1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[MARK ONE]
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM____________TO____________
COMMISSION FILE NUMBER: 0-17597
CONCAP, INC.
(Exact name of registrant as specified in its charter)
(State or other Jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
TEXAS 76-0252296
(Address of principal executive offices) (Zip Code)
3700 CRESTWOOD PARKWAY 30096
SUITE 1000
DULUTH, GA
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(770) 638-1019
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 No X
--- ---
The number of shares of the issuer's class of capital stock as of February 28,
1999, the latest practicable date, is as follows: 11,869,000 shares of Common
Stock $.001 par value.
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2
PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Balance Sheet
Income Statement
Statement of Cash Flow
1. CONCAP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FEBRUARY
28, 1999 (UNAUDITED)
Organization
Concap, Inc., (the "Company") was established in 1988 in the State of Texas.
The Company is a holding company seeking the acquisitions of companies that
provide technical and non-technical services to business internationally.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash or cash equivalents.
Furniture and Equipment
Furniture and equipment are recorded at cost and are depreciated primarily using
straight line depreciation over three to seven years.
Revenue Recognition
The Company's revenue are results of the revenue received by its subsidiary
corporations. Revenue from subsidiary corporations is recognized upon signing of
a contract for services, provided that amounts are due within one year and
collection is considered probable. If significant delays are expected in
collecting more than 50% of the contract value, the revenue from the sale of the
contract is recognized using contract accounting.
Deferred Revenues
Revenue may be deferred due to installation, delivery or fulfillment not yet
performed.
Deferred Liabilities
Liabilities may be deferred due to expected expenditure of labor costs.
Payroll Taxes Payable
Payroll Taxes payable includes a liability of approximately $460,000.00, the
assumption of which was part of the agreement to acquire Intuitive Technology
Consultants, Inc. Management has entered into an installment agreement with the
Internal Revenue Service to satisfy this Liability and has been funding payments
from the cash generated by operations. Management believes it can continue to
reduce the liability accordingly without adversely affecting the continuing
operations of the company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the Financial
Statements and Notes thereto included elsewhere in this filing. Certain
statements made in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations are forward-looking statements. The
forward-looking statements contained herein are based on current expectations
and entail various risks and uncertainties that could cause actual results to
differ materially from those expressed in such forward-looking statements.
Overview
Concap, Inc. is a holding company seeking to acquire corporations whose primary
focus is technical, including software development, staffing and consulting. It
should be noted that the Company is limiting itself to these areas. The
Company's revenue consists of revenue as results of operations of its subsidiary
corporations. The financial results referred to herein reflect the historical
results of the Company.
Prior to June 8, 1998, the Company had no material assets or operations. On July
8, 1998, the Company acquired all of the issued and outstanding capital stock of
Intuitive Technology Consultants, Inc. ("ITC"). On November 15, 1998, ITC was
merged with Elite Technologies, Inc., with Elite becoming the surviving member.
Elite is composed
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of two operating divisions. Elite's product division provides software solutions
on an outsourced basis to companies seeking to upgrade or create new business
solutions. These solutions are primarily project based. Elite's products are
developed internally. Elite's services division provides temporary and permanent
personnel to technology companies. Elite provides personnel on a fee basis
(hourly basis for temporary personnel and flat fee basis for permanent
personnel). Elite's clients are responsible for the management of such personnel
on the job.
On
RESULTS OF OPERATIONS
Three Months Ended February 28, 1999 Compared to Three Months Ended November 30,
1998
Revenue
Total revenue decreased as a result of seasonal declines in operations. Total
revenue of the subsidiary companies consists of software programming, permanent
and temporary placement fees and consulting fees, as well as retail sales by the
Companies "Scanlan Music" subsidiary.
Software Programming Fees. Software programming fee revenue accounted
for 27% of the revenue of Elite Technologies.
Temporary and Permanent Placement Fees. Fees decreased by 12% as a
result of seasonal business declines.
Cost of Revenue
The cost of revenue consists primarily of consultant and employee salaries and
other personnel expenses incurred in the implementation of projects and
placements. Costs of revenue increased proportionately primarily due to the
increase of obligations under contracts for services.
Operating Expenses
Sales and Marketing. Sales and marketing expenses include salaries, commissions
and other personnel related costs, travel expenses, advertising programs and
other promotional activities.
General and Administrative. General and administrative expenses consist
primarily of salaries and other personnel related costs of executive, financial
and secretarial personnel, as well as facilities, legal, insurance, accounting
and other administrative expenses. The increase in general and administrative
expenses was principally due to increased legal fees as a result of the
acquisition of the subsidiary Scanlan Music Corporation, and investigation of
the possible acquisition targets for the Company.
The Company's operations and related revenue and operating results could vary
substantially from quarter to quarter. Among the factors causing these potential
variations are fluctuations in the demand for the Company's services, price
competition in the Company's markets, the length of the Company's sales process,
the Company's success in expanding its services as well as its direct sales
force, commercial strategies adopted by competitors and general economic
conditions. A substantial portion of the Company's operating expenses,
particularly personnel and facilities costs, are relatively fixed in advance of
any particular operating results in any particular quarter.
