1
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------
FORM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000.
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
Commission file number: 0-28511
CAPRI CORP.
(Exact Name of Small Business Issuer as Specified in Its Charter)
MINNESOTA 41-1704533
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2651 WARRENVILLE ROAD, SUITE 560, DOWNERS GROVE, ILLINOIS 60515
(Address of Principal Executive Offices)
(630) 874-5500
(Issuer's Telephone Number, Including Area Code)
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 ____
The registrant has a single class of common stock, of which there are
12,908,091 shares issued and outstanding as of May 1, 2001
Transitional Small Business Disclosure Format (Alternative 2):
Yes X No ____
================================================================================
2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CAPRI CORP. AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
March 31, 2001
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 477,548
Accounts receivable, net 2,315,895
Refundable income taxes 162,572
Other current assets 128,144
-----------
Total current assets 3,084,159
Computer software development costs, net 983,840
Fixed assets, net 793,256
Other assets 99,050
-----------
Total assets $ 4,960,305
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Current Liabilities:
Accounts payable and accrued expenses $ 488,184
Deferred sales 593,219
-----------
Total current liabilities 1,081,403
Non-current liabilities:
Deferred income taxes payable 127,508
-----------
Total liabilities 1,208,911
-----------
Stockholders' equity:
Common stock 129,081
Additional paid in capital 1,307,010
Retained earnings 2,456,771
Accumulated other comprehensive income:
Foreign currency translation adjustments (141,468)
-----------
Total stockholders' equity 3,751,394
-----------
Total liabilities and
stockholders' equity $ 4,960,305
===========
See notes to condensed consolidated financial statements.
3
CAPRI CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
For the Three Months and Nine Months Ended March 31, 2001 and 2000
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------- ---------------------------
2001 2000 2001 2000
---------- ----------- ----------- -----------
REVENUE:
Software sales $ 325,756 $ 1,150,616 $ 1,392,800 $ 2,863,465
Software maintenance 608,901 463,245 1,729,047 1,260,597
Other 307,690 338,723 910,436 1,034,357
---------- ----------- ----------- -----------
Total revenues 1,242,347 1,952,584 4,032,283 5,158,419
COST OF REVENUES 681,647 480,515 1,982,371 1,388,925
---------- ----------- ----------- -----------
Gross profit 560,700 1,472,069 2,049,912 3,769,494
OTHER OPERATING COST:
Research and development 47,709 98,701 258,634 330,843
Selling and marketing 385,706 302,418 992,750 754,980
General and administrative 723,831 538,137 1,891,517 1,279,221
---------- ----------- ---------- ----------
Operating income (loss) (596,546) 532,813 (1,092,989) 1,404,450
---------- ---------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income 50,472 18,471 59,002 54,414
Other income/expense 22,411 500 (40,167) 2,084
---------- ---------- ----------- -----------
Total other income (expense) 72,883 18,971 18,835 56,498
---------- ---------- ----------- -----------
Net income (loss) before income taxes (523,663) 551,784 (1,074,154) 1,460,948
INCOME TAX EXPENSE (BENEFIT) (123,907) 224,413 (253,693) 587,391
---------- ---------- ----------- -----------
Net income (loss) $ (399,756) $ 327,371 $ (820,461) $ 873,557
========== ========== =========== ===========
EARNINGS PER SHARE:
Basic $ (0.03) $ 0.03 $ (0.06) $ 0.07
========== ========== =========== ===========
Diluted $ (0.03) $ 0.03 $ (0.06) $ 0.07
========== ========== =========== ===========
See notes to condensed consolidated financial statements.
