UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended June 30, 1997
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, Colorado 80112
(Address of principal executive offices)
(303) 662-1198
(Issuer's Telephone Number Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
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 No X
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information: [ ]
Statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB: [ ]
The aggregate market value of the voting stock (common stock) held by non-
affiliates of the issuer as of the close of business on September 9, 1998 was
approximately $2,821,000.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Number of shares outstanding of each of the issuer's classes of
Common stock as of September 11, 1998 was 42,703,700 shares.
State issuer's revenues for its most recent fiscal year. -0- .
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
DOCUMENTS INCORPORATED BY REFERENCE: None
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FORM 10-KSB ANNUAL REPORT - FISCAL YEAR ENDED JUNE 30, 1997
COMTEC INTERNATIONAL, INC.
TABLE OF CONTENTS Page
PART I
Item 1. Description of Business 3.
Item 2. Description of Property 15.
Item 3. Legal Proceedings 16.
Item 4. Submission of Matters to a Vote of
Security Holders 17.
PART II
Item 5. Market for Common Stock Equity and
Related Stockholder Matters 19.
Item 6. Management's Discussion and Analysis
or Plan of Operation 22.
Item 7. Financial Statements 29.
Item 8. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 29.
PART III
Item 9. Directors, Executive Officers,
Promoters and Control Persons;
Compliance with Section 16(a)
of the Exchange Act 32.
Item 10. Executive Compensation 34.
Item 11. Security Ownership of Certain
Beneficial Owners and Management 38.
Item 12. Certain Relationships and
Related Transactions 39.
Item 13. Exhibits and Reports on Form 8-K 41.
SIGNATURE PAGE 44.
INDEX TO FINANCIAL STATEMENTS 45.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
(a) Business Development:
1. General Corporate
-----------------
ComTec international Inc. was incorporated on July 6, 1983 in
the State of New Mexico, originally under the name of Nisus Video,
Inc. It is a fully reporting 12(g), 34 Act publicly traded
company. The Company has undergone many changes to date as a
result of certain reorganizations. Historical changes are more
fully disclosed in prior 34 Act filings. The Company's principal
office is located at 9350 East Arapahoe Road, Suite 340, Englewood,
Colorado 80112; its telephone number is (303) 662-1198; its
facsimile number is (303) 662-8485. 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 May 10, 1995, pursuant to the terms and conditions of a
written agreement, the control of the Company was acquired by the
shareholders of Keystone Holding Corporation ("KHC"), a privately
owned Colorado corporation under the control of Donald G. Mack,
solely in exchange of voting securities of the Company. In
connection with this acquisition 2,245,795 shares of the Company's
common stock were issued to KHC shareholders in exchange for the
following major assets of KHC; (1) a commercial revenue producing
property valued at $392,214 and (2) a satellite uplink system
valued at $290,000 (net of depreciation). In connection with the
revenue producing property there was a $347,645 liability (SEE ITEM
12, CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.)
As a result of this transaction, the Company experienced a
complete change of management control. On October 27, 1995,
Nattem, USA, Inc. (then the name of the Company) changed its name
to ComTec International, Inc., and planned to develop various
telecommunications services and products, principally in the areas
of Specialized Mobile Radio (SMR). During the past fiscal year,
the Company departed from the strictly SMR business strategy to
include now terminated ventures in prepaid phone cards and giant
LED screens.
The following amendment to the Articles of Incorporation was
adopted by the Shareholders of the corporation on March 28, 1997 in
the manner prescribed by the New Mexico Business Corporation Act:
V. Article 5(A) of the articles of incorporation
is hereby amended to read in its entirety as follows:
A) Authorized Shares: The aggregate number of
shares which the corporation shall have authority to
issue is 110,000,000 shares. One Hundred Million
(100,000,000) shares shall be designated "Common Stock",
and shall have a par value of $.001. Ten Million
(10,000,000) shares shall be designated "Preferred
Stock", and shall have a par value of $.001 per share,
and shall be issued for such consideration, expressed
in dollars, as the Board of Directors may from time
to time, determine.
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
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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.
2. Current Operations
------------------
Operating Subsidiary
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. In
connection with this transaction, the Company transferred all SMR
radio licenses under ownership and control of the Company to
American Wireless Network, Inc. (exchange for 500,000 shares of
common stock in AWN. On December 22, 1996 AWN issued an additional
143,000 shares of common stock to three additional Company
affiliated entities. In March of 1997 the Company exchanged for
stock in the Company all shares of AWN held outside of the Company.
As of March 31, 1997, and currently the Company owns all of the
outstanding common stock of AWN. AWN currently operates SMR sites
in seven Metropolitan Trade Areas ("MTAs") in the southeastern
U.S.A., operating specialized mobile radio licenses purchased from
Centennial Communications Corp. on July 6, 1998.
Purchase of Specialized Mobile Radio Communications Systems
On December 5, 1997, the Company through AWN began operations
as a provider of SMR two-way communication services. By an
agreement executed on December 4, 1997, American Wireless Network,
Inc., a wholly owned subsidiary of ComTec International, Inc. (the
"Company") acquired management control of Specialized Mobile Radio
("SMR") related assets and licenses owned by Centennial
Communications Corp. of Denver, Colorado in seven metropolitan
trade areas located in southeastern USA. The transaction was an
arms length purchase and sale transaction, negotiated by the
representatives of each party to the agreement.
The Company and Centennial Communications Corp., a Colorado
Corporation, initially entered into a letter of intent dated as of
October 16, 1997 and a formal agreement was entered into on
December 4, 1997 between American Wireless Network, Inc., a
Colorado Corporation and Centennial Communications Corp. (the
"Agreement") whereby the American Wireless Network, Inc. acquired
management control on December 5, 1997 of the SMR assets and SMR
licenses owned by Centennial Communications Corp. together with the
SMR related business limited to and located in the seven following
USA metropolitan trade areas: Birmingham, Alabama; Knoxville,
Memphis, and Nashville, Tennessee; Oklahoma City and Tulsa,
Oklahoma; and New Orleans, Louisiana. The assets acquired by the
agreement include SMR licenses issued by the Federal Communications
Commission ("FCC"), radio equipment and antennas, tower site leases
and the customer base of Centennial Communications Corp. in the
seven acquired markets. Since the acquisition, American Wireless
Network, Inc. has continued to utilize the assets acquired in the
transaction for the same purposes, that of commercial sale of air
time to business users, as was utilized by Centennial
Communications Corp. Transfer of title to the assets and licenses
occurred at a second closing on July 6, 1998. Until transfer of
legal title of the assets to American Wireless Network, Inc., on
July 6, 1998, the seven markets were operated by American Wireless
Network, Inc. pursuant to a management agreement. The total
purchase price of the assets was $3,035,697, consisting of cash
deposit of $200,000 in October 1997, payment $1,000,843 in cash on
December 4, 1997, a promissory note from American Wireless Network,
Inc. to Centennial Communications Corp. in the amount of $444,147
(which was paid on July 6, 1998) and assumption of FCC notes
totaling $1,390,707 by American Wireless Network, Inc.
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Prior to this acquisition, neither the Company nor its
subsidiary, American Wireless Network, Inc., had any affiliation
with Centennial Communications Corp. nor any of its officers,
directors, affiliated companies or shareholders.
Change of Address of Registrant
On December 15, 1997 the Company relocated its principal
offices to Suite 340, East Arapahoe Road, Englewood, Colorado,
80112. The Company's new phone number is (303)-662-1198. The
Company's subsidiary, American Wireless Network, Inc. which is also
located at such address, entered into a three-year lease for the
premises, said lease ending November 30, 2000.
Inactive Subsidiaries
Custom Concepts, Inc. was incorporated as a Colorado
Corporation in November, 1997 as an additional subsidiary of the
Company. Custom Concepts, Inc. is currently inactive with no
defined business plan and has no material assets.
On January 14, 1998 the name of CTI Real Estate, Inc. a
subsidiary of the Company which held real estate formerly owned by
the Company, was changed to AmNet Resources, Ltd. ("AmNet").
AmNet has no active operations or material assets. AmNet is
currently inactive with no defined business plan and has no
material assets.
International Media Group, Ltd. ("IMG") was formed as Colorado
Corporation in March of 1997 with a business plan to operate and
market as a public advertising media, the use as of giant LED
screens. The Company has determined to dispose of the LED screens.
IMG has no active operations or material assets. IMG is currently
inactive with no defined business plan and has no material assets
3. Change in Management
--------------------
The Company has undergone a complete change in management over
the past year. Since October, 1997 the Company has undergone
management restructure to the extent that the no Director, Officer
or Management Executive associated with the Company as of the
6/30/96 10KSB is now associated with the Company.
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.
On November 22, 1996, Kelsey T. Kennedy resigned as Chief
Financial Officer of the Company.
On December 31, 1996, Mitchell B. Chi resigned as Chief
Financial and Operating Officer and member of the Board of
Directors of the Company. Mr. Chi was hired by American Wireless
Network, Inc. as Chief Operating and Finance Officer on January 1,
1997 and elected to the Board of Directors of American Wireless
Network, Inc. on December 3, 1996. Mr. Chi terminated his Director
position with AWN on March 18, 1997 and all association in April,
1997.
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On December 31, 1996 Donald O. Smith resigned as Chief
Technology Officer of the Company. Mr. Smith was hired by American
Wireless Network, Inc. as Chief Technology Officer on January 1,
1997, elected to the Board of Directors of American Wireless
Network, Inc. on December 3, 1996 and appointed to the Company's
Voting Trust for American Wireless Network, Inc. on February 7,
1997. The voting Trust was terminated and Donald Smith resigned as
a director of AWN on March 18, 1997. Mr. Smith ended all other
association with AWN in April, 1997.
On February 12, 1997 Robert Clausen resigned as Secretary and
member of the Board of Directors of the Company.
Daniel Melnick was appointed as a Director of the Company by
the Board of Directors at the annual meeting of the Board of
Directors of the Company held on March 28, 1997. Mr. Melnick had
no previous affiliation with the Company. Mr. Melnick has not
actively participated in the affairs of the Company.
On May 6, 1997 Thomas Moscariello resigned as Secretary and
member of the Board of Directors of the Company and terminated all
agreements with the Company.
On October 8, 1997 Clifford S. Perlman resigned as a Director
and Chairman of the Board of the Company and in all capacities as
a Director and Officer of the Company's subsidiaries.
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 on October 8, 1997 following the resignation of
Clifford S. Perlman.
Clarence Leist, a former OneComm Manager, was appointed Chief
Network Operations Engineer in November, 1997.
James J. Krejci and began employment with the Company on
February 17, 1998 and in conjunction therewith, was named CEO of
American Wireless Network, Inc. and Chief Operations Officer of the
Company.
On May 8, 1998, J. Kent Millington, an individual previously
unaffiliated with the Company and Clarence Leist were appointed to
the Board of Directors.
On May 8, 1998, Gordon Dihle, in conjunction with the
appointment of J. Kent Millington and Clarence Leist as new members
of the Board of Directors, resigned as Chief Financial Officer and
in all capacities as an officer and member of the Board of
Directors of the Company and all subsidiaries thereof.
On May 11, 1998, Clarence Leist resigned as a member of the
Board of Directors of the Company. On July 1, 1998 Clarence Leist
resigned as Chief Network Operations Engineer and all capacities
with the Company.
With respect to the resignations by each of the seven
individuals named above, there was no disagreement with any person
so named on any administrative, operational or technology issues or
public disclosure which disagreement, if not resolved to the
satisfaction of this officer, would have caused him to make
reference to the subject matter in connection with its report.
On June 23, 1998, Donald G. Mack resigned as President and CEO
of the Company and in all officer and director capacities with
subsidiaries of the Company. Mr. Mack remained as a Director of
the Company. Mr. Mack's resignation letter stated that his
resignation was not a waiver
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of any rights or claims to any compensation, stock, options,
bonuses or accrued amounts of cash, loans or guarantees made on
behalf of the Company under the terms and conditions of his
employment contract. Mr. Mack's resignation letter did not request
that any disagreement be reported or disclosed in the Company's
regulatory filings.
On August 26, 1998, pursuant to a call for a special
shareholders meeting by shareholders owning more than 10% of the
Company's common stock and presented to the shareholders by a
notice and proxy mailed by the Company's independent transfer agent
on August 11, 1998, a special election of the shareholders of the
Company was held with the following proposed purposes:
1. Remove Donald G. Mack from the Board of Directors for cause
2. Remove Daniel Melnick from the Board of Directors
3. Elect James J. Krejci to the Board of Directors
4. Elect Gordon D. Dihle to the Board of Directors
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.
Prior to the special meeting of shareholders held August 26,
1998, by a letter dated August 21, Donald G. Mack tendered his
resignation as a Director of the Company and as an officer and
director of any of its subsidiaries. Previously, on June 23, 1998
Mr. Mack had tendered his resignation as an officer of the Company
and as an officer and director of any of its subsidiaries. Mr.
Mack's resignation letter stated that his resignation was not a
waiver of any rights or claims to any compensation, stock, options,
bonuses or accrued amounts of cash, loans or guarantees made on
behalf of the Company under the terms and conditions of his
employment contract. Mr. Mack's resignation letter did not request
that any disagreement be reported or disclosed in the Company's
regulatory filings. Mr. Mack was officially removed as a Director
of the Company by the special meeting of shareholders held August
26, 1998.
J. Kent Millington who was appointed May 8, 1998 resigned
from the board of directors effective September 2, 1998. With
respect to the resignations by Mr. Millington, there was no
disagreement with Mr. Millington on any administrative, operational
or technology issues or public disclosure which disagreement, if
not resolved to the satisfaction of this officer, would have caused
him to make reference to the subject matter in connection with its
report.
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.
Michael Bunch remained as the organization's controller.
4. Asset Forfeitures, Dispositions and Terminations of Contract
------------------------------------------------------------
Rights
- ------
Keystone Holding Assets Forfeited
On May 10, 1995, and pursuant to the terms and conditions of
a written agreement, the control of the Company was acquired by the
shareholders of Keystone Holding Corporation ("KHC"), a privately
owned Colorado corporation under the control of Donald G. Mack,
solely in exchange of voting securities of the Company. In
connection with this acquisition 2,245,795 shares
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of the Company's common stock were issued to KHC shareholders in
exchange for the following major assets of KHC; (1) a commercial
revenue producing property valued at $392,214 and (2) a satellite
uplink system valued at $290,000 (net of depreciation). In
connection with the revenue producing property there was a $347,645
liability (SEE ITEM 12, CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.) During the quarter ended December, 1996 the Company
lost all interest and equity in property located in Parker,
Colorado as a result of the conclusion of foreclosure actions
against Keystone Holding Corporation and related entities. The
Parker property was originally obtained from Keystone Holding
Corporation as a result of the May 10, 1995 agreement whereby the
assets of Keystone Holding Corporation were exchanged for common
stock of the Company. As a result of depreciation and additional
subsequent mortgage debt on the Parker property, an extraordinary
accounting capital gain resulted from the loss of the Parker
property.
National Teleports, Inc. Acquisition Failed
The Company previously disclosed an agreement initiated in the
quarter ended March 31, 1996 for the acquisition of a 61% majority
interest in Network Teleports, Inc. ("NTI") from certain
shareholders. NTI broadcasts television and cable programming along
with other data and transmission services via satellite uplink from
its hub located in New Orleans, Louisiana. The seller
representative of the selling NTI shareholders refused to go
forward with the transaction. During the year ended June 30, 1996,
the Company was to acquire 61% of the outstanding common stock of
Network Teleports, Inc. for approximately $ 1,250,000 consisting of
a $25,000 deposit and the issuance of 980,000 shares of common
stock at $1.25 per share ($1,225,000), which shares were held in
escrow until approval was obtained from the Federal Communications
Commission. Certain shareholders of the Company were also
shareholders of Network Teleports, Inc. During the year ended June
30, 1997, the agreement was terminated, which resulted in a loss to
the Company of approximately $318,400 consisting of the $25,000
deposit and equipment with a net book value of $293,400 (equipment
originally obtained in the Keystone Holdings, Inc. transaction
described above). The loss has been charged to current operations.
The escrowed shares were cancelled by mutual consent of the
parties. The "Sellers" have retained a $25,000 deposit made by the
Company as well as certain equipment provided by the Company. The
proposed NTI transaction is defunct.
John Sandy Production, Inc. Released
On July 27, 1995 the Company entered an agreement to acquire
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 Company's marketing of its
future telecommunication services. Based on a settlement agreement
executed in October, 1997 the Company has agreed to terminate the
original purchase agreement of JSP with John Santucci and the
Company and JSP mutually released any claims against the other.
For accounting purposes, the Company's total cash investment
($40,000) in JSP had been recorded in other assets since June 30,
1996. As a result of the settlement JSP executed a promissory note
in the amount of $40,000 and a production credit for future
services from JSP in the amount of $40,000.
Omni-Range Transaction Forfeited
As of June 30, 1996, the Company reported that it controlled
management option agreements on 185 SMR licenses obtained through
the Omni-Range acquisition, some of which were partially
constructed. These channels were not revenue producing. The
Company defaulted on its payment obligation for the channels since
the original compensation involved a subordinated mortgage on a
building previously held by the Company which building transferred
to the original lien-holder in
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foreclosure proceedings cumulating in December, 1997. The Company
has forfeited any rights to the Omni-Range channels.
Aurora, Colorado Property Real Estate Foreclosure
In July, 1997 an Adverse Summary Judgment and Decree in
Foreclosure was issued against the Company's wholly owned
subsidiary CCI Real Estate, Inc. which as of the current date has
eliminated any equity or ownership by the Company of Real Estate
located at 10855 East Bethany Drive, Aurora, Colorado. In the case
of Sunset Life Insurance Company of America vs. CTI Real Estate,
Inc. Arapahoe County District Court, Case No. 96 CV 741, the Court
issued an order dated July 18, 1997 entering summary judgment and
decree in Foreclosure against CTI Real Estate, Inc., a subsidiary
of ComTec International, Inc. This suit, a foreclosure action on
the Company's building at 10855 East Bethany Drive, Aurora, Co. was
filed in September 1996 in the District Court for Arapahoe County,
Colorado. A notice of Sheriff's sale dated August 11, 1997 set a
Sheriff's sale for September 23, 1997 in Littleton, Colorado. The
sale was held and CTI Real Estate, Inc.'s redemption period has
expired. The Company was unable to sell or redeem the property and
all equity was lost. Ancillary litigation was either settled
separately or merged and concluded with the foreclosure. [SEE ITEM
3 - LEGAL PROCEEDING]
On January 14, 1998 the name of CTI Real Estate, Inc. a
subsidiary of the Company which held real estate formerly owned by
the Company, was changed to AmNet Resources, Ltd. ("AmNet").
AmNet has no active operations or material assets.
