10QSB/A 1 mainbody.htm CSMG 10QSB 3-31-04 AMD 1 CSMG 10QSB 3-31-04 Amd 1

FULLER, TUBB, POMEROY & STOKES
A PROFESSIONAL CORPORATION
ATTORNEYS AT LAW
201 ROBERT S. KERR AVE., SUITE 1000
OKLAHOMA CITY, OK 73102
 


G.M. FULLER (1920-1999)
TELEPHONE: 405-235-2575
JERRY TUBB
FACSIMILE: 405-232-8384
DAVID POMEROY
 
TERRY STOKES
 
___________
 
 
 
OF COUNSEL:
 
MICHAEL A. BICKFORD
THOMAS J. KENAN E-MAIL:
THOMAS J. KENAN
kenan@ftpslaw.com
ROLAND TAGUE
 
DAN M. PETERS
 
 
August 26, 2004

Securities and Exchange Commission
Division of Corporation Finance
450 Fifth Street, N.W.
Washington, D.C. 20549

Re:  Amendment 1 to Quarterly Report on Form 10-QSB
            for the quarterly period ended March 31, 2004
            Consortium Service Management Group, Inc.
             Commission File No. 0-27359

Gentlemen:

As counsel to Consortium Service Management Group, Inc., I enclose Amendment No. 1 to its Form 10-QSB for the quarter ended March 31, 2004. This amendment adds “Legal Proceedings” to the text of the report to include information that was inadvertently omitted. A new Note 4 is also added to correspond to this addition. This information had been included in the Form 10-KSB for the year ended 12-31-03.

We are providing by FedEx, as courtesy copies, three redlined hard copies as well as three hard copies of the filed version of the Amended Form 10-QSB.

If there are questions or matters that could be resolved more effectively by telephone, please call me at 405-235-2575. My fax number is 405-232-8384.

Sincerely,

/s/ Thomas J. Kenan
Thomas J. Kenan

Attachment

cc:   Donald S. Robbins (w/attachment)
 Gordon W. Allison (w/attachment)
 Gary Skibicki, C.P.A. (w/attachment)

 
     
 
 
U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

AMENDMENT NO. 1 TO FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2004

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________



Consortium Service Management Group, Inc.
(Exact name of registrant as specified in its charter)


Texas
0-27359
74-2653437
(state of
(Commission File Number)
(IRS Employer
incorporation)
 
I.D. Number)


500 North Shoreline Drive, Suite 701 North
Corpus Christi, TX 78471
512-887-7546
(Address and telephone number of registrant's principal
executive offices and principal place of business)
 
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 twelve 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 [   ]
 
As of May 10, 2004, there were 9,578,622 shares of the Registrant's Common Stock, par value $0.001, outstanding.
 
Transitional Small Business Disclosure Format (check one): Yes [   ] No [X]
 
 
     
 
 

 
PART I - FINANCIAL INFORMATION
 
Item 1.   Financial Statements
 
Review Letter
3
Consolidated Balance Sheet March 31, 2004 and
 
December 31, 2003
4
Consolidated Statement of Operations March 31, 2004
 
and 2003
6
Consolidated Statement of Cash Flows March 31, 2004 and 2003
7
Consolidated Statement of Stockholders' Equity Three Months
 
Ended March 31, 2004
8
Notes to Financial Statements
9











 
  2  
 
 

Independent Accountant's Report
 
I have reviewed the accompanying interim balance sheets of Consortium Service Management Group, Inc. and consolidated subsidiaries for the quarter ended March 31, 2004 and year ended December 31, 2003 and the related statements of operations, cash flows and stockholders' equity for the quarter and year then ended. These interim financial statements are the responsibility of the company's management.
 
I conducted my review in accordance with standards established by the Public Company Accounting Oversight Board. A review of interim financial information consists principally of applying analytical procedures 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 statements taken as a whole. Accordingly, I do not express such an opinion.
 
Based upon my review, I am not aware of any material modifications that should be made to the accompanying interim financial statements in order for them to be in conformity with accounting principles generally accepted in the United States of America.
 
The accompanying interim financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the interim financial statements, the Company has suffered recurring losses from operations that raised substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 

/s/ Gary Skibicki, C.P.A., P.C.
Gary Skibicki, C.P.A., P.C.
Oklahoma City, OK
May 7, 2004

 
  3  
 
 

CONSORTIUM SERVICE MANAGEMENT GROUP, INC.
AND SUBSIDIARIES
 
    
 
    
 
  
CONSOLIDATED BALANCE SHEETS
 
    
 
    
 
  
ASSETS
 
    
 
    
 
  
   
Mar 31, 2004 
    
Dec 31, 2003
  
   
 
 
CURRENT ASSETS
    
 
    
 
  
Cash
 
$
(265
)
$
13,118
 
   
 
 
Total Current Assets
    
(265
)
  
