UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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 SEPTEMBER 30, 2002
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
Commission File Number: 000-27243
COMMISSION FILE NUMBER
WORLDTEQ GROUP INTERNATIONAL, INC.
NEVADA 03-7392107
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION
NUMBER)
30 West Gude Drive, Suite 470, Rockville, MD 20850
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
240-403-2000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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Securities registration pursuant to Section 12(g) of the Act:
Common Stock, $0.001 Par Value OTC Bulletin Board
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(Title of Class)
ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
WORLDTEQ GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
September 30, December 31,
2002 2001
--------------- --------------
Assets (unaudited) (audited)
Current Assets
Cash $ 13,220 $ 50,545
Deposits 105,000 52,500
Accounts receivable 382,045 192,450
Other current assets 17,623 12,046
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Total Current Assets 517,888 307,541
--------------- --------------
Equipment 497,119 408,675
Accumulated depreciation (332,694) (300,252)
--------------- --------------
Net fixed assets 164,425 108,423
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Customer list 415,573
Accumulated amortization (34,631)
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Net other assets 380,942
---------------
Available for sale securities 30,000
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Total Assets $ 1,093,255 $ 415,964
=============== ==============
Current Liabilities
Accounts payable $ 581,797 $ 478,148
Accrued expenses 6,355 20,267
Deferred revenue 30,351 98,051
Note payable 98,750 148,797
--------------- --------------
Total Current Liabilities 717,252 745,263
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Long Term Liabilities
Note payable to shareholder 253,004 375,257
--------------- --------------
Total Long Term Liabilities 253,004 375,257
--------------- --------------
Stockholders' Equity
Convertible preferred stock, $.001 par value,
5,000,000 shares authorized, 1,115,533 shares
issued and outstanding, both periods 1,115 1,115
Common stock, $.001 par value, 100,000,000
shares authorized, 20,330,000 and 17,830,000
shares issued and outstanding 20,330 17,830
Paid in capital 19,875,956 19,556,789
Accumulated other comprehensive income 27,000
Retained deficit (19,801,402) (20,280,290)
--------------- --------------
Total Stockholders' Equity 122,999 (704,556)
--------------- --------------
Total Liabilities and Stockholders' Equity $ 1,093,255 $ 415,964
=============== ==============
WORLDTEQ GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(UNAUDITED)
-----------
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- --------------------------
2002 2001 2002 2001
------------ ----------- ------------ ------------
Sales $ 927,022 $ 779,032 $ 3,581,769 $ 2,615,994
Cost of sales 533,679 425,463 1,742,741 1,404,362
Selling expense 26,571 48,128 234,190 97,217
General & administrative 373,401 232,524 1,218,553 1,073,547
Bad debts 92,155 17,500 208,599 36,095
Depreciation 15,792 18,000 48,664 59,434
Amortization 34,631 34,631 35,900
Gain on sale of fixed asset (1,732) (1,732)
------------ ----------- ------------ ------------
Total operating expenses 1,074,497 741,615 3,485,646 2,706,555
------------ ----------- ------------ ------------
Income From Operations (147,475) 37,417 96,123 (90,561)
Other Income
Interest expense (9,069) (31,663) (15,071)
Gain on acquisition of
customer list 414,428 414,428
------------ ----------- ------------ ------------
Net Income 257,884 37,417 478,888 (105,632)
Other Comprehensive Income
Unrealized gain on
marketable securities 27,000 27,000
------------ ----------- ------------ ------------
Net comprehensive income $ 284,884 $ 37,417 $ 505,888 $ (105,632)
============ =========== ============ ============
Basic and diluted income
(loss) per share $ 0.01 $ 0.00 $ 0.03 $ (0.01)
Weighted average shares
outstanding 20,330,000 11,730,000 18,663,333 11,415,000
WORLDTEQ GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(UNAUDITED)
-----------
Nine Months Ended
September 30,
----------------------
Cash Flows Used in Operating Activities 2002 2001
---------- ----------
Net income (loss) $ 478,888 $(105,632)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 83,295 95,334
Bad debt expense 208,599 36,095
Gain on sale of equipment (1,732)
Gain on customer acquisition (414,428)
Changes in:
Accounts receivable (398,194) (566,186)
Other current assets (5,577) 23,926
Accounts payable 103,647 382,528
Accrued expenses (39,284)
Deferred revenue (67,700)
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Net Cash Used By Operating Activities (52,486) (133,935)
---------- ----------
Cash Flows Used In Investing Activities
Purchases of equipment (104,744) (40,593)
Proceeds from sale of fixed asset 1,813
Purchase of available for sale securities (3,000)
Purchase of customer list (1,145)
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Net Cash Used by Investing Activities (107,076) (40,593)
---------- ----------
Cash Flows Provided By Financing Activities
Proceeds from shareholder notes payable 129,528 194,286
Payments on shareholder note payable (95,207)
Shareholder contributions to capital 171,667
Payments on note payable (31,250)
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Net Cash Provided By Financing Activities 174,738 194,286
---------- ----------
Net Change In Cash 15,176 19,758
Cash - beginning of period 103,045 22,758
---------- ----------
Cash - end of period $ 118,221 $ 42,516
========== ==========
ITEM 2 - MANAGEMENT'S DISCUSSION & ANALYSIS
-------------------------------------------
The following discussion and analysis of the financial condition and results of
operations should be read in conjunction with the financial statements, related
notes, and other detailed information included elsewhere in this Form 10-QSB.
