U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
______________________________
FORM 10-QSB/AMENDMENT NO. 1
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ________ to ________
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
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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
As of December 3, 1997, the registrant had outstanding 12,341,055 shares
of Common Stock.
<PAGE>
Continental Investment Corporation and Subsidiaries
FORM 10-QSB REPORT INDEX
Page No.
PART I. FINANCIAL INFORMATION
- -----------------------------
Item 1. Financial Statements
----------------------------
Consolidated Balance Sheets as of September 30, 1997
and December 31, 1996 ................................... 3
Consolidated Statements of Operations
For the periods ended September 30, 1997
and 1996 ................................................ 5
Consolidated Statement of Stockholders' Equity
Nine months ended September 30, 1997 .................... 6
Consolidated Statements of Cash Flows
Nine months ended September 30, 1997
and 1996 ................................................ 8
Notes to Consolidated Financial Statements ................ 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................... 15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ...................... 19
Signatures ...................................................... 20
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Continental Investment Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1997 1996
------------- ------------
ASSETS (Unaudited) (Audited)
CURRENT ASSETS
Cash $ 84,654 $ 841,586
Short-term investments 1,574,947 2,380,000
Accounts receivable, net of
allowances for doubtful accounts
of $44,841 and $0 350,575 23,679
Inventories 59,538 48,613
Accrued interest receivable 56,368 61,142
Prepaids and deposits 52,041 33,967
----------- -----------
Total current assets 2,178,123 3,388,987
PROPERTY AND EQUIPMENT
Land, at cost 9,497,582 9,497,582
Landfills, net of accumulated
amortization/depreciation
of $137,132 13,613,176 -0-
Non-landfill equipment, net of
accumulated depreciation of
$52,718 and $29,960 83,647 41,813
----------- -----------
Total property and
equipment 23,194,405 9,539,395
INTANGIBLES, net of accumulated
amortization of $35,000 and $17,361 -0- 17,639
----------- -----------
Total assets $25,372,528 $12,946,021
=========== ===========
See accompanying notes to unaudited consolidated financial statements.
3
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Continental Investment Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS - CONTINUED
September 30, December 31,
1997 1996
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) (Audited)
CURRENT LIABILITIES
Accounts payable, trade $ 380,227 $ 119,496
Accrued payables 1,540,599 46,356
Accrued interest payable 27,216 -0-
Current portion of long-term
note payable 74,972 230,000
----------- -----------
Total current liabilities 2,023,014 395,852
LONG-TERM LIABILITIES
Note payable 805,258 920,000
Deferred income taxes 747,000 747,000
----------- -----------
Total long-term liabilities 1,552,258 1,667,000
----------- -----------
Total liabilities 3,575,272 2,062,852
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value;
1,000,000 shares authorized;
no shares issued or outstanding -0- -0-
Common stock, $0.50 par value;
25,000,000 shares authorized;
12,202,008 shares issued and
outstanding at September 30, 1997;
11,313,008 shares issued and
outstanding at December 31, 1996 $ 3,227,004 $ 2,782,504
Additional contributed capital 23,001,064 11,540,444
Accumulated deficit ( 4,430,812) (3,439,779)
----------- -----------
Total stockholders' equity 21,797,256 10,883,169
Total liabilities and
stockholders' equity $25,372,528 $12,946,021
=========== ===========
See accompanying notes to unaudited consolidated financial statements.
4
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Continental Investment Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended Nine months ended
September 30, September 30,
--------------------------- -----------------------
1997 1996 1997 1996
------------ ----------- ---------- ----------
Revenues $ 700,806 $190,385 $1,107,625 $ 576,514
Costs and expenses
Cost of revenues 272,093 76,396 430,246 202,817
Selling, general and
administrative
expenses 807,930 674,138 1,903,601 1,228,137
Operating loss (379,217) (560,149) (1,226,223) (854,440)
Other income (expense)
Interest income 60,371 4,884 179,441 8,946
Interest expense (17,296) -0- (48,121) 553
Miscellaneous income -0- -0- 103,869 -0-
---------- ---------- ---------- ----------
Net loss
before taxes (336,142) (555,265) (991,033) (844,941)
Income tax expense -0- -0- -0- -0-
---------- ---------- ---------- ----------
NET LOSS $ (336,142) $ (555,265) $ (991,033) $ (844,941)
========== ========== ========== ==========
Net loss per
common share $(0. 03) $( 0.05) $( 0. 08) $( 0.08)
Weighted average
number of common and
common equivalent
shares outstanding 11,980,119 10,977,243 11,841,378 10,930,797
========== ========== ========== ==========
See accompanying notes to unaudited consolidated financial statements.
