SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10QSB
(Mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 0-26111
COMTECH CONSOLIDATION GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 76-0544385
(State or other jurisdiction of incorporation or organization) (IRS Employer
Identification No.)
10497 Town and Country Way, Suite 460, Houston, TX 77024
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (713) 554-2244
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
[ X ] Yes [ ] No
Common Stock
(Title of Class)
Common Stock, Par Value $.00967 Per Share - 20,905,093 shares outstanding as of
09/30/99.
TABLE OF CONTENTS
PART I. Financial Information
Page
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheet as of September 30, 1999 and
December 31, 1998 (Unaudited)
Condensed Consolidated Statements of Earnings for the Three-Month Period
Ended September 30, 1999 and 1998 (Unaudited)
Condensed Consolidated Statement of Earnings for the Nine-Month Period
Ending September 30, 1999 and 1998 (Unaudited)
Condensed Consolidated Statements of Cash Flows for the Nine-Month Period
Ended September 30, 1999 and 1998 (Unaudited)
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1999 and December 31, 1998
(Unaudited)
Assets 1999 1998
Current assets:
Cash 5,090 150,624
Accounts receivable, less allowances for contractual
adjustments and doubtful accounts of $134,646
in 1999 and $4,310,771 in 1998 1,415,283 1,997,506
Receivables from related parties 1,100,000
Prepaid expenses 262,463
Total current assets 1,420,373 3,510,593
Property and equipment, net of accumulated
depreciation and amortization 555,494 595,687
Excess of cost over net assets of businesses
acquired, less accumulated amortization of
$31,042 in 1999 and $22,171 in 1998 868,958 2,377,829
Other assets 8,395 244,457
Total assets 2,853,220 6,728,566
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses 98,510 1,233,915
Accrued salaries and related liabilities 256,385 1,284,849
Due to third-party payors 1,503,623
Loans payable to shareholders 42,482 277,882
Notes payable 175,476 181,888
Convertible subordinated debentures 195,000
Current installments of long-term debt 57,941 69,947
Total current liabilities 630,794 4,747,104
Long-term debt, less current installments 229,617 339,693
Total liabilities 860,411 5,086,797
Stockholders' equity:
Preferred stock, $.01 par value. Authorized
1,000,000 shares: issued and outstanding,
18,410 shares in 1999 and 1998
Class B, 8% cumulative and convertible 184 294
Common stock, $.00967 par value. Authorized
30,000,000 shares: issued and outstanding,
20,196,858 shares in 1999 and 18,250,849
shares in 1998 195,304 164,108
Additional paid-in capital 1,051,450 1,033,413
Retained earnings 745,871 443,954
Total stockholders' equity 1,992,809 1,641,769
Commitments and contingent liabilities
Total liabilities and stockholders' equity 2,853,220 6,728,566
See accompanying notes to consolidated financial statements.
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Three months ended September 30, 1999 and 1998
(Unaudited)
1999 1998
[C] [C]
Revenues $ 1,074,921 3,361,516
Operating expenses:
Health care operations 793,848 2,914,146
Internet operations 172,848 110,612
Corporate operations 60,683 46,232
Amortization 10,438
Depreciation 11,827 25,946
Total operating expenses 1,049,644 3,096,936
Operating income 25,277 264,580
Other income (expenses):
Interest income
Interest expense (2,204) (60,047)
Net earnings $ 23,073 204,533
Net earnings per share $
Weighted average common shares 19,669,660 14,953,516
See accompanying notes to consolidated financial statements.
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Nine months ended September 30, 1999 and 1998
(Unaudited)
1999 1998
[C] [C]
Revenues $ 10,141,256 $ 4,337,825
Operating expenses:
Health care operations 7,754,555 3,318,199
Internet operations 474,037 546,069
Corporate operations 188,775 59,807
Amortization 23,038 10,082
Depreciation 31,400 68,224
Total operating expenses 8,471,805 4,002,381
Operating income 1,669,451 335,444
Other income (expenses):
Interest income 33
Interest expense (8,273) (61,863)
Net earnings from continuing operations 1,661,211 273,581
Loss on disposal of discontinued operations (1,359,294)
Net income $ 301,917 $ 273,581
Net earnings (loss) per share:
Continuing operations $ 0.09 $ 0.02
Loss of discontinued operations (0.07)
Net earnings per share $ 0.02 $ 0.02
Weighted average common shares 19,026,429 14,452,136
See accompanying notes to consolidated financial statements.
