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 SEPTEMBER 30, 1999
[ ] 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
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
(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
(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: 97,646,415 shares of $.0001 per share
common stock as of November 12, 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 September 30, 1999
TABLE OF CONTENTS
PAGE
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets - September 30, 1999
and December 31, 1998 3
Consolidated Statements of Operations for the
three months ended September 30, 1999 and 1998 5
Consolidated Statement of Operations for the
nine months ended September 30, 1999 and 1998 6
Consolidated Statements of Cash Flows for the
nine months ended September 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
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
<TABLE>
ASSETS ........................................ September 30, December 31,
1999 1998
------------- ------------
(unaudited)
<S> <C> <C>
Cash .......................................... $ -- $ 48,466
Accounts receivable less allowance
for doubtful accounts of $217,468 in 1998 .... 1,058,904 6,853,720
Inventories ................................... 389,072 4,872,424
Deferred loan costs ........................... -- 290,082
Prepaid expenses and other .................... 6,830 554,505
Property and equipment, net of accumulated
depreciation of $733,522 in 1998 -- 11,512,793
Property and equipment held for sale .......... 5,311,258 875,000
Goodwill, net of accumulated amortization
$461,795 in 1998 ........................... -- 3,217,002
OTHER ASSETS .................................. 256,564 1,531,004
----------- -----------
TOTAL ASSETS ............................ $ 7,022,628 $ 29,754,996
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
CONSOLIDATED BALANCE SHEETS - CONTINUED
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
<TABLE>
LIABILITIES AND SHAREHOLDERS' September 30, December 31,
DEFICIT 1999 1998
------------- -----------
(unaudited)
<S> <C> <C>
Accounts payable $11,704,953 $11,689,881
Line of credit 83,380 5,646,748
Accrued liabilities 818,448 547,111
Current portion of long-term debt 6,849,680 7,505,509
Current portion of capital lease obligations 162,220 193,895
Convertible notes payable to affiliates 2,075,000 2,075,000
18% note payable 1,250,000 -
10% convertible notes payable 801,000 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 20,003 34,762
Capital lease obligations, net of current portion 581,054 663,216
Accrued interest and other 500,109 317,266
Accrued dividends on preferred shares 250,530 150,702
------------ ------------
TOTAL LIABILITIES 27,946,377 33,950,550
------------ ------------
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; 97,248,784
and 48,079,839 shares issued and outstanding
at September 30, 1999 and December 31, 1998,
respectively 9,425 4,808
Additional paid-in capital 16,984,225 13,451,494
Accumulated deficit (39,110,399) (18,844,856)
----------- -----------
TOTAL SHAREHOLDERS' DEFICIT (20,923,749) (4,195,554)
----------- -----------
$ 7,022,628 $29,754,996
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(unaudited)
<TABLE>
1999 1998
------------- ------------
<S> <C> <C>
NET SALES
Net sales ............................ $ 1,545,408 $ 5,545,242
Cost of goods sold ................ 2,231,211 4,499,581
------------ ------------
Gross profit ...................... (685,803) 1,045,661
------------ ------------
Operating expenses
Selling, general and administrative
expenses .......................................943,678 1,668,952
Payroll and related benefits .............. 200,838 805,402
Depreciation and amortization ...... -- 212,603
------------ ------------
Total expenses ............ 1,144,516 2,686,957
------------ ------------
Loss from operations ........... (1,830,319) (1,641,296)
------------ ------------
Other income (expense)
Interest expense ............ (466,125) (1,820,937)
Other ....................... 139,914 107,018
Estimated (loss) in liquidation 1,032,290 --
Termination of an acquisition .. (6,786) (48,856)
------------ ------------
699,293 (1,762,775)
------------ ------------
Net loss ...................... (1,131,026) (3,404,071)
Preferred share dividends ....... (35,790) (48,840)
------------ ------------
Loss applicable to common stockholders . $ (1,166,816) $ (3,452,911)
============ ============
Basic and diluted loss per share $ (.02) $ (.16)
============ ============
Weighted average number of
Common shares outstanding.... 73,096,458 21,181,132
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(unaudited)
<TABLE>
1999 1998
------------ -----------
<S> <C> <C>
NET SALES $26,602,198 $15,908,469
COST OF GOODS SOLD 24,209,784 13,360,890
