UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended May 31, 1996.
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 (no fee required) for the transition period from
____________________ to _______________________.
Commission file number: 0-17371
HYTK INDUSTRIES, INC.
(Name of Small Business Issuer in Its Charter)
Nevada 88-0182808
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2133 East 9400 South, Suite 151 - Sandy, Utah 84093
(Address of Principal Executive Offices)
(801) 944-0701
(Issuer's Telephone Number, Including Area Code)
Securities Registered Under Section 12(g) of the Exchange Act:
Title of Class: Common Stock, $0.001 Par Value
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 __ No XX
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B not contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The issuer had no revenues for the year ended May 31, 1996.
The aggregate market value of the voting stock held by non-affiliates computed
by reference to the average bid and asked prices of such stock, as of August 31,
1997 was $0.00, because the Company's Common Stock was not traded on a stock
market or quotation system.
The number of shares outstanding of the issuer's common stock as of August 31,
1997 was 52,266.
Total of Sequentially Numbered Pages: 18
Exhibit Index on Page: 18
<PAGE>
TABLE OF CONTENTS
PART I
ITEM 1. DESCRIPTION OF BUSINESS .......................................... 3
ITEM 2. DESCRIPTION OF PROPERTY .......................................... 6
ITEM 3. LEGAL PROCEEDINGS 7
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .............. 7
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS ......... 8
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION ........ 8
ITEM 7. FINANCIAL STATEMENTS ............................................. 10
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS .................... 11
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT ....... 11
ITEM 10. EXECUTIVE COMPENSATION ........................................... 12
ITEM 11. SECURITY OWNERSHIP OF BENEFICIAL OWNERS .......................... 13
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ................... 14
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K ................................. 16
SIGNATURES ....................................................... 17
INDEX TO EXHIBITS ................................................ 18
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Business Development
Unless the context indicates otherwise, the term "Company" shall
hereinafter refer to HYTK Industries, Inc., a Nevada corporation, and any of its
predecessors or former subsidiaries. The Company was originally incorporated on
July 12, 1982 under the name Digitel of Las Vegas, Inc. The Company was formed
as a telephone equipment servicing and maintenance business, but as the Company
grew, its operations evolved to include the sale and installation of
telephone-related equipment. The Company eventually focused its business
primarily on Interconnect operations. As used herein, "Interconnect" refers to
the attachment of customer-owned telephone equipment to the networks of
regulated telephone companies.
The Company's Interconnect operations consisted of consulting with
prospective customers to determine their specific communications needs and
future business plan. The Company would then design a telephone system to meet
those needs. The Company, which was an authorized representative of several
major telephone manufacturers, would sell and install telephone systems ranging
from very simple two-line telephones to complex computerized systems designed
for as many as 5,000 lines. After the sale and installation, the Company would
continue to maintain and service the telephone systems for its clients.
The Company conducted its Interconnect business primarily in Las
Vegas, Nevada and surrounding areas. Between 1982 and 1991, the Company
installed an estimated 10,000 to 12,000 telephone systems for its customers.
On May 15, 1987, the Company changed its name to HYTK Industries Inc.
On June 1, 1987, the Company transferred its Interconnect operations to Digitel,
Inc., a Colorado corporation and former wholly-owned subsidiary of the Company
("Digitel"). Under the name HYTK, the Company became a holding entity which
conducted all of its operations through Digitel, its only subsidiary at the
time. Subsequently, the Company made efforts to expand its operations into other
business sectors.
On January 12, 1989, the Company formed U.S. Voice Corporation ("U.S.
