UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2003
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from to
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Commission file number 0-28831
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CBQ, Inc.
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(Exact name of small business issuer as
specified in its charter)
Colorado 84-1047159
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
12535 Orange Drive, Suite 163, Davie, Florida 33330
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(Address of principal executive offices)
(202) 508-6042
Issuer's telephone number
(Former name, former address and former fiscal year, if changed
since last report.)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes ----- No -----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practical date: June 30, 2003 Approximately
500,000,000 shares
Transitional Small Business Disclosure Format (check one).
Yes ; No X
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PART I
Item 1. Financial Statements
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors and Shareholders
CBQ, Inc. and Subsidiaries
We have reviewed the accompanying consolidated balance sheets of CBQ,
Inc. and Subsidiaries as of June 30, 2003, and the related consolidated
statements of operations for the three and six months ended June 30, 2003 and
2002, and cash flows for the six month periods ended June 30, 2003 and 2002.
These consolidated financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statement taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying consolidated financial statements for
them to be in conformity with accounting principles generally accepted in the
United States of America.
We have previously audited, in accordance with auditing standards
generally accepted in the United States of America, the consolidated balance
sheet of CBQ, Inc. and Subsidiaries as of December 31, 2002, and the related
consolidated statements of operations, cash flows, and stockholders' equity for
the year then ended (not presented herein); and in our report dated March 28,
2003, we expressed an unqualified opinion on those financial statements. In our
opinion, the information set forth in the accompanying consolidated balance
sheet as of December 31, 2002, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
Note 1 of the Company's audited consolidated financial statements as of
December 31, 2002, and for the year then ended discloses that the Company has
suffered recurring losses from operations and has no established source of
revenue at December 31, 2002. Our auditors' report on those consolidated
financial statements includes an explanatory paragraph referring to the matter
in Note 1 of those consolidated financial statements and indicating that these
matters raised substantial doubt about the Company's ability to continue as a
going concern. As indicated in Note 1 of the Company's unaudited interim
consolidated financial statements as of June 30, 2003, and for the three and six
months then ended, the Company has continued to suffer recurring losses from
operations and still has no established source of revenue at June 30, 2003. The
accompanying interim consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Respectfully submitted,
/s/ Robison, Hill & Co.
Certified Public Accountants
Salt Lake City, Utah
August 8, 2003
CBQ, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
2003 2002
------------------ ------------------
Assets:
Current assets: $ - $ -
Other non-current assets:
Investments 274,000 274,000
------------------ ------------------
Total Assets $ 274,000 $ 274,000
================== ==================
CBQ, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)
(Unaudited)
June 30, December 31,
2003 2002
------------------ ------------------
Liabilities and Stockholders' Deficit:
Current liabilities:
Accounts payable, trade $ 697,696 $ 693,951
Accrued expenses 175,000 300,000
Due to related party 1,215 1,215
Due to shareholders 271,800 140,000
Net liabilities of discontinued operations - 6,260,990
------------------ ------------------
Total Liabilities 1,145,711 7,396,156
------------------ ------------------
Stockholders' Deficit:
Preferred Stock, par value $.001 per share
Authorized 100,000,000 shares,
70,000 shares issued and outstanding at
June 30, 2003 and December 31, 2002 309 309
Common Stock, par value $.0001 per share
Authorized 500,000,000 shares,
Issued 500,000,000 Shares at June 30, 2003
and December 31, 2002 50,000 50,000
Additional paid-in capital 4,909,032 4,909,032
Accumulated deficit (5,831,052) (12,081,497)
------------------ ------------------
Total Stockholders' Deficit (871,711) (7,122,156)
------------------ ------------------
Total Liabilities and
Stockholders' Deficit $ 274,000 $ 274,000
================== ==================
See accompanying notes and accountants' report.
