<PAGE> 1
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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
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Commission file number 0-21821
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Consolidated Capital of North America, Inc.
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(Exact name of small business issuer as specified in its charter)
Colorado 93-0962072
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(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
410 17th Street, Suite 400
Denver, Colorado 80202
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(Address of principal executive offices)
888-313-8051
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Issuer's telephone number
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ].
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 57,555,839 shares of $.0001 per share
common stock as of April 28, 1999.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE> 2
Consolidated Capital of North America, Inc.
Quarterly Report on Form 10-QSB for the
Quarter Ended March 31, 1999
Table of Contents
<TABLE>
<CAPTION>
Page
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<S> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets - March 31, 1999
and December 31, 1998 3
Consolidated Statements of Operations for the
three months ended March 31, 1999 and 1998 5
Consolidated Statements of Cash Flows for the
three months ended March 31, 1999 and 1998 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 15
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 20
</TABLE>
2
<PAGE> 3
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
ASSETS March 31, December 31,
1999 1998
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(unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 194,299 $ 48,466
Accounts receivable less allowance
for doubtful accounts of $235,978 and
$217,468 in 1999 and 1998, respectively 5,368,248 6,853,720
Inventories 4,028,593 4,872,424
Deferred loan costs 309,590 290,082
Prepaid expenses and other 696,079 554,505
----------- -----------
Total current assets 10,596,809 12,619,197
PROPERTY AND EQUIPMENT, net of
accumulated depreciation of $999,787
and $733,522 in 1999 and 1998, respectively 11,261,912 11,512,793
PROPERTY AND EQUIPMENT HELD FOR SALE 875,000 875,000
GOODWILL, net of accumulated amortization
of $552,003 and $461,795 in 1999 and
1998, respectively 3,126,794 3,217,002
OTHER ASSETS 1,712,935 1,531,004
----------- -----------
Total assets $27,573,450 $29,754,996
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
CONSOLIDATED BALANCE SHEETS - CONTINUED
MARCH 31, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' March 31, December 31,
DEFICIT 1999 1998
------------ ------------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 9,354,955 $ 11,689,881
Line of credit 4,182,826 5,646,748
Accrued liabilities 689,911 547,111
Current portion of long-term debt 6,940,478 7,505,509
Current portion of capital lease obligations 110,400 193,895
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 79,246 34,762
------------ ------------
Total current liabilities 29,532,816 32,819,366
------------ ------------
LONG-TERM LIABILITIES
Capital lease obligations, net of current portion 632,859 663,216
Long-term debt, less current portion 1,166,665 --
Accrued interest and other 323,556 317,266
Accrued dividends on preferred shares 178,950 150,702
Payable in preferred shares to certain vendors 808,795 --
------------ ------------
Total long-term liabilities 3,110,825 1,131,184
------------ ------------
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; 57,555,839
and 48,079,839 shares issued and outstanding at
March 31, 1999 and December 31, 1998, respectively 5,756 4,808
Additional paid-in capital 15,397,635 13,451,494
Accumulated deficit (21,666,582) (18,844,856)
------------ ------------
Total shareholders' deficit (5,070,191) (4,195,554)
------------ ------------
$ 27,573,450 $ 29,754,996
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(unaudited)
<TABLE>
<CAPTION>
1999 1998
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<S> <C> <C>
NET SALES $ 12,816,907 $ 5,539,506
COST OF GOODS SOLD 11,079,473 4,905,079
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Gross profit 1,737,434 634,427
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OPERATING EXPENSES
Selling, general and administrative expenses 1,871,905 1,426,613
Payroll and related benefits 1,239,639 599,546
Depreciation and amortization 370,221 227,906
------------ ------------
Total expenses 3,481,765 2,254,065
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Loss from operations (1,744,331) (1,619,638)
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OTHER INCOME (EXPENSE)
Interest expense (1,287,472) (475,258)
Other 210,077 111,900
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(1,077,395) (363,358)
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NET LOSS (2,821,726) (1,982,996)
Preferred share dividends (35,790) (43,023)
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(2,857,516) (2,026,019)
Discount attributable to conversion value of
preferred shares and warrants -- (436,713)
------------ ------------
Loss applicable to common shareholders $ (2,857,516) $ (2,462,732)
============ ============
Basic and diluted loss per share $ (.05) $ (.14)
============ ============
Weighted average number of
common shares outstanding 54,731,494 17,661,271
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(unaudited)
<TABLE>
<CAPTION>
1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,821,726) $(1,982,996)
Adjustments to reconcile net loss to net cash
used in operations:
Amortization and depreciation 370,221 227,906
Provision for doubtful accounts 18,510 (17,213)
Amortization of loan fees 551,189 685,715
Discount attributable to conversion value of
convertible notes 95,440 --
Value of options granted to non-employees -- 873
Change in assets and liabilities:
Accounts receivable 1,466,962 429,087
Inventories 843,831 349,501
Prepaid expenses and other (155,322) (144,378)
Deferred loan costs (14,447) (524,847)
Other assets (181,931) 428,448
Accounts payable and accrued liabilities 1,686,669 (119,195)
Other liabilities 47,961 (38,671)
----------- -----------
Net cash provided by (used in) operating activities 1,907,357 (705,770)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of businesses, net of cash acquired -- (1,750,000)
Purchase of property and equipment (15,384) (51,929)
Purchase of certificate of deposit restricted -
against long-term obligations -- (250,000)
----------- -----------
Net cash used in investing activities (15,384) (2,051,929)
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
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CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(unaudited)
<TABLE>
<CAPTION>
1999 1998
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<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings $ 12,899,729 $ 8,066,262
Principal payments on borrowings (15,942,017) (9,105,143)
Payable to consultant -- 312,000
Payment of notes payable to affiliates -- (225,000)
Proceeds from issuance of common shares 160,000 --
Short-term borrowings 1,250,000 1,714,286
Repayments of capital lease obligators (113,852) --
Proceeds from issuance of redeemable preferred shares, net -- 1,880,000
Proceeds from sale of common share purchase warrants -- 385,000
Dividends -- (7,233)
------------ -----------
Net cash (used in) provided by financing activities (1,746,140) 3,020,172
------------ -----------
NET INCREASE IN CASH 145,833 262,473
CASH AT BEGINNING OF PERIOD 48,466 14,304
------------ -----------
CASH AT END OF PERIOD $ 194,299 $ 276,777
============ ===========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the period for interest $ 356,862 $ 196,881
============ ===========
NONCASH FINANCING ACTIVITIES:
Issuance of common shares for:
Loan fees $ 292,627 $ --
============ ===========
Accrued interest $ 18,900 $ --
============ ===========
Settlement of an amount due to vendors and others $ 1,075,000 $ --
============ ===========
Business acquisition $ -- $ 300,000
============ ===========
Conversion of 10% convertible notes payable and
accrued interest $ 177,729 $ --
============ ===========
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
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 8
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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
(consisting solely of normal recurring adjustments) which, in the opinion of
management, are necessary to fairly present the financial position of the
Company as of March 31, 1999 and the results of its operations and its cash
flows for the three months then ended. The results of operations for this
interim period are not necessarily indicative of results to be expected for the
full year.
