<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended December 31, 1996 Commission File Number 0-26590
----------------- -------
COM/TECH COMMUNICATION TECHNOLOGIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 13-3146673
------------------------------- ------------------
(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
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 February 18, 1997 was 3,710,000.
<PAGE>
COM/TECH COMMUNICATION TECHNOLOGIES, INC.
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INDEX
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Part 1. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets as of December 31, 1996
[Unaudited]...................................................... 1......2
Consolidated Statements of Operations for the three and
nine months ended December 31, 1996 and 1995 [Unaudited]......... 3......
Consolidated Statements of Stockholders' Equity for the
nine months ended December 31, 1996 [Unaudited].................. 4......
Consolidated Statements of Cash Flows for the nine months
ended December 30, 1996 and 1995 [Unaudited]..................... 5......
Consolidated Notes to Financial Statements....................... 6......9
Item 2. Management's' Discussion and Analysis of the
Financial Condition and Results of Operations.............. 10.....13
Part II. Other Information
Item 1. Legal proceedings........................................... 14 ......
Signature........................................................ 15 ......
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<PAGE>
Item 1:
COM/TECH COMMUNICATION TECHNOLOGIES, INC.
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CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1996.
UNAUDITED
- --------------------------------------------------------------------------------
Assets:
Current Assets:
Cash and Cash Equivalents $ 580,496
Accounts Receivable - [Net of Allowance of $26,198] 312,489
Loan Receivable - Officer 28,983
Related Party Receivable 705,000
Interest Receivable - Related Parties 34,001
Prepaid Expenses 111,471
Miscellaneous Receivable 23,870
Note Receivable 151,943
-----------
Total Current Assets 1,948,253
-----------
Equipment:
Equipment 1,573,926
Equipment Under Capitalized Leases 249,344
Furniture and Fixtures 41,858
Leasehold Improvements 96,989
-----------
Total - At Cost 1,962,117
Less: Accumulated Depreciation (1,247,890)
-----------
Equipment - Net 714,227
-----------
Other Assets:
Loan Receivable - Officer 86,948
Deposits 267,054
Deferred Expense - Net 73,033
Organizational Cost - Net 12,557
Goodwill - Net 115,133
-----------
Total Other Assets 554,725
-----------
Total Assets $ 3,217,205
===========
See Notes to Financial Statements.
1
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COM/TECH COMMUNICATION TECHNOLOGIES, INC.
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CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1996.
[UNAUDITED]
- --------------------------------------------------------------------------------
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable $ 182,442
Current Portion of Capitalized Lease Obligations 56,591
Current Portion of Long-Term Debt 46,009
Accrued Expenses 112,038
Accrued Taxes 28,640
Other Payables 67,107
-----------
Total Current Liabilities 492,827
-----------
Long-Term Liabilities:
Capitalized Lease Obligations 134,599
Note Payable 146,308
-----------
Total Long-Term Liabilities 280,907
-----------
Commitments and Contingencies
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] (4,153,851)
-----------
Total Stockholders' Equity 2,443,471
-----------
Total Liabilities and Stockholders' Equity $ 3,217,205
===========
See Notes to Financial Statements.
2
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COM/TECH COMMUNICATION TECHNOLOGIES, INC.
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CONSOLIDATED STATEMENTS OF OPERATIONS
[UNAUDITED]
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<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
------------ ------------
1 9 9 6 1 9 9 5 1 9 9 6 1 9 9 5
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues $ 681,859 $ 387,427 $ 1,378,183 $ 840,849
Cost of Revenues 508,549 227,974 951,940 470,072
----------- ----------- ----------- -----------
Gross Profit 173,310 159,453 426,243 370,777
----------- ----------- ----------- -----------
Operating Expenses:
Selling Expenses 60,437 89,326 172,968 163,861
Salaries, Payroll Taxes and Benefits 216,376 112,478 662,934 312,141
Compensation of Related Party 45,000 45,000 177,643 90,000
Consulting Fee 18,889 21,500 75,688 71,667
Depreciation and Amortization 37,763 38,587 90,660 113,114
Rent and Utilities 70,939 24,713 151,325 74,126
Other Operating Expenses 78,896 105,721 201,356 154,024
Bad Debt Expense 7,031 38,521 15,531 52,521
Professional Fees 92,297 15,208 253,875 25,634
Reimbursed Related Party Expenses 33,178 35,027 105,929 64,568
Compensation Expense - Issuance
of Stock [6C] -- -- -- 330,000
Financing Costs [7] -- -- -- 1,320,000
----------- ----------- ----------- -----------
Total Operating Expenses 660,806 526,081 1,907,909 2,771,656
----------- ----------- ----------- -----------
[Loss] from Operations (487,496) (366,628) (1,481,666) (2,400,879)
----------- ----------- ----------- -----------
Other Income [Expense]:
Interest Expense (10,613) (4,453) (19,494) (21,065)
Interest Income 15,556 48,004 78,841 73,332
Interest Income-Related Party 21,956 12,929 60,485 15,113
Gain on Disposal of Equipment -- -- -- 11,332
Miscellaneous Income 65 -- 781 --
----------- ----------- ----------- -----------
Total Other Income [Expense] 26,964 56,480 120,613 78,712
----------- ----------- ----------- -----------
Net [Loss] $ (460,532) $ (310,148) $(1,361,053) (2,322,167)
=========== =========== =========== ===========
Net [Loss] Per Share $ (.12) $ (.08) $ (.37) $ (.78)
=========== =========== =========== ===========
Average Number of Shares
Outstanding 3,710,000 3,710,000 3,710,000 2,981,454
=========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
COM/TECH COMMUNICATION TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
[UNAUDITED]
<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] -- -- -- (1,361,053) (1,361,053)
--------- ---- ---------- ----------- -----------
Balance - December 31, 1996 3,710,000 $371 $6,596,951 $(4,153,851) $ 2,443,471
========= ==== ========== =========== ===========
</TABLE>
See Notes to Financial Statements.
