UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the Quarter ended September 30, 1996
Commission File No. 0-12116
ComTec International, Inc.
(Name of Small Business Issuer in its charter)
New Mexico 75-2456757
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
10855 E. Bethany Drive, Aurora, CO 80014
(Address of principal executive offices)
(303) 743-7983
(IssuerOs Telephone Number Including Area Code)
Common Stock, $.001 par value
(Title of Class)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS
Check whether the issuer has filed all documents and reports
required to be filed by Sections 12, 13 or 15(d) of the Exchange
Act after the distribution of securities under a plan confirmed
by a court.
Yes __ No X
Indicate the number of shares outstanding of each of the issuerOs
classes of common equity, as of the close of the period covered
by this report:
47,413,874XX,XXX,XXX Shares of Common Stock ($.001 par value)
TABLE OF CONTENTS
FORM 10-QSB REPORT - FOR QUARTER ENDED SEPTEMBER 30, 1996
ComTec International, Inc.
PART I
Item 1. Financial Statements 1
Item 2. ManagementOs Discussion and Analysis or Plan of Operation 1
PART II
Item 1. Legal Proceedings 5
Item 2. Change in Securities 6
Item 3. Defaults Upon Senior Securities 6
Item 4. Submission of Matters to a vote of Security Holders 6
Item 5. Other Information 6
Item 6. Exhibit and Reports on Form 8-K 8
SIGNATURE PAGE 9
INDEX TO THE FINANCIAL STATEMENTS 10
PART I
ITEM 1. FINANCIAL STATEMENTS
Comtec International
Consolidated Balance Sheet
<TABLE>
<CAPTION>
June 30, September 30,
1996 1996
(Unaudited)
Assets
<S> <C> <C>
Current assets
Cash $ 27,482 $ 97,319
Officer receivable 25,446 79,435
Prepaid expenses
and other current assets 1,610 6,850
Total current assets 54,538 183,604
Property and equipment, net 2,149,633 2,159,797
Other assets
Deposits and other 97,904 102,544
License rights 75,000 1,597,000
172,904 1,699,544
Total assets $ 2,377,075 $4,042,945
Current liabilities
Accounts payable $ 206,086 $ 257,527
Accrued payroll - officer 31,000 46,000
Other accrued expenses 258,584 168,496
Short-term notes payable 236,182 668,632
Current portion of long-term debt 622,835 620,000
Total current liabilities 1,354,687 1,760,655
Long-term debt 344,584 347,419
Interest in preferred stock of
subsidiary 172,720 172,720
Series C convertible preferred
stock, $10 stated par and
liquidation value; 1,500,000 shares
authorized, 39,700 and 0 as of
September 30, 1996 and June 30, 1996,
respectively, shares issued and
outstanding; $397,000 liquidation value
subordinated to Series A and Series B
liquidation value - 397,000
Commitments and contingencies
Stockholders' equity
Series A convertible preferred
stock, $1 stated par and
liquidation value; 1,000,000 shares
authorized, 420,000 shares issued and
outstanding; $420,000 liquidation preference 420,000 420,000
Series B convertible preferred
stock, $5 stated par and liquidation
value; 1,500,000 shares authorized, no
shares issued and outstanding; liquidation
subordinated to Series A liquidation value - -
Common stock, $.001 par value; 50,000,000
shares authorized, 47,413,875 and
41,299,254 shares issued and outstanding
as of September 30, 1996 and June 30,
1996, respectively 41,299 47,414
Additional paid-in capital 6,148,899 7,265,113
Prepaid media agreements (1,300,000) (1,300,000)
Stock held in escrow (1,225,000) (1,225,000)
Deficit accumulated during the
development stage (3,580,114) (3,842,376)
Total stockholders' equity 505,084 1,365,151
Total liabilities and stockholders'
equity $ 2,377,075 $ 4,042,945
</TABLE>
COMTEC INTERNATIONAL INC. AND SUBSIDIARIES
(a Development Stage Enterprise)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Cumulative
For the Three Months Ended Amounts
September 30, from
1995 1996 Inception
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Expenses
General and Administrative $ 980,961 $ 316,485 $ 3,640,345
Management fees - related
party - 15,328 80,328
Interest expense, net - - 258,000
Total expenses 980,961 331,813 3,978,673
Rental and other income 50,957 69,551 156,703
Net loss $ (930,004) $ (262,262) $ (3,821,970)
Weighted average common
shares outstanding 17,426,193 46,763,127 21,656,634
Net loss per common share $ (.05) $ (.01) $ (.18)
</TABLE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Cumulative
For the Three Months Ended Amounts
September 30, from
1995 1996 Inception
