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, 1999 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 ENVIRONMENTAL 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 1,014,400
<PAGE>
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
INDEX
Page No.
--------
Part I. Financial Information:
Item 1:
Balance Sheet....................................................4
Statements of Operations.........................................5
Statements of Cash Flows.........................................6
Notes to Financial Statements....................................7
Item 2:
Management's Discussion and Analysis of Unaudited
Financial Condition and Results of Operations....................8
Part II. Other Information
Item 1:
Legal Proceedings..................................................9
Item 6:
Exhibits and Reports on Form 8-K...................................9
Signatures.........................................................10
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CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
PART I. FINANCIAL INFORMATION
ITEM 1.
<PAGE>
<TABLE>
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
BALANCE SHEETS
<CAPTION>
March 31, December 31,
ASSETS 1999 1998
(Unaudited) (Audited)
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 33 $ 17,313
Accounts receivable and contract costs (net of
allowance for doubtful accounts of $11,392 at
March 31, 1999 and December 31, 1998) 91,870 373,207
Note receivable -- --
Inventories 151,079 139,430
Prepaid expenses and other 71,995 75,865
----------- -----------
Total current assets 314,977 605,815
Property, plant and equipment, at cost,
net of accumulated depreciation and amortization 346,951 372,264
Other assets 95,091 101,218
Reorganization value in excess of amount
allocable to identifiable assets, net of
accumulated amortization -- --
----------- -----------
$ 757,019 $ 1,079,297
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current maturities of senior debt $ 2,250,000 $ 250,000
Current maturities of capital lease obligation 99,694 99,694
Notes payable 1,475 20,870
Accounts payable 175,541 144,025
Accrued expenses 313,218 319,100
----------- -----------
Total current liabilities 2,839,928 833,689
Senior debt, excluding current maturities -- 2,000,000
Capitalized lease obligation 307,404 315,185
Stockholders' deficit
Common stock: $1 par value, authorized 25,000,000
shares; issued and outstanding 1,014,400
at March 31, 1999 and December 31, 1998 1,014,400 1,014,400
Accumulated deficit (3,404,713) (3,083,977)
----------- -----------
Total stockholders' deficit (2,390,313) (2,069,577)
----------- -----------
$ 757,019 $ 1,079,297
=========== ===========
See accompanying notes
</TABLE>
4
<PAGE>
<TABLE>
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Month Three Month
Period ended Period ended
March 31, March 31,
1999 1998
--------- ---------
<S> <C> <C>
Revenues $ 200,643 $ 603,486
Cost of goods sold 254,397 538,828
--------- ---------
Gross profit (53,754) 64,658
Selling, general and administrative expenses 178,826 221,221
Amortization of reorganization value in excess
of amounts allocable to identifiable assets -- 13,605
--------- ---------
Operating loss (232,580) (170,168)
Other income (expense):
Investment income -- 3,185
Interest expense (88,751) (120,927)
Other 603 1,645
--------- ---------
(88,148) (116,097)
--------- ---------
Loss before income tax benefit (320,728) (286,265)
Income tax benefit -- --
--------- ---------
Net loss $(320,728) $(286,265)
========= =========
Loss per common share:
Basic ($ 0.26) ($ 0.23)
Diluted ($ 0.26) ($ 0.23)
</TABLE>
See accompanying notes.
