U.S. 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 JUNE 30, 1995
[ ] 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 0-11546
COM-TEK Resources, Inc.
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Colorado 84-0832977
- --------------------------------------------------------------------------------
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
1624 Market Street, Suite 303, Denver, Colorado 80202
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(303) 595-8555
- --------------------------------------------------------------------------------
(ISSUER'S TELEPHONE NUMBER)
Indicate by check mark whether the registrant (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 XXX NO
--- ---
As of June 30, 1995, there were 141,262,074 shares of the Company's $0.01 par
value common stock issued and outstanding.
COM-TEK RESOURCES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The consolidated financial statements of COM-TEK Resources, Inc. included herein
have been prepared, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and notes normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. IT IS SUGGESTED THAT THESE FINANCIAL STATEMENTS BE READ IN
CONJUNCTION WITH THE AUDITED FINANCIAL STATEMENTS AND THE NOTES THERETO INCLUDED
IN COM-TEK'S ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED SEPTEMBER 30, 1994.
Because of a recent financing and other activities involving the Company, as
well as the seasonal nature of COM-TEK's domestic operations, among other
factors, the results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for an entire year.
COM-TEK RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1995
(unaudited)
ASSETS
Current Assets:
Cash and Cash Equivalents $2,267,835
Accounts Receivable - Oil and Gas Sales 27,630
Other Current Assets 24,612
--------------
Total Current Assets 2,320,077
--------------
Property, Plant and Equipment:
Oil and Gas Properties (Full cost method) 8,958,492
Accumulated Depletion, Amortization and Impairment (2,894,156)
--------------
6,064,336
--------------
Gas Gathering System 170,652
Building, Equipment and Land 124,498
--------------
295,150
Accumulated Depreciation (22,597)
--------------
272,553
--------------
Furniture and Fixtures 137,620
Accumulated Depreciation (110,652)
--------------
26,968
--------------
Power Plants in Process 1,539,778
--------------
Net Property, Plant and Equipment 7,903,635
--------------
Other Assets:
Restricted Cash 25,000
Power Plant Licenses, Net of Amortization of $3,276 193,269
Investment in MICE Group 427,500
Deferred Financing Costs 775,326
--------------
Total Other Assets 1,421,095
--------------
Total Assets $11,644,807
--------------
--------------
2
COM-TEK RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1995
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable, Trade $168,273
Accrued Expenses 10,191
Notes Payable 56,687
--------------
Total Current Liabilities 235,151
--------------
Note Payable - Long-term 44,045
--------------
Stockholders' Equity:
Preferred Stock, Par Value $1.00
20,000,000 Shares Authorized, 3,262,500 Shares Issued 3,262,500
Preferred Stock to be Issued in Connection with Access Power Agreement 291,867
Common Stock, Par Value $0.01
150,000,000 Shares Authorized, 141,262,074 Shares Issued 1,412,620
Additional Paid-in Capital 16,467,107
Accumulated Deficit (10,094,733)
Unrealized Gain on Available for Sale Investment 26,250
--------------
Total Stockholders' Equity 11,365,611
--------------
Total Liabilities and Stockholders' Equity $11,644,807
--------------
--------------
3
COM-TEK RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended June 30 Nine Months Ended June 30
--------------------------- -------------------------
1995 1994 1995 1994
---- ---- ---- ----
Revenues:
Oil and Gas Sales $ 42,596 $ 115,849 $ 192,725 $ 351,025
Operating Fees - 21,957 - 76,890
Other Income 17,471 1,624 84,853 4,882
---------------------------------------------------------
60,067 139,430 277,578 432,797
---------------------------------------------------------
Expenses:
Oil and Gas Operations 34,145 17,039 111,989 148,090
General and Administrative 516,017 311,477 1,068,289 723,864
Depreciation and Depletion 49,293 31,866 137,003 98,014
Interest (5,193) 6,798 19,999 25,174
Foreign Currency Translation Loss 18,611 9,309 24,506 72,079
---------------------------------------------------------
612,873 376,489 1,361,786 1,067,221
---------------------------------------------------------
Net Loss $ (552,806 ) $ (237,059) $ (1,084,208) $ (634,424)
---------------------------------------------------------
---------------------------------------------------------
Loss per Share of Common Stock $ * $ * $ * $ *
---------------------------------------------------------
---------------------------------------------------------
Weighted Average Number of Common
Shares Outstanding 141,262,074 73,068,740 113,883,555 72,785,406
-------------------------------------------------------
-------------------------------------------------------
<FN>
* Less than $0.01 per share.