---------- ----------
Gross profit 2,392,414 2,547,579
----------- -----------
OPERATING EXPENSES
Selling, general and administrative expenses 4,699,208 4,654,551
Payroll and related benefits 2,724,204 2,246,958
Depreciation and amortization 742,757 737,609
----------- ------------
Total expenses 8,166,169 7,639,118
---------- -----------
Loss from operations (5,773,755) (5,091,539)
----------- ---------
OTHER INCOME (EXPENSE)
Interest expense (3,391,282) (3,676,857)
Other 431,797 230,427
Estimated loss in liquidation (11,262,072) -
Termination of an acquisition (270,232) (995,403)
------------ ------------
(14,491,789) (4,441,833)
------------ ------------
NET LOSS (20,265,544) (9,533,372)
Preferred share dividends (107,370) (157,653)
----------- ------------
(20,372,914) (9,691,025)
Discount attributable to conversion value of
preferred shares and warrants - (761,917)
------------ ------------
Loss applicable to common shareholders $(20,372,914) $(10,452,942)
============ ============
Basic and diluted loss per share $ (.32) $ (.54)
============ ============
Weighted average number of
common shares outstanding 63,185,329 19,189,533
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(unaudited)
<TABLE>
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ...................................... $(20,265,544) $ (9,533,372)
Adjustments to reconcile net loss to net cash
used in operations:
Estimated loss in liquidation .............. 11,262,072 --
Amortization and depreciation .............. 742,757 737,609
Amortization of loan fees .................. 1,299,808 1,168,288
Provision for doubtful accounts ............ (217,468) 72,684
Accrued interest ........................... (128,417) 217,614
Discount attributable to conversion value of
convertible notes ........................ 95,440 1,631,944
Common shares issued for consulting fees ... 125,000 823,641
Value of options granted to non-employees
and others ................................ (37,402) 873
Change in assets and liabilities:
Accounts receivable ...................... 6,012,284 (283,069)
Inventories .............................. 4,337,999 (284,774)
Prepaid expenses and other ............... (185,199) (255,676)
Deferred loan costs ...................... (13,964) 278,033
Other assets ............................. 238,181 (200,315)
Accounts payable, accrued liabilities
and other .............................. 3,848,670 (61,228)
------------ ------------
Net cash provided by (used in)
operating activities .................. 7,114,217 (5,687,748)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of businesses, net of cash acquired .. -- (1,750,000)
Purchase of property and equipment ............ (15,384) (424,532)
Purchase of certificate of deposit restricted -
against long-term obligations ............... -- (250,000)
------------ ------------
Net cash used in investing activities ...... (15,384) (2,424,532)
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(unaudited)
1999 1998
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings ................. $ 23,609,557 $ 21,401,768
Principal payments on borrowings ......... (31,691,845) (22,278,308)
Proceeds from issuance of 10% convertible
notes, net ............................ -- 4,445,127
Proceeds from issuance of 15% notes, net . -- 936,351
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 ................ (7,147,299) 8,231,631
------------ ------------
NET (DECREASE) INCREASE IN CASH ............. (48,466) 119,351
CASH AT BEGINNING OF PERIOD ................. 48,466 14,304
------------ ------------
CASH AT END OF PERIOD ....................... $ -- $ 133,655
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for interest $ 926,908 $ 746,118
============ ============
NONCASH FINANCING ACTIVITIES:
Issuance of common shares for:
Constulting fees....................... $ 292,627 $ 891,158
============ ============
Loan cost ............................. $ 220,927 $ 757,465
============ ============
Accrued interest ...................... $ 18,900 $ --
============ ============
Business acquisition .................. $ -- $ 300,000
============ ============
Settlement of an amount due to
vendors and others ................... $ 1,085,000 $ 296,842
============ ============
Conversion of 10% convertible notes
payable and accrued interest ......... $ 1,521,038 $ 118,175
============ ============
Conversion of Series C
preferred shares .................. $ -- $ 150,420
============ ============
Cumulative dividends of
preferred shares .................... $ 107,370 $ 1,130,000
============ ============
Issuance of promissory note to a vendor .. $ 2,000,000 $ --
============ ============
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
============ ============
The accompanying notes are an integral part of these financial statements.