These interim financial statements should be read in conjunction with the
Summary of Significant Accounting Policies and other Notes to Financial
Statements included in the Company's annual audited financial statements for the
year ended December 31, 1998. Certain prior period amounts have been
reclassified to conform with the current period presentation.
2. BUSINESS AND GOING CONCERN
A. Business
Effective December 31, 1998, the Company, through its wholly-owned subsidiary,
TPSS Acquisition Corp. ("TPSS Acquisition"), purchased substantially all of the
assets and assumed certain liabilities of Toledo Pickling, a privately-held
steel processing and service center, headquartered in Toledo, Ohio.
The transaction was accounted for using the purchase method of accounting and
the total consideration was approximately $16,033,000, consisting primarily of
the assumption of certain liabilities of Toledo Pickling including the
assumption of $5,647,000 due under the Restated Loan and Security Agreement by
and among Toledo Pickling, National Bank of Canada ("NBC") and Finova Capital
Corporation ("Finova") (the "Revolving Loan Agreement"), $2,596,000 under the
Loan and Security Agreement by and between Seller and Finova (the "Term Loan
Agreement"), accounts payable of approximately $7,328,000 and various other
liabilities of approximately $462,000 as of December 31, 1998. The Revolving
Loan Agreement and the Term Loan Agreement were assumed by TPSS Acquisition and
required to be refinanced or repaid on April 12, 1999 (see Note 3).
8
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CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1999
(unaudited)
The pro forma effect on the statement of operations for the Company had the
acquisition taken place on January 1, 1998 would have been as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Revenues $ 12,816,907 $ 31,039,635
Loss from operations $ (1,744,331) $ (2,047,974)
Net loss $ (2,821,726) $ (3,448,940)
Loss applicable to common
shareholders $ (2,857,516) $ (3,928,676)
Basic and fully diluted loss per share $ (.05) $ (.22)
Weighted average number of common
shares outstanding 54,731,494 17,830,517
</TABLE>
B. Going Concern
The Company had a working capital deficit of $18,936,007 and a shareholders'
deficit of $5,070,191 as of March 31, 1999 and incurred a net loss of $2,821,726
for the three month period ended March 31, 1999. The ability of the Company to
continue as a going concern is dependent upon its ability to obtain sufficient
additional capital and to generate sufficient revenues to sustain its
operations.
The Company plans to raise additional working capital through private offerings
of debt and equity. The outcome of these activities cannot be determined at this
time and there is no assurance that the Company will have sufficient funds to
execute its business plan or generate positive operating results. These issues,
among others, raise substantial doubt about the ability of the Company to
continue as a going concern. The accompanying consolidated financial statements
do not include any adjustments relating to the recoverability and classification
of asset carrying amounts or the amount and classification of the liabilities
that might result should the Company be unable to continue as a going concern.
Management believes that the Company will be able to generate sufficient funds
to sustain its operations through March 31, 2000.
3. NOTES PAYABLE
A. Long-Term 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
9
<PAGE> 10
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1999
(unaudited)
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 (8.50% at March 31, 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 March 31, 1999, $2,345,924 was outstanding under the
term loan and $1,345,507 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 March 31, 1999. Angeles
and Capitol were not in compliance with these covenants as of March 31, 1999 and
have not received waivers, therefore all amounts due Congress Facility are
classified as current. 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 March 31, 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
$2,276,254 at March 31, 1999 bears interest at 10.5% per annum and is due on
December 31, 2000. The second Finova term loan with the outstanding balance of
$319,443 at March 31, 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 March 31, 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 March
31, 1999 was $4,182,826. Under the financing arrangements with NBC and Finova, a
line of credit is 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. At March 31, 1999, TPSS Acquisition had $761,593
available under its line of credit agreement. The obligation, which is repayable
on demand, is secured by
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CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1999
(unaudited)
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 March 31, 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.
C. 10% Convertible Notes Payable
The Company has 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 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 March 31, 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 March 31, 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.
11
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CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 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. In April 1999, the Maturity Date was further
extended to January 15, 2000 (see Note 6).
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 April 30 and the note is
currently in default. Therefore, the amount due of the Binhad Note has been
classified as current at March 31, 1999.
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.
12
<PAGE> 13
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 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.
4. DIVIDENDS
As of March 31, 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 $111,600 and $67,350, respectively. The dividends for the Series A and
B preferred shares are considered as a noncurrent liability in the amount of
$178,950, as the Company will not pay cash dividends on these shares in 1999.
5. BASIC NET LOSS PER SHARE
Basic 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 622,295 and 927,632 common shares for the three months
ended March 31, 1999 and 1998, respectively
6. SUBSEQUENT EVENTS
Subsequent to March 31, 1999, the noteholders for 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 agreed to issue warrants to purchase 1,750,000, 250,000 and 75,000
common shares of the Company, respectively, at $.20 per share. The warrants will
expire on March 6, 2004. In April 1999, the Company also agreed to issue 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.
