10QSB 1 form10qsb063003.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: June 30, 2003 ------------------------------------------- [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from to -------------------- ---------------------- Commission file number 0-28831 ------------------------------------------------------------ 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.) 12535 Orange Drive, Suite 163, Davie, Florida 33330 ------------------------------------------------------------------------------ (Address of principal executive offices) (202) 508-6042 Issuer's telephone number (Former name, former address and former 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: June 30, 2003 Approximately 500,000,000 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 June 30, 2003, and the related consolidated statements of operations for the three and six months ended June 30, 2003 and 2002, and cash flows for the six month periods ended June 30, 2003 and 2002. 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 accounting principles generally accepted in the United States of America. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of CBQ, Inc. and Subsidiaries as of December 31, 2002, and the related consolidated statements of operations, cash flows, and stockholders' equity for the year then ended (not presented herein); and in our report dated March 28, 2003, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2002, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. Note 1 of the Company's audited consolidated financial statements as of December 31, 2002, and for the year then ended discloses that the Company has suffered recurring losses from operations and has no established source of revenue at December 31, 2002. Our auditors' report on those consolidated financial statements includes an explanatory paragraph referring to the matter in Note 1 of those consolidated financial statements and indicating that these matters raised substantial doubt about the Company's ability to continue as a going concern. As indicated in Note 1 of the Company's unaudited interim consolidated financial statements as of June 30, 2003, and for the three and six months then ended, the Company has continued to suffer recurring losses from operations and still has no established source of revenue at June 30, 2003. The accompanying interim consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Respectfully submitted, /s/ Robison, Hill & Co. Certified Public Accountants Salt Lake City, Utah August 8, 2003 CBQ, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(Unaudited) June 30, December 31, 2003 2002 ------------------ ------------------ Assets: Current assets: $ - $ - Other non-current assets: Investments 274,000 274,000 ------------------ ------------------ Total Assets $ 274,000 $ 274,000 ================== ==================
CBQ, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited) June 30, December 31, 2003 2002 ------------------ ------------------ Liabilities and Stockholders' Deficit: Current liabilities: Accounts payable, trade $ 697,696 $ 693,951 Accrued expenses 175,000 300,000 Due to related party 1,215 1,215 Due to shareholders 271,800 140,000 Net liabilities of discontinued operations - 6,260,990 ------------------ ------------------ Total Liabilities 1,145,711 7,396,156 ------------------ ------------------ Stockholders' Deficit: Preferred Stock, par value $.001 per share Authorized 100,000,000 shares, 70,000 shares issued and outstanding at June 30, 2003 and December 31, 2002 309 309 Common Stock, par value $.0001 per share Authorized 500,000,000 shares, Issued 500,000,000 Shares at June 30, 2003 and December 31, 2002 50,000 50,000 Additional paid-in capital 4,909,032 4,909,032 Accumulated deficit (5,831,052) (12,081,497) ------------------ ------------------ Total Stockholders' Deficit (871,711) (7,122,156) ------------------ ------------------ Total Liabilities and Stockholders' Deficit $ 274,000 $ 274,000 ================== ==================
See accompanying notes and accountants' report. CBQ, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (Unaudited) For the three months ended For the six months ended June 30, June 30, ----------------------------------- ------------------------------------- 2003 2002 2003 2002 ----------------- ---------------- ----------------- ----------------- Continuing operations: Revenues $ - $ - $ - $ - Costs and expenses: General and administrative 3,600 35,000 10,545 71,500 Interest - 108,748 - 180,996 ----------------- ---------------- ----------------- ----------------- Net income (loss) from Continuing operations (3,600) (143,748) (10,545) (252,496) Discontinued operations: Income (Loss) from operations of discontinued operations - - - - Gain (Loss) on disposal of Quantum Group and other Subsidiaries - - 6,260,990 - ----------------- ---------------- ----------------- ----------------- Net Income (loss) from discontinued operations - - 6,260,990 - ----------------- ---------------- ----------------- ----------------- Net Income (Loss) $ (3,600) $ (143,748) $ 6,250,445 $ (252,496) ================= ================ ================= ================= Basic & Diluted loss per share Income (Loss) from continuing Operations $ - $ - $ - $ - Income (Loss) from Discontinued operations - - 0.01 - ----------------- ---------------- ----------------- ----------------- Income (Loss) per Share $ - $ - $ 0.01 $ - ================= ================ ================= =================
