UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended October 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____________ to ____________
Commission file number 33-22426-D
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CONTINENTAL CAPITAL CORPORATION (Formerly known as PlanCapital U.S.A., Inc.,
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Club America, Inc. and Lexington Capital Corp.)
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(Exact name of Registrant as specified in charter)
Colorado 95-4047540
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(State or other jurisdic- (IRS Employer
tion of incorporation) Identification No.)
8950 Fullbright Avenue, Chatsworth, California 91311
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (818) 886-0008
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Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to be the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
State the aggregate market value of the voting stock held by non-
affiliates of the registrant. The aggregate market value shall
1
be computed by reference to the price at which the stock was sold, or the
average bid and asked prices of such stock, as of a specified date within 60
days prior to the date of filing. See "Security Ownership of Certain Beneficial
Owners and Management."
The Common Stock of the Company is not currently publicly traded.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
9,000,000 shares as of August 22, 1996
DOCUMENTS INCORPORATED BY REFERENCE
NONE
THE INDEX TO EXHIBITS IS FOUND ON PAGE 38.
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PART I
Item 1. Business.
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General
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Continental Capital Corporation (formerly known as PlanCapital U.S.A.,
Inc.; Club America, Inc. and Lexington Capital Corporation and hereinafter
referred to as the "Company" or "Registrant") was formed under the laws of the
State of Colorado on November 8, 1985.
The Company has entered into the business of marketing and leasing
various types of equipment, mainly in the transportation industry. The Company
intends to specialize specifically in commercial aircraft parts and equipment,
fleet commercial trucks and medical equipment. See "Aircraft Parts and
Equipment," below. There have been a large number of solicitations made in the
commercial airlines sector. There were a number of potential customers worked
with in the area of leasing, however, the only one which has entered into a
contract is CASC Shanghai (a China government agency) and Northern Airlines:
Sanya Limited. See "CASC Shanghai and Northern Airlines: Sanya Limited," below.
The Company has also entered into a formal letter of intent to formulate a joint
venture to market and distribute vending machines and products in China. See
"South China Construction & Development Company," below. Finally, the Company
has entered into the business of advertising on baggage claim carousels. See
"CarroSELL, Inc.," below.
There can be no assurance that the Company will be able to succeed in any
of these various endeavors. These businesses are in the formative stages.
Aircraft Parts and Equipment
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With regard to the sale of parts and equipment on a retail basis, the
Company has acquired inventory and entered into a marketing agreement with
Jacman Aircraft, Inc. as described below. The inventory is listed for sale on
two international data bases (available to the commercial and military
industries). The two data bases are Airs Spec 200 and Inventory Locator Service
(ILS). These data bases are available to subscribers throughout the world. These
are two well known providers out of a number of data bases available to
marketers and purchasers of aircraft equipment. Users pay monthly fees
according to their usage. Jacman Aircraft, Inc. has not as yet assigned a
marketing team to market the Company's inventory. However, sales have commenced
through direct inquiries generated through the data bases. Jacman is not
expected to assign a marketing team to market the Company's inventory until the
owners of Jacman are satisfied that the common stock of the Company is being
publicly traded. Jacman is currently actively marketing its other inventories.
The owners of Jacman feel that they do not wish to complicate the transaction in
view of the length of the time it has taken for the Company's common stock to
resume public trading. The decision by the Company to sell the inventory on a
piece by piece basis, rather than as a package, was based upon management's
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business judgment that the Company will thereby recognize more revenue.
Effective March 31, 1995, the Company merged with J.S.A., Incorporated, a
California corporation ("JSA"). As a result of the merger the Company acquired
certain of the assets of JSA in exchange for 1,700,000 shares of the common
stock of the Company. The Aronowitz Family Trust, was the sole shareholder of
JSA. Prior to the merger, there was no affiliation between the Company and The
Aronowitz Family Trust. The Aronowitz Family Trust recently agreed to waive
certain rights contained in the original agreement of merger, including demand
stock registration rights and potential rights to additional shares of common
stock of the Company in the future. In addition, the Trust's right to rescind
the merger agreement in the event that the common stock of the Company has not
been publicly traded has been amended to provide such right only in the event
that the shares have not been publicly traded by December 31, 1996.
The assets acquired by the Company consist of aircraft parts and equipment
which have an agreed value of $8,950,851.00 (which is 62% of the list prices
quoted in the inventory list provided by JSA). The inventory consists of over
6,000 different parts and equipment from large pieces of equipment such as large
fuel tanks to electronics, tires and interior parts. The equipment is for many
different models of aircraft including military aircraft of various
manufacturers. The aircraft parts and equipment consist of both military and
civilian aircraft. See "Government Regulation" below. The inventory is stored by
Jacman Aircraft, Inc. in its warehouse in Chatsworth, California as part of a
marketing arrangement. Jacman Aircraft, Inc. is responsible for inventory
control, documentation, stocking levels, repairs and surplus parts disposal. As
described above these assets are listed on an international computer system and
are sold as orders are received. Parts are usually shipped to customers by UPS.
In connection with the merger, the Company agreed to retain Jacman
Aircraft, Inc. as the exclusive distributor of all aircraft parts and equipment
for the Company. Jacman Aircraft, Inc. was entitled to the first $60,000 of the
net sales price received by the Company for the inventory. Jacman also receives
a 20% sales commission (5% if the sale is not made by Jacman). Neither Mr.
Aronowitz, nor Jacman, make any warranty on the inventory, whether new or
rebuilt. Jacman has recently agreed to make the distribution arrangement non-
exclusive. Jacman Aircraft is a California based aircraft parts and equipment
marketing firm. Jacman Aircraft, Inc. has been in the aircraft parts and
equipment sales business for over ten years and is well-respected throughout the
aircraft industry. JSA, Jacman Aircraft, Inc. and the Aronowitz Family Trust are
all affiliated entities. See "Item 13 - Certain Relationships and Related
Transactions."
The agreed to valuation of the inventory was arrived at through the
negotiations of Milton J. Wilpon, Chief Executive Officer of the Company, and
Jack Aronowitz, Chief Executive Officer of JSA after receiving an appraisal from
BCA, USA, Inc. of Miami,
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Florida (previously known as Bramco Aviation). BCA was recommended to the
Company by an attorney in Florida who had previous dealings with BCA. The
Company retained and compensated BCA. Mr. Fred Van Acker of BCA physically
inspected the inventory in Jacman's warehouse in Chatsworth, California.
Management of the Company believes that BCA was a reliable source in evaluating
inventory for acquisition.
BCA's appraisal was based upon an evaluation of 64.12% of the amounts
supplied by JSA as sales prices in its Master Inventory List. In negotiations
between the Company and Jack Aronowitz, following receipt of BCA's appraisal,
the value was further discounted to 62% from 64.12%. The total estimated retail
value of the inventory was $14,436,856 as determined from billing statements of
government agencies or various commercial data bases available to the airline
industry. By discounting this amount by 62%, the agreed value of $8,950,851 was
reached. JSA's original cost basis in the inventory was $50,000.
The 1,700,000 shares of the common stock of the Company which were
transferred in exchange for the inventory were valued at $8,950,851 by the
Company and Jack Aronowitz, or approximately $5.265 per share. Shortly prior to
the issuance of these shares, other parties received shares of the Company's
common stock for $.03 per share. These issuances were unrelated to the inventory
acquisition and were made to fulfill long-standing commitments of the Company,
and therefore at a significantly lower price per share. It is pure coincidence
that 1.7 million shares times $.03 per share equals $51,000, the approximate
historical cost of the inventory.
CASC Shanghai and Northern Airlines: Sanya Limited
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As of June 28, 1995, the Company entered into a Master Lease Agreement
with joint lessees CASC Shanghai and Northern Airlines: Sanya Limited. CASC
Shanghai is an official purchasing representative of China for a number of
civilian airlines. Its purpose is to aid airlines to find provisions of needed
aircraft parts and equipment from sources throughout the world. It also aids the
airlines in their negotiations of prices and purchasing and leasing terms. In
addition, Northern Airlines is one of the four largest airlines in China.