The maturity date of the remaining $2 million principal outstanding 10% Notes
has been extended to January 15, 2000. In connection with such extension, in
April 1999 the Company agreed to issue 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
13
<PAGE> 14
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1999
(unaudited)
has agreed to promptly register the common shares underlying the warrants with
the Securities and Exchange Commission. In April 1999, 436,444 common shares
will be issued to the holders of the 10% notes for interest due on April 1,
1999.
Subsequent to March 31, 1999, Capital Fund Leasing, the noteholder of $1,550,000
of the Convertible 18% notes payable extended the payment date through January
15, 2000. In connection with such extension, in April 1999 the Company agreed to
issue to Capital Fund Leasing warrants to purchase 1,550,000 common shares 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.
On March 6, 1999 the Company began implementation of a fundamental restructuring
of Capitol, the purpose of which is to phase out a portion of the business which
was not profitable and focus solely on the toll pickling and slitting areas of
business where Capitol can generate profitability. The central focus of this
change in strategy is the termination of buying and selling steel for its own
account (processed steel sales) and concentration on exclusively processing
steel owned by third parties. Management feels that Capitol was unable to
compete effectively within its market as a traditional steel service center due
to its inability to secure favorable terms and pricing from its suppliers. In
connection with the restructuring, Capitol sold two level lines to an unrelated
third party for $600,000 on May 4, 1999 and recognized a gain of approximately
$300,000. Proceeds from this sale were used to repay the term loan under the
Congress facility.
14
<PAGE> 15
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 first quarter of 1999, the Company reported net sales of $12,816,907
as compared with net sales for the first quarter of 1998 of $5,539,506 an
increase of 131%. The increase in net sales in the first quarter of 1999 was
primarily due to the inclusion of $10,253,990 of sales by TPSS Acquisition.
Sales in the first quarter of 1999 for Angeles and Capitol operations decreased
from $5,539,506 in the first quarter of 1998 to $2,562,917 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 this quarter.
Cost of goods sold for all entities amounted to $11,079,473 for the first
quarter in 1999 resulting in a gross profit margin of 14% of net sales as
compared to 11% for the first quarter in 1998. The gross profit resulted mainly
from the inclusion of the operations of TPSS Acquisition during this quarter.
For the first quarter of 1999, TPSS Acquisition had a higher gross profit margin
than Angeles and Capitol on a combined basis. This resulted in a high gross
profit in 1999 as compared to the same period in 1998.
Operating expenses increased by $1,227,700, or 54%, to $3,481,765 for the first
quarter of 1999 from $2,254,065 in the first quarter of 1998. The increase is
primarily attributable to the operating expenses from TPSS Acquisition.
Operating expenses for Angeles and Capitol for the first quarter of 1999
amounted to $1,957,466 as compared to the same period in 1998 of $1,969,465. The
decrease of $11,999 from 1998 to 1999 was a result of the increase in selling,
general and administrative and payroll and related benefits of $7,515 offset by
a decrease in depreciation and amortization of $19,514.
Interest expense increased by $812,214 to $1,287,472 in the first quarter of
1999 as compared to $475,258 in the first quarter of 1998. A portion of this
increase, $646,629 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 provide working capital and the financing related
to the acquisition of Toledo Pickling. TPSS Acquisition recorded interest
expenses in the first quarter of 1999 of $220,286 and other income of $159,662,
relating to the settlement of a debt with a vendor.
The Company reported a net loss for the three months ended March 31, 1999 of
$2,821,726 as compared to a net loss of $1,982,996 for the same period in 1998.
Of the net loss for the quarter, only $22,403 is attributable to the TPSS
Acquisition operations. The loss for the quarter is a result of an increase in
operating expenses, an increase in interest expense, and an increase in
depreciation and amortization expenses. Including the discount attributable to
the conversion value of preferred shares and warrants of $436,713, the Company
reported a loss for the three months ended March 31, 1998 of $2,462,732 ($.14
per share). The Company reported a loss for the three months ended March 31,
1999 of $2,857,516 ($.05 per share) including the preferred dividends of
$35,790. As of March 31, 1999 the Company had 54,731,494 weighted average number
of common shares outstanding as compared to 17,661,271 common shares as of March
31, 1998.
15
<PAGE> 16
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
Cash flows provided by operations were $1,907,357 for the three months ended
March 31, 1999 as compared to $705,770 used in operations for the first quarter
ended March 31, 1998. The increase in cash provided by operations for the first
quarter ended March 31, 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 quarter of 1999 amounted
to approximately $1.7 million as compared to cash provided from the same period
in 1998 of approximately $3.0 million. At the end of the first quarter of 1999
the Company's debt was $1.9 million less than the debt outstanding at the end of
the first quarter of 1998.
As of March 31, 1999, the Company had a working capital deficit of $18,936,007,
a shareholders' deficit of $5,070,191 and an accumulated deficit of $21,666,582.
The Company is seeking to complete an equity or debt financing to provide
additional capital to fund the operations and growth of the Company in
accordance with the Company's current business plan and objectives. The Company
is currently seeking to raise up to approximately $4,000,000 in such financing.
Proceeds from this transaction, if completed for the full $4,000,000, would
provide the Company with working capital for approximately 15 months of
operations and would be used to refinance secured debt currently in default and
to consummate an acquisition. The Company may also be required to obtain
additional lines of credit for working capital purposes and make periodic public
offerings or private placements in order to meet future needs.
The Company has received no commitments with respect to the purchase of the
securities as of the date of this report and there can be no assurance that the
funds will be available, or if such capital is available that the terms thereof
will be acceptable to the Company. If the Company is unable to raise sufficient
capital, the Company will explore all available alternatives. See the Company's
financial statements and notes hereto, included elsewhere in this report, for
detailed financial information regarding the Company.
On March 6, 1999 the Company began implementing a fundamental restructuring of
Capitol, the purpose of which was to phase out a portion of the business which
was not profitable and focus solely on the toll pickling and slitting areas of
business where Capitol can generate profitability. The central focus of this
change was to have Capitol terminate its traditional position of buying and
selling steel for its own account (processed steel sales) instead concentrating
exclusively on processing the steel owned by third parties. Management feels
that Capitol was unable to compete effectively as a traditional steel service
center. The inability to secure favorable terms and pricing from its suppliers
placed Capitol in the position of being at a strong competitive disadvantage
within its own market place.