DCL Associates SMR License Options Cancellation
On August 6, 1996 the Company acquired option agreements to
manage 1,380 800 MHz SMR channels in 20 states from a group of 34
associated licenses ("the DCL options"). These channels were
granted an Extended Implementation Waiver ("EIW") which was
modified on May 20, 1997 to require operational status of the
entire group of remaining channels by May 20, 1999. The first
construction deadline was for 10% of the channels (137) by December
31, 1996. FCC database shows that 145 stations were constructed by
the Company's subsidiary to meet this requirement. The August 6,
1996 agreement was recorded as a purchase of license rights by the
Company at a purchase price of $1,597,000 in the Company's
September 30, 1996 10QSB and subsequently increased with subsequent
stock issuances. As a result of disputes which began in February,
1997, DLC Associates, Inc. notified the Company that DCL
Associates, Inc. and additional parties ("DCL") considered the
Company to be in default of its obligations under the option
agreements. On August 7, 1997 the Company filed a Complaint for
declaratory relief and damages in United States District Court for
the District of Colorado, Denver, Colorado, Case 97-1685 seeking a
court ruling that option agreements entered into by and between the
Company and the Defendants, consisting of DCL Associates, Inc. and
thirty three additional Defendants were legal, valid and
enforceable agreements. The Defendants filed an answer and
counterclaim March 30th, 1998 denying that the option agreements,
subcontract agreement and management agreement entered into by the
Defendants and the Company remained valid and further alleging
failure of performance, failure of consideration and inequitable
conduct on the part of the Company. The entire DCL option
transaction and associated litigation was terminated by legal
settlement on June 22, 1998. The opportunity to purchase to DCL
licenses for $925,000 cash as provided by the settlement agreement
expired on July 1, 1998. In the same settlement, all of the stock
previously issued to DCL Associates, Inc. by ComTec in payment of
such options, consisting of 1,361,786 common shares (including
662,786 common shares issued in exchange for 39,767 shares of
Series C Preferred Stock) has been returned to the Company and
cancelled. The Company had issued 39,767 shares of Series C
Preferred Stock with a stated value of $10.00 in connection with
the DCL options acquired per the closing agreement dated August 6,
1996, these shares were converted to 662,786
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shares of common stock pursuant to the DCL option agreement. The
net result of the entire transaction in retrospect is the loss of
the actual cash paid to DCL Associates of approximately $150,000.
ComTec has no further interest or claim to the DCL options or
assets associated therewith. [SEE ITEM 3 LEGAL PROCEEDINGS]
GPS Communications, Inc. Acquisition Terminated
In the 10QSB for the period ended 9/30/96 the Company
discussed a pending acquisition agreement with GPS Communications,
Inc. ("GPSI"). GPSI is a private company which had an uncompleted
arrangement 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). The Company withdrew from its letter of intent as a result
of failures to reach mutually satisfactory agreements.
Telecosm & Associates, L.C. Agreement Expired
In the 10QSB for the period ended 9/30/96 the Company
discussed a pending acquisition agreement with Telecosm &
Associates L.C. ("Telecosm"). Telecosm is a Limited Liability
Company which had an uncompleted arrangement with the Company to
sell to the Company option and management agreements covering 2,199
licenses. This arrangement has expired without any transaction
occurring.
Commercial Communications, Inc. Acquisition Failed
In the 10QSB for the period ended 9/30/96 the Company
discussed a pending acquisition agreement with Commercial
Communications, Inc. ("CCI"). CCI is a private corporation whose
primary business was providing SMR two-way dispatch services. The
proposed purchase of the CCI system was never completed and the
transaction failed. There is no pending transaction with CCI.
5. Other Acquisitions Terminated
-----------------------------
In the 10QSB for the period ended 9/30/96 the Company
discussed a pending acquisition agreement with three undisclosed
companies (due to nondisclosure agreements). None of these
proposed transactions occurred and all letter of intent agreements
have expired. There are currently no outstanding letters of intent
to acquire any operations. During prior reporting periods the
Company has entered into letters of intent to acquire (subject to
various contingencies) a number of different entities including
Direct Comm, Inc. and Worland Communications, Inc. all of these
proposed transactions have failed, for reasons including failure to
meet financial commitments by the Company or disputes as to terms
and other conditions. Any deposits made by the Company have been
forfeited.
Prepaid Media Credit Charged Off
In December 1995, the Company entered into a three (3) year
media purchase agreement for $ 1,950,000, which was partially
prepaid through the issuance of 1,040,000 common shares at $ 1.25
per share ($1,300,000). As the advertising was utilized, the
Company was to pay one third of invoice and two thirds would be by
the advertising media responsibility. The Company also granted the
advertiser an option to acquire 200,000 common shares at $ 1.25 per
share. The option expires in the year 2000. During the year ended
June 30, 1997, management determined the media agreements had no
continuing value and charged current operations for the outstanding
balance. The common stock issued and unexpired option remain
outstanding.
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6. Subsidiaries Dissolved
----------------------
Keystone Holdings, Inc. was dissolved on September 1, 1996 by
action of the Colorado Secretary of State.
Key Communications Group, Inc. was dissolved on September 1,
1996 by action of the Colorado Secretary of State.
The two dissolved subsidiaries were wholly owned but inactive
subsidiaries of the Company.
7. Discontinued Subsidiary Operations
----------------------------------
TTI Communications Corporation
The Company in conjunction with three additional 10%
shareholders invested in a subsidiary, TTI Communications
Corporation, a long-distance telecommunication business, on
February 12, 1997. This partially owned subsidiary began
operations approximately February 19, 1997 and by March 31, 1997
was functionally operational but operating at a substantial loss.
TTI Communications Corporation continued to incur substantial
operating losses until the time the Company's interest in TTI
Communications Corporation and all operations was terminated
approximately December 2, 1997. This business resold long distance
telephone service through prepaid phone cards. The Company had a
70% interest in TTI Communications Corporation, the remaining 30%
interest in the subsidiary is owned 10% each by two unaffiliated
individuals and one unrelated Limited Liability Company. On
December 2, 1997 the Company disposed of its entire interest in TTI
Communications Corporation. The Company recorded a loss of
$514,800 for the year ended June 30, 1997 with respect to its
investment in TTI Communications Corporation.
International Media Group, Ltd.
The Company organized a new subsidiary, International Media
Group, Ltd. on March 20, 1997. International Media Group, Ltd.
("IMG") was formed with a preliminary business plan to operate and
market as a public advertising media, the use as of giant LED
screens. 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, valued the
LED screen assets at $2,400,000. The giant LED screens provide
active light presentation programs, adaptable for indoor or outdoor
use for sporting events, advertising displays and other theatrical
applications. At such valuation the acquisition required the
issuance of 5,000,000 shares of the common stock of the Company
($.48 per share considering the January 31, 1998 1 for 5 reverse
stock split). 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 5,000,000 shares of common stock 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., 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.
11
<PAGE>
8. Terminated Financing Proposals
------------------------------
Proposed Underwriting Withdrawn
On October 23, 1996, the Company made a $25,000 deposit and
obtained a letter of intent outlining a future firm commitment by
National Securities, Inc. and NASD member Broker Dealer to
underwrite a $25 million debt and a $15 million common stock
secondary offering. National Securities, Inc. requested and
suggested certain changes in the finance, operations and structure
of the Company but has not moved forward with any type of
underwriting process. The Company has requested refund of its
$25,000 deposit. There are no currently existing agreements for
underwriting a public or private offering of the Company's
Securities with any NASD member Broker Dealer.
Private Placement Withdrawn
During the quarter ended September 30, 1996 the Company
entered into a letter of intent with American Investments Services,
Inc. ("ASI") an NASD member broker dealer, wherein the Company and
AIS proposed a private placement to be undertaken by AIS. AIS
subsequently cancelled the letter of intent and ended its
preliminary efforts with respect to the proposed private placement.
There are no currently existing agreements for underwriting a
private offering of the Company's Securities with any NASD member
Broker Dealer.
(b) Business of Issuer:
American Wireless Network, Inc. ("AWN") a wholly owned
subsidiary of the Company was incorporated under the laws of the
State of Colorado on December 3, 1996, to act as the wireless
communications operating entity for the Company. The Company's
operations are conducted through American Wireless Network, Inc.
During the fiscal year ended June 30, 1997 and through the
present the Company continued as a developmental stage entity
focused on developing its wireless SMR business plan started in
1993 through the efforts of Keystone Holding Company. Prior to
October, 1997 activities had been concentrated on creating and
executing the Company's strategic business plan, raising private
financing, efforts to acquire other entities and operations,
developing a management and support staff to execute its business
plan, 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 final closing on July 6, 1998 of the
purchase of FCC licenses and operation, since December 5, 1998, of
thirteen operating SMR systems located in seven southeastern U.S.A.
MTAs.
Current Status and Operations
- -----------------------------
On 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.
lay 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 14 sites, 105
constructed channels and cover seven (7) of the U.S.A's 51 MTAs,
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
12
<PAGE>
capable of covering approximately 5.9 million pops. AWN is working
with independent local dealers in efforts to promote and expand SMR
communications services within the above mentioned markets.
At present AWN operates its seven SMR communications systems
from its office in Englewood, Colorado. AWN's SMR communication
services are sold to individual customers through an independent
dealer network of local two-way radio communications equipment
vendors ("Dealers"). 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. 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 the current operation and level of
usage, expenses of operating the system significantly exceed
revenues from the systems.
The Specialized Mobile Radio Industry
- -------------------------------------
SMR, considered "private carriage," was designed to serve the
business community. With the birth of SMR, the government saw an
opportunity to deregulate the business communications industry by
creating a viable new marketplace and, at the same time, decrease
the cost of providing fleet dispatch service to small businesses.
Cellular was designed to be a mobile outgrowth of the public
telephone system. Like the public telephone system, cellular
systems are regulated by the FCC and public service commissions of
respective state governments. Cellular, considered "common
carriage" by the FCC, was designed to serve the mobile public
The establishment of "private carrier" systems allows a third-
party entrepreneur to make a profit from a mobile communications
system. Services are provided by SMR systems to a number of
different commercial entities, or "end users," which use the system
for their communications needs. Because users do not have to
invest in the base station, SMR service is available to individuals
and small businesses. Services include but are not limited to
dispatch, private voice and data networks, paging and telephone
interconnect. Essentially, an SMR is an individual or company's
internal mobile communication network. Unlike cellular, SMR does
not adhere to one equipment standard or protocol. Currently, two
major equipment manufacturers, Motorola and E.F. Johnson dominate
the industry, each with its own protocol. Sophisticated switching
necessary to facilitate wide-area SMR systems allows dissimilar
systems to communicate with each other through the use of digital
technology, allowing individual SMR operators to build wide-area
networks through roaming agreements.
Typical SMR users are businesses in need of communication with
large or small groups of employees on the road, especially those in
fleet sales and service operations. Categories of users include
transportation, real estate, construction, security services,
plumbing and electrical contractors, delivery services, taxi and
limousine services, government agencies (such as public safety,
hospital, general government agency field operations), mining
operations and messenger services.
Government Regulation:
- ---------------------
The Company is currently subject to regulation under the
Federal Communications Commission (FCC) as defined in the Code of
Federal Regulations (CFR) for wireless services. The licensing,
construction, operation, sale, interconnection arrangements and
acquisitions of SMR Systems are regulated by the FCC. FCC
approvals will be required prior to completion of an acquisition of
any such SMR license which could cause a delay. The FCC approves
issuance of licenses for an operating period of 5 years. Prior to
expiration, the licensee must submit an
13
<PAGE>
application for renewal of the license evidencing that the licensee
has been complying with the FCC rules and regulations. While there
can be no assurance that such renewal of the license will be
granted, historically such licenses have been renewed, provided
that compliance with the FCC rules and regulations for the
operation of the facilities has occurred. New SMR licenses must be
constructed and operational within a set time limit otherwise the
license expires and reverts back to the FCC for public auction.
The construction, operation and acquisition of SMR, Satellite
Teleport and Long Distance systems in the United States are all
regulated by the FCC under the Telecommunications Act of 1996, the
Communications Act of 1934, as amended (the "Communications Act")
and pursuant to the FCC's rules and policies. The FCC has
promulgated rules and regulations regarding, among other things,
applications to construct and operate these systems, applications
to transfer control of or assign licenses and systems. The FCC has
allocated a specific number of frequencies in the 800 and 900 MHz
bands for SMR systems in each metropolitan area and issue licenses
to the extent frequencies are available.
Under the Communications Act, SMR systems (and certain paging
and microwave systems, such as those operated by the Company) are
regulated as private carriers and therefore, are subject to less
stringent regulation, both by the FCC and the individual states,
than common carriers. Common carriers are public utilities and
must provide service, under the same terms and conditions, to any
subscriber requesting it. As private carriers, SMR licenses and
private carrier paging and microwave licenses do not file tariffs
and may decline to serve certain subscribers, and may negotiate
different prices for "like" services.
Employees and Consultants:
- -------------------------
As of the date of this filing, the Company and its wholly
owned subsidiary AWN employs a total of two (2) persons on a full
time basis: James Krejci, President and Chief Executive Officer of
the Company and AWN and Mike Bunch, the Controller and Account
Manager for the Company and AWN. Gordon Dihle is employed by the
Company on a part time as needed basis.
The Company periodically retains outside consultants such as
attorneys, accountants, engineers, technicians and industry
consultants to perform certain corporate administrative tasks and
specific SMR related maintenance or build-out projects.
Wireless Industry:
- -----------------
The wireless communications industry, which includes services
such as cellular, SMR, paging, and others, is one of the fastest
growing industries in the world. The Company currently offers
mobile communications services consisting of basic two-way
dispatch. Analog SMR network systems are capable of providing
voice and data services on a single system.
Pricing for SMR service is normally based on a flat monthly
fee for unlimited unit-to-unit communications.
The Company's success depends on its ability to compete with
other wireless communications providers, including cellular mobile
telephone operators and established SMR operators, in each of its
existing and proposed markets.
Existing cellular and SMR operators in the Company's operating
territories have been in operation for a number of years, and have
significant customer bases. In addition to their entrenched market
position, these operators have available significantly greater
financial and other
14
<PAGE>
resources than those available to the Company. Larger SMR
companies are currently converting to all digital formats, which
require current subscribers to purchase digital radio equipment or
find another analog system provider. The competition for new SMR
subscribers within the Company's operating territories may also
include Nextel Communications and/or other independent SMR regional
operators. Nextel Communication is the largest wireless SMR company
in the nation. The Company also faces possible competition for
digital mobile service from other radio operators for channels that
may be allocated by the FCC in the future and operators of new
wireless communications technologies such as personal
communications systems ("PCS").
ITEM 2. DESCRIPTION OF PROPERTY
Corporate Office:
- ----------------
AWN leases approximately 2000 square feet of executive office
space at 9350 East Arapahoe Road, Suite 340, Englewood, Colorado.
The office lease extends to November 30, 2000. All corporate,
administrative, accounting and operational functions are carried
out from the corporate headquarters. The Company shares offices
with AWN. As a result of recent employee reductions, this lease
space is only thirty percent utilized and more than adequate for
the Company's current needs.
SMR Tower Sites:
- ---------------
Description of AWN's Systems:
The following information represents a facility description of
the 900 MHz channel tower sites acquired from SMR Direct, Inc.
(Centennial Communications Corp.) on December 5, 1997. All the
sites are leased tower space sites.
All seven MTA's are constructed using EF Johnson Viking VX 900
MHz repeaters. The vast majority of the transmit combining systems
are manufactured by TX-RX Systems Inc. Receive combining is
accomplished with Celwave RMC900-10K multicouplers and tower top
amplifiers. Transmit forward and reflected power is monitored with
the Decibel Products 8860 Sentry. All systems can be contacted via
port switch and modem.
Birmingham, Alabama
Three tower sites, WMJJ, Oak Mountain and Ruffner Tower.
New Orleans, Louisiana
Three sites located downtown on Plaza Tower, Slidell and in
LaPlace.
Oklahoma City, Oklahoma
One site located downtown on the Liberty Tower.
Tulsa, Oklahoma
One site located on the Bank IV building in the downtown
business district.
15
<PAGE>
Memphis, Tennessee
Two sites, one system north of downtown and another in German
Town.
Knoxville, Tennessee
One site on Sharps Ridge.
Nashville, Tennessee
Two sites located on the North and South ends of the city in
rural areas.
The capacity of the sites to carry users (customers) is only
utilized to approximately ten percent of capacity. AWN is
undertaking a campaign to market the SMR service on a wholesale
basis to local dealers or on a joint venture basis with entities
who would have the potential to utilize the systems to a much
greater extent.
ITEM 3. LEGAL PROCEEDINGS
During the fiscal year ended June 30, 1997, legal counsel for
DLC Associates, Inc. noticed the Company that DCL Associates, Inc.
and other parties to the DCL options agreement considered the
Company to be in default if its obligations under the option
agreements. On August 7, 1997 the Company filed a Complaint for
declaratory relief and damages in United States District Court for
the District of Colorado, Denver, Colorado, Case 97-1685 seeking a
court ruling that option agreements entered into by and between the
Company and the Defendants, consisting of DCL Associates, Inc. and
thirty three additional Defendants are legal, valid and enforceable
agreements. The suit involved a dispute concerning the continuing
validity of an agreement by the Company executed August 6th, 1996
wherein the Company obtained options to purchase 1389 EIW channels
and 1046 non-EIW channels from DCL Associates, Inc. and the thirty
three additional Defendants ("the DCL options"). The August 6,
1996 agreement was recorded as a purchase of license rights by the
Company. The Defendants filed an answer and counterclaim March
30th, 1998 denying that the option agreements, subcontract
agreement and management agreement entered into by the Defendants
and the Company remained valid and further alleging failure of
performance, failure of consideration and inequitable conduct on
the part of the Company. The Defendants counterclaim alleged that
the Company refused and failed to register securities issued to the
Defendants, breached post transaction payment obligations,
manipulated and inflated the bid price of its stock and failed and
refused to pay the final installment of the option price. The
entire DCL option transaction and associated litigation was
terminated by a mutual release and legal settlement on June 22,
1998. The opportunity to purchase to DCL licenses for $925,000
cash as provided by the settlement agreement expired on July 1,
1998. In the settlement, all of the stock previously issued to DCL
Associates, Inc. by ComTec in payment of such options, consisting
of 1,361,786 common shares (including 662,786 common shares issued
in exchange for 39,767 shares of Series C Preferred Stock) has been
returned to ComTec and cancelled. The Company had issued 39,767
shares of Series C Preferred Stock with a stated value of $10.00 in
connection with the DCL options acquired per the closing agreement
dated August 6, 1996, these shares were converted to 662,786 shares
of common stock pursuant to the DCL option agreement. DCL's
representative had previously refused tender of the 662,786 common
shares. The net result of the entire transaction in retrospect is
the loss of the actual cash paid to DCL Associates of approximately
$150,000. ComTec has no further interest or claim to the DCL
options or assets associated therewith.
In July, 1997 an Adverse Summary Judgment and Decree in
Foreclosure was issued against the Company's wholly owned
subsidiary CCI Real Estate, Inc. which as of the current date
16
<PAGE>
eliminated any equity or ownership by the Company of Real Estate
located at 10855 East Bethany Drive, Aurora, Colorado. In the case
of Sunset Life Insurance Company of America vs. CTI Real Estate,
Inc. Arapahoe County District Court, Case No. 96 CV 741, the Court
issued an order dated July 18, 1997 entering summary judgment and
decree in Foreclosure against CTI Real Estate, Inc., a subsidiary
of ComTec International, Inc. This suit, a foreclosure action on
the Company's building at 10855 East Bethany Drive, Aurora, Co. was
filed in September 1996 in the District Court for Arapahoe County,
Colorado. Sunset Life Insurance Company had previously sought and
obtained the appointment of a receiver to manage the Company's
Building. This suit was consolidated with 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. A notice of Sheriff's sale dated August 11,
1997 set a Sheriff's sale for September 23, 1997 in Littleton,
Colorado. The sale was held and CTI Real Estate, Inc.'s redemption
period has expired. The Company was unable to sell or redeem the
property and all real estate equity was lost.
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 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
On March 28, 1997 and pursuant to definitive proxy
solicitation materials under Regulation 14A of the Securities
Exchange Act of 1934, as amended, the Company conducted an annual
Meeting of Stockholders (the "Meeting"). The results of the
shareholder meeting were reported in the 10QSB for the period March
31, 1997.