Northern Airlines: Sanya Limited is a division of China Northern Airlines and
flies MD-82 aircraft. Northern Airlines is approximately 30-40% the size of Air
China. The equipment to be leased is for Boeing aircraft and are of various
nature. The term of the Master Lease commences on the shipping date of the
initial amount of equipment and shall continue for a period of five years with a
total of $5,000,000 in aircraft parts and equipment, which is the total amount
of the lease. The lease agreement requires that the equipment and/or parts to be
leased shall be purchased by the Company from Jacman Aircraft, Inc. Delivery of
equipment under this lease was expected to begin in early 1996. The Company is
currently awaiting reapproval by new management of the lessees as well as
resolution as to the specific equipment and/or parts to be leased, as well as
pricing. Financing for this transaction is being provided for by the NAB Bank in
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Chicago, Illinois.
South China Construction & Development Company
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The Company has also entered into a formal letter of intent to form a
joint venture with South China Construction & Development Company from the
People's Republic of China. The business of the joint venture, which is still
being formulated, will be the marketing and distribution of vending machines and
the products related to the business. The Company is currently negotiating with
a number of suppliers and investment sources. The Company expects to enter
into many joint ventures with investors and investment groups in China, similar
to the licensing or franchising concept in the United States. The Company
intends to initially market soda and soft drink vending machines and products
attributed thereto and ultimately enter such other products as food, cigarettes,
candy, snacks, beer, etc.
The joint venture also intends to create a distribution company for the
products for these vending machines and ultimately the production of the
products. Pursuant to the joint venture agreement, all products sold in the
vending machines will be supplied by the joint venture exclusively. The
locations where the vending machines will be installed will be superior
pedestrian traffic locations such as airports, train stations, bus stations,
public buildings, banks, department stores, universities and other government
controlled locations. There can be no assurance that the Company will be able
to successfully compete in the vending business.
CarroSELL, Inc.
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On December 10, 1995, the Company entered into an Agreement of Purchase
and Sale of Stock with CarroSELL, Inc. and Paul Donner, the sole shareholder of
CarroSELL, Inc. whereby the Company acquired all of the capital stock of
CarroSELL, Inc. in exchange for 500,000 shares of the restricted common stock of
the Company. CarroSELL, Inc. will operate as a wholly owned subsidiary of the
Company. CarroSELL, Inc. is engaged in the business of advertising on baggage
claim carousels. With its proprietary process, CarroSELL, Inc. converts baggage
claim carousel panels into moving billboards. The Company agreed to transfer no
less than $250,000 to CarroSELL, Inc. on or before June 17, 1996, in order to
further the business of CarroSELL, Inc. These funds have been transferred. In
addition, Mr. Donner has waived his right to cancel the agreement in the event
that public trading of the common stock of the Company did not resume on or
before June 17, 1996.
Mr. Donner has an employment agreement with CarroSELL, Inc., a wholly
owned subsidiary of the Company, whereby he is employed as president of
CarroSELL, Inc. for a period of five years. Pursuant to this employment
agreement, Mr. Donner receives a compensation of $2,000 per month, health,
dental and life insurance as well as a leased vehicle and auto insurance. Mr.
Donner may terminate the employment agreement upon thirty days notice.
CarroSELL, Inc. has also retained Revolving Media Marketing, Inc., which is
owned by
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Mr. Donner, pursuant to a Business Consultant's Agreement dated December 10,
1995. For a term of five years, Revolving Media provides promotional and
marketing services in exchange for $5,000 per month plus 1 1/2% of gross sales.
In addition, Revolving Media is eligible to earn options to purchase a maximum
of 1,000,000 shares of common stock of the Company based upon net income after-
taxes of CarroSELL, Inc. during the next two fiscal years. See Item 11.
"Executive Compensation."
Former SEC Filing Delinquency
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The Company had been delinquent for several years in making filings with
Securities and Exchange Commission as required by the Securities Exchange Act of
1934. The delinquencies predated the re-acquisition by Jamesburg Companies,
Inc. of substantial holdings in, and control of, the Company. The Company has
filed all delinquent reports with the Securities and Exchange Commission in
order to bring the Company current in its reporting obligations to the
Securities and Exchange Commission and is now current in such reporting
obligations.
Previous Business History
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The Company was originally formed to evaluate, structure and complete a
merger with, or acquisition of, prospects consisting of private companies,
partnerships, or sole proprietorships. On August 22, 1989, the Company acquired
all of the assets of Jamesburg Companies, Inc. related to a venture known as
Club America in exchange for Six Hundred Twenty-Five Thousand shares of the
Common Stock of the Company (as adjusted for two one-for-four reverse stock
splits which the Company has effected). The assets acquired by the Company
included all trademark applications, all rights to the use of the name Club
America, all sales contracts, provider agreements, inventory, royalty agreements
and all other assets related to Club America. The Company also assumed a
$25,000 obligation of Jamesburg. Jamesburg thereby acquired approximately 88.5%
of the Company's common capital stock then outstanding.
The Company thereby became engaged on a national, direct\multi-level
marketing basis in the business of offering the American public a wide range of
products and services intended to save money on everyday needs. This business
did not succeed due to insufficient funding. In addition Fund America, which
was in a similar business with a similar name, was closed down by the Attorneys
General in California, Texas and Florida. This made it very difficult to
overcome the funding deficit. There was never any affiliation or relationship
between Fund America and the Company.
On November 14, 1991, a merger agreement was agreed to in principle with
PlanCapital U.S.A., Inc., a California corporation, whereby the California
corporation would be merged in the Company and would take controlling interest
of the Company in exchange for all the stock and assets of the California
corporation. The agreement was finalized on January 15, 1992, and the Company
changed its name from Club America, Inc., to PlanCapital U.S.A., Inc. In
connection with the merger, the Company effected one of
7
its two one-for-four reverse stock splits. In connection with the merger, a
majority of the Company's debts and accrued interest was converted into capital
contribution and/or exchanged for equity in the Company. The Company began
selling living trusts and prepaid legal services for individuals and small
businesses. The business was not successful because of inadequate financing.
Although the merger was not reversed, the assumption of long-term liabilities of
the California corporation and acquisition of certain notes receivable and
debentures in exchange for the Company's common stock and preferred stock were
reversed. The Company has no preferred stock outstanding.
During the years 1993 and 1994, the Company was not actively engaged in
any ongoing business.
A number of investors in the Company requested that Milton J. Wilpon and
members of his family regain control of the Company and attempt to resurrect the
Company through the acquisition of other new businesses. Milton J. Wilpon and
members of his family felt obligated, especially due to the fact that
PlanCapital failed to provide the Company with the additional funding it was
supposed to provide. Jamesburg Companies, Inc. provided the funds to go through
the process of reviving the Company. It paid legal fees, accounting fees, and
settled with creditors, including a tax lien of the Internal Revenue Service.
Milton, Ronald and Eugene Wilpon each contributed their time and effort without
compensation. It has taken over three years to go through the process. Due to
the reputation of the Wilpon family and their ability to put businesses together
they were able to negotiate and create the Company as it presently exists.
Jamesburg Companies, Inc. anticipates that the funds expended by it on behalf of
the Company will eventually lead to an investment that will yield a rate of
return in excess of other investment opportunities which have been considered by
Jamesburg.
Products and Manufacturing
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The process utilized by CarroSELL, Inc. to advertise on baggage claim
carousels is patented. All other products are non-proprietary. The Company
currently has no manufacturing facilities of its own and relies on independent
manufacturing firms to produce its products.
Marketing - General
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The Company has discussed distribution and marketing of its products
through licensing and/or joint venture agreements with a number of potential
distributors. The Company has retained Jamesburg Companies, Inc. ("JCI"), at a
cost of $6,000 per month, to complete the initial phase of the operations of the
Company. See "Item 13 - Certain Relationships and Related Transactions." The
Company has retained Jacman Aircraft, Inc. as a distributor of aircraft parts
and equipment for the Company. See "Aircraft Parts and Equipment," above.
8
Marketing - CarroSELL, Inc.
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CarroSELL, Inc., a wholly owned subsidiary of the Company, has retained
Revolving Media Marketing, Inc., which is owned by Paul Donner, the president of
CarroSELL, Inc., pursuant to a Business Consultant's Agreement dated December
10, 1995. For a term of five years, Revolving Media provides promotional and
marketing services. See "Item 11 - Executive Compensation." Revolving Media
assisted in the development of the patents and trademarks for CarroSELL, Inc.
and helped to establish moving billboards on baggage carousels as a legitimate
advertising medium.
