SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
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
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 Sheets.............................................. 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............... 10
Part II. Other Information
Item 1:
Legal Proceedings.......................................... 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 SHEETS
<TABLE>
<CAPTION>
Successor Predecessor
--------- -----------
March 31, December 31,
ASSETS 1996 1995
---- ----
(Unaudited) (Audited)
<S> <C>
Current assets:
Cash and cash equivalents $ 117,537 $ 138,748
Accounts receivable (net of allowance for
doubtful accounts of $10,000 at March 31,
1996 and December 31, 1995) 1,280,079 528,213
Inventories 203,535 222,652
Prepaid expenses and other 67,236 87,201
---------- ----------
Total current assets 1,668,387 976,814
Property, plant and equipment, at cost,
net of accumulated depreciation and amortization 609,935 630,624
Note receivable from officer 19,028 38,000
Debt issuance costs, net of accumulated
amortization 93,669 27,244
Deferred income taxes, net 218,353
Reorganization value in excess of amount -
allocable to identifiable assets, net of
accumulated amortization 1,148,438 -
---------- ----------
$ 3,757,810 $ 1,672,682
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt and capital
lease obligation $ 125,217 $ 64,611
Accounts payable 73,867 56,121
Billings in excess of revenues recognized 116,900 -
Accrued warranty expense 86,480 90,856
Other accrued expenses 114,869 266,555
-------- -------
Total current liabilities 517,333 478,143
Liabilities subject to compromise - 743,862
Senior debt 1,500,000 500,000
Long-term debt 116,561 -
Capitalized lease obligation 559,120 576,750
Stockholders' equity (deficit)
Common stock: $1 par value, authorized 5,000,000 shares;
issued 1,010,000 at March 31, 1996 and
$3 par value, authorized 3,333,333 shares;
issued 1,564,699 at December 31, 1995 1,010,000 4,694,097
Capital in excess of par value - 5,208,958
Retained earnings (deficit) 54,796 (10,529,128)
---------- ------------
Total stockholders' equity (deficit) 1,064,796 (626,073)
---------- ------------
$ 3,757,810 $ 1,672,682
============= ============
</TABLE>
See accompanying notes.
<PAGE>
REORGANIZED CONSUMAT SYSTEMS, INC.
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Successor Predecessor
--------- -----------
Period from Period from Three Month
March 12 to January 1 to Period ended
March 31, March 11, March 31,
1996 1996 1995
---- ---- ----
<S> <C>
Revenues $ 361,136 $ 923,043 $ 1,015,333
Cost of goods sold 209,444 706,309 767,731
-------- -------- -------
Gross profit 151,692 216,734 247,602
Selling, general and
administrative expenses 50,063 177,710 246,167
------- -------- -------
Operating income 101,629 39,024 1,435
Other income (expense):
Investment income - - 1,834
Interest expense (12,652) (47,193) (24,294)
Amortization expense (635) (1,805) -
Other 38 48,660 28,700
-------- --------- ------
(13,249) (338) 6,240
-------- --------- ------
Income before fresh start revaluation, income
tax expense and extraordinary item 88,380 38,686 7,675
Fresh start revaluation - 538,480 -
Income before income tax expense and
extraordinary item 88,380 577,166 7,675
Income tax expense 33,584 - -
Income before extraordinary item 54,796 577,166 7,675
Extraordinary item-gain on debt discharge - 9,907 -
---------------- ----------- ----------------
Net income $ 54,796 $ 587,073 $ 7,675
================ ============ ================
Earnings per common share:
Primary $0.04 $0.38 $0.01
Fully diluted $0.04 $0.38 $0.01
</TABLE>
See accompanying notes.
REORGANIZED CONSUMAT SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Successor Predecessor
--------- -----------
Period from Period from Three Month
March 12 to January 1 to Period ended
March 31, March 11, March 31,
1996 1996 1995
---- ---- ----
<S> <C>
Cash flows from operating activities
Net income $ 54,796 $ 587,073 $ 7,675
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 5,118 18,011 40,068
Defered income taxes 31,689 - -
Fresh start revaluation - (538,480) -
Extraordinary item - gain on debt discharge - (9,907) -
Changes in operating assets and liabilities
net of non-cash transactions:
Accounts receivable (167,323) (584,543) 21,281
Inventories (30,387) 49,504 20,340
Other current assets 24,904 (4,939) 30,427
Accounts payable 30,021 (12,275) (192,074)
Other current liabilities (162,545) 127,274 245,808
---------- --------- -------
Net cash provided by (used in) operating activities (213,727) (368,282) 173,525
---------- --------- -------
Reorganization activities:
Sale of new stock - 39,000 -
Net payment of liabilities subject to compromise - (342,889) -
---------- ---------
Net cash used in reorganization activities - (303,889) -
---------- --------- -------
Cash flows from investing activities:
Purchase of property, plant and equipment - - -
---------- ---------- -------
Cash flows from financing activities
Proceeds from senior debt net - 931,135 -
Proceeds from other borrowings - - -
Repayments on borrowings/capital lease obligations (28,952) (37,496) (59,584)
---------- ---------- -------
Net cash provided by (used in) financing activities (28,952) 893,639 (59,584)
---------- ---------- --------
Net increase (decrease) in cash and cash equivalents (242,679) 221,468 113,941
Cash and cash equivalents at beginning of period 360,216 138,748 59,183
Cash and cash equivalents at end of period $ 117,537 $ 360,216 $ 173,124
========== ========== =========
</TABLE>
See accompanying notes.