CBQ, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (Unaudited)
For the three months ended For the six months ended
June 30, June 30,
----------------------------------- -------------------------------------
2003 2002 2003 2002
----------------- ---------------- ----------------- -----------------
Continuing operations:
Revenues $ - $ - $ - $ -
Costs and expenses:
General and administrative 3,600 35,000 10,545 71,500
Interest - 108,748 - 180,996
----------------- ---------------- ----------------- -----------------
Net income (loss) from
Continuing operations (3,600) (143,748) (10,545) (252,496)
Discontinued operations:
Income (Loss) from operations
of discontinued operations - - - -
Gain (Loss) on disposal of
Quantum Group and other
Subsidiaries - - 6,260,990 -
----------------- ---------------- ----------------- -----------------
Net Income (loss) from
discontinued operations - - 6,260,990 -
----------------- ---------------- ----------------- -----------------
Net Income (Loss) $ (3,600) $ (143,748) $ 6,250,445 $ (252,496)
================= ================ ================= =================
Basic & Diluted loss per share
Income (Loss) from continuing
Operations $ - $ - $ - $ -
Income (Loss) from
Discontinued operations - - 0.01 -
----------------- ---------------- ----------------- -----------------
Income (Loss) per Share $ - $ - $ 0.01 $ -
================= ================ ================= =================
See accompanying notes and accountants' report.
CBQ, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the six months ended
June 30,
-------------------------------------
2003 2002
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CASH FLOWS FROM OPERATING
ACTIVITIES:
Continuing operations:
Net Income (Loss) $ (10,545) $ (252,496)
Adjustments necessary to reconcile net loss
to net cash used in operating activities:
Increase (decrease) in accounts payable 3,745 -
Increase (decrease) in accrued expenses (125,000) 252,496
----------------- ------------------
Net cash used in continuing operations (131,800) -
Net cash used in discontinued operations - -
----------------- ------------------
Net cash used in operating activities (131,800) -
----------------- ------------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Increase in deposits - (24,000)
----------------- ------------------
Net cash provided by (used) investing activities - (24,000)
----------------- ------------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Other decreases in long-term debt - -
Increase in payable to shareholder 131,800 24,000
Common stock issued for cash - -
Common stock issued for services - -
----------------- ------------------
Net Cash Provided by
Financing Activities 131,800 24,000
----------------- ------------------
Net (Decrease) Increase in
Cash and Cash Equivalents - -
Cash and Cash Equivalents
at Beginning of Period - -
----------------- ------------------
Cash and Cash Equivalents
at End of Period $ - $ -
================= ==================
CBQ, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ - $ -
Franchise and income taxes $ - $ -
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES: NONE
See accompanying notes and accountants' report.
CBQ, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002
NOTE 1 - NATURE OF OPERATIONS AND GOING CONCERN
The accompanying financial statements have been prepared on the basis
of accounting principles applicable to a "going concern", which assume that the
Company will continue in operation for at least one year and will be able to
realize its assets and discharge its liabilities in the normal course of
operations.
Several conditions and events cast doubt about the Company's ability to
continue as a "going concern". The Company has incurred net losses of
approximately $2,206,000 for the year ended December 31, 2002 and losses of
approximately $4,505,000 for the year ended December 31, 2001, has a liquidity
problem, and requires additional financing in order to finance its business
activities on an ongoing basis. The Company is actively pursuing alternative
financing and has had discussions with various third parties, although no firm
commitments have been obtained.
The Company's future capital requirements will depend on numerous
factors including, but not limited to, continued progress in developing its
products, and market penetration and profitable operations from its software
development outsourcing, web development, custom software development, network
systems integration and management.
These financial statements do not reflect adjustments that would be
necessary if the Company were unable to continue as a "going concern". While
management believes that the actions already taken or planned, will mitigate the
adverse conditions and events which raise doubt about the validity of the "going
concern" assumption used in preparing these financial statements, there can be
no assurance that these actions will be successful.
If the Company were unable to continue as a "going concern", then
substantial adjustments would be necessary to the carrying values of assets, the
reported amounts of its liabilities, the reported revenues and expenses, and the
balance sheet classifications used.
Organization and Basis of Presentation
CBQ, Inc., (formerly Freedom Funding, Inc.) a Colorado corporation, was
incorporated September 18, 1986, under the laws of the State of Delaware, and
changed its situs to Colorado in 1989.
On November 19, 2001, the Company entered into a plan of reorganization
with Sourcelink, Inc. ("Sourcelink") whereby the Company would acquire
Sourcelink. Sourcelink was a development stage company that was formed to
develop an online trading website.
