<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Quarter Ended July 31, 1996
------------------------------------------------------
Commission File Number 33-22426-D
-----------------------------------------------------
Continental Capital Corporation
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Colorado 95-4047540
- ------------------------------------ --------------------------------
(State of jurisdiction of incorporation (I.R.S. Employer
or organization Identification Number)
8950 Fullbright Avenue, Chatsworth, California 91311
- ---------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(818) 886-0008
- ---------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
---------- ----------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common stock $.001 Par Value - 9,250,000 Shares as of
- -----------------------------------------------------------------------------
October 1, 1996
- -----------------------------------------------------------------------------
The Exhibit Index is on Page 13.
This document contains 14 pages.
<PAGE>
CONTINENTAL CAPITAL CORPORATION AND SUBSIDIARY
INDEX
-----
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
- ------- ---------------------
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of July 31, 1996 and October 31, 1995 3
Consolidated Statements of Operations for the Nine Months and
Three Months Ended July 31, 1996 and 1995 4
Consolidated Statements of Cash Flows for the Nine Months Ended
July 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11-12
PART II. OTHER INFORMATION
- -------- -----------------
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
</TABLE>
-2-
<PAGE>
CONTINENTAL CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
July 31, October 31,
ASSETS 1996 1995
------ ------------ ------------
<S> <C> <C>
Current Assets:
Cash on hand and in bank $ 135,629 $ 159,052
Inventory 49,742 49,824
----------- -----------
Total current assets 185,371 208,876
Cost in Excess of Net Assets of Business Acquired 600,000 -
----------- -----------
Total assets $ 785,371 $ 208,876
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Line of credit financing $ 380,000 $ 175,000
Accounts payable and accrued expenses 28,211 28,211
----------- -----------
Total current liabilities 408,211 203,211
----------- -----------
Commitments and Other Matters - -
Shareholders' Equity:
Preferred stock, no par value; authorized 2,000 shares Series A
and 1,000 shares Series B; none issued - -
Common stock, $.001 par value; authorized 100,000,000
shares issued and outstanding 9,250,000 shares in 1996 and
8,500,000 in 1995 9,250 8,500
Additional paid-in capital 2,428,796 1,811,546
Deficit (2,060,886) (1,814,381)
----------- -----------
Total shareholders' equity 377,160 5,665
----------- -----------
Total liabilities and shareholders' equity $ 785,371 $ 208,876
=========== ===========
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE>
CONTINENTAL CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
July 31, July 31,
-------- --------
1996 1995 1996 1995
---- ----- ---- -----
<S> <C> <C> <C> <C>
Revenues:
Sales of aircraft parts and equipment $ 14,580 $ 29,892 $ 2,169 $ -
Brokerage income - 8,638 - -
---------- ---------- ---------- ----------
14,580 38,530 2,169 -
---------- ---------- ---------- ----------
Costs and Expenses:
Cost of sales 82 17,935 12 -
Selling, general and administrative 174,033 18,447 78,007 -
Management services 54,000 - 18,000 -
Rent 18,000 - 6,000 -
Interest 14,970 - 8,619 -
---------- ---------- ---------- ----------
Total costs and expenses 261,085 36,382 110,638 -
---------- ---------- ---------- ----------
Income (Loss) before Income Taxes (246,505) 2,148 (108,469) -
Provision for Income Taxes - - - -
---------- ---------- ---------- ----------
Net Income (Loss) $ (246,505) $ 2,148 $ (108,469) $ -
========== ========== ========== ==========
Earnings (Loss) per Common Share $ (.03) $ - $ (.01) $ -
========== ========== ========== ==========
Weighted Average Number of Common Shares 9,000,000 5,912,501 9,166,667 5,912,501
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
CONTINENTAL CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
July 31,
--------
1996 1995
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $(246,505) $2,148
Adjustments to reconcile net (loss) to net cash used in
operating activities:
Contributed rent 18,000 -
Decrease in inventory 82 -
--------- ------
Net cash provided by (used in) operating activities (228,423) 2,148
--------- ------
Cash Flows from Financing Activities:
Proceeds from borrowings on line of credit financing 205,000 -
Proceeds from common stock and additional paid-in capital, net - (648)
--------- ------
Net cash provided (required) by financing activities 205,000 (648)
--------- ------
Net Increase (Decrease) in Cash (23,423) 1,500
Cash at Beginning of Period 159,052 -
--------- ------
Cash at End of Period $ 135,629 $1,500
========= ======
Supplemental Cash Flow Information:
Cash paid during the period for interest $ 14,970 $ -
========= ======
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE>
CONTINENTAL CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1996 AND 1995
(UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments, consisting of normal
recurring accruals, considered necessary for a fair presentation of
financial position, results of operations and cash flows have been
included. Operating results for the nine months ended July 31, 1996
and 1995 are not necessarily indicative of the results that may be
expected for a full year. For further information, refer to the
financial statements and footnotes thereto included in the Company's
Annual Report on Form 10-K/A for the year ended October 31, 1995.
