UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the Quarter ended September 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from ___________________
Commission File No. 0-12116
ComTec International, Inc.
(Name of Small Business Issuer in its charter)
New Mexico 75-2456757
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
9350 East Arapahoe Road, Suite 340, Englewood, Co. 80112
(Address of principal executive offices)
(303) 662-1198
(Issuer's Telephone Number Including Area Code)
Common Stock, $.001 par value
-----------------------------
(Title of Class)
former name, former address and former fiscal year if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes No x
----- -----
ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS
Check whether the issuer has filed all documents and reports required to be
filed by Sections 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes x No
----- -----
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practical date:
As of July 20, 1999, 46,070,019 shares of Common Stock ($.001 par value)
were outstanding
Transitional Small Business Disclosure Format (check one):
Yes No x
----- -----
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TABLE OF CONTENTS
FORM 10-QSB REPORT - FOR QUARTER ENDED SEPTEMBER 30, 1998
ComTec International, Inc.
PART I
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
September 30, 1998 (unaudited) and June 30, 1998 (audited) 3
Condensed Consolidated Statements of Operations 4
Three Months ended September 30, 1998 and 1997
and from inception (unaudited)
Condensed Consolidated Statements of Cash Flows 5
Three Months ended September 30, 1998 and 1997
and from inception (unaudited)
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operation 7
PART II
Item 1. Legal Proceedings 11
Item 2. Change in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibit and Reports on Form 8-K 12
SIGNATURE PAGE 13
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PART I
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
ComTec International, Inc. and Subsidiaries
(a Development Stage Enterprise)
Consolidated Condensed Balance Sheets
<CAPTION>
September 30, 1998 June 30, 1998
(unaudited) (audited)
------------ ------------
<S> <C> <C>
Assets
Current Assets
Cash and equivalents
(includes restricted funds
of $568,500) $ 555,383 $ 667,800
Accounts Receivable, less allowance
For doubtful collections of $28,900 62,694 13,500
LED Equipment held for resale 1,314,357 1,324,300
Other current assets -- 45,000
------------ ------------
Total Current Assets 1,932,434 2,050,600
Property and Equipment, net 1,410,914 1,478,600
License Rights 1,390,700 1,390,700
Other Assets 5,586 5,700
------------ ------------
Total Assets $ 4,739,634 $ 4,925,600
============ ============
LIABILITIES
Current Liabilities
Current Portion of Long Term Debt 52,875 13,400
Accounts Payable 62,271 254,400
Notes Payable 1,455,820 1,184,200
Accrued Liabilities 499,674 399,700
------------ ------------
Total Current Liabilities 2,070,640 1,851,700
------------ ------------
Long Term Debt, less current portion 1,448,895 1,432,900
------------ ------------
STOCKHOLDER'S EQUITY
Common Stock, .001 par value;
Authorized 100,000,000 shares;
39,697,196 and 42,774,118 shares issued
June 30, 1998 and September 30, 1998 42,774 39,700
Capital in Excess of Par 13,323,513 13,326,600
Deficit accumulated during the
development stage (12,146,188) (11,725,300)
------------ ------------
1,220,099 1,641,000
------------ ------------
Total Liabilities and Stockholders Equity $ 4,739,634 $ 4,925,600
============ ============
</TABLE>
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<TABLE>
ComTec International, Inc. and Subsidiaries
(a Development Stage Enterprise)
Consolidated Condensed Statements of Operations
<CAPTION>
For the Three Months Ended
September 30, 1998 September 30, 1997 Cumulative
(unaudited) (unaudited) Amounts from
Inception
(unaudited)
----------- ---------- -----------
<S> <C> <C> <C>
Revenues $ 80,954 $ 0 $ 80,954
Cost of Sales 73,888 0 73,888
----------- ---------- -----------
Gross Profit 7,066 0 7,066
Expenses
Selling, General and Administrative 167,986 285,527 3,391,786
Compensation in the form of common stock -- -- 3,655,000