CarroSELL, Inc. has an independent marketing company agreement with
Itochu Aviation Co., Ltd., in Japan for exclusive marketing rights in Japan and
Hong Kong. CarroSELL will receive 30% of gross receipts. Itochu is the third
largest company in the world according to Fortune and Forbes Magazine. CarroSELL
has also recently signed an agreement with one of the largest airport
advertising companies in the world, TMI of Chicago, Illinois. The contract
grants exclusive marketing rights to TMI for national advertising accounts for
the U.S.A. TMI currently has the advertising rights for some of the busiest
airports in the United States, including those in the cities of Chicago, Newark,
Denver, Boston, Dallas\Fort Worth and Atlanta.
Competition - General
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The Company anticipates substantial competition with respect to all of
its current and proposed products. The Company is engaged in fields
characterized by extensive research efforts and rapid and significant
technological change. There can be no assurance that research or discoveries by
others will not render the Company's plans superfluous or its products obsolete.
Many of the Company's competitors are well known and established companies with
vastly greater capital resources, larger research and development staffs and
more extensive marketing capabilities than those of the Company.
Competition - Marketing and Leasing Operations
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The markets for aircraft parts and equipment and the leasing thereof are
characterized by vigorous competition. See "Business-General." There are
hundreds of companies throughout the world which service the industry.
Competition - CarroSELL, Inc.
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The market for advertising in passenger travel terminals is characterized
by vigorous competition. There are a small number of large companies which
control the industry. CarroSELL's method of advertising on the carousels is
unique and proprietary. CarroSELL, Inc.'s method of affixing the advertising by
replacing the panels of the carousel is patented. See "Patents" below. The
Company's patents give it competitive advantages with regard to advertising on
the carousels and "snakes." See "Marketing - CarroSELL, Inc." above.
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Competition - South China Construction & Development Company
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Management is not aware of any significant vending machine competition in
the People's Republic of China. No assurance can be given that vigorous
competition will not develop, or that the proposed joint venture will be
successful.
Government Regulation
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The Company's inventory of aircraft parts and equipment consists of both
military and civilian aircraft. The parts are not certified by the Federal
Aviation Administration. Management believes military parts are often
interchangeable with civilian aircraft parts. A recent Advisory Circular of the
Federal Aviation Administration, dated May 24, 1996, provided as follows:
SURPLUS. Many materials, parts, appliances, and components that have
been released as surplus by the military service or by manufacturers may
originate from obsolete or overstocked items. Parts obtained from surplus
sources may be used, provided it is established that they meet the
standards to which they were manufactured, interchangeability with the
original part can be established, and they are in compliance with all
applicable [Advisory Directives]. Such items, although advertised as
"remanufactured," "high quality," "like new," "unused," or "looks good,"
should be carefully evaluated before they are purchased. The storage time,
storage conditions or shelf life of surplus parts and materials are not
usually known.
Foreign operations will be subject to general risks attendant to the
conduct of business in foreign countries including unsettled political
situations and economies, foreign governmental regulations and fluctuations in
currency values. In addition, certain countries in which the Company may
operate may maintain exchange controls on repatriation of earnings and capital.
Employees
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The Company has retained Jamesburg Companies, Inc., at a cost of $6,000 per
month, to complete the initial phase of the leasing and vending operations. See
"Item 13 - Certain Relationships and Related Transactions." Jamesburg Companies,
Inc. does business as a consulting business. There are currently no full-time
employees. Milton, Ronald and Eugene Wilpon contribute their time to the
operation of Jamesburg. Jamesburg had revenues of $63,000 in its last fiscal
year.
The Company does not have any other employees. The Company does retain
other companies, such as Jacman Aircraft, Inc. and Revolving Media Marketing,
Inc. See below. As the need for additional employees develops, employees will
be hired. Management is currently providing its services without payroll until
such time as the Company recognizes income or funds are otherwise available.
10
In connection with the merger of the Company with JCI, Incorporated, the
Company agreed to retain Jacman Aircraft, Inc. as a distributor of aircraft
parts and equipment for the Company. See "Item 1 - Business - Aircraft Parts and
Equipment." Jacman Aircraft has been in the business of retailing aircraft parts
for over ten years and employs 28 people other than Mr. Jack Aronowitz.
Other than Paul Donner, the president of CarroSELL, Inc., CarroSELL, Inc.
does not have any employees. CarroSELL, Inc. does retain the services of
independent contractors as the need arises from time to time. As the need for
additional employees develops, employees will be hired.
Patents
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The process for obtaining a United States Patent begins with the filing of
a patent application in the U.S. Patent and Trademark Office. The patent laws
provide that inventions may be patented by the discoverer of the invention. The
patent application is examined by a patent examiner who may reject or allow all
or some of the claims of the patent application. The United States Patent Office
has granted three separate patents for converting baggage carousels to moving
billboards. These patents are owned by CarroSELL, Inc., a wholly owned
subsidiary of the Company. CarroSELL, Inc. owns foreign patents or applications
for these inventions which have either been issued or are pending in most
economically important foreign countries. There can be no assurance that any
patent that has been or may be granted or obtained by the Company in the future
will be enforceable or will provide the Company with meaningful protection from
competition.
Item 2. Properties.
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The Company's offices and warehousing facilities are located at the site of
the principle offices. They are located on the premises of Jacman Aircraft and
are provided rent-free to the Company. The total space available to the Company
is approximately 10,000 square feet of storage space and approximately 1,500
square feet of office and administrative space. The arrangement with Jacman
Aircraft is month to month. The Company anticipates moving its executive offices
to a new location in the near future. The Company also has shared office space
available rent-free in New York City (approximately 1,200 square feet) from
Eugene L. Wilpon, a director of the Company, as well as in Chicago, Illinois
(approximately 1,000 square feet) from a consultant to the Company. See "Item 13
- - Certain Relationships and Related Transactions." These offices are available
to the Company whenever necessary to conduct its business, including meetings,
telephone conferences and secretarial assistance. Each of these arrangements are
on a month-to-month basis. CarroSELL, Inc. also has approximately 500 square
feet of administrative space at Dallas Fort Worth Airport in connection with its
operations at the airport.
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Item 3. Legal Proceedings.
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Management is not aware of any material litigation pending against the
Company, its subsidiary or their properties.
Item 4. Submission of Matters to a Vote of Security Holders.
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A special meeting of shareholders of record on December 12, 1994, of the
Company was held on December 27, 1994, in Chatsworth, California to review,
discuss, consider, approve or disapprove the merger agreement with JSA,
Incorporated and to approve the change of the name of the Company to Continental
Capital Corporation and to approve the second one-for-four reverse split of the
common stock of the Company. All items were approved. 524,313 shares (as
adjusted for the reverse stock splits) voted in favor of the proposals. No
shares voted against the proposals.
PART II
Item 5. Market for Registrant's Common Equity and Related
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Stockholder Matters.
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The Company's Common Stock is not currently being publicly traded. There
has been no trading during the two most recent fiscal years nor any subsequent
interim period for which financial statements are, or should be, included. There
have therefore been no reported quotations for the Company's Common Stock. As of
December 18, 1995, there were approximately 270 shareholders of record of the
Company's Common Stock.
The Company has not paid any dividends to its shareholders and has no
present intention of changing this policy.
Item 6. Selected Financial Data.
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The following selected financial data, insofar as it relates to each of the
fiscal years ended October 31, 1993 through 1995, has been derived from annual
financial statements including the balance sheets at October 31, 1995 and 1994
and the related statements of operations and shareholder's equity and cash flows
for the three fiscal years ended October 31, 1995 and notes thereto appearing
elsewhere herein. This information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and Notes thereto.
12
SELECTED FINANCIAL DATA
Twelve Month Twelve Month Twelve Month Twelve Month Twelve Month
Period ended Period ended Period ended Period ended Period ended
Oct. 31, 1995 Oct. 31, 1994 Oct. 31, 1993 Oct. 31, 1992 Oct. 31, 1991
Results of Operations:
Operating Revenues $ 61,120.00 $- $- $ 307,893.00 $ 239,566.00
Income (loss) $ 5,895.00 $ (800.00) $ (800.00) $(306,129.00) $ (756,575.00)
Income (loss) per share $- $- $- $ (0.09) $ (0.06)
Balance Sheet Data: Oct. 31, 1995 Oct. 31, 1994 Oct. 31, 1993 Oct. 31, 1992 Oct. 31, 1991
Total Assets $208,876.00 $- $- $- $ 21,124.00
Total Liabilities $203,211.00 $ 508,711.00 $ 507,911.00 $ 507,111.00 $ 1,156,426.00
Total SH's Equity (Deficit) $ 5,665.00 $(508,711.00) $(507,911.00) $(507,111.00) $(1,135,302.00)
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Item 7. Management's Discussion and Analysis of Financial Condition
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and Results of Operations.
