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, 1999
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) 662-8069
(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 $.001 par value
----------------------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days
Yes No x
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information: [ ]
Statements incorporated by reference in Part III of this Form 10-KSB or
any amendment to this Form 10-KSB:[ ]
State the aggregate market value of the voting stock (common stock) held by
non-affiliates computed by reference to the price at which the stock was sold or
the average bid and asked price of such stock , as of a specified date within
the past sixty days. As of the close of business, March 10, 2000, the aggregate
market value of the Company's Common Stock (based on the average of the ($.32)
bid and ($.41) asked price) held by non-affiliates was $15,399,000.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Number of shares outstanding of each of the issuer's
classes of Common stock as of March 10, 2000 was
44,876,191 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 No
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DOCUMENTS INCORPORATED BY REFERENCE: None
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FORM 10-KSB ANNUAL REPORT - FISCAL YEAR ENDED JUNE 30, 1999
COMTEC INTERNATIONAL, INC.
TABLE OF CONTENTS Page
PART I
Item 1. Description of Business 3.
Item 2. Description of Property 14.
Item 3. Legal Proceedings 15.
Item 4. Submission of Matters to a Vote of Security Holders 16.
PART II
Item 5. Market for Common Stock Equity and Related Stockholder Matters 17.
Item 6. Management's Discussion and Analysis or Plan of Operation 19.
Item 6a. Quantitative And Qualitative Disclosures About Market Risk 24.
Item 7. Financial Statements 25.
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 25.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 25.
Item 10. Executive Compensation 28.
Item 11. Security Ownership of Certain Beneficial Owners and Management 32.
Item 12. Certain Relationships and Related Transactions 34.
Item 13. Exhibits and Reports on Form 8-K 35.
SIGNATURE PAGE 37.
INDEPENDENT AUDITOR'S REPORT AND CONSOLIDATED FINANCIAL
STATEMENTS, JUNE 30, 1999 AND 1998 F-1.
Exhibit 10.8 39.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
(a) Business Development:
1. GENERAL CORPORATE
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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) 662-8069; 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").
As a result of the Asset Acquisition Agreement (as amended) entered into
between AWN and CMSR Systems, Inc. on April 15, 1999, and reported on Form 8K
filed April 30, 1999, the day to day SMR operations of AWN have been undertaken
by CMSR Systems, Inc. under a management contract wherein AWN supervises
management of the systems pursuant to FCC rules but actual hands on operations
are now conducted by CMSR Systems, Inc. The Company is now exploring potential
acquisition and or merger transactions with existing business opportunities in
telecommunications, information industries, computer industry or other cash
positive business operations.
2. CURRENT OPERATIONS
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OPERATING SUBSIDIARY
On December 3, 1996 the Company formed American Wireless Network, Inc.,
(`AWN") 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 AWN (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. From December 5, 1997 to June 1st, 1999, AWN
operated SMR sites in seven MTA's in the southeastern U.S.A., operating
specialized mobile radio licenses purchased from Centennial Communications Corp.
As a result of the Asset Acquisition Agreement (as amended) entered into between
AWN and CMSR Systems, Inc. on April 15, 1999 which became effective June 1,
1999, the day to day SMR operations of AWN have been undertaken by CMSR Systems,
Inc. under a management contract wherein AWN supervises management of the
systems pursuant to FCC rules but actual day to day operations are now conducted
by CMSR Systems, Inc.
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PRINCIPAL OFFICE OF REGISTRANT
On December 15, 1997 the Company relocated its principal offices to Suite
340, East Arapahoe Road, Englewood, Colorado, 80112. The Company's phone number
is (303) 662-8069. The Company's operating subsidiary, AWN, 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 plan to operate and market as a public advertising
media, the use as of giant LED screens. The Company has entered into an
agreement 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
--------------------
James J. Krejci and began initial employment with the Company on February
17, 1998 and in conjunction therewith, was named CEO of AWN and Chief Operations
Officer of the Company.
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 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 has subsequently filed litigation against the Company related to alleged
compensation entitlements and the Company has filed extensive counterclaims
against Mr. Mack. (SEE ITEM 3 LEGAL PROCEEDINGS - LITIGATION WITH FORMER OFFICER
AND DIRECTOR)
On August 26, 1998, pursuant to a call for a special meeting by
shareholders owning in excess of 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
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meeting and election of all shareholders of the Company was held with the
following proposed purposes: remove Donald G. Mack from the Board of Directors
for cause; remove Daniel Melnick from the Board of Directors; elect James J.
Krejci to the Board of Directors and 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. Mr. Mack has
subsequently filed litigation against the Company related to alleged
compensation entitlements and the Company has filed extensive counterclaims
against Mr. Mack. (SEE ITEM 3 LEGAL PROCEEDINGS - LITIGATION WITH FORMER OFFICER
AND DIRECTOR)
J. Kent Millington who was appointed May 8, 1998 resigned from the board of
directors effective September 2, 1998. With respect to the resignation 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.
On September 30, 1998, Marc Maassen, an individual previously unaffiliated
with the Company or current management was appointed to the Board of Directors
as an outside director.
Current management of the Company consists of President and CEO, James J.
Krejci, an MBA, formerly a top executive with Jones Intercable, Inc./Jones
International, Ltd. associated companies, Chief Financial Officer and
Secretary/Treasurer, Gordon Dihle, an attorney and CPA, and Controller, Michael
Bunch, a CPA and MBA. Marc Maassen is an outside director of the Company,
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4. ASSET FORFEITURES, DISPOSITIONS AND TERMINATIONS OF CONTRACT RIGHTS
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DISPOSITION OF LED SCREEN ASSETS
On December 31, 1998 the Company disposed of six (6) giant light-emitting
diode (LED) screens by sale to Lanstar Computer Products, Inc., a Texas
Corporation, located in Dallas, Texas. The giant LED screens are used to provide
computer light presentation programs, adaptable for indoor or outdoor use for
sporting events, advertising displays and other theatrical applications.
Pursuant to the Purchase Agreement entered into between the Company and Lanstar
Computer Products, Inc., the LED screens were sold to Lanstar Computer Products,
Inc. in exchange for a Promissory Note payable to the Company in the amount of
two million four hundred thousand dollars ($2,400,000). The promissory note is
secured by an agreement utilizing the assets sold as security for the promissory
note. The entire principal of the promissory note was due December 31, 1999. The
promissory note, a general obligation of Lanstar Computer Products, Inc., bears
simple interest at the rate of eight percent (8%) per annum payable quarterly.
The Buyer, Lanstar Computer Products, Inc., is a Texas Corporation located at
13707 Gamma Road, Dallas, Texas 75244. Prior to this disposition, neither the
Company, nor any of its subsidiaries, directors, officers or persons associated
with the Company's officers and directors had any relationship with Lanstar
Computer Products, Inc. or any of its officers or directors. Lewis D. Rowe, who
is not an officer or director of the Company, but who is listed as an affiliate
of the Company in the Company's June 30, 1997, 1998 and 1999 Form 10KSB as a
person known by the Company to own beneficially more than 5% of the Company's
.001 par value common stock, may be an affiliate of Lanstar Computer Products,
Inc., a non-pubic company. The LED Screens had been on consignment for sale
since August 1998. No determination as to the collectability of the promissory
note has been made.
AGREEMENT FOR DISPOSITION OF LICENSES
As previously reported on Form 8K filed April 30, 1999, on April 15, 1999,
AWN executed an Asset Acquisition Agreement (as amended) with CMSR Systems,
Inc., ("Buyer") a Nevada Corporation unaffiliated with the Company. The purpose
of the Asset Acquisition Agreement is to facilitate the sale by American
Wireless Network, Inc. to CMSR 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 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 operating interest in the
operational segment represented by the licenses and operations sold to CMSR
Systems, Inc. by AWN. The agreement also includes a lease of SMR related
equipment owned by AWN to CMSR Systems, Inc. The 900 MHz Licenses and American
Wireless Network, Inc.'s customer base and customer lists associated with the
specified 900 MHz licenses to be sold to CMSR Systems, Inc. were purchased by
American Wireless Network, Inc. on July 6, 1998 as a part of the acquisition of
divisional segment assets from Centennial Communications Corp. which was
reported in Item 2 of form 8K's dated December 26, 1997,
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and September 3, 1998 and Items 2 and 7 of the form 8K-A and Exhibits thereto
dated February 9, 1999. Effective June 1, 1999 all hands on operations
previously conducted by AWN with respect to the 900 MHz licenses were undertaken
by CMSR Systems, Inc. under a management agreement between AWN and CMSR Systems,
Inc. Application has been made and approval of the transfer of the 900 MHz
licenses and assumption of the debt to the FCC related to the licenses is
pending at the FCC.
(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 SMR operations were conducted through AWN. At present AWN acts as
the supervisor of certain SMR operations managed by CMSR Systems, Inc. under the
provisions of the management contract with CMSR Systems, Inc.
During the fiscal year ended June 30, 1999 and through the present, the
Company has continued as a developmental stage entity focused on developing a
business plan. Activities have 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 is now
exploring potential acquisition and or merger transactions with existing
business opportunities in telecommunications, information industries, computer
industry or other compatible cash positive business operations.
Current Status and Operations
On April 15, 1999, AWN executed an Asset Acquisition Agreement (as amended)
with CMSR Systems, Inc., ("Buyer") a unaffiliated Nevada corporation. The
purpose of the Asset Acquisition Agreement is to facilitate the future sale by
American Wireless Network, Inc. to CMSR 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 operating interest in the
operational segment represented by the licenses and operations sold to CMSR
Systems, Inc. by AWN. The agreement also includes a lease of SMR related
equipment owned by AWN to CMSR Systems, Inc. Effective June 1, 1999 all
operations previously conducted by AWN with respect to the 900 MHz licenses were
undertaken by CMSR Systems, Inc. under a management agreement between AWN and
CMSR Systems, Inc. Application has been made and approval of the transfer of the
900 MHz licenses and assumption of the debt to the FCC related to the licenses
is pending at the FCC. At present AWN acts as the
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supervisor of SMR operations conducted by CMSR Systems, Inc. under the
provisions of the management contract.
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. In contrast cellular considered "common carriage"
by the FCC, 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.
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.
(c) Government Regulation:
The Company's operations are subject to government regulation primarily by
the FCC. The licensing, operation, assignment, and acquisition of 900 MHz SMR
licenses are regulated under the Communications Act of 1934, as amended in 1996
(the "Communications Act"). Since that time, the FCC has adopted new rules
converting interconnected SMR service from a private radio service to a
commercial mobile radio service and has proposed other new rules allowing
operational flexibility and mandating future licensing by competitive bidding.
The FCC periodically has various dockets under consideration, which could result
in changes to the FCC's rules, regulations, and policies. Certain rule,
regulation or policy changes by the FCC could potentially affect the financial
standing of the Company.
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All SMR and commercial mobile radio service licenses are issued as
conditional licenses. The conditional licenses become licenses without condition
only upon timely and proper completion of station construction and minimal
loading. If a licensee fails to complete construction of a station timely and
properly, the license for that station cancels automatically, without any
further action by the FCC.
Prior to imposition of its commercial mobile radio service regulation
system, the FCC issued SMR licenses for five-year terms. Since January 2, 1995,
commercial mobile radio service licenses have been issued for ten-year terms.
Each license may be renewed at the end of the license term upon application to
the FCC. While the FCC generally grants renewal of SMR licenses in routine
fashion and the Company is aware of no reason why its licensees will not be
entitled to a similar renewal expectancy, there can be no certainty that the FCC
will continue its current renewal practices or extend them to the Company.
Regulation of radio towers. The transmitters for SMR stations typically are
located on free-standing or building roof-top towers. The towers are regulated
by both the FCC and the Federal Aviation Administration ("FAA"). The regulations
concern geographic location, height, construction and lighting standards, and
maintenance. Failure to comply with tower regulations can result in assessment
of fines against the tower owner or operator and has, historically, resulted in
fines assessed against individual licensees located on an offensive tower. The
owners of towers are responsible for compliance with FCC and FAA regulations.
The Company does not own or manage any towers.
Other Federal regulations. The Company is generally subject to the
jurisdiction of various federal agencies and instrumentalities in addition to
the FCC and the FAA including but not limited to the United States Environmental
Protection Agency, the United States Department of Labor, the United States
Occupational Safety and Health Administration, the United States Equal
Employment Opportunity Commission, the United States Securities and Exchange
Commission and others. While the Company believes that it is operating in
conformity with all material applicable rules and regulations, policies, rule
changes, and other actions of these agencies, future action by these agencies
could adversely effect the operations and financial standing of the Company.
State regulations. At present, state and local governments cannot regulate
the rates charged by SMR operators. Such governments may, however, exercise
regulatory powers over health, safety, consumer protection, taxation, and zoning
regulations with respect to SMR stations. Currently, the Company's systems are
not subject to any state or local regulatory restraint (other than generally
applicable laws and regulations). However, there can be no assurances that such
systems will not become subject to various states and local regulatory
authorities in the future.
Regulatory developments. In March, 1996, the Communications Act went into
effect. This Act effected significant change in regulation and market entry for
communications service providers. Despite this effect on the telecommunications
industry as a whole, the Company does not anticipate any material adverse effect
on its business arising from the Communications Act.
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Legislation or materially different rules may be proposed and enacted at any
time and may have a material adverse affect on the operations of the Company. At
this time, the Company is unaware of any pending legislation or rule-making
proceedings that would have a material adverse affect on the current operations
of the Company.