<PAGE>
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 September 30, 1999 and the results of
its operations and its cash flows for the nine months then ended. The results of
operations for this interim period are not necessarily indicative of results to
be expected for the full year. During the third quarter of 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 valued its assets at the estimated amount of cash
to be received from the liquidation and will report changes in estimations as
they occur.
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
During the third quarter of 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. As of September 1999, the Company was 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 September 30, 1999. Since no agreements have been reached
with the creditors, all liabilities have been included at their historic cost
basis. The Company has also 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 proceeds from the sale of property and
equipment of the two California operating subsidiaries that occurred in October
1999, and an offer to sell property and equipment of the Ohio subsidiary
received in October 1999. Proceeds from the sale of California assets were used
to reduce senior debt. If the amounts realized from the future sale 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.
<PAGE>
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1999
(unaudited)
If amounts realized from the sale of the Ohio 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.
On August 23, 1999, Capitol Metals Co. ("Capitol"), a wholly-owned operating
subsidiary of Company, made a general assignment for the benefit of its
creditors to Maximum Asset RECOVERY SERVICES, INC. ("MAXIMUM"), AS ASSIGNEE,
PURSUANT TO SECTION 493.010 ET. SEQ. of the California Code Civil Procedure.
Maximum will liquidate Capitol's assets and will distribute the proceeds
thereof, after payment of Maximum's fees and expenses and all other
administrative claims, to Capitol's creditors in accordance with applicable law.
Effective as of August 26, 1999, Angeles Metal Trim Co ("Angeles"). A
wholly-owned operating subsidiary of the Company, made a general assignment for
the benefit of its creditors to C.F. Boham Company, Inc. d/b/a The Hamer Group
("Hamer"), as assignee, PURSUANT TO SECTION 493.010 ET. SEQ. of the California
Code of Civil Procedure. Hamer will liquidate Angeles' assets and will
distribute the proceeds thereof, after payment of Hamer's fees and expenses and
all other administrative claims, to Angeles' creditors in accordance with
applicable law.
The Company no longer controls the operations at Capitol Metals Co. ("Capitol"),
TPSS Acquisition Corporation ("TPSS") and Angles Metal Trim Co. ("Angeles"), the
Company's three wholly owned subsidiaries. These subsidiaries are being
liquidated by their senior creditors with the acquiescence of the Company. The
Company does not anticipate that the proceeds of such liquidation will be
sufficient to provide any distributions to the Company's shareholders. The
Company has no interest in business operations other than the three
subsidiaries.
<PAGE>
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1999
(unaudited)
The estimate of realizable value of the assets as of September 30, 1999 as
compared to historic cost is based upon the October 1999 sale of assets in
California and the offer in Ohio and is as follows:
Estimated
Liquidation Historical
Description of Assets Value Basis
- ---------------------------------------- ------------ ------------
Property and equipment $ 5,311,258 $11,823,719
Prepaid and other assets 263,394 1,598,079
Accounts receivable 1,058,904 1,058,904
Inventories 389,072 534,425
Goodwill - 3,034,271
Deferred loan costs - 235,302
----------- ------------
$ 7,022,628 $18,284,700
=========== ===========
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 as of September 30, 1999 consists of $2,348,537 in term loans, and
revolving lines of credit. The facility shall be hereafter referred to as the
"Congress Facility". Interest is payable monthly at a certain bank's prime rate
plus 0.75% per annum (8.5% at September 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.
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 September 30, 1999. These
loans are currently in default.
The 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
$2,212,310 at September 30, 1999 bears interest at 11% per annum and is due on
December 31, 2000. The second Finova term loan with an outstanding balance of
$291,665 at September 30, 1999 bears interest at 11% per annum and is due on
<PAGE>
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1999
(unaudited)
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, described below 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 September 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.
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
September 30, 1999 was $83,380. 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. 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 September 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. These loans are currently in default.
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").