On August 26, 1998, pursuant to a call for a special
shareholders meeting by shareholders owning more than 10% of the
Company's common stock and presented to the shareholders by a
notice and proxy mailed by the Company's independent transfer agent
on August 11, 1998, a special election of the shareholders of the
Company was held with the following proposed purposes:
1. Remove Donald G. Mack from the Board of Directors for cause
2. Remove Daniel Melnick from the Board of Directors
3. Elect James J. Krejci to the Board of Directors
4. Elect Gordon D. Dihle to the Board of Directors
The necessary quorum of shares were voted at the special
meeting. On the date of the election there were 39,626,718 shares
of .001 par value common stock outstanding. The results of the
election were as follows:
17
<PAGE>
Remove Donald G. Mack from the Board of Directors for cause
Votes for: 30,762,644 Votes against: 10,317 Abstain: 700
Remove Daniel Melnick from the Board of Directors
Votes for: 30,803,034 Votes against: 100 Abstain: 700
Elect James J. Krejci to the Board of Directors
Votes for: 30,803,034 Votes against: 0 Abstain: 800
Elect Gordon D. Dihle to the Board of Directors
Votes for: 30,753,364 Votes against: 53,571 Abstain: 4,899
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. James J. Krejci and Gordon D. Dihle were
elected to the Company's Board of Directors until the next annual
meeting of the Shareholders. The results of the special shareholder
meeting were previously reported in the 8K filed September 3, 1998.
No matters have been submitted to the shareholders since the
August 26, 1998 meeting.
18
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON STOCK EQUITY AND RELATED STOCKHOLDER
MATTERS.
(a) Market Information.
The principal market of the Company's common stock, its only
trading class of equity securities, is the OTC Bulletin Board over-
the-counter market. The Company's common stock currently trades
under the symbol YRLS.
On December 26, 1997, the Board of Directors, pursuant to
shareholder approval granted at the annual meeting of shareholders
held on March 28, 1997, voted to approve a one for five (1:5)
reverse stock split of the Company's $.001 par value common stock
effective January 31, 1998. Financial information contained in this
report has been restated to reflect this split. The number of
shares issued at June 30, 1997 after giving effect to the reverse
split was 14,556,537 common shares (72,782,686 common shares before
the reverse split). All share and per share data is stated to
reflect the reverse split.
The following table indicates the quarterly high and low bid
market price ranges of the Company's common stock in the over-the-
counter market on the Electronic Bulletin Board for the fiscal
years ended June 30, 1996 and June 30, 1997, as reported by the
NASDAQ section of the National Association of Securities Dealers,
Inc., registered broker-dealers who have regularly been making a
market in the Company's common stock and/or information derived
from confirmations of sales and/or purchases by individuals. The
information supplied represents quotations between dealers that
does not include retail markups, markdowns or commissions, actual
transactions and any adjustments for stock dividends.
The following chart is made considering the effect of the one
for five reverse stock split effective January 31, 1998 and rounded
to nearest full penny for presentation purposes only.
Bid Bid
High($) Low($)
------- ------
Fiscal 1997:
First Quarter: July 1, 1996
through September 30, 1996 $5.00 $0.94
Second Quarter: October 1, 1996
through December 31, 1996 $5.00 $1.25
Third Quarter: January 1, 1997
through March 31, 1997 $1.72 $.45
Fourth Quarter: April 1, 1997
through June 30, 1997 $1.05 $.33
Fiscal 1996:
First Quarter: July 1, 1995
through September 30, 1995 $4.40 $1.55
Second Quarter: October 1, 1995
through December 31, 1995 $2.20 $1.25
Third Quarter: January 1, 1996
through March 31, 1996 $1.90 $.65
Fourth Quarter: April 1, 1996
through June 30, 1996 $1.25 $.30
The Company has at various times indicated that it proposes to
have its Common Stock listed on NASDAQ Small Cap market or on a
regional exchange as soon as practical. NASDAQ Small Cap Market
approval requires among other criteria, a minimum bid price of
$4.00 per share. The Company currently does not meet this
requirement.
19
<PAGE>
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 28, 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.
The following amendment to the Articles of Incorporation was
adopted by the Shareholders of the corporation on March 28, 1997 in
the manner prescribed by the New Mexico Business Corporation Act:
V. Article 5(A) of the articles of incorporation
is hereby amended to read in its entirety as follows:
A) Authorized Shares: The aggregate number of
shares which the corporation shall have authority to
issue is 110,000,000 shares. One Hundred Million
(100,000,000) shares shall be designated "Common Stock",
and shall have a par value of $.001. Ten Million
(10,000,000) shares shall be designated "Preferred
Stock", and shall have a par value of $.001 per share,
and shall be issued for such consideration, expressed
in dollars, as the Board of Directors may from time
to time, determine.
(b) Holders:
As of September 10, 1998 the approximate number of holders of
record of shares of the Company's common stock, $.001 par value per
share, the Company's only class of trading securities, was believed
by management to be as follows:
Title of Class Number of Record Holders
-------------- ------------------------
Common Stock, $.001 par 602
(c) Dividends:
The Company has paid no dividends during this fiscal years
ended June 30, 1996, June 30, 1997 or to the present date. Other
than the requirements of the New Mexico Business Corporation Act
that dividends be paid out of capital surplus only and that the
declaration and payment of a dividend not render the Company
insolvent, there are no restrictions on the Company's present or
future ability to pay dividends.
The payment by the Company of dividends, if any, in the future
rests within the discretion of its Board of Directors and will
depend, among other things, upon the Company's earnings, its
capital requirements and its financial condition, as well as other
relevant factors. There is no current plan to pay dividends.
Unregistered shares issued
- --------------------------
The following shares of the Company's .001 par value common
stock were issued without registration to the named entities during
the Fiscal Year Ended June 30, 1997 which the Company believed to
be exempt from registration requirement as a nonpublic offering.
20
<PAGE>
<TABLE>
<CAPTION>
Number of
Date Shares Issued To Consideration
- ------- --------- ---------------------------- --------------------
<S> <C> <C> <C>
10/7/96 16,965 Mitchell B. Chi Consultant Services
10/7/96 5,000 David Calvert Jr. Repair Services
10/7/96 20,000 Proxhill Marketing, Ltd. Fees
10/7/96 13,400 Steven Zapiler & Associates Legal Services
10/7/96 2,286 Thomas Clausen Cash
10/7/96 5,000 Joseph M. Korshansky Cash
10/7/96 3,401 Novum Consulting Group, LLC Consulting Services
10/7/96 4,762 Allen Communications, Inc. Consulting Services
10/7/96 12,500 GEB Associates, Inc. Consulting Services
10/7/96 139,000 DCL Associates, Inc.
(transaction reversed) Acquisition
12/6/96 2,500 Don Lacour Cash
12/6/96 3,572 Greg Nastri Cash
12/6/96 3,572 Dick Stevens Cash
12/6/96 11,400 Bill Hallier Cash
12/6/96 10,000 Keith Fontenot Cash
12/6/96 7,000 Richard Durr Cash
12/6/96 10,000 Dave Bratton Cash
12/6/96 3,000 Robert Murry Cash
12/6/96 16,129 April Mack Cash
12/6/96 24,000 Karen Clausen Cash
12/6/96 2,500 Charanjit Manhas Cash
12/6/96 4,445 Richard and Rachel Perrot Cash
12/6/96 4,000 Shirley Marie Groner Cash
12/6/96 49,177 Richard Ellis Cash
12/6/96 5,000 Steve Brodsky Services
12/6/96 1,429 Steve Brodsky Services
12/6/96 2,000 Steve Brodsky Services
12/6/96 2,500 Steve Brodsky Services
12/6/96 331,425 Clifford S. Perlman Services
12/6/96 138,766 Donald G. Mack Services
12/6/96 2,500 Edward Jaffee Acquisitions
2/12/97 236,870 Premier Financial
Services, Inc. Consulting Services
2/12/97 12,384 Dennis Coyle Cash
2/12/97 10,000 Robert Leaventhal Cash
2/12/97 48,000 Thomas Moscariello Consulting Services
2/12/97 64,000 Robert Clausen Consulting Services
2/12/97 35,000 Clifford S. Perlman Consulting Services
2/12/97 35,000 Donald G. Mack Consulting Services
2/24/97 662,786 DCL Associates, Inc.
(transaction reversed) Acquisition
3/28/97 296,425 Clifford S. Perlman Consulting Services
3/28/97 131,588 Donald G. Mack Consulting Services
3/28/97 8,635 Dihle & Co., P.C. Consulting Services
3/28/97 77,300 Gordon E. Beckstead and
Associates, Inc. Consulting Services
3/28/97 9,059 Mitchell Chi Consulting Services
3/28/97 36,000 Donald Smith Consulting Services
3/28/97 54,400 Donald G. Mack Consulting Services
21
<PAGE>
<CAPTION>
Number of
Date Shares Issued To Consideration
- ------- --------- ---------------------------- --------------------
<S> <C> <C> <C>
3/28/97 53,572 Frank Glinton Referral Service
3/28/97 3,950 Gordon E. Beckstead and
Associates, Inc. Exchange for AWN
shares
3/28/97 15,600 Gordon E. Beckstead and
Associates, Inc. Exchange for AWN
shares
3/28/97 10,450 The Mack Family Trust Exchange for AWN
shares
3/28/97 2,958 Robert Clausen Expense Reimbursement
3/31/97 7,988 PCS Consultants, Inc. Consulting Services
5/23/97 5,435 Dihle & Co., P.C. Consulting Services
5/23/97 10,000 Donald G. Mack Reimbursement
5/23/97 10,000 Clifford S. Perlman Reimbursement
6/9/97 11,200 Novum Consulting Group, LLC Consulting Services
6/9/97 3,520 Novum Consulting Group, LLC Consulting Services
6/9/97 1,280 Novum Consulting Group, LLC Consulting Services
6/9/97 17,463 Steve Brodsky Consulting Services
</TABLE>
Unregistered Shares Issued pursuant to Regulation S during the year
- -------------------------------------------------------------------
ended 6/30/97.
- -------------
As last reported on Form 8K filed April 7, 1998, 4,242,923 of
the Company's .001 par value common stock were issued June 30, 1997
to entities not residents of the United States of America pursuant
to Regulation S. All of the total 4,242,923 shares of .001 par
value common stock were issued to entities organized outside of the
United States of America and entities and persons who are not
residents of the United States of America.
Unregistered Warrants Issued pursuant to Regulation S during the
- ----------------------------------------------------------------
year ended 6/30/97.
- ------------------
As last reported on Form 8K filed April 7, 1998, 4,242,923
warrants to purchase the Company's .001 par value common stock were
issued June 30, 1997 to entities not residents of the United States
of America pursuant to Regulation S. All of said 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.
All of the total 4,242,923 warrants were issued to entities
organized outside of the United States of America and entities and
persons who are not residents of the United States of America.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR 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,
22
<PAGE>
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-KSB 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 emphasis is on basic
two-way communications services and activities. The Company has
been and continues to be in the development stage. The Company
has yet to commence its principal planned operations 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.
During the fiscal year ended June 30, 1997 and through the
present the Company continued as a developmental stage entity
focused on developing its wireless SMR business plan started in
1993 through the efforts of Keystone Holding Company. Prior to
October, 1997 activities had been concentrated on creating and
developing the Company's strategic business plan, raising private
financing, efforts to acquire other entities and operations,
developing a management and support staff to execute its business
plan, 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 and operation of thirteen operating American Wireless
Network systems located in seven southeastern U.S.A. Metropolitan
Trade Areas.
American Wireless Network, Inc. a wholly owned subsidiary of
the Company was incorporated under the laws of the State of
Colorado on December 3, 1996. to act as the wireless communications
operating entity for the Company. Authorized capital is 25,000,000
shares of non par common stock and 5,000,000 shares of no par value
preferred stock. AWN is focused on the SMR portion of the
telecommunications industry.
Current Status and Operations
- -----------------------------
On 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.
lay 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
23
<PAGE>
management of the wireless communications assets and associated
business previously owned by Centennial Communications Corp.
serving the above locations. All markets are in the top 100 of
U.S. Cities and local economies seem to be experiencing strong
rapid growth.
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 for each
customer who contracts to 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 market the
SMR service on a wholesale basis to local dealers or on a joint
venture basis with entities who would have the potential to utilize
the systems to a much greater extent.
Pricing for SMR service is based on a flat monthly fee for
unlimited unit-to-unit communications. SMR operators must convince
small business users of the significant cost savings from the
conversion from cellular to SMR. SMR systems offer many features
and services that cellular carriers do not. For example, SMR end-
users have the option of configuring a system allowing them to talk
with an individual, such as the head of security, turn a button and
talk with one or more groups of people, such as a sales force or
fleet of service vehicles and then turn that same button again and
talk with everyone on the entire network. Another important
advantage of SMR over cellular is that SMR service generally costs
the business user considerably less than cellular in both dispatch
and interconnected modes. Essentially, an SMR is an individual or
company's internal mobile communication system.
The Company's success depends on its ability to compete with
other wireless communications providers, including cellular mobile
telephone operators and established SMR operators, in each of its
existing and proposed markets.
Existing cellular and SMR operators in the Company's proposed
operating territories have been in operation for a number of years,
and have significant customer bases. In addition to their
entrenched market position, these operators have available
significantly greater financial and other resources than those
available to the Company. Larger SMR companies are currently
converting to all digital formats, which require current
subscribers to purchase more expensive digital radio equipment or
find another analog system provider. The competition for new SMR
subscribers within the Company's operating territories may also
include Nextel Communications and/or other independent SMR regional
operators. The Company also faces possible competition for
channels that may be allocated by the FCC in the future as well as
from operators of new wireless communications technologies such as
personal communications ("PCS").
In the past, the Company has executed some of these activities
through wholly owned subsidiaries, which have been dissolved. The
Company now operates through one entity - American Wireless
Network, Inc.
24
<PAGE>
Year 2000 Compliance: The year 2000 issue is the result of a
antecedent method writing computer programs which used only two
digits rather than four digits to define the year. Any of the
Company's computer programs that have date sensitive software may
recognize a date using "00" as the year 1900 rather than the year
2000. This problem could cause computers to either shut down or
provide incorrect data or information. The Company utilizes
generic software programs developed, maintained and upgraded by
independent computer software providers. In response to the year
2000 issue, management is of the opinion that the providers of
these software programs will resolve the date sensitive issue so
that all critical systems will be in compliance prior to the year
2000. The Company does not anticipate any material adverse impact
on its business.
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.
The Company previously disclosed an agreement initiated in the
quarter ended March 31, 1996 for the acquisition of a 61% majority
interest in Network Teleports, Inc. ("NTI") from certain
shareholders. During the year ended June 30, 1997, the agreement
was terminated, which resulted in a loss to the Company of
approximately $318,400 consisting of the $25,000 deposit and
equipment with a net book value of $293,400 The loss has been
charged to current operations. The escrowed shares were cancelled
by mutual consent of the parties. The "Sellers" have retained a
$25,000 deposit made by the Company as well as certain equipment
provided by the Company. The proposed NTI transaction is defunct.
As of June 30, 1996, the Company reported that it controlled
management option agreements on 185 SMR licenses obtained through
the Omni-Range acquisition, some of which were partially
constructed. Company defaulted on its payment obligation for the
channels since the original compensation involved a subordinated
mortgage on a building previously held by the Company which
building transferred to the original lien-holder in foreclosure
proceedings cumulating in December, 1997. The Company has
forfeited any rights to the Omni-Range channels.
On August 6, 1996 the Company acquired option agreements to
manage 1,380 800 MHz SMR channels in 20 states from a group of 34
associated licenses ("the DCL options). The August 6, 1996
agreement was recorded as a purchase of license rights by the
Company at a purchase price of $1,597,000 in the Company's
September 30, 1996 10QSB and subsequently increased with subsequent
stock issuances. Subsequent to the year ended June 30, 1997 the
Company entered into litigation with the option grantor over the
continuing validity of the option agreements. The entire DCL
option transaction and associated litigation was terminated by
legal settlement on June 22, 1998. The opportunity to purchase to
DCL licenses for $925,000 cash as provided by the settlement
agreement expired on July 1, 1998. In the same settlement, all of
the stock previously issued to DCL Associates, Inc. by ComTec in
payment of such options, consisting of 1,361,786 common shares
(including 662,786 common shares issued in exchange for 39,767
shares of Series C Preferred Stock) has been returned to ComTec and
cancelled. The net result of the entire transaction in retrospect
is the loss of the actual cash paid to DCL Associates of
approximately $150,000. ComTec has no further interest or claim to
the DCL options or assets associated therewith. [SEE ITEM 3 LEGAL
PROCEEDINGS]
In the 10QSB for the period ended 9/30/96 the Company
discussed a pending acquisition agreement with GPS Communications,
Inc. ("GPSI"). GPSI is a private company which had an uncompleted
arrangement with the Company to sell all its patents and
intellectual rights on three
25
<PAGE>
commercial products which use the federally owned tracking system
called Global Positioning Satellite (GPS). The Company withdrew
from its letter of intent as a result of failures to reach mutually
satisfactory agreements.
In the 10QSB for the period ended 9/30/96 the Company
discussed a pending acquisition agreement with Telecosm &
Associates L.C. ("Telecosm"). Telecosm is a Limited Liability
Company which had an uncompleted arrangement with the Company to
sell to the Company option and management agreements covering 2,199
licenses. This arrangement has expired without any transaction
occurring.
In the 10QSB for the period ended 9/30/96 the Company
discussed a pending acquisition agreement with Commercial
Communications, Inc. ("CCI"). CCI is a private corporation whose
primary business was providing SMR two-way dispatch services. The
proposed purchase of the CCI system was never completed and the
transaction failed. There is no pending transaction with CCI.
In the 10QSB for the period ended 9/30/96 the Company
discussed a pending acquisition agreement with three undisclosed
companies (due to nondisclosure agreements). None of these
proposed transactions occurred and all letter of intent agreements
have expired. There are currently no outstanding letters of intent
to acquire any operations. During prior reporting periods the
Company has entered into letters of intent to acquire (subject to
various contingencies) a number of different entities including
Direct Comm, Inc. and Worland Communications, Inc. all of these
proposed transactions have failed, for reasons including failure to
meet financial commitments by the Company or disputes as to terms
and other conditions. Any deposits made by the Company have been
forfeited.
In December 1995, the Company entered into a three (3) year
media purchase agreement for $1,950,000, which was partially
prepaid through the issuance of 1,040,000 common shares at $ 1.25
per share ($1,300,000). As the advertising was utilized, the
Company was to pay one third of invoice and two thirds would be by
the advertising media's responsibility. The Company also granted
the advertiser an option to acquire 200,000 common shares at $ 1.25
per share. The option expires in the year 2000. During the year
ended June 30, 1997, management determined the media agreements had
no continuing value and charged current operations for the
outstanding balance. The common stock issued and unexpired option
remain outstanding.
During the year ended June 30, 1997, land and buildings
located in Parker, Colorado and Aurora Colorado with a net book
value $1,867,500 were foreclosed upon. The foreclosures resulted
from litigation for non-performance. As a result of the
foreclosures, the Company recognized a gain of $400, which was
credited to operations. [SEE ITEM 3 LEGAL PROCEEDINGS] The gain was
determined as follows:
Debt assumed at foreclosure $1,867,500
Less net book value of real property 1,867,100
----------
Gain on foreclosures $ 400
==========
(b) Management's Discussion and Analysis of Financial Condition
and Results of Operations.
The Company reported a net loss of $5,115,300 for the year
ended June 30, 1997 and has reported net losses of $8,675,000 from
inception (March 15, 1994) to June 30, 1997. As reported on the
consolidated statements of cash flows, the Company incurred
deficient cash flows from operating
26
<PAGE>
activities of $1,593,200 for the year ended June 30, 1997 and has
reported deficient cash flows from operating activities of
$2,229,300 from inception (March 15, 1994) to June 30, 1997 and had
deficient working capital at June 30, 1997 of $1,091,200. As of
June 30, 1997, the Company reported deficient equity of $775,700.
