SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10QSB
(Mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 0-26111
COMTECH CONSOLIDATION GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 76-0544385
(State or other jurisdiction of incorporation or organization) (IRS Employer
Identification No.)
2401 Fountainview, Suite 418, Houston, Texas 77057
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (713) 785-0045
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.
[ X ] Yes [ ] No
Common Stock
(Title of Class)
Common Stock, Par Value $.00967 Per Share - 20,596,858 shares outstanding as
of 06/30/99.
TABLE OF CONTENTS
PART I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheet as of June 30, 1999 and
December 31, 1998 (Unaudited)
Condensed Consolidated Statements of Earnings for the Three-Month Period
Ended June 30, 1999 and 1998 (Unaudited)
Condensed Consolidated Statement of Earnings for the Six-Month Period
Ending June 30, 1999 and 1998 (Unaudited)
Condensed Consolidated Statements of Cash Flows for the Six-Month Period
Ended June30, 1999 and 1998 (Unaudited)
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Part I. Financial Information
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1999 and December 31, 1998
(Unaudited)
[CAPTION]
<TABLE>
<S> <C> <C>
Assets 1999 1998
Current assets:
Cash $ 26,825 150,624
Accounts receivable, less allowances for contractual
adjustments and doubtful accounts of $2,588,429
in 1999 and $4,310,771 in 1998 3,632,561 1,997,506
Receivables from related parties 1,100,000 1,100,000
Prepaid expenses 316,360 262,463
Total current assets 5,075,746 3,510,593
Property and equipment, net of accumulated
depreciation and amortization 571,763 595,687
Excess of cost over net assets of businesses
acquired, less accumulated amortization of
$31,021 in 1999 and $22,171 in 1998 2,368,979 2,377,829
Other assets 168,056 244,457
Total assets $ 8,184,544 6,728,566
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses 1,086,753 1,233,915
Accrued salaries and related liabilities 1,188,610 1,284,849
Due to third-party payors 1,478,812 1,503,623
Loans payable to shareholders 42,482 277,882
Notes payable 181,907 181,888
Convertible subordinated debentures 195,000
Current installments of long-term debt 63,809 69,947
Total current liabilities 4,042,373 4,747,104
Long-term debt, less current installments 317,864 339,693
Total liabilities 4,360,237 5,086,797
Stockholders' equity:
Preferred stock, $.01 par value. Authorized
1,000,000 shares: issued and outstanding,
29,410 shares in 1999 and 1998
Class B, 8% cumulative and convertible
Common stock, $.00967 par value. Authorized
30,000,000 shares: issued and outstanding,
20,196,858 shares in 1999 and 18,250,849
shares in 1998 195,304 164,108
Additional paid-in capital 1,546,617 1,033,413
Retained earnings 2,082,092 443,954
Total stockholders' equity 3,824,307 1,641,769
Commitments and contingent liabilities
Total liabilities and stockholders' equity $ 8,184,544 6,728,566
See accompanying notes to consolidated financial statements.
</TABLE>
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Three months ended June 30, 1999 and 1998
(Unaudited)
[CAPTION]
<TABLE>
<S> <C> <C>
1999 1998
Revenues $ 4,091,727 680,709
Operating expenses:
Health care operations 2,980,934 404,053
Internet operations 159,250 93,645
Corporate operations 51,395 6,457
Amortization 4,425 3,562
Depreciation 2,942 31,941
Total operating expenses 3,198,946 539,658
Operating income 892,781 141,051
Other income (expenses):
Interest income 15 45
Interest expense (2,537) (1,816)
Net earnings $ 890,259 139,280
Net earnings per share $ 0.05 0.01
Weighted average common shares 18,956,000 13,302,852
See accompanying notes to consolidated financial statements.
