SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commission file number: 33 14707 NY
CBQ, Inc.
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(Exact name of registrant as specified in its charter)
Colorado
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(State or other jurisdiction of incorporation)
33-14707-NY 84-1047159
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(Commission File Number) (IRS Employer Identification Number)
10923 McCormick Road, Hunt Valley, Maryland 21031
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(Address of principal executive offices including zip code)
(410) 568-4000
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(Registrant's telephone number including area code)
4851 Keller Springs Road Ste 228 Dallas TX 75248
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(Former name or former address, if changed since last report)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of November 12, 2000, there
were 69,946,152 shares of common stock, at $.001 par value, outstanding.
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
CBQ, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
2000 1999
(See Note 1)
---- ----
Assets:
Current Assets:
Cash $ 466,257 $ 38,812
Notes receivable 26,734 --
Accounts receivable, net 1,846,219 963,144
Inventories 198,533 254,753
Other current assets 54,704 --
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Total current assets 2,592,447 1,256,709
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Equipment, at cost:
Computers and related equipment 1,014,404 258,853
Furniture and fixtures 475,861 468,152
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1,490,265 727,005
Less accumulated depreciation (663,450) (317,129)
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826,815 409,876
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Other assets:
Capitalized software, net 130,482 91,424
Notes receivable 96,923 --
Organization costs, net 7,169 6,449
Goodwill, net 904,155 30,785
Other 184,011 25,153
Investments 46,163 46,163
Net assets of discontinued operations -- 135,926
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1,365,903 335,900
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Total Assets $ 4,788,165 $ 2,002,485
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See accompanying Notes to Consolidated Financial Statements
<PAGE>
CBQ, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Continued)
September 30, December 31,
2000 1999
(See Note 1)
---- ----
Liabilities and Stockholders' Equity (Deficit):
Current Liabilities:
Bank overdrafts $ -- $ 156,996
Notes payable 1,631,704 1,058,110
Accounts payable 822,602 516,951
Accrued expenses 524,803 210,659
Due to affiliate 1,215 1,215
Due to stockholder 400,000 150,000
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Total current liabilities 3,380,324 2,093,931
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Long-term liabilities
Notes payable 128,679 --
Notes payable to stockholders 1,766,775 131,775
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Total long-term liabilities 1,895,454 131,775
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Total liabilities 5,275,778 2,225,706
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Stockholders' Equity (Deficit):
Preferred stock, $.0001 par value,
100,000,000 shares authorized,
70,000 shares issued and outstanding 70 70
Common stock, $.0001 par value, 500,000,000
shares authorized, 26,769,790, shares
issued and outstanding at December 31;
69,946,152 shares issued and outstanding
at September 30 6,995 5,049
Additional paid-in capital 2,926,502 881,978
Accumulated deficit (3,421,180) (1,110,318)
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Total stockholders' equity (deficit) (487,613) (223,221)
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Total liabilities and
Stockholders' equity (deficit) $ 4,788,165 $ 2,002,485
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See accompanying Notes to Consolidated Financial Statements
<PAGE>
CBQ, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended September 30
2000 1999
(See Note 1)
---- ----
Revenues $ 2,754,167 $ 311,690
Costs and expenses:
Costs of revenues 2,027,177 67,806
Sales and marketing 138,994 -- +
General and administrative 1,395,482 77,890
Depreciation and amortization 124,845 48,675
Interest expense 89,800 20,673
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3,776,298 215,044
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Net (loss) income from continuing
continuing operations before taxes (1,022,131) 96,646
Provision for income taxes -- --
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Net (loss) income
from continuing operations (1,022,131) 96,646
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Discontinued operations:
Loss from operations of
discontinued operations (123,884) (161,207)
Loss from disposal of
discontinued operations (40,600) --
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Net (loss) from
discontinued operations (164,484) (161,207)
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Net (loss) $(1,186,615) $ (64,561)
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Per common share amounts:
Basic and diluted:
Continuing operations $ (.02) $ .01
Discontinued operations -- (.01)
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Net (loss) $ -- $ --
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Weighted average number of common
shares outstanding 68,175,687 33,754,090
See accompanying Notes to Consolidated Financial Statements
<PAGE>
CBQ, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended September 30
2000 1999
(See Note 1)
---- ----
Revenues $ 7,844,363 $ 1,864,905
Costs and expenses:
Costs of revenues 6,148,955 472,957
Sales and marketing 308,078 15,937
General and administrative 2,650,490 896,042
Depreciation and amortization 274,287 135,692
Interest expense 234,633 54,599
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9,616,443 1,575,227
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Net (loss) income from continuing
continuing operations before taxes (1,772,080) 289,678
Provision for income taxes -- --
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Net (loss) income