ORGANIZATION AND CAPITALIZATION
Continental Capital Corporation (the "Company") was incorporated
under the laws of the State of Colorado on November 8, 1985. The
Company's articles of incorporation, as amended, provide for the
issuance of 100,000,000 shares of common stock, with a par value of
$.001 per share, and 2,000 shares of Series A and 1,000 shares of
Series B preferred stock with no par value. Series of the preferred
stock may be created and issued from time to time, with such
designations, preferences, conversion rights and other rights,
including voting rights, as adopted by the Board of Directors.
On January 31, 1995, the Board of Directors of the Company approved a
one-for-four reverse stock split of the outstanding common stock,
which resulted in 831,309 shares of common stock outstanding.
Retroactive effect has been given to this reverse stock split in the
accompanying financial statements.
HISTORY
The Company's original name was Lexington Capital Corporation and has
changed a number of times since its incorporation in 1985. The
Company has additionally been known as Club America, Inc. and
PlanCapital U.S.A., Inc. During 1995, the Company changed its name to
its present name, Continental Capital Corporation.
BUSINESS
The Company has recently entered into the business of marketing and
leasing various types of equipment, mainly in the transportation
industry. The Company intends to specialize specifically in
commercial aircraft parts and equipment, fleet commercial trucks and
medical equipment.
-6-
<PAGE>
CONTINENTAL CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Although these estimates are based
on management's knowledge of current events and actions it may
undertake in the future, they may ultimately differ from actual
results.
INVENTORY
Inventory is comprised of aircraft parts and equipment, and is stated
at the lower of cost or market. Cost is determined using principally
the average method, based upon the allocated historical cost of the
corporation from whom the Company acquired the aircraft parts and
equipment (see Note 2).
COST IN EXCESS OF NET ASSETS OF BUSINESS ACQUIRED
Cost in excess of net assets of businesses acquired ("goodwill")
represents the unamortized excess of the cost of acquiring a business
over the fair value of the identifiable net assets received at the
date of acquisition, and is primarily from the acquisition of
CarroSELL. Such goodwill is being amortized on the straight-line
method over a period of 10 years.
It is the Company's policy to evaluate the recoverability of goodwill
on a periodic basis, based upon estimated future net income excluding
the effects of amortization of intangible assets. Such estimated
future net income takes into consideration management's plans with
regard to future operations.
EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per common share has been computed based upon the
weighted average number of shares of common stock outstanding during
the period. Retroactive application has been given to the one-for-
four reverse stock split effected in January 1995.
NOTE 2. BUSINESS ACQUISITIONS
JSA
Effective March 31, 1995, the Company merged with J.S.A.,
Incorporated, a California corporation ("JSA"). As a result of the
merger, the Company acquired certain of the assets of JSA, which
consisted of aircraft parts and equipment, in exchange for the
issuance of 1,700,000 shares of the Company's common stock. In
accordance with the terms of the agreement, the aircraft parts and
equipment had an agreed value of approximately $8,950,000. In
connection with the merger, the Company agreed to retain Jacman
Aircraft, Inc. ("Jacman"), a California based aircraft parts and
equipment marketing firm which is affiliated with the former
shareholder, as a distributor of all aircraft parts and equipment for
the Company.
-7-
<PAGE>
CONTINENTAL CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(UNAUDITED)
NOTE 2. BUSINESS ACQUISITIONS
JSA
The acquisition of these assets did not constitute a business
combination, and the Company has accounted for the acquisition of
these assets in a manner similar to the purchase method. However,
because of the significance of the ownership of the Company's common
stock created by the issuance of the 1,700,000 shares of common stock
to the former shareholder of JSA, together with the control exercised
by the related entity (Jacman) over the marketing of the inventory of
aircraft parts and equipment, the Company has recorded the inventory
of aircraft parts and equipment at the allocated historical cost of
JSA ($50,000), rather than the agreed value per the agreement. As
sales of the aircraft parts and equipment occur, the proportionate
amount of such historical cost will be charged to cost of sales based
upon a relative value calculation.