Voice"), another former wholly-owned subsidiary, under the laws of the State of
Nevada. U.S. Voice was incorporated in order to market voice mail equipment and
lease voice mailboxes. U.S. Voice began operating in Denver, Colorado in April
1989, and its operations were expanded to Las Vegas, Nevada in June 1989. It
incurred considerable losses during the start-up phase of its operations and
generated revenues significantly below the Company's estimates. The Company
discontinued U.S. Voice's operations on October 1, 1989 when it transferred all
equipment and other assets of U.S. Voice to the manager of U.S. Voice's Denver
operations, Terry Kelly, in exchange for Mr. Kelly's assumption of all
indebtedness related to those assets and his agreement to surrender to the
Company any proceeds realized from the sale of such equipment exceeding the
amounts owed. The Company recorded a net loss of $50,511 as a result of
discontinuing U.S. Voice's operations.
On February 1, 1989, the Workman Family Partnership ("WFP"), a general
partnership controlled by William Workman, then a director of the Company,
acquired an office and warehouse complex. The office complex was located at 3990
West Russell Road and had been leased by Digitel since October 1986. The
property was purchased from Century Manufacturing, Inc. ("Century") through what
was intended to be a sale-leaseback arrangement. Pursuant to this arrangement,
WFP assumed obligation under a first mortgage on the property and agreed to
lease the property to Century for a period of five years. Century, in turn,
subleased the property to commercial tenants. On May 26, 1989, WFP assigned all
of its interest in, and delegated all of its obligations under, this arrangement
to the Company in exchange for the Company's issuance of 2,679 restricted shares
of common stock, par value $0.001 ("Common Stock").1 The Company continued to
lease this property to Century until 1995. For more information on the property,
see "Item 2 - Description of Property."
<PAGE>
On July 9, 1990, the Company executed a Stock Exchange Agreement (the
"Agreement") with Cactus Club USA, Inc., a Colorado corporation ("Cactus Club"),
and the shareholders of Cactus Club. Pursuant to the Agreement, the Company was
to acquire all of the issued and outstanding capital stock of Cactus Club in
exchange for 32,142 restricted shares of Common Stock and warrants to purchase
up to 71,428 additional shares of Common Stock. Prior to the Agreement, Cactus
Club was a closely-held corporation which manufactured men's sportswear,
including shirts, sweaters, and caps. The merchandise produced by Cactus Club
was distributed throughout the United States, Europe, Japan and Australia.
In order to help capitalize this acquisition, the Company had
previously filed a registration statement on Form S-2 which registered 17,454
Common Stock Purchase Warrants (the "Warrants") and a corresponding number of
shares of Common Stock underlying the Warrants. The Company issued, as a
dividend to its shareholders of record as of December 1, 1989, one Warrant for
every share of Common Stock outstanding on the record date. The Company intended
to use the cash generated through the exercise of warrants to raise $500,000, an
amount Cactus Club needed to meet its September 30, 1990 production deadline.
As of mid-September 1990, however, the Company had raised only $103,830
in gross proceeds through the exercise of the Warrants. By that time, the NASDAQ
Small Cap Market had delisted the Company's Common Stock, an event which
effectively halted the exercise of warrants, and the Company had no alternative
means of raising additional capital. Accordingly, the Company terminated the
Agreement with Cactus Club. In furtherance of the Agreement, the Company had
previously advanced $84,000 on behalf of Cactus Club and guaranteed additional
amounts borrowed by Cactus Club.
In an attempt to minimize losses stemming from the Agreement, the
Company transferred any and all of its rights, title and interest in the capital
stock of Cactus Club to Dudley Investment Company, an unrelated third party. In
exchange, the Company obtained 84,000 shares of Series A Preferred Stock of
Cactus Club and indemnification from guarantees the Company had previously made
to lenders of Cactus Club. The Company does not believe that this preferred
stock has any current value and the Company therefore recorded an $84,000 loss
for the fiscal year ended May 31, 1991 to reflect its investment in Cactus Club.
For more information on the Cactus Club acquisition see "Item 12 - Certain
Relationships and Related Transactions."
Pursuant to a May 20, 1992 Asset Purchase Agreement, the Company
transferred nearly all of the assets then owned by Digitel to Southwestern
Communications, Inc., a Nevada corporation f/k/a Western Communications, Inc.
