UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
---------------
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended September 30, 1996 Commission File Number 0-26590
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COM/TECH COMMUNICATION TECHNOLOGIES, INC.
-----------------------------------------
(Exact name of registrant as specified in its charter)
New York 13-3146673
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
770 Lexington Avenue
New York, New York 10021
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (212) 826-2935
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 15(d) of the Securities and 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 November 14, 1996 was 3,710,000.
<PAGE>
COM/TECH COMMUNICATION TECHNOLOGIES, INC.
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INDEX
================================================================================
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 1996 [Unaudited].. 1 - 2
Consolidated Statements of Operations for the three and six
months ended September 30, 1996 and 1995 [Unaudited] ........... 3
Consolidated Statements of Stockholders' Equity for the six
months ended September 30, 1996 [Unaudited]..................... 4
Consolidated Statements of Cash Flows for the six months ended
September 30, 1996 and 1995 [Unaudited]......................... 5
Consolidated Notes to Financial Statements........................ 6 - 10
Item 2. Managements' Discussion and Analysis of the Financial
Condition and Results of Operations........................... 11 - 14
Signature......................................................... 15
..................
<PAGE>
Item 1:
COM/TECH COMMUNICATION TECHNOLOGIES, INC.
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CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1996.
UNAUDITED
================================================================================
Assets:
Current Assets:
Cash and Cash Equivalents $1,273,422
Accounts Receivable - [Net of Allowance of $19,167] 270,604
Loan Receivable - Officer 28,983
Related Party Receivable 705,000
Interest Receivable - Related Parties 12,903
Prepaid Expenses 66,566
Miscellaneous Receivable 20,128
Note Receivable 120,972
----------
Total Current Assets 2,498,578
----------
Equipment:
Equipment 1,509,477
Equipment Under Capitalized Leases 249,344
Furniture and Fixtures 38,786
Leasehold Improvements 96,989
----------
Total - At Cost 1,894,596
Less: Accumulated Depreciation 1,211,532
----------
Equipment - Net 683,064
----------
Other Assets:
Loan Receivable - Officer 86,948
Deposits 265,786
Deferred Expense - Net 71,233
Organizational Cost - Net 13,236
Goodwill - Net 115,860
----------
Total Other Assets 553,063
----------
Total Assets $3,734,705
==========
See Notes to Financial Statements.
1
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COM/TECH COMMUNICATION TECHNOLOGIES, INC.
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CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1996.
[UNAUDITED]
================================================================================
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable $ 209,563
Current Portion of Capitalized Lease Obligations 54,797
Current Portion of Long-Term Debt 44,850
Accrued Expenses 164,528
Accrued Taxes 42,217
Other Payables 7,054
-----------
Total Current Liabilities 523,009
-----------
Long-Term Liabilities:
Capitalized Lease Obligations 149,439
Note Payable 158,254
-----------
Total Long-Term Liabilities 307,693
-----------
Commitments and Contingencies [6]
Stockholders' Equity:
Common Stock, $.0001 Par Value, 25,000,000 Shares
Authorized, 3,710,000 Shares Issued and Outstanding 371
Paid-in Capital 6,596,951
Retained Earnings [Deficit] (3,693,319)
-----------
Total Stockholders' Equity 2,904,003
-----------
Total Liabilities and Stockholders' Equity $ 3,734,705
===========
See Notes to Financial Statements.
2
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COM/TECH COMMUNICATION TECHNOLOGIES, INC.
