issued and outstanding (Note 3) - 26
Common Stock at $.0001 par value 30,000,000
shares authorized;
6,989,500 and 6,131,700 shared issued
and outstanding (Note 3) 699 613
Additional Paid in Capital 2,040,942 1,728,358
Accumulated Deficit (2,171,618 (2,157,898)
---------------- ----------------
Total Stockholders Equity (129,977) (428,901)
---------------- ----------------
Total Liabilities and Equity $ 20,000 $ 41,451
================ ================
See Accountant's Report
The Notes to Financial Statements Are An Integral Part of This Statement
Page 2 of 7
<PAGE>
Capital Development Group, Inc.
Statements of Income
For the Years Ended December 31, 1998 and 1997
1998 1997
-------------- --------------
REVENUES
- --------
Software License Sales $ - $ 100,000
-------------- --------------
OPERATING EXPENSES
- ------------------
Management Fees 24,050 13,850
Outside Services - 2,000
Professional Fees 14,093 9,542
Other Administrative 4,642 4,259
-------------- --------------
Total Operating Expenses 42,785 29,651
-------------- --------------
Net Income (Loss) from Operations (42,785) 70,349
Extraordinary Gain on Restructuring of
Debt (Note 5) 293,324 -
-------------- --------------
Net Income $ 250,539 $ 70,349
============== ==============
Earnings Per Share on Income (Loss) from
Operations $ (0.01) $ 0.01
============== ==============
Earnings Per Share on Extraordinary Gain $ 0.04 $ -
============== ==============
Earnings Per Share on Net Income $ 0.04 $ 0.01
============== ==============
Average number of shares outstanding 6,388,565 6,388,565
============== ==============
See Accountant's Report
The Notes to Financial Statements Are An Integral Part of This Statement
Page 3 of 7
<PAGE>
Capital Development Group, Inc.
Statements of Shareholders' Equity
For the Years Ended December 31, 1998 and 1997
<TABLE>
Preferred Additional
Stock Common Paid in Accumulated
Total Series C Stock Capital Deficit
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1996 $ (499,250) $ 26 $ 613 $ 1,728,358 $(2,228,247)
Net Income at December 31, 1997 70,349 - - - 70,349
----------- ----------- ----------- ----------- -----------
Balances at December 31, 1997 (428,901) 26 613 1,728,358 (2,157,898)
Net Income at December 31, 1998 250,539 - - - 250,539
Conversion of accrued dividends
to common stock - - 26 264,233 (264,259)
Conversion of preferred series C
stock into common stock - (26) 46 (20) -
Conversion of accounts payable
to common stock 48,385 14 48,371
----------- ----------- ----------- ----------- -----------
Balances at December 31, 1998 $ (129,977) - $ 699 $ 2,040,942 $(2,171,618)
=========== =========== =========== =========== ===========
</TABLE>
See Accountant's Report
The Notes to Financial Statements Are An Integral Part of This Statement
Page 4 of 7
<PAGE>
Capital Development Group, Inc.
Statements of Cash Flows
For the Years Ended December 31, 1998 and 1997
1998 1997
---------- ----------
Cash Flows From Operating Activities:
Net Income $ 250,539 $ 70,349
---------- ----------
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities:
Write off Adjustment to Accounts Payable (293,324) -
Change in Assets and Liabilities:
Change in Prepaid Expenses 2,287 (2,287)
Change in Deposits 175
Change in Accounts Payable (12,000) (38,291)
Change in Accrued Expenses 13,334 9,075
---------- ----------
Total Adjustments (289,703) (31,328)
---------- ----------
Net Cash Provided (Used) By Operations (39,164) 39,021
---------- ----------
Cash Flows from Financing Activities: - -
- -------------------------------------
---------- ----------
Cash Flows from Financing Activities:
- -------------------------------------
Proceeds from Notes Payable 20,000 -
---------- ----------
Net Cash Provided (Used) by Financing Activities 20,000 -
---------- ----------
Net Increase (Decrease) in Cash (19,164) 39,021
Cash and Cash Equivalents at Beginning of Year 39,164 143
---------- ----------
Cash and Cash Equivalents at End of Year (Note 1) $ 20,000 $ 39,164
========== ==========
Supplementary Information:
- --------------------------
Cash Paid for Income Taxes $ - $ -
========== ==========
Cash Paid for Interest $ - $ -
========== ==========
Non Cash Financing Transactions:
- --------------------------------
Conversion of Accounts Payable to Common Stock
----------------------------------------------
Payment of Common Stock for Accounts Payable $ 48,385
Issuance of Common Stock (48,385)
----------
Total $ -
----------
See Accountant's Report
The Notes to Financial Statements Are An Integral Part of This Statement
Page 5 of 7
<PAGE>
CAPITAL DEVELOPMENT GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
Organizational Data:
- --------------------
Capital Development Group, Inc. (the Company) was incorporated on May 19, 1993
as an Oregon corporation. The Company was organized to engage in the business of
purchasing healthcare receivable from hospitals and other healthcare
institutions at a discount and administering the collection process of such
receivables. The source of funding for such purchases will be its wholly owned
subsidiary, CDG Credit Corporation which has not yet commenced operations. The
Company has developed its own "Administrator One" software to monitor purchases
and collections of accounts receivable.
