-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AMe08I50Vw3bFZqvL82h0zNYm4pNfOlDvyPRu3zZfn6rWFUnJUKM8DaqHYzqRxK9 5Qs1f+PivaXO49SqDl29Kw== 0001015402-02-002230.txt : 20020701 0001015402-02-002230.hdr.sgml : 20020701 20020701130534 ACCESSION NUMBER: 0001015402-02-002230 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20020701 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUMMIT NATIONAL CONSOLIDATION GROUP INC CENTRAL INDEX KEY: 0001086474 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SPECIALTY OUTPATIENT FACILITIES, NEC [8093] IRS NUMBER: 760544385 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-26111 FILM NUMBER: 02693114 BUSINESS ADDRESS: STREET 1: 10497 TOWN & COUNTRY WAY STREET 2: SUITE 460 CITY: HOUSTON STATE: TX ZIP: 77024 BUSINESS PHONE: 7135542244 MAIL ADDRESS: STREET 1: 3011 ISABELLA STREET 2: SUITE B CITY: HOUSTON STATE: TX ZIP: 77004 FORMER COMPANY: FORMER CONFORMED NAME: COMTECH CONSOLIDATION GROUP INC/DE DATE OF NAME CHANGE: 19990513 10KSB 1 doc1.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 Commission File No. 000-26111 SUMMIT NATIONAL CONSOLIDATION GROUP, INC. Delaware 76-0544385 3011 Isabella, Suite B Houston, TX 77004 (713) 554-2244 Securities registered under Section 12 (b) of the Exchange Act: NONE Securities registered under to Section 12(g) of the Exchange Act: Common Stock (Title of class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X NO --- --- Check if disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to be best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. X --- Issuer's revenues for its most recent fiscal year: $1,291,799 ---------- State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such stock, as of a specified date within the past 60 days: As of December 31, 2000: $1,862,387. ---------- State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of December 31, 2000, they were 37,247,730 shares of the Company's common stock issued and outstanding. Documents Incorporated by Reference: None TABLE OF CONTENTS FORM 10 - KSB ANNUAL REPORT SUMMIT NATIONAL CONSOLIDATION GROUP, INC. PAGE Facing Page Index PART I. Item 1. Description of Business 3 Item 2. Description of Property 5 Item 3. Legal Proceedings 5 Item 4. Submission of Matters to a Vote of Security Holders 5 PART II. Item 5. Market for the Registrant's Common Equity And Related Stockholder Matters 5 Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 Item 7. Financial Statements 7 Item 8. Changes in and Disagreements on Accounting and Financial Disclosures 7 PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16 (a) of The Exchange Act 7 Item 10. Executive Compensation 8 Item 11. Security Ownership of Certain Beneficial Owners And Management 9 Item 12. Certain Relationships and Related Transactions 9 PART IV Item 13. Exhibits 9 SIGNATURES 29 2 PART I ITEM 1. DESCRIPTION OF BUSINESS (Summit or the Company) is a Houston; Texas based Consolidation Company that is focused on acquiring and building businesses. We were incorporated in Delaware in 1987 under the name Vending, Inc. We changed our name to ComTech Consolidation Group, Inc. in May 1997 and to Summit National Consolidation Group, Inc., symbol (SMNC) in November 2001. Summit National Consolidation Group, Inc., f/k/a (ComTech Consolidation Summit Group, Inc.) was incorporated on July 13, 1987 under the laws of the State of Delaware, to engage in any lawful corporate undertaking, including but not limited to selected mergers and acquisitions. The Company had been in the development stage from inception until August 12, 1997, at which time it acquired all of the capital stock of Networks On-Line, Inc., a network integrator and Internet service provider and began operations under its business plan. Networks On-Line, Inc. provides Internet access services to individuals and businesses in the Houston, Texas area and provides website hosting and Internet consulting on a nationwide basis. The Company business is the acquisition and consolidation of the business operations of small companies. It combines these small entities into larger organizations that can take advantage of their collective size and achieve economies of scale. To date the Company has acquired and was consolidating business operations in two industries, Internet services and Healthcare. In January of 1998, the Company formed a new wholly owned subsidiary named EISP Corporation (Enhanced Internet Service Provider), a Texas corporation. EISP's mission was to develop market enhanced Internet services, i.e. video teleconferencing, faxing to be bundled with its standard Internet services. The Company transferred ownership of Networks On-Line, Inc. to EISP Corporation, creating a full Network services division. In February of 1998, the Company acquired Professional Management Providers, Inc. (PMP), a Baton Rouge, Louisiana based corporation. PMP is a management consulting company for home health care providers, with customers located in Texas and Louisiana. PMP was established as a subsidiary holding company for acquisitions of home health care agencies. During 1998, PMP made a significant amount of acquisitions with annualized revenues of approximately $17 million. In April 1998, the Company acquired Unique Dawning, Inc. (UDI), a Texas corporation. UDI, headquartered in Houston, operated specialized health care center (partial hospitals) providing services to outpatients, with centers located in Texas and Louisiana. UDI was established as a subsidiary holding company for acquisitions of partial hospitals. Summit was originally in the business of growing sales revenues and earnings through consolidation (acquisition) of privately held operating entities under its two tier corporate holding structure. As acquisitions were made, the Company formed a Subsidiary Holding Company, specifically structured as a financing vehicle to fund ongoing expansion around the business initially acquired. This two tier corporate holding structure was established to provide a means of raising operating capital without dilution to the Company 3 shareholders. It also allowed the Subsidiary Holding Company to develop its own market identity, separate and apart from that of the Company. The objective of this system was to continue to grow the business of its Subsidiary Holding Company, thereby increasing sales revenue and earnings. In summary, Summit was a holding company that had developed a strategy that: - Enhances the values of its assets (equity in Subsidiary Holding Companies). - Provides management with incentives to continue to grow the businesses. - Provides management with the corporate structure to obtain ongoing growth. In second quarter of 1999, Summit decided to abandon the Subsidiary Holding Company concept because of its lack of control over the Subsidiary Holding Companies. The Company did not realize how much control it had actually lost until it tried to change its method of managing the day-to-day operations