<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number 0-27842
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COLMENA CORP.
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(Exact name of small business issuer as specified in its charter)
Delaware 54-1778587
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
25100 Detroit Road, Westlake, Ohio 44145
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(Address of principal executive offices)
(440) 871-5000
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(Issuer's telephone number)
Not applicable
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(Former name, former address and former fiscal year,
if changed since last report)
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 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: At May 12, 1998, 7,055,240
shares of the Company's common stock were outstanding.
Transitional Small Business Disclosure Format (check one);
Yes No X
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PART 1 - FINANCIAL INFORMATION
PAGE
ITEM 1. Financial Statements ----
(a) Combined Balance Sheets as of March 31, 1998
(Unaudited) and September 30, 1997 (Audited).........................1
(b) Combined Statements of Operations (Unaudited) -
Three and Six Month Periods Ended March 31, 1998
and March 31, 1997...................................................2
(c) Combined Statements of Cash Flows (Unaudited) - Six
Month Periods Ended March 31, 1998 and March 31, 1997................3
(d) Notes to Combined Interim Financial Statements.......................4
ITEM 2. Management's Discussion and Analysis or Plan of Operation.............5
PART II - OTHER INFORMATION....................................................7
i
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<TABLE>
<CAPTION>
COLMENA CORP.
COMBINED BALANCE SHEETS
SEPTEMBER 30, MARCH 31,
1997 1998
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* (UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,022 $ 180,742
Trade accounts receivable 459,709 3,113,594
Third party settlement receivable 51,829 0
Inventory 0 273,260
Prepaid expenses 200,987 964,946
Other assets 0 17,050
Notes receivable 0 66,716
------------------ ------------------
Total current assets $ 717,547 $ 4,616,308
Non current assets:
Fixed assets 0 106,444
Prepaid consulting fees, net of accumulated 0
amortization of $34,500 865,500
Net assets of discontinued operations 191,669 172,411
Goodwill, net of accumulated amortization
of $2,357 0 513,246
------------------ ------------------
$ 909,216 $ 6,273,909
================== ==================
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 212,006 $ 1,488,338
Notes payable to shareholders 461,061 578,538
Notes payable - other 0 305,573
Income taxes payable 0 623,654
Deferred revenue 22,993 30,000
------------------ ------------------
Total current liabilities 696,060 3,026,103
Convertible notes 0 40,000
------------------ ------------------
696,060 3,066,103
Combined shareholders' interest 213,156 0
Shareholders' Equity
Common stock 0 6,274
Paid in capital 0 1,848,725
Retained earnings 0 1,352,807
------------------ ------------------
3,207,806
------------------ ------------------
$ 909,216 $ 6,273,909
================== ==================
</TABLE>
* Derived from audited financial statements.
The accompanying notes are an integral part of these financial statements.
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<TABLE>
<CAPTION>
COLMENA CORP.
COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
MARCH 31, MARCH 31,
--------------------------------------- -------------------------------------
1998 1997 1998 1997
------------------ ------------------- -------------------- ---------------
<S> <C> <C> <C> <C>
Revenue $ 4,600,899 $ $ 5,946,925 $ 0
Costs of revenue 2,612,586 0 3,601,638 0
------------------ ------------------- -------------------- ---------------
Gross Profit 1,988,313 0 2,345,287 0
Selling, general and administrative 446,322 73,196 523,494 (201,366)
------------------ ------------------- -------------------- ---------------
Income (Loss) from continuing
operations before taxes 1,546,991 (73,196) 1,821,793 (201,366)
Tax provision (benefit) 523,654 0 623,654 0
------------------ ------------------- -------------------- ---------------
Income (loss) from continuing
operations 1,018,337 (73,196) 1,198,139 (201,366)
Loss from discontinued
operations 47,989 0 47,989 0
------------------ ------------------- -------------------- ---------------
Net Income (loss) $ 970,348 $ (73,196) $ 1,150,150 $ (201,366)
================== =================== ==================== ===============
Earnings per share from
continuing operations $ .18 $ (.01) $ .23 $ (.04)
================== =================== ==================== ===============
Shares used in computation 5,457,163 4,998,830 5,227,997 4,998,830
================== =================== ==================== ===============
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<TABLE>
<CAPTION>
COLMENA CORP.