5
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Continental Investment Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Nine months ended September 30, 1997
(Unaudited)
Common stock
-------------------------
Shares Par value
---------- ----------
Balance,
December 31, 1996 11,313,008 $2,782,504
Exercise of warrants 525,000 262,500
Issuance of stock for
services (36,000) (18,000)
Issuance of stock and
option in transactions
with WasteMasters, Inc. 400,000 200,000
Net loss -0- -0-
---------- ----------
Balance,
September 30, 1997 12,202,008 $3,227,004
========== ==========
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE>
Continental Investment Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - CONTINUED
Nine months ended September 30, 1997
(Unaudited)
Additional
contributed Accumulated
capital deficit Total
----------- ----------- ------------
Balance,
December 31, 1996 $11,540,444 $(3,439,779) $10,883,169
Exercise of warrants 2,227,500 -0- 2,490,000
Issuance of stock for
services (173,880) -0- (191,880)
Issuance of stock and
option in transactions
with WasteMasters, Inc. 9,407,000 -0- 9,607,000
Net loss -0- ( 991,033) (991,033)
---------- ----------- -----------
Balance,
September 30, 1997 $23,001,064 $(4,430,812) $21,797,256
=========== =========== ===========
See accompanying notes to unaudited consolidated financial statements.
7
<PAGE>
Continental Investment Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30
(Unaudited)
1997 1996
------------ -----------
Cash flows from operating activities:
- -------------------------------------
Net income (loss) $ (991,033) $ (844,941)
Adjustments to reconcile net loss to
net cash provided by (used in) operating
activities:
Amortization/depreciation expense $ 178,904 $ 76
Accounts receivable - trade (326,896) 3,570
Inventories (10,925) 9,082
Deposits and prepaid expenses (18,074) (4,398)
Accounts payable - trade 260,731 (9,090)
Accrued payables 1,302,363 (63,664)
Accrued interest payable 27,216 -0-
Deferred rent -0- (19,775)
Common stock issued for services -0- 254,080
Accrued expenses to related parties -0- (274,106)
Other -0- (81,918)
----------- -----------
Net cash provided by (used in)
operating activities $ 420,172 $(1,031,084)
Cash flows from investing activities:
- -------------------------------------
Purchases of land -0- (693,870)
Purchases of landfills (4,143,308) -0-
Purchases of equipment (65,968) 162
Short-term investments 805,053 (880,000)
Accrued interest receivable 4,774 -0-
----------- ----------
Net cash provided by (used in)
investing activities $(3,399,449) $(1,573,708)
See accompanying notes to unaudited consolidated financial statements.
8
<PAGE>
Continental Investment Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Nine Months Ended September 30
(Unaudited)
1997 1996
----------- ------------
Cash flows from financing activities:
- -------------------------------------
Paydown of note payable and
other liabilities $ (269,770) $ 20,440
Proceeds from sale of stock 2,490,000 5,350,000
----------- -----------
Net cash provided by (used in)
financing activities $ 2,220,230 $ 5,370,440
Net increase (decrease) in cash (756,932) 2,765,648
Cash, beginning of period $ 841,586 $ (2,519)
----------- -----------
Cash, end of period $ 84,654 $ 2,763,129
=========== ===========
See accompanying notes to unaudited consolidated financial statements.
9
<PAGE>
Continental Investment Corporation and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
- ------------------------------
The accompanying unaudited financial statements have been prepared by
Continental Investment Corporation (the "Company" or "Continental")
pursuant to the rules and regulations of the U. S. Securities and
Exchange Commission. Certain information and disclosures normally included
in annual financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations. In the opinion of management, all adjustments
and disclosures necessary to a fair presentation of these financial
statements have been included. Such adjustments consist of normal recurring
adjustments. This Form 10-QSB Report should be read in conjunction with the
Form 10-KSB Report of Continental Investment Corporation for the short
fiscal year ended December 31, 1996, as filed with the U. S. Securities and
Exchange Commission.
The results of operations for the periods ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the full
year.
NOTE B - DISCLOSURE REGRDING FORWARD LOOKING STATEMENTS
- -------------------------------------------------------
This Quarterly Report on Form 10-QSB 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), acquisitions and
projected or anticipated benefits from acquisitions made by or to be made by
the Company, or projections involving anticipated revenues, earnings, level
of capital expenditures or other aspects of operating results. All phases of
the Company's 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
10
<PAGE>
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 as 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.