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CONSOLIDATED STATEMENTS OF OPERATIONS
[UNAUDITED]
================================================================================
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
------------------------- -------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 442,044 $ 224,952 $ 696,324 $ 453,422
Cost of Revenues 279,488 105,516 443,391 242,098
----------- ----------- ----------- -----------
Gross Profit 162,556 119,436 252,933 211,324
----------- ----------- ----------- -----------
Operating Expenses:
Selling Expenses 65,132 79,167 112,531 88,073
Salaries, Payroll Taxes and Benefits 212,230 200,672 446,558 244,663
Compensation of Related Party 45,000 -- 132,643 --
Consulting Fee 21,093 27,667 56,799 50,167
Depreciation and Amortization 29,970 37,252 52,897 74,527
Rent and Utilities 55,673 37,008 80,386 61,709
Other Operating Expenses 74,609 40,497 122,460 52,010
Bad Debt Expense 5,000 10,500 8,500 14,000
Professional Fees 139,032 3,686 161,578 10,426
Reimbursed Related Party Expenses 35,286 -- 72,751 --
Compensation Expense - Issuance
of Stock [6C] -- -- -- 330,000
Financing Costs [7] -- 792,000 -- 1,320,000
----------- ----------- ----------- -----------
Total Operating Expenses 683,025 1,228,449 1,247,103 2,245,575
----------- ----------- ----------- -----------
[Loss] from Operations (520,469) (1,109,013) (994,170) (2,034,251)
----------- ----------- ----------- -----------
Other Income [Expense]:
Interest Expense (5,387) (12,880) (8,881) (16,612)
Interest Income 48,196 24,068 101,814 27,512
Gain on Disposal of Equipment -- 11,332 -- 11,332
Miscellaneous Income 3 -- 716 --
----------- ----------- ----------- -----------
Total Other Income [Expense] 42,812 22,520 93,649 22,232
----------- ----------- ----------- -----------
Net [Loss] $ (477,657) $(1,086,493) $ (900,521) $(2,012,019)
=========== =========== =========== ===========
Net [Loss] Per Share $ (.13) $ (.36) $ (.24) $ (.72)
=========== =========== =========== ===========
Average Number of Shares
Outstanding 3,710,000 3,040,220 3,710,000 2,798,798
=========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements.
3
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COM/TECH COMMUNICATION TECHNOLOGIES, INC.
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CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
[UNAUDITED]
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<TABLE>
<CAPTION>
Common Stock Retained Total
---------------------- Paid-in Earnings Stockholders'
Shares Amount Capital [Deficit] Equity
------ ------ ------- --------- ------
<S> <C> <C> <C> <C> <C>
Balance - April 1, 1996 3,710,000 $ 371 $ 6,596,951 $(2,792,798) $ 3,804,524
Net [Loss] -- -- -- (900,521) (900,521)
--------- ----------- ----------- ----------- -----------
Balance - September 30, 1996 3,710,000 $ 371 $ 6,596,951 $(3,693,319) $ 2,904,003
========= =========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
COM/TECH COMMUNICATION TECHNOLOGIES, INC.
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CONSOLIDATED STATEMENT OF CASH FLOWS
[UNAUDITED]
================================================================================
Six months ended
September 30,
--------------------------
1996 1995
---- ----
Net Cash - Operating Activities $ (934,832) $ (567,807)
----------- -----------
Investing Activities:
Purchases of Equipment (99,965) (28,863)
Increase in Deposit (227,706) (1,180)
Increase in Investment (116,223) --
Increase in Organizational Cost (13,575) --
Note Receivable (120,972) --
Loan Advances to Related Party (885,000) --
Repayment from Related Party 445,000 --
Repayment of Loan Advances to Officer 28,983 --
----------- -----------
Net Cash - Investing Activities (989,458) (30,043)
----------- -----------
Financing Activities:
Capital Lease Payments (17,817) (9,616)
Repayment of Note Payable (6,185) --
Deferred Offering Costs -- (1,200,012)
Bridge Loan Proceeds -- 400,000
Repayment of Bridge Loan -- (400,000)
Exercise of Underwriter's Warrants -- 100
Proceeds from Initial Public Offering -- 5,750,000
----------- -----------
Net Cash - Financing Activities (24,002) 4,540,472
----------- -----------
Net [Decrease] Increase in Cash and Cash
Equivalents (1,948,292) 3,942,622
Cash and Cash Equivalents - Beginning of Periods 3,221,714 54,609
----------- -----------
Cash and Cash Equivalents - End of Periods $ 1,273,422 $ 3,997,231
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the periods for:
Interest $ 8,881 $ 16,612
State and Federal Income Taxes -- --
Supplemental Disclosure of Non-Cash Transaction:
On August 16, 1996 the Company purchased sound equipment in exchange for a
secured note payable in the amount of $209,289 (see Note 4).
See Notes to Financial Statements.
5
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COM/TECH COMMUNICATION TECHNOLOGIES, INC.
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CONSOLIDATED NOTES TO FINANCIAL STATEMENTS, Sheet #1
(UNAUDITED)
================================================================================
[1] Organization and Business
Com/Tech Communication Technologies, Inc. (the "Company") provides video and
teleconferencing multi-media services from two locations in the New York
metropolitan area and, through its wholly-owned subsidiary, Olympic Sound
Studio, Inc. ("OSSI"), operates a feature film post-production sound studio in
Los Angeles, California. The Company was incorporated in the State of New York
on July 19, 1982 under the name A.C.T. Advanced Communication Technologies, Inc.
