SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
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 June 30, 1996 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
REORGANIZED 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
Check whether the issuer has filed all documents and reports required to be
filed by Section 12,13 or 15(d) of the Securities Exchange Act after the
distributions of securities under a plan confirmed by a court.
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 $1.00 1,010,000
REORGANIZED CONSUMAT SYSTEMS, INC.
INDEX
Page No.
--------
Part I. Financial Information:
Item 1:
Balance Sheet.............................................. 4
Statements of Income....................................... 5
Statements of Cash Flows................................... 6
Notes to Financial Statements.............................. 7
Item 2:
Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations.............. 9
Part II. Other Information
Item 1:
Legal Proceedings........................................... 10
Item 4:
Submissions of Matters to a Vote of Security Holders........ 10
Item 5:
Other Information........................................... 11
Item 6:
Exhibits and Reports on Form 8-K............................ 11
Signatures........................................................... 12
<PAGE>
REORGANIZED CONSUMAT SYSTEMS, INC.
PART I. FINANCIAL INFORMATION
ITEM 1.
<PAGE>
REORGANIZED CONSUMAT SYSTEMS, INC.
BALANCE SHEET
(Unaudited)
June 30,
ASSETS 1996
--------
Current assets:
Cash and cash equivalents $ 287,496
Accounts receivable (net of allowance for
doubtful accounts of $10,000 at June 30,
1996) 1,348,696
Inventories 244,769
Prepaid expenses and other 97,018
-----------
Total current assets 1,977,979
Property,plant and equipment, at cost,
net of accumulated depreciation and amortization 622,683
Note receivable from officer 19,028
Debt issuance costs, net of accumulated
amortization 90,713
Reorganization value in excess of amount
allocable to identifiable assets, net of
accumulated amortization 1,380,999
-----------
$ 4,091,402
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt and capital
lease obligation $ 134,121
Accounts payable 87,471
Billings in excess of revenues recognized 245,483
Accrued warranty expense 79,305
Other accrued expenses 153,785
-----------
Total current liabilities 700,165
Senior debt 1,500,000
Long-term debt 111,883
Capitalized lease obligation 541,059
Stockholders' Equity
Common stock, $1 par value: authorized 5,000,000 shares:
issued 1,010,000 at June 30, 1996 1,010,000
Capital in excess of par value 0
Retained earnings 228,295
-----------
Total stockholders' equity 1,238,295
-----------
$4,091,402
===========
See accompanying notes.
Page 4
REORGANIZED CONSUMAT SYSTEMS, INC.
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Month Period Ended Six Month Period Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C>
Revenues:
Manufacturing $1,357,250 $1,252,765 $2,641,429 $2,268,098
Costs of Operations:
Cost of goods sold 887,404 968,361 1,803,157 1,736,092
---------- ---------- ---------- ----------
Gross profit 469,846 284,404 838,272 532,006
Selling, general and
administrative expenses 245,611 225,883 473,384 472,050
---------- ---------- ---------- ----------
Operating income 224,235 58,521 364,888 59,956
Other income (expense):
Investment income 1,635 1,707 1,635 3,542
Interest expense (72,029) (26,214) (131,874) (50,509)
Amortization expense (20,436) 0 (22,876) 0
Other 6,509 717 55,206 29,417
---------- ---------- ---------- ----------
(84,321) (23,790) (97,909) (17,550)
---------- ---------- ---------- ----------
Net income $ 139,914 $ 34,731 $ 266,979 $ 42,406
Earnings per common share:
Primary $0.14 $0.02 $0.26 $0.03
===== ===== ===== =====
Fully diluted $0.09 $0.02 $0.18 $0.03
===== ===== ===== =====
</TABLE>
See accompanying notes.