To date, these losses and cash flow deficiencies have been financed
principally through the sale of common stock and warrants
($1,168,900) and issuance of short and long-term debt ($2,835,500)
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 would continue. The Company is highly leveraged and a
number of developments over the past year had material adverse
effects on the Company. The Company has a significant investment
in license rights, the recoverability of which is dependent upon
the success of future events.
AWN has acquired (December 5, 1997) management control of 160
channels of 900 MHz Metropolitan Trade Area licenses, principally
in the Southern and Western United States. It is the intent of the
Company's management that meaningful operations could 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, develop a
wholesale market in analog SMR. As part of its plan to resolve the
lack of liquidity, the Company issued approximately 2,083,300
common shares at $ .48 per share to liquidate the $ 1,000,000
convertible debenture. The Company's inactive or dispossessed
subsidiaries are principally in the telecommunication business
except for AmNet, which held real property. The real property was
foreclosed during the year ended June 30, 1997. 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.
From September 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
$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 June 30, 1997, the
audited results of the Company indicated assets of $1,321,000 and
deficit working capital of $1,091,200. 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 acquire 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.
The Company is currently in discussions with one or more
entities for lease financing, sale and leasebacks as well as
private debt and equity financing package(s).
27
<PAGE>
Results of Operations:
- ---------------------
Fiscal Year Ended June 30, 1997
For the year ended June 30, 1997 the Company recorded a net
loss of $5,115,300 and a net loss per common share of $0.58. As of
June, 30 1997 the Company incurred direct expenses of $2,634,100
associated with the administration and limited operations of the
Company. From the period of July 1, 1996 to June 30, 1997 the
Company's management incurred general and administrative expenses
of $2,634,100 an increase of $381,300 from similar expenses
incurred during the year ended June 30, 1996. The major expenses
incurred were officers compensation of $980,300, consulting fees of
$167,000 and interest expense of $96,600. The Company had ancillary
income of $51,800 from rents, interest and other sources. No
revenues were generated in the Company's SMR communications
business. Losses associated with discontinued operations in
prepaid phone card sales (TTI Communications, Inc.) totaled
$514,800. Writeoffs of investment in International Media Group,
Ltd., of $124,500, Network Teleport, Inc. of $293,400 and the DCL
Associates SMR license options of $150,000 constituted the bulk of
the loss from foreclosures and disposal of assets which totaled
$621,600. Write down of "prepaid media credits" to zero totaled
$1,300,000 of additional recorded loss for the period.
As of June 30, 1997 the Company reported $514,800 of losses in
TTI Communications, Inc. The Company disposed of its interest in
TTI Communications, Inc. in December, 1997. TTI Communications,
Inc. and the Company remain in litigation as defendants with
respect to vendor claims for long distance charges.
Fiscal Year Ended June 30, 1996
As of June 30, 1996 the Company incurred direct expenses of
$2,465,920 associated with the execution of its business plans in
the communications industry. From the period of July 1, 1995 to
June 30, 1996, the Company's management incurred general and
administrative expenses of $2,272,796, a 116% increase from similar
expenses incurred during 1995. The major expenses incurred were
officer's compensation of $1,843,987, support staff salary of
$34,064, and costs associated with the foreclosure and receivership
action further described below.
During January 1996, the Company was subject to a foreclosure
and receivership action by a creditor involved with the purchase of
the Company's property in Aurora, Colorado, former consultants and
then current officers (SEE ITEM 3. LEGAL PROCEEDINGS.) The
receivership action was dismissed by the Court after five days and
resulted in all accounting and confidential records confiscated
being returned to the Company in varying levels of disorganization.
In addition, through this action, the Company lost key officers who
were in the process of developing and executing its strategic
business plan and overseeing various support and accounting
functions. This failed action required the Company to, (1) hire
additional staff to reorganize the accounting and business records,
(2) reassemble a senior management team to continue the execution
of the Company's business plan and (3) renegotiate terms with
companies to be acquired or in the process of being acquired by the
Company. As of June 30, 1996 the Company was still in the process
of re-entering and auditing information during this period and
completing various SEC 1995 and 1996 reports required and out of
compliance until August 1996. Management believes this action
resulted in many one time costs being reflected in the fiscal year
ended June 30, 1996 associated with legal and accounting fees
($159,292), contract accounting services ($42,740), executive
placement fees ($18,000), consulting and management fees ($11,032),
new computer systems ($8,758) and other direct costs such as
printing and office supplies. Additional costs indirectly
associated with this action was, (1) the loss of escrowed cash for
one acquisition (see below, "Mobile One Communications"), (2)
delays in meeting closing obligations on many targeted operating
SMR
28
<PAGE>
companies, (3) delays in starting the required construction of the
Company's radio licenses under management contract with third
parties and (4) time associated with the recruiting and debriefing
of new senior executives.
On July 31, 1995, the Company entered into a written agreement
with Mobile One Communications, Inc. ("MOC"), a Colorado
corporation wherein MOC granted the Company the exclusive right and
option to acquire SMR licenses and equipment and manage said
licenses during the four month option period ended November 30,
1995. The purchase price for the licenses and equipment was
$625,000 inclusive of 300,000 shares of the Registrant's common
stock valued at $.75 per share or an aggregate of $225,000. The
Company paid $50,000 to MOC for this option which expired on
November 15, 1995. The Company defaulted in its obligations under
the agreement with MOC and the escrow cash has been released to
Mobile One Communications, Inc. A $50,000 charge to operations has
been recorded as of June 30, 1996 in connection with this failed
acquisition. The stock issued for the transaction has been
canceled.
ITEM 7. FINANCIAL STATEMENTS
Financial statements meeting the requirements of Item 310 of
regulation S-B, for the years ending June 30, 1996 and June 30,
1997 have been audited by Ehrhardt, Keefe, Steiner and Hottman,
P.C., and Hixson, Marin, Powell & De Sanctis, P.A. respectively,
and are annexed as a separate section to this Report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On October 3, 1994, the Company engaged Hollander, Gilbert &
Co., Los Angeles, California ("Hollander, Gilbert"), as the
Company's independent accountants. Prior to the engagement of
Hollander, Gilbert, the Company did not consult with Hollander,
Gilbert regarding the application of accounting principles to a
specified transaction, either completed or proposed, or the type of
audit opinion that might be rendered on the Company's financial
statements.
Effective July 20, 1995, the Board of Directors of the Company
dismissed Hollander, Gilbert & Co.. The report of Hollander,
Gilbert & Co. for the year-end June 30, 1994 contained a
modification as to the Company's ability to continue as a going
concern. During the year end of June 30, 1994, and the subsequent
interim period, there was no disagreement with Hollander, Gilbert
& Co. 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
Hollander, Gilbert & Co. as the Company's independent accountants
due to the Company's relocation and change in senior management.
Effective July 20, 1995, the Company retained Michael B.
Johnson, Englewood, Colorado as its independent accountant
("Johnson"). During the Company's two most recent fiscal years, and
the interim period since completion of its last fiscal year, the
Company had not consulted Johnson with respect to the application
of accounting principles to a specified transaction, the type of
audit opinion that might be rendered on the Company's financial
statements or any matter that was the subject of a disagreement or
reportable event.
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
29
<PAGE>
to the Securities and Exchange Commission in its Form 8-K current
report dated December 15, 1995. During the year end of 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 Company's independent
accountants due to delays in commencing their audit work. During
the Company's 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 Company's
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 Company's 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 of 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 Company's 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 Company's 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.
On July 14, 1997 the Company accepted the resignation of
Ehrhardt, Keefe, Steiner and Hottman as the Company's independent
Certified Public Accountants for the fiscal year ended June 30,
1997. The Company duly reported this change in accountants to the
Securities and Exchange Commission in its Form 8-K current report
dated July 18, 1997. During the year end June 30, 1996 and the
subsequent interim periods, there was no disagreement with
Ehrhardt, Keefe, Steiner and Hottman 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 July 14, 1997 the Company retained Hixson, Marin, Powell &
DeSanctis, P.A. of Miami, Florida as its independent Certified
Public Accountants. During the Company's two most recent fiscal
years, and the interim periods since completion of its last fiscal
year, the Company had not consulted Hixson, Marin, Powell &
DeSanctis, P.A. with respect to the application of accounting
principles to a specified transaction, the type of audit opinion
that might be rendered on the Company's 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 July 18, 1997.
On January 27, 1998 the Company retained Grabau and Company,
P.C. of Denver, Colorado to audit segmented financial statements of
Centennial Communications Corp. and SMR Direct, Inc. Said audit is
in conjunction with the purchase of certain assets of SMR Direct,
Inc. Reported on
30
<PAGE>
Form 8-K dated December 26, 1997. During the Company's two most
recent fiscal years, and the interim periods since completion of
its last fiscal year, the Company had not consulted Grabau and
Company, P.C. with respect to the application of accounting
principles to a specified transaction, the type of audit opinion
that might be rendered on the Company's financial statements or any
matter that was the subject of a disagreement or reportable event.
31
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
(a) Identify Directors and Executive Officers.
The following table sets forth: (1) names and ages of all
persons who presently are directors of the Company; (2) all
positions and offices with the Company held by each such person;
(3) the term or office of each person named as a director; and (4)
any period during which he or she has served as such:
Director Name/Title From To
- ------------------------------- ------------ -------------------
James J. Krejci, 56 August, 1998 Next Annual Meeting
Director, President & CEO
Gordon D. Dihle, 43 October, 1997 May 8, 1998
Director, Secretary & Treasurer
August, 1998 Next Annual Meeting
There is no understanding or arrangement between any directors
or any person or persons pursuant to which such individual was or
is to be selected as a director or nominee of the Company.
Each director is serving a term of office which shall continue
the next annual meeting of Shareholders and until his successor has
been duly elected and qualified. Officers of the Company serve at
the pleasure of the Board of Directors.
Mr. Krejci is currently a member of the board of directors of
Jones Intercable, Inc., a 1934 SEC Act Reporting Company, which has
no relationship or affiliation with the Company.
Business Experience:
- -------------------
The following is a brief account of the experience, during the
past five years, of each director and executive officers of the
Company:
James J. Krejci: Chief Operations Officer of the Company and
President and CEO of American Wireless Network, Inc.
(February, 1998). Director, CEO and President of the
Company (September, 1998).
For the five years preceding Mr. Krejci's appointment as a
Director of the Company. Mr. Krejci was employed as follows:
September 1998 through present: CEO and President of
ComTec International, Inc. and American Wireless Network,
Inc.
February 1998 through August 1998: COO of ComTec
International, Inc. and CEO and President of American
Wireless Network, Inc.
July 1996 through February 1998: CEO and President of
Imagelink Technologies, Inc., a firm involved in the
development and distribution of video conference
equipment.
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May 1994 through February 1996: President -
International Division of International Gaming
Technology, Inc., a firm involved in the development and
distribution of gaming equipment.
May 1985 through May 1994 : President and/or officer of
various subsidiaries of Jones International, Inc.,
including Jones Intercable, Inc.. a 1934 Act Reporting
Company, of which Mr. Krejci has remained and is
currently a director, these firms are involved in
development and distribution of cable television systems
as well as activities ancillary and related to the cable
television business.
Mr. Krejci earned a B.S. in chemical engineering from the
University of Wisconsin in 1964 and a MBA from the University
of Wisconsin in 1970.
Gordon D. Dihle: Chief Financial Officer, Secretary and Director
of ComTec International, Inc. and American Wireless Network,
Inc. (October 1997 to May 1998) and Treasurer, Secretary and
Director of ComTec International, Inc. (September 1998).
For the five years preceding Mr. Dihle's appointment as a
Director of the Company. Mr. Dihle was employed as follows:
January 1992 through September 1997: Dihle & Co., P.C.,
a professional corporation wholly owned by Mr. Dihle
which provides legal, accounting and tax services.
April 1993 through present: Lostwood Farms, Ltd., a farm
corporation wholly owned by Mr. Dihle.
May 1998 through August 1998: Self employed as an
attorney and consultant, including work for ComTec
International, Inc.
Mr. Dihle achieved a B.A. in Accounting and Business
Administration in 1976 at Dickinson State University,
Dickinson, North Dakota, and a J.D. in 1980 at the University
of North Dakota School of Law.
(b) Identification of Certain Significant Employees and
Consultants:
None
(c) Family Relationships:
No family relationships exist between any director or
executive officers of the Company.
(d) Involvement in Certain Legal Proceedings:
No event listed in Subparagraphs (1) through (4) of
Subparagraph (d) of Item 401 of Regulation S-B, has occurred with
respect to any present executive officer or director of the Company
during the past five years which is material to an evaluation of
the ability or integrity of such director or officer.
33
<PAGE>
Compliance With Section 16(a) of the Exchange Act:
- -------------------------------------------------
To the date of this filing and to the best of knowledge of the
Company, no Form 3, Form 4 and/or Form 5 has been filed with the
Securities Exchange Commission (SEC) by any of its officers or
directors. As of the date of this report, the SEC has not taken
any additional action with regard to this failure to file reports
To the knowledge of the Company none of the following persons
who have or had Section 16 filing requirements during the fiscal
year complied with Section 16: Clifford S. Perlman, Donald G.
Mack, Mitchell B. Chi, Robert Clausen, Thomas Moscariello and
Kelsey Kennedy.
ITEM 10. EXECUTIVE COMPENSATION.
(a) General
(1) through (7) All Compensation Covered. During the fiscal
year ended June 30, 1997, the Company employed the following senior
management personnel who served pursuant to employment agreements
further described in Section (g) below.
(b) Summary Compensation Table.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------------- --------------------------------
Name and Position Year Salary Bonus Other SAR Options LTIP Other
- ------------------------ ---- -------- -------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Clifford S. Perlman (g1) 1996 $ 60,000 None None None None $281,949 None
Chairman of the Board 1997 $ 80,000 $130,200 None None None None None
of Directors
Donald G. Mack (g2) 1996 $224,600 None $30,000 None None None None
President and Chief 1997 $171,500 $ 83,294 None None None None None
Executive Officer
Mitchell B. Chi (g3) 1996 $ 84,000 $ 27,000 None None None None None
Chief Operating Officer 1997 $ 17,829 None None None None None None
Thomas Moscariello (g4) 1996 $ 45,000 None None None None None None
VP Sales and Marketing, 1997 $ 31,500 None None None None None None
Secretary
Robert Clausen (g5) 1996 $ 60,000 None None None None None None
Corporate Secretary 1997 $ 54,000 None None None None None None
</TABLE>
(c) Option/SAR Grant Table.
During the fiscal years ended June 30, 1996 and 1997, no
grants of stock options or freestanding SAR's were made by the
Company.
34
<PAGE>
1995 Stock Incentive Plan
- -------------------------
The special meeting of Shareholders of August 8, 1995
increased the 1995 Incentive Stock Option Plan available options
from 100,000 to 600,000 (as adjusted for the January 31, 1998
reverse stock split) common shares and also approved the extension
of the termination date of the Incentive Stock Option Plan from
September 16, 1996 to September 16, 1998. The Incentive Stock
Option Plan (the "Plan"), was originally approved by the Board of
Directors and Shareholders on December 21, 1993. The Plan provides
for the grant to the Company's employees, officers and/or directors
of stock options that qualify as incentive stock options under
Section 422A of the Internal Revenue Code of 1986, as amended. The
Plan provides for the grant of stock options to purchase up to an
aggregate of 3,000,000 shares of common stock. Options may be
granted for terms of up to three years. Options are to be granted
at exercise prices at least equal to the fair market value of the
Company's common stock at the date of grant (110% of the fair
market value in the case of options granted to greater than 10%
shareholders). Options are subject to early forfeiture upon
termination of employment or other relationship with the Company.
There were no options granted during the fiscal year ended June 30,
1997. No options are presently issued or outstanding.
The 1997 Stock Option Plan
- --------------------------
On March 28, 1997 the shareholders of the Company adopted the
1997 Stock Option Plan (the "Plan") reserving an aggregate of
900,000 shares of the Company's Common Stock (the "Available
Shares") for issuance pursuant to the exercise of stock options
("Options") which may be granted to employees, officers, and
directors of the Company and consultants to the Company. The Plan
also provides for annual adjustment in the number of Available
Shares, commencing June 30, 1997, to a number equal to 10% of the
number of shares outstanding on June 30 of the preceding year or
980,000 shares, whichever is greater. The Plan was adopted by the
Board of Directors on February 12, 1997. The Plan is designed to
(i) induce qualified persons to become employees, officers, or
directors of the Company; (ii) reward such persons for past
services to the Company; (iii) encourage such persons to remain in
the employ of the Company or associated with the Company; and (iv)
provide additional incentive for such persons to put forth maximum
efforts for the success of business of the Company.
The Plan will be administered by the Compensation Committee of
the Board of Directors (the "Committee"). Transactions under the
Plan are intended to comply with all applicable conditions of
Rule16b-3 under the Securities Exchange Act of 1934, as amended
(the "1934 Act"). In addition to determining who will be granted
Options, the Committee has the authority and discretion to
determine when Options will be granted and the number of Options to
be granted. The Committee may determine which Options may be
intended to qualify ("Incentive Stock Option") for special
treatment under the Internal Revenue Code of 1986, as amended from
time to time (the "Code") or Non-Qualified Options ("Non-Qualified
Stock Options") which are not intended to so qualify.
The Plan provides that disinterested directors will receive
automatic option grants to purchase 14,000 shares of the Company's
Common Stock upon their initial appointment or election as
directors, and on the date of each subsequent annual shareholders'
meeting in which such director is reelected as a director. Grants
to employee directors and officer/directors can be either Non-
Qualified Stock Options or Incentive Stock Options, to the extent
that they do not exceed the Incentive Stock Option exercise
limitations, and the portion of an option to an employee director
or officer/director that exceeds the dollar limitations of Code
Section 422 will be treated as a Non-Qualified Stock Option. All
options granted to disinterested directors will be Non-Qualified
Options.
35
<PAGE>
This Plan will remain in effect until it is terminated by the
Compensation Committee, except that no Incentive Stock Option will
be granted after January 31, 2007.
The Plan contains provisions for proportionate adjustment of
the number of shares for outstanding options and the option price
per share in the event of stock dividends, recapitalizations
resulting in stock, reverse stock splits or combinations or
exchanges of shares.
Each option granted under the Plan will be evidenced by a
written option agreement between the Company and the optionee. The
option price of any Incentive Stock Option may be not less than
100% of the Fair Market Value per share on the date of grant of the
option; provided, however, that any Incentive Stock Option granted
under the Plan to a person owning more than ten percent of the
total combined voting power of the Common Stock will have an option
price of not less than 110% of the Fair Market Value per share on
the date of grant of the Incentive Stock Option. Each Non-
Qualified Stock Option granted under the Plan will be at a price no
less than 85% of the Fair Market Value per share on the date of
grant, "Fair Market Value" per share as of a particular date is
defined in the Plan as the last sale price of the Company's Common
Stock as reported on a national securities exchange or on the
NASDAQ System or, if none, the average of the closing bid and asked
prices of the Company's Common Stock as reported by NASDAQ or, if
such quotations are unavailable, the value determined by the
Committee in its discretion in good faith.
The exercise period of options granted under the Plan may not
exceed ten years from the date of grant thereof. Incentive Stock
Options granted to a person owning more than ten percent of the
total combined voting power of the Common Stock of the Company will
be for no more than five years.
No options were issued from the 1997 Stock Option Plan during
the year ended June 30, 1997. No options were issued from the 1997
Stock Option Plan to date.
(d) Aggregate Option/SAR Exercises and Fiscal Year-End Option/SAR
Value Table.
No stock options or freestanding SAR's are issued or
outstanding. Accordingly, and during the fiscal year ended June
30, 1997, no stock options or freestanding SAR's were exercised.