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine months ended September 30, 1999 and 1998
(Unaudited)
1999 1998
Cash flows from operating activities:
Net earnings 301,917 273,581
Adjustments to reconcile net earnings to net
cash used in operating activities:
Depreciation and amortization of property
and equipment 31,400 68,224
Amortization of excess of cost over net
assets of businesses acquired 23,038 10,082
Loss on disposal of discontinued operations 1,359,294
Bad debt expense 106,906
Decrease in accounts receivable (762,463) 1,542,604
Increase in prepaid expenses 6,160
Decrease in other assets (691,724) (46,742)
Decrease in accounts payable
and accrued expenses (235,405) (2,337,990)
Decrease in accrued salaries and related
liabilities (196,239)
Decrease in amount due to third-party payors (24,811)
Net cash used in operating activities (194,993) (377,175)
Cash flows from investing activities:
Purchase of property and equipment (21,593) (19,810)
Cash received from acquired subsidiaries 557,208
Net cash provided by (used in) investing activi (21,593) 537,398
Cash flows from financing activities:
Proceeds from borrowing from shareholders 33,750
Repayments to shareholders (37,038)
Principal payments on long-term debt (42,948) (69,096)
Proceeds from long-term debt 79,850
Proceeds from issuance of shares for marketing services 1,416
Proceeds from issuance of shares under private placement 114,000
Proceeds from sales of subordinated debentures 180,000
Net cash provided by financing activities 71,052 188,882
Net increase (decrease) in cash (145,534) 349,105
Cash at beginning of year 150,624 2,523
Cash at end of period $ 5,090 $ 351,628
Supplemental schedule of cash flow information:
Interest paid $ 6,069 $ 1,816
See accompanying notes to consolidated financial statements.
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) General
The unaudited consolidated financial statements have been prepared on the same
basis as the audited consolidated financial statements and, in the opinion of
management, reflect all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation for each of the periods
presented. The results of operations for interim periods are not necessarily indicative of results to be achieved
for full fiscal years.
As contemplated by the Securities and Exchange Commission (SEC) under Rule
10-01 of Regulation S-X, the accompanying consolidated financial statements
and related footnotes have been condensed and do not contain certain
information that will be included in the Company's annual consolidated
financial statements and footnotes thereto. For further information, refer
to the Company's 1998 audited consolidated financial statements and related
footnotes.
(2) Property and Equipment
Property and equipment is summarized as follows at September 30, 1999 and
December 31, 1998:
1999 1998
Equipment $ 242,439 301,922
Furniture and fixtures 358,312 429,087
Leasehold improvements 115,311 336,163
Total property and equipment 716,062 1,067,182
Less accumulated depreciation and
amortization 160,568 471,485
Net property and equipment $ 555,494 595,687
(3) Long-term Debt
Long-term debt at September 30, 1999 and December 31, 1998 is as follows:
1999 1998
Long-term notes $ 287,558 409,640
Less current installments 57,941 69,947
$ 229,617 339,693
(4) Federal Income Tax Expense
The estimated federal income tax expense for the six month period ended
September 30, 1999 and the year ended December 31, 1998 is eliminated by net
operating loss carryforwards.
(5) Loss on Discontinued Operations
In February 1998, the six subsidiary corporations of Home Care Center, Inc.,
wholly owned subsidiaries of Professional Management Providers, Inc., filed
for reorganization under Chapter 11 of the United States Bankruptcy Code.
In July 1999, the bankruptcy trustee decided to discontinue the operations of
the six health care entities. The net assets of Home Care Center, Inc. was
written-off in the quarter ended September 30, 1999.
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Three Months Ended September 30, 1999 Compared to Three Months Ended September
30, 1998
Revenues decreased by $2,286,500 or 68% between the three months ended
September 30, 1999 and 1998. The revenue decrease is due primarily to the
discontinuing of operations of the six subsidiaries corporations of Home Care
Center, Inc., a wholly owned subsidiary of Professional Management Providers,
Inc. In July 1999 the United States Trustee under Chapter 11 of the United
States Bankruptcy Code made the decision to discontinue these operations. The
net assets of Home Care Center, Inc. were written-off as of
September 30, 1999.