of the company. In doing so, the Company lost a significant amount of operations in the health care division. In July 1999, the Company lost seven of the eight operating health care facilities of PMP. The only surviving operating health care entity of PMP was A-1 Bayou, a home health care agency located in Jeanerette, Louisiana. In late 1999, the Board of Directors of Summit voted to transfer the ownership of A-1 Bayou directly to Summit. In September 1999, the Company closed four of the five operate facilities of UDI. As of December 1999, Summit has only three operating subsidiaries, one engaged in health care and two engaged in Internet related businesses. These entities generate approximately $2 million in annual revenues. Due to the significant management problems noted in 1999, the Company has changed its method of managing it subsidiaries. Summit, the holding company, now directly managed the financial and administrative operations of all of its subsidiaries. VISION/MISSION In early 2000, the new management team of Summit decided to refocus the Company to take advantage of the tremendous growth of the Internet. The fact that Summit already owns NOL and EISP (Internet service providers) makes this move even easier. Summit will play a major role in the technology arena and will grow rapidly by acquisitions. Management feels that by changing the direction of the Company to focus purely on technology related companies; Summit will be opening the door to endless business possibilities. MARKET ANALYSIS The multi-billion dollar U.S. Internet industry is currently going through a massive restructuring, which is creating virtually unlimited acquisition and merger possibilities. Opportunities for Internet and technology firms abound, our Internet companies will be key to our move toward growth and expansion in technology related industries. MARKETING PLAN The Company intends to implement a cost-effective marketing strategy through a process of developing a public relations campaign to take advantage of the opportunities that will be presented by the move to become a pure player technology company. 4 FINANCIAL PLAN Management's goals are to increase revenues and shareholder value through acquisitions. Summit will attempt to secure relationships with Investment Banking firms to assist with capital needs. Summit will prepare an SB-2 filing to register stock to facilitate acquisitions and private placement of stock as well as fund an Employee Stock Option Plan. COMPETITION The market for the company's Internet products is highly competitive, and Summit expects this competition to increase. Many of the Company's competitors have significantly greater research and development, marketing and financial resources than the Company, and therefore, represent significant competition. The Company believes that the primary competitive factors in the market for the Company's services are price, performance and technical support. ITEM 2. DESCRIPTION OF PROPERTY The Company leases a total of approximately 1,500 square feet of office space for the Company's headquarters. The Company's headquarters is located at 3011 Isabella, Suite B, Houston, Texas. In addition, the Company leases approximately 2,000 square feet of space for its health care operations in Louisiana. ITEM 3. LEGAL PROCEEDINGS As noted in the notes to the (note 12) Company's financial statements, the Company had been involved in a significant amount of legal proceeding during 2000. A significant amount of litigation, both filed and threatened, is pending against the Company. Almost all of the claims were incurred in the acquisition and operations of health care facilities located in Louisiana and Texas. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the fourth quarter of 2000. PART III ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The Company's common stock was traded on the OTC Bulletin Board under the symbol "SMNC" until September 7, 2000 when it was removed from the Bulletin Board and placed to the "pink sheets". The Company' authorized capital stock consist of 100,000,000 shares of common stock, $.00967 par value, of which 37,248,730 shares were issued and outstanding as of December 31, 2000 and 1,000,000 shares of preferred stock, $.01 par value, of which 31,046 shares were issued and outstanding. As of December 31, 2000, the approximate number of holders of record of the common stock of the Company was 4,000. 5 The Company has never paid any cash dividends in the past and anticipates that for the foreseeable future all earnings, if any, will be retained to finance growth and to meet working capital requirements. ITEM 6. MANAGEMENT 'S DISCUSSION AND ANALYSIS OF FINANCIAL CONITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS BEFORE EXTRAORDINARY LOSSES: 2000 COMPAREDTO 1999 Total revenues for 2000 of $1,291,799 represents a decrease of $8,160,282 from revenues of $9,452,081 in 1999. This decrease is due to discontinuation of several of the health care subsidiaries in Louisiana and two health care subsidiaries in Houston and declining sales of the Internet service provider networks on-line. The Company reported a net loss before extraordinary items of $1,809,734 in 2000 as compared to net loss of $3,091,578 in 1999. Operational expenses decrease by 60% as a result of discontinued healthcare operations. FUTURE OPERATIONS As noted in the description of the business section of the document, management has changed the focus of the Company to pursue the technology industry with emphasis on Internet related businesses. The Company intends to acquire Internet related companies by issuing shares of the Company's stock after a secondary offering. As of the date of this report, management of the Company has had preliminary discussions with potential merger or acquisition candidates, but there is no definitive agreement between the Company and any merger candidates. In the event the Company does enter into an agreement with such a third party, the new Board of Directors does intend to obtain certain assurances of the value of the target entity assets prior to consummating such a transaction. Current management has established a due diligence team to ascertain that the mistakes of the past will never happen again. LIQUIDITY AND CAPITAL RESOURCES The Company's current assets represented 12% of current liabilities at December 31, 2000 as compared to 15% at December 31, 1999. Current liabilities exceeded current assets by $1,301,388 at December 31, 2000. At December 31, 2000, the Company primarily had two operational subsidiaries: one health care subsidiary located in Louisiana and one Internet Service Provider located in Houston, Texas. The net income from these operations is not sufficient to support corporate expenses and pay current liabilities. Based on this liquidity problem, the Company's external auditors' report on the 2000 consolidated financial statements included a fourth paragraph noting a going concern problem. Based on discussions with the external auditors, if the Company is able to resolve this problem by obtaining additional equity funding, the auditors are willing to review the Company's current situation and if conditions have improved, the firm is willing to reissue their report without noting the going concern problem. Management believes that actions presently being taken to obtain additional equity financing through a secondary offering and pursuing acquisitions and increasing sales in the technology sector will provide the Company the opportunity to continue as a going concern. 