RESEARCH AND DEVELOPMENT
The Company has not incurred, and does not expect to incur, significant
research and development expenses.
COPYRIGHTS, PATENTS, PROPRIETARY INFORMATION, AND TRADEMARKS
The Company has no registered service marks, copyrights, or patents.
(d) 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 Gordon Dihle, the
Secretary/Treasurer of the Company. Mike Bunch, the Controller 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 SMR related maintenance.
(e) 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.
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 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 operator 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").
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RISK FACTORS
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 below. 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 including, but not
limited to, the factors set forth below (see also "Forward Looking Statements").
Limited Revenues; Limited Relevant Operating History; Significant and
Continuing Operating Losses; Negative Cash Flow; Accumulated Deficit. Since its
inception, the Company has been engaged primarily in the acquisition of FCC
Licenses and the construction of facilities to begin commercial operation of
such licenses and, therefore, has had very limited revenues from sales of its
services. Management has not included revenues in its financials since past
revenues have not been sufficient to be separately stated in accordance with
GAAP. Accordingly, the Company has a limited relevant operating history upon
which an evaluation of its prospects can be made. Such prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered in the establishment of a new business in the wireless
communications industry, which is a continually evolving industry characterized
by an increasing number of market entrants and intense competition, as well as
the risks, expenses and difficulties encountered in the commercialization of
services in new markets. The Company has incurred operating losses in each
quarter since inception and on June 30, 1999, the Company had an accumulated
deficit of approximately $13,252,100. Since such date, losses have increased and
are continuing through the date of this report. Accordingly, it is anticipated
that the Company will continue to incur significant losses. There can be no
assurance that the Company will be successful in generating revenues at a
sufficient quantity or margin or that the Company will ever achieve profitable
operations.
Significant Capital Requirements; Need for Additional Capital; Explanatory
Paragraph in Accountant's Report. The Company's capital requirements have been
and will continue to be significant. The Company has been dependent primarily on
the private placement of equity securities and debt financings. The Company
anticipates, based on its current proposed growth plans and assumptions relating
to its growth and operations, that the proceeds from the existing private
placements and borrowings and planned revenues will not be sufficient to satisfy
the Company's contemplated cash requirements for the next 12 months and that the
Company will be required to raise additional funds within the next 12 months. In
addition, in the event that the Company's plans change or its assumptions prove
to be inaccurate (due to unanticipated expenses, delays, problems, or
otherwise), the Company would be required to seek additional funding sooner than
anticipated. Any such additional funding could be in the form of additional
equity capital. The Company is currently pursuing potential funding
opportunities. However, there can be no assurance that any of such opportunities
will result in actual funding or that additional financing will be available to
the Company when needed, on commercially reasonable terms, or at all. If the
Company is unable to obtain additional financing if needed, it will likely be
required to curtail its plan to acquire an operating entity or
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effect a business combination and may possibly cease its operations. Any
additional equity financings may involve substantial dilution to the Company's
then-existing shareholders. The Company's independent public accountants have
included an explanatory paragraph in their reports on the Company's financial
statements for the years ended June 30, 1999 and 1998, which express substantial
doubt about the Company's ability to continue as a going concern. The Company's
consolidated financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Footnote 2 to the consolidated
financial statements, the Company has suffered recurring losses from operations
and accumulated deficit that raises substantial doubt about its ability to
continue as a going concern.
Management of Growth and Attraction and Retention of Key Personnel.
Management of the Company's growth may place a considerable strain on the
Company's management, operations and systems. The Company's ability to execute
any future business strategy will depend in part upon its ability to manage the
demands of a growing business. Any failure of the Company's management team to
effectively manage growth could have a material adverse effect on the Company's
business, financial condition or results of operations. The Company's future
success depends in large part on the continued service of its key management
personnel. The Company believes that its future success also depends on its
ability to attract and retain skilled technical, managerial and marketing
personnel. Competition for qualified personnel is intense. The Company has from
time to time experienced difficulties in recruiting qualified personnel. Failure
by the Company to attract and retain the personnel it requires could have a
material adverse effect on the financial condition and results of operations of
the Company.
Technological Advances and Evolving Industry Standards. The wireless
communications industry, and in particular the SMR industry, is characterized by
rapid technological developments, changes in customer requirements, evolving
industry standards and frequent new product introductions. In the future, the
Company may be required to enhance its existing systems and to develop and
introduce new products that take advantage of technological advances and respond
promptly to new customer requirements and evolving industry standards. There can
be no assurance that the Company will be able to keep pace with the rapid
evolution of the wireless communications industry.
Dependence on Governmental Regulation. The licensing, operation,
acquisition and sale of the Company's SMR licenses are regulated by the FCC. FCC
regulations have undergone significant changes during the last five years and
continue to evolve as new FCC rules and regulations are adopted pursuant to
Omnibus Budget Reconciliation Act of 1993 and Telecommunications Act. The
Company's ability to conduct its business is dependent, in part, on its
compliance with FCC rules and regulations. See "Business--Government
Regulation." Future changes in regulation or legislation affecting the Company's
system, including Congress' and the FCC's recent allocation of additional
commercial mobile radio services spectrum, could materially adversely affect The
Company's business. In addition, should the FCC fail to renew any of the
Company's licenses or pass rules or regulations that limit the Company's ability
to conduct its business, this could have a material adverse effect on the
Company.
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Assets Primarily Consist of Intangible FCC Licenses. The Company's assets
consist primarily of intangible assets, principally FCC licenses, the value of
which will depend significantly upon the success of the Company's business and
the growth of the SMR and wireless communications industries in general. In the
event of default on indebtedness or liquidation of the Company, there can be no
assurance that the value of these assets will be sufficient to satisfy its
obligations.
Concerns About Mobile Communications Health Risk. Allegations have been
made and certain studies appear to show that the use of portable mobile
communications devices may pose health risks due to radio frequency emissions
from such devices. The actual or perceived risk of mobile communications devices
could adversely affect the Company through a reduced subscriber growth rate, a
loss of current subscribers, reduced network usage per subscriber or through
reduced financing available to the mobile communications industry.
Lack of Dividend History; No Dividends. The Company has never paid
dividends on its Common Stock and intends to utilize any earnings for growth of
its business. Therefore, the Company does not intend to pay cash dividends for
the foreseeable future. This lack of dividends and a dividend history may
adversely affect the liquidity and value of the Company's Common Stock.
Possible Volatility of Market Price. The Company's Common Stock has been
traded on the OTC Bulletin Board since 1984. The Company believes that factors
such as (but not limited to) announcements of developments related to the
Company's business, fluctuations in the Company's quarterly or annual operating
results, failure to meet securities analysts' expectations, general conditions
in the international marketplace and the worldwide economy, announcements of
technological innovations or new systems or enhancements by the Company or its
competitors, developments in patents or other intellectual property rights and
developments in the Company's relationships with clients and suppliers could
cause the price of the Company's Common Stock to fluctuate, perhaps
substantially. In recent years the stock market has experienced extreme price
fluctuations, which have often been unrelated to the operating performance of
affected companies. Such fluctuations could adversely affect the market price of
the Company's Common Stock.
OTC Bulletin Board listing requirements. Under the new rules for continued
listing on the Bulletin Board, OTC traded firms are required to become and
remain fully reporting under Section 12 of the 1934 Securities and Exchange Act.
Although the Company intends to complete all future required filings on a timely
basis, there can be no assurance that its .001 par value common stock (YRLS)
will not be de-listed from the Bulletin Board. If de-listed, the market will
almost certainly reflect a depressive effect on the price of the Company's
common stock.
Penny stock regulations and requirements for low priced stock. The
Commission adopted regulations which generally define a "penny stock" to be any
non-Nasdaq equity security that has a market price of less than $5.00 per share,
subject to certain exceptions. Based upon the price of the Company's common
stock as currently traded on the OTC Bulletin Board, the Company's stock is
subject to Rule 15g-9 under the Exchange Act which imposes additional sales
practice
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requirements on broker-dealers which sell securities to persons other than
established customers and "accredited investors." For transactions covered by
this Rule, a broker-dealer must make a special suitability determination for the
purchaser and have received a purchasers written consent to the transaction
prior to sale. Consequently, the Rule may have a negative effect on the ability
of shareholders to sell common shares of the Company in the secondary market.
FORWARD-LOOKING STATEMENTS. A number of the matters and subject areas
discussed in the foregoing "Risk Factors" section and elsewhere in this 10KSB
Report that are not historical or current facts deal with potential future
circumstances and developments. The discussion of such matters and subject areas
is qualified by the inherent risks and uncertainties surrounding future
expectations generally, and also may materially differ from the Company's actual
future experience involving any one or more of such matters and subject areas.
The Company has attempted to identify, in context, certain of the factors that
it currently believes may cause actual future experience and results to differ
from the Company's current expectations regarding the relevant matter or subject
area. The operation and results of the Company's wireless communications
business also may be subject to the effect of other risks and uncertainties in
addition to the relevant qualifying factors identified elsewhere in the
foregoing "Risk Factors" section, including, but not limited to, general
economic conditions in the geographic areas and occupational market segments
(such as, for example, construction, delivery, and real estate management
services) that the Company is targeting for its SMR systems, the availability of
adequate quantities of system infrastructure and subscriber equipment and
components to meet the Company's systems deployment and marketing plans and
customer demand, the success of efforts to improve and satisfactorily address
any issues relating to the system's performance, the ability to achieve market
penetration and average subscriber revenue levels sufficient to provide
financial viability to the SMR system, access to sufficient debt or equity
capital to meet the Company's operating and financing needs, the quality and
price of similar or comparable wireless Communications services offered or to be
offered by the Company's competitors, including providers of cellular and PCS
service, future legislative or regulatory actions relating to SMR services,
other wireless communications services or telecommunications generally and other
risks and uncertainties described from time to time in The Company's reports
filed with the Commission.
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 employee and operational reductions, this lease
space is only twenty five percent utilized for Company purposes and is more than
adequate for the Company's current needs. The Company has subleased a portion to
its office space in order to offset office overhead.
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ITEM 3. 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 Plaintiff's interrogatory responses indicate that
allegations of actual damages by the seven Plaintiffs totals less than $100,000.
The Company believes that it has meritorious defenses and will vigorously defend
against the allegations of the Complaint. A motion to dismiss Plaintiffs'
complaint based upon statute of limitations and other issues has been initiated
by the Company and remains pending. A trial date has been tentatively set for
May 28, 2000.
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 more than 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
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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. Sections 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. In October of 1999, the Plaintiff, Mack, filed for bankruptcy
protection. Various motions are now pending with respect to the Mack bankruptcy
matter as it relates to the Company's claims against Mack as well as issues
related to the status and jurisdiction of Mack's allegations against the
Company. In February 2000, attorneys representing Mack in the original state
court action as well as Mack's bankruptcy proceeding have each filed motions for
leave to withdraw from representation of Mack. The state court action has been
suspended pending resolution of jurisdictional issues and other administrative
matters involving Mack's bankruptcy proceedings.
On February 14, 2000, the Company was served with a Complaint filed in
Superior Court of California, County of Los Angeles, Central Division, Case No.
BC 224058 entitled A-1 Business Products, Inc. vs. ComTec International, Inc.
The complaint alleges damages of approximately $200,000 with respect to alleged
financing arrangements. The Company believes that it has meritorious defenses
and will vigorously defend against the allegations of the Complaint. The Company
has not yet filed its answer to the complaint but has filed an initial motion to
dismiss for lack of personal jurisdiction. Due to the preliminary nature of the
proceedings, further information is not available.
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 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: Remove Donald G. Mack
from the Board of Directors for cause; Remove Daniel Melnick from the Board of
Directors; Elect James J. Krejci to the Board of Directors; 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. 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.
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No matters have been submitted to the shareholders since the August 26,
1998 meeting.
PART II
ITEM 5. MARKET FOR COMMON STOCK EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) Market Information.
The principal market of the Company's .001 par value common stock, its only
trading class of equity securities, is the NASD Electronic Bulletin Board
over-the-counter market. The Company's common stock currently trades under the
symbol YRLS. The Company has approximately 614 shareholders of record. The
Company's transfer agent is General Securities Transfer Agency, Inc., 3614 Calle
Del Sole NE, Albuquerque, New Mexico 87110.
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 $.001
par value common stock effective January 31, 1998. Financial information
contained in this report has been restated to reflect this split. All share and
per share data is stated to reflect the reverse split.
The following table indicates the quarterly high and low bid market price
ranges of the Company's common stock in the over-the-counter market on the
Electronic Bulletin Board for the fiscal years ended June 30, 1998 and June 30,
1999, as reported by the Nasdaq-Amex Market Group, an NASD company. The
information supplied represents quotations between dealers that does not include
retail markups, markdowns or commissions, actual transactions and any
adjustments for stock dividends.
The following chart is made considering the effect of the one for five
reverse stock split effective January 31, 1998 and rounded to nearest full penny
for presentation purposes only.
BID BID
HIGH($) LOW($)
------ -----
Fiscal 1998:
First Quarter: July 1, 1997 through September 30, 1997 $0.52 $0.24
Second Quarter: October 1, 1997 through December 31, 1997 $1.80 $0.22
Third Quarter: January 1, 1998 through March 31, 1998 $0.85 $0.19
Fourth Quarter: April 1, 1998 through June 30, 1998 $0.20 $0.09
Fiscal 1999:
First Quarter: July 1, 1998 through September 30, 1998 $0.10 $0.05
Second Quarter: October 1, 1998 through December 31, 1998 $0.06 $0.02
Third Quarter: January 1, 1999 through March 31, 1999 $0.05 $0.02
Fourth Quarter: April 1, 1999 through June 30, 1999 $0.07 $0.03
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(b) Holders:
As of March 10, 2000 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 614
(c) Dividends:
The Company has paid no dividends during fiscal years ended June 30, 1999,
June 30, 1998 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, 1999 which the Company believed to be exempt from registration
requirement as a nonpublic offering.
