<PAGE> 1
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(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, 1998
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-21821
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Consolidated Capital of North America, Inc.
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(Exact name of small business issuer as specified in its charter)
Colorado 93-0962072
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(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
410 17th Street, Suite 400
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Denver, Colorado 80202
(Address of principal executive offices)
888-313-8051
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Issuer's telephone number
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 19,776,867 shares of $.0001 per share
common stock as of August 7, 1998.
Transitional Small Business Disclosure Format (check one): Yes No X
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Consolidated Capital of North America, Inc.
Quarterly Report on Form 10-QSB for the
Quarter Ended June 30, 1998
Table of Contents
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets - June 30, 1998
and December 31, 1997 3
Consolidated Statements of Operations for the
three months ended June 30, 1998 and 1997 5
Consolidated Statements of Operations for the
six months ended June 30, 1998 and 1997 6
Consolidated Statements of Cash Flows for the
six months ended June 30, 1998 and 1997 7
Notes to Financial Statements 9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 15
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 20
</TABLE>
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<PAGE> 3
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
ASSETS
June 30, December 31,
1998 1997
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(unaudited)
<S> <C> <C>
Current assets
Cash $ 752,258 $ 14,304
Accounts receivable, less allowance
for doubtful accounts of $254,500 and
$138,003 in 1998 and 1997, respectively 2,950,251 1,587,035
Inventories 3,812,282 1,193,208
Deferred loan costs 994,949 --
Prepaid expenses and other 467,308 32,879
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Total current assets 8,977,048 2,827,426
Property and equipment, net of
accumulated depreciation of $577,598
and $216,004 in 1998 and 1997, respectively 5,720,639 2,053,215
Goodwill, net of accumulated amortization of
$343,895 and $225,995 in 1998 and 1997,
respectively 2,015,113 2,133,013
Other assets 1,456,524 692,629
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Total assets $18,169,324 $ 7,706,283
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
CONSOLIDATED BALANCE SHEETS - CONTINUED
JUNE 30, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' June 30, December 31,
(DEFICIT) EQUITY 1998 1997
------------ ------------
(unaudited)
<S> <C> <C>
Current liabilities
Accounts payable $ 3,225,603 $ 3,872,397
Accrued liabilities 428,101 290,618
Current portion of long-term debt 388,608 320,738
Convertible notes payable to affiliates 2,000,000 --
Note payable to affiliates -- 225,000
Convertible notes 4,028,690 --
Notes and loan payable 1,400,000 --
Other 21,897 61,545
------------ ------------
Total current liabilities 11,492,899 4,770,298
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Long-term liabilities
Long-term debt - net of current portion 6,408,525 2,928,133
Accrued Dividends 101,580 --
------------ ------------
Total long-term liabilities 6,510,105 2,928,133
------------ ------------
Redeemable Series C preferred shares 2,000,000 --
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Stockholders' (deficit) equity
Series A preferred shares, par value of $.01
per share, liquidation value of $1.00 per share:
Authorized 1,000,000 shares, 744,000 shares
issued and outstanding 744,000 744,000
Series B preferred shares, par value of $.01
per share, liquidation value of $1.00 per share:
Authorized 1,000,000 shares, 449,000 shares
issued and outstanding 449,000 449,000
Common shares, par value $.0001 per share:
Authorized - 50,000,000 shares, 18,945,756
and 15,992,121 shares outstanding, respectively 1,895 1,599
Additional paid-in capital 7,119,703 2,070,313
Accumulated deficit (10,148,278) (3,257,060)
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Total stockholders' (deficit) equity (1,833,680) 7,852
------------ ------------
Total liabilities and stockholders' (deficit) equity $ 18,169,324 $ 7,706,283
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
(unaudited)
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
Net sales $ 4,823,721 $ 5,124,435
Cost of goods sold 3,956,230 4,184,732
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Gross profit 867,491 939,703
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Operating expenses
Selling and shipping 174,562 259,523
General and administrative 1,384,424 311,394
Payroll and related benefits 842,010 546,369
Depreciation and amortization 297,100 112,926
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Total expenses 2,698,096 1,230,212
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Loss from operations (1,830,605) (290,509)
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Other income (expense)
Interest expense (1,380,662) (149,998)
Other 11,509 39,716
Termination of an acquisition (946,547) --
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(2,315,700) (110,282)
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Net loss (4,146,305) (400,791)
Preferred share dividends (65,790) --
------------ ------------
(4,212,095) (400,791)
Discount attributable to conversion value of
preferred shares and warrants (325,204) --
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Loss applicable to common stockholders $ (4,537,299) $ (400,791)
============ ============
Basic and diluted loss per share $ (.24) $ (.03)
============ ============
Weighted average number of
common shares outstanding 18,676,855 15,752,713
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(unaudited)
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
Net sales $ 10,363,227 $ 10,454,582
Cost of goods sold 8,861,309 8,569,254
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Gross profit 1,501,918 1,885,328
------------ ------------
Operating expenses
Selling and shipping 368,234 512,803
General and administrative 2,617,365 808,808
Payroll and related benefits 1,441,556 1,127,802
Depreciation and amortization 525,006 200,567
------------ ------------
Total expenses 4,952,161 2,649,980
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Loss from operations (3,450,243) (764,652)
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Other income (expense)
Interest expense (1,855,920) (227,996)
Other 123,409 67,667
Termination of an acquisition (946,547) --
------------ ------------
(2,679,058) (160,329)
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Net loss (6,129,301) (924,981)
Preferred share dividends (108,813) --
------------ ------------
(6,238,114) (924,981)
Discount attributable to conversion value of
preferred shares and warrants (761,917) --
------------ ------------
Loss applicable to common stockholders $ (7,000,031) $ (924,981)
============ ============
Basic and diluted loss per share $ (.39) $ (.07)
============ ============
Weighted average number of
common shares outstanding 18,171,869 14,089,254
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
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CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(unaudited)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(6,129,301) $ (924,981)
Adjustments to reconcile net loss to net cash
used in operations:
Amortization and depreciation 525,006 200,567
Amortization of loan fees 567,865 --
Provision for doubtful accounts 70,497 --
Gain on sale of assets -- (1,000)
Common shares issued for loan fees -- 51,563
Common shares issued for consulting fees 477,625
Value of options granted to non-employees 873 --
Discount attributable to conversion
value of convertible notes 695,356 --
Change in assets and liabilities:
Accounts receivable 143,254 236,884
Inventories (462,562) 608,006
Prepaid expenses and other (229,892) (89,754)
Deferred loan costs (48,929) --
Other assets 559,246 18,350
Accounts payable and accrued liabilities (423,469) (295,162)
Other liabilities (68,101) 127,361
----------- -----------
Net cash used in operating activities (4,322,532) (68,166)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of businesses, net of cash acquired (1,750,000) (939,197)
Purchase of property and equipment (260,165) (60,015)
Notes receivable from land sales -- 100,000