Certain information contained below and elsewhere in this Form 10-QSB, including
information regarding our plans and strategy for our business, are
forward-looking statements. See "Note Regarding Forward-Looking Statements."
This Quarterly Report on Form 10-QSB 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. Forward-looking
statements are statements other than historical information or statements of
current condition. Some forward-looking statements may be identified by use of
terms such as "believes", "anticipates", "intends", or "expects". These
forward-looking statements relate to our plans, objectives and expectations for
future operations and growth. Other forward-looking statements in this Form
10-QSB include statements regarding synergies and growth expected as a result of
future acquisitions, expected growth in earnings, EBITDA, revenue and gross
margin, expected decreases in operating expenses, our expectation regarding our
ability to consummate future acquisitions. In light of the risks and
uncertainties inherent in all such projected operational matters, the inclusion
of forward-looking statements in this Form 10-QSB should not be regarded as a
representation by us or any other person that any of our objectives or plans
will be achieved or that any of our operating expectations will be realized. Our
revenues and results of operations are difficult to forecast and could differ
materially from those projected in the forward-looking statements contained in
this Form 10-QSB as a result of certain risks and uncertainties including, but
not limited to, our business reliance on third parties to provide us with
technology, infrastructure and content, our ability to integrate and manage
acquired technology, assets, companies and personnel, changes in market
conditions, the volatile and intensely competitive environment in the
telecommunications and Internet industries, the availability of transmission
facilities, dependence on call termination agreements, entry into new and
developing markets, risks associated with the international telecommunications
industry, customer concentration and attrition, dependence on a few significant
foreign and domestic customers and suppliers, international economic and
political instability, dependence on effective billing and information systems,
rapid technological change, the risk of litigation in connection with the
contents of our Web based systems, and our dependence on key employees in a
competitive market for skilled personnel. These factors should not be considered
complete; we undertake no obligation to release publicly the results of any
future revisions we may make to forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
RECENT DEVELOPMENTS
During the quarter we signed several new agent contracts, upgraded and enhanced
and our centralized infrastructure to properly service our increased customer
requirements, upgraded our internal billing systems, and implemented a program
to direct FCC licenses. We enhanced our facilities to enable our services
integration capabilities with Private Debit Card programs and Master Card
platforms. We filed suit in Montgomery County Maryland against St. Andrews
Telecommunications, Inc., for fraud in our transaction and won a default
judgment for $2,400,000, however they have declared bankruptcy and the judgment
has been stayed. We closed our sales office in Ohio and centralized our
resources in a single office and we moved to a new corporate headquarters in
Maryland. In August we were notified by our CEO that he had been indicted by the
Federal Government, however the company has not been named in the indictment nor
received notice from any agency concerning its involvement whatsoever.
RESULTS OF OPERATIONS
Total sales for the nine months ended September 30, 2002 were $3,581,769, for an
increase of $965,775 or 27% over the same 9 months ended September 30, 2001.
Profits increased from a net loss of ($105,632) to net profit $478,888 over the
same 9 months ended September 30, 2001. Gross margins including sales expenses
increased from 42.6% to 44.8% over the same 9 months ended September 30, 2001.