13,118
 
 
    
 
    
 
  
FIXED ASSETS
    
 
    
 
  
Furniture and Equipment
    
61,409
   
61,409
 
Less Accumulated Depreciation
    
(60,809
)
  
(58,881
)
   
 
 
Total Fixed Assets
    
600
   
2,528
 
 
    
 
    
 
  
OTHER ASSETS
    
 
    
 
  
Investment - United Engineering Company
    
234,172
   
255,318
 
Investment - CO2 Equipment
    
1,451,207
   
1,450,490
 
CO2 Equipment Patent
    
8,000
   
8,000
 
Tissue Bonding Patent
    
236,018
   
236,018
 
Less Accumulated Amortization
    
(23,014
)
  
(20,514
)
   
 
 
Total Other Assets
  
$
1,906,383
 
$
1,929,312
 
 
    
 
    
 
  
Total Assets
  
$
1,906,718
 
$
1,944,958
 
   
 
 
 
    
 
    
 
  
The accompanying notes are an integral part of these interim financial statements.
 
 
  4  
 
 

CONSORTIUM SERVICE MANAGEMENT GROUP, INC.
AND SUBSIDIARIES
 
    
 
    
 
  
CONSOLIDATED BALANCE SHEETS (CONTINUED)
 
    
 
    
 
  
LIABILITIES
 
    
 
    
 
  
   
Mar 31, 2004
    
Dec 31, 2003
  
   
 
 
CURRENT LIABILITIES
    
 
    
 
  
Accounts Payable
  
$
603,117
 
$
680,969
 
Interest Payable
    
378,201
   
199,266
 
Payroll Taxes Payable
    
28,911
   
26,046
 
Notes Payable to Stockholders
    
3,577,841
   
3,475,802
 
CO2 Equipment Payable
    
206,749
   
206,749
 
   
 
 
Total Current Liabilities
    
4,794,819
   
4,588,832
 
 
    
 
    
 
  
Minority Interest in Consolidated Subsidiary
    
206,000
   
206,000
 
 
    
 
    
 
  
STOCKHOLDERS' EQUITY
    
 
    
 
  
Common stock $.001 par value, 40,000,000
    
 
    
 
  
shares authorized; 9,216,374 shares issued and
    
 
    
 
  
9,135,661 shares outstanding at March 31, 2004
    
 
    
 
  
and 9,175,874 shares issued and 9,095,161 shares
    
 
    
 
  
outstanding at December 31, 2003
    
9,216
   
9,175
 
 
    
 
    
 
  
Additional Paid in Capital
    
5,435,564
   
5,410,293
 
 
    
 
    
 
  
Accumulated Other Comprehensive (Loss)
    
(343,375
)
  
(343,375
)
 
    
 
    
 
  
Accumulated (Deficit)
    
(8,163,221
)
  
(7,893,682
)
 
    
 
    
 
  
Treasury Stock
    
(32,285
)
  
(32,285
)
   
 
 
Total Stockholders' Equity
    
(3,094,101
)
  
(2,849,874
)
 
    
 
    
 
  
Total Liabilities and Stockholders' Equity
  
$
1,906,718
 
$
1,944,958
 
   
 
 
 
    
 
    
 
  
The accompanying notes are an integral part of these interim financial statements.
 

 

  5  
 
 
CONSORTIUM SERVICE MANAGEMENT GROUP, INC.
AND SUBSIDIARIES
 
    
 
    
 
  
CONSOLIDATED STATEMENT OF OPERATIONS
 
    
 
    
 
  
   
Jan 1, 2004-
    
Jan 1, 2003-
  
   
Mar 31, 2004 
    
Mar 31, 2003
  
   
 
 
Revenues
  
$
-
 
$
-
 
 
    
 
    
 
  
General and Administrative Expenses
    
245,774
   
145,094
 
Funded R & D
    
-
   
-
 
Cost of Funded R & D
    
2,622
   
8,910
 
Net R & D Cost
    
2,622
   
8,910
 
   
 
 
Operating (Loss)
    
(248,396
)
  
(154,004
)
 
    
 
    
 
  
Interest Income
    
3
   
3
 
 
    
 
    
 
  
Interest in Income (Loss) of Unconsolidated Companies
    
(21,146
)
  
(36,830
)
   
 
 
(Loss) from Continuing Operations
    
(269,539
)
  
(190,831
)
 
    
 
    
 
  
Income Taxes
    
-
   
-
 
 
    
 
    
 
  
Net (Loss)
  
$
(269,539
)
$
(190,831
)
   
 
 
 
    
 
    
 
  
Net (Loss) Per Share Common Stock
    
(0.03
)
  
(0.03
)
 
    
 
    
 
  
Weighted Average Common Shares Outstanding
    
9,115,411
    
6,950,313
 
 
    
 
    
 
  
 
    
 
    
 
  
Basic and diluted earnings per share are the same. The corporation is reporting a net loss for the reporting
periods and any potentially dilutive securities are antidilutive (reduce net loss) and therefore not presented.
 
