UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the Quarter ended December 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
Commission File No. 0-12116
ComTec International, Inc.
(Name of Small Business Issuer in its charter)
New Mexico 75-2456757
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
12835 East Arapahoe Road, T-1 Suite 800, Englewood, Co. 80112
(Address of principal executive offices)
(303) 662-8069
(Issuer's Telephone Number Including Area Code)
former address: 9350 East Arapahoe Road, Suite 340, Englewood, Co. 80112
------------------------------------------------------------------------
(former name, former address and former fiscal year
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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.
Yes x No
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practical date:
Title of each class of Common Stock Outstanding at February 13, 2001
- ----------------------------------- --------------------------------
Common Stock, $0.001 par value 69,239,902
Transitional Small Business Disclosure Format (check one):
Yes No x
TABLE OF CONTENTS
FORM 10-QSB REPORT - FOR QUARTER ENDED DECEMBER 31, 2000
ComTec International, Inc.
PART I
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 2000 (unaudited) and June 30, 2000 (audited) 3
Condensed Consolidated Statements of Operations 4
Six Months ended December 31, 2000 and 1999
and from inception (unaudited)
Condensed Consolidated Statements of Operations 5
Three Months ended December 31, 2000 and 1999
Condensed Consolidated Statements of Cash Flows 6
Six Months ended December 31, 2000 and 1999
and from inception (unaudited)
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis or Plan of Operation 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
PART II
Item 1. Legal Proceedings 13
Item 2. Change in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibit and Reports on Form 8-K 15
SIGNATURE PAGE 15
2
PART I
ITEM 1. FINANCIAL STATEMENTS
ComTec International, Inc. and Subsidiaries
(a Development Stage Enterprise)
Consolidated Condensed Balance Sheets
December 31, 2000 June 30, 2000
(unaudited) (audited)
----------- -----------
Assets
Current Assets
Cash and Equivalents $ 1,700 $ 5,100
Receivable from License Sale 333,700 -
----------- -----------
Total Current Assets 335,400 5,100
Property and Equipment, net 934,100 1,034,100
License Rights - 1,390,700
Other Assets 4,500 4,500
----------- -----------
Total Assets $ 1,274,000 $ 2,434,400
=========== ===========
LIABILITIES
Current Liabilities
Current Portion of Long Term Debt - 13,900
Accounts Payable 6,200 43,600
Accrued Liabilities 530,000 327,300
----------- -----------
Total Current Liabilities 536,200 384,800
----------- -----------
Long Term Debt, less current portion 81,000 1,409,400
----------- ------------
STOCKHOLDER'S EQUITY Common Stock,
.001 par value; Authorized 100,000,000
shares; 39,697,196 shares issued
June 30, 2000 and December 31, 2000 68,100 68,100
Capital in Excess of Par 16,047,700 16,047,700
Deficit accumulated during the
development stage (15,459,000) (15,475,600)
----------- ------------
656,800 640,200
----------- ------------
Total Liabilities and Stockholders Equity $ 1,274,000 $ 2,434,400
=========== ============
3
ComTec International, Inc. and Subsidiaries
(a Development Stage Enterprise)
Consolidated Condensed Statements of Operations
For the Six Months Ended
December 31, 2000 December 31, 1999 Cumulative
(unaudited) (unaudited) Amounts from
Inception
(unaudited)
------------- ------------ -----------
Operating Expenses
Selling, General and Administrative 415,900 340,100 3,834,200
Compensation in the form of common stock 3,688,500
Management fees- related party 65,000
Loss before other expense (income) 415,900 340,100 7,587,700
------------- ------------ -----------
Other Income (expense)
Interest and Dividend Income - (56,000) 156,300
Interest expense (3,100) (102,000) (1,418,200)
Rental and Other Income 101,800 10,300 282,000
Prepaid Calling Card services, less revenues (1,832,100)
Loan Origination Fees (532,700)
Gain (Loss) on investments, foreclosures and disposals 333,700 (1,185,000)
Write-down of intangibles and LED equipment (3,988,600)
Total Other Income (Expense) 432,400 (147,700) (7,850,900)
------------- ------------ -----------
Net Gain (Loss) 16,500 (487,800) (15,438,600)
============= ============ -----------
Weighted Average Common Shares Outstanding 47,094,211 39,697,196 20,985,248
============= =========== ==========
Net (Income) Loss per Common Share 0 (0.01) (0.74)
============= =========== ==========
4
ComTec International, Inc. and Subsidiaries
(a Development Stage Enterprise)
Consolidated Condensed Statements of Operations
For the Three Months Ended
December 31, 2000 December 31, 1999
(unaudited) (unaudited)
Expenses