Nature of Business
The Company has ceased all operations except to attempt to settle
liabilities and to seek a
CBQ, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(Continued)
NOTE 1 - NATURE OF OPERATIONS AND GOING CONCERN (continued)
new business opportunity. Currently, the Company has not determined which
industry to pursue opportunities and will not do so until such time as those
uncertainties presently facing the Company are resolved. The Company's previous
lines of businesses included software development outsourcing, web development,
custom software development, network systems integration and management.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of accounting policies for CBQ, Inc. is presented to
assist in understanding the Company's financial statements. The accounting
policies conform to generally accepted accounting principles and have been
consistently applied in the preparation of the financial statements.
Interim Reporting
The unaudited financial statements as of June 30, 2003 and for the
three and six month periods ended June 30, 2003 and 2002 reflect, in the opinion
of management, all adjustments (which include only normal recurring adjustments)
necessary to fairly state the financial position and results of operations for
the three and six months. Operating results for interim periods are not
necessarily indicative of the results which can be expected for full years.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents to the extent the funds are not being held for investment
purposes.
Principles of Consolidation
The consolidated financial statements for the three months ended March
31, 2003 and the year ended December 31, 2002 include the accounts of the parent
entity and all of its subsidiaries: Quantum Group and its subsidiary, ProWare,
Inc. ("ProWare"); China Partners, Inc. (from the date of its formation in March
2000); CyberQuest, Inc. (CyberQuest"); Reliance Technologies, Inc. ("Reliance")
and its subsidiary, TopherNet, Inc. ("TopherNet"); and Priority One Electronic
Commerce Corporation ("Priority One").
The results of subsidiaries acquired or sold during the year are
consolidated from their effective dates of acquisition through their effective
dates of disposition.
CBQ, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(Continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
All significant intercompany balances and transactions have been
eliminated.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles required management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Income Taxes
The Company has a net operating loss for income taxes. Due to the
regulatory limitations in utilizing the loss, it is uncertain whether the
Company will be able to realize a benefit from these losses. Therefore, a
deferred tax asset has not been recorded. There are no significant tax
differences requiring deferral.
Income (Loss) per Share
The reconciliations of the numerators and denominators of the basic
income (loss) per share computations are as follows:
Income Shares Per-Share
(Numerator) (Denominator) Amount
------------------ ------------------- ------------------
For the three months ended June 30, 2003
-----------------------------------------------------------
Basic Income (Loss) per Share
Continuing operations $ (3,600) 500,000,000 $ -
Discontinued operations - 500,000,000 -
------------------ ------------------- ------------------
Income (Loss) to common shareholders $ (3,600) 500,000,000 $ -
================== =================== ==================
For the three months ended June 30, 2002
-----------------------------------------------------------
Basic Income (Loss) per Share
Continuing operations $ (143,748) 79,516,835 $ -
Discontinued operations - 79,516,835 -
------------------ ------------------- ------------------
Income (Loss) to common shareholders $ (143,748) 79,516,835 $ -
================== =================== ==================
CBQ, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(Continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income Shares Per-Share
(Numerator) (Denominator) Amount
------------------ ------------------- ------------------
For the six months ended June 30, 2003
-----------------------------------------------------------
Basic Income (Loss) per Share
Continuing operations $ (10,545) 500,000,000 $ -
Discontinued operations 6,260,990 500,000,000 0.01
------------------ ------------------- ------------------
Income (Loss) to common shareholders $ 6,250,445 500,000,000 $ 0.01
================== =================== ==================
For the six months ended June 30, 2002
-----------------------------------------------------------
Basic Income (Loss) per Share
Continuing operations $ (252,496) 79,516,835 $ -
Discontinued operations - 79,516,835 -
------------------ ------------------- ------------------
Income (Loss) to common shareholders $ (252,496) 79,516,835 $ -
================== =================== ==================
The effect of outstanding common stock equivalents would be
anti-dilutive for June 30, 2003 and 2002 and are thus not considered.
Concentration of Credit Risk
The Company has no significant off-balance-sheet concentrations of
credit risk such as foreign exchange contracts, options contracts or other
foreign hedging arrangements.
Reclassifications
Certain reclassifications have been made in the 2002 financial
statements to conform with the 2003 presentation.
