UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-KSB
(Mark One)
( ) Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
or
(X) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the three months ended December 31, 1996
(short fiscal year)
Commission File Number 0-3743
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CONTINENTAL INVESTMENT CORPORATION
(Exact name of registrant as specified in its charter)
Georgia 58-0705228
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
10254 Miller Road, Dallas, Texas 75238
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 691-1100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.50 par value
(Title of each class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes (X) No ( )
<PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the 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)
The aggregate market value of the voting stock held by non-
affiliates of the registrant, as of March 31, 1997, is approximately
$114,045,881 based upon the closing bid price of $21.25 per share as
reported for such date by Trading and Market Services of The Nasdaq
Stock Market, Inc.
As of March 31, 1997, the registrant had outstanding 11,313,008
shares of Common Stock.
<PAGE>
PART I
ITEM 1. BUSINESS.
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Background
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Continental Investment Corporation ("CICG" or the "Company") was
incorporated on October 3, 1958, in the State of Georgia, as a real
estate investment and development company. In 1965, the Company
purchased 133 acres of land (the "Property") located approximately 10
miles southwest of downtown Atlanta, Georgia. From 1966 to 1993, 65
acres of the land along with mineral rights were leased to a mining and
quarrying company unrelated to CICG. The lease and rights to extract
minerals from the Property expired in 1993. Subsequently, CICG
participated in reclamation activities in preparation for an alternative
use of the land. During fiscal 1996, the Company purchased an
additional 96 acres adjacent to the 133-acre Property.
In a series of transactions in fiscal 1994, 1995 and 1996, the Company
acquired all of the operating assets of FIBER-SEAL Holdings, Inc., FIBER-SEAL
of Dallas, and FIBER-SEAL Services International, Inc., including all
trademarks, servicemarks, logos, and tradenames of or related to FIBER-SEAL.
CICG is now engaged in developing the operations of FIBER-SEAL and in
analyzing waste disposal opportunities, initially at the Property located in
Atlanta, Georgia.
FIBER-SEAL Operations
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FIBER-SEAL brand services and products provide customers with
cleaning, stain removal and lasting protection for carpets and other
fine interior fabric coverings and surfaces and cleaner, newer looking
interiors. These products and services have been provided since 1971
under the FIBER-SEAL brand trademark and servicemark. The products and
services are currently being provided in the United States and other
countries through licensing agreements with approximately 60 service
centers now in operation through FSSI. With over 25 years of continuous
operations, the FIBER-SEAL business has established long-term
relationships, credibility and brand awareness with architects, interior
designers and manufacturers. Customers' premises include individual
residences, real estate developments, restaurants, offices, and
commercial aircraft.
The Company has made a strategic decision to convert its FIBER-SEAL
Fabric Care System (Registered Trademark) business from a licensing mode to
a potentially far more lucrative franchising operation. Further, the
Company will be instituting a program for the expansion of FIBER-SEAL
operations in all unexploited geographic areas. It is the Company's opinion
that the revenues derived from the FIBER-SEAL business can be significantly
enhanced. However, as the business areas in which FIBER-SEAL competes are
highly competitive, there can be no assurance that the Company will be able
to accomplish its goals regarding FIBER-SEAL.
<PAGE>
Proposed Atlanta Region Waste Management Facility
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A study of the Property has indicated its viability as a potential
multi-use waste disposal, waste transfer, and recycling facility. The Company
is presently evaluating the various categories of potential operations,
consisting principally of the different types of waste and activities
discussed below.
An inert waste landfill is a disposal facility that may accept only
wastes that will not or are not likely to generate contamination to
surrounding soils or groundwater. Such wastes are limited to earth and
earth-like products, concrete, cured asphalt, rock, bricks, yard
trimmings, stumps, limbs, and leaves. A landfill permitted for construction
and demolition debris may accept building materials and rubble resulting from
construction, remodeling, repair, and demolition operations on pavements,
houses, commercial buildings and other structures. Such wastes include,
but are not necessarily limited to, asbestos containing wastes, wood,
bricks, metal, concrete, wallboard, paper, cardboard, all inert waste
landfill material, and other "non- putrescible" wastes, as these wastes
have a low potential for groundwater contamination upon decomposition.
A municipal solid waste landfill ("MSWL") can accept any
waste derived from households, including garbage, trash and sanitary waste
in septic tanks. Household waste includes solid waste from single-family
and multi-family residences, hotels and motels, bunkhouses, campgrounds,
picnic grounds, and day-use recreation areas. The term also includes
commercial solid waste, but does not include solid waste from mining,
agricultural or silvicultural operations or industrial processes or
operations.
A transfer station is a waste management facility where solid waste
is received from collection vehicles and then transferred to and
compacted in large, specially designed and constructed trailers for
transportation to distant disposal facilities. Transportation can be by
road or rail. A transfer station operation can effectively reduce costs
by positively impacting the utilization of personnel and equipment and
by reducing fuel costs. The greatest benefit of transfer stations is the
quick turnaround obtained for route collection vehicles.
Industry Background
According to the National Solid Waste Management Association
("NSWMA"), the North American solid waste industry was estimated to have had
revenues of more than $32 billion in 1995. The industry is highly
fragmented, with the four largest companies accounting, in 1995, for
approximately 30% of revenues, seven mid-sized public companies, accounting
for approximately 4% of revenues, and several thousand municipalities and
independent collection firms accounting for approximately 66% of revenues.
The industry has been consolidating in recent years as a result of increased
capital requirements arising primarily from stringent environmental and other
governmental regulations. The Company expects the trend toward consolidation
to continue as many independent landfill and collection operators, including
municipalities, lack the capital resources, management skills and technical
expertise necessary to operate in compliance with such regulations.
<PAGE>
The Company believes that approximately 80% of solid
waste landfills are owned by municipalities, 15% by private companies
and 5% by the federal and state governments. These landfills vary
greatly in size and capacity. The Company believes that the estimated
800 privately-owned landfills represent approximately 50% of the remaining
disposal capacity in the United States. Subtitle D regulations ("Subtitle D")
of the Resource Conservation and Recovery Act ("RCRA") require landfill
operators to upgrade existing disposal facilities by imposing requirements in
the areas of facility design and operating criteria, closure and post-closure
requirements, financial assurance standards and groundwater monitoring as well
as corrective action standards. Trade group data indicate that the number of
of municipal solid waste landfills decreased by 62% from 1988 to 1995 and that
the remaining number of such landfills in 1995 was under 3,000.
As a result of these regulatory changes, a number of independent
landfill operators and municipalities are discontinuing or privatizing
landfill and collection operations. In some instances, industrial
companies that had previously operated landfills have decided to close
such landfills rather than bring them into compliance with the new, more
demanding regulations. The increasing requirements for capital, skilled
management and technical expertise are, for small operators who cannot
achieve economics of scale and integration, reducing margins and causing
them to sell or close existing landfills. As a result, the Company
expects continued availability of opportunities to acquire solid waste
collection and disposal businesses. However, there can be no assurance
of such continued availability or of the Company's ability to consummate
any such potential acquisitions.
Pricing in the waste management industry has become increasingly
complex as wastes have been sub-divided/categorized by regulation changes,
and charges or "tipping fees" are being calculated as to specific transport
and disposal requirements. Revenues are generated through charges or tipping
fees to the collection and hauling companies and are calculated by volume or
weight. Transfer stations consolidate and compact the waste for transport to
distant sites where tipping fees may be lower, while collecting a fee per ton
for consolidation, compaction, transportation and disposal. The prices that
are charged for disposal or transfer of waste are determined by the volume or
weight, the type of waste disposed of and prices charged for similar disposal
services by competitors. Long-term disposal and collection contracts typically
contain a formula, generally based on published price indices, for automatic
adjustment of fees to cover increases in some, but not all, operating costs.
The Atlanta Property
The Company owns 229 acres of land in Fulton County, Georgia. The
land is located within the Atlanta city limits approximately 10 miles
southwest of downtown Atlanta. Fulton County is one of the nine individual
counties that comprise the "Atlanta Region" which includes Fulton (City of
Atlanta), Gwinnett, DeKalb, Rockdale, Henry, Clayton, Fayette, Douglas, and
Cobb. The Property is effectively at the epicenter of the 9-county region.