These increases were primarily due to our successful sales efforts, the
launching of several new product lines and the increase in our customer base and
agent group.
Cost of sales as a percentage of revenue has dropped to 48.66% of sales compared
to 53.68% of sales during the same 9 month period in 2001. General and
administrative decreased to 34% of sales from 41% of sales over the same 9
months ended September 30, 2001. Net profit margins increased to 13.7% from a
negative 3.9% during the comparable 9 month period. We achieved a net profit of
$478,888 or $.03 per share compared to a net loss of ($105,632) or $(.01) per
share during the same nine months ended September 30, 2001. These results were
due to our lower telecommunications costs directly related to our increased
revenue volume as we now have direct carrier relationships and a one time gain
on our acquisition of the St. Andrews customer list. Although expenses
increased, revenues increased at a greater percentage, resulting in the increase
in net profit.
Selling expenses were $26,571 for the three months ended September 30, 2002
versus $48,128 in the same period ended September 30, 2001. This change was due
to decreases in commissions paid to our agents and affinity groups. A reseller
of one of our Master agents was including our products in an unauthorized bundle
and we choose to refund end users and reduce commissions to the Master Agent.
Due to this decision we incurred $92,155 in bad debt during the 3 months ended
September 30, 2002.
General and administrative expenses increased 38% to $373,401 from $232,524 for
the three months ended September 30, respectively; this was primarily due to
operating and legal expenses incurred for several contract negotiations and
potential acquisition candidates and our desire to register our licenses in each
area of the United States. Our focus on cost containment and reducing unneeded
expenses aided us in limiting the increase of these expenses.
During the 3 month period ended September 30, 2002, we achieved a net profit of
$257,884 or $.01 per share as compared to a net profit of $37,417 or $.00 per
share during the same 3 month period ended September 30, 2001. This is the
second quarter in a row we achieved a net profit.
Earnings Before Interest, Depreciation, Taxes and Amortization (EBITDA) for the
nine month period ended September 30, 2002, was $593,846, compared to the nine
month period ended September 30, 2001, which was $4,773. EBITDA for the three
months ended September 30, 2002 was $317,376 versus $55,417 for the three months
ended September 30, 2001. Although EBITDA is not a GAAP measure and our EBITDA
may not be comparable to similarly titled measures reported by other companies,
many securities analysts use the measure of earnings before deducting interest,
taxes, depreciation and amortization, also commonly referred to as EBITDA, as a
way of evaluating telecommunications companies and other companies that have
inherently high initial capital investment requirements. Normally
telecommunications companies experience high initial capital investments due to
the expenses incurred in developing their network of switches, securing
interconnection agreements, and meeting regulatory requirements.
We believe our increasing sales volume and the results of our cost containment
efforts will continue to produce increased profits in the remainder of 2002.
FINANCIAL CONDITION; LIQUIDITY AND FINANCIAL RESOURCES
During 2001 we eliminated non-productive assets and pared down our workforce to
reduce overhead. Except for shareholder loans we have no long-term debt and due
to a shareholder providing funding and then converting it to equity our cash
flow was positive in the third quarter and has been for the entire first 9
months of 2002. We believe we will remain that way for the balance of the year.
For the nine month period ended September 30, 2002, we had positive cash flows
in the amount of $15,175.
Net cash provided by operating activities for 9 months ended September 30, 2002
was ($52,487). The negative cash provided by operating activities was primarily
attributable to expenses incurred in acquisition costs related to St. Andrews
and several other candidates the company is presently negotiating with. Net
financing activities provided $174,738. Investing activities used $107,076 to
finance computer equipment to enhance our overall infrastructure and ensure
quality, uninterrupted service to our customers.
Cash at end of September 2002 amounted to $118,220, an increase of $15,175 since
fiscal year end 2001. Our current assets for September 30, 2002 are lower than
our current liabilities by $199,364. Included in our current liabilities is
approximately $54,000 of disputed amounts that we feel confident will be
adjusted in our favor because we did not receive services we contracted for and
$98,750 in shareholder notes payable. Our commitments for capital expenditures
as of September 30, 2002 were $65,000; the purpose of the commitment was to
integrate our billing and customer service system with a very large credit card
processor for inclusion of our products on their credit cards.