NOTE 3 - INVESTMENTS
On May 11, 1999, the Company acquired 19% of the outstanding interest
of Global Logistics Partners, LLC ("GLP"), a privately held Texas limited
liability company in a tax-free exchange. This interest was acquired solely for
the issuance of 4,233,200 common shares.
CBQ, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(Continued)
NOTE 4 - DUE TO SHAREHOLDERS
Due to shareholders at June 30, 2003 and December 31, 2002 consists of
the following:
June 30, December 31,
2003 2002
------------------- ------------------
Demand note payable, unsecured, with interest at
15%, payable monthly. Principal and
accrued interest due on this note payable are
subordinated to all bank debt. $ 50,000 $ 50,000
Advances, unsecured, non-interest bearing,
due on demand 221,800 90,000
------------------- ------------------
$ 271,800 $ 140,000
=================== ==================
NOTE 5 - LEASES
As of June 30, 2003, all activities of the Company have been conducted
by corporate officers from either their homes or business offices. Currently,
there are no outstanding debts owed by the company for the use of these
facilities and there are no commitments for future use of the facilities.
NOTE 6 - PREFERRED STOCK
The Company has the option to call the preferred stock as follows:
70,000 shares at the greater of $12.50 per share or the traded market value of
the preferred stock on or before October 23, 2002
NOTE 7 - STOCK TRANSACTIONS
On November 19, 2001, the Company entered into a plan of reorganization
with Sourcelink, Inc. ("Sourcelink") whereby the Company would acquire
Sourcelink. Sourcelink was a development stage company that was formed to
develop an online trading website. On December 13, 2002, the Company issued
716,589 shares of Preferred Stock as part of the acquisition of Sourcelink.
These Preferred Shares are convertible to Common Shares on a 1:1,000 basis.
Subsequent to the issuance of this stock, 477,729 shares of Preferred Stock were
converted to 477,729,000 shares of Common Stock.
CBQ, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(Continued)
NOTE 7 - STOCK TRANSACTIONS (continued)
Also during 2002, 57,245,835 shares of common stock were returned to
the Company.
NOTE 8 - CONTINGENCIES
In September, 2001, a confession of judgement was entered against the
Company and several of its subsidiaries by the Circuit Court in Annapolis,
Maryland (Case No. C-2001-74735), in favor of Allegiance Capital Limited
partnership. The confession was in the amount of $1,976,076.04, plus attorneys's
fees of $296,411.41 and prejudgement interest in the amount of $802.75 per day
after September 25, 2001, until the date of entry of final judgement. This suit
was based on loans which Quantum had obtained prior to being acquired by the
Company, all of which were guaranteed by the Company and its subsidiaries, as
well as several individuals. For the year ended December 31, 2002, the amount of
the judgement has been included in the financial statements as part of the
current portion of long-term debt and accrued expenses. During the quarter ended
March 31, 2003, the Company abandoned all of its acquisitions resulting in the
write-off of the above debt.
On October 15, 2001, Anthony M. Sanders sued the Company and several of
its former affiliates, in the United States District Court for the District of
Maryland (Northern Division). The case number is MJG 01 CV 3062. Mr. Sanders was
a former officer, director and controlling shareholder of Quantum Technology who
transferred his interest to the Company. The gravaman of Mr. Sanders' complaint
is that the Company failed to redeem preferred shares in Quantum held by Mr.
Sanders. Mr. Sanders is claiming breach of contract, negligent
misrepresentation, intentional infliction of emotional distress and securities
violations against the Company for this failure. Management feels there is no
merit to Mr. Sanders' allegations as against the Company and that the complaint
as filed is completely groundless. The Company has elected not to defend the
case insofar as the Maryland court has no jurisdiction over this matter as it
pertains to the Company and any judgement obtained by Mr. Sanders would be
unenforceable against the Company.
NOTE 9 - DISCONTINUED OPERATIONS
During 2001 and 2002, the Company closed its operations including CBQ
Networkland, Inc., CBQ Technet Computer Services, Inc., and Quantum Group and
its subsidiaries.
During March 2003, the Company abandoned all of its subsidiaries
resulting in a gain on disposal of discontinued operations of $6,260,990.