<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 ("GAAP")
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's Second Amended Plan of
Reorganization, as amended by a Modification to Second Amended Plan
of Reorganization (the "Plan") was 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. The periods and dates prior to
the Company's emergence from its Chapter 11 bankruptcy proceeding
are referred to as those of the predecessor Company (the
"Predecessor") while the period and dates subsequent to its
emergence are referred to as those of the successor Company (the
"Successor").
Pursuant to the American Institute of Certified Public Accountants'
Statement of Position ("SOP") 90-7, Financial Reporting by Entities
in Reorganization Under the Bankruptcy Code, 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.
The financial statements for the period ended March 31, 1996,
contained in this 10-QSB/A have been restated from those originally
issued as discussed in the paragraph below.
In accordance with SOP 90-7, the accompanying financial statements
have been reformatted from prior periods to show the financial
position and results of operations of the Predecessor and Successor
as if they were separate entities. In addition, certain items
related to the Company's emergence from its Chapter 11 bankruptcy
proceeding have been restated in accordance with GAAP as follows. A
deferred tax asset in the amount of $250,042 was set up as of March
12, 1996 to reflect the expected use by the Successor of the
Predecessor's net operating loss ("NOL") carryforwards. This
resulted in a decrease of the "Reorganization value in excess of
amounts allocable to identifiable assets" account of a like amount.
The statement of income of the Successor has also been restated to
show a current income tax expense. The Company previously reported
the current income tax expense net of any tax benefit of NOL
carryforwards available. But, because the NOL carryforwards were
generated by the Predecessor, the Successor must report its full
income tax expense. The income tax benefit to the Successor is shown
as a reduction in the deferred tax asset discussed above. This
results in a reduction in net income as well as a corresponding
reduction in earnings per share. Also, the number of shares used in
calculating primary earnings per share ("EPS") has been increased to
reflect 250,000 shares subject to a warrant granted to Sirrom
Capital Corporation as part of the Plan which is exercisable on or
after March 31, 1998.
<PAGE>
3. Earnings per share is calculated based 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
primary and fully diluted earnings per share for the periods ended
March 31, 1996 was 1,260,000 and 1,485,000, respectively. The fully
diluted number takes into account an additional 225,000 shares which
could be issued to Sirrom Capital Corporation pursuant to a warrant
granted as part of the Company's financing agreements.
4. The inventory balance at March 31,, 1996 includes raw materials of
$200,855 and work in process of $2,680. The inventory balance at
December 31, 1995 included raw materials of $204,509 and work in
process of $18,143. Inventories used on contracts in progress are
included in cost of goods sold to accurately match the cost with the
revenue recognized on those contracts by the percentage of
completion method of revenue recognition.
5. Income taxes have been provided as follows in the accompanying
statements of income:
Period From
March 12-
March 31, 1996
--------------
Current
Federal $ 1,516
State 379
Deferred
Federal 28,533
State 3,156
-------
$33,584
Income taxes are provided at the applicable federal and state rates.
Only $1,516 of federal income tax is currently payable due primarily
to utilization of NOL carryforwards.
At March 31, 1996, the Company had NOL carryforwards of
approximately $3.8 million for federal income tax purposes. Such NOL
carryforwards, if not used as offsets to future taxable income, will
expire beginning in 1996 and continuing through 2008. Certain of
these NOL carryforwards available for future utilization are limited
as the result of a change in ownership of the Company which occurred
in 1992. In addition the company has deferred tax assets which have
arisen from temporary differences between the tax basis of assets
and liabilities and their reported amounts in the financial
statements. These differences are primarily related to fixed assets
and accrued warranty expense.
In accordance with FAS 109, the Company has recognized the portion
of future benefits associated with the NOL's that management feels
will more likely than not be realized. This amount totals $250,042
and $223,400 as of March 12,1996 and March 31, 1996. A valuation
allowance has been set up against the remaining amount of the total
NOL's.
<PAGE>
TABLE 1
REORGANIZED CONSUMAT SYSTEMS, INC.
