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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 March 31, 2001
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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 offices) (City, State, Zip Code)
(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 No X
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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, March 31, 2001
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Common Stock, $.0001 par value 10,163,935
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Financial Statements are included as part of this document at the end of the
document.
The March 31, 2001 and 2000 Condensed Consolidated Financial Statements of the
Company required to be filed with this Form 10-Q Quarterly Report were prepared
by management without audit and commence on the following page, together with
the related Notes. In the opinion of management, these Condensed Consolidated
Financial Statements present fairly the financial condition of the Company, but
should be read in conjunction with the Consolidated Financial Statements of the
Company for the year ended December 31, 2000 previously filed with the
Securities and Exchange Commission.
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 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 recent months our president, Mike Vahl, has satisfied our cash requirements
by lending funds to us in exchange for demand promissory notes. At March 31,
2001 they totaled approximately $30,000.
The Company hopes to negotiate a debt financing line of credit in the second
quarter of 2001. This line will help stabilize the Company's cash flow and help
with marketing the Company's products.
The Company plans to start marketing IntraMed's Software Package, The Patient
Tracking Wizard ("PTW") in mid 2001. IntraMed has spent much of 2000 making
enhancements to the software and feels that with the help of its current
customers, the software is ready for to be marketed on a national basis.
The PTW is perfectly tailored for the Workers Compensation market. The Internet
accessibility is designed for case managers located remotely from their
corporate headquarters or offices. The case managers can access the software
from anyplace that they can access the Internet. This provides great flexibility
for the case managers as well as the Workers Compensation Insurance Carriers.
The PTW can also function efficiently in both a physicians office setting or a
medical clinic setting
(b) Management's Discussion and Analysis of Financial Condition and Results
of Operations
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.
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
2001, 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 unable to continue borrowing money from Mr. Vahl and he may call our
outstanding obligations.
We recently have met our current expenses by borrowing money from our
controlling shareholder, Mr. Mike Vahl, in exchange for demand promissory notes.
We anticipate continuing to fund our necessary expenses by borrowing additional
funds from these individuals until we begin to generate revenues sufficient to
satisfy our current obligations. However, Mr. Vahl is not subject to a binding
obligation to lend additional funds to CDG, and there can be no assurance that
he will continue to do so. If we fail to obtain the necessary capital by
borrowing money from this individual or from other sources, our business,
financial condition and operation will be affected materially and adversely.
Additionally, we owe substantial sums of money to Mr. Vahl, under terms that
require payment on demand. If he 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.
The Company issued $235,000 in convertible debt that is due on November 30,
2001.
In May and June 2000, the Company issued $235,000 in Convertible Notes. These
notes have a due date of November 30, 2001. They have a coupon rate of 10% and
will convert the amount due plus accrued interest into the Companies' common
stock at fifty cents ($.50) per share. The notes have six different triggering
events that allow the note holders to convert into stock at their option.
During the year the Company had a number of equity transactions.
The Company acquired 100% of the IntraMed Corporation common stock in April 2000
for 1,540,000 shares of its Common Stock. IntraMed has as its main asset the
Patient Tracking Wizard (PTW). The PTW has been going through extensive
enhancement though the balance of 2000 and early 2001. We intend to start
marketing the software on a national basis in mid 2001.
The Company acquired a 100% partnership interest in Healthcare Financial
Advisors, LLC. (HFA) in May 2000 for 350,800 shares of its Common Stock as well
as 157,867 shares of the companies Class A Preferred Stock. HFA spent the
balance of 2000 trying to get operational with its Quick Pay product. A number
of circumstances contributed to the failure of HFA to achieve its goal.
Consequently the employees of HFA resigned in December 2000.
In connection with the audit of the Company's December 31, 2000 annual financial
statements, management determined that the HFA investment needed to be fully
written off. Management has done a detail review of the viability of HFA's
operating
platform. It appears that HFA was not viable without substantial funding from
the beginning. Representations from the sellers concerning this funding have
never occurred. Management has begun discussion with the sellers of HFA to work
our this inequity. The operations of the company have been suspended and there
are no plans for them to recommence at this date.
The Company issued shares in exchange for services to Tiger Branch and Centex
Securities. Tiger Branch does Public Relations for the Company and Centex
provides market makers and general counsel to the Company. The Centex agreement
has been terminated.
The Company issued shares in exchange for Notes Payables due to Mr. Gordon Root
and Mr. Michael Vahl. Mr. Root loaned money to the Company and agreed to take
stock as repayment in exchange for the note amount plus accrued interest. Mr.
Vahl agreed to exchange stock for the accrued salary and accrued expenses that
he had incurred up through June 2000.
