UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1999
Commission File No. 000-26111
COMTECH CONSOLIDATION GROUP, INC.
---------------------------------
(Name of small business issuer in its charter)
Delaware 76-0544385
-------- ----------
(State or jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
10497 Town & Country Way, Suite 460
Houston, TX 77024
713-554-2244
(Address, including zip code and telephone number, including area
code, of registrant's executive offices)
Securities registered under Section 12 (b) of the Exchange Act: NONE
Securities registered under to Section 12(g) of the Exchange Act:
Common Stock
(Title of class)
Check whether the issuer (1) 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 Company was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X NO
--- ---
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to be
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. X
---
Issuer's revenues for its most recent fiscal year: $9,452,081
----------
<PAGE>
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such stock, as of a specified
date within the past 60 days: As of February 16, 2000: $12,821,248
-----------
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of February 16, 2000, they were
22,105,600 shares of the Company's common stock issued and outstanding.
Documents Incorporated by Reference: None
2
<PAGE>
TABLE OF CONTENTS
FORM 10 - KSB ANNUAL REPORT
COMTECH CONSOLIDATION GROUP, INC.
PAGE
----
Facing Page
Index
PART I.
Item 1. Description of Business 4
Item 2. Description of Property 5
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 7
PART II
Item 5. Market for the Registrant's Common Equity
And Related Stockholder Matters 8
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 7. Financial Statements 11
Item 8. Changes in and Disagreements on Accounting and
Financial Disclosures 11
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16 (a) of
The Exchange Act 12
Item 10. Executive Compensation 13
Item 11. Security Ownership of Certain Beneficial Owners
and Management 14
Item 12. Certain Relationships and Related Transactions 15
PART IV
Item 13. Exhibits and Reports of Form 8-K 16
SIGNATURES 35
3
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Comtech Consolidation Group, Inc., f/k/a Venning Group, Inc. (ComTech or the
Company) was incorporated on July 13, 1987 under the laws of the State of
Delaware, to engage in any lawful corporate undertaking, including but not
limited to selected mergers and acquisitions. The Company had been in the
development stage from inception until August 12, 1997, at which time it
acquired all of the capital stock of Networks On-Line, Inc., a network
integrator and Internet service provider and began operations under its business
plan. Networks On-Line, Inc. provides Internet access services to individuals
and businesses in the Houston, Texas area and provides website hosting and
Internet consulting on a nationwide basis.
The Company business is the acquisition and consolidation of the business
operations of small companies. It combines these small entities into larger
organizations that can take advantage of their collective size and achieve
economies of scale. To date the Company has acquired and was consolidating
business operations in two industries, Internet services and Healthcare.
In January of 1998, the Company formed a new wholly owned subsidiary named EISP
Corporation (Enhanced Internet Service Provider), a Texas corporation. EISP's
mission was to develop market enhanced Internet services, i.e. video
teleconferencing, faxing to be bundled with its standard Internet services. The
Company transferred ownership of Networks On-Line, Inc. to EISP Corporation,
creating a full Network services division.
In February of 1998, the Company acquired Professional Management Providers,
Inc. (PMP), a Baton Rouge, Louisiana based corporation. PMP is a management
consulting company for home health care providers, with customers located in
Texas and Louisiana. PMP was established as a subsidiary holding company for
acquisitions of home health care agencies. During 1998, PMP made a significant
amount of acquisitions with annualized revenues of approximately $17 million.
In April 1998, the Company acquired Unique Dawning, Inc. (UDI), a Texas
corporation. UDI, headquartered in Houston, operated specialized health care
center (partial hospitals) providing services to outpatients, with centers
located in Texas and Louisiana. UDI was established as a subsidiary holding
company for acquisitions of partial hospitals. During 1998 and 1999, UDI made a
significant amount of acquisitions with annualized revenues of approximately $6
million.
ComTech was originally in the business of growing sales revenues and earnings
through consolidation (acquisition) of privately held operating entities under
its two tier corporate holding structure. As acquisitions were made, the
Company formed a Subsidiary Holding Company, specifically structured as a
financing vehicle to fund ongoing expansion around the business initially
acquired. This two tier corporate holding structure was established to provide
a means of raising operating capital without dilution to the Company
shareholders. It also allowed the Subsidiary Holding Company to develop its own
market identity, separate and apart from that of the Company. The objective of
this system was to continue to grow the business of its Subsidiary Holding
Company, thereby increasing sales revenue and earnings.
4
<PAGE>
In summary, ComTech was a holding company that had developed a strategy that:
- Enhances the values of its assets (equity in Subsidiary Holding
Companies).
- Provides management with incentives to continue to grow the businesses.
- Provides management with the corporate structure to obtain ongoing
growth.
In second quarter of 1999, ComTech decided to abandon the Subsidiary Holding
Company concept because of its lack of control over the Subsidiary Holding
Companies. The Company did not realize how much control it had actually lost
until it tried to change its method of managing the day-to-day operations of the
company. In doing so, the Company lost a significant amount of operations in
the health care division.
In July 1999, the Company lost seven of the eight operating health care
facilities of PMP. The only surviving operating health care entity of PMP was
A-1 Bayou, a home health care agency located in Jeanerette, Louisiana. In late
1999, the Board of Directors of ComTech voted to transfer the ownership of A-1
Bayou directly to ComTech.
In September 1999, the Company closed four of the five operating health care
facilities of UDI.
As of December 1999, ComTech has only three operating subsidiaries, one engaged
in health care and two engaged in Internet related businesses. These entities
generate approximately $2 million in annual revenues.
Due to the significant management problems noted in 1999, the Company has
changed its method of managing it subsidiaries. ComTech, the holding company,
now directly managed the financial and administrative operations of all of its
subsidiaries.
VISION/MISSION
In early 2000, the new management team of ComTech decided to refocus the Company
to take advantage of the tremendous growth of the Internet. The fact that
ComTech already owns NOL and EISP (Internet service providers) makes this move
even easier. ComTech will play a major role in the technology arena and will
grow rapidly by acquisitions. Management feels that by changing the direction
of the Company to focus purely on technology related companies; ComTech will be
opening the door to endless business possibilities.
MARKET ANALYSIS
The multi-billion dollar U.S. Internet industry is currently going through a
massive restructuring, which is creating virtually unlimited acquisition and
merger possibilities. Opportunities for Internet and technology firms abound,
5
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our Internet companies will be key to our move toward growth and expansion in
technology related industries.
MARKETING PLAN
The Company intends to implement a cost-effective marketing strategy through a
process of developing a public relations campaign to take advantage of the
opportunities that will be presented by the move to become a pure player
technology company.
FINANCIAL PLAN
Management's goals are to increase revenues and shareholder value through
acquisitions. ComTech will attempt to secure relationships with Investment
Banking firms to assist with capital needs. ComTech will prepare an SB-2 filing
to register stock to facilitate acquisitions and private placement of stock as
well as fund an Employee Stock Option Plan.
COMPETITION
The market for the company's Internet products is highly competitive, and
ComTech expects this competition to increase. Many of the Company's competitors
have significantly greater research and development, marketing and financial
resources than the Company, and therefore, represent significant competition.
The Company believes that the primary competitive factors in the market for the
Company's services are price, performance and technical support.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases a total of approximately 3,000 square feet of office space
for the Company's headquarters and Internet operations. The Company's
headquarters is located at 10497 Town & Country Way, Suite 460, Houston, Texas.
In addition, the Company leases approximately 2,000 square feet of space for its
health care operations in Louisiana. The operating lease at the Company's
headquarters expires on May 31, 2001.
ITEM 3. LEGAL PROCEEDINGS
As noted in the notes to the (note 11) Company's financial statements, the
Company had been involved in a significant amount of legal proceeding during
1999. A significant amount of litigation, both filed and threatened, is pending
against the Company. Almost all of the claims were incurred in the acquisition
and operations of health care facilities located in Louisiana and Texas.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth quarter
of 1999.
6
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PART III
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's common stock is traded on the OTC Bulletin Board under the symbol
"CCGI." The Company' authorized capital stock consist of 30,000,000 shares of
common stock, $.00967 par value, of which 22,105,000 shares were issued and
outstanding as of February 16, 2000 and 1,000,000 shares of preferred stock,
$.01 par value, of which 31,046 shares were issued and outstanding.
As of December 31, 1999, the approximate number of holders of record of the
common stock of the Company was 3,600.
The Company has never paid any cash dividends in the past and anticipates that
for the foreseeable future all earnings, if any, will be retained to finance
growth and to meet working capital requirements.