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Operating activities
Net loss $ (89,226) $ (262,262) $ (3,821,970)
Adjustments to reconcile
net loss to net cash used
in operating activities
Depreciation and
amortization 2,895 22,534 142,238
Issuance of stock for
services - - 1,718,667
Changes in assets and
liabilities
Receivables - (53,989) (79,435)
Prepaid expenses - (5,240) 4,260
Accounts payable and
accrued expenses 70,960 (23,647) 1,047,496
73,855 (60,342) 2,833,226
Net cash used in
operating activities (15,371) (322,604) (988,744)
Investing activities
Purchase of property,
plant and equipment
and trade name - (32,698) (105,446)
Cash received in reverse
acquisition - - 22,170
Purchase of non-operating
assets, net - (75,000) (100,000)
Other - (4,640) (84,142)
Net cash provided by
(used in) investing
activities - (112,338) (267,418)
Financing activities
Advances from related
party 30,033 - 184,495
Proceeds from sales of
common stock - 422,329 1,052,054
Payments on notes payable
and related party notes (7,048) - (141,937)
Proceeds from short-term
notes payable - 82,450 233,450
Payments on long-term
notes payable - - (4,581)
Proceeds from exercise of
warrants - - 30,000
Net cash provided by
financing activities 22,985 504,779 1,353,481
Increase in cash 7,614 69,837 97,319
Cash, beginning of period 4,501 27,482 -
Cash, end of period $ 12,501 $ 97,319 $ 97,319
Supplemental disclosures of non-cash investing and financing
activities
Purchase of building
Prepaid interest $ 10,000
Land 424,967
Building 1,456,403
Note payable (269,000)
Mortgage payable (972,000)
Preferred stock (592,720)
Common stock (338,156)
Special distribution 280,506
$ -
</TABLE>
COMTEC INTERNATIONAL INC. AND SUBSIDIARIES
(a Development Stage Enterprise)
Consolidated Statement of Cash Flows
Continued from previous page.
During the period from inception (March 15, 1994) to September
30, 1995, the Company financed the acquisition of land and
building, and of communications equipment from officers of the
Company through the issuance of notes payable and issuances of
common and preferred stock. Additionally, the Company financed
the acquisition of an automobile and computer equipment from
related parties through notes payable.
During the year ended June 30, 1996 and the period from inception
(March 15, 1994) to September 30, 1995, the officers of Key Comm
relieved the Company from liability for accrued salaries of
$24,100 and $217,000 (Note 9).
Additionally, Keystone, an affiliated company, forgave amounts
owed by Key Comm and Key Car in the amount of $184,495.
During the year ended June 30, 1996, there were various other
noncash transactions involving conversions of debt and other
accrued liabilities to common stock.
During the three months ended September 30, 1996, the Company
acquired license rights for $150,000 cash, a $350,000 note
payable, $700,000 of common stock and $397,000 of preferred
stock.
Assets and liabilities acquired from Comtec in reverse
acquisition:
Cumulative Amounts
from
Inception
Cash $ 22,170
Note receivable 35,000
Allowance for doubtful accounts (16,390)
Trade name 3,500
Accounts payable (60,246)
Accrued expenses (92,443)
Notes payable - related parties (70,000)
Short-term notes payable (52,500)
Common stock 230,909
$ -
Supplemental disclosure of cash flow information:
Cash paid for interest $ 76,166
COMTEC INTERNATIONAL, INC.
Notes to the Consolidated Financial Statements
Note 1. Accounting Policies
(a) The summary of the Issuer's significant accounting policies
are incorporated by reference to the Company's SECForm 10-KSB as
of June 30, 1996.
(b) The accompanying unaudited condensed financial statements
reflect all adjustments which, in the opinion of management, are
necessary for a fair presentation of the results of operations,
financial position and cash flows. The results of the interim
period are not necessarily indicative of the results for the full
year.
Note 2. Acquisitions
On August 6, 1996, the Company closed on the DCL option
agreements which resulted in 1,380 SMR licenses being placed
under the control of the Company. The Company paid $150,000 in
cash, issued a $350,000 note payable, $700,000 in common stock
and $397,000 in preferred stock. The Company is obligated to pay
an additional $397,000 in preferred stock as these licenses are
placed in operation. A prorated amount of this preferred stock
obligation will be paid as each license is placed in operation.
