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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Three Months Ended September 30, 2000
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CAPITAL DEVELOPMENT GROUP, INC.
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(Exact name of registrant as specified in its charter)
OREGON 93-1113777
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(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or
organization)
4333 Orange Street, Suite 3600 Riverside, CA 92501-3839
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(Address of principal administrative (City, State, Zip Code)
offices)
(909) 276-0873
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(Registrants telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes _X__ No
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Class Shares Outstanding, September 30, 2000
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Common Stock, $.0001 par value 9,963,935
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Capital Development Group, Inc.
Consolidated Balance Sheet
September 30, 2000 September 30, 1999
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ASSETS
Current Assets
Cash and cash equivalents $ 5,011 $ -
Accounts Receivable 65,882 -
Prepaid Expenses 75,000 -
--------- ---------
Total current assets 145,893 -
Fixed Assets 40,313 -
Income tax provision 493,974 442,773
Other Assets 313,643 -
--------- ---------
TOTAL ASSETS $ 993,823 $ 442,773
========= =========
LIABILITIES & EQUITY
Liabilities
Current Liabilities
Accounts Payable $ 62,577 $ 97,099
Advances from stockholders 75,000 -
Accrued Expenses 12,419 -
Loans from affiliates 99,357 84,273
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Total Current Liabilities 249,353 181,372
Convertible Notes Payable 235,000 -
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Total Liabilities 484,353 181,372
Equity
Paid in Capital 2,493,301 2,040,942
Offering Expenses (9,150) (9,150)
Common Stock 1,213 699
Retained Earnings (1,719,409) (1,719,409)
Net Loss (256,486) (41,116)
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Total Equity 509,470 261,401
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TOTAL LIABILITIES & EQUITY $ 993,823 $ 442,773
========= =========
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
Capital Development Group, Inc.
Income Statement
For the Nine (9) Months Ending
Jan - Sep 2000 Jan - Sep 1999
--------------- ---------------
<S> <C> <C>
Revenues $ 65,788 $ -
Expense
General and administrative 79,881 10,510
Product Support 153,340 -
Professional Fees 38,419 5,708
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Total Expense 271,640 16,218
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Net Ordinary Income (205,863) (16,218)
Income tax provision 41,172 3,243
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Net Income $(164,690) $ (12,975)
========= =========
Earnings per share on Income(Loss) from Operations (0.02) (0.00)
========= =========
Average number of shares outstanding 8,726,909 7,158,535
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
Capital Development Group, Inc.
Statement of Cash Flows
For the Nine (9) Months Ending
January through September
2000 1999
<S> <C> <C>
Increase (decrease) in cash
Cash flows from operating activities
Net loss $(164,690) $ (12,974)
Change in current assets
Increase) decrease in:
Accounts receivable (36,692) 0
Prepaid expenses (69,000) 0
Income tax provision (41,172) (3,244)
Change in current liabilities (Decrease) increase in:
Accounts payable 13,436 440
Advances from shareholder 75,000
Accrued expenses (1,737) 0
Due to affiliates 72,242 15,778
Net cash used for operating activities (152,613) 0
Cash flows from investing activities
Purchase of fixed assets (506) 0
Investment in other assets 1,380 0
Net cash used for investing activities 874 0
Cash flows from financing activities
Issuance of notes 25,000 0
Issuance of stock 0 0
Net cash provided by financing activities 25,000 0
Net increase (decrease) in cash (126,739) 0
Cash, beginning of period 131,750 0
Cash, end of period $ 5,011 $ 0
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
Organizational Data:
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Capital Development Group, Inc. 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 purchase and
collections of accounts receivable.
Effective April 1, 2000, the Capital Development Group, Inc. acquired IntraMed
Corporation, a developer of unique claims processing software. IntraMed was
purchased for common stock and the assumption of ongoing expenses including the
funding of the customization and research into developing enhancements to the
software. IntraMed will operate as a subsidiary of the company.
