U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
________________________________
FORM 10-QSB
(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, 1998
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 November 19, 1998, the registrant had outstanding 12,278,745 shares
of Common Stock.
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<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, 1998 and December 31, 1997 ........... 3
Consolidated Statements of Operations
For the periods ended September 30, 1998
and 1997 ........................................... 5
Consolidated Statement of Stockholders' Equity
Nine months ended September 30, 1998 ............... 6
Consolidated Statements of Cash Flows
Nine months ended September 30, 1998
and 1997 ........................................... 7
Notes to Consolidated Financial Statements ........... 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................... 14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ....................... 19
Signature ........................................................ 19
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PART I. FINANCIAL INFORMATION
- -----------------------------
Item 1. Financial Statements.
- -----------------------------
Continental Investment Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1998 1997
------------ ------------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash $ 133,181 $ 217,383
Note receivable 1,548,497 1,484,097
Receivables - WasteMasters, Inc. 177,679 433,734
Accounts receivable, net of
allowance for doubtful accounts
$96,634 and $17,011 727,305 268,793
Inventories 54,191 59,423
Accrued interest receivable 213,261 82,628
Prepaid expenses and deposits 169,021 156,595
----------- -----------
Total current assets 3,023,135 2,702,653
PROPERTY AND EQUIPMENT
Landfill sites under development,
at cost 11,961,582 14,682,572
Landfills, net of accumulated
amortization/depreciation of
$879,654 and $307,203 2,779,847 2,572,500
Fixtures and equipment, net of
accumulated depreciation of
$250,965 and $81,114 674,239 764,903
----------- -----------
Total property and equipment 15,415,668 18,019,975
INVESTMENT IN WASTEMASTERS, INC. 7,774,000 6,080,000
INTANGIBLES -0- -0-
----------- -----------
Total assets $26,212,803 $26,802,628
=========== ===========
See the accompanying notes to unaudited consolidated financial statements.
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Continental Investment Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS - Continued
September 30, December 31,
1998 1997
------------ ------------
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable, trade $ 543,333 $ 561,090
Accrued expenses 565,635 283,350
Note payable, related party 51,331 98,707
Short-term notes payable 484,823 -0-
Accrued interest payable 88,590 -0-
Current portion of long-term
note payable 538,850 219,032
----------- -----------
Total current liabilities 2,272,562 1,162,179
LONG-TERM LIABILITIES
Note payable 822,931 1,143,772
Accrued landfill closure costs 239,043 10,770
Deferred income taxes 747,000 747,000
----------- -----------
Total long-term liabilities 1,808,974 1,901,542
----------- -----------
Total liabilities 4,081,536 3,063,721
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;
12,278,745 shares issued and
outstanding at September 30, 1998;
12,367,055 shares issued and
outstanding at December 31, 1997 3,265,374 3,309,528
Additional contributed capital 23,077,284 24,881,497
Accumulated deficit (4,211,391) (4,452,118)
----------- -----------
Total stockholders' equity 22,131,267 23,738,907
----------- -----------
Total liabilities and
stockholders' equity $26,212,803 $26,802,628
=========== ===========
See the accompanying notes to unaudited consolidated financial statements.
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Continental Investment Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended Nine months ended
September 30, September 30,
----------------------- -------------------------
1998 1997 1998 1997
---------- -------- ----------- -----------
Revenues $1,235,828 $ 700,806 $3,469,269 $1,107,625
Costs and Expenses
Cost of revenues 699,021 272,093 1,886,062 430,246
Selling, general and
administrative
expenses 893,959 807,930 2,314,229 1,903,601
---------- ----------- ---------- ----------
Operating loss (357,152) (379,217) (731,022) (1,226,222)
Other Income (Expense)
Interest income 42,458 60,371 129,044 179,441
Interest expense (30,788) (17,296) (95,791) (48,121)
Gain on sale of land 944,000 -0- 944,000 -0-
Miscellaneous income
(expense) (8,745) -0- (5,504) 103,869
---------- ----------- ---------- ----------
NET INCOME
(LOSS) $ 589,773 $ (336,142) $ 240,727 $ (991,033)
========== =========== ========== ==========
Per Share Data
Loss per common
share - basic $0.05 $(0.03) $0.02 $(0.08)
Weighted average
number of common
shares outstanding 12,393,227 11,980,119 12,383,756 11,841,378
See accompanying notes to unaudited consolidated financial statements.