Notwithstanding the foregoing, (1) an aggregate of 600,000 shares
of the Company's common stock, $.001 par value per share are
reserved for issuance pursuant to the Company's incentive stock
option plan, as adopted by the Company's Board of Directors in
June, 1995, and ratified and approved by the Company's stockholders
on August 10,1995 and (2) an aggregate of 980,000 shares of the
Company's common stock, $.001 par value per share are reserved for
issuance pursuant to the Company's 1997 stock option plan as
adopted by the Company's Board of Directors on February 12, 1997
and approved by the shareholders on March 28, 1997.
(e) Long-Term Incentive Plan ("LTIP") Awards Table.
During the fiscal year ended June 30, 1995 124,954 shares of
common stock were issued to Mr. Perlman representing five percent
(5%) of the Company's issued and outstanding shares as of June 20,
1995. During the fiscal year ended June 30, 1996 333,334 shares of
common stock were issued to Mr. Perlman representing five percent
(5%) of the Company's issued and outstanding shares as of June 20,
1996. Mr. Perlman has an outstanding claim for 515,386 shares of
common stock representing five percent (5%) of the Company's issued
and outstanding shares as of June 20, 1997. These shares have not
been issued as of the current date.
36
<PAGE>
(f) Compensation of Directors. (1) and (2).
During the fiscal year ended June 30, 1997, no director of the
Company received any compensation in his capacity as director,
other than reimbursement of travel expenses.
(g) Employment Contracts and Termination of Employment, and
Change-in Control Arrangements.
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.
Mr. Perlman was serving the Company under a two year contract
ending July 1, 1997 which was extended for an additional five years
and modified by an addendum dated March 28, 1998. Mr. Perlman
terminated October 8, 1997. The employment agreement with Mr.
Perlman was settled on October 8, 1997 with an agreement which
called for the issuance to Mr. Perlman of approximately 520,700
common shares valued at $0.25 per share ($130,200). The shares have
not been issued to Mr. Perlman and the amount has been accrued and
charged to year end June 30, 1997 operations.
Mr. Mack was serving the Company under a three year contract
ending July 1, 1998 which was extended for an additional five years
and modified by an addendum dated March 28, 1997. Mr. Mack
resigned as President and CEO of the Company and as an officer and
director of each of the Company's subsidiaries on June 23, 1998.
Mr. Mack's resignation letter stated that his resignation was not
a waiver of any rights or claims to any compensation, stock,
options, bonuses or accrued amounts of cash, loans or guarantees
made on behalf of the Company under the terms and conditions of his
employment contract. Mr. Mack's resignation letter did not request
that any disagreement be reported or disclosed in the Company's
regulatory filings. Unasserted claims by Mr. Mack for compensation
or stock, if asserted, will be contested by the Company.
Mr. Chi was serving the Company under a three year employment
contract ending June 14, 1999. Mr. Chi terminated December 31,
1997 with the Company and in April, 1997 with AWN.
Mr. Moscariello was serving the Company under a three year
employment contract ending May 10, 1999. Mr. Moscariello
terminated May 6, 1997.
Mr. Clausen was serving the Company under a three year
employment contract ending May 10, 1999. Mr. Clausen terminated
February 12, 1997 with the Company. Mr. Clausen preformed services
to TTI pursuant to a consulting contract entered into by TTI with
Tri Star Communications, LLC.
On March 6, 1997 the Company filed with the SEC Report S-8
registering the following ComTec International, Inc. Common Stock
shares: Mr. Perlman, 35,000 shares; Mr. Mack, 35,000 shares; Mr.
Moscariello, 98,000 shares; and Mr. Clausen, 64,000 shares.
37
<PAGE>
On May 14, 1997 the Company filed with the SEC Report S-8
registering the following ComTec International, Inc. Common Stock
shares: Mr. Perlman, 296,425 shares; Mr. Mack, 131,588 shares; Mr.
Chi, 9,059 shares and 146,771 shares for management and legal
consultants.
On June 30, 1997 the Company filed with the SEC Report S-8
registering the following ComTec International, Inc. Common Stock
shares: 236,867 pursuant to a nonaffiliated consulting contract.
(h) Report on Repricing of Options/SAR's.
No stock options or freestanding SAR's are issued or
outstanding. Accordingly, and during the fiscal year ended June
30, 1997, no stock options or freestanding SAR's were repriced.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners:
The information is furnished as of September 10, 1998 as to
the number of shares of the Company's common stock, $.001 Par value
per share owned beneficially, or is known by the Company to own
beneficially more than 5% of any class of such security who is not
also an Officer or Director of the Company:
At June 30, 1997, the Company had outstanding Class A .001 par
value Common Stock, the only class of voting securities
outstanding. Each common share entitles the holder to one vote in
any matter submitted to shareholders for approval. The common
shares vote as a single class.
Name and Address Amount and Nature Percentage
of Beneficial Owner of Beneficial Ownership of Total Class
- ------------------------ ----------------------- --------------
Donald G. Mack 1,717,599 (1),(2),(3) 4.0%
9137 North Delbert Road
Parker, Colorado 80134
(Director until
August 26, 1998)
Lewis D. Rowe 4,317,922 (4) 10.0%
PO Box 1561GT
Zephyr House,
Mary Street
Grand Cayman,
British West Indies
__________________________
(1) Includes an aggregate of 1,076,210 shares owned by the Mack
family trust, a Colorado Intervivos trust which is controlled
by Arthur R. Mack Jr., Mr. Mack's father is not living in the
same household as Mr. Mack. Mr. Mack disclaims beneficial
ownership of these shares.
38
<PAGE>
(2) Includes an aggregate of 271,901 shares owned by Suzette Mack,
the wife of Mr. Mack. Mr. Mack disclaims beneficial ownership
of these shares.
(3) Does not include any unasserted claims for stock by Mr. Mack.
Unasserted claims by Mr. Mack for compensation or stock, if
asserted, will be contested by the Company.
(4) Includes 2,158,961 warrants to purchase .001 par value common
stock at prices from $4.50 per share to $2.90 per share
expiring not later than March 2001. The shares and warrants
were issued in payment of fees to Mr. Rowe between June 30,
1997 and March 23, 1998 with respect to certain funding
received by the Company from various entities not residents of
the U.S.A., as reported on the Company's Form 8K filed April
7, 1998.
(b) Security Ownership of Management:
The information is furnished as of September 10, 1998 as to
the number of shares of the Company's common stock, $.001 par value
per share owned by each executive officer and director of the
Company and by all executive officers and directors as a group:
Name and Address Amount and Nature Percentage
of Security Owner of Security Ownership of Total Class
- --------------------------- --------------------- --------------
Gordon D. Dihle 179,564 (1) .4%
4881 South Amaro Drive
Evergreen, Colorado 80439
James Krejci 60,000 (2) .1%
1133 Race Street
Denver, Colorado 80206
Total officers and directors, 239,564 .6% as a group
(2 persons)
___________________________
(1) Includes stock owned by a professional corporation owned by
Mr. Dihle.
(2) does not include a bonus of common shares to be issued to Mr.
Krejci (earned May 18, 1998) pursuant to his contract
(approximately 214,286 common shares) or stock options
potentially equal to up to 10% of the Company's common shares
which Mr. Krejci has the potential to earn over a three year
period ending February 15, 2001.
(c) Changes in Control.
As of the date of this Report, the Company has not entered
into any agreements, the operation of which may at a subsequent
date result in a change of control of the Company.
The Company knows of no arrangement, including the pledge by
any person of securities of the Company, which may at a subsequent
date result in a change of control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective May 10, 1995, the Company entered into a two year
Employment Contract with Clifford Perlman to manage and direct the
affairs of the Company and act in the capacity of Chairman of the
Board at an annual base salary of $60,000. In addition, the
Company agreed to
39
<PAGE>
compensate Perlman by: (1) paying him 50% cash and 50% stock on
the balance of his $80,000 accrued salary from a prior agreement
once the Company has closed on adequate financing; and (2) Perlman
shall receive a stock bonus paid annually equal to 5% of the issued
and outstanding shares on June 20 of each year throughout the term
of his agreement. On February 12, 1996, Perlman settled the
Company's $130,000 cash obligation to him for the ten months ended
February 28, 1996 for 260,000 shares of the Company's common stock.
By virtue of a written three year employment agreement between
the Company and Donald G. Mack dated as of May 10, 1995, Mack
agreed to accrue monthly compensation of $10,0000, with the option
to convert the same to shares of the Company's common stock at a
20% discount from the bid price of the Company's common stock in
the over the counter market on the date of conversion. As
additional compensation, the Company agreed to pay Mack: (i) a
bonus equal to 5% of the quarterly net increase in the Company's
net assets payable annually; (ii) 10% of the Company's net before
tax profit payable annually; and (iii) performance stock options,
effective for four years, based upon the Company reaching certain
financial criteria. In the latter regard, and when the Company
reached $1,000,000, $5,000,000 and $15,000,000 in gross revenues,
the Company becomes obligated to issue Mack 200,000 shares at $.50,
400,000 shares at $1.0 and 600,000 shares at $1.50, respectively.
The agreement also obligated the Company to purchase a $1,500,000
term life policy on Mack payable to his named beneficiaries.
Certain Transactions
- --------------------
In April, 1997, Donald G. Mack, while an
officer/director/shareholder of the Company collateralized the
purchase of an automobile in a limited liability company which is
affiliated with Donald G. Mack. A certificate of deposit of the
Company in the amount of $78,600 was held by a financial
institution as collateral to the automobile purchased by the
related party. The collateral was reduced by approximately $10,000
during the subsequent period. The certificate of deposit is
restricted and is included in cash and equivalents.
On February 12, 1996, Mr. Perlman converted all of the
Company's cash obligations to him through February 28, 1996 into
shares of common stock valued at $.50 per share or 80% of the $.63
bid price on that date. Mr. Perlman received 260,000 shares in
settlement of the Company's $130,000 obligation to him, and
computed as follows: ten months salary at $5,000 per month, $40,000
in prior unpaid obligation and $40,000 worth of stock previously
unpaid. This transaction was approved by the Company's Board of
Directors on February 12, 1996.
On June 20, 1996, Mr. Perlman earned 333,334 of the Company's
Common Stock pursuant to the terms and conditions of his Employment
Agreement dated May 10, 1995. This transaction was valued at $.81
per share or 80% of the $1.05 bid price on that date.
On June 17, 1994, the Company purchased from Mr. Mack, the
Company's President and CEO a car lot located in Parker, Colorado.
The purchase price paid was $392,214. In connection with this
transaction, the Company assumed a first mortgage of $352,000,
issued 172,720 preferred shares of stated $1 value per share of Key
Car Finance (a subsidiary of the Company) to the President of the
Company and issued a note payable to the President of the Company
in the amount of $148,000.
Donald G. Mack, the Company's President and Chief Executive
Officer was a principal stockholder of Keystone Holding Corp.,
whose assets were purchased by the Company on May 10, 1995. As a
result of this transaction, Mr. Mack received .08% of the Company's
common stock as of June 30, 1995 and executed two related party -
notes payable to him in the amount of: 1). $81,202 in connection
with the purchase of the commercial property in Parker, Colorado
and 2). $10,000 in
40
<PAGE>
connection with amounts owed him from Key Communications, Inc., a
now dissolved subsidiary of the Company.
On February 12, 1996, Mr. Mack converted part of the Company's
cash obligations to him through February 28, 1996 into shares of
common stock valued at $.50 per share or 80% of the $.63 bid price
on that date. Mr. Mack received 440,000 shares in settlement of the
Company's $220,000 obligation to him, and computed as follows:
$120,600 in salary earned from the Company, a $30,000 management
fee from the Company and a partial reduction of the notes payable
due him in the amount of $69,300. This transaction was approved by
the Company's Board of Directors on February 12, 1996.
On July 16, 1996, Mr. Mack converted all of the Company's cash
obligations to him as of June 30, 1996 into shares of common stock
valued at $.50 per share or 80% of the $.125 bid price on that
date. Mr. Mack received 277,406 shares in settlement of the
Company's $138,703 obligation to him as follows: $104,000 in salary
earned from the Company and final reduction on any remaining notes
payable due him in the amount of $34,703. This transaction was
approved by the Company's Board of Directors on July 16, 1996.
Except for the foregoing and during the fiscal year ended June
30, 1997, no officer, director or relative or spouse of the
foregoing persons or any relative of such person who has the same
home as such person, or is a director or other officer of any
parent or subsidiary of the Company or any shareholder known by the
Company to own of record or beneficially more than five (5%)
percent of the Company's Common Stock, had a direct or indirect
material interest in any transaction or presently proposed
transaction to which the Company or any of its parents or
subsidiaries was or is a party.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The following documents are filed herewith or incorporated
herein by reference as Exhibits:
2.0 Acquisition of Keystone Holding Corp. dated May 10,1995
(incorporated by reference to the Company's Form 8-K dated
May 10, 1995).
2.1 Definitive Acquisition Agreement By and Between Key
Communications Group, Inc. and Omni-Range Communications
dated August 5, 1995. (1)
2.2 Agreement between the Company and Video Licensing Group, Inc.
dated January 24, 1996. (1)
2.3 Acquisition Agreement between the Company and DCL Associates
dated April 29, 1996. (1)
2.4 Letter of Intent between the Company and Telecosm dated May
31, 1996. (1)
2.5 Conversion of $1,500,000 debt to common stock issued to non
U.S.A. residents. Incorporated by reference to Form 8-K dated
July 14, 1997 and April 7, 1998.
2.6 Acquisition of operating assets from Centennial
Communications Corp. Incorporated by reference to Form 8-K
dated December 29, 1997 and September 3, 1998.
41
<PAGE>
3.1 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.
3.2 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).
3.3 Increase in Authorized Shares; Shareholders Authorization for
Recapitalization and Convertible Debt Funding. Incorporated
by Reference to Form 8-K dated May 12, 1997 and Form 8-K
dated December 29, 1997.
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 Commercial contract to buy and sell real estate between
Keystone Holding Corp. and Local Service Corporation dated
May 5, 1995. Exhibit header reads "International Network."
(1)
10.03 Warranty Deed dated May 30, 1995 from Local Service
Corporation to Nattem USA, Inc., (1)
10.04 Deed of Trust, security agreement and financing statement
executed by David L. Terry and Celia M. Terry dated September
9, 1986. (1)
10.05 Promissory Note and Deed of Trust dated May 30, 1995 executed
by Key Car Finance Company in favor of Local Service
Corporation. (1)
10.06 Agreement of Sale By and Between Nattem USA, Inc. and John
Sandy Productions, Inc. dated July 26, 1995, together with
Exhibits. (1)
10.07 Option Agreement By and Between Key Communications Group,
Inc. and Mobile-One Communications, Inc. dated July 31, 1995.
(1)
10.08 Agreement among the Company, Proxhill Marketing Limited and
Adex Corp. dated December 15, 1995. (1)
10.09 Letter Agreement between the Company and James Krejci dated
February 12, 1998.
10.10 Issuance of shares to persons and entities not residents of
the U.S.A. pursuant to Regulation S. Incorporated by
reference to Form 8-K dated July 14, 1997 and April 7, 1998.
16.01 Letters on change in certifying accountant. (incorporated by
reference to the Company's Incorporated by reference to Form
8-K dated August 22, 1996, September 12, 1996 and July 18, 1997).
16.2 Change in Certifying Accountants. Incorporated by reference
to Form 8-K dated July 18, 1997.
42
<PAGE>
21 Subsidiaries of the registrant.
21.1 American Wireless Network, Inc., a Colorado Corporation
21.2 AmNet Resources, Inc., a Colorado Corporation
21.3 International Media Group, Ltd., a Colorado Corporation
21.4 Custom Concepts, Inc., a Colorado Corporation
21.5 Reference to Former Subsidiaries Incorporated by Reference to
Exhibits Filed with the Company's Form 10-KSB for Fiscal Year
Ended June 30, 1995
27 Financial Data Schedule
_____________________________
(1) Incorporated by reference to exhibits filed with the Company's
Form 10KSB for June 30, 1995.
(b) Reports on Form 8-K.
The Company filed one report on Form 8-K during the quarter
ended June 30, 1997, and six reports on Form 8-K from June 30, 1997
to the date of this report.
43
<PAGE>
SIGNATURES
Pursuant to the requirements of the Sections 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 15, 1998 By: s/James J. Krejci
--------------------------------
James J. Krejci, Chief Executive
Officer, President and CEO
By: s/Gordon D. Dihle
-----------------------------------
Gordon D. Dihle, Chief Financial
Officer, Secretary and Treasurer
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/Gordon D. Dihle September 15, 1998
- --------------------------
Gordon D. Dihle Director
s/James J. Krejci September 15, 1998
- --------------------------
James J. Krejci Director
44
<PAGE>
COMTEC INTERNATIONAL, INC.
INDEX TO FINANCIAL STATEMENTS
Consolidated Financial Statements Page
Reports of Independent Certified Public Accountants
Ehrhardt Keefe Steiner & Hottman PC 46
Hixon, Marin, Powell & De Sanctis, P.A. 50
Consolidated Balance Sheet for the Years
Ended June 30, 1996 and 1997 52
Consolidated Statements of Operations for
the Year Ended June 30, 1996
and the Year Ended June 30, 1997 54
Consolidated Statements of Shareholders'
Equity (Deficit) 55
Consolidated Statement of Cash Flow for
the Year Ended June 30, 1996
and the Year Ended June 30, 1997 57
Notes to Financial Statements 63
45
<PAGE>
Ehrhardt
Keefe
Steiner &
Hottman PC
Certified Public Accountants
and Consultants
INDEPENDENT AUDITORS REPORT
To the Board of Directors and Stockholders
Comtec International, Inc.
We have audited the accompanying consolidated balance sheet of Comtec
International, Inc. and Subsidiaries (a development stage enterprise) as of
June 30, 1996 and the related consolidated statements of operations,
stockholders' equity, and cash flows for the year then ended and the amounts
for the year ended June 30, 1996 included in the cumulative period from
inception (March 15, 1994) to June 30, 1996. These consolidated financial
statements are the responsibility of Comtec International, Inc. and
Subsidiaries' management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatements. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Comtec International, Inc. and Subsidiaries (a development stage
enterprise) at June 30, 1996 and the results of their operations and their
cash flows for the year then ended and the amounts for the year ended June 30,
1996 included in the cumulative period from inception (March 15, 1994) to June
30, 1996 in conformity with generally accepted accounting principles.
As discussed in Note 11 to the consolidated financial statements, at June 30,
1996, the number of shares of common stock outstanding along with options,
shares reserved for the Company's incentive stock option plan, conversion
features of the three classes of convertible preferred stock and other
subsequent issuances of common stock, exceeded total authorized stock by
11,352,898 shares. Should the holders of the options and preferred stock
elect to exercise or convert these items into common stock, the Company may
be required to repurchase 11,352,898 shares of common stock in the open market
in an amount sufficient to satisfy the options or preferred stock conversion
features.