Accounting Method
- -----------------
The Company maintains its books of account on the accrual basis of accounting.
Under this method of accounting, revenue is recognized when they are earned, or
billed, and expenses are recognized when goods or services are received, whether
paid or not.
Cash and Cash Equivalents
- -------------------------
For purposes of the statement of cash flows, cash and cash equivalents include
cash on hand, funds on deposit with financial institutions, and investments with
original maturity terms of three months or less. The Company maintains an
account in trust with their attorney in Portland Oregon.
Property & Equipment:
- ---------------------
Property and equipment owned by the Company are fully depreciated. The Company
does not anticipate that future cash flows will be generated from its property
and equipment. Therefore, property and equipment is considered impaired, with a
net value of zero, and is not reflected on the balance sheet. The original cost
of computer equipment and software development is $155,010. The Company has not
purchased any additional equipment for the years ended December 31, 1998 and
1997.
Income Taxes:
- -------------
Income tax expense is based on pre-tax financial accounting income and includes
deferred taxes for the effects of timing differences between financial
accounting and taxable earnings. Tax credits are accounted for as a reduction of
tax expense in the years in which the credits reduce taxes payable. The
Company's deferred tax assets are entirely from net operating loss carry
forwards.
<PAGE>
The Company's net operating loss (NOL) carry-forwards to future periods for book
and tax purposes are approximately $2,172,000 in 1998, and $2,158,000 in 1997.
Deferred tax assets for the NOL carry forwards of $881,832 and $876,148
respectively, have been reduced by a valuation allowance in full and have not
been recorded, as their realization in future periods is questionable at this
time. Net operating losses may be carried forward 15 years from the year of loss
for loss years prior to August 6, 1997, and twenty years for loss years after
August 6, 1997.
Earnings Per Share
- ------------------
Earnings per share are computed based on net income and the weighted average
number of shares of stock outstanding during the year 1997 and 1998.
Estimates
- ---------
The preparation of 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 financial statements and
the reported amounts of revenues and expenses during the reporting period.
NOTE 2 - RELATED PARTY TRANSACTIONS:
The Company President who is also a 73% shareholder, provides management
services for a fee, and is also reimbursed for expenses incurred for Company
related activities. The company has been unable to compensate and reimburse the
President in a consistent manner, and has therefore recorded accrued liabilities
of $28,692 and $17,395 in 1998 and 1997 respectively. Total charges to the
Company for management and expenses are $28,692 and $18,097 in 1998 and 1997
respectively.
Long-term accounts payable in 1997 and the note payable in 1998 are also payable
to various shareholders and an investment consultant of the company. $44,300 of
the long-term accounts payable in 1997 were converted to 103,600 shares of
common stock at the end of 1998. The remaining $12,000 was paid in cash in 1998.
The terms of the note payable include annual interest payable at 8.5 %, and is
unsecured. The note is due December 31, 1999.
See Accountant's Report
Page 6 of 7
<PAGE>
NOTE 2 - RELATED PARTY TRANSACTIONS
(Continued):
The Company has received a licensing commitment from The Vahl Software Group, an
assumed business name of the Company President, for Administrator II, which is a
new software package that is functionally similar to Administrator I. The
license agreement for Administrator II will require the Company to pay the Vahl
Software Group a royalty of $0.25 for each medical account receivable processed
through Administrator II.
NOTE 3 - PREFERRED STOCK AND COMMON STOCK ISSUANCES:
The Company has authorized third series preferred stock, none of which is issued
and outstanding at December 31, 1998.