from continuing operations (1,772,080) 289,678
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Discontinued operations:
Loss from operations of
discontinued operations (395,774) (304,297)
Loss from disposal of
discontinued operations (143,008) --
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Net (loss) from
discontinued operations (538,782) (304,297)
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Net (loss) $(2,310,862) $ (14,619)
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Per common share amounts:
Basic and diluted:
Continuing operations $ (.02) $ .01
Discontinued operations (.01) (.01)
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Net loss $ (.03) $ --
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Weighted average number of common
shares outstanding 68,175,687 33,754,090
See accompanying Notes to Consolidated Financial Statements
<PAGE>
CBQ, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30
2000 1999
(See Note 1)
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income from continuing operations $(1,772,080) $ 289,678
Adjustments necessary to reconcile net
(loss) income from continuing operations to
net cash flows from continuing operations:
Depreciation and amortization 205,266 135,692
Decrease in accounts receivable 316,183 71,815
Decrease in inventories 133,948 --
(Increase) decrease in other current assets (9,776) 4,999
Decrease in accounts payable (589,675) (4,847)
Increase in royalties payable -- 50,000
Increase (decrease) in other accrued expenses 54,778 (40,117)
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Net cash (used in) provided by
continuing operations (1,661,356) 507,220
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NET CASH USED IN DISCONTINUED OPERATIONS (182,761) (492,693)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Global Logistics Partners, LLC -- (1,000)
Net assets acquired in acquisition of
dpi Net Solutions, Inc. (871,450) --
Net proceeds from disposals of
property and equipment 72,968 389
Increase in capitalized software (39,058) (81,742)
Increase in other assets (136,869) (4,848)
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Net cash used in investing activities (974,409) (87,201)
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CASH FLOWS FINANCING ACTIVITIES:
Common stock issued in investment
in Global Logistics Partners, LLC -- 1,000
Common stock issued in acquisition
of dpi Net Solutions, Inc. 275,290 --
Preferred stock issued in acquisition
of dpi Net Solutions, Inc. 550,000 --
Redemption of preferred stock (550,000) --
Common stock issued in exercise of stock options 650,000 --
Stock issued as compensation 31,375 --
Other issuances of common stock 869,711 42
Net increases (decreases) in notes payable (450,878) 76,925
Increase in loans to stockholder 2,500 --
Decrease in notes receivable 141,986 --
Net increase in amounts due to stockholders 1,882,984 91,410
Decrease in officer advances -- (2,574)
Decrease in bank overdrafts (156,996) --
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Net cash provided by financing activities 3,245,972 166,803
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NET INCREASE IN CASH AND
CASH EQUIVALENTS 584,441 94,696
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 38,812 113,522
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CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 466,257 $ 208,218
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See accompanying Notes to Consolidated Financial Statements
<PAGE>
CBQ, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(Unaudited)
The consolidated balance sheets as of September 30, 2000, the consolidated
statements of operations for the three and nine months ended September 30, 2000
and 1999, and the consolidated statement of cash flows for the nine months ended
September 30, 2000 and 1999 have been prepared by the Company without audit. In
the opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the consolidated financial position as
of September 30, 2000, consolidated results of operations for the three and nine
months ended September 30, 2000 and 1999, and consolidated cash flows for the
nine months ended September 30, 2000 and 1999 have been made.
Certain information and footnote disclosures normally included in consolidated
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted. It is
suggested that these consolidated financial statements be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's December 31, 1999 Form 10-KSB/A and the Company's March 31, 2000 and
June 30, 2000 Form 10-QSB/A and Form 10-QSB, respectively, all of which are
filed with the Securities and Exchange Commission, Washington, DC 20549. The
results of operations for the three and nine months ended September 30, 2000 and
1999 normally are not indicative of the operating results for the full year.
Note 1. Organization and Nature of Business: CBQ, Inc., a Colorado corporation,
was incorporated September 18, 1986 as Freedom Funding, Inc., under the laws of
the State of Delaware, and changed its situs to Colorado in 1989. The name of
the corporation was changed to CBQ, Inc. in 1998. The Company offers a wide
variety of computing services, including software and web development, network
design and integration, cabling and connectivity, and hardware sales
installation and maintenance. The Company also has joint ventures with
technology-related entities located in the People's Republic of China.
The consolidated financial statements for the nine months ended September 30,
2000 and 1999 include the accounts of the parent entity and all of its
subsidiaries: Quantum Group and its subsidiary, ProWare, Inc. ("ProWare"),;
China Partners, Inc. (from the date of its formation in March 2000); CyberQuest,
Inc. ("CyberQuest"); Reliance Technologies, Inc. ("Reliance") and its
subsidiary, TopherNet, Inc. ("TopherNet"); and Priority One Electronic Commerce
Corporation ("Priority One"). Two subsidiaries of Quantum Group, Quantum
Technology Distribution, Inc. ("Quantum Distribution") and dpi Net Solutions,
Inc. ("DPI"), are included in the consolidated financial statements from
November 15, 1999 and April 1, 2000, respectively, their dates of acquisition by
Quantum Group.