Management fees- related party -- -- 65,000
----------- ---------- -----------
Loss before other expense (income) 160,920 285,527 7,104,720
----------- ---------- -----------
Other Income (expense)
Interest and Dividend Income 897 (701) 34,897
Interest expense (50,931) 6,500 (922,931)
Rental and Other Income 43,927 -- 222,227
Prepaid Calling Card services, less revenues -- (5,905) (575,800)
Loan Origination Fees (253,846) -- (253,846)
Loss on investments, foreclosures and disposals -- 23,471 (851,300)
Write-down of intangibles and LED equipment -- -- (2,674,300)
---------- ---------- -----------
Total Other Income (Expense) (259,953) 23,365 (5,021,053)
---------- ---------- -----------
Net Loss $ (420,873) $ (262,162) $(12,125,773)
========== ========== ===========
Weighted Average Common Shares Outstanding
39,697,196 8,857,079 8,866,064
========== ========== ===========
Net Loss per Common Share (0.01) (0.03) (1.37)
========== ========== ===========
</TABLE>
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<TABLE>
ComTec International, Inc. and Subsidiaries
(a Development Stage Enterprise)
Consolidated Statements of Cash Flows
<CAPTION>
For the Three Months Ended
September 30, 1998 September 30, 1997 Cumulative
(unaudited) (unaudited) Amounts from
inception
(unaudited)
--------- --------- ------------
<S> <C> <C> <C>
Operating activities:
Net Loss $(420,873) $(262,162) $(12,125,773)
========= ========= ============
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation expense 53,635 10,859 316,835
Services and Interest exchanged for stock -- -- 3,304,200
Gain on Sale of Marketable Securities -- -- (10,000)
Write Down of Intangible -- -- 2,674,300
Losses on investments, foreclosure and disposal -- -- 677,200
Changes in assets and liabilities:
Accounts receivable (49,194) (30,918) 10,394
Deposits and other (74,308) (101,600) (76,808)
(Increase) decrease in other current assets 45,000 (35,820) 11,100
Increase (decrease) in account payable
& liabilities (15,065) (24,680) 1,381,535
Other Assets -- -- 40,000
--------- --------- ------------
Net cash used in operating activities 58,456 (444,321) (3,797,017)
========= ========= ============
Investing activities:
Proceeds of Sale of Marketable Securities -- -- 267,500
Proceeds from acquisition -- -- 22,100
License rights -- -- (424,300)
Marketable securities -- -- (255,600)
Non-Operating assets -- -- (25,000)
Related Party -- -- (39,000)
Purchase of property, plant and equipment -- -- (1,699,800)
Other -- (929) (85,200)
--------- --------- ------------
Net cash used in investing activities -- (929) (2,239,300)
========= ========= ============
Financing activities:
Advances from related party -- -- 184,500
Proceeds: private place of common stock -- -- 1,138,900
Proceeds: short term notes 250,000 250,000 1,545,100
Warrants -- -- 30,000
Convertible Debentures -- -- 4,100,000
Payments on notes payable -- (40,000) (397,800)
Payment on long-term notes payable -- -- (9,000)
--------- --------- ------------
Net cash provided by financing activities 250,000 (40,000) 6,591,700
========= ========= ============
Increase (Decrease) in cash (112,417) (485,250) 555,383
========= ========= ============
Beginning cash balance 667,800 630,000 --
--------- --------- ------------
Ending cash balance $ 555,383 $ 144,750 $ 555,383
========= ========= ============
</TABLE>
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ComTec International, Inc. and Subsidiaries
(a Development Stage Enterprise)
Notes to the Consolidated Financial Statements
Note 1.
a) The summary of the Issuer's significant accounting policies are incorporated
by reference to the Company's SEC Form 10-KSB as of June 30, 1998. The notes to
the audited financial statements presented with the Company's SEC Form 10-KSB as
of June 30, 1998 are an integral part of the audited balance sheet data
presented herein.
b) The accompanying unaudited condensed financial statements reflect all
adjustments which, in the opinion of management, are necessary for a fair
presentation of the results of operations, financial position and cash flows.
The results of the interim period are not necessarily indicative of the results
for the full year.
Note 2.