Purchase of certificate of deposit restricted -
against long-term obligations (250,000) --
----------- -----------
Net cash used in investing activities (2,260,165) (899,212)
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
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CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(unaudited)
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 15,217,176 931,731
Principal payments on long-term debt (16,068,345) (617,856)
Principal payments on note payable to former officer -- (285,000)
Proceeds from issuance of 10% convertible notes, net 4,445,127 --
Payment of notes payable to affiliates (225,000) --
Proceeds from issuance of common stock -- 966,901
Short-term borrowings 1,714,286 --
Proceeds from issuance of redeemable preferred shares, net 1,859,640 --
Proceeds from sale of common stock purchase warrants 385,000 --
Dividends (7,233) --
------------ ------------
Net cash provided by financing activities 7,320,651 995,776
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NET INCREASE IN CASH 737,954 28,398
CASH AT BEGINNING OF PERIOD 14,304 26,937
------------ ------------
CASH AT END OF PERIOD $ 752,258 $ 55,335
============ ============
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the period for interest $ 480,535 $ 164,410
============ ============
NONCASH FINANCING ACTIVITIES:
Issuance of common stock for consulting fees $ 724,221 $ --
============ ============
Issuance of common stock for loan cost $ 685,715 $ --
============ ============
Issuance of common stock for business acquisitions $ 300,000 $ 74,479
============ ============
Issuance of common stock for settlement of a liability $ 296,842 $ --
============ ============
Cumulative dividends of preferred shares $ 101,580 $ --
============ ============
BUSINESS ACQUISITIONS:
Assets acquired $ 8,114,162 $ 9,039,474
Liabilities incurred or assumed (6,064,162) (8,099,413)
Common shares issued (300,000) (864)
------------ ------------
Cash used in business acquisitions $ 1,750,000 $ 939,197
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE> 9
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(unaudited)
1. GENERAL
The accompanying unaudited interim financial statements of Consolidated Capital
of North America, Inc. (the "Company") include the accounts of the Company and
its wholly-owned subsidiaries, after elimination of all significant intercompany
transactions, accounts and profits. These statements include all adjustments
(consisting solely of normal recurring adjustments) which, in the opinion of
management, are necessary to fairly present the financial position of the
Company as of June 30, 1998 and the results of its operations and its cash flows
for the three and six month periods then ended. The results of operations for
this interim period are not necessarily indicative of results to be expected for
the full year.
These interim financial statements should be read in conjunction with the
Summary of Significant Accounting Policies and other Notes to Financial
Statements included in the Company's annual audited financial statements for the
year ended December 31, 1997. Certain prior year amounts have been reclassified
to conform with the current period presentation.
2. BUSINESS ACTIVITIES
Prior to January 21, 1997, the Company's operations were exclusively in the real
estate business. On January 21, 1997, Consolidated Land & Cattle Company, a
subsidiary of the Company, merged with Angeles Acquisition Corp., a privately
held company. Angeles Acquisition Corp. survived the Merger and became a wholly
owned subsidiary of the Company. Prior to the merger Angeles Acquisition Corp.
had acquired Angeles Metal Trim Co. ("Angeles"). Angeles and its wholly-owned
subsidiary fabricate and sell steel framing materials for commercial and
residential structures.
On January 12, 1998, the Company through a wholly-owned subsidiary, purchased
substantially all of the assets of Capitol Metals Co., Inc. ("Old Capitol"), a
privately held steel processing and service center headquartered in Torrance,
California. Old Capitol filed for protection under Chapter 11 of the Bankruptcy
Code on October 7, 1997. The total consideration was approximately $8,100,000,
consisting of $336,000 in cash, $1,500,000 in promissory notes, $300,000 of
Common Shares of the Company (269,349 Common Shares), the assumption of an
outstanding note and interest of $626,000, the repayment of $4,764,000 of Old
Capitol's then existing senior debt and the assumption of approximately $574,000
of costs and expenses associated with the acquisition. The Company agreed to
include the Common Shares issued in connection with the acquisition of the
assets of Old Capitol in a registration statement which was filed with the
Securities and Exchange Commission on August 6, 1998. During February 1998,
Angeles Acquisition Corp. changed its corporate name to Capitol Metals Co.
("Capitol").
As of December 31, 1997 and June 30, 1998, the Company had a working capital
deficit of $1,942,872
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CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1998
(unaudited)
and $2,515,851, respectively and a net loss of $2,478,577 and $6,129,301 for the
year ended December 31, 1997 and for the six months ended June 30, 1998,
respectively. In January 1998, the Company acquired substantially all of the
assets of Old Capitol, which had filed for protection under Chapter 11 of the
Bankruptcy Code. The ability of the Company to successfully carry out its
business plan is dependent upon its ability to obtain sufficient additional
capital and to generate significant revenues through its existing assets,
including the Capitol assets.
The Company plans to raise additional working capital through private offerings
of debt and equity. There is no assurance that the Company will have sufficient
funds to execute its business plan of generate positive operating results.
Management believes that the funds on hand and raised in placements subsequent
to year end will be sufficient to fund its operating needs through at least
December 31, 1998.
With the recent acquisition of Angeles and Capitol, the Company intends to focus
on the steel frame building business, steel service center operations and
complementary businesses. Management believes that the acquisition of Capitol
will provide the Company with several advantages toward the accomplishment of
its business objective of achieving profitability. The Company has relocated the
Los Angeles, California operations of Angeles to the Torrance, California
facility currently used by Capitol. In addition to the long term reduction in
facilities cost, this relocation has allowed management to combine several
previously duplicative functions, creating efficiencies and cost savings. These
functions include: materials receiving, slitting operations, purchasing,
accounting and other administrative functions. Additionally, as the companies
currently use several common suppliers, the Company believes that the purchasing
volume created by the addition of Capitol may create reduced pricing for
materials and services utilized by Angeles and Capitol.
The pro forma effect on the statement of operations for the Company had the
acquisition taken place on January 1, 1997 would have been as follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------------
1998 1997
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<S> <C> <C>
Revenues $ 10,624,121 $ 22,505,881
Loss from operations $ (3,523,344) $ (913,412)
Net loss $ (6,262,680) $ (1,799,447)
Loss applicable to common stockholders $ (7,133,410) $ (1,799,447)
Basic and fully diluted loss per share $ (.39) $ (.11)
Weighted average number of Common
Shares outstanding 18,341,115 15,858,603
</TABLE>
10
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CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1998
(unaudited)
3. LONG-TERM DEBT
During January 1998, the Company entered into a new financing arrangement with
Congress Financial Corporation (Western) ("Congress Financial"). The Company
incurred $8,100,000 of indebtedness from Congress Financial, of which $3,300,000
was utilized for the repayment of outstanding revolving and term indebtedness of
Angeles and $4,800,000 of which was utilized in connection with the acquisition
of Capitol. Congress Financial provided $1,400,000 and $3,300,000 in financing
under revolving lines of credit to Angeles and Capitol, respectively, and
provided $1,900,000 and $1,500,000 to Angeles and Capitol, respectively, in
financing under term loans. These loans are collectively referred to as the
"Congress Facility."
