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 June 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 August 14, 1998, the registrant had outstanding 12,397,792 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 June 30, 1998
and December 31, 1997 ............................... 3
Consolidated Statements of Operations
For the periods ended June 30, 1998 and 1997 ........ 5
Consolidated Statement of Stockholders' Equity
Six months ended June 30, 1998 ...................... 6
Consolidated Statements of Cash Flows
Six months ended June 30, 1998 and 1997 ............. 7
Notes to Consolidated Financial Statements ............ 9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations ................................. 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ................ 18
Signatures ................................................ 19
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<PAGE>
PART I. FINANCIAL INFORMATION
- -----------------------------
Item 1. Financial Statements.
- -----------------------------
Continental Investment Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1998 1997
----------- -----------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash $ 119,598 $ 217,383
Note receivable 1,550,365 1,484,097
Receivables - WasteMasters, Inc. 227,159 433,734
Accounts receivable, net of allowance for
doubtful accounts $18,844 and $17,011 629,643 268,793
Inventories 52,935 59,423
Accrued interest receivable 170,791 82,628
Prepaid expenses and deposits 181,289 156,595
----------- -----------
Total current assets 2,931,780 2,702,653
PROPERTY AND EQUIPMENT
Landfill sites under development, at cost 14,682,572 14,682,572
Landfills, net of accumulated amortization/
depreciation of $655,119 and $307,203 3,033,382 2,572,500
Fixtures and equipment, net of accumulated
depreciation of $195,784 and $81,114 736,096 764,903
Total property and equipment 18,452,050 18,019,975
INVESTMENT IN WASTEMASTERS, INC. 6,080,000 6,080,000
INTANGIBLES -0- -0-
----------- -----------
Total assets $27,463,830 $26,802,628
=========== ===========
See accompanying notes to unaudited consolidated financial statements.
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<PAGE>
Continental Investment Corporation and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS - Continued
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable, trade $ 480,249 $ 561,090
Accrued expenses 586,176 283,350
Note payable, related party 100,349 -0-
Short-term notes payable 305,781 -0-
Accrued interest payable 73,059 -0-
Current portion of long-term note payable 563,494 219,032
----------- -----------
Total current liabilities 2,109,108 1,162,179
LONG-TERM LIABILITIES
Note payable 887,015 1,143,772
Accrued landfill closure costs 197,923 10,770
Deferred income taxes 747,000 747,000
----------- -----------
Total long term liabilities 1,831,938 1,901,542
----------- -----------
Total liabilities 3,941,046 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; 12,387,792 shares
issued and outstanding at June 30, 1998;
12,367,055 shares issued and outstanding
at December 31, 1997 3,319,897 3,309,528
Additional contributed capital 25,004,051 24,881,497
Accumulated deficit (4,801,164) (4,452,118)
----------- -----------
Total stockholders' equity 23,522,784 23,738,907
----------- -----------
Total liabilities and
stockholders' equity $27,463,830 $26,802,628
=========== ===========
The accompanying notes to unaudited consolidated financial statements.
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<PAGE>
Continental Investment Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended Six months ended
June 30, June 30,
---------------------
1998 1997 1998 1997
Revenues $1,132,072 $ 202,768 $2,233,441 $ 406,819
Costs and Expenses
Cost of revenues 566,352 79,424 1,187,041 158,153
Selling, general and
administrative expenses 790,385 572,068 1,420,270 1,095,671
---------- ---------- ---------- ----------
Operating loss (224,665) (448,724) (373,870) (847,005)
Other Income (Expense)
Interest income 41,803 61,305 86,587 119,070
Interest expense (34,291) (12,473) (65,004) (30,825)
Miscellaneous income 3,241 64,729 3,241 103,869
---------- ---------- ----------- ----------
10,753 113,561 24,824 192,114
NET LOSS $ (213,912) $ (335,163) $ (349,046) $ (654,891)
========== ========== ========== ==========
Per Share Data
Loss per common
share - basic $(0.02) $(0.03) $(0.03) $(0.06)
Weighted average number
of common shares
outstanding 12,383,139 11,443,393 12,379,239 11,378,560
See accompanying notes to unaudited consolidated financial statements.