<PAGE>
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1999
(unaudited)
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 September 30, 1999,
the holders of the 10% Notes have converted $4,199,000 of the 10% Notes, thus
leaving $801,000 of the principal amount outstanding at September 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 September 30, 1999, the holders of the 10% Notes have converted
$20,000 of the 10% Notes into 1,025,563 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 the extension described above, 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 the 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. During November
1999, 1,372,128 Common Shares were issued to the holders of the 10% notes for
interest due on October 1, 1999.
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% Notes (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-day 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.
<PAGE>
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1999
(unaudited)
In April 1999, Capital Fund Leasing, 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 Notes"). 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 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.
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 Company during November 1999, issued 1,000,000 of its common
shares for the second and final extension of the maturity date.
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.
<PAGE>
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1999
(unaudited)
4. DIVIDENDS
As of September 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 $156,235 and $94,295, 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 0 and 516,949 common shares for the nine months ended
September 30, 1999 and 1998, respectively.
6. SUBSEQUENT EVENTS
During October 1999, the liquidators of Capitol and Angeles sold all of their
property and equipment. The proceeds were used to pay the senior lenders. None
of these proceeds were used to pay unsecured creditors.
Also, during October 1999, the receiver for TPSS received an offer to acquire
certain assets of TPSS. At the present time this offer has not yet been accepted
by the receiver for TPSS.
<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 third quarter of 1999, the Company reported net sales of only
$1,545,408 as compared with net sales for the third quarter of 1998 of
$5,545,242, representing a decrease of $3,999,834. The decrease in sales was
related to the discontinuation of business during the third quarter of 1999. The
Company had operating operations for part of the third quarter 1999, and started
liquidation during this time.
During the nine months of 1999, the Company reported net sales of $26,602,198 as
compared with net sales for the nine months of 1998 of $15,908,469. Net sales
during the nine months of 1999 included $20,375,151 of sales by TPSS
Acquisition. Sales in the first three quarters of 1999 for Angeles and Capitol
decreased to $6,227,047 in the first three quarters of 1999 as compared to
$10,089,129 in the same period of 1998.
Cost of goods sold for all entities amounted to $2,231,211for the third quarter
in 1999 resulting in a gross loss margin. The lower gross profit margin resulted
mainly from the fact that the Company was in liquidation during the third
quarter of 1999.
Cost of goods sold for all entities amounted to $24,209,784 for the nine months
of 1999 resulting in a gross margin of 9% of net sales for this period. The
decrease in gross profit percentage resulted mainly from the closing of
operations of the Company during the third quarter of 1999.
Operating expenses decreased by $1,542,441, to $1,144,516 for the third quarter
of 1999 from $2,686,957 in the third quarter of 1998. The decrease is primarily
attributable to the decision to liquidate the Company's operating subsidiaries.
Operating expenses increased by $527,051, to $8,166,169 for the nine months of
1999 from $7,639,118 during the same period in 1998. The increase is primarily
attributable to an increase in general and administrative expenses and payroll.
Interest expense decreased by $1,354,812 to $466,125 in the third quarter of
1999 as compared to $1,820,937 in the third quarter of 1998. All of this
decrease was as a result of the liquidation process started during the third
quarter 1999. Interest expense decreased by $285,575, to $3,391,282 for nine
months of 1999 as compared to $3,676,857 in the same period of 1998.
As a result the Company being in the process of being liquidated, a charge for
the estimated loss from liquidation of $11,262,072 is included as of September
30, 1999. This estimated loss is $1,032,290 less than the loss reported as of
June 30, 1999 as a result of using more current values based upon a sale and an
offer to buy received in October 1999. For more details please refer to the
accompanying notes to the financial statements appearing elsewhere in this
report.
<PAGE>
The Company reported a net loss for the three months ended September 30, 1999 of
$1,131,026 as compared to a net loss of $3,404,071 for the same period in 1998.
The Company reported a loss for the three months ended September 30, 1999 of
$1,166,816 ($.02 per share) including the preferred dividends of $35,790. For
the quarter ended September 30, 1999 the Company had 73,096,458 weighted average
number of common shares outstanding as compared to 21,181,132 common shares as
of September 30, 1998.