Under the Congress Facility, Angeles and Capitol can borrow up to a maximum of
$20 million. The revolving line of credit portion of the Congress Facility is
limited by the amount of eligible accounts receivable and inventory and requires
Angeles and Capitol to comply with certain financial and other non-financial
covenants, as defined in the agreement. The Congress Facility is available,
subject to support by the appropriate levels of assets and compliance with the
applicable financial and other non-financial covenants by both Angeles and
Capitol, to provide financing for general corporate purposes. The Company is in
compliance with these covenants. The revolving line of credit component of the
Congress Facility is due in January 2000. The term loans are to be repaid in 60
monthly installments commencing February 1, 1998. Amounts drawn under the
Congress Facility bear interest at a rate which is .75% per annum over the prime
rate announced by First Union National Bank for the interest period.
There are no compensating balance requirements under either of these two
financing arrangements.
All of the accounts receivable, inventory, equipment and intangibles of Angeles
and Capitol have been pledged as security for the Congress Facility. The
Congress Facility has been guaranteed by the Company and California Building
Systems, Inc., a subsidiary of Angeles.
4. SALE OF CONVERTIBLE NOTES
The Company has issued and sold, in a private placement, an aggregate of $5.0
million of its 10% Convertible Notes (collectively, the "Notes") pursuant to the
terms of a Note Purchase Agreement between the Company and the purchasers of the
Notes (the "Note Purchase Agreement"). The Company issued $2 million of the
Notes on April 9, 1998, $1.5 million on April 16, 1998, $500,000 on June 9, 1998
and $1,000,000 on June 16, 1998. The proceeds from the issuance of the Notes
were used for working capital. Interest is payable on the principal of the Notes
from the date of issuance at the rate of 10% per annum. The interest is payable
semi-annually on October 1 and Apri1 1 commencing October 1, 1998, until the
principal is paid in full. The maturity date of the Notes is April 9, 1999 (the
"Maturity Date"). The Company has the right, at its sole option, to pay any
interest due on the Notes in Common
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CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1998
(unaudited)
Shares of the Company based on the arithmetic average of the closing bid and ask
price of the Company's Common Shares for the twenty trading days prior to the
interest payment due date (the "Interest Shares").
At any time after issuance and prior to the Maturity Date, the outstanding
principal amount of the Notes, any and all accrued and unpaid interest thereon,
in whole or in increments of at least $20,000 of principal, may be converted by
the holder thereof into Common Shares of the Company (the "Conversion Shares")
at the Conversion Price equal to the lesser of (i) $1.75 per share of (ii) the
following conversion prices: (x) on or after August 6, 1998 at a per share price
equal to eighty percent (80%) of the arithmetic average of the closing bid and
ask prices of the Company's Common Shares for the twenty trading days prior to
the exercise date of such conversion and (y) on or after October 5,1998 at a per
share price equal to seventy-five (75%) of the arithmetic average of the closing
bid and ask prices of the Company's Common Shares for each of the twenty trading
days prior to the exercise date of the such conversion. Based on an assumed
conversion price of $.633275, the Notes are convertible into 7,895,470 Common
Shares. The conversion price is subject to adjustment under specified
antidilution provisions. The Company agreed to register the Conversion Shares
and Interest Shares in a registration statement filed with the Securities and
Exchange Commission and to have such registration statement effective within 90
days of each issuance date. Failure to have the registration statement effective
by such dates subjects the Company to monetary penalties. The Company has
accrued $97,250 for penalties relating to this provision. The registration
statement was filed with Securities Exchange Commission on August 6, 1998.
5. DIVIDENDS
As of June 30, 1998, the Company has a liability for the dividends accrued to
the preferred shareholders for the Series A, Series B and Series C Preferred
Shares which amount to $44,640, $26,940 and $30,000, respectively. The dividends
for these Preferred Shares are considered as a noncurrent liability in the
amount of $101,580, as the Company does not intend to pay dividends in cash on
these shares in 1998. The dividends to the Series C Preferred shareholders will
be paid in Common Shares of the Company valued at $30,000.
6. CONSULTING AGREEMENT
In March 1998, the Company entered into a consulting arrangement with a director
of the Company. This individual received $40,000 and 250,000 Common Shares as
compensation for these services. Compensation for the services are valued at the
quoted market value of the Common Shares on the date earned.
12
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CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1998
(unaudited)
7. LOSS PER SHARE
Common share equivalents were not considered as they would be anti-dilutive and
had no impact on the loss per share for the six month periods presented.
However, the impact under the treasury stock method of dilitive stock options
and warrants would have been 937,255 Common Shares for the six months ended June
30, 1998. There were no dilutive stock options or warrants for the six months
ended June 30, 1997.
8. PROPOSED ACQUISITION
During April 1998 the Company entered into a letter of intent to acquire Form
Tech Steel, Inc. ("Form Tech") a privately held, Midwest-based steel service
center. During July 1998 the Company withdrew its offer to purchase Form Tech.
Capitalized costs incurred amounted to $946,547 which included common stock
issued for consulting fees having a value of $477,625, deposit of $200,000,
outside accounting fees of $48,000, advance for financing fees of $25,000,
estimated penalty to convertible note holders of $97,250 related to the delay in
filing a registration statement as a result of the potential acquisition and
various other expenses amounting to $98,672 have been expensed in the
accompanying statements of operations.
9. SUBSEQUENT EVENTS
A. Handel and BINHAD Notes
The Company is in default under the Handel Note assumed in connection with the
acquisition of Capitol Metals (the "Capitol Acquisition") and has an obligation
to repay $450,000 plus accrued interest on such Note. The Company is also in
default under a $300,000 Note issued in connection with the Capitol Acquisition
(the "BINHAD Note"). The Handel Note and the BINHAD Note are subordinate to the
Congress Facility. No action may be commenced on the Handel Note or the BINHAD
Note until October 12, 1998 and January 12, 1999, respectively. Failure to cure
such default on such dates will constitute an event of default under the
Congress Facility and the Convertible Notes.
The Company has filed a claim against BINHAD for certain breaches of
representations and warranties by BINHAD in connection with the Capitol
Acquisition. The Company intends to offset such damages against amounts
outstanding under the BINHAD Note.
13
<PAGE> 14
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1998
(unaudited)
B. Termination of President of Angeles
Ronald F. Martin served as the President of Angeles Metal Trim, Co., an
operating subsidiary of the Company, from April 10, 1997 to May 12, 1998. As
part of the consideration for services rendered under the Employment Agreement,
Mr. Martin was granted 500,000 options with an exercise price of $2.00 per share
to purchase Common Shares. Effective May 12, 1998, Mr. Martin was terminated, as
the President of Angeles Metal Trim Co., and all stock options held by Mr.