</TABLE>
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Six months ended June 30, 1999 and 1998
(Unaudited)
[CAPTION]
<TABLE>
<S> <C> <C>
1999 1998
Revenues $ 9,066,335 976,309
Operating expenses:
Health care operations 6,960,707 404,053
Internet operations 301,189 435,457
Corporate operations 128,092 13,575
Amortization 12,600 10,714
Depreciation 19,573 41,691
Total operating expenses 7,422,161 905,490
Operating income 1,644,174 70,819
Other income (expenses):
Interest income 33 45
Interest expense (6,069) (1,816)
Net earnings $ 1,638,138 69,048
Net earnings per share $ 0.09 0.01
Weighted average common shares 17,856,000 13,182,000
See accompanying notes to consolidated financial statements.
</TABLE>
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six months ended June 30, 1999 and 1998
(Unaudited)
[CAPTION]
<TABLE>
<S> <C> <C>
1999 1998
Cash flows from operating activities:
Net earnings $ 1,638,138 69,048
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities:
Depreciation and amortization of property
and equipment 19,573 41,691
Amortization of excess of cost over net
assets of businesses acquired 12,600 10,714
Bad debt expense 97,188
Decrease in accounts receivable (1,635,055) 5,166
Increase in prepaid expenses (53,897) (72,543)
Decrease in other assets 76,401
Decrease in accounts payable
and accrued expenses (146,561) (99,090)
Decrease in accrued salaries and related
liabilities (96,239) (31,101)
Decrease in amount due to third-party payors (24,811)
Net cash provided by (used in)
operating activities (209,851) 21,073
Cash flows from investing activities:
Purchase of property and equipment (16,158)
Cash received from acquired subsidiaries 244,392
Net cash provided by investing activities 228,234
Cash flows from financing activities:
Proceeds from borrowing from shareholders 25,711
Principal payments on long-term debt (27,948) (14,426)
Proceeds from long-term debt 68,483
Proceeds from issuance of shares under private placement 114,000
Net cash provided by financing activities 86,052 79,768
Net increase (decrease) in cash (123,799) 329,075
Cash at beginning of year 150,624 2,523
Cash at end of period $ 26,825 331,598
Supplemental schedule of cash flow information:
Interest paid $ 6,069 1,816
See accompanying notes to consolidated financial statements.
</TABLE>
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) General
The unaudited consolidated financial statements have been prepared on the
same basis as the audited consolidated financial statements and, in the
opinion of management, reflect all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation for each of the periods
presented. The results of operations for interim periods are not necessarily
indicative of results to be achieved for full fiscal years.
As contemplated by the Securities and Exchange Commission (SEC) under
Rule 10-01 of Regulation S-X, the accompanying consolidated financial
statements and related footnotes have been condensed and do not contain
certain information that will be included in the Company's annual consolidated
financial statements and footnotes thereto. For further information, refer to
the Company's 1998 audited consolidated financial statements and related
footnotes.
(2) Property and Equipment
Property and equipment is summarized as follows at June 30, 1999 and
December 31, 1998:
<TABLE>
<S> <C> <C>
1999 1998
Equipment $ 303,535 301,922
Furniture and fixtures 451,479 429,087
Leasehold improvements 302,311 336,163
Total property and equipment 1,057,325 1,067,182
Less accumulated depreciation and
amortization 485,562 471,485
Net property and equipment $ 571,763 595,687
</TABLE>
(3) Long-term Debt
Long-term debt at June 30, 1999 and December 31, 1998 is as follows:
<TABLE>
<S> <C> <C>
1999 1998
Long-term notes $ 381,673 409,640
Less current installments 63,809 69,947
$ 317,864 339,693
</TABLE>
(4) Federal Income Tax Expense
The estimated federal income tax expense for the six month period ended
June 30, 1999 and the year ended December 31, 1998 is eliminated by net
operating loss carryforwards.
(5) Subsequent Events
In February 1998, the six subsidiary corporations of Home Care Center, Inc.,
wholly owned subsidiaries of Professional Management Providers, Inc., filed
for reorganization under Chapter 11 of the United States Bankruptcy Code.