Date Number of Shares Issued to Consideration
1/15/99 36,000 Marc Maassen Services
Unregistered Shares Issued pursuant to Regulation S during the year ended
- --------------------------------------------------------------------------------
6/30/99.
- --------
Date Number of Shares Issued to Consideration
9/2/98 1,538,461 Overseas Foreign Holdings, Ltd. Loan Fees
9/2/98 1,538,461 Queens Cross Group, Ltd. Loan Fees
11/12/98 1,538,461 Cayman Offshore Intl. Ltd. Loan Fees
As reported on Form 8Ks filed September 3, 1998 and November 23, 1998 the
above listed shares of the Company's .001 par value common stock were issued to
entities not residents of the United States of America pursuant to Regulation S.
All of the total 4,615,383 shares of
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001 par value common stock were issued to entities organized outside of the
United States of America and entities that 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 potential acquisitions of or mergers with operating
companies. The forward-looking statements included herein are based on current
expectations that involve numerous risks and uncertainties. Assumptions relating
to the foregoing involve judgments with respect to, among other things, future
economic, competitive and market conditions and future business decisions, all
of which are difficult or impossible to predict accurately and many of which are
beyond the control of the Company. Although the Company believes that the
assumptions underlying the forward-looking statements are reasonable, any of the
assumptions could be inaccurate and, therefore, there can be no assurance that
the forward-looking statements included in this Form 10-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.
The following is a discussion of the consolidated financial condition and
results of operations of the Company for the fiscal years ended June 30, 1999,
and June 30, 1998, which should be read in conjunction with, and is qualified in
its entirety by, the consolidated financial statements and notes thereto
included elsewhere in this report.
Statements contained herein that are not historical facts are
forward-looking statements as that term is defined by the Private Securities
Litigation Reform Act of 1995. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, the
forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ from those projected. The Company cautions
investors that any forward-looking statements made by the Company are not
guarantees of future performance and that actual results may differ materially
from those in the forward-looking statements. Such risks and uncertainties
include, without limitation, fluctuations in demand, loss of subscribers, the
quality and price of similar or comparable wireless communications services, the
existence of well-established competitors who have substantially greater
financial resources and longer operating histories, regulatory delays or
denials, ability to complete intended market roll-out, termination of proposed
transactions, access to sources of capital, adverse results in pending or
threatened litigation, consequences of actions by the FCC, general economics and
the risks discussed under "Business--Risk Factors" in this report.
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(a) Plan of Operation:
From May 10, 1995 until April of 1999, the Company's strategic business
plan was, aside from terminated venture in the LED screens and the divested TTI
prepaid phone card investment, been concentrated on wireless telecommunications.
As a result of the Asset Acquisition Agreement (as amended) entered into between
AWN and CMRS Systems, Inc. (an unaffiliated Nevada Corporation) on April 15,
1999, and reported on Form 8K filed April 30, 1999, the day to day SMR
operations of AWN have been undertaken by CMSR Systems, Inc. under a management
contract wherein AWN supervises management of the systems pursuant to FCC rules
but actual day to day operations are now conducted by CMSR Systems, Inc. The
Company is now exploring potential acquisition and or merger transactions with
existing business opportunities in telecommunications, information industries,
computer industry or other cash positive business enterprises.
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
of the SMR business plan (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.
Current Status and Operations
On December 5, 1997 AWN entered 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. On April 15, 1999, AWN
executed an Asset Acquisition Agreement (as amended) with CMSR Systems, Inc.,
("Buyer") a Nevada corporation wherein those assets are to be sold to CMRS
Systems, Inc. The initial phase of the Asset Acquisition Agreement (as amended)
became effective June 1, 1999. The purpose of the Asset Acquisition Agreement is
to facilitate the future sale by American Wireless Network, Inc. to CMSR
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 agreement also includes the lease of SMR related equipment
owned by AWN to CMSR Systems, Inc. The sale 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 operating interest in the operational
segment represented by the licenses and operations sold to CMSR Systems, Inc. by
AWN. The 900 MHz Licenses and American Wireless Network, Inc.'s customer base
and customer lists associated with the specified 900 MHz licenses to be sold to
CMSR Systems, Inc. were purchased by American Wireless Network, Inc. on July 6,
1998 as a part of the acquisition of divisional segment assets from Centennial
Communications Corp. As
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a part of the Asset Acquisition Agreement (as amended), the Company will assign
its tower site licenses and lease to CMSR Systems, Inc., certain SMR related
transmission equipment for a five (5) year term at the initial base rate of
$33,750 per quarter for the first year of payments, $42,000 per quarter for the
second year of payments, $52,000 per quarter for the third year of payments, and
$57,250 per quarter for the fourth year of payments provided, however, that such
Equipment Lease payments shall begin one year from the Effective Date of June 1,
1999. The Lessee shall have the option to extend the Lease for 1 year terms (up
to a total of a 3 year extension after the termination of the original 5 year
term); provided, however, that the monthly rate will be based upon the fair
market value ("FMV") of Equipment on the date of any extension as agreed upon by
the parties; provided that in the event that Lessee and the Company cannot agree
on a FMV, the FMV shall be determined by a third party appraiser selected by the
Company and Lessee. Lessee shall have the option, within 30 days of the end of
any term, to purchase the Equipment at the then FMV as determined by the
parties; provided that in the event that Lessee and the Company cannot agree on
a FMV, the FMV shall be determined by a third party appraiser selected by the
Company and Lessee. In the event of the bankruptcy of the Company, Lessee shall
have the right to purchase the Equipment at its then FMV. Management believes
this agreement will relieve the Company of the now existing negative cash flow
burdens of debt service, operating deficits and extensive maintenance costs
related to the SMR systems. Effective June 1, 1999 all operations previously
conducted by AWN with respect to the 900 MHz licenses were undertaken by CMSR
Systems, Inc. under a management agreement between AWN and CMSR Systems, Inc.
Application has been made and approval of the transfer of the 900 MHz licenses
and assumption of the debt to the FCC related to the licenses is pending at the
FCC.
(b) Management's Discussion and Analysis of Financial Condition and Results of
Operations.
The Company reported a net loss of $1,526,800 for the year ended June 30,
1999 and a net loss of $3,029,900 for the year ended June 30, 1998 and has
reported net losses of $13,231,700 from inception (March 15, 1994) to June 30,
1999. As reported on the consolidated statements of cash flows, the Company
incurred deficient cash flows from operating activities of $1,205,300 and
$1,046,000 for the years ended June 30, 1998 and 1999 respectively and has
reported deficient cash flows from operating activities of $4,480,600 from
inception (March 15, 1994) to June 30, 1999. 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 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.
On July 2, 1998 the Company obtained a loan of $600,000 from Queens Cross
Group, Ltd. for the purpose of closing the purchase of SMR assets from
Centennial Communications, Inc. On July 20, 1998 the Company obtained an
operating loan of $250,000 from Overseas
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Foreign Holding, Ltd. and on October 26, 1998 the Company obtained an additional
operating loan of $200,000 from Cayman Offshore International, Ltd.
Management is endeavoring to develop a strategic plan to raise private
financing, develop a management team, maintain reporting compliance and explore
potential acquisition and or merger transactions with existing business
opportunities in telecommunications, information industries, computer industry
or other cash positive business operations. The Company entered an agreement to
sell its FCC licenses to eliminate negative cash flow from SMR operations, to
satisfy debt requirements and in a plan anticipated to generate cash flows, is
expecting to lease its SMR equipment.
In the previous fiscal year and in the year ended June 30, 1999, the
Company paid due diligence deposits 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, as
reported in Form 10KSB for the year ended June 30, 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 Company has
additional unrelated proposals for private debt funding with other entities
pending. There is no agreement or requirement on the part of Sigma Finance
Corporation or any other entity to provide financing to the Company.
Should the Company be successful in obtaining substantial additional debt
financing, management plans to seek acquisitions of more telecommunication or
computer related businesses, information and data services 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.
From March 1, 1999 to the end of fiscal year ended June 30, 2001, the
Company estimates its cash needs to maintain operations under its current
negative cash flow situation is $600,000. This amount is composed of $600,000
for working capital assuming that current operations continue in its present
status. These amounts do not include offsets for anticipated amounts of cash
generated from the current operations. There can be no assurances that the
Company will be able to successfully obtain the additional financings or will be
otherwise able to obtain sufficient financing to consummate the Company's
business plan.
The Company has limited capitalization and is dependent on the proceeds of
private or exempt offerings to continue as a going concern and implementing a
business plan. All during fiscal 1999 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 or other
productive 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 private
debt and equity financing package(s).
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(e) Results of Operations:
Fiscal Year Ended June 30, 1999
For the year ended June 30, 1999 the Company recorded a net loss before
other income and expense of $54,700 and a net loss of $1,526,800 with a net loss
per common share of $0.04. As of June 30, 1999, the Company incurred direct
expenses of $831,000 associated with the administration and limited operations
of the Company compared to $1,031,000 reported in the year ended June 30, 1998.
From the period of July 1, 1998 to June 30, 1999 the Company's management
incurred general and administrative expenses of $831,000 a decrease of $200,000
from similar expenses incurred during the year ended June 30, 1998. The major
reason for the decrease in expense were employee reductions and management's
continuing efforts to reduce overhead. The Company had ancillary income of
$124,200 from dividends, interest and other sources. Management has not included
SMR operating revenues in its financials since past revenues have not been
sufficient to be separately stated in accordance with GAAP. Interest expense of
$287,100, Loan origination fees of $582,700 and losses from telephone services
discontinued in December, 1997 of $776,500, were recorded, making up the bulk of
the total net loss of $1,526,800.
Fiscal Year Ended June 30, 1998
For the year ended June 30, 1998 the Company recorded a net loss before
other income and expense of $1,031,000 and a net loss of $3,029,900 with a net
loss per common share of $0.15. As of June 30, 1998 the Company incurred direct
expenses of $1,031,000 associated with the administration and limited operations
of the Company compared to $2,574,100 reported in the year ended June 30, 1997.
From the period of July 1, 1997 to June 30, 1998 the Company's management
incurred general and administrative expenses of $818,000 a decrease of $720,200
from similar expenses incurred during the year ended June 30, 1997. The major
reason for the decrease in expense was a decrease in recorded officers
compensation from $980,300 reported in the June 1997 year end to $128,900
reported in the year ended June 30, 1998. The Company had ancillary income of
$73,400 from dividends, interest and other sources. Management has not included
SMR operating revenues in its financials since past revenues have not been
sufficient to be separately stated in accordance with GAAP. Write-downs of LED
equipment of $1,374,300, interest expense of $457,000, loss from foreclosures
and disposal of assets that totaled $179,600 and losses from telephone services
discontinued in December, 1997 of $61,000, constituted 68% of the total net loss
of $3,029,900.
Impact of Recently Issued Accounting Standards
The Company has adopted the Statement of Financial Accounting Standards
Board (SFAS) No. 130, "Reporting Comprehensive Income," issued in June 1997.
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. The Company also adopted SFAS
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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. The Company does not expect the adoption of these statements to
have a material impact on its financial condition or results of operations.
The Company adopted SFAS No. 128, Earnings Per Share, which specifies the
method of computation, presentation and disclosure for Earnings Per Share. SFAS
No. 128 requires the presentation of two EPS amounts, basic and diluted. Basic
EPS is calculated by dividing net income (loss) by the weighted average number
of common shares outstanding for the period. Diluted EPS includes the dilution
that would occur if outstanding stock options and other dilutive securities were
exercised and is comparable to the EPS the Company has historically reported.
The diluted EPS calculation excludes the effect of stock options when their
exercise prices exceed the average market price over the period. There is no
change in loss per share because diluted EPS is anti-dilutive.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which defines
derivatives, requires that derivatives be carried at fair value, and provides
for hedge accounting when certain conditions are met. This statement is
effective beginning in the year 2000. The adoption of this statement will not
have an impact on its consolidated financial statements.
In April 1998, the AICPA finalized SOP 98-5, "Reporting on the Costs of
Start-Up Activities," which requires that costs incurred for start-up
activities, be expensed as incurred. This SOP, which is effective in the first
quarter of 1999, is not expected to have a material impact on the consolidated
financial statements.
In 1998, the Company, adopted the American Institute of Certified Public
Accountants' ("AICPA") Statement of Position 98-1 ("SOP 98-1"), "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1
defines the types of computer software project costs that may be capitalized.
All other costs must be expensed in the period incurred. In order for costs to
be capitalized, the computer software project must be intended to create a new
system or add identifiable functionality to an existing system. Adoption of this
statement did not have an impact on the Company's consolidated financial
statements.
ITEM 6A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of the date hereof, all the Company's long term debt bears fixed
interest rates, however, the fair market value of this debt is sensitive to
changes in prevailing interest rates. The Company runs the risk that market
rates will decline and the required payments will exceed those based on the
current market rate. The Company does not use interest rate derivative
instruments to manage its exposure to interest rate changes.