CBQ, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(Continued)
NOTE 9 - DISCONTINUED OPERATIONS (continued)
The assets and liabilities of the abandoned subsidiaries consisted of
the following:
March 30, December 31,
2003 2002
----------------- ------------------
Assets $ - $ -
Liabilities:
Line of credit payable $ 577,157 $ 577,157
Current portion of long-term debt 2,860,460 2,860,460
Accrued expenses 987,348 987,348
Net liabilities of discontinued operations 1,311,025 1,311,025
Preferred stock of subsidiaries 525,000 525,000
----------------- ------------------
Total liabilities 6,260,990 6,260,990
----------------- ------------------
Net liabilities disposed of $ (6,260,990) $ (6,260,990)
================= ==================
Net liabilities disposed of have been recorded as a gain on disposal of
discontinued operations as of March 31, 2003, and separately classified in the
accompanying consolidated balance sheet at December 31, 2002.
NOTE 10 - ACQUISITIONS
On November 19, 2001, the Company entered into a plan of reorganization
with Sourcelink, Inc. ("Sourcelink") whereby the Company would acquire
Sourcelink. On December 13, 2002, the Company issued 716,589 shares of Preferred
Stock to complete the acquisition of Sourcelink. Sourcelink was a development
stage company that was formed to develop an online trading website. The website
was never completed. In the acquisition, the Company acquired the partially
developed website. The acquisition was recorded in the financial statements as
research and development expenses.
NOTE 11 - LEGAL SETTLEMENTS
CBQ, Inc. had an agreement with a funding source to sell certain
receivables with recourse. In the event of the customer's default the company
must repurchase the receivables from the funding source. As of December 31,
2001, the company is contingently liable in the amount of $935,275 relating to
such receivables sold with recourse. In November, 2001 the funding source sued
the Company, several of its subsidiaries and on officer of the Company in the
Superior Court of New
CBQ, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(Continued)
NOTE 11 - LEGAL SETTLEMENTS (continued)
Jersey, Bergen County, Case No. BER-L-9684-01, alleging the sum of $935,275.25
was due from the defendants under the factoring arrangement. On April 9, 2003,
this litigation was settled, with the Company agreeing to pay $300,000 to settle
the claim. The Company has since paid $125,000 towards this settlement. The
remaining $175,000 is recorded in the financial statements as part of accrued
expenses.
Item 2. Management's Discussion and Analysis or Plan of Operation
This Quarterly Report contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which are
intended to be covered by the safe harbors created thereby. Investors are
cautioned that all forward-looking statements involve risks and uncertainty,
including without limitation, the ability of the Company to continue its
expansion strategy, changes in costs of raw materials, labor, and employee
benefits, as well as general market conditions, competition and pricing.
Although the Company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore, there can be no assurance that
the forward-looking statements included in this Quarterly Report will prove to
be accurate. In light of the significant uncertainties inherent in the forward-
looking statements included herein, the inclusion of such information should not
be regarded as a presentation by the Company or any other person that the
objectives and plans of the Company will be achieved.
As used herein the term "Company" refers to CBQ, Inc., a Colorado
corporation and its predecessors and subsidiaries, unless the context indicates
otherwise.
Business of the Company and its Subsidiaries:
Beginning in late 2001 and continuing through early 2002, we entered
into a series of transactions that we believe will result in our resuming
business operations, although in a significantly different industry than the
traditional industries in which we have operated. Those transactions include the
following transactions:
o The Board of Directors decided to discontinue the retail portion of the
business. The Company did not proceed with the development of any
software business in Asia. Similarly the Company decided not to operate
any retail business related to sale or and servicing of computer
products. The Company began focusing on opportunities in the
information technology industry. These latter efforts were not
successful and, as a result, the Company
was forced to cease all operations in the third quarter of 2002.
o In November, 2001, the Company entered into a relationship with an
unaffiliated third party to assist it in dealing with the events which
transpired during the latter half of 2001 and to assist in the
development and implementation of a viable business plan for the
Company. These efforts were not successful and, consequently, the
Company ceased all operations in the third quarter of 2002.