THC and Elite's ability to undertake new projects and increase revenue is
substantially dependant on the availability of consultants/personnel in the
marketplace.
As a result of the foregoing and other factors, the Company believes that
Quarter to Quarter comparisons of results are not necessarily meaningful, and
such comparisons should not be relied upon as indications of future performance.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, Elite has funded its operations to date primarily through cash
generated form operations. In addition, Elite has received approximately
$550,000.00 from outside sources.
The Company has guaranteed a line of credit for Accounts Receivable financing
from American Factors Corporation of Dallas, Texas for a maximum of up to
$1,000,000.00. As of February 28, 1999, the Company had $874,000.00 outstanding
borrowings under the line of credit.
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The Company believes that its existing liquidity and capital resources,
including the cash generated from operations during fiscal 1999 will be
sufficient to satisfy its cash requirements for at least the next twelve months.
To the extent that such amounts are insufficient, the Company will be required
to raise additional funds through equity or debt financing. There can be no
assurance that the Company will be successful in raising additional funds on
favorable terms or at all.
IMPACT OF THE YEAR 2000 ISSUE
On January 1, 2000, computer systems and software products worldwide may
interpret the date as January 1, 1900 or some other random date, unless such
products are coded to accept the four digit format in the date code field. This
is generally referred to as the "year 2000 issue." Before the Year 2000 arrives,
many computers and/or software packages will have to be upgraded to address the
year 2000 issue. Therefore, significant uncertainty exists in the software
industry concerning the potential effects associated with such compliance.
The Company has designed all of its products to properly convert to the year
2000 ("Year 2000 Ready"). Therefore, it is not expected that the Company's
products will be adversely affected by date changes in the year 2000. However,
these can be no assurance that the Company's products contain and will contain
all features and functionality considered necessary by the customers,
distributors, resellers and systems integrators to be Year 2000 ready or that
any difficulties will not have a material adverse effect on the operation of the
Company's resulting business, financial condition and results of operations.
The Company believes that the year 2000 issue may affect the purchasing habits
of its present and potential customers. Due to the significant amount of
resources being allocated by companies to address the year 2000 issue, they may
have less money to spend on software products such as those offered by the
Company. Customers may defer or accelerate their purchases of software products.
Furthermore, they might switch to other systems or suppliers after evaluating
their software needs as a result of the year 2000 issue. Finally, the Company's
software could be integrated with a customer's non-year 2000 ready compliant
system, which could lessen the effectiveness of the Company's solutions. Any of
the foregoing could result in a material adverse effect on the company's
business, operating results and financial condition.
The Company has communicated with some, but not all, of its vendors, suppliers
and other relevant third parties to determine whether the products and services
they provide to the Company will be affected by the Year 2000 issue. To the
Company's knowledge, the products and services of such third parties will not be
adversely affected in any material respect by the Year 2000 issue. There can be
no assurance, however, that all of the products and services supplied by third
parties on which the Company's business relies have been or will continue to be
Year 2000 ready or will not otherwise be materially and adversely affected by
the Year 2000 issue. Such failures could have a material adverse affect on the
Company's financial condition and results of operations.
The cost for being Year 2000 ready has been immaterial to the Company's
business, operating results and financial condition. Further, the Company does
not anticipate incurring material cost in the future relating to the Year 2000
issue since the costs of developing products that are Year 2000 ready is a
normal part of development. As a result, the Company does not currently have a
contingency plan relating to the Year 2000 issue and it does not anticipate
developing one in the future.
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FORWARD LOOKING STATEMENTS
Certain statements contained in this filing are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements are subject to risks, uncertainties and other
factors that could cause actual results to differ materially from future results
expressed or implied by such forward-looking statements. Investors are cautioned
that any forward-looking statements are not guarantees of future performance and
involve risks and uncertainties and that actual results may differ materially
from those contemplated by such forward-looking statements.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company, both on its own and through its subsidiaries is subject to legal
proceedings and claims which arise in the ordinary course of business. In the
opinion of management, the amount of potential liability with respect to these
potential actions would not materially affect the financial position or results
of operations of the Company.
ITEM 2. CHANGES IN SECURITIES. NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. NONE
ITEM 5. OTHER INFORMATION.
In connection with the foregoing acquisition the Registrant effectuated a
1-for-100 reverse stock split. As a result of the reverse stock split, and other
issuance of stock in connection with the acquisitions, the Registrant now has
outstanding 11,869,000 shares of common stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The Following exhibits are filed with this Report:
Exhibit 27.1 Financial Data Schedule (to be filed by amendment).
(b) Reports to be filed on Form 8-K
The Company filed a Current Report on Form 8-K, dated June 8, 1998,
reporting its acquisition of Scanlan Music Corporation.
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Date: April 15, 1999 By: /s/ Scott Schuster, President
----------------------------------
Scott Schuster, President
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CONCAP, INC.