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ITEM 7. FINANCIAL STATEMENTS
Financial statements meeting the requirements of Item 310 of regulation
S-B, for the years ending June 30, 1998 and June 30, l999 which have been
audited and reported upon by Hixson, Marin, Powell & DeSanctis, P.A. and Grabau
& Company, PC respectively are annexed as a separate section to this Report,
designated pages F-1 through F-39.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
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 September 3, 1999 the Company retained Grabau and Company, P.C. 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 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. The Company duly reported this change in accountants to the
Securities and Exchange Commission in its Form 8-K current report dated
September 29, 1999.
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, 58 August, 1998 Next Annual
Director, President & CEO Meeting
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Gordon D. Dihle, 45 October, 1997 May 8, 1998
Director, Secretary & Treasurer August, 1998 Next Annual
Meeting
Marc Maassen, 49 October, 1998 Next Annual
Outside Director 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.
(b) 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 AWN (February, 1998). Chairman of the Board of Directors, 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 AWN. February 1998 through August 1998: COO of ComTec International,
Inc. and Chairman of the Board of Directors, CEO and President of AWN.
July 1996 through February 1998: CEO and President of Imagelink
Technologies, Inc., a firm involved in the development and distribution of
videoconference equipment.
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, these firms were 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.
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Gordon D. Dihle: Secretary/Treasurer and Director of ComTec International, Inc.
and AWN (October 1997 to May 1998) and Chief Financial Officer, 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.
Marc Maassen: Outside Director of ComTec International, Inc. (October, 1998).
For the five years preceding Mr. Maassen's appointment as a Director of the
Company. Mr. Maassen was employed as follows:
January 1999 through present, self employed communications and computer
industry consultant.
1991 through January 1998, Executive Vice President ICG Communications,
Inc. and executive positions with subsidiaries of ICG Communications, Inc.
(including Zycom Corporation and Fiber Optic Technologies, Inc.) operating as a
local exchange carrier providing local, long distance, internet and data
services.
Mr. Maassen achieved a B.A. in Business Administration in 1974 at Colorado
State University, Fort Collins, Colorado.
(c) Identification of Certain Significant Employees and Consultants:
None
(d) Family Relationships:
No family relationships exist between any director or executive officers of
the Company.
(e) 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
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Company during the past five years which is material to an evaluation of the
ability or integrity of such director or officer.
(f) Compliance with Section 16(a) of the Exchange Act:
To the date of this filing and to the best of knowledge of the Company,
Form 3 has been filed by its current officers and directors, form 4 filings have
not been required, and no supplemental Form 5 had been filed with the Securities
Exchange Commission (SEC) by any of its current officers or directors at June
30, 1999. As of the date of this report, the SEC has not taken any additional
action with regard to any failure to file reports
To the knowledge of the Company none of the following persons (former
officers) who may have had Section 16 filing requirements during the fiscal year
ended June 30, 1999 complied with Section 16: Clifford S. Perlman and Donald G.
Mack.
ITEM 10. EXECUTIVE COMPENSATION.
(a) General
(1) through (7) All Compensation Covered. During the fiscal year ended June
30, 1999, the Company employed the following senior management personnel who
served pursuant to employment agreements further described in Section (g) below.
(b) Summary Compensation Table.
No employee of the Company other than James J. Krejci, its CEO earned in
excess of $100,000 during the fiscal years ended June 30, 1998 and June 30,
1999.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------- ----------------------
Name and Position Year Salary Bonus Other SAR Options LTIP Other
- ----------------- ---- ------ ----- ----- --- ------- ---- -----
James J. Krejci 1999 $117,000 None None None None None None
CEO and President 1998 $150,800 None None None None None None
(c) Option/SAR Grant Table. During the fiscal years ended June 30, 1998 and
1999, no effective grants of stock options or freestanding SAR's were made
by the Company.
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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.
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;
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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 formally issued from the 1997 Stock Option Plan during the
year ended June 30, 1999. As a disinterested director, Marc Maassen became
entitled to receive automatic option grants to purchase 14,000 shares of the
Company's Common Stock upon his initial appointment as a director on September
30, 1998 and an option for an additional 14,000 shares on the anniversary of his
term as a director on September 30, 1999.
(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, 1999, no stock
options or freestanding SAR's were exercised. Notwithstanding the
foregoing, 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) Compensation of Directors. (1) and (2). During the fiscal year ended June
30, 1999, Marc Maassen received 36,000 shares of the Company's .001 par
value common stock valued at approximately $600 for services as an outside
director. No other director of the Company received any compensation in his
capacity as director.
(f) Employment Contracts and Termination of Employment, and Change-in Control
Arrangements.
A former officer, Donald G. Mack was acting as President and CEO of the
Company under a three year contract ending in May, 1998. 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 and an alleged addendum thereto. Mr. Mack's resignation
letter did not request that any disagreement be reported or disclosed in the
Company's regulatory filings. Prior to a special
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<PAGE>
meeting of shareholders held August 26, 1998, one of the purposes of which
meeting was to remove Mr. Mack as a director, 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. Mr. Mack has subsequently filed litigation
against the Company related to alleged compensation entitlements and the Company
has filed extensive counterclaims against Mr. Mack. SEE ITEM 3 LEGAL PROCEEDINGS
- - LITIGATION WITH FORMER OFFICER AND DIRECTOR
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 three equal annual increments to equal a total of 10% of the
Company's outstanding common shares over a three year period. The strike price
of all of the potential options, as modified (repriced) 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. On May
6, 1999, as additional employee incentive, the non interested members of the
Board of Directors passed a resolution granting Mr. Krejci a four year option,
to become effective after July 1, 1999, to purchase 1,300,000 shares of the
Company's .001 par value common stock at a strike price of $.05 per share, based
upon a calculation of 111% of the .045 bid price of the stock on May 6, 1999. No
options have actually been issued pursuant to agreements with Mr. Krejci.
Effective January 1, 1999, the Company entered into a letter agreement with
Gordon Dihle, which remains to be formalized, by which Gordon Dihle became
employed as Chief Financial Officer of the Company. The letter agreement calls
for a three year employment agreement with the opportunity for Mr. Dihle to
obtain, through common stock option agreements, up to seven and one half percent
(7.5%) of the outstanding common stock of the Company over a three year period.
The preliminary agreement calls for Mr. Dihle to receive stock options vesting
in annual increments of 2.5% to equal a total of 7.5% of the Company's
outstanding common shares over a three year period. The strike price of all of
the options 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.
Dihle's date of appointment as Chief Financial Officer of the Company. On May 6,
1999, as additional employee incentive, the non interested members of the Board
of Directors passed a resolution granting Mr. Dihle a four year option, to
become effective after July 1, 1999, to purchase 1,000,000 shares of the
Company's
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.001 par value common stock at a strike price of $.05 per share, based upon a
calculation of 111% of the .045 bid price of the stock on May 6, 1999. No
options have actually been issued pursuant to agreements with Mr. Dihle.
Report on Repricing of Options/SAR's.
No stock options or freestanding SAR's were issued or outstanding.
Accodingly, and during the fiscal year ended June 30, 1999, no stock options or
freestanding SAR's were repriced.
With respect to the informal letter agreement between Mr. Krejci, the
Company's CEO, and the Company, in reference to the spirit of the agreement, the
strike price of the potential options available to be earned by Mr. Krejci, was
modified (repriced) by Board of Director action on October 7, 1998, to $.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. No options have actually been issued
pursuant to agreements with Mr. Krejci.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners:
The information is furnished as of June 15, 1999 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, 1999, 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
- ------------------- ----------------------- --------------
Lewis D. Rowe 4,317,924 (1) 9.6%
PO Box 1561GT
Zephyr House, Mary Street
Grand Cayman, British West Indies
(1.) Includes 2,158,962 warrants to purchase .001 par value common stock at
prices from $4.50 per share to $2.90 per share expiring between June
2000 and March 2001. The shares and warrants were issued in payment of
fees to Mr. Rowe between June 30, 1997
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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.
(f) 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 of Amount and Nature Percentage of
Security Owner of Security Ownership Total Class
- -------------- --------------------- -----------
Gordon D. Dihle 218,676 (1) .5%
4881 South Amaro Drive
Evergreen, Colorado 80439
James Krejci 274,286 (2) .6%
1133 Race Street
Denver, Colorado 80206
Marc Maassen 64,000 (3) .1%
240 Hopi Place
Boulder, Colorado 80303
Total officers and directors, 556,962 1.2% as a group
(3 persons)
(1) includes 14,070 shares owned by a professional corporation owned by Mr.
Dihle. Does not include stock options potentially equal to up to 7.5% of
the Company's common shares which Mr. Dihle has the potential to earn
pursuant to an employment agreement over a three year period ending January
1, 2002. Does not include a non-formalized option to purchase 1,000,000
shares of the Company's common shares which is to become effective after
July 1, 1999.
(2) does not include stock options potentially equal to up to 10% of the
Company's common shares which Mr. Krejci has the potential to earn pursuant
to an employee agreement over a three year period ending February 16, 2001.
Does not include a non-formalized option to purchase 1,300,000 shares of
the Company's common shares which is to become effective after July 1,
1999.
(3) includes automatic stock options to purchase 28,000 shares of common stock
which accrued to Mr. Maassen as an outside director under the Company's
1997 incentive stock option plan.
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(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
Certain Transactions
In April, 1997, a former officer of the Company, 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. The Company subsequently obtained release of the
collateralized certificate of deposit from the financial institution in December
1998. The Company has filed extensive claims against Mr. Mack. SEE ITEM 3 LEGAL
PROCEEDINGS - LITIGATION WITH FORMER OFFICER AND DIRECTOR.
On February 16, 1998, the Company entered into a letter agreement (as
modified) with the Company, which remains to be formalized, by which James
Krejci initially 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. SEE ITEM 10 - EXECUTIVE COMPENSATION - (f)
Employment Contracts and Termination of Employment, and Change-in Control
Arrangements.
Effective January 1, 1999, the Company entered into a letter agreement with
Gordon Dihle, which remains to be formalized, by which Gordon Dihle became
employed as Chief Financial Officer of the Company. The letter agreement calls
for a three year employment agreement with the opportunity for Mr. Dihle to
obtain, through common stock option agreements, up to seven and one half percent
(7.5%) of the outstanding common stock of the Company over a three year period.
SEE ITEM 10 - EXECUTIVE COMPENSATION - (f) Employment Contracts and Termination
of Employment, and Change-in Control Arrangements.
Except for the foregoing and during the fiscal year ended June 30, 1999, 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
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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 assets of Keystone Holding Corp. dated May 10,1995 (1)
2.1 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.
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. White Acquisition Group Incorporated ByLaws (original bylaws
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)
10.01Form of Employment Agreement between the Company and its officers. (1)
10.02Letter Agreement between the Company and James Krejci dated February 12,
1998. Incorporated by reference to exhibit filed with the Company's Form
10KSB for June 30, 1997.
10.03Minutes of Board of Directors Meeting dated January 15, 1999 relating to
modification of Krejci Letter Agreement. (2)
10.04Letter Agreement between the Company and Gordon Dihle dated January 4,
1999. (2)
10.05Acquisition of operating assets from Centennial Communications Corp.
Incorporated by reference to Form 8-Ks dated December 29, 1997 and
September 3, 1998 and exhibits filed with Form 8-K/A dated February 6,
1999.
35
<PAGE>
10.06Purchase Agreement - LED Screen Disposition. Incorporated by reference to
Form 8-K dated January 14, 1999. Incorporated by reference to exhibits
filed with Form 8-K dated January 14, 1999.
10.07Asset Acquisition Agreement - License Disposition. Incorporated by
reference to exhibits filed with Form 8-K dated April 29, 1999.
10.08 Amendment Number 1 to Asset Acquistion Agreement
10.09Issuance of shares to persons and entities not residents of the U.S.A.
pursuant to Regulation S. Incorporated by reference to Forms 8-K dated
April 7, 1998 and September 3, 1998.
16.1 Letters on change in certifying accountant. (incorporated by reference to
the Company's Incorporated by reference to Form 8-K dated September 29,
1999 and Form 8K/A dated October 18, 1999.
16.2 Change in Certifying Accountants. Incorporated by reference to Form 8-K
dated July 18, 1997.
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.
(2) Incorporated by reference to exhibits filed with the Company's Form
10KSB for June 30, 1998.
(b) The Company filed two reports on Form 8-K during the quarter ended June 30,
1999, and two reports on Form 8-K from June 30, 1999 to the date of this report.
36
<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: 3/13/00 By s/s James J. Krejci
Chief Executive Officer, ___________________________________
James J. Krejci, President and CEO
By: s/s Gordon D. Dihle
Chief Financial Officer, ___________________________________
Gordon D. Dihle, 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
- ---------------------------
Gordon D. Dihle Director 3/13/00
s/James J. Krejci
- ---------------------------
James J. Krejci Director 3/13/00
s/Marc Maassen
- ---------------------------
Marc Maassen Director 3/13/00
37
<PAGE>
COMTEC INTERNATIONAL, INC., AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
INDEPENDENT AUDITORS' REPORT
AND
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 1998 AND CUMULATIVE AMOUNTS
FROM INCEPTION (MARCH 15, 1994) THROUGH JUNE 30, 1999
F-1
<PAGE>
GRABAU & COMPANY
Certified Public Accountants
A PROFESSIONAL CORPORATION
303 East 17th Ave., Suite 700, Denver, CO 80203
(303) 861-0434
FAX (303) 863-1296
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Comtec International Inc and Subsidiaries
Englewood, CO
We have audited the accompanying consolidated balance sheets of Comtec
International, Inc. and Subsidiaries (a company in the development stage) as of
June 30, 1999 and the related consolidated statements of operations,
shareholders' equity (deficiency) and cash flows for the year then ended and the
amounts for the years ended June 30, 1999 included in the cumulative period from
inception (March 15, 1994) to June 30, 1999. 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.