See accompanying notes and accountants' report. CBQ, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) For the six months ended June 30, ------------------------------------- 2003 2002 ----------------- ------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Continuing operations: Net Income (Loss) $ (10,545) $ (252,496) Adjustments necessary to reconcile net loss to net cash used in operating activities: Increase (decrease) in accounts payable 3,745 - Increase (decrease) in accrued expenses (125,000) 252,496 ----------------- ------------------ Net cash used in continuing operations (131,800) - Net cash used in discontinued operations - - ----------------- ------------------ Net cash used in operating activities (131,800) - ----------------- ------------------ CASH FLOWS FROM INVESTING ACTIVITIES: Increase in deposits - (24,000) ----------------- ------------------ Net cash provided by (used) investing activities - (24,000) ----------------- ------------------ CASH FLOWS FROM FINANCING ACTIVITIES: Other decreases in long-term debt - - Increase in payable to shareholder 131,800 24,000 Common stock issued for cash - - Common stock issued for services - - ----------------- ------------------ Net Cash Provided by Financing Activities 131,800 24,000 ----------------- ------------------ Net (Decrease) Increase in Cash and Cash Equivalents - - Cash and Cash Equivalents at Beginning of Period - - ----------------- ------------------ Cash and Cash Equivalents at End of Period $ - $ - ================= ==================
CBQ, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ - $ - Franchise and income taxes $ - $ - SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: NONE
See accompanying notes and accountants' report. CBQ, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002 NOTE 1 - NATURE OF OPERATIONS AND GOING CONCERN The accompanying financial statements have been prepared on the basis of accounting principles applicable to a "going concern", which assume that the Company will continue in operation for at least one year and will be able to realize its assets and discharge its liabilities in the normal course of operations. Several conditions and events cast doubt about the Company's ability to continue as a "going concern". The Company has incurred net losses of approximately $2,206,000 for the year ended December 31, 2002 and losses of approximately $4,505,000 for the year ended December 31, 2001, has a liquidity problem, and requires additional financing in order to finance its business activities on an ongoing basis. The Company is actively pursuing alternative financing and has had discussions with various third parties, although no firm commitments have been obtained. The Company's future capital requirements will depend on numerous factors including, but not limited to, continued progress in developing its products, and market penetration and profitable operations from its software development outsourcing, web development, custom software development, network systems integration and management. These financial statements do not reflect adjustments that would be necessary if the Company were unable to continue as a "going concern". While management believes that the actions already taken or planned, will mitigate the adverse conditions and events which raise doubt about the validity of the "going concern" assumption used in preparing these financial statements, there can be no assurance that these actions will be successful. If the Company were unable to continue as a "going concern", then substantial adjustments would be necessary to the carrying values of assets, the reported amounts of its liabilities, the reported revenues and expenses, and the balance sheet classifications used. 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. On November 19, 2001, the Company entered into a plan of reorganization with Sourcelink, Inc. ("Sourcelink") whereby the Company would acquire Sourcelink. Sourcelink was a development stage company that was formed to develop an online trading website. Nature of Business The Company has ceased all operations except to attempt to settle liabilities and to seek a CBQ, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (Continued) NOTE 1 - NATURE OF OPERATIONS AND GOING CONCERN (continued) new business opportunity. Currently, the Company has not determined which industry to pursue opportunities and will not do so until such time as those uncertainties presently facing the Company are resolved. The Company's previous lines of businesses included software development outsourcing, web development, custom software development, network systems integration and management. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This summary of accounting policies for CBQ, Inc. is presented to assist in understanding the Company's 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 June 30, 2003 and for the three and six month periods ended June 30, 2003 and 2002 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 six months. Operating results for interim periods are not necessarily indicative of the results which can be expected for full years. 