ITEM 6. MANAGEMENT 'S DISCUSSION AND ANALYSIS OF FINANCIAL CONITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS BEFORE EXTRAORDINARY LOSSES: 1999 COMPARED TO 1998
Total revenues for 1999 of $9,452,081 represents an increase of $656,134 or
7.46% increase from revenues of $8,795,947 in 1998. This increase is due to
revenue from health care facilities being reported for six months in 1999 as
compared to five months in 1998.
The Company reported a net loss before extraordinary items of $352,924 in 1999
as compared to net income of $715,585 in 1998. The $1,096,616 decrease from
1998 is primarily due to an increase of $969,396 in corporate expenses. The
increase in corporate expenses is due to the accrual of approximately $400,000
in expenses related to settled and pending litigation, $71,000 in legal
expenses, $374,000 in expenses for investor relations paid in stock, $86,000 in
bad debts related to loans to subsidiaries, $113,000 in compensation to
officers.
EXTRAORDINARY LOSSES
During 1999, a number of the health care facilities (6) in Louisiana owned by
the Company's subsidiary, Professional Management Providers, Inc. were operating
under Chapter 11 of the U.S. Bankruptcy Code. As a result of several disputes
and lawsuits with former management of the subsidiary, the Trustee in bankruptcy
closed the six subsidiary corporations of Home Care Center, Inc. in July 1999.
Thereafter, the Company closed three of the remaining four facilities in
Louisiana, and transferred ownership of the remaining one to the parent company.
The one remaining facility was still in operation at December 31, 1999.
7
<PAGE>
In addition, the Company made several acquisitions during 1999 through its
Unique Dawning, Inc. (UDI) subsidiary without board approval or corporate
involvement. These facilities proved unmanageable, and as a result, Unique
Dawning, Inc. was placed in Chapter 11 of the Bankruptcy Code in September 1999.
Subsequently, the Trustee transferred the filing to Chapter 7, which provides
for liquidation. The Chief Financial Officer at the time and most of management
disagreed with a two-member Board decision to place Unique Dawning, Inc into
bankruptcy. The Board not only placed UDI into bankruptcy, the interim
President actually asked the bankruptcy court to appoint a trustee to manage the
operations of UDI, which was an act guaranteed to close the "profitable
facility" down. No financial analysis was performed to ascertain the necessity
of destroying this profitable health care facility. UDI was placed into
bankruptcy based on an internal conflict between two board members. Once the
trustee was appointed, their doctors transferred the patients to other health
care facilities; therefore, the trustee was forced to close the facility.
As a result of these events, the Company recognized losses on the closing and
disposal of the twelve facilities (nine under Professional Management Providers,
Inc. and three under Unique Dawning, Inc.). The losses were as follows:
Professional Management Providers, Inc. $2,088,367
Unique Dawning, Inc. 639,273
----------
$2,727,640
==========
The current management of the Company is certain that controls are in place that
will assure shareholders that sound business practices will be used in the
future.
FUTURE OPERATIONS
As noted in the description of the business section of the document, management
has changed the focus of the Company to pursue the technology industry with
emphasis on Internet related businesses. The Company intends to acquire
Internet related companies by issuing shares of the Company's stock after a
secondary offering. As of the date of this report, management of the Company
has had preliminary discussions with potential merger or acquisition candidates,
but there is no definitive agreement between the Company and any merger
candidates. In the event the Company does enter into an agreement with such a
third party, the new Board of Directors does intend to obtain certain assurances
of the value of the target entity assets prior to consummating such a
transaction. Current management has established a due diligence team to
ascertain that the mistakes of the past will never happen again.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current assets represented 15% of current liabilities at December
31, 1999 as compared to 74% at December 31, 1998. Current liabilities exceeded
current liabilities by $733,063 at December 31, 1999. At December 31, 1999, the
Company primarily had two operational subsidiaries: one health care subsidiary
located in Louisiana and one Internet Service Provider located in Houston,
Texas. The net income from these operations is not sufficient to support
8
<PAGE>
corporate expenses and pay current liabilities. Based on this liquidity
problem, the Company's external auditors' report on the 1999 consolidated
financial statements included a fourth paragraph noting a going concern problem.
Based on discussions with the external auditors, if the Company is able to
resolve this problem by obtaining additional equity funding, the auditors are
willing to review the Company's current situation and if conditions have
improved, the firm is willing to reissue their report without noting the going
concern problem.
Management believes that actions presently being taken to obtain additional
equity financing through a secondary offering and pursuing acquisitions and
increasing sales in the technology sector will provide the Company the
opportunity to continue as a going concern.
ITEM 7. FINANCIAL STATEMENTS
The Company's Consolidated Financial Statements, Notes to Consolidated Financial
Statements and the report of R. E. Bassie & Co., P.C., independent auditors,
with respect thereto, referred to in the Index to Financial Statements, appear
elsewhere in this Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9-. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information concerning executive officers and
directors of the Company, including their ages and positions with the Company as
of March 24, 1999.
MANAGEMENT
Name Age Position
---- --- --------
Walter D. Davis 48 Chairman of the Board, President, Chief Executive
Officer and Director
Lamont Waddell 57 Chief Financial Officer and Director
Vincent E. Alexander 38 Director and Chairman of the Audit Committee
Beatrice Beasley 55 Director and Chairman of the
Compensation Committee
Jesse Funchess 69 Director
Walter D. Davis, 48, has been chairman of the board and the chief executive
officer/president of CCGI since 1/20/00. He served as the chief financial
officer from 9/1/99-1/20/00. He also serves as trustee on the Houston Municipal
Pension Board.
9
<PAGE>
Lamont Waddell, 57, is a director and has been the Chief Financial Officer since
1/20/00. He formerly served as comptroller of CCGI from October 1, 1999 to
January 20, 2000, and prior to that he was the Vice President of Finance/Human
Resource/Comptroller of the Faro Pharmaceutical Corp.
Vincent E. Alexander, 38, serves as director and chair of the audit committee.
He was elected to the board in 12/99. He is a financial officer of the Infinity
Brokerage Corporation. He is also a member of the greater Houston partnership.
Dr. Beatrice Beasley, 55, has been a member of the board since 1/20/00 and the
chair of the compensation committee. She is a tenured professor at Texas
Southern University and is president of Beasley & Associates, a business
training and consulting firm. Dr. Beasley also serves on the board of the
Harris County Children's Protective Services Agency.
Attorney Jesse Funchess, 69, was elected to the board in 2/00. He is managing
partner of Jesse Funchess & Associates Attorneys at Law in Houston and Beaumont,
Texas. Attorney Funchess is also the Chairman of the board of the South Central
Houston Community Action Council, Inc.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers and persons who own more than five percent of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission (the SEC) initial reports of ownership and reports
changes in ownership of Common Stock and other equity securities of the Company.
Officers, directors and greater than ten-percent beneficial owners are required
by SEC regulation to furnish the Company with copies of all Section 16(a)
reports they file.
The Company is in compliance.
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
Name and Annual
Principal Position Year Compensation
- ------------------- ---- ------------
Richard Belhman 1999 $ 48,000
Chief Executive Officer 1998 $ 48,000
Winfred Fields 1999 $ 96,000
Chief Executive Officer
10
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OPTION GRANTS IN LAST FISCAL YEAR
None
FISCAL YEAR-END OPTION VALUES
None
DIRECTORS REMUNERATION
In 1999 Directors were not paid a fee for servicing on the Board.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of February 16, 2000, information with respect
to (a) each person (including "group" as that term is used in section 13(d)(3)
of the Securities Exchange Act of 1934 who is known to the Company to be the
beneficial owner of more than five percent (5%) of the outstanding Common Stock
of the Company and (b) the number and percentage of the Company's Common Stock
owned by (i) each of the directors and the executive officers named on the
Summary Compensation Table above and (ii) all directors and executive officers
of the Company as a group. The Company believes that, unless otherwise
indicated, each of the shareholders has sole voting and investment power with
respect to the shares beneficially owned.
CLASS NAME AND ADDRESS AMOUNT PERCENT
- ----- ------------------ ------ -------
Common Arlie Enterprise, Inc. 1,363,619 6.2%
11500 NE 76th St., A3#66
Vancouver, WA 98662
Common Dorothy M. Stewart 1,366,000 6.2%
1143 Bayou Island Drive
Houston, TX 77063
Common Officers and Directors 53,600 0.2%
(One Officer)
The balance of the Company's outstanding Common Shares is held by approximately
4,000 persons.