4
CAPRI CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders' Equity
For the Nine Months Ended March 31, 2001 and 2000
(Unaudited)
FOREIGN
ADDITIONAL CURRENCY
COMMON PAID-IN RETAINED TRANSLATION
TOTAL STOCK CAPITAL EARNINGS ADJUSTMENTS
----------- --------- ----------- --------- ------------
Balance, July 1, 1999 $ 3,521,204 $ 122,853 $ 1,197,538 $ 2,269,577 $ (68,764)
Comprehensive income:
Net income 873,557 - - 873,557 -
Other comprehensive income:
Foreign currency translation adjustment (22,455) - - - (22,455)
----------- --------- ----------- ----------- ---------
Total comprehensive income 851,102 - - 873,557 (22,455)
----------- --------- ----------- ----------- ----------
Balance, March 31, 2000 $ 4,372,306 $ 122,853 $ 1,197,538 $ 3,143,134 $ (91,219)
=========== ========= =========== =========== ==========
Balance, July 1, 2000 $ 4,606,427 $ 129,081 $ 1,307,010 $ 3,277,232 $ (106,896)
Comprehensive income:
Net loss (820,461) - - (820,461) -
Other comprehensive income:
Foreign currency translation adjustment (34,572) - - - (34,572)
----------- --------- ----------- ----------- ----------
Total comprehensive income (855,033) - - (820,461) (34,572)
----------- --------- ----------- ------------ ----------
Balance, March 31, 2001 $ 3,751,394 $ 129,081 $ 1,307,010 $ 2,456,771 $ (141,468)
=========== ========= =========== =========== ===========
See notes to condensed consolidated financial statements.
5
CAPRI CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For Three Months and Nine Months Ended March 31, 2001 and 2000
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------- ---------------------------
2001 2000 2001 2000
---------- ----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (399,756) $ 327,371 $ (820,461) $ 873,557
---------- ----------- ----------- -----------
Adjustments to reconcile net income (loss) to cash
provided by (used in) operating activities:
Depreciation and amortization 106,046 95,822 355,232 200,975
Provision for losses 36,865 4,000 144,926 16,000
Foreign currency translation
adjustment (14,035) (7,700) (34,573) (21,293)
(Increase) decrease in:
Accounts receivables 88,568 (574,559) (457,001) (1,260,369)
Unamortized software
development costs (158,434) (75,000) (407,731) (225,000)
Other current assets (7,156) 50,787 (47,501) 3,543
Other assets (11,665) (20,928) (69,888) -
Increase (decrease) in:
Accounts payable and accrued expenses 209,465 11,225 (324,253) (119,617)
Deferred sales 64,500 998,156 (393,611) 868,961
Other current liabilities (1,799) - - -
Accrued and deferred income
taxes payable (127,687) 88,798 (867,777) 210,888
---------- ----------- ------------- -----------
Total adjustments 184,668 570,601 (2,102,177) (325,912)
---------- ----------- ------------ -----------
Net cash provided by (used in) operating activities (215,088) 897,972 (2,922,638) 547,645
---------- ----------- ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (16,955) (53,146) (367,686) (183,560)
---------- ----------- ------------ -----------
Net cash used in investing activities (16,955) (53,146) (367,686) (183,560)
---------- ----------- ------------ -----------
Net increase (decrease) in cash and cash equivalents (232,043) 844,826 (3,290,324) 364,085
CASH AND CASH EQUIVALENTS:
Beginning of period 709,591 1,288,887 3,767,872 1,769,628
---------- ----------- ------------ -----------
End of period $ 477,548 $ 2,133,713 $ 477,548 $ 2,133,713
========== =========== ============ ============
See notes to condensed consolidated financial statements.
6
Capri Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
1. BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements include the accounts
of Capri Corp. (the "Company") and its wholly-owned subsidiaries after
eliminating material intercompany balances and transactions. These statements
and related notes have been prepared pursuant to the rules and regulations of
the U.S. Securities and Exchange Commission. Accordingly, certain information
and footnote disclosures normally included in the financial statements prepared
in accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations. The accompanying condensed consolidated
financial statements and related notes should be read in conjunction with the
audited financial statements of the Company, and notes thereto, for the fiscal
year ended June 30, 2000. The following information reflects, in the opinion of
management, all adjustments, consisting of normal recurring accruals, necessary
for a fair presentation of the interim period results. Operating results for
interim periods are not necessarily indicative of results which may be expected
for the year as a whole.
Use of Estimates
Preparation of the Company's financial statements requires management to make
estimates and assumptions that affect reported amounts of assets and liabilities
and related revenues and expenses. Actual results could differ from the
estimates used by management.