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. Principles of Consolidation The consolidated financial statements for the three months ended March 31, 2003 and the year ended December 31, 2002 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"). The results of subsidiaries acquired or sold during the year are consolidated from their effective dates of acquisition through their effective dates of disposition. CBQ, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (Continued) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) All significant intercompany balances and transactions have been eliminated. 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. 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. Income (Loss) per Share The reconciliations of the numerators and denominators of the basic income (loss) per share computations are as follows:
Income Shares Per-Share (Numerator) (Denominator) Amount ------------------ ------------------- ------------------ For the three months ended June 30, 2003 ----------------------------------------------------------- Basic Income (Loss) per Share Continuing operations $ (3,600) 500,000,000 $ - Discontinued operations - 500,000,000 - ------------------ ------------------- ------------------ Income (Loss) to common shareholders $ (3,600) 500,000,000 $ - ================== =================== ================== For the three months ended June 30, 2002 ----------------------------------------------------------- Basic Income (Loss) per Share Continuing operations $ (143,748) 79,516,835 $ - Discontinued operations - 79,516,835 - ------------------ ------------------- ------------------ Income (Loss) to common shareholders $ (143,748) 79,516,835 $ - ================== =================== ==================
CBQ, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (Continued) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income Shares Per-Share (Numerator) (Denominator) Amount ------------------ ------------------- ------------------ For the six months ended June 30, 2003 ----------------------------------------------------------- Basic Income (Loss) per Share Continuing operations $ (10,545) 500,000,000 $ - Discontinued operations 6,260,990 500,000,000 0.01 ------------------ ------------------- ------------------ Income (Loss) to common shareholders $ 6,250,445 500,000,000 $ 0.01 ================== =================== ================== For the six months ended June 30, 2002 ----------------------------------------------------------- Basic Income (Loss) per Share Continuing operations $ (252,496) 79,516,835 $ - Discontinued operations - 79,516,835 - ------------------ ------------------- ------------------ Income (Loss) to common shareholders $ (252,496) 79,516,835 $ - ================== =================== ==================
The effect of outstanding common stock equivalents would be anti-dilutive for June 30, 2003 and 2002 and are thus not considered. 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. Reclassifications Certain reclassifications have been made in the 2002 financial statements to conform with the 2003 presentation. 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. CBQ, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (Continued) NOTE 4 - DUE TO SHAREHOLDERS Due to shareholders at June 30, 2003 and December 31, 2002 consists of the following:
June 30, December 31, 2003 2002 ------------------- ------------------ 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 221,800 90,000 ------------------- ------------------ $ 271,800 $ 140,000 =================== ==================
NOTE 5 - LEASES As of June 30, 2003, all activities of the Company have been conducted by corporate officers from either their homes or business offices. Currently, there are no outstanding debts owed by the company for the use of these facilities and there are no commitments for future use of the facilities. NOTE 6 - PREFERRED STOCK The Company has the option to call the preferred stock as follows: 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 7 - STOCK TRANSACTIONS On November 19, 2001, the Company entered into a plan of reorganization with Sourcelink, Inc. ("Sourcelink") whereby the Company would acquire Sourcelink. Sourcelink was a development stage company that was formed to develop an online trading website. On December 13, 2002, the Company issued 716,589 shares of Preferred Stock as part of the acquisition of Sourcelink. These Preferred Shares are convertible to Common Shares on a 1:1,000 basis. Subsequent to the issuance of this stock, 477,729 shares of Preferred Stock were converted to 477,729,000 shares of Common Stock. CBQ, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (Continued) NOTE 7 - STOCK TRANSACTIONS (continued) Also during 2002, 57,245,835 shares of common stock were returned to the Company. NOTE 8 - CONTINGENCIES In September, 2001, a confession of judgement was entered against the Company and several of its subsidiaries by the Circuit Court in Annapolis, Maryland (Case No. C-2001-74735), in