UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended September 30, 2000
Commission File No. 000-26111
COMTECH CONSOLIDATION GROUP, INC.
---------------------------------
(Name of small business issuer in its charter)
Delaware 76-0544385
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(State or jurisdiction of (I.R.S. Employer
incorporation 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)
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
--- ---
29,616,623 shares of Common Stock, par value $.00967 per share, were outstanding
at September 30, 2000.
Documents Incorporated by Reference: None
<PAGE>
COMTECH CONSOLIDATION GROUP, INC.
FORM 10-QSB
Table of Content
PART I - Financial Information
Item 1 - Financial Statements
Independent Accountants' Report
Condensed Consolidated Financial Statements (Reviewed)
Balance Sheets - September 30, 2000 and December 31, 1999 (Audited for
1999)
Statements of Operations - Three Months and Nine Months ended September
30, 2000 and 1999
Statements of Cash Flows - Nine Months ended September 30, 2000 and 1999
Notes to Consolidated Financial Statements
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II
Item 2 - Changes in Securities and Use of Proceeds
Item 6 - Reports on Form 8-K
SIGNATURES
<PAGE>
<TABLE>
<CAPTION>
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Three and nine months ended September 30, 2000 and 1999
(Unaudited - see accompanying accountants' review report)
Assets 2000 1999
------ --------------- ---------------
(Audited)
<S> <C> <C>
Current assets:
Cash $ 69,995 $ 21,710
Accounts receivable, less allowances for contractual
adjustments and doubtful accounts of $1,000
in 2000 and 1999 105,600 110,007
Prepaid expenses 14,790 -
--------------- ---------------
Total current assets 190,385 131,717
--------------- ---------------
Note receivable - 20,000
Property and equipment, net of accumulated
depreciation and amortization 129,958 146,014
Excess of cost over net assets of businesses
acquired, less accumulated amortization of
$46,750 in 2000 and $34,000 in 1999 633,250 646,000
Other assets 4,435 4,340
--------------- ---------------
Total assets $ 958,028 $ 948,071
=============== ===============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable and accrued expenses 538,007 617,392
Accrued salaries and related liabilities 149,188 131,686
Loans payable to shareholders 42,482 42,482
Note payable 10,000 10,000
Current installments of long-term debt 336,100 63,220
--------------- ---------------
Total current liabilities 1,075,777 864,780
Long-term debt, less current installments 261,611 545,114
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Total liabilities 1,337,388 1,409,894
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Stockholders' equity:
Preferred stock, $.01 par value. Authorized
1,000,000 shares: issued and outstanding, 37,139 shares at
September 30, 2000 and 31,028 shares at December 31, 1999 371 310
Common stock, $.00967 par value. Authorized 30,000,000
shares: issued and outstanding, 29,616,623 shares at
September 30, 2000 and 22,077,072 at December 31, 1999 286,393 213,485
Additional paid-in capital 2,582,989 2,024,806
Retained earnings (deficit) (3,249,113) (2,700,424)
--------------- ---------------
Total stockholders' equity (deficit) (379,360) (461,823)
Commitments and contingent liabilities
--------------- ---------------
Total liabilities and stockholders' equity $ 958,028 $ 948,071
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three and nine months ended September 30, 2000 and 1999
(Unaudited - see accompanying accountants' review report)
Three months ended Nine months ended
---------------------------------------- ----------------------------------------
September 30, September 30,
2000 1999 2000 1999
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Revenues:
Patient service revenue, net $ (17,458) $ 180,000 $ 656,181 $ 718,635
Internet service revenue 99,575 184,119 399,096 528,899
------------------- ------------------- ------------------- -------------------
Total revenues 82,117 364,119 1,055,277 1,247,534
------------------- ------------------- ------------------- -------------------
Operating expenses:
Health care operations 164,959 129,823 616,210 525,503
Internet operations 123,001 172,848 386,869 378,037
Corporate operations 367,550 86,758 551,503 214,850
Amortization 4,250 10,438 12,750 23,038
Depreciation 12,289 11,827 36,229 31,400
------------------- ------------------- ------------------- -------------------
Total operating expenses 672,049 411,694 1,603,561 1,172,828
------------------- ------------------- ------------------- -------------------