F - 1
7979 E. Tufts Avenue, Suite 400 Denver, Colorado 80237-2843
303 740-9400 Fax 303 740-9009
Member of DFK International and PKF International -
Providing Services in Cities Worldwide
46
<PAGE>
To the Board of Directors and Stockholders
Comtec International, Inc,
Page Two
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has incurred
losses from operations and has yet to begin its planned principal operations
that raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are discussed in Note
2 of the consolidated financial statements. The consolidated financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
s/Ehrhardt Keefe Steiner & Hottman PC
Ehrhardt Keefe Steiner & Hottman PC
October 11, 1996, except for Note 11
as to which the date is October 25, 1996
Denver, Colorado
F - 2
47
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
INDEPENDENT AUDITORS' REPORT
AND
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997 AND 1996 AND CUMULATIVE AMOUNTS FROM
INCEPTION (MARCH 15, 1994) THROUGH JUNE 30, 1997
48
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
YEARS ENDED JUNE 30, 1997 AND 1996 AND CUMULATIVE AMOUNTS
FROM INCEPTION (MARCH 15, 1994) THROUGH JUNE 30, 1997
CONTENTS
PAGE
Independent auditors' report 1 - 2
Consolidated financial statements:
Balance sheets 3 - 4
Statements of operations 4 - 5
Statements of shareholders' equity (deficiency) 6 - 7
Statements of cash flows 8 - 10
Summary of significant accounting policies 11 - 13
Notes to consolidated financial statements 14 - 30
49
<PAGE>
HIXSON, MARIN, POWELL & De SANCTIS, P.A. CERTIFIED PUBLIC ACCOUNTANTS
David L. Hixson, C.P.A. Raymond F. Marin, C.P.A.
Donald F. Powell, C.P.A. Peter V. De Sanctis, CPA
16100 N.E. 16th Avenue, Suite B 3300 PGA Boulevard
North Miami Beach, FL 33162 Gardens Plaza, Suite 810
Dade: (305) 944-7001 Palm Beach Gardens, FL 33410
Broward: (954) 920-1311 Tel: (561) 624-5700
Fax: (305) 944-6637 Fax: (561) 624-5702
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Comtec International, Inc. and Subsidiaries
Englewood, CO
We have audited the accompanying consolidated balance sheet of Comtec
International, Inc. and Subsidiaries (a company in the development stage)
as of June 30, 1997 and the related consolidated statements of operations,
shareholders' equity (deficiency) and cash flows for the year then ended and
the amounts for the year ended June 30, 1997 included in the cumulative
period from inception (March 15, 1994) to June 30, 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit. The consolidated financial statements of
Comtec International, Inc. and Subsidiaries as of June 30, 1996 were audited
by other auditors whose report dated October 11, 1996 expressed an unqualified
opinion on those consolidated financial statements which included explanatory
paragraphs that described the increase in authorized common shares and
continuance as a going concern.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatements. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimated made by management,
as well as evaluating the overall consolidated financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Comtec International, Inc. and Subsidiaries at June 30, 1997 and the
results of their operations and their cash flows for the year then ended and
the amounts for the year ended June 30, 1997 included in the cumulative period
from inception (March 15, 1994) to June 30, 1997 in conformity with generally
accepted accounting principles.
1
50
<PAGE>
Board of Directors and Shareholders
Comtec International, Inc. and Subsidiaries
Page Two
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 2 of notes
to consolidated financial statements, the Company experienced a net loss for
the year ended June 30, 1997 of $ 5,115,300 and has experienced net losses
form inception (March 15, 1994) to June 30, 1997 of $ 8,675,000. In addition,
the Company's principal sources of cash flows have been through the sales of
its common shares ($ 1,138,900) and from borrowings under financing activities
($ 2,835,500). The borrowings under financing activities may cause severe
liquidity problems. No assurances can be given to the continuation of the
sales of securities or continued ability to obtain short or long term
borrowings to maintain the Company's present cash flow requirements. The
Company's recurring losses from operations and limited capital resources raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans with regard to these matters are also described in Note 2
of notes to consolidated financial statements. The Company's ability to
achieve the elements of its business plan, which may be necessary to permit
the realization of assets and satisfaction of liabilities in the ordinary
course of business, are uncertain. As discussed in Note 12 of notes to
consolidated financial statements, the Company is a defendant in a number of
matters relating to employment contracts and telecommunications services.
Because of the present stage of litigation, the ultimate outcome of these
matters cannot presently be determined. Accordingly, no provisions for
losses and liabilities that may result therefrom have been made in the
accompanying consolidated financial statements. All these conditions raise
substantial doubt about the Company's ability to continue as a going concern.
The consolidated financial statements do not include any adjustments that
might result from the outcome of these uncertainties.
s/Hixson, Marin, Powell & De Sanctis, P.A.
North Miami Beach, Florida
May 11, 1998, except as to Note 12,
Litigation, as to which the date is
June 17, 1998.
2
51
<PAGE>
<TABLE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
CONSOLIDATED BALANCE SHEETS - JUNE 30, 1997 AND 1996
ASSETS
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Current assets
Cash and equivalents (includes
restricted funds of $78,600 in 1997) $ 630,000 $ 27,500
Accounts receivable, less allowance
for doubtful collections of $250,000 127,100 -
Investment in marketable securities 248,400 -
Officer receivable - 25,400
Other current assets - 1,600
----------- -----------
Total current assets 1,005,500 54,500
Property and equipment 275,500 2,149,600
License rights - 75,000
Other assets 40,000 97,900
----------- -----------
$ 1,321,000 $ 2,377,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
<CAPTION>
1997 1996
----------- -----------
Current liabilities
Current portion of long-term debt $ - $ 622,800
Convertible debenture 1,000,000 -
Notes payable 110,000 236,200
Accounts payable 504,000 206,100
Accrued liabilities 482,700 289,600
----------- -----------
Total current liabilities 2,096,700 1,354,700
----------- -----------
Long-term debt, less current portion - 344,600
----------- -----------
Interest in preferred stock of subsidiary - 172,700
----------- -----------
Shareholders' equity (deficiency):
Series A convertible preferred stock, $1 stated
par and liquidation value; 1,000,000 shares
authorized, 420,000 shares issued and
outstanding in 1996; $420,000 liquidation
preference - 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 - -
3
52
<PAGE>
<CAPTION>
1997 1996
----------- -----------
Series C convertible preferred stock, $10 stated
par and liquidation value; 1,000,000 shares
authorized; no shares issued and outstanding;
liquidation subordinated to Series A and
Series B liquidation value - -
Common stock, $.001 par, authorized 100,000,000
shares; issued 13,194,751 shares in 1997 and
8,259,851 shares in 1996 13,200 8,300
Capital in excess of par 7,910,100 6,181,800
Unrealized loss in marketable securities (3,600) -
Prepaid media agreements - (1,300,000)
Shares held in escrow - (1,225,000)
Deficit accumulated during the development stage (8,695,400) (3,580,100)
----------- -----------
(775,700) 505,000
----------- -----------
$ 1,321,000 $ 2,377,000
=========== ===========
Read the accompanying summary of significant accounting policies
and notes to consolidated financial statements, both of which are an integral
part of this consolidated financial statement
</TABLE>
4
53
<PAGE>
<TABLE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1997 AND 1996 AND CUMULATIVE AMOUNTS
FROM INCEPTION (MARCH 15, 1994) THROUGH JUNE 30, 1997
<CAPTION>
Years ended Cumulative
June 30, Amounts from
1997 1996 Inception to date
----------- ----------- -----------------
<S> <C> <C> <C>
Expenses:
Selling, general and administrative $ 1,538,200 $ 378,800 $ 2,405,700
Compensation in form of common stock 1,095,900 1,844,000 3,502,300
Management fees, related party - 30,000 65,000
----------- ----------- -----------------
Loss before other income (expense) 2,634,100 2,252,800 5,973,000
----------- ----------- -----------------
Other income (expense):
Interest and dividends 6,300 - 6,300
Interest (including $46,600 in the
form of common stock in 1997) (96,600) (163,100) (354,600)
Rental and other 45,500 54,500 132,700
Prepaid calling card services,
less revenues (514,800) - (514,800)
Loss on investments, foreclosures
and disposal of assets (621,600) (50,000) (671,600)
Write-down of intangible (1,300,000) - (1,300,000)
----------- ----------- -----------------
(2,481,200) (158,600) (2,702,000)
----------- ----------- -----------------
Net loss $(5,115,300) $(2,411,400) $ (8,675,000)
=========== =========== =================
Weighted average common
shares outstanding 8,857,079 5,450,272 5,074,501
=========== =========== =================
Loss per common share $ (0.58) $ (0.44) $ (1.71)
=========== =========== =================
Read the accompanying summary of significant accounting policies
and notes to consolidated financial statements, both of which are an integral
part of this consolidated financial statement
</TABLE>
5
54
<PAGE>
<TABLE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
YEAR ENDED JUNE 30, 1997, FROM INCEPTION (MARCH 15, 1994) THROUGH JUNE 30, 1996
AND FROM INCEPTION (MARCH 15, 1994) THROUGH JUNE 30, 1997
<CAPTION>
Preferred Stock-Series A Common Stock
------------------------ -------------------
Total Shares Amount Shares Amount
----------- -------- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
Balance, beginning: $ - - $ - - $ -
Add (deduct):
Proceeds from sale
of common stock 629,700 535,737 500
Issuance of stock for:
Liquidation of debt 130,000 246,019 300
Consulting services 1,124,400 923,164 900
Acquisitions 922,200 420,000 420,000 3,315,969 3,300
Officers' compensation 1,218,200 1,600,300 1,600
Exercised warrants 30,000 6,000 -
Intangibles - 1,040,000 1,100
Reverse acquisition (230,900) 592,662 600
Contribution of accrued
officer's compensation 241,100
Net loss:
From inception (March 15,
1994) to June 30, 1995 (1,148,300) - - - -
Year ended June 30, 1996 (2,411,400)
----------- -------- --------- ---------- -------
Balance, June 30, 1996 505,000 420,000 420,000 8,259,851 8,300
Year ended June 30, 1997
Add (deduct):
Proceeds from sale of
common stock 509,200 743,962 700
Issuance of stock for:
Liquidation of debt 1,500,000 3,125,000 3,100
License rights 1,444,500 1,361,786 1,400
Consulting services 951,200 1,590,305 1,600
Conversion of preferred
shares 172,700 69,088 100
Acquisitions 85,000 63,333 100
Officers' compensation 59,700 324,123 300
Interest 46,600 97,089 100
Cancellation of shares due to
Foreclosure (786,200) (420,000) (420,000) (98,000) (100)
License rights (1,444,500) (1,361,786) (1,400)
Cancelled acquisition - (980,000) (1,000)
Write-down of intangible 1,300,000 - - - -
Unrealized losses on
marketable securities (3,600)
Net loss year ended
June 30, 1997 (5,115,300)
----------- -------- --------- ---------- -------
Balance, ending $ (775,700) - - 13,194,751 $13,200
=========== ======== ========= ========== =======
Read the accompanying summary of significant accounting policies
and notes to consolidated financial statements, both of which are an integral part
of this consolidated financial statement
</TABLE>
6
55
<PAGE>
<TABLE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
YEAR ENDED JUNE 30, 1997, FROM INCEPTION (MARCH 15, 1994) THROUGH JUNE 30, 1996
AND FROM INCEPTION (MARCH 15, 1994) THROUGH JUNE 30, 1997 (continued)
<CAPTION>
Deficit
Unrealized Accumulated
Capital losses in During the
in excess marketable Development Prepaid Escrowed
of par securities Stage Media Shares
---------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, beginning: $ - $ - $ - $ - $ -
Add (deduct):
Proceeds from sale
of common stock 629,200
Issuance of stock for:
Liquidation of debt 129,700
Consulting services 1,123,500
Acquisitions 1,744,300 (20,400) (1,225,000)
Officers' compensation 1,216,600
Exercised warrants 30,000
Intangibles 1,298,900 (1,300,000)
Reverse acquisition (231,500)
Contribution of accrued 241,100
officer's compensation
Net loss:
From inception (March 15,
1994) to June 30, 1995 (1,148,300)
Year ended June 30, 1996 (2,411,400)
---------- ---------- ----------- ----------- -----------
Balance, June 30, 1996 6,181,800 - (3,580,100) (1,300,000) (1,225,000)
Year ended June 30, 1997
Add (deduct):
Proceeds from sale of
common stock 508,500
Issuance of stock for:
Liquidation of debt 1,496,900
License rights 1,443,100
Consulting services 949,600
Conversion of preferred
shares 172,600
Acquisitions 84,900
Officers' compensation 59,400
Interest 46,500
Cancellation of shares
due to Foreclosure (366,100)
License rights (1,443,100)
Cancelled acquisition (1,224,000) 1,225,000
Write-down of intangible 1,300,000
Unrealized losses on
marketable securities (3,600)
Net loss year ended
June 30, 1997 (5,115,300)
---------- ---------- ----------- ----------- -----------
Balance, ending $7,910,100 $ (3,600) $(8,695,400) $ - $ -
========== ========== =========== =========== ===========
Read the accompanying summary of significant accounting policies
and notes to consolidated financial statements, both of which are an integral part
of this consolidated financial statement
</TABLE>
7
56
<PAGE>
<TABLE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1997 AND 1996 AND CUMULATIVE AMOUNTS
FROM INCEPTION (MARCH 15, 1994) THROUGH JUNE 30, 1997
<CAPTION>
Years ended Cumulative
June 30, Amounts from
1997 1996 Inception to date
----------- ----------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(5,115,300) $(2,411,400) $ (8,675,000)
----------- ----------- -----------------
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 81,800 90,100 201,500
Issuance of common stock for
services and interest 1,142,500 1,156,300 2,861,200
Write-down of intangible 1,300,000 - 1,300,000
Losses on investments, foreclosures
and disposal of assets 497,600 - 497,600
Changes in assets and liabilities -
Accounts receivable (127,100) (25,400) (152,500)
Deposits and other (2,500) - (2,500)
Other current assets 1,600 4,500 11,100
Accounts payable and accrued
liabilities 658,200 845,700 1,729,300
----------- ----------- -----------------
3,552,100 2,071,200 6,445,700
----------- ----------- -----------------
Cash used in operating
activities (1,563,200) (340,200) (2,229,300)
----------- ----------- -----------------
Cash flows from investing activities:
Proceeds from acquisition - - 22,100
Payments for:
License rights (150,000) - (150,000)
Marketable securities (250,000) - (250,000)
Non-operating assets - (25,000) (25,000)
Related party (39,000) - (39,000)
Property, plant, equipment
and trade name (218,600) (70,200) (291,300)
Other - (95,400) (79,500)
----------- ----------- -----------------
Cash used in investing
activities (657,600) (190,600) (812,700)
----------- ----------- -----------------
Cash flows from financing activities:
Proceeds from:
Related party - - 184,500
Sales of common stock 509,200 619,700 1,138,900
Notes payable, principally
related parties - - 151,000
Warrants - - 30,000
Convertible debentures 2,500,000 - 2,500,000
Payments on:
Notes payable, principally
related parties (185,900) (80,300) (327,800)
Long-term debt - (2,800) (4,600)
----------- ----------- -----------------
8
57
<PAGE>
<CAPTION>
Years ended Cumulative
June 30, Amounts from
1997 1996 Inception to date
----------- ----------- -----------------
Cash provided by financing
activities 2,823,300 536,600 3,672,000
----------- ----------- -----------------
Increase in cash and equivalents 602,500 5,800 630,000
Cash and equivalents, beginning 27,500 21,700 -
----------- ----------- -----------------
Cash and equivalents, ending $ 630,000 $ 27,500 $ 630,000
=========== =========== =================
Read the accompanying summary of significant accounting policies
and notes to consolidated financial statements, both of which are an integral
part of this consolidated financial statement
</TABLE>
9
58
<PAGE>
<TABLE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED JUNE 30, 1997 AND 1996 AND CUMULATIVE AMOUNTS
FROM INCEPTION (MARCH 15, 1994) THROUGH JUNE 30, 1997
<CAPTION>
Years ended Cumulative
June 30, Amounts from
1997 1996 Inception to date
----------- ----------- -----------------
<S> <C> <C> <C>
Supplemental disclosure of
cash flow information:
Cash paid for interest $ 30,700 $ 34,000 $ 106,900
=========== =========== =================
Supplemental schedule of
non-cash financing activities:
Foreclosures:
Net book value of real property $(1,867,100) $ - $ (1,867,100)
Mortgages, notes, and other debt 1,081,300 - 1,081,300
Preferred and common stock 786,200 - 786,200
Gain on foreclosure (400) - (400)
----------- ----------- -----------------
$ - $ - $ -
=========== =========== =================
Geneva options $ 1,500,000 $ - $ 1,500,000
=========== =========== =================
Common stock cancellation $ 1,225,000 $ - $ 1,225,000
=========== =========== =================
Disposition:
Debt assumed $ (145,000) $ - $ (145,000)
Book value of the
property acquired 135,000 - 135,000
Loss on deposit for terminated
Worland acquisition 10,000 - 10,000
----------- ----------- -----------------
$ - $ - $ -
=========== =========== =================
Stock conversion $ 172,700 $ - $ 172,700
=========== =========== =================
Read the accompanying summary of significant accounting policies
and notes to consolidated financial statements, both of which are an integral part
of this consolidated financial statement
</TABLE>
10
59
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
YEARS ENDED JUNE 30, 1997 AND 1996
Basis of accounting:
Comtec International, Inc. (the Company) prepares its financial statements
in accordance with generally accepted accounting principles. This basis of
accounting involves the application of accrual accounting; consequently,
revenues and gains are recognized when earned, and expenses and losses are
recognized when incurred. Financial statement items are recorded at
historical cost and may not necessarily represent current values.
Principles of consolidation:
The consolidated financial statements include the accounts of Comtec
International, Inc. and all subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
Reverse stock split:
On December 26, 1997, the Board of Directors, pursuant to shareholder
approval granted at the annual meeting of shareholders held on March 28,
1997, voted to approve a one for five (1:5) reverse stock split of the
Company's $.001 par value common stock, effective January 31, 1998. The
number of shares issued at June 30, 1997, after giving effect to the
reverse split, was 13,194,751 common shares (65,973,755 common shares before
the reverse split). All share and per share data is stated to reflect the
reverse split.
Management estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Certain amounts included in the financial statements are
estimated based on currently available information and management's judgment
as to the outcome of future conditions and circumstances. Changes in the
status of certain facts or circumstances could result in material changes to
the estimates used in the preparation of the financial statements and actual
results could differ from the estimates and assumptions. Every effort is
made to ensure the integrity of such estimates.
Fair value of financial instruments:
The carrying amounts of cash and equivalents, accounts receivable, accounts
payable and accrued liabilities approximate their fair values because of the
short duration of these instruments.
Impairment of long-lived assets:
Long-lived assets and certain identifiable intangibles held and used by the
Company are reviewed for possible impairment whenever events or
circumstances indicate the carrying amount of an asset may not be
recoverable. Intangible assets have been written down to their net
estimated realizable value.
Cash and cash equivalents:
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
11
60
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
YEARS ENDED JUNE 30, 1997 AND 1996
Marketable securities:
Marketable securities are classified as available for sale and are reported
at fair value. Fair value is based upon quoted market prices. At June 30,
1997, marketable securities consisted of mutual funds and the Company
recorded the unrealized loss in shareholders' equity. No marketable
securities were held at June 30, 1996.
Property, equipment and depreciation:
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight line method over the estimated
useful lives as follows:
Estimated Useful Lives
(in years)
Office furniture and equipment 10
Communication equipment 7
Computer equipment 5
The cost of fixed assets retired or sold, together with the related
accumulated depreciation, are removed from the appropriate asset and
depreciation accounts, and the resulting gain or loss is included in net
earnings.
Repairs and maintenance are charged to operations as incurred, and
expenditures for significant betterments and renewals are capitalized. The
cost of property and equipment retired or sold, together with the related
accumulated depreciation, are removed from the appropriate asset and
depreciation accounts, and the resulting gain or loss is included in
operations.
License rights:
License rights are recorded at cost, less accumulated amortization. As
licenses are developed, they are to be amortized to operations, using the
straight-line method over an estimated useful life of five (5) years. If
licenses are not developed, they are charged to operations when the license
rights expire.
Income taxes:
The Company accounts for income taxes using the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates applied to taxable income. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date. A valuation
allowance is provided for deferred tax assets when it is more likely than
not that the asset will not be realized.