(1) Competition: The waste collection/disposal business and the fabric
care business are both highly competitive and require substantial amounts of
capital. The Company's existing and potential facilities do, may or would
compete with numerous enterprises, many of which have significantly larger
operations and greater resources than the Company. The Company does, may or
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.
(2) 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.
(3) 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,
revenues from the construction and demolition landfill described in Note E
on page 13 of this report and revenues generated from the operation of its
fabric care business. If the Company is unable to obtain adequate funds
from the sale of its stock in public offerings, private placements, the
exercise of warrants, or alternative financing arrangements, it may be
necessary to delay the potential permitting and development of its landfill
properties and potential landfill properties. 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 within a
reasonable period of time.
11
<PAGE>
(4) Economic Conditions: The Company's existing and potential waste
disposal businesses may or would be affected by general economic conditions.
There can be no assurance that an economic downturn would not result in a
reduction in the potential volume of waste that might be disposed of at the
Company's 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.
(5) Weather Conditions: Protracted periods of inclement weather may
adversely affect the Company's existing and 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 existing and potential customers. In addition,
particularly harsh weather conditions may result in the temporary
suspension of certain of the Company's existing and potential operations.
The Forward Looking Statements do not assume that such weather conditions
will occur.
(6) 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 management personnel with franchising and waste
industry experience will also increase. The future availability of such
experienced management personnel cannot be predicted. The Forward Looking
Statements assume that experienced management personnel 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 additional management personnel could have a material
adverse effect on the Company.
(7) Influence of Government Regulation: The Company's existing and
potential operations are and 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.
12
<PAGE>
(8) Potental Environmental Liability: The Company may incur liabilities for
the deterioration of the environment as a result of its existing and
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.
NOTE C - NET LOSS PER COMMON SHARE
- ----------------------------------
Net 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.
NOTE D - NEW ACCOUNTING PRONOUNCEMENT
- -------------------------------------
The FASB has issued Statement of Financing Accounting Standards No. 128,
Earnings Per Share, which is effective for financial statements issued
after December 15, 1997. Early adoption of the new standard is not
permitted. The new standard eliminates primary and fully diluted earnings
per share and requires presentation of basic and diluted earnings per share
together with disclosure of how the per share amounts were computed. The
adoption of this new standard is not expected to have a material impact on
the disclosure of earnings per share in the financial statements.
NOTE E - ACQUISITION OF CONSTRUCTION AND DEMOLITION LANDFILL
- ------------------------------------------------------------
During the quarterly period ended September 30, 1997, the Company
acquired an operating construction and demolition ("C & D") landfill in
metropolitan Atlanta, Georgia in exchange for consideration totaling $2.74
million. The purchase price consisted of immediate cash consideration of
$2.5 million and an obligation to make future cash payments totaling
$240,000. A construction and demolition landfill may accept building
materials and rubble resulting from construction, remodeling, repair, and
demolition operations on commercial buildings, pavements, houses, and other
structures. Such wastes include, but are not necessarily limited to, wood,
bricks, metal, concrete, wallboard, paper, and cardboard. The acquisition
was accounted for as a purchase and the operating results of the acquired
landfill have been included in the financial statements of the Company since
the acquisition. The following pro forma information compares the results of
operations as if the acquisition had been consummated as of the beginning of
each of the nine and three-month periods ended September 30, 1997 and 1996.
13
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Nine months ended Three months ended
September 30, September 30,
1997 1996 1997 1996
---------- ---------- ---------- ----------
Revenue $1,806,805 $1,491,688 $ 789,869 $ 495,343
Net Loss $ (834,675) $ (778,622) $ (216,552) $ (536,472)
Net loss per
common share $(.07) $(.07) $(.02) $(.05)
The pro forma financial information is presented for informational purposes
only and is not necessarily indicative of operating results that would have
occurred had the acquisition been consummated as of the beginning of the
above periods, nor is it necessarily indicative of future operating results.
NOTE F - TRANSACTIONS WITH WASTEMASTERS, INC.
- ---------------------------------------------
During the quarterly period ended September 30, 1997, the Company
purchased from WasteMasters, Inc. 100% of the issued and outstanding shares
of two corporations which had been wholly-owned subsidiaries of
WasteMasters, Inc. Such corporations, Trantex, Inc. (which owns a landfill
site in Kirksville, Missouri) and WasteMasters of Georgia, Inc. (which owns
a landfill site in Walker County, Georgia,) are now wholly-owned
subsidiaries of Continental Technologies Corporation of Georgia, which is
itself a wholly-owned subsidiary of Continental Investment Corporation.