4
COM-TEK RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED SEPTEMBER 30, 1994 AND THE NINE MONTHS ENDED JUNE 30, 1995
(unaudited)
Common Stock Preferred Stock
Shares Amount Shares Amount
Balance, October 1, 1993 72,768,740 $727,687 - $-
Issuance of common stock in satisfaction of debt 300,000 3,000 - -
Issuance of common stock 6,700,000 67,000 - -
Foreign currency translation adjustment - - - -
Net loss - - - -
-----------------------------------------------------------
Balance, September 30, 1994 79,768,740 797,687 - -
Offer and placing, net of offering costs (Note 3) 61,000,000 610,000 3,262,500 3,262,500
Preferred stock to be issued in connection with
Access Power agreement (Note 4) - - - -
Stock options exercised 30,000 300 - -
Stock issued in payment of director's fees 463,334 4,633 - -
Unrealized Gain on Investment - - - -
Foreign currency translation adjustment - - - -
Net loss - - - -
-----------------------------------------------------------
Balance, June 30, 1995 141,262,074 $1,412,620 3,262,500 $3,262,500
-----------------------------------------------------------
-----------------------------------------------------------
Unrealized
Preferred Gain (Loss) on
Stock to be Additional Accumulated Available for
Issued Paid-in Capital Deficit Sale Investment
Balance, October 1, 1993 $- $13,240,706 ($6,167,182) $-
Issuance of common stock in satisfaction of debt - 12,000 - -
Issuance of common stock - 441,953 - -
Foreign currency translation adjustment - - - -
Net loss - - (2,843,343) -
--------------------------------------------------------------
Balance, September 30, 1994 - 13,694,659 (9,010,525) -
Offer and placing, net of offering costs (Note 3) - 2,740,381 - -
Preferred stock to be issued in connection with
Access Power agreement (Note 4) 291,867 - - -
Stock options exercised - 1,950 - -
Stock issued in payment of director's fees - 30,117 - -
Unrealized Gain on Investment - - - 26,250
Foreign currency translation adjustment - - - -
Net loss - - (1,084,208) -
--------------------------------------------------------------
Balance, June 30, 1995 $291,867 $16,467,107 ($10,094,733) $26,250
--------------------------------------------------------------
--------------------------------------------------------------
Foreign
Currency Total
Translation Stockholders'
Adjustment Equity
Balance, October 1, 1993 $15,071 $7,816,282
Issuance of common stock in satisfaction of debt - 15,000
Issuance of common stock - 508,953
Foreign currency translation adjustment 41,819 41,819
Net loss - (2,843,343)
-----------------------------
Balance, September 30, 1994 56,890 5,538,711
Offer and placing, net of offering costs (Note 3) - 6,612,881
Preferred stock to be issued in connection with
Access Power agreement (Note 4) - 291,867
Stock options exercised - 2,250
Stock issued in payment of director's fees - 34,750
Unrealized Gain on Investment - 26,250
Foreign currency translation adjustment (56,890) (56,890)
Net loss - (1,084,208)
-----------------------------
Balance, June 30, 1995 $- $11,365,611
-----------------------------
-----------------------------
5
COM-TEK RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASHFLOW
(unaudited)
For the Nine Months Ended June 30,
----------------------------------
1995 1994
---- ----
Cashflows from Operating Activities:
Net Loss $(1,084,208) $(634,424)
Plus adjustments to reconcile net loss to net cash
used in operating activities:
Depletion, Depreciation and Amortization 137,003 98,014
Foreign Currency Transaction Loss 24,506 72,079
Foreign Currency Translation Adjustment (56,890) -
Changes in Operating Assets and Liabilities:
(Increase) Decrease in Accounts Receivable (7,784) 15,103
(Increase) Decrease in Other Assets (16,487) (1,126)
Increase (Decrease) in Accounts Payable and
Accrued Expenses (593,601) 90,862
Increase (Decrease) in Payable to Related Parties (129,705) 74,743
----------------------------------