-5-
<PAGE>
<TABLE>
Continental Investment Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Six months ended June 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 15,6967,848 7,848 -0- 70,632 -0- 78,480
Stock issued
for
acquisitions 5,041 2,521 -0- 51,922 -0- 54,443
Net loss -0- -0- -0- -0- (349,046) (349,046)
Balance,
June 30,
1998 12,387,792 $3,319,897 -0- $25,004,051 $(4,801,164) $23,522,784
========== ========== ========== =========== =========== ===========
<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
Six Months Ended June 30
(Unaudited)
1998 1997
------------ ------------
Cash flows from operating activities:
Net income (loss) $(349,046) $(654,891)
Adjustments to reconcile net loss to
net cash Provided by (used in)
operating activities:
Amortization/depreciation expense 463,201 27,569
Allowance for bad debts 1,833 -0-
Common stock issued for services -0- (191,879)
Gain (loss) on disposition of asset(s) (3,240) -0-
Accrual for closure and post-closure
expense 62,153 -0-
Change in operating assets and liabilities:
Accounts receivable - trade (239,516) (10,251)
Inventories 6,488 (1,919)
Accrued interest receivable (88,163) -0-
Other current assets and liabilities (447,737) -0-
Prepaid expenses -0- 20,973
Accounts payable - trade (201,936) (21,828)
Accrued interest payable 73,059 11,760
Accrued expenses 270,826 81,644
-------- ----------
Net cash provided by (used in)
operating activities (452,078) (738,822)
Cash flows from investing activities:
Purchases of property and equipment (29,828) (4,687)
Proceeds from equipment disposition 6,732 -0
Paydown of note receivable 140,307 425,903
Payment of accrued interest receivable -0- 61,142
Landfill acquisition down payment -0- (250,000)
Other expenditures (12,467) -0-
Cash from acquisition of Trantex 2,531 -0-
Net cash provided by (used in) -------- ----------
investing activities 107,275 232,358
Cash flows from financing activities:
Principal payments on notes (123,824) (438,482)
Principal payments on notes to related parties (50,166) -0-
Proceeds from sale of stock -0- 2,400,000
Proceeds from debt 421,008 -0-
-------- ----------
Net cash provided by (used in)
financing activities 247,018 1,961,518
See accompanying notes to unaudited consolidated financial statements.
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<PAGE>
Continental Investment Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
Six months ended June 30, 1998
(Unaudited)
1998 1997
------------ -----------
Net increase (decrease) in cash $(97,785) $1,455,054
Cash, beginning of period 217,383 841,586
Cash, end of period $119,598 $2,296,640
======== ==========
NON-CASH TRANSACTIONS:
During the six months ended June 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.
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 to be retired upon
issuance of shares of the Company's Common Stock during the quarter ended
June 30, 1998 1998, and $200,000 represents contingent consideration due to
the seller upon achievement of certain performance goals for the landfill.
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.
-8-
<PAGE>
Continental Investment Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998 and 1997
(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 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 period ended June 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
-9-
<PAGE>
NOTE B - DISCLOSURE REGARDING FORWRD LOOKING STATEMENTS - Continued
- -------------------------------------------------------------------
Factors") and other factors could cause actual results to differ materially
from the Company's expectations. 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
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 10 of this report and cash flow 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.
(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.
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<PAGE>
NOTE B - DISCLOSURE REGARDING FORWRD LOOKING STATEMENTS - Continued
- --------------------------------------------------------------------
(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
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.
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<PAGE>
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
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
six month and three month periods ended June 30, 1998 and June 30, 1997.