11
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ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Related transactions are noted in the Company's Consolidated Financial
Statements and Notes to the Consolidated Financial Statements.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, ALND REPORTS ON FORM 8-K.
1) Documents filed as part of the report:
1) The financial statements filed as part of this report are listed
separately in the Index to Financial Statements.
2) The Company filed one report on Form 8-K during the last quarter of
1999. The report dated November 5, 1999 noted "Other Event." On or
about September 30, 1999, the management of the Company filed for
Chapte 11 reorganization of three of its subsidiaries, namely, Unique
Dawning, I nc., Unique Dawning CMHC, Inc. land Summit Quality Health
Services, Inc.
3) Lists of Exhibits:
Exhibit 27
SIGNATURES
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.
COMTECH CONSOLIDATION GROUP, INC.
Date: April 13, 2000 By: /s/ Walter D. Davis
----------------------
Walter D. Davis
Chairman of the Board,
Chief Executive Officer,
President
Date: April 13, 2000 By: /s/ Lamont J. Waddell
------------------------
Lamont J. Waddell
Chief Financial Officer,
Vice President of Finance
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title
--------- -----
By: /s/ Walter D. Davis Chairman of the Board and Chief
---------------------- Executive Officer, President and
Walter D. Davis Director
By: /S/ Lamont J. Waddell Board Member and Chief Financial
------------------------ Officer and Vice President of Finance
Lamont J. Waddell
By: /s/ Vincent E. Alexander Board Member and Chairman of the
------------------------ Audit Committee
Vincent E. Alexander
By: /s/ Dr. Beatrice Beasley Board Member and Chairman of the
------------------------ Compensation Committee
Dr. Beatrice Beasley
By: /s/ Jesse Funchess Board Member
--------------------
Jesse Funchess, JD
Signature Date
--------- ----
By: /s/ Walter D. Davis April 13, 2000
----------------------
Walter D. Davis
By: /S/ Lamont J. Waddell April 13, 2000
------------------------
Lamont J. Waddell
By: /s/ Vincent E. Alexander April 13, 2000
---------------------------
Vincent E. Alexander
By: /s/ Dr. Beatrice Beasley April 13, 2000
---------------------------
Dr. Beatrice Beasley
By: /s/ Jesse Funchess April 13, 2000
--------------------
Jesse Funchess, JD
13
<PAGE>
INDEX TO FINANCIAL STATEMENTS
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
INDEX
Independent Auditors' Report
Consolidated Financial Statements:
Balance Sheets - December 31, 1999 and 1998
Statements of Operations - Years ended December 31, 1999 and 1998
Statements of Stockholders' Equity - Years ended December 31, 1999 and 1998
Statements of Cash Flows - Years ended December 31, 1999 and 1998
Notes to Consolidated Financial Statements
<PAGE>
R. E. BASSIE & CO., P.C.
CERTIFIED PUBLIC ACCOUNTANTS
A PROFESSIONAL CORPORATION
- --------------------------------------------------------------------------------
COMTECH CONSOLIDATION
GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(WITH INDEPENDENT AUDITORS'
REPORT THEREON)
<PAGE>
R. E. BASSIE & CO., P.C.
CERTIFIED PUBLIC ACCOUNTANTS
A PROFESSIONAL CORPORATION
- --------------------------------------------------------------------------------
7171 Harwin Drive, Suite 306
Houston, Texas 77036-2197
Tel: (713)266-0691 Fax: (713)266-0692
E-Mail: [email protected]
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Comtech Consolidation Group, Inc.:
We have audited the consolidated financial statements of ComTech Consolidation
Group, Inc. and subsidiaries as listed in the accompanying index. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Comtech
Consolidation Group, Inc. and subsidiaries as of December 31, 1999 and 1998, and
the results of their operations and their cash flows for the two-year period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
As shown in the consolidated financial statements, the Company incurred a net
loss of $3,091,578 in 1999. At December 31, 1999, current liabilities exceed
current assets by $733,063. These factors, and others discussed in Note 13,
raise substantial doubt about the Company's ability to continue as a going
concern. The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded assets, or the
amounts and classification of liabilities that might be necessary in the event
the Company cannot continue in existence.
/s/ R. E. Bassie & Co., P.C.
Houston, Texas
March 24, 2000
<PAGE>
<TABLE>
<CAPTION>
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
Assets 1999 1998
- ------------------------------------------------------------------------- --------------- -------------
<S> <C> <C>
Current assets:
Cash (note 3) $21,710 $150,624
Accounts receivable, less allowances for contractual
adjustments and doubtful accounts of $1,000
in 1999 and $4,310,771 in 1998 (note 12) 110,007 3,097,506
Prepaid expenses - 262,463
--------------- -------------
Total current assets 131,717 3,510,593
--------------- -------------
Note receivable (note 2) 20,000 -
Property and equipment, net of accumulated
depreciation and amortization (notes 4 and 5) 146,014 595,687
Excess of cost over net assets of businesses
acquired, less accumulated amortization of
$34,000 in 1999 and $22,171 in 1998 (notes 2 and 12) 646,000 2,457,829
Other assets 4,340 244,457
--------------- -------------
Total assets $948,071 $6,808,566
=============== =============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable and accrued expenses 617,392 1,287,893
Accrued salaries and related liabilities 131,686 1,232,006
Due to third-party payors - 1,503,623
Loans payable to shareholders 42,482 277,882
Notes payable 10,000 186,888
Convertible subordinated debentures (note 8) - 195,000
Current installments of long-term debt (note 5) 63,220 39,562
--------------- -------------
Total current liabilities (note 12) 864,780 4,722,854
Long-term debt, less current installments (note 5) 545,114 443,943
--------------- -------------
Total liabilities 1,409,894 5,166,797
--------------- -------------
Stockholders' equity (notes 2, 3, 6, 8, 12 and 14):
Preferred stock, $.01 par value. Authorized
1,000,000 shares: issued and outstanding,
31,028 shares in 1999 and 31,450 in 1998
Class B, 8% cumulative and convertible 310 324
Common stock, $.00967 par value. Authorized
30,000,000 shares: issued and outstanding,
22,077,072 shares in 1999 and 16,970,849
shares in 1998 213,485 164,108
Additional paid-in capital 2,024,806 1,033,383
Retained earnings (deficit) (2,700,424) 443,954
--------------- -------------
Total stockholders' equity (deficit) (461,823) 1,641,769
Commitments and contingent liabilities (notes 6, 8, 9, 11, 13, 14 and 15)
--------------- -------------
Total liabilities and stockholders' equity $ 948,071 $ 6,808,566
=============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1999 and 1998
1999 1998
-------------------- --------------------
<S> <C> <C>
Revenues:
Net patient service revenue $ 8,861,052 $ 6,772,967
Management fees - 1,271,422
Internet service revenue 591,029 751,558
-------------------- --------------------
Total revenues 9,452,081 8,795,947
-------------------- --------------------
Operating expenses:
Health care operations 7,953,888 6,960,452
Internet operations 578,323 763,542
Corporate operations 1,221,083 251,687
Amortization 25,996 19,817
Depreciation 25,715 56,757
-------------------- --------------------
Total operating expenses 9,805,005 8,052,255
-------------------- --------------------
Operating income (loss) (352,924) 743,692
Other income (expenses):
Interest income - 3,040
Interest expense (11,014) (31,147)
-------------------- --------------------
Total other income (expenses) (11,014) (28,107)
-------------------- --------------------
Net income (losses) before extraordinary
losses (363,938) 715,585
Extraordinary losses (note 12) (2,727,640) -
-------------------- --------------------
Net earnings (loss) (note 8) $ (3,091,578) $ 715,585
==================== ====================
Earnings per share from continuing operations:
(Before extraordinary items)
Primary $ (0.02) $ 0.05
==================== ====================
Fully diluted $ (0.01) $ 0.04
==================== ====================
Weighted average common shares
Primary 19,954,922 14,719,450
==================== ====================
Fully diluted 24,634,045 16,312,361
==================== ====================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1999 and 1998
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $(3,091,578) $ 715,585
Less losses from extraordinary item (note 12) 2,727,640 -
------------ ------------
Net earnings (loss) from continuing operations (363,938) 715,585
Adjustments to reconcile net earnings (loss) to net
cash used in operating activities:
Depreciation and amortization of property
and equipment 25,715 56,757
Amortization of excess of cost over net
assets of businesses acquired 25,966 19,817
Bad debt expense 86,000 211,497
Stock issued for various services 366,221 -
Loss on disposal of equipment 2,963 -
(Increase) decrease in accounts receivable (667,749) (1,705,145)
Increase in prepaid expenses 25,953 (210,137)
