10QSB 1 form10qsb093001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: September 30, 2001 ----------------------------------- [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from to --------------- ---------------- Commission file number 33-4707-NY ----------------------------------- CBQ, Inc. -------------------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Colorado 84-1047159 ------------------------------------------------------------------------------- (State or other jurisdiction (IRS Employer of incorporation or organization) Identification No.) 1911 Ft. Myer Drive, Arlington, Virginia 22209 ---------------------------------------------- (Address of principal executive offices) (703) 387-0300 Issuer's telephone number 10923 McCormick Road, Hunt Valley, Maryland 21031 (Former name, former address and fiscal year, if changed since last report.) APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING DURING THE PRECEDING FIVE YEARS Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes No APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practical date: November 10, 2001 Approximately 79,621,299 shares Transitional Small Business Disclosure Format (check one). Yes ; No X ---- ----- PART I Item 1. Financial Statements INDEPENDENT ACCOUNTANT'S REPORT To the Board of Directors and Shareholders CBQ, Inc. and Subsidiaries We have reviewed the accompanying consolidated balance sheets of CBQ, Inc. and Subsidiaries as of September 30, 2001 and December 31, 2000 and the related consolidated statements of operations for the three and nine months and cash flows for the nine month periods ended September 30, 2001 and 2000. These consolidated financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statement taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements for them to be in conformity with generally accepted accounting principles. Respectfully submitted /s/ Robison, Hill & Co. ---------------------------- Certified Public Accountants Salt Lake City, Utah November 10, 2001 CBQ, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(Unaudited) (Restated) September 30, December 31, 2001 2000 --------------- -------------- Assets: Current assets: Cash $ 3,963 $ 1,060 Net assets of discontinued operations 340,571 - --------------- -------------- Total current assets 344,534 1,060 --------------- -------------- Equipment: Computers and related equipment 2,254 68,904 Office equipment 850 3,073 --------------- -------------- 3,104 71,977 Less accumulated depreciation - (69,887) --------------- -------------- Equipment, net of accumulated depreciation 3,104 2,090 --------------- -------------- Other non-current assets: Notes receivable, long-term 98,874 - Goodwill 479,750 23,084 Investments 250,000 46,163 Other assets 56,440 - --------------- -------------- Total other non-current assets 885,064 69,247 --------------- -------------- Total assets $ 1,232,702 $ 72,397 =============== ==============
CBQ, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited) (Restated) September 30, December 31, 2001 2000 --------------- -------------- Liabilities and Stockholders' Deficit: Current liabilities: Line of credit payable $ 577,157 $ - Current portion of long-term debt 50,312 - Accounts payable, trade 294,270 277,421 Accrued expenses 239,489 490 Due to related party 1,215 1,215 Due to shareholders 115,000 115,000 Net liabilities of discontinued operations - 398,943 --------------- -------------- Total current liabilities 1,277,443 793,069 --------------- -------------- Non-current liabilities: Long-term debt 2,534,072 1,813,139 Preferred stock of subsidiaries 525,000 525,000 --------------- -------------- Total non-current liabilities 3,059,072 2,338,139 --------------- -------------- Total Liabilities 4,336,515 3,131,208 --------------- -------------- Stockholders' Deficit: Preferred Stock, par value $.001 per share Authorized 100,000,000 shares, 70,000 shares issued and outstanding at September 30, 2001 and December 31, 2000 70 70 Common Stock, par value $.0001 per share Authorized 500,000,000 shares, Issued 79,516,835 Shares at September 30, 2001 and 69,836,835 shares at December 31, 2000 7,952 6,984 Additional paid-in capital 3,518,141 2,304,813 Accumulated deficit (6,629,976) (5,370,678) --------------- -------------- Total Stockholders' Deficit (3,103,813) (3,058,811) --------------- -------------- Total Liabilities and Stockholders' Deficit $ 1,232,702 $ 72,397 =============== ==============