On March 28, 1997 the Shareholders of the Company approved a proposal to give
the Company's Board of Directors authority to institute a reverse stock split of
from 3 for 1 to 100 for 1 at the discretion of the Board of Directors until
December 31, 1997. On December 26, 1997 the Board of Directors of the Company
acted pursuant to shareholder authority granted at the Annual Meeting of
Shareholders held March 28th, 1997, to declare a one for five reverse stock
split of the Company's .001 par value common stock effective 12:01 A.M. January
31st, 1998. All share data and per share data is stated to reflect the reverse
stock split.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Overview
ComTec international Inc. was incorporated on July 6, 1983 in the State of
New Mexico, originally under the name of Nisus Video, Inc. The Company has
undergone many changes to date as a result of certain reorganizations and recent
change of management. Historical changes are more fully disclosed in prior 34
Act filings and the most recent changes, including changes in management are
described in the Company's 10-KSB for the year ended June 30, 1998. 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.
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 wireless specialized mobile radio "SMR" operations are conducted
through AWN.
During the fiscal year ended June 30, 1998 and through the present the
Company continued as a developmental stage entity focused on developing its
wireless specialized mobile radio "SMR" business plan. Prior to December, 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. On December 5, 1997 AWN completed
the initial phase of a purchase agreement and on July 6, 1998 completed the
terms of an agreement whereby AWN purchased seven operating SMR systems for
$3,035,700. The wireless communications assets and associated business acquired
from Centennial Communications Corp. lay within the following seven MTA's:
Birmingham, Alabama; Knoxville, Tennessee; Memphis, Tennessee; Nashville,
Tennessee; New Orleans, Louisiana; Oklahoma City, Oklahoma; Tulsa, Oklahoma.
During the quarter ended September 30, 1998 AWN operated the seven SMR
communications systems from its office in Englewood, Colorado.
(a) Plan of Operation:
FORWARD-LOOKING STATEMENTS
The securities of the Company are speculative and involve a high degree of
risk, including, but not necessarily limited to, the factors affecting operating
results described in the Form 10KSB for the year ended June 30, 1998 and other
filings with the SEC. The statements which are not historical facts contained in
this report, including statements containing words such as "believes,"
"expects," "intends," "estimates," "anticipates," or similar expressions, are
"forward looking statements" (as defined in the Private Securities Litigation
Reform Act of 1995) that involve risks and uncertainties.
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 future acquisitions of telecommunications, computer
related or other cash flow business. The forward-looking statements included
herein are based on current expectations that involve numerous risks and
uncertainties. Assumptions relating to the foregoing involve judgments with
respect to, among other things, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of the
Company. Although the Company believes that the assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could be
inaccurate and, therefore, there can be no assurance that the forward-looking
statements included in this Form 10- QSB will prove to be accurate. In light of
the significant uncertainties inherent in the
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<PAGE>
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.
Since May 10, 1995, the Company's strategic business plan has, aside from
terminated venture in the LED screens and the divested TTI prepaid phone card
investment, been concentrated on wireless telecommunications. Currently, the
Company's only business is the recently commenced operation of basic two-way
communications services. The Company has been and continues to be in the
development stage. The Company remains in the development stage and from
inception (March 15, 1994) has only generated auxiliary revenues to defray the
cost of its planned operations, with only limited success in implementing actual
operations. The Company has financed its operations during the development stage
from the sale of its common stock and from issuance of short and long-term debt.
During the quarter ended September 30, 1998 and through the present the
Company continued as a developmental stage entity focused on managing its
wireless SMR business plan. During the quarter ended September 30, 1998,
activities consisted of operating the SMR systems, control of which was acquired
in December, 1997, developing alternative strategic plans, efforts to acquire
financing, developing a management plan and maintaining reporting compliance for
various federal government agencies, such as the SEC and FCC.