The Company also issued warrants in a couple of separate transactions. The
Convertible Notes sold by the Company in 2000 had warrants attached. For each
unit purchased ($5,000), the note holder received warrants to purchase 10,000
shares of the companies common stock ($.50 per share) that would expire on
November 30,2000. Subsequently, the warrant agreements were modified to be $.25
per share and extended to December 31, 2000. $52,500 was raised (110,000 shares
sold) from the sale of these warrants. The Company also borrowed money from an
investor in September 2000. In exchange for the loan at 10% per annum, the
Company agreed to give the investor warrants to purchase up to 50,000 shares of
the Company's common stock at $.50 per share with an expiration date of
September 20, 2001.
The Company had a significant loss in 2000.
The Company had a net loss of $3,811,343 in 2000. This was due primarily due to
stock issuances and other costs associated with the issuance of notes and the
suspension of operations for HFA. The loss from operations in 2000 was $886,415.
The status of the companies' new subsidiaries.
IntraMed has spent the 2nd half of 2000 as well as the 1st half of 2001
enhancing the Patient Tracking Wizard (PTW). It currently has 4 employees: three
Software Engineers and one Customer Service Representative. The Company plans to
launch the PTW on a nationwide basis in the 3rd quarter of 2001. The Company
believes that there is a large segment of the Workers Compensation arena that is
available to be marketed to.
In connection with the audit of the Company's December 31, 2000 annual financial
statements, management determined that the HFA investment needed to be fully
written off. Management has done a detail review of the viability of HFA's
operating platform. It appears that HFA was not viable without substantial
funding from the beginning. Representations from the sellers concerning this
funding have never occurred. Management has begun discussion with the sellers of
HFA to work our this inequity. The Company is will not restart operations at
this time.
The Company has signed a Letter of Intent to acquire MedTel Centers, Inc.
On April 11, 2001, the Company signed a Letter of Intent to purchase 100% of the
common stock of MedTel Centers Inc. (MedTel). MedTel is currently a customer of
IntraMed. MedTel is currently in the business of directing and managing pain
management surgeries. They contract for facilities and re-bill the facilities
out to Workers Comp insurance carriers at a marked-up price.
MedTel is currently negotiating to manage Outpatient Surgery Centers using the
IntraMed Software Platform. This creates a new highly profitable area of
business for MedTel. It also creates a new customer base for IntraMed, who will
add a number of new customers paying a monthly software-licensing fee.
The Company hopes to complete the acquisition by the end of the 2nd quarter
2001.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No legal proceedings have occurred or are occurring in this quarter.
ITEM 2. CHANGES OF SECURITIES
No changes have occurred this quarter.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
No defaults have occurred this quarter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. 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, thereunto duly
authorized.
Capital Development Group, Inc.
By: /s/ Michael P. Vahl, President
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May 22, 2001
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of
March 31, 2001 and December 31, 2000.................................. 1
Condensed Consolidated Statements of Operations for the
Three-month Periods Ended March 31, 2001 and 2000..................... 2
Condensed Consolidated Statements of Cash Flows for the
Three-month Periods Ended March 31, 2001 and 2000..................... 3
Notes to the Condensed Consolidated Financial Statements................... 4
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CAPITAL DEVELOPMENT GROUP, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2001 and December 31, 2000
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March 31, December 31,
2001 2000
(Unaudited)
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ASSETS
Current Assets
Cash $ 1,688 $ 19,790
Accounts receivable 65,437 13,603
Other current assets 3,623 3,623
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70,748 37,016
Furniture and Equipment, net 18,891 19,885
Intangible Assets, net 344,698 385,965
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$ 434,337 $ 442,866
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LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable and accrued liabilities $ 207,239 $ 171,209
Due to related parties 272,641 195,596
Convertible notes payable 254,154 247,904
Notes payable 80,000 78,125
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814,034 692,834
Deferred Tax Liability 88,909 99,516
Commitments and Contingencies
Stockholders' Deficit
Common stock; $0.0001 par value; 30,000,000
shares authorized; 10,163,935 shares issued
and outstandingas of March 31, 2001 and
December 31, 2000 1,017 1,017
Convertible Series A preferred stock; $0.0001
par value; 300,000 shares authorized;
157,867 shares issued and outstanding as of
March 31, 2001 and December 31, 2000 16 16
Additional paid-in capital 5,620,102 5,620,102
Accumulated deficit (6,089,741) (5,970,619)
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(468,606) (349,484)
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$ 434,337 $ 442,866
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Page 1
The accompanying notes are an integral part of these financial statements.
