U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Under
the Securities Exchange Act of 1934
For Quarter Ended: May 31, 2000
Commission File Number: 0-25319
CONTEX ENTERPRISE GROUP, INC.
-----------------------------
(Exact name of small business issuer as specified in its charter)
Colorado
(State or other jurisdiction of incorporation or organization)
84-1191355
(IRS Employer Identification No.)
1629 York Street
Suite 101
Denver, Colorado
(Address of principal executive offices)
80206
(Zip Code)
(303) 320-0457
(Issuer's Telephone Number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 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:_X_
No___.
The number of shares of the registrant's only class of common stock issued and
outstanding, as of May 31, 2000, was 2,240,000 shares.
PART I
ITEM 1. FINANCIAL STATEMENTS.
The unaudited financial statements for the three month period
ended May 31, 2000, are attached hereto.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with
the Company's unaudited financial statements and notes thereto included herein.
The Company generated no revenues during the three month period ended May 31,
2000. Management of the Company anticipates that the Company will not generate
any significant revenues until the Company accomplishes its business objective
of merging with a nonaffiliated entity or acquiring assets from the same.
In connection with, and because it desires to take advantage
of, the "safe harbor" provisions of the Private Securities Litigation Reform Act
of 1995, the Company cautions readers regarding certain forward looking
statements in the following discussion and elsewhere in this report and in any
other statement made by, or on the behalf of the Company, whether or not in
future filings with the Securities and Exchange Commission. Forward looking
statements are statements not based on historical information and which relate
to future operations, strategies, financial results or other developments.
Forward looking statements are necessarily based upon estimates and assumptions
that are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond the Company's control
and many of which, with respect to future business decisions, are subject to
change. These uncertainties and contingencies can affect actual results and
could cause actual results to differ materially from those expressed in any
forward looking statements made by, or on behalf of, the Company. The Company
disclaims any obligation to update forward looking statements.
Plan of Operation
The Company intends to seek to acquire assets or shares of an
entity actively engaged in business which generates revenues, in exchange for
its securities. The Company has no particular acquisitions in mind and has not
entered into any negotiations regarding such an acquisition. None of the
Company's officers, directors, promoters or affiliates have engaged in any
preliminary contact or discussions with any representative of any other company
regarding the possibility of an acquisition or merger between the Company and
such other company as of the date of this Report.
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The Company will not restrict its search to any specific
business, industry, or geographical location and the Company may participate in
a business venture of virtually any kind or nature. This discussion of the
proposed business is purposefully general and is not meant to be restrictive of
the Company's virtually unlimited discretion to search for and enter into
potential business opportunities. Management anticipates that it may be able to
participate in only one potential business venture because the Company has
nominal assets and limited financial resources. See "Financial Statements." This
lack of diversification should be considered a substantial risk to shareholders
of the Company because it will not permit the Company to offset potential losses
from one venture against gains from another.
The Company may seek a business opportunity with entities
which have recently commenced operations, or which wish to utilize the public
marketplace in order to raise additional capital in order to expand into new
products or markets, to develop a new product or service, or for other corporate
purposes. The Company may acquire assets and establish wholly owned subsidiaries
in various businesses or acquire existing businesses as subsidiaries.
The Company anticipates that the selection of a business
opportunity in which to participate will be complex and extremely risky. Due to
general economic conditions, rapid technological advances being made in some
industries and shortages of available capital, management believes that there
are numerous firms seeking the perceived benefits of a publicly registered
corporation. Such perceived benefits may include facilitating or improving the
terms on which additional equity financing may be sought, providing liquidity
for incentive stock options or similar benefits to key employees, providing
liquidity (subject to restrictions of applicable statutes), for all shareholders
and other factors. Potentially, available business opportunities may occur in
many different industries and at various stages of development, all of which
will make the task of comparative investigation and analysis of such business
opportunities extremely difficult and complex.
The Company has, and will continue to have, a very limited
amount of capital with which to provide the owners of business opportunities
with any significant cash or other assets. However, management believes the
Company will be able to offer owners of acquisition candidates the opportunity
to acquire a controlling ownership interest in a publicly registered company
without incurring the cost and time required to conduct an initial public
offering. The owners of the business opportunities will, however, incur
significant legal and accounting costs in connection with acquisition of a
business opportunity, including the costs of preparing Form 8-K's, 10-K's or
10-KSB's, agreements and related reports and documents. The Securities Exchange
Act of 1934 (the "34 Act"), specifically requires that any merger or acquisition
candidate comply with all applicable reporting requirements, which
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include providing audited financial statements to be included within the
numerous filings relevant to complying with the 34 Act. Nevertheless, the
officers and directors of the Company have not conducted market research and are
not aware of statistical data which would support the perceived benefits of a
merger or acquisition transaction for the owners of a business opportunity.