6 ITEM 7. FINANCIAL STATEMENTS The Company's Consolidated Financial Statements, Notes to Consolidated Financial Statements and the report of R. E. Bassie & Co. independent auditors, with respect thereto, referred to in the Index to Financial Statements, appear elsewhere in this Form 10-KSB. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth information concerning executive officers and directors of the Company, including their ages and positions with the Company as of July 13, 2001. MANAGEMENT Name Age Position - -------------------- ---- ------------------------------------------------- Walter D. Davis 49 Chairman of the Board, President, Chief Executive Officer and Director Lamont Waddell 58 Chief Financial Officer and Director Vincent E. Alexander 39 Director and Chairman of the Audit Committee Beatrice Beasley 56 Director and Chairman of the Compensation Committee Jesse Funchess 70 Director Walter D. Davis, 49, has been chairman of the board and the chief executive officer/president of Summit since 1/20/00. He served as the chief financial officer from 9/1/99-1/20/00. He formerly served as trustee on the Houston Municipal Pension Board. Lamont Waddell, 58, is a director and has been the Chief Financial Officer since 1/20/00. He formerly served as comptroller of Summit from October 1, 1999 to January 20, 2000, and prior to that he was the Vice President of Finance/Human Resource/Comptroller of the Faro Pharmaceutical Corp. Vincent E. Alexander, 39, serves as director and chair of the audit committee. He was elected to the board in 12/99. He is a financial officer of the Infinity Brokerage Corporation. He is also a member of the greater Houston partnership. Dr. Beatrice Beasley, 56, has been a member of the board since 1/20/00 and the chair of the compensation committee. She is a tenured professor at Texas Southern University and is president of Beasley & Associates, a business training and consulting firm. Dr. Beasley also serves on the board of the Harris County Children's Protective Services Agency. Attorney Jesse Funchess, 70, was elected to the board in 2/00. He is managing partner of Jesse Funchess & Associates Attorneys at Law in Houston and Beaumont, 7 Texas. Attorney Funchess is also the Chairman of the board of the South Central Houston Community Action Council, Inc. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors, executive officers and persons who own more than five percent of a registered class of the Company's equity securities, to file with the Securities and Exchange Commission (the SEC) initial reports of ownership and reports changes in ownership of Common Stock and other equity securities of the Company. Officers, directors and greater than ten-percent beneficial owners are required by SEC regulation to furnish the Company with copies of all Section 16(a) reports they file. The Company is in compliance. ITEM 10. EXECUTIVE COMPENSATION SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION Name and Annual Principal Position Year Compensation - ----------------------- ------ ------------ Walter Davis 2000 $ 120,000 Chief Executive Officer Lamont Waddell 2000 $ 95,000 Chief Financial Officer OPTION GRANTS IN LAST FISCAL YEAR None FISCAL YEAR-END OPTION VALUES None DIRECTORS REMUNERATION In 2000 Directors were paid a fee for servicing the board. The amount of the fee was $250 for each meeting. There were 12 meetings. Name and Annual Principal Position Year Compensation - ----------------------------- ---- ------------- Vincent E. Alexander 2000 $ 3,000 Director and Chairman of the Audit Committee Beatrice Beasley 2000 $ 3,000 Director and Chairman of the Compensation Committee 8 Jesse Funchess 2000 $ 3,000 Director ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth as of December 31, 2000, information with respect to (a) each person (including "group" as that term is used in section 13(d)(3) of the Securities Exchange Act of 1934 who is known to the Company to be the beneficial owner of more than five percent (5%) of the outstanding Common Stock of the Company and (b) the number and percentage of the Company's Common Stock owned by (i) each of the directors and the executive officers named on the Summary Compensation Table above and (ii) all directors and executive officers of the Company as a group. The Company believes that, unless otherwise indicated, each of the shareholders has sole voting and investment power with respect to the shares beneficially owned. CLASS NAME AND ADDRESS AMOUNT PERCENT - ------ -------------------------------------------- ---------- -------- Common Arlie Enterprise, Inc 1,363,619 6.2% 11500 NE 76th St., A3#66 Vancouver, WA 98662 Common Dorothy M. Stewart 1,366,000 6.2% 1143 Bayou Island Drive Houston, TX 77063 Common Officers and Directors 53,600 0.2% (One Officer) The balance of the Company's outstanding Common Shares is held by approximately 4,000 persons. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Related transactions are noted in the Company's Consolidated Financial Statements and Notes to the Consolidated Financial Statements. ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 1) Documents filed as part of the report: 1) The financial statements filed as part of this report are listed separately in the Index to Financial Statements. 9 SUMMIT NATIONAL CONSOLIDATION GROUP, INC. AND SUBSIDIARIES INDEX Independent Auditors' Report Consolidated Financial Statements: Balance Sheets - December 31, 2000 and 1999 Statements of Operations - Years ended December 31, 2000 and 1999 Statements of Stockholders' Equity - Years ended December 31, 2000 and 1999 Statements of Cash Flows - Years ended December 31, 2000 and 1999 Notes to Consolidated Financial Statements 10 R. E. BASSIE & CO. CERTIFIED PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- SUMMIT NATIONAL CONSOLIDATION GROUP, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 (WITH INDEPENDENT AUDITORS' REPORT THEREON) 11 R. E. BASSIE & CO. CERTIFIED PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- 6776 Southwest Freeway, Suite 580 Houston, Texas 77074-2115 Tel: (713) 266-0691 Fax: (713) 266-0692 E-Mail: Rebassie@aol.com INDEPENDENT AUDITORS' REPORT ---------------------------- The Board of Directors Summit National Consolidation Group, Inc.: We have audited the consolidated balance sheets of Summit National Consolidation Group, Inc. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Summit National Consolidation Group, Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for the two-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. As shown in the consolidated financial statements, the Company incurred a net loss of $1,809,734 in 2000. At December 31, 2000, current liabilities exceed current assets by $1,301,388. These factors, and others discussed in Note 14, raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence. /s/ R. E. Bassie & Co. Houston, Texas July 13, 2001, except with respect to Note 15, to which the date is November 20, 2001 12