On July 20, 1982, the Certificate of Incorporation was amended, changing the
name of the Company to Com/Tech Communication Technologies, Inc. On August 6,
1996, the Company incorporated OSSI in the State of Delaware. Subsequently OSSI
purchased for a total of $371,223 certain assets, including the right, title and
interest in and to the names "Olympic Sound Studios" and "Olympic Boulevard
Sound Studios" from the company which had previously occupied the facility. Of
this amount, $116,223 has been classified as Goodwill (see note 2N).
[2] Summary of Significant Accounting Policies
[A] Cash and Cash Equivalents - Cash equivalents are comprised of certain highly
liquid investments with a maturity of three months or less when purchased.
[B] Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of the Company and its wholly-owned subsidiary,
Olympic Sound Studio, Inc. Material inter-company transactions and balances have
been eliminated in consolidation.
[C] Cash Concentration - The Company currently has funds invested in financial
instruments in the amount of approximately $1,093,000 that are subject to credit
risk beyond the insured amounts.
[D] Concentration of Credit Risk - The Company routinely assesses the financial
strength of its customers and based upon factors surrounding the credit risk of
its customers believes, that after providing an allowance for bad debts, its
accounts receivable credit risk is limited.
[E] Equipment - Equipment, furniture and fixtures, and leasehold improvements
are stated at cost. Expenditures for maintenance, repairs and minor renewals are
expensed as incurred. When assets are retired, or otherwise disposed of, the
related cost and accumulated depreciation are removed from their respective
accounts and any profit or loss on such disposition is included in operations.
[F] Depreciation and Amortization - Depreciation is calculated on the
straight-line and declining balance methods to amortize the cost of various
classes of depreciable assets over their estimated useful lives, which range
from three to five years for all classes. During fiscal 1996, the Company
reduced its estimate of the useful lives of its production equipment from ten to
five years. Amortization of leasehold improvements is calculated on the
straight-line method over the life of the lease.
[G] Deferred Expense - At the close of the public offering, the Company made a
$100,000 payment to the underwriter for future financial services. Accumulated
amortization is calculated on the straight-line method over the life of the
agreement which is five years. Accumulated amortization as of September 30, 1996
was approximately $21,700.
[H] Basis of Reporting - The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-QSB and Item 310(b)of Regulation S-B. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, such
statements include all adjustments necessary in order to make the interim
financial statements not misleading. It is suggested that these financial
statements be read in conjunction with the financial statements and notes for
the year ended March 31, 1996 included in the Com/Tech Communication
Technologies, Inc. report on Form 10-KSB.
6
<PAGE>
COM/TECH COMMUNICATION TECHNOLOGIES, INC.
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CONSOLIDATED NOTES TO FINANCIAL STATEMENTS, Sheet #2
(UNAUDITED)
================================================================================
[2] Summary of Significant Accounting Policies [continued]
[I] Stock Options and Similar Equity Instruments Issued to Employees - The
Company uses the intrinsic value method to recognize compensation expense in
accordance with Accounting Principles Board ["APB"] Opinion No. 25, "Accounting
for Stock Issued to Employees."
[J] Revenue Recognition - The Company's policy is to record revenue when
services are performed.
[H] Net [Loss] Per Share - Net [loss] per share was calculated based on the
weighted average number of shares outstanding during the periods presented.
Common share equivalents are included when dilutive.
[L] Reclassification - Certain prior year items have been reclassified to
conform with the current year's presentation.
[M] Business Concentrations - For the six months ended September 30, 1996, the
Company had net sales to three customers that derived over 10 % of sales
individually. Approximately 25.1%, 15.0% and 11.0% of the Company's net sales
were derived from NCI Advertising Inc., Jennison Associates Capital Corp. and
PLC, Inc., respectively. For the six months ended September 30, 1995, the
Company had net sales to two customers that derived over 10% of sales
individually. Approximately 37.4% and 31.6% of the Company's net sales were
derived from The National Broadcasting Company and PLC, Inc., respectively.
[N] Goodwill and Organizational Cost - Goodwill is amortized on the straight
line basis over a 40 year period. Organizational Cost, which was incurred in
connection with the formation of OSSI, is amortized on the straight line basis
over a 5 year period. Total amortization for the six months ended September 30,
1996 was $363 for Goodwill and $339 for Organizational Cost.