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Liquidity and Capital Resources
- -------------------------------
Management believes that the Company has substantial assets to meet current
financial requirements due to the value of the inventory and the line of credit
from NAB Bank. For the year ended October 31, 1995, the Company experienced a
net increase in cash of $159,052. This increase resulted from receipt of the
line of credit financing from NAB Bank in the amount of $175,000 and the sale of
common stock for $12,500.
The Company has begun to recognize revenues from the sale of its inventory
of aircraft parts and equipment acquired in March 1995. See "Item 1 - Business -
Aircraft Parts and Equipment" and "Results of Operations," below. The Company
intends to sell the inventory on hand to generate cash. The Company also expects
to recognize revenue from the operations of its subsidiary, CarroSELL, Inc. See
below. The officers of the Company are currently donating their time and efforts
to the Company. The Company is not labor intensive. The Company also receives
free office, storage and other administrative services. See "Item 2 -
Properties." The Company has funded its activities through bank lines of credit,
advances from its principal shareholders, subordinated debt, the proceeds of its
1989 public offering and sales of its products. The Company currently has a
line of credit in the amount of $380,000 from NAB Bank which bears interest at a
per annum rate equal to the prime rate of interest as announced by the American
National Bank and Trust Company of Chicago plus two percent (2%). As of October
31, 1995, $175,000 had been drawn by the Company from this line of credit. The
Company has subsequently drawn down the remaining available balance on this line
of credit. Management anticipates that future cash needs will be met out of
revenues, the sale of its inventory, through additional loans or other potential
revenue and capital resources.
The Company anticipates that various equipment providers will extend
certain credit lines to the Company which will enable it to acquire equipment
when needed. The Company intends to conduct its leasing business in cooperation
with banks and existing leasing companies on a non-recourse basis until such
time as it has sufficient capital to extend its own direct funding. Transactions
are completed relatively quickly in the aircraft industry due to the fact that
down time of the aircraft is very costly. Therefore C.O.D. sales are quite
common.
The acquisition of CarroSELL, Inc. is expected to generate revenue for the
Company as well. See "Item 1 - Business - Marketing - CarroSELL, Inc." The
Company agreed to transfer no less than $250,000 to CarroSELL, Inc. on or before
June 17, 1996, in order to further the business of CarroSELL, Inc. The Company
has already completed this transfer.
14
Mr. Paul Donner has an employment agreement with CarroSELL, Inc. whereby he
is employed as president of CarroSELL, Inc. for a period of five years. See
"Item 11 - Executive Compensation -Employment Agreements." Pursuant to this
employment agreement, Mr. Donner receives compensation of $2,000 per month,
health, dental and life insurance as well as a leased vehicle and auto
insurance. CarroSELL, Inc. has also retained Revolving Media Marketing, Inc. For
a term of five years, Revolving Media provides promotional and marketing
services in exchange for $5,000 per month plus 1 1/2% of gross sales. Financing
is expected to come from revenues of CarroSELL, Inc.
As of June 28, 1995, the Company entered into a Master Lease Agreement with
joint lessees CASC Shanghai and Northern Airlines: Sanya Limited. See "Item 1 -
CASC Shanghai and Northern Airlines: Sanya Limited." Shipments will not begin
until the agreement is reapproved by new management of the lessees and
resolution is reached as to the specific equipment and/or parts to be leased, as
well as pricing. Financing for this transaction is being provided by the NAB
Bank in Chicago, Illinois.
The Company has also entered into a formal letter of intent to form a joint
venture with South China Construction & Development Company from the People's
Republic of China. See "Item 1 - Business - South China Construction &
Development Company." The Company is currently negotiating with a number of
suppliers and investment sources. The Company expects to enter into many joint
ventures with investors and investment groups in China, similar to the licensing
or franchising concept in the United States. Funding for these joint ventures is
expected to come from joint venture partners.
Results of Operations
- ---------------------
The Company has recently entered into the business of marketing and leasing
various types of equipment, mainly in the transportation industry. Effective
March 31, 1995, the Company through a merger with J.S.A., Incorporated, a
California corporation ("JSA") acquired aircraft parts and equipment which have
an agreed value of $8,950,851.00. See "Item 1 - Business - Aircraft Parts and
Equipment." The sale of a portion of the acquired inventory resulted in revenues
for the Company which had been inactive for several years.
The Company realized revenue of $61,120 for the year ended October 31,
1996, as compared with $0 for 1994. These revenues consisted mainly of the sale
of aircraft parts and equipment in addition to an isolated brokerage transaction
which produced $8,638 in brokerage income. See "Note 6 to Financial Statements."
The Company's results of operations reflect net income of $5,895 (or $.OO per
share) for the year ended October 31, 1995, compared to a net loss of $800 (or
$.00 per share) for the same period in 1994.
Costs and expenses for 1995 totaled $55,225 ($.01 per share) compared to
$800 for 1994. These costs and expenses were primarily comprised of selling,
general and administrative expenses in the
15
amount of $34,341 and management services of $6,000 incurred in connection with
the resumption of operations and rent in the amount of $14,000.
Management is not aware of any known trends or uncertainties that have had
or that the Company reasonably expects will have a material favorable or
unfavorable impact on net sales or revenue or income from continuing operations.
The Company does not know of any events that will cause a material change in the
relationship between costs and revenues.
Inflation
- ---------
The Company has limited experience with respect to the effect of inflation
on its business. However, the different industries in which the Company is
engaged are well developed and, based on management's understanding of each
industry experience, it believes that inflation will not have a significant
impact on the results of the Company's operations in the future.
Item 8. Financial Statements and Supplementary Data.
- ------ -------------------------------------------
The financial statements required by this item are set forth as indicated
in Item 14(a)(i).
Item 9. Changes in and Disagreements With Accountants on Accounting
- ------ -----------------------------------------------------------
and Financial Disclosure.
------------------------
NONE.
PART III
Item 10. Directors and Executive Officers of the Registrant.
- ------- --------------------------------------------------
The present directors and executive officers of the Company are listed
below, together with brief accounts of their experience and certain other
information.
Year First
Name Age Office Elected
- ------------------- --- ---------------------------- -------
Milton J. Wilpon 65 Chairman of the Board 1994
Chief Executive Officer 1994
Ronald L. Wilpon 37 Director 1989
Treasurer 1994
Eugene L. Wilpon 65 Director 1989
Secretary 1994
Paul Donner 40 President of CarroSELL, Inc. 1995
All officers, except Mr. Donner, serve at the pleasure of the
16
Board. Mr. Donner has an employment agreement with CarroSELL, Inc., and
Revolving Media Marketing, Inc. (which he owns) has a consultant's agreement
with CarroSELL, Inc. See "Item 11 - Executive Compensation." Ronald L. Wilpon is
the son of Milton J. Wilpon. Eugene L. Wilpon is a first cousin of Milton J.
Wilpon. See "Item 13 - Certain Relationships and Related Transactions."
Directors serve until the next annual meeting of shareholders and until their
respective successors are elected and qualified.
Business Experience of Directors and Executive Officers
- -------------------------------------------------------
Milton J. Wilpon has been Chairman of the Board of Directors and Chief
----------------
Executive Officer of the Company since October 1994. From 1989 to 1992, he
served in the same capacities. At the time of the Company's merger with
PlanCapital in 1992, Mr. Wilpon resigned from the Company. Mr. Wilpon worked as
a consultant for the Company from 1992 through 1994. He has been a consultant
for Jamesburg Companies, Inc. from 1989 to present.
Ronald L. Wilpon has been a Director of the Company since 1989. He was
----------------
president of the Company from 1989 to 1994. He has worked only part-time for the
Company since 1992. Since 1992 he has worked with Eugene L. Wilpon in various
business ventures. He has been Treasurer of the Company since October 1994. He
received a bachelors degree in finance from the University of Hawaii in 1982.
Ronald L. Wilpon is the son of Milton J. Wilpon and a second cousin of Eugene L.
Wilpon, a director of the Company.
Eugene L. Wilpon has been a Director of the Company since 1989 and the
----------------
Secretary of the Company since October 1984. He has been self-employed as a tax
professional for over thirty years. He is admitted to the practice of law in
the States of New York and Florida. He is also a licensed C.P.A. in Florida.