Operating income (loss) (589,932) (47,575) (548,284) 74,706
Other income (expenses):
Interest income - - - 14
Interest expense (338) - (405) (1,876)
------------------- ------------------- ------------------- -------------------
Net earnings (loss) from continuing (590,270) (47,575) (548,689) 72,844
Earnings (loss) from discontinued operations - (1,314,721) - 202,998
------------------- ------------------- ------------------- -------------------
Net earnings (loss) $ (590,270) $ (1,362,296) $ (548,689) $ 275,842
=================== =================== =================== ===================
Earnings (loss) per share:
Basic:
From continuing operations $ (0.02) $ (0.00) $ (0.02) $ 0.00
=================== =================== =================== ===================
From discontinued operations $ - $ (0.07) $ - $ 0.01
=================== =================== =================== ===================
Net earnings (loss) $ (0.02) $ (0.07) $ (0.02) $ 0.01
=================== =================== =================== ===================
Diluted:
From continuing operations $ (0.02) $ (0.00) $ (0.02) $ 0.00
=================== =================== =================== ===================
From discontinued operations $ - $ (0.06) $ - $ 0.01
=================== =================== =================== ===================
Net earnings (loss) $ (0.02) $ (0.06) $ (0.02) $ 0.01
=================== =================== =================== ===================
Weighted average common shares:
Basic 29,848,391 19,669,660 28,869,364 19,026,429
=================== =================== =================== ===================
Diluted 32,833,230 21,636,626 31,756,300 20,929,072
=================== =================== =================== ===================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 2000 and 1999
(Unaudited - see accompanying accountants' review report)
2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (548,689) $ 72,844
Earnings from discontinued operations - 202,998
--------------- ---------------
Net earnings (loss) from continuing operations (548,689) 275,842
Adjustments to reconcile net earnings (loss) from continuing
operations to net cash used in operating activities:
Depreciation and amortization of property and equipment 36,229 31,400
Amortization of excess of cost over net
assets of businesses acquired 12,750 23,038
Stock issued for services 334,010 -
Write-off of note receivable 25,000 -
(Increase) decrease in operating assets:
Accounts receivable (593) (100,251)
Prepaid expenses (14,790) -
Other (95) -
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses (79,385) (104,665)
Accrued salaries and related liabilities 17,502 (98,119)
--------------- ---------------
Net cash provided by (used in) continuing operations (218,061) 27,245
Net cash used in discontinued operations - (110,119)
--------------- ---------------
Net cash used in operating activities (218,061) (82,874)
--------------- ---------------
Cash flows from investing activities:
Purchase of property and equipment (20,173) (23,593)
--------------- ---------------
Net cash used in investing activities (20,173) (23,593)
--------------- ---------------
Cash flows from financing activities:
Principal payments on long-term debt (10,623) (42,948)
Proceeds from issuance of shares under private placement 297,142 114,000
--------------- ---------------
Net cash provided by operating activities 286,519 71,052
--------------- ---------------
Net increase (decrease) in cash 48,285 (35,415)
Cash at beginning of year 21,710 40,505
--------------- ---------------
Cash at end of period $ 69,995 $ 5,090
=============== ===============
Supplemental schedule of cash flow information:
Interest paid $ 405 $ 1,876
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT ACCOUNTANTS' REPORT
--------------------------------
The Board of Directors and Stockholders
Comtech Consolidation Group, Inc.:
We have reviewed the accompanying condensed consolidated balance sheet of
Comtech Consolidation Group, Inc. and subsidiaries as of September 30, 2000, and
the related condensed consolidated statements of operations and cash flows for
the three-month and nine-month periods ended September 30, 2000 and 1999. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
The accompanying condensed financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2 to the
condensed financial statements (and Note 13 to the annual financial statements
for the year ended December 31, 1999 (not presented herein), certain conditions
raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2 (and
Note 13) to the respective financial statements.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of ComTech Consolidation Group, Inc.