Martin were canceled.
14
<PAGE> 15
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The results of operations for the six month and three month periods ended June
30, 1998 include the results of Angeles Metal Trim Co. ("Angeles") and the
results of Capitol Metals Co. ("Capitol") which was acquired on January 12,
1998.
RESULTS OF OPERATIONS
During the second quarter of 1998, the Company reported net sales of $4,823,721
as compared with net sales for the second quarter of 1997 of $5,124,435. Net
sales in the second quarter included $1,523,902 of sales of Capitol and
$3,299,819 of sales of Angeles. Sales for Angeles decreased from $5,124,435 in
the second quarter of 1997 to $3,299,819 in the second quarter of 1998.
During the first six months of 1998, the Company reported net sales of
$10,363,227 as compared with net sales for the first six months of 1997 of
$10,454,582. Net sales during the six months of 1998 included $4,231,105 of
sales of Capitol. Sales in the first half of 1998 for Angeles operation
decreased from $10,454,582 in the first half of 1997 to $6,132,122 in the first
half of 1998.
The decrease in net sales for Angeles was mainly a result of insufficient
working capital to purchase steel necessary to produce products during the
second quarter of 1998 and the first six months of 1998. The Company expects
that revenues from Capitol and Angeles will increase during the remainder of the
fiscal year ending December 31, 1998.
Cost of goods sold for both entities amounted to $3,956,230 for the second
quarter in 1998 resulting in a gross margin of 18% of net sales. The gross
profit for Angeles for the three months ended June 30, 1997 amounted to 19%.
Cost of goods sold for both entities amounted to $8,861,309 for the first half
in 1998 resulting in a gross margin of 14% of net sales for this period. The
gross profit for Angeles amounted to 19% for the first half of 1998 or an
increase of 1% to as compared to the same period of 1997. Capitol generated a
gross profit of 6% for the first half of 1998. The gross profit for Angeles for
the first six months ended June 30, 1997 amounted to 18%. The increase in gross
profit percentage of Angeles resulted mainly from the decrease in the cost of
steel.
Operating expenses increased by $1,467,884, to $2,698,096 for the second quarter
of 1998 from $1,230,212 in the second quarter of 1997. Operating expenses
increased by $2,302,181, to $4,952,161 for the first half of 1998 from
$2,649,980 in the first half of 1997. The increase is primarily attributable to
general and administrative expenses from Capitol which were not present in the
comparable period in 1997. These expenses included facilities, purchasing,
accounting and administrative expenses related to Capitol. The increase in
operating expenses is also attributable to an increase in payroll and related
benefits with the addition of Capitol employees since January 12, 1998. The
Company anticipates that the operating expenses will decrease as a percentage of
sales as the a result of combining the operations of Angeles and Capitol.
Interest expense increased by $1,230,664 to $1,380,662 in the second quarter of
1998 as compared to $149,998 in the second quarter of 1997. Interest expense
increased by $1,627,924 to $1,855,920 for the first half of 1998 as compared to
$227,996 in the first half of 1997. This increase is the result of the
15
<PAGE> 16
interest expense related to the various financing arrangements entered into by
the Company to provide working capital and the financing related to the
acquisition of Capitol. The second quarter of 1998 includes a noncash charge of
$695,356 as a result of a computed discount attributable to the conversion value
of the 10% convertible notes issued during the second quarter of 1998.
The Company reported a net loss for the three months ended June 30, 1998 of
$4,146,305 as compared to a net loss of $400,791 for the same period in 1997.
Including the discount attributable to the conversion value of preferred shares
and warrants of $325,204 and dividends of $65,790, the Company reported a loss
for the three months ended June 30, 1998 of $4,537,299 ($.24 per share).
The Company reported a net loss for the six months ended June 30, 1998 of
$6,129,301 as compared to a net loss of $924,981 for the same period in 1997.
Including the discount attributable to the conversion value of preferred shares
and warrants of $761,917 and dividends of $108,813, the Company reported a loss
for the six months ended June 30, 1998 of $7,000,031 ($.39 per share).
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
Cash flows used in operations were $4,322,532 for the six months ended June 30,
1998 as compared to $68,166 used in operations for the six months ended June 30,
1997. The increase in cash used in operations for the six months ended June 30,
1998 was a result of the larger loss in the first half of 1998 compared to the
same period of 1997. The acquisition of Capitol in January 1998 resulted in the
use of cash of approximately $2 million compared to approximately $.9 million in
the same period for 1997. Cash flows from financing activities for the first
half of 1998 increased by $6.3 million compared to the same period in 1997
because of cash needed for the acquisition and operations. As of June 30, 1998,
the Company had a working capital deficit of $2,515,851, a stockholders' deficit
of $1,833,680 and an accumulated deficit of $10,148,278. See Company's financial
statements and notes hereto, included elsewhere in this report, for detailed
financial information regarding the Company.
Since January 1997, the Company has primarily financed its operations with cash
available under its credit facilities and funds advanced under loan
arrangements, including certain loans from affiliated entities. The Company has
also financed its operations through the private placement of capital stock and
convertible securities, including $1,000,000 from sales of Common Shares in
January 1997, $2,000,000 from the March 1998 sale of Series C Preferred Shares
and $5,000,000 from the issuance of convertible notes in April and June 1998.
During January 1998, the Company entered into a new financing arrangement with
Congress Financial. Congress Financial has provided $1,400,000 and $3,300,000 in
financing under revolving lines of credit to Angeles and Capitol, respectively,
and provided $1,900,000 and $1,500,000 to Angeles and Capitol, respectively, in
financing under term loans. These loans are collectively referred to as the
"Congress Facility". Under the Congress Facility, Angeles and Capitol can borrow
up to a maximum of $20 million. The revolving line of credit portion of the
Congress Facility is limited by the amount of eligible accounts receivable and
inventory and requires Angeles and Capitol to comply with certain financial and
other non-financial convenants, as defined in the agreement. The Congress
Facility is available, subject
16
<PAGE> 17
to support by the appropriate levels of assets and compliance with the
applicable financial and other non-financial covenants by both Angeles and
Capitol, to provide financing for general corporate purposes. The Company is in
compliance with these covenants. The revolving line of credit component of the
Congress Facility is due in January 2000. The term loans are to be repaid in 60
monthly installments commencing February 1, 1998. Amounts drawn under the
Congress Facility bear interest at a rate which is .75% per annum over the prime
rate announced by First Union National Bank for the interest period. All of the
accounts receivable, inventory, equipment and intangibles of Angeles and Capitol
have been pledged as security for the Congress Facility. The Congress Facility
has been guaranteed by the Company and California Building Systems, Inc., a
subsidiary of Angeles.
