SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(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, 1995 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 No 0-9253
CONSUMAT SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Virginia 54-0720128
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Post Office Box 9379, Richmond, Virginia
23227
(Address of principal executive offices)
(Zip Code)
(804) 746-4120
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Class Number of Shares
Common Stock, par value $3.00 1,564,699
<PAGE>
CONSUMAT SYSTEMS, INC.
INDEX
Page No.
Part I. Financial Information:
Item 1:
Consolidated Condensed Balance Sheets. . . . . . . . . . . . . . . . 4
Consolidated Condensed Statements of Income. . . . . . . . . . . . . 5
Consolidated Condensed Statements of Cash Flows. . . . . . . . . . . 6
Notes to Consolidated Condensed Financial Statements . . . . . . . . 7
Item 2:
Management's Discussion and Analysis of Unaudited Consolidated
Financial Condition and Results of Operations. . . . . . . . . . . 8
Part II. Other Information
Item 1:
Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 3:
Defaults Upon Senior Securities. . . . . . . . . . . . . . . . . . . 9
Item 6:
Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . 9
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
<PAGE>
CONSUMAT SYSTEMS, INC.
PART I. FINANCIAL INFORMATION
ITEM 1.
<PAGE>
CONSUMAT SYSTEMS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 49,429 $ 59,183
Accounts receivable (net of allowance for
doubtful accounts of $10,000 at September 30,
1995 and December 31, 1994) 314,613 244,320
Inventories 220,067 226,716
Prepaid expenses and other 125,358 104,968
Total current assets 709,467 635,187
Property,plant and equipment, at cost,
net of accumulated depreciation and amortization 640,800 761,444
Note receivable from officer 38,000 38,000
$ 1,388,267 $ 1,434,631
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Note payable to stockholder $ 110,000 $ 110,000
Note payable to related party 174,048 174,048
Current maturities of long-term debt 178,266 145,902
Accounts/notes payable 221,485 299,787
Customer deposits 50,719 50,719
Accrued contract and warranty expense 389,664 404,971
Accrued interest 47,926 23,006
Other accrued expenses 172,705 201,455
Total current liabilities 1,344,813 1,409,888
Long-term debt 87,917 100,692
Capitalized lease obligation 593,957 641,362
Stockholders' Equity (deficit):
Common stock, $3 par value: authorized 3,333,333 shares:
issued 1,564,699 shares at September 30, 1995 and
1,557,699 shares at December 31, 1994 4,694,097 4,673,097
Capital in excess of par value 5,208,958 5,227,958
Retained earnings (deficit) (10,541,475) (10,618,366)
Total stockholders' equity (deficit) (638,420) (717,311)
$ 1,388,267 $ 1,434,631
</TABLE>
See accompanying notes.
<PAGE>
CONSUMAT SYSTEMS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Month Period Ended Nine Month Period Ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Manufacturing revenues $1,129,048 $1,302,168 $3,397,146 $2,976,205
Costs of goods sold 816,670 934,758 2,552,762 2,338,856
Gross profit 312,378 367,410 844,384 637,349
Selling, general and
administrative expenses 255,561 271,605 727,611 824,846
Operating income (loss) 56,817 95,805 116,773 (187,497)
Other Income (Expense):
Investment income 1,617 1,981 5,159 2,932
Interest expense (24,495) (29,922) (75,004) (237,979)
Other 546 (19,761) 29,963 8,772
(22,332) (47,702) (39,882) (226,275)
Income (loss) from
continuing operations 34,485 48,103 76,891 (413,772)
Discontinued operations, net of taxes:
Income (loss) from operations (78,923) 268,195
Gain on sale 539,613 539,613
Income (loss) before
extraordinary item 34,485 508,793 76,891 394,036
Extraordinary gain on
extinguishment of debt 732,019 732,019
Net income (loss) $ 34,485 $1,240,812 $ 76,891 $1,126,055
Earnings per common share:
Income (loss) from
continuing operations $0.02 $0.03 $0.05 $(0.27)
Income (loss) before
extraordinary item $0.02 $0.33 $0.05 $0.25
Net income (loss) $0.02 $0.80 $0.05 $0.73
</TABLE>
See accompanying notes.