favor of Allegiance Capital Limited partnership. The confession was in the amount of $1,976,076.04, plus attorneys's fees of $296,411.41 and prejudgement interest in the amount of $802.75 per day after September 25, 2001, until the date of entry of final judgement. This suit was based on loans which Quantum had obtained prior to being acquired by the Company, all of which were guaranteed by the Company and its subsidiaries, as well as several individuals. For the year ended December 31, 2002, the amount of the judgement has been included in the financial statements as part of the current portion of long-term debt and accrued expenses. During the quarter ended March 31, 2003, the Company abandoned all of its acquisitions resulting in the write-off of the above debt. On October 15, 2001, Anthony M. Sanders sued the Company and several of its former affiliates, in the United States District Court for the District of Maryland (Northern Division). The case number is MJG 01 CV 3062. Mr. Sanders was a former officer, director and controlling shareholder of Quantum Technology who transferred his interest to the Company. The gravaman of Mr. Sanders' complaint is that the Company failed to redeem preferred shares in Quantum held by Mr. Sanders. Mr. Sanders is claiming breach of contract, negligent misrepresentation, intentional infliction of emotional distress and securities violations against the Company for this failure. Management feels there is no merit to Mr. Sanders' allegations as against the Company and that the complaint as filed is completely groundless. The Company has elected not to defend the case insofar as the Maryland court has no jurisdiction over this matter as it pertains to the Company and any judgement obtained by Mr. Sanders would be unenforceable against the Company. NOTE 9 - DISCONTINUED OPERATIONS During 2001 and 2002, the Company closed its operations including CBQ Networkland, Inc., CBQ Technet Computer Services, Inc., and Quantum Group and its subsidiaries. During March 2003, the Company abandoned all of its subsidiaries resulting in a gain on disposal of discontinued operations of $6,260,990. CBQ, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (Continued) NOTE 9 - DISCONTINUED OPERATIONS (continued) The assets and liabilities of the abandoned subsidiaries consisted of the following:
March 30, December 31, 2003 2002 ----------------- ------------------ Assets $ - $ - Liabilities: Line of credit payable $ 577,157 $ 577,157 Current portion of long-term debt 2,860,460 2,860,460 Accrued expenses 987,348 987,348 Net liabilities of discontinued operations 1,311,025 1,311,025 Preferred stock of subsidiaries 525,000 525,000 ----------------- ------------------ Total liabilities 6,260,990 6,260,990 ----------------- ------------------ Net liabilities disposed of $ (6,260,990) $ (6,260,990) ================= ==================
Net liabilities disposed of have been recorded as a gain on disposal of discontinued operations as of March 31, 2003, and separately classified in the accompanying consolidated balance sheet at December 31, 2002. NOTE 10 - ACQUISITIONS On November 19, 2001, the Company entered into a plan of reorganization with Sourcelink, Inc. ("Sourcelink") whereby the Company would acquire Sourcelink. On December 13, 2002, the Company issued 716,589 shares of Preferred Stock to complete the acquisition of Sourcelink. Sourcelink was a development stage company that was formed to develop an online trading website. The website was never completed. In the acquisition, the Company acquired the partially developed website. The acquisition was recorded in the financial statements as research and development expenses. NOTE 11 - LEGAL SETTLEMENTS 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 December 31, 2001, the company is contingently liable in the amount of $935,275 relating to such receivables sold with recourse. In November, 2001 the funding source sued the Company, several of its subsidiaries and on officer of the Company in the Superior Court of New CBQ, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (Continued) NOTE 11 - LEGAL SETTLEMENTS (continued) Jersey, Bergen County, Case No. BER-L-9684-01, alleging the sum of $935,275.25 was due from the defendants under the factoring arrangement. On April 9, 2003, this litigation was settled, with the Company agreeing to pay $300,000 to settle the claim. The Company has since paid $125,000 towards this settlement. The remaining $175,000 is recorded in the financial statements as part of accrued expenses. 