COMBINED STATEMENTS OF CASH FLOWS
MARCH 31, 1998
(UNAUDITED)
SIX MONTHS SIX MONTHS ENDED
MARCH 31, MARCH 31, 1997
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<S> <C> <C>
Operating Activities
Income (loss) from continuing operations $ 1,232,639 $ (201,366)
Loss from discontinued operations (47,989) 0
Adjustments to reconcile net income (loss) to net cash
used by operating activities:
Depreciation 0 3,198
Amortization of prepaid customer base 190,408 0
Deferred revenue 7,007 0
Changes in operating assets and liabilities:
Accounts receivable (2,378,115) 0
Third party settlement receivable 51,829 0
Prepaid customer base and other assets (917,510) (5,707)
Notes receivable (62,216) 0
Inventory (207,088) (11,265)
Net assets of discontinued operations 19,258 0
Other assets (3,220) 0
Accounts payable and other payables 539,664 90,777
Income taxes payable 623,654 0
------------------ ------------------
Net cash used by operating activities (951,679) (124,363)
Investing Activities
Business acquired, net of cash (29,725) 0
Purchase of fixed assets (15,926) (1,599)
Deposits 0 (11,670)
------------------ ------------------
Net cash used in investing activities: (46,651) (13,269)
Financing Activities
Notes payable to shareholders 117,477 0
Notes payable - other 305,573 0
Issuance of common stock 750,000 63,500
Borrowings from shareholder 0 56,447
Repayments of borrowings from shareholder 0 (5,100)
------------------ ------------------
Net cash provided by financing activities 1,173,050 114,847
------------------ ------------------
Increase (decrease) in cash 175,720 (22,785)
Cash and cash equivalents at September 30 5,022 22,832
------------------ ------------------
Cash and cash equivalents at March 31 $ 180,742 $ 47
================== ==================
</TABLE>
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COLMENA CORP.
NOTES TO COMBINED INTERIM FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited combined financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Item 310(b) of
Regulation S-B. Accordingly, the financial statements do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
have been included and all adjustments considered necessary for a fair
presentation have been included and such adjustments are of a normal recurring
nature.
Results for interim periods should not be considered indicative of results for a
full year. The year-end consolidated balance sheet was derived from audited
financial statements, but does not include all disclosures required by generally
accepted accounting principles. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-KSB for the year ended September 30, 1997.
NOTE B - ISSUANCES OF COMMON STOCK
On March 16, 1998, the Company registered 2,900,000 shares of common stock under
the Securities Act of 1933 pursuant to a Registration Statement on Form S-8.
800,000 shares were issued to various consultants, including one director, for
services pursuant to agreements with terms ranging from twelve to thirty-six
months. The consulting agreements were entered into on November 10, 1997. The
Company recorded the shares issued at its best estimate of fair value of
$1.00 per share. The resulting prepaid consulting fees will be amortized over
the life of the contracts, from the date the shares were issued, March 16, 1998.
Also in March 1998, the Company granted options to a financial services company
that will provide financial advisory services, totalling 1,500,000 shares of
common stock to be issued at $2.00 per share, exercisable over twelve months.
375,000 options were exercised in March 1998. The Company recorded, their
best estimate of fair value of $.20, as prepaid consulting fees which will be
amortized over twelve months from March 16, 1998.
The Company also registered 600,000 shares for options in connection with a
newly implemented stock option plan.
NOTE C - ACQUISITION OF BUSINESS TECHNOLOGY SYSTEMS, INC.