The consolidated financial statements of the Company have been prepared assuming
that the Company will continue as a going concern. The ability of the Company to
continue as a going concern is dependent upon its ability in the future to
obtain sufficient additional capital and to generate sufficient revenues to
sustain its operations. The outcome of these activities cannot be determined at
this time and there is no assurance that the Company will have sufficient funds
to execute its business plan or to generate positive operating results. These
issues, among others, raise substantial doubt about the ability of the Company
to continue as a going concern. The Company's consolidated financial statements
do not include any adjustments relating to the recoverability and classification
of asset carrying amounts or the amount and classification of the liabilities
that might result should the Company be unable to continue as a going concern.
16
<PAGE> 17
During January 1998, the Company entered into a financing arrangement with
Congress Financial. The Company incurred $8,100,000 of indebtedness from
Congress Financial, of which $3,300,000 was utilized for the repayment of
outstanding revolving and term indebtedness of Angeles and $4,800,000 of which
was utilized in connection with the acquisition of Capitol. Congress Financial
provided $1,400,000 and $3,300,000 in financing under revolving lines of credit
to Angeles and Capitol, respectively, and provided $1,900,000 and $1,500,000 to
Angeles and Capitol, respectively, in financing under term loans. These loans
are collectively referred to as the "Congress Facility".
Under the Congress Facility, Angeles and Capitol can borrow up to a maximum of
$20 million. Borrowing under the revolving line of credit portion of the
Congress Facility is limited by the amount of eligible accounts receivable and
inventory and requires Angeles and Capitol to comply with certain financial and
other non-financial covenants, as defined in the financing agreements. The
Congress Facility is available, subject to support by the appropriate levels of
assets and compliance with the applicable financial and other non-financial
covenants by both Angeles and Capitol, to provide financing for general
corporate purposes. The revolving line of credit component of the Congress
Facility is due in January 2000. The term loans are to be repaid in 60 monthly
installments commencing February 1, 1998. Amounts drawn under the Congress
Facility bear interest at a rate, which is .75% per annum over the prime rate
announced by First Union Bank Corporation for the interest period. On February
1, 1999, the Congress Facility was amended. The amendment provides, among other
things, for a temporary increase (from February 1, 1999 through March 31, 1999)
in interest rates from .75% to 1.75% per annum in excess of the bank's prime
rate and provides for additional weekly principal payments of $17,400 for an
eight-week period commencing February 1, 1999. 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 March 31, 1999. Angeles and Capitol were not in
compliance with these covenants as of March 31, 1999 and have not received
waivers, therefore all amounts due Congress Facility are classified as current.
As a result of the covenant non compliance, Congress Financial is entitled to
all of the remedies contained in the Congress Facility agreements, including but
not limited to acceleration of the Congress Facility.
All of the accounts receivable, inventory, equipment and intangibles of Angeles
and Capitol have been pledged as security for the Congress Facility. The
Congress Facility has been guaranteed by the Company and CBS.
Effective December 31, 1998, the Company through TPSS Acquisition purchased
substantially all of the assets of Toledo Pickling. The total consideration for
the purchase of Toledo Pickling was approximately $16,033,000 and consisted
primarily of the assumption of certain liabilities of Toledo Pickling including:
1) $5,647,000 of obligation under the Restated Loan and Security Agreement by
and among Toledo Pickling, National Bank of Canada ("NBC") and Finova Capital
Corporation ("Finova"), 2) $2,596,000 of obligations due Finova under the Term
Loan Agreement, 3) accounts payable of $7,328,000 and 4) certain liabilities and
obligations under certain leases and contracts. The Revolving Loan Agreement and
Finova Term Loan Agreement were assumed by TPSS Acquisition and guaranteed by
the Company and the former president and shareholder of Toledo Pickling and were
required to be refinanced or repaid by April 12, 1999. 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
March 31, 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.
17
<PAGE> 18
In January 1999, Security Income Trust L.P. ("SIT"), a company affiliated with a
director of the Company, purchased $1,250,000 principal amount of an 18%
convertible note from the Company. The Company issued 1,000,000 of its common
shares to SIT as additional consideration for the purchase of the note. The note
is due on July 10, 1999. The Company may, at its election, extend the maturity
of the note for two successive ninety-day periods. In connection of and at the
time of each such extension, the Company shall issue to SIT 1,000,000 common
shares of the Company. The interest on the Note is to be paid on the maturity
date of the note.
The Company has 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 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 March 31, 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 March 31, 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.
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
18
<PAGE> 19
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. In April 1999, the
Maturity Date was further extended to January 15, 2000.
The Company also plans to engage in strategic acquisitions. As these investments
are identified and funds are needed to complete such acquisitions, additional
financing for such acquisitions will be necessary.
READINESS FOR YEAR 2000
The Company is in the process of upgrading its information systems. The new
systems, which were installed during 1998 and are currently being used by both
Capitol and Angeles, are designed to be year 2000 compliant. The Company intends
to implement this system for the TPSS Acquisition operations during 1999. The
new systems will provide management with better information on a more timely
basis. The costs of the Company's year 2000 compliance effort are being funded
by cash flows from operations. These costs are not expected to have a material
adverse effect on the Company's results of operations or cash flows.
While the Year 2000 considerations are not expected to materially impact the
Company's internal operations, they may have a material effect on some of the
Company's suppliers, customers and financial institutions and thus indirectly
affect the Company. The Company will conduct a program, including soliciting
responses from major customers and suppliers, to ascertain the compliance status
of the companies with whom the Company conducts material business. A business
resumption contingency plan will be developed prior to year end containing
contingency plans addressing actions that would be taken if critical business
functions cannot be carried out in the normal manner upon entering the next
century due to system or supplier failure.