As per another provision of its agreement with WasteMasters, Inc., the
Company acquired 4,500,000 shares of newly-issued Common Stock and
5,000,000 shares of newly-issued Series A Preferred Stock of WasteMasters,
Inc. directly from WasteMasters, Inc., a publicly traded corporation engaged
in the waste disposal business. Such shares comprise 12.9% of the total
number of shares of WasteMasters' Common Stock that are currently
outstanding and 100% of the total number of shares of WasteMasters Series A
Preferred Stock that are currently outstanding. Each share of Preferred
Stock is entitled to one vote on any matter on which shareholders will vote,
and is convertible into 5.1 shares of WasteMasters Common Stock.
If Continental were to fully convert the Series A Preferred into Common
Stock, Continental would then own, ceteris paribus, approximately 49% of the
total number of shares of WasteMasters Common Stock. In addition, a Warrant
or the Purchase of Shares of WasteMasters Common Stock was issued by
WasteMasters, Inc. to Continental Investment Corporation giving Continental
the option, exercisable until August 29, 1999, to acquire up to 100 million
shares of WasteMasters Common Stock in exchange for up to 1 million shares
of Continental Common Stock based upon an exchange ratio of 1 share of
Continental Common Stock for 100 shares of Wastemasters, Inc. Common Stock.
In the event that Continental exercises in full its Warrant and fully
14
<PAGE>
converts its WasteMasters Preferred Stock into WasteMasters Common Stock,
Continental would own approximately 81% of the then issued and outstanding
shares of Common Stock of WasteMasters on a fully diluted basis. The total
consideration for all of the transactions with WasteMasters, Inc. described
above was $10,946,928.
Item 2. Management's Discussion and Analysis of Financial Condition
- -------------------------------------------------------------------
and Results of Operations.
--------------------------
Results of Operations
---------------------
Nine Months Ended September 30, 1997
Compared to Nine Months Ended September 30, 1996
------------------------------------------------
Revenues
- --------
During the nine months ended September 30, 1997, revenues of the Company
were derived primarily from the FIBER-SEAL fabric care and treatment business
and from the C & D landfill described in Note E, on page 13 of this report,
that was acquired during the quarterly period ended September 30, 1997.
Revenues for the nine months ended September 30, 1997 increased $531,111
(92.12%) to $1,107,625 from $576,514 for the nine months ended September 30,
1996. The increase in revenues was primarily a result of the acquisition of
the C & D landfill. The Company has made a strategic decision to convert its
FIBER-SEAL business from a licensing mode to a franchising operation by
December 31, 1998. Further, the Company intends to institute a program for
the expansion of FIBER-SEAL operations in all unexploited geographic areas
in the U. S. during fiscal year 1998.
Cost of Revenues
- ----------------
Cost of revenues for the nine months ended September 30, 1997 increased
$227,429 (112.13%) to $430,246 (representing 38.84% of revenues) from $202,817
(representing 35.18% of revenues) for the nine months ended September 30,
1996. The increase in the cost of revenues was primarily a result of the
acquisition of the C & D landfill described in Note E on page 13 of this
report.
Selling, General and Administrative (SG&A) Expenses
- ---------------------------------------------------
Selling, general and administrative (SG&A) expenses for the nine months
ended September 30, 1997 increased $675,464 (54.10%) to $1,903,601 from
$1,228,137 for the nine months ended September 30, 1996. The increase was due
to a variety of factors including those related to the development and
potential use of the Company's primary Atlanta, Georgia property as a waste
disposal site (e.g., consulting fees, increased legal fees, increased
personnel costs, the rental of office space in Atlanta, increased travel
expenses, etc.), the expenses incurred as a result of the acquisitions
described in Notes E and F on pages 13 and 14 of this report, and additional
expenses for FIBER-SEAL related to the development of a plan to convert from
the current licensing method to a franchise operation.
15
<PAGE>
Operating Loss
- --------------
Operating loss for the nine months ended September 30, 1997 increased
$371,782 (43.51%) to $1,226,222 from $854,440 for the nine months ended
September 30, 1996. This was due to an increase in revenues for the nine
months ended September 30, 1997 of $531,111 (a 92.12% increase) to
$1,107,625 from $576,514 for the nine months ended September 30, 1996, an
increase in cost of revenues for the nine months ended September 30, 1997 of
$227,429 (a 112.13% increase) to $420,246 from $202,817 for the nine months
ended September 30, 1996, and an increase in selling, general and
administrative (SG&A) expenses for the nine months ended September 30,1997 of
$675,464 (a 54.10% increase) to $1,903,601 from $1,228,137 for the nine months
ended September 30, 1996.