See accompanying notes and accountants' report. CBQ, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (Unaudited) For the Three Months For the Nine Months Ended September 30, Ended September 30, ----------------------------- ------------------------------- 2001 2000 2001 2000 -------------- -------------- --------------- -------------- Continuing operations: Revenues $ 59,033 $ - $ 121,206 $ - Cost of revenues 60,176 - 122,809 - -------------- -------------- --------------- -------------- Gross Profit (1,143) - (1,603) - Expenses General and administrative (155,334) (124,845) (317,009) (274,287) Other Income (Expense) Interest expense (31,958) (89,800) (223,405) (234,633) -------------- -------------- --------------- -------------- Net Loss from Continuing Operations (188,435) (214,645) (542,017) (508,920) -------------- -------------- --------------- -------------- Discontinued operations: Income (Loss) from operations of discontinued operations (249,398) (931,370) (717,281) (1,658,934) Loss on disposal of discontinued operations - (40,600) - (143,008) -------------- -------------- --------------- -------------- Net Income (loss) from discontinued operations (249,398) (971,970) (717,281) (1,801,942) -------------- -------------- --------------- -------------- Net Income (Loss) $ (437,833)$ (1,186,615)$ (1,259,298) $ (2,310,862) ============== ============== =============== ============== Weighted Average Shares Outstanding 78,726,725 68,175,687 75,525,122 68,175,687 ============== ============== =============== ============== Loss per Common Share Continuing operations $ - $ - $ (0.01) $ (0.01) Discontinued operations (0.01) (0.02) (0.01) (0.03) -------------- -------------- --------------- -------------- Net (loss) $ (0.01) $ (0.02) $ (0.02) $ (0.04) ============== ============== =============== ==============
See accompanying notes and accountants' report. CBQ, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) For the nine months ended September 30, ------------------------------- 2001 2000 --------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Continuing operations: Net Income (Loss) $ (542,017)$ (508,920) Adjustments necessary to reconcile net loss to net cash used in operating activities: Decrease (increase) in other current assets - (9,776) Decrease (increase) in other assets (56,440) - Increase (decrease) in accounts payable 16,849 - Increase (decrease) in accrued expenses 238,999 54,778 --------------- --------------- Net Cash Used in continuing operations (342,609) (463,918) --------------- --------------- Cash flows from discontinued operations (964,786) (1,222,118) --------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of investment (250,000) - Acquisition of equipment (3,104) - --------------- --------------- Net cash provided by (used) investing activities (253,104) - --------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES: (Repayments) borrowings on line of credit 577,157 - Other increase (decrease) in long-term debt 771,245 (450,878) Net increase in amounts due to stockholders - 1,882,984 Common stock issued in exercise of stock options - 650,000 Common stock issued as compensation - 31,375 Common stock issued for cash 215,000 - --------------- --------------- Net Cash Provided by Financing Activities 1,563,402 2,113,481 --------------- --------------- Net (Decrease) Increase in Cash and Cash Equivalents 2,903 427,445 Cash and Cash Equivalents at Beginning of Period 1,060 38,812 --------------- --------------- Cash and Cash Equivalents at End of Period $ 3,963 $ 466,257 =============== ===============
CBQ, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Continued SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 223,404 $ 138,994 Franchise and income taxes $ - $ - SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: On March 1, 2001, the Company purchased Easy Soft International, Inc. ("Easy Soft"). The purchase price was 5,625,000 shares of common stock in exchange for assets valued at $580,596 (receivables in the approximate amount of $95,665, equipment and other assets of $5,181 and goodwill of $479,750) less liabilities of $9,305. On March 27, 200l the Company purchased certain assets of Technet Computers Services, Inc. and Networkland, Inc. for 7,800,000 shares of common stock and a 10% note payable of $700,000 in exchange for which the Company received assets valued at $1,794,748 ( receivables $1,553,273, inventory $27,067, equipment $20,417, goodwill $192,671 and other assets $1,320) and assumed liabilities of $688,029. The allocation of purchase price include certain assumptions and preliminary estimates and are subject to change. In April 2001, the Company settled approximately $120,000 in disputed charges with a third party for $17,000 in cash and 900,000 shares of the Company's common stock. See accompanying notes and accountants' report. CBQ, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 --------------------------------------------------------------- NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This summary of accounting policies for CBQ, Inc. and Subsidiaries is presented to assist in understanding the Company's consolidated financial statements. The accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements. Interim Reporting The unaudited financial statements as of September 30, 2001 and for the three month and nine month periods ended September 30, 2001 and 2000 reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to fairly state the financial position and results of operations for the three and nine months. Operating results for interim periods are not necessarily indicative of the results which can be expected for full years. Organization and Basis of Presentation CBQ, Inc., (formerly Freedom Funding, Inc.) a Colorado corporation, was incorporated September 18, 1986, under the laws of the State of Delaware, and changed its situs to Colorado in 1989. The Company ceased