Selling, General and Administrative 180,900 197,800
Compensation in the form of common stock
Management fees- related party
Loss before other income (expense) (180,900) (197,800)
---------- ----------
Other Income (expense)
Interest and Dividend Income
Interest expense (3,100) (51,000)
Rental and Other Income 38,900 4,200
Loan Origination Fees
Prepaid Calling Card services, less revenues
Loss on investments, foreclosures and disposals
Write-down of intangible
Total Other Income (Expense 35,800 (46,800)
---------- ----------
Net Loss (145,100) (244,600)
========== ==========
Weighted Average Common Shares Outstanding 47,094,211 39,697,196
========== ==========
Net Loss per Common Share (0) (0.01)
========== ==========
5
ComTec International, Inc. and Subsidiaries
(a Development Stage Enterprise)
Consolidated Statements of Cash Flows
For the Six Months Ended
December 31, 2000 December 31, 1999 Cumulative
(unaudited) (unaudited) Amounts from
inception
-------- ---------- -----------
Operating activities:
Net Gain (Loss) 16,500 (487,800) (15,438,700)
-------- ---------- -----------
Adjustments to reconcile net loss to
Net cash used by operating activities:
Depreciation expense 102,200 107,400 795,200
Services and Interest exchanged for stock 0 0 3,304,200
Gain on Sale of Marketable Securities 0 0 (10,000)
Write Down of Intangible 0 0 3,988,600
Losses on investments, foreclosure and disposal 0 0 677,200
Changes in assets and liabilities:
Accounts receivable 0 63,100 (25,300)
Deposits and other 0 56,000 (2,500)
(Increase) decrease in other current (333,700) 0 322,600
Increase (decrease) in account payable 219,800 189,700 2,382,700
Other Assets 0 0 120,700
-------- ---------- -----------
Net cash from (used) in operating activities 4,800 (71,600) (4,530,500)
Investing activities:
Proceeds of Sale of Marketable Securities 0 0 267,500
Proceeds from acquisition 0 0 22,100
License rights 0 0 (424,300)
Marketable securities 0 0 (255,600)
Non-Operating assets 0 0 (25,000)
Related Party 0 0 (39,000)
Purchase of property, plant and equipment (2,300) 0 (1,702,100)
Other 0 0 (1,400,000)
-------- ---------- -----------
Net cash used in investing activities (2,300) 0 (2,296,400)
Financing activities:
Advances from related party 0 0 1,184,500
Proceeds: private place of common stock 0 0 1,138,900
Proceeds: short term notes 0 0 1,295,100
Warrants 0 0 30,000
Convertible Debentures 0 0 4,100,000
Payments on notes payable (5,900) 0 (887,900)
Payment on long-term notes payable 0 4,200 32,000
-------- ---------- -----------
Net cash provided by financing activities (5,900) 4,200 6,828,600
Increase (Decrease) in cash (3,400) (67,400) 1,700
Beginning cash balance 5,100 70,500 -
-------- ---------- -----------
Ending cash balance 1,700 3,100 1,700
6
ComTec International, Inc. and Subsidiaries
(a Development Stage Enterprise)
Notes to the Consolidated Financial Statements
Note 1.
a) The summary of the Issuer's significant accounting policies are
incorporated by reference to the Company's SEC Form 10-KSB as of June 30,
2000. The notes to the audited financial statements presented with the
Company's SEC Form 10-KSB as of June 30, 2000 are an integral part of the
audited balance sheet data presented herein.
b) The management of ComTec International, Inc. (the Company) without audit
has prepared the financial statements included herein. Certain information
and note disclosures normally included in the financial statements prepared
in accordance with generally accepted accounting principles have been
omitted. The accompanying unaudited condensed financial statements reflect
all adjustments which, in the opinion of management, are necessary for a
fair presentation of the results of operations, financial position and cash
flows. These financial statements must be read in conjunction with the
audited financial statements and notes to the financial statements for the
year ended June 30, 2000, included in the Company's Form 10KSB for the year
ended June 30, 2000 which has been filed with the Securities and Exchange
Commission by the Company, as said notes to the financial statements are
incorporated herein by reference. The results of the interim period are not
necessarily indicative of the results for the full year.
Note 2.
The sale to CMSR Systems, Inc. of 900 SMR licenses (book value of $1,390,700)
and the assumption of FCC debt in the offsetting amount of $1,390,700 by CMSR
Systems, Inc. was approved by the FCC in September 2000. As a result, the FCC
license asset and the offsetting FCC debt (assumed by CMSR Systems, Inc.) were
eliminated from the balance sheet in a non-cash transaction. Additionally, based
upon an auxiliary agreement with CMSR Systems, Inc., the Company recorded a
current asset from sale of the 900 SMR licenses in the amount of $333,750 as a
result of the gain on the sale of the FCC licenses of $333,750.
Note 3.
