UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the Quarter ended March 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from
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.)
9350 East Arapahoe Road, Suite 340, Englewood, Co. 80112
(Address of principal executive offices)
(303) 662-8373
(Issuer's Telephone Number Including Area Code)
Common Stock, $.001 par value
-----------------------------
(Title of Class)
(former name, former address and former fiscal year
if changed since last report)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes No X
---- -----
ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS
Check whether the issuer has filed all documents and reports
required to be filed by Sections 12, 13 or 15(d) of the Exchange
Act after the distribution of securities under a plan confirmed by
a court.
Yes X No
----- ----
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practical date:
As of September 24, 1998, 42,703,700 shares of Common Stock ($.001
par value) were outstanding
Transitional Small Business Disclosure Format (check one):
Yes No X
---- -----
<PAGE>
TABLE OF CONTENTS
FORM 10-QSB REPORT - FOR QUARTER ENDED MARCH 31, 1998
ComTec International, Inc.
PART I
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 1998 (unaudited) and
June 30, 1997 (audited) 3
Condensed Consolidated Statements of Operations 4
Nine Months ended March 31, 1998 and 1997
and from inception (unaudited)
Condensed Consolidated Statements of Operations 5
Three Months ended March 31, 1998 and 1997
and from inception (unaudited)
Condensed Consolidated Statements of Cash Flows 6
Nine Months ended March 31, 1998 and 1997
and from inception (unaudited)
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis or Plan of
Operation 8
PART II
Item 1. Legal Proceedings 13
Item 2. Change in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a vote of
Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURE PAGE 15
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<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
ComTec International, Inc. and Subsidiaries
(a Development Stage Enterprise)
Consolidated Condensed Balance Sheets
<CAPTION>
Assets March 31, 1998 June 30, 1997
(unaudited) (audited)
-------------- -------------
<S> <C> <C>
Current Assets
Cash and equivalents
(includes restricted funds
of $78,600) $ 524,111 $ 630,000
Accounts Receivable, less allowance
For doubtful collections of $250,000 78,178 127,100
Other current assets 22,844 -
Investment in Marketable securities - 248,400
-------------- -------------
Total Current Assets 625,133 1,005,500
-------------- -------------
Property and Equipment, net 337,333 275,500
Investments - Other
(Centennial SMR assets purchase) 3,035,697 -
LED Screens (Exchange for stock) 1,300,000
Other Assets 103,086 40,000
-------------- -------------
Total Assets $ 5,401,249 $ 1,321,000
============== =============
LIABILITIES
Current Liabilities
Convertible Debenture - 1,000,000
Line of Credit - CD secured 412,196
Notes Payable 444,147 110,000
Accounts Payable 504,066 504,000
Accrued Liabilities 448,143 482,700
Total Current Liabilities 1,808,552 2,096,700
-------------- -------------
Long Term Debt - FCC 1,390,707 -
Note Payable - related 40,000 -
Total Liabilities 3,239,259 2,096,700
============== ============
STOCKHOLDER'S DEFICIT
Common Stock, .001 par value;
Authorized 100,000 shares;
13,194,751 shares issued
June 30, 1997 and 38,108,826 issued
March 31, 1998 38,100 13,200
Capital in Excess of Par 11,810,760 7,910,100
Unrealized loss in marketable securities - (3,600)
Deficit accumulated during the
development stage (9,686,870) (8,695,400)
-------------- ------------
Total Shareholder Equity ( Deficit) 2,161,990 (775,700)
-------------- ------------
Total Liabilities and Stockholders Deficit $ 5,401,249 $ 1,321,000
============== ============
</TABLE>
-3-
<PAGE>
<TABLE>
ComTec International, Inc. and Subsidiaries
(a Development Stage Enterprise)
Consolidated Condensed Statements of Operations
<CAPTION>
For the Nine Months Ended
March 31, 1998 March 31, 1997 Cumulative
(unaudited) (unaudited) Amounts from
Inception
(unaudited)
-------------- -------------- ------------
<S> <C> <C> <C>
Revenues
Sales $ 113,733 113,733
Cost of Sales 116,149 116,149
-------------- ------------
Gross Profit (2,416) (2,416)
-------------- ------------
Expenses
Selling, General and
Administrative 915,748 1,382,589 3,321,448
Compensation in the
form of common stock 31,000 3,533,300
Management fees-
related party 65,000
-------------- -------------- ------------
Loss before other income
(expense) (949,164) (1,382,589) (6,922,164)