Interest Income
- ---------------
Interest income of $179,441 for the nine months ended September 30, 1997
increased by $170,495 as compared with the nine months ended September 30,
1996 during which period the Company had $8,946 of interest income. Such
increase was due to the Company's significantly increased holdings of cash
and short term investments during the fiscal 1997 period as compared with the
fiscal 1996 period.
Interest Expense
- ----------------
Interest expense for the nine months ended September 30, 1997 increased
by $48,674 to $48,121 from a credit of $553 for the nine months ended
September 30 1996. The increase was due to the note payable issued in
connection with the September 1996 acquisition of additional FIBER-SEAL
assets.
Miscellaneous Income
- --------------------
Miscellaneous income for the nine months ended September 30, 1997 of
$103,869 consisted of gains on accounts payable that were settled for less
than the sums that had been previously accrued for them. There was no
miscellaneous income for the nine months ended September 30, 1996.
Net Loss
- --------
The net loss for the nine months ended September 30, 1997 increased
$146,092 (17.29%) to $991,033 from $844,941 for the nine months ended
September 30, 1996. Such increase was primarily due to significantly higher
selling, general and administrative expenses offset to a great extent by
increased interest income, miscellaneous income, and earnings from the
C & D landfill described in Note E on page 13 of this report.
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<PAGE>
Three Months Ended September 30, 1997
Compared to Three Months Ended September 30, 1996
--------------------------------------------------
Revenues
- --------
During the three months ended September 30, 1997, revenues of the Company
were derived primarily from the C & D landfill, described in Note E on page 13
of this report, that was acquired during the quarter and from the FIBER-SEAL
fabric care and treatment business. Revenues for the quarter ended
September 30, 1997 increased $510,421 (268.10%) to $700,806 from $190,385 for
the quarter ended September 30, 1996. The increase in revenues was primarily
a result of the acquisition of the C & D landfill. The Company has made a
strategic decision to convert its FIBER-SEAL business from a licensing mode
to a franchising operation by December 31, 1998. Further, the Company intends
to institute a program for the expansion of FIBER-SEAL operations in all
unexploited geographic areas in the U. S. during fiscal year 1998.
Cost of Revenues
- ----------------
Cost of revenues for the quarter ended September 30, 1997 increased
$195,697 (256.16%) to $272,093 (representing 37.02% of revenues) from $76,396
(representing 40.13% of revenues) for the quarter ended September 30, 1996.
The increase in the cost of revenues was primarily a result of the
acquisition of the C & D landfill.
Selling, General and Administrative (SG&A) Expenses
- ---------------------------------------------------
Selling, general and administrative (SG&A) expenses for the quarter ended
September 30, 1997 increased $133,792 (19.85%) to $807,930 from $674,138 for
the quarter ended September 30, 1996. The increase was due to a variety of
factors including those related to the development and potential use of the
Company's primary Atlanta, Georgia property as a waste disposal site (e.g.,
consulting fees, increased legal fees, increased personnel costs, the rental
of office space in Atlanta, increased travel expenses, etc.), the expenses
incurred as a result of the acquisitions described in Notes E and F, on pages
13 and 14 of this report, and additional expenses for FIBER-SEAL related to
the development of a plan to convert from the current licensing method to a
franchise operation.
Operating Loss
- --------------
Operating loss for the quarter ended September 30, 1997 decreased
$180,932 (32.30%) to $379,217 from $560,149 for the quarter ended
September 30, 1996. This was due to an increase in revenues for the quarter
ended September 30, 1997 of $510,421 (a 268.10% increase) to $700,806 from
$190,385 for the quarter ended September 30, 1996, an increase in cost of
revenues for the quarter ended September 30, 1997 of $195,697 (an 256.16%
increase) to $272,093 from $76,396 for the quarter ended September 30, 1996,
and an increase in selling, general and administrative (SG&A) expenses for the
quarter ended September 30, 1997 of $133,792 (a 19.85% increase) to $807,930
from $674,138 for the quarter ended September 30, 1996.