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<TABLE>
Continental Investment Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Nine months ended September 30, 1998
(Unaudited)
<CAPTION>
Common stock Common Additional
---------------------- stock contributed Accumulated
Shares Par value subscribed capital deficit Total
---------- ---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31,
1997 12,367,055 $3,309,528 -0- $24,881,497 $(4,452,118) $23,738,907
Exercise
of
warrants 15,696 7,848 -0- 70,632 -0- 78,480
Stock issued
in connection
with
acquisition 5,041 2,521 -0- 51,922 -0- 54,443
Stock
cancelled due
to acquisition
reversal (119,047) (59,523) -0- (1,940,467) -0- (1,999,990)
Stock
issued for
compensation 10,000 5,000 -0- 13,700 -0- 18,700
Net income --- --- --- --- 240,727 240,727
---------- ---------- --------- ----------- ----------- -----------
Balance,
September 30,
1998 12,278,745 $3,265,374 -0- $23,077,284 $(4,211,391) $22,131,267
========== ========== ========= =========== =========== ===========
<FN>
See accompanying notes to unaudited consolidated financial statements.
</FN>
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</TABLE>
<PAGE>
Continental Investment Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30
(Unaudited)
1998 1997
--------- ----------
Cash flows from operating activities:
Net income (loss) $240,727 $ (991,033)
Adjustments to reconcile net loss to
net cash provided by (used in) operating
activities:
Amortization/depreciation expense 746,563 178,904
Allowance for bad debts 79,623 -0-
Common stock issued for services 27,554 -0-
Gain (loss) on disposition of assets (947,240) -0-
Accrual for closure and post-closure
expense 103,273 -0-
Change in operating assets and liabilities:
Accounts receivable - trade (414,968) (326,896)
Inventories 5,232 (10,925)
Accrued interest receivable (130,633) -0-
Deposits and prepaid expenses (435,469) (18,074)
Accounts payable - trade (138,852) 260,731
Accrued interest payable 88,590 27,216
Accrued expenses 250,285 1,302,363
--------- ----------
Net cash provided by (used in)
operating activities (525,315) 422,286
Cash flows from investing activities:
Purchase of landfills -0- (4,143,308)
Purchases of property and equipment (35,653) (65,968)
Proceeds from equipment disposition 6,732 -0-
Paydown of note receivable 191,655 -0-
Short-term investments -0- 805,053
Accrued interest receivable -0- 4,774
Other expenditures (4,467) -0-
Cash from acquisition of Trantex 2,531 -0-
--------- ----------
Net cash provided by (used in)
investing activities 160,798 (3,399,449)
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Continental Investment Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
Nine Months Ended September 30
(Unaudited)
1998 1997
--------- ----------
Cash flows from financing activities:
Principal payments on notes $(233,509) $ (269,770)
Principal payments on notes to
related parties (101,184) -0-
Proceeds from sale of stock -0- 2,490,000
Proceeds from debt 615,008 -0-
--------- ----------
Net cash provided by (used in)
financing activities 280,315 2,220,230
Net increase (decrease) in cash (84,202) (756,933)
Cash, beginning of period 217,383 841,586
Cash, end of period $ 133,181 $ 84,654
========= ==========
NON-CASH TRANSACTIONS:
During the quarter ended September 30, 1998, the Company returned to the
seller a 108 acre parcel of land in metropolitan Atlanta, Georgia that it had
acquired during fiscal 1997, in exchange for the 119,047 shares of Company
common stock that it had issued in consideration for such acquisition. This
reversal and nullification of the original transaction had no effect on the
Company's statements of operations.
During the nine months ended September 30, 1998, $78,480 of common stock
purchase warrants were exercised in exchange for consideration consisting of
the cancellation of $78,480 of Company indebtedness.