[3] Related Party Transactions
[A] Loan Receivable Officer - The loan receivable was a demand loan with
interest at 9% per annum to the then President of the Company (now its Chief
Executive Officer). On March 31, 1995, the balance of $144,914 was converted to
an installment loan with a five-year term and interest of 9% per annum. In June
of 1996, the Company agreed to convert an installment payment totaling
approximately $43,000 from the officer as a salary distribution.
[B] Related Party Receivable - The Company in exchange for demand notes advanced
a total of $1,150,000 through September 30, 1996 to MarketLink, a partnership in
which the Company's Chairman has an interest. The demand notes accrue interest
quarterly at a rate of 2% above prime or 10 1/4%. Principal payments of
$265,000, $80,000 and $100,000 were made by the partnership on July 11, 1996,
August 9, 1996 and September 30, 1996, respectively plus interest of $38,319.
7
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COM/TECH COMMUNICATION TECHNOLOGIES, INC.
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CONSOLIDATED NOTES TO FINANCIAL STATEMENTS, Sheet #3
[UNAUDITED]
================================================================================
[3] Related Party Transactions [continued]
[C] Reimbursed Related Party - The following schedule represents expenses which
were reimbursed during the six months ended September 30, 1996 and 1995 to
MarketLink, a partnership, in which the Company's Chairman has an interest:
September 30,
-----------------------------
1996 1995
---- ----
Selling Expense $ 20,746 $ --
Consulting 969 --
Rent 35,775 --
Other Expenses 15,261 --
--------- ----------
Total $ 72,751 $ --
----- ========= ==========
[4] Note Payable
In September, 1996 OSSI entered into a note in connection with its purchase of
sound equipment for a total amount of $255,000. The note payable matures on
August 16, 2000 and does not carry any interest. However, in accordance with
Accounting Principles Board Opinion No. 21, Interest on Receivables and
Payables, the Company imputed interest using a rate of 2% over prime or 10.25%.
Payments under this liability over the life of the note as of September 30, 1996
are as follows:
Twelve months
ending
September 30,
- -------------
1997 $ 63,600
1998 63,600
1999 63,600
2000 56,250
----------
Total 247,050
Less: Amount Representing Imputed Interest 43,946
----------
Present Value of Note Payable 203,104
Less: Current Portion 44,850
----------
Total $ 158,254
----- ==========
8
<PAGE>
COM/TECH COMMUNICATION TECHNOLOGIES, INC.
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CONSOLIDATED NOTES TO FINANCIAL STATEMENTS, Sheet #4
[UNAUDITED]
================================================================================
[5] Equity
[A] Amendment to Certificate of Incorporation - On May 11, 1995, the Company
amended its certificate of incorporation to increase the number of authorized
shares of common stock from 200 to 25,000,000 and change the par value from no
par value to $.0001 par value. In addition, the Company authorized 1,000,000
shares of preferred stock.
[B] Stock Split - On May 12, 1995, the Company effected a 10,000 for 1 stock
split of the outstanding shares of common stock of the Company by changing the
200 then outstanding shares of common stock, no par value, into 2,000,000 shares
of common stock of the Company, with $.0001 par value. All share data has been
adjusted to reflect this change.
[C] Equity Transaction - On May 17, 1995, 100,000 shares of the Company's common
stock were issued to employees of the Company. A compensation expense of
approximately $330,000 was incurred in the June 1995 quarter as a result of the
issuance of these shares.
[D] Public Offering - The Company filed a registration statement of 1,000,000
units at $5.00 per unit, which was declared effective in August of 1995. Each
unit consisted of one share of common stock. The Company successfully closed
this public offering with an over allotment of 150,000 units exercised and
received net proceeds of $4,549,988 on August 23, 1995. Bridge notes of $409,293
including accrued interest, underwriting costs of $690,719 and a prepaid
consulting fee of $100,000 were paid at the closing.