("Southwestern"). By means of this Agreement, the Company sold all of Digitel's
machinery, equipment, tangible personal property, inventory, and accounts
receivable to Southwestern. The only asset not transferred to Southwestern was a
Honda automobile encumbered by a lease contract with Honda Leasing. As
consideration for the transfer, Southwestern assumed approximately $675,000
worth of Digitel's debts. No additional consideration was paid because the debts
to be assumed were equal to or exceeded the value of the assets transferred.
Southwestern provided notice of this bulk sale pursuant to the provisions of
Article 6 of the Uniform Commercial Code. The decision to sell Digitel was based
on the fact that Digitel had experienced net losses in the prior two years and
Digitel's liabilities exceeded its assets at the time of the transfer. Gordon
Beckstead, then the Company's president and director, was a 40% owner of
Southwestern at the time of this transaction. For more information on Mr.
Beckstead and the transfer of Digitel, see "Item 12 - Certain Relationships and
Related Transactions." During fiscal year 1994, Digitel's articles of
incorporation were suspended by the State of Colorado for failure to file its
1993 annual report. The Company has no current intentions to revive Digitel's
charter and will likely seek to voluntarily dissolve Digitel in the near future.
Accordingly, the Company has not included Digitel as a consolidated subsidiary
on the attached financial statements.
- --------
1 WFP transferred its interest in the Russell Road property for 15,000,000
shares of Common Stock. The number appearing above has been adjusted to reflect
the 1-for-140 reverse stock split effected by the Company on September 1, 1991
and the 1-for-40 reverse split effected by the Company and November 1, 1995.
Unless otherwise indicated, all further references to quantities of Common Stock
have been adjusted to reflect both the 1991 and 1995 reverse stock splits.
<PAGE>
After the respective transfers of U.S. Voice, Cactus Club and Digitel,
the Company's only remaining asset was its interest in the sale-leaseback of the
Russell Road property. The Company retained this interest until April 22, 1995.
On that date, the Company transferred its interest in the property to BeckWork
LLC, a Nevada limited liability company ("BeckWork") whose 50% owner, Gordon
Beckstead, was then president and a director of the Company. In exchange for
this transfer, BeckWork assumed the first and second mortgages on the property
and agreed to share any and all profits derived from the eventual sale of the
property by BeckWork. This obligation to share profits was evidenced by a
promissory note executed by BeckWork and secured by a deed of trust.
According to the promissory note executed by BeckWork, the Company was
entitled to receive 50% of the first $100,000 in net proceeds realized from the
sale of the Russell Road property and 10% of any amounts realized in excess of
that initial $100,000. The net proceeds of the promissory note were determined
by subtracting from the gross sales proceeds any and all amounts due on the
first and second mortgages, all sales commissions paid, and all related closing
costs.
On July 23, 1996, BeckWork sold the Russell Road property for a total
of $1,810,000. The mortgage indebtedness on the property and closing costs
related to the sale totaled $1,373,940, meaning that $436,060 in net proceeds
were realized from the sale. Based on the profit sharing formula specified in
the promissory note, the Company received $83,606 from the sale. Of this $83,606
due the Company, $70,845 was used to pay promissory notes that had been executed
by the Company in favor of former directors and to pay legal fee obligations
that had been accrued by the Company. Accordingly, $12,761 was ultimately
received by the Company. For more information on the sale of the Russel Road
property, see "Item 12 - Certain Relationships and Related Transactions."
On September 1, 1995, the Company executed a Consulting Agreement with
Canton Financial Services Corporation, a Nevada corporation that provides
professional business consulting services ("Canton"). Pursuant to the consulting
agreement, Canton assisted the Company in restructuring its capitalization and
provided related business and accounting services. As consideration, the Company
issued 2,565 restricted shares of Common Stock to Park Street Investments, Inc.,
a Utah corporation ("Park Street"), and 23,078 restricted shares of Common Stock
to A-Z Professional Consultants, Inc., a Utah corporation ("A-Z"). In the
aggregate, the Common Stock issued to Park Street and A-Z constituted 51% of the
Company's then-outstanding Common Stock. Both Park Street and A-Z were designees
of Canton who received their shares of Common Stock as a finder's fee for
introducing the Company to Canton.