SUMMIT NATIONAL CONSOLIDATION GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2000 and 1999 Assets ------ 2000 1999 --------------- --------------- Current assets: Cash $ 24,936 $ 21,710 Accounts receivable, less allowances for contractual adjustments and doubtful accounts of $16,000 at December 31, 2000 and $1,000 at December 31, 1999 136,945 110,007 Prepaid expenses 9,095 - --------------- --------------- Total current assets 170,976 131,717 --------------- --------------- Note receivable - 20,000 Property and equipment, net of accumulated depreciation and amortization (note 4) 134,226 146,014 Excess of cost over net assets of businesses acquired, less accumulated amortization of $25,000 at December 31, 2000 and $34,000 at December 31, 1999 (note 15) 175,000 646,000 Other assets - 4,340 --------------- --------------- Total assets $ 480,202 $ 948,071 =============== =============== Liabilities and Stockholders' Equity ------------------------------------ Current liabilities: Accounts payable and accrued expenses 936,447 659,874 Accrued salaries and related liabilities 167,487 131,686 Notes payable to related party 53,725 10,000 Current installments of long-term debt (notes 5 and 15) 314,705 63,220 --------------- --------------- Total current liabilities 1,472,364 864,780 Long-term debt, less current installments (notes 5 and 15) 282,291 545,114 --------------- --------------- Total liabilities 1,754,655 1,409,894 --------------- --------------- Stockholders' equity (notes 2, 3, 6, 8, 12, 14 and 15): Preferred stock, $.01 par value. Authorized 1,000,000 shares: issued and outstanding, 13,565 at December 31, 2000 and 31,028 at December 31, 1999, 8% cumulative and convertible 135 310 Common stock, $.00967 par value. Authorized 100,000,000 shares: issued and outstanding, 37,248,730 shares at December 31, 2000 and 22,077,072 at December 31, 1999 (note 16) 360,195 213,485 Additional paid-in capital 2,875,375 2,024,806 Retained earnings (deficit) (4,510,158) (2,700,424) --------------- --------------- Total stockholders' equity (deficit) (1,274,453) (461,823) Commitments and contingent liabilities (notes 6, 8, 9, 11, 13, 14 and 15) --------------- --------------- Total liabilities and stockholders' equity $ 480,202 $ 948,071 =============== =============== See accompanying notes to consolidated financial statements.
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SUMMIT NATIONAL CONSOLIDATION GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Years ended December 31, 2000 and 1999 2000 1999 -------------------- -------------------- Revenues: Net patient service revenue $ 778,962 $ 8,861,052 Internet service revenue 512,837 591,029 -------------------- -------------------- Total revenues 1,291,799 9,452,081 -------------------- -------------------- Operating expenses: Health care operations 799,273 7,953,888 Internet operations 507,820 578,323 Corporate operations 1,296,423 1,221,083 Loss on disposal of subsidiaries (note 13) - 2,727,640 Impairment expense 451,000 - Amortization 20,000 25,996 Depreciation 23,983 25,715 -------------------- -------------------- Total operating expenses 3,098,499 12,532,645 -------------------- -------------------- Operating loss (1,806,700) (3,080,564) Other expenses - interest expense (3,034) (11,014) -------------------- -------------------- Net loss $ (1,809,734) $ (3,091,578) ==================== ==================== Earnings (loss) per share: Basic $ (0.06) $ (0.15) ==================== ==================== Diluted $ (0.06) $ (0.13) ==================== ==================== Weighted average common shares: Basic 28,902,393 19,954,922 ==================== ==================== Diluted 31,760,839 24,634,045 ==================== ==================== See accompanying notes to consolidated financial statements.
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SUMMIT NATIONAL CONSOLIDATION GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 2000 and 1999 2000 1999 ------------------ ----------------- Cash flows from operating activities: Net loss $ (1,809,734) $ (3,091,578) Adjustments to reconcile net loss from continuing operations to net cash provided by (used in) operating activities: Depreciation and amortization of property and equipment 23,983 25,715 Amortization of excess of cost over net assets of businesses acquired 20,000 25,966 Impairment expense (note 15) 451,000 - Loss on disposition of subsidiaries - 2,727,640 Bad debt expense - 86,000 Stock issued for various services 565,301 366,221 Write-off of note receivable 20,000 - Loss on disposition of equipment - 2,963 (Increase) decrease in operating assets: Accounts receivable (26,938) (667,749) Prepaid expenses (9,095) 25,953 Other assets 4,340 74,837 Increase (decrease) in operating liabilities: Accounts payable and accrued expenses 424,373 495,621 Accrued salaries and related liabilities 35,801 (314,393) ------------------ ----------------- Net cash used in operating activities (300,969) (242,804) ------------------ ----------------- Cash flows from investing activities: Purchase of property and equipment (12,195) (11,647) ------------------ ----------------- Net cash used in investing activities (12,195) (11,647) ------------------ ----------------- Cash flows from financing activities: Proceeds from issuance of shares under private placement 284,003 129,125 Proceeds from short-term note payable to related party 43,725 10,000 Principal payments on long-term debt (11,338) (13,588) ------------------ ----------------- Net cash provided by financing activities 316,390 125,537 ------------------ ----------------- Net increase (decrease) in cash 3,226 (128,914) Cash at beginning of year 21,710 150,624 ------------------ ----------------- Cash at end of year $ 24,936 $ 21,710 ================== ================= Supplemental schedule of cash flow information: Interest paid $ 3,034 $ 11,014 ================== ================= See accompanying notes to consolidated financial statements.
