UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
---------------------------------
FORM 10-KSB/AMENDMENT NO. 2
<R/>
(Mark One)
(X) Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended September 30, 1996
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number 0-3743
-------------------------------
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 ( )
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)
<PAGE>
The aggregate market value of the voting stock held by non-
affiliates of the registrant, as of December 27, 1996, is approximately
$113,378,973 based upon the closing price of $21.125 per share as
reported for such date by Trading and Market Services of The Nasdaq
Stock Market, Inc.
As of December 27, 1996, the registrant had outstanding 11,313,195
shares of Common Stock.
<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 September 30, 1996, and the related consolidated
statements of operations, stockholders' equity and cash flows for each
of the two years in the period then ended. 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 September 30,
1996, and the consolidated results of their operations and their
consolidated cash flows for each of the two years in the period then
ended, in conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Dallas, Texas
November 27, 1996
<PAGE>
Continental Investment Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEET
September 30, 1996
ASSETS
CURRENT ASSETS
Cash $ 2,763,129
Note receivable 880,000
Accounts receivable 12,832
Inventories 42,491
-----------
Total current assets 3,698,452
PROPERTY, at cost 9,497,582
OTHER ASSETS
Intangibles, net of accumulated
amortization of $8,361 26,639
Other 33,424
-----------
Total assets $13,256,097
===========
The accompanying notes are an integral part of this statement.
<PAGE>
Continental Investment Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEET - CONTINUED
September 30, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 161,185
Accrued expenses 15,000
Amounts due to related parties 67,999
Current portion of long-term
note payable 230,000
-----------
Total current liabilities 474,184
LONG-TERM LIABILITIES
Note payable 920,000
Deferred income taxes 747,000
-----------
1,667,000
-----------
Total liabilities 2,141,184
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;
11,310,058 issued and outstanding 2,781,029
Additional contributed capital 11,502,794
Accumulated deficit (3,168,910)
-----------
Total stockholders' equity 11,114,913
-----------
Total liabilities and
stockholders' equity $13,256,097
===========
The accompanying notes are an integral part of this statement.
<PAGE>
Continental Investment Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended September 30,
1996 1995
---------- ----------
Revenues $ 818,978 $ 903,028
Costs and expenses
Cost of revenues 369,435 411,415
Selling, general and administrative
expenses 1,358,719 1,051,120
---------- ----------
1,728,154 1,462,535
---------- ----------
Operating loss (909,176) (559,507)
Other income (expense)
Interest income 8,946 -
Interest expense (8,472) (12,068)
---------- ---------
474 (12,068)
Loss before income taxes (908,702) (571,575)
Deferred income tax expense - 1,321
---------- ----------
Loss before extraordinary credit (908,702) (572,896)
Extraordinary credit - gain on debt
forgiveness - 39,246
---------- ---------
NET LOSS $ (908,702) $ (533,650)
========== ==========
Per share data
Loss before extraordinary credit per
common share $(.09) $(.07)
===== =====
Loss per common share $(.09) $(.07)
===== =====
Weighted average number of common
and common equivalent shares
outstanding 9,746,092 8,181,482
========== ==========
The accompanying notes are an integral part of these statements.
<PAGE>
Continental Investment Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Year ended September 30, 1996 and 1995
Common Stock Additional
---------------------- contributed
Shares Par value capital
--------- ---------- ----------
Balances at
October 1, 1994 -
as previously reported 7,027,327 $ 639,664 $ 238,930
Accumulated deficit of
acquired businesses - - -
Distribution to
stockholder - - -
--------- ----------
Balances at
October 1, 1994 -
as restated 7,027,327 639,664 238,930
Conversion of debt
to stock 1,600,000 800,000 100
Sale of stock in
private placement 80,000 40,000 360,000
Purchase of land
for stock 150,000 75,000 675,000
Issuance of stock
for services 16,200 8,100 77,899
Stock issued for
debt forgiveness 10,000 5,000 45,000
Net loss - - -
--------- ---------- -----------
Balances at
September 30, 1995 8,883,527 1,567,764 1,396,929
Retirement of
treasury stock (7,209) (3,604) (23,167)
Sale of stock
in private placement 955,000 477,500 5,022,500
Issuance of stock
for services 50,800 25,400 228,680
Issuance of stock
for land 1,427,940 713,969 4,877,852
Net loss - - -
---------- ---------- -----------
Balances at
September 30, 1996 11,310,058 $2,781,029 $11,502,794
========== ========== ===========
The accompanying notes are an integral part of this statement.