[E] Stock Option Plan - The Company has two option plans: a Non-Qualified Plan
(the "Non-Qualified Plan") and an Incentive Option and Stock Appreciation Rights
Plan (the "Incentive Option Plan"). The plans provide for the issuance of
non-qualified and qualified stock options as well as stock appreciation rights
("SAR") to key employees. Under the Non-Qualified Plan, the following stock
options are outstanding: (1) 300,199 options to purchase restricted shares of
common stock which are exercisable at $3.30 per share through December 31, 1999,
(2) 3,500 options to purchase restricted shares of common stock which are
exercisable at $3.75 per share through March 31, 1999, and (3) 150,000 options
to purchase restricted shares of common stock which are exercisable at $3.00 per
share through April 21, 1999. The exercise prices for the options granted were
determined at the time of each grant after giving consideration to market price
on the date of grant and the restricted nature of the underlying stock, amount
other things. No options or SAR's have been granted under the Incentive Option
Plan. All options have been approved by the Company's Board of Directors.
[6] New Authoritative Pronouncements
The Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, in March of 1995.
SFAS No. 121 establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used, and for long-lived assets and certain identifiable
intangibles to be disposed of. SFAS no. 121 is effective for financial
statements issued for fiscal years beginning after December 15, 1995. SFAS No.
121 may have a material impact on the Company's financial statement.
The FASB has also issued SFAS No. 123 "Accounting for Stock-Based Compensation,"
in October 1995. SFAS No. 123 uses a fair value based method of recognition for
stock options and similar equity instruments issued to employees as contrasted
to the intrinsic valued based method of accounting prescribed by Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees." The recognition requirements of SFAS No. 123 are effective for
9
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COM/TECH COMMUNICATION TECHNOLOGIES, INC.
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CONSOLIDATED NOTES TO FINANCIAL STATEMENTS, Sheet #5
[UNAUDITED]
================================================================================
[6] New Authoritative Pronouncements (continued)
transactions entered into in fiscal years that begin after December 15, 1995.
The Company will continue to apply Opinion No. 25 in recognizing its stock based
employee arrangements. The disclosure requirements of SFAS No. 123 are effective
for financial statements for fiscal years beginning after December 15, 1995. The
Company adopted the disclosure requirements on January 1, 1996. SFAS 123 also
applies to transactions in which an entity issues its equity instruments to
acquire goods or services from non-employees. Those transactions must be
accounting for based on the fair value of the consideration received or the fair
value of the equity instrument issued, whichever is more reliably measurable.
This requirement is effective for transactions entered into after December 15,
1995. The FASB has also issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities," which is
effective for transactions occurring after December 31, 1996. SFAS No. 125 is
not expected to have a material impact on the Company's financial statements.
Effective December 31, 1995, the Company adopted Statement of Financial
Accounting Standards No. 107, "Disclosure About Fair Value of Financial
Instruments" which requires disclosing fair value to the extent practicable for
financial instruments which are recognized or unrecognized in the balance sheet.
The fair value of the financial instruments disclosed herein is not necessarily
representative of the amount that could be realized or settled, nor does the
fair value amount consider the tax consequences of realization or settlement.
In assessing the fair value of financial instruments, the Company used a variety
of methods and assumptions, which were based on estimates of market conditions
and risks existing at that time. For certain instruments, including cash and
cash equivalents, trade receivables, related party and note receivable, and
trade payables, it was concluded that the carrying amount approximated fair
value for these instruments because of their short maturities.
[7] Acquisitions
[A] Note Receivable - On April 5, 1996, the Company entered into a letter of
intent to acquire Wireless Data Systems, Inc. ("WDS"). WDS owns facilities in
downtown Washington, D.C. which provide video production services, satellite
transmission, and fiber optic lines which deliver timely information to
government clients. In connection with this acquisition, the Company advanced
$116,943 to WDS through September 30, 1996, and in an additional $35,000 through
November 14, 1996. These advances are evidenced by secured notes and accrue
interest at the rate of 2% over prime.
[B] Letter of Intent - On June 6, 1996, the Company entered into a letter of
intent to acquire Triangle MicroSystems, Inc., a developer of
microprocessor-controlled electronic systems. Although the letter of intent
expired October 31, 1996, the parties have continued their negotiations and
document preparation and review.
. . . . . . . . . . . . . . . . .
10
<PAGE>
Item 2:
COM/TECH COMMUNICATION TECHNOLOGIES, INC.