<PAGE>
A section of the westerly portion of the Property underwent granite
surface mining from 1966 to 1993. Approximately 20 acres have been excavated
to depths in excess of 500 feet (maximum depth of 641 feet). A smaller
excavation on the Property has been mined to a depth of approximately 150
feet. Soil borings evidence significant amounts of overburden that can be
used for cover material in landfill operations, as well as large amounts of
granite. Granite mining activities are presently being evaluated as an income
source from the Property. The potential resumption of granite mining
activities represents a possible double benefit to the Company that may also
increase potential landfill capacity in the future.
The Property is potentially well suited to serve as a waste transfer
station for transfer of waste outside the nine county region because a
railroad line is located just outside of the Property's boundary. The Company
will seek to acquire a rail spur to the Property. Although the Property's
proximity to a major rail line provides for a viable transfer station,
complications exist with regard to interstate transport (e.g., states trying
to collect per ton confiscatory fees on incoming waste, etc.). There is also
an effort by some state legislators to restrict the disposal of out-of-state
wastes in their state's landfills. Although most legislative efforts to date
have been rejected by the courts, there is a possibility that these laws may
eventually pass.
Competition
The solid waste industry is highly competitive and requires substantial
amounts of capital. The waste industry is currently dominated by several large,
national waste management companies -- WMX Technologies, Inc. (formerly Waste
Management, Inc.), Browning-Ferris Industries, Inc. ("BFI"), U.S.A. Waste
Services, Inc., Allied Waste Industries, Inc., and Republic Industries, Inc.
Additionally, there are a number of regional companies and numerous local
companies. All of these companies have significantly larger operations and
greater financial resources than CICG. The Company may also compete with those
counties and municipalities that maintain their own waste collection and/or
disposal operations.
CICG would compete for landfill and transfer business on the basis
of tipping fees, geographical location and quality of operations. The Company's
ability to obtain landfill business may be limited by the fact that some major
collection companies also own or operate landfills to which they send waste
that they collect.
Municipal Solid Waste Disposal Business Risks
There are potential, often unforeseen, business risks and certain
cost exposures associated with the establishment, ownership and operation of
solid waste landfill sites. Such risk factors include, but are not limited
to: a reduction in the volume of solid waste available for landfill disposal
resulting from legislative or regulatory action focused on the reduction of
waste volume; public concern regarding the potential for adverse effects on
public health, the environment, and land property values attributable to
wastes disposed of at landfills; the difficulty of obtaining permits to
expand or establish disposal sites and public and private opposition to the
location, expansion and operation of landfills; expanding governmental
actions attempting to restrict the interstate movement of waste for disposal;
costs associated with liner requirements, groundwater monitoring, leachate
<PAGE>
and landfill gas control, surface water control, post-closure monitoring,
site clean- up, site remedial work, maintenance and long-term care obligations;
the obligation to manage any adverse affects on the environment that may
materialize at the Property; possible judicial and administrative proceedings
regarding alleged adverse environmental and health effects occasioned by
landfill operations; and potential regulations requiring a landfill operator
to demonstrate financial strength that would enable compliance with
prescribed or changing standards and methods of operation, as well as closure
and post-closure care requirements.
The Company currently intends to purchase and maintain an
environmental impairment liability insurance policy on its potential
landfill that provides coverage against clean-up costs and bodily injury
to non-employees and property damage caused by off-site pollution emanating
from the landfill. However, if the Company should be unable to obtain
adequate insurance, or decides to operate without insurance, a partially
or completely uninsured claim against the Company, if successfully
prosecuted and of sufficient magnitude, could have a material adverse
effect upon the Company's business or financial condition. Difficulty in
obtaining insurance could also impair the Company's ability to secure
future contracts, which may be conditioned upon the availability of
adequate coverage.
Municipal and governmental waste management contracts typically
require performance bonds or bank letters of credit to secure
performance. In addition, the Company would be required to demonstrate
satisfactory financial assurances to secure its closure and post-closure
care obligations with respect to each landfill cell, some of which may
be in the form of a surety bond or letter of credit. If the Company is
unable to obtain surety bonds or letters or credit in sufficient amounts
or at acceptable rates, it may be precluded from entering into disposal
contracts or obtaining or retaining landfill operating permits.
Environmental and Other Regulations
Authority to issue Georgia permits for construction and operation
of municipal solid waste landfills, provided they are issued subject to
facility compliance with Subtitle D of The Federal Resource Conservation
and Recovery Act of 1976 (the "RCRA"), rests with the Environmental
Protection Division ("EPD") of The State of Georgia Department of Natural
Resources. The Company will prepare an application that meets the
requirements of the EPD and that demonstrates facility compliance with RCRA,
Subtitle D requirements. Locally, the City of Atlanta will be requested to
issue a Special Use Permit granting the Company authority to operate a
landfill on the Property.
In the event that the Company's applications are granted,
construction of the landfill will be required to comply with RCRA,
Subtitle D standards. Further, in granting a Special Use Permit, the
city of Atlanta may require other operating protocols with which the
Company will be required to comply. Once in operation, both the city and
the state may inspect the landfill on an unannounced basis to investigate
for regulatory and permit compliance. Once the landfill is full, post-
closure care operations and maintenance will be required for 30 years.
<PAGE>
The Company will be subject to comprehensive federal, state and local
environmental, health and safety laws and regulations. These regulations are
administered by various federal, state and local environmental, zoning,
health and safety agencies. All of these agencies are empowered to monitor
Company compliance with such laws and regulations via periodic and
unannounced inspections.
Operation of the potential landfill will require that costs be
incurred, some significant, related to liner requirements, groundwater
monitoring, leachate and landfill gas control, surface water control,
post-closure monitoring, site clean-up, site remedial work, maintenance
and post-closure care obligations. These costs may adversely impact the
profit potential of the Company's potential landfill operations by
increasing the cost to construct and operate the landfill over the short
and long term. The Company will require substantial additional financing
to develop the Property. There can be no assurance that such financing
will be available.
Resource Conservation and Recovery Act ("RCRA"), Subtitle D
regulations require landfill operators to demonstrate financial
responsibility enabling the operator to comply with landfill
construction and operation standards, as well as closure and post-
closure care requirements. The Company will be required to obtain
insurance and performance bonds at potentially high cost to meet this
requirement.
Governmental agencies have the power to enforce compliance with
landfill regulations and permit conditions and to obtain injunctions or
impose fines in the event violations are evidenced. During the ordinary
course of its operation, the Company may from time to time receive
citations or notices from such governmental agencies that its facility
is not in full compliance with applicable environmental or health and
safety regulations. Upon receipt of such citations or notices, the
Company will work with agency representatives to attempt resolution of
the matters cited. Failure to correct the problems to the satisfaction
of the agencies could lead to monetary penalties, curtailed operations,
criminal prosecution, facility closure, or the inability to obtain
further permits.
The Company would also be subject to liability for any nuisance or
trespass resulting from the operation of its potential landfill. A person
bringing a nuisance or trespass action against the Company may seek an
injunction to curtail or limit the Company's operations at the Property.
Further, any person pursuing a nuisance or trespass cause of action may
petition for actual and punitive damages. The awarding of such damages
could negatively impact the Company's financial condition and business
operations.
Recycling and other waste minimization efforts can be expected to
reduce waste generation rates not only as more recyclables are
regulated, but as manufacturers take more responsibility for the
recyclability of the packaging that they use. Recycling regulations and
procurement requirements for recycled goods will continue to create
business opportunities in the recycling field while simultaneously
serving to diminish the volume of waste available for disposal in
landfills.
<PAGE>
The waste disposal industry is subject to extensive and evolving
environmental laws and regulations that have been enacted in response to
technical advances and the public's increased concern over environmental
issues. These regulations are administered by the United States
Environmental Protection Agency and various other federal, state and
local environmental, health and safety agencies. The Company believes
that there will be increased regulation and legislation related to the
solid waste collection and disposal industry. In light of these
developments, the Company will attempt to anticipate future regulatory
requirements that might be imposed and plan accordingly to remain in
compliance with the regulatory framework.
In order to operate a landfill or transfer station, the Company
typically will have to go through several governmental review processes
and obtain one or more operating permits and often zoning and other land
use approvals. These permits and zoning or land use approvals are
difficult and time consuming to obtain and are usually opposed by
various local elected officials and citizens' groups. Once obtained, in
some states (but not in Georgia), operating permits generally must be
periodically renewed and are subject to modification and revocation by
the issuing agency.
The Company's potential landfill business would subject it to
certain operational, monitoring, site maintenance, closure and post-
closure and financial assurance obligations which change from time to
time and could give rise to increased costs for monitoring and
corrective measures. In connection with the Company's possible
acquisition of existing landfills, it will often be necessary to expend
considerable time, effort and money in complying with the governmental
review and permitting process necessary to maintain or increase the
capacity of these landfills. Governmental authorities have the power to
enforce compliance with these laws and regulations and to obtain
injunctions or impose civil or criminal penalties in case of violations.