The third series preferred stock has no voting rights, is entitled to a
preference to common shares of stock in liquidation and is convertible to one
share of common stock under certain conditions. The stated conversion price at
which the preferred stock could be converted to common stock is $2.40 per share,
or fraction thereof. The third series preferred stock had accumulated dividends
at the rate of 8.5% of the purchase price of the stock.
In 1998, common stock was issued in three separate occasions; All 256,865 shares
of third series preferred stock outstanding were completely converted to common
stock at a rate of 1.75 shares of common stock for each share of preferred stock
held.
In addition, all accrued dividends payable on the preferred stock were converted
into common stock at the rate if $1.00 per share, resulting in the issuance of
264,259 shares of stock issued in exchange for $264,259 dollars of preferred
dividends accrued, but never declared and paid.
The company also converted $44,300 in accounts payable to 103,600 shares of
common stock as part of its settlements with creditors.
Had these conversions of stock occurred at the beginning of the year, the per
share earnings would have been decreased by $.0006 on income before
extraordinary items, and $.0039 on net income.
NOTE 4 - LONG-TERM NOTES PAYABLE
At December 31, 1998 long-term notes payable consisted of a $20,000 demand note
payable to a stockholder of the Company. Interest accrues at a rate of 8.5% and
is due upon demand. The note is not secured by Company assets.
NOTE 5 - EXTRAORDINARY ITEMS AND COMMITMENTS AND CONTINGENCIES:
At December 31, 1998, the Company made a good faith effort with its creditors to
settle debts incurred in prior years. Creditors representing the majority of the
outstanding debt accepted the settlement, resulting in an extraordinary gain of
$293,324. However, several creditors did not respond, and the original debts
owed to these creditors remain in accounts payable. These vendors may seek
payment from the Company in the future, although the Company views this as
unlikely. Moreover, the Company will resist claims for past obligations by
raising defenses of estoppel and time limitation, among others.
NOTE 6 - JUDICIAL DECLARATION
In 1994 and 1995, the Company issued 3,875,000 shares of stock to various
corporations for certificates of deposit and consulting services to be
performed. In 1995, the Company discovered that the certificates, valued at
$3,500,000, were fraudulent. In addition, the consulting services had not been
performed. Therefore, the original recording of shares for certificates of
deposit was reversed in 1995, removing assets of $3,500,000 from the balance
sheet, and voiding the entire 3,875,000 shares of stock. These shares were
legally cancelled in the Circuit Court of the State of Oregon in July, 1998.
See Accountant's Report
Page 7 of 7
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PART III
ITEM 1. INDEX TO EXHIBITS.
Exhibit No. Item Name
2.1 Articles of Incorporation.
2.2 Bylaws.
10.1 Consent of Porter & Company, Auditors to the Company.
10.2 Exclusive License Agreement.
10.3 Root Note.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
CAPITAL DEVELOPMENT GROUP, INC.
(Registrant)
By: /s/ Michael P. Vahl
-------------------------------
Name: Michael P. Vahl
Title: President and Secretary
Date: September 24, 1999
Exhibit 10.2
EXCLUSIVE LICENSE AGREEMENT
This Exclusive License Agreement (this "Agreement") is made as of the 15th
day of October, 1997, by and between Capital Development Group, Inc., an Oregon
corporation ("CDG"), Michael Vahl ("Vahl"), and Aries Financial Corporation, an
Oregon corporation ("Aries").
BACKGROUND
Vahl and CDG have created certain computer software and related
documentation to organize and expedite the factoring, processing, servicing,
collection and rating of medical accounts receivable ("Administrator I"). Aries
has been formed to engage in the business of factoring medical accounts
receivable and wishes to license Administrator I from Vahl and CDG on an
exclusive basis. Vahl and CDG are willing to exclusively license Administrator I
to Aries on the terms and conditions contained in this Agreement. Therefore, the
parties agree as follows:
AGREEMENT
1. Definitions. The following terms shall have the following meanings for
purposes of this Agreement.
1.1 "Confidential Information" includes each of the following: (a) the
Core Concepts; (b) the Customer Data; and (c) any information designated by the
disclosing party as confidential in writing or, if disclosed orally, designated
as confidential at the time of disclosure and reduced to writing and designated
as confidential in writing within thirty (30) days after disclosure.