ITEM 2. MANAGEMENTOS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
(a) Plan of Operation:
On May, 10, 1995, The CompanyOs strategic business plan
changed from gaming and transportation to wireless
telecommunications. Initially, tThe CompanyOs initial emphasis
will be certain Specialized Mobile Radio (SMR) acquisitions
currently under contract or in negotiations; and the secondary
focus will be on other communications services and activities.
These other services and activities are anticipated to include
GPS products for the transportation industry; long distance
services (Switching, Prepaid Calling Cards, POS/ATM
Transactions); and Satellite uplinking services. To date, the
CompanyOs activities have been limited to raising initial
capital, hiring its initial employees, negotiating and acquiring
its initial SMR systems and channels, developing its strategic
business plan and commencing further acquisitions of operating
SMR companies.
The Company has agreements to enter targeted markets,
acquire SMR channels, acquire or form joint ventures with
existing operators, develop, construct and market SMR system and
selectively convert any Analog SMR system to Enhanced Specialized
Mobile Radio (ESMR or Digital) to provide digital mobile
services. On August 6, 1996, the Company purchased option
agreements covering 1,380 (YX) SMR channels granted an Extended
Implementation Waiver by the Federal Communication Commission
(OFCCO). Included in this acquisition was 1,055 channels expiring
on October 31, 1996 given to the Company at no additional cost to
possibly place in operation by the October deadline. As of the
date of this filing, the 1,055 October channels have expired.
Management Agreements and Option Contracts give a Company the
right to control, build-out and expand SMR service for a specific
radio frequency in a given territory.
The Company has recently targeted several SMR companies to
acquire. These companies have control of Management Agreements
and Option Contracts for over 4,700 additional SMR channels
licensed by the FCC, in approximately 40 states. This is in
addition to the 1,380 currently under contract. If consummated
and fully constructed, these proposed transactions could cover
areas with a total combined population in excess of 100,000,000.
The CompanyOs goal is to aggregate channels in its proposed
operating territories and increase revenues and number of
subscribers in the first twelve to eighteen months. Through
acquisition and management of radio licenses, construction of
newly licensed SMR systemtations, and the acquisition of existing
SMR systems the Company could increase the customer base and the
corresponding revenues in the proposed operating territories. As
a particular market is entered, the goals are to aggregate
sufficient channel capacity, increase the number of subscribers,
and increase recurring revenues per subscriber by the sale of
additional value added services such as two-way paging, voice
messaging, long-distance interconnect fees and high-speed data
interconnect. By combining its licenses with existing systems in
particular markets, the Company will be able to increase the
capacity or efficiencies of the traditional SMR system, which to
permits growth by adding additional subscribers.
As the CompanyOs traditional SMR systems approach capacity,
continued subscriber growth and related revenue increases may be
slowed to insure system quality and customer satisfaction while
progress is made on the implementation of new technology such as
Digital Enhancements or Enhanced Specialized Mobile Radio (E
In the past, the Company has executed some of these
activities through wholly-owned subsidiaries. These subsidiaries
, which will be dissolved and consolidated into one operating
company by the end of fiscal year ended June 30, 1997.
(b) Liquidity and Capital Resources
The CompanyOs strategic business plan is highly dependented
upon acquiring operating SMR companies, adding the CompanyOs
unconstructed radio channels under management agreements and
options, and then consolidating theall redundant operations. The
Company believes this acquire/augment/consolidate strategy will
increase the overall profits. revenues from SMR services and at
the same time lower the overall general and administrative costs
of the consolidated groups.
On July 27, 1995 the Company acquired all of the outstanding
voting stock of John Sandy Productions, Inc. (JSP), a privately
held corporation under the sole control of John Santucci. The
business purpose of this self-supporting video production company
was to obtain in-house marketing and media production expertise
to support the CompanyOs marketing of its future
telecommunication services. As of the date of this filing, the
Company has agreed to terminate the original purchase agreement
of JSP with John Santucci. For accounting purposes, the CompanyOs
total cash investment in this wholly-owned subsidiary has been
recorded in other assets as of September 30, 1996.
During the quarter ended September 30, 1996, the Company
increased its activities in targeting SMR operators for
acquisition. On August 6, 1996, the Company executed management
option agreements covering 1,380 (YX) SMR channels in 20 states
through DCL Associates, Inc. (ODCLO) a private company who
assisted Comtec in obtaining the options. Pursuant to the
acquisition agreement this transaction is valued at $1,988,357.