4
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COM/TECH COMMUNICATION TECHNOLOGIES, INC.
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CONSOLIDATED STATEMENT OF CASH FLOWS
[UNAUDITED]
- --------------------------------------------------------------------------------
Nine months ended
December 31,
1 9 9 6 1 9 9 5
------- -------
Net Cash - Operating Activities $ (1,504,165) $ (976,947)
----------- -----------
Investing Activities:
Purchases of Equipment (167,486) (56,753)
Increase in Deposit (228,974) (2,412)
Increase in Investment (116,223) --
Increase in Organizational Cost (13,575) --
Note Receivable (151,943) --
Loan Advances to Related Party (1,115,000) --
Repayment from Related Party 675,000 --
Repayment of Loan Advances to Officer 28,983 --
----------- -----------
Net Cash - Investing Activities (1,089,218) (59,165)
----------- -----------
Financing Activities:
Capital Lease Payments (30,863) (15,455)
Repayment of Note Payable (16,972) --
Bridge Loan Proceeds -- 400,000
Repayment of Bridge Loan -- (400,000)
Exercise of Underwriter's Warrants -- 100
Public Offering Costs -- (1,200,012)
Proceeds from Initial Public Offering -- 5,750,000
----------- -----------
Net Cash - Financing Activities (47,835) 4,534,633
----------- -----------
Net [Decrease] Increase in Cash and
Cash Equivalents (2,641,218) 3,498,521
Cash and Cash Equivalents - Beginning
of Periods 3,221,714 54,609
----------- -----------
Cash and Cash Equivalents - End
of Periods $ 580,496 $ 3,553,130
=========== ===========
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
<PAGE>
COM/TECH COMMUNICATION TECHNOLOGIES, INC.
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CONSOLIDATED NOTES TO FINANCIAL STATEMENTS, Sheet #1
(UNAUDITED)
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[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 $466,000 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 December 31, 1996
was approximately $26,700.
6
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COM/TECH COMMUNICATION TECHNOLOGIES, INC.
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CONSOLIDATED NOTES TO FINANCIAL STATEMENTS, Sheet #2
(UNAUDITED)
- --------------------------------------------------------------------------------
[2] Summary of Significant Accounting Policies [continued]
[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.
[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 nine months ended December 31, 1996, the
Company had net sales to one customer that accounted for more than 10 % of the
Company's net sales. Approximately 18.5% of the Company's net sales were derived
from NCI Advertising, Inc. For the nine months ended December 31, 1995, the
Company had net sales to two customers that in each case accounted for more than
10% of the Company's net sales. Approximately 34.0% and 31.1% 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 nine months ended December 31,
1996 was $1,090 for Goodwill and $1,018 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 $1,375,000 through December 31, 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%. During the nine months ended
December 31, 1996 principal payments aggregating $675,000 plus interest of
$39,176 were made by the partnership. On January 14, 1997 an additional $95,000
was advanced to this partnership.
7
<PAGE>
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 Expenses - The following schedule represents
expenses which were reimbursed during the nine months ended December 31, 1996
and 1995 to MarketLink, a partnership, in which the Company's Chairman has an
interest:
December 31,
------------
1 9 9 6 1 9 9 5
------- -------
Selling Expense $ 23,780 $ 14,177
Consulting 969 18,000
Rent 54,571 26,048
Other Expenses 26,609 6,343
-------- --------
Total $105,929 $ 64,568
======== ========
[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 December 31, 1996
are as follows:
Twelve months
ending
December 31,
- ------------
1997 $ 63,600
1998 63,600
1999 63,600
2000 40,350
------------
Total 231,150
Less: Amount Representing Imputed Interest 38,833
------------
Present Value of Note Payable 192,317
Less: Current Portion 46,009
------------
Total $ 146,308
============
[5] Litigation
The Company and its Chairman are defendants, together with two other public
companies, their chairmen and the Companies' underwriter, Sterling Foster & Co.,
Inc. in an action filed in November 1996 in the Supreme Court of the State of
New York, New York County. The plaintiffs allege in the Complaint that the
Company's registration statement and prospectus used in connection with the sale
of the Company's securities in its initial public offering of stock contained
material misstatements in violation of the Securities Act of 1933. The
plaintiffs purport to bring the action on behalf of certain class stockholders
and seek damages in unspecified amounts. The action is in its early stages, and
the Company is in the process of preparing its response to the Complaint.