The analysis of new business opportunities will be undertaken
by, or under the supervision of, the officers and directors of the Company, none
of whom is a professional business analyst. Management intends to concentrate on
identifying preliminary prospective business opportunities which may be brought
to its attention through present associations of the Company's officers and
directors, or by the Company's shareholders. In analyzing prospective business
opportunities, management will consider such matters as the available technical,
financial and managerial resources; working capital and other financial
requirements; history of operations, if any; prospects for the future; nature of
present and expected competition; the quality and experience of management
services which may be available and the depth of that management; the potential
for further research, development, or exploration; specific risk factors not now
foreseeable but which then may be anticipated to impact the proposed activities
of the Company; the potential for growth or expansion; the potential for profit;
the perceived public recognition of acceptance of products, services, or trades;
name identification; and other relevant factors. Officers and directors of the
Company expect to meet personally with management and key personnel of the
business opportunity as part of their investigation. To the extent possible, the
Company intends to utilize written reports and personal investigation to
evaluate the above factors. The Company will not acquire or merge with any
company for which audited financial statements cannot be obtained within a
reasonable period of time after closing of the proposed transaction.
Management of the Company, while not especially experienced in
matters relating to the new business of the Company, shall rely upon their own
efforts and, to a much lesser extent, the efforts of the Company's shareholders,
in accomplishing the business purposes of the Company. It is not anticipated
that any outside consultants or advisors will be utilized by the Company to
effectuate its business purposes described herein. However, if the Company does
retain such an outside consultant or advisor, any cash fee earned by such party
will need to be paid by the prospective merger/ acquisition candidate, as the
Company has no cash assets with which to pay such obligation. There have been no
contracts or agreements with any outside consultants and none are anticipated in
the future.
The Company will not restrict its search for any specific
kind of firms, but may acquire a venture which is in its
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preliminary or development stage, which is already in operation, or in
essentially any stage of its corporate life. It is impossible to predict at this
time the status of any business in which the Company may become engaged, in that
such business may need to seek additional capital, may desire to have its shares
publicly traded, or may seek other perceived advantages which the Company may
offer. However, the Company does not intend to obtain funds in one or more
private placements to finance the operation of any acquired business opportunity
until such time as the Company has successfully consummated such a merger or
acquisition.
It is anticipated that the Company will incur nominal expenses
in the implementation of its business plan described herein. Because the Company
has limited capital with which to pay these anticipated expenses, present
management of the Company will pay these charges with their personal funds, as
interest free loans to the Company. However, the only opportunity which
management has to have these loans repaid will be from a prospective merger or
acquisition candidate. Management has agreed among themselves that the repayment
of any loans made on behalf of the Company will not impede, or be made
conditional in any manner, to consummation of a proposed transaction.
Acquisition of Opportunities
In implementing a structure for a particular business
acquisition, the Company may become a party to a merger, consolidation,
reorganization, joint venture, or licensing agreement with another corporation
or entity. It may also acquire stock or assets of an existing business. On the
consummation of a transaction, it is probable that the present management and
shareholders of the Company will no longer be in control of the Company. In
addition, the Company's directors may, as part of the terms of the acquisition
transaction, resign and be replaced by new directors without a vote of the
Company's shareholders.
It is anticipated that any securities issued in any such
reorganization would be issued in reliance upon exemption from registration
under applicable federal and state securities laws. In some circumstances,
however, as a negotiated element of its transaction, the Company may agree to
register all or a part of such securities immediately after the transaction is
consummated or at specified times thereafter. If such registration occurs, of
which there can be no assurance, it will be undertaken by the surviving entity
after the Company has successfully consummated a merger or acquisition and the
Company is no longer considered a "shell" company. Until such time as this
occurs, the Company will not attempt to register any additional securities. The
issuance of substantial additional securities and their potential sale into any
trading market which may develop in the Company's securities may have a
depressive effect on the value of the Company's securities
5
in the future, if such a market develops, of which there is no assurance.