2. SELECTED SIGNIFICANT ACCOUNTING POLICIES
Software development costs
The Company accounts for its software development costs in accordance with
Statement of Financial Accounting Standards (SFAS) No. 86, "Accounting for the
cost of computer software to be sold, leased, or marketed". Initial costs are
charged to operations as research and development until such time as the Company
has established technological feasibility of the computer software product.
Technological feasibility is established when a product and detail program
design is complete, resources have been allocated to the project, the detail
program specifications are confirmed to be consistent with the product design
and the detail program design does not contain any high risk development issues.
Thereafter, the Company capitalizes certain payroll costs, payroll related
costs, outside contracted services and costs to obtain certain third-party
licenses associated with the development of the software program.
7
Amortization of capitalized costs starts when the product is available for
general release to the public. The Company's policy is to amortize capitalized
costs by the greater of (a) the ratio that the current gross revenue for a
product bear to the total of current and anticipated future gross revenue for
that product, or (b) the straight-line method over the remaining estimated
economic life of the product including the period being reported upon.
Unamortized software costs are carried at the lower of book value or the net
realizable value, as determined by management.
Revenue recognition
The Company recognizes revenue from software using the provisions of the
American Institute of Certified Public Accountants (AICPA) Statement of Position
(SOP) 97-2, "Software Revenue Recognition" and Statement of Position (SOP) 98-9,
"Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain
Transactions". Under these provisions, revenue from software sales is recognized
when all of the following criteria are met: pervasive evidence of an arrangement
exists, delivery of the software has occurred, the fee is fixed or determinable,
and collectibility is probable.
The Company has identified the elements that may exist within a sales
arrangement as software, software maintenance, hardware and services. The
Company uses vendor specific objective evidence ("VSOE") to determine the fair
value to assign to the software maintenance, hardware and service elements when
it exist within the sales arrangement. VSOE is established by using the price
the Company charges other customers when the same element is sold separately.
The Company uses the residual method to determine the value of the sale
arrangement to assign to the software sale. Under this method, all other
elements within the sales arrangement are identified and valued using VSOE. The
total of all the identified elements are pulled-out of the total sales
arrangement value and the remaining amount is assigned to the software.
Revenue from software sales is recognized when the software is delivered and has
been installed onto the customer's computer. In the event a customer is granted
a right to return the software, recognition of revenue is deferred until such
time as the right to return expires.
Software maintenance is charged to the customer as an annual fee, based on a
predetermined percentage of the original software costs and is recognized
monthly, on a straight-line basis. Maintenance is usually billed to the customer
quarterly and continues to be provided to the customer for as long as they pay
for the maintenance.
Other revenue includes revenue from the sale of hardware and other services,
such as installation, implementation, training or customization and is
recognized at the time the product or service is delivered.
8
3. EARNINGS PER SHARE
Basic earnings per share is calculated using the weighted average number of
shares outstanding during the period. Diluted earnings per share is computed on
the basis of the weighted average number of common shares outstanding plus the
diluted effect of shares associated with the common stock option plan, treated
as if they were exercised.
The following table sets forth the computation of basic and diluted earnings per
share:
Three Months Ended Nine Months Ended
------------------ -----------------
March 31, March 31, March 31, March 31,
--------- --------- --------- ---------
2001 2000 2001 2000
Net income (loss) $ (399,756) $ 127,371 $ (820,461) 873,557
=========== ============ =========== ===========
Weighted average shares
outstanding 12,908,091 12,285,257 12,908,091 12,285,257
Dilutive effect of the
common stock option plan
724,339 760,834 724,339 760,834
----------- ------------ ----------- -----------
Diluted shares outstanding
13,632,430 13,046,091 13,632,430 13,046,091
=========== ============ =========== ===========
Basic earnings per share
$(0.03) $ 0.03 $ (0.06) $ 0.07
Diluted earnings
Per share $(0.03) $ 0.03 $ (0.06) $ 0.07
4. SEGMENT INFORMATION
The Company has adopted Statement of Financial Accounting Standards (SFAS) No.
131, "Disclosures about Segments of an Enterprise and Related Information". The
Company's chief operating decision-makers recognize that all revenue sources are
dependent on the sale of its software product, Paradigm(R). Accordingly, the
Company considers it has only one business segment.