During the nine months ended September 30, 1998, the Company purchased
equipment in exchange for a note payable for $47,474.
See accompanying notes to unaudited consolidated financial statements.
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Continental Investment Corportion and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS - Continued
Nine Months Ended September 30, 1998
(Unaudited)
As part of the acquisition of Trantex, Inc., effective on February 18,
1998, accounted for as a purchase, Continental assumed various assets (subject
to certain liabilities) by exchanging shares of common stock. The fair value
of assets received and the liabilities assumed are summarized below:
Cash $ 2,531
Accounts receivable 123,167
Landfill site under development, at cost 28,050
Landfill, net of accumulated amortization 779,798
Equipment, net of accumulated depreciation 13,000
--------
Total assets 946,547
Accounts payable and accrued expenses 267,952
Notes payable 446,595
Obligations to seller 232,000
--------
Total liabilities 946,547
--------
Net of assets acquired over
liabilities assumed $ -0-
========
Of the obligations due to the seller, $32,000 was retired upon issuance
of shares of the Company's common stock during the nine months ended
September 30, 1998, and $200,000 represents contingent consideration due to
the seller upon achievement of certain performance goals for the landfill.
Additional shares of the Company's common stock valued at $22,443 were also
issued during the nine months ended September 30, 1998 in connection with the
Trantex acquisition. In September 1997, an initial cost of $275,000 was
recorded for the acquisition of Trantex, Inc. (which owns the Rye Creek
landfill in Kirksville, Missouri) upon the issuance of shares of the
Company's common stock and warrants.
See accompanying notes to unaudited consolidated financial statements.
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<PAGE>
Continental Investment Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998 (Unaudited)
NOTE A - BASIS OF PRESENTATION
- ------------------------------
The accompanying unaudited financial statements have been prepared by the
Company 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/A Report of Continental Investment Corporation (the "Company" or
"CICG") for fiscal year ended December 31, 1997, as filed with the U. S.
Securities and Exchange Commission.
The results of operations for the periods ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the full
year.
NOTE B - DISCLOSURE REGARDING 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 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. All prior and
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NOTE B - DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS - Continued
- --------------------------------------------------------------------
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 and treatment 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) 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,
cash flow from the construction and demolition landfill described in Note C
on page 12 of this report, cash flow generated from the operation of its
fabric care business, and cash flow from the municipal solid waste landfill
described in Note C on page 12 of this report. 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,
there may be delays in the Company's ability to accomplish its long-term
goals. 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.
(3) 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.
(4) 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.
(5) 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
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NOTE B - DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS - Continued
- --------------------------------------------------------------------
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.
(6) 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.
(7) Potential 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 - ACQUISITIONS OF OPERATING LANDFILLS
- --------------------------------------------
During the third quarter of 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
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NOTE C - ACQUISITIONS OF OPERATING LANDFILLS - Continued
- --------------------------------------------------------
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.
During February 1998, the Company completed the acquisition of an operating
municipal solid waste (MSW) landfill in Kirksville, Missouri. Municipal
solid waste ("MSW") landfills are the primary depository for solid waste in
North America. A municipal solid waste landfill 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
forestry operations or industrial processes or operations. Total
consideration paid for such landfill comprised approximately $1,221,547,
consisting of $307,000 of restricted Company common stock and the assumption
of approximately $914,547 of liabilities.
The following pro forma information compares the results of operations as
if the acquisitions had been consummated as of the beginning of each of
the nine-month and three-month periods ended September 30, 1998 and
September 30, 1997.
Nine months ended Three months ended
September 30, September 30,
----------------------- -----------------------
1998 1997 1998 1997
--------- --------- --------- ---------
Revenue 3,503,963 1,981,299 1,235,828 848,034
Net income (Loss) 225,281 (947,354) 589,773 (254,112)
Net income (loss)
per common share
- basic $0.02 $(0.08) $0.05 $(0.02)
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.