12
61
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
YEARS ENDED JUNE 30, 1997 AND 1996
Per share amounts:
Loss per share is computed by dividing net loss by the weighted average
number of shares outstanding throughout the year.
Stock based compensation:
The Company applies the intrinsic value method for accounting for stock
based compensation described by Accounting Principles Bound Opinion No. 25,
"Accounting for Stock Issued to Employees." Had the Company applied the
fair value method described by the Statement of Financial Accounting
Standards Board (SFAS) No. 123, "Accounting for Stock-Based Compensation,"
it would report the effect of compensation expense for stock based
compensation as pro-forma effects on income and earnings per share, if
material.
Recent Accounting Pronouncements:
The Statement of Financial Accounting Standards Board (SFAS) No. 130,
"Reporting Comprehensive Income," was issued by the Financial Accounting
Standards Board (FASB) in June 1997. This Statement establishes standards
for the reporting and display of comprehensive income and its components.
Comprehensive income includes net income and all changes in an enterprise's
other comprehensive income including, among other things, foreign currency
translation adjustments and unrealized gains and losses on certain
investments in debt and equity securities. Also in June 1997, the FASB
issued SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." This Statement establishes standards for reporting
information about operating segments in annual financial statements, and
requires that an enterprise report selected information about operating
segments in interim reports issued to shareholders. Both of these
Statements are effective for fiscal periods beginning after December 15,
1997. The Company does not expect the adoption of these statements to have
a material impact on its financial condition or results of operations.
Recently, the American Institute of Certified Public Accountants issued a
proposed Statement of Position on Accounting for Start-Up Costs. The
proposed accounting guidelines would require companies to expense start-up
costs as incurred. The Financial Accounting Standards Board recently
approved the proposed guidelines, and they will take effect for fiscal years
beginning after December 15, 1998.
Reclassifications:
In order to facilitate comparison of financial information, certain amounts
reported in the prior year have been reclassified to conform with the
current year presentation.
13
62
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997 AND 1996
1. Organization and business:
Comtec International, Inc. (Comtec), formerly Nisus Video, Inc., was
incorporated in the State of New Mexico on July 6, 1983. On May 10,
1995, Comtec shareholders approved the exchange of 2,245,794 common
shares in exchange for all the outstanding common stock of Keystone
Holding Corporation, Inc. (Keystone). Comtec and Keystone were related
parties through certain common shareholders and management. The
acquisitions had been accounted for in a manner similar to the pooling
of interests method in accordance with Accounting Principles Board
Opinion No. 16, Accounting for Business Combinations, since it
represents an exchange of entities under common control. Accordingly,
the consolidated financial statements of prior years had been restated
to include the accounts of the companies transferred, all at historical
costs. No inter-company transactions existed between the companies
during the prior periods and no adjustments were necessary to conform
the accounting policies of the companies.
Comtec has been and continues to be in the development stage. Since
1995, the Company has been executing strategic business plans to
develop various telecommunications services and products, principally
in the area of Specialized Mobile Radio (SMR). The Company has yet to
commence its principal planned operations and from inception (March 15,
1994) has only generated auxiliary revenues to defray the cost of its
planned 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.
The Company's subsidiaries and percentage owned are as follows:
Percentage State Date of
Company Owned Organized Organization
American Wireless Network, Inc. 100.0% Colorado December 3, 1996
(AWN)
TTI Communications Corporation 70.0% Colorado February 12, 1997
(TTI)
International Media Group, Ltd. 100.0% Colorado March 20, 1987
(IMG)
AmNet Resources, Ltd. (AmNet) 100.0% Colorado May 10, 1995
(formerly CTI Real Estate, Inc.)
The subsidiaries are principally in the telecommunication business
except for AmNet, which held real property. The real property was
foreclosed during the year ended June 30, 1997. AWN has acquired
(December 4, 1997) management control of 160 channels of 900 Mhz
Metropolitan Trading Area licenses, principally in the Southern and
Western United States. It is the intent of Comtec's management that
meaningful operations could be generated through AWN and thereby take
the Company out of the development stage.
14
63
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997 AND 1996
1. Organization and business (continued):
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 Comtec out
of the development stage. IMG will operate and market advertising media
through the use of giant LED screens. On March 23, 1998, IMG acquired
the screens through the issuance of 5,000,000 common shares valued at
$ .48 per share. On May 8, 1998, management decided to liquidate the
LED screens.
2. Going concern, liquidity and strategic planning:
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. The Company
reported a net loss of $ 5,115,300 for the year ended June 30, 1997 and
has reported net losses of $ 8,675,000 from inception (March 15, 1994)
to June 30, 1997. As reported on the consolidated statements of cash
flows, the Company incurred deficient cash flows from operating
activities of $ 1,563,200 for the year ended June 30, 1997 and has
reported deficient cash flows from operating activities of $ 2,229,300
from inception (March 15, 1994) to June 30, 1997, has deficient working
capital at June 30, 1997 of $ 1,091,200 and a deficient equity of
$775,700 at June 30, 1997. To date, these losses and cash flow
deficiencies have been financed principally through the sale of common
stock and warrants ($1,168,900) and issuance of short and long-term
debt ($ 2,835,500) which includes related party debt. Additional
capital and/or borrowings may be necessary in order for the Company to
continue in existence until attaining profitable operations.
The Company's principle source of working capital funding has been the
Geneva Reinsurance Company Ltd. (Geneva) (Read Note 8 on Convertible
Debenture). The Company has been dependent on Geneva to maintain its
cash flow, and no assurances can be given that Geneva will continue as
a source of funding.
Management has developed a strategic business plan to raise private
financing, develop a management team, maintain reporting compliance,
seek new expansive areas in telecommunications, develop a market in
analog SMR services with a secondary objective of acquisitions of other
operating entities and conversions of analog systems to digital
technology. As part of its plan to resolve the lack of liquidity, the
Company issued approximately 2,083,300 common shares at $ .48 per share
to liquidate the $ 1,000,000 convertible debenture.
In December 1997, the Company acquired seven operating SMR systems
located within five (5) states for approximately $ 3,035,700.
Management anticipates that the seven operating systems will generate
sufficient cash flow to meet current operating expenses. In order to
acquire the SMR licenses, the Company borrowed $ 1,600,000 from Geneva
Reinsurance Company, a Nevis Corporation, for the initial payments and
working capital.
15
64
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997 AND 1996
2. Going concern, liquidity and strategic planning (continued):
Payment of the purchase price of $ 3,035,700 will be as follows:
Amount
Down payment made $ 200,000
Payment at closing 1,000,800
Future payment, pending approval
by the Federal Communication
Commission, at 8% interest 444,100
Future payments to the Federal
Communications Commission 1,390,800
------------
$ 3,035,700
============
Subsequently, Geneva advanced an additional $600,000 to the Company to
fund the subsequent installment.
There can be no assurances that the Company will be successful in the
implementation of its plan for expansion and its overall business plan.
3. Acquisitions and dispositions:
In April 1996, the Company entered into a license option agreement (as
subsequently amended) to purchase approximately 1,380 SMR radio channels
in the 800 MHz radio spectrum from a number of independent license
holders. The purchase price of the option rights was $ 1,594,500, as
amended, and was payable as follows:
Amount
Cash paid on closing $ 150,000
Issuance of:
560,000 common shares of common
stock at $1.25 per share. 700,000
39,767 shares of Series C Redeemable
Convertible preferred stock converted
into 662,786 shares of common stock at
$0.60 per share. 397,000
139,000 shares of common stock at
$2.50 per share 347,500
------------
$ 1,594,500
============
The Company had a significant investment in the license rights, the
recoverability of which was dependent upon the success of funding a
settlement with the independent license holders. The settlement
required the re-purchase of all previously issued common stock for
$ 925,000. It was not the intention of management to pay the settlement
and accordingly the license option agreement was terminated. The
Company canceled the common stock issued as if the termination had
occurred on June 30, 1997, which resulted in a loss of $ 150,000.
16
65
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997 AND 1996
3. Acquisitions and dispositions (continued)
In March 1998, the Company acquired large Light Emitting Diode (LED)
screens from its primary lender (see Note 8 on convertible debenture)
for $ 2,400,000, which was financed by the lender and liquidated by the
issuance of approximately 5,000,000 common shares at $ .48 per share.
Closing bid price of the common stock was approximately $ 0.26 per
share. The Company will write down the acquisition based upon the fair
value of the stock issued ($1,300,000). Management has been authorized
to sell the screens for the best possible price.
During the year ended June 30, 1997, land and buildings with a net book
value $ 1,867,100 were foreclosed upon. The foreclosures resulted from
litigation for non-performance. Long and short-term debt ($1,081,300)
and equity ($786,200) were assumed or canceled as a result of the
foreclosures. The Company recognized a gain of $ 400, which was
credited to operations
During the year ended June 30, 1996, the Company was to acquire 61% of
the outstanding common stock of Network Teleports, Inc. for
approximately $ 1,250,000 consisting of a $ 25,000 deposit and the
issuance of 980,000 shares of common stock at $ 1.25 per share
($ 1,225,000), which were held in escrow until approval was obtained
from the Federal Communications Commission. Certain shareholders of
the Company were also shareholders of Network Teleports, Inc. (related
parties). During the year ended June 30, 1997, the agreement was
terminated, which resulted in a loss to the Company of approximately
$ 318,400 consisting of the $ 25,000 deposit and equipment with a net
book value of $ 293,400. The loss has been charged to current
operations. The escrowed shares were cancelled by mutual consent of the
parties.
In August, 1995, the Company acquired rights to 185 unconstructed and
non-operational SMR channels for $ 75,000, including a note payable for
$50,000, collateralized by real property. The Federal Communications
Commission cancelled 110 licenses, and the remaining 75 licenses were
considered active. The real property that collateralized the note was
lost in a foreclosure as described earlier, and the Company forfeited
the remaining licenses. As a result, the Company recognized a loss of
approximately $ 9,100, which was charged to current operations. The
loss was determined as follows:
Original cash deposit $ 25,000
Note payable 50,000
Accrued interest 9,100
-------------
84,100
Original basis 75,000
-------------
Loss on cancellation $ 9,100
=============
On July 31, 1995, the Company entered into an option agreement to
acquire certain SMR systems for $ 175,000. The option agreement
expired on November 30, 1995, and a $ 50,000 option loss was charged to
operations.
17
66
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997 AND 1996
3. Acquisitions and dispositions (continued):
The Company had advanced $ 40,000 for the acquisition of an advertising
company. The acquisition agreement was terminated and the advance was
converted to prepaid advertising costs. Subsequent to the year-end, the
advertising company has started to produce media advertising for future
utilization.
4. Concentrations of credit risk:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and accounts
receivable. During the year, the Company's account balances with
financial institutions may exceed federally insured limits. Management
regularly monitors their balances and attempts to keep this potential
risk to a minimum by maintaining their accounts with financial
institutions that they believe are of good quality.
The Company may have a concentration of credit risk with respect to
accounts receivable, as substantially all customers resulted from
prepaid phone service. The Company does not perform credit evaluations
and does not require collateral. The Company maintains, when
appropriate, an allowance for uncollectible accounts receivable.
Therefore, no additional credit risk beyond amounts provided for
collection losses is believed inherent in the Company's accounts
receivable and to date have been within management's expectations.
5. Details of financial statement components:
Property and equipment: 1997 1996
Land $ - $ 425,000
Buildings and improvements - 1,515,100
Communication Equipment 249,700 300,000
Furniture, fixtures and equipment 49,200 22,500
--------- ----------
298,900 2,262,600
Accumulated depreciation 23,400 113,000
--------- ----------
$ 275,500 $2,149,600
Other assets:
Deposits:
Network Teleports, Inc. $ - $ 25,000
Security and other - 5,200
Trade name and other - 27,700
Prepaid production costs 40,000 40,000
--------- ----------
$ 40,000 $ 97,900
========= ==========
18
67
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997 AND 1996
5. Details of financial statement components (continued):
1997 1996
Accrued liabilities:
Payroll and related benefits $ 371,800 $ 99,800
Interest 25,600 136,800
Professional fees 85,300 -
Property taxes - 33,000
Deferred income - 20,000
--------- ----------
$ 482,700 $ 289,600
========= ==========
Charges to operations:
Losses (gains) on:
Investments:
International Media Group, Ltd. $ 124,500
Omni-Range 9,100
Worland Communications, Inc. 10,000
Network Teleport, Inc. 293,400
SMR option agreement 150,000
----------
587,000
----------
Foreclosures:
Bethany property 51,100
Parker property (51,500)
----------
(400)
----------
Disposal of assets 35,000
----------
Loss on investments, foreclosures,
and disposal of assets $ 621,600
==========
6. Notes payable:
Related parties: 1997 1996
Note payable, unsecured, interest
at 12.0% per annum, maturing
December 15, 1997. $ 70,000 $ -
Note payable, unsecured, interest
at 10% per annum, due to former
officers, matured December 2, 1995,
settled through litigation in 1997
for $ 25,800. - 25,800
19
68
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997 AND 1996
6. Notes payable (continued):
Related parties (continued): 1997 1996
Note payable, unsecured, interest
at 18% per annum, due to an entity
related to a former officer/director,
personally guaranteed by a former
officer of the Company. Note in
default, due on demand. 40,000 40,000
---------- ----------
110,000 65,800
---------- ----------
Other:
Note payable, unsecured, interest
at 10% per annum prior to default
on March 7, 1995. Settled through
litigation for $ 45,000, including
unpaid interest. - 35,000
Note payable, collateralized a second
deed of trust on real property,
interest at 9% per annum. Settled
through litigation for $50,000. - 85,400
Note payable, collateralized by real
property, interest at 12% per annum.
The note was in default in 1996 and
was settled through foreclosure. - 50,000
---------- ----------
- 170,400
---------- ----------
$ 110,000 $ 236,200
========== ==========
7. Long term debt:
Mortgage notes payable, collateralized
by real property, interest ranging from
9% to 10.5%. The mortgage notes were
in default in 1996. Both mortgages
were liquidated through foreclosure
during the year ended June 30, 1997. $ 967,400
Less current portion 622,800
----------
$ 344,600
==========
During the year ended June 30, 1997, the mortgage holders foreclosed on
both properties in liquidation of the debt. As a result of the
foreclosures, the Company had a gain on foreclosures of $400, which was
credited to other income.
20
69
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997 AND 1996
8. Convertible debenture:
The Company has entered into various loan agreements with Geneva
Reinsurance Company Ltd. (Geneva), a corporation under the laws of
Nevis, to provide financing for working capital and asset acquisitions.
The agreements provide for financing up to $ 6,500,000, of which
$ 2,500,000 had been funded through June 30, 1997; $ 1,600,000 was
funded in December 1997, and the balance of $2,400,000 was funded in
March 1998. Under the terms of the agreement, the first $2,500,000
advance shall earn interest at 12.0%, maturing in March 1998. This
amount is also convertible into common stock and warrants. Common
stock is convertible at $ .48 per share. Each share shall carry a
warrant to purchase an additional common share at $4.50 per share,
exercisable at any time during a three (3) year period commencing
with the date of issuance of the shares and warrants. Per share
information is after giving effect to the reverse stock split of
January 31, 1998. On June 30, 1997, Geneva converted $ 1,500,000 of
advances into 3,125,000 common shares and 3,125,000 warrants. The
remaining balance of $ 1,000,000 was converted on March 23, 1998 into
2,083,300 common shares and 2,083,000 warrants.
In December 1997 the Company was advanced $1,600,000 for the acquisition
of SMR systems (Read Note 2 on Strategic Planning). This advance was
converted on March 23, 1998 into approximately 16,000,000 common shares
at $ .10 per share and 16,000,000 warrants to purchase common stock on
a one for one basis at $2.90 per share.
In March 1998, the Company acquired large LED screens from Geneva for
$ 2,400,000. Geneva owned the LED screens because of a foreclosure of
an outstanding loan to an unrelated third party. The Company issued
5,000,000 shares of common stock at $ .48 per share and 5,000,000
warrants to purchase common stock on a one for one basis at $2.90 per
share for the screens. Based upon the bid price of $ .26 per share,
the Company paid a premium for the LED screens of approximately
$1,100,000. The Board of Directors has authorized management to
liquidate the LED screens.
A summary of the convertible debentures after giving effect to the
reverse stock split is as follows:
Amount Shares
Working capital loans $ 2,500,000 5,208,334
Subsequent transactions:
Purchase LED screens 2,400,000 5,000,000
Working capital and SMR purchases 1,600,000 15,999,998
------------ ----------
$ 6,500,000 26,208,332
============ ==========
No warrants have been exercised as a result of this transaction. The
4,242,922 warrants can be converted into 4,242,922 shares of common
stock at $4.50 per share and 24,683,332 warrants can be converted into
24,683,332 shares of common stock at $ 2.90 per share. The warrants
expire at varying dates from June 2000 to March 2001 (read Note 10 of
notes to consolidated financial statements).
21
70
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997 AND 1996
8. Convertible debenture (continued):
As a result of the financing provided by Geneva, the Company agreed to
pay a finders fee, to an individual related to Geneva. Approximately
490,000 was paid and charged to operation in June 30, 1997 through the
issuance of approximately 1,020,800 common shares at $ .48 per share.
An additional $160,000 was paid and charged to operations in March 1998
through the issuance of 1,600,000 common shares at $ .10 per share. The
Company also issued warrants on a one for one basis for common stock.
Approximately 1,020,800 warrants at June 30, 1997 are exercisable at
$4.50 per share and 1,600,000 warrants at March 1998 are exercisable at
$2.90 per share. No warrants have been exercised and they expire three
(3) years from date of issue but not later than March 2001.
Subsequently, Geneva amended it loan agreement to provide an additional
$ 600,000 of working capital. The advance was utilized in the
acquisition of the SMR systems discussed in Note 2 of notes to
consolidated financial statements. The additional advance has been made
under the same terms and conditions of previous loans except as an
additional inducement the conversion feature will be determined at $ .27
per share.
9. Income taxes:
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income purposes.
The significant component of deferred tax asset at June 30, 1997 and
1996 are:
1997 1996
Deferred tax asset:
Net operating loss $ 3,204,600 $ 1,248,000
Less valuation allowance 3,204,600 1,248,000
------------- ------------
Net deferred tax asset $ - $ -
============= ============
The valuation allowance is provided when it is more likely than not that
the tax benefit may not be realized.
The provision (benefit) for income taxes differs from the amount of
income tax (benefit) determined by applying the applicable federal rate
due to the following:
1997 1996
U.S. Federal statutory income
tax rate of 35% (benefit) $ (1,790,400) $ (844,000)
Effective state income tax (benefit) (166,200) (78,400)
Valuation allowance 1,956,600 922,400
------------ ------------
$ - $ -
============ ============
22
71
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997 AND 1996
9. Income taxes (continued):
At June 30, 1997, the Company had available federal net operating loss
carryforwards of approximately $ 8,785,300, which will expire in varying
years through 2012.
10. Shareholders' equity:
On March 28, 1997, the Company's shareholders approved an increase in
the number of authorized shares of stock from 50,000,000 to 100,000,000
common shares and from 5,000,000 to 10,000,000 preferred shares. The
Board of Directors has authorized up to 4,000,000 shares of Convertible
Preferred Stock, with a par value of $ .001 per share. These securities
are non-voting and have an issue price and liquidation value ranging
from $ 1.00 to $ 10.00. The Series B is subordinate to the Series A
and Series C is subordinate to the Series A and B. Each share of each
series is convertible into common stock, $ .001 par value at the closing
bid price on the date notice of the conversion is received. No
conversion may be made unless the closing bid price has reached $ 10.00
per Series A and $ 7.50 per Series B shares for more than 20 consecutive
trading days. The Company may redeem the Series A at $ 1.00 per share,
Series B at $ 5.00 per share and Series C at $ 10.00 per share.