The Company's proposed operations will be subject to regulation,
principally under the following federal statutes:
The Solid Waste Disposal Act ("SWDA"), as amended by the
Resource Conservation and Recovery Act of 1976,
as amended ("RCRA")
The SWDA and its implementing regulations establish a framework for
regulating the handling, transportation, treatment, and disposal of
hazardous and non-hazardous wastes. They also require states to develop
programs to ensure the safe disposal of solid wastes in landfills.
Subtitle D of RCRA establishes a framework for federal, state, and
local government cooperation in controlling the management of non-
hazardous solid wastes. While the role of the EPA is to provide overall
regulatory direction, the actual planning and implementation of solid
waste programs under Subtitle D are largely state and local functions.
In October 1993, the EPA adopted regulations under Subtitle D with
respect to solid waste disposal facility criteria, which include
location standards, hydrogeological investigations, facility design
requirements (including liners and leachate collection systems),
enhanced operating and control criteria, groundwater and methane gas
monitoring, corrective action standards, closure and extended post-
closure requirements, and financial assurance standards, many of which
<PAGE>
have not commonly been in place or enforced at landfills. All Subtitle D
regulations are in effect, except for financial responsibility requirements,
which were to take effect in April 1997 although many states have already
implemented financial assurance programs. These federal regulations must
be implemented by the states, although states may impose requirements
for landfill sites that are more stringent than the federal Subtitle D
standards. Once a state has an approved program, it will review all
existing landfill permits to ensure that they comply with the new
regulations. Although the states were required to submit proposed
permitting programs designed to implement the Subtitle D regulations to
the EPA by April 1993, some states have not submitted their programs to
the EPA and others have not fully completed their implementation.
Because the new regulations did not take effect until late 1993 and have
not been fully implemented by the states, their full impact may not be
apparent for several years. The Company could incur significant costs in
complying with such regulations; however, the Company does not believe
that such enhanced standards will have a material adverse effect on its
potential operations. All of the Company's potential landfills would be
engineered to meet or exceed these requirements.
The Federal Water Pollution Control Act of 1972
("The Clean Water Act")
This Act establishes rules regulating the discharge of pollutants
from a variety of sources, including solid waste disposal sites, into
streams, groundwater or other surface or subsurface waters. If runoff
from the Company's potential landfill or transfer station is discharged
into surface waters, the Act would require the Company to apply for and
obtain a discharge permit, conduct sampling and monitoring and, under
certain circumstances, reduce the quantity of pollutants in such
discharge. Also, virtually all landfills are required to comply with the
new federal storm water regulations, which are designed to prevent
possibly contaminated storm water from flowing into surface waters. The
Company will work with the appropriate regulatory agencies to ensure
that its facilities are in compliance with Clean Water Act requirements,
particularly as they apply to treatment and discharge of leachate and
storm water. In addition, where development may alter or affect
"wetlands," a permit must be obtained before such development may be
commenced. This requirement is likely to affect the construction or
expansion of many solid waste disposal sites. The Act provides for
civil, criminal and administrative penalties for violations of specified
sections of the Act.
The Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended ("Superfund" or "CERCLA")
CERCLA established a regulatory and remedial program intended to
provide for the investigation and cleanup of facilities from which there
has been, or is threatened, a release of any hazardous substance into
the environment. CERCLA's primary mechanism for remedying such programs
is to impose strict joint and several liability for cleanup of
facilities on current owners and operators of the land, former owners and
operators of the land at the time of the disposal of the hazardous
substances, as well as the generators of the hazardous substances and the
transporters who arranged for disposal or transportation of the hazardous
<PAGE>
substances. The costs of CERCLA investigation and cleanup can be very
substantial. Liability under CERCLA does not depend upon the existence or
disposal of "hazardous waste" but can also be founded upon the existence of
even very small amounts of the more than 700 "hazardous substances" listed
by the EPA, many of which can be found in household waste. If the Company
were found to be a responsible party for a CERCLA cleanup, the enforcing
agency could hold the Company completely responsible for all investigative
and remedial costs even if others may also be liable. CERCLA also authorized
the imposition of a lien in favor of the United States upon all real
property subject to or affected by a remedial action for all costs for
which a party is liable. The Company's ability to obtain reimbursement
from others for their allocable share of such costs would be limited by
the Company's ability to find other responsible parties and prove the
extent of their responsibility and by the financial resources of such
other parties. In the past, legislation has been introduced in Congress
to limit the liability of municipalities and others under CERCLA as
generators and transporters of municipal solid waste. Although such
legislation has not been enacted, if it were to pass it would limit the
Company's ability to seek full contribution from municipalities for
CERCLA cleanup costs even if hazardous substances that were released and
caused the need for cleanup at the Company's potential landfill were
generated by or transported to the landfill by a municipality.
Depending upon whether and how Congress acts, it is possible that each
of these laws may be changed in ways that may significantly affect the
Company's potential waste disposal business.
The Occupational Safety and Health Act of 1970 (the "OSHA Act")
The OSHA Act authorizes the Occupational Safety and Health
Administration to promulgate occupational safety and health standards.
Various of these standards, including standards for notices of hazards,
safety in excavation and demolition work, and the handling of asbestos,
may apply to the Company's operations.
The Clean Air Act
The Clean Air Act provides for regulation, through state
implementation of federal requirements, of the emission of air
pollutants from certain landfills based upon the date of the landfill
construction and volume per year of emissions of regulated pollutants.
The EPA proposed a New Source Performance Standard and Emission
Guidelines for municipal solid waste landfills. Current regulations
impose limits on air emissions from municipal solid waste landfills. The
New Source Performance Standard will apply to all municipal solid waste
landfills that commence construction after the date of the proposal. The
Emission Guidelines are a set of standards that must be adopted by the
states and will apply to all municipal solid waste landfills that
received waste after November 8, 1987. The EPA may also issue
regulations controlling the emissions of particular regulated air
pollutants from municipal solid waste landfills. Landfills located in
areas with air pollution problems may be subject to even more extensive
air pollution controls and emission limitations.
<PAGE>
Proposed Federal Legislation
In the future, the Company's potential collection, transfer and
landfill operations may also be affected by legislation currently
pending before Congress that would authorize the states to enact
discriminatory legislation governing waste shipments. The Company
believes that if any such federal legislation is enacted, it may have a
material adverse effect on the Company's potential operations.
State and Local Regulation
Each state in which the Company may operate in the future has laws
and regulations governing the generation, storage, treatment, handling,
transportation and disposal of solid waste, water and air pollution and,
in most cases, siting, design, operation, maintenance, closure and post-
closure of landfills and transfer stations. There has also been an
increasing trend in various states seeking to regulate the disposal of
out-of-state waste in their landfills. Legislative and regulatory
measures to mandate or encourage waste reduction at the source and waste
recycling have been adopted by many states and are also under
consideration by Congress and the EPA.
The Company's potential collection and landfill operations may be
affected by the trend toward laws requiring the development of waste
reduction and recycling programs. For example, California, Georgia, Florida
Illinois, Indiana, Kentucky, Pennsylvania, Ohio, South Carolina and West
Virginia have enacted laws that will require counties to adopt comprehensive
plans to reduce the volume of solid waste deposited in landfills, through
waste planning, composting and recycling or other programs, within the
next few years. A number of states have taken, or are considering, steps
to ban the landfilling of certain wastes, such as yard wastes, beverage
containers, newspapers, unshredded tires, lead-acid batteries and "white
goods," such as refrigerators. The enactment of regulations reducing the
volume and types of wastes available for transport to and disposal in
landfills could adversely affect the Company's ability to operate its
potential facilities at their full capacity.
Many municipalities also have ordinances, local laws and
regulations affecting the waste disposal industry. These include zoning
and health measures that limit solid waste management activities to
specified sites or activities, flow control provisions that direct the
delivery of solid wastes to specified facilities, and bans or other
restrictions on the movement of solid wastes into a municipality.
The permits or other land use approvals with respect to a landfill,
as well as state or local regulations, may (i) limit a landfill to
accepting waste that originates from a specified geographic area and/or
(ii) specify the quantity of waste that may be accepted at a landfill
during a given time period and/or (iii) specify the types of waste that
may be accepted at the landfill.