    
 
    
 
  
 
    
 
    
 
  
 
The accompanying notes are an integral part of these interim financial statements.
 
  6  
 
 
CONSORTIUM SERVICE MANAGEMENT GROUP, INC.
AND SUBSIDIARIES
 
    
 
    
 
  
CONSOLIDATED STATEMENT OF CASH FLOWS
 
    
 
    
 
  
 
    
Jan 1, 2004-
    
Jan 1, 2003-
  
   
Mar 31, 2004
    
Mar 31, 2003
  
   
 
 
CASH FLOWS FROM OPERATING ACTIVITIES
    
 
    
 
  
Net (Loss)
  
$
(269,539
)
$
(190,831
)
Depreciation and Amortization
    
4,428
   
4,428
 
Increase (Decrease) Accrued Interest
    
178,935
   
-
 
Increase (Decrease) Current Liabilities
    
(74,987
)
  
177,923
 
Equity (Income) Loss from Investee
    
21,146
   
36,830
 
   
 
 
Net Cash provided by (used in) Operating Activities
    
(140,017
)
  
28,350
 
 
    
 
    
 
  
CASH FLOWS FROM INVESTING ACTIVITIES
    
 
    
 
  
Employee Advance
    
-
   
(13,800
)
Purchase Equipment and Patent
    
(717
)
  
(166,939
)
   
 
 
Net Cash (used in) Investing Activities
    
(717
)
  
(180,739
)
 
    
 
    
 
  
CASH FLOWS FROM FINANCING ACTIVITIES
    
 
    
 
  
Increase Notes Payable
    
102,039
   
130,700
 
Increase Stock Issue
    
25,312
   
20,000
 
   
 
 
Net Cash provided by Financing Activities
    
127,351
   
150,700
 
 
    
 
    
 
  
NET INCREASE (DECREASE) IN CASH AND
   
 
    
 
  
CASH EQUIVALENTS
    
(13,383
)
  
(1,689
)
 
    
 
    
 
  
Cash and Cash Equivalents at Beginning of Period
    
13,118
   
3,905
 
   
 
 
Cash and Cash Equivalents at End of Period
  
$
(265
)
$
2,216
 
   
 
 
 
    
 
    
 
  
The accompanying notes are an integral part of these interim financial statements.
 
    
 
    
 
  
 
 
  7  
 
 
CONSORTIUM SERVICE MANAGEMENT GROUP, INC.
AND SUBSIDIARIES
 
  
 
 
 
 
 
 
 
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
JANUARY 1, 2004 - MARCH 31, 2004
 
  
 
 
 
 
 
 
 

 

 
 
 
 
Accumulated
 
 
 

 

 
 
 
Additional
Other
 
 
 

 

 
No. Common
Par
Paid In
Comprehensive
Accumulated
Treasury
 
Description

 
Shares (Ea.)
Value
Capital
Income (Loss)
Deficit
Stock
Total
  
Balance January 1, 2004
  
9,175,874
$ 9,175
$ 5,410,293
$ (343,375)
$ (7,893,682)
$ (32,285)
$ (2,849,874)
Common Stock Sold
  
-
-
-
-
-
-
-
Common Stock Issued for Services
  
6,000
6
3,743
-
-
-
3,749
Common Shares Issued for Interest
  
34,500
35
21,528
-
-
-
21,563
Net (Loss)
 
-
-
-
-
(269,539)
-
(269,539)
Other Comprehensive Income (Loss)
  
-
-
-
-
-
-
-
Foreign Exchange Gain (Loss)
  
-
-
-
-
-
-
-
 
Balance March 31, 2004
  
9,216,374
$ 9,216
$ 5,435,564
$ (343,375)
$ (8,163,221)
$ (32,285)
$ (3,094,101)
   
Treasury Shares
  
(80,713)
 
 
 
 
 
 
   
Shares Outstanding
  
9,135,661
 
 
 
 
 
 
   
 
  
 
 
 
 
 
 
 
The accompanying notes are an integral part of these interim financial statements.
 
  
 
 
 
 
 
 
 

 

 
  8  
 
 
CONSORTIUM SERVICE MANAGEMENT GROUP, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2004, DECEMBER 31, 2003
 

 
NOTE 1
BASIS OF PRESENTATION

The accompanying unaudited interim financial statements have been prepared in accordance with standards established by the Public Company Accounting Oversight Board. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the three month period ending March 31, 2004 are not necessarily indicative of the results that may be expected for the year ended December 31, 2004. For further information, refer to the annual financial statements and footnotes thereto for the year ended December 31, 2003.