Current Status and Operations
During the fiscal year ended June 30, 1998 and through May 1999 the Company
continued as a developmental stage entity focused on managing its wireless
specialized mobile radio "SMR" business plan. Prior to December, 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. On December 5, 1997 AWN completed the initial
phase of a purchase agreement whereby AWN purchased seven operating SMR systems
for $3,035,700. The wireless communications assets and associated business
acquired from Centennial Communications Corp. lay within the following seven
MTA's: Birmingham, Alabama; Knoxville, Tennessee; Memphis, Tennessee; Nashville,
Tennessee; New Orleans, Louisiana; Oklahoma City, Oklahoma; Tulsa, Oklahoma.
During the quarter ended September 30, 1998 AWN operated the seven SMR
communications systems from its office in Englewood, Colorado. AWN's SMR
communication services were 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.
Expenses of operating the system significantly exceed revenues from the systems
during the quarter ended September 30, 1998 and preceding periods.
On April 15, 1999, and as amended on July 14, 1999, AWN executed an Asset
Acquisition Agreement with CMRS Systems, Inc. an unaffiliated corporate entity.
The purpose of the Asset Acquisition Agreement is to facilitate the future sale
by American Wireless Network, Inc. to CMRS Systems, Inc. of specifically
identified 900 MHz Licenses and American Wireless Network, Inc.'s customer base
and customer lists associated with the specified 900 MHz licenses. The sale and
an associated lease of SMR related equipment owned by AWN, is subject to certain
conditions and events, including final and unappealable regulatory approvals
relating to the transfer of the licenses to the Buyer. In consideration for the
sale, the Buyer is to assume approximately $1,400,000 of American Wireless
Network, Inc.'s debt to the Federal Communications Commission related to the
licenses. AWN will retain a seven and one half percent interest in the specific
operating assets sold to CMRS Systems, Inc. which assets will be operated
through a division of CMRS Systems, Inc. to be known as the S.E. 900 Division.
During the pendancy of the license transfer application, Effective June 1, 1999,
CMRS will operate the SMR systems under a management agreement. As an additional
provision of the agreement, CMRS Systems, Inc. and AWN entered into a five year
lease agreement whereby AWN will lease SMR related equipment to CMRS Systems,
Inc.
New Funding Efforts:
In May 1998, the Company paid a $25,000 deposit to Sigma Finance
Corporation in connection with a nonbinding financing proposal for up to a $200
million ten-year bond issue to be collateralized by all of the Company's assets.
In September 1998, the Board of Directors approved the preliminary requirements
of the proposed tentative financing arrangement and management was authorized to
take all necessary action to pursue and finalize the transaction if the
opportunity arises. The significant terms approved by the Board in anticipation
of
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potential financing include an allowance for the lender of a minimum of two
seats on the Company's Board of Directors, the power of veto over future capital
expenditures and other significant matters, and issuance of unrestricted shares
of common stock equal to 20% of the Company's equity, with a non-dilution
agreement which would have the effect of maintaining the lenders 20% holding at
no cost to the lender whatever additional issues of equity capital was proposed
or made during the life of the bond. In addition to legal fees to effect the
financing, the Company will be required to pay an origination fee of 10% of the
loan proceeds should the financing materialize. Neither Sigma Finance
Corporation nor any other person or entity is obligated to make an loan or
provide financing to the Company under any terms.
Should the Company be successful in obtaining substantial additional debt
financing, management plans to seek merger with or acquisitions of more mature
telecommunication or computer related businesses or other cash generating
enterprises that would generate sufficient cash flow to maintain debt service.
There can be no assurances that the Company will be successful in the
implementation of its plan for expansion and its overall business plan.
Pending Acquisitions:
Currently there are no letters of intent or other formalized agreements to
acquire any entity or assets. The only acquisition which the Company has
accomplished to date is the purchase completed July 6, 1998, whereby AWN
purchased seven operating SMR systems for $3,035,697. from Centennial
Communications Corp.
(b) Liquidity and Capital Resources
The Company reported a net loss (unaudited) of $420,873 for the quarter
ended September 30, 1998 and has reported net losses from inception (March 15,
1994) to September 30, 1998 of $12,125,773. The Company had deficient working
capital at September 30, 1998 of $138,206. As of September 30, 1998, the Company
reported shareholder equity of $1,220,099. To date, these losses and cash flow
deficiencies have been financed principally through the sale of common stock and
warrants and issuance of short and long-term debt which includes related party
debt. Additional capital and/or borrowings will be necessary in order for the
Company to continue in existence until attaining profitable operations. Although
a portion of convertible debt was liquidated through the issuance of common
stock, no assurances can be given that the sources of borrowings would continue.