During the quarter ended September 30, 2000 accrued salaries to a former
director of $104,676 were eliminated against executive salaries. This payable
was for stock to be issued to a former director in June 1997 (which claim was
disputed by the Company). The statute of limitations has expired in which the
former director could have made a claim against the Company and the former
director has made no claims. Additionally a receivable for overpayment of salary
from a former officer of $136,220 was eliminated with a credit to executive
salaries. The Company has a pending claim against the former officer, however,
as a result of the former officer's personal bankruptcy filing, the collection
of that amount is doubtful in the foreseeable future. Also during the quarter
ended September 30, 2000 a liability of $70,333.72 (debt to executive salaries)
was recorded to reflect a liability with respect to a current officer's employee
stock options under a contract effective January 1, 1999.
Note 4.
On March 28, 1997 the Shareholders of the Company approved a proposal to give
the Company's Board of Directors authority to institute a reverse stock split of
from 3 for 1 to 100 for 1 at the discretion of the Board of Directors until
December 31, 1997. On December 26, 1997 the Board of Directors of the Company
acted pursuant to shareholder authority granted at the Annual Meeting of
Shareholders held March 28th, 1997, to declare a one for five reverse stock
split of the Company's .001 par value common stock effective 12:01 A.M. January
31st, 1998. All share data and per share data is stated to reflect the reverse
stock split.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Overview
ComTec International Inc. was incorporated on July 6, 1983 in the State of
New Mexico, originally under the name of Nisus Video, Inc. The Company has
undergone many changes to date as a result of certain reorganizations and
changes of management. Historical changes are more fully disclosed in prior 34
Act filings and the most recent changes, including changes in management are
described in the Company's 10-KSB for the year ended June 30, 2000. The Company
is currently authorized to issue 200,000,000 common shares, $0.001 par value and
10,000,000 preferred shares, $0.001 par value. The Company has one wholly owned
operating subsidiary, American Wireless Network, Inc. ("AWN").
American Wireless Network, Inc. ("AWN") a wholly owned subsidiary of the
Company was incorporated under the laws of the State of Colorado on December 3,
1996, to act as the wireless communications operating entity for the Company.
From December 5, 1997 to June 1st, 1999, AWN operated SMR sites in seven
Metropolitan Trade Areas in the southeastern U.S.A., operating specialized
mobile radio licenses purchased from Centennial Communications Corp. As a result
of the Asset Acquisition Agreement (as amended) entered into between AWN and
CMSR Systems, Inc. on April 15, 1999, and reported on Form 8K filed April 30,
1999, the day to day SMR operations of AWN were been undertaken by CMSR Systems,
Inc., an unaffiliated Nevada Corporation, under a management contract wherein
AWN supervised management of the systems pursuant to FCC rules but actual hands
on operations were conducted by CMSR Systems, Inc. In September 2000, the sale
to CMSR Systems, Inc. of 900 SMR licenses (book value of $1,390,700) and the
assumption of FCC debt in the offsetting amount of $1,390,700 by CMSR Systems,
Inc. was approved by the FCC. As a result, the Company has no 900 SMR operations
after September, 2000. The communication equipment owned by the Company remains
under a lease to CMSR Systems, Inc. The Company is now exploring potential
acquisition and or merger transactions with existing business opportunities in
broadband communications systems, cable television systems, telecommunications,
information industries, computer industry or other compatible business
operations.
(a) Plan of Operation:
FORWARD-LOOKING STATEMENTS
--------------------------
The securities of the Company are speculative and involve a high degree of
risk, including, but not necessarily limited to, the factors affecting operating
results described in the Form 10KSB for the year ended June 30, 2000 and other
filings with the SEC. The statements which are not historical facts contained in
this report, including statements containing words such as "believes,"
"expects," "intends," "estimates," "anticipates," or similar expressions, are
"forward looking statements" (as defined in the Private Securities Litigation
Reform Act of 1995) that involve risks and uncertainties.
The foregoing and subsequent discussion contains certain forward-looking
statements within the meaning of Section 27A of the Securities A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
which are intended to be covered by the safe harbors created thereby. These
forward-looking statements include the plans and objectives of management for
future operations, including plans and objectives relating to the possible
further capitalization and future acquisitions of telecommunications, computer
related or other cash flow business. The forward-looking statements included
herein are based on current expectations that involve numerous risks and
uncertainties. Assumptions relating to the foregoing involve judgments with
respect to, among other things, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of the
Company. Although the Company believes that the assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could be
inaccurate and, therefore, there can be no assurance that the forward-looking
statements included in this Form 10-QSB 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
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.
8
The Company has been and continues to be in the development stage and from
inception (March 15, 1994) has only generated auxiliary revenues to defray the
cost of its planned operations, with only limited success in implementing actual
operations. The Company has financed its operations during the development stage
from the sale of its common stock and from issuance of short and long-term debt.
During the quarter ended December 31, 2000 and through the present the
Company continued as a developmental stage entity focused on transfer of
management of its SMR systems and business to CMSR Systems, Inc., developing
alternative strategic plans, efforts to acquire financing, developing a
management plan and maintaining reporting compliance for various federal
government agencies, such as the SEC and FCC.