The Company reported a net loss for the nine months ended September 30, 1999 of
$20,265,544 as compared to a net loss of $9,533,372 for the same period in 1998.
Including the discount attributable to the conversion value of preferred shares
and warrants of $761,917 and dividends of $157,653, the Company reported a loss
for the nine months ended September 30, 1998 of $10,452,942 ($.54 per share).
The loss for the nine months ended September 30, 1999 amounts to $20,372,914
including dividends of $107,370 or a per share loss of $.32. As of September 30,
1999, the Company had 63,185,329 weighted average number of common shares
outstanding as compared to 19,189,533 common shares outstanding as of September
30, 1998.
The Company no longer controls the operations at Capitol Metals Co. ("Capitol"),
TPSS Acquisition Corporation ("TPSS") and Angeles Metal Trim Co. ("Angeles"),
the Company's three wholly owned subsidiaries. These subsidiaries are being
liquidated by their senior creditors with the acquiescence of the Company. The
Company does not anticipate that the proceeds of such liquidation will be
sufficient to provide any distributions to the Company's shareholders, The
Company has no interests in business operations other than the three
subsidiaries.
On August 23, 1999, Capitol Metals Co. ("Capitol"), a wholly-owned operating
subsidiary of Company, made a general assignment for the benefit of its
creditors to Maximum Asset RECOVERY SERVICES, INC. ("MAXIMUM"), AS ASSIGNEE,
PURSUANT TO SECTION 493.010 ET. SEQ. of the California Code Civil Procedure.
Maximum will liquidate Capitol's assets and will distribute the proceeds
thereof, after payment of Maximum's fees and expenses and all other
administrative claims, to Capitol's creditors in accordance with applicable law.
Effective as of August 26, 1999, Angeles Metal Trim Co ("Angeles"). A
wholly-owned operating subsidiary of the Company, made a general assignment for
the benefit of its creditors to C.F. Boham Company, Inc. d/b/a The Hamer Group
("Hamer"), as assignee, PURSUANT TO SECTION 493.010 ET. SEQ. of the California
Code of Civil Procedure. Hamer will liquidate Angeles' assets and will
distribute the proceeds thereof, after payment of Hamer's fees and expenses and
all other administrative claims, to Angeles' creditors in accordance with
applicable law.
<PAGE>
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
Cash flows provided by operations were $7,114,217 for the nine months ended
September 30, 1999 as compared to $5,687,748 used in operations for the first
nine months ended September 30, 1998. The increase in cash provided by
operations for the nine months ended September 30, 1999 was a result of the
impact of the liquidation process starting the third quarter of 1999. Cash flows
used in investing activities for the third quarter of 1998 amounted to
approximately $2.4 million as compared to cash used from the same period in 1999
of approximately $15,000.
During the third quarter of 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 September 30, 1999. Since no agreements have been reached with the
creditors, all liabilities have been included at their historic cost basis. The
Company also 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 proceeds from the property and equipment of the two
California operating subsidiaries that occurred in October 1999, and an offer to
sell property and equipment of the Ohio subsidiary received in October 1999.
Proceeds from the sale of California assets were used to reduce senior debt. 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.
The estimate of realizable value of the assets as of September 30, 1999 as
compared to historic cost is as follows:
Estimated
Liquidation Historical
Description of Assets Value Basis
- ---------------------------------------- ----------- -----------
Property and equipment $5,311,258 $11,823,719
Prepaid and other assets 263,394 1,598,079
Accounts receivable 1,058,904 1,058,904
Inventories 389,072 534,425
Goodwill - 3,034,271
Deferred loan costs - 235,302
---------- -----------
$7,022,628 $18,284,700
========== ===========
<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 ability to dispose of
the assets of its wholly owned operating subsidiaries and the ability to
generate sufficient funds to make adequate payments to all creditors.
<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 ("TPSS") in the Court of
Common Pleas of Lucas County Ohio (Case No. C10199903672), seeking amounts
allegedly due with respect to 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.