Proposed Atlanta MSWLs must file for a Special Use Permit ("SUP")
with the city of Atlanta, and a Permit to Construct and Operate a
Landfill ("PCO") with the Environmental Protection Division of The State
of Georgia Department of Natural Resources ("EPD"). Notice of such
applications must be filed with counties lying contiguous to the county
<PAGE>
within which the Property is located. These permits, if granted, would give
the Company authority to accept municipal solid waste as well as inert
waste, and construction and demolition debris. Although there are presently
no known insurmountable impediments to the approval of these permit
applications, opposition may arise from City of Atlanta and surrounding
county residents regarding environmental and quality of life issues. It is
anticipated that the city of Atlanta may impose operating protocols on which
the SUP permits are contingent. Once in operation, both the city and state
are at liberty to inspect the Property, without notification to the
operator, to investigate regulatory and permit compliance. Compliance issues
covered in the required permits include liner installation, leachate
collection system installation, periodic cover requirements and groundwater
monitoring systems. Landfill operators may also petition the various
permitting authorities, provided that there is sufficient justification, for
regulatory variances that eliminate or reduce some requirements outlined in
the petitions. In the case of the Property, this would include petitioning
to diminish/lessen the liner requirement, as based on water levels, there
will be little or no groundwater seepage/contamination. A variance would
significantly reduce costs associated with the construction of the landfill.
Disclosure Regarding Forward Looking Statements
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This Annual Report on Form 10-KSB includes forward looking
statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended ("Forward Looking Statements"). All statements other than
statements of historical fact included in this report are Forward
Looking Statements. In the normal course of its business, the Company,
in an effort to help keep its shareholders and the public informed about
the Company's operations, may from time-to-time issue certain
statements, either in writing or orally, that contain or may contain
Forward-Looking Statements. Although the Company believes that the
expectations reflected in such Forward Looking Statements are
reasonable, it can give no assurance that such expectations will prove
to have been correct. Generally, these statements relate to business
plans or strategies, projected or anticipated benefits or other
consequences of such plans or strategies, past and possible future, of
acquisitions and projected or anticipated benefits from acquisitions
made by or to be made by the Company, or projections involving
anticipated revenues, earnings, levels of capital expenditures or other
aspects of operating results. All phases of the Company operations are
subject to a number of uncertainties, risks and other influences, many
of which are outside the control of the Company and any one of which, or
a combination of which, could materially affect the results of the
Company's proposed operations and whether Forward Looking Statements
made by the Company ultimately prove to be accurate. Such important
factors ("Important Factors") and other factors could cause actual results
to differ materially from the Company's expectations are disclosed in this
report. All prior and subsequent written and oral Forward Looking Statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by the Important Factors described below that
could cause actual results to differ materially from the Company's
expectations as set forth in any Forward Looking Statement made by or on
behalf of the Company.
<PAGE>
Competition: The waste collection/disposal business and the fabric
care business are both highly competitive and require substantial
amounts of capital. If permitted and operational, the Company's facilities
would compete with numerous enterprises, many of which have significantly
larger operations and greater resources than the Company. The Company would
also compete with those counties and municipalities that maintain their
own waste collection and disposal operations. Forward Looking Statements
assume that the Company will be able to effectively compete with these other
entities.
Availability of Acquisition Targets: The Company's planned
acquisition program is a key element of its expansion strategy. In
addition, obtaining landfill permits has become increasingly difficult,
time consuming and expensive. There can be no assurance, however, that
the Company will succeed in obtaining landfill permits or locating
appropriate acquisition candidates that can be acquired at price levels
that the Company considers appropriate.
Ongoing Capital Requirements: In order to satisfy the liquidity
needs of the Company for the following twelve months, the Company will
be primarily dependent upon proceeds from the sale of the Company's
stock and, to a lesser extent, revenues generated from the operation of
its fabric care business. Historically, revenues from the fabric care
operation have not been adequate to fund the operations of the Company.
The Company raised $5,500,000 through private sales of newly issued
restricted shares of its common stock during fiscal 1996. If the Company
is unable to obtain adequate funds from the sale of its stock in public
offerings, private placements or alternative financing arrangements, it
may be necessary to delay the potential permitting and development of its
Atlanta Property as a municipal solid waste landfill. Should this delay
occur, the Company may pursue one or more of its potential alternative
plans to produce revenues from the Atlanta Property, which include possibly
re-opening the Property as a granite quarry, and/or using the Property for
the disposal of inert debris and/or the storage of recyclable materials.
Because of potential political, legal, bureaucratic, and other factors,
there can be no assurance that the Company will be able to accomplish any of
its goals for the Property within a reasonable period of time.
Economic Conditions: The Company's potential waste
collection/disposal business would be affected by general economic
conditions. There can be no assurance that an economic downturn will not
result in a reduction in the potential volume of waste that might be
disposed of at the Company's potential facilities and/or the price that
the Company would charge for its services. Additionally, the demand for
FIBER-SEAL's services may be adversely affected by an economic downturn.
Weather Conditions: Protracted periods of inclement weather may
adversely affect the Company's potential operations by interfering with
collection and landfill operations, delaying the development of landfill
capacity and/or reducing the volume of waste generated by the Company's
potential customers. In addition, particularly harsh weather conditions
may result in the temporary suspension of certain of the Company's
potential operations. The Forward Looking Statements do not assume that
such weather conditions will occur.
<PAGE>
Dependence on Senior Management: The Company is highly dependent
upon its senior management team. In addition, as the Company continues
to grow, its requirements for operations management with franchising and
waste industry experience will also increase. The future availability of
such experienced management cannot be predicted. The Forward Looking
Statements assume that experienced management will be available when needed
by the Company at compensation levels that are within industry norms. The
loss of the services of any member of senior management or the inability to
hire experienced operations management could have a material adverse effect
on the Company.
Influence of Government Regulation: The Company's potential
operations would be subject to and substantially affected by extensive
federal, state and local laws, regulations, orders and permits, which
govern environmental protection, health and safety, zoning and other
matters. These regulations may impose restrictions on operations that
could adversely affect the Company's results, such as limitations on the
expansion of disposal facilities, limitations on or the banning of
disposal of out-of-state waste or certain categories of waste or
mandates regarding the disposal of solid waste. Because of heightened
public concern, companies in the waste management business may become
subject to judicial and administrative proceedings involving federal,
state or local agencies. These governmental agencies may seek to impose
fines or to revoke or deny renewal of operating permits or licenses for
violations of environmental laws or regulations or to require
remediation of environmental problems at sites or nearby properties, or
resulting from transportation or predecessors' transportation and
collection operations, all of which could have a material adverse effect
on the Company. Liability may also arise from actions brought by
individuals or community groups in connection with the permitting or
licensing of operations, any alleged violations of such permits and
licenses or other matters. The Forward Looking Statements assume that
there will be no materially negative impact on its operations due to
governmental regulation.
Potential Environmental Liability: The Company may incur
liabilities for the deterioration of the environment as a result of its
potential operations. Any substantial liability for environmental damage
could materially adversely affect the operating results and financial
condition of the Company. Due to the limited nature of insurance
coverage of environmental liability, if the Company were to incur
liability for environmental damage, its business and financial condition
could be materially adversely affected.
Inflation and Prevailing Economic Conditions
- --------------------------------------------
To date, inflation has not had a significant impact on the
Company's operations. Consistent with industry practice, most of the
Company's contracts will provide for a pass through of certain costs,
including increases in landfill tipping fees and, in some cases, fuel
costs. The Company therefore believes it should be able to implement
price increases sufficient to offset most cost increases resulting from
inflation. However, competitive factors may require the Company to
absorb cost increases, resulting from inflation. The Company is unable
to determine the future impact of a sustained economic slowdown.
<PAGE>
Employees
As of March 31, 1997, the Company had a total of 16 persons, none
of whom are subject to a collective bargaining agreement. The Company
considers its relations with its employees to be satisfactory.
ITEM 2. PROPERTIES.
- ------------------
The principal fixed asset of the Company is the Atlanta Property
described in Item 1. that the Company proposes to develop into a landfill.
The Company also owns 283.5 acres of real estate located in Ellis County,
Texas. This property is held for future development or resale.
The Company leases approximately 8,481 square feet of office and
warehouse space in Dallas, Texas.
ITEM 3. LEGAL PROCEEDINGS.
- -------------------------
The Company is, from time to time, engaged in litigation matters
arising in the ordinary course of business. Management believes that the
ultimate resolution of these matters will not have a material adverse
impact on the Company's financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- -----------------------------------------------------------
No matters were submitted to a vote of the Company's security
holders during the fourth quarter of fiscal year 1996 or the short year
ended December 31, 1996.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK.