NOTE 2
GOING CONCERN

The Company’s financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company incurred a net loss of $(269,539) for the three months ended March 31, 2004 and when combined with prior year net losses raises substantial doubt as to the Company’s ability to obtain debt and/or equity financing and achieve profitable operations.

The Company’s management intends to raise additional operating funds through equity and/or debt offerings and the sale of technologies. However, there can be no assurance management will be successful in its endeavors. The possible consequences of not obtaining additional funds either through equity offerings, debt offerings, or sale of technologies is that there will not be sufficient money to fund the capital projects required to earn long term planned revenues of the company.
 

 
 
  9  
 
 
CONSORTIUM SERVICE MANAGEMENT GROUP, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2004, DECEMBER 31, 2003
 
 
NOTE 3
INCOME (LOSS) FROM UNCONSOLIDATED COMPANY

The Company’s 33% owned subsidiary United Engineering Company, a Ukraine company, reported the following sales, gross profits and net loses:
 
 
  
Jan 1, 2004-
Jan 1, 2003-
   
Mar 31, 2004 
    
Mar 31, 2003
  
 
 
 
Sales
  
$
203,243
  
$
228,973
  
Gross Profit
    
982
    
(26,296
)
 
 
 
Net (Loss)
  
$
(63,500
)
$
(110,490
  
   
 
 


NOTE 4
SUBSEQUENT EVENTS

On March 2, 2004 a default judgement was entered against the Company in the amount of $32,091 in favor of Bagby & Russell Electric Company. The judgement is a result of an unpaid invoice for electrical work performed pertaining to installing carbon dioxide equipment at Chastang landfill in Mobile, Alabama. The original amount was $48,000 and, although the Company made payments and offered to pay $5,000 per month, it was rejected.
 
  10  
 
 

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of  Operations

The following discussion and analysis should be read in conjunction with the financial statements and the accompanying notes thereto and is qualified in its entirety by the foregoing and by more detailed financial information appearing elsewhere. See "Item 1. Financial Statements."

Results of Operations - First Quarter of 2004 Compared to First Quarter of 2003

We had no revenues in Q1 2004, compared to no revenues in Q1 2003.

Operating expenses increased by $94,392 or 61 percent during Q1 2004 as compared with operating expenses during Q1 2003. Operating expenses were $248,396 in Q1 2004 and were $154,004 in Q1 2003. The increase is attributable primarily to increased cost of CO2 equipment installation and tissue bonding development.

We had a net loss from operations of $248,396 for Q1 2004, up considerably from a net loss of $154,004 for Q1 2003.

We accrued a loss in Q1 2004 of $21,146 from our joint venture in Ukraine with United Engineering Company, as compared with a net loss of $36,830 from this activity in Q1 2003.

Altogether, we reported a net loss in Q1 2004 of $269,539, or $0.03 a share, compared with a net loss in Q1 2003 of $190,831 or $0.03 a share.

We were able to remain liquid during this quarter through (1) an increase in notes payable of $102,039, (2) an increase in accrued interest of $178,935, and (3) the sale of $35,312 of common stock.

On March 29, 2004, we entered into an Equity Line of Credit Agreement with Cornell Capital Partners. Under this agreement, we may issue and sell to Cornell Capital Partners common stock for a total purchase price of up to $10 million. Subject to certain conditions, we are entitled to draw down on the Equity Line of Credit once the common stock to be issued under the Equity Line of Credit is registered with the Securities and Exchange Commission and the registration statement is declared effective. The purchase price for the shares is equal to 95% of, or a 5% discount to, the market price, which is defined as the lowest closing bid price of the common stock during the five trading days following the notice date. We have the right, but not the obligation, to require Cornell Capital to purchase shares in the company’s common stock in amounts not to exceed $140,000 per draw up to a maximum of $420,000 per month with a total of $10 million over a consecutive 24-month period. Cornell Capital Partners will receive a fee debenture of $390,000, in the form of convertible debentures. Cornell will also receive a $10,000 legal fee of which $5,000 has been paid and the balance will be paid from the proceeds from the initial advance under the Equity Line of Credit. Cornell Capital Partners is entitled to retain a fee of 5% of each advance. The net effect of the 5% discount and the 5% retainage of each advance is that Cornell Capital Partners shall pay 90.25% of the applicable closing bid price for each share of our common stock. In addition, we have entered into a placement agent agreement with Newbridge Securities, a registered broker-dealer. Pursuant to the placement agent agreement, we will pay a one-time placement agent fee in shares of common stock equal to approximately $10,000 based on the stock price on the date we agreed to engage the placement agent.

 
  11  
 
 
Outlook

The statements made in this Outlook are based on current plans and expectations. These statements are forward-looking, and actual results may vary considerably from those that are planned.