Current Status and Operations
The Company has been and continues to be in the development stage. The
Company has yet to commence its principal planned operations and from inception
of the SMR business plan (March 15, 1994) has only generated auxiliary revenues
to defray the cost of its planned operations, with only limited success in
implementing actual operations. The Company has financed its operations during
the development stage from the sale of its common stock and from issuance of
short and long-term debt.
Current Status
On December 5, 1997 AWN entered the initial phase of a purchase agreement
whereby AWN purchased seven operating SMR systems for $3,035,700. The wireless
communications assets and associated business acquired from Centennial
Communications Corp. lay within the following seven MTA's: Birmingham, Alabama;
Knoxville, Tennessee; Memphis, Tennessee; Nashville, Tennessee; New Orleans,
Louisiana; Oklahoma City, Oklahoma; Tulsa, Oklahoma. On April 15, 1999, AWN
executed an Asset Acquisition Agreement (as amended) with CMSR Systems, Inc.,
("Buyer") a Nevada corporation wherein those assets are to be sold to CMSR
Systems, Inc. The initial phase of the Asset Acquisition Agreement (as amended)
became effective June 1, 1999. The purpose of the Asset Acquisition Agreement
was to facilitate the sale by American Wireless Network, Inc. to CMSR Systems,
Inc. of specifically identified 900 MHz Licenses and American Wireless Network,
Inc.'s customer base and customer lists associated with the specified 900 MHz
licenses. The agreement also includes the lease of SMR related equipment owned
by AWN to CMSR Systems, Inc. The sale, including the transfer of the licenses to
the Buyer and assumption of approximately $1,400,000 of American Wireless
Network, Inc.'s debt to the Federal Communications Commission related to the
licenses was finalized and closed in September 2000. AWN has recorded a current
asset of $333,700 pursuant to an auxiliary agreement with CMSR Systems, Inc.
with respect to the anticipated liquidation of the seven and one half percent
operating interest in the operational segment represented by the licenses and
operations sold to CMSR Systems, Inc. by AWN. The 900 MHz Licenses and American
Wireless Network, Inc.'s customer base and customer lists associated with the
specified 900 MHz licenses which were transferred to CMSR Systems, Inc. were
originally purchased by American Wireless Network, Inc. on July 6, 1998 as a
part of the acquisition of divisional segment assets from Centennial
Communications Corp. As a part of the Asset Acquisition Agreement (as amended),
the Company has assigned its tower site licenses and leased to CMSR Systems,
Inc. certain SMR related transmission equipment for a five (5) year term.
Management believes this agreement will relieve the Company of cash flow burdens
of debt service, operating deficits and extensive maintenance costs related to
the SMR systems.
Funding Efforts:
In the previous fiscal year and in the quarter ended December 31, 2000, the
Company continued efforts in connection with private financing proposals to fund
future merger or acquisition activities as well as working capital needs. The
Company has several proposals for private funding with unrelated entities
pending. There is no agreement or requirement on the part of any entity to
provide financing to the Company. Should the Company be successful in obtaining
substantial private financing, management plans to seek acquisitions of
broadband communications, cable systems, telecommunication or computer related
businesses, information and data services or other compatible enterprises that
would generate sufficient cash flow to maintain debt service. There can be no
assurances that the Company will be successful in the implementation of its plan
for acquisitions, other expansion or its overall business plan.
9
Business Opportunities:
Within the telecom industry, an area of primary interest for the Company is
that of a broadband service provider (BCP), offering broadband services at the
local level. There are several reasons for this interest. First, this segment of
the telecom industry is growing rapidly due the need for larger bandwidth at
home and at the office to provide high-speed Internet connectivity, speed
computer-to-computer communications, and in general to provide integrated voice,
data, and video services. Second, there are large segments of the BCP business
that are ideally situated for consolidation and there are existing businesses
that could be better positioned for integrated voice, data and video services,
including ISP's, wireless providers, cable TV and local telephone companies,
particularly in the smaller sized markets. Third, the Company executives have
extensive management experience and depth in several key areas: (a) companies in
the telecommunications industry, including wireless broadband services,
competitive service providers, cable TV, Internet, and local telephone service,
and (b) management, financing, acquisition and development of small
telecommunications businesses, supplemented by management experience in large,
Fortune 500 companies. Today, there is a bottleneck for broadband services,
high-speed access is expensive and scarce for both business and residential
users. Several changes to the design and functionally of existing network and
new delivery systems are underway for delivery of high-speed access, including
broadband wireless (BBW), Cable TV based modem services, digital subscriber line
services (DSL), and competitive local exchange carriers (CLECs). Although
technically not a part of the broadband bottleneck, the services offered by an
ISP are a direct beneficiary of the broadband revolution.