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CAPITAL DEVELOPMENT GROUP, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three-month Periods Ended March 31, 2001 and 2000
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(Unaudited)
Three-months Three-months
ended ended
March 31, March 31,
2001 2000
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REVENUES $ 57,600 $ -
OPERATING EXPENSES
Payroll expenses 64,584 -
Management fees 41,500 17,200
Other 38,984 6,587
Depreciation and amortization 31,654 -
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176,722 23,787
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NET LOSS BEFORE PROVISION FOR INCOME TAXES (119,122) (23,787)
PROVISION FOR INCOME TAXES - -
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NET LOSS $ (119,122) $ (23,787)
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BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.01) $ (0.01)
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WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 10,163,935 7,158,535
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Page 2
The accompanying notes are an integral part of these financial statements.
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CAPITAL DEVELOPMENT GROUP, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three-month Periods Ended March 31, 2001 and 2000
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(Unaudited)
Three-months Three-months
ended ended
March 31, March 31,
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(119,122) $(23,787)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization expense 31,654 -
Interest expense 8,125 -
Changes in operating assets and liabilities:
Accounts receivable (51,834) -
Accounts payable and accrued liabilities 36,030 15,696
Due to related parties 77,045 8,386
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Net cash (used in) provided by operating activities (18,102) 295
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture and equipment - (295)
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Net cash used in investing activities - (295)
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NET DECREASE IN CASH (18,102) -
CASH - beginning of period 19,790 -
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CASH - end of period $ 1,688 $ -
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Page 3
The accompanying notes are an integral part of these financial statements.
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CAPITAL DEVELOPMENT GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001 and 2000
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1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
Nature of Business
Capital Development Group, Inc. (the "Company") was incorporated in Oregon on
May 19, 1993. Prior to the acquisitions of IntraMed Corporation and HealthSource
Financial Advisors, LLC, (see Acquisitions of Subsidiaries discussed below) the
Company primarily engaged in the business of purchasing healthcare receivables
from hospitals and other healthcare institutions at a discount and administering
the collection process of such receivables. As of March 31, 2001, the Company
has redirected its efforts and has become primarily focused on the operations of
the newly acquired subsidiaries.
The Company is publicly traded on the Over the Counter Bulletin Board ("OTCBB")
under the symbol "CDVG". As discussed in Note 6, the Company is delinquent on
several required SEC filings.
Interim Financial Statements
The accompanying condensed consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries; all material
intercompany account balances have been eliminated in consolidation. The
information furnished has been prepared in accordance with generally accepted
accounting principles for interim financial reporting, the instructions to Form
10-Q, and Rule 10-01 of Regulation S-X. Accordingly, certain information and
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted. In
the opinion of management, all adjustments considered necessary for the fair
presentation of the Company's consolidated financial position, results of
operations and cash flows have been included and are only of a normal recurring
nature. The results of operations for the quarter ended March 31, 2001 are not
necessarily indicative of the results of operations for the year ending December
31, 2001.
These financial statements should be read in conjunction with the Company's
audited December 31, 2000 consolidated financial statements included in Form
10-K.
Proposed Acquisitions
On April 11, 2001, the Company entered into a non-binding letter of intent
agreement to acquire all of the outstanding common stock of MedTel Centers, Inc.
("MedTel"), a company engaged primarily in the business of network management of
medical facilities and physicians. Such proposed purchase is intended to qualify
as a tax-free transaction under Section 368 (a)(1)(B) of the 1986 Internal
Revenue Code, as amended. According to the terms of the agreement, the Company
would issue 2,000,000 shares of restricted common stock upon the closing date
and an additional 2,000,000 shares of restricted common stock within 90 days of
the first anniversary of such closing date. As of June 15, 2001, such proposed
acquisition has not been consummated.
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CAPITAL DEVELOPMENT GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001 and 2000
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1. NATURE OF BUSINESS AND BASIS OF PRESENTATION (continued)
Acquisitions of Subsidiaries
On April 29, 2000, the Company acquired 100% of IntraMed Corporation
("IntraMed") in exchange for common stock. IntraMed is a developer of an
Internet based referrals, scheduling, billings and claims processing software
for the health care industry.
On May 31, 2000, the Company acquired 100% of HealthSource Financial Advisors,
LLC, ("HFA") in exchange for common stock and preferred stock. HFA is a provider
of healthcare consulting services. As of December 31, 2000, management of the
Company had ceased operations of HFA and determined that the assets of HFA were
at no value and committed to abandon such operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying condensed consolidated financial statements include the
accounts of the Company and those of its wholly-owned subsidiaries IntraMed and
HFA (collectively hereinafter referred to as the "Company"). The operations of
the subsidiaries are included in the accompanying condensed consolidated
statements of operations for the three-month period ending March 31, 2001. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Intangible Assets
Intangible assets, consisting of completed technology, customer relationships,
and goodwill, are amortized using the straight-line method over their estimated
useful lives of three years.