5
<PAGE>
<TABLE>
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Month Three Month
Period ended Period ended
March 31, March 31,
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (320,736) $ (286,265)
Adjustments to reconcile net loss to
cash flows from operating activities
Depreciation and amortization 31,440 45,044
Deferred income taxes -- --
Changes in operating assets and liabilities
net of non-cash transactions:
Accounts receivable 281,337 1,203,353
Notes receivable -- 137,312
Inventories (11,649) (25,793)
Other current assets 3,870 (1,185)
Accounts payable 31,516 4,729
Other current liabilities (5,882) 715
----------- -----------
Net cash generated by (used in) operating activities 9,896 1,077,910
----------- -----------
Cash flows from investing activities:
Purchases of property, plant and equipment -- --
----------- -----------
Cash flows from financing activities:
Proceeds from senior debt, net -- --
Repayments on notes payable (19,395) (874,783)
Repayments on capital lease obligations (7,781) (20,483)
----------- -----------
Net cash provided by (used in) financing activities (27,176) (895,266)
----------- -----------
Net increase (decrease) in cash and cash equivalents (17,280) 182,644
Cash and cash equivalents at beginning of period 17,313 107,116
Cash and cash equivalents at end of period $ 33 $ 289,760
=========== ===========
</TABLE>
See accompanying notes.
6
<PAGE>
CONSUMAT ENVIRONMENTAL 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, 1998 filed with the Securities
and Exchange Commission.
2. As of December 31, 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share." SFAS No.
128 replaced the calculation of primary and fully diluted net earnings
per share with basic and diluted net earnings per share. Unlike primary
net earnings per share, basic net earnings per share excludes any
dilutive effects of options, warrants and convertible securities.
Diluted net earnings per share is similar to the previous fully diluted
net earnings per share. All prior-period loss per share data has been
restated to conform to the provisions of SFAS No. 128.
The following is a reconciliation of the calculation of basic and
diluted net loss per share:
<TABLE>
<CAPTION>
------------------------------------------------------------------ ------------------------ -------------------------
Three Month Period Three Month Period
Ended March 31, 1999 Ended March 31, 1998
------------------------------------------------------------------ ------------------------ -------------------------
<S> <C> <C>
Basic and Diluted:
Numerator
Net loss $ (320,728) $ (286,265)
Denominator
Common shares outstanding 1,014,400 1,011,200
Minimum Senior Debt warrant 238,522 244,872
------------------------------------------------------------------ ------------------------ -------------------------
Weighted average common shares outstanding 1,252,922 1,256,072
------------------------------------------------------------------ ------------------------ -------------------------
</TABLE>
3. The inventories balance at March 31, 1999 includes raw materials of
$151,079 and work in process of $0. The inventories balance at December
31, 1998 included raw materials of $161,861 and work in process of $0.
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.
4. At March 31, 1999, the Company had NOL carryforwards of approximately
$5.6 million for federal income tax purposes. Such NOL carryforwards,
if not used as offsets to future taxable income, will expire beginning
in 1999 and continuing through 2009. 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.
7
<PAGE>
CONSUMAT ENVIRONMENTAL SYSTEMS, INC.
PART I. FINANCIAL INFORMATION
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF UNAUDITED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Consumat Environmental Systems, Inc., formerly known as Consumat
Systems, Inc. (the "Company"), completed its Chapter 11 bankruptcy proceeding
during the first quarter of 1996. The Effective Date of the Bankruptcy Plan was
March 12, 1996. As was discussed in the Company's Annual Report on Form 10-KSB,
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
effects of the consummation of the Plan and the fresh start reporting allowed
the Company to emerge from its bankruptcy proceeding with a working capital
surplus of approximately $1,074,000 and a net capital surplus of $1,010,000. At
March 31, 1999, the Company had a working capital deficit of $2,524,951 and a
net capital deficit of $2,390,313.
LIQUIDITY AND CAPITAL
As has been reported in a Company press release dated May 13, 1999, The
Company's lack of working capital has reached a critical point. On May 12, 1999
the Company received a notice of default from Finova Mezzanine Capital (formerly
Sirrom Capital Corporation), its Senior Lender, in regards to the May 1 interest
payment which the Company was unable to pay when due. The Company was given ten
days to cure this default. It is unlikely that the Company will be able to cure
the default during this period. If the default is not cured, Finova has
indicated that it intends to accelerate all of its $2.25 million of outstanding
debt. At that time, if the debt is not paid, they will proceed to exercise their
rights of foreclosure under the various security agreements with the Company. It
is unlikely that the value of the Company's assets will be sufficient to satisfy
the Senior debt obligations to Finova.