Increase in other assets 74,837 (241,784)
Increase (decrease) in accounts payable
and accrued expenses 536,356 (102,039)
Increase (decrease) in accrued salaries and
related liabilities (314,393) 564,532
Decrease in amount due to third-party payors (40,735) (40,532)
------------ ------------
Net cash used in operating activities (242,804) (731,449)
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (11,647) (69,172)
Cash received from acquired subsidiaries - 520,034
------------ ------------
Net cash provided by (used in)
investing activities (11,647) 450,862
------------ ------------
Cash flows from financing activities:
Proceeds from borrowing from shareholders - 33,750
Repayments to shareholders - (37,038)
Proceeds from long-term debt - 79,850
Principal payments on long-term debt (13,588) (30,477)
Proceeds from short-term note payable 10,000 -
Principal payments on short-term notes payable - (18,896)
Proceeds from issuance of shares under private placement 129,125 1,499
Proceeds from sales of subordinated debentures - 400,000
------------ ------------
Net cash provided by financing activities 125,537 428,688
------------ ------------
Net increase (decrease) in cash (128,914) 148,101
Cash at beginning of year 150,624 2,523
------------ ------------
Cash at end of year $ 21,710 $ 150,624
============ ============
Supplemental schedule of cash flow information:
Interest paid $ 11,014 $ 31,147
============ ============
Supplemental disclosures:
Noncash investing and financing activities (notes 2, 3, 8 and 12))
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1999 and 1998
Total
Additional Retained stockholders'
Preferred Common paid-in earnings equity
stock stock capital (deficit) (deficit)
------------ ---------- --------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $ - $124,996 $75,978 $(271,631) $(70,657)
Issuance of 1,029,410 shares
for acquisitions (note 2) 324 9,670 743,948 - 753,942
Issuance of 1,499,138 shares
under private placement
(note 3) - 14,497 (12,998) - 1,499
Issuance of 182,000 shares -
for marketing services - 1,760 34,640 - 36,400
Conversion of debentures
for 1,363,511 shares
of common stock (note 9) - 13,185 191,815 - 205,000
Net earnings - - - 715,585 715,585
------------ ---------- --------------- ------------ ------------
Balance, December 31, 1998 324 164,108 1,033,383 443,954 1,641,769
Issuance of 3,500 shares of preferred
stock for acquisitions (note 2) 35 - 62,166 - 62,201
Issuance of 645,625 shares of
common stock under private
placement (note 3) - 6,243 122,882 - 129,125
Issuance of 1,251,995 shares of
common stock for retirement of
debt (note 3) - 12,108 238,291 - 250,399
Conversion of debentures
for 1,223,787 shares
of common stock (note 9) - 11,834 183,166 - 195,000
Issuance of 376,078 shares
for investor relations 15 3,622 300,184 - 303,821
Issuance of 183,600 shares of common
stock for contractual services
(note 3) - 1,775 45,665 - 47,440
Conversion of 6,400 shares of
preferred stock for 1,530,222
shares of common stock (note 6) (64) 14,797 (14,733) - -
Issuance of 96,392 shares of
common stock for preferred
stock dividends (note 6) - 932 51,868 (52,800) -
Retirement of 200,000 shares
of common stock (note 3) - (1,934) 1,934 - -
Net loss - - - (3,091,578) (3,091,578)
------------ ---------- --------------- ------------ ------------
Balance, December 31, 1999 $310 $213,485 $2,024,806 $(2,700,424) $(461,823)
============ ========== =============== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
ComTech Consolidation Group, Inc., a Delaware corporation, was incorporated
on July 13, 1987. The Company is a Houston, Texas based consolidation
company that is focused on acquiring and building growth oriented
businesses through acquisitions in the technology related industries. The
Company has operations in Texas and Louisiana.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Comtech
Consolidation Group, Inc. and its wholly-owned subsidiaries (the Company).
All material intercompany profits, transactions and balances have been
eliminated.
The accounts of purchased companies are included in the consolidated
financial statements from the dates of acquisition. The excess of cost over
the fair value of net assets of businesses acquired is being amortized
using the straight-line method over a 40-year period commencing with the
dates of acquisition.
PROPERTY AND EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost. Depreciation of property and
equipment is calculated using the straight-line method over the estimated
useful lives of the assets, which range from three to ten years.
EARNINGS PER SHARE
Earnings (losses) per common share have been computed by dividing net
earnings (losses) by the weighted average number of common shares
outstanding during the respective periods.
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with original maturities of three months or less
to be cash equivalents.
<PAGE>
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
PATIENT SERVICE REVENUE
The Company's health care subsidiaries have agreements with third-party
payors (primarily Medicare and Medicaid programs) that provide for payments
to the Company at amounts different from its established rate for services
and supplies. Payment arrangements include prospectively determined rates,
reimbursed costs, discounted charges, and other arrangements. Patient
service revenue is reported at the estimated net realizable amounts from
patients, third-party payors, and others for services rendered, including
estimated retroactive adjustments under reimbursement agreements with
third-party payors. Retroactive adjustments are recorded on an estimated
basis in the period the related services are rendered and adjusted in the
future periods, as final settlements with the payors are determined.
CONCENTRATION OF CREDIT RISK
Medicare and Medicaid Programs
Net revenue from the majority of the Company's subsidiaries is generated
from services rendered to Medicare and Medicaid program (the Programs)
beneficiaries. The reimbursement from the Programs is determined under
cost-based reimbursement formulas. The ultimate reimbursement to which the
Company is entitled is based on the submission of annual cost reports,
which are subject to audit, by the Programs through the Programs
intermediaries. Management has made allowances for potential cost
disallowances. Differences between allowances and final settlements are
reported as modification to net patient service revenue in the year of
settlement. Since the Company receives a substantial portion of its funding
from the Programs, it is dependent on funding from the Medicare and
Medicaid programs to support fifty percent of its operations.
RECLASSIFICATIONS
Certain 1998 amounts have been reclassified to conform to the 1999
presentation.
2
<PAGE>
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) ACQUISITIONS
Effective January 1, 1999, the Company, through its wholly-owned
subsidiary, PMP, issued 1,000 shares of its Class B preferred stock (see
note 6) for all of the outstanding stock of Clinical Concepts, Inc., a
Louisiana health care corporation. On the same day, the Company sold
Clinical Concepts Inc. to an individual for a long-term note receivable in
the amount of $30,000. The note receivable is due in six annual
installments of $5,000.
Effective March 26, 1999, the Company, through its wholly-owned subsidiary,
Unique Dawning, Inc., issued 2,500 shares of its Class B preferred stock
(see note 6) for all of the outstanding stock of two Texas health care
corporations.
Effective February 15, 1998, the Company issued 500,000 shares of its
common stock in exchange for all of the outstanding stock of Professional
Management Providers, Inc. (PMP), a Louisiana health care management
corporation.
Effective April 1, 1998, the Company issued 500,000 shares of its common
stock in exchange for all of the outstanding stock of Unique Dawning, Inc.,
a Texas health care corporation.
Effective June 30, 1998, the Company, through its wholly-owned subsidiary,
PMP, issued 2,000 shares of its Class B preferred stock for all of the
outstanding stock of Superior Quality Health Care, Inc., a Texas health
care corporation.
Effective July 30, 1998, the Company, through its wholly-owned subsidiary,
PMP, issued 11,000 shares of its Class B preferred stock for all of the
outstanding stock of Home Care Center, Inc., a Louisiana health care
corporation (see note 11).
Effective August 13, 1998, the Company, through its wholly-owned
subsidiary, PMP, issued 1,300 shares of its Class B preferred stock for all
of the outstanding stock of Magnolia Home Health, Inc., a Louisiana health
care corporation.
Effective October 3, 1998, the Company, through its wholly-owned
subsidiary, PMP, issued 600 shares of its Class B preferred stock for all
of the outstanding stock of A-1 Bayou Health 2000, Inc., a Louisiana health
care corporation.
3
<PAGE>
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Between July 1, 1998 and December 29, 1998, the Company, through its
wholly-owned subsidiary, PMP, issued 16,550 shares of its Class B preferred
stock for certain net assets of twelve Louisiana health care corporations.
