<PAGE>
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, 1999
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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 _____________
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
- ------------------------------- --------------------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
410 17th Street, Suite 400
Denver, Colorado 80202
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(Address of principal executive offices)
888-313-8051
-------------------------
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: 58,147,628 shares of $.0001
per share common stock as of July 22, 1999.
Transitional Small Business Disclosure Format (check one): Yes No X
---- ----
<PAGE>
Consolidated Capital of North America, Inc.
Quarterly Report on Form 10-QSB for the
Quarter Ended June 30, 1999
Table of Contents
-----------------
<TABLE>
<CAPTION>
Page
----
Part I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets - June 30, 1999
and December 31, 1998 3
Consolidated Statements of Operations for the
three months ended June 30, 1999 and 1998 5
Consolidated Statement of Operations for the
six months ended June 30, 1999 and 1998 6
Consolidated Statements of Cash Flows for the
six months ended June 30, 1999 and 1998 7
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 16
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 20
</TABLE>
2
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
ASSETS June 30, December 31,
1999 1998
------------- ------------
(unaudited)
<S> <C> <C>
Cash $ 3,411 $ 48,466
Accounts receivable less allowance
for doubtful accounts of $217,468 in 1998 5,169,307 6,853,720
Inventories 2,341,947 4,872,424
Deferred loan costs - 290,082
Prepaid expenses and other 310,707 554,505
Property and equipment, net of
accumulated depreciation of $733,522 in 1998 - 11,512,793
Property and equipment held for sale 4,002,467 875,000
Goodwill, net of accumulated amortization
$461,795 in 1998 - 3,217,002
Other assets - 1,531,004
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Total assets $11,827,839 $29,754,996
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
CONSOLIDATED BALANCE SHEETS - CONTINUED
JUNE 30, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' June 30, December 31,
DEFICIT 1999 1998
----------- ------------
(unaudited)
<S> <C> <C>
Accounts payable $11,162,844 $11,689,881
Line of credit 3,645,280 5,646,748
Accrued liabilities 1,259,932 547,111
Current portion of long-term debt 7,673,010 7,505,509
Current portion of capital lease obligations 728,767 193,895
Convertible notes payable to affiliates 2,075,000 2,075,000
18% note payable 1,250,000 -
10% convertible notes payable 2,000,000 2,173,000
18% convertible notes payable 1,550,000 1,473,460
Current portion of other notes payable 1,300,000 1,480,000
Other 19,097 34,762
Capital lease obligations, net of current portion - 663,216
Accrued interest and other 100,000 317,266
Accrued dividends on preferred shares 214,745 150,702
----------- ------------
Total liabilities 32,978,675 33,950,550
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SHAREHOLDERS' DEFICIT
Series A preferred shares, par value of $.01 per share; liquidation value
of $1.00 per share; 1,000,000 shares authorized; 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;
1,000,000 shares authorized; 449,000 shares
issued and outstanding 449,000 449,000
Common shares, par value $.0001 per share;
200,000,000 shares authorized; 58,147,628
and 48,079,839 shares issued and outstanding at
June 30, 1999 and December 31, 1998, respectively 5,815 4,808
Additional paid-in capital 15,629,722 13,451,494
Accumulated deficit (37,979,373) (18,844,856)
---------- ----------
Total shareholders' deficit (21,150,836) (4,195,554)
----------- ------------
$11,827,839 $29,754,996
----------- ------------
----------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998
(unaudited)
<TABLE>
1999 1998
------------ -----------
<S> <C> <C>
NET SALES $12,239,883 $4,823,721
COST OF GOODS SOLD 10,899,100 3,956,230
------------ -----------
Gross profit 1,340,783 867,491
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OPERATING EXPENSES
Selling, general and administrative expenses 1,883,625 1,558,986
Payroll and related benefits 1,283,727 842,010
Depreciation and amortization 372,536 297,100
------------ -----------
Total expenses 3,539,888 2,698,096
------------ -----------
Loss from operations (2,199,105) (1,830,605)
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OTHER INCOME (EXPENSE)
Interest expense (1,637,685) (1,380,662)
Other 81,806 11,509
Estimated loss in liquidation (12,294,362) -
Termination of an acquisition (263,446) (946,547)
------------ -----------
(14,113,687) (2,315,700)
------------ -----------
NET LOSS (16,312,792) (4,146,305)
Preferred share dividends ( 35,790) (65,790)
------------ -----------
(16,348,582) (4,212,095)
Discount attributable to conversion value of
preferred shares and warrants - (325,204)
------------ -----------
Loss applicable to common shareholders $(16,348,582) $(4,537,299)
------------ -----------
------------ -----------
Basic and diluted loss per share $ (.28) $ (.24)
------------ -----------
------------ -----------
Weighted average number of
common shares outstanding 57,834,223 18,676,855
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(unaudited)
<TABLE>
<S> <C> <C>
NET SALES $25,056,790 $10,363,227
COST OF GOODS SOLD 21,978,573 8,861,309
------------ ------------
Gross profit 3,078,217 1,501,918
------------ ------------
OPERATING EXPENSES
Selling, general and administrative expenses 3,755,530 2,985,599
Payroll and related benefits 2,523,366 1,441,556
