UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 1O-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-25974
CAPITAL DEVELOPMENT GROUP, INC.
(Name of small business issuer in its charter)
Oregon 93-1113777
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4129 Main Street, Suite 100A, Riverside, CA 92501
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (909) 276-0873
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $0.0001
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days:
Yes [ X ] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-KSB or any
amendment to this Form 10-KSB. [ X ]
Issuer's revenues for its most recent fiscal year were $12,342. The aggregate
market value of voting stock held by non-affiliates of the registrant was
$2,237,042 as of March 15, 2000, based upon the last sales price as reported on
the Nasdaq OTC Bulletin Board.
The number of shares outstanding of the Registrant's Common Stock as of March
29, 2000 was 7,158,535.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [ X ]
Documents Incorporated by Reference
None.
<PAGE>
CAPITAL DEVELOPMENT GROUP, INC.
FORM 10-KSB INDEX
PART I
Page
Item 1. Description of Business
Item 2. Description of Property
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Item 6. Management's Discussion and Analysis or Plan of Operation
Item 7. Financial Statements
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
PART III
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a)
of the Exchange Act
Item 10. Executive Compensation
Item 11. Security Ownership of Certain Beneficial
Owners and Management
Item 12. Certain Relationships and Related Transactions
Item 13. Exhibits and Reports on Form 8-K
Signatures
2
<PAGE>
PART I
Note Regarding Forward-Looking Statements. This report includes "forward-looking
statements." Forward looking statements contained in this report are based on
our beliefs and assumptions and on information currently available to our
management. 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 predictions 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. A
partial list of the factors that may cause our actual results to vary from our
expectations is set forth in the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
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 7,158,535
shares were issued and outstanding as December 31, 1999. Shares of CDG
common stock have traded on the Nasdaq Stock Market - OTC Bulletin
Board since September 1994 under the symbol "CDVG."
CDG has never been the subject of a bankruptcy or receivership.
However, in late 1998 and early 1999, we resolved and settled claims
with a number of our creditors by exchanging creditors' claims totaling
approximately $460,000 for cash amounting to approximately $15,000 and
144,600 shares of our common stock. We were unable to locate
approximately 14 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 ("MAR") from
healthcare providers at a discount and to collect the MAR from payors,
primarily including third party healthcare insurers and managed care
organizations. Healthcare providers are willing to sell MAR at a
discount primarily because of liquidity needs. Due to claims procedures
and coordination of benefits among various payors of health care
claims, MAR cannot typically be collected within a
3
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short time period. This is particularly true for providers without
collection expertise. By selling their MAR 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 MAR on behalf of
healthcare providers.
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 MAR, we have tested Administrator I successfully
on MAR owned by third parties. Moreover, we granted a non-exclusive
license of Administrator I to Medcap, Inc. in 1994, and Medcap's
experience provided proof of concept by using 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 MAR or hiring a collection manager for their MAR.
We also hope to attract a diverse portfolio of MAR by acquiring
accounts receivable 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 for which we
can provide collection services. Each broker's commission will be
negotiated depending in large part on the volume of MAR generated by
the broker, but we expect commissions generally to range from 1% to 3%
of the amount of revenue generated by CDG from MAR that are acquired
through the broker. We have contacted a number of brokers who have
relationships with healthcare providers or 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 2000. To
promote our diversification strategy, we hope to enter into agreements
with a large number of brokers, thereby minimizing dependence on any
individual broker.
We expect that the price at which we will purchase MAR from providers
will be based on our assessment of the amount of time and expertise
needed to collect the MAR. The typical discounted purchase price is
expected to be between 95% and 99.5% of the amount of the MAR. Accounts
receivable are to be purchased "with recourse," and if a particular MAR
is not collected, the contributing provider will be required to replace
the MAR with an equivalent MAR or refund the purchase price. During our
formative stage, we plan to obtain the funds to purchase MAR by raising
private equity funds, and upon receipt of adequate equity investment,
by obtaining a substantial line of credit. As of December 31, 1999
neither the required equity financing nor any debt financing had been
acquired, and although we have begun to explore various financing
relationships,
4
<PAGE>
we cannot provide assurance that the necessary financing ultimately
will be secured.