<PAGE>
As more fully described in Note 3, the business combinations between the Company
and ChinaSoft, Inc. ("ChinaSoft") in January 2000 and between the Company and
Quantum Technology Group, Inc. ("Quantum Group") in August 2000 were accounted
for as poolings of interests. Accordingly, the Company's consolidated financial
statements have been restated for all periods to reflect the consolidated
financial position, results of operations and cash flows of the Company,
ChinaSoft and Quantum Group.
All significant intercompany balances and transactions have been eliminated.
Note 2. Income taxes have not been provided for the periods ended September 30,
2000 and 1999 as a result of the carryforward of prior period operating losses,
which have been offset by valuation allowances.
Note 3. Mergers and Acquisitions: On March 15, 1999, the Company merged with
Reliance and its subsidiary in a tax-free exchange. All of the outstanding
shares of Reliance were exchanged for 1,000,000 restricted common shares of the
Company. This business combination was accounted for as a pooling of interests.
On April 9, 1999, the Company merged with Priority One in a tax-free exchange.
All of the outstanding shares of Priority One were exchanged for 900,000
restricted common shares of the Company. This business combination was accounted
for as a pooling of interests.
On November 15, 1999, Quantum Group acquired all of the outstanding shares of
Quantum Distribution for 250 shares of Quantum Group's Series B preferred stock,
valued at $250,000, plus $125,000 in cash. This business combination was
accounted for as a purchase.
On January 14, 2000, the Company merged with ChinaSoft in a tax-free exchange.
All of the outstanding shares of ChinaSoft were exchanged for 30,000,000
restricted common shares of the Company. This business combination was accounted
for as a pooling of interests.
On April 1, 2000 Quantum Group, prior to its merger with the Company, acquired
all of the outstanding shares of DPI for $200,000 in cash, 290,000 shares of
Quantum Group's Series A common stock, 275 shares of Quantum Group's Series C
preferred stock, plus 550 shares of Quantum Group's Series D preferred stock.
This business combination was accounted for as a purchase, resulting in $972,000
of goodwill that will be amortized over five years.
On August 8, 2000, the Company merged with Quantum Group and its subsidiaries in
a tax-free exchange. All of the outstanding common stock, plus all of the
outstanding Series C preferred stock of Quantum Group was exchanged for
11,593,180 restricted common shares of the Company. This business combination
was accounted for as a pooling of interests. The Company ceased its development
stage with its merger with Quantum Group. Quantum Group's Series D preferred
stock was converted into 733,333 shares of the Company's common stock on August
31, 2000.
<PAGE>
Note 4. The loss per share was computed by dividing the net loss by the weighted
average number of shares of common stock outstanding during the period. All
prior periods have been restated to reflect the mergers of ChinaSoft and Quantum
Group with the Company.
Note 5. During the second quarter of 2000, the Board of Directors of Quantum
Group voted to dispose of its Electronics Repair Division and Insurance Recovery
Division. During the third quarter of 2000, the Board of Directors of Quantum
Group voted to dispose of its Retail Service and Repair Division. In addition,
during the third quarter of 2000, the Company's Board of Directors voted to
dispose of Reliance and TopherNet. All of these disposals are accounted for as
discontinued operations. Applicable income taxes were not reflected as a result
of the carryforward of prior period operating losses. The revenues, expenses and
net loss from sale of discontinued operations are summarized below:
Nine-Month Period
Ended September 30
(Unaudited)
2000 1999
---- ----
Revenues $ 927,201 $1,128,075
Costs and expenses 1,322,975 1,432,372
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Loss from operations of
discontinued operations (395,774) (304,297)
Loss from disposal of
discontinued operations (143,008) --
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Loss from discontinued operations $ (538,782) $ (304,297)
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Note 6. Included in notes payable is a total $1,700,000 of notes payable to a
stockholder. $1,200,000 of these notes payable bear interest at 12% until April
30, 2003, 13.5% from May 1, 2003 to April 30, 2004 and 14% thereafter. The note
requires monthly interest payments, with the principal payments due beginning in
May 2002 until fully paid.
The remaining $500,000 of notes payable to stockholder bear interest at 12%
until September 30, 2001, 13% from October 1, 2001 to September 30, 2002, and
14% thereafter. The note requires monthly interest payments through its maturity
date of October 1, 2005, at which time all sums including principal and interest
become due.
All of the $1,700,000 of notes payable to stockholder are subordinated to the
Company's line-of-credit facility, and are personally guaranteed by certain
officers of the Company.