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, general economic conditions,
changes in laws and government regulations, fluctuations in demand for the
Company's products, the Company's ability to consummate strategic acquisitions
and the Company's ability to successfully finance any such future acquisitions,
as well as its current ongoing operations.
19
<PAGE> 20
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits to be filed:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
4.4 Form of Warrants to Purchase 5,625,000 Common
Shares at $.20.
10.71(1) Agreement dated January 29, 1999 by and between
the Company and the U.S. Steel Group of USX
Corporation.
10.72(1) Promissory Note dated as of January 29, 1999 in
the principal amount of $2,000,000 from the
Company to the U.S. Steel Group of USX Corporation.
10.73 Amendment No. 2 to 10% Convertible Notes.
23.1 Consent of Arthur Andersen LLP
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.
- ----------------------------------
(1) Incorporated by reference from the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1998.
20
<PAGE> 21
SIGNATURE
Pursuant to the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Consolidated Capital of North
America, Inc.
(Registrant)
Date: May 19, 1999 By: /s/ Richard D. Bailey
----------------------------
Richard D. Bailey
President and Chief Operating
Officer
By: /s/ Carl Casareto
----------------------------
Carl Casareto
Chief Financial Officer
<PAGE> 22
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
4.4 Form of Warrants to Purchase 5,625,000 Common
Shares at $.20.
10.71(1) Agreement dated January 29, 1999 by and between
the Company and the U.S. Steel Group of USX
Corporation.
10.72(1) Promissory Note dated as of January 29, 1999 in
the principal amount of $2,000,000 from the
Company to the U.S. Steel Group of USX Corporation.
10.73 Amendment No. 2 to 10% Convertible Notes.
23.1 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule.
</TABLE>
- ---------------------
(1) Incorporated by reference from the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1998.
<PAGE> 1
EXHIBIT 4.4
THE WARRANTS REPRESENTED BY THIS CERTIFICATE ("WARRANTS") AND THE UNDERLYING
WARRANT SHARES ("WARRANT SHARES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE WARRANTS AND WARRANT SHARES
MAY NOT BE OFFERED OR SOLD UNLESS THE OFFER AND SALE OF THE WARRANTS AND WARRANT
SHARES HAS BEEN REGISTERED UNDER THE SECURITIES ACT OR AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE, AS EVIDENCED BY AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY.
WARRANTS TO PURCHASE COMMON STOCK NO. __
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC., a Colorado corporation
(the "Company") hereby grants to ___________________ (the "Holder") [five
million six hundred twenty five thousand] (5,625,000) warrants (the "Warrants")
for the purchase of common stock of the Company (the "Common Stock"), with each
whole Warrant entitling the Holder to purchase one share of Common Stock (each a
"Warrant Share" and collectively the "Warrant Shares") on the terms and subject
to the conditions set forth herein.
1. TERM. The Warrants may be exercised, in whole or in part, at any
time and from time to time from the date hereof until 5:00 p.m. Eastern Time on
March 6, 2004 (the "Exercise Period").
2. EXERCISE PRICE. The initial exercise price of each whole Warrant
shall be $.20 (the "Exercise Price"). The Exercise Price shall be subject to
adjustment as provided in Section 7.
3. EXERCISE OF WARRANTS. The Warrants are exercisable on the terms
provided herein at any time during the Exercise Period by the surrender of this
certificate to the Company at its principal office together with the Notice of
Exercise annexed hereto duly completed and executed on behalf of the Holder,
accompanied by payment in full, in immediately available funds, of the amount of
the aggregate Exercise Price of the Warrant Shares being purchased upon such
exercise. The Holder shall be deemed the record owner of such Warrant Shares as
of and from the close of business on the date on which this certificate is
surrendered together with the completed Notice of Exercise and payment in full
as required above (the "Exercise Date"). The Company agrees that the Warrant
Shares so purchased shall be issued as soon as practicable thereafter.
4. WARRANTS CONFER NO RIGHTS OF STOCKHOLDER. The Holder shall not have
any rights as a stockholder of the Company with regard to the Warrant Shares
prior to the Exercise Date for any actual purchase of Warrant Shares.
5. INVESTMENT REPRESENTATION. Neither the Warrants nor the Warrants
Shares issuable upon the exercise of the Warrants have been registered under the
Securities Act or any state securities laws. The Holder acknowledges by
acceptance of this certificate that, as of the date of this Warrant
1
<PAGE> 2
and at the time of exercise, (a) the Holder has acquired the Warrants or the
Warrant Shares, as the case may be, for investment and not with a view to
distribution; and either (b) the Holder has a pre-existing personal or business
relationship with the Company or its executive officers, or by reason of the
Holder's business or financial experience the Holder has the capacity to protect
the Holder's own interests in connection with the transaction; and (c) the
Holder is an accredited investor as that term is defined in Rule 501(a) of
Regulation D under the Securities Act. The Holder, by acceptance of this
certificate, consents to the placement of a restrictive legend (the "Legend") on
the certificates representing any Warrant Shares that are purchased upon
exercise of the Warrants during the applicable restricted period under the
Securities Act. The Legend shall be in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SHARES") HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR UNDER ANY STATE SECURITIES LAWS ("STATE LAWS") OR
ANY SECURITIES LAWS OF JURISDICTIONS OUTSIDE OF THE UNITED STATES, AND
MAY NOT BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER THE SECURITIES ACT
COVERING THE SECURITIES, OR UPON DELIVERY TO THE COMPANY OF AN OPINION
OF U.S. COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT THE
SECURITIES MAY BE TRANSFERRED WITHOUT REGISTRATION PURSUANT TO RULE 144
PROMULGATED UNDER THE SECURITIES ACT OR ANY OTHER AVAILABLE EXEMPTION
FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE
SECURITIES ACT.
6. RESERVATION OF SHARES. The Company agrees that, at all times during
the Exercise Period, the Company will have authorized and reserved, for the
exclusive purpose of issuance and delivery upon exercise of the Warrants, a
sufficient number of shares of its Common Stock to provide for the issuance of
the Warrant Shares.