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
currently exceed one hundred billion dollars annually. Of that amount,
we believe that approximately 60% become MAR that could be sold to
management companies and claims processors. 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 our 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 type of claims administration, we intend to provide
consulting services that will assist our customers in understanding the
character of their billings and tracking the timeliness of collections.
While these services are not currently available from CDG, and while we
can not assure investors that CDG ultimately will provide these
services, we believe we will be able to develop and market our planned
services and that these services will 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
$84,000 for accrued hourly billings and expenses.
ITEM 2. DESCRIPTION OF PROPERTY
The Registrant does not currently own or lease any real property. While
we anticipate leasing up to 1,500 square feet office space in OR NEAR
Riverside, California to conduct our operations, there can be no
assurance that adequate space can be obtained on terms and conditions
that will be acceptable to the Company.
ITEM 3. LEGAL PROCEEDINGS
The Registrant is not currently involved in any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the companies shareholders during the
fourth quarter of fiscal 1999.
5
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Market Information
The common stock of Capital Development Group, Inc. is currently traded on the
NASDAQ Over the Counter Bulletin Board under the symbol CDVG. The stock has
traded sporadically, the most recent reported trade being in mid-March 2000.
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.
-------------------------------
QUARTER LOW TRADE HIGH TRADE
---------- --------- ----------
Q4 1999 5/16 3/4
---------- --------- ----------
Q3 1999 5/32 1/4
---------- --------- ----------
Q2 1999 1/4 3/4
---------- --------- ----------
Q1 1999 1/16 1/2
---------- --------- ----------
Q4 1998 1/16 1/16
---------- --------- ----------
Q3 1998 1/4 1/4
---------- --------- ----------
Q2 1998 1/4 1/4
---------- --------- ----------
Q1 1998 1/8 1/8
---------- --------- ----------
The quotations reflect reported inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
Approximately 452,055 of the Registrant's shares are held in street name. The
remaining shares of common stock are held by approximately 51 individual
shareholders. We have not paid dividends on our common stock and do not
anticipate paying dividends in the future.
ITEM 6. 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, and at
December 31, 1999 they totaled approximately $24,000. Once we begin
negotiations for our initial purchase of MAR, 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 MAR, and until we begin to receive
cash flow from those MAR. However, neither Mr. Vahl nor Mr. Root is
obligated to continue
6
<PAGE>
lending money to us, nor is either of them prohibited from demanding
payment for outstanding loans at any time.
During the second quarter of 2000, 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.
In order to process MAR, 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. However, if we are successful in growing
our volume of managed MAR, it will be necessary to expand our equipment
base to include additional workstations and data storage. Additionally,
we will be required to hire full time employees to implement our MAR
collection and claims management. We anticipate hiring 5-10 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. We have had preliminary discussions with
counsel and with prospective investment bankers regarding the
appropriate method and process for raising equity capital. In
connection with the purchase of the MAR (and by using the MAR as
collateral), we also plan to seek an operating line of credit that will
allow us to expand our MAR acquisitions. The investment bankers with
whom we have spoken believe that we can obtain a secured operating line
of credit in an amount equal to six to ten times the amount of the
proposed equity financing. We expect that funds generated from
anticipated operations, together with the equity funding and operating
revenues, if both those financing sources become available, would be
sufficient to satisfy our capital requirements for the foreseeable
future.
(b) Management's Discussion and Analysis of Financial Condition and Result
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 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, and that license was made
and the license fees paid in 1997. We used the funds from the license
fees, 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. As a result of the debt compromise reached with creditors,
our payables have been reduced to $0. While we now have an accumulated
deficit of $2,159,276 and negative shareholder equity in the amount of
$117,635, we believe we have substantially
7
<PAGE>
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. However, we
may later experience claims from one or more creditors whose accounts
were not settled during 1999, and the occurrence of any one or more
such events, particularly if occurring at a time when our financial
condition has not improved substantially, would have a material adverse
effect upon our business and operations.
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%, effective retroactively to 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 CDG president Tom
Morrow, are no longer affiliated with CDG.
Mr. Vahl, CDG's current 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 and demand payment of
outstanding debts at any time. Assuming that Mr. Vahl continues to
provide necessary capital, we expect to become operational in the
second quarter of 2000. Prior to that time, we expect to:
1) License Administrator II from VSG.
2) Form a network of brokers to provide the necessary MAR.