Depreciation and amortization 742,757 525,006
------------ ------------
Total expenses 7,021,653 4,952,161
------------ ------------
Loss from operations (3,943,436) (3,450,243)
------------ ------------
OTHER INCOME (EXPENSE)
Interest expense (2,925,157) (1,855,920)
Other 291,883 123,409
Estimated loss in liquidation (12,294,362) -
Termination of an acquisition (263,446) (946,547)
------------ ------------
(15,191,082) (2,679,058)
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NET LOSS (19,134,518) (6,129,301)
Preferred share dividends (71,580) (108,813)
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(19,206,098) (6,238,114)
Discount attributable to conversion value of
preferred shares and warrants - (761,917)
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Loss applicable to common shareholders $(19,206,098) $(7,000,031)
------------- ------------
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Basic and diluted loss per share $ (.34) $ (.39)
------------- ------------
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Weighted average number of
common shares outstanding 56,291,430 18,171,869
------------- ------------
------------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(unaudited)
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(19,134,518) $(6,129,301)
Adjustments to reconcile net loss to net cash
used in operations:
Estimated loss in liquidation 12,294,362 -
Amortization and depreciation 742,757 525,006
Amortization of loan fees 1,262,033 567,865
Provision for doubtful accounts 153,697 70,497
Discount attributable to conversion value of
convertible notes 95,440 695,356
Common shares issued for consulting fees - 477,625
Value of options granted to non-employees and others (24,941) 873
Change in assets and liabilities:
Accounts receivable 1,529,811 143,254
Inventories 2,530,477 (462,562)
Prepaid expenses and other (267,440) (229,892)
Deferred loan costs (13,964) (48,929)
Other assets 405,161 559,246
Accounts payable, accrued liabilities and other 3,129,764 (491,570)
-------------- --------------
Net cash provided by (used in) operating activities 2,702,639 (4,322,532)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of businesses, net of cash acquired - (1,750,000)
Purchase of property and equipment (15,384) (260,165)
Purchase of certificate of deposit restricted -
against long-term obligations - (250,000)
-------------- --------------
Net cash used in investing activities (15,384) (2,260,165)
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(unaudited)
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings $23,939,955 $15,217,176
Principal payments on borrowings (27,607,254) (16,068,345)
Proceeds from issuance of 10% convertible notes, net - 4,445,127
Payment of notes payable (346,667) -
Payment of notes payable to affiliates - (225,000)
Short-term borrowings 1,250,000 1,714,286
Repayment of capital lease obligation (128,344) -
Proceeds from issuance of redeemable preferred shares, net - 1,859,640
Proceeds from sale of common share purchase warrants - 385,000
Proceeds from issuance of common shares 160,000 -
Dividends - (7,233)
------------- -------------
Net cash (used in) provided by financing activities (2,732,310) 7,320,651
------------- -------------
NET (DECREASE) INCREASE IN CASH (45,055) 737,954
CASH AT BEGINNING OF PERIOD 48,466 14,304
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CASH AT END OF PERIOD $ 3,411 $ 752,258
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SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the period for interest $ 800,710 $ 480,535
------------- -------------
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NONCASH FINANCING ACTIVITIES:
Issuance of common shares for:
Consulting fees $ 292,627 $ 724,221
------------- -------------
------------- -------------
Loan cost $ 183,152 $ 685,715
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Accrued interest $ 18,900 $ -
------------- -------------
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Business acquisition $ - $ 300,000
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Settlement of an amount due to vendors and others $ 1,085,000 $ 296,842
------------- -------------
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Conversion of 10% convertible notes payable and
accrued interest $ 277,455 $ -
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Cumulative dividends of preferred shares $ 71,580 $ 101,580
------------- -------------
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Issuance of promissory note to a vendor $ 2,000,000 $ -
------------- -------------
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BUSINESS ACQUISITIONS:
Assets acquired $ - $ 8,114,162
Liabilities incurred or assumed - (6,064,162)
Common shares issued - (300,000)
------------- -------------
Cash used in business acquisitions $ - $ 1,750,000
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(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 which, in the opinion of management, are necessary to
fairly present the financial position of the Company as of June 30, 1999 and
the results of its operations and its cash flows for the six months then
ended. The results of operations for this interim period are not necessarily
indicative of results to be expected for the full year. Subsequent to June
30, 1999, the Company entered into negotiations with its secured lenders to
start the process of disposing of the assets of all of the Company's wholly
owned operating subsidiaries, the Company has measured its assets at the
estimated amount of cash to be received from the liquidation and will report
changes in estimations when they are known.