The Company has issued and sold, in a private placement, an aggregate of $5.0
million of its 10% Convertible Notes (collectively, the "Notes") pursuant to the
terms of a Note Purchase Agreement between the Company and the purchasers of the
Notes (the "Note Purchase Agreement"). The Company issued $2,000,000 of the
Notes on April 9, 1998, $1,500,000 on April 16, 1998, $500,000 on June 9, 1998
and $1,000,000 on June 16, 1998. The proceeds from the issuance of the Notes
were used for working capital. Interest is payable on the principal of the Notes
from the date of issuance at the rate of 10% per annum. The interest is payable
semi-annually on October 1 and Apri1 1 commencing October 1, 1998, until the
principal is paid in full. The maturity date of the Notes is April 9, 1999
(the"Maturity Date"). The Company has the right , at its sole option, to pay any
interest due on the Notes in Common Shares of the Company based on the
arithmetic average of the closing bid and ask price of the Company's Common
Shares for the twenty trading days prior to the interest payment due date (the
"Interest Shares").
At any time after issuance and prior to the Maturity Date, the outstanding
principal amount of the Notes, any and all accrued and unpaid interest thereon,
in whole or in increments of at least $20,000 of principal, may be converted by
the holder thereof into Common Shares of the Company (the "Conversion Shares")
at the Conversion Price equal to the lesser of (i) $1.75 per share of (ii) the
following conversion prices: (x) on or after August 6, 1998 at a per share price
equal to eighty percent (80%) of the arithmetic average of the closing bid and
ask prices of the Company's Common Shares for the twenty trading days prior to
the exercise date of such conversion and (y) on or after October 5,1998 at a per
share price equal to seventy-five (75%) of the arithmetic average of the closing
bid and ask prices of the company's Common Shares for each of the twenty trading
days prior to the exercise date of the such conversion. Based on an assumed
conversion price of $.633275, the Notes are convertible into 7,895,470 Common
Shares. The conversion price is subject to adjustment under specified
antidilution provisions. The Company agreed to register the Conversion Shares
and Interest Shares in a registration statement filed with the Securities and
Exchange Commission and to have such registration statement effective within 90
days of each issuance date. Failure to have the registration statement effective
by such dates subjects the Company to monetary penalties.
A registration statement was filed with Securities Exchange Commission on August
6, 1998. The Registration Statement relates to the sale by certain holders of
securities (the "Selling Shareholders") of the Company of an estimated
16,830,868 Common Shares of the Company including: (i) an estimated 7,895,470
Common Shares issuable upon conversion of $5,000,000 in principal amount of 10%
Convertible Notes of the Company (the "Convertible Notes"), (ii) an estimated
631,644 Common Shares that may be issued as interest on the Convertible Notes at
the option of the Company in lieu of cash interest (the "Interest Shares"),
(iii) an estimated 4,311,294 Common Shares issuable upon conversion of
17
<PAGE> 18
186 Series C Convertible Preferred Shares of the Company (the "Series C
Shares"), (iv) 2,450,000 Common Shares underlying Warrants of the Company (the
"Warrants"), and (v) 1,542,460 outstanding Common Shares (the "Outstanding
Shares"). Because the conversion price of the Convertible Notes and the Series C
Shares is related to the market price of the Common Shares at the time of
conversion and the issuance price of the Interest Shares is related to the
market price of the Common Shares at the time of issuance and because there may
be antidilution adjustments to the exercise price of the Convertible Notes, the
Series C Shares and the Warrants and antidilution adjustments to 269,349 of the
Outstanding Shares, the number of Common Shares which are subject to the
Registration Statement is indeterminate and the Registration Statement relates
to the resale by the Selling Shareholders of such entire indeterminate number of
Shares.
The Company is in default under the Handel Note assumed in connection with the
acquisition of Capitol Metals (the "Capitol Acquisition") and has an obligation
to repay $450,000 plus accrued interest on such Note. The Company is also in
default under a $300,000 Note issued in connection with the Capitol Acquisition
(the "BINHAD Note"). The Handel Note and the BINHAD Note are subordinate to the
Congress Facility. No action may be commenced on the Handel Note or the BINHAD
Note until October 12, 1998 and January 12, 1999, respectively. Failure to cure
such default on such dates will constitute an event of default under the
Congress Facility and the Convertible Notes.
The Company has filed a claim against BINHAD for certain breaches of
representations and warranties by BINHAD in connection with the Capitol
Acquisition. The Company intends to offset such damages against amounts
outstanding under the BINHAD Note.
The Company plans to engage in strategic acquisitions. As these investment are
identified and funds are needed to complete such acquisitions, funding for such
acquisitions will be necessary.
The Company will be required to obtain additional lines of credit and make
periodic public offerings or private placements for working capital purposes in
order to meet the liquidity needs of the business and to fund the repayment of
the Handel Note. The Company believes that the funds raised from the sale of the
Series C Preferred Shares, the sale of the Convertible Notes, operating cash
flows of the Company, funds available under the Congress Facility and funds
raised in an equity offering will provide adequate resources to fund ongoing
operating requirements and future capital expenditures for the next twelve
months. There can be no assurances that financing sources will be available to
the Company in sufficient amounts or on acceptable terms. Under such
circumstances, the Company would expect to operate the business within the
financing available.
Readiness for Year 2000
The Company is in the process of upgrading its information systems. The new
systems, which will be installed during 1998 are used by both Capitol and
Angeles, and are designed to be compatible for the Year 2000 and beyond. The new
systems will also provide management with better information, on a more timely
basis. The costs of the Company's Year 2000 compliance efforts are being funded
with cash flows from operations. These costs are not expected to have a material
adverse effect on the Company's results of operations or cash flows.
18
<PAGE> 19
SFAS No. 130 "Reporting Comprehensive Income" and SFAS No. 131 "Disclosure About
Segments of an Enterprise and Related Information" are effective for fiscal
years beginning after December 15, 1997. The Company has complied with these
pronouncements and has determined there is no material impact for the six months
ended June 30, 1998.
SAFE HARBOR STATEMENT
The Private Securities Litigation Reform Act of 1995 provides a new "safe
harbor" for certain forward-looking statements. Statements contained in this
report that are not historical facts are forward looking statements that involve
risks and uncertainties that could cause actual results to differ materially
from those stated in the forward-looking statements. Factors that could cause
actual results to differ materially include, among others: general economic
conditions, changes in laws and government regulations, fluctuations in demand
for the Company's products, the Company's ability to consummate strategic
acquisitions and the Company's ability to successfully finance any such future
acquisitions, as well as its current ongoing operations.
19
<PAGE> 20
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits to be filed:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
4.4 Form of Warrants to Purchase 200,000 Common Shares at
$2.00.
10.61 Amendment No. 1 to 10% Convertible Notes due April 9,
1999.