3) Secure equity funding and a line of credit or alternative
financing arrangement necessary to purchase MAR or secure MAR
management agreements.
4) Commence 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.
We currently have no substantial cash reserves and have accumulated
significant liabilities. If we do not receive additional capital during
the first half of
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2000, we will be unable to implement our business plan and we will not
generate revenues sufficient to satisfy our existing liabilities. One
result of such an event is that our stock price would decrease
materially 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, other creditors exist, and some of those may
have claims that have not lapsed or been extinguished by statutes of
limitation or similar legal principles. Some of our 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 become insolvent or 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 MAR 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.
9
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
PORTER & COMPANY
Certified Public Accountant
3585 Maple Street, Suite 244
Ventura, California 93003
(805) 650-5090 o FAX (805) 650-0511
Member 72-875 Fred Waring Drive, #A
American Institute of CPA's Palm Desert, California 92260
California Society of CPA's (800) 304-6700
Gary A. Porter, CPA
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, 1999 and
1998 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, 1999 and 1998,
and the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
/S/
March 17, 2000
<PAGE>
<TABLE>
<CAPTION>
Capital Development Group, Inc.
Balance Sheet
December 31, 1999 and 1998
1999 1998
----------- -----------
ASSETS
<S> <C> <C>
Current Assets
Cash (Note 1) $ - $ 20,000
----------- -----------
Total Current Assets - 20,000
----------- -----------
Total Assets $ - $ 20,000
=========== ===========
LIABILITIES AND EQUITY
Current Liabilities
Accounts Payable(Notes 1 and 5) $ 3,240 $ 99,247
Accrued Liabilities(Note 2) 94,395 30,730
----------- -----------
Total Current Liabilities 97,635 129,977
----------- -----------
Long-Term Liabilities
Note Payable (Note 4) 20,000 20,000
----------- -----------
Total Long-Term Liabilities 20,000 20,000
----------- -----------
Total Liabilities 117,635 149,977
----------- -----------
Stockholders Equity
Common Stock at $.0001 par value 30,000,000 shares authorized;
7,158,535 and 6,989,500 shared issued and outstanding (Note 3) 716 699
Additional Paid in Capital 2,040,925 2,040,942
Accumulated Deficit (2,159,276) (2,171,618)
----------- -----------
Total Stockholders Equity (117,635) (129,977)
----------- -----------
Total Liabilities and Equity $ - $ 20,000
=========== ===========
</TABLE>
See Accountants Report
The Notes to Financial Statements Are An Integral Part of This Statement
<PAGE>
<TABLE>
<CAPTION>
Capital Development Group, Inc.
Statements of Income
For the Years Ended December 31, 1999 and 1998
1999 1998
------------- -------------
<S> <C> <C>
REVENUES
Software License Sales $ - $ -
------------- -------------
OPERATING EXPENSES
Management Fees 40,100 24,050
Professional Fees 28,375 14,093
Interest Expense 1,826 -
Other Administrative 6,716 4,642
------------- -------------
Total Operating Expenses 77,017 42,785
------------- -------------
Net Income (Loss) from Operations (77,017) (42,785)
Extraordinary Gain on Restructuring of Debt (Note 5) 89,359 293,324
------------- -------------
Net Income $ 12,342 $ 250,539
============= =============
Earnings Per Share on Income (Loss) from Operations $ (0.01) $ (0.01)
============= =============
Earnings Per Share on Extraordinary Gain $ 0.01 $ 0.04
============= =============
Earnings Per Share on Net Income $ - $ 0.04
============= =============
Average number of shares outstanding 7,116,276 6,388,565
============= ==================
</TABLE>
See Accountant's Report
The Notes to Financial Statements Are An Integral Part of This Statement
<PAGE>
<TABLE>
<CAPTION>
Capital Development Group, Inc.
Statements of Shareholders' Equity
For the Years Ended December 31, 1999 and 1998
Preferred Additional
Stock Common Paid in Accumulated
Total Series C Stock Capital Deficit
------------ ---------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
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)
Net Income at December 31, 1999 12,342 12,342
Issuance of Common Stock - - 17 (17) -
------------ ---------- -------- ---------- -------------
Balances at December 31, 1999 $ (117,635) $ - $ 716 $2,040,925 $ (2,159,276)
============ ========== ======== ========== =============
</TABLE>
See Accountant's Report
The Notes to Financial Statements Are An Integral Part of This Statement
<PAGE>
Capital Development Group, Inc.