Balance Sheet
March 12, 1996
<TABLE>
<CAPTION>
Pre Post Debt Exchange Issuance Fresh Reorganized
Confirmation Confirmation Discharge of of New Start Balance
Loan Stock Stock Sheet
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 222,078 $462,055 $(323,917) $ 360,216
Accounts receivable (net of allowance
for doubtful accounts of $10,000) 1,112,756 1,112,756
Stock subscription 17,633 17,633
Inventories 173,148 173,148
Prepaid expenses and other 74,507 0 0 0 0 0 74,507
------------ -------- --------- ---------- --------- ----------- ----------
TOTAL CURRENT ASSETS 1,582,489 462,055 (323,917) 0 17,633 0 1,738,260
Property, plant and equipment, at cost
net of accumulated depreciation and
amortization 614,418 614,418
Note receivable from officer 38,000 (18,972) 19,028
Debt issuance costs, net of accumulated
amortization 56,359 37,945 94,304
Deferred income taxes, net 250,042 250,042
Reorganization value in excess of amounts
allocable to identifiable assets 0 0 0 0 1,148,438 1,148,438
------------ -------- --------- --------- ----------- ----------
2,291,266 500,000 (342,889) 0 17,633 1,398,480 3,864,490
============ ======== ========= ========== ========= =========== ==========
LIABILITIES AND STOCKHOLDERS EQUITY
(DEFICIT)
LIABILITIES
Current liabilities
Accounts payable 43,846 43,846
Other 570,114 (89,320) 480,794
Current portion of indebtedness 78,424 0 82,075 0 (21,367) 0 139,132
------------ -------- --------- ---------- --------- ----------- ----------
TOTAL CURRENT LIABILITIES 692,384 0 (7,245) 0 (21,367) 0 663,772
Liabilities subject to compromise 627,149 (627,149) 0
Indebtedness
Senior debt 1,000,000 500,000 1,500,000
Long-term debt less current position 131,598 131,598
Capitalized lease obligation less
current position 559,120 559,120
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock-old 4,694,097 (4,694,097) 0
Common stock-new 150,000 500,000 360,000 1,010,000
Capital in excess of par value 5,208,958 4,194,097 (321,000) (9,082,055)
Retained earnings (10,490,442) 0 9,907 10,480,535
------------ -------- --------- -----------
TOTAL STOCKHOLDERS' EQUITY
(DEFICIT) (587,387) 0 159,907 0 39,000 1,398,480 1,010,000
------------ -------- --------- ---------- --------- ----------- ----------
$ 2,291,266 $500,000 ($342,889) $ 0 $ 17,633 $ 1,398,480 $3,864,490
============ ======== ========= ========== ========= =========== ==========
</TABLE>
<PAGE>
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, as amended (the "Plan"), was confirmed by the
Bankruptcy Court 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 results of operations for the periods ended March 31, 1996 and
1995 have been presented as the Successor's and Predecessor's respective
historical results of operations because the adoption of fresh start reporting
occurred during the March 31 1996 period. To facilitate a more meaningful
comparison of the Company's year-to-date operating performance, the following
discussion of the results of operations is partially presented on a combined
basis for certain items for which the fresh start reporting does not affect
comparability.
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 $1,151,054 and a net capital surplus of $1,064,796.
1st QUARTER 1996 - RESULTS OF OPERATIONS
The Successor earned $54,796 after taxes on revenues of $361,136 in
the period March 12 to March 31, 1996. In the first quarter of 1995 the
Predecessor earned $7,675 on revenues of $1,015,333.The income before taxes for
the period March 12 to March 31, 1996 was $88,380 as compared to $7,675 for the
three month period in 1995. As discussed in Note 2 to the unaudited financial
statements, the Successor incurred income tax expense of $33,584 for 1996 as
compared to $0 in 1995.
LIQUIDITY AND CAPITAL
Backlog was $1,785,228 and $3,110,000 at March 31, 1996 and December
31, 1995, respectively.
<PAGE>
RESULTS OF OPERATION 3/31/96
COMPARED WITH 3/31/95
Total combined (Predecessor plus Successor) revenues for the three
months ended March 31, 1996 increased by $269,000 or 26.5%. Total cost of
operations increased by approximately $148,000 for the first three months 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 increased by approximately $18,300 or 7.5%.
The combined operations for the three months ended March 31 resulted
in income before extraordinary items and income taxes of $127,066 on revenues of
$1,284,179 in 1996 as compared to $7,675 on revenues of $1,015,333 in 1995. As
previously discussed, the Successor's net income for the period March 12 through
March 31 includes income tax expense of $33,584. Of this expense, only
approximately $1,900 is currently due as the remainder is offset by timing
differences and the use of the Predecessor's NOL carryforwards.
The interest expense for the three months ended March 31,1996 was
$59,845 as compared to $24,294 for the same period in 1995. The increase is the
result of the interest incurred on the $1.5 million of Senior debt incurred
during and subsequent to the bankruptcy proceeding.
GENERAL COMMENTS
Other items stated in the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1995 are incorporated by reference.
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 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>
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: January 8, 1997 _____________________________
Robert L. Massey
Chief Executive Officer
Date: January 8, 1997 _____________________________
Mark E. Hills
Chief Financial Officer