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SUMMIT NATIONAL CONSOLIDATION GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years ended December 31, 2000 and 1999 Additional Retained Preferred Stock Common Stock paid-in earnings shares amount shares amount capital (deficit) -------- ------------- ----------- ------------ ------------- ------------- Balance, December 31, 1998 32,450 324 16,970,849 $ 164,108 $ 1,033,393 $ 443,954 Issuance of shares for acquisitions 3,500 35 - - 62,166 - Issuance of shares under private placement (note 3) - - 645,625 6,243 122,882 - Issuance of shares for retirement of debt (note 3) - - 1,251,995 12,108 238,291 - Conversion of debentures for shares (note 9) - - 1,223,789 11,834 183,166 - Issuance of shares for investor relations 1,478 15 374,600 3,622 300,174 - Issuance of shares for services (note 3) - - 183,600 1,775 45,665 - Conversion of preferred shares for common shares (note 6) (6,400) (64) 1,530,222 14,797 (14,733) - Issuance of common shares for preferred stock dividends (note 6) - - 96,392 932 51,868 (52,800) Retirement of shares (note 3) - - (200,000) (1,934) 1,934 - Net loss - - - - - (3,091,578) -------- ------------- ----------- ------------ ------------- ------------- Balance, December 31, 1999 31,028 310 22,077,072 213,485 2,024,806 (2,700,424) Issuance of shares under private placement (note 3) 5,100 51 1,985,915 19,204 264,748 - Issuance of shares for services (note 3) 1,165 12 9,810,350 94,866 470,423 - Issuance of shares for conversion of debt (note 3) (1,478) (15) 548,889 5,317 142,498 - Conversion of preferred shares for common shares (11,250) (113) 2,825,504 27,323 (27,210) - Cancellation of shares (11,000) (110) - - 110 - - Net loss - - - - - (1,809,734) -------- ------------- ----------- ------------ ------------- ------------- Balance, December 31, 2000 13,565 $ 135 37,247,730 $ 360,195 $ 2,875,375 $ (4,510,158) ======== ============= =========== ============ ============= ============= Total stockholders' equity (deficit) -------------- Balance, December 31, 1998 $ 1,641,779 Issuance of shares for acquisitions 62,201 Issuance of shares under private placement (note 3) 129,125 Issuance of shares for retirement of debt (note 3) 250,399 Conversion of debentures for shares (note 9) 195,000 Issuance of shares for investor relations 303,811 Issuance of shares for services (note 3) 47,440 Conversion of preferred shares for common shares (note 6) - Issuance of common shares for preferred stock dividends (note 6) - Retirement of shares (note 3) - Net loss (3,091,578) -------------- Balance, December 31, 1999 (461,823) Issuance of shares under private placement (note 3) 284,003 Issuance of shares for services (note 3) 565,301 Issuance of shares for conversion of debt (note 3) 147,800 Conversion of preferred shares for common shares - Cancellation of shares - Net loss (1,809,734) -------------- Balance, December 31, 2000 $ (1,274,453) ==============
See accompanying notes to consolidated financial statements. 16 SUMMIT NATIONAL CONSOLIDATION GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES THE COMPANY Summit National Consolidation Group, Inc., formerly ComTech Consolidation Group, Inc., a Delaware corporation, was incorporated on July 13, 1987. The Company is a Houston, Texas based consolidation company that is focused on acquiring and building growth-oriented businesses through acquisitions in the technology related industries. The Company has operations in Texas and Louisiana. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Summit National Consolidation Group, Inc. and its wholly owned subsidiaries (the Company). All material intercompany profits, transactions and balances have been eliminated. The accounts of purchased companies are included in the consolidated financial statements from the dates of acquisition. The excess of cost over the fair value of net assets of businesses acquired is being amortized using the straight-line method over a 20-year period commencing with the dates of acquisition. PROPERTY AND EQUIPMENT AND DEPRECIATION Property and equipment are stated at cost. Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of the assets, which range from three to ten years. STOCK-BASED COMPENSATION The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and related Interpretations and to elect the disclosure option of SFAS No. 123, "Accounting for Stock-Based Compensation". Accordingly, compensation cost for stock options issued to employees is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock. EARNINGS PER SHARE Earnings (losses) per common share have been computed by dividing net earnings (losses) by the weighted average number of common shares outstanding during the respective periods. 17 SUMMIT NATIONAL CONSOLIDATION GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS STATEMENTS OF CASH FLOWS For purposes of the statements of cash flows, the Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. PATIENT SERVICE REVENUE The Company's health care subsidiaries have agreements with third-party payors (primarily Medicare and Medicaid programs) that provide for payments to the Company at amounts different from its established rate for services and supplies. Payment arrangements include prospectively determined rates, reimbursed costs, discounted charges, and other arrangements. Patient service revenue is reported at the estimated net realizable amounts from patients, third-party payors, and others for services rendered, including estimated retroactive adjustments under reimbursement agreements with third-party payors. Retroactive adjustments are recorded on an estimated basis in the period the related services are rendered and adjusted in the future periods, as final settlements with the payors are determined. CONCENTRATION OF CREDIT RISK Medicare and Medicaid Programs Net revenue from the majority of the Company's subsidiaries is generated from services rendered to Medicare and Medicaid program (the Programs) beneficiaries. The reimbursement from the Programs is determined under cost-based reimbursement formulas. The ultimate reimbursement to which the Company is entitled is based on the submission of annual cost reports, which are subject to audit, by the Programs through the Programs intermediaries. Management has made allowances for potential cost disallowances. Differences between allowances and final settlements are reported as modification to net patient service revenue in the year of settlement. Since the Company receives a substantial portion of its funding from the Programs, it is dependent on funding from the Medicare and Medicaid programs to support fifty percent of its operations. NEW STANDARDS TO BE IMPLEMENTED In July 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Intangible Assets." SFAS No. 141 requires the use of the purchase method of accounting for business combinations and 18 SUMMIT NATIONAL CONSOLIDATION GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS prohibits the use of the pooling of interests method. Under the previous rules, the company used the purchase method of accounting. SFAS No. 141 also refines the definition of intangible assets acquired in a purchase business combination. As a result, the purchase price allocation of future business combinations