- ---------------------------------------------
The Company's Common Stock is registered with the United States
Securities and Exchange Commission under Section 12(g) of the
Securities Exchange Act of 1934 but is not quoted on a national or
regional securities exchange or on the National Association of
Securities Dealers, Inc. Automated Quotation System. The Common Stock is
traded on the Over-the-Counter Bulletin Board.
The following table sets forth the quarterly high and low closing
bid prices per share for the Company's Common Stock for the periods
indicated. These prices represent prices between dealers, do not
include retail mark-up, mark-down or commissions and may not necessarily
represent actual transactions.
<PAGE>
Short Year Ended Year Ended Year Ended
December 31, 1996 September 30, 1996 September 30, 1995
----------------- ------------------ ------------------
Quarters High Low High Low High Low
----------- ------ ------ ------ ------ ------ ------
JUL - SEP - - $30.50 $16.50 $6.00 $4.00
APR - JUN - - $26.00 $ 3.50 $6.25 $2.88
JAN - MAR - - $ 5.00 $ 4.13 $5.63 $2.88
OCT - DEC $27.13 $20.50 $ 5.13 $ 4.00 $6.00 $4.00
There were 1,241 holders of record of the Common Stock as of
March 31, 1997. This number does not include an indeterminate number
of shareholders whose shares are held by brokers in "street name." The
Company has not declared any cash dividends on its Common Stock during
its short year ended December 31, 1996 or its fiscal years ended
September 30, 1996 and 1995. The Board of Directors of the Company has
made no determination to date to declare cash dividends during the
foreseeable future. There are no restrictions on the Company's present or
future ability to pay cash dividends other than those restrictions imposed
by law on all Georgia corporations.
ITEM 6. SELECTED FINANCIAL DATA.
- -------------------------------
The following table sets forth selected consolidated financial
information derived from the audited consolidated financial statements
of the Company for the years indicated.
Consolidated Summary Selected Financial Data
For (or as of the end of) the Periods Indicated
Three Months
Ended Year Ended Year Ended
December 31, September 30, September 30,
1996 1996 1995
------------ ------------ ------------
Operating Revenues $ 221,884 $ 818,978 $ 903,028
Net Loss (270,869) (998,794) (616,684)
Loss Per Common Share (.02) (.10) (.08)
Total Assets $12,013,021 12,323,097 3,308,135
Long-Term Obligations 1,667,000 1,667,000 747,000
Stockholders' Equity 9,950,169 10,181,913 1,895,587
Cash Dividends Per Share 0 0 0
<PAGE>
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
- -------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS.
-----------------------------------
Results of Operations
Revenues of the Company are currently derived solely from the
FIBER-SEAL fabric care and treatment business. Revenues consist of: (1)
licensee fees based upon monthly sales, (2) product sales to licensees,
and (3) direct product and service sales from the Dallas, Texas
territory (which is owned by CICG).
Operating revenues decreased by $84,050 in fiscal 1996 as compared
with fiscal 1995. Such decrease was due to a $30,002 non-recurring sale of
mined rock from the Atlanta quarry site in fiscal year 1995, and to a decline
in revenue from FIBER-SEAL of Dallas as a result of management changes. The
decline in fabric care revenues is expected to be a temporary situation as a
result of expected improvements in performance at FIBER-SEAL of Dallas as well
as the Company's strategic decision to convert its fabric care business from a
licensing mode to a potentially far more lucrative franchising operation.
Operating revenues decreased by $20,581 in the short period ended
December 31, 1996 as compared with the quarter ended December 31, 1995.
Selling, general and administrative (SG&A) expenses increased $307,599
during fiscal 1996 as compared to fiscal 1995. The increase was caused by a
variety of factors including consulting fees related to the potential use of
the Atlanta Property as a waste disposal site, other consulting fees,
increased legal fees, increased public relations expenses, and increased
management expenses.
The net loss for fiscal 1996 was $382,110 higher than the loss for
fiscal 1995. Such increase was due primarily to the aforementioned lower
revenues and higher SG&A expenses in fiscal 1996 as compared with fiscal 1995.
The net loss for the short period ended December 31, 1996 was $184,586
higher than the loss for the quarter ended December 31, 1995. Such increase
was due primarily to the higher SG&A expenses in the short period ended
December 31, 1996.
Liquidity and Capital Resources
The company had working capital of $3,224,268 at the end of fiscal
year 1996 and a current ratio of 7.8 to 1.
The company had working capital of $2,993,135 at the end of the short
period ending December 31, 1996 and a current ratio of 8.6 to 1.
The primary source of capital during the 15 month period ended
December 31, 1996 was provided by the sale of shares of common stock of the
Company in private sales. Capital resources continue to be utilized primarily
to (1) fund the operating losses of the Company, which have been created
primarily by costs associated with planning for the development of the
Company's Property in Atlanta, Georgia as a waste disposal landfill and (2)
to acquire additional land adjacent to the Property. The Company invested
$5,352,691 during fiscal 1996 in additional land adjacent to the Property in
Atlanta. None of the Company's real estate holdings are encumbered by any
debt.
<PAGE>
In order to satisfy the liquidity needs of the Company for the
following twelve months, the Company will be primarily dependent upon
proceeds from the sale of the Company's stock and, to a lesser extent,
revenues generated from the operation of its fabric care business.
Historically, revenues from the fabric care operation have not been
adequate to fund the operations of the Company. The Company raised
$5,500,000 through private sales of newly issued restricted shares of
its common stock during fiscal 1996. If the Company is unable to obtain
adequate funds from the sale of its stock in public offerings, private
placements or alternative financing arrangements, it may be necessary to
delay the potential permitting and development of its Atlanta Property as a
municipal solid waste landfill. Should this delay occur, the Company may
pursue one or more of its potential alternative plans to produce revenues
from the Atlanta Property, which include possibly re-opening the Property as
a granite quarry, and/or using the Property for the disposal of inert debris
and/or the storage of recyclable materials. Because of potential political,
legal, bureaucratic, and other factors, there can be no assurance that the
Company will be able to accomplish any of its goals for the Property within
a reasonable period of time.
The Company has issued shares of its Common Stock from time to time
in the past to satisfy certain obligations, and expects in the future to
also acquire certain services, satisfy indebtedness and/or make
acquisitions utilizing authorized shares of stock of the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- ---------------------------------------------------
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Certified Public Accountants F-1
Consolidated Balance Sheet as of December 31, 1996 F-2
Consolidated Statements of Operations for the three
months ended December 31, 1996 and for the fiscal
years ended September 30, 1996 and 1995 F-3
Consolidated Statement of Stockholders' Equity
for the three months ended December 31, 1996
and for the fiscal years ended September 30, 1996
and 1995 F-4
Consolidated Statements of Cash Flows for the three
months ended December 31, 1996 and for the fiscal
years ended September 30, 1996 and 1995 F-5
Notes to Financial Statements F-7
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
Continental Investment Corporation
We have audited the accompanying consolidated balance sheet of Continental
Investment Corporation (a Georgia corporation) and Subsidiaries as of December
31, 1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for the three months ended December 31, 1996 and each of
the two years in the period ended September 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Continental
Investment Corporation and Subsidiaries as of December 31, 1996, and the
consolidated results of their operations and their consolidated cash flows for
the three months ended December 31, 1996 and each of the two years in the
period ended September 30, 1996, in conformity with generally accepted
accounting principles.
GRANT THORNTON LLP
Dallas, Texas
February 7, 1997
<PAGE>
Continental Investment Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEET
December 31, 1996
ASSETS
CURRENT ASSETS
Cash $ 841,586
Note receivable 2,380,000
Accounts receivable 23,679
Inventories 48,613
Accrued interest receivable 61,142
Prepaid expenses 33,967
-----------
Total current assets 3,388,987
PROPERTY AND EQUIPMENT
Land, at cost 8,564,582
Fixtures and equipment, net of
of accumulated depreciation
of $29,960 41,813
-----------
8,606,395
INTANGIBLES, net of accumulated
amortization of $17,361 17,639
-----------
Total assets $12,013,021
===========
The accompanying notes are an integral part of this statement.