Note 7. As part of the merger with Quantum Group, the Company has a $4,200,000
line of credit facility with a bank. This line of credit has an interest rate of
2.5 percent above LIBOR, and has an outstanding balance of $1,318,002 at
September 30, 2000.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following is intended to update the information contained in the Company's
Annual Report on Form 10-KSB/A for the year ended December 31, 1999 and the
Company's Quarterly reports for the periods ended March 31, 2000 and June 30,
2000 on Form 10-QSB/A and Form 10-QSB, respectively, and presumes that readers
have access to, and will have read, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained in such Form 10-KSB/A,
Form 10-QSB/A and Form 10-QSB.
FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements that are based on current
expectations, estimates and projections about the Company and industries in
which it operates. In addition, other written or oral statements which
constitute forward-looking statements may be made by or on behalf of the
Company. Words such as "expects", "anticipates", "intends", "plans", "believes",
"seeks", "estimates" or variations of such words and similar expressions are
intended to identify such forward-looking statements. These statements are not
guarantees of future performance and involve certain risks, uncertainties and
assumptions ("Future Factors"), which are difficult to predict. Therefore,
actual outcomes and results may differ materially from what is expressed or
forecast in such forward-looking statements. The Company undertakes no
obligation to update publicly any forward-looking statements, whether as a
result of new information, future events or otherwise.
RESULTS OF OPERATIONS:
The Company merged with ChinaSoft, Inc. ("ChinaSoft") in January 2000 and with
Quantum Technology Group, Inc. and its subsidiaries ("Quantum Group") in August
2000. Both of these business combinations were treated as poolings of interests.
Accordingly, the Company's consolidated operating results and cash flows have
been restated for all periods presented to reflect these mergers.
Quantum Group acquired dpi Net Solutions, Inc. ("DPI") on April 1, 2000. This
acquisition was accounted for as a purchase; accordingly, the consolidated
results of operations and cash flows include the operations of DPI only from the
date of acquisition.
THREE MONTHS ENDED SEPTEMBER 30, 2000:
Continuing Operations:
Revenues increased by $2,442,477 from 1999. The primary reason for the increase
was the acquisition of DPI and Quantum Distribution, both of which were acquired
after September 30, 1999. The revenues of these two operating groups were
approximately $2,525,000 for the quarter ended September 30, 2000.
Costs of revenues increased by $1,959,371 from the prior year. The primary
reason for the increase was the acquisition of DPI and Quantum Distribution,
both of which were acquired after September 30, 1999. The costs of revenues of
these two operating groups were approximately $2,093,000 for the quarter ended
September 30, 2000.
General and administrative expenses increased by $1,317,592 from 1999. This
reflects the additional general administrative expenses resulting from the
various acquisitions made during 2000, plus ongoing expenses related to mergers,
acquisitions and joint venture development activities, particularly in China.
Sales and marketing expenses, depreciation and amortization expenses and
interest expenses increased by $138,994, $76,170 and $69,127, respectively from
1999. These increases reflect the additional operations of DPI and Quantum
Distribution.
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 2000:
Continuing Operations:
Revenues increased by $5,979,458 from 1999. The primary reason for the increase
was the acquisition of DPI and Quantum Distribution, both of which were acquired
after September 30, 1999. The revenues of these two operating groups were
approximately $6,803,000 for the nine months ended September 30, 2000.
Costs of revenues increased by $5,675,998 from the prior year. The primary
reason for the increase was the acquisition of DPI and Quantum Distribution,
both of which were acquired after September 30, 1999. The costs of revenues of
these two operating groups were approximately $6,018,000 for the nine months
ended September 30, 2000.
General and administrative expenses increased by $1,754,448 from 1999. This
reflects the additional general administrative expenses resulting from the
various acquisitions made during 2000, plus ongoing expenses related to mergers,
acquisitions and joint venture development activities, particularly in China.
Sales and marketing expenses, depreciation and amortization expenses and
interest expenses increased by $292,141, $138,595 and $180,034, respectively
from 1999. These increases reflect the additional operations of DPI and Quantum
Distribution.
LIQUIDITY:
Liquidity during the first nine months of fiscal 2000 was primarily generated by
issuance of common stock, stockholder loans and from notes payable to banks.
PART II - OTHER INFORMATION
Exhibits and Reports on Form 8-KSB: The Company filed a Form 8-KSB on September
8, 2000 to report the: 1) merger between the Company and Quantum Technology
Group, Inc.; 2) appointment of new directors; and 3) current executive
management team of the Registrant.
PART III - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No material changes have occurred in the quantitative and qualitative market
risk disclosures of the Company as presented in the Company's Annual Report Form
10-KSB for the year ended December 31, 1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized this 10th day of November,
2000.
CBQ, INC. (Registrant)
By: /s/ Bart S. Fisher
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Bart S. Fisher, Chairman and Chief Executive Officer
By: /s/ Eugene Yano
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Eugene Yano, Chief Financial Officer