27.1 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K on August
5, 1998 to report the withdrawal of the offer to purchase
Form Tech Steel, Inc.
20
<PAGE> 21
SIGNATURE
Pursuant to the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Consolidated Capital of North
America, Inc.
(Registrant)
Date: August 18, 1998 By: /s/ PAUL BAGLEY
----------------------------------
Paul Bagley
Chief Executive Officer
(Principal Executive Officer)
By: /s/ CARL CASARETO
----------------------------------
Carl Casareto
Chief Financial Officer (Principal
Financial and Accounting Officer)
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
4.4 Form of Warrants to Purchase 200,000 Common Shares at
$2.00.
10.61 Amendment No. 1 to 10% Convertible Notes due April 9,
1999.
27.1 Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 4.4
Form of Warrants to Purchase
200,000 Common Shares at $2.00.
THE WARRANTS REPRESENTED BY THIS CERTIFICATE ("WARRANTS") AND THE UNDERLYING
WARRANT SHARES ("WARRANT SHARES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE WARRANTS AND WARRANT
SHARES MAY NOT BE OFFERED OR SOLD UNLESS THE OFFER AND SALE OF THE WARRANTS AND
WARRANT SHARES HAS BEEN REGISTERED UNDER THE SECURITIES ACT OR AN EXEMPTION
FROM SUCH REGISTRATION IS AVAILABLE, AS EVIDENCED BY AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY.
WARRANTS TO PURCHASE COMMON STOCK NO. 19
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC., a Colorado corporation
(the "Company") hereby grants to INTERNATIONAL INVESTOR RELATIONS GROUP, INC.
(the "Holder") Two Hundred Thousand (200,000) warrants (the "Warrants") for the
purchase of common stock of the Company (the "Common Stock"), with each whole
Warrant entitling the Holder to purchase one share of Common Stock (each a
"Warrant Share" and collectively the "Warrant Shares") on the terms and subject
to the conditions set forth herein.
1. TERM. The Warrants may be exercised, in whole or in part, at
any time and from time to time from the date hereof until 5:00 p.m. Eastern
Time on March 18, 2000 (the "Exercise Period").
2. EXERCISE PRICE. The initial exercise price of each whole
Warrant shall be $2.00 (the "Exercise Price"). The Exercise Price shall be
subject to adjustment as provided in Section 7.
3. EXERCISE OF WARRANTS. The Warrants are exercisable on the
terms provided herein at any time during the Exercise Period by the surrender
of this certificate to the Company at its principal office together with the
Notice of Exercise annexed hereto duly completed and executed on behalf of the
Holder, accompanied by payment in full, in immediately available funds, of the
amount of the aggregate Exercise Price of the Warrant Shares being purchased
upon such exercise. The Holder shall be deemed the record owner of such
Warrant Shares as of and from the close of business on the date on which this
certificate is surrendered together with the completed Notice of Exercise and
payment in full as required above (the "Exercise Date"). The Company agrees
that the Warrant Shares so purchased shall be issued as soon as practicable
thereafter.
4. WARRANTS CONFER NO RIGHTS OF STOCKHOLDER. The Holder shall
not have any rights as a stockholder of the Company with regard to the Warrant
Shares prior to the Exercise Date for any actual purchase of Warrant Shares.
5. INVESTMENT REPRESENTATION. Neither the Warrants nor the
Warrants Shares issuable upon the exercise of the Warrants have been registered
under the Securities Act or any
<PAGE> 2
state securities laws. The Holder acknowledges by acceptance of this
certificate that, as of the date of this Warrant and at the time of exercise,
(a) the Holder has acquired the Warrants or the Warrant Shares, as the case may
be, for investment and not with a view to distribution; and either (b) the
Holder has a pre-existing personal or business relationship with the Company or
its executive officers, or by reason of the Holder's business or financial
experience the Holder has the capacity to protect the Holder's own interests in
connection with the transaction; and (c) the Holder is an accredited investor
as that term is defined in Rule 501(a) of Regulation D under the Securities
Act. The Holder, by acceptance of this certificate, consents to the placement
of a restrictive legend (the "Legend") on the certificates representing any
Warrant Shares that are purchased upon exercise of the Warrants during the
applicable restricted period under the Securities Act. The Legend shall be in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SHARES") HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR UNDER ANY STATE SECURITIES LAWS ("STATE LAWS")
OR ANY SECURITIES LAWS OF JURISDICTIONS OUTSIDE OF THE UNITED STATES,
AND MAY NOT BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER THE SECURITIES ACT
COVERING THE SECURITIES, OR UPON DELIVERY TO THE COMPANY OF AN OPINION
OF U.S. COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT THE
SECURITIES MAY BE TRANSFERRED WITHOUT REGISTRATION PURSUANT TO RULE
144 PROMULGATED UNDER THE SECURITIES ACT OR ANY OTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS
OF THE SECURITIES ACT.
6. RESERVATION OF SHARES. The Company agrees that, at all times
during the Exercise Period, the Company will have authorized and reserved, for
the exclusive purpose of issuance and delivery upon exercise of the Warrants, a
sufficient number of shares of its Common Stock to provide for the issuance of
the Warrant Shares.
7. ADJUSTMENT FOR CHANGES IN CAPITAL STOCK. If the Company at
any time during the Exercise Period shall, by subdivision, combination or
reclassification of securities, change any of the securities into which the
Warrants are exercisable into the same or a different number of securities of
any class or classes, the Warrants shall thereafter entitle the Holder to
acquire such number and kind of securities as would have been issuable as a
result of such change with respect to the Warrant Shares as if the Warrant
Shares had been outstanding immediately prior to such subdivision, combination,
or reclassification. If shares of the Company's Common Stock are subdivided
into a greater number of shares of Common Stock, the Exercise Price for the
Warrant Shares upon exercise of the Warrants shall be proportionately reduced
and the number of Warrant Shares shall be proportionately increased; and
conversely, if shares of the Company's Common Stock are combined into a smaller
number of shares of Common Stock, the Exercise
<PAGE> 3
Price shall be proportionately increased, and the number of Warrant Shares
shall be proportionately decreased.
8. REGISTRATION UNDER THE SECURITIES ACT OF 1933.
(a) Definitions. The following terms, when used herein,
shall have the meanings set forth below:
(i) "Commission" shall mean the Securities and
Exchange Commission or any other federal agency at the time
administering the Securities Act.
(ii) "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended.
(iii) The term "register", "registered", and
"registration" shall refer to a registration effected by
preparing and filing a registration statement or similar
document in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration
statement or document.
(b) Piggyback Registration. If (but without any
obligation to do so) the Company proposes to register (including for
this purpose a registration effected by the Company for shareholders
other than the Holder) any of its Common Stock in connection with the
public offering of such securities solely for cash (other than a
registration relating solely to the sale of securities to participants
in a Company stock plan, or a registration on any form which does not
include substantially the same information, other than information
related to the selling shareholders or their plan of distribution, as
would be required to be included in a registration statement covering
the sale of the Registrable Securities), the Company shall, at such
time, promptly give the Holder written notice of such registration.