The Company satisfied its closing obligations as of August 6,
1996, defined as the option closing date in the option
agreements, with payment of $149,127 in cash and subsequent
issuance of a combination of the CompanyOs common stock and
preferred stock. National build-out plans have started as of the
date of this filing with the selection of initial SMR sites for
construction, the identification of radio equipment required and
the negotiation of leasing tower sites for the CompanyOs system.
The Company is required by the FCC to have at least 139 SMR
channels operational by the end of the calendar year 1996 in
order to maintain the 1,380 channels currently under an FCC
Extended Implementation Waiver (increasing the operational
deadline for these channels to December 1998.)
This strategy is highly dependent upon having adequate funds
to 1). acquire companies and radio spectrum, 2). construct new
SMR sites, and 3). create an efficient support operation for the
consolidated entities. To date, the Company has used cash and its
own Common and Preferred Stock to acquire SMR licenses, start the
process to acquire operating companies and supplement the
expansion of its management and support operations. As of the
date of this filing, the Company estimates its cash needs by the
end of December 31, 1996 to execute the first part of its
business plan to be $1,862,000. This amount is composed of
$1,112,000 for the construction of 139 SMR channels, $600,000 as
initial payments to close on three targeted operating SMR
companies and $150,000 for working capital.
The Company has limited capitalization and is dependent on
the proceeds of private and public offerings to continue as a
going concern, implementing its business plan and completing
targeted acquisitions. As of September 30, 1996, the unaudited
results of the Company indicated assets of $4,042,945, negative
working capital of $1,577,051, and debt in default of $856,182.
All during fiscal year 1996 and to the date of this filing, the
Company has had and continues to have a substantial need for
working capital to cure defaults on debt obligations and for
normal operating expenses associated with the Company continuing
as a going concern. This lack of cash has slowed its ability to
acquire SMR companies and start the construction phase of its
business plan. Any activities in the wireless industry requires
adequate financing and on-going funding sources. The Company has
entered this industry with limited financing and funding sources.
The Company is currently in discussions with one or more
companies for private and/or public debt and equity financing.
package(s). In September 1996, the Company started to raise a
minimum of $1 million ($5 million maximum offering) through a
private placement. In connection with this offering, American
Investment Services has agreed to assist the Company, on a best
efforts basis, in placing this Series B Preferred Stock offering
with private investors.
On October 23, 1996, the Company has obtained a firm
commitment to underwrite a $25 million debt and a $15 million
common stock secondary offering. Although the Company will
endeavor to finance its working capital needs through additional
debt or equity financing, there is no assurance that any
financing will ultimately be obtained. In addition, any debt
financing may require the Company to mortgage, pledge or
hypothecate its assets. As of June 30, 1996, the Company was in
default covering certain notes payable and short term notes and
there is no guarantee these defaults can or will be cured.
At September 30, 1996 (unaudited), the number of shares of
common stock outstanding along with the following:
Shares issued subsequent to September 30, 1996
The preferred stock conversion features
The options outstanding on the media contract and the
finders fee
The conversion of the Key Car preferred stock to Comtec
common stock
The contingent shares under the value guarantees
Conversion of Key Car preferred stock to common stock
Shares reserved for the Company's incentive stock option
plan
Exceed the total authorized common stock by 11,352,898
shares. Should the above transactions occur, the Company would
be required to repurchased 11,352,898 shares in the open market.
The average bid price per share as of October 11, 1996 is $.85
per share resulting in a contingent liability of approximately
$9,649,963 as of September 30, 1996.
On March 29, 1996, the Board of Directors approved a common
stock reverse split in an amount to be determined by the Board.
Additionally, on October 25, 1996, the Board of Directors
approved an increase in the number of authorized shares of common
stock from 50,000,000 to 100,000,000. The stockholders of the
Company have not approved these transactions with a proxy
statement expected to be sent in the second quarter of fiscal
1997.
As of the date of this filing, the Company has authorized
Series B Preferred Stock, stated value $5.00, in connection with
the private placement. The Company has authorized Series C
Preferred Stock, stated value $10.00, in connection with the DCL
acquisition of 1,380 SMR license options and has issued 39,700
shares of this preferred series.
During quarter ended September 30, 1996, the Company
continued as a development stage enterprise. The CompanyOs
financial statements are therefore not indicative of anticipated
revenues which may be attained or expenditures which may be
incurred by the Company in future periods. The CompanyOs plan to
achieve profitable operations is subject to the validity of its
assumptions and risk factors within the industry and pertaining
to the Company.