Effective April 1, 2000, the company acquired HealthSource Financial Advisors,
LLC, a provider of medical consulting and financing programs. HealthSource
Financial Advisors was purchased for common stock and Preferred Stock Series A
and the assumption of ongoing expenses including funding for additional
refinement of the entities existing and active programs. HealthSource Financial
Advisors will operate as a subsidiary of the company.
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.
Basis of Presentation
Compilations are limited to presenting, in the form of financial statements,
information that is the representation of management. The financial statements
have not been audited or reviewed.
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 both regular
checking accounts and a brokerage investment account.
Property & Equipment:
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Property and equipment owned by the Company are being depreciated over a period
of 5 to 7 years.
Capitalized software costs are amortized over a period of 15 years.
<PAGE>
Income Taxes:
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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 $2,470,000 in the third quarter of
2000. A deferred tax asset has been recorded. 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.
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 56% 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 completely, and has therefore recorded accrued liabilities of $159,901
in 2000. Total charges to the Company for management and expenses are $78,237 in
the third quarter of 2000.
The 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 Company has received a licensing commitment from The Vahl Software Group, an
assumed business name of the Company President, for Administrator 2, which is a
new software package that is functionally similar to Administrator 1. The
license agreement for Administrator 2 will require the Company to pay The Vahl
Software Group a royalty of $0.25 for each medical account receivable processed
through Administrator 2.
NOTE 3 - PREFERRED STOCK AND COMMON STOCK ISSUANCES:
The company 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 of the year, the per share
earnings would have been decreased by $.0006 on income before extraordinary
items, and $.0039 on net income.
<PAGE>
NOTE 4 - LONG-TERM NOTES PAYABLE
The Company has issued $235,000 in subordinated convertible promissory notes due
November 30, 20001. The notes bear interest from the date transacted of $10% per
annum until paid or until maturity. The Holder may convert all of the
outstanding principal of the note into the Company's Common Stock (a) at the
election of each Holder (i) within 120 days prior to the reasonably anticipated
effective date of any registered, underwritten public offering of the Company's
equity securities with proceeds to the Company in excess of $7,000,000 at a
valuation in excess of $15,000,000 (a "Qualifying Public Offering"); (ii) upon
the occurrence of an Event of Default; (iii) contemporaneously with a private
placement of the Company's equity securities resulting in an investment by one
or a group of five or fewer investors of not less than $2,000,000 (a "Qualifying
Private Placement"); (iv) immediately prior to the closing of any merger,
reorganization or sale of all or substantially all of the Company's assets; (v)
on or before the tenth (10th) day prior to a prepayment date specified in a
notice of prepayment given pursuant to Section 3, above; or (vi) at the Maturity
Date; or (b) at the election of the Company within 120 days prior to the
reasonably anticipated effective date of any Qualifying Public Offering. The
number of shares issuable upon conversion (the "Conversion Shares") shall be
equal to the total amount of principal and unpaid interest on this Note as of
the date of conversion, divided by the Conversion Price. The Conversion Price
per share shall be equal to the lesser of (I) the lowest per-share price at
which Common Stock has been sold to any person (other than pursuant to exercise
of stock options or warrants) at any time after the issuance of this Note and
before the date of conversion; or (II) $0.50.
NOTE 5 - EXTRAORDINARY ITEMS AND COMMITMENTS AND CONTINGENCIES:
At December 31, 1998, the Company sought to settle debts incurred in prior
years. Creditors representing the majority of the outstanding debt accepted the
settlement, but several creditors did not respond. In 1998, those liabilities to
vendors that did not respond were written off and recorded as an extraordinary
gain on restructuring of debt. These vendors may seek payment from the Company
in the future. The Company plans to defend any subsequent claims for past
obligations by raising defenses of estoppel and time limitation, among others.
Item 2. Management Discussion and Analysis or Plan of Operation
Disclosure regarding forward-looking statements.