Page 5
REORGANIZED CONSUMAT SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Month Period Ended
June 30,
1996 1995
---- ----
<S> <C>
Cash flows from operating activities
Net income $ 266,979 $ 42,406
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization
Non cash compensation costs 64,414 80,356
Changes in operating assets and liabilities 750
net of non-cash transactions:
Accounts and retainage receivable (820,483) (14,056)
Inventories (22,117) (6,790)
Other current assets (9,815) 44,678
Accounts payable 31,350 (11,439)
Customer deposits (50,719) 0
Accrued contract and warranty expenses 233,932 228,194
Other accrued expenses (62,051) (25,458)
------------ ----------
Net cash provided by (used in) operating activities (368,510) 338,641
------------ ----------
Reorganization activities:
Net payment of liabilities subject to compromise (333,677) 0
------------ ----------
Net cash used in reorganization activities (333,677) 0
------------ ----------
Cash flows from investing activities:
Purchase of property, plant and equipment (33,596) 0
------------ ----------
Net cash used in investing activities (33,596) 0
------------ ----------
Cash flows from financing activities
Proceeds from senior debt 931,135 0
Proceeds from other borrowing 16,000 0
Repayments on borrowings (31,994) (54,036)
Payments on capital lease obligation (30,610) (30,814)
------------ ----------
Net cash provided by (used in) financing activities 884,531 (84,850)
------------ ----------
Net increase in cash and cash equivalents 148,748 253,791
Cash and cash equivalents at beginning of period 138,748 59,183
------------ ----------
Cash and cash equivalents at end of period $ 287,496 $ 312,974
============ ==========
</TABLE>
See accompanying notes.
Page 6
REORGANIZED CONSUMAT SYSTEMS, INC
NOTES TO FINANCIAL STATEMENTS
1. The accompanying unaudited 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-KSB for the year ended December 31, 1995 filed with the Securities
and Exchange Commission.
2. As discussed in the Company's Annual Report on Form 10-KSB for the
period ended December 31, 1995, the Company had it's Second Amended
Plan of Reorganization, as amended by a Modification to Second Amended
Plan of Reorganization, jointly (the"Plan") confirmed by the Bankruptcy
Court on February 28, 1996. The effective date of the Plan was March
12, 1996 (the "Effective Date"). See the Form 10-KSB for a detailed
description of the Plan provisions.
In accordance with the Plan and the provisions of the American
Institute of Certified Public Accountants' Statement of Position 90-7,
the Company adopted fresh start reporting as of the Effective Date.
Table 1 following these Notes to Financial Statements reflects the
Balance Sheet of the Company on March 12, 1996 after the effects of the
Plan and the fresh start reporting are shown. The retained earnings
shown on the June 30, 1996 Balance Sheet are the result of income
generated subsequent to the Effective Date.
3. The cash and cash equivalents balance at June 30, 1996 includes $92,500
of restricted cash, pledged as collateral for a guarantee bond issued
in June, 1996 and due to be outstanding through December, 1997.
4. Earnings 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 per share
was 1,558,732 and 1,558,218 for the three and six month periods ended
June 30, 1995, respectively. The number of shares used in computing
primary and fully diluted earnings per share for the three and six
month periods ended June 30, 1996 was 1,010,000 and 1,575,000,
respectively. The fully diluted number takes into account up to 475,000
shares in warrants issued to Sirrom Capital Corporation as part of the
bankruptcy financing agreements.
5. The Company incurred interest expense of $131,874 and $50,509 during
the six month periods ended June 30,1996 and 1995, respectively.
6. 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, 1996 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 June 30, 1996 balance sheet.
Page 7
<TABLE>
<CAPTION>
TABLE 1
REORGANIZED CONSUMAT SYSTEMS, INC.