Upon the written request of the Holder given within twenty (20) days
after mailing of such notice by the Company, the Company shall,
subject to the provisions of Section 8(i), cause to be registered
under the Securities Act all of the Registrable Securities that such
Holder has requested to be registered.
(c) Obligations of the Company. Whenever the Holder has
requested that any the Registrable Securities be registered pursuant
to this Section 8, the Company shall, as expeditiously as reasonably
possible:
(i) Prepare and file with the Commission a
registration statement with respect to such Registrable
Securities and use its best efforts to cause such registration
statement to become effective, and, upon the request of the
Holder keep such registration statement effective for up to
ninety (90) days.
(ii) Prepare and file with the Commission such
amendments and supplements to such registration statement and
the prospectus used in connection
<PAGE> 4
with such registration statement as may be necessary to comply
with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration
statement.
(iii) Furnish to the Holder such numbers of copies
of a prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and
such other documents as the Holder may reasonably request in
order to facilitate the disposition of Registrable Securities
owned by the Holder.
(iv) Use its best efforts to register and qualify
the securities covered by such registration statement under
such other securities or Blue Sky laws of such jurisdictions
as shall be reasonably requested by the Holder, provided that
the Company shall not be required to qualify to do business or
to file a general consent to service or process in any such
states of jurisdictions.
(v) In the event of any underwritten public
offering, enter into and perform its obligations under an
underwriting agreement, in usual and customary form, with the
managing underwriter of such offering. If the Holder
participates in such underwriting the Holder shall also enter
into and perform its obligations under such agreement.
(vi) Notify the Holder at any time when a
prospectus relating to the Registrable Securities covered by
such registration statement is required to be delivered under
the Act of the happening of any event as a result of which the
prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in
the light of the circumstances then existing.
(d) Furnish Information. It shall be a condition
precedent to the obligations of the Company to take any action
pursuant to the Section 8 with respect to the Registrable Securities
of the Holder that the Holder shall furnish to the Company such
information regarding itself, the Registrable Securities held by it,
and the intended method of disposition of such securities as shall be
required to effect the registration of the Holder's Registrable
Securities.
(e) Expenses of Registration. The Company shall bear and
pay all expenses incurred in connection with any registration, filing
or qualification of Registrable Securities with respect to the
registrations pursuant to this Section 8, for the Holder, including
(without limitation) all registration, filing, and qualification fees,
printers and accounting fees relating or allocable thereto and the
fees and disbursements of counsel for the Company, but excluding
underwriting discounts and commissions relating to Registrable
Securities.
<PAGE> 5
(f) Underwriting Requirements. In connection with any
offering involving an underwriting of shares being issued by the
Company, the Company shall not be required to include any of the
Holder's securities in such underwriting unless the Holder accepts the
terms of the underwriting as agreed upon between the Company and the
underwriters selected by it, and then only in such quantity as will
not, in the opinion of the underwriters, jeopardize the success of the
offering by the Company. If the total amount of securities, including
Registrable Securities, requested by shareholders to be included in
such offering exceeds the amount of securities sold other than by the
Company that the underwriters reasonably believe compatible with the
success of the offering, then the Company shall be required to include
in the offering only that number of such securities, including
Registrable Securities, which the underwriters believe will not
jeopardize the success of the offering (the securities so included to
be apportioned pro rata among the selling shareholders according to
the total amount of securities entitled to be included therein owned
by each selling shareholder or in such other proportion as shall
mutually be agreed to by such selling shareholders). For purposes of
the preceding parenthetical concerning apportionment, for any selling
shareholder which is a holder of Registrable Securities and which is a
partnership or corporation, the partners, retired partners and
shareholders of such holder, or the estates and family members of any
such partners and retired partners and any trusts for the benefit of
any of the foregoing persons shall be deemed to be a single "selling
shareholder," and any pro-rata reduction with respect to such "selling
shareholder" shall be based upon the aggregate amount of shares
carrying registration rights owned by all entities and individuals
included in such "selling shareholder," as defined in this sentence.
(g) Delay of Registration. No Holder shall have any
right to obtain or seek an injunction restraining or otherwise
delaying any such registration as the result of any controversy that
might arise with respect to the interpretation or implementation of
this Agreement.
(h) Indemnification. In the event any Registrable
Securities are included in a registration statement under this
Agreement:
(i) To the extent permitted by law, the Company
will indemnify and hold harmless the Holder, any underwriter
(as defined in the Securities Act) for the Holder and each
person, if any, who controls the Holder or underwriter within
the meaning of the Securities Act or the Exchange Act, against
any losses, claims, damages or liabilities (joint or several)
to which they may become subject under the Securities Act, the
Exchange Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration
statement, including any
<PAGE> 6
preliminary prospectus (but only if such is not corrected in
the final prospectus) contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein,
or necessary to make the statements therein not misleading
(but only if such is not corrected in the final prospectus),
or (iii) any violation or alleged violation by the Company in
connection with the registration of Registrable Securities of
the Securities Act, the Exchange Act, any state securities law
or any rule or regulation promulgated under the Securities
Act, the Exchange Act or any state securities law; and the
Company will pay to the Holder, and any underwriter or
controlling person, as incurred, any legal or other expenses
reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement
contained in this Section 8(h)(i) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability,
or action if such settlement is effected without the consent
of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case
for any such loss, claim damage, liability, or action to the
extent that it arises out of or is based upon a violation
which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with
such registration by the Holder, or any underwriter or
controlling person of the Holder.
(ii) To the extent permitted by law, the Holder
will indemnify and hold harmless the Company, each of its
directors, each of its officers who has signed the
registration statement, each person, if any, who controls the
Company within the meaning of the Securities Act, any
underwriter, any other shareholder selling securities in such
registration statement and any controlling person of any such
underwriter or other shareholder, against any losses, claims,
damages, or liabilities (joint or several) to which any of the
foregoing persons may become subject, under the Securities
Act, the Exchange Act or other federal or state law, insofar
as such losses, claims, damages, or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation,
in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with
written information furnished by the Holder expressly for use
in connection with such registration; and the holder will pay,
as incurred, any legal or other expenses reasonably incurred
by any person intended to be indemnified pursuant to this
Section 8(h)(ii), in connection with investigating or
defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in
this Section 8(h)(ii) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of
the Holder, which consent shall not be unreasonably withheld;
provided, that, in no event shall any indemnity under this
Section 8(h)(ii) exceed the gross proceeds from the offering
received by the Holder.