17
<PAGE>
Interest Income
- ---------------
Interest income of $60,371 for the quarter ended September 30, 1997
increased by $55,487 as compared with the quarter ended September 30, 1996
during which quarter there was $4,884 interest income. Such increase was due
to the Company's significantly increased holdings of cash and short-term
investments during the fiscal 1997 period as compared with the fiscal 1996
period.
Interest Expense
- ----------------
Interest expense was $17,296 for the quarter ended September 30, 1997 as
a result of the note payable issued in connection with the September 1996
acquisition of additional FIBER-SEAL assets. During the quarter ended
September 30, 1996, there was no interest expense.
Net Loss
- --------
The net loss for the quarter ended September 30, 1997 decreased $219,123
(39.46%) to $336,142 from $555,265 for the quarter ended September 30, 1996.
Such decrease was primarily due to the significantly increased revenues and
decreased operating loss (as a result of the acquisition of the C & D
landfill described in Note E on page 13 of this report) and increased interest
income, offset in part by higher selling, general and administrative expenses
and higher interest expense.
Liquidity and Capital Resources
-------------------------------
Cash and Short-Term Investments
- -------------------------------
Cash and short-term investments as of September 30, 1997 were $1,659,601,
a decrease of $1,561,985 as compared with the cash and short-term investments
position of $3,221,586 at December 31, 1996. Such decrease was primarily due
to the expenditure of $2.5 million of cash in the acquisition of the C & D
landfill described in Note E on page 13 of this report and the $991,033 net
loss experienced by the Company during the nine months ended September 30,
1997 offset primarily by proceeds from the exercise of warrants and increased
amortization and depreciation.
Capital Expenditures
- --------------------
The Company currently has no material commitments for capital
expenditures. The Company expects to continue to explore opportunities to
acquire landfills and related waste disposal industry assets in the future.
18
<PAGE>
Capital Resources
- -----------------
Heretofore, the primary source of capital has been provided by the sale
of shares of common stock of the Company in private sales. 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, revenues from the construction and demolition landfill
described in Note E on page 13 of this report and revenues generated
from the operation of its fabric care business. If the Company is unable to
obtain adequate funds from the sale of its stock in public offerings, private
placements, the exercise of warrants, or alternative financing arrangements,
it may be necessary to delay the potential permitting and development of its
landfill properties and potential landfill properties. 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 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. $2,490,000
of common stock purchase warrants were exercised during the nine months ended
September 30, 1997.
PART II - OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K.
- -----------------------------------------
(a) Furnish the exhibits required by Item 601 of Regulation S-B.
None
(b) Reports on Form 8-K.
The following reports were filed during the quarter for which
this Form 10-QSB is filed:
1. Report dated August 21, 1997. This report described the
acquisition of the C & D landfill in metropolitan Atlanta,
Georgia that is discussed in Note E on page 13 of this
Form 10-QSB Report for the quarter ended September 30,
1997.
2. Report dated September 17, 1997. This report described the
an amendment to Continental's fiscal 1996 Form 10-KSB Report
reflecting certain changes in the fiscal 1996 financial
statements.
3. Report dated September 24, 1997. This report described the
transactions with WasteMasters, Inc. that are discussed in
Note F on page 14 of this Form 10-QSB Report for the quarter
ended September 30, 1997.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CONTINENTAL INVESTMENT CORPORATION
(Registrant)
By: /S/ R. Dale Sterritt, Jr.
--------------------------
R. Dale Sterritt, Jr.
Chairman, President and
and Chief Executive Officer
(Principal Executive Officer)
By: /S/ G. Michael Lawshe
--------------------------
G. Michael Lawshe
Principal Accounting Officer
DATE: December 3, 1997
20
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 84,654
<SECURITIES> 1,574,947
<RECEIVABLES> 350,575
<ALLOWANCES> 44,841
<INVENTORY> 59,538
<CURRENT-ASSETS> 2,178,123
<PP&E> 23,194,405
<DEPRECIATION> 189,850
<TOTAL-ASSETS> 25,372,528
<CURRENT-LIABILITIES> 2,023,014
<BONDS> 0
0
0
<COMMON> 3,227,004
<OTHER-SE> 23,001,064
<TOTAL-LIABILITY-AND-EQUITY> 25,372,528
<SALES> 1,107,625
<TOTAL-REVENUES> 1,107,625
<CGS> 430,246
<TOTAL-COSTS> 2,333,847
<OTHER-EXPENSES> (235,189)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (48,121)
<INCOME-PRETAX> (991,033)
<INCOME-TAX> 0
<INCOME-CONTINUING> (991,033)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (991,033)
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