Balance Sheet
March 12, 1996
Pre Post Debt Exchange
Confirmation Confirmation Discharge of
Loan Stock
------------ ------------ --------- --------
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 222,078 $ 62,055 $(323,917)
Accounts receivable (net of allowance
for doubtful accounts of $10,000) 1,112,756
Stock subscription
Inventories 173,148
Prepaid expenses and other 74,507 0 0 0
------------ -------- --------- ----------
TOTAL CURRENT ASSETS 1,582,489 462,055 (323,917) 0
Property, plant and equipment, at cost
net of accumulated depreciation and amortization 614,418
Note receivable from officer 38,000 (18,972)
Debt issuance costs, net of accumulated amortization 56,359 37,945
Reorganization value in excess of amounts
allocable to identifiable assets 0 0 0
------------ -------- --------- ----------
2,291,266 500,000 (342,889) 0
------------ -------- --------- ----------
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
LIABILITIES
Current liabilities
Accounts payable 43,846
Other 570,114 (89,320)
Current position of indebtedness 78,424 0 82,075 0
------------ -------- --------- ----------
TOTAL CURRENT LIABILITIES 692,384 0 (7,245) 0
Liabilities subject to compromise 627,149 (627,149)
Indebtedness
Senior debt 1,000,000 500,000
Long-term debt less current position 131,598
Capitalized lease obligation less current position 559,120
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock-old 4,694,097 (4,694,097)
Common stock-new 150,000 500,000
Capital in excess of par value 5,208,958 4,194,097
Retained earnings (10,490,442) 0 9,907
------------ -------- --------- ----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (587,387) 0 159,907 0
------------ -------- --------- ----------
$ 2,291,266 $500,000 ($342,889) $0
============ ======== ========= ==========
<CAPTION>
Issuance Fresh Reorganized
of New Start Balance
Stock Sheet
-------- ----- -----------
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 360,216
Accounts receivable (net of allowance
for doubtful accounts of $10,000) 1,112,756
Stock subscription 17,633 17,633
Inventories 173,148
Prepaid expenses and other 0 0 74,507
-------- ---------- -=========
TOTAL CURRENT ASSETS 17,633 0 1,738,260
Property, plant and equipment, at cost
net of accumulated depreciation and amortization 614,418
Note receivable from officer 19,028
Debt issuance costs, net of accumulated amortization 94,304
Reorganization value in excess of amounts
allocable to identifiable assets 0 1,398,480 1,398,480
17,633 1,398,480 3,864,490
-------- ---------- -=========
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
LIABILITIES
Current liabilities
Accounts payable 43,846
Other 480,794
Current position of indebtedness (21,367) 0 139,132
-------- ---------- -=========
TOTAL CURRENT LIABILITIES (21,367) 0 663,772
Liabilities subject to compromise 0
Indebtedness
Senior debt 1,500,000
Long-term debt less current position 131,598
Capitalized lease obligation less current position 559,120
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock-old 0
Common stock-new 360,000 1,010,000
Capital in excess of par value (321,000) (9,082,055)
Retained earnings 10,480,535
-------- ---------- -=========
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 39,000 1,398,480 1,010,000
-------- ---------- -=========
$17,633 $1,398,480 $3,864,490
======== ========== ==========
</TABLE>
Page 8
REORGANIZED CONSUMAT SYSTEMS, INC.
PART I. FINANCIAL INFORMATION
ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF UNAUDITED
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As was discussed in the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1995, the Company began fiscal year 1996
operating as a debtor-in-position in its Chapter 11 bankruptcy proceeding. The
Company's Chapter 11 reorganization plan, (the "Plan"), was confirmed on
February 28, 1996 and the Effective Date of the Plan was March 12, 1996. As is
discussed further in Note 2 to the Financial Statements, the Company accounted
for its reorganization using fresh start reporting. This reporting allowed the
Company to eliminate the retained deficit of the Company as of the Effective
Date and to restate the balance sheet at that time.
The effect of this reporting allowed the Company to emerge
from its Chapter 11 bankruptcy proceeding in a financial position stronger than
its financial position prior to the commencement of its Chapter 11 bankruptcy
proceeding.