and subsidiaries as of December 31, 1999, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the year then
ended (not presented herein); and in our report dated March 24, 2000, we
expressed an unqualified opinion on those consolidated financial statements and
included an explanatory paragraph concerning matters that raise substantial
doubt about the Company's ability to continue as a going concern. In our
opinion, the information set forth in the accompanying condensed consolidated
balance sheet as of December 31, 1999 is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it has been
derived.
/s/ R. E. Bassie & Co., P.C.
Houston, Texas
November 17, 2000
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) GENERAL
Comtech Consolidation Group, Inc. (Comtech or the Company) is a Houston
Texas based consolidation Company that is focused on acquiring and building
businesses through acquisitions, with an emphasis toward technology. The
Company currently has technology operations in Houston, Texas operating
under the name Networks On-line, Inc. and healthcare operations in
Louisiana, operating under the name A-1 Bayou. All acquired companies
become the direct property of Comtech and are run as wholly owned
subsidiaries. Comtech directly manage the financial and administrative
functions of all of its subsidiaries.
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 Rules
of Regulation S-B, 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 1999 audited consolidated financial statements and related
footnotes.
(2) OPERATIONAL STATUS
At September 30, 2000, current liabilities exceeded current assets by
$885,392. At September 30, 2000, the Company primarily had two operational
subsidiaries: one Internet Service Provider located in Houston, Texas and
one healthcare subsidiary located in Louisiana. The net income from these
operations is not sufficient to support corporate expenses and pay current
liabilities. However, a new Board was elected in late January 2000, which
hired a new management team. The new management installed management
practices, which resulted in a substantial reduction of corporate expenses.
New management also negotiated settlements on a substantial portion of
corporate debt, decreasing debt by over $112,000 in the first quarter. To
overcome the shortfall in operating expenses, management has raised
approximately $300,000 in operating capital through private placements of
the Company's common and preferred stock.
Management believes that actions presently being taken to obtain additional
equity financing through a secondary offering will provide adequate working
capital over the next 12 months, without creating new debt. Acquisitions
and increasing sales in the technology sector will provide the opportunity
for the Company to continue as a going concern. A more complete profile of
management plans is shown in the 3rd quarter 10QSB, Item 2.
<PAGE>
(3) SUBSEQUENT EVENTS
In November 2000, the Company issued 3,515,677 ($.01 per share) shares of
restricted common stock to the Chairman and Chief Executive Officer for
compensation for services performed.
In November 2000, the Company issued 2,374,900 ($.01 per share) shares of
restricted common stock to the Chief Financial Officer for compensation for
services performed.
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE THREE AND
NINE MONTHS ENDED SEPTEMBER 30, 1999
Revenues for the nine months and three months ended September 30, 2000 decreased
by $192,257 or 15.4% and $282,002 or 77.4%, respectively, over the comparable
periods a year earlier. Decrease in revenue was primarily due to an increase in
the contractual adjustments related to billing for Medicare patients in the
health care subsidiary.
Net losses from continuing operations for the nine and three months ended
September 30, 2000 increased by $621,533 and increased by $542,695,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
During the quarter ended September 30, 2000, the Company raised $49,772 through
private placements. The funds were used to pay for corporate operations. The
Company had filed Form SB-2 with the Securities and Exchange Commission to
register 27,000,000 shares of common stock for sale to the public. The Company
expects to raise approximately $4,000,000 with this offering. There can be no
assurance that the Company will be successful in this effort.