Consolidated Balance Sheet
3nd Quarter Ending 2/28/99
(000's omitted)
CURRENT ASSETS
2/29/99 11/30/98
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Cash 51 92
Accounts Receivable 1,082 1,050
Less Allowable Doubtful Accounts (55) (5)
Total A/R 1,027 1,045
Inventory 33 0
Factoring Reserve 43 22
Office Supplies 2 3
Loans to Officers 266 266
Prepaid Expenses 52 52
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TOTAL CURRENT ASSETS 1,474 1,480
FIXED ASSETS
Furniture, Fixtures, Equip 59 36
Equipment- Computer 294 289
Software 56 32
Vehicles 82 82
Leasehold Improvements 20 16
Accum Depreciation - Furniture (9) (7)
Accum Depreciation - Equipment (63) (53)
Accum Depreciation - Software (17) (14)
Accum Depreciation - Vehicles (17) (13)
Accum Depreciation - Leasehold (6) (5)
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TOTAL FIXED ASSETS 399 363
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TOTAL ASSETS 1,873 1,843
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CURRENT LIABILITIES
Accounts Payable 300 176
Sales Tax 5 0
Accrued Expenses 0 0
Loans Payable Officers 0 0
Wages Payable 0 79
** Factoring - American Factors 874 755
* Payroll Taxes Payable 872 905
(Due from Seller per Purchase Agreement) (215) (215)
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Total Taxes Due 657 690
Total Current Liabilities 1,836 1,700
LONG TERM LIABILITIES 26 37
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TOTAL LIABILITIES 1,862 1,737
CAPITAL
Common Stock 1 1
Paid In Capital 391 391
Retained Earnings (286) (183)
Net Income (95) (103)
TOTAL CAPITAL 11 106
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TOTAL LIABILITIES + CAPITAL 1,873 1,843
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NOTES TO FINANCIAL STATEMENTS
* Payroll Taxes payable includes a liability of
approximately $460,000.00, the assumption of which
was part of the agreement to acquire Intuitive
Technology Consultants, Inc.. , as well as
liabilities of Temporary Help Connection, Inc.
Management has entered into an installment agreement
with the Internal Revenue Service to satisfy this
Liability and has been funding payments from the cash
generated by operations. Management believes it can
continue to reduce the liability accordingly without
adversely affecting the continuing operations of the
company.
** This amount is advanced against receivables. Amounts
shown here are paid upon receipt by customer. The
average balance is less than 30 days old.
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CONCAP, INC.
Consolidated Income Statement
3nd Quarter Ending 2/28/99
(000's omitted)
2/28/99 Year to Date
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REVENUES
Fees 1,696 6,043
Other Income 0 53
Refunds 0 (17)
TOTAL REVENUES 1,696 6,079
DIRECT COST OF SALES 125 125
GROSS PROFIT 1,571 5,954
OPERATING EXPENSES
Advertising 21 44
Bad Debt 46 114
Bank Charges 2 4
Commissions 2 12
Computer Equipment Expense 12 74
Contract Labor 0 22
Depreciation 20 56
Dues and Subscriptions 0 1
Employee Education 2 4
Employee Expenses 4 5
Factoring 75 186
Forms/Printing 2 7
Gifts and Donations 0 4
Insurance 68 156
Late Fees 3 5
Lease 5 22
Lease on Autos 4 18
Lease on Furniture 6 20
Legal and Professional 41 140
License and Permits 1 1
Lodging 1 2
Maintenance 2 13
Meals and Enter 1 9
Medical Benefits 3 69
Misc 27 56
Office Supplies 5 12
Officer Benefit Programs 5 7
Office Expense 6 17
Officer Loan Expense 0 97
Payroll Tax Expenses 148 482
Postage & Deliver 5 8
Recruiting 7 20
Rent 55 162
Repairs 3 3
Salaries 849 1,779
Selling Expenses 12 41
Telecommunications 3 4
Telephone 29 66
Telephone - ISP 10 12
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Transportation 41 141
Travel Expenses 15 59
Wages 125 2,198
TOTAL OPERATING EXPENSES 1,666 6,152
INCOME BEFORE TAXES (95) (198)
EARNINGS (LOSS) PER SHARE $(0.0080) $(0.0167)
======== ========
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CONCAP, INC.
Consolidated Cash Flow Statement
3nd Quarter Ending 2/28/99
(000's omitted)
2/2/8/99 11/30/98
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Cash Flows from Operating Activities (95) 54
Net Income
Adjustment to reconcile net
income to net cash provided by
operating activities
Depreciation expense 20 9
Increase in Inventory (33) 0
Accounts Receivable (18) (327)
A/R American Factors 21 (8)
Loans to Officers 0 (81)
Accounts Payable 45 92
N/P American Factors 108 264
Payroll Taxes (33) 175
Medical Withheld 0 1
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Total Adjustments 110 125
Net Cash provided by Operations 15 50
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Cash Flows used from Investment Activities
Purchase of Capital Equipment (56) (68)
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Net Cash Used in Investing (56) (68)
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Cash Flows from Financing
Paid In Capital 0 (8)
Loans 0 0
Paid In Capital 0 0
----------- -----------
Net Cash Used in Financing 0 (8)
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Net Increase (decrease) in Cash (41) (26)
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Beginning Cash Balance 92
Ending Cash Balance 51
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