7. ADJUSTMENT FOR CHANGES IN CAPITAL STOCK. If the Company at any time
during the Exercise Period shall, by subdivision, combination or
reclassification of securities, change any of the securities into which the
Warrants are exercisable into the same or a different number of securities of
any class or classes, the Warrants shall thereafter entitle the Holder to
acquire such number and kind of securities as would have been issuable as a
result of such change with respect to the Warrant Shares as if the Warrant
Shares had been outstanding immediately prior to such subdivision, combination,
or reclassification. If shares of the Company's Common Stock are subdivided into
a greater number of shares of Common Stock, the Exercise Price for the Warrant
Shares upon exercise of the Warrants shall be proportionately reduced and the
number of Warrant Shares shall be proportionately increased; and conversely, if
shares of the Company's Common Stock are combined into a smaller number of
shares of Common Stock, the Exercise Price shall be proportionately increased,
and the number of Warrant Shares shall be proportionately decreased.
2
<PAGE> 3
8. REGISTRATION UNDER THE SECURITIES ACT OF 1933.
8.1 Demand Registration of Shares. (a) At any time prior to the
expiration of the Exercise Period the Holder may demand registration under the
Securities Act of the Warrant Shares. The registration requested pursuant to
this Section 8.1(a) is referred to herein as the "Demand Registration".
(b) Number of Demand Registrations; Notice. The Holder shall be
entitled to one Demand Registration. Subject to the limitations contained in the
following paragraphs of this Section 8.1, after the receipt of such Demand
Registration, (1) the Company will be obligated and required to include in such
Demand Registration all Warrant Shares with respect to which the Company shall
receive from the Holder the written request of the Holder for inclusion in such
Demand Registration, and (2) the Company will use its best efforts in good faith
to effect promptly the registration of such Warrant Shares.
(c) Restrictions on Demand Registration. The Company will not be
obligated to effect a Demand Registration within one hundred twenty (120) days
after the effective date of a registration statement in which Warrant Shares of
the Holder are included pursuant to the exercise of "piggyback rights" pursuant
to Section 8.2 hereof. The Company may postpone for a period not exceeding
ninety (90) days the filing or the effectiveness of a registration statement for
a Demand Registration if the Company provides the Holder with written notice
that in the Company's good faith judgment such Demand Registration might have an
adverse effect on any proposal or plan by the Company to engage in any
acquisition of assets (other than in the ordinary course of business) or any
merger, consolidation, tender offer, public offering or similar transaction,
provided that, in such event, the Holder will be entitled to withdraw such
Demand Registration request and that, if such request is withdrawn, such Demand
Registration will not be considered the one (1) Demand Registration to which the
Holder is entitled.
8.2 Participation in Registered Offerings ("Piggyback Rights" for
Shares). If the Company proposes or is required to register any of its shares or
other equity securities for public sale for cash under the Securities Act (other
than on Forms S-4 or S-8 or similar registration forms), it will at each such
time or times give written notice to the Holder of its intention to do so. Upon
the written request of the Holder given within twenty (20) days after receipt of
any such notice, the Company shall use its best efforts to cause to be included
in such registration any Warrant Shares requested to be registered under the
Securities Act and any applicable state securities laws; provided, that if the
managing underwriter advises that less than all of the shares to be registered
should be offered for sale so as not materially and adversely to affect the
price or salability of the offering being registered by the Company, the Holder
(but not the Company to the extent it desires to include shares for its own
account) shall reduce the number of Warrant Shares to be included in the
registration statement as required by the underwriter to the extent requisite to
permit the sale or other disposition (in accordance with the intended method of
disposition thereof as aforesaid) by the prospective seller or sellers of the
securities so registered. The registration requested pursuant to this Section
8.2 is referred to herein as the "Piggyback Registration".
3
<PAGE> 4
8.3 Obligations of the Holder. It shall be a condition precedent to the
obligation of the Company to register any Warrant Shares pursuant to this
Section 8 that the Holder shall furnish to the Company such information
regarding the Warrant Shares held and the intended method of disposition thereof
and other information concerning the Holder as the Company shall reasonably
request and as shall be required in connection with the registration statement
to be filed by the Company. If after a registration statement becomes effective
the Company advises the Holder that the Company considers it appropriate to
amend or supplement the applicable registration statement, the Holder shall
suspend further sales of the Warrant Shares until the Company advises the Holder
that such registration statement has been amended or supplemented.
8.4 Registration Proceedings. Whenever the Company is required by the
provisions of this Section 8 to effect the registration of the Warrant Shares
under the Securities Act, the Company shall:
(i) Prepare and file with the SEC a registration
statement with respect to such securities and use its
best efforts to cause such registration statement to
become and remain effective;
(ii) Prepare and file with the SEC such amendments to such
registration statement and supplements to the
prospectus contained therein as may be necessary to
keep such registration statement effective;
(iii) Furnish to the Holder and to the underwriters of the
securities being registered such reasonable number of
copies of the registration statement, preliminary
prospectus, final prospectus and such other documents
as such underwriters may reasonably request in order
to facilitate the public offering of such securities;
(iv) Use its best efforts to register or qualify the
securities covered by such registration statement
under such state securities or Blue Sky Laws of such
jurisdictions as the Holders may reasonably request
within twenty (20) days following the original filing
of such registration statement, except that the
Company shall not for any purpose be required to
execute a general consent to service of process or to
qualify to do business as a foreign corporation in
any jurisdiction wherein it is not so qualified;
(v) Notify the Holder, promptly after it shall receive
notice thereof, of the time when such registration
statement has become effective or a supplement to any
prospectus forming a part of such registration
statement has been filed;
4
<PAGE> 5
(vi) Notify the Holder promptly of any request by the SEC
for the amending or supplementing of such
registration statement or prospectus or for
additional information; and
(vii) Prepare and promptly file with the SEC and promptly
notify the Holder of the filing of such amendment or
supplement to such registration statement or
prospectus as may be necessary to correct any
statements or omissions if, at the time when a
prospectus relating to such securities is required to
be delivered under the Securities Act, any event
shall have occurred as the result of which any such
prospectus or any other prospectus as then in effect
would include an untrue statement of a material fact
or omit to state any material fact necessary to make
the statements therein, in light of the circumstances
in which they were made, not misleading.