<PAGE>
Continental Investment Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEET - CONTINUED
December 31, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 119,496
Accrued expenses 46,356
Current portion of long-term
note payable 230,000
-----------
Total current liabilities 395,852
LONG-TERM LIABILITIES
Note payable 920,000
Deferred income taxes 747,000
-----------
1,667,000
-----------
Total liabilities 2,062,852
COMMITMENTS -
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value;
1,000,000 shares authorized; no
shares issued or outstanding -
Common stock, $.50 par value;
25,000,000 shares authorized;
11,313,008 issued and outstanding 2,782,504
Additional contributed capital 10,607,444
Accumulated deficit (3,439,779)
-----------
Total stockholders' equity 9,950,169
-----------
Total liabilities and
stockholders' equity $12,013,021
===========
The accompanying notes are an integral part of this statement.
<PAGE>
Continental Investment Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months
ended
December 31, Year ended September 30,
1996 1996 1995
----------- ----------- -----------
Revenues $ 221,884 $ 818,978 $ 903,028
Costs and expenses
Cost of revenues 88,900 369,435 411,415
Selling, general and
administrative expenses 453,686 1,358,719 1,051,120
----------- ----------- -----------
542,586 1,728,154 1,462,535
----------- ----------- -----------
Operating loss (320,702) (909,176) (559,507)
Other income (expense)
Interest income 74,824 8,946 -
Interest expense (24,991) (98,564) (95,102)
----------- ----------- -----------
49,833 (89,618) (95,102)
Loss before income taxes (270,869) (998,794) (654,609)
Deferred income tax expense - - 1,321
----------- ----------- -----------
Loss before extraordinary
credit (270,869) (998,794) (655,930)
Extraordinary credit - gain on debt
forgiveness - - 39,246
----------- ----------- -----------
NET LOSS $(270,869) $ (998,794) $ (616,684)
=========== =========== ===========
Per share data
Loss before extraordinary
credit per common share $(.02) $(.10) $(.08)
====== ====== ======
Loss per common share $(.02) $(.10) $(.08)
====== ====== ======
Weighted average number of
common and common equivalent
shares outstanding 11,311,288 9,746,092 8,181,482
=========== =========== ===========
The accompanying notes are an integral part of this statement.
<PAGE>
<TABLE>
Continental Investment Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<CAPTION>
Common Stock Additional Treasury stock
---------------------- contributed ---------------- Accumulated
Shares Par value capital Shares Amount deficit Total
--------- ---------- ---------- ------ -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at
October 1, 1994 7,027,327 $ 639,664 $ 238,930 7,209 (26,771) (1,553,432) (701,609)
Conversion of debt
to stock 1,600,000 800,000 100 - - - 800,100
Sale of stock in
private placement 80,000 40,000 360,000 - - - 400,000
Purchase of land
for stock 150,000 75,000 675,000 - - - 750,000
Issuance of stock
for services 16,200 8,100 77,899 - - - 85,999
Stock issued for
debt forgiveness 10,000 5,000 45,000 - - - 50,000
Net loss - - - - - (616,684) (616,684)
--------- ---------- ----------- ------ ------- ------------ ------------
Balances at
September 30, 1995 8,883,527 1,567,764 1,396,929 7,209 (26,771) (2,170,116) 767,806
Retirement of
treasury stock (7,209) (3,604) (23,167) (7,209) 26,771 - -
Sale of stock
in private placement 955,000 477,500 5,022,500 - - - 5,500,000
Issuance of stock
for services 50,800 25,400 228,680 - - - 254,080
Issuance of stock
for land 1,427,940 713,969 3,944,852 - - - 4,658,821
Net loss - - - - - (998,794) (998,794)
---------- ---------- ----------- ------ -------- ------------ ------------
Balances at
September 30, 1996 11,310,058 $2,781,029 $10,569,794 - $ - $(3,168,910) $10,181,913
Issuance of stock 2,950 1,475 37,650 - - - 39,125
Net loss - - - - - (270,869) (270,869)
---------- ---------- ----------- ------ -------- ------------ ------------
Balances at
December 31, 1996 11,313,008 $2,782,504 $10,607,444 - - $(3,439,779) $ 9,950,169)
========== ========== =========== ====== ======== ============ ============
<FN>
The accompanying notes are an integral part of this statement.
</FN>
</TABLE>
<PAGE>
<TABLE>
Continental Investment Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Three months
ended Year ended September 30,
December 31, ---------------------------
1996 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(270,869) $ (998,794) $(616,864)
Adjustments to reconcile net loss to
net cash used in
operating activities:
Amortization and depreciation expense 12,265 2,333 2,334
Common stock issued as consideration
for services - 254,080 85,999
Imputed interest on note payable - 90,092 83,034
Deferred income taxes - - 1,321
Change in operating assets and
liabilities
Accounts receivable - trade (10,847) (12,832) -
Other current assets (61,142) (67,711) (24,792)
Accounts payable - trade (34,988) (39,264) 58,760
Accrued expenses (7,564) (67,091) 48,705
Income taxes payable 31,356 - (23,921)
Accrued expenses to related
parties (67,999) (274,106) 165,908
Deferred rent - - (8,807)
Other - (67,873) (120,678)
---------- ---------- ----------
Net cash used in operating
activities (409,788) (1,181,166) (349,001)
Cash flows from investing activities:
Issuance of note receivable (1,500,000) (880,000) -
Purchases of property (16,755) (693,870) (9,473)
----------- ----------- ----------
Net cash used in investing
activities (1,516,755) (1,573,870) (9,473)
Cash flows from financing activities:
Proceeds from sale of stock 5,000 5,500,000 400,000
Debt repayments - - (25,676)
Other - - 100
----------- ---------- ----------
Net cash provided by
financing activities 5,000 5,500,000 374,424
----------- ----------- ----------
Increase in cash (1,921,543) 2,744,964 15,950
Cash at beginning of year 2,763,129 18,165 2,215
----------- ----------- ----------
Cash at end of year $ 841,586 $2,763,129 $ 18,165
=========== =========== ==========
<FN>
The accompanying notes are an integral part of this statement.
</FN>
</TABLE>
<PAGE>
Continental Investment Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Three months ended December 31, 1996 and the years ended
September 30, 1996 and 1995
Non-Cash Investing and Financing Activities
During fiscal year ending September 30, 1995, liabilities were settled
and land was purchased in exchange for stock as follows:
* $800,000 debt retired in exchange for 1,600,000 shares
of common stock.
* $75,675 note payable retired for cash of $25,675 and 10,000
shares of common stock.
* Land was acquired for 150,000 shares of common stock valued at
$750,000.
During fiscal year ending September 30, 1996, liabilities were settled
and land was purchased in exchange for stock as follows:
* Land was acquired by issuing 1,427,940 shares of common stock
valued at $4,658,821 and cash of $693,870, for a total purchase
price of $5,352,691.
The accompanying notes are an integral part of this statement.
<PAGE>
Continental Investment Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation and Principles of Consolidation
-----------------------------------------------------
The accompanying consolidated financial statements include the accounts
of Continental Investment Corporation and its subsidiaries. All
significant intercompany transactions and balances have been eliminated.
Nature of Operations
--------------------
The Company operates in two principal segments: property development,
primarily its potential landfill site in Atlanta, Georgia, and its Fiber-
Seal fabric care and service protection business.
Property
--------
Property is recorded at cost. Expenditures for major additions and
improvements are capitalized, while minor replacements, maintenance and
repairs are charged to expense as incurred. When property is retired or
otherwise disposed of, the cost and accumulated depreciation and
depletion are removed from the accounts and any resulting gain or loss
is reflected in current operations.
Landfill and certain treatment facility costs will be depleted using the
units of production method, which is calculated using the total units of
airspace filled during the year in relation to total estimated permitted
airspace capacity. Depreciation on the remaining assets will be provided
over the estimated useful lives of such assets using the straight-line
method.
Landfill improvements include direct costs incurred to obtain a landfill
permit and direct costs incurred to construct and improve the site and
these costs will be depleted based on consumed airspace. No general and
administrative costs are capitalized as landfill and landfill
improvements.
Income Taxes
------------
Deferred income taxes are provided under the liability method in which
deferred assets and liabilities are determined based on the differences
between the tax basis of assets and liabilities and the amounts reported
in the financial statements. Deferred tax assets and liabilities at the
end of each period are determined using the currently enacted tax rates.
<PAGE>
Continental Investment Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Intangibles
-----------
Intangibles are amortized over fifteen years, on a straight-line basis.
Intangibles represent licensing and marketing rights to the intellectual
property of a system for fabric care treatment and protection. The
Company periodically reviews intangibles to assess recoverability, and
impairment is recognized in results of operations when recoverability is
not probable.
Loss Per Share
--------------
Loss per common share is based on the weighted average number of
outstanding common shares during the period and, if their effect is
dilutive, common stock equivalents consisting of stock options.