All of the above acquisitions have been accounted for using the purchase
method with the purchase price allocated to the acquired assets and
liabilities based on their respective estimated fair values at the
acquisition dates. Such allocations were based on evaluations and
estimations. A valuation adjustment in the amount of $2,000,000 has been
assigned to the value of existing contracts for entities acquired in 1998.
The purchase allocation is summarized as follows:
1999 1998
---- ----
Current assets $133,849 $3,630,796
Noncurrent assets 25,000 -
Property and equipment - 439,745
Excess of cost over net assets
of businesses acquired - 2,000,000
Current liabilities (96,648) (5,229,128)
Long-term liabilities - (87,471)
--------- -----------
$62,201 $753,942
========= ===========
Goodwill is being amortized over a period of 40 years.
(3) RELATED PARTY TRANSACTIONS
In January 1999, the Company sold 645,625 shares of common stock for
$129,125 ($.20 per share) to a company owned by a relative of the Chairman
of the Board at the time (the Chairman was subsequently removed by the
Board). The Chairman of the Board charged the Company a fee in the amount
of $5,125 to consummate this transaction. This private placement was never
approved by the Board of Directors.
In January 1999, the Company issued 1,251,995 shares of common stock to
companies owned by relatives of the Chairman of the Board at the time. The
shares were issued to retire loans made to the Company by the Chairman of
the Board and a company owned by the deceased former Chairman of the Board.
The Board of Directors never approved these transactions. The Board
subsequently removed the Chairman from the Board. The shares were never
returned and are still outstanding. In March 2000, the Company signed a
settlement agreement and mutual release in return for another private
placement of stock (see note 14). In addition, the former President of the
Company agreed to return 200,000 shares of common stock in settlement of
his involvement in the issuance of the shares.
4
<PAGE>
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In April 1999, the Company issued 130,000 shares ($.20 per share) of common
stock to the Chairman of the Board at the time for compensation for
services performed.
In December 1999, the Company issued 53,600 shares ($.40 per share) of
common stock to the Chief Financial Officer for compensation for services
performed and the repayment of $11,500 in loans made to the Company,
On July 2, 1998, the Company completed a private offering of 1,500,000
shares of its common stock at an offering price of $.001 per share. Of the
1,500,000 offered, 1,499,138 shares were issued and sold. 283,000 shares
were sold to a company owned by the son of the Chairman of the Board at the
time, 666,138 shares were sold to the Chairman of the Board at the end of
1998, and 500,000 shares were sold to a close business associate of the
Chairman of the Board, of which, 320,000 shares were subsequently
transferred to the Chairman of the Board. The shares were issued for less
than the par value of the shares. The excess of the par value over the
proceeds from the placement has been charged to Additional paid-in capital.
The Company has not determined whether the issuance met the requirements of
state law.
At December 31, 1998, $40,000 of the cash balance was pledged as collateral
for a personal loan made by the president of PMP. The Board of Directors of
the Company did not approve this transaction.
(4) PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
December 31,
-------------------------
1999 1998
--------- ---------
Equipment $240,317 $301,922
Furniture and fixtures 1,600 429,087
Leasehold improvements - 336,163
--------- ---------
Total property and equipment 241,917 1,067,172
Less accumulated depreciation and
amortization 95,903 471,485
--------- ---------
Net property and equipment $146,014 $595,687
========= =========
5
<PAGE>
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
December 31,
------------------
1999 1998
-------- --------
<S> <C> <C>
Notes payable (8), due March 10, 2001, with
interest at 6.5% (see note 11) $251,100 $ -
Note payable in monthly installments of $868
through September 2003; with interest at
10.5%, unsecured 34,075 40,393
Note payable in monthly installments of $970
through September 2004, with monthly
installments increasing to $5,500 through
August 2005, with interest, unsecured 115,126 119,006
Note payable in monthly installments of $3,700
through August 2004, unsecured 208,033 219,169
Note payable to a bank, with interest at
the lender's prime rate plus 2%, due
March 5, 2000 (note 12), - 67,322
Note payable, with interest at 13.24%, due
January 2003; collateralized by transpor-
tation equipment (note 12) - 16,235
Note payable, with interest at 3.90%, due
November 2003; collateralized by transpor-
tation equipment (note 12) - 21,380
-------- --------
Total long-term debt 608,334 483,505
Less current installments 63,220 39,562
-------- --------
Long-term debt, less
current installments $545,114 $443,943
======== ========
</TABLE>
Aggregate yearly maturities of long-term debt for the periods after
December 31, 1999 are as follows:
Years
-----
2000 $63,220
2001 315,111
2002 64,889
2003 66,115
2004 60,193
Thereafer 38,806
--------
$608,334
========
6
<PAGE>
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) PREFERRED STOCK
In 1999, the Company issued 3,500 shares of its Class B preferred stock in
exchange for all of the outstanding stock of three health care companies
(see note 2). In 1998, the Company issued 31,450 shares of its Class B
preferred stock in exchange for all of the outstanding stock of four health
care companies and certain net assets of twelve health care companies (see
note 2). The Class B preferred shares have a face value of $100 per share,
with an annual cumulative dividend equal to 8%, with a term of 24 months.
The Class B preferred shares are convertible by the shareholders for the
Company's common stock at anytime after 12 months from the date of issuance
at a conversion rate equal to 80% of the then market price of the Company's
common stock. The Class B preferred shares are redeemable by the Company at
anytime in exchange for cash payment equal to the full-face amount of the
shares plus accumulated dividends. At the end of the 24 month term, if not
redeemed by the Company for cash equal to the face amount of the preferred
shares, the shares automatically convert to common stock at a conversion
rate equal to 80% of the then market bid price of the Company's common
stock. See note 14 for subsequent events related to the creation and
subsequent sale of the Company's Class E preferred stock.
(7) FEDERAL INCOME TAX EXPENSE
The estimated federal income tax expense for the year ended December 31,
1998 is eliminated by net operating loss carryforwards.
(8) CONVERTIBLE SUBORDINATED DEBENTURES
On August 3, 1998, the Company entered into an agreement to issue, as
needed, $750,000 of 8% senior subordinated convertible redeemable
debentures (the Debentures) due August 3, 1999. Interest on the outstanding
balance is due and payable monthly commencing September 3, 1998. The
Debentures may be converted into shares of the Company's stock at the lower
of 75% of the closing bid price of the Company's stock the day immediately
preceding the date of receipt by the Company of notice of conversion or by
75% of the closing bid price of the Company's stock on the five days
immediately preceding the date of subscription by the holder as reported by
the National Association of Securities Dealers Electronic Bulletin Board
("NASDAQ"). As of December 31, 1998, the Company had borrowed $400,000 of
the $750,000. And, the holders of the Debentures converted $205,000 of the
borrowings into 1,363,511 shares of the Company's common stock. The
remaining $195,000 is recorded as a current liability at December 31, 1998.
In 1999, the Company converted the remaining $195,000 into 1,223,787 shares
of the Company's common stock.
7
<PAGE>
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9) LEASES
The Company leases certain office space, furniture and equipment under
operating leases. Future minimum lease payments under noncancellable
operating leases at December 31, 1999 are as follows:
Year
----
2000 $73,633
2001 19,168
------
Total $92,801
======
(10) INDUSTRY SEGMENTS
The Company operated in two industries (health care and internet service
providers) and two geographical locations (Texas and Louisiana) during 1999
and 1998. Professional Management Providers, Inc. provided health care
services in the state of Louisiana (see note 12), and Unique Dawning, Inc.
provided health care services in the state of Texas (see note 12). Networks
On-Line, Inc. is an Internet service provider (ISP) in Texas. Segment and
geographical information for the years ended December 31, 1999 and 1998 is
as follows:
1999 1998
---------- -----------
Net revenues:
Health care - Louisiana $7,198,930 $7,253,787
Health care - Texas 1,662,122 790,602
ISP - Texas 591,029 751,558
---------- -----------
$9,452,081 $8,795,947
========== ===========
Operating income (loss):
Health care - Louisiana $775,039 $992,443
Health care - Texas 122,885 57,557
ISP - Texas (29,765) (54,621)
Corporate expenses (1,221,083) (251,687)
---------- -----------
$(352,924) $743,692
========== ===========
Identifiable assets:
Health care - Louisiana $292,103 $5,221,722
Health care - Texas - 780,408
ISP - Texas 630,916 644,874
Corporate 25,052 161,562
---------- -----------
$948,071 $6,808,566
========== ===========
8
<PAGE>
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Corporate expenses for the year ended December 31, 1999 are summarized as
follows:
Settled and pending litigation $400,000
Investor relations 373,702
Contractual services 112,727
Bad debt expenses 86,000
Legal fees 71,198
Accounting and audit fees 47,696
Salaries and payroll taxes 38,131
Other administrative expenses 91,629
-----------
Total $1,221,083
===========
(11) LITIGATION
The Company has certain pending and threatened litigation and claims
incurred in the ordinary course of business (primarily related to
acquisitions and disposition of subsidiaries and related employment
agreements). Management has not determined whether or not the probable
resolution of such contingencies will have any additional material affect
on the financial position of the Company or the results of operations.
