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 March 31, 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
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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
<PAGE>
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 6:
Exhibits and Reports on Form 8-K........................... 10
Signatures................................................. 11
<PAGE>
REORGANIZED CONSUMAT SYSTEMS, INC.
PART I. FINANCIAL INFORMATION
ITEM 1.
<PAGE>
REORGANIZED CONSUMAT SYSTEMS, INC.
BALANCE SHEET
(Unaudited)
March 31,
1996
----
ASSETS
Current assets:
Cash and cash equivalents $ 117,537
Accounts receivable (net of allowance for
doubtful accounts of $10,000 at March 31,
1996) 1,280,079
Inventories 203,535
Prepaid expenses and other 67,236
---------
Total current assets 1,668,387
Property,plant and equipment, at cost,
net of accumulated depreciation and amortization 609,935
Note receivable from officer 19,028
Debt issuance costs, net of accumulated
amortization 93,669
Reorganization value in excess of amount
allocable to identifiable assets, net of
accumulated amortization 1,398,480
$ 3,789,499
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt and capital
lease obligation 125,217
Accounts payable 73,867
Billings in excess of revenues recognized 116,900
Accrued warranty expense 86,480
Other accrued expenses 112,973
-----------
Total current liabilities 515,437
Senior debt 1,500,000
Long-term debt 116,561
Capitalized lease obligation 559,120
Stockholders' Equity (deficit):
Common stock, $1 par value: authorized 5,000,000 shares:
issued 1,010,000 at March 31, 1996 1,010,000
Capital in excess of par value 0
Retained earnings 88,381
Total stockholders' equity (deficit) 1,098,381
$ 3,789,499
See accompanying notes.
Page 4
<PAGE>
REORGANIZED CONSUMAT SYSTEMS, INC.
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Month Period Ended
March 31,
1996 1995
---- ----
<S> <C>
Revenues:
Manufacturing $1,284,178 $1,015,333
Costs of Operations:
Cost of goods sold 915,751 767,731
-------- ---------
Gross profit 368,427 247,602
Selling, general and
administrative expenses 227,773 246,167
--------- ---------
Operating income (loss) 140,654 1,435
Other income (expense):
Investment income 0 1,834
Interest expense (59,844) (24,294)
Amortization expense (2,440)
Other 48,697 28,700
--------- ---------
(13,587) 6,240
--------- ---------
Net income (loss) $ 127,067 $ 7,675
========= =========
Earnings per common share:
Primary $0.13 $0.01
==== ====
Fully diluted $0.09 $0.01
==== ====
</TABLE>
See accompanying notes.
Page 5
<PAGE>
REORGANIZED CONSUMAT SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Month Period Ended
March 31,
1996 1995
---- ----
<S> <C>
Cash flows from operating activities:
Net income (loss) from continuing operations $ 127,067 $ 7,675
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 23,129 40,068
Changes in operating assets and liabilities
net of non-cash transactions:
Accounts and retainage receivable (751,866) 21,281
Inventories 19,117 20,340
Other current assets 19,965 30,427
Accounts payable 17,746 (192,074)
Customer deposits (50,719) 35,280
Accrued contract and warranty expenses 112,524 253,717)
Other accrued expenses (102,863) (43,189)
---------- ----------
Net cash provided by (used in) operating activities (585,900) 173,525)
Reorganization activities:
Net payment of liabilities subject to compromise (351,326)
---------- ----------
Net cash used in reorganization activities (351,326)
---------- ----------
Cash flows from financing activities:
Proceeds from senior debt 931,135 -
Repayments on borrowings - (42,357)
Payments on capital lease obligation (15,120) 17,227
Net cash provided by (used in) financing activities 916,015 (59,584)
---------- ----------
Net increase (decrease) in cash and cash equivalents (21,211) 113,941
Cash and cash equivalents at beginning of period 138,748 59,183
---------- ----------
Cash and cash equivalents (deficit) at end of period $ 117,537 $ 173,124
========== ==========
</TABLE>
See accompanying notes.
Page 6
<PAGE>
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 ammended by a modification to Second Ammended 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 March 31,
1996 Balance Sheet are the result of income generated subsequent to the
Effective Date.
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 1,557,699 for the three month period ended March 31, 1995. The number
of shares used in computing primary and fully diluted earnings per share
for the three month period ended March 31, 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.
4. The Company incurred interest expense of $59,844 and $24,294 during the
three month periods ended March 31,1996 and 1995, 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,
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 March 31, 1996 balance sheet.
Page 7
<PAGE>
TABLE 1
REORGANIZED CONSUMAT SYSTEMS, INC.