Notwithstanding the foregoing, "Confidential Information" will not include
information that: (aa) is or becomes generally known or available by
publication, commercial use or otherwise through no fault of the receiving
party; (bb) is known by the receiving party at the time of disclosure and is not
subject to restriction; (cc) is independently developed by the receiving party
without use of the disclosing party's Confidential Information; (dd) is lawfully
obtained from a third party who has the right to make such disclosure; or (ee)
is released in writing for publication by the disclosing party.
1.2 "Consulting Fees" means the fees to be paid by Aries to Vahl in
exchange for the Services. The Consulting Fees are more thoroughly described in
the Statement of Work.
1.3 "Core Concepts" means any design concepts, code, ideas,
algorithms, procedures, processes, principles, know-how, and methods of
operation underlying Administrator I.
1.4 "Customer" means a customer of Aries to whom Aries
provides factoring services.
1.5 "Customer Data" means all files, data and other information
relating to any Customer that is provided to Vahl or CDG by Aries or any
Customer. All Customer Data is, and shall remain, the sole and exclusive
property of Aries and/or the Customer.
1.6 "Deliverables" means the source code for Administrator I, together
with all other documentation relating to or constituting the Core Concepts.
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1.7 "Escrow Agent" means Davis Wright Tremaine, L.L.P., who shall hold
the Shares for distribution to CDG shareholders, subject to the provisions of
Section 5 of this Agreement.
1.8 "License" means the worldwide, exclusive license to use and/or
sublicense Administrator I, including, but not limited to, a license of the Core
Concepts and a license of any copyrights in Administrator I and/or the Core
Concepts. Notwithstanding the exclusivity of the License, Aries understands and
acknowledges that CDG has granted to MEDCAP a non-exclusive license to use
Administrator I, and that such license shall not be interrupted or otherwise
affected by this Agreement.
1.9 "License Fee" means the one-time fee paid to CDG by Aries as
partial compensation for the License.
1.10 "Services" means the services to be performed by Vahl described
in the Statement of Work.
1.11 "Shares" means the shares of common stock of Apollo Financial
Group, Inc., an Oregon corporation, to be delivered by Aries to certain
shareholders of CDG as partial compensation for License. The number of Shares,
which shall be equal to the number of shares of common stock (measured on an
as-converted basis) held by CDG shareholders who paid cash for their CDG shares,
and the recipients of the Shares, are fully described in Attachment B.
1.12 "Statement of Work" means Attachment A, attached hereto and
incorporated herein by this reference.
2. Vahl Services. In exchange for the Consulting Fees, Vahl shall perform
for Aries the Services.
3. License of Administrator I. In exchange for the License Fee and the
Shares, CDG and Vahl shall grant to Aries the License. The License shall be
perpetual unless Aries materially breaches its obligations under this Agreement,
in which case CDG and Vahl may, upon written notice to Aries, terminate the
License.
4. Payment and Delivery.
4.1 As consideration for the License, and upon delivery of the
Deliverables by CDG and Vahl, Aries shall pay CDG a one-time License Fee of
$100,000, and shall deliver the Shares as described in Section 5 below.
4.2 As consideration for the Services, Aries will pay Vahl the
Consulting Fees, as well as reasonable out of pocket expenses, at the times and
in the manner described in the Statement of Work. Late payments will bear
interest at the rate of 1.5% per month (but not to exceed the maximum allowed by
law) on the delinquent amount from the due date until the date of payment.
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<PAGE>
5. Delivery of Shares. Upon delivery to Aries of the Deliverables, Aries
shall deliver to the Escrow Agent certificates representing the Shares, to be
held by the Escrow Agent until the earlier of (a) Aries' delivery to the Escrow
Agent of written confirmation that Administrator I and its accompanying
documentation perform in accordance with the warranties set forth in Section 9
of this Agreement, or (b) December 15, 1997, at which time the Escrow Agent
shall deliver the Shares to the shareholders of CDG, in amount and to the
persons listed on Attachment B. If, prior to December 15, 1997, Aries notifies
the Escrow Agent in writing, with copy to CDG, that Administrator I does not
perform in accordance with the warranties set forth in Section 9 of this
Agreement, and if CDG, within thirty (30) days thereafter, delivers to the
Escrow Agent a notice of its intent to invoke the dispute resolution procedures
set forth in Section 14 of this Agreement, then the Escrow Agent shall hold the
Shares until the selection of an arbitrator, at which time the Escrow Agent
shall deliver the Shares to the arbitrator. If CDG does not respond to Aries'
notice within thirty days, then the Escrow Agent shall return the Shares to
Aries.