Net Cash (Used in) Operating Activities (1,727,166) (284,749)
----------------------------------
Cashflows from Investing Activities:
Additions to Oil and Gas Properties (5,149) (216,899)
Additions to Gas Gathering System (1,184) -
Additions to Equipment, Building and Land (51,766) -
Additions to Furniture and Fixtures (30,097) -
Additions to Power Plants in Process (1,539,778) -
Proceeds from Sale of Oil and Gas Properties 150,000 496,795
----------------------------------
Net Cash (Used in) Provided by Investing Activities (1,477,974) 279,896
----------------------------------
Cashflows from Financing Activities:
Proceeds from Offer and Placing, Net of Expenses 6,708,203 -
Proceeds from Stock Subscriptions Receivable 508,953 -
Proceeds from Stock Options Exercised 2,250 -
Purchase of Investment (401,250) -
Payment of Deferred Financing Costs (775,326) -
Repayment of Notes Payable (576,667) -
----------------------------------
Net Cash Provided by Financing Activities 5,466,163 -
----------------------------------
Effect of Exchange Rate Changes on Cash - (2,357)
----------------------------------
Increase (Decrease) in Cash and Cash Equivalents 2,261,023 (7,210)
Cash and Cash Equivalents, Beginning of Period 6,812 38,226
----------------------------------
Cash and Cash Equivalents, End of Period $2,267,835 $ 31,016
----------------------------------
----------------------------------
6
COM-TEK RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) BASIS OF PRESENTATION
The financial statements as presented are unaudited. However, in the opinion of
management, all material adjustments for a fair presentation of the financial
condition and results of operations have been made. Such adjustments are of a
normal and recurring nature. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to the
Securities and Exchange Commission's rules and regulations. Management believes
the disclosures made are adequate, but suggests that these financial statements
be read in conjunction with the financial statements and notes contained in the
Company's September 30, 1994 annual report on Form 10-KSB.
Certain reclassifications were made to conform the prior year's financial
statements to the current year presentation. These reclassifications had no
effect on net income.
2) SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest was $4,463 and $46,398 for the three and nine months
ended June 30, 1995 and $-0- and $-0- for the three and nine months ended June
30, 1994.
Non-cash transactions:
Notes payable totaling $88,518 were issued in exchange for equipment, building
and land located in Kansas during the nine months ended June 30, 1995.
3) STOCKHOLDERS' EQUITY
On February 14, 1995, English Trust Company Limited completed a placing and
underwriting in the United Kingdom of 61,000,000 shares of the Company's Common
Stock (at 4 pence per share) and an open offer and placing of 3,262,500 shares
of its Preferred Stock (at 80 pence per share) resulting in gross offering
proceeds of L5,050,000 (about $8,080,000 U.S. at then prevailing exchange
rates). Commissions and offering costs incurred were approximately $1,169,000.
All shares were qualified for dealing on the Unlisted Securities Market ("USM"),
a facility of the International Stock Exchange of the United Kingdom and
Republic of Ireland, Ltd. ("London Stock Exchange").
Each share of Preferred Stock is convertible into 22 shares of Common Stock. A
resolution to increase the number of shares of authorized Common Stock is set
for a vote at the Annual General Meeting of the Company. Upon approval of the
resolution by the shareholders, the 3,262,500 shares of Preferred Stock will be
automatically converted into 71,775,000 shares of Common Stock, and all
preferences will be extinguished. If no approval to increase authorized common
stock is obtained, the Company is obligated to register the preferred shares in
the U.S.