We are optimistic for our future, particularly with regard to all of 2004. The status of our CO2 separator project in Chastang County, Alabama is that the installation was completed during March 2003. Start-up and equipment adjustment were delayed while waiting for the landfill gas owner to complete installation of the end-user pipeline and gas metering system. This was installed near the end of March just as our Ukraine supervisory team had to return to Ukraine. In addition, the landfill gas quality was well below expected levels and required repairs to the gas gathering system to reduce air intake. The landfill gas owner coordinated and completed these repairs during the next few weeks, finishing toward the end of May. The Ukraine supervisory team returned in early June to oversee service, start-up and adjust the equipment. Poor weather caused some delays but this was completed in about two weeks. As we prepared to begin start-up operations and equipment adjustment, Waste Management Inc. (”WMC”, the operator of the landfill) ordered Resource Technology Corporation ”RTC” (the holder of the gas ownership contract) off the landfill and contended that our CO2 separator equipment produces methane gas that fails to meet gas quality specifications and that, therefore, the agreement to buy the gas is terminated. This contention is now being litigated in RTC’s chapter 11 reorganization proceeding. It is possible that our gas collection and conversion systems could be determined to be out of specifications thus necessitating installing upgrades estimated to cost between $200,000 and $300,000 to enable the equipment to meet the gas quality requirements. Currently the Company has a caretaker at the landfill to maintain the equipment. If additional funds are required to upgrade the system the possibility remains that the process will still not meet the Mobile Gas specifications and if so it will be necessary to move the equipment from the Chastang landfill. Should this occur it is unclear if any future carbon dioxide projects will be possible and if so the continued existence of the Company will depend on live tissue bonding and anaerobic farm waste technology sales.

The status of our tissue bonding project is that we have completed more than 2,000 human surgeries in Ukraine clinical trials and continue to develop new methods of surgical procedures and tools. We have started the development of equipment from prototype model to a commercial model. The equipment bonds the soft biological tissue with a special miniature surgical tool. No glues, sutures, staples or other foreign matter are used. The process is best described as a welding process. The scar tissue is either minimal or non-existent. Tests conducted in Louisville, Kentucky by U.S. surgeons on rabbits' stomachs resulted in scar tissue only forty microns wide six months after surgery. It appears that the Ukraine scientists have developed a superior, all-purpose, seamless method of bonding soft biological tissues, which method is characterized by simple manipulation applicable to different surgical operations and the fast restoration of tissues without the formation of coarse scars. Apparently there is no need for prolonged special training of surgeons and surgical personnel.

The Ukraine prototype for the equipment was successfully demonstrated to physicians and surgeons in the U.S. in June 1996 on the blood vessels, nerves and stomachs of rats and rabbits. Additional, subsequent demonstrations on animals were performed in Ukraine by Ukraine surgeons with U.S. surgeons in attendance. In 1998 the U.S. surgeons performed successful tests on animals in Louisville, Kentucky. Testing on humans in Ukraine began in mid-year 1998. One patient had a blood vessel welded, and the other patient had a torn uterus repaired using minimally invasive surgery tools. According to the Ukraine doctors, both patients recovered in the normal amount of healing time without side effects.

E.O. Paton Institute of Electric Welding of the Ukraine National Academy of Sciences and International Association of Welding filed U.S. and international patent applications on the process in February 1999. An Australia patent has been issued, but no other patents have been issued. We own the technology and have been assigned the exclusive world rights of the patents - should they be issued. See Exhibit 10.3 filed as part of our Form 10-SB.

 
  12  
 
 
We have submitted no applications, requests or testing results to the Federal Drug Administration. We have not marketed the bonding equipment in the Ukraine or any other non-U.S. country and have no plans at this time to do this. Our plans are to manufacture prototypes only in Ukraine and to set up fully controlled clinical trials in Ukraine for comprehensive human testing. We began this clinical work in May 2000. To date we have completed more than 2,000 successful human surgeries at Ukraine hospitals. We are currently negotiating with a group of private investors who are familiar with our company for these funds.

In 2002 we formed Live Tissue Connect, Inc., a Delaware corporation, through which we propose to develop our Tissue Bonding technology. We own 86 percent of Live Tissue Connect, Inc.

We estimate that in excess of $2 million have been expended in developing the project and that $2.5 million of additional funds must be expended to bring this product to market. We estimate that the first surgical equipment will be manufactured in the U.S. during the next 12 months now that the U.S. patent applications are approved and patents are issued.

This project is still in the development stage, even though the Ukrainians have created a finished product in their special miniature surgical tool. Improvements in the tool are possible, and testing on live tissue of humans to U.S. testing standards is required. Approval of the process and equipment by the Federal Drug Administration is required.