-------------- -------------- ------------
Other Income (expense)
Interest and Dividend Income 5,606 11,906
Interest expense (42,100) (354,600)
Rental and Other Income 13,941 76,195 146,641
Prepaid Calling Card services,
less revenues (90,724) (10,000) (605,524)
Loss on investments,
foreclosures and disposals 8,471 59,789 (663,129)
Write-down of intangible (1,300,000)
-------------- -------------- ------------
Total Other Income (Expense) (62,706) 83,884 (2,764,706)
-------------- -------------- ------------
Net Loss (1,011,870) (1,298,705) (9,686,870)
============== ============== ============
Weighted Average Common
Shares Outstanding 9,090,976 9,285,984 9,090,976
============== ============== ============
Net Loss per Common Share (0.11) (0.14) (1.07)
============== ============== ============
</TABLE>
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<PAGE>
<TABLE>
ComTec International, Inc. and Subsidiaries
(a Development Stage Enterprise)
Consolidated Condensed Statements of Operations
For the Three Months Ended
March 31, 1998 March 31, 1997
(unaudited) (unaudited)
-------------- --------------
<S> <C> <C>
Revenues
Sales $ 94,438
Cost of Sales 85,374
--------------
Gross Profit 9,064
--------------
Expenses
Selling, General and Administrative 410,698 334,951
Compensation in the form of common stock 31,000
-------------- -------------
Loss before other income (expense) (432,634) (334,951)
-------------- -------------
Other Income (expense)
Interest and Dividend Income 4,540
Interest expense (6,500) (32,476)
Rental and Other Income 8 69,551
Prepaid Calling Card services, less revenues (31,941) (10,000)
Loss on investments, foreclosures and disposals (15,000) 59,789
-------------- -------------
Total Other Income (Expense) (48,893) 86,864
-------------- -------------
Net Loss (481,527) (248,087)
============== =============
Weighted Average Common Shares Outstanding 9,090,976 9,285,984
============== =============
Net Loss per Common Share (0.05) (0.03)
============== =============
</TABLE>
-5-
<PAGE>
<TABLE>
ComTec International, Inc. and Subsidiaries
(a Development Stage Enterprise)
Consolidated Statements of Cash Flows
<CAPTION>
For the Nine Months Ended
March 31, 1998 March 31, 1997 Cumulative
(unaudited) (unaudited) Amounts from
inception
(unaudited)
-------------- -------------- -----------
<S> <C> <C> <C>
Operating activities:
Net Loss $ (1,011,870) (1,298,705) (9,686,870)
Adjustments to reconcile
net loss to net cash used
by operating activities:
Depreciation expense 35,207 3,463 236,707
Services and Interest
exchanged for stock 46,000 2,907,200
Write Down of Intangible 1,300,000
Losses on investments,
foreclosure and disposal (8,471) 489,129
Changes in assets and
liabilities:
Accounts receivable 48,922 (35,444) (103,578)
Deposits and other (2,500)
(Increase) decrease in
other current assets (22,844) (11,744)
Increase (decrease) in account
payable & liabilities 377,705 (239,560) 2,107,005
-------------- -------------- -----------
Net cash used in
operating activities (535,351) (1,570,246) (2,764,651)
-------------- -------------- -----------
Investing activities:
Proceeds from acquisition 22,100
License rights -
Centennial SMR assets (3,035,697) (3,185,697)
Marketable securities 248,400 (1,600)
Non-Operating assets
(LED Screens) (1,300,000) (1,325,000)
Related Party (39,000)
Purchase of property,
plant and equipment (26,626) (32,968) (317,926)
Other assets (63,085) (63,085)
Decrease in note receivable
SMR Management contracts (1,814,066)
Cash paid in acquisition
Other (58,384) (137,884)
-------------- -------------- -----------
Net cash used in
investing activities (4,235,392) (1,847,034) (5,048,092)
-------------- -------------- -----------
Financing activities:
Advances from related party 40,000 224,500
Proceeds: private placement
of common stock 3,900,000 2,704,259 5,038,900
Proceeds: short term notes 444,147 595,147
Warrants 30,000
Convertible Debentures (1,000,000) 1,500,000 1,500,000
Payments on notes payable (110,000) (437,800)
Long-term notes payable -
FCC Notes 1,390,707 1,386,107
-------------- -------------- -----------
Net cash provided by
financing activities 4,664,854 4,204,259 8,336,854
-------------- -------------- -----------
Increase (Decrease) in cash (105,889) 786,979 524,111
Beginning cash balance 630,000 27,482 -
-------------- -------------- -----------
Ending cash balance 524,111 814,461 524,111
============== ============== ===========
</TABLE>
-6-
<PAGE>
ComTec International, Inc. and Subsidiaries
(a Development Stage Enterprise)
Notes to the Consolidated Financial Statements
Note 1.