The Company plans to be a significant player in the BCP business through
acquisition and consolidation of businesses that either have an existing
broadband service or that have networks that could be modified to provide
broadband services. Many of these businesses are available for acquisition at
this time. Typically these businesses are smaller companies and the owners are
looking for an exit vehicle. The owners may realize that additional resources
beyond their capabilities are required to provide the services demanded by
consumers, they find that the business does not fit into their portfolio for one
reason or another, or they are ready to move on to other life styles or
endeavors. Debt, common stock, and cash from outside financing are anticipated
be used to consummate the acquisition of companies in these businesses. The
local broadband access market is growing rapidly and the rapid growth is
expected to continue for many years. Driven by needs for faster speed access to
the Internet, the residential high-speed access market is expected to grow from
$1 billion in 1999 to $19 billion in the year 2004.
The goal of the Company is to become a major provider of broadband services
through acquisition. Acquisition targets include existing providers of wireless,
cable TV, phone, and CLEC companies, all of which may already be, but not
necessarily, providers of broadband services at the time of the acquisition.
Those providers that do not have broadband service will be upgraded so that
broadband services will be provided to their customers through alternate
communication vehicles. The acquisition of ISPs, although technically not a
broadband provider, will also be investigated as acquisition candidates due to
their position on the forefront of the customers demanding broadband services.
The Company expects to create shareholder value by building scale through
acquisitions, consolidating and integrating fragmented, independent wireless,
cable TV, phone CLEC and/or ISP companies, and then leveraging our larger scale
to increase revenues and reduce costs. To acquire the desired target acquisition
companies which are now in a position to serve the broadband market, the Company
plans to utilize debt and common stock, or a combination of debt and stock in a
convertible security. Currently, there are no formalized agreements to acquire
any entity or assets in the broadband communications services area.
(b) Liquidity and Capital Resources
The Company reported a net loss (unaudited) of $145,100 for the quarter
ended December 31, 2000 and has reported net losses from inception (March 15,
1994) to December 31, 2000 of $15,438,600. The Company had deficient working
capital at December 31, 2000 of $200,800. To date, these losses and cash flow
deficiencies have been financed principally through the sale of common stock and
warrants and issuance of short and long-term debt which includes related party
debt. Additional capital and/or borrowings will be necessary in order for the
Company to continue in existence until attaining profitable operations. Although
a portion of convertible debt was liquidated through the issuance of common
stock, no assurances can be given that the sources of borrowings would continue.
10
The Company is highly leveraged and a number of developments over the past
quarter had material adverse effects on the Company.
Management has continued to develop a strategic business plan to raise
private financing, develop a management team, maintain reporting compliance and
seek new expansive areas in broadband communications, telecommunications,
informational and related business. In order to reduce negative cash flow the
Company entered an agreement to sell its FCC licenses to satisfy debt
requirements and in a plan anticipated to generate cash flows, has entered into
an agreement to lease its SMR equipment.
From February 1, 2001 to the end of fiscal year ended June 30, 2001, the
Company estimates its cash needs to maintain operations under its current
negative cash flow situation is approximately $200,000. This amount is composed
of $200,000 for working capital assuming that current operations continue in its
present status. These amounts do not include offsets for anticipated amounts of
cash generated from operations or proceeds from lease income or sales of assets.
The Company has limited capitalization and is dependent on the proceeds of
private or public offerings to continue as a going concern and implementing a
business plan. As of December 31, 2000, the unaudited results of the Company
indicated deficit working capital of $200,800. All during fiscal 2000 and to the
date of this filing, the Company has had and continues to have a substantial
need for working capital for normal operating expenses associated with the
Company continuing as a going concern. This lack of cash has slowed its ability
to develop SMR assets and initiate revenue producing operations. Any activity in
the telecommunication industry requires adequate financing and on-going funding
sources. The Company has entered this industry with limited financing and
funding sources.
At December 31, 2000 (unaudited), the following contingent stock issue
requirements and warrants were outstanding:
- Shares reserved for the Company's incentive stock option plan
(980,000)
- Shares reserved for contingent issue with respect to outstanding
warrants exercisable at $2.90 per share associated with converted debt
and LED Screens (7,083,333), expiring in March 2001.
- Shares reserved for contingent issue with respect to outstanding
warrants exercisable at $2.90 per share associated with converted debt
related to the SMR Asset purchase (17,600,000), expiring in March
2001.