<PAGE>
Continental Investment Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - CONTINUED
Year ended September 30, 1996 and 1995
Treasury stock
---------------- Accumulated
Shares Amount deficit Total
------ ------ ----------- -------------
Balances at
October 1, 1994 -
as previously reported 7,209 $(26,771) $ (387,827) $ 463,996
Accumulated deficit of
acquired businesses - - (188,731) (188,731)
Distribution to
stockholder - - (1,150,000) (1,150,000)
------ -------- ----------- -----------
Balances at
October 1, 1994 -
as restated 7,209 $(26,771) (1,726,558) (874,735)
Conversion of debt
to stock - - - 800,100
Sale of stock in
private placement - - - 400,000
Purchase of land
for stock - - - 750,000
Issuance of stock
for services - - - 85,999
Stock issued for
debt forgiveness - - - 50,000
Net Loss - - (533,650) (533,650)
------ -------- ---------- -----------
Balances at
September 30, 1995 7,209 (26,771) (2,260,208) 677,714
Retirement of
treasury stock (7,209) 26,771 - -
Sale of stock
in private placement - - - 5,000,000
Issuance of stock
for services - - - 254,080
Issuance of stock
for land - - - 5,591,821
Net loss - - (908,702) (908,702)
------ -------- ---------- -----------
Balances at
September 30, 1996 - $ - $(3,168,910) $11,114,913
====== ======== =========== ===========
The accompanying notes are an integral part of this statement.
<PAGE>
Continental Investment Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended September 30,
1996 1995
---------- ---------
Cash flows from operating activities:
Net loss $ (908,702) $(533,650)
Adjustments to reconcile net loss to
net cash used in
operating activities:
Amortization and depreciation expense 2,333 2,334
Common stock issued as consideration
for services 254,080 85,999
Deferred income taxes - 1,321
Change in operating assets and
liabilities
Accounts receivable - trade (12,832) -
Other current assets (67,711) (24,792)
Accounts payable - trade (39,264) 58,760
Accrued expenses (67,091) 48,705
Income taxes payable - (23,921)
Accrued expenses to related
parties (274,106) 165,908
Deferred rent - (8,807)
Other (67,873) (120,678)
--------- ---------
Net cash used in operating
activities (1,181,166) (349,001)
Cash flows from investing activities:
Issuance of note receivable (880,000) -
Purchases of property (693,870) (9,473)
---------- ---------
Net cash used in investing
activities (1,573,870) (9,473)
Cash flows from financing activities:
Proceeds from sale of stock 5,500,000 400,000
Debt repayments - (25,676)
Other - 100
---------- ---------
Net cash provided by
financing activities 5,500,000 374,424
---------- ---------
Increase in cash 2,744,964 15,950
Cash at beginning of year 18,165 2,215
---------- ---------
Cash at end of year $2,763,129 $ 18,165
========== =========
The accompanying notes are an integral part of these statements.
<PAGE>
Continental Investment Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years ended September 30, 1996 and 1995
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 $5,591,821 and cash of $693,870, for a total purchase
price of $6,285,691.
<PAGE>
Continental Investment Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996 and 1995
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 (CICG or the Company) 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.
These costs will also 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.
Reclassifications
-----------------
Certain 1995 balances have been reclassified to conform to the 1996
presentations.
<PAGE>
Continental Investment Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 1996 and 1995
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.
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 excess of the note
payable over the historical cost basis of the net assets acquired has
been reflected as a distribution to stockholders.
<PAGE>
Continental Investment Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 1996 and 1995
Net sales and net earnings of the separate companies for the periods
preceding the acquisition were as follows:
Elimin-
CICG FSD FSSI ations Combined
--------- -------- -------- --------- ---------
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) (908,702)
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 - (533,650)
NOTE C - NOTE RECEIVABLE
- ------------------------
The note receivable bears interest at 10% and is due in two installments
in January and May 1997. The note receivable is collateralized by
150,000 shares of common stock of the Company.
NOTE D - PROPERTY
- -----------------
The Company's property consists of the following at September 30, 1996:
229 acres in Atlanta, Georgia
Former Granite Quarry $ 564,222
Unimproved land 8,068,360
----------
8,632,582
253.5 acres, Ellis County, Texas
Unimproved land 750,000
30 acres, Ellis County, Texas
Unimproved land 115,000
----------
$9,497,582
==========
NOTE E - AMOUNTS DUE TO RELATED PARTIES
- ---------------------------------------
Amounts due to related parties consist of $67,999 due the majority
stockholder.
<PAGE>
Continental Investment Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 1996 and 1995
NOTE F - INCOME TAXES
- ---------------------
The Company and its subsidiaries file a consolidated tax return. At
September 30, 1996 and 1995, the Company has, for Federal income tax
purposes, operating loss carryforwards of approximately $3,600,000 and
$2,900,000, respectively, expiring through 2011 and capital loss
carryforwards of approximately $310,000 expiring through 1999. Tax laws
limit the utilization of the net operating loss carryforwards and
capital loss carryforwards to approximately $250,000 per year.
Therefore, CICG may be required to pay income taxes in future years even
though significant loss carryforwards exist.