<PAGE>
CONSUMAT SYSTEMS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Month Period Ended
September 30,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 76,891 $ 1,126,055
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Gain on sale of discontinued operation - (539,613)
Extraordinary gain on extinguishment of debt - (732,019)
Depreciation and amortization 120,644 121,230
Issuance of common stock for services 2,000 3,500
Changes in operating assets and liabilities
net of non-cash transactions:
Accounts and retainage receivable (70,293) 515,547
Inventories 6,649 (64,415)
Other current assets (20,390) (45,748)
Accounts payable (78,302) (1,387,300)
Customer deposits - (23,519)
Accrued contract and warranty expenses (15,307) (266,104)
Accrued interest 24,920 (183,708)
Other accrued expenses (28,750) 166,039
Net cash provided by (used in) operating activities of
continuing operations 18,062 (1,310,055)
Net cash provided by (used in) discontinued operation - 415,840
Net cash provided by (used in)
total operating activities 18,062 (894,215)
Cash flows from investing activities:
Purchase of property,plant and equipment
Proceeds from sale of discontinued operations 2,789,095
Net cash provided by (used in) investing activities - 2,789,098
Cash flows from financing activities:
Repayment on note payable to stockholder - (1,890,000)
Repayments on borrowings/capital lease obligation (126,818) (151,634)
Proceeds from borrowings 99,002 125,114
Net cash provided by (used in) financing activities (27,816) (1,916,520)
Net increase (decrease) in cash and cash equivalents (9,754) (21,640)
Cash and cash equivalents at beginning of period 59,183 45,638
Cash and cash equivalents at end of period $ 49,429 $ 23,998
</TABLE>
See accompanying notes.
<PAGE>
CONSUMAT SYSTEMS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. The accompanying unaudited consolidated condensed financial statements
have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. The
Company believes that the disclosures made herein are adequate and that
the information presented is not misleading. In the opinion of
management, all adjustments necessary for a fair statement of the
results of operations and financial position for the periods presented
have been made (and any such adjustments are of a normal recurring
nature). These financial statements should be read in conjunction with
the financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1994 filed
with the Securities and Exchange Commission.
2. Discontinued Operations - Management sold the landfill operations,
Consumat Sanco, Inc., in July 1994.
Operating results for the three and nine month period ended September
30, 1994 have been reclassified and presented as discontinued
operations.
The cash flow statement for the nine month period ended September 30,
1994 has also been reclassified and presented to reflect the
discontinued operations.
3. Earnings (loss) per share are computed on the weighted average number of
common and common equivalent shares outstanding during the period to the
extent the equivalents have a dilutive effect on earnings per common
share. The number of shares used in computing earnings (loss) per share
was 1,560,188 and 1,558,882, respectively, in the three and nine month
periods ended September 30, 1995. The number of shares used in computing
earnings (loss) per share was 1,554,560 and 1,546,806, respectively, in
the three and nine month periods ended September 30, 1994. Shares
outstanding and earnings per share amounts for the periods ended
September 30, 1994 have been restated to include the 450,793 shares
previously subject to rescission.
4. The Company incurred interest expense of $75,004 and $237,979 during the
nine month periods ended September 30,1995 and 1994, respectively.
5. Effective January 1, 1993, the Company adopted FASB Statement No. 109,
"Accounting for Income Taxes," which requires the liability method of
accounting similar to the method previously used by the Company under
FASB Statement No. 96. The components of the deferred tax asset at
January 1, 1995 relate primarily to certain financial statement reserves
and the Company's net operating loss carryforward. The valuation
allowance provided by the Company has resulted in no deferred tax asset
being reflected in the September 30, 1995 balance sheet.
<PAGE>
CONSUMAT SYSTEMS, INC.
PART I. FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF UNAUDITED CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
3RD QUARTER 1995 - RESULTS OF OPERATIONS
The Company earned $34,485 on revenues of $1,129,048 from continuing
operations in the third quarter of 1995. In the third quarter of 1994 the
Company earned $48,103 on revenues of $1,302,168 from continuing operations.