its development stage with its merger with Quantum Technology Group, Inc. ("Quantum Group") in August 2000. Nature of Business The Company's lines of businesses include software development outsourcing, web development, custom software development, network systems integration and management. Principles of Consolidation The consolidated financial statements for the three months ended September 30, 2001 and 2000 include the accounts of the parent entity and all of its subsidiaries: Quantum Group and its subsidiary, ProWare, Inc. ("ProWare"); China Partners, Inc. (from the date of its formation in March 2000); CyberQuest, Inc. ("CyberQuest"); Reliance Technologies, Inc. ("Reliance") and its subsidiary, TopherNet, Inc. ("TopherNet"); and Priority One Electronic Commerce Corporation ("Priority One"). Two subsidiaries of Quantum Group, Quantum Technology Distribution, Inc. ("Quantum Distribution") and dpi Net Solutions, Inc. ("DPI"), are included in the consolidated financial statements from November 15, 1999 and April 1, 2000, their respective dates of acquisition by Quantum Group. CBQ, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 --------------------------------------------------------------- (Continued) NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) As more fully described in Note 2, the business combinations between the Company and ChinaSoft, Inc. ("ChinaSoft") in January 2000 and between the Company and Quantum Group in August 2000 were accounted for as poolings of interests. Accordingly, the Company's consolidated financial statements have been restated for all periods to reflect the consolidated financial position, results of operations and cash flows of the Company, ChinaSoft and Quantum Group. All significant intercompany balances and transactions have been eliminated. Cash and Cash Equivalents For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes. Pervasiveness of Estimates The preparation of financial statements in conformity with generally accepted accounting principles required management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition Revenue is recognized as services are performed or as products are shipped. Inventories Inventories are stated at lower of cost or market, with cost determined on the first-in, first-out method. Income Taxes The Company has a net operating loss for income taxes. Due to the regulatory limitations in utilizing the loss, it is uncertain whether the Company will be able to realize a benefit from these losses. Therefore, a deferred tax asset has not been recorded. There are no significant tax differences requiring deferral. CBQ, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 --------------------------------------------------------------- (Continued) NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Loss per Share The reconciliations of the numerators and denominators of the basic loss per share computations are as follows:
Income Shares Per-Share (Numerator) (Denominator) Amount --------------- --------------- -------------- For the Three Months Ended September 30, 2001 ------------------------------------------------ Basic Income per Share Continuing operations $ (188,435) 78,726,725 $ - Discontinued operations (249,398) 78,726,725 (0.01) --------------- --------------- -------------- Loss to common shareholders $ (437,833) 78,726,725 $ (0.01) =============== =============== ============== For the Three Months Ended September 30, 2000 ------------------------------------------------ Basic Loss per Share Continuing operations $ (214,645) 68,175,687 $ - Discontinued operations (971,970) 68,175,687 (0.02) --------------- --------------- -------------- Loss to common shareholders $ (1,186,615) 68,175,687 $ (0.02) =============== =============== ============== For the Nine Months Ended September 30, 2001 ------------------------------------------------ Basic Income per Share Continuing operations $ (542,017) 75,525,122 $ (0.01) Discontinued operations (717,281) 75,525,122 (0.01) --------------- --------------- -------------- Income to common shareholders $ (1,259,298) 75,525,122 $ (0.02) =============== =============== ============== For the Nine Months Ended September 30, 2000 ------------------------------------------------ Basic Loss per Share Continuing operations $ (508,920) 68,175,687 $ (0.01) Discontinued operations (1,801,942) 68,175,687 (0.03) --------------- --------------- -------------- Loss to common shareholders $ (2,310,862) 68,175,687 $ (0.04) =============== =============== ==============