On February 28, 1998, the Company completed the acquisition of Business
Technology Systems, Inc. ("BTS"). The purchase price was $100,000 in cash and
100,000 shares of the Company's common stock. The acquisition will be accounted
for as a purchase under APB No. 16, BUSINESS COMBINATIONS and the results of
operations of BTS included in the Company's financial statements as of March 1,
1998. The transaction resulted in goodwill of $565,603.
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ITEM 2. Management's Discussion and Analysis or Plan of Operation.
----------------------------------------------------------
This "Management's Discussion and Analysis or Plan of Operation" should
be read in conjunction with the Company's unaudited interim financial statements
for the three and six month periods ended March 31, 1998, the notes thereto, and
the other financial data included elsewhere herein and includes forward-looking
statements which involve risks and uncertainties which are based upon the
Company's beliefs, as well as assumptions made by and information currently
available to the Company. The Company's actual results may differ materially
from the results predicted by such forward-looking statements due to various
factors, including, but not limited to, those risks and uncertainties which are
discussed below.
PLAN OF OPERATION
Since inception (November 10, 1997), the Company has been a holding
company and currently operates three wholly-owned subsidiaries, T2U Co. ("T2U"),
Business Technology Systems, Inc. ("BTS") and Tio Mariano Cigar Corp. ("Tio").
T2U, a residential long-distance service reseller, has experienced
continued growth and achieved profitability during the quarter ended March 31,
1998. T2U had earnings before taxes of approximately $1.7 million for the second
quarter ended March 31, 1998.
T2U currently has over 150,000 billable customers. The Company's plan
of operations for the next twelve months includes increasing T2U's customer base
to more than 300,000 customers by acquiring companies with similar operations.
As of the date of this report, the Company has a number of business
opportunities which it is looking into as potential acquisitions or investment
vehicles.
On February 28, 1998, the Company consummated the acquisition of BTS.
BTS is a reseller of computer hardware and related services and equipment. As
part of the acquisition the Company also acquired TechTel, a division of BTS.
TechTel is a registered C-LEC (provider of local phone services) in the State of
Florida.
The Company is also in the process of finalizing purchase agreements
and personnel additions which are expected to increase T2U's profitability,
transforming T2U from a reseller of long-distance service to a provider of such
services, expanding its operations in the international market and enhancing its
marketing capabilities. On May 8, 1998, the Company entered into a definitive
stock purchase agreement with World Long Distance, Inc. ("WLD"), a provider of
long distance services in the international market. As part of this acquisition,
the Company will also acquire Telenet Int'l, Inc. and Telecuba, Inc., providers
of retail international prepaid long distance telephone service calling cards.
The purchase price for WLD consists of $1 million in cash payable over 15 months
and a minimum of $5 million in convertible preferred stock, subject to increase
based upon an audited book value formula. WLD's founder and sole shareholder
will remain as President of WLD following the closing of the acquisition
pursuant to a two year employment agreement. The closing of the WLD acquisition
is subject to completion of due diligence by the Company and an audit of WLD's
financial statements.
The Company also plans to acquire and operate at least four
telecommunications switches in the United States which will be strategically
positioned to serve as international gateways to Europe, South America and Asia.
In addition, the Company intends to add the following services: retail phone
debit card sales, 1+ long-distance service and local dial tone sales.
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Tio, a cigar manufacturer and wholesaler, has incurred losses of
approximately $50,000 for the three month period ended March 31, 1998. These
losses are a result of developmental expenses and other factors related to the
cigar industry. Consequently, the Company has decided to dispose of Tio. The
results of operations of Tio are shown as a discontinued operation in the
accompanying interim financial statements.
The Company has generated revenues from the sale of its long-distance
services and loans from shareholders. The Company expects to increase its
revenues in the near future as it divests itself of Tio and refocuses its
resources on the activities of BTS and T2U. The Company expects to incur
substantial administrative expenses in the future.