- On February 16, 1998, the Company entered into a letter agreement with
the Company, which remains to be formalized, by which James Krejci
became employed as Chief Operations Officer of the Company and
President and CEO of AWN. The letter agreement calls for a three year
employment agreement with the opportunity for Mr. Krejci to obtain,
through common stock option agreements, up to ten percent (10%) of the
outstanding common stock of the Company over a three year period. The
preliminary agreement as modified calls for Mr. Krejci to receive
stock options vesting in equal annual increments to equal to a total
of 10% of the Company's outstanding common shares over a three year
period ending February 16, 2001. The strike price of all of the
potential options, as modified (repriced) by Board of Director action
on October 7, 1998, is $.056 per share, representing 80% of the bid
price of the Company's common stock on September 2nd, 1998, (closing
bid price $.07) Mr. Krejci's actual appointment date as President and
CEO of the Company. On May 6, 1999, as additional employee incentive,
the non interested members of the Board of Directors passed a
resolution granting Mr. Krejci a four year option, to become effective
after July 1, 1999, to purchase 1,300,000 shares of the Company's .001
par value common stock at a strike price of $.05 per share, based upon
a calculation of 111% of the .045 bid price of the stock on May 6,
1999. On March 20, 2000, as additional employee incentive, the non
interested members of the Board of Directors passed a resolution
granting Mr. Krejci a four year option, to become effective after July
1, 2000, to purchase 1,300,000 shares of the Company's .001 par value
common stock at a strike price of $.111 per share, based upon a
calculation of 111% of the .10 closing bid price of the stock on March
21, 2000. On November 1, 2000, as additional employee incentive, the
non interested members of the Board of Directors passed a resolution
granting Mr. Krejci a four year option, to become effective after
January 1, 2001,
11
to purchase 1,700,000 shares of the Company's .001 par value common
stock at a strike price of $..067 per share, based upon a calculation
of 111% of the .07 closing bid price of the stock on October 31, 2000.
No options have actually been issued pursuant to agreements with Mr.
Krejci.
- Effective January 1, 1999, the Company entered into a letter agreement
with Gordon Dihle, which remains to be formalized, by which Gordon
Dihle became employed as Chief Financial Officer of the Company. The
letter agreement calls for a three year employment agreement with the
opportunity for Mr. Dihle to obtain, through common stock option
agreements, up to seven and one half percent (7.5%) of the outstanding
common stock of the Company over a three year period. The preliminary
agreement calls for Mr. Dihle to receive stock options vesting in
annual increments of 2.5% to equal a total of 7.5% of the Company's
outstanding common shares over a three year period. The strike price
of all of the options is $.056 per share, representing 80% of the bid
price of the Company's common stock on September 2nd, 1998, (closing
bid price $.07) Mr. Dihle's date of appointment as Chief Financial
Officer of the Company. On May 6, 1999, as additional employee
incentive, the non interested members of the Board of Directors passed
a resolution granting Mr. Dihle a four year option, to become
effective after July 1, 1999, to purchase 1,000,000 shares of the
Company's .001 par value common stock at a strike price of $.05 per
share, based upon a calculation of 111% of the .045 bid price of the
stock on May 6, 1999. On March 20, 2000, as additional employee
incentive, the non interested members of the Board of Directors passed
a resolution granting Mr. Dihle a four year option, to become
effective after July 1, 2000, to purchase 1,000,000 shares of the
Company's .001 par value common stock at a strike price of $.111 per
share, based upon a calculation of 111% of the .10 closing bid price
of the stock on March 21, 2000. On November 1, 2000, as additional
employee incentive, the non interested members of the Board of
Directors passed a resolution granting Mr. Dihle a four year option,
to become effective after January 1, 2001, to purchase 1,400,000
shares of the Company's .001 par value common stock at a strike price
of $..067 per share, based upon a calculation of 111% of the .07
closing bid price of the stock on October 31, 2000. No options have
actually been issued pursuant to agreements with Mr. Dihle.
During quarter ended December 31, 2000, the Company continued as a
development stage enterprise. The Company's financial statements are therefore
not indicative of anticipated revenues which may be attained or expenditures
which may be incurred by the Company in future periods. The Company's ability to
achieve profitable operations is subject to the validity of its assumptions and
risk factors within the industry and pertaining to the Company.
For the quarter ending December 31, 2000, the Company incurred General and
Administrative Expenses of $180,900, a decrease of $16,900 from the quarter
ending December 31, 1999, when the Company incurred expenses of $197,800. The
Company also reported "Other Income" of $35,800, consisting of income from rents
and equipment lease payments of $38,900 earned during the quarter less interest
expense. The Company's Quarter ended December 31, 2000 financial statements
reflect adjustments and nonrecurring items of both revenue and costs, as well as
development stage costs and are not indicative of anticipated revenues which may
be attained or expenditures which may be incurred by the Company in future
periods.
The Company's independent public accountants have included explanatory
paragraphs in their reports on the Company's financial statements for the years
ended June 30, 2000 and 1999, which express substantial doubt about the
Company's ability to continue as a going concern. As discussed in Footnote 2 to
the consolidated financial statements, included with the Company's June 30, 2000
Form 10KSB, the Company has suffered recurring losses from operations and
accumulated deficit that raises substantial doubt about its ability to continue
as a going concern.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of the date hereof, all the Company's debt bears fixed interest rates,
however, the fair market value of this debt is sensitive to changes in
prevailing interest rates. The Company runs the risk that market rates will
decline and the required payments will exceed those based on the current market
rate. The Company does not use interest rate derivative instruments to manage
its exposure to interest rate changes.