a) The summary of the Issuer's significant accounting policies are
incorporated by reference to the Company's SEC Form 10-KSB as of June
30, 1997. The notes to the audited financial statements presented with
the Company's SEC Form 10-KSB as of June 30, 1997 are an integral part of
the audited balance sheet data presented herein.
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.
On March 28, 1997 the Shareholders of the Company approved a proposal to give
the Company's Board of Directors authority to institute a reverse stock split
of from 3 for 1 to 100 for 1 at the discretion of the Board of Directors until
December 31, 1997. On December 26, 1997 the Board of Directors of the Company
acted pursuant to shareholder authority granted at the Annual Meeting of
Shareholders held March 28th, 1997, to declare a one for five reverse stock
split of the Company's .001 par value common stock effective 12:01 A.M.
January 31st, 1998. All share data and per share data is stated to reflect
the reverse stock split.
-7-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Overview
- --------
ComTec international Inc. was incorporated on July 6, 1983 in
the State of New Mexico, originally under the name of Nisus Video,
Inc. The Company has undergone many changes to date as a result of
certain reorganizations and recent change of management.
Historical changes are more fully disclosed in prior 34 Act filings
and the most recent changes, including changes in management are
described in the Company's 10-KSB for the year ended June 30, 1997.
The Company is currently authorized to issue 100,000,000 common
shares, $0.001 par value and 10,000,000 preferred shares, $0.001
par value. The Company has one wholly owned operating subsidiary,
American Wireless Network, Inc. ("AWN") and three inactive
subsidiaries.
On March 28, 1997 the Shareholders of the Company approved a
proposal to give the Company's Board of Directors authority to
institute a reverse stock split of from 3 for 1 to 100 for 1 at the
discretion of the Board of Directors until December 31, 1997. On
December 26, 1997 the Board of Directors of the Company acted
pursuant to shareholder authority granted at the Annual Meeting of
Shareholders held March 28th, 1997, to declare a one for five
reverse stock split of the Company's .001 par value common stock
effective 12:01 A.M. January 31st, 1998. All share data and per
share data is stated to reflect the reverse stock split.
On December 3, 1996 the Company formed American Wireless
Network, Inc., a wholly owned subsidiary of the Company to pursue
opportunities in the Specialized Mobile Radio (SMR) industry. Since
December 5, 1997, AWN has operated SMR sites in seven Metropolitan
Trade Areas ("MTAs") in the southeastern U.S.A., utilizing
specialized mobile radio licenses purchased from Centennial
Communications Corp. in a transaction that closed on July 6, 1998.
(a) Plan of Operation:
Forward-Looking Statements
--------------------------
The foregoing and subsequent discussion contains certain
forward-looking statements within the meaning of Section 27A of the
Securities A 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 license 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.
(a) Plan of Operation:
Since May 10, 1995, the Company's strategic business plan has,
aside from terminated venture in the LED screens and the divested
TTI prepaid phone card investment, been concentrated on wireless
telecommunications. Currently, the Company's only business is the
recently commenced operation of basic two-way communications
services. The Company has been and continues to be in the
development stage. The Company remains in the development stage
and from inception (March 15, 1994) has only generated auxiliary
revenues to defray the cost of its planned operations, with only
limited success in implementing actual operations. The Company has
financed its operations during the development stage from the sale
of its common stock and from issuance of short and long-term debt.