o As of the date of this filing, the Company had filed answers to all law
suits to which it had a defense; however, the Company no longer has any
funds to further defend itself; therefore, the Company is uncertain of
the ultimate outcome of the litigation pending against it. The Company
has identified its debts, most of which are at the subsidiary level,
and is in the process of negotiating a spin off to existing
shareholders of these subsidiaries in return for stock. This will
eliminate a large amount and number of debts; however, the majority in
amount of debt is owed to a few large creditors, none of whom have
indicated any willingness at present to work an accommodation for the
satisfaction of this debt. The Company has worked an agreement to
satisfy its obligations to its auditors and is now in the process of
determining the appropriate structure in which to pursue subsequent
business opportunities, although management seriously doubts the
ability of the Company to pursue any business opportunities until such
time as the capital and debt structures of the Company are adequately
redefined and satisfied to attract an opportunity.
o The Company has not determined which industry to pursue opportunities
and will not do so until such time as those uncertainties presently
facing the Company are resolved.
All of the executive officers and directors of the Company have either
resigned or been removed from office for failure to appear at meetings as of the
date of this report, with the exception of Mr. Howard Ullman, who is now the
sole executive officer and a director of the Company, and Susan Xu, who is a
director of the Company.
The Company is in the process of attempting to identify and acquire
favorable business opportunities. The Company has reviewed and evaluated a
number of business ventures for possible acquisition or participation by the
Company. Other than previously mentioned the Company has not entered into any
agreement, nor does it have any commitment or understanding to enter into or
become engaged in a transaction as of the date of this filing. The Company
continues to investigate, review, and evaluate business opportunities as they
become available and will seek to acquire or become engaged in business
opportunities at such time as specific opportunities warrant.
During the period covered by this report, we conducted only minimal
business operations. We currently have no employees. Certain administrative
services relating to our minimal maintenance operations were provided by
employees of our majority shareholders.
Results of Operations
Plan of Operations - The Company was organized for the purpose of
creating a corporate
vehicle to seek, investigate and, if such investigation warrants, acquire an
interest in one or more business opportunities presented to it by persons or
firms who or which desire to seek perceived advantages of a publicly held
corporation.
The Company may incur significant post-merger or acquisition
registration costs in the event management wishes to register a portion of their
shares for subsequent sale. The Company will also incur significant legal and
accounting costs in connection with the acquisition including the costs of
preparing post- effective amendments, Forms 8-K, agreements and related reports
and documents.
The Company will not have sufficient funds (unless it is able to raise
funds in a private placement) to undertake any significant development,
marketing and manufacturing of the products acquired. Accordingly, following the
acquisition, the Company will, in all likelihood, be required to either seek
debt or equity financing or obtain funding from third parties, in exchange for
which the Company may be required to give up a substantial portion of its
interest in the acquired product. There is no assurance that the Company will be
able either to obtain additional financing or interest third parties in
providing funding for the further development, marketing and manufacturing of
any products acquired.
Results of Operations - The Company had no operations during 2002 and
to the date of this report, other than its search for a business opportunity.
During 2001 and 2000 the Company attempted to provide retail software, computer
services and products that has since proved uneconomical and has been abandoned.
Accordingly, comparisons with prior periods are not meaningful.
During the quarter ended March 31, 2003, the Company abandoned all of
its subsidiaries resulting in a gain on disposal of discontinued operations of
$6,260,990.
Capital Resources and Liquidity
The Company has not generated any cash flows from operating or
investing activities since inception. Operating capital was primarily provided
from the proceeds of equity financing, bank loans and receivables financing, the
latter two of which the Company is presently no longer entitled to enjoy and is
in litigation over. CBQI is presently seeking alternative sources of capital.
The Company expects future development and expansion will be financed
through cash flow from operations and other forms of financing such as the sale
of additional equity and debt securities, capital leases and other credit
facilities. There are no assurances that such financing will be available on
terms acceptable or favorable to the Company.
Item 3. Controls and Procedures
The Company's Chief Executive Officer and Chief Financial Officer have
concluded, based on an evaluation conducted within 90 days prior to the filing
date of this Quarterly Report on Form 10-QSB, that the Company's disclosure
controls and procedures have functioned effectively so as to provide those
officers the information necessary to evaluate whether:
(i) this Quarterly Report on Form 10-QSB contains any untrue statement
of a material fact or omits to state a material fact necessary to make
the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered
by this Quarterly Report on Form 10-QSB, and
(ii) the financial statements, and other financial information included
in this Quarterly Report on Form 10-QSB, fairly present in all material
respects the financial condition, results of operations and cash flows
of the Company as of, and for, the periods presented in this Quarterly
Report on Form 10-QSB.