The Company is highly leveraged and a number of developments over the past
quarter had material adverse effects on the Company. The Company has a
significant investment in license rights obtained through the acquisition of
assets from Centennial Communications, Corp., the recoverability of which is
dependent upon the success of future events.
Management has continued to develop a strategic business plan to raise
private financing, develop a management team, maintain reporting compliance and
seek new expansive areas in telecommunications. In order to reduce negative cash
flow the Company entered an agreement to sell its FCC licenses to satisfy debt
requirements and in a plan anticipated to generate cash flows, has entered into
an agreement to lease its SMR equipment.
From August 1, 1999 to the end of fiscal year ended June 30, 2000, the
Company estimates its cash needs to maintain operations under its current
negative cash flow situation is approximately $550,000. This amount is composed
of $550,000 for working capital assuming that current operations continue in its
present status. These amounts include offsets for anticipated amounts of cash
generated from operations, but does not consider possible proceeds from interest
income or sales of assets.
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 September 30, 1998, the unaudited results of the Company
indicated deficit working capital of $138,206. All during fiscal 1998 and to the
date of this filing, the Company has had and continues to have a substantial
need for working capital for normal operating expenses associated with the
Company continuing as a going concern. This lack of cash has slowed its ability
to develop SMR assets and initiate revenue producing operations. Any activity in
the wireless industry requires adequate financing and on-going funding sources.
The Company has entered this industry with limited financing and funding
sources.
At September 30, 1998 (unaudited), the following contingent stock issue
requirements and warrants were outstanding:
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- Shares reserved for the Company's incentive stock option plan (900,000)
- Shares reserved for issuance in accordance with outstanding warrants
issued June 30, 1997 (4,242,923) exercisable at $4.50 per share,
expiring June 30, 2000.
- Shares reserved for contingent issue with respect to outstanding
warrants exercisable at $2.90 per share associated with converted
debt and LED Screens (7,083,333), expiring in March 2001.
- Shares reserved for contingent issue with respect to outstanding
warrants exercisable at $2.90 per share associated with converted
debt related to the SMR Asset purchase (17,600,000), expiring in
March 2001.
- On February 16, 1998, the Company entered into a letter agreement with
the Company, 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 potential options, as modified (reprised) by Board of
Director action on October 7, 1998, is $.056 per share, representing
80% of the bid price of the Company's common stock on September 2nd,
1998, (closing bid price $.07) Mr. Krejci's actual appointment date as
President and CEO of the Company.
During quarter ended September 30, 1998, the Company continued as a
development stage enterprise. The Company's financial statements are therefore
not indicative of anticipated revenues which may be attained or expenditures
which may be incurred by the Company in future periods. The Company's ability to
achieve profitable operations is subject to the validity of its assumptions and
risk factors within the industry and pertaining to the Company.
$80,954 of revenues were generated from the Company's wireless business
during the quarter ended September 30, 1998, no revenues were generated during
the quarter ended September 30, 1997. For the quarter ending September 30, 1998,
the Company recorded "other income" of $43,927 as a result of adjustments to
previously recorded disposition losses. For the quarter ending September 30,
1997, the Company recorded other income of $23,471 as a result of adjustments to
previously recorded foreclosure losses.
For the quarter ending September 30, 1998, the Company incurred General and
Administrative Expenses of $167,986, a decrease of $117,541 from the quarter
ending September 30, 1997, when the Company incurred expenses of $285,527. The
Company's Quarter ended September 30, 1998 financial statements reflect
adjustments and nonrecurring items of both revenue and costs, as well as
development stage costs and are not indicative of anticipated revenues which may
be attained or expenditures which may be incurred by the Company in future
periods.