7
4) ACQUISITION OF ACCESS POWER
In November, 1994, the Company reached an agreement in principle, which was
subsequently executed in definitive form on January 17, 1995, to acquire the
entire issued share capital of Access Power, Ltd., along with Access Power's
interests in certain joint ventures. Access Power is currently in the
development stage, seeking to develop, or participate in the development of,
small scale power projects, principally in the Peoples Republic of China and
elsewhere in the Far East. The Company acquired Access Power concurrent with
the closing of the offer and placing described above on February 14, 1995.
Under the terms of the Access Power agreement the Company is required to issue
30,303 shares of Preferred Stock, and 8,250,000 Warrants to purchase the
Company's Common Stock (at $0.075 per share), for each one of three power plant
projects which Access Power has presently entered into joint venture agreements
for and for which the joint ventures have received licenses to construct the
power plants. The Preferred Stock and Warrants are to be issued in three
installments as certain benchmarks are achieved related to the development of
each project. The first 1/3 of such Preferred Stock and Warrants are to be
issued upon execution of all appropriate contracts and receipt of the business
license for each project. The second 1/3 of such Preferred Stock and Warrants
are to be issued upon issuance of the completion certificate for each project.
The last 1/3 of such Preferred Stock and Warrants are to be issued upon receipt
of revenue from each project. A total of 90,909 shares of Preferred Stock
(convertable into approximately 2,000,000 shares of Common Stock) and 24,750,000
Warrants are to be issued in connection with the initial three power plant
projects.
Also under the terms of the Access Power agreement, the Company has agreed to
issue an additional 30,303 shares of Preferred Stock and an additional 8,250,000
Warrants to purchase Common Stock at $0.075 per share, for each of up to nine
additional projects in Guangdong Province, China, that the principals may
introduce to the Company. A total of 272,727 shares of Preferred Stock
(convertable into approximately 6,000,000 shares of Common Stock) and 74,250,000
Warrants may be issued in connection with up to nine subsequent power plant
projects in China.
The principals have also been issued a total of 30,303 shares of Preferred Stock
and 8,250,000 Warrants to purchase the Company's Common Stock (at $0.075 per
share) and have received reimbursement of expenses of $25,000 in consideration
for Access Power's 10% interest in the western joint venture partner which has a
54% interest in a 50 megawatt power plant project in China.
8
The acquisition of Access Power has been accounted for as a purchase. The
Preferred Stock to be issued attributable to the first three power plants and
the Preferred Stock to be issued attributable to the interest in the 50 megawatt
power plant project, has been recorded at its aggregate market value, determined
by reference to the price of the Preferred Stock issued in the offer and placing
that closed concurrent with the Access Power agreement. No value has been
attributed to the Warrants that are to be issued along with the Preferred Stock.
The Company believes that the value of such Warrants is nominal, since the
exercise price of the Warrants was more than 20% above the then market price of
the Common Stock. Access Power had no assets or liabilities at the time of the
acquisition; accordingly, the entire amount of the consideration for the
Acquisition has been recorded as an intangible asset (Power Plant Licenses), to
be amortized over the 15 year term of the associated power purchase agreements.
Under the terms of separate agreements, the principals received 73,454 shares of
Preferred Stock in connection with services provided by them relating to the
offer and placing. The value of the shares issued was recorded as a cost of the
offering and placing. The principals are also entitled to a commission of 1
1/2% (payable in Preferred Stock) for arranging multi-project financing packages
of up to $20 million for the proposed power plant projects.
Additionally, the agreement requires the Company to pay to the principals
consideration of up to 10% of the gross projected project cost of other projects
introduced, with certain limitations. The consideration is payable in Preferred
or Common Stock of the Company.