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PART II
ITEM 1. LEGAL PROCEEDINGS
Litigation with Former Officer and Director
On February 1, 1999 Donald Mack, the former CEO, President and director of
ComTec International, Inc. filed a complaint in the District Court, City and
County of Denver, State of Colorado, Civil Action Number 99CV634, Courtroom 6,
against ComTec International, Inc. ("ComTec") as well as two individual
defendants, a current officer and a shareholder of ComTec. On March 24, 1999,
ComTec filed its Answer and extensive Counterclaims against Donald Mack
("Mack"). Mack alleges that he is entitled to continued compensation and
benefits based upon a March 31, 1997 addendum to his December 26, 1995
employment contract (which expired in May of 1998). Mack further alleges that
although he resigned as an officer in June 1998, he was wrongfully induced to
resign. Mack alleges that he is due salary, car allowance, health plan payments,
life insurance payments, stock bonuses and other items from June 30, 1998
through June 30, 2002. ComTec's answer states that the March 31, 1997 addendum
is null and void as a matter of law, denies any wrongdoing or inducement and
denies any and all liability to Mack. ComTec's answer further states as
affirmative defenses that Mack's claims are barred by the doctrine of estoppel
and unclean hands, that the March 31, 1997 addendum was entered into under
circumstances of fraud and illegality, that Mack's claims are barred by failure
of consideration, fraud and illegality, waiver, failure to mitigate, that Mack's
alleged claims are more than setoff by the counterclaims of ComTec against Mack
and that Mack's alleged damages, if any, are the result of Mack's own actions.
ComTec believes it has meritorious and virtuous defenses and anticipates that it
will vigorously and effectively defend against any and all claims by Mack. The
Company filed a number of Counterclaims against Mack. Among the Counterclaim
allegations of ComTec against Mack are allegations that an agreement entered
into in May of 1995, whereby Mack gained control of ComTec through an agreement
for ComTec to purchase the assets of a corporation controlled by Mack, KeyStone
Holding Corporation, was entered into with intent to defraud ComTec and its
shareholders. Among other allegations, ComTec alleges that misrepresentations
and omissions of material fact were made by Mack prior to the Keystone
transaction, that Mack used ComTec as an instrumentality for his own personal
benefit and affairs, that Mack acted to conceal material facts regarding Mack's
ultra vires and unauthorized acts in the name of ComTec. ComTec further alleges
that Mack took unauthorized and unearned bonuses in stock of ComTec and cash,
that the execution of the employment addendum through which Mack is alleging
amounts are now due him from ComTec was accompanied by circumstances of fraud
and collusion, and that Mack made unauthorized use of ComTec's funds and
property. ComTec's claims against Mack include: intentional
misrepresentation/fraudulent inducement regarding the Keystone Transaction;
fraudulent concealment/constructive fraud; breach of warranty; breach of
fiduciary duty; conversion; fraudulent conveyance; civil theft pursuant to
C.R.S. Sections 18-4-401 and 18-4-405 and securities fraud pursuant to C.R.S.
Section 11-51-501. ComTec seeks monetary damages and constructive trust as well
as Declaratory Judgment pursuant to C.R.C.P. 57. In October of 1999, the
Plaintiff, Mack, filed for bankruptcy protection. Various motions are now
pending with respect to the Mack bankruptcy matter as it relates to the
Company's claims against Mack as well as issues related to the status and
jurisdiction of Mack's allegations against the Company. In September 2000, the
state court action was remanded back to state court with the Company's claims
against Mack intact. ComTec believes it has meritorious claims and will
resolutely pursue its claims against Mack.
On February 14, 2000, the Company was served with a Complaint filed in
Superior Court of California, County of Los Angeles, Central Division, Case No.
BC 224058 entitled A-1 Business Products, Inc. vs. ComTec International, Inc.
The complaint alleges damages of approximately $200,000 with respect to alleged
financing arrangements. In September, 2000, the Plaintiff amended its complaint
to include as defendants two employees of the Company as well as to add
allegations of fraud to its compliant. The Company believes that it has
meritorious defenses and will vigorously defend against the allegations of the
Complaint. The Company has not yet filed its answer to the complaint but has
filed an initial motion to dismiss for lack of personal jurisdiction which has
yet to be ruled upon. The Company is involved in settlement negotiations with
the Plaintiff. Due to the preliminary nature of the proceedings, further
information is not available.
Except for the foregoing, no non-course of business or other material legal
proceedings, to which the Company is a party or to which the property of the
Company is subject, is pending or is known by the Company to be contemplated.
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ITEM 2. CHANGE IN SECURITIES.
Designation of Class D Preferred Shares.