Included in long-term debt is $251,100 of liabilities related to settled
litigation. In addition, approximately $150,000 is included in accounts
payable and accrued expenses for pending litigation.
(12) DISPOSAL OF HEALTH CARE FACILITIES
During 1999, a number of the facilities (6) in Louisiana owned by the
Company's subsidiary, Professional Management Providers, Inc. were
operating under Chapter 11 of the U.S. Bankruptcy Code. As a result of
several disputes and lawsuits with former management of the subsidiary, the
Trustee in bankruptcy closed the six subsidiary corporations of Home Care
Center, Inc. in July 1999. Thereafter, the Company closed three of the
remaining four facilities in Louisiana, and transferred ownership of the
remaining one to the parent company. The one remaining facility was still
in operation at December 31, 1999.
In addition, the Company made several acquisitions during 1999 through its
Unique Dawning, Inc. subsidiary without board approval or corporate
involvement. These facilities proved unmanageable, and as a result, Unique
Dawning, Inc. was placed in Chapter 11 of the Bankruptcy Code in September
1999. Subsequently, the Trustee transferred the filing to Chapter 7, which
provides for liquidation.
9
<PAGE>
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As a result of these events, the Company recognized losses on the closing
and disposal of the twelve facilities (nine under Professional Management
Providers, Inc. and three under Unique Dawning, Inc.). The losses were as
follows:
Professional Management Providers, Inc. $2,088,367
Unique Dawning, Inc. 639,273
----------
$2,727,640
==========
The loss has been reflected in the accompanying statement of income as an
extraordinary item. No income tax credit has been provided against the loss
due to the unavailability of recoverable taxes in prior periods.
(13) OPERATIONAL STATUS
The current company is the survivor of a reverse merger, which occurred in
1997 and has expanded since then through both internal growth and
acquisitions. During this growth period, the Company reported significant
revenues in 1998 and 1999; however, the revenues reported for both years
represented approximately one-half of a year's operations. This situation
was due to significant acquisitions occurring in mid-year 1998 and the
disposition (note 12) of a majority of those businesses in mid-year 1999.
The management of the acquisition process and the management of those
subsequent operations exposed the Company to significant legal liabilities
(note 11).
At December 31, 1999, current liabilities exceeded current assets by
$733,063. At December 31, 1999, the Company primarily had two operational
subsidiaries: one health care subsidiary located in Louisiana and one
Internet Service Provider located in Houston, Texas. The net income from
these operations is not sufficient to support corporate expenses and pay
current liabilities.
In view of these matters, realization of a major portion of the assets in
the accompanying consolidated balance sheet is dependent upon continued
operations of the Company, the success of a secondary placement and future
acquisitions and operations. Management believes that actions presently
being taken to obtain additional equity financing through a secondary
offering and acquisitions and increasing sales in the technology sector
will provide the opportunity to continue as a going concern.
10
<PAGE>
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(14) SUBSEQUENT EVENT
During February and March 2000, the Company raised $200,000 through a
private placement. The Company agreed to sell 2,000 shares of its Class E
preferred stock at $100 per share. Each share of the Class E preferred
stock, has an annual cumulative dividend equal to 8%, with a term of 12
months, and is convertible into 650 shares of the Company's common stock.
(15) YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define a specific year. Absent corrective
actions, a computer program that has date-sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000. This could
result in system failures or miscalculations causing disruptions to various
activities and operations.
The Company primarily uses licensed software products in its operations
with a significant portion of processes and transactions centralized in
several particular accounting software packages. The Company has not
experienced any year 2000 problems to date; however, the Company plans to
continue to monitor the situation closely.
11
<PAGE>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
DATE: MAY 12, 2000
TIME: 1:00 P.M.
PLACE: 1902 MECHANIC STREET
GALVESTON, TEXAS 77550
MATTERS TO BE VOTED ON:
1. Election of five directors.
2. Approval of an Increase in authorized shares.
3. Approval of our 2000 Employee Stock Option Plan.
4. Ratification of the appointment of R.E. Bassie & Co., P.C. as our
independent auditors for 2000.
5. Any other matters properly brought before the shareholders at the
meeting.
By orders of the Board of Directors,
Dr. Beatrice Beasley
April 17, 2000 Secretary
1
<PAGE>
PROXY STATEMENT
Your vote at the annual meeting is important to us. Please vote your shares of
common stock by completing the enclosed proxy card and returning it to us in the
enclosed envelope. This proxy statement has information about the annual
meeting and was prepared by the Company's management for the board of directors.
This proxy statement was first mailed to shareholders on April 17, 2000. In
order to avoid the unnecessary expense of further solicitations, we urge you to
indicate your voting instructions on the enclosed proxy card. Even though you
plan on attending the meeting, we urge you to fill out the proxy card. You may
vote in person and cancel your instructions on the proxy card when you arrive at
the meeting.
---------------------------------------------------------------------------
| TABLE OF CONTENTS |
| |
| PAGE |
| ---- |
| |
| General Information about voting 2 |
| Proposal No. 1: Election of Directors 5 |
| Proposal No. 2: Increase in authorized shares 10 |
| Proposal No. 3: Approval of Employee Stock Option Plan 12 |
| Proposal No. 4: Appointment of Independent Accountants 14 |
---------------------------------------------------------------------------
2
<PAGE>
GENERAL INFORMATION ABOUT VOTING
WHO CAN VOTE?
You can vote your shares of common stock if our records show that you owned the
shares on March 9, 2000. A total of 22, 327, 072 shares of common stock can
vote at the annual meeting. You get one vote for each share of common stock,
unless cumulative voting is in effect. Cumulative voting is described on page 5
hereof. The enclosed proxy card shows the number of shares you can vote.
HOW DO I VOTE BY PROXY?
Follow the instructions on the enclosed proxy card to vote on each proposal to
be considered at the annual meeting. Sign and date the proxy card and mail it
back to us in the enclosed envelope. The proxyholders named on the proxy card
will vote your shares as you instruct. If you sign and return the proxy card
but do not vote on a proposal, the proxyholders will vote for you on that
proposal. Unless you instruct otherwise, the proxyholders will vote for each of
the other proposals to be considered at the meeting.
WHAT IF OTHER MATTERS COME UP AT THE ANNUAL MEETING?
The matters described in this proxy statement are the only matters we know will
be voted on at the annual meeting. If other matters are properly presented at
the meeting, the proxyholders will vote your shares as they see fit.
CAN I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD?
Yes. At any time before the vote on a proposal, you can change your vote either
by giving the Company's secretary a written notice revoking your proxy card or
by signing, dating, and returning to us a new proxy card. We will honor the
proxy card with the latest date.
CAN I VOTE IN PERSON AT THE ANNUAL MEETING RATHER THAN BY COMPLETING THE PROXY
CARD?
We encourage you to complete and return the proxy card to ensure that your vote
is counted and you may also attend the meeting. If you attend the annual
meeting, you may vote your shares in person and cancel the proxy instructions.
WHAT DO I DO IF MY SHARES ARE HELD IN "STREET NAME"?
If your shares are held in the name of your broker, a bank, or other nominee,
that party should give you instructions for voting your shares.
3
<PAGE>
HOW ARE VOTES COUNTED?
We will hold the annual meeting if holders of a majority of the shares of common
stock entitled to vote either sign and return their proxy cards or attend the
meeting. If you sign and return your proxy card, your shares will be counted to
determine whether we have a quorum even if you abstain or fail to vote on any of
the proposals listed on the proxy card.
If your shares are held in the name of a nominee, and you do not tell the
nominee by May 11, 2000 how to vote your shares (so-called "broker nonvotes"),
the nominee can vote them as it sees fit only on matters that the National
Association of Securities Dealers Automated Quotation System (NASDAQ")
determines to be routine, and not on any other proposal. Broker nonvotes will
be counted as present to determine if a quorum exists but will not be counted as
present and entitled to vote on any nonroutine proposal.