Restricted working capital continued to hurt the Company's operations in
the third quarter of 1995 and adversely affected its ability to generate
additional revenues.
LIQUIDITY AND CAPITAL
Liquidity of the Company is of critical concern at the end of the third
quarter of 1995. At September 30, 1995, the Company had a working capital
deficiency of $635,346 and a net capital deficiency of $638,420.
On October 6, 1995, the Company filed for legal protection under Chapter
11 of the United States Bankruptcy Code in the United States Bankruptcy Court
for the Eastern District of Virginia.
Subsequent to the initial filing, the Company received approval from the
Bankruptcy Court to borrow up to $500,000 of Debtor in Possession financing
from Sirrom Capital Corporation, a small business investment company based in
Nashville, Tennessee. Subject to successful negotiation of creditor claims,
Sirrom has agreed to provide additional post-bankruptcy financing to the
company.
This financing should alleviate the Company's working capital deficiency
and allow the Company to direct additional resources to its sales and
marketing effort and its core manufacturing operation.
Backlog was $1,215,310 and $3,225,000 at September 30, 1995 and December
31, 1994.
RESULTS OF OPERATION 9/30/95
COMPARED WITH 9/30/94
Revenues for the first nine months of 1995 from continuing operations
increased by $421,000 or 14.1%. Total cost of operations increased by
approximately $214,000 for the first nine months of 1995. This resulted in a
gross margin for the first nine months of 1995 of 24.9% compared to 21.4% for
the same period in 1994. Selling, general and administrative expenses for the
first nine months of 1995 decreased by approximately $97,000 or 11.8%
compared to the same period for 1994.
BALANCE SHEET
Total assets at September 30, 1995 increased approximately $74,000 from
December 31, 1994, primarily due to an increase in accounts receivable. Total
liabilities at September 30, 1995 decreased approximately $125,000 from
December 31, 1994, primarily due to decreases in accounts payables, long-term
debt and capital lease obligations.
GENERAL COMMENTS
Other items cited in the 1994 Form 10-K are incorporated by reference.
PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
A description of legal proceedings for the quarter ended September 30,
1995 was previously reported in the Company's report on Form 10-K for the
year ended December 31, 1994.
<PAGE>
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
As of September 30,1995, the Company is in default on two notes. A note
payable for $110,000, plus accrued interest of $8,800, was due to a
stockholder on July 13, 1995 and has not been paid. In addition, certain
installments of principal and interest, on a $174,048 note to a related
party, totalling $169,918 are past due. As of this date, no action has been
taken by either noteholder relative to the defaults on these notes.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
(i) Current Report on Form 8-K filed October 13, 1995 concerning
"Item 3 Bankruptcy or Receivership - Filing for Chapter 11 Bankruptcy
protection and Item 5. Other Events - Issuance of press release
regarding the Bankruptcy Filing.
<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 there unto duly authorized.
CONSUMAT SYSTEMS, INC.
(Registrant)
Date: November 1, 1995 /s/Robert L. Massey
Robert L. Massey
Chief Executive Officer
Date: November 1, 1995 /s/Mark E. Hills
Mark E. Hills
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 49
<SECURITIES> 0
<RECEIVABLES> 325
<ALLOWANCES> 10
<INVENTORY> 220
<CURRENT-ASSETS> 709
<PP&E> 3,912
<DEPRECIATION> 3,271
<TOTAL-ASSETS> 1,388
<CURRENT-LIABILITIES> 1,345
<BONDS> 0
<COMMON> 4,694
0
0
<OTHER-SE> (5,333)
<TOTAL-LIABILITY-AND-EQUITY> 1,388
<SALES> 3,397
<TOTAL-REVENUES> 3,397
<CGS> 2,553
<TOTAL-COSTS> 2,553
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 75
<INCOME-PRETAX> 77
<INCOME-TAX> 0
<INCOME-CONTINUING> 77
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 77
<EPS-PRIMARY> $0.05
<EPS-DILUTED> $0.05
</TABLE>