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
================================================================================
Overview
The Company initiated operations on July 19, 1982. To date, the Company has
derived a significant amount of its revenues from the provision of video and
communications technology services in several areas of business:
o Private Networks: The Company designs, produces and manages distance
learning and informational video programs for the medical, financial and
insurance communities. Distance learning is sometimes referred to as "the
electronic classroom" and involves the transmission of educational
curriculum material between a central studio site and multiple classroom
sites at locations around the country. Often these programs offer
interactive communications so that the students can ask questions and
otherwise interact with the instructors.
o Satellite Press Tours: The Company produces and transmits live "satellite
press tours" through which media personalities may be interviewed by talk
show hosts on TV programs around the country with all of the interviews
emanating from the Company's New York studio.
o Multi-Media Production: Com/Tech provides the facilities and the technical
expertise to convert standard linear television programs to interactive
television, distance learning curricula, and site-specific
computer-controlled entertainment and advertising programming.
o Consulting: The Company provides consulting services to clients who require
solutions to multi- media and other communications problems.
The Company currently maintains a video production and editing studio with
satellite transmission facilities in New York City, and a sound studio in Los
Angeles, California.
The Company is in the process of expanding its business opportunities in several
areas with the proceeds of its public offering. Initially, the Company had
intended to construct a number of satellite downlink sites around the country to
receive distance learning transmissions. However, the increased costs of
satellite transmission in the past year, the proliferation of private satellite
systems, and the rapid development of wide-band land lines for
telecommunications led the Company to conclude that it would be more beneficial
to invest in other areas of communications technology.
Consequently, the Company has been pursuing the development of services and the
acquisition of companies which offer the potential to enhance its strategic
goals and shareholder value. The increased focus on acquisitions should provide
an opportunity to build the Company's operating base faster than through
internal growth alone. To this end, the Company announced in April 1996, that it
had entered into a letter of intent to acquire Wireless Data Systems, Inc.
("WDS") of Washington, D.C. WDS owns facilities in downtown Washington which
provide video production services, satellite transmission, and fiber optic lines
which deliver timely information to government clients. WDS also owns an FCC
construction permit for a low powered television station to be located in
Baltimore, MD, and has applied for a permit to move it to Washington. The
station became operational in Baltimore in October, 1996. The parties have
entered into a Stock Purchase Agreement, the closing of which is subject to,
among other things, the satisfactory conclusion of the due diligence process,
final approval of the Company's Board of Directors, and, as to certain FCC
licenses, FCC approval.
11
<PAGE>
COM/TECH COMMUNICATION TECHNOLOGIES, INC.
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
================================================================================
Overview (continued)
The Company has also entered into a letter of intent to acquire Triangle
MicroSystems, Inc. ("TMS"), a privately-held company, located in Raleigh, North
Carolina, which designs and develops electronic-based control instrumentation
and data transfer systems. Although the letter of intent expired on October 31,
1996, the parties have continued their negotiations and document preparation and
review. The transaction is subject to among other things, the execution and
delivery of a definitive purchase agreement and related documentation, the
satisfactory conclusion of the due diligence process, approval of the Company's
Board of Directors, and obtaining bank financing. Triangle MicroSystems,
incorporated in 1979, is a developer of microprocessor-controlled electronic
systems for the control and transfer of both digital and analog data. TMS has
developed systems for use in various industries including microprocessor-based
electronic gasoline pump controllers; point of sale/credit authorization control
systems; and state-of-the-art building environmental controls and automation
systems ("smart buildings").
On August 6, 1996 Com/Tech formed a new wholly-owned subsidiary, Olympic Sound
Studio, Inc. ("OSSI") to provide feature film post-production sound mixing, and
signed a seven-year lease for a sound studio facility in Los Angeles,
California. OSSI then acquired certain of the assets of the company which had
previously occupied the facility. In August, OSSI purchased a state-of-the-art
sound mixing console and retained the services of several highly regarded sound
mixers. The facility became operational in mid-September, and has already
provided services to major studios, including Paramount Pictures,
Columbia/TriStar Pictures, Walt Disney Company, and de Laurentiis Films.
Six month ended September 30, 1996 compared to the six months ended September
30, 1995
Results of Operations
Revenues for the six months ended September 30, 1996 and 1995 were approximately
$696,000 and $453,000, respectively. The increase in revenues is approximately
$243,000, of which approximately $86,000 is attributable to OSSI, and
approximately $120,000 is attributable to an increase in remote and
post-production services provided by its New York facilities.
The gross profit for the six months ended September 30, 1996 was $252,933 or
36.3% as compared to $211,324 or 46.6% for the six months ended September 30,
1995. This decrease in gross profit margin was caused by additional costs
incurred in connection with the use of outside facilities for remote
productions, the hiring of a full-time production engineer in August of 1995 and
higher costs attributable to the start-up of OSSI.