Balance Sheet
March 12, 1996
<TABLE>
<CAPTION>
Pre Post Debt Exchange Issuance
Confirmation Confirmation Discharge of of New
Loan Stock Stock
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 222,078 $462,055 $(323,917)
Accounts receivable (net of allowance
for doubtful accounts of $10,000) 1,112,756
Stock subscription $ 17,633
Inventories 173,148
Prepaid expenses and other 74,507
--------- ------- -------- --------- -------
TOTAL CURRENT ASSETS 1,582,489 462,255 (323,917) 17,633
Property, plant and equipment, at cost
net of accumulated depreciation and amortization 614,418
Notes 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 identifable assets
----------- ------- -------- --------- -------
$ 2,291,266 $500,000 (342,889) 17,633
=========== ======= ======== ========= =======
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
LIABILITIES
Current liabilities
Accounts payable 43,846
Other liabilities 570,114 (89,320)
Current portion of indebtedness 78,424 82,075 (21,367)
---------- ------- ------- --------- ------
TOTAL CURRENT LIABILITIES 692,384 (7,245) (21,367)
Liabilites subject to compromise 627,149 (627,149)
Indebtedness
Senior debt 1,000,000 500,000
Long-term debt less current portion 131,598
Capitalized lease obligation less current portion 559,120
SOTCKHOLDERS' EQUITY (DEFICIT)
Common stock-old 4,694,097 (4,694,097)
Common stock-new 150,000 500,000 360,000
Capital in excess of par value 5,208,958 4,194,097 (321,000)
Retained earnings (deficit) (10,490,442) 9,907
----------- ------- -------- --------- --------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (587,387) 159,907 $ 0 39,000
----------- ------- -------- --------- --------
$ 2,291,266 $500,000 $(342,889) $ 0 $ 17,633
============= ======== ======== ========= ========
<CAPTION>
Fresh Reorganized
Start Balance
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
Inventories 173,148
Prepaid expenses and other 74,507
--------- ---------
TOTAL CURRENT ASSETS 1,738,260
Property, plant and equipment, at cost
net of accumulated depreciation and amortization 614,418
Notes receivable from officer 19,028
Debt issuance costs, net of accumulated amortization 94,304
Reorganization value in excess of amounts
allocable to identifable assets 1,398,480 1,398,480
---------- ---------
1,398,480 3,864,490
========== =========
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
LIABILITIES
Current liabilities
Accounts payable 43,846
Other liabilities 480,794
Current portion of indebtedness 139,132
--------- ---------
TOTAL CURRENT LIABILITIES 663,772
Liabilites subject to compromise
Indebtedness
Senior debt 1,500,000
Long-term debt less current portion 131,598
Capitalized lease obligation less current portion 559,120
SOTCKHOLDERS' EQUITY (DEFICIT)
Common stock-old
Common stock-new 1,010,000
Capital in excess of par value (9,082,055)
Retained earnings (deficit) 10,480,535
----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 1,398,480 1,010,000
---------- ---------
$ 1,398,480 $3,864,490
========== =========
</TABLE>
Page 8
<PAGE>
REORGANIZED CONSUMAT SYSTEMS, INC.
PART I. FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S 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 March 31, 1996, the Company had a
working capital surplus of $1,152,950 and a net capital surplus of $1,098,381.
1ST QUARTER 1996 - RESULTS OF OPERATIONS
The Company earned $127,067 on revenues of $1,284,178 in the first quarter
of 1996. In the first quarter of 1995 the Company earned $7,675 on revenues of
$1,015,333.
LIQUIDITY AND CAPITAL
Backlog was $1,785,228 and $3,110,000 at March 31, 1996 and December 31,
1995, respectively.
RESULTS OF OPERATION 3/31/96
COMPARED WITH 3/31/95
Total 1996 first quarter revenues increased by $269,000 or 26.5%. Total
cost of operations increased by approximately $148,000 for the first quarter of
1996. This resulted in a gross margin for the first three months of 1996 of
28.7% compared to 24.4% for the same period in 1995. Selling, general and
administrative expenses decreased by approximately $18,300 or 7.5%.
GENERAL COMMENTS
Other items stated in the 1995 Form 10-KSB are incorporated by reference.
Page 9
<PAGE>
PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
A description of legal proceedings for the quarter ended March 31, 1996
was previously reported in the Company's report on Form 10-KSB for the year
ended December 31, 1995.
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, dated February 28,1996, concerning
"Item 3. Bankruptcy or Receivership" and "Item 5. Other Events".
Page 10
<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.
REORGANIZED
CONSUMAT SYSTEMS, INC.
(Registrant)
/s/ Robert L. Massey
Date: May 14,1996 -----------------------------
Robert L. Massey
Chief Executive Officer
/s/ Mark E. Hills
Date: May 14,1996 -----------------------------
Mark E. Hills
Chief Financial Officer
Page 11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 117
<SECURITIES> 0
<RECEIVABLES> 1,280
<ALLOWANCES> 10
<INVENTORY> 204
<CURRENT-ASSETS> 1,668
<PP&E> 3,877
<DEPRECIATION> 3,267
<TOTAL-ASSETS> 3,789
<CURRENT-LIABILITIES> 515
<BONDS> 0
1,010
0
<COMMON> 0
<OTHER-SE> 88
<TOTAL-LIABILITY-AND-EQUITY> 3,789
<SALES> 1,284
<TOTAL-REVENUES> 1,284
<CGS> 916
<TOTAL-COSTS> 228
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 60
<INCOME-PRETAX> 127
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 127
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.09
</TABLE>