A change of control in the Company occurred pursuant to the change of
ownership in the Company's Common Stock. On September 5, 1995, the board of
directors appointed Ken Kurtz, Richard Surber and Steven Christensen as
additional directors of the Company. Gordon Beckstead then resigned as the
Company's president, vice president and secretary. The board then appointed Ken
Kurtz as the Company's president, Richard Surber as the Company's vice
president, and Steven Christensen as the Company's secretary and treasurer. Ken
Kurtz is also the president, director and sole shareholder of Park Street.
Richard Surber is also the president and sole director of A-Z and the president
and a director of Canton. Neither Mr. Kurtz nor Mr. Surber was a director of the
Company at the time the Consulting Agreement became effective and therefore
neither voted on the propriety of the Consulting Agreement or the issuance of
Common Stock pursuant to it.
Once these appointments were effective, Gordon Beckstead, James Blyth,
and F. Rex Graham all resigned as directors. The change in control in the
Company reflected the change in ownership of the Company's capital stock
resulting from the execution of the Consulting Agreement. None of the resigning
officers or directors had any disagreements with the Company or its management.
The Company has since terminated the Consulting Agreement with Canton
and Mr. Christensen and Mr. Surber have since resigned from their positions with
the Company.
<PAGE>
Business of Issuer
Since April 22, 1995, the Company has been a dormant public company
without any operations or significant assets. The only revenue realized by the
Company since that time was generated from Beckwork's sale of the Russell Road
property. The Company's current business plan involves finding a suitable merger
or acquisition candidate who can provide the Company with a basis for successful
operations. The Company's management is in the process of prospecting for,
interviewing and performing the necessary due diligence to structure a
successful merger or acquisition. However, there can be no assurances that the
Company will be able to negotiate a corporate merger or acquisition or if such a
combination is achieved, that it will be profitable, worthwhile or sustainable.
The Company does not currently produce any goods or provide any services. Nor
does the Company have any full or part time employees, aside from its officers
and directors.
ITEM 2. DESCRIPTION OF PROPERTY
From May 1989 to April 1995, the Company owned an interest in an office
complex located at 3990 West Russell Road. The property consisted of
approximately 36,040 square feet of office and warehouse space which was leased
to commercial tenants. The Company acquired this interest from the Workman
Family Partnership ("WFP"), a general partnership controlled by William Workman,
then the Company's officer and director, in exchange for 2,679 shares of
restricted Common Stock. WFP had previously acquired its right to the property
through what was intended to be a sale-leaseback arrangement it entered with
Century Manufacturing, Inc., the prior owner of the property ("Century").
According to this arrangement, WFP assumed the obligations under a mortgage loan
of approximately $926,000, forgave a $273,500 debt owed by Century to William
Workman that was secured by the Russell Road property, and executed a long-term
note of $180,500 in favor of WFP. On May 26, 1989, the Company assumed from WFP
all benefits and obligations attendant to the agreement with Century.
Under the leaseback provisions of the agreement, Century was to
continue leasing the property from the Company for an amount equal to the debt
service on the first mortgage note, taxes, insurance, and normal maintenance of
the property. Century, in turn, would sublease the property to commercial
tenants. Century also retained certain ownership rights including the exclusive
right to manage, market, sell, or repurchase the property for a period of five
years (ending February 1, 1994). Century retained all rents from the property
that exceeded the lease payments it paid to the Company and was responsible for
shortfalls between revenue generated from the property and expenses on the
property.
On February 23, 1994, the Securities and Exchange Commission
initiated a public administrative proceeding against the Company asserting that
the Company had improperly recorded this transaction as a purchase and leaseback
when, in fact, it was a financing arrangement. This proceeding was settled
pursuant to a consent decree entered on February 23, 1994. For more information
on this administrative proceeding, see "Item 3 - Legal Proceedings."