Statements of Cash Flows
For the Years Ended December 31, 1999 and 1998
1999 1998
---------- ---------
Cash Flows From Operating Activities:
Net Income $ 12,342 $ 250,539
---------- ---------
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities:
Write off Adjustment to Accounts Payable (89,359) (293,324)
Change in Assets and Liabilities:
Change in Prepaid Expenses - 2,287
Change in Deposits -
Change in Accounts Payable (6,648) (12,000)
Change in Accrued Expenses 63,665 13,334
---------- ---------
Total Adjustments (32,342) (289,703)
---------- ---------
Net Cash (Used) By Operations (20,000) (39,164)
---------- ---------
Cash Flows from Financing Activities: - -
---------- ---------
Cash Flows from Financing Activities:
Proceeds from Notes Payable - 20,000
---------- ---------
Net Cash Provided by Financing Activities - 20,000
---------- ---------
Net (Decrease) in Cash (20,000) (19,164)
Cash and Cash Equivalents at Beginning of Year 20,000 39,164
---------- ---------
Cash and Cash Equivalents at End of Year (Note 1) $ - $ 20,000
========== =========
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>
Capital Development Group, Inc.
Notes to Financial Statements
December 31, 1999 and 1998
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 receivables 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, 1999 and
1998.
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.
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 $2,159,000 in 1999.
Deferred tax assets for the NOL carry forwards of $881,832 and $885,190
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 years 1999 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.
<PAGE>
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 $82,701 in 1998 and 1999 respectively. Total charges to the
Company for management and expenses are $11,297 and $54,009 in 1998 and 1999
respectively.
The note payable in 1999 is also payable to a shareholder and an investment
consultant of the company. The terms of the note payable include annual interest
payable at 8.5 %, and is unsecured. The note is due upon demand.
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, 1999 and 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 $48,385 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, 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.
<PAGE>
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 remained in accounts payable at December 31, 1998. 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.
Therefore, the remaining amount of $89,359 has been removed from the balance
sheet as a liability, and recorded as an extraordinary gain on the income
statement for the year ended December 31, 1999.
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>
ITEM 8. CHANGES WITH AND DISAGREEMENTS WITH ACCOUNTANTS
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Michael P. Vahl, age 42, 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.
Based upon a review of forms submitted to the registrant, neither Mr. Vahl nor
Mr. Root has timely filed all reports required to be filed pursuant to Section
16(a) of the Exchange Act.
ITEM 10. 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, 1999 - $0. CDG
currently is indebted to him for approximately $82,000 in loans and unpaid
services, and anticipates that this indebtedness will grow to approximately
$100,000 by the end of the second quarter of 2000. 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 2000, 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.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Amount and Nature of
Beneficial Ownership
Name of Beneficial Owner
Title of Class Percent of Class
- ---------------- ------------------------ -------------------- ----------------
Common Stock Michael P. Vahl 5,120,085 71.52
- ---------------- ------------------------ -------------------- ----------------
Common Stock Gordon Root 1,101,700 15.39
- ---------------- ------------------------ -------------------- ----------------
No arrangement known to the registrant would reasonably be expected to result in
a change in control of the registrant.
ITEM 12. 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.
Mr. Vahl has also advanced approximately $82,000 to CDG that also bears interest
at 0% 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 2000, 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 MAR collected
through use of Administrator II, regardless of the size of the MAR (i.e.
collection of a $100 MAR requires the same $0.25 fee as collection of a $1,000
MAR). Based on the fact that VSG has been offered a similar royalty by a
competing MAR purchaser, CDG believes this fee is reasonable and reflects arms'
length consideration and terms.
In December 1998, Mr. Gordon Root, a shareholder of the Company, 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.
Except for the relationships disclosed above and 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 13. EXHIBITS AND REPORTS ON FORM 8-K
None.
Signatures
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, hereunto duly
authorized.
CAPITAL DEVELOPMENT GROUP, INC.
By:/s/
Michael P. Vahl, President
Principal Executive Officer
March 29, 2000
By:/s/
Michael P. Vahl, President
Principal Financial Officer
March 29, 2000
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<PERIOD-END> DEC-31-1999
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0
0
<COMMON> 716
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