Mr. Wilpon has taught Tax Law at New York University and served two terms as
President of the Lawyers' and Accountants' Society of New York. He also is part
owner of a restaurant, Ess-A-Bagel, Inc. He is a first cousin of Milton J.
Wilpon and second cousin of Ronald L. Wilpon
Paul Donner is the president and a director of CarroSELL, Inc., a wholly
-----------
owned subsidiary of the Company. See "Item 1 - Business - CarroSELL, Inc." He
has been President of Revolving Media Marketing, Inc. since 1991. Revolving
Media assisted in the development of the patents and trademarks for CarroSELL,
Inc. and helped to establish moving billboards on baggage carousels as a
legitimate advertising medium. From 1989 to 1992, Mr. Donner served as
president of NeuroSync, Inc. which was engaged in the development and marketing
of consumer electronic products through catalogs. From 1984 to 1989 he served as
President of Paradigms for Excellence, a company engaged in the design and
marketing of corporate training programs for businesses implementing changes.
Item 11. Executive Compensation.
- ------- ----------------------
For the fiscal year ended October 31, 1995, all executive officers of the
Company as a group, including Jamesburg Companies,
17
Inc. (5 persons), had aggregate cash compensation of approximately $16,000. The
Company has retained Jamesburg Companies, Inc., at a cost of $6,000 per month,
to complete the initial phase of the leasing and vending operations. See "Item
13 - Certain Relationships and Related Transactions."
Employment Agreements
- ---------------------
Mr. Donner, on December 10, 1995, entered into an employment agreement with
CarroSELL, Inc., a wholly owned subsidiary of the Company whereby he is employed
as president of CarroSELL, Inc. for a period of five years. Pursuant to this
employment agreement, Mr. Donner receives a compensation of $2,000 per month,
health, dental and life insurance as well as a leased vehicle and auto
insurance. Mr. Donner may terminate the employment agreement upon thirty days
notice. CarroSELL, Inc. has also retained Revolving Media Marketing, Inc., which
is owned by Mr. Donner, pursuant to a Business Consultant's Agreement dated
December 10, 1995. For a term of five years, Revolving Media provides
promotional and marketing services in exchange for $5,000 per month plus 1 1/2%
of gross sales. In addition, Mr. Donner is eligible to earn options to purchase
a maximum of 1,000,000 shares of common stock of the Company based upon annual
net income after-taxes of CarroSELL, Inc. during the next two fiscal years
according to the following formula:
Net Income of Number of Shares Exercise Price
CarroSELL, Inc. Subject to Option Per Share of Stock
- ------------------ ----------------- ------------------
$1,000,000 100,000 $2.00
$2,000,000 200,000 $1.75
$3,000,000 200,000 $1.50
$4,000,000 200,000 $1.25
$5,000,000 300,000 $1.00
Any options granted based upon sales during the first fiscal year of the
agreement will not be available for grant during the second year. Any options
granted will be exercisable for a period of two years following the date of
grant.
The Company does not have employment agreements with any of its other
officers or directors. Competitive compensation and incentive programs will be
instituted when operations achieve a profitable performance acceptable to the
Company's Board of Directors. Directors who are not salaried employees of the
Company are compensated at the rate of $250 for each Board meeting attended.
18
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- ------- --------------------------------------------------------------
The following table sets forth, as of December 18, 1995, certain
information concerning the ownership of shares of the Company's Common Stock by
persons owning more than 5% of the outstanding shares of the Common Stock and
the Directors of the Company and by Directors and Officers as a group.
Name and Address Percentage of
of Beneficial Owner Shares Owned Outstanding Shares
- ------------------- ------------ ------------------
Jamesburg Companies, Inc. 4,655,109 (1) 51.72%
225 Broadway Suite 1008
New York, NY 10007
Milton J. Wilpon 0 0.00%
23814 Strathern Street
West Hills, California 91304
Ronald L. Wilpon 92,188 (2) 1.02%
7 Hallo Street
Edison, New Jersey
Eugene L. Wilpon 93,750 (3) 1.04%
225 Broadway
New York, NY
Paul Donner 0 (4) (5) 0.00%
315 First Street
Suite U-190
Encinitas, CA 92024
J & T Aronowitz Family Trust 1,700,000 (6) 18.89%
8950 Fulbright
Chatsworth, California 91311
Jamesburg Companies, Inc. 4,841,047 (1-6) 53.79%
and all directors and
officers as a group
(5 persons)
(1) Ronald L. Wilpon, Milton J. Wilpon and Eugene L. Wilpon may be deemed
to have shared voting power with respect to the Company's Common Stock owned by
JCI. See "Item 13 - Certain Relationships and Related Transactions."
(2) Does not include 12,500 shares owned by Ronald L. Wilpon's daughter as
to which shares Ronald L. Wilpon disclaims any beneficial interest.
(3) 93,750 shares are owned by Eugene L. Wilpon's wife.
(4) Paul Donner is the President of CarroSELL, Inc., a wholly owned
subsidiary of the Company.
19
(5) Does not include options which will be issuable to Mr. Donner in the
event that net income of CarroSELL, Inc. exceeds $1,000,000 in either or both of
the next fiscal years. See Item 11. "Executive Compensation."
(6) The Aronowitz Family Trust has "piggyback" registration rights for
these shares.
Jamesburg may be deemed a "parent" or "promoter" of the Company under the
Securities Act of 1933. Milton J. Wilpon, Eugene L. Wilpon and Ronald L. Wilpon
may be deemed a "parent" of JCI and therefore a "parent" of the Company under
the Securities Act of 1933. See Item 10 "Directors and Executive Officers of
the Registrant" and "Item 13 - Certain Relationships and Related Transactions."
Item 13. Certain Relationships and Related Transactions.
- ------- ----------------------------------------------
Effective August 22, 1989, the Company sold Six Hundred Twenty-Five
Thousand (625,000) shares of the Common Stock of the Company (as adjusted for
two separate one-for-four reverse stock splits which the Company has effected)
to Jamesburg Companies, Inc. in exchange for all of the assets of Jamesburg
related to its use of the name Club America and all the assets related to the
Club America business. The Company assumed a $25,000 obligation of Jamesburg.
Jamesburg thereby acquired 88.5% of the Company's Common Stock. Jamesburg's
nominees were elected as Directors of the Company in August 1989. Management of
Jamesburg had no relationship with, and had not engaged in any transactions
with, the Company prior to Jamesburg's purchase of the Company's shares. There
were no board members in common at that time. Milton J. Wilpon, Ronald L.
Wilpon and Eugene L. Wilpon were directors of Jamesburg at the time of the
transaction. The purpose of the transaction was to provide a business
opportunity for the Company. The Company believes that the consideration for the
shares was as favorable as could be obtained from other companies with which the
Company was negotiating at the time. No independent valuation was established.
Jamesburg Companies, Inc. has loaned the Company funds for operations from
time to time on an unsecured basis without interest. The purpose of these loans
was to allow the Company to continue its operations. Pursuant to an exemption
under Regulation D, a total indebtedness of $92,145 was converted into 4,703,691
shares of the common stock of the Company in March 1995 (or approximately $.02
per share). The Company has also retained Jamesburg Companies, Inc., at a cost
of $6,000 per month, to complete the initial phase of the leasing and vending
operations. Jamesburg Companies, Inc. is owned by The Jamesburg Trust. Milton J.
Wilpon, Ronald L. Wilpon and Eugene L. Wilpon, directors of the Company, are
each trustees of The Jamesburg Trust. Ronald L. Wilpon is a 40% beneficiary of
The Jamesburg Trust. Milton J. Wilpon, the Company's President, is a director
of JCI. Ronald L. Wilpon is the President and a Director of JCI. Eugene L.
Wilpon is Vice President and a Director of JCI.
20
In March 1995, William Gruits transferred certain contractual rights and
residual rights valued at $25,500 to the Company in exchange for 850,000 shares
of the common stock of the Company (or $.03 per share). The Company also sold
415,000 shares of the common stock of the Company to the Alan Stern Group in
exchange for $12,500 (or $.03 per share). These offerings were made pursuant to
exemptions provided by Regulation D.
Ronald L. Wilpon was employed as President of the Company in August 1989.
He has been Treasurer of the Company since October 1994. He does not presently
draw a salary from the Company. He is the son of Milton J. Wilpon, Chairman of
the Company's Board of Directors.