-8-
<PAGE>
During the quarter ended March 31, 1998 and through the
present the Company continued as a developmental stage entity
focused on developing its wireless SMR business plan. During the
quarter ended March 31, 1998, activities consisted of developing
the Company's strategic business plan, the management and operation
of SMR licenses and related assets obtained from Centennial
Communications Corp., developing a management and support staff and
maintaining reporting compliance for various federal government
agencies, such as the SEC and FCC. The Company's most significant
accomplishment to date is the action of its current management in
completing the closing on July 6, 1998 of the purchase of thirteen
operating SMR systems located in seven southeastern U.S.A.
Metropolitan Trade Areas.
Current Status and Operations
December 5, 1997 AWN completed the initial phase of a purchase
agreement whereby AWN purchased seven operating SMR systems for
$3,035,697. The wireless communications assets and associated
business acquired from Centennial Communications Corp. lie within
the following seven MTAs: Birmingham, Alabama; Knoxville,
Tennessee; Memphis, Tennessee; Nashville, Tennessee; New Orleans,
Louisiana; Oklahoma City, Oklahoma; Tulsa, Oklahoma.
The recently acquired systems are relatively new. The 105
operating channels had approximately 1400 subscribers, generating
recurring monthly revenues of approximately $20,000 on the purchase
date. These operating systems have a total of 13 sites, 105
constructed channels and cover seven (7) of the 51 MTA's, including
nine cities located in four southeastern United States,
encompassing a total population of 17.4 million, of which the seven
(7) systems are presently capable of covering approximately 5.9
million pops. Since December, 1997 AWN has had possession and
management of the wireless communications assets and associated
business previously owned by Centennial Communications Corp.
serving the above locations.
At present AWN operates its seven SMR communications systems
from its office in Englewood, Colorado. The Company has very
limited staff and currently relies upon contracted technical
support for repairs and maintenance. AWN's SMR communication
services are sold to individual customers through an independent
dealer network of local two-way radio communications equipment
vendors ("Dealers"). These Dealers are paid a commission or given
a usage fee discount for customers who use AWN spectrum and the
Dealers maintain the local relationships with the customers. AWN
acts as the direct billing provider of SMR communications to the
customer base provided by the Dealers. Under the present
operation, AWN is responsible for local telephone lines, equipment
maintenance, tower site rentals, customer loading, coding and
billing and all customer service and financial relationships. AWN
also has all responsibility for maintaining its SMR licenses,
making payments to the FCC on its licenses and funding all
equipment additions and system improvements. Under present
operation and level of usage, expenses of operating the system
significantly exceed revenues from the systems.
The capacity of the Company's SMR communications systems to
carry users (customers) is only utilized to approximately ten
percent of capacity. AWN is undertaking a campaign to find a
compatible joint venture partner who would have the potential to
utilize and merchandize the systems to a much greater extent than
the Company is able to do. Such and arrangement, if achieved would
also shift operations and associated costs of operations and
marketing to an existing SMR operating entity or entities on a
joint venture basis.
As reported on Form 8-K filed April 7, 1997, on approximately
March 31, 1997, the Company obtained possession (through agreements
to acquire for future issuance of common stock in a nonpublic
exchange) of six (6) giant light-emitting diode (LED) screens. The
asset acquisition, completed through an issuance of common stock in
March 1998, valued the LED screen assets at $1,300,000 (unaudited)
on the Company's March 30, 1998 balance sheet. The giant LED
screens provide active light presentation programs, adaptable for
indoor or outdoor use for sporting events, advertising displays and
other theatrical applications. The acquisition of the LED screens
required the issuance of 5,000,000 shares of the common stock of
the Company and 5,000,000 warrants to purchase an additional
5,000,000 shares of the .001 par value common stock of the Company.
All of the warrants are exercisable at any time during a three year
period following issuance of the warrants at an exercise price of
$4.50 per share. The originating transaction took place outside of
the United States of America on Grand Cayman, British West Indies,
with entities which are not residents of the United States of
America pursuant to exemption from registration provided by
Regulation S. No underwriter was involved in the transaction and
no cash commissions or discounts The stock exchange portion of the
transaction which occured on March 23, 1998, resulted in issuance
of 5,000,000 shares of common stock and 5,000,000 warrants to ten
different entities, none of which are residents of the U.S.A. The
Company intended, through its wholly owned subsidiary,
International Media Group, Ltd., to lease out the screens for
short-term (one to six week) events. Efforts at leasing and
utilizing the LED screens resulted in substantial operating losses.
The Company currently anticipates disposing of the LED Screens, as
of August 1998, the LED Screens are on consignment for sale.