Use of Estimates
----------------
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities
at the date of the financial statements and revenues and expenses during
the reporting period. Actual results could differ from those estimates.
<PAGE>
Continental Investment Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE B - ACQUISITION
On September 30, 1996, the Company acquired all of the operating assets
and liabilities of Fiber-Seal of Dallas (FSD) and Fiber-Seal Services
International, Inc. (FSSI) from the majority stockholder of the Company
in exchange for a $1,150,000 note payable. Due to the common ownership
of the Company, FSD and FSSI, the transaction has been accounted for in
a manner similar to a pooling of interests and, accordingly, the
consolidated financial statements for all periods presented have been
restated to include the accounts of FSD and FSSI. The note payable
exchanged in the acquisition has been discounted and interest imputed at
the stated rate of 8-1/2% per annum as if the transaction had occurred
on October 1, 1994. The excess of the carrying value of the note
payable over the historical cost basis of the net assets acquired has
been reflected as a distribution to stockholders.
Net sales and net earnings of the separate companies for the periods
preceding the acquisition were as follows:
<TABLE>
<CAPTION>
Imputed
CICG FSD FSSI Eliminations interest Combined
--------- -------- -------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Year ended
September 30, 1996
Revenues $ 60,000 $247,606 $539,381 $(28,009) $ - $818,978
Net earnings (loss) (1,040,199) (311) 137,187 (5,379) (90,092) (998,794)
Year ended
September 30, 1995
Revenues $134,002 $326,683 $491,262 $(48,919) $ - $903,028
Net earnings (loss) (654,508) 23,112 97,746 - (83,034) (616,684)
</TABLE>
NOTE C - CHANGE IN FISCAL YEAR
In February 1997, the Company changed its fiscal year end from
September 30 to December 31, effective January 1, 1997. A three-month
fiscal transition period from October 1, 1996 to December 31 will precede
the start of the new fiscal year. Condensed financial information
(unaudited) of the Company for the three months ended December 31, 1995
is as follows:
Revenues $242,465
Operating loss (63,207)
Net loss (86,283)
Loss per common share $(.01)
<PAGE>
NOTE D - NOTE RECEIVABLE
Note receivable consists of amounts due under a revolving loan agreement.
Amounts outstanding under the agreement are collateralized by 100,000 shares
of the Company's common stock, bear interest at 10% per annum, payable
quarterly, with principal due in five installments through December 31, 1997.
Continental Investment Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE E - PROPERTY AND EQUIPMENT
The Company's property and equipment consists of the following at
December 31, 1996:
LAND
229 acres in Atlanta, Georgia
Former Granite Quarry $ 564,222
Unimproved land 7,135,360
----------
7,699,582
253.5 acres, Ellis County, Texas
Unimproved land 750,000
30 acres, Ferris, Texas
Unimproved land 115,000
----------
$8,564,582
==========
FIXTURES AND EQUIPMENT
Fixtures and equipment $ 71,773
Accumulated depreciation (29,960)
----------
$ 41,813
==========
NOTE F - INCOME TAXES
The Company and its subsidiaries file a consolidated tax return. At
December 31, 1996, the Company has, for Federal income tax purposes,
operating loss carryforwards of approximately $3,900,000, expiring
through 2012 and capital loss carryforwwards of approximately $310,000
expiring through 1999. Tax laws limit the utilization of certain of the
net operating loss carryforwards and capital loss carryforwards to
approximately $250,000 per year. Therefore, the Company may be required
to pay income taxes in future years even though significant loss
carryforwards exist.
<PAGE>
Continental Investment Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STAEMENTS - CONTINUED
NOTE F - INCOME TAXES - Continued
Reconciliation of income taxes computed at the Federal statutory rate
and income tax expense is as follows:
<TABLE>
<CAPTION>
Three months
ended Year ended September 30,
December 31, ------------------------
1996 1996 1995
----------- --------- ---------
<S> <C> <C> <C>
Tax benefit at statutory rate $(92,000) $(340,000) $(223,000)
Change in valuation allowance 89,000 307,000 223,000
Other 3,000 33,000 1,321
-------- --------- ---------
$ - $ - $ 1,321
======== ========= =========
</TABLE>
Consolidated deferred tax assets and liabilities consist of the following
at December 31, 1996:
Deferred tax assets
Net operating loss and capital
loss carryforwards $ 1,389,000
Valuation allowance (1,389,000)
------------
-
Deferred tax liabilities
Property 747,000
------------
Net deferred tax liability $ 747,000
============
At December 31, 1996, the Company had capital and net operating loss
carryforwards for Federal tax purposes expiring as follows:
Year of
expiration Amount
---------- ----------
Capital losses 1999 $ 313,568
==========
Net operating loss carryforwards 2005 $ 245,018
2006 286,359
2007 682,391
2008 152,727
2009 710,373
2010 644,163
2011 902,484
2012 262,408
----------
$3,885,923
==========
<PAGE>
Continental Investment Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE G - NOTE PAYABLE
The note payable bears interest at 8.5% and is due in annual installments
of $230,000 commencing on January 15, 1997, with interest due quarterly.
The future minimum payments under this long-term note at December 31,
1996 are as follows:
1997 $ 230,000
1998 230,000
1999 230,000
2000 230,000
2001 230,000
----------
1,150,000
Less current maturities 230,000
----------
$ 920,000
==========
NOTE H - LEASES
The Company leases office and warehouse space under an agreement expiring
in 1999. This lease, which has been classified for accounting purposes as
an operating lease, is subject to customary escalation clauses for
executory costs and operating expenses. The future minimum lease payments
under the noncancellable lease at December 31, 1996, are as follows:
Year ending
December 31,
------------
1997 $36,044
1998 36,044
1999 27,033
-------
$99,121
=======
<PAGE>
Continental Investment Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE I - COMMON STOCK AND STOCK OPTIONS
Common stock is stated at the lower of par value or consideration
received, as permitted by state law.
The following information relates to stock options.
Three months ended
December 31, 1996
-------------------------
Weighted
average
exercise
Shares price
---------- ----------
Outstanding at beginning of period 3,404,000 $ 9.95
Exercised (1,000) 5.00
---------- ----------
Outstanding at end of period 3,403,000 $ 9.95
========== ==========
Options exercisable at December 31, 1996 3,403,000 $ 9.95
========== ==========
Year ended
September 30, 1996
-------------------------
Weighted
average
exercise
Shares price
---------- ----------
Outstanding at beginning of year 354,000 $ 6.89
Granted 3,512,500 9.88
Exercised (462,500) 7.03
---------- ----------
Outstanding at end of year 3,404,000 $ 9.95
========== ==========
Options exercisable at September 30, 1996 3,404,000 $ 9.95
========== ==========
<PAGE>
Continental Investment Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE I - COMMON STOCK AND STOCK OPTIONS - Continued
Year ended
September 30, 1995
-------------------------
Weighted
average
exercise
Shares price
---------- ----------
Outstanding at beginning of year 144,000 $10.17
Granted 210,000 4.64
---------- ----------
Oustanding at end of year 354,000 $ 6.89
========== ==========
Options exercisable at September 30, 1995 354,000 $ 6.89
========== ==========
Information about stock options outstanding at December 31, 1996 is
summarized as follows:
Options outstanding and exercisable
-----------------------------------
Weighted average
Range of Number remaining Weighted average
Exercise prices outstanding contractural life exercise price
---------------- ----------- ------------------ ----------------
$ 4.00 to $ 5.00 2,483,000 3.3 years $ 4.84
$ 5.01 to $10.00 122,000 .9 years $ 8.03
$10.01 to $35,00 798,000 1.0 years $26.15
-----------
3,403,000
===========
<PAGE>
Continental Investment Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE J - SEGMENTS
The Company operates in two principal segments: property development,
primarily its potential landfill site in Atlanta, Georgia, and its Fiber-
Seal fabric care and surface protection business.
<TABLE>
<CAPTION>
Property Fabric
December 31, 1996 Development Care Corporate Consolidated
------------------ ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Revenues $ - $221,884 $ - $ 221,884
Operating profit (loss) (356,436) 35,734 - (311,143)
Identifiable assets 11,717,308 305,272 - 12,022,580
Depreciation and amortization - 3,266 - 3,266
Capital expenditures - - - -
September 30, 1996
------------------
Revenues $ - 818,978 $ - $ 818,978
Operating profit (loss) (1,014,144) 15,760 (410) (998,794)
Identifiable assets 12,229,202 93,895 - 12,323,097
Depreciation and amortization - 2,333 - 2,333
Capital expenditures 693,870 - - 693,870
September 30, 1995
------------------
Revenues $ 30,002 $873,026 $ - $ 903,028
Operating profit (loss) (379,255) 103,100 (378,454) (654,609)
Identifiable assets 3,282,321 25,814 - 3,308,135
Depreciation and amortization - 2,334 - 2,334
Capital expenditures 9,473 - - 9,473
</TABLE>
NOTE K - FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include cash, notes receivable and
debt. The fair value of all instruments approximates the carrying value
as they reprice within one year.