On April 22, 1995, the Company transferred, conveyed and assigned all
of its interest in the Russell Road property to BeckWork, LLC, a limited
liability company ("BeckWork") whose 50% owner, Gordon Beckstead, was then the
president and a director of the Company. The Company sold the property in
exchange for BeckWork's assumption of two mortgages on the property and for
Beckwork's agreement to share the proceeds of the subsequent sale of the
property with the Company. The profit sharing agreement was evidenced by a
promissory note and secured by a deed of trust on the property. On July 23,
1996, BeckWork sold the property and the Company received an $83,606 return on
the sale.
The Company does not currently own any real property and has not owned
any since it sold its interest in the Russell Road property on April 22, 1995.
The Company does not anticipate the acquisition of any real property in the near
future.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
On February 23, 1994, the Securities and Exchange Commission (the
"SEC") initiated a public administrative proceeding against the Company based on
the Company's accounting treatment of the Russell Road property for the fiscal
years ended May 31, 1989, 1990, 1991, and 1992. The Company had recorded the
transaction as a purchase and leaseback in its annual reports for the
aforementioned fiscal years. The SEC asserted that this acquisition did not
qualify for sale-leaseback treatment according to Financial Accounting Standards
Board ("FASB") Statement of Standards Numbers 66 and 98 because the
seller-lessee maintained significant continuing involvement with the property,
including the right to manage and sell the property for a period of five years.
The SEC further contested the accounting treatment of the property because the
first mortgage on the property was not assumable by the buyer-lessor. The SEC
dismissed its proceeding by accepting an offer of settlement proposed by the
Company.
According to the consent order which was entered, the Company agreed to
file unaudited financial statements in a Form 8-K which accounted for the
property as a financing transaction and not a sale-leaseback arrangement. The
Company filed the required Form 8-K on February 23, 1994 and this document is
incorporated herein by this reference. The Company was also required to refile
audited financial statements for the years 1989-92, which properly account for
the property, within 90 days of commencing operations. The Company has also
filed this information. Accordingly, the Company believes that it has fully
complied with the conditions of the consent order. For more information on the
structure of the transaction that led to the consent decree, see "Item 2
Description of Property."
As described in "Item 1 - Description of Business," the Company
acquired all of the capital stock of Cactus Club USA, Inc. pursuant to a July 9,
1990 Stock Exchange Agreement. In connection with this acquisition, the Company
guaranteed the debts which Cactus Club owed to two of its creditors, BNY
Financial Corporation ("BNY") and Barclays Commercial Corporation ("Barclays").
Dudley Investment Company ("Dudley") later indemnified the Company against
claims made pursuant to these guarantees in connection with the Company's
transfer of Cactus Club to Dudley.
In March 1991, BNY instituted a civil suit against the Company in the
Municipal Court of the State of California, County of Los Angeles. In April
1991, the Company stipulated to the entry of a judgment for $7,974. In May 1991,
Revenue Service Co., Inc., the assignee of Barclays, filed a civil action
against the Company in the District Court for the City and County of Denver,
Colorado seeking to recover $18,254 plus interest and attorney fees.
As of December 1996, both of these civil actions have either been
settled or dismissed. Accordingly, there are no legal proceedings currently
pending against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of shareholders between the fourth
quarter of the 1992 fiscal year and October 26, 1995.
On October 27, 1995, the Company's shareholders approved a 40-for-1
reverse stock split of the Company's Common Stock. Of the 2,031,127 shares of
Common Stock issued and outstanding on that date, 1,025,675 (50.4%) voted to
approve the reverse stock split. The shareholders approved this corporate action
by means of a written consent in lieu of a shareholders' meeting. No matters
have been submitted to a vote of shareholders since October 27, 1995 and prior
to the filing date of this Form 10-KSB.