CARROSELL
On December 10, 1995, the Company entered into an Agreement of
Purchase and Sale of Stock with CarroSELL, Inc. and its sole
shareholder whereby the Company acquired all of the capital stock of
CarroSELL in exchange for 500,000 shares of the Company's common
stock. CarroSELL is engaged in the business of advertising on baggage
claim carrousels, and with its proprietary process, converts baggage
claim carousel panels into moving billboards. The Company agreed to
transfer $250,000 to CarroSELL on or before June 17, 1996 to further
its business. In the event that public trading of the Company's
common stock had not resumed or the $250,000 was not transferred by
June 17, 1996, the former shareholder had the option to cancel the
agreement.
The required transfer of $250,000 has been completed. On June 7,
1996, this agreement to purchase CarroSELL, Inc. was amended to
eliminate the requirement of public trading by June 17, 1996 in
exchange for the Company's agreeing to issue to the original owner of
CarroSELL, Inc., an additional 250,000 shares of the Company's common
stock.
CarroSELL entered into an employment agreement with the former
shareholder for a period of five years providing for an annual salary
of $24,000 plus certain benefits. CarroSELL also entered into a
consulting agreement with Revolving Media Marketing, Inc., a company
owned by the former shareholder, to provide promotional and marketing
services for a term of five years in exchange for $60,000 per annum
plus 1 1/2% of gross sales. In addition, Revolving Media is eligible
to earn options to purchase a maximum of 1,000,000 shares of common
stock of the Company based upon the net income of CarroSELL during
the next two fiscal years.
The Company has accounted for this acquisition by the purchase
method. This investment has been recorded at the estimated fair value
of the common stock issued by the Company, taking into consideration
various factors affecting the estimated fair value of such stock. The
additional 250,000 shares of the Company's common stock issued on
June 7, 1996 have been recorded as an additional element of cost of
the Company's investment in this subsidiary at the estimated fair
value of such stock, and have been taken into consideration in the
determination of the excess of cost over net assets acquired.
-8-
<PAGE>
CONTINENTAL CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(UNAUDITED)
NOTE 2. BUSINESS ACQUISITIONS
CARROSELL
Costs and expenses incurred by the Company in connection with the
operations of CarroSELL have been charged to expense. Such costs
aggregated approximately $104,000 and $35,000 for the nine months and
three months ended July 31, 1996, respectively.
NOTE 3. COMMITMENTS AND OTHER MATTERS
As of June 28, 1995, the Company entered into a Master Lease
Agreement with joint lessees CASC Shanghai and Northern Airlines:
Sanya Limited. The term of the Master Lease commences on the shipping
date of the initial amount of equipment and shall continue for a
period of five years with a total of $5,000,000 in aircraft parts and
equipment. Although delivery of equipment under this lease was
expected to begin in early 1996, no equipment has been shipped as of
the date of the accompanying financial statements due to changes in
management of the lessees; accordingly, this lease is presently
pending and in the process of reapproval by appropriate officials of
the lessees. Financing for this transaction is expected to be
provided by NAB Bank in Chicago, Illinois.
NOTE 4. COMMON STOCK
On January 31, 1995, the Board of Directors of the Company approved a
one-for-four reverse stock split of the outstanding common stock,
which resulted in 831,309 shares of common stock then outstanding.
Retroactive effect has been given to this reverse stock split in the
accompanying financial statements.
NOTE 5. RELATED PARTY TRANSACTIONS
The Company has retained Jamesburg Companies, Inc. ("JCI"), the major
shareholder of the Company, to complete the initial phase of the
operations at a cost of $6,000 per month. Fees paid to JCI amounted
to $54,000 and $18,000 for the nine months and the three months ended
July 31, 1996, respectively.
From time to time, JCI has loaned the Company funds for operations on
an unsecured basis without interest. In March 1995, indebtedness of
$92,145 owing to JCI was converted into 4,703,691 shares of common
stock.
The Company's principal offices and warehousing facilities are
located in the premises of Jacman Aircraft (see Note 2) on a
month-to-month arrangement, and are provided rent free. The Company
also has shared office space available in New York, which is provided
rent free from a director/shareholder of the Company. The Company has
recognized the estimated value of the rent provided by these related
parties without cost to be approximately $18,000 and $6,000 for the
nine months and three months ended July 31, 1996, respectively, and
has charged this amount to expense, with a corresponding credit to
Additional Paid-In Capital.
-9-
<PAGE>
CONTINENTAL CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(UNAUDITED)
NOTE 6. BROKERAGE INCOME
During fiscal 1995, the Company was involved in a certain leasing
transaction as an accommodation to the parties directly participating
in the lease. The Company's involvement was limited to facilitating
the transaction as among the lessor and lessee and financial
institution; did not encompass the receipt or payment or guarantee of
any rentals under the lease; and was limited in occurrence to this
isolated transaction. As compensation for this accommodation, the
Company received a brokerage fee of $8,638 which is presented in the
accompanying financial statements as brokerage income.