While the actual terms of a transaction to which the Company
may be a party cannot be predicted, it may be expected that the parties to the
business transaction will find it desirable to avoid the creation of a taxable
event and thereby structure the acquisition in a so-called "tax-free"
reorganization under Sections 368(a)(1) or 351 of the Internal Revenue Code (the
"Code"). In order to obtain tax-free treatment under the Code, it may be
necessary for the owners of the acquired business to own 80% or more of the
voting stock of the surviving entity. In such event, the shareholders of the
Company, would retain less than 20% of the issued and outstanding shares of the
surviving entity, which would result in significant dilution in the equity of
such shareholders.
As part of the Company's investigation, officers and directors
of the Company will meet personally with management and key personnel, may visit
and inspect material facilities, obtain independent analysis of verification of
certain information provided, check references of management and key personnel,
and take other reasonable investigative measures, to the extent of the Company's
limited financial resources and management expertise. The manner in which the
Company participates in an opportunity will depend on the nature of the
opportunity, the respective needs and desires of the Company and other parties,
the management of the opportunity and the relative negotiation strength of the
Company and such other management.
With respect to any merger or acquisition, negotiations with
target company management is expected to focus on the percentage of the Company
which the target company shareholders would acquire in exchange for all of their
shareholdings in the target company. Depending upon, among other things, the
target company's assets and liabilities, the Company's shareholders will in all
likelihood hold a substantially lesser percentage ownership interest in the
Company following any merger or acquisition. The percentage ownership may be
subject to significant reduction in the event the Company acquires a target
company with substantial assets. Any merger or acquisition effected by the
Company can be expected to have a significant dilutive effect on the percentage
of shares held by the Company's then shareholders.
The Company will participate in a business opportunity only
after the negotiation and execution of appropriate written agreements. Although
the terms of such agreements cannot be predicted, generally such agreements will
require some specific representations and warranties by all of the parties
thereto, will specify certain events of default, will detail the terms of
closing and the conditions which must be satisfied by each of the parties prior
to and after such closing, will outline the manner of bearing costs, including
costs associated with the Company's attorneys and
6
accountants, will set forth remedies on default and will include miscellaneous
other terms.
As stated hereinabove, the Company will not acquire or merge
with any entity which cannot provide independent audited financial statements
within a reasonable period of time after closing of the proposed transaction.
The Company is subject to all of the reporting requirements included in the 34
Act. Included in these requirements is the affirmative duty of the Company to
file independent audited financial statements as part of its Form 8-K to be
filed with the Securities and Exchange Commission upon consummation of a merger
or acquisition, as well as the Company's audited financial statements included
in its annual report on Form 10-K (or 10-KSB, as applicable). If such audited
financial statements are not available at closing, or within time parameters
necessary to insure the Company's compliance with the requirements of the 34
Act, or if the audited financial statements provided do not conform to the
representations made by the candidate to be acquired in the closing documents,
the closing documents will provide that the proposed transaction will be
voidable, at the discretion of the present management of the Company. If such
transaction is voided, the agreement will also contain a provision providing for
the acquisition entity to reimburse the Company for all costs associated with
the proposed transaction.
The Company has no full time employees. The Company's
President and Secretary have agreed to allocate a portion of their time to the
activities of the Company, without compensation. These officers anticipate that
the business plan of the Company can be implemented by their devoting
approximately 20 hours per month to the business affairs of the Company and,
consequently, conflicts of interest may arise with respect to the limited time
commitment by such officers.
Because the Company presently has nominal overhead or other
material financial obligations, management of the Company believes that the
Company's short term cash requirements can be satisfied by existing capital
resources, as well as management injecting whatever nominal amounts of cash into
the Company to cover additional incidental expenses. There are no assurances
whatsoever that any additional cash will be made available to the Company
through any means.
Liquidity and Capital Resources
The Company presently has $39,768 in cash or cash equivalents.
Because the Company is not required to pay rent or salaries to any of its
officers or directors, management believes that the Company has sufficient funds
to continue operations through the foreseeable future.
7
There is presently no trading market for the common equity of
the Company. In this regard, the Company has caused to be filed an application
to trade its common stock on the OTC Bulletin Board operated by the National
Association of Securities Dealers, Inc. As of the date of this Report, the
relevant application has not been approved. While management is optimistic that
the application will be approved in the future, there can be no assurances that
said application will be so approved.