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 for the year then ended and the amounts for the year
ended June 30, 1999 included in the cumulative period from inception (March 15,
1994) to June 30, 1999 in conformity with generally accepted accounting
principles.
F-2
<PAGE>
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 net losses for the
year ended June 30, 1999 of $1,526,800 and has experienced net losses from
inception. Sources of cash flows have been through the sales of its common
shares ($1,138,900) and from borrowings under financing activities ($6,609,600).
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. To date the Company has been dependent on its major shareholder
group for debt and equity financing. There is no assurance that this shareholder
group will continue as a source of new funds. 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, is uncertain. As discussed in Notes 13 and 14 of notes to consolidated
financial statements, the Company is a defendent in various matters relating to
stock transactions and an employment agreement. 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/Grabau & Company PC
Denver, Colorado
January 31, 2000
F-3
<PAGE>
<TABLE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
CONSOLIDATED BALANCE SHEETS - JUNE 30, 1999 AND 1998
ASSETS
<CAPTION>
1999 1998
------------ -------------
<S> <C> <C>
Current Assets
Cash and equivalents includes restricted
funds (1998, $568,500) $ 70,500 $ 667,800
Accounts receivable, less allowance for doubtful
accounts (1998, $28,900) 63,100 13,500
Investment in marketable securities - -
LED equipment, held for resale 1,314,300 1,324,300
Other current assets - 45,000
------------ -------------
Total current assets 1,447,900 2,050,600
Property and equipment 1,249,100 1,478,600
License rights 1,390,700 1,390,700
Other assets 60,500 5,700
------------ -------------
$ 4,148,200 $ 4,925,600
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities
Current portion of long-term debt $ 12,000 $ 13,400
Accounts payable 54,000 254,400
Accrued liabilities 846,000 399,700
Notes Payable 1,700,000 1,184,200
Convertible debenture - -
------------ -------------
Total current liabilities 2,612,000 1,851,700
------------ -------------
Long-term debt, less current portion 1,422,000 1,432,900
------------ -------------
Shareholders' Equity (deficiency):
Series A convertible preferred stock,
$1, stated par and liquidation value;
1,000,000 shares authorized;
no shares issued and outstanding - -
Series B convertible preferred stock,
$5 stated par and liquidation value;
1,500,000 shares authorized;
no shares issued and outstanding - -
Series C convertible preferred stock,
$10 stated par and liquidation value,
1,000,000 shares authorized;
no shares issued and outstanding - -
Common stock, $.001 par value,
authorized 100,000,000 shares;
issued and outstanding 39,697,196
shares in 1999 and 1998 39,700 39,700
Capital in excess of par 13,326,600 13,326,600
Accumulated other comprehensive loss - -
Deficit accumulated during the
development stage (13,252,100) (11,725,300)
------------ -------------
114,200 1,641,000
------------ -------------
$ 4,148,200 $ 4,925,600
============ =============
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>
F-4
<PAGE>
<TABLE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1999 AND 1998 AND CUMULATIVE AMOUNTS
FROM INCEPTION (MARCH 15, 1994) THROUGH JUNE 30, 1999
<CAPTION>
Years Ended Cumulative
June 30, Amounts from
--------------------------- Inception
1999 1998 to date
------------ ------------- ------------
<S> <C> <C> <C>
Operating Expenses:
Selling, general and administrative $ 54,700 $ 818,000 $ 3,278,500
Compensation in form of common stock - 213,000 3,655,000
Management fees, related party - - 65,000
------------ ------------- ------------
54,700 1,031,000 6,998,500
------------ ------------- ------------
Loss before other income (expenses) 54,700 1,031,000 6,998,500
------------ ------------- ------------
Other income (expenses):
Interest and dividends 122,300 27,700 156,300
Other 1,900 45,700 180,200
Interest Expense (including interest
paid in the form of common stock,
1998 $353,800) (287,100) (457,400) (1,159,100)
Telephone services, less revenues (776,500) (61,000) (1,352,300)
Loss on investments, foreclosures and
disposal of assets - (179,600) (851,300)
Write-down of loan origination fees (532,700) - (532,700)
Write-down of LED equipment and
intangibles - (1,374,300) (2,674,300)
------------ ------------- ------------
(1,472,100) (1,998,900) (6,233,200)
------------ ------------- ------------
Net Loss $ (1,526,800) $ (3,029,900) $(13,231,700)
============ ============= ============
Basic Weighted average common shares
outstanding 39,697,196 20,251,100 14,692,449
============ ============= ============
Basic Loss per common share $ (0.04) $ (0.15) $ (.90)
============ ============= ============
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>
F-5
<PAGE>
<TABLE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1999 AND 1998 AND CUMULATIVE AMOUNTS
FROM INCEPTION (MARCH 15, 1994) THROUGH JUNE 30, 1999
<CAPTION>
Years Ended Cumulative
June 30, Amounts from
------------------------- Inception
1999 1998 to date
----------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(1,526,800) $(3,029,900) $(13,231,700)
----------- ----------- ------------
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 214,800 61,700 478,000
Issuance of common stock for service
and interest - 443,000 3,304,200
Gain on the sale of marketable securities - (10,000) (10,000)
Write-down on LED equipment and
intangibles - 1,374,300 2,674,300
Losses on investments,foreclosures
and disposal of assets - 179,600 677,200
Changes in assets and liabilities:
Accounts receivable (49,600) 113,700 (88,400)
Deposits and other - - (2,500)
Other current assets 45,000 (45,000) 11,100
Accounts payable and
accrued liabilities 245,900 (332,700) 1,642,500
Other assets 24,700 40,000 64,700
----------- ----------- ------------
480,800 1,824,600 8,751,100
----------- ----------- ------------
Cash used in operating activities (1,046,000) (1,205,300) (4,480,600)
Cash flows from investing activities:
Proceeds of sale of marketable securities - 267,500 267,500
Proceeds from acquisition - - 22,100
Payments for:
License rights - (274,300) (424,300)
Marketable securities - (5,600) (255,600)
Non-operating assets - - (25,000)
Related party - - (39,000)
Property,plant, equipment and trade name - (1,408,500) (1,699,800)
Other assets (54,800) (5,700) (60,500)
Other - - (79,500)
----------- ----------- ------------
Cash used in investing activities (54,800) (1,426,600) (2,294,100)
----------- ----------- ------------
Cash flows from financing activities:
Proceeds from:
Related party 1,000,000 - 1,184,500
Sales of common stock - - 1,138,900
Notes payable, principally
related parties - 1,144,100 1,295,100
Warrants - - 30,000
Convertible debentures - 1,600,000 4,100,000
Payments on:
Notes payable,principally related parties (484,200) (70,000) (882,000)
Long-term debt (12,300) (4,400) (21,300)
----------- ----------- ------------
Cash provided by financing activities 503,500 2,669,700 6,845,200
----------- ----------- ------------
Increase in cash and equivalents (597,300) 37,800 70,500
Cash and equivalents,beginning 667,800 630,000 -
----------- ----------- ------------
Cash and equivalents,ending $ 70,500 $ 667,800 $ 70,500
=========== =========== ============
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>
F-6
<PAGE>
<TABLE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998 AND CUMULATIVE AMOUNTS
FROM INCEPTION (MARCH 15, 1994) THROUGH JUNE 30, 1999
<CAPTION>
Years Ended Cumulative
June 30, Amounts from
------------------------- Inception
1999 1998 to date
----------- ----------- ------------
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid for interest $ 124,900 $ 73,100 $ 304,900
=========== =========== ============
Supplemental schedule of non-cash financing activities:
Foreclosures:
Net book value of real property $ - - $ (1,867,100)
Mortgages,notes,and other debt - - 1,081,300
Preferred and common stock - - 786,200
Gain of foreclosure - - (400)
----------- ----------- ------------
$ - $ - $ -
=========== =========== ============
Common stock issued for:
Conversion of convertible debentures $ - $ 2,600,000 $ 4,100,000
Acquisition of LED equipment - 2,400,000 2,400,000
----------- ----------- ------------
$ - $ 5,000,000 $ 6,500,000
=========== =========== ============
Common stock cancellation $ - $ - $ 1,225,000
=========== =========== ============
Acquisitions:
Book value of property acquired $ - $ 1,450,800 $ 1,450,800
Debt assumed - (1,390,700) (1,390,700)
Capital lease obligation incurred - (60,100) (60,100)
----------- ----------- ------------
$ - $ - $ -
=========== =========== ============
Dispositions:
Debt assumed $ - $ - $ (145,000)
Book value of the property acquired - - 135,000
Loss on deposit for terminated
Worland acquisition - - 10,000
----------- ----------- ------------
$ - $ - $ -
=========== =========== ============
Stock conversion $ - $ - $ 172,700
=========== =========== ============
Read the accompanying summary of
significant accounting policies and notes to the
consolidated financial statements, both of which are
an integral part
of this consolidated financial statement
</TABLE>
F-7
<PAGE>
<TABLE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED JUNE 30, 1999 AND 1998, AND FROM INCEPTION (MARCH 15, 1994) THROUGH JUNE 30, 1999
<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
Officer's 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
officers' compensation 241,100
Net Loss:
From inception (March 15, 1994)
to June 30, (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
Officer's 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 June 30, 1997 (775,700) 0 0 13,194,751 $ 13,200
Year ended June 30, 1998:
Add (deduct):
Issuance of stock for:
Liquidation of debt 2,600,000 18,083,332 18,100
LED equipment 2,400,000 5,000,000 5,000
Consulting services 193,000 1,732,283 1,700
Officers' compensation 50,000 148,369 200
Loan origination and
finders' fees 200,000 1,538,461 1,500
Current period change in realized
losses on marketable securities 3,600
Net Loss year ended June 30, 1998 (3,029,900)
---------- ------- -------- ---------- -----------
Balance, June 30, 1998 1,641,000 0 0 39,697,196 39,700
Net Loss year ended June 30, 1999 (1,526,800)
---------- ------- -------- ---------- -----------
$ 114,200 0 0 39,697,196 39,700
========== ======= ======== ========== ===========
F-8
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED JUNE 30, 1999 AND 1998, AND FROM INCEPTION (MARCH 15, 1994) THROUGH JUNE 30, 1999
(Continued)
<CAPTION>
Accumulated Deficit
Other Accumulated
Capital Compre- During the
in excess hensive Development Prepaid Escrowed
of par loss 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)
Officer's compensation 1,216,600
Exercised warrants 30,000
Intangibles 1,298,900 ($1,300,000)
Reverse acquisition (231,500)
Contribution of accrued
officers' compensation 241,100
Net Loss:
From inception (March 15, 1994)
to June 30, (1,148,300)
Year ended June 30, 1996 (2,411,400)
----------- ------- ----------- ---------- -----------
Balance, June 30, 1996 6,181,800 0 (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
Officer's 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 June 30, 1997 7,910,100 (3,600) (8,695,400) 0 0
Year ended June 30, 1998:
Add (deduct):
Issuance of stock for:
Liquidation of debt 2,581,900
LED equipment 2,395,000
Consulting services 191,300
Officers' compensation 49,800
Loan origination and
finders' fees 198,500
Current period change in realized
losses on marketable securities 3,600
Net Loss year ended June 30, 1998 (3,029,900)
----------- ------- ----------- ---------- -----------
Balance, June 30, 1998 13,326,600 $ 0 (11,725,300) 0 0
Net Loss year ended June 30, 1999 (1,526,800)
----------- ------- ----------- ---------- -----------
$13,326,600 0 ($13,252,100) $ 0 0
=========== ======= =========== ========== ===========
READ THE ACCOMPANYING SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, BOTH OF WHICH ARE AN INTEGRAL
PARTY OF THE CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
F-9
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
YEARS ENDED JUNE 30, 1999 AND 1998
Basis of accounting:
Comtec International, Inc. (the Company) prepares its financial
statements in accordance with generally accepted accounting principles.
This basis of accounting 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.
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. As judgment is involved, the estimates are
not necessarily indicative of the amounts the Company could realize.
Cash and cash equivalents:
The Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash equivalents.
F-10
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
YEARS ENDED JUNE 30, 1999 AND 1998
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 . All
marketable securities were disposed of during the year ended June 30,
1998.
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 appropriated
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.
Licenses are amortized to operations using the straight-line method
over the remaining term.
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 included 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.
Per share amounts:
Loss per share is computed by dividing net loss by the weighted average
number of shares outstanding throughout the year.
F-11
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
YEARS ENDED JUNE 30, 1999 AND 1998
Stock based compensation:
The Company applies the intrinsic value method for accounting for stock
based compensation described by Accounting Principles Board 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 earning per
share, if material.
Accounting Pronouncements:
The Company has adopted the Statement of Financial Accounting Standards
Board (SFAS) No. 130, "Reporting Comprehensive Income," issued in June
1997. 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. The
Company also adopted 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. The Company does not expect the adoption of these
statements to have a material impact on its financial condition or
results of operations.