In July 1999, the bankruptcy trustee decided to discontinue the operations of
the six health care entities. Management believes the discontinuation of the
operations of the six health care entities will not have a material affect on
the operations and earnings of the Company.
Comtech Consolidation Group, Inc.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
Revenues increased by $3,411,000 or 501% between the three months ended
June 30, 1999 and 1998. The revenue increase is due primarily to fifteen
health care acquisitions made in 1998 subsequent to the three months ended
June 30, 1998.
Operating expenses increased by $2,659,000 for the three months ended
June 30, 1999 compared with the three ended June 30, 1998 and decreased
slightly as a percentage of revenues to 78.1% in 1999 from 79.3% in 1998.
This decrease as a percentage of revenues was largely due to a higher revenue
volume to cover fixed costs.
The Company had net earnings of $890,000 for the three months ended
June 30, 1999 as compared with net earnings of $139,000 for the three months
ended June 30, 1998, an increase of 640% for the reasons discussed above.
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998.
Revenues increased by $8,090,000 or 829% between the six months ended
June 30, 1999 and 1998. This increase was due primarily to an increase in the
health care operating revenues resulting from fifteen acquisitions made
subsequent to June 30, 1998.
Operating expenses increased by $6,500,000 for the six months ended
June 30, 1999 compared to the six months ended June 30, 1998. This increase
was due primarily to the increase in cost associated with the fifteen health
care acquisitions made subsequent to June 30, 1998. Operating expenses for
the six months ended June 30, 1999 decreased significantly as a percentage of
revenues from 92.7% in 1998 to 81.9% in 1999. This decrease was due primarily
to increased health care revenues to cover fixed costs offset by slight
increase in variable costs.
The Company had net earnings of $1,638,000 for the six months ended
June 30, 1999 as compared with net earnings of $71,000 for the six months
ended June 30, 1998, a significant increase for the reasons discussed above.
Liquidity and Capital Resources
Net accounts receivable increased by $1,635,000 due primarily to timing
differences in the receipt of payments by Medicare and third-party payors.
Medicare billings occur on a monthly basis with reimbursements occurring
fourteen days from receipt and approval by Medicare. The Company has obtained
credit facilities with its bankers and feels these credit facilities coupled
with funds from operations will be adequate to meet cash requirements.
Outlook
This "Outlook" section contains a number of forward-looking statements, all
of which are based on current expectations. Actual results may differ
materially. Revenue Expectations. Based on current conditions the Company
expects revenues to continue to grow through its continued acquisition of
undervalued home health agencies. Net earnings are expected to continue to
grow as a result of these acquisitions as well as cost reduction programs
coupled with restructuring of the operations.
Potential Impact of Discontinued Operations. In July 1999, the operations of
the six subsidiary corporations that are in Chapter 11 were discontinued by
the U.S. Bankruptcy Trustee. The Company believes this will not have material
effect on the operations and earnings of the Company. The Company believes
that future acquisitions and an effective cost reduction program will garner
the continued growth of revenue and earnings in 1999.
Year 2000 Issue. The Company has initiated a company-wide program and has
developed a formal plan to prepare for the year 2000. Management currently
believes that the costs related to Y2K compliance should not have a material
effect on operations or the Company's consolidated financial position,
results of operations or cash flows.
Forward-Looking Statements
Certain information contained in these Interim Financial Statements for the
Quarter Ended June 30, 1999, including, without limitation, information
appearing in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" are forward-looking statements (within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934). Forward-looking statements, all of
which are based on current expectations, may differ materially from actual
results. Actual results could be affected by a variety of factors.
/s/Joel B. Flowers, Jr.
Chief Financial Officer
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<PERIOD-END> JUN-30-1999
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<RECEIVABLES> 7,320,990
<ALLOWANCES> 2,588,429
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<CURRENT-ASSETS> 5,075,746
<PP&E> 1,057,325
<DEPRECIATION> 485,562
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<OTHER-SE> 3,628,709
<TOTAL-LIABILITY-AND-EQUITY> 8,184,544
<SALES> 4,091,727
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