6. Title. In addition to being the exclusive licensee of Administrator I,
Aries shall also be the sole owner of any modifications, enhancements or
derivatives of Administrator I that are developed by or on behalf of Aries.
Aries shall be entitled to use and/or sublicense any of the Core Concepts
without restrictions, but Vahl is, and shall remain, the owner of the Core
Concepts.
7. Cooperation by Aries. Aries acknowledges that successful performance of
the Services by Vahl is dependent on the cooperation of Aries and Customer;
therefore, as more fully described in the Statement of Work, Aries shall (a)
provide or cause to be provided to Vahl in a timely manner any information
reasonably requested by Vahl; (b) designate the liaisons between Aries and Vahl
who shall perform Aries' responsibilities and assure performance of Customers'
responsibilities; (c) perform any other functions and provide any other
resources as may reasonably be requested by Vahl.
8. Modifications. Aries may at any time during the term of this Agreement
make modifications, changes or enhancements to Administrator I, and such
modifications, changes or enhancements shall be owned by Aries. Aries may also
prepare and submit to Vahl a request for supplemental Services, which may
involve modifications, changes or enhancements to Administrator I. Requests for
supplemental Services shall be submitted to Vahl by Aries in writing or
confirmed by Vahl in writing. Vahl's response, which shall be provided in
writing within 30 days after receipt of Aries' request, shall state whether Vahl
is willing to perform the supplemental Services, and the amount of any
supplemental fees that Vahl would charge to perform such supplemental Services.
If Aries elects to proceed with the modifications, Vahl and Aries shall execute
a supplemental Statement of Work that describes in detail the supplemental
Services and the supplemental fees.
9. Warranties. CDG and Vahl represent and warrant to Aries that
Administrator I will contain all elements and documentation, and shall perform
as well, as the software that was beta tested and certified in 1994. CDG and
Vahl further represent and warrant that the Deliverables will contain all source
code and other documentation necessary to operate Administrator I on properly
equipped hardware. EXCEPT AS SET FORTH IN THIS SECTION, CDG AND VAHL MAKE NO
WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO ADMINISTRATOR I. CDG AND VAHL
HEREBY EXCLUDE ANY WARRANTY OF MERCHANTABILITY OR
3
<PAGE>
FITNESS FOR A PARTICULAR PURPOSE. ARIES ACKNOWLEDGES THAT, EXCEPT FOR THE
EXPRESS WARRANTY SET FORTH IN THIS PARAGRAPH, IT IS PURCHASING ADMINISTRATOR I
"AS IS."
10. Limitation of Remedies. In the event that Administrator I does not
perform in accordance with the warranty set forth in Section 9 above, Aries'
sole remedy shall be against CDG for a return of the Shares and the License Fee.
Aries understands and acknowledges that Vahl is not receiving any portion of the
License Fee or Shares, and, as such, shall have no liability to Aries for any
claim related to Administrator I. Aries hereby covenants on behalf of itself and
anyone claiming through Aries, not to assert any claims against Vahl that in any
way relate to Administrator I.
11. Confidential Information. In order to protect Aries' License in
Administrator I, and in order to protect Vahl's rights to the Core Concepts,
neither party will disclose to any person any Confidential Information of the
other party without the prior written consent of the other party, nor will
either party use Confidential Information of the other party for purposes other
than those necessary to directly further the purposes of this Agreement. Each
party agrees to safeguard the confidentiality of the other party's Confidential
Information.
12. Term and Termination. With respect to the Services to be performed by
Vahl, this Agreement shall continue until the completion of the Services and the
payment of the Consulting Fees. With respect to the License, this Agreement
shall continue in perpetuity, except that either party may terminate this
Agreement immediately if the other party becomes subject to a bankruptcy
proceeding or similar proceeding that is not dismissed within 60 days after
filing or if the other party commits a material default in the timely
performance of its obligations under this Agreement and (a) in the case of a
payment default, fails to cure the default within 10 days after notice from the
non-defaulting party, or (b) in the case of any other default, fails to fully
cure the default within 30 days after notice from the non-defaulting party, or
(c) in the case of a default that cannot reasonably be cured within 30 days
(which shall not include payment defaults), fails to commence and diligently
pursue to completion efforts to cure the default.
13. Force Majeur. No party shall be liable for failure to perform or delay
in performing any obligation (other than the payment of money) under this
Agreement if such failure or delay is due to any cause beyond the reasonable
control of such party.