Six months ended June 30, Three months ended June 30,
------------------------- ---------------------------
1998 1997 1998 1997
----------- ----------- ---------- ----------
Revenue $2,268,135 $1,136,349 $1,132,072 $ 626,952
Net Loss $ (364,492) $ (662,203) $ (213,912) $(350,662)
Loss per common
share - basic $(0.03) $(0.06) $(0.02) $(0.03)
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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<PAGE>
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 loss per share
amounts.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
- -------------------------------------------------------------------
Results of Operations
---------------------
Six Months Ended June 30, 1998
Compared to Six Months Ended June 30, 1997
------------------------------------------
Revenues
- --------
During the six months ended June 30, 1998, revenues of the Company were
derived primarily from the C&D landfill, described in Note C on Page 10 of
this report, which was acquired during the third quarter of 1997 ($1,171,958)
the FIBER-SEAL fabric care and treatment business ($505,316), the management
contract with WasteMasters, Inc. $300,000), and the municipal solid waste
landfill in Kirksville, Missouri described in Note C on Page 10 of this
report ($256,166). Revenues for the six months ended June 30, 1998 increased
$1,826,622 (449.00%) to $2,233,441 from $406,819 for the six months ended
June 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 $98,497 (24.21%) to $505,316 for the six months ended
June 30, 1998 from $406,819 for the six months ended June 30, 1997. There
were no landfill or WasteMasters, Inc. management revenues in the six months
ended June 30, 1997. 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.
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<PAGE>
Cost of Revenues
- ----------------
Cost of revenues for the six months ended June 30, 1998 increased
$1,028,888 (650.56%) to $1,187,041 (representing 53.15% of revenues) from
$158,153 (representing 38.88% of revenues) for the six months ended June 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 six months
ended June 30, 1998 increased $324,599 (29.63%) to $1,420,270 from $1,095,671
for the six months ended June 30, 1997. The incrase 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 Note C on Page 10 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 six months ended June 30, 1998 decreased $473,135
(55.86%) to $373,870 from $847,005 for the six months ended June 30, 1997.
This was due to an increase in revenues for the six months ended June 30,
1998 of $1,826,622 (a 449.00% increase) to $2,233,441 from $406,819 for the
six months ended June 30, 1997, an increase in cost of revenues for the six
months ended June 30, 1998 of $1,028,888 (a 650.56% increase) to $1,187,041
from $158,153 for the six months ended June 30, 1997, and an increase in
selling, general and administrative (SG&A) expenses for the six months
ended June 30, 1998 of $324,599 (a 29.63% increase) to $1,420,270 from
$1,095,671 for the six months ended June 30, 1997.
Interest Income
- ---------------
Interest income of $86,587 for the six months ended June 30, 1998
decreased by $32,483 (27.28%) as compared with the six months ended June 30,
1997 during which six months there was $119,070 of interest income. Such
increase 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.
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<PAGE>
Interest Expense
- ----------------
Interest expense was $65,004 for the six months ended June 30, 1998, an
increase of $34,179 (110.88%) as compared with the six months ended June 30,
1997 during which six months there was $30,825 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 10 and of this
report.
Net Loss
- --------
The net loss for the six months ended June 30, 1998 decreased $305,845
(46.70%) to $349,046 from $654,891 for the six months ended June 30, 1997.
Such decrease was primarily due to the significantly increased revenues and
decreased operating loss offset in part by increased interest expense and
decreased interest income.
Three Months Ended June 30, 1998
Compared to Three Months Ended June 30, 1997
--------------------------------------------
Revenues
- --------
During the three months ended June 30, 1998, revenues of the Company
were derived primarily from the C&D landfill, described in Note C on Page 10
of this report, which was acquired during the third quarter of 1997
($593,464), the FIBER-SEAL fabric care and treatment business ($266,440),
the management contract with WasteMasters, Inc. ($150,000), and the municipal
solid waste landfill in Kirksville, Missouri described in Note C on Page 10
of this report ($122,368). Revenues for the quarter ended June 30, 1998
increased $929,304 (458.31%) to $1,132,072 from $202,768 for the quarter
ended June 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 $63,672 (31.40%) to $266,440 for the quarter ended
June 30, 1998 from $202,768 for the quarter ended June 30, 1997. There were
no landfill or WasteMasters, Inc. management revenues in the quarter ended
June 30, 1997. 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.