Upon becoming directors of the Company, each of the principals became entitled
to participate in the Company's stock option plan. Each principal can receive
options to purchase up to 22,500,000 shares of Common Stock at $0.075 per share.
Options for 2,500,000 shares of Common Stock are to be issued to each of the
principals upon Access Power entering into a joint venture agreement for the
construction and operation of each of up to nine 4 megawatt power plants in
China. All options will become exercisable in equal installments as the
benchmarks described above for the Warrants are achieved. Options for a total
of 15,000,000 shares of Common Stock have been issued in connection with the
three initial power plant projects. The options expire three years from the
date of issuance.
Additional shares, if any, of Preferred Stock (or equivalent shares of Common
Stock) that are issued to the principals of Access Power in connection with
future power plant projects will be recorded at then market value of the shares
issued. Any additional Warrants and Options that are issued in connection with
such power plant projects will be accounted for in accordance with the
provisions of Accounting Principles Board Opinion No. 25, and compensation
expense will be recorded as the Warrants and Options are issued and become
exercisable, to the extent that the then market price of the Common Stock
exceeds the exercise price of the Warrants and Options.
9
5) INVESTMENT IN MICE GROUP
The Company owns 7,150,000 shares of common stock of the MICE Group, a company
involved in business promotion and advertising, with an original cost of
$401,250. In accordance with Statement of Financial Accounting Standards No.
115 the investment has been classified as available for sale and reported at
fair market value. Unrealized gains and losses are excluded from earnings and
reported as a separate component of stockholders' equity.
10
6) NOTES PAYABLE
Notes payable consists of the following:
June 30, 1995 September 30, 1994
------------- ------------------
Note payable to a vendor, with interest
at 10%, payable in 36 monthly
installments, to purchase a building
and land associated with the pipeline.
This note is collateralized by the
land. $ 44,045 $ -0-
Note payable to a vendor, with interest
at 10%, payable in 3 monthly
installments to purchase equipment
associated with the pipeline. This
note is collateralized by the
equipment. 28,687 -0-
Note payable to a former director, with
interest at 10%, payable on May 1, 1994
and 1995. Principal is due May 1,
1995. The note is currently in default
and is not collateralized. 28,000 28,000
Note payable, including interest of
$15,000, to an individual to purchase a
pipeline, due October 10, 1994.
Collateralized by the pipeline and oil
and gas properties. Paid in full
October 1994. -0- 315,000
Notes payable to vendors, with interest
at 12%, payable semi-annually,
principal was due August 31, 1993.
These notes were settled during 1995. -0- 240,035
Note payable to a former director, non-
interest bearing, payable
semi-annually, principal was due
September 30, 1994. Paid in full April
1995. -0- 50,000
------------------------------------------
$ 100,732 $ 633,035
------------------------------------------
------------------------------------------
All of the above notes, except for the note to purchase a building and land, are
classified as current obligations.
11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 1995 AND 1994
REVENUES - Total revenues of the Company decreased by approximately $155,000 or
36%, from $432,797 to $277,578, when comparing the nine months ended June 30,
1995 with the nine months ended June 30, 1994. Oil and gas sales decreased
approximately $158,000 or 45% from $351,025 in 1994 to $192,725 in 1995,
primarily due to the following factors:
- - January 1994 sale of the Company's 54% working interest and the October
1994 sale of the Company's 12.5% overriding royalty interest in the Shelby,
Montana wells.
- - June 1994 sale of the Company's working interest in the Wyoming properties.
- - Management's decision to settle the lawsuit involving the Company's
Canadian properties. As a result of the settlement, the Company has no
activities in Canada. The Company had previously accrued production
revenues and expenses attributable to these properties during the period of
the suit.
The effect of these property dispositions is somewhat mitigated by the Company
successfully renegotiating its gas purchase contract in Leavenworth County,
Kansas to a price of $2.45 per mcf effective for gas sold beginning in October,
1994 through September 1995. The contract price previously was $1.35 per mcf.