may be different than the allocation that would have resulted under the old rules. Business combinations must be accounted for using SFAS No. 141 beginning on July 1, 2001. SFAS No. 142 eliminates the amortization of goodwill, requires annual impairment testing of goodwill and introduces the concept of indefinite life intangible assets. It was adopted on January 1, 2002. The new rules also prohibit the amortization of goodwill associated with business combinations that close after June 30, 2001. These new requirements will impact future period net income by an amount equal to the discontinued goodwill amortization offset by goodwill impairment charges, if any, and adjusted for any differences between the old and new rules for defining intangible assets on future business combinations. An initial impairment test must be performed in 2002 as of January 1, 2002. The company completed this initial transition impairment test and determined that its remaining goodwill (see note 15) is not impaired. In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 provides accounting and reporting guidance for legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction or normal operation of a long-lived asset. The standard is effective January 1, 2003. The company is reviewing the provisions of this standard. Its adoption is not expected to have a material effect on the financial statements. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses significant issues relating to the implementation of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and develops a single accounting model, based on the framework established in SFAS No. 121 for long-lived assets to be disposed of by sale, whether such assets are or are not deemed to be a business. SFAS No. 144 also modifies the accounting and disclosure rules for discontinued operations. The standard was adopted on January 1, 2002, and is not expected to have a material effect on the financial statements except that any future discontinued operations may be presented in the financial statements differently under the new rules as compared to the old rules. (2) ACQUISITIONS Effective January 1, 1999, the Company, through its wholly-owned subsidiary, PMP, issued 1,000 shares of its Class B preferred stock (see note 6) for all of the outstanding stock of Clinical Concepts, Inc., a Louisiana health care corporation. On the same day, the Company sold Clinical Concepts Inc. to an individual for a long-term note receivable in 19 SUMMIT NATIONAL CONSOLIDATION GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS the amount of $30,000. The note receivable is due in six annual installments of $5,000. During 2000, the receivable was considered uncollectible, and was written-off. Effective March 26, 1999, the Company, through its wholly-owned subsidiary, Unique Dawning, Inc., issued 2,500 shares of its Class B preferred stock (see note 6) for all of the outstanding stock of two Texas health care corporations. The above acquisitions have been accounted for using the purchase method with the purchase price allocated to the acquired assets and liabilities based on their respective estimated fair values at the acquisition dates. Such allocations were based on evaluations and estimations. The purchase allocation is summarized as follows: 1999 ---------- Current assets $ 133,849 Noncurrent assets 25,000 Current liabilities (96,648) ---------- $ 62,201 ========== Pro forma operating results for 1999 were considered immaterial for presentation purposes. (3) RELATED PARTY TRANSACTIONS In September 2000, the Company issued 4,412,200 shares of restricted common stock to the Chairman and CEO of the Company for services performed. The shares issued were valued at $108,558 or an average price of $0.025 per share. In September 2000, the Company issued 2,413,900 shares of restricted common stock to the Chief Financial Officer of the Company for services performed. The shares issued were valued at $23,749 or a price of $0.01 per share. In July 2000, the Company issue 390 shares of Class E preferred stock to the CFO of the Company for services performed. The shares were valued at $39,000. In 2000, the Company sold 31,946 shares of restricted common stock to Board members for $3,000 or a price of $0.094 per share. In January 1999, the Company sold 645,625 shares of common stock for $129,125 ($.20 per share) to a company owned by a relative of the Chairman of the Board at the time. The Chairman of the Board charged the Company a fee in the amount of $5,125 to consummate this transaction. In January 1999, the Company issued 1,251,995 shares of common stock to companies owned by relatives of the Chairman of the Board at the time. The 20 SUMMIT NATIONAL CONSOLIDATION GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS shares were issued to retire loans made to the Company by the Chairman of the Board and a company owned by the deceased former Chairman of the Board. In April 1999, the Company issued 130,000 shares ($.20 per share) of common stock to the Chairman of the Board at the time for compensation for services performed. In December 1999, the Company issued 53,600 shares ($.40 per share) of common stock to the Chief Financial Officer for compensation for services performed and the repayment of $11,500 in loans made to the Company, (4) PROPERTY AND EQUIPMENT Property and equipment is summarized as follows: December 31, ------------------ 2000 1999 -------- -------- Equipment $251,237 $240,317 Furniture and fixtures 2,875 1,600 -------- -------- Total property and equipment 254,112 241,917 Less accumulated depreciation and amortization 119,886 95,903 -------- -------- Net property and equipment $134,226 $146,014 ======== ======== (5) LONG-TERM DEBT Long-term debt is summarized as follows: December 31, ------------------ 2000 1999 -------- -------- Notes payable (8), due March 10, 2001, with interest at 6.5% $251,100 $251,100 Note payable in monthly installments of $868 through September 2003; with interest at 10.5%, unsecured (see note 15) 30,579 34,075 Note payable in monthly installments of $970 through September 2004, with monthly installments increasing to $5,500 through August 2005, with interest, unsecured (see note 15) 110,276 115,126 Note payable in monthly installments of $3,700 through August 2004, unsecured (see note 15) 205,041 208,033 -------- -------- Total long-term debt 596,996 608,334 Less current installments 314,705 63,220 -------- -------- Long-term debt, less current installments $282,291 $545,114 ======== ======== 21 SUMMIT NATIONAL CONSOLIDATION GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Aggregate yearly maturities of long-term debt for the periods after December 31, 2000 are as follows: Years ----- 2001 $ 314,705 2002 64,439 2003 65,364 2004 61,331 2005 79,851 Thereafter 11,306 ---------- 596,996 ========== (6) PREFERRED STOCK During February and March 2000 Company raised $200,000 through a private placement. The