As of September 30, 1996, $35,000 consisting of a short-
term note due Phillips Energy Corp. and $121,000 due Local
Service Corp, are in dispute via counter-claims against Local
Service Corp. and Phillips Energy. As of September 30, 1996,
$420,000 of preferred shares had been authorized and issued, but
are being held pending the outcome of the CompanyOs counter
claims against Local Service Corp., International Corporate
Development LTD, Premier Financial Services, Inc., Phillips
Energy Corporation, and the individuals: John Watson, Frank Grey,
and Bob Leaventhal. (see Part II Item 1. LEGAL PROCEEDINGS).
Forward-Looking Statements
The foregoing and subsequent discussion contains certain forward-
looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934, which are intended to be covered by the safe harbors
created thereby. These forward-looking statements include the
plans and objectives of management for future operations,
including plans and objectives relating to the possible further
capitalization and additional acquisitions of wireless
communications licenses and operating companies. The forward-
looking statements included herein are based on current
expectations that involve numerous risks and uncertainties.
Assumptions relating to the foregoing involve judgments with
respect to, among other things, future economic, competitive and
market conditions and future business decisions, all of which are
difficult or impossible to predict accurately and many of which
are beyond the control of the Company. Although the Company
believes that the assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could be
inaccurate and, therefore, there can be no assurance that the
forward-looking statements included in this Form 10-QSB will
prove to be accurate. In light of the significant uncertainties
inherent in the forward-looking statements included herein, the
inclusion of such information should not be regarded as a
representation by the Company or any other person that the
objectives and plans of the Company will be achieved.
Pending Acquisitions:
GPS Communications, Inc. (OGPSIO) is a private company under
agreement with the Company to sell all its patents and
intellectual rights on three commercial products which use the
federally owned tracking system called Global Positioning
Satellite (GPS). This transaction is valued at $325,000. Payment
for these assets will be made in the form of the CompanyOs common
stock valued at $100,000 plus royalties paid on any GPS products
sold up to a maximum payment of $225,000. This transaction is
expected to close prior to the end of calendar year ended 1996
and is subject to certain conditions being met by GPSI.
Network Teleports, Inc. (ONTIO) is a private corporation and
a proposed majority owned subsidiary of the Company pursuant to a
contract to purchase 61% of the issued and outstanding shares of
NTI. NTI is currently broadcasting television and cable
programming along with other data and transmission services via
satellite uplink from its hub located in New Orleans, Louisiana.
Pursuant to the acquisition agreement this transaction is valued
at $915,000. The purchase payments are being held in escrow
pending final FCC approval of the transaction and final due
diligence review. The Company expects this transaction to close
in the first quarter of calendar year 1997 pending the outcome of
the CompanyOs due diligence review.
Telecosm & Associates L.C. (OTelecosmO) is a Limitedprivate
Liability Company under contract with the Company to sell option
and management agreements covering 2,199 licenses. These licenses
are currently governed by the a special FCC build-out extension
called the Chang/Goodman Waiver (OCGWO). The continuation of the
CGW is subject to final approval by the FCC in the near future.
As of the date of this filing, the contract has expired. In the
event these channels are granted an Extended Implementation
Waiver by the FCC, the Company intends to proceed with the
purchase of the management and option agreements from Telecosm.
As of the date of this report, Telecosm has verbally agreed to
extend the CompanyOs obligation.
Commercial Communications Inc. (OCCIO) is a private
corporation whose primary business is providing SMR two-way
dispatch services. CCI is currently protected under Chapter 11
laws of the United States Bankruptcy Courts. The Company has an
acquisition agreement to acquire the assets and business of CCI
in a transaction valued at $500,000. Payment for this system will
be the combinationmade in the form of a promissory note and and a
combination of the CompanyOs common stock and preferred stock.
CCI'sThe revenues are yet to be audited. and Iit is expected that
as a result of the bankruptcy proceedings, CCI may have suffered
some loss ofa percentage of lost revenues. TheHowever, the
initial value in this acquisition will be additional SMR channels
(radio spectrum) and an experienced technical staff. As of the
date of this filing, the acquisition of CCI of this company has
been approved by the United States Bankruptcy Court., is
undergoing Ffinal due diligence is being performedreview by the
Company The transactionand is expected to close before the end of
theis calendar year.
The Company also has three additional operating companies
ready to close within the next 120 days from the date of this
filing. Pursuant to the non-disclosure agreements executed with
these companies, we can not provide the company names or
locations until the transaction is closed. These companies have a
combined annual revenue in excess of $2,000,000 and indicated
assets in excess of $3,000,000. These amounts are subject to
change pending independent audit of their financials and fair
market valuation of their assets.