The Company adopted SFAS No. 128, Earnings Per Share, which specifies
the method of computation, presentation, and disclosure for Earnings
Per Share. SFAS No. 128 requires the presentation of two EPS amounts,
basic and diluted. Basic EPS is calculated by dividing net income
(loss) by the weighted average number of common shares outstanding for
the period. Diluted EPS includes the dilution that would occur if
outstanding stock options and other dilutive securities were exercised
and is comparable to the EPS the Company has historically reported. The
diluted EPS calculation excludes the effect of stock options when their
exercise prices exceed the average market price over the period. There
is no change in loss per share because diluted EPS is anti-dilutive.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities,"
which defines derivatives, requires that derivatives be carried at fair
value, and provides for hedge accounting when certain conditions are
met. This statement is effective beginning in the year 2000. The
adoption of this statement will not have an impact on its consolidated
financial statements.
In April 1998, the AICPA finalized SOP 98-5, "Reporting on the Costs of
Start-Up Activities," which require that costs incurred for start-up
activities, be expensed as incurred. This SOP, which is effective in
the first quarter of 1999, is not expected to have a material impact on
the consolidated financial statements.
F-12
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
YEARS ENDED JUNE 30, 1999 AND 1998
Accounting Pronouncements (continued):
In 1998, the Company, adopted the American Institute of Certified
Public Accountants' ("AICPA") Statement of Position 98-1 ("SOP 98-1"),
"Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use." SOP 98-1 defines the types of computer software
project costs that may be capitalized. All other costs must be expensed
in the period incurred. In order for costs to be capitalized, the
computer software project must be intended to create a new system or
add identifiable functionality to an existing system. Adoption of this
statement did not have an impact on the Company's consolidated
financial statements.
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.
F-13
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
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 have been restated
to include the accounts of the companies transferred, all at historical
costs. No intercompany transactions existed between the companies
during the prior periods and no adjustments were necessary to conform
the accounting policies of the company.
Information about the Company's subsidiaries is presented below:
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, 1997
(IMG)
AmNet Resources, Ltd. (AmNet) 100.0% Colorado May 10, 1997
(formerly CTI Real Estate, Inc.)
Custom Concepts, Inc. (CCI) 100.0% Colorado December 2, 1997
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. AmNet was inactive
during the current fiscal year. In December, 1997, AWN acquired
management control of 160 channels of 900Mhz Metropolitan Trading Area
licensed for seven operating Specialized Mobile Radio (SMR) systems
located within five states, principally in the Southern and Western
United States, and began generating SMR revenue. In June 1998 the
Federal Communications Commission (FCC) approved the final sale of the
licenses and assignment of the associated promissory notes from the
seller to AWN. 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. These operations only provided auxiliary revenues and did not
take Comtec out of the development stage. IMG was formed to operate and
market advertising media through the use of giant LED screens. On March
23, 1998, the Company acquired the LED screens through the issuance of
5,000,000 common shares valued at $.48 per share.
F-14
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
1. Organization and business:
On May 8, 1998, the Board of Directors authorized management to
liquidate the LED screen. Subsequently, the Company sold the LED screen
and related equipment which are reflected as current assets in the
accompanying consolidated balance sheets. CCI was formed to assist in
the wind-down phase of TTI and was inactive during the later part of
the current fiscal year.
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 SMR. Prior to December 4, 1997, the Company had yet to
commence its principal planned operations and from inception (March 15,
1994) had only generated limited revenues to defray the cost of its
planned operations. On December 4, 1997, AWN acquired management
control of 160 channels of 900Mhz Metropolitan Trading Area licenses
and began generating SMR revenue, as discussed above. While AWN's
operations for the year ended June 30, 1998 were not profitable and
additional capital will be required to develop the AWN business plan,
it is the intent of Comtec's management that significant operations
could be generated through AWN which will take the Company out of the
development stage. 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. Subsequently, the Company has entered into
agreements with an independent third party for the sale of its FCC
licenses and lease of its SMR equipment. No assurances can be given
that the sale and operating lease would take the Company out of
development stage.
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 net losses of $1,526,800 and $3,029,900 for the years ended
June 30, 1999 and 1998 and has reported cumulative net losses of
$13,231,700 from inception (March 15, 1994) to June 30, 1999. As
reported on the consolidated statements of cash flows, the Company
incurred negative cash flows from operating activities of $1,046,000
and $1,205,300 for the years ended June 30, 1999 and 1998 and has
reported negative cash flows from operating activities of $4,480,600
from inception (March 15, 1994) to June 30, 1999. To date, these have
been financed principally through the sale of common stock and warrants
($1,138,900) and issuance of short and long- term debt ($6,609,600),
including related party debt. Additional capital and/or borrowings will
be necessary in order for the Company to continue in existence until
attaining and sustaining profitable operations.
The Company's principal source of working capital funding has been
Geneva Reinsurance Company Ltd. (Geneva), a Nevis company, whose
shareholders are clients of Zephyr International Limited (Zephyr), a
Cayman Islands investment brokerage and management company. (Read Note
7 on Convertible Debentures). Additional working capital funding was
provided by Cayman Offshore International, Ltd. (Cayman), Queens Cross
Group, Ltd. (Queens) and Overseas Foreign Holdings, Ltd. (Overseas)
which are also clients of Zephyr. In September 1998, the Company's
Board of Directors approved the terms of a proposed debt financing with
Sigma Finance Corporation (Sigma), an affiliate of Zephyr.
F-15
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
2. Going concern, liquidity and strategic planning (continued):
Hereinafter Geneva, Cayman, Queens, Overseas and Sigma will be referred
to in the aggregate as "clients and affiliates of Zephyr". The Company
has been dependent on clients and affiliates of Zephyr to maintain its
cash flow, and no assurances can be given that they will continue as a
source of funding or complete the proposed financing agreements. The
amounts of the proposed financing arrangements have not been finalized.
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. Should
the Company be successful in obtaining sufficient funds, management
intends to continue developing the market for the Company's SMR
services in the territories they currently represent and would pursue
SMR acquisitions on an opportunistic basis. However, in order to
satisfy current obligations the Company is selling its FCC licenses to
satisfy debt requirements and to generate cash flows is leasing its SMR
equipment. Should the Company be successful in obtaining substantial
additional debt financing, management plans to seek acquisitions of
more mature telecommunication businesses that would generate sufficient
cash flow to maintain debt service.
In December 1997, the Company acquired licenses to operate seven SMR
systems located within five states for approximately $3,035,700.
Management anticipates that an additional investment of several million
dollars will be needed to develop an effective sales and marketing
program and fund equipment purchases before the seven operating systems
will generate sufficient cash flow to meet current operating expenses
and overhead. In order to acquire the SMR licenses, the Company
borrowed $1,600,000 from Geneva for the initial payments and working
capital. The Company borrowed an additional $100,000 from Cayman and
$600,000 from Queens for working capital and payments required at the
final closing on the SMR systems. As part of its plan to resolve the
lack of liquidity, the Company issued approximately 2,083,300 common
shares at $.48 per share and approximately 16,000,000 common shares at
$.10 per share to liquidate the $1,000,000 and $1,600,000 convertible
debentures, respectively. Subsequently, Overseas and Cayman advanced an
additional $250,000 and $200,000, respectively, to the Company to fund
working capital.
There can be no assurances that the Company will be successful in the
implementation of its plan for expansion and its overall business plan.
See subsequent event discussion concerning the SMR systems in footnote
14.
F-16
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
3. Other comprehensive income:
The Company has adopted Statement of Financial Accounting Standards
(SFAS) No. 130, "Reporting Comprehensive Income." SFAS 130 establishes
new rules for the reporting and display of comprehensive income (loss)
and its components, however, it has no impact on the Company's net
loss. The components of comprehensive loss are as follows:
Year Ended
June 30
-----------------------------
1999 1998
------------ ------------
Net Loss $ 1,526,800 $ 3,029,900
Other comprehensive loss:
Unrealized loss in marketable
Securities - -
------------ ------------
Total comprehensive loss $ 1,526,800 $ 3,029,900
============ ============
4. Acquisitions and dispositions:
On December 5, 1997, the Company acquired from Centennial
Communications Corp. (CCC) management control of seven operating SMR
systems located within five states, including SMR licenses obtained
from the Federal Communications Commission (FCC), radio equipment and
antennas, tower site leases and customer lists, for approximately
$3,035,700. The final transfer of title to the acquired assets was
subject to the FCC's approval of the sale and assignment of the SMR
licenses and assumption of the related FCC promissory notes. The FCC
approval was obtained on June 11, 1998, and the final closing took
place on July 6, 1998. The acquisition has been reflected at cost in
the accompanying consolidated financial statements. Payment of the
purchase price of $3,035,700 was as follows:
Amount
-------------
Down payment $ 200,000
Payment at December 1997 closing 1,000,800
Note payable to seller due at
final closing, 8% interest 444,200
Promissory notes payable to the
Federal Communications Commission 1,390,700
-------------
$ 3,035,700
=============
F-17
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
4. Acquisitions and dispositions (continued):
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 form 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, $1.00
par value 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 holder. The settlement required
the repurchase of all previously issued common and preferred stock for
$925,000. At June 30, 1997, 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 and Series C
Redeemable Convertible Preferred Stock issued as if the termination had
occurred on June 30, 1997, which resulted in a loss of $150,000. The
holder of the common stock and Series C Redeemable Convertible
Preferred Stock has subsequently surrendered the common and preferred
stock certificates which were the canceled.
In March 1998, the Company acquired large Light Emitting Diode (LED)
screens from a group of Geneva shareholders (Read Note 8 on convertible
debentures) for $2,400,000, which was financed by the sellers 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 wrote 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 of $1,867,100 were foreclosed upon. The foreclosures resulted
from litigation for nonperformance. 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.
F-18
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
4. Acquisitions and dispositions (continued):
In January 1996, the Company executed an agreement 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 FCC. 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 was charged to operations during the year ended June 30, 1997. The
escrowed shares were canceled 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 FCC canceled 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 operations during the year ended June 30, 1997. 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
============
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 in October 1997. Subsequently,
the advertising company started to produce media advertising for AWN,
however, AWN decided not to proceed with the advertising program. The
prepaid advertising costs were charged to operations during 1998.
See subsequent discussion concerning the SMR systems in footnote 14.
F-19
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
5. 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 SMR
and prepaid phone services. 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.
6. Detail of financial statement components:
1999 1998
---------- ----------
Other current assets:
Accrued interest receivable $ - $ 14,000
Other receivables and prepaid expenses - 31,000
---------- ----------
$ - $ 45,000
========== ==========
Property and equipment:
Communications equipment $1,422,100 $1,436,700
Furniture, fixtures and equipment 72,700 72,700
---------- ----------
1,494,800 1,509,400
Accumulated depreciation 245,700 30,800
---------- ----------
$1,249,100 $1,478,600
========== ==========
Accrued liabilities:
Payroll and related benefits $ 67,500 $ 72,400
Interest 191,000 198,500
Professional fees - 102,600
Stock payable 561,600 -
Sales taxes 22,200 11,400
Deferred revenue 3,700 14,800
---------- ----------
$ 846,000 $ 399,700
========== ==========
F-20
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
6. Details of financial statement components (continued):
1999 1998
---------- ----------
Charges to operations, losses(gains) on:
Disposal of assets $ - $ 179,600
---------- ----------
Loss on investments, foreclosures,
and disposal of assets $ - $ 179,600
========== ==========
Write-down of LED equipment and intangibles:
LED equipment $ - $1,000,000
License rights - 274,300
---------- ----------
$ - $1,374,300
========== ==========
F-21
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
7. Notes payable:
1999 1998
----------- ----------
Related parties:
Note payable, Overseas Foreign, unsecured
interest at 12% per annum, maturing
October 23, 1998. Note in default,
due on demand with interest at
default rate of 18% from maturity $ 250,000 $ -
Note payable, Cayman, unsecured
interest at 12% per annum, maturing
August 21, 1998. Note in default,
due on demand with interest at
default rate of 18% from maturity 100,000 100,000
Note payable, Queens, unsecured
interest at 12% per annum, maturing
September 30,1998. Note in default,
due on demand with interest at
default rate of 18% from maturity 600,000 600,000
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
Note payable, Cayman Offshore, unsecured
interest at 12% per annum, maturing
January 13, 1999. Note in default,
due on demand with interest at
default rate of 18% from maturity 200,000 -
Note payable, Pfeiger, unsecured
interest at 12% per annum, maturing
June 30, 1999. Note in default,
due on demand with interest at
default rate of 18% from maturity 400,000 -
Note payable, Merrivale, unsecured
interest at 12% per annum, maturing
September 16,1999. Note in default,
due on demand with interest at
default rate of 18% from maturity 150,000 -
---------- ----------
1,700,000 740,000
F-22
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
7. Notes payable (continued):
1999 1998
----------- ----------
Other:
Revolving promissory note payable
to bank; $500,000 maximum principal
balance, interest on advances of 6.75%
per annum, payable on demand or on
December 10, 1998. Collateralized by
a $500,000 certificate of deposit - -
Note payable, CCC, unsecured, interest
at 8% per annum, maturing July 6,
1998 - 444,200
---------- ----------
$1,700,000 $1,184,200
========== ==========
On May 20, 1998, the Company issued 1,538,461 shares of common stock to
Cayman as loan origination fees on the $100,000 note. At Their
September 2, 1998 meeting, the Board of Directors approved the issuance
of another 1,538,461 shares of common stock to Queens as loan
originations fees of the $600,000 note. Based upon the bid price of the
common stock on the loan dates, the origination fees aggregated
approximately $353,800 which was charged to operations during the year
ended June 30, 1998.
F-23
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
7. Notes payable (continued):
On July 23, 1998 and November 12, 1998, Overseas and Cayman made
additional loans to the Company of $250,000 and $200,000, respectively.