As discussed elsewhere in this report, during the third quarter of 1999, the
Company entered into negotiations with its lenders to start the process of
liquidating the assets of the Company's operating subsidiaries and paying off
creditors to the extent possible. As a result, the Company has laid-off all
employees and ceased operations. In connection with these events, several
creditors of the Company and its subsidiaries have filed legal proceedings to
collect obligations that have not been paid and are now in default. Such legal
proceedings are listed below. The Company and its subsidiaries are not taking
any action to defend against these collection proceedings. Management does not
expect that the liquidation of the Company's operating subsidiaries will result
in sufficient cash to pay off all creditors and claimant in the listed
proceedings. In the following list the Company is referred to as "CDNO", and its
subsidiaries, Angeles Metal Trim Co., Capitol Metal Co., and TPSS Acquisition
Corporation are referred to as AMS, CMC and TPSS, respectively.
1. STAR RENTALS, INC. VS. AMS, SUPERIOR COURT OF WASHINGTON FOR KING
COUNTY, Re: Unpaid invoice for $7,018.48 plus interest and legal fees.
2. S. M. BERNAL VS. AMS, Municipal Court of California, County of Los
Angeles, Case # 99N00418, Re: Unpaid invoice plus interest and legal
fees in the amount of $22,802.78.
3. R. B. BROWNS TRUCKING, INC. VS. CDNO, AMS, RICHARD BAILEY, CARL
CASARETO AND CMC, Circuit Court for Oregon, Case # 99-2036-L-2, Re:
Unpaid invoices in the amount of $11,300.00 plus interest and legal
fees.
4. BINHAD, INC. VS. CMC & CDNO, United States Bankruptcy Court, Central
District of California-Central Division, Case # LA 97-48259-KM, Unpaid
note payments of $133,621.01.
5. USS-POSCO INDUSTRIES, A CALIFORNIA PARTNERSHIP VS. AMS & CDNO,
Superior Court of the State of California for the County of Contra
Costa, Case # C99-02894, Re: Unpaid invoices in the sum of
$1,542,848.44 plus interest and legal fees.
6. BENNETT PAPER & SUPPLY COMPANY, INC. VS. AMS, District Court of the
State of Washington for the County of Clark, Case # 264466-2, Re:
Unpaid invoices in the amount of $370.06 plus legal fees of $250.00.
7. FRED G. DUCOLON, ET AL., VS. AMS, Superior Court of the State of
Washington for the County of Pierce, Case # 99-2-10417-5, Re: Eviction
notice and unpaid rent in the amount of $30,854.11 plus additional
fees.
8. JONES-HAMILTON CO. VS. CMC, Superior Court of California, County of
Alameda, Unpaid invoices in the amount of $11,354.50 plus interest and
legal fees.
9. JOHN CUPP VS. CDNO, Labor Commissioner, State of California, Case #
05017160, Re: Unpaid wages and expenses in the amount of $16,762.09.
10. THE SHERWIN WILLIAMS COMPANY VS. CMC, Municipal Court of California,
County of Los Angeles, Case # 99N00633, Re: Unpaid invoices in the
amount of $2,961.64 plus interest and legal fees.
11. DANIEL KINGSTON CABLE VS. AMS, Superior Court of Washington for Clark
County, Case # 992035783, Re: Eviction notice and unpaid rent in the
amount of $12,360.00 and plus legal fees.
12. MULTIVEST INTERNATIONAL, LTD. VS. CMC, Superior Court of California,
County of San Diego, Case # GIC732307, Re: Unpaid invoices in the
amount of $375.50.
13. MICHAEL JOHNSON VS. CDNO, Labor Commissioner, State of California,
Case # 05017224, Re: Unpaid wages in the amount of $14,711.49.
14. KEY TRANSPORTATION SERVICE, INC. VS. AMS, Circuit Court of Oregon for
Jackson County, Case # 993004L4, Re: Unpaid invoice for $1,025.00 plus
interest and legal fees.
15. COMMERCE CLEARING COMPANY LLC VS. PAUL BAGLEY, CARL CASARETO, CMC &
CDNO, Case # 99C1862, Re: Unpaid invoices in the amount of $15,741.55
plus interest and legal fees.