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: Beginning in late 2001 and continuing through early 2002, we entered into a series of transactions that we believe will result in our resuming business operations, although in a significantly different industry than the traditional industries in which we have operated. Those transactions include the following transactions: o The Board of Directors decided to discontinue the retail portion of the business. The Company did not proceed with the development of any software business in Asia. Similarly the Company decided not to operate any retail business related to sale or and servicing of computer products. The Company began focusing on opportunities in the information technology industry. These latter efforts were not successful and, as a result, the Company was forced to cease all operations in the third quarter of 2002. o In November, 2001, the Company entered into a relationship with an unaffiliated third party to assist it in dealing with the events which transpired during the latter half of 2001 and to assist in the development and implementation of a viable business plan for the Company. These efforts were not successful and, consequently, the Company ceased all operations in the third quarter of 2002. o As of the date of this filing, the Company had filed answers to all law suits to which it had a defense; however, the Company no longer has any funds to further defend itself; therefore, the Company is uncertain of the ultimate outcome of the litigation pending against it. The Company has identified its debts, most of which are at the subsidiary level, and is in the process of negotiating a spin off to existing shareholders of these subsidiaries in return for stock. This will eliminate a large amount and number of debts; however, the majority in amount of debt is owed to a few large creditors, none of whom have indicated any willingness at present to work an accommodation for the satisfaction of this debt. The Company has worked an agreement to satisfy its obligations to its auditors and is now in the process of determining the appropriate structure in which to pursue subsequent business opportunities, although management seriously doubts the ability of the Company to pursue any business opportunities until such time as the capital and debt structures of the Company are adequately redefined and satisfied to attract an opportunity. o The Company has not determined which industry to pursue opportunities and will not do so until such time as those uncertainties presently facing the Company are resolved. All of the executive officers and directors of the Company have either resigned or been removed from office for failure to appear at meetings as of the date of this report, with the exception of Mr. Howard Ullman, who is now the sole executive officer and a director of the Company, and Susan Xu, who is a director of the Company. 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. During the period covered by this report, we conducted only minimal business operations. We currently have no employees. Certain administrative services relating to our minimal maintenance operations were provided by employees of our majority shareholders. Results of Operations Plan of Operations - The Company was organized for the purpose of creating a corporate vehicle to seek, investigate and, if such investigation warrants, acquire an interest in one or more business opportunities presented to it by persons or firms who or which desire to seek perceived advantages of a publicly held corporation. The Company may incur significant post-merger or acquisition registration costs in the event management wishes to register a portion of their shares for subsequent sale. The Company will also incur significant legal and accounting costs in connection with the acquisition including the costs of preparing post- effective amendments, Forms 8-K, agreements and related reports and documents. The Company will not have sufficient funds (unless it is able to raise funds in a private placement) to undertake any significant development, marketing and manufacturing of the products acquired. Accordingly, following the acquisition, the Company will, in all likelihood, be required to either seek debt or equity financing or obtain funding from third parties, in exchange for which the Company may be required to give up a substantial portion of its interest in the acquired product. There is no assurance that the Company will be able either to obtain additional financing or interest third parties in providing funding for the further development, marketing and manufacturing of any products acquired. Results of Operations - The Company had no operations during 2002 and to the date of this report, other than its search for a business opportunity. During 2001 and 2000 the Company attempted to provide retail software, computer services and products that has since proved uneconomical and has been abandoned. Accordingly, comparisons with prior periods are not meaningful. During the quarter ended March 31, 2003, the Company abandoned all of its subsidiaries resulting in a gain on disposal of discontinued operations of $6,260,990. Capital Resources and Liquidity The Company has not generated any cash flows from operating or investing activities since inception. Operating capital was primarily provided from the proceeds of equity financing, bank loans and receivables financing, the latter two of which the Company is presently no longer entitled to enjoy and is in litigation over. CBQI is presently seeking alternative sources of capital. The Company expects future development and expansion will be financed through cash flow from operations and other forms of financing such as the sale of additional equity and debt securities, capital leases and other credit facilities. There are no assurances that such financing will be available on terms acceptable or favorable