This filing includes "forward-looking statements" as that term is defined in the
Private Securities Litigation Reform Act of 1995. Forward-looking statements are
based on management's beliefs and assumptions based on currently available
information. All statements other than statements of historical fact regarding
our financial position, business strategy and management's plans and objectives
for future operations are forward-looking statements. Although the Company
believes that management's expectations as reflected in forward-looking
statements are reasonable, we can give no assurance that those expectations will
prove to be correct. Forward-looking statements are subject to various risks and
uncertainties that may cause our actual results to differ materially and
adversely from our expectations as indicated in the forward-looking statements.
Many of these risks and uncertainties are disclosed in our recent filings with
the Securities and Exchange Commission, including those set forth below and
those disclosed in our quarterly report on Form 10-Q for the quarter ended June
30, 2000. You should be aware that these factors are not an
<PAGE>
exhaustive list, and you should not assume these are the only factors that may
cause our actual results to differ from our expectations.
(a) Plan of Operation
In May thru September of 2000, the company raised $235,000 in the form
of Convertible Notes (see Part II, Item 2). The company expects to
raise additional funds in the same manner in the fourth quarter of
2000. The company anticipates it will begin to generate revenue
starting in the fourth quarter of 2000. The company moved to its new
office facility in May 2000.
During the fourth quarter of 2000, the company plans to finalize its
license agreement with The Vahl Software Group (VSG) for its
Administrator 2 tracking software. Due to the affiliated relationship
between VSG and CDG, Mr. Gordon Root and CDG counsel plan to negotiate
and approve the license on behalf of CDG. Although various terms of the
license agreement are yet to be negotiated, CDG has received a verbal
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 Medical Accounts Receivable (MAR) processed through Administrator
2.
In connection with the documentation of the license for Administrator
2, the purchase of hardware components and the engagement of full time
employees, CDG will be seeking approximately $2 million to $5 million
in additional equity investment or debt financing in order to finance
our initial purchase of MAR. CDG has 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), CDG also plans to seek an operating line of credit to
allow the company to expand its MAR acquisitions. The investment
bankers with whom CDG has spoken have suggested that CDG may obtain a
secured operating line of credit in an amount equal to six to ten times
the amount of the proposed equity or debt financing. The funds from the
operating line, together with the equity funding and operating
revenues, should be sufficient to satisfy its capital requirements for
the foreseeable future.
Healthcare Logx (Logx) is an Arizona based firm that manages Ancillary
Networks for large healthcare plans. Logx is planning to use the
IntraMed Software to manage the networks that it receives management
contracts with. Logx is going live with the software on their first
contract on November 1, 2000. While IntraMed and Logx have agreed to
preliminary fees for the use of the software, they have indicated that
they plan to finalize CDG's licenses before the end of the year.
(b) Management's Discussion and Analysis of Financial Condition and Results
of Operations
During the past five years, our director and officer has 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 CDG
has sought diligently to correct. The only revenue CDG has generated
during the past four years was a software license fee from Aries
Financial Group in the amount of $100,000.CDG used these funds, in
large part, to reach accords with most of its creditors, all of whom
were due monies for products or services provided prior to March, 1995.
As a
<PAGE>
result of these compromises reached with creditors, CDG's payables with
respect to those prior obligations have been eliminated for accounting
purposes. While we now have an accumulated deficit of $2,469,868, the
company believes it has substantially reduced the likelihood of
material claims by its creditors and that its financial condition, due
to the significant debt reduction, is more stable than in the months
immediately following the fraud.
CDG 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. CDG was
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. CDG also
was awarded monetary damages against the perpetrators equal to the cash
consideration paid to the perpetrators, but the prospect of recovery is
remote. Significantly, all of the individuals who approved the
fraudulent transaction, including our former president, are no longer
affiliated with CDG.
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 CDG's
business, financial conditions and operations, and those effects may be
material and adverse. These uncertainties include the following.