EXPENSES - Total expenses of the Company were $1,361,786 for the nine months
ended June 1995, compared with $1,067,221 for the nine months ended June 30,
1994, an increase of $294,500, or 28%. This increase is the result of the
Company's increased joint venture activity in China. Such activity and related
expenses are expected to increase in future periods.
For the period, administrative expenses increased by $344,000, or 47%. Included
in the current period's administrative expense of $1,068,289 is $271,000
attributable to the Company's newly acquired subsidiary, Access Power Ltd.. Of
that total, approximately $158,000 relates to salary and consulting fees, and
$67,000 relates to travel costs. These costs were anticipated and are
associated with the Company's joint venture activities in China.
Also contributing to the increase in administrative expense for this year
relative to the comparative period of a year ago are costs of approximately
$89,000 associated with maintaining an office in London.
12
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Oil and gas lease operating expenses decreased by $36,000 for the year, as a
result of the property dispositions outlined above. Also, during the fiscal
first quarter, approximately $15,500 was spent to rework certain of the
Company's newly acquired wells located in Kansas. Additional work of a similar
nature is contemplated in the coming months, both in Kansas and in Texas.
For the nine months ended June 30, 1995, the Company realized net foreign
currency translation losses of $24,506. The losses resulted primarily from the
effect of changes in foreign currency exchange rates on bank balances maintained
in local currencies in London and in Hong Kong, net of the effect of exchange
rate changes on notes payable denominated in Pounds Sterling. Foreign currency
translation losses reported in the nine months ended June 30, 1994 of $72,079
relate primarily to the Company's Canadian properties, which have been disposed
of.
The Company maintains a significant portion of its cash balances in foreign
currencies and is exposed to effects of changes in foreign currency exchange
rates on those balances. The Company anticipates that as its investment
activity increases in the PRC and other Far Eastern locations, the Company's
exposure to foreign currency exchange risk will increase. The extent to which
the Company is exposed to such risks in future periods will depend, among other
things, on the level of its foreign business activities and how its activities
are financed, details of which are yet to be finalized.
FOR THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994
REVENUES - Total revenues of the Company decreased by approximately $79,000 or
57%, from $139,430 to $60,067, when comparing the three month period ended June
30, 1995 with the three months ended June 30, 1994. Oil and gas sales decreased
approximately $73,000 or 63% from $115,849 in 1994 to $42,596 in 1995, primarily
due to the factors discussed above.
EXPENSES - Total expenses of the Company were $612,873 for the three months
ended June 1995, compared with $376,489 for the three months ended June 30,
1994, an increase of $236,300, or 63%. This increase is the result of the
Company's increased joint venture activity in China. Such activity and related
expenses are expected to increase in future periods.
For the quarter, administrative expenses increased by $204,500, or 65%.
Included in the current quarter's expense of $515,017 is $137,700 of expenses
attributable to the Company's newly acquired subsidiary, Access Power Ltd. Of
that total, approximately $49,600 relates to salary and consulting fees, and
$50,700 relates to travel costs. These costs were anticipated and were in
connection with the Company's joint venture activity in China.
13
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Oil and gas lease operating expenses increased by $17,100 when comparing 1995
results with 1994. This is the result of a credit of approximately $30,000
recorded in 1994 as a correction to a prior period overbilling. In addition,
current period lease operating expenses have decreased due to the property
dispositions discussed above.
For the three months ended June 30, 1995, the Company realized foreign currency
losses of $18,611. The losses resulted primarily from the effect of changes in
foreign currency exchange rates on bank balances maintained in local currencies
in London and in Hong Kong. Foreign currency translation losses reported in the
three months ended June 30, 1994 of $9,309 relate primarily to the Company's
prior Canadian operations, which have been disposed of.