Cost of Revenues
- ----------------
Cost of revenues for the quarter ended June 30, 1998 increased $486,928
(613.07%) to $566,352 (representing 50.03% of revenues) from $79,424
(representing 39.17% of revenues) for the quarter ended June 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 quarter
ended June 30, 1998 increased $218,317 (38.16%) to $790,385 from $572,068 for
the quarter ended June 30, 1997. 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 Note C on Page 10 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 June 30, 1998 decreased $224,059
(49.93%) to $224,665 from $448,724 for the quarter ended June 30, 1997. This
was due to an increase in revenues for the quarter ended June 30, 1998 of
$929,304 (a 458.31% increase) to $1,132,072 from $202,768 for the quarter
ended June 30, 1997, an increase in cost of revenues for the quarter ended
June 30, 1998 of $486,928 (a 613.07% increase) to $566,352 from $79,424 for
the quarter ended June 30, 1997, and an increase in selling, general and
administrative (SG&A) expenses for the quarter ended June 30, 1998 of
$218,317 (a 38.16% increase) to $790,385 from $572,068 for the quarter ended
June 30, 1997.
Interest Income
- ---------------
Interest income of $41,803 for the quarter ended June 30, 1998 decreased
by $19,502 (31.81%) as compared with the quarter ended June 30, 1997 during
which quarter there was $61,305 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 $34,291 for the quarter ended June 30, 1998, an
increase of $21,818 (174.92%) as compared with the quarter ended June 30,
1997 during which quarter there was $12,473 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 10 and of this
report.
-16-
<PAGE>
Net Loss
- --------
The net loss for the quarter ended June 30, 1998 decreased $121,251
(36.18%) to $213,912 from $335,163 for the quarter ended June 30, 1997. Such
decrease was primarily due to the significantly increased revenues and
decreased operating loss offset in part by increased interest expense and
decreased interest income.
Liquidity and Capital Resources
-------------------------------
Cash and Short-Term Investments
- -------------------------------
Cash and note receivable as of June 30, 1998 were $1,669,963 a decrease
of $31,517 as compared with the cash and note receivable position of
$1,701,480 at December 31, 1997. Such decrease was primarily due to the
$349,046 net loss experienced by the Company during the six months ended
June 30, 1998 offset, in part, by non-cash expenses.
Investment in WasteMasters, Inc.
- --------------------------------
As of June 30, 1998, the Company owned various restricted, unregistered
securities of WasteMasters, Inc., a publicly-traded corporation whose
registered common stock is traded on the Nasdaq SmallCap Market under the
trading symbol WAST. Such securities consist of 4,500,000 shares of
restricted 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 restricted WasteMasters Common Stock) and an option to
exchange up to 1,000,000 shares of restricted Continental Investment
Corporation Common Stock for up to 100,000,000 shares of restricted
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 $6,080,000. As per a
management contract between the Company and WasteMasters, Inc., the Company
is paid a monthly fee of $50,000 to manage the affairs and operations of
WasteMasters, Inc.
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
-17-
<PAGE>
Company's stock, cash flow from the construction and demolition landfill
described in Note C on Page 10 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 10 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, 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. $2,720,000 of common
stock purchase warrants were exercised during the fiscal year ended
December 31, 1997. $78,480 of common stock purchase warrants were exercised
during the six months ended June 30, 1998.
As of June 30, 1998, the Company had working capital of $822,672 and a
current ratio of 1.39 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
-18-
<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 and
Chief Executive Officer
(Principal Financial Officer)
By: /S/ G. Michael Lawshe
---------------------------
G. Michael Lawshe
(Principal Accounting Officer)
DATE: August 14, 1998
-19-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 119,598
<SECURITIES> 1,550,365
<RECEIVABLES> 856,802
<ALLOWANCES> 18,844
<INVENTORY> 52,935
<CURRENT-ASSETS> 2,931,780
<PP&E> 18,452,050
<DEPRECIATION> 850,903
<TOTAL-ASSETS> 27,463,830
<CURRENT-LIABILITIES> 2,109,108
<BONDS> 0
0
0
<COMMON> 3,319,897
<OTHER-SE> 20,202,887
<TOTAL-LIABILITY-AND-EQUITY> 27,463,830
<SALES> 2,233,441
<TOTAL-REVENUES> 2,233,441
<CGS> 1,187,041
<TOTAL-COSTS> 2,607,311
<OTHER-EXPENSES> 3,241
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 65,004
<INCOME-PRETAX> (349,046)
<INCOME-TAX> 0
<INCOME-CONTINUING> (349,046)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (349,046)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