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NOTE D - NEW ACCOUNTING PRONOUNCEMENT
- -------------------------------------
In the fourth quarter of 1997, the Company adopted the provisions of
Statement of Financial Accounting Standard No. 128, "Earnings Per Share"
(SFAS 128). In accordance with SFAS 128, the Company computes basic
earnings per share based on the weighted-average number of common shares
outstanding during each period presented. Diluted earnings per share is
computed based on the weighted average number of common shares plus the
dilutive effect of all potential dilutive securities, principally stock
options and warrants, outstanding during each period presented. In all
periods presented, all potential common shares were anti-dilutive.
Accordingly, the adoption of SFAS 128 had no effect on per share amounts.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
- -------------------------------------------------------------------
Results of Operations
---------------------
Nine Months Ended September 30, 1998
Compared to Nine Months Ended September 30, 1997
------------------------------------------------
Revenues
- --------
During the nine months ended September 30, 1998, revenues of the Company
were derived primarily from the C&D landfill, described in Note C on Page 12
of this report, which was acquired during the third quarter of 1997
($1,884,404) the FIBER-SEAL fabric care and treatment business ($746,838),
the management contract with WasteMasters, Inc. ($450,000), and the municipal
solid waste landfill in Kirksville, Missouri described in Note C on Page 12
of this report ($382,207). Revenues for the nine months ended September 30,
1998 increased $2,361,644 (213.22%) to $3,469,269 from $1,107,625 for the
nine months ended September 30, 1997. The increase in revenues was primarily
a result of the acquisitions of the C&D and MSW landfills, the WasteMasters,
Inc. management agreement and, to a lesser degree, increased FIBER-SEAL
revenues. FIBER-SEAL revenues increased $81,255 (12.21%) to $746,838 for the
nine months ended September 30, 1998 from $665,583 for the nine months ended
September 30, 1997. Landfill revenues in the nine months ended September 30,
1997 amounted to $429,419.
Cost of Revenues
- ----------------
Cost of revenues for the nine months ended September 30, 1998 increased
$1,455,816 (338.37%) to $1,886,062 (representing 54.36% of revenues) from
$430,246 (representing 38.84% of revenues) for the nine months ended
September 30, 1997. The increase in the cost of revenues was primarily a
result of the acquisition of the C&D and MSW landfills.
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<PAGE>
Selling, General and Administrative (SG&A) Expenses
- ---------------------------------------------------
Selling, general and administrative (SG&A) expenses for the nine months
ended September 30, 1998 increased $410,628 (21.57%) to $2,314,229 from
$1,903,601 for the nine months ended September 30, 1997. The increase was due
to a variety of factors including increased personnel costs, the rental of
office space in Atlanta, the expenses incurred as a result of the
acquisitions described in Note C on Page 12 of this report, and additional
expenses for FIBER-SEAL related to its conversion from a licensing operation
to a franchising operation. While existing licensees will likely remain as
licensees, FIBER-SEAL is on the verge of entering the potentially more
lucrative franchising field.
Operating Loss
- --------------
Operating loss for the nine months ended September 30, 1998 decreased
$495,200 (40.38%) to $731,022 from $1,226,222 for the nine months ended
September 30, 1997. This was due to an increase in revenues for the nine
months ended September 30, 1998 of $2,361,644 (a 213.22% increase) to
$3,469,269 from $1,107,625 for the nine months ended September 30, 1997, an
increase in cost of revenues for the nine months ended September 30, 1998 of
$1,455,816 (a 338.37% increase) to $1,886,062 from $430,246 for the nine
months ended September 30, 1997, and an increase in selling, general and
administrative (SG&A) expenses for the nine months ended September 30, 1998
of $410,628 (21.57%) to $2,314,229 from $1,903,601 for the nine months ended
September 30, 1997.
Interest Income
- ---------------
Interest income of $129,044 for the nine months ended September 30, 1998
decreased by $50,397 (28.09%) as compared with the nine months ended
September 30, 1997 during which nine months there was $179,441 of interest
income. Such decrease was due to the Company's decreased holdings of cash and
short-term investments during the fiscal 1998 period as compared with the
fiscal 1997 period.