The Company has undergone a complete change in management over the past two
years. 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. As a result of the Special Meeting of Shareholders held
August 26, 1998, Donald G. Mack and Daniel Melnick were removed as Directors of
the Company. In the same special shareholders meeting, James J. Krejci and
Gordon D. Dihle were elected to the Company's Board of Directors until the next
annual meeting of the Shareholders. As of August 26, 1998 the Company's Board of
Directors consisted of J. Kent Millington (appointed May 8, 1998), James J.
Krejci and Gordon D. Dihle. J. Kent Millington who was appointed May 8, 1998
resigned from the board of directors effective September 2, 1998. At a Special
Board of Directors meeting held September 2, 1998, the following officers were
appointed by the Board of Directors: James J. Krejci as President, CEO and
Chairman of the Board of Directors and Gordon D. Dihle as Secretary and
Treasurer.
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Part II
ITEM 1. LEGAL PROCEEDINGS
On September 14, 1998 the Company received by certified mail a Complaint
filed in Superior Court of California, County of San Diego, Case No. 723581
entitled John Brent, et al vs. ComTec International, Inc., a New Mexico
corporation, et al Defendants. The Complaint by seven named Plaintiffs alleges
securities fraud, improper sale of unregistered securities, and stock
manipulation against the Company and five individual defendants who were former
officers and/or directors of the Company, none of whom are currently associated
with the Company. The Company believes that it has meritorious defenses and will
vigorously defend against the allegations of the Complaint. Due to the
preliminary stage of the matter, further information is not available. The
Company filed its answer to Plaintiffs' Complaint on July 15, 1999. A motion to
dismiss Plaintiffs' complaint for failure to join indispensable parties
initiated by the Company is pending.
Litigation with Former Officer and Director
On February 1, 1999 Donald Mack, the former CEO, President and director of
ComTec International, Inc. filed a complaint in the District Court, City and
County of Denver, State of Colorado, Civil Action Number 99CV634, Courtroom 6,
against ComTec International, Inc. ("ComTec") as well as two individual
defendants, a current officer and a shareholder of ComTec. On March 24, 1999
ComTec filed its Answer and extensive Counterclaims against Donald Mack
("Mack"). Mack alleges that he is entitled to continued compensation and
benefits based upon a March 31, 1997 addendum to his December 26, 1995
employment contract (which expired in May of 1998). Mack further alleges that
although he resigned as an officer in June 1998, he was wrongfully induced to
resign. Mack alleges that he is due salary, car allowance, health plan payments,
life insurance payments, stock bonuses and other items from June 30, 1998
through June 30, 2002. ComTec's answer states that the March 31, 1997 addendum
is null and void as a matter of law, denies any wrongdoing or inducement and
denies any and all liability to Mack. ComTec's answer further states as
affirmative defenses that Mack's claims are barred by the doctrine of estoppel
and unclean hands, that the March 31, 1997 addendum was entered into under
circumstances of fraud and illegality, that Mack's claims are barred by failure
of consideration, fraud and illegality, waiver, failure to mitigate, that Mack's
alleged claims are setoff by the counterclaims of ComTec against Mack and that
Mack's alleged damages, if any, are the result of Mack's own actions. ComTec
believes it has meritorious and virtuous defenses and anticipates that it will
vigorously and effectively defend against any and all claims by Mack. The
Company filed a number of Counterclaims against Mack. Among the Counterclaim
allegations of ComTec against Mack are allegations that an agreement entered
into in May of 1995, whereby Mack gained control of ComTec through an agreement
for ComTec to purchase the assets of a corporation controlled by Mack, KeyStone
Holding Corporation, was entered into with intent to defraud ComTec and its
shareholders. Among other allegations, ComTec alleges that misrepresentations
and omissions of material fact were made by Mack prior to the Keystone
transaction, that Mack used ComTec as an instrumentality for his own personal
benefit and affairs, that Mack acted to conceal material facts regarding Mack's
ultra vires and unauthorized acts in the name of ComTec. ComTec further alleges
that Mack took unauthorized and unearned bonuses in stock of ComTec and cash,
that the execution of the employment addendum through which Mack is alleging
amounts are now due him from ComTec was accompanied by circumstances of fraud
and collusion, and that Mack made unauthorized use of ComTec's funds and
property. ComTec's claims against Mack include: intentional
misrepresentation/fraudulent inducement regarding the Keystone Transaction;
fraudulent concealment/constructive fraud; breach of warranty; breach of
fiduciary duty; conversion; fraudulent conveyance; civil theft pursuant to
C.R.S. Section 18-4-401 and 18-4-405 and securities fraud pursuant to C.R.S.