The effect of outstanding common stock equivalents would be anti-dilutive for September 30, 2001 and 2000 and are thus not considered. CBQ, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 --------------------------------------------------------------- (Continued) NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Concentration of Credit Risk The Company has no significant off-balance-sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. Goodwill Goodwill reflects the excess of purchase prices over the fair market value of assets acquired in the CyberQuest reverse acquisition and DPI acquisition. Goodwill is amortized over a five-year period. Property and Equipment Property and equipment is recorded at cost, except for assets acquired in acquisitions accounted for as purchases. Property and equipment acquired in acquisitions accounted for as purchases are recorded at their fair market values at the date of acquisition. All property and equipment are depreciated on a straight-line basis with the following useful lives: Computers and related equipment 3 years Office equipment 7 years Software 3 years Transportation equipment 5 years Leasehold improvements Lesser of 5 years or remaining lease term Reclassifications Certain reclassifications have been made in the September 30, 2000 financial statements to conform with the September 30, 2001 presentation. NOTE 2 - ACQUISITIONS On November 18, 1998, Freedom Funding, Inc., a Colorado corporation ("FFI"), entered into a reorganization agreement (Reorganization Agreement) with CyberQuest, Inc., a Colorado corporation (CyberQuest), as well as the shareholders of CyberQuest, pursuant to which FFI acquired all of the outstanding proprietary interest of CyberQuest in a stock for stock exchange which resulted in CyberQuest becoming a wholly owned subsidiary of FFI and the shareholders of CyberQuest acquiring control of the Company through their stock ownership. FFI also changed its name to CBQ, Inc. on this date. CBQ, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 --------------------------------------------------------------- (Continued) NOTE 2 - ACQUISITIONS Continued FFI, under the Reorganization Agreement, issued 18,000,000 common shares and 70,000 shares of the Class A: Redeemable, Convertible Preferred Stock of the Company to the shareholders of CyberQuest in exchange for the issued and outstanding shares of this subsidiary. The acquisition of CyberQuest was treated as a reverse acquisition of FFI by CyberQuest. In a reverse acquisition the shareholders of a Company own less than 50% of the post acquisition shares. The shareholders of CyberQuest received approximately 80% of the post acquisition shares of the Company and therefore, CyberQuest is the accounting acquirer. Common stock and additional paid-in capital have been restated to reflect the same ratio as the Company's common stock and additional paid-in capital at that time. This business combination was accounted for as a purchase. On March 15, 1999, the Company merged with Reliance and its subsidiary in a tax-free exchange. All of the outstanding shares of Reliance were exchanged for 1,000,000 restricted common shares of the Company. This business combination was accounted for as a pooling of interests. On April 9, 1999, the Company merged with Priority One in a tax-free exchange. All of the outstanding shares of Priority One were exchanged for 900,000 restricted common shares of the Company. This business combination was accounted for as a pooling of interests. On November 15, 1999, Quantum Group acquired all of the outstanding shares of Quantum Distribution for 250 shares of Quantum Group's Series B preferred stock, valued at $250,000, plus $125,000 in cash. This business combination was accounted for as a purchase. On January 14, 2000, the Company merged with ChinaSoft in a tax-free exchange. All of the outstanding shares of ChinaSoft were exchanged for 30,000,000 restricted common shares of the Company. This business combination was accounted for as a pooling of interests. On April 1, 2000 Quantum Group, prior to its merger with the Company, acquired all of the outstanding shares of DPI for $200,000 in cash, 290,000 shares of Quantum Group's Series A common stock, 275 shares of Quantum Group's Series C preferred stock, plus 550 shares of Quantum Group's Series D preferred stock. This business combination was accounted for as a purchase, resulting in $972,000 of goodwill that is being amortized over five years. On August 8, 2000, the Company merged with Quantum Group and its subsidiaries in a tax- free exchange. All of the outstanding common stock of Quantum Group was exchanged for 11,508,568 restricted common shares of the Company. This business combination was accounted for as a pooling of interests. 450 shares of Quantum Group's Series D preferred stock were CBQ, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 --------------------------------------------------------------- (Continued) NOTE 2 - ACQUISITIONS Continued converted into 720,000 shares of the Company's common stock on August 31, 2000. On March 1, 2001, the Company purchased Easy Soft International, Inc. ("Easy Soft"). The purchase price was 5,625,000 shares of common stock in exchange for all of the outstanding preferred and common shares of Easy Soft. On March 27, 200l the Company purchased certain assets of Technet Computer Services, Inc. and Networkland, Inc. for 7,800,000 shares of voting common stock and a 10% note payable of $700,000 in exchange for which the Company received assets valued at $1,106,720. In addition, the Company assumed an $80,000 liability of the Parent, Socrates Technologies Corp, Inc. NOTE 3 - INVESTMENTS On May 11, 1999, the Company acquired 19% of the outstanding interest of Global Logistics Partners, LLC ("GLP"), a privately held Texas limited liability company in a tax-free