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, 1998. Certain prior period amounts have been
reclassified to conform with the current period presentation.
2. LIQUIDATION
Subsequent to June 30, 1999, the Company entered into negotiations with its
lenders to start the process of disposing of the assets of the Company's
wholly owned operating subsidiaries. Since the secured lenders stopped
funding advances under the various loan agreements, the Company was forced to
lay-off employees and cease operations. The Company is currently reviewing
offers to sell the assets of all of the subsidiaries of the Company.
Therefore, the accompanying financial statements reflect the assets valued at
estimated net realizable value as of June 30, 1999. Since no agreements have
been reached with the creditors, all liabilities have been included at their
historic cost basis. The Company has estimated the realizable value of the
accounts receivable and inventories at the amounts reflected in the
historical cost accounting records. The realizable value of the machinery and
equipment has been estimated to be equal to the amount of secured debt
remaining after allowing for reduction in secured debt for receivables and
inventories. If the amounts realized from the sales of assets is greater than
estimated using this method, the additional proceeds will be used to reduce
the unsecured debts. It is at least reasonably possible that the amounts
expected to be realized in the liquidation process will change in the future.
Future reporting will reflect any changes in estimated values based upon the
most current information then available.
9
<PAGE>
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1999
(unaudited)
This initial adjustment of realizable value of the assets as of June 30, 1999
as compared to historic cost is as follows:
<TABLE>
<CAPTION>
Estimated
Liquidation Historical
Description of Assets Value Basis
- --------------------------------- ----------- -----------
<S> <C> <C>
Property and equipment $4,002,467 $11,823,719
Prepaid and other assets 310,707 1,551,114
Accounts receivable 5,169,307 5,169,307
Inventories 2,341,947 2,341,947
Goodwill - 3,034,271
Deferred loan costs - 197,527
Miscellaneous receivables - 905
Cash 3,411 3,411
----------- -----------
$11,827,839 $24,122,201
----------- -----------
----------- -----------
</TABLE>
3. NOTES PAYABLE
A. CURRENT DEBT
On January 12, 1998, the Company established a new financing facility with
Congress Financial Corporation ("Congress Financial"). The Congress Financial
facility consists of $3,443,000 in term loans, payable $57,384 per month,
through January 2003, and revolving lines of credit as determined as a
percentage of eligible accounts receivable and eligible inventories expiring
January 2000, less certain reserves as defined in the agreement. The facility
shall be hereafter referred to as the "Congress Facility". The maximum
borrowing permitted under the Congress Facility is $20,000,000 as defined in
the agreement. Interest is payable monthly at a certain bank's prime rate
plus 0.75% per annum (8.5% at June 30, 1999). All the advances under the new
Congress Facility are collateralized by all of the assets of Angeles and
Angeles Acquisition (Capitol) and are also guaranteed by the Company and CBS.
At June 30, 1999, $2,128,772 was outstanding under the term loan and $940,997
under the line of credit.
The Congress Facility contains a number of financial and other non-financial
covenants for both Angeles and Capitol and cross default provisions with the
Company's other note payable to certain unsecured creditors of $1,300,000
known as the "Binhad Note", all of which was outstanding at June 30, 1999.
Angeles and Capitol were not in compliance with these covenants and have not
received waivers. The
10
<PAGE>
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1999
(unaudited)
Congress Facility loan agreements were amended on February 1, 1999 and
provide, among other things, for a temporary increase (from February 1, 1999
through June 30, 1999) in interest rates from .75% to 1.75% per annum in
excess of the bank's prime rate. This amendment provides for additional
weekly principal payments of $17,400 for a eight-week period starting
February 1, 1999.
