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 June 30, 2000
Commission File No. 000-26111
COMTECH CONSOLIDATION GROUP, INC.
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(Name of small business issuer in its charter)
Delaware 76-0544385
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(State or jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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
--- ---
27,923,290 shares of Common Stock, par value $.00967 per share, were outstanding
at June 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
Consolidated Financial Statements (Reviewed)
Condensed Balance Sheets - June 30, 2000 and December 31, 1999
(Audited for 1999)
Condensed Statements of Operations - Three Months and Six Months ended
June 30, 2000 and 1999
Condensed Statements of Cash Flows - Six Months ended June 30, 2000
and 1999
Notes to Condensed 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>
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
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 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 June 30, 2000, and the
related condensed consolidated statements of operations and cash flows for the
three-month and six month periods ended June 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 3 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 3 (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
<PAGE>
R. E. BASSIE & CO., P.C.
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
August 11, 2000
<PAGE>
<TABLE>
<CAPTION>
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 2000 and December 31, 1999
(Unaudited - see accompanying accountants' review report)
Assets 2000 1999
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(Audited)
<S> <C> <C>
Current assets:
Cash $ 41,696 $ 21,710
Accounts receivable, less allowances for contractual
adjustments and doubtful accounts of $1,000
in 2000 and 1999 432,919 110,007
Prepaid expenses 74,008 -
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Total current assets 548,623 131,717
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Note receivable 20,000 20,000
Property and equipment, net of accumulated
depreciation and amortization 130,791 146,014
Excess of cost over net assets of businesses
acquired, less accumulated amortization of
$42,500 in 2000 and $34,000 in 1999 637,500 646,000
Other assets 4,340 4,340
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Total assets $ 1,341,254 $ 948,071
============== ===============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable and accrued expenses 552,465 617,392
Accrued salaries and related liabilities 160,406 131,686
Loans payable to shareholders 42,482 42,482
Notes payable 10,000 10,000
Current installments of long-term debt 306,959 63,220
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Total current liabilities 1,072,312 864,780
Long-term debt, less current installments 294,014 545,114
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Total liabilities 1,366,326 1,409,894
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Stockholders' equity:
Preferred stock, $.01 par value. Authorized
1,000,000 shares: issued and outstanding,
35,818 shares in 2000 and 31,028 shares in 1999 358 310
Common stock, $.00967 par value. Authorized
30,000,000 shares: issued and outstanding,
27,923,290 shares in 2000 and 22,077,072
shares in 1999 270,018 213,485
Additional paid-in capital 2,363,395 2,024,806
Retained earnings (deficit) (2,658,843) (2,700,424)
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Total stockholders' equity (deficit) (25,072) (461,823)
Commitments and contingent liabilities
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Total liabilities and stockholders' equity $ 1,341,254 $ 948,071
============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended June 30, 2000 and 1999
(Unaudited - see accompanying accountants' review report)
2000 1999
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<S> <C> <C>
Revenues:
Patient service revenue, net $ 317,661 $ 3,814,728
Internet service revenue 130,337 276,999
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Total revenues 447,998 4,091,727
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Operating expenses:
Health care operations 207,704 2,980,934
Internet operations 116,862 159,250
Corporate operations 84,714 51,395
Amortization 4,250 4,425
Depreciation 12,211 2,942
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Total operating expenses 425,741 3,198,946
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Operating income 22,257 892,781
Other income (expenses):
Interest income - 15
Interest expense (6) (2,537)
------------------ -------------------
Net earnings $ 22,251 $ 890,259
================== ===================
Net earnings per share $ 0.00 $ 0.05
================== ===================
Weighted average common shares 23,737,296 18,956,000
================== ===================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Six months ended June 30, 2000 and 1999
(Unaudited - see accompanying accountants' review report)
2000 1999
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<S> <C> <C>
Revenues:
Patient service revenue, net $ 673,639 $ 8,630,041
Internet service revenue 299,521 436,294
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Total revenues 973,160 9,066,335
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Operating expenses:
Health care operations 451,251 6,872,725
Internet operations 263,868 392,703
Corporate operations 183,953 128,092
Amortization 8,500 12,600
Depreciation 23,940 19,573
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Total operating expenses 931,512 7,425,693
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Operating income 41,648 1,640,642
Other income (expenses):
Interest income - 33
Interest expense (67) (2,537)
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Net earnings $ 41,581 $ 1,638,138
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Net earnings per share $ 0.00 $ 0.09
================== ===================
Weighted average common shares 25,167,617 17,856,000
================== ===================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 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 $ 41,581 $ 1,638,138
Adjustments to reconcile net earnings to net
cash used in operating activities:
Depreciation and amortization of property
and equipment 23,940 19,573
Amortization of excess of cost over net
assets of businesses acquired 8,500 12,600
Stock issued for services 147,800 -
(Increase) decrease in assets:
Accounts receivable (322,912) (1,635,055)
Prepaid expenses (74,008) (53,897)
Other assets - 76,401
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (64,927) (171,372)
Accrued salaries and related liabilities 28,720 (96,239)
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Net cash used in operating activities (211,306) (209,851)
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Cash flows from investing activities:
Purchase of property and equipment (8,717) -
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Net cash used in investing activities (8,717) -
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Cash flows from financing activities:
Principal payments on long-term debt (7,361) (27,948)
Proceeds from issuance of shares under private placements 247,370 114,000
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Net cash provided by operating activities 240,009 86,052
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Net increase (decrease) in cash 19,986 (123,799)
Cash at beginning of year 21,710 150,624
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Cash at end of period $ 41,696 $ 26,825
=================== =================
Supplemental schedule of cash flow information:
Interest paid $ 67 $ 2,537
=================== =================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
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) FEDERAL INCOME TAX EXPENSE
The estimated federal income tax expense for the three-month and six-month
periods ended June 30, 2000 and 1999 is eliminated by net operating loss
carryforwards.
(3) OPERATIONAL STATUS
At June 30, 2000, current liabilities exceeded current assets by $523,689.
At June 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
<PAGE>
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $400,000 in operating capital
through private placements of the Company's common and preferred stock.
Total assets at June 30, 2000 increased by $393,183 compared to total
assets at December 31, 1999.
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 2nd quarter 10QSB, Item 2.
<PAGE>
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
Total revenues for the three months ended June 30, 2000 and 1999 were $447,998
and $4,091,727, respectively, which is a decrease of $3,643,729 or approximately
89%. This decrease was primarily attributable to the disposal of the majority
of the Company's healthcare facilities, which represented approximately 96% of
the revenues for the three-month period ended June 30, 1999.
Net earnings for the three months ended June 30, 2000 and 1999 was $22,257 and
$890,259 respectively, which represents a decrease of $860,008, or 97%. The
decrease in net earnings for this period is primarily attributable to the
disposal of the majority of the Company's healthcare facilities, which
represented approximately 96% of the net earnings for the three-month period
ended June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
During the quarter ended June 30, 2000, the Company raised $47,370 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. Comtech will also seek to grow NOL through
acquisitions and groom NOL for a potential spin-off to increase shareholder
value.
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.
<PAGE>
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.
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 August 4, 2000,
for all securities the Company sold since March 31, 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 June 30, 2000, the Company raised $47,370 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>
