UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the Quarter ended September 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
Commission File No. 0-12116
ComTec International, Inc.
(Name of Small Business Issuer in its charter)
New Mexico 75-2456757
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
9350 East Arapahoe Road, Suite 340, Englewood, Co. 80112
(Address of principal executive offices)
(303) 662-8069
(Issuer's Telephone Number Including Area Code)
N/A
(former name, former address and former fiscal year
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes No x
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practical date:
Title of each class of Common Stock Outstanding at March 10, 2000
- ----------------------------------- -----------------------------
Common Stock, $0.001 par value 44,876,191
Transitional Small Business Disclosure Format (check one):
Yes No x
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TABLE OF CONTENTS
FORM 10-QSB REPORT - FOR QUARTER ENDED SEPTEMBER 30, 1999
ComTec International, Inc.
PART I
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
September 30, 1999 (unaudited)
and June 30, 1999 (audited 3
Condensed Consolidated Statements of Operations 4
Three Months ended September 30, 1999 and 1998
and from inception (unaudited)
Condensed Consolidated Statements of Cash Flows 5
Three Months ended September 30, 1999 and 1998
and from inception (unaudited)
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operation 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 10
PART II
Item 1. Legal Proceedings 11
Item 2. Change in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibit and Reports on Form 8-K 12
SIGNATURE PAGE 12
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PART I
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
ComTec International, Inc. and Subsidiaries
(a Development Stage Enterprise)
Consolidated Condensed Balance Sheets
<CAPTION>
September June
30, 1999 30, 1999
(unaudited) audited)
---------- ----------
<S> <C> <C>
Assets
Current Assets
Cash and Equivalents $ 9,500 $ 70,500
Accounts Receivable, less allowance
For doubtful collections of $28,900 60,100 63,100
LED Equipment held for resale 1,314,300 1,314,300
---------- ----------
Total Current Assets 1,383,900 1,447,900
Property and Equipment, net 1,195,400 1,249,100
License Rights 1,390,700 1,390,700
Other Assets 4,500 60,500
---------- ----------
Total Assets $3,974,500 $4,148,200
========== ==========
LIABILITIES
Current Liabilities
Current Portion of Long Term Debt 51,000 12,000
Accounts Payable 73,900 54,000
Notes Payable 1,700,000 1,700,000
Accrued Liabilities 848,200 846,000
---------- ----------
Total Current Liabilities 2,673,100 2,612,000
---------- ----------
Long Term Debt, less current portion 1,430,500 1,422,000
---------- ----------
STOCKHOLDER'S EQUITY
- ---------------------
Common Stock, .001 par value;
Authorized 100,000,000 shares;
39,697,196 shares issued
June 30, 1999 and September 30, 1999 39,700 39,700
Capital in Excess of Par 13,326,600 13,326,600
Deficit accumulated during the
development stage (13,495,400) (13,252,100)
----------- ----------
(129,100) 114,200
---------- ----------
Total Liabilities and Stockholders Equity $3,974,500 $4,148,200
========== ==========
</TABLE>
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<TABLE>
ComTec International, Inc. and Subsidiaries
(a Development Stage Enterprise)
Consolidated Condensed Statements of Operations
<CAPTION>
For the Three Months Ended
September September
30, 1999 30, 1998 Cumulative
(unaudited) (unaudited) Amounts from
Inception
(unaudited)
---------- ---------- ----------
<S> <C> <C> <C>
Operating Expenses
Selling, General and Administrative 142,300 160,900 3,420,800
Compensation in the form of common stock 3,655,000
Management fees- related party 65,000
---------- ---------- ----------
Loss before other expense (income) 142,300 160,900 7,140,800
---------- ---------- ----------
Other Income (expense)
Interest and Dividend Income (56,000) 900 100,300
Interest expense (51,000) (51,000) (1,210,100)
Rental and Other Income 6,100 44,000 186,300
Prepaid Calling Card services, less revenues (1,352,300)
Loan Origination Fees (254,000) (532,700)
Loss on investments, foreclosures and disposals (851,300)
Write-down of intangibles and LED equipment (2,674,300)
---------- ---------- ----------
Total Other Income (Expense) (100,900) (260,100) (6,334,100)
---------- ---------- ----------
Net Loss (243,200) (421,000) (13,474,900)
========== ========== ==========
Weighted Average Common Shares Outstanding 39,697,196 39,697,196 14,692,449
========== ========== ==========
Net Loss per Common Share
(0.01) (0.01) (.92)
========== ========== ==========
</TABLE>
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<TABLE>
ComTec International, Inc. and Subsidiaries
(a Development Stage Enterprise)
Consolidated Statements of Cash Flows