In connection with the Toledo Pickling acquisition, the Company assumed two
term loans with Finova. The first Finova term loan with an outstanding
balance of $2,301,601 at June 30, 1999 bears interest at 10.5% per annum and
is due on December 31, 2000. The second Finova term loan with an outstanding
balance of $304,282 at June 30, 1999 bears interest at 11% per annum and is
due on December 1, 2000. Each of the term loans contains restrictive
covenants and cross default provisions similar to those included in TPSS
Acquisition's line of credit agreement and is secured by the TPSS
Acquisition's machinery and equipment and is guaranteed by the Company and
the former President and shareholder of Toledo Pickling. At June 30, 1999,
TPSS Acquisition was not in compliance with these covenants and has not
received waivers. The loan balances were not refinanced or repaid on the
maturity date of April 12, 1999. The Company is subject to penalties in the
amount of $2,000 per day until the loans are refinanced.
During July 1999, the Company agreed with its secured lenders to start the
process of disposing of the assets of the Company's wholly owned operating
subsidiaries. Since the secured lenders also stopped funding advances under
the various loan agreements the Company was forced to lay-off employees and
cease operations.
B. LINE OF CREDIT
In connection with the Toledo Pickling acquisition, the Company assumed
outstanding borrowings under a line of credit with the National Bank of
Canada ("NBC") and Finova. The outstanding balance under the line of credit
at June 30, 1999 was $3,645,280. Under the financing arrangements with NBC
and Finova, a line of credit was available to TPSS Acquisition for borrowing
up to $23 million as defined. TPSS Acquisition is entitled to borrow up to
85% and 65% of its qualified accounts receivable and inventory, respectively,
or the available line, whichever is less. The obligation, which is repayable
on demand, is secured by the accounts receivable and inventory of TPSS
Acquisition is guaranteed by the Company and the former President and
shareholder of Toledo Pickling in the amount of $2.5 million plus all amounts
outstanding on the line of credit over $18 million. Interest on the line of
credit is calculated at 9.75% per annum and is payable monthly. The line of
credit contains certain financial and other covenants including a minimum net
worth requirement and a minimum ratio of liabilities to net worth, as well as
certain restrictions on capital expenditures, dividends and officers'
compensation. At June 30, 1999, TPSS Acquisition was not in compliance with
certain provisions of the covenants and has not received waivers. The line of
credit balance was not refinanced or repaid on the maturity date of April 12,
1999. The Company is subject to penalties in the amount of $2,000 per day
until the balance is refinanced or repaid.
11
<PAGE>
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1999
(unaudited)
During July 1999, the Company agreed with its secured lenders to start the
process of disposing of the assets of the Company's wholly owned operating
subsidiaries. Since the secured lenders also stopped funding the advances
under the various loan agreements, the Company was forced to lay-off
employees and cease operations.
C. 10% CONVERTIBLE NOTES PAYABLE
The Company issued and sold, in private placements, an aggregate of
$5,000,000 of its 10% convertible notes payable (collectively, the "10%
Notes") during the second quarter of 1998, pursuant to the terms of a Note
Purchase Agreement between the Company and the purchasers of the 10% Notes
(the "Note Purchase Agreement"). The proceeds from the issuance of the 10%
Notes were used for working capital. Interest is payable semi-annually on
October 1 and April 1 commencing October 1, 1998, until the principal is paid
in full. The original Maturity Date of the 10% Notes was April 9, 1999 (the
"Maturity Date"). In April 1999, the original Maturity Date was extended to
January 15, 2000. The Company has the right, at its sole option, to pay any
interest due on the 10% 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 10% 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 or (ii) one of 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 conversion date 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 the twenty trading days prior to conversion date. The conversion
price is subject to adjustment under specified anti-dilution provisions. As
of June 30, 1999 the holders of the 10% Notes have converted $3,000,000
($173,000 during January 1999) of the 10% Notes, thus leaving $2,000,000 of
the principal amount outstanding at June 30, 1999. During January 1999, the
Company issued 1,308,811 of its common shares for the conversion of $173,000
of the 10% Notes plus accrued interest of $4,729. Subsequent to June 30,
1999, the holders of the 10% Notes have converted $879,000 of the 10% Notes
into 19,259,813 of common shares of the Company. The maturity date of the
remaining outstanding 10% Notes has been extended to January 15, 2000. In
connection with such extension, in April 1999 the Company issued to the
holders of the $2 million outstanding 10% Notes warrants to purchase an
aggregate of 2,000,000 common shares at $.20 per share. These warrants expire
on March 6, 2004. The Company has agreed to promptly register the common
shares underlying the warrants with Securities and Exchange Commission.