Reconciliation of income taxes computed at the Federal statutory rate
and income tax expense is as follows:
Year ended September 30,
------------------------
1996 1995
--------- ---------
Tax benefit at statutory rate $(309,000) $(194,000)
Change in valuation allowance 307,000 194,000
Other 2,000 1,321
--------- ---------
$ - $ 1,321
========= =========
Consolidated deferred tax assets and liabilities consist of the
following at September 30, 1996:
Deferred tax assets
Net operating loss and capital
loss carryforwards $ 1,300,000
Valuation allowance (1,300,000)
------------
-
Deferred tax liabilities
Property 747,000
------------
Net deferred tax liability $ 747,000
============
<PAGE>
Continental Investment Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 1996 and 1995
At September 30, 1996, the Company had capital and net operating loss
carryforwards for Federal tax purposes expiring as follows:
Year of
expiration Amount
---------- ----------
Capital losses 2006 $ 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
----------
$3,623,515
==========
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
September 30, 1996 are as follows:
1998 $230,000
1999 230,000
2000 230,000
2001 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 September 30, 1996, are
as follows:
<PAGE>
Continental Investment Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 1996
Year ending
September 30,
------------
1997 $ 36,044
1998 36,044
1999 36,044
--------
$108,132
========
NOTE I - STOCKHOLDERS' EQUITY
- -----------------------------
Common stock is stated at the lower of par value or consideration
received as permitted by state law.
The following information relates to warrants outstanding:
Number
of
shares Option price
--------- --------------
Warrants outstanding - October 1, 1994 144,000 $5.00 - $18.00
Issued during the year (1) 210,000 $4.25 - $ 5.00
---------
Warrants outstanding - September 30, 1995 354,000 $4.25 - $18.00
Issued during the year (1) 3,622,500 $4.00 - $35.00
Exercised during the year (462,500) $4.00 - $10.00
---------
Warrants outstanding - September 30, 1996 3,404,000 $4.00 - $35.00
=========
Warrants exercisable - September 30, 1996 3,404,000 $4.00 - $35.00
=========
(1) During 1996 and 1995, the Company received $5,500,000 and $400,000
respectively for the sale of its restricted common stock and warrants
to purchase restricted common stock which expire in varying terms
(one to five years).
<PAGE>
Continental Investment Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 1996 and 1995
NOTE J - SEGMENTS
- -----------------
The Company operates in two principal segments: property development,
primarily its potential landfill site in Atlanta, Georgia, its Fiber-
Seal fabric care and surface protection business.
Property Fabric
September 30, 1996 Development Care Corporate Consolidated
------------------ ----------- ---------- ---------- ------------
Revenues $ - $ 818,978 $ - $ 818,978
Operating profit
(loss) (1,014,144) 105,852 (410) (908,702)
Identifiable assets 13,162,202 93,895 - 13,256,097
Depreciation and
amortization - 13,284 - 13,284
Capital expenditures 693,870 - - 693,870
September 30, 1995
------------------
Revenues $ 30,002 $ 873,026 $ - $ 903,028
Operating profit
(loss) (379,255) 186,134 (378,454) (571,575)
Identifiable assets 3,282,321 25,814 - 3,308,135
Depreciation and
amortization - 2,334 - 2,334
Capital expenditures 9,473 - - 9,473
NOTE K - FAIR VALUE OF FINANCIAL INSTRUMENTS
- --------------------------------------------
The Company's financial instruments include cash and debt. The fair
value of all instruments approximates the carrying value.
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>
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, President and Chief
Executive Officer
Dated: October 21, 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. October 21, 1997
-------------------------------
R. Dale Sterritt, Jr., Director
Chairman and Chief Executive Officer
/S/Robert D. Luna October 21, 1997
-------------------------------
Robert D. Luna, Director
and Secretary
/S/Martin G. Blahitka October 21, 1997
-------------------------------
Martin G. Blahitka, Director
/S/ J. B. Morris October 21, 1997
-------------------------------
J. B. Morris, Director
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,763,129
<SECURITIES> 0
<RECEIVABLES> 880,000
<ALLOWANCES> 0
<INVENTORY> 42,491
<CURRENT-ASSETS> 3,698,452
<PP&E> 9,497,582
<DEPRECIATION> 0
<TOTAL-ASSETS> 13,256,097
<CURRENT-LIABILITIES> 474,184
<BONDS> 0
0
0
<COMMON> 2,781,029
<OTHER-SE> 8,333,884
<TOTAL-LIABILITY-AND-EQUITY> 13,256,097
<SALES> 818,978
<TOTAL-REVENUES> 827,924
<CGS> 369,435
<TOTAL-COSTS> 1,728,154
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (8,472)
<INCOME-PRETAX> (908,702)
<INCOME-TAX> 0
<INCOME-CONTINUING> (908,702)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (908,702)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