<PAGE> 7
(iii) Promptly after receipt by an indemnified
party under this Section 8(h) of notice of the commencement of
any action (including any governmental action), such
indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 8(h),
deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the
right to participate in, and, to the extent the indemnifying
party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel
mutually satisfactory to the parties; provided, however, that
an indemnified party shall have the right to retain its own
counsel, with the fees and expenses to be paid by the
indemnifying party, if representation of such indemnified
party by the counsel retained by the indemnifying party would
be inappropriate due to actual or potential differing
interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure
to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action, if
prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the
indemnified party under this Section 8(h), but the omission so
to deliver written notice to the indemnifying party will not
relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 8(h).
9. ASSIGNMENT OF REGISTRATION RIGHTS. The registration rights
granted hereunder may be assigned by the Holder to a transferee or assignee of
the Registrable Securities; provided, however, the Company is, within a
reasonable time after such transfer, furnished with written notice of the name
and address of such transferee or assignee and the securities with respect to
which such registration rights are being assigned; and provided, further, that
such assignment shall be effective only if immediately following such transfer
the further disposition of such securities by the transferee or assignee is
restricted under the Securities Act.
10. LOSS, THEFT, DESTRUCTION OR MUTILATION OF CERTIFICATE. Upon
receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of any certificate representing the Warrants
or the Warrant Shares (referred to herein as the "original certificate"), and
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to the Company, and upon reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the original certificate if mutilated, the Company will make and deliver a new
certificate of like tenor in lieu of the original certificate.
11. GENERAL. This certificate shall be governed by and construed
in accordance with the laws of the State of Colorado applicable to contracts
between Colorado residents entered into and to be performed entirely within the
State of Colorado. The headings herein are for purposes of convenience and
reference only and shall not be used to construe or interpret the terms of this
certificate. The terms of this certificate may be amended, waived, discharged
or terminated only by a written instrument signed by both the Company and the
Holder. All notices and other
<PAGE> 8
communications from the Company to the Holder shall be mailed by first-class
registered or certified mail, postage pre- paid, to the address furnished to
the Company in writing by the last Holder who shall have furnished an address
to the Company in writing.
Dated: August 10, 1998
CONSOLIDATED CAPITAL OF NORTH
AMERICA, INC.
By: /s/ Donald R. Jackson
---------------------------------------
Donald R. Jackson
Secretary and Treasurer
<PAGE> 9
NOTICE OF EXERCISE
Dated ,
--------------- --------
The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing _______ shares of Common Stock and hereby
makes payment of ____________________ in payment of the actual exercise price
thereof.
--------------------------
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name
-----------------------------------------------------------
(Please typewrite or print in block letters)
Signature
-----------------------------------
--------------------------
ASSIGNMENT FORM
FOR VALUE RECEIVED, _______________________________________ hereby
sells, assigns and transfer unto
Name
-----------------------------------------------------------
(Please typewrite or print in block letters)
Address
---------------------------------------------------------
the right to purchase Common Stock represented by this Warrant to the extent of
________ shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint ______________________ Attorney, to transfer
the same on the books of the Company with full power of substitution in the
premises.
Dated ,
--------------- --------
Signature
- -------------------------
Signature Guaranteed
- ------------------------
<PAGE> 1
EXHIBIT 10.61
Amendment No. 1 to 10% Convertible
Notes due April 9, 1999.
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
AMENDMENT NO. 1 TO 10% CONVERTIBLE NOTES
Amendment made this 11th day of August, 1998 to the 10% Convertible
Notes of Consolidated Capital of North America, Inc., a Colorado corporation
(the "Company").
WITNESSETH
WHEREAS, the Company issued 10% Convertible Notes in an aggregate
principal amount of $4,000,000 prior to June 16, 1998 represented by Note
Certificates 1-11;
WHEREAS, the Company issued 10% Convertible Notes in an aggregate
principal amount of $1,000,000 represented by Note Certificate 12 and dated
June 16, 1998;
WHEREAS, the Company has agreed to amend the terms of the 10%
Convertible Notes represented by Note Certificates 1-11 to conform to the terms
of Note Certificate 12 so as to benefit the holders of Note Certificates 1-11
with the same default terms contained in Note Certificate 12;
NOW THEREFORE, in consideration of the foregoing, the Company hereby
amends the 10% Convertible Note Certificates 1-11 as follows:
1. The 10% Convertible Note Certificates 1-11 are hereby amended
and restated so that Section 5 shall read as follows, in its entirety:
"5. DEFAULT. The Company shall be in default under this
Note upon the occurrence of: (i) any of the events specified in
Section 5(a) hereof and the failure to cure such default within ten
(10) days after receipt of written notice thereof from the Noteholder;
(ii) any of the events specified in Section 5(b) or 5(d) hereof and
the failure to cure such default within twenty (20) days after receipt
of written notice thereof from the Noteholder; or (iii) any of the
events specified in Section 5(c) hereof (any of the foregoing being an
"Event of Default"):
(a) Failure to make any principal or interest
payment required under this Note on the due date of such
payment;
(b) Any material default, breach or
misrepresentation shall occur under the terms and provisions
of the Note Purchase Agreement;
(c) Insolvency of, business failure of, or an
assignment for the benefit of creditors by or the filing of a
petition under bankruptcy, insolvency or debtor's relief law,
or for any readjustment of indebtedness,
<PAGE> 2
composition or extension by the Company, or commenced against
the Company which is not discharged within sixty (60) days;
(d) Any obligation of the Company for the payment
of borrowed money in excess of $50,0000 becomes or is declared
to be due and payable prior to its stated maturity."
2. All other terms of the 10% Convertible Notes shall remain
unchanged.
IN WITNESS WHEREOF, the Company has executed this Amendment as of the
date set forth above.
CONSOLIDATED CAPITAL OF
NORTH AMERICA, INC.
By: /s/ Donald R. Jackson
--------------------------
Donald R. Jackson
Secretary and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM
10-QSB FOR THE QUARTER ENDED JUNE 30,1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 752,258
<SECURITIES> 0
<RECEIVABLES> 3,204,751
<ALLOWANCES> 254,500
<INVENTORY> 3,812,282
<CURRENT-ASSETS> 8,977,048
<PP&E> 6,298,237
<DEPRECIATION> 577,598
<TOTAL-ASSETS> 18,169,324
<CURRENT-LIABILITIES> 11,492,899
<BONDS> 6,510,105
2,000,000
1,193,000
<COMMON> 1,895
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 18,169,324
<SALES> 10,363,227
<TOTAL-REVENUES> 10,363,227
<CGS> 8,861,309
<TOTAL-COSTS> 8,861,309
<OTHER-EXPENSES> 3,430,243
<LOSS-PROVISION> 20,000
<INTEREST-EXPENSE> 1,855,920
<INCOME-PRETAX> (6,129,301)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,129,301)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,129,301)
<EPS-PRIMARY> (.39)
<EPS-DILUTED> (.39)
</TABLE>