These loans were made on terms similar to those made earlier and each
of the companies received 1,538,461 shares of common stock as loan
origination fees. Based upon the bid price of the common stock on the
loan dates the origination fees amounted to approximately $138,500 and
$76,900 respectively.
8. Convertible debentures:
The Company entered into various loan agreements with certain
shareholders of Geneva to provide financing for working capital and
asset acquisitions. The agreements provided 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 earned interest at 12%, maturing in March 1998 and
was convertible into common stock at $.48 per share. Each share carried
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. On June 30, 1997, the
Geneva shareholders converted $1,500,000 of advances into 3,125,000
common shares and 3,125,000 warrants. The outstanding balance of
convertible debentures at June 30, 1997 was $1,000,000, which was
converted by the Geneva shareholders on March 23, 1998 into 2,083,000
common shares and 2,083,000 warrants.
In December 1997 certain Geneva shareholders advanced the Company
$1,600,000 for AWN's acquisition of SMR systems (Read Note 2 on
Strategic Planning). This advance was converted by the Geneva
shareholders 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.
On March 23, 1998, the Company acquired giant LED screens and related
equipment from a group of Geneva shareholders for $2,400,000. The group
of shareholders owned the LED screen as a result of foreclosing on a
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 to acquire 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 which was
charged to operations during the year ended June 30, 1998. At their May
8, 1998 meeting, the Board of Directors authorized management to
liquidate the LED screens and equipment at the best possible price. In
August 1998 the Company shipped the LED screens and equipment to
Lanstar Computer Products, Inc. (Lanstar), an affiliate of Zephyr, to
be held for sale on consignment. In December 1998 Lanstar executed a
$2,400,000 promissory note in favor of the Company to purchase the LED
screens and equipment. The note, secured by the assets sold, bears
interest of 8% per annum payable quarterly with the entire principal
due at its maturity on December 31, 1999. No determination of the
recoverability of the promissory note has been determined.
F-24
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
8. Convertible debentures (continued):
A summary of the convertible debentures is as follows:
Amount Shares
----------- -----------
Working capital loans $ 2,500,000 5,208,334
Purchase of LED screens 2,400,000 5,000,000
Working capital loans
and SMR station 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 in
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 13 on
warrants and options).
As a result of the financing provided by certain Geneva shareholders,
the Company agreed to pay finders fees of $245,000 each to Geneva and
the managing director of Zephyr. Approximately $490,000 was paid and
charged to operations on June 30, 1997 through the issuance of
approximately 1.020,800 common shares at $.48 per share. An additional
$160,000 was paid to the managing director of Zephyr and charged to
operations on March 23, 1998 through the issuance of 1,600,000 common
shares at $.10 per share. The Company also issued warrants to purchase
common stock on a one for one basis. Approximately 1,020,800 warrants
issued June 30, 1997 are exercisable at $4.50 per share and 1,600,000
warrants issued on March 23, 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.
F-25
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
9. Long-term debt:
1999 1998
------------ -------------
Promissory notes, Federal
Communications Commission
collateralized by SMR licenses,
7% interest per annum only through
August 31, 2001; quarterly principal
and interest payments of $86,700
thereafter through maturity on
August 21, 2006 $ 1,390,700 $ 1,390,707
Capital lease obligations, collateralized
by communication and computer
equipment, interest ranging from
8% to 11% per annum, payable in
monthly installments through
February, 2003 43,300 55,600
------------ ------------
1,434,000 1,446,300
Less current portion of long term debt 12,000 13,400
------------ ------------
$ 1,422,000 $ 1,432,900
============ ============
The aggregate maturities of the promissory notes and future minimum
payments under capital leases subsequent to June 30, 1999 are presented
below:
Year ending Promissory Capital
June 30 Total Notes Leases
------------ ---------- ---------- ----------
2000 $ 18,400 $ - $ 18,400
2001 14,000 - 14,000
2002 199,800 190,300 9,500
2003 276,000 269,600 6,400
Thereafter 930,800 930,800 -
---------- ---------- ----------
$1,439,000 $1,390,700 $ 48,300
Less Interest 5,000 - 5,000
---------- ---------- ----------
$1,434,000 $1,390,700 $ 43,300
========== ========== ==========
F-26
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
9. Long-term debt (continued):
In May 1998, the Company paid a $25,000 deposit to Sigma Finance
Corporation, an affiliate of Zephyr, in connection with a proposed $200
million ten-year bond issue to be collateralized by all of the
Company's assets for an amount yet to be determined. In September 1998,
the Board of Directors approved the terms of the proposed financing and
management was authorized to take all necessary action to pursue and
finalize the transaction. The significant terms approved by the Board
include a minimum of two seats on the Board of Directors, the power of
veto over 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 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 would pay a fee of $20,000,000 to the managing director of
Zephyr.
10. 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 components of the deferred tax asset at June 30, 1999
and 1998 are:
1999 1998
---------- -----------
Deferred tax asset:
Net operating loss $4,438,400 $ 4,363,300
Less valuation allowance 4,438,400 4,363,300
---------- -----------
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:
1999 1998
----------- -----------
U.S. Federal statutory income
tax rate of 35% (benefit) $(1,078,500) $(1,060,500)
Effective state income tax (benefit) (99,900) (98,200)
----------- -----------
Valuation allowance $ 1,178,400 $ 1,158,700
=========== ===========
At June 30, 1999, the Company had available federal net operating loss
carryforwards of approximately $13,222,900, which will expire in
varying years through 2014.
F-27
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
11. 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 or 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.
On May 1, 1997, the Company settled litigation with the holder of
420,000 shares of Series A Redeemable Convertible Preferred Stock
pursuant to which the 420,000 shares of stock were returned and
canceled. At June 30, 1998 and 1997, no Series A Redeemable Convertible
Preferred Stock was issued and outstanding.
At June 30, 1998 and 1997, no Series B Redeemable Convertible Preferred
Stock was 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. When management decided not to pay the
settlement with the independent license holders and accordingly
terminated the license option agreement, the Company canceled the
Series C Redeemable Convertible Preferred Stock as if the termination
occurred on June 30, 1997. The holder of the Series C Redeemable
Convertible Preferred Stock has subsequently surrendered the preferred
stock certificate which was canceled. At June 30, 1998 and 1997 there
was no Series C Redeemable Convertible Preferred Stock issued or
outstanding.
A summary of the terms of the Redeemable Convertible 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
As described in Note 8 of notes to consolidated financial statements,
certain Geneva shareholders converted their debt into common stock of
the Company. As a result of the debt conversions and common stock
issued for finders' and loan origination fees, clients of Zephyr and
Zephyr's managing director controlled approximately 77% of the
Company's common stock at June 30, 1998. Through subsequent
transactions, they increased their ownership interest to approximately
79%.
F-28
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
12. 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 of 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, 1998 and 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.
Other stock option agreements:
The former plan, which terminated 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, 1998 and 1997.
At June 30, 1999, the following contingent stock issue requirements and
warrants were outstanding:
- Shares reserved for the Company's incentive stock option plan
(900,000)
- Shares reserved for issuance in accordance with the
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.
F-29
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
12. Incentive Compensation plans (continued):
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 three monthly increments to equal a total of 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.
On August 12, 1999 the board of director clarified the vesting schedule
for Mr. Krejci's options as follows:
The vesting schedule for Mr. Krejci's stock option in the preliminary
agreement is hereby modified to state as follows:
James J Krejci shall be entitled to earn stock options equal to ten
percent (10%) of the total outstanding common stock of ComTec
international, Inc. over the three year period beginning on February
16, 1998.
Stock Options Vesting - upon completion of the successive one year
period:
Year One- Option Vesting 33.33% of total option- (3.33% of ComTec
outstanding common stock)
Year Two- Option Vesting 33.33% of total option- (3.33% of ComTec
outstanding common stock)
Year Three- Option Vesting 33.34% of total option- (3.34% of ComTec
outstanding common stock)
James Krejci Compensation Stock Option: 1,300,000 shares at strike
price of $.50 per share (111% of $.045 bid price on 5-6-99), First
Granted: 5-6- 99 - effective after 7-1-99
F-30
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
12. Incentive Compensation plans (continued):
Effective January 1,1999, the Company enters into a letter agreement
with the Company, which remains to be formalized, by which Gordon Dihle
became employed as Chief Financial Officer of the Company. The letter
calls for a three year employment agreement with the opportunity for
Mr. Dihle to obtain, through common stock option agreements, up to
seven and one half percent (7.5%) of the outstanding common stock of
the Company over a three year period. The preliminary agreement calls
for Mr. Dihle to receive stock option vesting in increments to equal to
a total of 2.5% of the Company's outstanding common shares over a three
year period. The strike price of all of the options 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. Dihle date of appointment as Chief Financial Officer of the
Company.
Gordon Dihle Compensation Stock Option: 1,000,000 shares at strike
price of $.050 per share (111% of $.045 bid price on 5-6-99), First
Granted: 5- 6-9 -effective after 7-1-99.
James J. Krejci - Contract Stock Option Agreement Summary
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. On August 26, 1998 Mr. Krejci was elected to the Corporation's
Board of Directors. On September 2, 1998 Mr. Krejci was appointed as
CEO and President of the Corporation. The letter agreement calls for a
minimum three year employment agreement with the opportunity for Mr.
Krejci to obtain , through common stock option agreements, up to ten
(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 share over a three year period. Options to
obtain an additional 5% of the Company's outstanding common share are
conditioned upon the Company reaching certain financial an d
administrative goals within referenced timelines. Pursuant to the Board
of Directors Resolution at the meeting held October 7,1998, Mr. Krejci
existing letter agreement was modified to provide that the stock
options provided to him by that agreement shall have a strike price
equal to 80% the closing bid price of the Corporation's common stock on
9-2-98 of $.07 ($.056 per share). 9-2-98 is the date Mr. Krejci became
President and Ceo of ComTec, therefore that date was used to establish
the strike date. On October 7, 1998 there were 44,495,558 shares
outstanding or pending issuance.
Contract Stock Option: 10% over three years at strike price of $.056
per share,
First Contracted: 2/16/98
Repriced: October 7, 1998. No options actually issued.
F-31
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
12. Incentive Compensation plans (continued):
Compensation Stock Option: 1,300,000 shares at strike price of and.050
per share (111% of $.045 bid price on 5-6-99), First Granted: 5-6-99 -
effective after 7-1-99
As of 5-6-99 there were 46,034,019 shares outstanding - Krejci option
of 1,300,00 shares on 5-6-99 is 2.7% of the Company (considering the
option exercise). Total Krejci potential stock purchases pursuant to
the contract option and the compensation option is 12.7%.
Gordon Dihle- Contract Stock Option Agreement Summary
A letter agreement effective 1-1-99 was negotiated with Mr. Dihle
providing for Mr. Dihle to receive a set monthly salary, potential
bonuses and stock options totaling 7.5% to vest over a three year
period with a strike price based upon 80% of the market price of the
Corporation's common stock as of 9/2/98, ($.056 per share) the date of
Mr. Dihle's appointment by the board as acting Secretary/Treasurer.
This agreement was ratified by the Board of Directors on 1-15-99. On
1-15-99 there were 44,495,558 shares outstanding or pending issuance.
Contract Stock Option: 10% over three years at strike price of $.056
per share, First Contracted: 1/1/99 No options actually issued.
Compensation Stock Option: 1,000,000 shares at strike price of $.050
per share (111% of $.045 bid price on 5-6-99), First Granted: 5-6-99 -
effective after 7-1-99.
As of 5-6-99 there were 46,034,019 shares outstanding - Dihle option of
1,000,000 shares on 5-6-99 is 2.1% of the Company (considering the
option exercise). Total potential stock purchases pursuant to the
contract option and the compensation option is 9.6%.
13. 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 by a limited liability company affiliated
with the officer/director/shareholder. The collateral was reduced by
approximately $10,100 during the year ended June 30, 1998. The
certificate of deposit is restricted and is included in cash and
equivalents. While the officer/director resigned his positions with the
Company in June 1998 without releasing the restrictions on the
certificate of deposit, the Company has subsequently redeemed the
remaining balance of the certificate of deposit.
In December 1997, the Company purchased a one year $500,000 certificate
of deposit which is being held by a bank as collateral for a $500,000
revolving line of credit. This certificate of deposit is also
restricted and is included in cash and equivalents.
F-32
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
13. Commitments, contingencies, litigation, transactions with related parties
and other (continued):
Employment contracts:
On February 12, 1998, the Company executed a three year employment
agreement with its current Chief Executive Officer. The agreement
provided for a starting salary of $8,000 per month, which was increased
to $10,000 per month effective August 15, 1998, an initial bonus of
$42,000 to be satisfied by the issuance of common stock and stock
options to purchase five percent (5.0%) of the Company's outstanding
common stock to be earned ratably over the term of the agreement. Stock
options to purchase an additional five percent (5.0%) of the Company's
outstanding common stock is contingent upon attainment of certain
financial and management goals. The option price was set at 80% of the
closing bid price of the Company's common stock on September 2, 1998 or
$.056 per share. During the year ended June 30, 1998, the Company paid
and/or accrued $150,800 in compensation and issued 60,000 shares to
satisfy half of the initial bonus. No stock options were issued in
connection with this agreement.