exchange. This interest was acquired solely for the issuance of 4,233,200 common shares. NOTE 4 - LINE OF CREDIT Quantum Group has an outstanding balance of $577,157 under its line of credit payable to a bank at September 30, 2001 with interest at the bank's prime rate or LIBOR plus 2.5% which expired on April 1, 2001. The line of credit is collateralized by substantially all of the company's assets, and is personally guaranteed by certain of the company's officers and stockholders. The line of credit agreement with the bank contains various covenants pertaining to maintenance of certain debt coverage and leverage ratios. In addition, the agreement restricted entrance into any merger or acquisition agreement without prior written consent of the bank. At September 30, 2001 the company was not in compliance with the covenants. Under the terms of the agreement, the bank may call the loan if the company is in violation of any restrictive covenant. NOTE 5 - PREFERRED STOCK OF SUBSIDIARY Quantum Group has two classes of preferred stock outstanding. Class B preferred stock has no dividend rights and an aggregate liquidation preference of $250,000. Class C preferred stock has total stated amount of $275,000. All of the Class C preferred stock has 8% cumulative dividend rights on the stated amount, which aggregates $275,000. Dividends on the Class C preferred stock were last declared and paid during the third quarter of 2000. CBQ, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 --------------------------------------------------------------- (Continued) NOTE 6 - DUE TO SHAREHOLDERS Due to shareholders at September 30, 2001 and December 31, 2000 consists of the following:
September 30, December 31, 2001 2000 --------------- -------------- Demand note payable, unsecured, with interest at 15%, payable monthly. Principal and accrued interest due on this note payable are subordinated to all bank debt. $ 50,000 $ 50,000 Advances, unsecured, non-interest bearing, due on demand 65,000 65,000 --------------- -------------- $ 115,000 $ 115,000 =============== ==============
NOTE 7 - STOCK OPTIONS The options have a five-year life and are currently exercisable. The following summarizes stock option activity during the nine months ended September 30, 2001 and year ended December 31, 2000:
Nine Months Ended Year Ended December 31, September 30, 2001 2000 ----------------------------- ------------------------------ Exercise Exercise Shares Price/Share Shares Price/Share ------------- -------------- -------------- -------------- Options outstanding, Beginning of period: 7,715,708 - 5,545,471 - Options granted 8,625,000 $0.25-$2.125 3,050,000 $1.00-$2.125 Options exercised - - (662,263) $2.125 Options canceled - - (217,500) $2.125 ------------- -------------- Options outstanding, End of period: 16,340,708 $1.00-$2.125 7,715,708 $1.00-$2.125 ============= ==============
Substantially all of the options are exercisable during five-year periods from the dates of grant. CBQ, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 --------------------------------------------------------------- (Continued) NOTE 8 - LONG-TERM DEBT Long-term debt at September 30, 2001 and December 31, 2000 consists of the following:
September 30, December 31, 2001 2000 --------------- -------------- Note payable, bank, with interest at 8.66%, payable in monthly installments of principal of $5,555 plus interest through April 30, 2003 $ 144,384 $ 166,294 Capital lease obligations, at interest rates ranging from 4.90% to 14.17%, payable in monthly installments of $3,461 through the maturity dates ranging from November 2000 to February 2004 - 34,753 Subordinated debenture due in monthly installments of 12% interest only until April 30, 2003; 13.5% beginning May 1, 2003; 14% beginning May 1, 2004 and continuing thereafter. Beginning May 1, 2002 monthly principal installments of $20,000 are due until maturity on April 30, 2006 1,200,000 1,200,000 Subordinated debenture due in monthly installments of 12% interest only until September 30, 2001; 13% beginning October 1, 2001; 14% beginning October 1, 2002 and continuing thereafter. Principal and any unpaid interest due at maturity date on October 1, 2005 500,000 500,000 Note payable, with interest of 10% payable in Quarterly installments of interest only. Principal and any unpaid interest due at maturity date on March 1, 2004 740,000 - --------------- -------------- 2,584,384 1,901,047 Less amounts due within one year 50,312 87,908 --------------- -------------- $ 2,534,072 $ 1,813,139 =============== ==============
CBQ, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 --------------------------------------------------------------- (Continued) NOTE 8 - LONG-TERM DEBT continued The following are maturities of long-term debt: Period Ending September 30, 2001 ---------------- 2001 $ 105,996 2002 314,300 2003 967,406 2004 240,000 2005 940,000 2006 - ---------------- $ 2,567,702 ================ NOTE 9 - LEASES The Company leases facilities and equipment under various capital and operating leases with expiration dates through 2004. Equipment capitalized under capital leases had fair market value of $73,000 as of April 1, 2000 (date of acquisition of the equipment and assumption of the related leases by the Company). Total rental expense for the Company for the years ended December 31, 2000 and 1999 was $153,106 and $159,045, respectively, including rent under month-to month leases. Net minimum rental commitments under all non-cancelable operating leases are as follows:
Capital Operating Year Ending December 31, Leases Leases Total --------------- --------------- -------------- 2001 $ 16,958 $ 123,354 $ 140,312 2002 11,804 106,304 118,108 2003 8,189 83,286 91,475 2004 1,869 63,882 65,751 --------------- --------------- -------------- Total minimum lease payments due 38,820 376,826 415,646 Less amounts representing interest (4,068) - (4,068) --------------- --------------- -------------- $ 34,752 $ 376,826 $ 411,578 =============== =============== ==============
CBQ, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 --------------------------------------------------------------- (Continued) NOTE 10 - CONTINGENCIES CBQ, Inc. had an agreement with a funding source to sell certain receivables with recourse. In the event of the customer's default the company must repurchase the receivables from the funding source. As of September 30, 2001, the company is contingently liable in the amount of $1,088,000 relating to such receivables sold with recourse. The Company is a defendant in several lawsuits. In the opinion of Company management, none of these lawsuits will have a material adverse impact on the Company's consolidated financial position, results of operations or cash flows. NOTE 11 - PREFERRED STOCK The Company has the option to call the preferred stock as follows: 7,000 shares at the greater of $10.00 per share or the traded market value of the preferred stock on or before October 23, 1999 21,000 shares at the greater of $10.715 per share or the traded market value of the preferred stock on or before October 23, 2000 42,000 shares at the greater of $11.905 per share or the traded market value of the preferred stock on or before October 23, 2001 70,000 shares at the greater of $12.50 per share or the traded market value of the preferred stock on or before October 23, 2002 NOTE 12 - COMMON STOCK During 2000, the Company settled liabilities of $923,398 in exchange for 1,658,920 shares of common stock. Item 2. Management's Discussion and Analysis or Plan of Operation This Quarterly Report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. Investors are cautioned that all forward-looking statements involve risks and uncertainty, including without limitation, the ability of the Company to continue its expansion strategy, changes in costs of raw materials, labor, and employee benefits, as well as general market conditions, competition and pricing. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements included in this Quarterly Report will prove to be accurate. In light of the significant uncertainties inherent in the forward- looking statements included herein, the inclusion of such information should not be regarded as a presentation by the Company or any other person that the objectives and plans of the Company will be achieved. As used herein the term "Company" refers to CBQ, Inc., a Colorado corporation and its predecessors and subsidiaries, unless the context indicates otherwise. Business of the Company and its Subsidiaries: CBQ exhibits core competency in the United States Information Technology software industry with offices in Arlington, Virginia and Miami, Florida and significant private industry and governmental relationships in the People's Republic of China. In January 2000, CBQ merged with ChinaSoft Inc., the private industry partner of the state-owned software development companies. CBQ may call on ChinaSoft's substantial programmer resources for contract software development or outsourcing. CBQ also works jointly with a privately owned China based software development and outsourcing company with English language expertise in both management and staff. These resources are capable of offering software services in virtually any programming language to the US. CBQ can deliver these services through software product offerings and outsourcing and/or project development, both in the US and in China. CBQ's lines of businesses include software development outsourcing, web development, custom software development, network systems integration and management. These lines of business are reflective of the Company's renewed focus on these business segments. The Company is in the process of attempting to identify and acquire favorable business opportunities. The Company has reviewed and evaluated a number of business ventures for possible acquisition or participation by the Company. Other than previously mentioned the Company has not entered into any agreement, nor does it have any commitment or understanding to enter into or become engaged in a transaction as of the date of this filing. The Company continues to investigate, review, and evaluate business opportunities as they become available and will seek to acquire or become engaged in business opportunities at such time as specific opportunities warrant. Plan of Operations CBQ, Inc. is pursuing a new business strategy based upon