Section 11-51-501. ComTec seeks monetary damages and constructive trust as well
as Declaratory Judgment pursuant to C.R.C.P. 57. ComTec believes it has
meritorious claims and will resolutely pursue its claims against Mack. A trial
date of April 3, 2000 has been set for the matter.
Except for the foregoing, no litigation or other material legal
proceedings, to which the Company is a party or to which the property of the
Company is subject, is pending or is known by the Company to be contemplated.
ITEM 2. CHANGE IN SECURITIES. NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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
11
<PAGE>
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:
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.
ITEM 5. OTHER INFORMATION: NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) & (b) Financial Statements and Schedules. See Financial Statements beginning
on page 3.
(c) Exhibits. The following documents are filed herewith or incorporated
herein by reference as Exhibits:
Exhibits
2.1 N/A
3.0 Articles of Incorporation of the Company. (incorporated by reference to
Exhibit 3.1 to the Company's Form S-1 Registration Statement No.
82-88530 dated December 20, 1983). Amendment Incorporated by Reference
to Form 8-K dated May 12, 1997.
3.1 By-laws. (incorporated by reference to Exhibit 3.2 to the Company's
Form S-1 Registration Statement No. 82-88530 dated December 20, 1983
and Exhibit 3.2 Form 10KSB for the year ended June 30, 1998)
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 former
officers. (1)
12
<PAGE>
10.02 Letter Agreement between the Company and James J. Krejci. (2)(3)
11 Not Applicable.
15 Not Applicable.
18 Not applicable.
19 Not applicable.
22 Not Applicable.
23 Not Applicable.
24 Not applicable .
27 Financial Data Schedule
99 Not applicable
d) The Company filed the following reports on Form 8-K:
September 3, 1998 - Current Form 8-K to report the final closing of the
purchase of SMR assets from Centennial Communications Corp; the termination of
SMR license options with DCL Associates and other license holders, the results
of the special meeting of shareholders held August 26, 1998; the change in
management as a result of the August 26, 1998 special meeting of shareholders
and related events; and issuance of securities on May 20, 1998 and September 2,
1998 pursuant to Regulation S Exemptions.
- ------------
(1) Incorporated by reference to the Company's Form 10-KSB as of June 30, 1996.
(2) Incorporated by reference to the Company's Form 10-KSB as of June 30, 1997.
(3) Incorporated by reference to the Company's Form 10-KSB as of June 30, 1998.
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report signed on its
behalf by the Undersigned, thereunto duly authorized.
COMTEC INTERNATIONAL, INC.
Date: July 20, 1999 By: /s/ James J. Krejci
----------------------------------
James J. Krejci, President and
Chief Executive Officer
By: /s Gordon Dihle
----------------------------------
Chief Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1998
<CASH> 555,383
<SECURITIES> 0
<RECEIVABLES> 91,594
<ALLOWANCES> 28,900
<INVENTORY> 1,314,357
<CURRENT-ASSETS> 1,932,434
<PP&E> 1,410,914
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,739,634
<CURRENT-LIABILITIES> 2,070,640
<BONDS> 0
0
0
<COMMON> 42,774
<OTHER-SE> 1,177,325
<TOTAL-LIABILITY-AND-EQUITY> 4,739,634
<SALES> 80,954
<TOTAL-REVENUES> 80,954
<CGS> 73,888
<TOTAL-COSTS> 73,888
<OTHER-EXPENSES> 167,986
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (50,931)
<INCOME-PRETAX> (420,873)
<INCOME-TAX> 0
<INCOME-CONTINUING> (420,873)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (420,873)
<EPS-BASIC> (.01)
<EPS-DILUTED> 0
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