LIQUIDITY AND CAPITAL RESOURCES
On February 14, 1995, English Trust Company Limited completed a placing and
underwriting in the United Kingdom of 61,000,000 shares of the Company's Common
Stock (at 4 pence per share) and an open offer and placing of 3,262,500 shares
of its Preferred Stock (at 80 pence per share) resulting in gross offering
proceeds of L5,050,000 (about $8,080,000 U.S. at then prevailing exchange
rates). All shares were qualified for dealing on the Unlisted Securities Market
("USM"), a facility of the International Stock Exchange of the United Kingdom
and Republic of Ireland, Ltd. ("London Stock Exchange").
Concurrent with the U.K. placing, the Company completed the acquisition of
Access Power, Ltd. and began the implementation of an expanded business plan,
which includes domestic oil and gas operations as well as power generation
projects, primarily located in the Asia-Pacific region.
As a result of the U.K. placing discussed above, the Company was able to repay a
number of vendors, creditors, and notes to third parties during the two quarters
ended June 30, 1995. The Company reduced its amounts payable by over $585,000.
The Company also began construction of its first three joint venture power
plants in Guangdong Province, PRC. Costs to date of $1,539,778 represent
initial payments to MAN B&W for the equipment, and to the joint venture operator
for the Company's share of the joint venture turnkey construction costs.
During the fiscal second quarter, the Company advanced $775,326 in total to two
financial institutions in the U.K. as pre-payment of facility fees for financing
of the joint venture operations in China.
14
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company has working capital of $2.1 million at June 30, 1995 which it
considers adequate to finance the Company's operations and developmental plans
in the near term. However, the ability of the Company to finance its activities
over the longer term is dependent on the successful development and profitable
operations of these power plant projects, of which there can be no assurance.
15
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
1) FORMER PRESIDENT AND CHAIRMAN
In September 1994, Mr. John James Ellerton (the "Plaintiff"), a founder of the
Company, and Chairman and President of the Company until his resignation on
March 10, 1994, filed a lawsuit in Arapahoe District Court in the State of
Colorado against the Company, members of its Board of Directors and one former
Director (collectively, the "Defendants"). The suit alleges breach of his
employment contract, violations of various U.S. and Colorado securities laws,
fraud, civil conspiracy, loss of business opportunity, and conduct designed to
oppress the Plaintiff as a minority shareholder of the Company. The Plaintiff
seeks damages, attorney's fees, interest, costs, exemplary damages, expert
witness fees and an order of court setting aside any unlawful, unauthorized or
non-disclosed action by the Defendants which damaged the Plaintiff. The Company
believes it has meritorious defenses to the claims filed by Mr. Ellerton.
On October 18, 1994, the Company filed its Motion to Dismiss, or in the
alternative, for Summary Judgment and Motion for Sanctions and Attorney's Fees,
requesting dismissal of each and every claim asserted in the complaint and
seeking attorney's fees and costs against the Plaintiff as a sanction for filing
claims which are not well grounded in fact nor supportable under existing law.
The Company may have substantial counterclaims to assert against Mr. Ellerton.
2) CANADIAN PROPERTIES
At present, the Company has an agreement in principle with Backer Petroleum to
settle a lawsuit involving the sale of the Company's properties in Canada,
whereby the Company would receive approximately $5,000. This agreement has not
yet been finalized.
3) KANSAS PROPERTY
In September, 1994, the Company purchased a gathering system, along with related
producing wells, a building and equipment, from the party which had previously
purchased gas produced by the Company. Subsequently, it was determined that
material differences existed between volumes reported to the state regulatory
authority and actually paid to the Company prior to the sale, by this party.
Consequently, the Company withheld payment of its obligations under the sale
agreement, and a suit was filed by the other party. The Company believes it has
meritorious defenses and also may have substantial counterclaims to assert.
The Company knows of no other material legal proceedings either pending or
threatened, or judgments entered against the Company or any Director or Officer
of the Company in their capacity as such.
16
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 there unto duly authorized.
COM-TEK Resources, Inc.
Registrant
By: /s/ Dennis C. Dowd
-------------------
Dennis C. Dowd,
President
Dated: August 2, 1995
17