As was reported in Form 8K filed January 29, 2001, on December 26, 2000,
pursuant to a resolution of the Board of Directors adopted by unanimous consent
in lieu of a meeting, a series of Preferred Stock entitled "Series D Preferred
Stock" was approved by the Board of Directors on behalf of the Company. Pursuant
to authority granted under the Company's Articles of Incorporation, as amended,
the Board of Directors approved the designation of a series of Preferred Stock
of the Company to be known as "Series D Preferred Stock." The number of shares
constituting the Series D Preferred Stock shall be 6,000,000, which may be
issued in such amounts as shall be determined by the Board of Directors in
accordance with the provisions of the Certificate of Designation attached hereto
as Exhibit 1. The series shall be designated Series D Preferred Stock with a par
value of .001 per share and an issue price of $.001 per share. Holders of the
Series D Preferred Stock shall be entitled to dividends of twelve percent per
annum on the issue price of the certificate from the date of issue, which
dividends shall accrue until declared payable by the Board of Directors and paid
by the Company. In the event of any liquidation, dissolution or winding-up of
the affairs of the Corporation, whether voluntary or involuntary, the holders of
the Series D Preferred Stock shall be entitled, before any assets of the
Corporation shall be distributed among or paid over to the holders of the Common
Stock, but only after authorized distribution or payment to the holders of the
Series A Convertible Preferred Stock in accordance with the provisions of the
Series A Convertible Preferred Stock Designation, to be paid .001 per share of
Series D Preferred Stock plus any accrued but unpaid dividends hereon.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. NONE
ITEM 5. OTHER INFORMATION:
On December 28, 2000, the Company's board of directors voted to issue a
total of 6,000,000 shares of its .001 par value Series D preferred stock to
James J. Krejci, the Corporation's President at an issue price of .001 per
share.. The shares are to be issued in consideration of services provided to the
Company by Mr. Krejci. No underwriter was involved in the transaction and no
cash commissions or discounts were paid by the Company. The shares are to be
issued in a private transaction, exempt from registration. Except as otherwise
permitted by the applicable provisions of the New Mexico Business Corporation
Act, holders of the Series D Preferred Stock shall not be entitled to vote in
regular elections of the Corporation for members of the board of directors so
long as a sufficient number of common shares are present in person or by proxy
for the election of the board of directors as required by the bylaws of the
Corporation or the applicable laws of any state in which the Corporation is
domiciled. If at any time, the Corporation shall place or be required to place
for shareholder vote a proposal to liquidate or dissolve the corporation; to
amend its articles of incorporation; to change the capital structure of the
corporation or other corporate reorganization; to acquire a subsidiary, business
or assets in exchange for shares of the Company's equity or debt instruments
issued by the Company; to merge with or consolidate into another corporation; to
tender, transfer or otherwise dispose of all or substantially all of its
property, assets, shares of stock or other securities, property or business; any
special meeting of shareholders; or any other action by the corporation which
requires a vote of its common stock shareholders other than for regular
elections for members of the board of directors, the holders of the Series D
Preferred Stock shall be entitled to vote in such shareholder election with the
common shareholders. In such shareholder elections, each share of Series D
Preferred Stock voted in the election shall be equal to one hundred fifty common
shares for purposes of such election results. If at any time, the Corporation's
management or its board of directors shall pass a resolution or enter into a
contract to liquidate or dissolve the corporation; to change the capital
structure of the corporation or other corporate reorganization; to acquire a
subsidiary, business or assets in exchange for shares of the Company's equity or
debt instruments issued by the Company; to merge with or consolidate into
another corporation; to tender, transfer or otherwise dispose of in excess of
twenty five percent of its total property, assets, shares of stock or other
securities, property or business, the holders of a minimum of 50% of the Series
D Preferred Stock shall within 30 days of direct notice of the event made to
Series D Preferred Stockholders, have the option to require that the resolution
made or action taken by the Corporation's management be placed for a vote of the
shareholders. If in a regular election of the Corporation for
14
members of the board of directors a sufficient number of common shares are not
present in person or by proxy for the election of the board of directors as
required by the bylaws of the Corporation or the applicable laws of any state in
which the Corporation is domiciled, the holders of the Series D Preferred Stock
shall be entitled to vote in such shareholder election with the common
shareholders and establish a legal quorum. In such director elections, each
share of Series D Preferred Stock voted in the election shall be equal to one
hundred fifty common shares for purposes of such required quorum and election
results. There were no previous shares of Series D preferred stock issued or
outstanding and there is no public market for the Series D preferred stock. The
Series D preferred stock is not convertible to common stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a)
Exhibits
27 Financial Data Schedule
(b) The Company filed the following reports on Form 8-K:
January 31, 2001 - Current Form 8-K to report the designation of Class D
Preferred Stock and issuance of preferred and common shares.
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report signed on its
behalf by the Undersigned, thereunto duly authorized.
COMTEC INTERNATIONAL, INC.
Date: February 15, 2001 By: /s/ James J. Krejci
---------------------------------
James J. Krejci, President and
Chief Executive Officer
By: /s/ Gordon Dihle
---------------------------------
Chief Financial Officer
15