CDG may be subject to claims by creditors for claims arising before
1995.
CDG has searched for and reached accord with what we believe to be most
of its creditors. However, CDG believes 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 CDG for amounts owed or
claimed to be owed from prior obligations. If one or more of these
claims is significant in comparison to CDG's operations, CDG may be
forced into a bankruptcy or similar proceeding. Such an event would
affect CDG's operations, business and financial condition materially
and adversely.
CDG is 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 CDG 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 CDG. Some of these companies also have greater
experience and/or more efficient collection methods
<PAGE>
than CDG might develop. If CDG fails to compete effectively with
businesses that provide similar services, our business operations and
financial condition will be affected materially and adversely.
Technology Risks
CDG and its subsidiary IntraMed are developing new technology. We may
not be able to complete the project in a timely fashion. We also may
not be able to complete it without cost overruns. If developed, the
product might not meet our needs. Any one or more of these factors may
have a material adverse effect on our revenues and/or expenses.
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No legal proceedings have occurred or are occurring in this quarter.
ITEM 2. CHANGES OF SECURITIES
At its Special Meeting of Shareholders held on August 15, 2000 the Company
adopted its Restated Articles of Incorporation. One effect of the amendment was
to afford the Company's board of directors the discretion to designate and to
set the terms, preferences, conditions and limitations of future series of
preferred stock. The full text of the Restated Articles of Incorporation is set
forth as Exhibit 3.1.
In May and June 2000, the company sold $210,000 in Convertible Notes. The
company also sold another $25,000 in July, August and September. The conversion
features are as follows:
Holder may convert all, but not less than all, of the then outstanding principal
amount of this Note into the Company's Common Stock (a) at the election of each
Holder (i) within 120 days prior to the reasonably anticipated effective date of
any registered, underwritten public offering of the Company's equity securities
with proceeds to the Company in excess of $7,000,000 at a valuation in excess of
$15,000,000 (a "Qualifying Public Offering"); (ii) upon the occurrence of an
Event of Default; (iii) contemporaneously with a private placement of the
Company's equity securities resulting in an investment by one or a group of five
or fewer investors of not less than $2,000,000 (a "Qualifying Private
Placement"); (iv) immediately prior to the closing of any merger, reorganization
or sale of all or substantially all of the Company's assets; (v) on or before
the tenth (10th) day prior to a prepayment date specified in a notice of
prepayment given pursuant to Part 3, above; or (vi) at the Maturity Date; or (b)
at the election of the Company within 120 days prior to the reasonably
anticipated effective date of any Qualifying Public Offering. The number of
shares issuable upon conversion (the "Conversion Shares") shall be equal to the
total amount of principal and unpaid interest on this Note as of the date of
conversion, divided by the Conversion Price. The Conversion Price per share
shall be equal to the lesser of (I) the lowest per-share price at which Common
Stock has been sold to any person (other than pursuant to exercise of stock
options or warrants) at any time after the issuance of this Note and before the
date of conversion; or (II) $0.50.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
No defaults have occurred this quarter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 15th 2000, Capital Development Group, Inc., held its Annual Meeting of
Shareholders in Portland, Oregon. The following matters were submitted to the
shareholders for a vote:
1. Election of the Board of Directors.
<PAGE>
The shareholders elected Gordon C. Root, Joseph V. DiFilippo
and Michael P. Vahl to the Board of Directors.
2. Ratification of Auditors.
The shareholders voted to give the Board of Directors the
authority to contract with Ernst & Young LLP or Moss Adams LLP
as the company's auditors for the 2000 fiscal year.
3. Approval of Restated Articles of Incorporation.
The shareholders approved the Restated Articles of
Incorporation as shown as Exhibit 3.1.
All votes in the above matters were without dissent.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit Item
3.1 Articles of Incorporation
27.1 Financial Data Schedule
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Capital Development Group, Inc.
By: /s/ Michael P. Vahl, President
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November 14, 2000