At June 30, 1996, 420,000 shares of Series A Redeemable Convertible
Preferred Stock were issued and outstanding relating to the acquisition
of an office building. On May 1, 1997, the Company settled litigation
with the holder of the shares by which the holder returned the 420,000
shares of stock. At June 30, 1997, no Series A Redeemable Convertible
Preferred Stock was issued and outstanding.
At June 30, 1997, and 1996, no Series B Redeemable Preferred Stock was
issued and outstanding.
At June 30, 1996, there was no Series C Convertible Preferred Stock
issued and outstanding. In September 1996, the Company issued 39,767
shares of Series C Redeemable Convertible Preferred Stock in connection
with the acquisition of license rights. In October 1996 the stock was
converted into 662,786 shares of common stock under the conversion
rights then existing. The Company has recorded the conversion although
the holder of the Series C preferred stock has yet to surrender the
shares. In the opinion of management, there is no Series C stock
outstanding. The Company's transfer agent also recorded the conversion.
At June 30, 1997 there is no Series C Redeemable Convertible Preferred
Stock issued or outstanding.
A summary of the terms of the Redeemable Preferred Stock is as follows:
Issue Liquidation Conversion ratio
Type Par price price to common stock
Series A $ .001 $ 1.00 $ 1.00 1:1
Series B .001 5.00 5.00 1:1
Series C .001 10.00 10.00 1:1
23
72
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997 AND 1996
10. Shareholders' equity (continued):
As described in Note 8 of notes to consolidated financial statements,
Geneva Reinsurance Company, Ltd. (Geneva), the primary lender, converted
its debt into common stock of the Company. As a result of the debt
conversions, Geneva controlled approximately 21% of the outstanding
common stock at June 30, 1997. Subsequently, additional debt was
converted into common stock which increased Geneva's interest to
approximately 31%. Through other subsequent transactions, approximately
70% of the subsequently issued and outstanding common stock were
controlled by Geneva.
11. Incentive Compensation plans:
The Company has a stock option plan, approved by the shareholders, which
provides for the granting of options to officers, key employees,
directors and consultants to the Company. The plan provides for 900,000
shares of the Company's common stock (the available shares) for issuance
pursuant to the exercise of stock options which may be granted to
officers, key employees, directors, and consultants. The plan provides
for annual adjustment in the number of available shares to an amount
equal to ten percent (10.0%) of the number of shares outstanding on June
30 of the preceding year or 980,000 shares, whichever is greater. The
Compensation Committee administers the plan. The committee has the
authority and discretion to determine when and how many options will be
granted. The committee will also determine which options may be
intended to qualify (Incentive Stock Option) for special treatment under
the Internal Revenue Code of 1986, as amended or non-qualified options
(Non-Qualified Stock Options) which are not intended to qualify.
Options are to be granted at 85% to 110% of fair market value on the
date of grant. As of June 30, 1997, those eligible under the plan have
not purchased any shares of the company common stock, nor have any
options been granted. The plan will remain in effect until terminated
by the Compensation Committee, except that no Incentive Stock options
will be granted after January 31, 2007.
The Company also granted performance-based common stock options to
certain employees/officers/directors based upon revenue performance.
No shares were granted under the performance based common stock options
for the year ended June 30, 1997. A summary of the options, performance
levels and price per share is as follows:
Term From
Gross Revenue Levels Options Price Execution
$ 0 to $999,999 -0- $ -0- -0-
$ 1,000,000 to $ 4,999,999 200,000 .10 one (1) year
$ 5,000,000 to $ 14,999,999 400,000 .20 one (1) year
$ 15,000,000 and greater 600,000 .30 four (4) years
Other stock option agreements:
The former plan, which terminates on September 16, 1998, provided for
the granting of stock options to employees, officers and directors to
purchase up to 600,000 shares of common stock. Options may be granted
for terms up to three (3) years at the exercise prices of 100% to 110%
to the fair market value of the Company's stock at the date of grant.
No options are outstanding under the plan at June 30, 1997. On February
16, 1998, 75,000 stock options were granted to key employees.
24
73
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997 AND 1996
12. Commitments, contingencies, litigation, transactions with related parties
and other:
Restricted funds:
In April 1997, an officer/director/shareholder of the Company used a
$78,600 certificate of deposit of the Company to collateralize the
purchase of an automobile in a limited liability company affiliated
with the officer/director/shareholder. The collateral was reduced by
approximately $10,000 during the subsequent period. The certificate
of deposit is restricted and is included in cash and equivalents.
Employment contracts:
The Company has employment agreements with its executive officers,
some of which are directors/shareholders, that expire at various
times through June 30, 2002. The agreements, which have been revised
from time to time, provide for minimum salary levels adjusted
annually, term life insurance as well as incentive bonuses which are
payable if specified management goals are attained. Certain employees
may convert any unpaid compensation into common stock at a 20%
discount of the bid price at the time of conversion. Cash bonuses
shall be paid in cash or common stock, equal to five percent (5%) of
the net increase in the net assets of the Company and an additional
bonus of ten percent (10%) of net earnings before income taxes,
depreciation and amortization. As an additional incentive, an annual
stock bonus equal to five percent (5.0%) of issued and outstanding
common stock shall be paid. For the year ended June 30, 1997, the
five percent (5.0%) stock bonus of approximately $291,200 (727,952
shares at $ .40 per share) was accrued and charged to operations.
An employment agreement with a former officer/director/shareholder was
settled on October 8, 1997 which called for the issuance of
approximately 520,700 common shares at $0.25 per share ($130,200).
The amount has been accrued and charged to current operations. Under
the agreements, certain employees were granted stock options based on
gross revenues, once the Company is out of development stage. The
options and option price range from 200,000 shares at $ .50 per share
($1,000,000 revenues), 400,000 shares at $ 1.00 per share ($5,000,000
revenues) and 600,000 shares at $ 1.50 per share ($15,000,000
revenues). The option expires 2001. In the event of termination
without cause, as defined, the outstanding balance of the agreement
is payable immediately. No options were granted or exercised, except
for the settlement with the former officer/director/shareholder. The
aggregate commitment for compensation at June 30, 1997, excluding
bonuses, was approximately $ 900,000 payable at $ 180,000 per year
through June 30, 2002.
Consulting agreements:
The Company has consulting service agreements with certain former
officers/directors, expiring at various through October 1997. The
agreements provide for minimum monthly fees and common stock of the
Company based upon a formula of the bid price. The agreement grants
stock options for 100,000 common shares at an exercisable price of 70%
of the offering price of any secondary offering. Consulting services
of $ 167,500 have been paid and/or accrued as of June 30, 1997 and
139,870 shares of common stock have been issued. All amounts have
been charged to current operations. The aggregate commitment for
future service fees, excluding bonuses of common stock, is
approximately $ 32,000 at June 30, 1997.
25
74
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997 AND 1996
12. Commitments, contingencies, litigation, transactions with related parties
and other (continued):
Management agreement:
As disclosed in Note 2 of notes to consolidated financial statements,
the Company acquired several SMR operating systems located within five
(5) states. Under the terms of the agreement, the Company shall
retain all net profits of the systems, as defined, with a ceiling of
$ 30,000 per month per system. Net profits more than the ceiling
shall be paid to the seller each month. None of the systems has made
net profits more than the ceiling.
Transactions with related parties:
The following is a summary of transactions with related parties as of
June 30, 1997:
Compensation to officers/directors/shareholders $ 980,300
Consulting 167,500
Origination fees to related parties 60,000
Common stock issued on preferred stock conversion 172,700
Restricted funds for related party 78,600
Advertising fees to related party 10,900
Loss on terminated agreement with related party 318,400
Reimbursement of expenses to
offices/directors/shareholders 66,300
Related party loans (70,000)
----------
$1,784,700
==========
Advertising agreement:
In 1995 the Company entered into a three (3) year media purchase
agreement for $ 1,950,000, that was partially prepaid through the
issuance of 5,200,000 common shares at $ .25 per share ($ 1,300,000).
As the advertising was utilized, the Company would pay one third of
the invoice and two-thirds would be applied against the prepaid
amount. The Company also granted the advertiser an option expiring
in the year 2000 to acquire 200,000 common shares at $ 1.25 per share.
Share amounts and prices have been adjusted for the reverse stock
split. During the year ended June 30, 1997, management determined the
media agreements had no continuing value and charged current
operations for the outstanding balance. The common stock issued and
the stock option remain outstanding.
Termination of private placement:
During the current period, the Company prepared a private placement
offering. The discussions regarding the offering were terminated and
the cost of approximately $ 25,000 was charged to operations.
Litigation:
Pending litigation includes claims made by a telecommunications
service provider and by former employees for breach of their
agreements. The Company has filed counterclaims against all of the
claimants and is vigorously defending the claims. Counsel is unable
to gauge the outcome of these matters at this time, consequently, no
provisions have been made in the accompanying consolidated financial
statements.
26
75
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997 AND 1996
12. Commitments, contingencies, litigation, transactions with related parties
and other (continued):
Litigation (continued):
The Company has filed a claim against the seller of the option license
agreement and other parties holding title to SMR licenses subject to
the Company's option agreement, claiming breach of contract. The
parties have negotiated a settlement on June 17, 1998. The Company
has offered a cash settlement of $925,000 in addition to the $150,000
already paid in return for the transfer of the SMR licenses and the
return of all Company stock issued to the seller and other parties to
the agreement. Under the terms of the original agreement, if the
Company does not make payment by July 1, 1998, all previously issued
common stock would revert back to the Company and the license rights
would be cancelled. Management has indicted that it is not their
intention to pay the settlement, accordingly, the transaction has been
reversed, the common stock cancelled and the Company recognized a loss
of $ 150,000.
Various lawsuits were settled during the year, including matters
resulting in the foreclosure of the Company's real properties.
Settlements with two former officers amounting to $ 105,000 and
settlements with vendors and consultants amounting to approximately
$ 20,800 have been provided for in the accompanying consolidated
financial statements.
The Company is a defendant to various other lawsuits, claims and
proceedings. Management considers these other actions as being
incidental to the Company's business and is of the opinion that the
financial exposure of these other actions will not materially affect
the financial position of the Company.
Minority interest:
Minority interest represents the cumulative effect of earnings,
losses, capital contributions and distributions in TTI Communication
Corporation. The minority interest of TTI Communications Corporation
reflects no value at June 30, 1997. At June 30, 1997, unused losses
of the minority interest of approximately $166,900 can be utilized to
offset future profits.
Rental commitments:
In December 1997, the Company relocated its principal offices to
Englewood, CO and executed a three year lease on the premises which
expires November 30, 2000. Minimum annual lease payments will be
approximately $20,400, $35,700 and $36,800 for the years ending
June 30, 1998, 1999 and 2000, respectively and $15,500 for the five
month period ending November 30, 2000.
Warrants and options:
The Company has granted various stock options and warrants to various
employees, consultants and lenders under employment, consulting and
financing agreements. The agreements provide for the issuance of
28,926,254 shares of common stock at prices ranging from $ 2.90 to
$ 4.50 per share. In addition, Geneva was granted 4,242,922 warrants
which can be converted into common stock on one for one (1:1) basis at
prices ranging from $2.90 to $4.50 per share. The warrants expire no
later than June 30, 2000.
27
76
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997 AND 1996
12. Commitments, contingencies, litigation, transactions with related parties
and other (continued):
Warrants and options (continued):
Information relating to stock options and warrants are as follows:
Employee/consultants Lender Option Price
Stock Options Warrants Per Share Range
Outstanding options/
warrants, balance,
beginning 200,000 - $ 1.25
Add (deduct):
Granted - 4,242,922 4.50
Exercised
Expired or
cancelled - -
------- ---------
Balance, ending 200,000 4,242,922
======= =========
Subsequently, the Company issued 24,683,332 warrants to be converted
into common stock when exercised on a one for one (1:1) basis at a
price of $2.90 per share. The warrants expire March 2001.
Year 2000 compliance:
The year 2000 issue is the result of computer programs being written
using two (2) digits rather than four (4) digits to define the year.
Any of the Company's computer programs that have date-sensitive
software may recognize a date using "00" as the year 1900 rather than
2000. This problem could force computers to either shut down or
provide incorrect data or information. The Company utilizes generic
software programs developed, maintained and upgraded by independent
computer software providers. In response to the year 2000 issue,
management is of the opinion that the providers of these software
programs will resolve the date sensitive issue so that all critical
systems will be in compliance prior to the year 2000. The Company
does not anticipate any material adverse impact on its business.
28
77
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997 AND 1996
13. Selected quarterly data (unaudited):
The following summarized certain quarterly results of operations (in
thousands, except share amounts):
<TABLE>
<CAPTION>
Year ended June 30, 1997: Quarter ended
-----------------------------------
September December March June
30, 31, 31, 30,
--------- -------- ----- -------
<S> <S> <C> <C> <C> <C>
Expenses:
Selling, general and administrative $ 342 $ 706 $ 360 $ 1,226
Interest - 10 32 55
--------- -------- ----- -------
342 716 392 1,281
Deduct other income (expense) (53) 60 144 (2,535)
--------- -------- ----- -------
Net loss $ (395) $ (656) $(248) $(3,816)
========= ======== ===== =======
Net loss per share $ (.04) $ (.07) $(.03) $ (.44)
========= ======== ===== =======
<CAPTION>
Year ended June 30, 1996: Quarter ended
-----------------------------------
September December March June
30, 31, 31, 30,
--------- -------- ----- -------
Expenses:
Selling, general and administrative $ 1,029 $ 308 $ 762 $ 124
Interest - - 95 68
Management fee - - - 30
--------- -------- ----- -------
1,029 308 857 222
Deduct rental and other
income (expense) 98 64 91 (248)
--------- -------- ----- -------
Net loss $ (931) $ (244) $(766) $ (470)
========= ======== ===== =======
Net loss per share $ (.17) $ (.05) $(.13) $ (.09)
========= ======== ===== =======
29
78
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997 AND 1996
13. Selected quarterly data (unaudited) (continued):
Comtec International, Inc. common stock is traded on the OTC Electronic
Bulletin Board system under the symbol of YRLSD. The following table
sets forth the quarterly high and low sales prices for the periods
indicated. The prices shown represent actual sales prices without
retail markups, markdowns or commissions.
Share price of common stock:
1997 1996
High Low High Low
First quarter, September 30 $ 5.00 $ .94 $ 4.40 $ 1.55
Second quarter, December 31 5.00 1.25 2.20 1.25
Third quarter, March 31 1.72 .45 1.90 .65
Fourth quarter, June 30 1.05 .33 1.25 .30
30
79
<PAGE>
Exhibit 10.09 Letter Agreement - Form 10KSB ComTec International, Inc.
ComTec Holding International Inc.
9350 East Arapahoe Road
Englewood, CO 80112
February 12, 1998
Mr. James J. Krejci
1133 Race Street
Denver, Colorado 80206
Dear Mr. Krejci:
We have enjoyed and appreciated the time you've spent visiting with us about
ComTec International, Inc., American Wireless Network, Inc. and its
operations.
We are pleased to offer you a position as Chief Operations Officer of ComTec
International, Inc., and President and CEO of American Wireless Network, Inc.
with a potential phase in as President of ComTec International, Inc. as well.
The targeted start date will be February 16, 1998.
ComTec is a rapidly growing public entity. Our immediate goal is to recruit
an outstanding leader who would, together with our recently formulated core
team of professionals, manage, operate and grow the Company. As the leader
of this core team you would grow and prosper with the Company. ComTec now
has a qualified stock option plan. In the near future we intend to establish
a qualified ESOP plan, a 401K plan and an officer's stock incentive bonus
plan. We have an excellent health plan through Prudential which would apply
after the initial thirty day waiting period. Other benefits through options,
stock bonus plans, pension and profit sharing are or will be available
shortly, and as the Company grows. You would be an integral part of these
plans. Our management goal is to build a long-term management team loyal
to ComTec International, Inc. with a substantial part of their compensation
tied to its future success.
From our discussions with Ed Ryer, you are looking for a minimum of a
three-year employment contract and incentive/performance based stock options
which could give you the opportunity to control 10% of ComTec International,
Inc. within the term of the contract. We feel that this is a reasonable
request. However, there are certain milestones that we feel the company must
meet within certain time frames and we would like to tie one-half (1/2) of
your Stock Options relating to the 5% equity position to these milestones,
the other 5% to vest monthly over the three-year period. The initial options
will be granted to you on your start date and vesting will occur based on
time schedules and specific performance criteria to be identified in your
employment agreement. The option price will be the trading price of ComTec on
your start date. All options will be issued at 80% of market price. I believe
that the final details of any contract might take
80
<PAGE>
sometime to complete, but if we agree in principal, we would like to see you
start immediately. Therefore the following salary earn-in structure and other
pertinent items are what we would propose:
Starting Salary: $8,000 per month plus health benefits.
Increase Salary: $10,000 per month (between 6 and 12 months),
predicated upon meeting milestone goals, financing
and cash flow from operations:
Future annual compensation will be dependent on company and personal
performance.
Sign-On Bonus:
A two-tiered sign-on bonus will be granted to you upon
acceptance of the position. The first portion consisting of $21,000 of stock
will be granted upon acceptance. After 90 days a similar amount will be
granted to you.
Cash Bonus:
A year-end cash bonus will be paid in the first month following the prior
year's close of business. The amount will be determined based on both
company and personal performance.
Business Expenses:
All business related expenses, including travel, will be arranged for and paid
directly by the company on a timely basis.
Press Releases:
No official press releases regarding this employment agreement will be made
by the company until approved by Mr. Jim Krejci.
Mutual Termination:
A provision for the cancellation of the employee agreement will be included
which allows either party to cancel after a one-year period.
Milestone and Stock Options Vesting (All Options Vesting will be based on 50%
on meeting milestone objectives and 50% monthly over the three-year time
frame.)
Year One - Option Vesting 3 - 4%
--------
Date of hire to 60 days: Develop and complete five-year strategic
business and marketing plan and financial projections with other
members of management.
Date of hire to 120 days: Assist in completing some form of bridge or
short-term financing and develop investment banking contacts.
81
<PAGE>
60 days to 180 days: Analyze and negotiate the acquisition of targeted
SMR business available to acquire; pursue and negotiate a letter of
intent for a secondary offering with investment bankers.
Assist in the integration of any newly developed systems and
operations.
Year Two - Option Vesting 3 - 4%
--------
Completion of a secondary offering which will supply adequate capital
to meet future cash needs.
Completion of roll-up of acquisitions and the integration of those
systems.
Growth of the business and revenues to certain levels that we could
agree upon mutually.
Year Three - Option Vesting 3 - 4%
----------
Evaluate future cash needs and develop strategy to meet those needs.
Further growth of revenues and bottom line earnings to certain levels
that we could agree upon mutually.
Obviously some of the final details of the above will take time for us to work
out together. We are on a fast track with respect to this position, therefore
your immediate consideration and response Is requested. We are very excited to
make this offer to you and hope to be able to benefit from your input, advice
and counsel in completing the various open items as well as directing the
future growth and prospects of ComTec.
Thank you,
s/Gordon D. Dihle
Gordon D. Dihle
Chief Financial Officer
s/James J. Krejci
___________________________
Accepted by James J. Krejci
Feb 16, 98
__________
Date
82
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 1997, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 630,000
<SECURITIES> 248,400
<RECEIVABLES> 127,100
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,005,500
<PP&E> 275,500
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,321,000
<CURRENT-LIABILITIES> 2,096,700
<BONDS> 0
0
0
<COMMON> 13,200
<OTHER-SE> (788,900)
<TOTAL-LIABILITY-AND-EQUITY> 1,321,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,634,100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,115,300)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,115,300)
<EPS-PRIMARY> .58
<EPS-DILUTED> 0
</TABLE>