Quarter Ended September 30, 1996.
For the quarter ending September 30, 1996, the Company
closed on the DCL option agreements which resulted in 1,380 SMR
licenses being placed under the control of the Company. The
Company paid $150,000 in cash, issued a $350,000 note payable,
$700,000 in common stock and $397,000 in preferred stock. The
Company is obligated to pay an additional $397,000 in preferred
stock as these licenses are placed in operation. A prorated
amount of this preferred stock obligation will be paid as each
license is placed in operation.
For the quarter ending September 30, 1996, the Company sold
3,314,621 shares of common stock for $422,329 in cash.
For the quarter ending September 30, 1996, the Company
recorded other income of $69,551. For the quarter ending
September 30, 1995, the Company recorded other income of $50,957.
During the September 1996 and 1995 quarters, the Company recorded
rental income from the commercial property in Parker, Colorado.
During September 30, 1996, the Company recorded proceeds from a
favorable settlement of a lawsuit by Key Communications, a wholly-
owned subsidiary of the Company and rental income from the
commercial property in Parker, Colorado. No revenues were
generated from the CompanyOs wireless business during the
quarters ending September 30, 1995 and 1996, respectively.
For the quarter ending September 30, 1996, the Company
incurred total expenses of $331,813. For the quarter ending
September 30, 1995, the Company incurred expenses of $980,961.
This decrease is attributed to three significant one-time
expenses incurred during September 30, 1995: 1). placement fees
paid to a private placement firm for placing over $400,000 of the
CompanyOs common stock ($73,500 paid in the form of the CompanyOs
stock), 2). management fees paid to a wireless management firm
for work associated with SMR companies targeted by the Company
($373,000 paid in the form of the CompanyOs stock) and 3). a one-
time charge due to the expiration of a Letter of Intent to
acquire an operating SMR company ($50,000 forfeiture of the
escrowed cash amount).
For the quarter ending September 30, 1996, the CompanyOs
incurred officers salaries expense of $59,000. For the quarter
ending September 30, 1995, the CompanyOs incurred officers
salaries expense of $124,794. This decrease is due to the Company
being able to recruit senior executives with cross-functional
abilities in finance, operations and business development.
Part II
ITEM 1. LEGAL PROCEEDINGS
Local Service Corporation vs. ComTec International, Inc.. This
suit (the "Receivership Action") was filed in December 1995 in
the District Court for Arapahoe County, Colorado. Local Service
Corporation, the former owner of the Company's building at 10855
E. Bethany Drive in Aurora, Colorado (the "Company's Building"),
sought the appointment of a receiver for the Company, dissolution
of the Company, and an inspection of the Company's books and
records. Plaintiffs' claims were based upon alleged illegal and
fraudulent acts on the part of the Company's management in
encumbering the Company's real estate without consideration and
corporate waste and mismanagement. On January 4, 1996, the court
entered an order appointing John Watson as receiver. On January
12, 1996, upon motion filed by the Company, the court vacated the
order appointing the receiver and ordered the receiver not to
interfere with the Company's business. On March 6, 1996, the
Company filed counterclaims against Local Service Corporation,
International Corporate Development Ltd., Premier Financial
Services, Inc., Phillips Energy Corporation, John Watson, Frank
Grey, and Bob Laventhal. The Company is seeking undetermined
monetary damages for actions of this group arising from their
attempt to seize control of the Company. This case is scheduled
for a jury trial in September 1997.
Local Service Corp. has also filed for foreclosure of its deed of
trust on the Company's commercial property located at 10672 S.
Parker Road, Parker, Colorado (the "Parker Property"), based on
the Company's failure to pay monthly payments to Local Service
Corp. for the Company's Building. The Parker Property secured
the Company's obligations on the Company's Building, which was
purchased from Local Service Corp. on May 30, 1995. Foreclosure
is scheduled for November 4, 1996. The Company is allowing the
creditor to take posession of the property in lieu of paying the
note due.
The following suits involve individuals or companies who
participated in or encouraged the Receivership Action against the
Company:
Premier Financial Services, Inc. vs. ComTec International,
Inc. and Keystone Holding Corp. This suit was filed on
September 30, 1996, in the District Court for the City and
County of Denver, Colorado. Premier Financial Services, Inc.
alleges that the Company breached the terms of a consulting
agreement pursuant to which Premier was to receive certain
compensation for finding an acquisition for Keystone Holding
Corp.. An answer is due November 5, 1996.