<CAPTION>
For the Three Months Ended
30, 1999 30, 1998 Cumulative
(unaudited) (unaudited) Amounts from
inception
(unaudited)
-------- -------- -----------
<S> <C> <C> <C>
Operating activities:
Net Loss (243,200) (421,000) (13,474,900)
======== ======== ===========
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation expense 53,700 53,600 531,700
Services and Interest exchanged for stock 3,304,200
Gain on Sale of Marketable Securities (10,000)
Write Down of Intangible 2,674,300
Losses on investments, foreclosure and disposal 677,200
Changes in assets and liabilities:
Accounts receivable 3,000 (49,200) (85,400)
Deposits and other 56,000 (74,100) (53,500)
(Increase) decrease in other current assets 45,000 11,100
Increase (decrease) in account payable
& liabilities 69,500 (15,100) 1,712,000
Other Assets 64,700
-------- -------- -----------
Net cash used in operating activities (61,000) (362,400) (4,541,600)
======== ======== ===========
Investing activities:
Proceeds of Sale of Marketable Securities 267,500
Proceeds from acquisition 22,100
License rights (424,300)
Marketable securities (255,600)
Non-Operating assets (25,000)
Related Party (39,000)
Purchase of property, plant and equipment (1,699,800)
Other (140,000)
-------- -------- -----------
Net cash used in investing activities 0 0 (2,294,100)
Financing activities:
Advances from related party 1,184,500
Proceeds: private place of common stock 1,138,900
Proceeds: short term notes 250,000 1,295,100
Warrants 30,000
Convertible Debentures 4,100,000
Payments on notes payable (882,000)
Payment on long-term notes payable (21,300)
-------- -------- -----------
Net cash provided by financing activities 0 250,000 6,845,200
======== ======== ===========
Increase (Decrease) in cash (61,000) (112,400) 9,500
======== ======== ===========
Beginning cash balance 70,500 667,800 0
-------- -------- -----------
Ending cash balance 9,500 555,400 9,500
======== ======== ===========
</TABLE>
5
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ComTec International, Inc. and Subsidiaries
(a Development Stage Enterprise)
Notes to the Consolidated Financial Statements
Note 1.
a) The summary of the Issuer's significant accounting policies are
incorporated by reference to the Company's SEC Form 10-KSB as of June 30,
1999. The notes to the audited financial statements presented with the
Company's SEC Form 10-KSB as of June 30, 1999 are an integral part of the
audited balance sheet data presented herein.
b) The management of ComTec International, Inc. (the Company) without audit
has prepared the financial statements included herein. Certain information
and note disclosures normally included in the financial statements prepared
in accordance with generally accepted accounting principles have been
omitted. The accompanying unaudited condensed financial statements reflect
all adjustments which, in the opinion of management, are necessary for a
fair presentation of the results of operations, financial position and cash
flows. These financial statements must be read in conjunction with the
audited financial statements and notes to the financial statements for the
year ended June 30, 1999, included in the Company's Form 10KSB for the year
ended June 30, 1999 which has been filed with the Securities and Exchange
Commission by the Company, as said notes to the financial statements are
incorporated herein by reference. The results of the interim period are not
necessarily indicative of the results for the full year.
Note 2.
On March 28, 1997 the Shareholders of the Company approved a proposal to
give the Company's Board of Directors authority to institute a reverse
stock split of from 3 for 1 to 100 for 1 at the discretion of the Board of
Directors until December 31, 1997. On December 26, 1997 the Board of
Directors of the Company acted pursuant to shareholder authority granted at
the Annual Meeting of Shareholders held March 28th, 1997, to declare a one
for five reverse stock split of the Company's .001 par value common stock
effective 12:01 A.M. January 31st, 1998. All share data and per share data
is stated to reflect the reverse stock split.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Overview
ComTec international Inc. was incorporated on July 6, 1983 in the State of
New Mexico, originally under the name of Nisus Video, Inc. The Company has
undergone many changes to date as a result of certain reorganizations and
changes of management. Historical changes are more fully disclosed in prior 34
Act filings and the most recent changes, including changes in management are
described in the Company's 10-KSB for the year ended June 30, 1999. The Company
is currently authorized to issue 100,000,000 common shares, $0.001 par value and
10,000,000 preferred shares, $0.001 par value. The Company has one wholly owned
operating subsidiary, American Wireless Network, Inc. ("AWN") and three inactive
subsidiaries.