the Company acting as a sales organization with its information technology services, computer hardware reselling, and systems development work outsourced to strategic or teaming partners. This strategy is intended to allow the Company to attain profitability with substantially lower overhead and to exploit the business contacts of the Company with the minimal amount of resources. CBQ's new strategy has been necessitated in part by continuing losses in the Company's system development operations and a reduction in vendor financing available for the Company's IT services and reseller business. The Company has been forced by this recent downturn in business and reduction in vendor financing to reduce its overhead and consolidate operations. On September 15, 2001 the Company closed its operations in Hunt Valley, Maryland and laid off all 35 employees working at this location. The Company has and may continue to use some of the laid-off employees to work as temporary workers or independent contractors. The Hunt Valley operations had been losing approximately $250,000 per month during the third quarter of the year. Since September 15, 2001, all remaining Company operations have been consolidated with the Company's office at 1911 Ft. Myer Drive, Rosslyn, Virginia 22209. While the software market in the United States has softened considerably in 2001, CBQ, as a result of its ability to import low cost, high quality software services from China, is poised to become an even more important player in coming years. CBQ has developed connections in China in both the private and public sectors that will allow it to implement software solutions, build Web sites, manage databases, and provide supply chain management solutions for U.S. customers. Due to the deteriorating IT spending climate it will be imperative for U.S. companies to outsource software development and to use the most cost effective source of supply, which is now China. Companies that have been using India as a source of outsourced software will increasingly turn to China, which is 30% lower cost on the average than software programmers from India. In addition, IT hardware cost will continue to decline. In this climate the connections CBQ has in China that will allow the Company to import personal computers, laptop computers, and personal digital assistants will give the Company a major price advantage over its U.S. competitors. Networking and integration services will also continue to be in demand, and CBQ, in tandem with partners such as Lockheed-Martin and Verizon, will be a major player in the Mid-Atlantic market. Continuing Operations: The Company has had recurring losses during its development stage and during the short period in which it has been in operations. Management believes that the losses incurred in 2000 and 2001 will be abated in 2002, and will continue to pursue a two-track strategy to address the cash needs of CBQ--internal growth and acquisitions. The acquisition of EasySoft will strengthen the software capabilities of CBQ, and permit the marketing of its software development expertise on an ever-broadening scale. CBQ plans to develop a sustainable competitive advantage by outsourcing the majority of the programming labor to skilled software engineers located in China ("the China team") and India ("the India team"). The Company recorded a net loss from continuing operations of $542,017 for the nine months ended September 30, 2001. The company continues to refine its business model, acquisition philosophy, and marketing strategy in an effort to compete in the ever-changing technology industry. Capital Resources and Liquidity Liquidity for the company is primarily generated by issuance of common stock, stockholder loans and vendor financing. At September 30, 2001, the Company had total current assets of $345,000 and total assets of $1,233,000 as compared to $1,000 current assets and $72,000 total assets at December 31, 2000. The Company had a net working capital deficit of $932,000 and $792,000 at September 30, 2001 and December 31, 2000. Net stockholders' deficit in the Company was $3,104,000 and $3,059,000 as of September 30, 2001 and December 31, 2000. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS No material legal proceedings to which the Company (or any officer or director of the Company, or affiliate or owner of record or beneficially of more than five percent of the Common Stock, to management's knowledge) is a party or to which the property of the Company is subject is pending, and no such material proceeding is known by management of the Company to be contemplated. ITEM 2. CHANGES IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None/Not Applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS None/Not Applicable. ITEM 5. OTHER INFORMATION None/Not Applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS (b) Reports on Form 8-K. During the quarter ended September 30, 2001 there were no reports filed on Form 8-K SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, this 12th day of November, 2001. CBQ, Inc. /s/ Bart S. Fisher ------------------------ Bart S. Fisher Chairman, Chief Executive Officer and Chief Financial Officer November 12, 2001