Wayne Johnson vs. Key Communications Group, Inc. and ComTec
International, Inc. This suit was filed on September 30,
1996 in the District Court for the City and County of Denver,
Colorado. Wayne Johnson alleges nonpayment of a promissory
note in the principal amount of $40,000 plus interest. An
answer is due November 5, 1996. The Company proposes to
claim that an offset is due the Company based on a signed
employment agreement with Mr. Johnson.
Gayle A. Couture vs. Key Communications Group, Inc. and
ComTec International, Inc. This suit was filed on September
30, 1996 in the District Court for the City and County of
Denver, Colorado. Gayle Couture alleges nonpayment of a
promissory note in the principal amount of $8,300.95 plus
interest. An answer is due November 5, 1996. The Company
proposes to claim that an offset is due the Company based on
a signed employment agreement with Ms. Couture.
Phillips Energy Corp. vs. ComTec International, Inc. This
suit was filed on September 30, 1996 in the District Court
for the City and County of Denver, Colorado. Phillips Energy
Corp. alleges nonpayment of a promissory note in the
principal amount of $35,000 plus interest. An answer is due
November 5, 1996.
Wayne Johnson vs. Donald Mack. This suit was filed on
September 30, 1996 in the District Court for the City and
County of Denver, Colorado. Wayne Johnson claims for unpaid
wages for services performed. An answer is due November 5,
1996.
Gayle A. Couture vs. Donald Mack. This suit was filed on
September 30, 1996 in the District Court for the City and
County of Denver, Colorado. Gayle Couture claims for unpaid
wages for services performed. An answer is due November 5,
1996.
ComTec International, Inc. d/b/a ComTec Holding Corp. vs. Tim
Degarmo, DBI Design Builders, LLC and all other occupants.
This suit was filed on April 19, 1996 in the District Court
for Arapahoe County, Colorado. The Company initiated the
action to evict DBI Builders for nonpayment of rent. DBI was
the contractor for the tenant finish work performed on the
Company's Building and it counterclaimed for $27,000,
allegedly owed for tenant finish work. The Company then filed
a counterclaim alleging that DBI's failure to obtain a
construction permit, shoddy workmanship, and nonpayment of
DBI's subcontractors. The Company and Donald Mack have also
filed a claim against Tim Degarmo for defamation. This suit
is scheduled for trial on October 20, 1997.
Other suits involving the Company are:
Shamrock Electric Co. vs. Nattem U.S.A. Incorporated;
Keystone Holding Corp.; ComTec International; Tim Degarmo
T.B.A. DBI Construction a/k/a DBI Design Builders a/k/a
Carlton Builders Inc.; David L. Terry; Celia M. Terry; Local
Service Corporation; Spelman Mortgage and Investment Company;
Kansas City Life Insurance Company; Sunset Life Insurance
Company of America; Key Communications Group; Golesh Door &
Trim, Inc.; Roberta F. Gillis, Public Trustee of Arapahoe
County, and any and all occupants. This suit was filed in
April 16, 1996 in the District Court for Arapahoe County,
Colorado. This is a mechanic's lien action seeking payment
for work performed on the Company's Building in the
approximate amount of $13,000. Kansas City Life Insurance
Company and Golesh Door & Trim, Inc. have each counterclaimed
and filed for judicial foreclosure on the Company's Building.
Not all of the parties have responded in this action. No
trial date has been set. The Company is attempting to cure
the defaults to stop the foreclosure action.
Sunset Life Insurance Company of America vs. CTI Real Estate,
Inc. This suit was filed in September 1996 in the District
Court for Arapahoe County, Colorado. Sunset Life Insurance
Company seeks the appointment of a receiver to manage the
Company's Building. The court has directed that this suit be
consolidated with the action filed by Shamrock Electric Co.
Except for the foregoing, no material legal proceedings, to
which the Company is a party or to which the property of the
Company is subject, is pending or is known by the Company to be
contemplated.
ITEM 2. CHANGE IN SECURITIES. NONE
ITEM3. DEFAULTS UPON SENIOR SECURITIES. NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
NONE
ITEM 5. OTHER INFORMATION
(a) CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND DISCLOSURE
On December 15, 1995, the Company dismissed Michael B.