WHO PAYS FOR THIS PROXY SOLICITATION?
We do. In addition to sending you these materials, some or our employees may
contact you by telephone, by mail, or in person. None of theses employees will
receive any extra compensation for doing this. We have retained ADP-Process
Control, 51 Mercedes Way, Edgewood, NY 11717, to assist us in soliciting your
proxy for a fee of approximately $10,000 plus reasonable out-of-pocket
expenses.
STOCK OWNERSHIP
The Annual Report on Form 10-K for the Company (the "Form 10-K") includes a
table showing the number of shares of common stock beneficially owned (as of
December 31, 1999) by :
- - each person who we know beneficially owns more than 5% of the common stock;
- - each director;
- - each executive officer named in the Summary Compensation Table on page 8;
and
- - the directors and executive officers as a group.
The Form 10-K also includes a table of each beneficial Owner in the Company who
owns at least 1% of the Company's voting securities.
4
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
An entire board of directors, consisting of five (5) members, will be
elected at the annual meeting. The directors elected will hold office until
their successors are elected, which should occur at the next annual meeting.
VOTE REQUIRED. The five (5) nominees receiving the highest number of votes
will be elected. Votes withheld for a nominee will not be counted. You get one
vote for each of your shares of common stock, unless cumulative voting is in
effect. For cumulative voting to be in effect, at least one shareholder must
notify the Chair of the annual meeting, before the vote on directors, of his or
her intent to cumulate votes. If this notice is given, all shareholders may
cumulative votes. If cumulative voting is in effect, you will be entitled to a
number of votes in the election of directors equal to five (5) (the total number
of directors to be elected) multiplied by the number of shares you are entitled
to vote. For example, if you have 100 shares, you have 500 votes. You can give
all your votes to one nominee or distribute your votes among as many nominees as
you want. Proxyholders can cumulate the shares they are entitled to vote as
they see fit.
NOMINATIONS. At the annual meeting, we will nominate the persons named in
this proxy statement as directors. Although we don't know of any reason why one
of these nominees might not be able to serve, the board of directors will
propose a substitute nominee if any nominee is not available for election.
Shareholders also can nominate persons to be directors. If you want to nominate
a person, you must follow the procedures in the Company's bylaws. You must
deliver a notice to the Company's secretary at the Company's principal executive
offices between April 17, 2000 and May 10, 2000. That notice must contain the
information required by the bylaws about you and your nominees. Unless you have
complied with these bylaws provision, your nominee won't be accepted and can't
be voted on by the shareholders.
GENERAL INFORMATION ABOUT THE NOMINEES. All of the nominees are currently
directors of the Company. Each has agreed to be named in this proxy statement
and to serve as a director if elected. The ages listed for the nominees are as
of April 1, 2000.
WALTER DAVIS Director since December 1999
Walter Davis, 48, has been chairman of the board and the chief
executive officer/president of CCGI since 1/20/00. He served as the chief
financial officer from 9/1/99-1/20/00. He also serves as trustee on the Houston
Municipal Pension Board.
VINCENT EDWARD ALEXANDER Director since December 1999
Vincent Edward Alexander, 38, serves as director and chair of the
audit committee. He was elected to the board in 12/99. He is a financial
officer of the Infinity Brokerage Corporation. He is also a member of the
greater Houston partnership.
5
<PAGE>
DR. BEATRICE BEASLEY Director since January 2000
Dr. Beatrice Beasley, 55 has been a member of the board since 1/20/00
and the chair of the compensation committee. She is a tenured professor at
Texas Southern University and is president of Beasley & Associates, a business
training and consulting firm. Dr. Beasley also serves on the board of the
Harris County Children's Protective Services Agency.
LAMONT WADDELL Director since January 2000
Lamont Waddell, 57 is a director and has been the Chief Financial
Officer since 1/20/00. He formerly served as comptroller of CCGI and prior to
that he was the Vice President of Finance/Human Resource/Comptroller of the Faro
Pharmaceutical Corp.
JESSE FUNCHESS, J.D. Director since January 2000
Attorney Jesse Funchess, 69 was elected to the board in 2/00. He is
managing partner of Jesse Funchess & Associates Attorneys at Law in Houston and
Beaumont Texas. Attorney Funchess is also the Chairman of the board of the
South Central Houston Community Action Council, Inc.
COMMITTEES OF THE BOARD. The board of directors has two principal
committees. The following chart describes the function and membership of each
committee and the number of times it met in 1999:
AUDIT COMMITTEE - 1 MEETING
FUNCTION MEMBERS
- -------- -------
- - Review internal financial information Vincent Edward Alexander (Chair)
- - Review audit program Dr. Beatrice Beasley
- - Review the results of audits with Attorney Jesse Funchess
the independent auditors
- - Oversee quarterly reporting
COMPENSATION COMMITTEE - 0 MEETINGS
FUNCTION MEMBERS
- -------- -------
- - Review and approve compensation Dr. Beatrice Beasley (Chair)
and benefit programs Vincent Edward Alexander
- - Approve compensation of senior executives Attorney Jesse Funchess
- - Administer Stock Option Plan
The board of directors had four meetings during 1999. Of the current board
members, only Walter Davis and Vincent Edward Alexander were on the board in
1999 and they attended one meeting of the board and one meeting of the audit
committee.
6
<PAGE>
EXECUTIVE COMPENSATION
The following report and the performance graph on page 9 do not constitute
soliciting materials and are not considered filed or incorporated by reference
into any other Company filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934, unless we state otherwise.
REPORT OF THE COMPENSATION COMMITTEE
GENERAL PHILOSOPHY ON EXECUTIVE COMPENSATION
The Committee's goal is to:
- - provide compensation competitive with other similar companies;
- - reward executives consistent with the performance of the Company;
- - recognize individual performance;
- - retain and attract qualified executives; and
- - encourage executives to increase shareholder value.
To achieve these goals, the Committee has put in place an executive-compensation
program with three basis elements: base salary, annual cash bonus, and stock
options.
BASE SALARY. The Committee determines the base salary of each executive officer
other than the CEO. The Committee considers competitive industry salaries, the
nature of the officer's position, the officer's contribution and experience, and
the officer's length of service.
ANNUAL CASH BONUS. Before the beginning of each year, the Committee sets
specific annual performance targets for each executive officer. The performance
targets are tailored to the officer's position. They can be based on net
income, return on equity, customer satisfaction, and other factors. The
Committee sets each annual bonus based on the officer's success in meeting or
exceeding the performance targets.
STOCK OPTIONS. If proposal No. 3 is adopted, the Committee will grant options
to an executive officer when the officer is hired, when the officer is promoted,
and during the officer's existing employment. The Committee determines the
number of options to be granted to an officer based on the officer's level of
responsibility. Options vest over a four-year period. The Committee believes
that the use of stock options ties a significant portion of an officer's
compensation to increases in the price of the Company's stock realized by all of
the Company's shareholders.
7
<PAGE>
INTERNAL REVENUE CODE LIMITS
Section 162(a) of the Internal Revenue Code disallows a tax deduction to public
corporations for compensation over $1,000,000 paid for any fiscal year to the
corporation's chief executive officer or to any of the four other most highly
compensated executive officers. The statute exempts qualifying
performance-based compensation from the deduction limit if certain requirements
are met. The Committee currently intends to structure its
executive-compensation packages to meet these requirements.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the Compensation Committee members is or has been a Company officer or
employee. No Company executive officer currently serves on the Compensation
Committee or any similar committee of another public company.
8
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
(1999)
Name and Annual Long-Term
Principal Position Year Compensation Compensation Awards
- ----------------------- ---- ---------------- -------------------
SEE SEC FORM 10-K
NUMBER OF STOCK
SALARY BONUS OPTIONS GRANTED
------ ----- ---------------
<S> <C> <C> <C>
RICK BELHMAN 1999 $
Chief Executive Officer
WINFRED FIELDS 1999 $
Chief Executive Officer
JOEL FLOWERS 1999 $
Chief Financial Officer
WALTER DAVIS
Chief Financial Officer 1999 $
</TABLE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
(2000)(1)
Name and Annual Long-Term
Principal Position Year Compensation Compensation Awards
- ------------------ ---- ------------ -------------------
NUMBER OF STOCK
SALARY BONUS OPTIONS GRANTED
-------- -------- ----------------
<S> <C> <C> <C> <C>
WALTER DAVIS 2000 $120,000 $48,000 0
Chief Executive Officer
LAMONT WADDELL
Chief Financial Officer 2000 $95,000 $20,000 0
<FN>
- -------------------------
1. Annualized compensation amounts projected for the year 2000. The current
officers of the Company were not officers in 1999.