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The Company's Common Stock traded over-the-counter from February 1986
until September 1990 when it was delisted from the NASDAQ Small Cap Market for
failure to maintain registered market makers. The Company's Common Stock has not
traded or been quoted over-the-counter or on any exchange since that time. The
Company seeks to establish a public market for its Common Stock and is currently
attempting to obtain a quotation of its Common Stock pursuant to Rule 15c2-11 of
the Securities Exchange Act of 1934.
On September 1, 1991, holders of a majority of the Company's Common
Stock approved a 1-for-140 reverse split of the Company's issued and outstanding
Common Stock. Prior to the 1991 reverse split, there were 141,268,323 issued and
outstanding shares of Common Stock. After the split there were 1,009,000 shares
issued and outstanding.
On November 1, 1995, the Company effected a 1-for-40 reverse stock
split of its issued and outstanding Common Stock. The 1995 reverse split was
approved by the holders of a majority of the Company's Common Stock pursuant to
a written consent in lieu of a shareholders' meeting. Of the 2,031,127 shares of
Common Stock issued and outstanding on the date of the consent, holders of
1,025,675 shares voted to approve the reverse split.
Record Holders
There are 950,000,000 shares of Common Stock authorized for issuance.
As of August 31, 1997, there were 52,266 shares of Common Stock issued and
outstanding, held by 2,013 record holders.
Dividends
The Company has not declared any cash dividends for the last three
years and does not anticipate paying any dividends in the foreseeable future.
The payment of dividends is within the discretion of the board of directors and
will depend on the Company's earnings, capital requirements, financial condition
and other relevant factors.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Company was incorporated in 1982 under the name Digitel of Las
Vegas, Inc. From 1982 until May 1992, the Company's primary operations involved
the sale, installation, and servicing of commercial telephone systems In 1986,
the Company transferred all assets related to its Interconnect operations to a
newly formed subsidiary, Digitel, Inc., a Colorado corporation ("Digitel").
Beginning in 1989, the Company made attempts to expand its operations into other
business sectors.
From January 1989 to October 1989, the Company sold and leased voice
mailbox equipment through its wholly-owned subsidiary, U.S. Voice. These
operations were unsuccessful largely as a result of unforeseen initial start-up
costs and revenues that did not meet the Company's expectations. In October
1989, the Company transferred all of the assets of U.S. Voice to an affiliate.
The Company realized a net loss from discontinued operations of $48,108. For
more information on U.S. Voice see "Item 1 - Description of Business."
<PAGE>
In July 1990, the Company acquired 100% of the outstanding capital
stock of Cactus Club, a manufacturer of mens sportswear. The Company acquired
Cactus Club with the intention of diversifying its business holdings and moving
away from telecommunications-related operations. Cactus Club required an
immediate cash infusion of $500,000 which the Company had intended to provide
through the proceeds of a warrant offering which the Company was then
conducting. In September 1990, the Company's Common Stock was delisted from the
NASDAQ Small Cap Market. After the Common Stock was delisted, the Company ceased
receiving cash proceeds from the exercise of the previously issued warrants. The
Company did not have an alternative method of financing the cash requirements of
Cactus Club. Accordingly, in October 1990, the Company transferred all of the
assets of Cactus Club to an unaffiliated third party. The Company recorded an
$84,000 loss as a result of its investment in Cactus Club. For more information
on Cactus Club, see "Item 1 - Description of Business."
On May 20, 1992, the Company transferred substantially all of the
assets of Digitel to Western Communications, Inc. (n/k/a Southwestern
Communications, Inc.), an affiliated entity. The Company sold the assets of
Digitel in exchange for Southwestern's assumption of an equivalent amount of
Digitel's liabilities. At the time of this transfer Digitel's liabilities
exceeded its assets. Digitel had experienced recurring losses and the Company's
management did not believe that it had the resources necessary to reverse this
trend. The sale of Digitel's assets was structured as a bulk transfer under
Article 6 of the Uniform Commercial Code, and notice of the sale was delivered
to Digitel's creditors, most of whom were suppliers. The Company believes that
this transfer effectively liquidated any and all claims that these trade
creditors may have had against the Company, and that any claims which may have
survived are now barred by the applicable statute of limitations. Accordingly,
the Company has not recorded these claims as a liability on its balance sheet.