The Company had an employment agreement with its former Chief Executive
Officer/director/shareholder (former "CEO") with whom the Company is in
litigation. The employment agreement ended by its terms on May 10,
1998, although there is an addendum to such agreement, which is in
dispute, which addendum would have extended the agreement to June 30,
2002. The agreement provided for minimum salary levels adjusted
annually, term life insurance as well as incentive bonuses payable if
specified management goals are attained. The agreement allowed the
conversion of any unpaid compensation into common stock into common
stock at five percent (5%) of the net increase in the net assets of the
Company and provided for an additional bonus of ten percent (10%) of
net earnings before income taxes, depreciation, and amortization, and
an annual stock bonus equal to five percent (5.0%) of the issued and
outstanding common stock. 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. There is pending
litigation between the Company and the former CEO who is no longer with
the Company. Information available from Management indicates that this
litigation is in District Court, City and County of Denver, State of
Colorado, Case No. 99CV634 and is being defended and counterclaimed
vigorously by the Company. The probability of the outcome of the
litigation can not be assessed since it is not probable that a
liability has been incurred at the date of the financial statements nor
can the amount of loss, if any, be reasonably estimated.
An employment agreement with another former
officer/director/shareholder was settled an October 8, 1997, which
called for the issuance of approximately 520,700 common shares at $0.25
per share ($130,200). The amount, which was accrued and charged to
operations during the year ended June 30, 1997, remains unpaid.
F-33
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
13. Commitments, contingencies, litigation, transactions with related parties
and other (continued):
Consulting agreements:
The Company had consulting service agreements with certain former
officers/directors, expiring at various dates through October 1997. The
agreements provided 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 had been paid and/or accrued as of June 30, 1997 and 139,870
shares of common stock had been issued. During the year ended June 30,
1998, consulting services of $15,000 was paid and/or accrued and 77,126
shares of common stock were issued. All amount were changed to
operations.
Transactions with related parties:
The following is a summary of transactions with related parties as of
June 30, 1999 and 1998:
1999 1998
--------- ---------
Compensation to officers/directors/
shareholders $ 246,000 $ 128,900
Origination fees to related parties 532,700 -
Restricted funds for related party - 65,500
Advertising fees to related party - 7,000
Reimbursement of expenses to
officers/directors/shareholders - 27,600
Legal settlement with prior
officers/shareholders - 7,500
Interest on related party loans 180,000 11,500
Related party loans 1,000,000 70,000
---------- ----------
$1,958,700 $1,889,700
========== ==========
Advertising agreement:
In 1995 the Company entered into a three 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. During the year
ended June 30, 1997, management determined the media
agreements had no continuing value and charged operations for
the outstanding balance. The common stock issued and the stock
option remain outstanding at June 30, 1998.
F-34
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
13. Commitments, contingencies, litigation, transactions with related parties
and other (continued):
Termination of private placement:
During 1997, 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 at June 30, 1997. The
Company's attorney's were subsequently successful in recouping $24,400
from the securities firm which has been accrued and reflected as other
income at June, 1998.
Tax examinaiton:
The Internal Revenue Service is conducting an examination of the
Company's 1994 Federal income tax return. At this time counsel and
management are unable to either determine whether any adjustments will
be proposed or estimate the amount of any such proposed adjustments,
therefore, no provision has been made in the accompanying consolidated
financial statements.
Litigation:
Pending litigation includes a case brought by several California
investors alleging securities fraud, manipulation and improper sales
and seeking damages of approximately $850,000 or recission of their
stock purchases and return of at least $250,000 of the price paid.
Counsel is unable to gauge the outcome of these matters at this time,
consequently, no provision has been made in the accompanying
consolidated financial statements.
Claims made by a telecommunications service provider and a former
employee for breach of their agreements were settled during the year
ended June 30, 1998 for $47,500, which was charged to current
operations.
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 lossed 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, $25,700, 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.
F-35
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
13. Commitments, contingencies, litigation, transactions with related parties
and other (continued):
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 with clients and affiliates of
Zephyr provide for the issuance of 28.926,254 shares of common stock at
prices ranging from $2.90 to $4.50 per share. The warrants expire no
later than March 23, 2001.
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 4,242,922 $1.25-$4.50
Add (deduct):
Granted - 24,683,332 $2.90
Exercised - -
Expired or canceled - -
------- ----------
Balance, ending 200,000 28,926,254
======= ==========
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
relying on 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. There can be no assurance that the providers of
the software or the manufacturers of chips will resolve the issue.
14. Subsequent events:
Litigation with former officer and director:
On February 1, 1999, the Company's former CEO filed a complaint against
the Company, its present CEO and the managing director of Zephyr. The
former CEO 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 on May 10, 1998) and that he was
wrongfully induced to resign as an officer in June 1998. He alleges
that he is due salary, car allowance, health plan and life insurance
payments, stock bonuses and other items from May 10, 1998 through June
30, 2002.
F-36
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
14. Subsequent events:
On March 24, 1999, the Company filed its answer and extensive
counterclaims against the former CEO. The Company'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 the
former CEO. The Company's answer further states as affirmative defenses
that the former CEO's claims are barred by the doctrine of estoppel and
unclean hands and by failure of consideration, fraud, and illegality,
waiver and failure to mitigate. The Company states that the March 31,
1997 addendum was entered into under circumstances of fraud and
illegality and that the former CEO's alleged claims are setoff by the
counterclaims of the Company against him. The Company believes that it
has meritorious and virtuous defenses and anticipates that it will
vigorously and effectively defend against any and all claims by the
former CEO. No provision has been made in the accompanying financial
statements for compensation, benefits and stock bonuses claimed by the
former CEO subsequent to the expiration of his employment contract on
May 10, 1998.
On February 14, 2000, the Company was served with a Complaint filed in
Superior Court of California, County of Los Angeles, Central Division,
Case No. b C224058 entitled A-1 Business Products, Inc. dba Premium
Financial Services, Inc., a California Corporation vs. ComTec
International, Inc. The Complaint alleges damages of $205,142 with
respect to allegations that the Company failed to pay amounts due to
Plaintiff under assignments of debts related to alleged factoring
agreements. The Company believes that it has meritorious defense and
will vigorously defend against the allegations of the Complaint. The
Company's answer to the complaint is due approximately March 15, 2000.
Due to the very preliminary nature of the proceedings, further
information is not available.
Disposition of LED screens and related equipment:
On December 31, 1998, the Company sold six giant LED screens and
related equipment to Lanstar Computer Products, Inc., a Texas
corporation affiliated with Zephyr. The LED screens were sold to
Lanstar in exchange for a $2,400,000 promissory note secured by the
assets sold and bearing interest of 8% per annum, payable quarterly.
The entire principal is payable at maturity on December 31, 1999. No
determination of recoverability of the promissory note has been
determined.
Pending sale and operating lease agreements:
On December 18, 1998, the Company entered into agreements whereby an
independent third party would acquire the Company's FCC license rights,
customers and agreements, site licenses and/or leases necessary to
operate the Company's seven SMR operating systems through a newly
formed subsidiary. The subsidiary would assume the Company's $1,390,700
promissory notes payable to the FCC, issue to the Company shares of
common stock representing a 7.5% ownership interest and issue a warrant
to purchase 50,000 shares of the common stock of the parent company at
the exercise price of $.50 per share for a period of three years. The
agreement further provided that should the market price in the period
immediately preceding the closing of the transaction be less than $.50
per share, the number of shares will be increased proportionately, but
in no event to exceed 100,000 shares. Effective June 30, 1998, the
carrying value of the license rights were reduced to their sales value
of $1,390,700.
The third party will enter into a system management agreement pursuant
to which they will manage the day to day business operations of the
Company's SMR system subject to the Company's ultimate supervision and
control until such time as the FCC shall approve the assignment of the
licenses. Thereafter, they will assume all responsibility for operation
and control of the system.
F-37
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
14. Subsequent events (continued):
The Company shall lease SMR equipment to the third party for a four
year term at annual base rates of $135,000, $168,000, $208,000 and
$229,000, payable quarterly and collateralized by the third party and
their affiliate or parent company. They will have the option to extend
the lease for up to three additional one year terms, provided that the
lease payment will be the fair market value of the equipment as
determined by the two parties in accordance with the lease provisions.
15. Selected quarterly data (unaudited):
The following summarized certain quarterly results of operations (in
thousands, except share amounts):
Year ended June 30, 1999: Quarter ended
---------------------------------------
September December March June
30, 31, 31, 30,
------- ------- ------- -------
Expenses:
Selling, general and
administrative $ 160 $ 140 $ 319 $ 212
Interest 51 75 75 86
------- ------- ------- -------
211 215 394 298
Deduct other income (expense) (209) (123) 106 (183)
------- ------- ------- -------
Net loss $ (420) $ (338) $ (288) $ (481)
======= ======= ======= =======
Net loss per share $ (.01) $ (.01) $ (.01) $ (.01)
======= ======= ======= =======
Year ended June 30, 1998: Quarter ended
--------------------------------------
September December March June
30, 31, 31, 30,
------- ------- ------- -------
Expenses:
Selling, general and
administrative $ 285 $ 219 $ 443 $ 84
Interest 1 - (1) 457
------- ------- ------- -------
286 219 442 541
Deduct other income (expense) 24 (49) (40) (1,477)
------- ------- ------- -------
Net loss $ (262) $ (268) $ (482) $(2,018)
======= ======= ======= =======
Net loss per share $ (.03) $ (.03) $ (.05) $ (.04)
======= ======= ======= =======
F-38
<PAGE>
COMTEC INTERNATIONAL, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
15. Selected quarterly data (unaudited):
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:
1999 1998
------------- -------------
High Low High Low
----- ----- ----- -----
First quarter, September 30, $ .12 $ .05 $ .52 $ .24
Second quarter, December 31, .07 .02 1.80 .22
Third quarter, March 31, .06 .02 .85 .19
Fourth quarter, June 30, .07 .03 .20 .09
F-39
<PAGE>
Exhibit 10.8
Amendment Number One
to
ASSET ACQUISITION AGREEMENT
The ASSET ACQUISITION AGREEMENT (the "Agreement") originally made and entered
into as of April 15th, 1999 among Chadmoore Wireless Group, a Colorado
corporation (the "Parent"), S.E. 900, Inc., a Delaware corporation to be formed
(the "Buyer"), American Wireless Network, Inc., a Colorado corporation (the
"Company"), and ComTec International, Inc., the sole shareholder of the Company
(the "Shareholder"), is amended as follows:
The original agreement listed the "Buyer" as S.E. 900, Inc. a Delaware
corporation to be formed. The agreement is hereby amended to replace S.E. 900,
Inc. a Delaware corporation with CMRS Systems, Inc., a subsidiary of Chadmoore
Wireless Group, Inc. as the Buyer.
The licenses, assets, FCC notes, assignments and operations, including the
equipment lease agreement, acquired by CMRS Systems, Inc. through the Asset
Acquisition Agreement shall be held developed and operated in a separate
operating unit of CMRS Systems, Inc. designated as the "S.E. 900 Unit." The S.E.
900 Unit will maintain separate financials and accounting treatment, just as if
it were a separate entity.
Articles 1.3 and 3.4 of the original agreement provide that the Company
(American Wireless Network, Inc.) shall receive a 7.5% stock ownership interest
in S.E. 900, Inc. In lieu of that interest in a separate corporation, the
Company shall have and maintain without further contribution, a 7.5% interest in
the value of the S.E. 900 Unit, such that upon the sale of any portion or all of
the assets from the S.E. 900 Unit, the Company will be entitled to receive a
7.5% proportional share of the sale proceeds. The Company shall have the option
at the date three years from the date of the closing of the Acquisition, and for
a period thirty days thereafter, to require an appraisal of the value of the
S.E. 900 Unit, and to require the Parent (Chadmoore Wireless Group, Inc.) to pay
to the Company, cash or the Parents common stock (at a price equal to the
average of the previous 10 day closing average of the bid and ask price as
quoted on the NASDAQ Electronic Bulletin Board) at the Parents sole election,
equal to 7.5% of the appraised value of the S.E. 900 Unit. In the event that the
Company is paid in the form of Chadmoore Wireless Group, Inc. restricted common
stock, the Company shall be granted piggy-back registration rights, and in the
event that such stock has not been registered within six months thereof, the
Company shall receive additional stock sufficient to represent a 10% discount
from the average of the previous 10 day closing average of the bid and ask price
as quoted on the NASDAQ Electronic Bulletin Board.
IN WITNESS WHEREOF, the parties have caused this Amendment Number One to Asset
Acquisition Agreement to be executed this ___day of July, 1999.
39
<PAGE>
Signature Page - Amendment Number One to Asset Acquisition Agreement
PARENT
Chadmoore Wireless Group, Inc.
S/S By: Robert W. Moore, President and CEO
BUYER CMRS Systems, Inc.
S/S By: Robert W. Moore, President and CEO
SELLER COMPANY
American Wireless Network, Inc.
S/S By: James K. Krejci
SHAREHOLDER
ComTec International, Inc.
S/S By: James K. Krejci
40
<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, 1999, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 70,500
<SECURITIES> 0
<RECEIVABLES> 92,000
<ALLOWANCES> 28,900
<INVENTORY> 1,314,300
<CURRENT-ASSETS> 1,447,900
<PP&E> 1,249,100
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,148,200
<CURRENT-LIABILITIES> 2,612,000
<BONDS> 0
0
0
<COMMON> 39,700
<OTHER-SE> 74,500
<TOTAL-LIABILITY-AND-EQUITY> 4,148,200
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 54,700
<LOSS-PROVISION> 766,500
<INTEREST-EXPENSE> 287,100
<INCOME-PRETAX> (1,526,800)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,526,800)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,526,800)
<EPS-BASIC> (.04)
<EPS-DILUTED> 0
</TABLE>