American Wireless Network, Inc. ("AWN") a wholly owned subsidiary of the
Company was incorporated under the laws of the State of Colorado on December 3,
1996, to act as the wireless communications operating entity for the Company.
The Company's wireless specialized mobile radio "SMR" supervisory operations are
conducted through AWN.
From December 5, 1997 to June 1st, 1999, AWN operated SMR sites in seven
Metropolitan Trade Areas 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, and reported on Form 8K filed April 30,
1999, the day to day SMR operations of AWN have been undertaken by CMSR Systems,
Inc., an unaffiliated Nevada Corporation, 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.
(a) Plan of Operation:
FORWARD-LOOKING STATEMENTS
The securities of the Company are speculative and involve a high degree of
risk, including, but not necessarily limited to, the factors affecting operating
results described in the Form 10KSB for the year ended June 30, 1999 and other
filings with the SEC. The statements which are not historical facts contained in
this report, including statements containing words such as "believes,"
"expects," "intends," "estimates," "anticipates," or similar expressions, are
"forward looking statements" (as defined in the Private Securities Litigation
Reform Act of 1995) that involve risks and uncertainties.
The foregoing and subsequent discussion contains certain forward-looking
statements within the meaning of Section 27A of the Securities A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
which are intended to be covered by the safe harbors created thereby. These
forward-looking statements include the plans and objectives of management for
future operations, including plans and objectives relating to the possible
further capitalization and future acquisitions of telecommunications, computer
related or other cash flow business. The forward-looking statements included
herein are based on current expectations that involve numerous risks and
uncertainties. Assumptions relating to the foregoing involve judgments with
respect to, among other things, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of the
Company. Although the Company believes that the assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could be
inaccurate and, therefore, there can be no assurance that the forward-looking
statements included in this Form 10-QSB will prove to be accurate. In light of
the significant uncertainties inherent in the 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 Company has been and continues to be in the development stage and from
inception (March 15, 1994) has only generated auxiliary revenues to defray the
cost of its planned operations, with only limited success in
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implementing actual operations. The Company has financed its operations during
the development stage from the sale of its common stock and from issuance of
short and long-term debt.
During the quarter ended September 30, 1999 and through the present the
Company continued as a developmental stage entity focused on transfer of
management of its SMR systems and business to CMSR Systems, Inc., developing
alternative strategic plans, efforts to acquire financing, developing a
management plan and maintaining reporting compliance for various federal
government agencies, such as the SEC and FCC.
Current Status and Operations
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 CMSR 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 CMSR
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 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. 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.
New Funding Efforts:
In the previous fiscal year and in the quarter ended September 30, 1999,
the Company continued efforts in connection with private debt financing
proposals to fund future merger or acquisition activities as well as working
capital needs. The Company has several proposals for private debt funding with
unrelated entities pending. There is no agreement or requirement on the part of
any entity to provide financing to the Company. Should the Company be
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successful in obtaining substantial private debt financing, management plans to
seek acquisitions of 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 acquisitions, other expansion or its overall business plan.
Pending Acquisitions:
Currently there are no letters of intent or other formalized agreements to
acquire any entity or assets.
(b) Liquidity and Capital Resources
The Company reported a net loss (unaudited) of $243,200 for the quarter
ended September 30, 1999 and has reported net losses from inception (March 15,
1994) to September 30, 1999 of $12,474,900. The Company had deficient working
capital at September 30, 1999 of $1,289,200. As of September 30, 1999, the
Company reported a shareholder deficit of $129,100. To date, these losses and
cash flow deficiencies have been financed principally through the sale of common
stock and warrants and issuance of short and long-term debt which includes
related party debt. Additional capital and/or borrowings will be necessary in
order for the Company to continue in existence until attaining profitable
operations. Although a portion of convertible debt was liquidated through the
issuance of common stock, no assurances can be given that the sources of
borrowings would continue. The Company is highly leveraged and a number of
developments over the past quarter had material adverse effects on the Company.
The Company has a significant investment in license rights obtained through the
acquisition of assets from Centennial Communications, Corp., the recoverability
of which is dependent upon the success of future events.
Management has continued to develop a strategic business plan to raise
private financing, develop a management team, maintain reporting compliance and
seek new expansive areas in telecommunications, informational or computer
related business. In order to reduce negative cash flow the Company entered an
agreement to sell its FCC licenses to satisfy debt requirements and in a plan
anticipated to generate cash flows, has entered into an agreement to lease its
SMR equipment.
From 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 approximately $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 operations or proceeds from lease income or sales of assets.