We believe our current cash position at September 30, 2002 of $118,220 is
sufficient along with anticipated operating cash flow to fund our operations for
the next 12 months. We need an additional $3,000,000 to fund our planned
expansion activities in the next 12 months as follows:
We contemplate acquiring selected assets of smaller competitors around the
country and centralizing all of their operations, thereby increasing revenue and
profitability. The target acquisitions would include Long Distance resellers,
Internet Service Providers, Web site hosting companies, and calling card
providers. We contemplate increasing our deployment of Voice Over Internet
Protocol services as we believe this is the future of small business
communications allowing them to take advantage of the cost savings and
integration of voice and data. The balance of the funds would be earmarked to
assist the company in its goal to obtain NASDAQ small cap trading approval.
We currently have no source of this funding identified.
We believe the balance of 2002 will be a cash flow positive year, as our
customer base has now reached a greater than break-even point in monthly cash
inflows. Our customer base continues to grow each month, and we believe is
diverse enough to avoid sudden interruptions from cancellation by any single
customer. Our billing system takes advance credit card payments and ACH debits.
We are not dependent on any specific future events to maintain a profitable 2002
year.
PART II.
--------
Item 3. Legal Proceedings
--------------------------
We have filed a civil complaint in the Circuit Court For Montgomery County
Maryland against St. Andrews Telecommunications for Breach of Contract and
Fraudulent Inducement as it relates to the company's selected asset purchase in
May 2002. A default judgment was entered in our favor in October however St.
Andrews has since filed for bankruptcy protection, which in turn stayed our
judgment. The company has deposited 1,500,000 shares of restricted stock, as per
the acquisition documents, in a third party escrow account to be held pending
outcome of our pending law suit. We intend to pursue the officers and directors
of St. Andrews on a personal basis and the insurance policy we believe is in
place. The default judgment included punitive damages and brought the total
judgment to $2,400,000, See Note 2 to the financial statements for the financial
impact of this result.
We are unable at this time to predict the outcome of this litigation. We do not
believe that an adverse outcome would have a material negative effect upon our
financial condition.
Item 5. Other information
As previously disclosed, in August our CEO informed us that he had been indicted
by the Federal Government in the Southern District of Florida. Mr. Bertman
denies the allegations and intends to vigorously defend himself. The company was
not involved in any allegations of the complaint and has received no notice from
any competent agency requesting information of any kind concerning this
litigation.
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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.
WORLDTEQ GROUP INTERNATIONAL INCORPORATED
(Registrant)
Date: November 4, 2002
By:/S/ Bruce Bertman
-------------------------------------
(Signature)
Name: Bruce Bertman
Title: President,
Chief Executive Officer
STATEMENT UNDER OATH OF PRINCIPAL FINANCIAL OFFICER REGARDING FACTS AND
CIRCUMSTANCES RELATING TO EXCHANGE ACT FILINGS.
I, Amy Toms, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of WorldTeq Group
International;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 4, 2002
/s/
Amy Toms
Principal Financial Officer
STATEMENT UNDER OATH OF PRINCIPAL EXECUTIVE OFFICER REGARDING FACTS AND
CIRCUMSTANCES RELATING TO EXCHANGE ACT FILINGS.
I, Bruce Bertman, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of WorldTeq Group
International;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 4, 2002
/s/
Bruce Bertman
Chief Executive Officer
CERTIFICATIONS PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of WorldTeq Group International, Inc.
("WorldTeq") on Form 10-QSB for the period ending September 30, 2002, as filed
with the Securities and Exchange Commission on the date hereof (the
"Report"), the undersigned, Chief Executive Officer of WorldTeq, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 3(a) or 15(d) of
the Securities and Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of WorldTeq.
By:
/s/ Bruce Bertman
Chief Executive Officer
November 4, 2002
CERTIFICATIONS PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of WorldTeq Group International, Inc.
("WorldTeq") on Form 10-QSB for the period ending September 30, 2002, as filed
with the Securities and Exchange Commission on the date hereof (the
"Report"), the undersigned, Principal Financial Officer of WorldTeq, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 3(a) or 15(d) of
the Securities and Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of WorldTeq.
By:
/s/ Amy Toms
Principal Financial Officer
November 4, 2002