-9-
<PAGE>
During the quarter ended March 31, 1998, the Company issued
unregistered .001 par value common shares as compensation in
private transactions to the following persons or entities pursuant
to agreements in exchange for services: Dihle & Co., P.C. - 77,126
shares; Gordon Dihle - 83,369 shares and James J. Krejci - 60,000
shares. Additionally the Company issued D&D Corporation 60,147
shares of unregistered .001 par value common shares as settlement
of debts for building repair services in a private transaction.
New Funding Efforts:
The Company is pursuing debt funding of up to $200,000,000 from
sources referred to it by certain foreign shareholders. The
purpose of such funding, if obtained, would be restricted in use,
requiring the purchase of assets or operations located within the
USA with sufficient positive cash flow to service the debt. The
conditions of such funding, if achieved, would include loan fees of
10% of the amount of the loan and require the issuance of up to
twenty percent of the equity of the Company to the lenders. The
Company has no commitment or other agreement which would entitle it
to receive such funding. No assurance can be given that this or
other debt or equity funding will be obtained.
Pending Acquisitions:
Currently there are no letters of intent or other formalized
agreements to acquire any entity or assets. The only acquisition
which the Company has accomplished to date is the purchase
completed July 6, 1998, whereby AWN purchased seven operating SMR
systems for $3,035,697. from Centennial Communications Corp.
(b) Liquidity and Capital Resources
The Company reported a net loss (unaudited) of $1,011,870 for
the nine month period ended March 31, 1998 and has reported net
losses from inception (March 15, 1994) to March 31, 1998 of
$9,686,870. The Company had deficient working capital at March
31, 1998 of $1,183,418. As of March 31, 1998, as a result of the
conversion of $2,600,000 of convertible debt to common stock, the
Company reported shareholders equity of $2,161,990. To date,
losses and cash flow deficiencies have been financed principally
through the sale of common stock and warrants and issuance of short
and long-term debt which includes related party debt. Additional
capital and/or borrowings will be necessary in order for the
Company to continue in existence until attaining profitable
operations. Although a portion of convertible debt was liquidated
through the issuance of common stock, no assurances can be given
that the sources of borrowings will continue. The Company is
highly leveraged and a number of developments over the past quarter
had material adverse effects on the Company. The Company has a
significant investment in license rights obtained through the
acquisition of assets from Centennial Communications, Corp., the
recoverability of which is dependent upon the success of future
events.
AWN has acquired ownership and management of 105 operating
channels of 900 MHz Metropolitan Trade Area licenses, principally
in the southeastern United States. It is the intent of the
Company's management that meaningful operations can be generated
through AWN and thereby take the Company out of the development
stage. Management has developed a strategic business plan to raise
private financing, develop a management team, maintain reporting
compliance, seek new expansive areas in communications and develop
a wholesale market in analog SMR. As part of its plan to resolve
the lack of liquidity, the Company issued approximately 19,683,331
common shares to liquidate $2,600,000 of convertible debentures in
March of 1998. The Company's inactive or dispossessed
subsidiaries were principally in the telecommunication business
except for AmNet Resources, Inc., which held real property. TTI
was in the business of reselling long distance service through
prepaid phone cards. TTI became operational in February, 1997 and
ceased operations on December 2, 1997, due to excessive losses.
This operation only provided auxiliary revenues and did not take
the Company out of the development stage. International Media
Group, Ltd. (" IMG") was formed to operate and market advertising
media through the use of giant LED screens, IMG is currently
inactive after incurring substantial expenditures in attempting to
utilize and operate the screens. The Company's management has
determined to liquidate the LED screens and placed those assets on
consignment for sale.