NOTE L - CONTINGENCIES
The Company is defendant in various matters in litigation which have
arisen in the normal course of business. In the opinion of management,
such litigation will not have a material effect on the Company's
financial position or results of operations.
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
- -------------------------------------------------------------------
AND FINANCIAL DISCLOSURE.
------------------------
NONE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- -----------------------------------------------------------
Executive Officers of the Registrant
- ------------------------------------
Set forth below is certain information concerning the Directors and
Executive Officers of the Company as of March 31, 1997.
Name Age Current Position with Company
-------------------- --- -----------------------------
R. Dale Sterritt, Jr. 40 Director, Chairman and CEO
Thomas F. Snodgrass 66 Director, President and Treasurer
Robert D. Luna 43 Director, Secretary
Martin G. Blahitka 59 Director
J. B. Morris 57 Director
Mr. R. Dale Sterritt, Jr. has served as Chairman, Chief Executive
Officer and as a Director since July 1991.
Mr. Thomas F. Snodgrass has served as a Director, President and
Treasurer since July 1991.
Mr. Martin G. Blahitka has served as a director of the Company
since September 1993. He has been a private investor for more than the past
five years.
Mr. Robert D. Luna has served as a Director since September 1993 and
currently serves as Secretary of the Company. Mr. Luna has been a private
investor (in securities, real estate, and oil and gas) for more than the past
five years.
Mr. J. B. Morris has served as a Director since April 1990. He has been
a private investor for more than the past five years.
<PAGE>
Key Subsidiary Executive
- ------------------------
Steven A. Lytle, in October 1996, was named Executive Vice President
and Chief Operating Officer of a wholly-owned subsidiary, Continental
Technologies Corporation, a Georgia corporation based in Atlanta. He is
directing the development of Continental's proposed solid waste operations.
Mr. Lytle has had 11 years experience in the solid waste industry, including
extensive involvement in developing and managing solid waste facilities.
Among other accomplishments, he designed and obtained the permit for a 50
million cubic yard disposal facility in Georgia and continued on to manage
this facility as the District Manager for his former employer. Mr. Lytle holds
a degree in civil engineering from the University of Cincinnati.
ITEM 11. EXECUTIVE COMPENSATION.
- -------------------------------
Information required by this item is incorporated by reference to the
material appearing under the heading "Executive Compensation" in the Proxy
Statement for the 1997 Annual Meeting of Shareholders.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
- ------------------------------------------------------------
MANAGEMENT.
----------
The following table sets forth, to the best knowledge of the Company
as of March 31, 1997, certain information with respect to (i) beneficial
owners of more than five percent (5%) of the outstanding Common Stock,
(ii) beneficial ownership of shares of the Company's Common Stock by each
director, and (iii) beneficial ownership of shares of the Company's Common
Stock by all officers and directors as a group.
Name and Address Amount and Nature Percent of
of Beneficial Owner of Beneficial Ownership Class
-------------------- ----------------------- ----------
Martin G. Blahitka 10,000 (4)
c/o Continental Investment
10254 Miller Road
Dallas, TX 75238
Robert D. Luna - -
c/o Continental Investment
10254 Miller Road
Dallas, TX 75238
J. B. Morris 170,699 1.5%
c/o Continental Investment
10254 Miller Road
Dallas, TX 75238
Stewart Rahr 983,475 (3) 8.7%
152-35 10th Avenue
Whitestone, NY 11357
Thomas F. Snodgrass 15,000 (4)
c/o Continental Investment
10254 Miller Road
Dallas, TX 75238
R. Dale Sterritt, Jr.
c/o Continental Investment
10254 Miller Road -
Dallas, TX 75238
Sterritt Properties, Inc. (1) 5,750,444 50.8%
P. O. Box 452648
Garland, TX 75045
Business Ventures, Inc. (2) 1,600,000 14.1%
50 Lincolns Inn Fields
3rd Floor
London, WC 2A 3PF England
--------------------------
All Officers and Directors 195,699 1.7%
as a Group (5 persons)
--------------------------
<PAGE>
(1) Sterritt Properties, Inc. is owned 100% by a Family Limited
Partnership. Richard D. Sterritt, Sr., the President of Sterritt
Properties, Inc., is the father of the Chairman and CEO, R. Dale
Sterritt, Jr.
(2) The beneficial ownership of these shares is contested. The Company
does not take a position as to the true beneficial ownership of such
shares, but has indicated the name at the time of issue for the
purpose of this disclosure item.
(3) Does not include options to acquire 1,037,000 shares of CICG common
stock. Also does not include 200,000 shares owned by members of his
immediate family, to which Mr. Rahr disclaims beneficial ownership.
(4) Less than 1%.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- -------------------------------------------------------
Information required by this item is incorporated by reference to
the material appearing under the heading "Certain Relationships and Related
Transactions" in the Proxy Statement for the 1997 Annual Meeting of
Shareholders.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
- -------------------------------------------------------------
ON FORM 8-K.
-----------
(a) Following are documents filed as part of this report:
1. Consolidated Financial Statements of Continental Investment
Corporation and Subsidiaries.
See Item 8 of this report - Financial Statements and
Supplementary Data.
2. Financial statement schedules.
There are no financial statement schedules required to be filed.
3. Exhibits.
Exhibit
Number Exhibit Index
------- -----------------------------------------------------------------
3.1 - Certified copy of the Company's Articles of Incorporation
and amendments thereto. 1/
3.2 - Amended and Restated Bylaws of the Company, as of August
8, 1989. 1/
3.3 - Amendment to the Company's Articles of Incorporation
dated March 24, 1994. 2/
21 * - List of the Company's Subsidiaries.
- ----------------------------
* Filed herewith.
1/ - Incorporated by reference to the exhibit with the same
description to the Company's Current Report on Form 8-K filed
on August 11, 1989.
2/ - Incorporated by reference to the exhibit with the same
description to the Company's Current Report on Form 8-K
dated as of January 5, 1994.
(b) Reports on Form 8-K.
There were no reports filed on Form 8-K during the short fiscal period
ended December 31, 1996.
<PAGE>
Exhibit 21
As of March 31, 1997, the Company had the following subsidiaries:
(a) Continental Technologies, Inc.
(b) Continental Technologies Corporation of Georgia
(c) FIBER-SEAL Franchise Corporation
(d) FIBER-SEAL Holdings, Inc.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
CONTINENTAL INVESTMENT CORPORATION
By: /S/ R. Dale Sterritt, Jr.
-----------------------------------
R. Dale Sterritt, Jr.
Chairman and Chief Executive Officer
Dated: April 15, 1997
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.
NAME DATE
/S/ R. Dale Sterritt, Jr. April 15, 1997
-------------------------------
R. Dale Sterritt, Jr., Director
Chairman and Chief Executive Officer
/S/ Thomas F. Snodgrass April 15, 1997
-------------------------------
Thomas F. Snodgrass, Director
President and Treasurer
/S/Robert D. Luna April 15, 1997
-------------------------------
Robert D. Luna, Director
and Secretary
/S/Martin G. Blahitka April 15, 1997
------------------------------
Martin G. Blahitka, Director
/S/ J. B. Morris April 15, 1997
------------------------------
J. B. Morris, Director
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 841,586
<SECURITIES> 0
<RECEIVABLES> 2,403,679
<ALLOWANCES> 0
<INVENTORY> 48,613
<CURRENT-ASSETS> 3,388,987
<PP&E> 8,606,395
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,013,021
<CURRENT-LIABILITIES> 395,852
<BONDS> 0
0
0
<COMMON> 2,782,504
<OTHER-SE> 7,167,605
<TOTAL-LIABILITY-AND-EQUITY> 12,013,021
<SALES> 221,884
<TOTAL-REVENUES> 221,884
<CGS> 88,900
<TOTAL-COSTS> 542,586
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,991
<INCOME-PRETAX> (270,869)
<INCOME-TAX> 0
<INCOME-CONTINUING> (270,869)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (270,869)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