The Company has limited capitalization and is dependent on the proceeds of
private or public offerings to continue as a going concern and implementing a
business plan. As of September 30, 1999, the unaudited results of the Company
indicated deficit working capital of $1,289,200. 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 develop SMR assets and initiate revenue producing operations. Any activity in
the telecommunication industry requires adequate financing and on-going funding
sources. The Company has entered this industry with limited financing and
funding sources.
At September 30, 1999 (unaudited), the following contingent stock issue
requirements and warrants were outstanding:
- Shares reserved for the Company's incentive stock option plan
(980,000).
- Shares reserved for issuance in accordance with outstanding warrants
issued June 30, 1997 (4,242,923) exercisable at $4.50 per share,
expiring June 30, 2000.
- Shares reserved for contingent issue with respect to outstanding
warrants exercisable at $2.90 per share associated with converted debt
and LED Screens (7,083,333), expiring in March 2001.
- Shares reserved for contingent issue with respect to outstanding
warrants exercisable at $2.90 per share associated with converted debt
related to the SMR Asset purchase (17,600,000), expiring in March
2001.
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- 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 as modified calls for Mr. Krejci to receive
stock options vesting in equal annual increments to equal to a total
of 10% of the Company's outstanding common shares over a three year
period ending February 16, 2001. 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 .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.
During quarter ended September 30, 1998, the Company continued as a
development stage enterprise. The Company's financial statements are therefore
not indicative of anticipated revenues which may be attained or expenditures
which may be incurred by the Company in future periods. The Company's ability to
achieve profitable operations is subject to the validity of its assumptions and
risk factors within the industry and pertaining to the Company.
For the quarter ending September 30, 1999, the Company incurred General and
Administrative Expenses of $142,300, a decrease of $18,600 from the quarter
ending September 30, 1998, when the Company incurred expenses of $160,900. The
Company also reported "other expense" consisting of write-offs of receivables
and recording of accrued interest, this represents a reduction of $159,200 from
similar items reported in the September 1998 quarter. The Company's Quarter
ended September 30, 1999 financial statements reflect adjustments and
nonrecurring items of both revenue and costs, as well as development stage costs
and are not indicative of anticipated revenues which may be attained or
expenditures which may be incurred by the Company in future periods.
The Company's independent public accountants have included explanatory
paragraphs 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. As discussed in Footnote 2 to
the consolidated financial statements, included with the Company's June 30, 1999
Form 10KSB, the Company has suffered recurring losses from operations and
accumulated deficit that raises substantial doubt about its ability to continue
as a going concern.
Item 3. 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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Part II
ITEM 1. LEGAL PROCEEDINGS
On September 14, 1998 the Company received by certified mail a Complaint
filed in Superior Court of California, County of San Diego, Case No. 723581
entitled John Brent, et al vs. ComTec International, Inc., a New Mexico
corporation, et al Defendants. The Complaint by seven named Plaintiffs alleges
securities fraud, improper sale of unregistered securities, and stock
manipulation against the Company and five individual defendants who were former
officers and/or directors of the Company, none of whom are currently associated
with the Company. The 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 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
11
<PAGE>
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 2. CHANGE IN SECURITIES. NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. NONE
ITEM 5. OTHER INFORMATION: NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a)
Exhibits
27 Financial Data Schedule
(b) The Company filed the following reports on Form 8-K:
September 30, 1999 - Current Form 8-K to report the change of
independent auditors.
- ------------
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report signed on its
behalf by the Undersigned, thereunto duly authorized.
COMTEC INTERNATIONAL, INC.
Date: March 16, 2000 By: /s/ James J. Krejci
------------------------------------
James J. Krejci, President and
Chief Executive Officer
By: /s Gordon Dihle
------------------------------------
Chief Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30,
1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> SEP-30-1999
<CASH> 9,500
<SECURITIES> 0
<RECEIVABLES> 89,000
<ALLOWANCES> 28,900
<INVENTORY> 1,314,300
<CURRENT-ASSETS> 1,383,900
<PP&E> 1,195,400
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,974,500
<CURRENT-LIABILITIES> 2,673,100
<BONDS> 0
0
0
<COMMON> 39,700
<OTHER-SE> (168,800)
<TOTAL-LIABILITY-AND-EQUITY> 3,974,500
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 142,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51,000
<INCOME-PRETAX> (243,200)
<INCOME-TAX> 0
<INCOME-CONTINUING> (234,200)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (234,200)
<EPS-BASIC> (.01)
<EPS-DILUTED> 0
</TABLE>