SUBSIDIARY OVERVIEW
NETWORKS ON-LINE, INC. (NOL) is a wholly owned subsidiary of Comtech whose
primary business is providing high speed Internet Access, Video Conferencing,
Web Hosting and other bundled Internet Services. Management's goal is to build
the revenue base of Networks On-line, Inc. from its current base of
approximately $550,000 annually, to over $2 million annually during the next
twelve months. To accomplish this task, management had hired an experienced ISP
operator whose compensation is performance based and incentive laden to promote
achievement of Company's goals. Over the last quarter NOL expanded its
bandwidth and upgraded its equipment. The Company is in negotiation to acquire
another Internal Service Provide with annual revenues in the $200,000 range, and
it has primarily business customers. NOL has hired a marketing manager to begin
to recruit new business as well as pursue merger opportunities.
<PAGE>
A1-BAYOU is a wholly owned subsidiary of Comtech. A-1 Bayou operates in the
home health care industry. A-1 Bayou has grown its current operations to
generate annual revenues of approximately $1.5 million. Last year the company
opened a second office in the Jeanerette, Louisiana area. A-1 Bayou is managed
and operated by experienced health care administrator. The administrator is
responsible for the growth and management of the day-to-day operations of A-1
Bayou.
MARKETING ANALYSIS
Comtech subsidiaries operate in two basic market segments: technology and
healthcare. Each segment is highly fragmented with the major players putting
tremendous pressure on the smaller companies to complete. As a Micro-cap
company, Comtech is always searching for under served or niche sectors of the
market. By identifying these opportunities, Comtech seeks to provide the
consumer with superior service while also partnering with the smaller retailers
nationally, giving them a competitive edge as they compete for market share
against the larger companies.
MARKETING PLAN
NETWORKS ON-LINE, INC.
The Company intends to increase marketing efforts across the board for all
subsidiaries in a cost-effective manner. Management will develop a defined and
targeted marketing campaign for Networks On-Line, Inc. through a variety of
print and media advertising and marketing programs. These programs will be
designed to grow the subscriber base of NOL, while seeking to develop added
revenue streams available to the company.
FINANCIAL PLAN
Management's goals are to increase revenues to $10 to $12 million dollars over
the next 12-month period, with revenues increasing to over $20 million dollars
in 24 months. The company plans to grow revenue through internal growth and
acquisitions, with the acquisitions financed primarily through the issuance of
restricted common shares or preferred stock. Management plans to complete a
private placement of common stock to properly fund the operations of the parent
company.
The increase in profits generated by acquiring profitable companies and
providing superior, cost effective management and back office functions will
provide Comtech with the necessary capital to grow the company.
The Company had filed a SB-2 with the SEC to get back on the OCT Bulletin Board
and to register free-trade stock which will be used to convert some debt to
equity through settlements with some creditors. The Company also will use the
free-trade stock to raise operating capital for the corporate office.
Management has secured a contract with an investment-banking firm to finance
suitable acquisitions.
CONCLUSION
By successfully executing the company's business plan Comtech will be able to
grow the company into a valuable profitable entity. With the tremendous
consolidation and spin-off opportunities available to the Company and its
shareholders, Comtech will provide its customers the best service and content in
the industry.
<PAGE>
PART II - OTHER INFORMATION
ITEM 2 - CHANGES IN SECURITIES AND USES OF PROCEEDS
The following information sets forth certain information as of November 13,
2000, for all securities the Company sold since June 30, 2000, without
registration under the Act, excluding any information "previously reported as
defined in Rule 12b-2 of the Securities Exchange Act of 1934. There were no
underwriters in any of these transactions, nor were any sales commissions paid
thereon.
During the three months ended September 30, 2000, the Company raised $29,772
from the sale of the Company's common and preferred stock. The funds were used
to pay corporate operating expenses and to reduce current liabilities.
ITEM 6 REPORTS ON FORM 8-K AND EXHIBITS
(a) Exhibits - Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K - None
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.
/s/ Lamont Waddell
--------------------
Lamont Waddell,
Chief Financial Officer
<PAGE>