The Company's results of operations for the three month period ended
March 31, 1998, including the revenues of BTS from March 1, 1998, were $4.60
million with net income of $.97 million. As of March 31, 1998, the Company had
working capital of $1.59 million. The Company believes that cash flow from
operations will be sufficient to support existing operations for the next twelve
months. There can be no assurance, however, that such funds will not be expended
prior thereto due to changes in economic conditions or other unforeseen
circumstances, requiring the Company to obtain additional financing prior to the
end of such twelve month period. In addition, the Company anticipates making
significant capital expenditures for the acquisition of additional businesses
and equipment. Depending on the nature, size and timing of future acquisitions,
the Company may be required to obtain additional debt or equity financing in
connection with such future acquisitions. There can be no assurance, however,
that additional financing will be available to the Company, when and if needed,
on acceptable terms or at all.
The Company's efforts during the next twelve months will be dedicated
principally to transforming the Company from a holding company with two
dissimilar subsidiaries into a profitable, full-service, international
communications and technology company. However, there can be no assurance as to
the success of these efforts.
No meaningful comparison can be made to the three and six month periods
ended March 31, 1997 in that during that period the activities of the Company's
predecessor were unrelated.
YEAR 2000 COMPLIANCE
The Company uses a packaged accounting software system which the
Company believes will be Year 2000 compliant in 1998. If the vendor does not
have a Year 2000 compliant version ready when necessary, the Company believes
they can readily purchase replacement software. The Company is monitoring its
service bureau and vendors and expects them to be Year 2000 compliant in 1998.
There can be no assurance that the Company or vendors will meet these plans.
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<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
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Not applicable
Item 2. Changes in Securities.
----------------------
On March 16, 1998, the Company filed a Registration Statement on Form
S-8 to register 600,000 shares of Common Stock to be issued pursuant to the
Company's 1998 Stock Option Plan, and 2,300,000 shares of Common Stock issued as
stock grants or upon exercise of warrants or options to consultants in
consideration for services rendered to the Company pursuant to consulting
agreements.
Item 3. Defaults Upon Senior Securities.
--------------------------------
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
Not applicable.
Item 5. Other Information.
------------------
On February 28, 1998, the Company consummated the acquisition of BTS
pursuant to an Agreement for Purchase and Sale of Assets dated February 19, 1998
(the "Agreement"). Pursuant to this Agreement, the purchase price for the BTS
assets consisted of One Hundred Thousand Shares (100,000) of the Company's
common stock, One Hundred Dollars ($100,000) in cash and the assumption of
certain specified liabilities. The Agreement was approved by the Company's Board
of Directors pursuant to a Unanimous Written Consent dated February 19, 1998.
(See Notes C to combined Interim Financial Statements).
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits and Index of Exhibits
------------------------------
2.1* Agreement for Purchase and Sale of Assets of Business
Technology Systems, Inc. dated February 19, 1998.
27.1 Financial Data Schedule.
--------------------
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* Incorporated herein by reference to the Company's
Annual Report on Form 10-KSB for the fiscal year
ended September 30, 1997, filed on February 26, 1998.
(b) Reports on Form 8-K
-------------------
The Company filed a Current Report on Form 8-K on February 26,
1998 reporting a change in the Company's certifying accountants.
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<PAGE>
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.
COLMENA CORP.
(Registrant)
Dated: May 20, 1998 By:/S/ Richard C. Peplin
----------------------------------
Richard C. Peplin, Jr., President
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 180,742
<SECURITIES> 0
<RECEIVABLES> 3,113,594
<ALLOWANCES> 0
<INVENTORY> 273,260
<CURRENT-ASSETS> 4,616,308
<PP&E> 106,444
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,273,909
<CURRENT-LIABILITIES> 3,026,103
<BONDS> 0
0
0
<COMMON> 6,274
<OTHER-SE> 4,067,032
<TOTAL-LIABILITY-AND-EQUITY> 6,273,909
<SALES> 5,946,925
<TOTAL-REVENUES> 5,946,925
<CGS> 3,601,638
<TOTAL-COSTS> 4,125,132
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,821,793
<INCOME-TAX> 623,654
<INCOME-CONTINUING> 1,198,139
<DISCONTINUED> (47,989)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,150,150
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