Notwithstanding any provision herein to the contrary,
the Company shall not be required to amend,
supplement, or update a prospectus contained in any
registration statement if to do so would result in an
unduly burdensome expense to the Company.
8.5 Expenses. With respect to the inclusion of the Shares in a
registration statement pursuant to this Section 8, all registration expenses,
fees, costs and expenses of and incidental to such registration, inclusion and
public offering in connection therewith shall be borne by the Company; provided,
however, that the Holder shall bear its own professional fees and pro rata share
of the underwriting discount and commissions. The fees, costs and expenses of
registration to be borne by the Company shall include, without limitation, all
registration, filing, printing expenses, fees and disbursements of counsel and
accountants for the Company, fees and disbursements of counsel for the
underwriter or underwriters of such securities (if the Company and/or selling
security holders are required to bear such fees and disbursements), and all
legal fees and disbursements and other expenses of complying with state
securities or Blue Sky Laws of any jurisdiction in which the securities to be
offered are to be registered or qualified.
8.6 Indemnification of the Holder. Subject to the conditions set forth
below, in connection with any registration of the Shares pursuant to this
Section 8, the Company agrees to indemnify and hold harmless the Holder, any
underwriter for the Company or acting on behalf of the Holder and each person,
if any, who controls the Holder, within the meaning of Section 15 of the
Securities Act, as follows:
(i) Against any and all loss, claim, damage and expense
whatsoever arising out of or based upon (including,
but not limited to, any and all expense whatsoever
reasonably incurred in investigating, preparing or
defending any litigation, commenced or threatened, or
any claim whatsoever based upon) any untrue or
alleged untrue statement of a material fact contained
in any preliminary prospectus (if used prior to the
effective date of the registration statement), the
registration statement or the prospectus (as from
time to
5
<PAGE> 6
time amended and supplemented), or in any application
or other document executed by the Company or based
upon written information furnished by the Company
filed in any jurisdiction in order to qualify the
Company's securities under the securities laws
thereof, or the omission or alleged omission
therefrom of a material fact required to be stated
therein or necessary to make the statements therein
not misleading, or any other violation of applicable
federal or state statutory or regulatory requirements
or limitations relating to action or inaction by the
Company in the course of preparing, filing, or
implementing such registered offering; provided,
however, that the indemnity agreement contained in
this section shall not apply to any loss, claim,
damage, liability or action arising out of or based
upon any untrue or alleged untrue statement or
omission made in reliance upon and in conformity with
any information furnished in writing to the Company
by or on behalf of the Holder expressly for use in
connection therewith or arising out of any action or
inaction of the Holder;
(ii) Subject to the proviso contained in Subsection (i)
above, against any and all loss, liability, claim,
damage and expense whatsoever to the extent of the
aggregate amount paid in settlement of any
litigation, commenced or threatened, or of any claim
whatsoever based upon any untrue statement or
omission (including, but not limited to, any and all
expense whatsoever reasonably incurred in
investigating, preparing or defending against any
such litigation or claim) if such settlement is
effected with the written consent of the Company; and
(iii) In no case shall the Company be liable under this
indemnity agreement with respect to any claim made
against such seller, underwriter or any such
controlling person unless the Company shall be
notified, by letter or by facsimile confirmed by
letter, of any action commenced against such persons,
promptly after such person shall have been served
with the summons or other legal process giving
information as to the nature and basis of the claim.
The failure to so notify the Company, if prejudicial
in any material respect to the Company's ability to
defend such claim, shall relieve the Company from its
liability to the indemnified person under this
Section 8, but only to the extent that the Company
was prejudiced. The failure to so notify the Company
shall not relieve the Company from any liability
which it may have otherwise than on account of this
indemnity agreement. The Company shall be entitled to
participate at its own expense in the defense of any
suit brought to enforce any such claim, but if the
Company elects to assume the defense, such defense
shall be conducted by counsel chosen by it, provided
such counsel is reasonably satisfactory to the
sellers or controlling persons, defendants in any
suit so brought. In the event the Company elects to
assume the defense of any such suit and retain
6
<PAGE> 7
such counsel, the sellers, underwriter or controlling
persons, defendants in the suit, shall, after the
date they are notified of such election, bear the
fees and expenses of any counsel thereafter retained
by them, as well as any other expenses thereafter
incurred by them in connection with the defense
thereof; provided, however, that if the sellers,
underwriter or controlling persons reasonably believe
that there may be available to them any defense or
counterclaim different than those available to the
Company or that representation of such sellers,
underwriters or controlling persons by counsel for
the Company presents a conflict of interest for such
counsel, then such sellers, underwriter and
controlling person shall be entitled to defend such
suit with counsel of their own choosing and the
Company shall bear the fees, expenses and other costs
of such separate counsel.
8.7 Indemnification of the Company. The Holder agrees to indemnify and
hold harmless the Company, each underwriter for the offering, and each of their
officers and directors and agents and each other person, if any, who controls
the Company and underwriter within the meaning of Section 15 of the Securities
Act against any and all such losses, liabilities, claims, damages and expenses
as are indemnified against by the Company under Section 8.6 above; provided,
however, that such indemnification by the Holder hereunder shall be limited to
any losses, liabilities, claims, damages, or expenses to the extent caused by
any untrue statement of a material fact or omission of a material fact (required
to be stated therein or necessary to make statements therein not misleading), if
any made (or in settlement of any litigation effected with the written consent
of such sellers, alleged to have been made) in any preliminary prospectus, the
registration statement or prospectus or any amendment or supplement thereof or
in any application or other document in reliance upon, and in conformity with,
written information furnished in respect of such seller by or on behalf of such
seller expressly for use in any preliminary prospectus, the registration
statement or prospectus or any amendment or supplement thereof or in any such
application or other document or arising out of any action or inaction of such
seller in implementing such registered offering. In case any action shall be
brought against the Company, or any other person so indemnified, in respect of
which indemnity may be sought against any seller, such seller shall have the
rights and duties given to the Company, and each other person so indemnified
shall have the rights and duties given to the Holder, by the provisions of
Section 8.6. The person indemnified agrees to notify the sellers promptly after
the assertion of any claim against the person indemnified in connection with the
sale of securities.