Management of the Company believes that the action against the Company and its
Chairman is without merit and plans to oppose it vigorously.
8
<PAGE>
COM/TECH COMMUNICATION TECHNOLOGIES, INC.
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CONSOLIDATED NOTES TO FINANCIAL STATEMENTS, Sheet #4
[UNAUDITED]
- --------------------------------------------------------------------------------
[6] 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, among
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.
[7] Acquisitions
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
$151,943 to WDS through December 31, 1996. These advances are evidenced by
secured notes and accrue interest at the rate of 2% over prime.
9
<PAGE>
Item 2:
COM/TECH COMMUNICATION TECHNOLOGIES, INC.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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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 feature film
post-production 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. This focus on acquisitions is intended to provide
an opportunity to build the Company's operating base faster than through
internal growth alone.
In April 1996, the Company 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 license for a low powered television station located in
Baltimore, MD. 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 and, as to certain FCC licenses, FCC approval. The termination date
of the Stock Purchase Agreement is February 28, 1997. As of the date hereof
all of the closing conditions have not yet been satisfied, and therefore
there can be no assurance that the closing under the Stock Purchase Agreement
will take place.
10
<PAGE>
COM/TECH COMMUNICATION TECHNOLOGIES, INC.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Overview (continued)
The Company had 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. However, the parties were not able to conclude a
definitive purchase agreement and negotiations were terminated.
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 1996, 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 is providing services to major studios, including Paramount Pictures,
Columbia/TriStar Pictures, Walt Disney Company, and de Laurentiis Films.
Nine months ended December 31, 1996 compared to the nine months ended December
31, 1995
Results of Operations
Revenues for the nine months ended December 31, 1996 and 1995 were approximately
$1,378,000 and $841,000, respectively. The increase in revenues is approximately
$537,000, of which approximately $482,000 is attributable to OSSI, and
approximately $55,000 is attributable to an increase in remote and post
production services provided by its New York facilities.
The gross profit for the nine months ended December 31, 1996 was $426,243 or
30.9% as compared to $370,777 or 44.1% for the nine months ended December 31,
1995, respectively. 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.
Operating expenses for the nine months ended December 31, 1996 and 1995 were
approximately $1,908,000 and $2,772,000, respectively. The decrease of
approximately $864,000 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 $438,000, legal and professional fees of approximately
$228,000, other operating and administrative expenses of approximately $47,000,
and rent and utilities of approximately $77,000. 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
the start-up operations of its wholly-owned subsidiary on August 6, 1996.
Selling expense increased approximately $9,100. This increase was attributable
to the Company pursuing new business opportunities for the Company's existing
business.
Interest expense for the nine months ended December 31, 1996 and 1995 was
$19,494 and $21,065, respectively.
11
<PAGE>
COM/TECH COMMUNICATION TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Nine months ended December 31, 1996 compared to the nine months ended December
31, 1995
Results of Operations [Continued]
Liquidity and Capital Resources
At December 31, 1996, the Company had working capital of $1,455,426 and cash
equivalents of $580,496. The Company utilized cash of $1,504,165 from operations
for the nine months ended December 31, 1996 as compared to utilizing cash of
$976,947 from operations in 1995. The Company used cash of $1,089,218 and
$59,165 in investing activities for the nine months ended December 31, 1996 and
1995, respectively. The Company utilized cash of $47,835 from financing
activities in the nine months ended December 31, 1996 as compared to generating
a net cash of $4,534,633 in the corresponding prior period. This change 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 $15, 455.
The Company had stockholders' equity of $2,443,471 as of December 31, 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 guarantee 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;
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;
12
<PAGE>
COM/TECH COMMUNICATION TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Cautionary and Forward Looking Statements [Continued]
o In the event that the acquisition of Wireless Data Systems, 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 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.
----------
13
<PAGE>
PART II
- --------------------------------------------------------------------------------
Item 1. Legal proceedings
The Company and its Chairman are defendants, together with two other
public companies, their chairmen and the Companies' underwriter, Sterling Foster
& Co., Inc. in an action filed in November 1996 in the Supreme Court of the
State of New York, New York County. The plaintiffs allege in the Complaint that
the Company's registration statement and prospectus used in connection with the
sale of the Company's securities in its initial public offering of stock
contained material misstatements in violation of the Securities Act of 1933. The
plaintiffs purport to bring the action on behalf of certain class stockholders
and seek damages in unspecified amounts. The action is in its early stages, and
the Company is in the process of preparing its response to the Complaint.
Management of the Company believes that the action against the Company and its
Chairman is without merit and plans to oppose it vigorously.
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: February 19, 1996 By: /s/Nancy Shalek
-------------------------------------
Nancy Shalek, Chairman of the Board,
Chief Financial Officer
15
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