Year 2000 Disclosure
Many existing computer programs use only two digits to
identify a year in the date field. These programs were designed and developed
without considering the impact of the recent change in the century. If not
corrected, many computer applications were expected to fail or create erroneous
results by or at the Year 2000. As a result, many companies were required to
undertake major projects to address the Year 2000 issue. The Company did not
incur any negative impact as a result of this problem and no problems in this
regard are anticipated in the future.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - NONE
ITEM 2. CHANGES IN SECURITIES - NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION - NONE.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -
(a) Exhibits
EX-27 Financial Data Schedule
(b) Reports on Form 8-K
None.
8
Contex Enterprise Group, Inc.
(A Development Stage Company)
Balance Sheet
- -----------------------------------------------------------------
Unaudited Audited
May February
31, 2000 29, 2000
-------- --------
ASSETS
Current Assets:
Cash and cash equivalents $ 39,768 $ 42,311
-------- --------
Total Current Assets 39,768 42,311
-------- --------
TOTAL ASSETS $ 39,768 $ 42,311
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accrued Liabilities 7,764 5,894
-------- --------
Total Current Liabilities 7,764 5,894
Long-Term debt-related party 30,000 30,000
-------- --------
TOTAL LIABILITIES 37,764 35,894
-------- --------
SHAREHOLDERS' EQUITY
Class A preferred stock, no par value;
Authorized 2,500,000 Shares; Issued
and outstanding 20,000 20,000 20,000
Class B preferred stock, no par value;
Authorized 2,500,000 Shares; Issued
and outstanding -0- 0 0
Common Stock, no Par Value
Authorized 50,000,000 Shares; Issued
and outstanding 2,240,000 shares 1,120 1,120
Authorized paid-in capital 2,700 2,400
Accumulated deficit (21,816) (17,103)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 2,004 6,417
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 39,768 $ 42,311
======== ========
See Accompanying Notes To These Unaudited Financial Statements.
9
Contex Enterprise Group, Inc.
(A Development Stage Company)
Unaudited Statement Of Operations
- -----------------------------------------------------------------
September
16, 1991
3 Months 3 Months (Inception)
Ended Ended Through
May May May
31, 2000 31, 1999 31, 2000
---------- --------- ----------
Revenue $ 0 $ 2,500 $ 2,500
Bank Charges 13 24 137
Licenses & Fees 5 0 690
Printing 0 577 1,902
Professional Fees 1,860 1,623 11,109
Stock transfer fees 285 150 1,634
Officer Salary 1,500 0 5,000
Rent, related party 300 300 2,700
---------- --------- ----------
Total costs and expenses 3,963 2,674 23,172
---------- --------- ----------
(Loss) before taxes
and interest (3,963) (174) (20,672)
Other (expense)-interest (750) 0 (1,144)
---------- --------- ----------
Net (Loss) $ (4,713) $ (174) $ (21,816)
========== ========= ==========
Basic (Loss) per share $ (0.002) $ (0.00)
========== =========
Weighted Average Common
Shares Outstanding 2,240,000 2,240,000
========== =========
See Accompanying Notes To These Unaudited Financial Statements.
10
Contex Enterprise Group, Inc.
(A Development Stage Company)
Unaudited Statement Of Cash Flows
- ------------------------------------------------------------------------
September
16, 1991
3 Months 3 Months (Inception)
Ended Ended Through
May May May
31, 2000 31, 1999 31, 2000
-------- -------- --------
Net Income $ (4,713) $ (174) $(21,816)
Adjustments to reconcile net loss to
net cash used in operating activities:
Contributed rent 300 0 2,700
Increase accrued liabilities 1,870 300 7,764
-------- -------- --------
Net Cash Flows From
(Used in) Operations (2,543) 126 (11,352)
-------- -------- --------
Cash Flows From Investing Activities:
Net Cash Flows Provided By
Investing Activities 0 0 0
-------- -------- --------
Cash Flows From Financing Activities:
Proceeds from note payable 0 0 30,000
Proceeds from short term working
capital advance 0 0 1,900
Repayment of short term working
capital advance 0 0 (1,900)
Proceeds from issuance of
common stock 0 0 1,120
Proceeds from issuance of
Class A preferred stock 0 0 20,000
-------- -------- --------
Cash Flows (Used In) Financing 0 0 51,120
-------- -------- --------
Net Increase (Decrease) In Cash
and cash equivalents (2,543) 126 39,768
Cash and cash equivalents at
beginning of period 42,311 645 0
-------- -------- --------
Cash and cash equivalents at
end of period $ 39,768 $ 771 $ 39,768
======== ======== ========
Summary Disclosure of Cash Flow Information:
Return & Cancellation of 40,000
shares of preferred stock $ 0 $ 0 $ (4,000)
======== ======== ========
Issuance of 4,000 shares of Class A
preferred stock in exchange for
former preferred stock $ 0 $ 0 $ 4,000
======== ======== ========
See Accompanying Notes To These Unaudited Financial Statements.