Johnson, as its independent Certified Public Accountant and
retained Causey Demgen & Moore Inc., of Denver, Colorado as
its independent Certified Public Accountants. The Company
duly reported this change in accountants to the Securities and
Exchange Commission in its Form 8-K current report dated
December 15, 1995. During the year end June 30, 1995, and the
subsequent interim period, there was no disagreement with
Michael B. Johnson on any manner of accounting principle or
practice, financial statement disclosure or auditing scope or
procedure, which disagreement, if not resolved to the
satisfaction of those accountants, would have caused it to
make reference to the subject matter in connection with its
report. The Company dismissed Michael B. Johnson as the
CompanyOs independent accountant due to delays in commencing
their audit work. During the CompanyOs two most recent fiscal
years, and the interim period since completion of its last
fiscal year, the Company had not consulted Causey Demgen &
Moore Inc. with respect to the application of accounting
principles to a specified transaction, the type of audit
opinion that might be rendered on the CompanyOs financial
statements or any matter that was the subject of a
disagreement or reportable event.
On August 14, 1996, Causey Demgen & Moore Inc., declined
to stand for reelection as the CompanyOs independent Certified
Public Accountants for the fiscal year ended June 30, 1996.
The Company duly reported this change in accountants to the
Securities and Exchange Commission in its Form 8-K current
report dated August 22, 1996. During the year end June 30,
1995, and the subsequent interim periods, there was no
disagreement with Causey Demgen & Moore Inc. on any manner of
accounting principle or practice, financial statement
disclosure or auditing scope or procedure, which disagreement,
if not resolved to the satisfaction of those accountants,
would have caused it to make reference to the subject matter
in connection with its report.
On August 29, 1996, the Company retained Ehrhardt, Keefe,
Steiner and Hottman, PC, of Denver, Colorado, as its
independent Certified Public Accountants. During the CompanyOs
two most recent fiscal years, and the interim periods since
completion of its last fiscal year, the Company had not
consulted Ehrhardt, Keefe, Steiner and Hottman, PC with
respect to the application of accounting principles to a
specified transaction, the type of audit opinion that might be
rendered on the CompanyOs financial statements or any matter
that was the subject of a disagreement or reportable event.
The Company duly reported this change in accountants to the
Securities and Exchange Commission in its Form 8-K current
report dated September 12, 1996.
ITEM 6. EXHIBITS AND REPORTS
(a) & (b) Financial Statements and Schedules. See Index to Fin
ancial Statements beginning on page 7.
(c) Exhibits. The following documents are filed herewith or
incorporated herein by reference as Exhibits:
Exhibits
2.0 Acquisition of John Sandy Productions, Inc. dated July 26,
1995. (1).
2.1 Acquisition Agreement between the Company and DCL Associates
dated April 29, 1996. (1).
2.2 Letter of Intent between the Company and Telecosm dated May
31, 1996. (1).
2.3 Acquisition Agreement between the Company and Commercial
Communications, Inc. dated January 3, 1996. (1).
3.0 Articles of Incorporation of the Company. (incorporated by
reference to Exhibit 3.1 to the CompanyOs Form S-1 Registration
Statement No. 82-88530 dated December 20, 1983).
3.1 By-laws. (incorporated by reference to Exhibit 3.2 to the
CompanyOs Form S-1 Registration Statement No. 82-88530 dated
December 20, 1983).
4.0 Certificate of Designation of Series A Preferred Shares. (1)
4.1 Certificate of Designation of Series B Preferred Shares. (1)
4.2 Certificate of Designation of Series C Preferred Shares. (1)
10.01 Form of Employment Agreement between the Company and
its officers. (1)
11 Not Applicable.
15 Not Applicable.
18 Not applicable.
19 Not applicable.
22 Not Applicable.
23 Not Applicable.
24 Not applicable .
d) The Company filed the following reports on Form 8-K:
August 14, 1996
September 12, 1996
_____________
(1) Incorporated by reference to the CompanyOs Form 10-KSB as of
June 30, 1996
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this
report signed on its behalf by the Undersigned, thereunto duly
authorized.
COMTEC INTERNATIONAL, INC.
Date: November 13, 1996 By: /s/ donald g. mack
Donald G. Mack, President and
Chief Executive Officer
By: /s/ kelsey t. kennedy
Kelsey T. Kennedy
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on
behalf of the Company and in the capacities and on the dates
indicated.
Signature Title Date
/s/ donald g. mack Director November 13, 1996
Donald G. Mack
/s/ thomas moscariello Director November 13, 1996
Thomas Moscariello
/s/ mitchell b. chi Director November 13, 1996
Mitchell B. Chi
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1996
<CASH> 97,319
<SECURITIES> 0
<RECEIVABLES> 79,435
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<CURRENT-ASSETS> 183,604
<PP&E> 2,295,290
<DEPRECIATION> 135,493
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420,000
<COMMON> 47,414
<OTHER-SE> 897,737
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