14. Disputes. If any controversy arises under this Agreement, and if CDG
and Aries do not resolve the controversy within 30 days after one party gives
the other party written notice of the controversy, the dispute shall be resolved
at the request of either party exclusively through final and binding
arbitration. The arbitration shall be conducted by a single arbitrator in
Portland, Oregon, in accordance with the then-current rules for commercial
arbitration of the Arbitration Service of Portland, Inc. The decision of the
arbitrator may be enforced in any court of competent jurisdiction. All fees or
charges of the arbitration service and the reasonable attorney fees and costs
incurred by the prevailing party in the arbitration shall be paid by the
nonprevailing party, which fees and costs shall be set by the arbitrator.
15. Waiver. Failure to insist upon strict compliance with any of the terms,
covenants, or
4
<PAGE>
conditions of this Agreement shall not be deemed a waiver of the term, covenant,
or condition, which shall continue and remain in full force and effect, nor
shall any waiver or relinquishment of any right or power at any one time be
deemed a waiver or relinquishment of the right or power at any other time.
16. Governing Law. This Agreement shall be governed by the laws of the
State of Oregon, and the copyright, patent, and trademark laws of the United
States.
17. Attorney Fees. In the event that a dispute arises under this Agreement
or directly or indirectly out of this Agreement, and if arbitration, suit, or
action is instituted to enforce or interpret the terms of this Agreement, the
prevailing party in the arbitration, suit, or action, or on the appeal of such
arbitration, suit or action, shall be entitled to an award of their reasonable
attorney fees, as set by the arbitrator, court, or appeal court, and their
costs, including reasonable attorney fees and costs in collection of any
judgment.
18. Counterparts. This Agreement may be executed in counterparts and in
multiple originals. A photocopy of this Agreement once executed shall be
effective as an original if any original is unavailable.
19. Notices. Any and all notices or other communications required or
permitted by this Agreement or by law to be served on or given to any party
shall be in writing and shall be deemed served and given when personally
delivered to the parties to whom it is directed, or in lieu of such personal
services, three days after deposit in the United States mail, postage prepaid,
registered mail, return receipt requested, sent to the addresses set forth below
the signatures on this Agreement or such other addresses as any party may
require upon notice.
20. Incorporation of Attachments. All attachments are hereby incorporated
by reference into this Agreement, including the following:
Attachment A - Statement of Work
Attachment B - Distribution List for Shares
The parties have executed this Agreement as of the date set forth in the opening
paragraph.
Capital Development Group, Inc.
By:
-----------------------------------------
Printed Name:
-------------------------------
Title:
--------------------------------------
Notice Address:
-----------------------------
- --------------------------------------------
5
<PAGE>
Aries Financial Corporation
By:
-----------------------------------------
Printed Name:
-------------------------------
Title:
--------------------------------------
Notice Address:
-----------------------------
- --------------------------------------------
6
<PAGE>
STATEMENT OF WORK
Services to include:
o Assignment and transition of contractual relationship between CDG and
Zebec Data Systems ("Zebec"), which shall include access to Zebec's associated
Medtrax database, Znet database and related systems
o Other duties as reasonably requested by Aries that are consistent with
the purposes of this Agreement
o Aries shall reimburse Vahl for time incurred in performing services under
this Agreement at the rate of $75 per hour.
o Aries shall pay or reimburse Vahl for all expenses reasonably incurred by
Vahl in connection with the performance of the Services.
7
Exhibit 10.3
$ 20,000.00 December 31, 1998
The undersigned corporation promises to pay to the order of Gordon Root
($20,000.00) with interest thereon at the rate of eight and one-half percent (8
- -1/2%) per annum from date until paid, payable on or before December 31, 1999.
If such amount has not been paid by December 31, 1999, the whole sum of both
principal and interest will become immediately due and collectible to the holder
of this note.
If this note is placed in the hands of an attorney for collection, the
undersigned promises and agrees to pay the reasonable collection costs of the
holder hereof; and if suit or action is filed hereon, also promises to pay (1)
the holder's reasonable attorney's fees to be fixed by the trial court and (2)
if any appeal is taken from any decision of the trial court, such further sum as
may be fixed by the appellate court, as the holder's reasonable attorney's fees
in the appellate court.
CAPITAL DEVELOPMENT GROUP, INC.
By:
----------------------------
Michael P. Vahl, President