11
Contex Enterprise Group, Inc.
(A Development Stage Company)
Unaudited Statement Of Shareholders' Equity
- -----------------------------------------------------------------------------------------------------------------
Net (Loss)
Number Of Accumulated
Number Of Shares Number Of Additional During The
Shares Class A Shares Preferred Common Paid in Development
Preferred Preferred Common Stock Stock Capital Stage Total
---------- --------- --------- --------- -------- ---------- ----------- -------
Balance At September 16,
1991 and February 28,
1992, 1993, 1994, 1995
1996, and 1997 0 0 0 $ 0 $ 0 $ 0 $ 0 $ 0
February 3, 1996 issued
200,000 Shares Of No Par
Value Common Stock for
cash of $100 or
$.0005 per share - - 200,000 - 100 - - 100
February 5, 1998 issued
40,000 Shares of No Par
Value Preferred Stock for
cash of $4,000 or
$.10 per share 40,000 - - 4,000 - - - 4,000
Net (Loss) - - - - - - (205) (205)
---------- --------- --------- --------- -------- ---------- ----------- -------
Balance At February
28, 1998 40,000 0 200,000 $ 4,000 $ 100 $ 0 $ (205) $ 3,895
May 1998 issued 2,040,000
Shares of No Par Value
Common Stock for Cash of
$1,120 or $.0005 Per Share - - 2,040,000 - 1,020 - - 1,020
Net (Loss) - - - - - - (5,470) (5,470)
---------- --------- --------- --------- -------- ---------- ----------- -------
Balance at February
28, 1999 40,000 0 2,240,000 $ 4,000 $ 1,120 $ 0 $ (5,675) $ (555)
January 13, 2000
cancellation of preferred
stock Issued 20,000 shares
of Class A preferred
stock for $16,000
cash and previously
paid $4,000 for old
preferred stock or
$1.00 per share (40,000) 20,000 - 16,000 - - - 16,000
Contributed rent - - - - - 2,400 - 2,400
Net (Loss) - - - - - - (11,428) (11,428)
---------- --------- --------- --------- -------- ---------- ----------- -------
Balance at February
29, 2000 0 20,000 2,240,000 $ 20,000 $ 1,120 $ 2,400 $ (17,103) $ 6,417
Contributed rent - - - - - 300 - 300
Net (Loss) - - - - - - (4,317) (4,713)
---------- --------- --------- --------- -------- ---------- ----------- -------
Balance at May 31, 2000 0 20,000 2,240,000 $ 20,000 $ 1,120 $ 2,700 $ (21,816) $ 2,004
========== ========= ========= ========= ======== ========== =========== =======
See Accompanying Notes To These Unaudited Financial Statements.
12
Contex Enterprise Group, Inc.
(A Development Stage Company)
Notes to Unaudited Financial Statements
For The Three Month Period Ended May 31, 2000
- ----------------------------------------------
Note 1 - Unaudited Financial Information
- ----------------------------------------
The unaudited financial information included for the three month period ended
May 31, 2000 were taken from the books and records without audit. However, such
information reflects all adjustments (consisting only of normal recurring
adjustments, which are of the opinion of management, necessary to reflect
properly the results of interim periods presented). The results of operations
for the three month period ended May 31, 2000 are not necessarily indicative of
the results expected for the fiscal year ended February 28, 2001.
Note 2 - Financial Statements
- -----------------------------
Management has elected to omit substantially all footnotes relating to the
condensed financial statements of the Company included in the report. For a
complete set of footnotes, reference is made to the Company's Report on Form
10-KSB for the year ended February 29, 2000 as filed with the Securities and
Exchange Commission and the audited financial statements included therein.
13
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CONTEX ENTERPRISE GROUP, INC.
(Registrant)
Dated: July 20, 2000
By: s/Gerald H. Trumbule
-----------------------------
Gerald H. Trumbule, Secretary
14
CONTEX ENTERPRISE GROUP, INC.
EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-QSB
FOR THE QUARTER ENDED MAY 31, 2000
EXHIBITS Page No.
EX-27 Financial Data Schedule....................................16
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