As was reported on Forms 8-K filed December 30, 1997, and April 7,
1998 the Company issued convertible debt financing instruments
totaling One Million Six Hundred Thousand Dollars ($1,600,000) of
convertible debt
-10-
<PAGE>
financing to entities organized outside of the United States of
America, whose shareholders are not residents of the United States
of America. The debt financing was incurred to finance the initial
acquisition of certain Specialized Mobile Radio assets from
Centennial Communications, Inc. The terms of the convertible debt
financing were, maturity date: December 31, 2000, interest at 12%
per annum due on December 31, 2000, and a conversion feature
effective after January 31, 1998, allowing the holders of the debt
to convert said debt into equity at the rate of ten units, each
unit consisting of one share of .001 par value common stock of the
Company and one warrant to purchase one share of .001 par value
common stock at a price of $2.90 per share, per one dollar of debt
converted. Accrued interest would be forfeited upon conversion to
equity. The Company had thirty one days from the date of notice of
intent of the debt holder to convert in which to prepay the debt
together with accrued interest thereon, if such debt is so prepaid,
the holder's conversion right is terminated. The transaction took
place outside of the United States of America on Grand Cayman,
British West Indies, with entities that are not residents of the
United States of America pursuant to exemption from registration
provided by Regulation S. No underwriter was involved in the
transaction and no cash commissions or discounts were paid by the
Company. On March 23, 1998 ComTec International, Inc. (the
"Company") converted convertible debt financing instruments
totaling One Million Six Hundred Thousand Dollars ($1,600,000) of
convertible debt financing described above (as well as loan fees of
ten percent associated with the transaction) into equity by issuing
17,599,998 shares of the .001 par value common stock of the Company
and 17,599,998 warrants to purchase an additional 17,599,998 shares
of the .001 par value common stock of the Company to forty six
entities organized outside of the United States of America, whose
shareholders are not residents of the United States of America and
one individual nonresident of the USA. All of the warrants are
exercisable at any time during a three year period following
issuance of the warrants at an exercise price of $2.90 per share.
The originating transaction took place outside of the United States
of America on Grand Cayman, British West Indies, with entities
which are not residents of the United States of America pursuant to
exemption from registration provided by Regulation S. No
underwriter was involved in the transaction and no cash commissions
or discounts were paid by the Company.
As reported on Form 8-K's filed May 12, 1997 and April 7, 1998,
the Company obtained funding of $1,000,000 in exchange for
commitments to issue .001 par value common stock of the Company and
warrants to issue .001 par value common stock of the Company based
upon a per share issue price of $.48 per share with an equivalent
number of warrants to purchase shares of the Company's .001 par
value common stock. On March 23, 1998 ComTec International, Inc.
(the "Company") converted commitments consisting of One Million
Dollars ($1,000,000) of debt into equity by issuing 2,083,334
shares of the .001 par value common stock of the Company and
2,083,334 warrants to purchase an additional 2,083,334 shares of
the .001 par value common stock of the Company in conversion of a
total of $1,000,000 in commitments originally issued to certain
entities organized outside of the United States of America, whose
shareholders are not residents of the United States of America.
All of the warrants are exercisable at any time during a three year
period following issuance of the warrants at an exercise price of
$4.50 per share. The originating transaction took place outside of
the United States of America on Grand Cayman, British West Indies,
with entities which are not residents of the United States of
America pursuant to exemption from registration provided by
Regulation S. No underwriter was involved in the transaction and
no cash commissions or discounts were paid by the Company.
From October 1, 1998 to the end of fiscal year ended June 30,
1999, the Company estimates its cash needs to maintain operations
under its current negative cash flow situation is approximately
$450,000. This amount is composed of $450,000 for working capital
assuming that current operations continue in its present status.
These amounts include offsets for anticipated amounts of cash
generated from the current operations.
The Company has limited capitalization and is dependent on the
proceeds of private or public offerings to continue as a going
concern and implementing a business plan. As of March 31, 1998,
the unaudited results of the Company indicated assets of $5,401,249
and deficit working capital of $1,183,418. All during fiscal 1997
and to the date of this filing, the Company has had and continues
to have a substantial need for working capital for normal operating
expenses associated with the Company continuing as a going concern.
This lack of cash has slowed its ability to develop SMR assets and
initiate revenue producing operations. Any activity in the
wireless industry requires adequate financing and on-going funding
sources. The Company has entered this industry with limited
financing and funding sources.
At March 31, 1998 (unaudited), the following contingent stock
issue requirements and warrants were outstanding:
Shares reserved for the Company's incentive stock option
plan (900,000)
Shares reserved for issuance in accordance with
outstanding warrants issued June 30, 1997 (4,242,923)
exercisable at $4.50 per share, expiring June 30, 2000
-11-
<PAGE>
Shares reserved for contingent issue with respect to
warrants issued in $1,000,000 debt conversion and LED
Screens Purchase (7,083,333) exercisable at $4.50 per
share, expiring March 23, 2001
Shares reserved for contingent issue with respect to
contingent warrants associated with $1,600,00 convertible
debt (17,599,998) exercisable at $2.40 per share,
expiring March 23, 2001.