12
<PAGE>
COM/TECH COMMUNICATION TECHNOLOGIES, INC.
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
================================================================================
Six month ended September 30, 1996 compared to the six months ended September
30, 1995
Results of Operations [Continued]
Operating expenses for the six months ended September 30, 1996 and 1995 were
approximately $1,247,000 and $2,246,000, respectively. The decrease of
approximately $990,000 is attributable to decreases in non-cash expenses of
$330,000 (incurred in connection with the issuance of common stock to
employees), and financing costs of approximately $1,320,000 (incurred in
conjunction with the Bridge Loans received in May of 1995). The decrease in
operating expenses was offset by increases in salaries, payroll taxes and
benefits of approximately $335,000, legal and professional fees of approximately
$151,000, other operating and administrative expenses of approximately $143,000,
and rent and utilities of approximately $18,500. These increases were a result
of additional expenses incurred in connection with both the Company's
transformation from a privately held corporation to a publicly held entity and
its active pursuit of potential acquisitions.
Selling expense increased approximately $24,500. This increase was attributable
to the Company pursuing new business opportunities for the Company's existing
business.
Interest expense for the six months ended September 30, 1996 and 1995 was $8,881
and $16,612, respectively.
Liquidity and Capital Resources
At September 30, 1996, the Company had working capital of $1,975,569 and cash
and cash equivalents of $1,273,422. The Company utilized $934,832 from
operations for the six months ended September 30, 1996 as compared to utilizing
$567,807 from operations in 1995. The Company used $989,458 and $30,043 in
investing activities for the six months ended September 30, 1996 and 1995,
respectively. The Company utilized $24,002 from financing activities in the six
months ended September 30, 1996 as compared to generating a net of $4,540,472 in
the corresponding prior period. This charge is attributable to the net proceeds
from the public offering of $4,549,988 in August of 1995 offset by payments of
capital lease obligations of $9,616.
The Company had stockholders' equity of $2,904,003 as of September 30, 1996.
Should the Company require additional equity funding, it must first obtain prior
written consent from the underwriter of the public offering. This restriction is
for a period of 24 months after the effective date of the registration
statement, or until August 23, 1997. Consequently, the Company could be
restricted by this underwriting agreement from meeting its liquidity needs.
However, the Company is not prohibited from securing bank financing.
CAUTIONARY AND FORWARD LOOKING STATEMENTS
From time to time, the Company may make statements which constitute or contain
"forward-looking" information as that term is defined in the PRIVATE SECURITIES
LITIGATION REFORM ACT of 1995 (the "Act") or by the Securities and Exchange
Commission in its rules, regulations and releases. The Company therefore
cautions shareholders and investors that any such forward-looking statements
made by the Company are no guarantees of future performance and that actual
results may differ materially from those projected or suggested in any
forward-looking statements as the result of a wide variety of factors, which
include but are not limited to the factors and conditions set forth below:
o Competition within the video production and multi-media teleconferencing
industries, including satellite use and availability, technological
features and reliability, price and service or other activities necessary
in order to preserve or gain market share;
13
<PAGE>
o The Company's reliance upon the proper and continuous functioning of the
satellite used to relay satellite television network programming;
o Rapid technological change, characterized by frequent new product and
feature introductions which affect the market for the Company's services;
o The Company's ability to protect the technology it develops;
o In the event that the acquisitions of Wireless Data Systems, Inc. and
Triangle MicroSystems, Inc., or any other acquisitions, are consummated,
difficulties in integrating the acquired businesses, which may require
significant management attention and may place significant demands on the
Company's operations, information systems and financial resources.
o The costs and effects of unanticipated legal and administrative
proceedings.
The Company undertakes no obligation to publicly release the results of any
revisions to these forward-looking statements which may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
14
<PAGE>
SIGNATURES
================================================================================
Pursuant to the requirements 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.
Com/Tech Communication Technologies, Inc.
Date: November 18, 1996 By: /s/ Nancy Shalek
------------------------- ------------------------------------
Nancy Shalek, Chairman of the Board,
Chief Financial Officer
15
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<PERIOD-END> SEP-30-1996
<CASH> 1,273,422
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<RECEIVABLES> 270,604
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<OTHER-SE> 2,904,632
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