In addition, the Company was able to obtain loans in the
amount of $1,500,000 from Sirrom Capital Corporation. The loan proceeds,
received both during and subsequent to the Chapter 11 bankruptcy proceeding,
were used to provide working capital for operations and to consummate the Plan.
The effects of the consummation of the Plan and the
fresh-start reporting allowed the Company to emerge from its Chapter 11
bankruptcy proceeding with a working capital surplus of approximately $1,074,000
and a net capital surplus of $1,010,000. At June 30, 1996, the Company had a
working capital surplus of $1,277,814 and a net capital surplus of $1,238,295.
2ND QUARTER 1996 - RESULTS OF OPERATIONS
The Company earned $139,914 on revenues of $1,357,250 in the
second quarter of 1996. In the second quarter of 1995 the Company earned $34,731
on revenues of $1,252,765.
LIQUIDITY AND CAPITAL
Backlog was $1,018,043 and $3,110,000 at June 30, 1996 and
December 31, 1995, respectively.
RESULTS OF OPERATION 6/30/96
COMPARED WITH 6/30/95
Total revenues for the six months ended June 30, 1996
increased by $373,000 or 16.5%. Total cost of operations increased by
approximately $67,000 for the first half of 1996. This resulted in a gross
margin for the first six months of 1996 of 31.7% compared to 23.5% for the same
period in 1995. Selling, general and administrative expenses increased by
approximately $1,300 or 0.3%.
GENERAL COMMENTS
Other items stated in the 1995 Form 10-KSB are incorporated by
reference.
Page 9
PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
A description of legal proceedings for the quarter ended June
30, 1996 was previously reported in the Company's report on Form 10-KSB for the
year ended December 31, 1995.
ITEM 4 - SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company, was held on
June 14, 1996 for the purposes of electing a board of directors, considering a
proposal to adopt the 1996 Employee Stock Option Plan, considering a proposal to
adopt the 1996 Non-Employee Stock Option Plan and ratifying the selection of
auditors. Proxies for the meeting were solicited pursuant to Section 14(a) of
the Securities Exchange Act of 1934.
All of management's nominees for directors listed in the proxy
statement were elected.
The proposal of management to adopt the 1996 Employee Stock
Option Plan was approved by the following vote:
Shares Shares
Voted Voted Shares
For Against Abstaining
783,703 27,943 1,153
The proposal of management to adopt the 1996 Non-Employee
Stock Option Plan was approved by the following vote:
Voted Voted Shares
For Against Abstaining
780,129 31,739 1,150
The selection of Parham, P.C. as independent auditors was
ratified by the following vote:
Voted Voted Shares
For Against Abstaining
864,123 480 1,421
Page 10
ITEM 5 - OTHER INFORMATION
At a regular meeting of the Board of Directors held on June
14, 1996, the Board unanimously elected Mr. Charles E. Horner a director of the
Company.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None
Page 11
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.
REORGANIZED CONSUMAT
SYSTEMS, INC.
Registrant
Date: August 8, 1996 /s/ Robert L. Massey
------------------------
Robert L. Massey
Chief Executive Officer
Date: August 8,1996 /s/ Mark E. Hills
------------------------
Mark E. Hills
Chief Financial Officer
Page 12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 287
<SECURITIES> 0
<RECEIVABLES> 1,359
<ALLOWANCES> 10
<INVENTORY> 245
<CURRENT-ASSETS> 1,978
<PP&E> 3,911
<DEPRECIATION> 3,288
<TOTAL-ASSETS> 4,091
<CURRENT-LIABILITIES> 700
<BONDS> 0
0
0
<COMMON> 1,010
<OTHER-SE> 228
<TOTAL-LIABILITY-AND-EQUITY> 4,091
<SALES> 2,641
<TOTAL-REVENUES> 2,641
<CGS> 1,803
<TOTAL-COSTS> 473
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 132
<INCOME-PRETAX> 267
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 267
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.18
</TABLE>