During May 1999, 436,444 common shares were issued to the holders of the 10%
notes for interest due on April 1, 1999.
12
<PAGE>
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1999
(unaudited)
D. 18% CONVERTIBLE NOTES PAYABLE
In October 1998, the Company issued and sold, in a private placement, an
aggregate of $1,568,900 of its 18% convertible notes payable (the "18%
Notes"), pursuant to the terms of a Note Purchase Agreement between the
Company and Capital Fund Leasing, LLC, the purchaser of a 15% convertible
note of the Company. The 18% Notes were issued to refinance the principal and
accrued interest on the 15% convertible note which had been issued during
1998. The proceeds were used for working capital. Principal in the amount of
$18,900 was paid by the Company during January 1999 by issuing 157,500 common
shares of the Company based upon a price of $.12 per share. Interest on the
$1,550,000, computed at the rate of 18% per annum was paid on January 19,
1999, the original maturity date of the 18% Note (the "Maturity Date"). The
Company has issued to the noteholder 800,000 common shares as additional
consideration in connection with the issuance of the 18% Notes. The Company
had the option to extend the Maturity Date for two additional ninety days
periods by giving notice to the noteholder of such extension at least thirty
days prior to the original or extended Maturity Date, as applicable. The
Company extended the maturity date of the 18% Notes from January 19, 1999 to
April 19, 1999 and issued to Capital Fund Leasing 450,000 common shares in
January 1999. In addition, the Company also extended the Maturity Date from
April 19, 1999 to July 18, 1999 in March 1999 and issued Capital Fund Leasing
450,000 common shares in March 1999, in connection with the extension.
Capital Fund Leasing, the noteholder of $1,550,000 of Convertible 18% notes
payable extended the payment date through January 15, 2000. In connection
with such extension, the Company issued to Capital Fund Leasing warrants to
purchase 1,550,000 common Share at $.20 per share. The warrants will expire
on March 6, 2004. The Company has agreed to promptly register the common
shares underlying the warrant.
E. OTHER NOTES PAYABLE
In connection with the Capitol acquisition, Capitol issued to the unsecured
creditors of Old Capitol ("Binhad") $1,500,000 in promissory notes, bearing
interest at 9% per annum ("Binhad Note"). During April 1999, the unpaid
principal of the Binhad Notes of $1,300,000 was combined into a single note
which calls for a payment of $409,426 including accrued interest due on April
30, 1999 with monthly payment from May 15, 1999 through June 15, 2000 of
$67,707 plus interest at 10% annum. Payment was not made on April 30 and the
note is currently in default.
In connection with the recent acquisition of TPSS Acquisition, 4,784,689
common shares were issued during January 1999 to U.S. Steel Group of USX
Corporation ("USX") in satisfaction of Toledo Pickling's debt of $1,000,000.
The Company also issued a promissory note to USX in the amount of $2,000,000,
with interest at 8% per annum, payable quarterly in the amount of $166,667
including principal and interest beginning on March 1, 1999. The note is due
in full on December 1, 2001. The holder of this note may at any time prior to
maturity convert the principal amount thereof remaining outstanding into the
Company's common shares at the conversion ratio of $.209 of principal for one
common share, or an aggregate of 9,569,378 shares. The Company made the first
payment due on March 1, 1999 on the promissory note. Currently this note is
in default.
13
<PAGE>
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1999
(unaudited)
The Company received a $1,250,000 loan in connection with the TPSS
Acquisition from Security Income Trust L.P. ("SIT"), a privately-held company
controlled by a director and officer of the Company. The loan is evidenced by
a promissory note of the Company dated January 11, 1999, with an 18% annual
rate of interest payable in arrears together with the principal on July 10,
1999. The Company issued 1,000,000 common shares to SIT as additional
consideration for purchasing the note. The Company may, at its option, extend
the maturity date of the note for two successive ninety-day periods. In
consideration of and at the time of each such extension, the Company shall
issue to SIT 1,000,000 common shares of the Company.