Company sold 2,000 shares of its Class E preferred stock at $100 per share. Each share of the Class E preferred stock, has an annual cumulative dividend equal to 8%, with a term of 12 months, and is convertible into 650 shares of the Company's common stock. In 2000, the Company sold 1,000 shares of Class B preferred stock for $7,000. In 2000, the Company sold 2,100 shares of Class E preferred stock for $12,000. In 1999, the Company issued 3,500 shares of its Class B preferred stock in exchange for all of the outstanding stock of three health care companies (see note 2). (7) CAPITAL STOCK AND STOCK OPTIONS The Company is authorized to issue up to 100,000,000 shares of Common Stock, of which 37,147,980 were issued and outstanding at December 31, 2000, and 850,000 were reserved for issuance pursuant to the grant of outstanding stock options as of December 31, 2000. The Company issued 100,000 options to each of the 5 officers as part of the company's stock option plan. These options are exercisable at $.33 per share through October 31, 2009, and such options were immediately exercisable. At the date of grant, those options were determined to have no material value. Further, the CEO and CFO of the Company were issued 250,000 and 100,000 options, respectively as part of the Company's incentive stock option agreement, and such options are exercisable in installments. In addition, the Company issued 250,000 options for legal services at a price of $0.16. The Company was required to adopt the disclosure portion of SFAS No. 123. This statement requires the Company to provide pro forma information regarding net loss applicable to common stockholders and loss per share as 22 SUMMIT NATIONAL CONSOLIDATION GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS if compensation cost for the Company's stock options granted had been determined in accordance with the fair value based method prescribed in SFAS 123. The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 2000 as follows: 2000 -------- Dividend yield 0% Expected volatility 391% Risk free interest 6.5% Expected lives 5 years Under the accounting provisions of SFAS 123, the Company's net loss applicable to common stockholders and loss per share would have been increased to the pro forma amounts indicated below: 2000 ------------ Net loss applicable to common stockholders: As reported $(1,809,734) Pro forma $(2,076,704) Loss per share: As reported $ (.06) Pro forma $ (.07) A summary of the status of the Company's stock options to employees as of December 31, 2000, changes during the periods ending on those dates is presented below: Weighted- Average Exercise Price December 31, Shares 2000 --------- ------------ Outstanding at beginning of period - - Granted 1,100,000 .33 Exercised - - Canceled - - --------- ------------ Outstanding and exercisable at end of period 1,100,000 .33 ========= ============ Weighted average fair value of options granted during the period None .33 ========= ============ 23 SUMMIT NATIONAL CONSOLIDATION GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes information about fixed stock options to employees outstanding and exercisable at December 31, 2000: Weighted Average Remaining Number Number Contractual Outstanding at Exercisable at Life (Years) at Exercise December 31, December 31, December 31, Price 2000 2000 2000 --------------- -------------- --------------- --------------- $ .33 500,000 500,000 8.00 .33 600,000 600,000 2.00 --------------- -------------- --------------- --------------- $ .33 1,100,000 1,100,000 4.73 =============== ============== =============== =============== (8) FEDERAL INCOME TAX EXPENSE A reconciliation of income taxes at the federal statutory rate to amounts provided for the years ended December 31, are as follows: December 31, ----------------------------------- 2000 1999 --------------- ------------------ Tax benefit computed at statutory rate $ (614,000) $ (1,051,000) Change in valuation allowance 614,000 1,051,000 --------------- ------------------ Tax benefit $ - $ - =============== ================== Deferred taxes are determined based on the temporary differences between the financial statements and income tax bases of assets and liabilities as measured by the enacted tax rates, which will be in effect when these differences reverse. The components of deferred income tax assets are as follows Deferred tax assets: Net operating loss $ 2,858,000 $ 2,244,000 Valuation allowanc e (2,858,000) (2,244,000) ------------------- ------------------ Net deferred tax assets $ - $ - =================== ================== At December 31, 2000, the Company provided a 100% valuation allowance for the deferred tax assets because it could not be determined whether it was more likely than not that the deferred tax assets would be realized. 24 SUMMIT NATIONAL CONSOLIDATION GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (9) CONVERTIBLE SUBORDINATED DEBENTURES On August 3, 1998, the Company entered into an agreement to issue, as needed, $750,000 of 8% senior subordinated convertible redeemable debentures (the Debentures) due August 3, 1999. Interest on the outstanding balance was due and payable monthly commencing September 3, 1998. The Debentures may be converted into shares of the Company's stock at the lower of 75% of the closing bid price of the Company's stock the day immediately preceding the date of receipt by the Company of notice of conversion or by 75% of the closing bid price of the Company's stock on the five days immediately preceding the date of subscription by the holder as reported by the National Association of Securities Dealers Electronic Bulletin Board ("NASDAQ"). The Company borrowed $400,000 of the $750,000. The holders of the Debentures converted the $400,000 into 2,587,298 shares of the Company's common stock. (10) LEASES The Company leases certain office space, furniture and equipment under operating leases. Future minimum lease payments under noncancellable operating leases at December 31, 2000 are as follows: Year ---- 2001 $ 19,168 ========= (11) INDUSTRY SEGMENTS The Company operated in two industries (health care and internet service providers) and two geographical locations (Texas and Louisiana) during 2000 and 1999. A-1 Bayou, Inc. provided health care services in the state of Louisiana (see note 13). Networks On-Line, Inc. (NOL) is an Internet service provider (ISP) in Texas. Segment and geographical information for the years ended December 31, 2000 and 1999 is as follows: 2000 1999 ------------- ------------- Revenues: Health care - Louisiana $ 778,962 $ 984,982 ISP - Texas 512,887 591,029 ------------- ------------- $ 1,291,799 $ 1,576,011 ============= ============= Operating income (loss): Health care-Louisiana $ 40,311 $ 74,259 ISP-Texas (468,691) (29,765) Corporate expenses (1,381,354) (1,221,083) ------------- ------------- $ (1,809,734) $ (1,176,589) ============= ============= 25 SUMMIT NATIONAL CONSOLIDATION GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Identifiable assets: Health care - Louisiana $ 293,674 $ 292,103 ISP - Texas 27,571 630,916 Corporate 158,957 25,052 ------------- ------------- $ 480,202 $ 948,071 ============= ============= (12) LITIGATION At December 31, 2000, the Company had certain pending and threatened litigation and claims incurred in the ordinary course of business (primarily related to acquisitions and disposition of subsidiaries and related employment agreements). Management has not determined whether or not the probable resolution of such contingencies will have any material affect on the financial position of the Company or the results of operations. Subsequent Event ----------------- In June 2001, the Company suffered a judgment in a lawsuit in the amount of $660,300. The plaintiff alleged, among other things, that the Company, its former subsidiary, PMP, and the former president defaulted on payment of employment contracts to the former owners of a health care agency that the Company acquired and subsequently rescinded because the health care agency had outstanding Medicare liabilities which it did not disclose to the Company during the due diligence process. The Company is vigorously appealing the judgment. No liability had been recorded to the books of the Company for this contingent liability. (13) DISPOSAL OF HEALTH CARE FACILITIES During 1999, a number of the facilities (6) in Louisiana owned by the Company's subsidiary, Professional Management Providers, Inc. were operating under Chapter 11 of the U.S. Bankruptcy Code. As a result of several disputes and lawsuits with former management of the subsidiary, the Trustee in bankruptcy closed the six subsidiary corporations of Home Care Center, Inc. in July 1999. Thereafter, the Company closed three of the remaining four facilities in Louisiana, and transferred ownership of the remaining one to the parent company. The one remaining facility was still in operation at December 31, 2000. In addition, the Company made several acquisitions during 1999 through its Unique Dawning, Inc. (UDI). These facilities proved unmanageable, and as a result, Unique Dawning, Inc. was placed in Chapter 11 of the Bankruptcy Code in September 1999. Subsequently, the Trustee transferred the filing to Chapter 7, which provided for liquidation of Unique Dawning, Inc. and the related subsidiaries. As a result of these events, the Company recognized losses on the closing and disposal of the twelve facilities (nine under Professional Management Providers, Inc. (PMP) and three under Unique Dawning, Inc.). The loss has 26 SUMMIT NATIONAL CONSOLIDATION GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS been reflected in the accompanying statement of operations as a loss from discontinued operations. No income tax credit has been provided against the loss due to the unavailability of recoverable taxes in prior periods. The losses were as follows: PMP UDI Total ------------ ---------- ------------ Loss on disposal $(2,088,367) $(639,273) $(2,727,640) ============ ========== ============ Shown below is a summary of certain elements of PMP's and UDI's operations for the year ended December 31, 2000: Revenues $ 7,876,070 Cost and expenses 7,058,802 ----------- Net earnings $ 817,268 =========== Net assets disposed of $ 2,727,640 =========== RECLASSIFICATIONS The accounting for the disposal of the health care facilities was originally treated as an extraordinary item. The consolidated financial statements for 1999 have been reclassified to account for the disposal as an operating loss. These reclassifications did not have an affect on retained earnings (deficit) for 1999. (14) OPERATIONAL STATUS The current company is the survivor of a reverse merger, which occurred in 1997 and has expanded since then through both internal growth and acquisitions. The management of the acquisition process and the management of those subsequent operations exposed the Company to significant legal liabilities (see note 13). At December 31, 2000, current liabilities exceeded current assets by $1,301,388. At December 31, 2000, the Company primarily had two operational subsidiaries: one health care subsidiary located in Louisiana and one Internet Service Provider located in Houston, Texas (see note 15). The net income from these operations is not sufficient to support corporate expenses and pay current liabilities. In view of these matters, realization of a major portion of the assets in the accompanying consolidated balance sheet is dependent upon continued operations of the Company, the success of a secondary placement and future acquisitions and operations. Management believes that actions presently being taken to obtain additional equity financing through a secondary offering and acquisitions and increasing sales in the technology sector will provide the opportunity to continue as a going concern. 27 SUMMIT NATIONAL CONSOLIDATION GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (15) SUBSEQUENT EVENT On June 21, 2001, Networks On-Line, Inc. filed a voluntary petition for reorganization under Chapter 11 of the U. S. Bankruptcy Code. On November 20, 2001, the Bankruptcy court approved the sale of NOL assets for $50,000. 28 30 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 thereunto duly authorized. SUMMIT NATIONAL CONSOLIDATION GROUP, INC. Date: November 4, 2001 By: /s/ Walter D. Davis ------------------------------- Walter D. Davis Chairman of the Board, Chief Executive Officer, President Date: November 4, 2001 By: /s/ Lamont J. Waddell ------------------------------- Lamont J. Waddell Chief Financial Officer, Vice President of Finance Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title --------- ----- By: /s/ Walter D. Davis Chairman of the Board and Chief ----------------------------------- Executive Officer, President and Walter D. Davis Director By: /S/ Lamont J. Waddell Board Member and Chief Financial ----------------------------------- Officer and Vice President of Finance Lamont J. Waddell By: /s/ Vincent E. Alexander Board Member and Chairman of the ----------------------------------- Audit Committee Vincent E. Alexander By: /s/ Dr. Beatrice Beasley Board Member and Chairman of the ----------------------------------- Compensation Committee Dr. Beatrice Beasley By: /s/ Jesse Funchess Board Member ----------------------------------- Jesse Funchess, JD 29 Signature Date --------- ---- By: /s/ Walter D. Davis November 4, 2001 ----------------------------------- Walter D. Davis By: /S/ Lamont J. Waddell November 4, 2001 ----------------------------------- Lamont J. Waddell By: /s/ Vincent E. Alexander November 4, 2001 ----------------------------------- Vincent E. Alexander By: /s/ Dr. Beatrice Beasley November 4, 2001 ----------------------------------- Dr. Beatrice Beasley By: /s/ Jesse Funchess November 4, 2001 ----------------------------------- Jesse Funchess, JD 30 -----END PRIVACY-ENHANCED MESSAGE-----