Eugene L. Wilpon has been a Director of the Company since August 1989. He
has been Secretary of the Company since October 1994. He does not presently
draw a salary from the Company. He is a first cousin of Milton J. Wilpon.
Effective March 31, 1995, the Company merged with J.S.A., Incorporated, a
California corporation ("JSA"). As a result of the merger the Company acquired
certain of the assets of JSA in exchange for 1,700,000 shares of the common
stock of the Company. Management of JSA had no relationship with, and had not
engaged in any transactions with, the Company prior to the acquisition. There
were no board members in common. The purpose of the transaction was to provide a
business opportunity for the Company. The Company believes that the
consideration for the shares was as favorable as could be obtained from other
companies with which the Company was negotiating at the time. No independent
valuation (other than the value of the inventory) was established. The stock
acquired by JSA's former shareholder has certain "piggyback" registration
rights. The assets acquired by the Company consist of aircraft parts and
equipment which have an agreed value of $8,950,851.00 (which is 62% of the list
prices quoted in the inventory list provided by JSA). In connection with the
merger, the Company agreed to retain Jacman Aircraft, Inc. as the exclusive
distributor of all aircraft parts and equipment for the Company. Jacman
Aircraft, Inc. was entitled to the first $60,000 of the net sales price received
by the Company for the inventory. Jacman also receives a 20% sales commission
(5% if the sale is not made by Jacman). This agreement has been amended to
provide for a non-exclusive arrangement. Jacman Aircraft is a California based
aircraft parts and equipment marketing firm. JSA, Jacman Aircraft, Inc. and the
Aronowitz Family Trust are all affiliated entities. Mr. Jack Aronowitz is the
chief executive officer of Jacman Aircraft, Inc. Mr. Aronowitz and his family
are the beneficiaries of the Aronowitz Family Trust which was the sole
shareholder of JSA. Mr. Aronowitz had been the chief executive officer of JSA
prior to the merger.
On December 10, 1995, the Company entered into an Agreement of Purchase and
Sale of Stock with CarroSELL, Inc. and Paul Donner, the sole shareholder of
CarroSELL, Inc. whereby the Company acquired all of the capital stock of
CarroSELL, Inc. in exchange for 500,000 shares of the restricted common stock of
the Company.
21
CarroSELL, Inc. will operate as a wholly owned subsidiary of the Company.
CarroSELL, Inc. is engaged in the business of advertising on baggage claim
carousels. With its proprietary process, CarroSELL, Inc. converts baggage claim
carousel panels into moving billboards. The Company agreed to transfer no less
than $250,000 to CarroSELL, Inc. on or before June 17, 1996, in order to further
the business of CarroSELL, Inc. These funds have been transferred. In addition,
Mr. Donner has waived his right to cancel the agreement in the event that public
trading of the common stock of the Company did not resume on or before June 17,
1996.
Mr. Donner has an employment agreement with CarroSELL, Inc., a wholly owned
subsidiary of the Company whereby he is employed as president of CarroSELL, Inc.
for a period of five years. Pursuant to this employment agreement, Mr. Donner
receives compensation of $2,000 per month, health, dental and life insurance as
well as a leased vehicle and auto insurance. Mr. Donner may terminate the
employment agreement upon thirty days notice. CarroSELL, Inc. has also retained
Revolving Media Marketing, Inc., which is owned by Mr. Donner, pursuant to a
Business Consultant's Agreement dated December 10, 1995. For a term of five
years, Revolving Media provides promotional and marketing services in exchange
for $5,000 per month plus 1 1/2% of gross sales. In addition, Revolving Media
is eligible to earn options to purchase a maximum of 1,000,000 shares of common
stock of the Company based upon net income after-taxes of CarroSELL, Inc. during
the next two fiscal years. See Item 11. "Executive Compensation."
Milton J. Wilpon, the Company's President, has personally guarantied any
liabilities of the Company in excess of $50,000 which exist as of October 31,
1995 and are not reflected on the balance sheet of the Company as of that date.
Management is unaware of any liabilities which are not reflected on the
Company's balance sheet.
The Company currently has a line of credit in the amount of $380,000.
Milton J. Wilpon and Eugene L. Wilpon, directors of the Company, are guarantors
on this secured line of credit.
Management of the Company believes that all transactions as described above
have been on terms no less favorable to the Company than those that could have
been obtained from unaffiliated parties.
22
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
- ------- ----------------------------------------------------------------
(a) Documents Filed with Report:
---------------------------
1. Financial Statements and Financial Statement Schedules.
The Financial Statements and Financial Statement Schedules listed
in the accompanying Index to Financial Statements are filed as
part of this report.
2. Exhibits.
The Exhibits listed on the accompanying Index to Exhibits are
filed as part of this report.
(b) Reports on Form 8-K:
-------------------
NONE.
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CONTINENTAL CAPITAL CORPORATION
Date: August 26, 1996 By:__________________________________
Milton J. Wilpon, President,
Principal Executive Officer and
Chairman of the Board
Date: August 26, 1996 By:_____________________________________
Ronald L. Wilpon, Principal Financial
and Accounting Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: August 26, 1996 By:__________________________________
Milton J. Wilpon, President,
Principal Executive Officer and
Chairman of the Board
Date: August 26, 1996 By:______________________________________
Ronald L. Wilpon, Principal Financial
and Accounting Officer and Director
Date: August 26, 1996 By:_________________________________
Eugene L. Wilpon, Director
Supplemental Information to be Furnished With Reports Filed Pursuant to Section
15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to
Section 12 of the Act.
No annual report or proxy material has been sent to
security holders.
24
CONTINENTAL CAPITAL CORPORATION
-------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
------------------------------------------
Financial Statements Page
- -------------------- ----
Independent Auditor's Report F-1
Balance Sheets - as of October 31, 1995 and 1994 F-2
Statements of Operations for the Years
Ended October 31, 1995, 1994 and 1993 F-3
Statements of Shareholders' Equity (Deficiency) for the
Years Ended October 31, 1995, 1994 and 1993 F-4
Statements of Cash Flows for the Years Ended
October 31, 1995, 1994 and 1993 F-5
Notes to Financial Statements F-6
25
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Board of Directors and Stockholders of
Continental Capital Corporation
I have audited the accompanying balance sheets of Continental Capital
Corporation, as of October 31, 1995 and 1994, and the related statements of
operations, shareholders' equity (deficiency) and cash flows for each of the
three years in the period ended October 31, 1995. These financial statements are
the responsibility of the Company's management. My responsibility is to express
an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Continental Capital Corporation as
of October 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the three years in the period ended October 31, 1995 in
conformity with generally accepted accounting principles.
JON H. KLINE, C.P.A., P.C.
Rochester Hills, Michigan
December 20, 1995 except for the second paragraph of
Note 9, as to which the date is June 7, 1996
F-1
CONTINENTAL CAPITAL CORPORATION
BALANCE SHEETS
OCTOBER 31, 1995 AND 1994
1995 1994
---- ----
ASSETS
------
Current Assets:
Cash on hand and in bank $ 159,052 $ -
Inventory 49,824 -
----------- -----------
Total current assets 208,876 -
----------- -----------
Total assets $ 208,876 $ -
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
- -------------------------------------------------
Current Liabilities:
Line of credit financing $ 175,000 $ -
Accounts payable and accrued expenses 28,211 125,545
Loans payable, shareholders - 383,166
----------- -----------
Total current liabilities 203,211 508,711
----------- -----------
Commitments and Other Matters
Shareholders' Equity (Deficiency) (Notes 1 and 3):
Preferred stock, no par value; authorized 2,000 shares Series A
and 1,00 shares Series B; none issued - -
Common stock, $.001 par value; authorized 100,000,000 shares
issued and outstanding 8,500,000 in 1995 and 831,309 in 1994 8,500 831
Additional paid-in capital 1,811,546 1,310,734
Deficit (1,814,381) (1,820,276)
----------- -----------
Total shareholders' equity (deficiency) 5,665 (508,711)
----------- -----------
Total liabilities and shareholders' equity $ 208,876 $ -
=========== ===========
See notes to financial statements.