With regard to our farm waste anaerobic project, we expect contracts to be executed during 2004. We have met resistance from swine, dairy and poultry farmers in our efforts to sell our farm waste anaerobic plant, due to the long period of time required for small farms to recover the costs of the plant and due to falling producer prices in these industries. Our efforts at this time are concentrated on building a demonstration plant with Poultry Growers of Oklahoma. The growers are working with the Oklahoma Agriculture Commission in coordination with Anaerobic Farm Waste, Inc. for a loan grant to do an engineering and marketing feasibility study of building a plant in Southeast Oklahoma. Also, we have retained a Native American consultant to negotiate an arrangement with the Native American tribes for a grant from the U.S. Corps of Engineers to do a feasibility study for building an anaerobic plant in Northeastern Oklahoma. The resolution has been drawn but not signed as of this date.

The company's future results of operations and the other forward-looking statements contained in this Outlook involve a number of risks and uncertainties. Among the factors that could cause actual results to differ materially are the following: inability of the company to obtain needed additional capital, loss of personnel - particularly Chief Executive Officer Donald S. Robbins or Executive Vice President and Chief Financial Officer Gordon W. Allison - as a result of accident or for health reasons, interruptions in the supply of equipment from manufacturers of the equipment, the development of competing products by well-capitalized competitors, and an accident involving life or serious bodily harm that fairly or unfairly would bring into question the safety of using the company's products.
 
Legal Proceedings

The Texas Department of Securities investigated our sale of ownership interests in CSMG Gastech LLC, the entity we created to assist our financing of our share of the costs of the CO2 separator projects with Resource Technology Corporation or other entities. The Texas enforcement agency took the position that we were selling securities by means of representations that omitted to state a material fact - that Resource Technology Corporation is a chapter 11 debtor. We were asked to make a rescission offer to all investors. We did so. Two investors accepted the rescission offer, and we returned to them their $10,000 investments. We have heard nothing further from the Texas Department of Securities.

 
  13  
 
 
On March 2, 2004 a default judgement was entered against the Company in the amount of $32,091 in favor of Bagby & Russell Electric Company. The judgement is a result of an unpaid invoice for electrical work performed pertaining to installing carbon dioxide equipment at Chastain landfill in Mobile, Alabama. The original amount was $48,000 and, although the Company made payments and offered to pay $5,000 per month, it was rejected.
 
Item 3.  Controls and Procedures

Evaluation of disclosure controls and procedures. We maintain controls and procedures designed to ensure that information required to be disclosed in this report is recorded, processed, accumulated and communicated to our management, including our chief executive officer and our chief financial officer, to allow timely decisions regarding the required disclosure. Within the 90 days prior to the filing date of this report, our management, with the participation of our chief executive officer and chief financial officer, carried out an evaluation of the effectiveness of the design and operation of these disclosure controls and procedures. Our chief executive officer and chief financial officer concluded, as of fifteen days prior to the filing date of this report, that these disclosure controls and procedures are effective.

Changes in internal controls. Subsequent to the date of the above evaluation, we made no significant changes in our internal controls or in other factors that could significantly affect these controls, nor did we take any corrective action, as the evaluation revealed no significant deficiencies or material weaknesses.

Item 6.  Exhibits and Reports on Form 8-K

(a)   Exhibits

The following exhibits are filed, by incorporation by reference, as part of this Form 10-QSB:

 
  14  
 
 
Exhibit No.
Description
3
Amended and Restated Articles of Incorporation of Consortium Service Management Group, Inc.*
   
3.1
Bylaws of Consortium Service Management Group, Inc.*
   
10
Founders' Agreement of United Engineering Company*
 
 
10.1
Statutes (Bylaws) of United Engineering Company*
 
 
10.2
Agreement of April 24, 1996 between Consortium Service Management Group, Inc. and The L
 
Group, Inc. concerning tissue bonding technology* (rescinded in January 2001)
 
 
10.3
Agreement of July 9, 1996 between Consortium Service Management Group, Inc. and International
 
Welding concerning tissue bonding technology*
 
 
10.4
Agreement among Consortium Service Management Group, Inc., United Engineering Company
 
and Ivan V. Semenenko, the inventor of the anaerobic farm waste technology*
 
 
10.5
Agreement of June 9, 1998 among Consortium Service Management Group, Inc., The Sumy Frunze
 
Machine Building Science and Production Association, and United Engineering Company
 
concerning the anaerobic farm waste technology*
 
 
10.6
Agreement between Consortium Service Management Group, Inc. and Western Waste
 
Management, Inc. concerning the anaerobic farm waste technology*
 
 
10.7
Agreement between Consortium Service Management Group, Inc. and Aardema Dairy concerning
 
the anaerobic farm waste technology*
 
 
10.8-
Agreement between Consortium Service Management Group, Inc. and John and Ruth Beukers
 
concerning the anaerobic farm waste technology*
 
 
10.9-
Agreement of December 1998 between International Welding Association of Kiev, Ukraine and
 
Consortium Service Management Group, Inc. concerning the carbon dioxide separator technology*
 
 
  15  
 
 
 