The noteholders of the $1,750,000, $250,000 and $75,000 notes payable to
various affiliated entities extended the payment dates through January
15, 2000. As consideration for extending these maturity dates, the Company
issued warrants to purchase 1,750,000, 250,000 and 76,000 common shares of
the Company, respectively, at $.20 per share. The warrants will expire on
March 6, 2004. In May 1999, the Company also issued to the holder of the
$75,000 note payable, an additional 43,550 common shares in connection with
the extension of the maturity date of that note.
4. DIVIDENDS
As of June 30, 1999, the Company has a liability for the dividends accrued to
the preferred shareholders for the Series A and Series B preferred shares,
which amount to $133,920 and $80,825, respectively.
5. BASIC NET LOSS PER SHARE
Basic net loss per share in the accompanying consolidated financial
statements is calculated in accordance with SFAS No. 128. SFAS No. 128
requires that basic earnings per share be calculated based on weighted
average number of common shares outstanding for the period without giving
effect to outstanding common shares equivalents, while diluted earnings per
share considered the effect of common share equivalents on weighted average
number of common shares outstanding.
Common shares equivalents were not considered as they would be anti-dilutive.
The impact under the treasury stock method of dilutive stock options and
warrants would have been 340,389 and 937,255 common shares for the six months
ended June 30, 1999 and 1998, respectively
6. SUBSEQUENT EVENTS
Subsequent to June 30, 1999, the Company entered into negotiations with its
secured lenders to start the process of disposing of the assets of the
Company's wholly owned operating subsidiaries. Since the secured lenders also
stopped funding advances under the various loan agreements, the Company was
forced to lay-off employees and cease operations. The Company is currently
reviewing offers to sell the assets of all of the subsidiaries of the
Company. Therefore, the accompanying financial statements reflect the assets
valued at estimated realizable value as of June 30, 1999. Since no agreements
have been reached with the creditors, these liabilities have been included at
their historic cost basis. The Company has estimated realizable value of the
accounts
14
<PAGE>
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1999
(unaudited)
receivable and inventories at the amounts reflected in the historical cost
accounting records. The realizable value of the machinery and equipment has
been estimated to be equal to the amount of secured debt remaining after
allowing for reduction in secured debt for receivables and inventories. If
amounts realized from the sales of assets is greater than estimated using
this method, the additional proceeds will be used to reduce the unsecured
debts. It is at least reasonably possible that the amounts expected to be
realized in the liquidation process will change in the future. Future
reporting will reflect any changes in estimated values based upon the most
current information then available.
On August 12, 1999, Campbell Investors, FINOVA Capital Corp. and National
Bank of Canada filed a complaint against TPSS Acquisition Corporation
("TPSS") in the Court of Common Please of Lucas County, Ohio (Case No.
CI0199903672), seeking amounts allegedly due with respect to a lease
agreement and certain loan agreements which were assumed by TPSS. In
connection with that litigation, the Plaintiffs sought and, on August 20,
1999, received an Order appointing Ralph DeNune as receiver to take control
and dispose of TPSS's assets.
15
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto appearing elsewhere in this report.
RESULTS OF OPERATIONS
During the second quarter of 1999, the Company reported net sales of
$12,239,883 as compared with net sales for the second quarter of 1998 of
$4,823,721, representing an increase of 154%. The increase in net sales in
the second quarter of 1999 was primarily due to the inclusion of $9,897,585
of sales by TPSS Acquisition, which was acquired during December 1998. Sales
in the second quarter of 1999 for Angeles and Capitol operations decreased
from $4,823,721 in the second quarter of 1998 to $2,864,927 for 1999. This
decrease in net sales for Angeles and Capitol was mainly a result of
insufficient working capital to purchase steel necessary to produce products.
The decrease in sales for Capitol was also related to the discontinuation of
its steel sales business during the first quarter of 1999.
During the first six months of 1999, the Company reported net sales of
$25,056,790 as compared with net sales for the first six months of 1998 of
$10,362,227. Net sales during the six months of 1999 included $20,151,575 of
sales by TPSS Acquisition. Sales in the first half of 1999 for Angeles and
Capitol decreased to $5,262,344 in the first half of 1999 as compared to
$10,363,227 in the first half of 1998.
Cost of goods sold for all entities amounted to $10,899,100 for the second
quarter in 1999 resulting in a gross profit margin of 11% of net sales as
compared to 18% for the second quarter in 1998. The lower gross profit margin
resulted mainly from the inclusion of the operations of TPSS Acquisition
during this quarter. For the second quarter of 1999, TPSS Acquisition had a
lower gross profit margin than Angeles and Capitol on a combined basis. This
resulted in a lower gross profit in 1999 as compared to the same period in
1998.