On February 16, 1998, the Company entered into a letter
agreement, which remains to be formalized, by which James Krejci
became employed as Chief Operations Officer of the Company and
President and CEO of AWN. The letter agreement calls for a three
year employment agreement with the opportunity for Mr. Krejci to
obtain, through common stock option agreements, up to ten percent
(10%) of the outstanding common stock of the Company over a three
year period. The preliminary agreement calls for Mr. Krejci to
receive stock options vesting in monthly increments to equal to a
total of 5% of the Company's outstanding common shares over a three
year period. Options to obtain an additional 5% of the Company's
outstanding common shares are conditioned upon the Company reaching
certain financial and administrative goal within established
timelines. The strike price of all of the options is $.275 per
share, representing 80% of the bid price of the Company's common
stock on February 17, 1998, (closing bid price $.34375) Mr.
Krejci's start date.
During quarter ended March 31, 1998, the Company continued as
a development stage enterprise. The Company's 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 Company's ability to achieve profitable
operations is subject to the validity of its assumptions and risk
factors within the industry and pertaining to the Company.
As a result of the acquisition of SMR licenses and existing
operations from Centennial Communications Corp., $113,733 of
revenues were generated from the Company's wireless business during
the quarter ended March 31, 1998. No revenues were generated from
the Company's wireless business during the quarter ended March 31,
1997.
For the quarter ending March 31, 1998, the Company incurred
General and Administrative Expenses of $410,698, an increase of
$75,747 from the quarter ending March 31, 1997, when the Company
incurred General and Administrative expenses of $334,951. The
Company's Quarter ended March 31, 1998 financial statements reflect
adjustments and nonrecurring items of both revenue and costs, as
well as development stage costs and are not indicative of
anticipated revenues which may be attained or expenditures which
may be incurred by the Company in future periods.
Since October, 1997 several new management executives have
joined the ComTec International, Inc. organization. James J.
Krejci, MBA, formerly a top executive with Jones Intercable,
Inc./Jones International, Ltd. associated companies was named CEO
of AWN and COO of the Company in February, 1998. Michael Bunch, a
CPA and MBA, became the organization's controller in tandem with
the appointment of Gordon Dihle, as CFO and as a Company Director
in the initial management restructure which took place in October,
1997 following the resignation of Clifford S. Perlman. As a result
of the Special Meeting of Shareholders held August 26, 1998, Donald
G. Mack and Daniel Melnick were removed as Directors of the
Company. In the same special shareholders meeting, James J. Krejci
and Gordon D. Dihle were elected to the Company's Board of
Directors until the next annual meeting of the Shareholders. As of
August 26, 1998 the Company's Board of Directors consisted of J.
Kent Millington (appointed May 8, 1998), James J. Krejci and Gordon
D. Dihle. J. Kent Millington who was appointed May 8, 1998
resigned from the board of directors effective September 2, 1998.
At a Special Board of Directors meeting held September 2, 1998, the
following officers were appointed by the Board of Directors: James
J. Krejci as President, CEO and Chairman of the Board of
Directors and Gordon D. Dihle as Secretary and Treasurer.
-12-
<PAGE>
Part II
ITEM 1. LEGAL PROCEEDINGS
On September 14, 1998 the Company received by certified mail
a Complaint filed in Superior Court of California, County of San
Diego, Case No. 723581 entitled John Brent, et al vs. ComTec
International, Inc., a New Mexico corporation, et al Defendants.
The Complaint by seven named Plaintiffs alleges securities fraud,
improper sale of unregistered securities, and stock manipulation
against the Company and five individual defendants who were former
officers and/or directors of the Company, none of whom are
currently associated with the Company. The Company believes that
it has meritorious defenses and will vigorously defend against the
allegations of the Complaint. Due to the very recent notice of the
matter, further information is not available. The Company's answer
or other response is due approximately October 15, 1998.
Except for the foregoing, no non course of business or other
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.