 
10.10
Operating Agreement of June 14, 2002 between Consortium Service Management Group, Inc. and
 
Resource Technology Corporation***
 
 
10.11
Contract Agreement Effective August 14, 2001 between Consortium Service Management
 
Group/Anaerobic Farm Waste Co. and Rondeau Anaerobic***
 
 
10.12
Contract IAW-USA 002-PR-19.04.2001 between International Association Welding, Kiev and E.O.
 
Paton Electric Welding Institute National Academy Science Ukraine and Consortium Service
 
Management Group, Inc.***
 
 
10.13
Contract IAW-USA 003-PR-19.04.2001 between International Association Welding, Kiev and E.O.
 
Paton Electric Welding Institute National Academy Science Ukraine and Consortium Service
 
Management Group, Inc.***
 
 
10.14
Contract IAW-USA 004-PR-19.04.2001 between International Association Welding, Kiev and E.O.
 
Paton Electric Welding Institute National Academy Science Ukraine and Consortium Service
 
Management Group, Inc.***
 
 
10.15
Contract IAW-USA 005-PR-19.04.2001 between International Association Welding, Kiev and E.O.
 
Paton Electric Welding Institute National Academy Science Ukraine and Consortium Service
 
Management Group, Inc.***
 
 
10.16
Contract IAW-USA 006-PR-19.04.2001 between International Association Welding, Kiev and E.O.
 
Paton Electric Welding Institute National Academy Science Ukraine and Consortium Service
 
Management Group, Inc.***
 
 
10.17
Contract IAW-USA 007-PR-19.04.2001 between International Association Welding, Kiev and E.O.
 
Paton Electric Welding Institute National Academy Science Ukraine and Consortium Service
 
Management Group, Inc.***
 
 
10.18
Contract IAW-USA 008-PR between International Association Welding, Kiev, Ukraine and
 
Consortium Service Management Group, Inc.***
 
 
10.19
Natural Gas Purchase Agreement of June 20, 2000 between Texas Energy Transfer Company, Ltd.
 
and Resource Technology Corp.****
 
 
  16  
 
 
 
 
10.20
Agency Agreement between Joint Stock Company “Sumy Frunze Machine-Building Science and
 
Production Association” of Ukraine and Consortium Service Management Group, Inc.+
 
 
10.21
2003 Stock Option Plan adopted by the board of directors of Consortium Service Management
 
Group, Inc.++
 
 
16
Letter dated January 29, 2001 from Jaak (Jack) Olesk to Consortium Service Management Group,
 
Inc. Re: Termination as Auditor**
 
 
31
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
 
Section 302 of the Sarbanes-Oxley Act of 2002.
   
31.1
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
 
Section 302 of the Sarbanes-Oxley Act of 2002.
   
32
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
 
Section 906 of the Sarbanes-Oxley Act of 2002.
   
32.1
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
 
Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
99
Ukraine Ministry of Health, State Department, Certificate of State Registration No. 1105-193***
 
 
 
 
*Previously filed with Form 10-SB; Commission File No. 0-27359 incorporated herein.
 
 
**Previously filed with Amendment No. 1 to Form 10-SB; Commission File No. 0-27359 incorporated herein.
 
***Previously filed with Amendment No. 2 to Form 10-SB; Commission File No. 0-27359 incorporated herein.
 
 
****Previously filed with Amendment No. 1 to Form 10-QSB for the period ended September 30, 2002;
Commission File No. 0-27359 incorporated herein.
 
 
+Previously filed with Form 10-KSB for the year ended December 31, 2002; Commission File No. 0-
27359 incorporated herein.
 
 
  17  
 
 
 
 
++Previously filed with Amendment No. 1 to Form 10-QSB for the period ended March 31, 2003;
Commission File No. 0-27359 incorporated herein.


(b)   Forms 8-K

None

SIGNATURES

Pursuant to the requirements of the Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
     
  Consortium Service Management Group, Inc.
 
 		  
 		  
 
Date: August 26, 2004                   
 By:   /s/ Gordon W. Allison
 
Gordon W. Allison
  Executive Vice President
 
  
 
   18  
 
 

Consortium Service Management Group, Inc.
Commission File No. 0-27359

EXHIBIT INDEX
AMENDMENT NO. 1 TO FORM 10-QSB
For the quarterly period ended March 31, 2004


The following exhibits are filed, by incorporation by reference, as part of this Form 10-QSB:
     
Exhibit No.
Description
3
Amended and Restated Articles of Incorporation of Consortium Service Management Group, Inc.*
   
3.1
Bylaws of Consortium Service Management Group, Inc.*
   
10
Founders' Agreement of United Engineering Company*
 
 
10.1
Statutes (Bylaws) of United Engineering Company*
 
 
10.2
Agreement of April 24, 1996 between Consortium Service Management Group, Inc. and The L
 
Group, Inc. concerning tissue bonding technology* (rescinded in January 2001)
 