Cost of goods sold for both entities amounted to $21,978,573 for the first
half of 1999 resulting in a gross margin of 12% of net sales for this period.
The gross profit for Angeles and Capitol for the first six months ended June
30, 1999 amounted to 14%. The decrease in gross profit percentage resulted
mainly from the inclusion of operations of TPSS Acquisition for the six
months ended June 30, 1999.
Operating expenses increased by $841,792, to $3,539,888 for the second
quarter of 1999 from $2,698,096 in the second quarter of 1998. The increase
is primarily attributable to the operating expenses from TPSS Acquisition.
Operating expenses for Angeles and Capitol for the second quarter of 1999
amounted to $1,719,146 as compared to the same period in 1998 of $4,276,896.
This decrease from 1998 to 1999 was a result of the decrease in selling,
general and administrative and payroll and related benefits.
Operating expenses increased by $2,069,492, to $7,021,653 for the first half
of 1999 from $4,952,161 in the first half of 1998. The increase is primarily
attributable to general and administrative expenses from TPSS Acquisition
which were not present in the comparable period in 1998. These expenses
included facilities, purchasing, accounting and administrative expenses
related to the TPSS Acquisition.
Interest expense increased by $257,023 to $1,637,685 in the second quarter of
1999 as compared to $1,380,662 in the second quarter of 1998. All of this
increase was non-cash charges to interest expense. This increase is the
result of the interest expense related to the various financing arrangements
entered into by the Company to
16
<PAGE>
provide working capital and the financing related to the acquisition of
Toledo Pickling. Interest expense increased by $1,069,237 to $2,925,157 for
the first half of 1999 as compared to $1,855,920 in the first half of 1998.
$701,013 of this increase is the result of interest expense incurred by TPSS
Acquisition in 1999. Since TPSS Acquisition was only acquired at the
beginning of 1999, there was no interest expense included in 1998.
As a result of the Company in the process of being liquidated a charge for
the estimated loss from liquidation of $12,294,362 is included as of June 30,
1999. For more details please refer to the accompanying notes to the
financial statements appearing elsewhere in this report.
The Company reported a net loss for the three months ended June 30, 1999 of
$16,312,792 as compared to a net loss of $4,146,305 for the same period in
1998. Of the net loss for the quarter, $12,294,362 is attributable to the
estimated loss in liquidation. The Company reported a loss for the three
months ended June 30, 1999 of $16,348,582 ($.28 per share) including the
preferred dividends of $35,790. For the quarter ended June 30, 1999 the
Company had 57,834,223 weighted average number of common shares outstanding
as compared to 18,676,855 common shares as of June 30, 1998.
The Company reported a net loss for the six months ended June 30, 1999 of
$19,134,518 as compared to a net loss of $6,129,301 for the same period in
1999. 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). The loss for the six months ended June 30, 1999 amounts to
$19,206,098 including dividends of $71,580 or a per share loss of $.34. As of
June 30, 1999, the Company had 56,291,430 weighted average number of common
shares outstanding as compared to 18,171,869 common shares outstanding as of
June 30, 1998.
17
<PAGE>
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
Cash flows provided by operations were $2,702,639 for the six months ended
June 30, 1999 as compared to $4,322,532 used in operations for the first six
months ended June 30, 1998. The increase in cash provided by operations for
the first half ended June 30, 1999 was a result of the impact of a decrease
in accounts receivable and inventory which provided additional cash for
operations. Cash flows used in financing activities for the first half of
1998 amounted to approximately $2.3 million as compared to cash used from the
same period in 1999 of approximately $15,000.
Subsequent to June 30, 1999, the Company entered into negotiations with its
secured lenders to start the process of disposing of the assets of the
Company's wholly owned operating subsidiaries. Since the secured lenders
stopped funding advances under the various loan agreements, the Company was
forced to lay-off employees and cease operations. The Company is currently
reviewing offers to sell the assets of all of the subsidiaries of the
Company. Therefore, the accompanying financial statements reflect the assets
valued at estimated net realizable value as of June 30, 1999. Since no
agreements have been reached with the creditors, all liabilities have been
included at their historic cost basis. The Company has estimated the
realizable value of the account receivables and inventories at the amounts
reflected in the historical cost accounting records. The realizable value of
the machinery and equipment has been estimated to be equal to the amount of
secured debt remaining after allowing for reduction in secured debt for
receivables and inventories. If the amounts realized from the sales of assets
is greater than estimated using this method, the additional proceeds will be
used to reduce the unsecured debts. It is at least reasonably possible that
the amounts expected to be realized in the liquidation process will change in
the future. Future reporting will reflect any changes in estimated values
based upon the most current information then available.