For this reason, the Company has reclassified all of the Senior Debt
outstanding at March 31, 1999 as a current liability.
1st QUARTER 1999 - RESULTS OF OPERATIONS
The Company lost $320,728 on revenues of $200,643 in the three month
period ended March 31, 1999. In the first quarter of 1998 the Company lost
$286,265 on revenues of $603,486.
Backlog was $775,542 and $665,809 at March 31, 1999 and December 31,
1998, respectively. Of the backlog at March 31,1999, approximately $582,000 is
related to two projects that are currently on hold by the customers. Therefore,
the Company has been unable to recognize any benefit from these contracts.
8
<PAGE>
RESULTS OF OPERATIONS 3/31/99
COMPARED WITH 3/31/98
Revenues Revenues decreased $403,000 or 66.8% from $603,000 for the
first quarter of 1998 to $200,000 for the first quarter of 1999. The decrease in
revenues for the first quarter of 1999 is primarily the result of two major
projects continuing to be on hold by the customer, a lack of working capital as
well as the continuing economic crises in much of Asia.
Cost of Goods Sold Costs of Goods Sold decreased by $284,000 or 52.8%
from $539,000 for the first quarter of 1998 to $255,000 for the first quarter of
1999. The gross margin of $65,000 for the first quarter of 1998 compares to a
gross loss of $54,000 for the first quarter of 1999. The decrease in gross
margin is primarily the result of the decreased revenue volume and the
significant amount of fixed overhead costs related to the Company's
manufacturing operation.
Selling, General and Administrative Expenses Selling, general and
administrative expenses decreased by $42,000 or 19.2% from $221,000 for the
first quarter of 1998 to $179,000 for the first quarter of 1999. The majority of
the decrease is related to a decrease in sales and marketing expenses, including
salaries, professional fees and travel.
Interest Expense Interest expense decreased by $32,000 or 26.6% from
$121,000 for the first quarter of 1998 to $89,000 for the first quarter of 1999.
The decrease for the first quarter of 1999 is the result of a decrease in the
Senior debt balance in 1999 and a decrease in the interest on the Company's
capital lease and other long-term debt. The first quarter 1998 interest expense
included interest on certain project financing debt which was outstanding for
much of the first quarter of 1998.
GENERAL COMMENTS
Other items stated in the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1998 are incorporated by reference.
PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
A description of legal proceedings for the quarter ended March 31, 1999
was previously reported in the Company's report on Form 10-KSB for the year
ended December 31, 1998.
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 April 20, 1999 concerning "Item 6 -
Resignation of Registrant's Director".
(ii) Current report on Form 8-K dated May 5, 1999 concerning "Item 4 -
Change in Registrant's Certifying Accountant" and "Item 5 - Other
Events"
(iii)Current Report on Form 8-K dated May 14, 1999 concerning :Item 5 -
Other Events".
9
<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 ENVIRONMENTAL SYSTEMS, INC.
Registrant
Date: May 17, 1999 /s/Robert L. Massey
-------------------
Robert L. Massey
Chief Executive Officer
Date: May 17, 1999 /s/ Mark E. Hills
-----------------
Mark E. Hills
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 33
<SECURITIES> 0
<RECEIVABLES> 103
<ALLOWANCES> 11
<INVENTORY> 151
<CURRENT-ASSETS> 315
<PP&E> 3,109
<DEPRECIATION> 2,762
<TOTAL-ASSETS> 757
<CURRENT-LIABILITIES> 2,840
<BONDS> 0
0
0
<COMMON> 1,014
<OTHER-SE> (3,405)
<TOTAL-LIABILITY-AND-EQUITY> 757
<SALES> 201
<TOTAL-REVENUES> 201
<CGS> 254
<TOTAL-COSTS> 179
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 89
<INCOME-PRETAX> (321)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (321)
<EPS-PRIMARY> (0.26)
<EPS-DILUTED> (0.26)
</TABLE>