16. MANNESMANN PIPE & STEEL VS. CMC, Superior Court of California, County
of Los Angeles, Case # BS059323, Re: Unpaid invoices in the amount of
$42,000.37 plus interest.
17. ROLLINS LEASING CORPORATION VS. AMS, District Court of Washington for
Clark County, Case # 2659034, Re: Unpaid rental charges in the amount
of $9,482.25 plus interest and legal fees.
18. CAMPBELL INVESTORS, ET AL, VS. TPSS, Court of Common Pleas of Lucas
County, Ohio, Case # CI-01999-3672, Re: Transfer of life insurance
policy to Mr. Keller in partial satisfaction of his claims. TPSS has
recorded an obligation regarding this matter in the amount of
$100,000.00
19. EQUAL EMPLOYMENT OPPORTUNITY COMMISSION (OHIO) VS. TPSS & CDNO, Charge
# 220A00018, Re: Age discrimination in employment as filed by Mr.
Keller.
20. FIRST ENERGY CORP. AND THE TOLEDO EDISON COMPANY VS. TPSS, Court of
Common Pleas for Lucas County, Ohio, Case # CIO 199904227, Re: Unpaid
invoices amounting to $129,433.15 plus interest and legal fees.
21. DANAT INVESTMENT COMPANY VS CDNO, Superior Court State of California
for the County of Los Angeles, Case #YS007640, RE: Unpaid rent of
$371,827.69 plus interest and legal fees.
The Company is involved from time to time in other routine litigation
and claims that are incidental to its businesses. It is not
anticipated by management that such litigation and claims will have a
material adverse effect on the Company's consolidated financial
condition.
<PAGE>
Item 2. Changes in Securities
During the quarter ended September 30, 1999, the Company issued the following
common shares:
Number
Description Shares
- --------------------------------------------------- -----------
Issued to various noteholders of the 10%
convertible notes for $1,199,000 in conversions
and $44,583 in accrued interest 32,601,156
Issued to a noteholder in order to extend the
maturity date 1,000,000
Issued to an individual for consulting fees 2,500,000
----------
Total additional shares issued 36,101,156
All of the above issuances were exempt from registration under Sections 4(2) of
the Securities Act of 1933, as amended except for conversion of notes that were
exempt under Section 3(a) (9) of the Securities Act of 1933, or amended.
Item 3. The Company is currently in default with the following senior lenders:
September 30, 1999
Unpaid
Names Balance
- --------------------------------------------------- ------------------
Congress Financial Corporation $ 2,348,537
Finova Capital Corporation - A and B Loans $ 2,503,975
National Bank of Canada and Finova Capital
Corporation Line of Credit $ 83,380
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits to be filed:
Exhibit No. Description
27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
Form 8-K of the Company, filed on August 23, 1999, reporting in Item 3 the
appointment of a receiver for the Company's wholly owned subsidiary, TPSS
Acquisition Corporation, in Item 4 a change in the Company's certifying
accountant, and in Item 5 that the Company's three subsidiaries are being
liquidated by their senior lenders with the acquiescence of the Company.
Form 8-K of the Company, filed on September 27, 1999, reporting in Item 2 the
general assignment for the benefit of creditors by two of the Company's
wholly-owned subsidiaries, Capitol Metals Co. and Angeles Metal Trim Co.
Form 8-K/A of the Company filed on September 23, 1999, containing the letter of
the Company's former certifying accountant.
<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: November 22, 199 9 BY: /S/ Donald R. Jackson
------------------------------------------
Donald R. Jackson
Treasurer
<PAGE>
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Sep-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,276,372
<ALLOWANCES> 217,468
<INVENTORY> 389,072
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,022,628
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
1,143,000
<COMMON> 449,000
<OTHER-SE> (22,116,749)
<TOTAL-LIABILITY-AND-EQUITY> 7,022,628
<SALES> 26,602,198
<TOTAL-REVENUES> 0
<CGS> 24,209,784
<TOTAL-COSTS> 32,375,953
<OTHER-EXPENSES> 11,100,507
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,391,232
<INCOME-PRETAX> (20,265,544)
<INCOME-TAX> 0
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<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,372,914)
<EPS-BASIC> (.32)
<EPS-DILUTED> (.32)
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