As reported in Form 8-Ks filed on December 30, 1997 and May
13, 1997, on March 28, 1997 the Shareholders of the Company
approved a proposal to give the Company's Board of Directors
authority to institute a reverse stock split of from 3 for 1 to 100
for 1 at the discretion of the Board of Directors until December
31, 1997. On December 26, 1997 the Board of Directors of the
Company acted pursuant to shareholder authority granted at the
Annual Meeting of Shareholders held March 28th, 1997, to declare a
one for five reverse stock split of the Company's .001 par value
common stock effective 12:01 A.M. January 31st, 1998. All share
data and per share data is stated to reflect the reverse stock
split.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
NONE
ITEM 5. OTHER INFORMATION
On approximately March 31, 1997, the Company obtained
possession (through agreements to acquire for future issuance of
common stock in a nonpublic exchange) of six (6) giant light-
emitting diode (LED) screens. The asset acquisition, achieved by
issuance of 5,000,000 shares of the Company's common stock, valued
the LED screen assets at $1,300,000 in the Company's unaudited
March, 1998 financial statements. The giant LED screens provide
active light presentation programs, adaptable for indoor or outdoor
use for sporting events, advertising displays and other theatrical
applications. The stock exchange portion of the transaction,
facilitated through Geneva Reinsurance Company, Ltd., a corporation
organized outside of the United States of America, resulted in
issuance of a total of 5,000,000 shares of common stock and
5,000,000 warrants to ten different entities, none of which are
residents of the U.S.A on March 23, 1998. The Company intended,
through its wholly owned subsidiary, International Media Group,
Ltd., ("IMG") to lease out the screens for short-term (one to six
week) events. Efforts at leasing and utilizing the LED screens
resulted in substantial operating losses to the Company's
subsidiary, IMG, through which leasing and operation of the LED
screens was to take place. IMG is currently inactive. The Company
currently anticipates disposing of the LED Screens, as of August
1998, the LED Screens are on consignment for sale.
-13-
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) & (b) Financial Statements and Schedules. See Financial
Statements beginning on page 3.
(c) Exhibits. The following documents are filed herewith or
incorporated herein by reference as Exhibits:
Exhibits
- --------
2.1 N/A
3.0 Articles of Incorporation of the Company. (incorporated
by reference to Exhibit 3.1 to the Company's Form S-1
Registration Statement No. 82-88530 dated December 20,
1983). Amendment Incorporated by Reference to Form 8-K
dated May 12, 1997.
3.1 By-laws. (incorporated by reference to Exhibit 3.2 to the
Company's 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)
10.02 Letter Agreement between the Company and James J. Krejci.
(1)
11 Not Applicable.
15 Not Applicable.
18 Not applicable.
19 Not applicable.
22 Not Applicable.
23 Not Applicable.
24 Not applicable .
27 Financial Data Schedule
99 Not applicable
d) The Company filed the following reports on Form 8-K:
Current Report on Form 8-K was filed on April 7, 1998 to
report the issue on March 23, 1998, pursant to Regulation S, of
shares of the Company's common stock and warrants in exchange for
LED screens and conversion of $2.6 of convertible debt to Common
stock and warrants.
_____________
(1) Incorporated by reference to the Company's Form 10-KSB as of
June 30, 1997
-14-
<PAGE>
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: September 28, 1998 By: /s/ James J. Krejci
---------------------------
James J. Krejci, President
and Chief Executive Officer
By: /s Gordon Dihle
---------------------------
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/ James J. Krejci Director September 28, 1998
- --------------------
James J. Krejci
/s/ Gordon Dihle Director September 28, 1998
- --------------------
Gordon Dihle
-15-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS FOR THE PERIOD ENDED MARCH 31, 1998, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 524,111
<SECURITIES> 0
<RECEIVABLES> 328,178
<ALLOWANCES> 250,000
<INVENTORY> 0
<CURRENT-ASSETS> 625,133
<PP&E> 337,333
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,401,249
<CURRENT-LIABILITIES> 1,808,552
<BONDS> 0
0
0
<COMMON> 38,100
<OTHER-SE> 2,123,890
<TOTAL-LIABILITY-AND-EQUITY> 5,401,249
<SALES> 113,733
<TOTAL-REVENUES> 113,733
<CGS> 116,149
<TOTAL-COSTS> 116,149
<OTHER-EXPENSES> 915,748
<LOSS-PROVISION> 8,471
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,011,870)
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<NET-INCOME> (1,011,870)
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