-10-
<PAGE>
CONTINENTAL CAPITAL CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NINE MONTHS ENDED JULY 31, 1996 COMPARED TO 1995
The Company's results of operations reflect a net loss of $246,505 (or $.03 per
share) for the nine months ended July 31, 1996, compared to a net income of
$2,148 for the same period in 1995.
The Company realized revenue of $14,580 for the nine months ended July 31,
1996, as compared with $38,530 for 1995. This decline was primarily the result
of diminished sales of aircraft parts and equipment. In addition, the Company
realized brokerage income of $8,638 in 1995, which was an isolated transaction
not replicated in 1996.
Cost and expenses for 1996 totalled $261,085 as compared to $36,382 for 1995.
These costs and expenses were primarily comprised of management fees paid to
Jamesburg Companies Inc. ("JCI"), the major shareholder of the Company, and
compensation paid to the President of CarroSELL. In addition, the Company also
incurred other general and administrative expenses during 1996, most of which
is attributable to the start-up of operations of CarroSELL, including the
marketing efforts expended by management for this new line of business, and
additional interest expense based on an increased level of borrowings under the
line of credit financing.
THREE MONTHS ENDED JULY 31, 1996 COMPARED TO 1995
The Company's results of operations for the third quarter of fiscal 1996
resulted in a net loss of $108,469 ($.01 per share) compared to net income of
$-0- for the comparable period in 1995.
Revenue for 1996 increased to $2,169 compared to none for 1995.
Costs and expenses increased to $110,638 in 1996 from none in 1995. This was
primarily attributable to management fees paid to Jamesburg Companies, Inc.,
the major shareholder of the Company, and compensation, rent and interest
expense incurred, none of which was incurred in 1995. Additionally, the
Company incurred selling, general and administrative expenses in 1996, most of
which was attributable to the start-up of operations of CarroSELL, including
the marketing efforts expended by management for this new line of business.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended July 31, 1996, the Company experienced a net decrease
in cash of $23,423. This decrease resulted from net cash used in operating
activities, which was offset by cash provided from financing activities during
1996 resulting from full draw down of the line of credit financing.
At July 31, 1996, the Company had a cash balance of $135,629.
For the comparable period of 1995, there was cash used in operating activities
of $71,550 and cash provided by financing activities of $73,050.
-11-
<PAGE>
CONTINENTAL CAPITAL CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
LIQUIDITY AND CAPITAL RESOURCES
In connection with the purchase of CarroSELL, the Company completed the transfer
of $250,000 to CarroSELL during the third quarter of 1996 to further its
business.
The Company has a borrowing arrangement with NAB Bank, Darien, Illinois. This
line of credit is for a total amount of $380,000. As of July 31, 1996, the
Company had fully drawn down on this line.
CAPITAL EXPENDITURES
The Company did not make any major capital expenditures during the nine months
ended July 31, 1996.
The Company does not have any material commitments for capital expenditures.
-12-
<PAGE>
CONTINENTAL CAPITAL CORPORATION AND SUBSIDIARY
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) The Company filed no reports on Form 8-K during the quarter
ended July 31, 1996.
-13-
<PAGE>
CONTINENTAL CAPITAL CORPORATION AND SUBSIDIARY
FORM 10-Q
FOR THE NINE MONTHS ENDED JULY 31, 1996
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 CAPITAL CORPORATION
DATE: October 6, 1996 By: /s/ Milton J. Wilpon
-------------------------------
Chairman of the Board
Chief Executive Officer
DATE: October 6, 1996 By: /s/ Ronald L. Wilpon
-------------------------------
Treasurer
Chief Financial and Accounting Officer
-14-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> JUL-31-1996
<CASH> 135,629
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 49,742
<CURRENT-ASSETS> 185,371
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 785,371
<CURRENT-LIABILITIES> 408,211
<BONDS> 0
0
0
<COMMON> 9,250
<OTHER-SE> 367,910
<TOTAL-LIABILITY-AND-EQUITY> 785,371
<SALES> 14,580
<TOTAL-REVENUES> 14,580
<CGS> 82
<TOTAL-COSTS> 246,033
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,970
<INCOME-PRETAX> (246,505)
<INCOME-TAX> 0
<INCOME-CONTINUING> (246,505)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (246,505)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> 0
</TABLE>