Operating expenses decreased by $2,047,000 for the three months ended
September 30, 1999 compared with the three ended September 30, 1998 and
increased as a percentage of revenues to 97.6% in 1999 from 92.2% in 1998.
This increase as a percentage of revenues was largely due to a lower revenue
volume to cover fixed costs.
The Company had net earnings of $23,073 for the three months ended
September 30, 1999 as compared with net earnings of $204,533 for the three
months ended September 30, 1998. This decrease in net earnings is due
primarily to the U.S. Trustee's discontinuance of the operations of the
subsidiaries of Home Care Center, Inc. The Company has confidence that
through acquisitions and expansion of the current operations the net earnings
growth will began to return to expected levels by the end of the
fourth quarter.
Nine Months Ended September 30, 1999 Compared to Nine Months Ended
September 30, 1998.
Revenues increased by $5,803,000 or 234% between the nine months ended
September 30, 1999 and 1998. This increase was due primarily to an increase
in the health care operating revenues resulting from acquisitions made in
1998.
Operating expenses increased by $4,469,000 for the nine months ended
September 30, 1999 compared to the nine months ended September 30, 1998.
This increase was due primarily to the increase in cost associated with the
operations of the health care acquisitions made in 1998. Operating expenses
for the nine months ended September 30, 1999 decreased significantly as a
percentage of revenues from 92.7% in 1998 to 83.5% in 1999. This decrease
was due primarily to increased health care revenues to cover fixed
costs offset by slight increase in variable costs.
The Company had net earnings from continuing operations of $1,661,000 for the
nine months ended September 30, 1999 as compared with net earnings of
$274,000 for the nine months ended September 30, 1998, a significant increase
for the reasons discussed above.
Liquidity and Capital Resources
Net accounts receivable decreased by $582,000 due primarily to timing
differences in the receipt of payments by Medicare and third-party payors.
Medicare billings occur on a monthly basis with reimbursements occurring
fourteen days from receipt and approval by Medicare. The Company is seeking
additional credit facilities with its bankers and feels these credit
facilities coupled with funds from operations will be adequate to meet cash
requirements.
Outlook
This "Outlook" section contains a number of forward-looking statements, all
of which are based on current expectations. Actual results may differ
materially. Revenue Expectations. Based on current conditions the Company
expects revenues to grow through its continued acquisition of undervalued
home health agencies and the enhancement of the Internet operations.
Net earnings are expected to also grow as a result of these acquisitions and
the Internet operations enhancements. The Company has taken a pro-active
approach with cost reduction programs and coupled with restructuring of the
operations, the result is expected to be further improvement of net earnings
growth.
Potential Impact of Reorganized Operations. On or about September 30, 1999 the
Company filed for Chapter 11 reorganization of three of its subsidiaries,
namely, Unique Dawning, Inc., Unique Dawning CMHC, Inc., and Summit Quality
Health Services, Inc. On October 8, 1999, the Judge hearing the cases signed
the court order approving the reorganization filing and appointing a U.S.
Trustee to over see the operations of the three subsidiaries. The
subsidiaries were subsequently converted to a Chapter 7. However, in
working with the U.S. Trustee, on November 4, 1999, the Company purchased,
from the U.S. Trustee, the revenue producing provider numbers for Unique
Dawning CMHC, Inc. and Summit Quality Health Services, Inc., without assuming
the associated liabilities. The Company has resumed normal operations for the
home health agency and expects the same to occur with the partial hospital
program.
Year 2000 Issue. The Company has initiated a company-wide program and has
developed a formal plan to prepare for the year 2000. Management currently
believes that the costs related to Y2K compliance should not have a material
effect on operations or the Company's consolidated financial position,
results of operations or cash flows.
Forward-Looking Statements
Certain information contained in these Interim Financial Statements for the
Quarter Ended September 30, 1999, including, without limitation, information
appearing in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" are forward-looking statements (within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934). Forward-looking statements, all of
which are based on current expectations, may differ materially from
actual results. Actual results could be affected by a variety of factors.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934 the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
COMTECH CONSOLIDATION GROUP, INC.
By: s/Walter D. Davis
Walter D. Davis, Chief Financial Officer