This initial adjustment of realizable value of the assets as of June 30,
1999 as compared to historic cost is as follows:
<TABLE>
<CAPTION>
Estimated
Liquidation Historical
Description of Assets Value Basis
- ----------------------------- ------------ -----------
<S> <C> <C>
Property and equipment $ 4,002,467 $11,823,719
Prepaid and other assets 310,707 1,551,114
Accounts receivable 5,169,307 5,169,307
Inventories 2,341,947 2,341,947
Goodwill - 3,034,271
Deferred loan costs - 197,527
Miscellaneous receivables - 905
Cash 3,411 3,411
------------ -----------
$11,827,839 $24,122,201
------------ -----------
------------ -----------
</TABLE>
18
<PAGE>
SAFE HARBOR STATEMENT
The Private Securities Litigation Reform Act of 1995 provides a "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, the Company's
ability to dispose of the assets of its wholly owned operating subsidiaries
and provide for the liquidation of the Company.
19
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.
On August 12, 1999, Campbell Investors, FINOVA Capital Corp. and National Bank
of Canada filed a complaint against TPSS Acquisition Corporation ("TPSS") in
the Court of Common Pleas of Lucas County, Ohio (Case. No. CI0199903672),
seeking amounts allegedly due with respect to a lease agreement and certain
loan agreements which were assumed by TPSS. In connection with that
litigation, the Plaintiffs sought and, on August 20, 1999, received an Order
appointing Ralph DeNune as receiver to take control and dispose of TPSS's
assets.
Several lawsuits seeking payment of debts claimed to be owing by the
Company's subsidiaries have been filed against the Company's subsidiaries.
One of those lawsuits also asserts claims against the Company based on an
alter ego theory.
Item 2. Changes in Securities.
During the quarter ended June 30, 1999 the Company has issued the following
common shares:
<TABLE>
<CAPTION>
Number of
Description Shares
- ----------------------------------- ---------
<S> <C>
Issued to various noteholders of
the 10% convertible notes in
payment of interest 436,444
Issued to a noteholder in order to
extend the maturity date 43,550
Issued to a law firm for partial
payment of legal fees 54,795
----------
Total additional shares issued 534,789
----------
----------
</TABLE>
All of the above issuances were exempt from registration under Sections 4(2)
and/or 4(6) of the Securities Act of 1933, as amended.
Item 3. Defaults Upon Senior Securities.
The Company is currently in default with the following senior lenders:
<TABLE>
<CAPTION>
June 30, 1999
Unpaid
Name Balance
- ------------------------------------ -------------
<S> <C>
Congress Financial Corporation $3,068,769
Finova Capital Corporation
- A and B Loans $2,605,883
National Bank of Canada
and Finova Capital Corporation --
Line of Credit $3,645,280
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits to be filed:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -------------
<S> <C>
27.1 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K on January
27, 1999, as amended on February 12, 1999, to report the
acquisition of Toledo Pickling Steel Sales, Inc.
- -----------------------------------------------------------
20
<PAGE>
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 23, 1999 By: /s/ Paul Bagley
----------------------------
Paul Bagley
Chief Executive Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB
FOR THE QUARTER ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,411
<SECURITIES> 0
<RECEIVABLES> 5,169,307
<ALLOWANCES> 0
<INVENTORY> 2,341,947
<CURRENT-ASSETS> 0
<PP&E> 4,002,467
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,827,839
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
1,193,000
<COMMON> 5,815
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 11,827,839
<SALES> 25,056,790
<TOTAL-REVENUES> 25,056,790
<CGS> 21,978,573
<TOTAL-COSTS> 21,978,573
<OTHER-EXPENSES> 19,425,764
<LOSS-PROVISION> 153,697
<INTEREST-EXPENSE> 2,925,157
<INCOME-PRETAX> (19,134,518)
<INCOME-TAX> 0
<INCOME-CONTINUING> (19,134,518)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,134,518)
<EPS-BASIC> (.34)
<EPS-DILUTED> (.34)
</TABLE>