5. AVAILABLE LINE OF CREDIT
On October 30, 2000 the Company renewed the revolving credit agreement with
American National Bank and Trust Company of Chicago, dated October 30, 1999,
which provides an open line of credit of up to five hundred thousand dollars
9
($500,000). This line of credit, which expires on October 31, 2001, provides for
interest at one percent over the published prime rate of the bank on funds used,
and is secured by the assets (excluding intellectual property) of the Company
and its domestic subsidiary. As of March 31, 2000, the Company has utilized
$120,000 of the line in the form of an irrevocable letter of credit issued as
security against renovations to the Company's new headquarters location.
Assuming no events of default occur, the letter automatically reduces by $40,000
every six months, and fully expires in 2002. At the balance sheet date, the
Company had failed to meet a financial covenant under the revolving credit
agreement. At that date, there was no outstanding debt which would have to be
reclassified, therefore no waiver was requested from the lender with respect to
this covenant.
6. TRANSACTION WITH INTERCONEXUS.COM, INC.
In March 2000 the Company formed a wholly-owned subsidiary, InterConexus.com,
Inc. ("ICC"). At the same time, the Company sought to register the common stock
of ICC under the provisions of section 12(g) of the Securities Exchange Act of
1934. The registration statement became effective on May 31, 2000. On May 18,
2000, the Company declared a distribution of all the issued and outstanding
shares of ICC common stock to the Company's stockholders of record on May 30,
2000, payable on June 1, 2000, through a taxable spin-off. The distribution was
on the basis of one share of ICC for each share of the Company's common stock
held on the record date.
During the year ended June 30, 2000, Capri invested $11,291 and received
12,908,091 shares of ICC common stock with a par value $.0001. At the spin-off
date, the Board of Directors declared the dividend value to be $.0001 per share.
Accordingly, the Company recorded a charge to operations of $10,000 to adjust
its investment to the value of the declared dividend of $1,291.
On December 28, 2000, ICC filed a Form 15 to deregister its common stock under
the provisions of the Securities Exchange Act of 1934. The Form 15 became
effective on March 28, 2001.
Related party transactions with ICC
The Company and ICC have common members of their respective Board of Directors.
For the purpose of governing certain ongoing relationships between the Company
and ICC after the spin-off, the Company's domestic subsidiary Cimnet Systems,
Inc. ("Cimnet") and ICC have entered into a services agreement and adopted
certain policies as follows:
The services agreement enables either company to provide certain services to the
other on an as-needed basis, at cost. The services provided under this
10
agreement include, but are not limited to, accounting services, computer
services, insurance coverage, payroll processing services and management of
employee benefit programs, or any other similar services. The agreement does not
preclude either party from obtaining these services from unrelated third parties
or from developing their own in-house capabilities.
Cimnet has agreed to share office space with ICC and allocates to ICC its
pro-rata share of rent, common area maintenance charges and other costs and
expenses under Cimnet's lease for ICC occupied office space.
During the year ended June 30, 2000, Cimnet billed ICC $434,672 for services
under this agreement and utilized no services from ICC. During the nine months
ended March 31, 2001 Cimnet billed ICC an additional $96,625 for services
provided and funds advanced under this agreement. Additionally, at March 31,
2000, Cimnet, on behalf of ICC, had purchased and retained title to certain
computers and computer related equipment and software aggregating $60,453.
Cimnet may transfer title to ICC at an appropriate future date. ICC is currently
in the development stage of its operations. Accordingly, the Company has
recorded a reserve against those billings, through a charge to operations for
nine months ended March 31, 2001 of $96,625. This charge is reflected in other
expenses in the accompanying consolidated statement of operations. At March 31,
2001, the total amount charged to operations since ICC's inception was $483,175,
representing the net amount ICC owes Cimnet.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Registrant relied upon Alternative 2 in its annual report on
Form 10-KSB for the fiscal year ended June 30, 2000. There is no information
to provide in response to Item 6(a)(3)(i) to Model B of Form 1-A.
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
12
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CAPRI CORP.
(Registrant)
Date: May 11, 2001
By: /s/ Mehul J. Dave'
-----------------------------------------
Mehul J. Dave', Chairman of the Board,
President and Chief Executive Officer
(Principal Financial Officer)