Interest Expense
- ----------------
Interest expense was $95,791 for the nine months ended September 30,
1998, an increase of $47,670 (99.06%) as compared with the nine months ended
September 30, 1997 during which nine months there was $48,121 of interest
expense. Such increase resulted from certain indebtedness incurred as a
result of the acquisition of the C&D landfill described in Note C on Page 12
of this report.
Gain on Sale of Land
- --------------------
During the three months ended September 30, 1998, the Company sold 253.5
acres of unimproved land in Ellis County, Texas which had been held for
possible development, in exchange for consideration consisting of 1.4 million
shares of common stock of WasteMasters, Inc. Such transaction resulted in an
extraordinary, non-recurring gain of $944,000.
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<PAGE>
Net Income (Loss)
- -----------------
The Company generated net income of $240,727 during the nine months
ended September 30, 1998 as compared with a net loss of $991,033 during the
nine months ended September 30, 1997. The improved results were primarily due
to the $944,000 extraordinary, non-recurring gain on sale of land realized
during the September 30, 1998 quarter and the significantly increased
revenues and decreased operating loss, offset in part by increased interest
expense and decreased interest income and miscellaneous income.
Three Months Ended September 30, 1998
Compared to Three Months Ended September 30, 1997
-------------------------------------------------
Revenues
- --------
During the three months ended September 30, 1998, revenues of the Company
were derived primarily from the C&D landfill, described in Note C on Page 12
of this report, which was acquired during the third quarter of 1997 ($712,635),
the FIBER-SEAL fabric care and treatment business ($241,522), the management
contract with WasteMasters, Inc. ($150,000), and the municipal solid waste
landfill in Kirksville, Missouri described in Note C on Page 12 of this report
($125,671). Revenues for the quarter ended September 30, 1998 increased
$535,022 (76.34%) to $1,235,828 from $700,806 for the quarter ended September
30, 1997. The increase in revenues was primarily a result of the acquisitions
of the C&D and MSW landfills, the WasteMasters, Inc. management agreement
offset, in part, by decreased FIBER-SEAL revenues. FIBER-SEAL revenues
decreased $17,242 (6.66%) to $241,522 for the quarter ended September 30,
1998 from $258,764 for the quarter ended September 30, 1997. Landfill
revenues in the quarter ended September 30, 1997 amounted to $429,419.
Cost of Revenues
- ----------------
Cost of revenues for the quarter ended September 30, 1998 increased
$426,928 (156.91%) to $699,021 (representing 56.56% of revenues) from $272,093
(representing 38.83% of revenues) for the quarter ended September 30, 1997.
The increase in the cost of revenues was primarily a result of the
acquisition of the C&D and MSW landfills.
Selling, General and Administrative (SG&A) Expenses
- ---------------------------------------------------
Selling, general and administrative (SG&A) expenses for the quarter ended
September 30, 1998 increased $86,029 (10.65%) to $893,959 from $807,930 for
the quarter ended September 30, 1997. The increase was due to a variety of
factors including increased personnel costs, the rental of office space in
Atlanta, the expenses incurred as a result of the acquisitions described in
Note C on Page 12 of this report, and additional expenses for FIBER-SEAL
related to its conversion from a licensing operation to a franchising
operation. While existing licensees will likely remain as licensees, FIBER-
SEAL is on the verge of entering the potentially more lucrative franchising
field.
-16-
<PAGE>
Operating Loss
- --------------
Operating loss for the quarter ended September 30, 1998 decreased $22,065
(5.82%) to $357,152 from $379,217 for the quarter ended September 30, 1997.
This was due to an increase in revenues for the quarter ended September 30,
1998 of $535,022 (a 76.34% increase) to $1,235,828 from $700,806 for the
quarter ended September 30, 1997, an increase in cost of revenues for the
quarter ended September 30, 1998 of $426,928 (a 156.91% increase) to $699,021
from $272,093 for the quarter ended September 30, 1997, and an increase in
selling, general and administrative (SG&A) expenses for the quarter ended
September 30, 1998 of $86,029 (a 10.65% increase) to $893,959 from $807,930
for the quarter ended September 30, 1997.