Income Taxes
Using the liability method required by Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes," the estimated tax
effects of temporary differences between financial and income tax reporting are
recorded in the period in which the events occur. Such differences between the
financial and tax bases of assets and liabilities result in future tax
deductions or taxable income.
Based on management's best estimate of taxable income in the foreseeable future,
it is more likely than not that some portion of deferred income tax assets, due
mostly to net operating loss carryforwards, may not be realized. As such,
management has provided 100% allowances against the deferred tax asset and
deferred tax benefit as of March 31, 2001 and December 31, 2000.
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CAPITAL DEVELOPMENT GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001 and 2000
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Loss per Common Share
Loss per common share is based on the weighted average number of shares of
common stock and common stock equivalents outstanding during the year in
accordance with Statement of Financial Accounting Standards No. 128, "Earnings
per Share."
Securities that could potentially dilute basic loss per share (prior to their
conversion, exercise or redemption) were not included in the
diluted-loss-per-share computation because their effect is anti-dilutive.
Recent Accounting Pronouncements
For the three-month period ended March 31, 2001, the Company adopted Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), as amended. Since the Company
does not presently engage in activities covered by SFAS 133, there was no
significant effect on the Company's March 31, 2001 condensed consolidated
financial statements.
Reclassifications
Certain amounts in the March 31, 2000 financial statements have been
reclassified to conform to their March 31, 2001 presentation.
3. NOTES PAYABLE
In August 2000, the Company issued a note payable totaling $75,000, bearing
interest at 10% per annum, with principal and accrued interest due on December
20, 2000 and subordinated by all current and future obligations of the Company.
The note payable is in default and the Company is in negotiations to renew such
note.
4. RELATED PARTY TRANSACTIONS
The Company's President/CEO, who is also approximately a 50% shareholder,
provides management services for a fee and is also reimbursed for expenses
incurred on behalf of the Company. In total, management fees and expenses
incurred by the Company by the President/CEO totaled approximately $45,000 and
$20,000 for the three-month periods ended March 31, 2001 and 2000, respectively.
In the three-month period ended March 31, 2001, the President/CEO also advanced
to the Company approximately $30,000 in cash that was used for short-term
working capital.
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CAPITAL DEVELOPMENT GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001 and 2000
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4. RELATED PARTY TRANSACTIONS (continued)
At March 31, 2001 and 2000, the Company owed approximately $260,000 and
$100,000, respectively, to its President/CEO. These payables/advances are
non-interest bearing and payable on demand.
5. CONVERTIBLE SERIES A PREFERRED STOCK
The Company's convertible Series A preferred stock is convertible into common
stock at a ratio of 20:1, and the holder may convert 1/3 of its Series A
preferred stock on December 31, 2001 and 2/3 on December 31, 2002. No shares of
preferred stock have been converted as of March 31, 2001.
6. DELINQUENT SEC FILINGS
The Company's June 30, 2000 and September 30, 2000 Form 10-QSB's were not
reviewed by the Company's accountants in accordance with Statement on Auditing
Standards No. 71 ("SAS 71"), "Interim Financial Information". Federal securities
law requires SAS 71 reviews. Additionally, the Company has not filed Form 8-K in
connection with either of the acquisitions discussed in Note 1. Such filing
delinquencies constitute securities laws non-compliance and, among other actions
enforceable by the SEC, could result in de-listing of the Company's common stock
from the OTCBB.
In addition, any owners of the Company's restricted securities who are otherwise
eligible to sell such securities under Rule 144 may be temporarily unable to do
so until such filing delinquencies are cured.
7. GOING CONCERN AND LIQUIDITY CONSIDERATIONS
The Company has not generated significant revenue or any profit from operations.
Such factors indicate that the Company may be unable to continue as a going
concern for a reasonable period of time. Management is in discussions with
potential investors to pursue additional capital infusions into the Company,
which management believes are necessary until such time that revenues achieve
profitability levels.
The condensed consolidated financial statements do not include any adjustments
relating to the recoverability of assets that might be necessary should the
Company be unable to continue as a going concern. The Company's continuation as
a going concern is dependent upon its ability to generate sufficient revenue and
related cash flow to meet its obligations on a timely basis and/or to obtain
additional financing or equity infusions as may be required.
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