F-2
CONTINENTAL CAPITAL CORPORATION
STATEMENTS OF OPERATIONS
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
1995 1994 1993
---- ---- ----
Revenues:
Sales of aircraft parts and equipment $ 52,482 $ - $ -
Brokerage income 8,638 - -
---------- -------- --------
Total revenues 61,120 - -
---------- -------- --------
Costs and Expenses:
Cost of sales 176 - -
Selling, general and administrative 34,341 - -
Management services 6,200 800 800
Rent 14,000 - -
Interest 508 - -
---------- -------- --------
Total costs and expenses 55,225 800 800
---------- -------- --------
Income (Loss) before Income Taxes 5,895 (800) (800)
Provision for Income Taxes - - -
---------- -------- --------
Net Income (Loss) $ 5,895 $ (800) $ (800)
========== ======== ========
Earnings (Loss) per Common Share $ (-) $ (-) (-)
========== ======== ========
Weighted Average Number of Common
Shares 5,912,501 831,309 831,309
========== ======== ========
F-3
CONTINENTAL CAPITAL CORPORATION
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
Common Stock
-------------------
Paid-in
Shares Amount Capital Deficit Total
------ ------ ------- ------- -----
Balance, November 1, 1992 3,325,002 $ 3,325 $1,308,240 $(1,818,676) $(507,111)
One-for-four reverse split of common stock declared 1/31/95 (2,493,693) (2,494) 2,494 - -
---------- ------- ---------- ----------- ---------
Balance, November 1, 1992, as adjusted 831,309 831 1,310,734 (1,818,676) (507,911)
Year Ended October 31, 1993
Net (loss) - - - (800) (800)
---------- ------- ---------- ----------- ---------
Balance, October 31, 1993 831,309 831 1,310,734 (1,819,476) (507,911)
Year Ended October 31, 1994
Net (loss) - - - (800) (800)
---------- ------- ---------- ----------- ---------
Balance, October 31, 1994 831,309 831 1,310,734 (1,820,276) (508,711)
Year ended October 31, 1995
Issuance of common stock for:
Inventory 1,700,000 1,700 48,300 - 50,000
Cash 415,000 415 12,085 - 12,500
Contractual rights 850,000 850 24,650 - 25,000
Forgiveness of debt, net 4,703,691 4,704 395,577 - 400,281
Credit arising from contributed management services
and rent - - 20,200 - 20,200
Net income - - - 5,895 5,895
---------- ------- ---------- ----------- ---------
Balance, October 1, 1995 8,500,000 $ 8,500 $1,811,546 $(1,814,381) $ 5,665
========== ======= ========== =========== =========
See notes to financial statements.
F-4
CONTINENTAL CAPITAL CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
1995 1994 1993
------ ------ ------
Cash Flows from Operating Activities:
Net income (loss) $ 5,895 $(800) $(800)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Contributed management services and rent 20,200 - -
Increase (decrease) in accounts payable and accrued
liabilities (54,719) 800 800
Decrease in inventory 176 - -
-------- ----- -----
Net cash provided by (used in) operating activities (28,448) - -
-------- ----- -----
Cash Flows from Financing Activities:
Proceeds from line of credit financing 175,000 - -
Proceeds from issuance of common stock 12,500 - -
-------- ----- -----
Net cash provided by financing activities 187,500 - -
-------- ----- -----
Net Increase in Cash 159,052 - -
Cash at Beginning of Period - - -
-------- ----- -----
Cash at End of Period $159,052 $ - $ -
======== ===== =====
Supplemental Cash Flow Information:
Cash paid during the year for interest $ 508
========
Non-cash financing and investing transactions:
Acquisition of inventory by issuance of common stock $ 50,000
========
Transfer of certain contractual rights and residual rights in
exchange for common stock $ 25,500
========
See notes to financial statements.
F-5
CONTINENTAL CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Continental Capital Corporation (the "Company") was incorporated
under the laws of the State of Colorado on November 8, 1985. The
Company's articles of incorporation, as amended, provide for the
issuance of 100,000,000 shares of common stock, with a par value
of $.001 per share, and 2,000 shares of Series A and 1,000 shares
of Series B preferred stock with no par value. Series of the
preferred stock may be created and issued from time to time, with
such designations, preferences, conversion rights and other
rights, including voting rights, as adopted by the Board of
Directors.
On January 31, 1995, the Board of Directors of the Company
approved a one-for-four reverse stock split of the outstanding
common stock, which resulted in 831,309 shares of common stock
outstanding. Retroactive effect has been given to this reverse
stock split in the accompanying financial statements.
History
The Company's original name was Lexington Capital Corporation and
has changed a number of times since its incorporation in 1985. The
Company has additionally been known as Club America, Inc. and
PlanCapital U.S.A., Inc. During 1995, the Company changed its name
to its present name, Continental Capital Corporation.
Business
The Company has recently entered into the business of marketing
and leasing various types of equipment, mainly in the
transportation industry. The Company intends to specialize
specifically in commercial aircraft parts and equipment, fleet
commercial trucks and medical equipment.
Use of Estimates
The preparation of financial statements in accordance with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Although these
estimates are based on management's knowledge of current events
and actions it may undertake in the future, they may ultimately
differ from actual results.
Inventory
Inventory is comprised of aircraft parts and equipment, and is
stated at the lower of cost or market. Cost is determined using
principally the average method, based upon the allocated
historical cost of the corporation from who the Company acquired
the aircraft parts and equipment (see Note 2).
F-6
CONTINENTAL CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Company recognizes revenue on the sale of aircraft parts and
equipment of the time such goods are shipped.
Earnings (Loss) Per Common Share
Earnings (loss) per common share has been computed based upon the
weighted average number of shares of common stock outstanding
during the period. Retroactive application has been given to the
on-for-four reverse stock split effected in January 1995.
NOTE 2. BUSINESS ACQUISITION
Effective March 31, 1995, the Company merged with J.S.A.,
Incorporated, a California corporation ("JSA"). As a result of the
merger, the Company acquired certain of the assets of JSA, which
consisted of aircraft parts and equipment, in exchange for the
issuance of 1,700,000 shares of the Company's common stock. In
accordance with the terms of the agreement, the aircraft parts and
equipment had an agreed value of approximately $8,950,000. In
connection with the merger, the Company agreed to retain Jacman
Aircraft, Inc. ("Jacman"), a California based aircraft parts and
equipment marketing firm which is affiliated with the former
shareholder, as the exclusive distributor of all aircraft parts and
equipment for the Company.
The acquisition of these assets did not constitute a business
combination, and the Company has accounted for the acquisition of
these assets in a manner similar to the purchase method. However,
because of the significance of the ownership of the Company's common
stock created by the issuance of the 1,700,000 shares of common
stock to the former shareholder of JSA, together with the control
exercised by the related entity (Jacman) over the marketing of the
inventory of aircraft parts and equipment, the Company has recorded
the inventory of aircraft parts and equipment at the allocated
historical cost of JSA ($50,000), rather than the agreed value per
the agreement. As sales of the aircraft parts and equipment occur,
the proportionate amount of such historical cost will be charged to
cost of sales based upon a relative value calculation.
NOTE 3. LINE OF CREDIT FINANCING
The Company entered into a borrowing arrangement with NAB Bank,
Darien, Illinois. The line authorized for $200,000 has been drawn on
in the amount of $175,000 as of October 31, 1995. The loan is
unsecured and provides for interest 10.75%. Subsequent to October
31, 1995 this line of credit was increased to $475,000.
This line of credit expires in August, 1996 and is renewable
annually.
F-7
CONTINENTAL CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 4. COMMITMENTS AND OTHER MATTERS
As of June 28, 1995, the Company entered into a Master Lease
Agreement with joint lessees CASC Shanghai and Northern Airlines:
Sanya Limited. The term of the Master Lease commences on the
shipping date of the initial amount of equipment and shall continue
for a period of five years with a total of $5,000,000 in aircraft
parts and equipment. Delivery of equipment under this lease is
expected to begin in early 1996. Financing for this transaction is
being provided by NAB Bank in Chicago, Illinois.
NOTE 5. COMMON STOCK TRANSACTIONS
In March 1995, the Company issued 850,000 shares of common stock in
exchange for the transfer of certain contractual rights and residual
rights valued at $25,500.
The Company also sold 415,000 shares of common stock in exchange for
$12,500 in March 1995.
In March 1995, indebtedness of $92,145 owing to JCI was converted
into 4,703,691 shares of common stock (see Note 6). Additionally,
loans payable, shareholders of $383,166 which arose in prior years,
and certain other accounts payable and accrued expenses which arose
in prior years, net of an adjustment of $75,030, were forgiven
during the year ended October 31, 1995. This forgiveness of debt
has been recorded as an addition to paid-in capital.
On January 31, 1995, the Board of Directors of the Company approved
a one-for-four reverse stock split of the outstanding common stock,
which results in 831,309 shares of common stock outstanding.