Interest Income
- ---------------
Interest income of $42,458 for the quarter ended September 30, 1998
decreased by $17,913 (29.67%) as compared with the quarter ended September 30,
1997 during which quarter there was $60,371 of interest income. Such decrease
was due to the Company's decreased holdings of cash and short-term investments
during the fiscal 1998 period as compared with the fiscal 1997 period.
Interest Expense
- ----------------
Interest expense was $30,788 for the quarter ended September 30, 1998, an
increase of $13,492 (78.01%) as compared with the quarter ended September 30,
1997 during which quarter there was $17,296 of interest expense. Such increase
resulted from certain indebtedness incurred as a result of the acquisition of
the C&D landfill described in Note C on Page 12 of this report.
Gain on Sale of Land
- --------------------
During the three months ended September 30, 1998, the Company sold 253.5
acres of unimproved land in Ellis County, Texas which had been held for
possible development, in exchange for consideration consisting of 1.4 million
shares of common stock of WasteMasters, Inc. Such transaction resulted in an
extraordinary, non-recurring gain of $944,000.
Net Income (Loss)
- -----------------
The Company generated net income of $589,773 during the three months
ended September 30, 1998 as compared with a net loss of $336,142 during the
three months ended September 30, 1997. The improved results were primarily
due to the $944,000 extraordinary, non-recurring gain on sale of land
realized during the September 30, 1998 quarter and the significantly
increased revenues and decreased operating loss offset in part by increased
interest expense and decreased interest income.
-17-
<PAGE>
Liquidity and Capital Resources
-------------------------------
Cash and Note Receivable
- ------------------------
Cash and note receivable as of September 30, 1998 were $1,681,678 a
decrease of $19,802 as compared with the cash and note receivable position of
$1,701,480 at December 31, 1997. Such decrease was primarily due to the
$731,022 net operating loss experienced by the Company during the nine months
ended September 30, 1998, offset, in large part, by non-cash expenses (i.e.,
depreciation, amortization, etc.).
Investment in WasteMasters, Inc.
- --------------------------------
As of September 30, 1998, the Company owned various securities of
WasteMasters, Inc., a publicly-traded corporation whose common stock is
traded on the Nasdaq SmallCap Market under the trading symbol WAST. Such
securities consist of 5,900,000 shares of WasteMasters Common Stock,
5,000,000 shares of WasteMasters Series A Preferred Stock (which are
convertible at the Company's option into 25,500,000 shares of WasteMasters
Common Stock) and an option to exchange up to 1,000,000 shares of Continental
Investment Corporation Common Stock for up to 100,000,000 shares of
WasteMasters Common Stock (as per a fixed exchange ratio of 1 share of
Continental for 100 shares of WasteMasters). Such securities are valued on
the Company's balance sheet at their cost basis of $7,774,000. As per a
management contract between the Company and WasteMasters, Inc., the Company
was paid a monthly fee of $50,000 to manage the affairs and operations of
WasteMasters, Inc. during the nine months ended September 30, 1998.
Capital Expenditures
- --------------------
The Company currently has no material commitments for capital
expenditures.
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, cash flow from the construction and demolition landfill
described in Note C on Page 12 of this report, cash flow generated from the
operation of its FIBER-SEAL fabric care and treatment business and cash flow
from the municipal solid waste landfill described in Note C on Page 12 of
this report. 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, there may be delays in the
Company's ability to accomplish its long-term goals. 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
-18-
<PAGE>
the future to also acquire certain services, satisfy indebtedness and/or make
acquisitions utilizing authorized shares of stock of the Company. $2,720,000
of common stock purchase warrants were exercised during the fiscal year ended
December 31, 1997. $78,840 of common stock purchase warrants were exercised
during the nine months ended September 30, 1998.
As of September 30, 1998, the Company had working capital of $750,573
and a current ratio of 1.33 to 1.
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.
None
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
Chief Executive Officer
(Principal Financial Officer)
DATE: November 19, 1998
-19-
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