to the Company. Item 3. Controls and Procedures The Company's Chief Executive Officer and Chief Financial Officer have concluded, based on an evaluation conducted within 90 days prior to the filing date of this Quarterly Report on Form 10-QSB, that the Company's disclosure controls and procedures have functioned effectively so as to provide those officers the information necessary to evaluate whether: (i) this Quarterly Report on Form 10-QSB contains any untrue statement of a material fact or omits 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 on Form 10-QSB, and (ii) the financial statements, and other financial information included in this Quarterly Report on Form 10-QSB, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this Quarterly Report on Form 10-QSB. There have been no significant changes in the Company's internal controls or in other factors since the date of the Chief Executive Officer's and Chief Financial Officer's evaluation that could significantly affect these internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is presently a party to several law suits. The material law suits are: Allegiance Capital: In September, 2001, a confession of judgement was entered against CBQI and several of its subsidiaries by Circuit Court in Annapolis, Maryland (Case No. C-2001- 74735), in favor of Allegiance Capital Limited Partnership. The confession was in the amount of $1,976,076.04, plus attorneys's fees of $296,411.41 and pre judgement interest in the amount of $802.75 per day after September 25, 2001, until the date of entry of final judgement. This suit was based on loans which Quantum had obtained prior to being acquired by CBQI, all of which were guaranteed by CBQI and its subsidiaries, as well as several individuals, including John Moran, Gino Manna, Raymond Kostkowski, Anne Sigman and J. Patrick Dowd. Pursuant to an Inter-Creditor Agreement between Suntrust Bank and Allegiance Capital, Allegiance Capital's claims are subordinate to such claims as Suntrust Bank may have against CBQ, Inc. Platinum Funding: In November, 2001, Platinum Funding Corp. (Platinum) sued CBQI, several of its subsidiaries, and Mr. Bart Fisher in the Superior Court of New Jersey, Bergen County, Case No. BER-L-9684-01, alleging that the sum of $935,275.25 was due from the defendants under a factoring arrangement which Platinum claims to have existed. On April 9, 2003, this litigation was settled, with the Company agreeing to pay $300,000 to settle the claim. The Company has since paid $125,000 towards this settlement. The remaining $175,000 is recorded in the financial statements as part of accrued expenses. Anthony M. Sanders: On October 15, 2001, Anthony M. Sanders sued CBQ, Inc., and several of its former affiliates, including Raymond Kostkowski, in the United States District Court for the District of Maryland (Northern Division). The case number is MJG 01 CV 3062. Mr. Sanders was a former officer, director and controlling shareholder of Quantum Technology who transferred his interest to CBQI. Mr. Sanders' complaint is that CBQI failed to redeem preferred shares in Quantum held by Mr. Sanders. Mr. Sanders is claiming breach of contract, negligent misrepresentation, intentional infliction of emotional distress and securities violations against CBQI for this failure. Management feels there is no merit to Mr. Sanders' allegations as against CBQI and that the complaint as filed is completely groundless. CBQI has elected not to defend the case insofar as the Maryland court has no jurisdiction over this matter as it pertains to CBQI and any judgement obtained by Mr. Sanders would be unenforceable against CBQI. Suntrust Bank line of credit and term note: Quantum Technology Group had a $4 million line of credit with Crestar Bank, which was subsequently acquired by Suntrust. This line of credit was guaranteed by Quantum and five individual guarantors, including Ray Kostkowski, Anne Sigman, Skip Lewis, and Anthony Saunders. This line of credit was opened during April, 2000. On August 8, 2000, CBQI acquired all of the shares of Quantum Technology Group. $1.3 million of the line of credit had been used, and was owing to the bank and in addition to the line of credit, a $200,000 term loan from Suntrust, approximately $200,000 in accrued interest and $100,000 in attorney fees all of which Suntrust is attempting to collect from the individual guarantors. Suntrust has not sued CBQI but has threatened to sue. It is the position of CBQI that it does not owe the money to Suntrust. It never signed any loan, and indeed by freezing the line of credit, Suntrust greatly injured the business of CBQI. 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 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS 31 Certification Pursuant to Section 302 of the Sarbanes- Oxley Act of 2002. 32 Certification Pursuant to Section 906 of the Sarbanes- Oxley Act of 2002. (b) Reports on Form 8-K. No reports on Form 8-K were filed during the period covered by this Form 10-QSB. 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 6th day of June, 2003. CBQ, Inc. Date: August 18, 2003 /s/ Howard Ullman Howard Ullman President and Director (Principal Executive Officer) (Principal Financial and Accounting Officer)