Retroactive effect has been given to this reverse stock split in the
accompanying financial statements.
NOTE 6. BROKERAGE INCOME
During fiscal 1995, the Company was involved in a certain leasing
transaction as an accommodation to the parties directly
participating in the lease. The Company's involvement was limited to
facilitating the transaction as among the lessor and lessee and
financial institution; did not encompass the receipt or payment or
guarantee of any rentals under the lease; and was limited in
occurrence to this isolated transaction. As compensation for this
accommodation, the Company received a brokerage fee of $8,638 which
is presented in the accompanying financial statements as brokerage
income.
NOTE 7. RELATED PARTY TRANSACTIONS
The Company has retained Jamesburg Companies, Inc. ("JCI"), the
major shareholder of the Company, to complete the initial phase of
the leasing and vending operations at a cost of $6,000 per month.
Fees paid to JCI during fiscal 1995 amounted to $10,200.
From time to time, JCI has loaned the Company funds for operations
on an unsecured basis without interest. In March 1995, indebtedness
of $92,145 owing to JCI was converted into 4,703,691 shares of
common stock.
F-8
CONTINENTAL CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 7. RELATED PARTY TRANSACTIONS
Management of the Company, who are also stockholders and directors,
has been providing its services without compensation until such time
as the Company recognized income or funds are otherwise available.
However, the Company has recognized the estimated value of the
services performed by management without compensation to be
approximately $6,200 and has charged this amount to expense, with a
corresponding credit to Paid-In-Capital.
The Company's principal offices and warehousing facilities are
located in the premises of Jacman Aircraft (see Note 2) on a month-
to-month arrangement, and are provided rent free. The Company also
has shared office space available in New York, which is provided
rent free from a director/shareholder of the Company. The Company
has recognized the estimated value of the rent provided by these
related parties without cost to be approximately $14,000, and has
charged this amount to expense, with a corresponding credit to Paid-
In Capital.
NOTE 8. INCOME TAXES
The Company accounts for income taxes under the provision of
Statement of Financial Accounting Standards (SFAS) No. 109,
Accounting for Income Taxes.
No provision or benefit for income taxes has been recognized for
1995, 1994 or 1993 because of the utilization of net operating loss
carryforwards or the losses incurred.
As of October 31, 1995, the Company had net operating loss
carryforwards for federal income tax reporting purposes amounting to
approximately $1,700,000, which expire in varying amount through
2010.
The Company has not recognized any benefit of such net operating
loss carryforwards in the accompanying financial statements in
accordance with the provisions of SFAS No. 109, as the realization
of this deferred tax benefit is not more than likely. A 100%
valuation allowance has been recognized to offset the entire effect
of the Company's net deferred tax asset. The Company's net deferred
tax asset position is composed primarily of the Company's tax loss
carryforwards.
NOTE 9. SUBSEQUENT EVENTS
On December 10, 1995, the Company entered into an Agreement of
Purchase and Sale of Stock with CarroSELL, Inc. and its sole
shareholder whereby the Company acquired all of the capital stock of
CarroSELL in exchange for 500,000 shares of the Company's common
stock. CarroSELL is engaged in the business of advertising on
baggage claim carousels, and with its proprietary process, converts
baggage claim carousel panels into moving billboards. The Company
agreed to transfer $250,000 to CarroSELL on or before June 17, 1996
to further its business. In the event that public trading of the
Company's common stock had not resumed or the $250,000 was not
transferred by June 17, 1996, the former shareholder had the option
to cancel the agreement.
The required transfer of $250,000 has been subsequently completed.
On June 7, 1996, this agreement to purchase CarroSELL, Inc. was
amended to eliminate the requirement of public trading by June 17,
1996 in exchange for the Company's agreeing to issue to the original
owner of CarroSELL, Inc. an additional 250,000 shares of the
Company's common stock.
F-9
CONTINENTAL CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 9. SUBSEQUENT EVENTS
CarroSELL entered into an employment agreement with the former
shareholder for a period of five years providing for an annual
salary of $24,000 plus certain benefits. CarroSELL also entered
into a consulting agreement with Revolving Media Marketing, Inc., a
company owned by the former shareholder, to provide promotional and
marketing services for a term of five years in exchange for $60,000
per annum plus 1 1/2% of gross sales. In addition, Revolving Media
is eligible to earn options to purchase a maximum of 1,000,000
shares of common stock of the Company based upon the net income of
CarroSELL during the next two fiscal years.
The Company anticipates accounting for this acquisition by the
purchase method.
F-10
CONTINENTAL CAPITAL CORPORATION
FORM 10-K
FOR THE FISCAL YEAR ENDED
OCTOBER 31, 1995
INDEX TO EXHIBITS
- -----------------
(3) Article of Incorporation and Bylaws
3.1 Articles of Incorporation of Registrant (i)
3.2 Certificate of Amendment to Articles of Incorporation of Registrant,
filed September 12, 1989. (i)
3.3 Certificate of Amendment to Articles of Incorporation of Registrant
filed April 13, 1992 (i)
3.4 Certificate of Determination of Preferred Stock filed April 30, 1992.
(i)
3.5 Certificate of Amendment to Articles of Incorporation of Registrant
filed November 3, 1994 (i)
3.6 By-laws of Registrant. (i)
3.7 Articles of Incorporation of CarroSELL, Inc. (i)
(10) Material Contracts
10.1 Master Lease Agreement dated as of the 28/th/ day of June, 1995,
Registrant and CASC Shanghai and Northern Airlines: Sanya Limited. (i)
10.2 Agreement and Plan of Merger dated as of January 10, 1995, among
Registrant, Milton Wilpon, J.S.A., Incorporated, a California
corporation, Jack Aronowitz and the Aronowitz Family Trust. (i)
10.3 Exclusive Distribution Agreement dated as of January 10, 1995, between
Registrant and Jacman Aircraft, Inc. covering all aircraft parts and
equipment owned by the Company. (i)
10.4 Agreement of Purchase and Sale of Stock among Registrant CarroSELL,
Inc. and Paul Donner dated as of December 10, 1995. (i)
10.5 Employment Agreement between Registrant, CarroSELL, Inc. and Paul
Donner dated as of December 10, 1995. (i)
10.6 Business Consultant's Agreement between CarroSELL, Inc. and Revolving
Media Marketing, Inc. dated December 10, 1995. (i)
10.7 Agreement to Purchase and Transfer Stock dated the 24/th/
day of August 1994 by and between the Company, Atlantic Funding,
Limited and AtlanticRe Limited. (i)
10.8 Compromise and Settlement of Claims between the Company and certain
persons solicited by prior management of the Company dated April, 1994.
(i)
10.9 Letter of Intent to Form a Joint Venture between the Company and Baker
Huang Corporation (South China Construction & Development Company)
dated August 25, 1995. (i)
10.10 Independent Marketing Company Agreement dated March 1, 1994, between
Revolving Media and Itochu Aviation Co., Ltd. (i)
10.11 Assignment of Patents dated November 25, 1995 from Revolving Media,
Limited to CarroSELL, Inc. (i)
10.12 Amendment to Agreement and Plan of Merger among Registrant, Milton
Wilpon, J.S.A., Incorporated, Jack Aronowitz and the Aronowitz Family
Trust Dated April 30, 1993, dated as of March 23, 1995. (p. __)
10.13 Amendment to Agreement and Plan of Merger among Registrant, Milton
Wilpon, J.S.A. Incorporated, Jack Aronowitz, The Aronowitz Family Trust
Dated April 30, 1993, dated as of May 7, 1996. (p. __)
10.14 Amendment to Exclusive Distribution Agreement between Registrant and
Jacman Aircraft, Inc., dated as of May 7, 1996. (p. __)
10.15 Independent Marketing and Sales Representative Agreement between
CarroSELL, Inc. and Transportation Media Inc. (TMI). (p. __)
10.16 Letter Agreement between Registrant and Paul Donner dated June 7, 1996.
(p. __)
10.17 Secured Note/Adjustable Rate executed by the Company on June 6, 1996.
(p. __).
10.18 Security Agreement between Registrant and NAB Bank dated June 6, 1996.
(p. __).
24.1 Consent of experts and counsel
See response to Item 14(a)(i),Financial Statements
(i) Incorporated by reference to the Registrant's Annual Report on Form 10-K,
File No. 33-22426-D, for the Fiscal Year ended October 31, 1995.