</TABLE>
9
<PAGE>
OPTIONS GRANTED IN 1999 (1)
PERCENT OF
TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO
UNDERLYING ALL EXERCISE GRANT DATE
OPTIONS EMPLOYEES PRICE EXPIRATION PRESENT
NAME GRANTED 1999 (PER SHARE) DATE VALUE
- ---- ---------- ---- ----------- ---------- ----------
Rick Belhman 0 0 __ __ 0
Winfred Fields 0 0 __ __ 0
Joel Flowers 0 0 __ __ 0
Walter Davis 0 0 __ __ 0
<TABLE>
<CAPTION>
OPTION EXERCISES AND YEAR-END VALUE TABLE
NUMBER
SECURITIES VALUE OF
NUMBER OF UNDERLYING UNEXERCISED
SHARES UNEXERCISED IN-THE-MONEY
ACQUIRED VALUE OPTIONS AT OPTION AS OF
NAME ON EXERCISE REALIZED DECEMBER 31, 1999 DECEMBER 31, 1999
- ---- ----------- -------- ------------------- -------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Rick Belhman 0 __ __ __ __ __
Winfred Fields 0 __ __ __ __ __
Joel Flowers 0 __ __ __ __ __
Walter Davis 0 __ __ __ __ __
<FN>
_______________________________
1. The Company did not have an option plan in 1999.
</TABLE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING REQUIREMENT
Our directors and executive officers must file reports with the Securities and
Exchange Commission indicating the number of shares of the Company's common
stock they beneficially own and any changes in their beneficial ownership.
Copies of these reports must be provided to us. Based on our review of these
reports and written representations from the persons required to file them, we
believe each of our directors and executive officers filed all the required
reports during 1999.
10
<PAGE>
PROPOSAL NO. 2
INCREASE IN AUTHORIZED SHARES
At the annual meeting, you will be asked to vote to approve an
increase in authorized shares of the Common Stock, from 30,000,000 to
100,000,000 (the "Share Increase"). We recommend that you vote for it.
VOTE REQUIRED. If a majority of the shares of common stock entitled
to vote at the meeting are voted for the Share Increase., the Share Increase
will be approved.
POTENTIAL USES OF SHARE INCREASE. An increase in the amount of
authorized shares of common stock of the Company will allow the Company to issue
additional shares of common stock to (i) raise capital though private or public
offerings for acquisitions, (ii) fund its Employee Stock Option Plan or (iii)
offset any debt to its vendors and other creditors with issuances of shares of
common stock.
EFFECT OF SHARE INCREASE. If the Company issues additional shares,
such issuances will dilute the current percentage ownership of all holders of
the Company's common stock. In addition, such issuances may dilute the current
value per share of each outstanding share of common stock
PROPOSAL NO. 3
APPROVAL OF EMPLOYEE STOCK OPTION PLAN
At the annual meeting, you will be asked to vote to approve the
Company's 2000 Stock Option Plan. We recommend that you vote for it.
VOTE REQUIRED. If a majority of the shares of common stock entitled
to vote at the meeting are voted for the Company's 2000 Employee Stock Option
Plan, the Plan will be approved.
SUMMARY OF THE PLAN. Here is a summary of the significant terms of
the Plan approved by the Board of Directors on January 20, 2000:
Total Number of
Shares Covered . . . . . .3,000,000
Administration . . . . . . The board of directors administers the Plan.
Eligible Persons . . . . .Officers and other key employees of the Company.
Exercise Price . . . . . .Generally the closing price of the Company's
Common stock on the date we grant the option,
but could be lower.
11
<PAGE>
Term of Options . . . . . .Generally 10 years, but could be a shorter
period.
Vesting of Options . . . . Options will generally vest over a four-year
period, with 25% of the options becoming
exercisable on each anniversary of the date the
option was granted. But we can alter this
vesting schedule.
Exercise of Options. . . . The holder of an option can choose to pay the
exercise price of the option in cash, with the
Company's common stock (valued at the closing
price of the common stock on the exercise date)
or by a cashless exercise. In a cashless
exercise, the optionholder irrevocably instructs
his or her stockbroker to sell the shares to be
acquired upon exercise of the option and pay the
exercise price to the Company.
Transferability. . . . . . Options are not transferable except by will or
By intestate succession.
Acceleration of . . . . . .If a Change in Control Event (as defined in the
Vesting of Options Plan) occurs, the options will vest immediately
and become exercisable in full unless we
determine otherwise before the event.
Term of Plan . . . . . . The Plan will expire on January 20, 2010, unless
we terminate it earlier.
FEDERAL INCOME TAX CONSEQUENCES TO OPTION -HOLDERS. All options granted under
the Plan will be nonstatutory options. An option-holder will not recognize any
taxable income when the option is granted. But when the option is exercised,
the option-holder will recognize ordinary income for tax purposes measured by
the excess of the then fair market value of the shares over the exercise price.
In certain circumstances, where the shares are subject to a substantial risk of
forfeiture when acquired, the date of taxation may be deferred unless the
option-holder files an election with the Internal Revenue Service under Section
83(b) of the Internal Revenue Code within 30 days after the exercise. The
income recognized by an option-holder who is also a Company employee will be
subject to tax withholding by the Company by payment of cash or out of the
current earnings paid to the option-holder who is also a Company employee will
be subject to tax withholding by the Company by payment of cash or out of the
current earnings paid to the option-holder. When shares are resold by the
option-holder, any difference between the sale price and the exercise price, to
the extent not recognized as ordinary income as provided above, will be treated
as capital gain or loss. The Company will be entitled to a deduction in the
same amount as the ordinary income recognized by the option-holder.
12
<PAGE>
This is only a summary of the federal income tax consequences of the grant
and exercise of options under the Plan. It is not a complete statement of all
tax consequences. In particular, we have not discussed the income tax laws of
any municipality, state, or foreign country where an optionee resides.
PROPOSAL NO. 4
APPOINTMENT OF INDEPENDENT ACCOUNTANTS
We recommend that you vote for ratification of the appointment of R.E.
Bassie & Co., P.C.
We have appointed the accounting firm of R.E. Bassie & Co., P.C. as our
independent accountants to examine the Company's financial statements for the
year ending December 31, 2000. A resolution to ratify the appointment will be
presented at the annual meeting. A majority of the votes cast must vote in
favor to ratify the appointment. If the shareholders do not ratify the
appointment, we will reconsider our selection of R.E. Bassie & Co., P.C.
R.E. Bassie & Co., P.C. examined the Company's financial statements for
1999. A representative of R.E. Bassie & Co., P.C. will be at the meeting and
available to answer questions.
SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
If you wanted to include a shareholder proposal in the proxy statement for
the 2000 annual meeting, it must have been delivered to the Company's secretary
at the Company's executive offices before March 26, 2000.
SHAREHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
If you want to include a shareholder proposal in the proxy statement for
the 2001annual meeting, it must be delivered to the Company's secretary at the
Company's executive offices before January 11, 2001.
OTHER MATTERS
At the date of mailing of this proxy statement, we are not aware of any
business to be presented at the annual meeting other than the proposals
discussed above. If other proposals are properly brought before the meeting,
any proxies returned to us will be voted as the proxyholders see fit.
13
<PAGE>
You can obtain a copy of the Company's Annual Report on Form 10-K for the
year ended December 31, 1999 at no charge by writing to the Company at P.O. Box
980580 Houston, Texas 77098-0580, attention Shareholder Relations.
By order of the Board of Directors,
Dr. Beatrice Beasley
Secretary
April 17, 2000
14
<PAGE>
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<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 21710
<SECURITIES> 0
<RECEIVABLES> 110007
<ALLOWANCES> 0
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<CURRENT-ASSETS> 131717
<PP&E> 921917
<DEPRECIATION> 129903
<TOTAL-ASSETS> 948071
<CURRENT-LIABILITIES> 864780
<BONDS> 545114
0
310
<COMMON> 213485
<OTHER-SE> (675618)
<TOTAL-LIABILITY-AND-EQUITY> 948071
<SALES> 9452081
<TOTAL-REVENUES> 9452081
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 9805005
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11014
<INCOME-PRETAX> 0
<INCOME-TAX> 0
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<DISCONTINUED> 2727640
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3091578)
<EPS-BASIC> (.02)
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</TABLE>