There have been no significant changes in the Company's internal
controls or in other factors since the date of the Chief Executive Officer's and
Chief Financial Officer's evaluation that could significantly affect these
internal controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is presently a party to several law suits. The material law
suits are:
Allegiance Capital: In September, 2001, a confession of judgement was
entered against CBQI and several of its subsidiaries by Circuit Court in
Annapolis, Maryland (Case No. C-2001- 74735), in favor of Allegiance Capital
Limited Partnership. The confession was in the amount of $1,976,076.04, plus
attorneys's fees of $296,411.41 and pre judgement interest in the amount of
$802.75 per day after September 25, 2001, until the date of entry of final
judgement. This suit was based on loans which Quantum had obtained prior to
being acquired by CBQI, all of which were guaranteed by CBQI and its
subsidiaries, as well as several individuals, including John Moran, Gino Manna,
Raymond Kostkowski, Anne Sigman and J. Patrick Dowd. Pursuant to an
Inter-Creditor Agreement between Suntrust Bank and Allegiance Capital,
Allegiance Capital's claims are subordinate to such claims as Suntrust Bank may
have against CBQ, Inc.
Platinum Funding: In November, 2001, Platinum Funding Corp. (Platinum)
sued CBQI, several of its subsidiaries, and Mr. Bart Fisher in the Superior
Court of New Jersey, Bergen County, Case No. BER-L-9684-01, alleging that the
sum of $935,275.25 was due from the defendants under a factoring arrangement
which Platinum claims to have existed. On April 9, 2003, this litigation was
settled, with the Company agreeing to pay $300,000 to settle the claim. The
Company has since paid $125,000 towards this settlement. The remaining $175,000
is recorded in the financial statements as part of accrued expenses.
Anthony M. Sanders: On October 15, 2001, Anthony M. Sanders sued CBQ,
Inc., and several of its former affiliates, including Raymond Kostkowski, in the
United States District Court for the District of Maryland (Northern Division).
The case number is MJG 01 CV 3062. Mr. Sanders was a former officer, director
and controlling shareholder of Quantum Technology who transferred his interest
to CBQI. Mr. Sanders' complaint is that CBQI failed to redeem preferred
shares in Quantum held by Mr. Sanders. Mr. Sanders is claiming breach of
contract, negligent misrepresentation, intentional infliction of emotional
distress and securities violations against CBQI for this failure. Management
feels there is no merit to Mr. Sanders' allegations as against CBQI and that the
complaint as filed is completely groundless. CBQI has elected not to defend the
case insofar as the Maryland court has no jurisdiction over this matter as it
pertains to CBQI and any judgement obtained by Mr. Sanders would be
unenforceable against CBQI.
Suntrust Bank line of credit and term note: Quantum Technology Group
had a $4 million line of credit with Crestar Bank, which was subsequently
acquired by Suntrust. This line of credit was guaranteed by Quantum and five
individual guarantors, including Ray Kostkowski, Anne Sigman, Skip Lewis, and
Anthony Saunders. This line of credit was opened during April, 2000. On August
8, 2000, CBQI acquired all of the shares of Quantum Technology Group. $1.3
million of the line of credit had been used, and was owing to the bank and in
addition to the line of credit, a $200,000 term loan from Suntrust,
approximately $200,000 in accrued interest and $100,000 in attorney fees all of
which Suntrust is attempting to collect from the individual guarantors. Suntrust
has not sued CBQI but has threatened to sue. It is the position of CBQI that it
does not owe the money to Suntrust. It never signed any loan, and indeed by
freezing the line of credit, Suntrust greatly injured the business of CBQI.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None/Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None/Not Applicable.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
31 Certification Pursuant to Section 302 of the Sarbanes- Oxley Act of
2002.
32 Certification Pursuant to Section 906 of the Sarbanes- Oxley Act of
2002.
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the
period covered by this Form 10-QSB.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, this 6th day of June, 2003.
CBQ, Inc.
Date: August 18, 2003
/s/ Howard Ullman
Howard Ullman
President and Director
(Principal Executive Officer)
(Principal Financial and Accounting Officer)