 
10.3
Agreement of July 9, 1996 between Consortium Service Management Group, Inc. and International
 
Welding concerning tissue bonding technology*
 
 
10.4
Agreement among Consortium Service Management Group, Inc., United Engineering Company
 
and Ivan V. Semenenko, the inventor of the anaerobic farm waste technology*
 
 
10.5
Agreement of June 9, 1998 among Consortium Service Management Group, Inc., The Sumy Frunze
 
Machine Building Science and Production Association, and United Engineering Company
 
concerning the anaerobic farm waste technology*
 
 
  1  
 
 
 
 
10.6
Agreement between Consortium Service Management Group, Inc. and Western Waste
 
Management, Inc. concerning the anaerobic farm waste technology*
 
 
10.7
Agreement between Consortium Service Management Group, Inc. and Aardema Dairy concerning
 
the anaerobic farm waste technology*
 
 
10.8-
Agreement between Consortium Service Management Group, Inc. and John and Ruth Beukers
 
concerning the anaerobic farm waste technology*
 
 
10.9-
Agreement of December 1998 between International Welding Association of Kiev, Ukraine and
 
Consortium Service Management Group, Inc. concerning the carbon dioxide separator technology*
 
 
 
10.10
Operating Agreement of June 14, 2002 between Consortium Service Management Group, Inc. and
 
Resource Technology Corporation***
 
 
10.11
Contract Agreement Effective August 14, 2001 between Consortium Service Management
 
Group/Anaerobic Farm Waste Co. and Rondeau Anaerobic***
 
 
10.12
Contract IAW-USA 002-PR-19.04.2001 between International Association Welding, Kiev and E.O.
 
Paton Electric Welding Institute National Academy Science Ukraine and Consortium Service
 
Management Group, Inc.***
 
 
  2  
 
 
10.13
Contract IAW-USA 003-PR-19.04.2001 between International Association Welding, Kiev and E.O.
 
Paton Electric Welding Institute National Academy Science Ukraine and Consortium Service
 
Management Group, Inc.***
 
 
10.14
Contract IAW-USA 004-PR-19.04.2001 between International Association Welding, Kiev and E.O.
 
Paton Electric Welding Institute National Academy Science Ukraine and Consortium Service
 
Management Group, Inc.***
 
 
10.15
Contract IAW-USA 005-PR-19.04.2001 between International Association Welding, Kiev and E.O.
 
Paton Electric Welding Institute National Academy Science Ukraine and Consortium Service
 
Management Group, Inc.***
 
 
10.16
Contract IAW-USA 006-PR-19.04.2001 between International Association Welding, Kiev and E.O.
 
Paton Electric Welding Institute National Academy Science Ukraine and Consortium Service
 
Management Group, Inc.***
 
 
  3  
 
 
10.17
Contract IAW-USA 007-PR-19.04.2001 between International Association Welding, Kiev and E.O.
 
Paton Electric Welding Institute National Academy Science Ukraine and Consortium Service
 
Management Group, Inc.***
 
 
10.18
Contract IAW-USA 008-PR between International Association Welding, Kiev, Ukraine and
 
Consortium Service Management Group, Inc.***
 
 
10.19
Natural Gas Purchase Agreement of June 20, 2000 between Texas Energy Transfer Company, Ltd.
 
and Resource Technology Corp.****
 
 
 
10.20
Agency Agreement between Joint Stock Company “Sumy Frunze Machine-Building Science and
 
Production Association” of Ukraine and Consortium Service Management Group, Inc.+
 
 
10.21
2003 Stock Option Plan adopted by the board of directors of Consortium Service Management
 
Group, Inc.++
 
 
16
Letter dated January 29, 2001 from Jaak (Jack) Olesk to Consortium Service Management Group,
 
Inc. Re: Termination as Auditor**
 
 
31
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
 
Section 302 of the Sarbanes-Oxley Act of 2002.
   
31.1
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
 
Section 302 of the Sarbanes-Oxley Act of 2002.
   
32
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
 
Section 906 of the Sarbanes-Oxley Act of 2002.
   
32.1
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
 
Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
99
Ukraine Ministry of Health, State Department, Certificate of State Registration No. 1105-193***
 
 
 
 
*Previously filed with Form 10-SB; Commission File No. 0-27359 incorporated herein.
 
 
  4  
 
 
**Previously filed with Amendment No. 1 to Form 10-SB; Commission File No. 0-27359 incorporated herein.
 
***Previously filed with Amendment No. 2 to Form 10-SB; Commission File No. 0-27359 incorporated herein.
 
 
****Previously filed with Amendment No. 1 to Form 10-QSB for the period ended September 30, 2002;
Commission File No. 0-27359 incorporated herein.
 
 
+Previously filed with Form 10-KSB for the year ended December 31, 2002; Commission File No. 0-
27359 incorporated herein.
 
 

              
 
 
 
 
 
  5