8.8 Contribution. If the indemnification provided for in Sections 8.6
and 8.7 above are unavailable or insufficient to hold harmless an indemnified
party in respect of any losses, claims, damages or liabilities (or actions in
respect thereof) referred to therein, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect the relative fault of the
indemnified party, on one hand, and such indemnifying party, on the other hand,
in connection with the statements or omissions which resulted in such losses,
claims, damages, or liabilities (or actions in respect thereof). The relative
7
<PAGE> 8
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
indemnified party, on one hand, or such indemnifying party, on the other hand,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. No person who has
committed fraudulent misrepresentation (within the meaning of the Securities
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions in
respect thereof referred to above in this Section shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
9. ASSIGNMENT OF REGISTRATION RIGHTS. The registration rights granted
hereunder may be assigned by the Holder to a transferee or assignee of the
Warrant Shares; provided, however, the Company is, within a reasonable time
after such transfer, furnished with written notice of the name and address of
such transferee or assignee and the securities with respect to which such
registration rights are being assigned; and provided, further, that such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Securities Act.
10. LOSS, THEFT, DESTRUCTION OR MUTILATION OF CERTIFICATE. Upon receipt
by the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of any certificate representing the Warrants or the
Warrant Shares (referred to herein as the "original certificate"), and in case
of loss, theft or destruction, of indemnity or security reasonably satisfactory
to the Company, and upon reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the original
certificate if mutilated, the Company will make and deliver a new certificate of
like tenor in lieu of the original certificate.
11. GENERAL. This certificate shall be governed by and construed in
accordance with the laws of the State of Colorado applicable to contracts
between Colorado residents entered into and to be performed entirely within the
State of Colorado. The headings herein are for purposes of convenience and
reference only and shall not be used to construe or interpret the terms of this
certificate. The terms of this certificate may be amended, waived, discharged or
terminated only by a written instrument signed by both the Company and the
Holder. All notices and other
8
<PAGE> 9
communications from the Company to the Holder shall be mailed by first-class
registered or certified mail, postage pre-paid, to the address furnished to the
Company in writing by the last Holder who shall have furnished an address to the
Company in writing.
Dated as of: April 16, 1999
CONSOLIDATED CAPITAL OF NORTH
AMERICA, INC.
By: /s/ Richard D. Bailey
--------------------------------
Richard D. Bailey
President and Chief Operating
Officer
9
<PAGE> 10
NOTICE OF EXERCISE
Dated _______________, ________
The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing _______ shares of Common Stock and hereby
makes payment of ____________________ in payment of the actual exercise price
thereof.
--------------------------
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name
----------------------------------------------------------
(Please typewrite or print in block letters)
Signature
---------------------------------------------
--------------------------
ASSIGNMENT FORM
FOR VALUE RECEIVED, _______________________________________ hereby
sells, assigns and transfer unto
Name
----------------------------------------------------------
(Please typewrite or print in block letters)
Address
--------------------------------------------------------
the right to purchase Common Stock represented by this Warrant to the extent of
________ shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint ______________________ Attorney, to transfer
the same on the books of the Company with full power of substitution in the
premises.
Dated _______________, ________
Signature
-----------------------------
Signature Guaranteed
- ------------------------
10
<PAGE> 1
EXHIBIT 10.73
CONSOLIDATED CAPITAL OF NORTH AMERICA, INC.
AMENDMENT NO. 2 TO 10% CONVERTIBLE NOTES
Amendment made as of March 26, 1999 to the $2 million principal amount
of outstanding 10% Convertible Notes (the "Notes") of Consolidated Capital of
North America, Inc., a Colorado corporation (the "Company").
The Notes are amended as follows:
1. The Maturity Date of April 8, 1999 set forth in the first paragraph
of the Notes is hereby amended to January 15, 2000 and the Company shall not be
obligated to make any payment on the Notes, other than payment of interest,
until January 15, 2000.
2. The interest payment provisions set forth in the first paragraph of
the Notes shall continue until the new Maturity Date.
3. The conversion provisions set forth in Section 1 of the Notes shall
remain in effect until January 14, 2000.
4. Except as expressly set forth herein, all of the terms, covenants
and conditions of the Note shall otherwise remain in full force and legal
effect.
IN WITNESS WHEREOF, the Company has executed this Amendment to the
Notes as of the day and year set forth above.
CONSOLIDATED CAPITAL OF
NORTH AMERICA, INC.
By: /s/ Richard D. Bailey
------------------------
Richard D. Bailey
President and Chief
Operating Officer
<PAGE> 1
EXHIBIT 23.1
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of our
report dated January 21, 1999 on Toledo Pickling and Steel Sales, Inc.
incorporated by reference in this Form 10-Q SB, into Consolidated Capital of
North America, Inc.'s previously filed registration statement on Form S-8 (File
No. 333-50273).
/s/ARTHUR ANDERSEN LLP
May 14, 1999
Los Angeles, California
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 194,299
<SECURITIES> 0
<RECEIVABLES> 5,604,226
<ALLOWANCES> 235,978
<INVENTORY> 4,028,593
<CURRENT-ASSETS> 10,596,809
<PP&E> 13,136,699
<DEPRECIATION> 999,787
<TOTAL-ASSETS> 27,573,450
<CURRENT-LIABILITIES> 29,532,816
<BONDS> 3,110,825
0
1,193,000
<COMMON> 5,756
<OTHER-SE> (6,268,947)
<TOTAL-LIABILITY-AND-EQUITY> 27,573,450
<SALES> 12,816,907
<TOTAL-REVENUES> 12,816,907
<CGS> 11,079,473
<TOTAL-COSTS> 11,079,473
<OTHER-EXPENSES> 3,463,255
<LOSS-PROVISION> 18,510
<INTEREST-EXPENSE> 1,287,472
<INCOME-PRETAX> (2,821,726)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,821,726)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,821,726)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