See "Item 1- Business of Issuer" for more information on the disposition of
Digitel.
After the transfers of U.S. Voice, Cactus Club, and Digitel, the
Company's only significant asset was an interest in a parcel of commercial real
estate located at 3900 West Russell Road in Las Vegas Nevada. The Company had
title to the property but leased the property back to a former owner under what
was intended to be a sale-leaseback arrangement. This interest in the property
was assigned to the Company by an affiliate in exchange for the Company's
issuance of Common Stock. For more information of the property, see "Item 1 -
Business of Issuer" and "Item 2 - Description of Property." From May 1992 to
April 1995, the lease of this property was the only source of revenues generated
by the Company.
In April 1995, the Company transferred its interest in the property to
another affiliate. At the time of this transfer, the first mortgage holder on
the property was threatening foreclosure and the Company was in danger of not
realizing the full value of the property as a result of the impending forced
sale. Therefore, the Company transferred the Russell Road property in exchange
for the transferee's assumption of the debt obligations on the property and
promise to distribute to the Company 50% of the first $100,000 in net proceeds
realized from the eventual sale of the property and 10% of additional net
proceeds realized. On July 23, 1996, the Russell Road property was sold. The
Company received $83,606 as a result of the sale. The cash derived from the sale
was used to reduce the Company's liabilities. The Russell Road property was the
last substantial asset owned by the Company. For more information on these
transactions, see "Item 12 - Certain Relationships and Related Transactions."
The Company effected a 1-for-40 reverse stock split of all issued and
outstanding shares of the Company's Common Stock on November 1, 1995. The board
of directors recommended the reverse split because it believed the number of
shares of Common Stock then outstanding was disproportionately large when
compared with the Company's revenue, net income, and net worth.
The Company is currently negotiating potential mergers or acquisitions,
however, as of the date of this filing no definitive agreements have been
reached. The Company has not realized any cash inflow in the past five years,
excepting the cash realized from the April 1996 sale of the Russell Road
property. The Company hopes that it can engage in an acquisition or merger with
an entity that will provide the Company with revenue from operations. Since the
Company no longer has any significant assets, any merger or acquisition that the
Company ultimately effects will involve the issuance of the Company's Common
Stock. Such an exchange of the Company's Common Stock would substantially dilute
the existing ownership position of the Company's current shareholders. If the
Company effects a future merger or acquisition, it will need financing to
satisfy the cash requirements of its merger/acquisition partner. The nature and
extent of these requirements will depend upon the kind of business acquired by
the Company. Given the Company's limited cash flow and history of operating
losses, there is a substantial risk that the Company will not be able to raise
the capital necessary to make a subsequent merger or acquisition successful. A
merger or acquisition will also likely result in the Company's recruitment of
additional employees.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
Please see the accompanying financial statements attached as pages F-1
through F-7.
[THIS SPACE LEFT INTENTIONALLY BLANK]
<PAGE>
Sellers & Associates
CERTIFIED PUBLIC ACCOUNTANT Fax (801) 627-1639
378 Harrison Blvd. Suite 101, Ogden, Utah 84403 (801) 621-8128
INDEPENDENT PUBLIC ACCOUNTANT'S REPORT
Board of Directors
HYTK Industries, Inc. and Subsidiaries
Salt Lake City, Utah
We have audited the accompanying balance sheets of HYTK Industries, Inc. as of
May 31, 1996 and the related statements of operations, stockholders' equity, and
cash flows for the years ended May 31, 1996 and 1995. These financial statements
are the responsibility of the Company's Management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. 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 he overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, except as explained in the previous paragraph, the financial
statements referred to above present fairly, in all material respects, the
financial position of HYTK Industries, Inc. as of May 31, 1996 and the results
of its operations and its cash flows for the years ended May 31, 1996 and 1995
in conformity with generally accepted accounting principles.
The accompanying financial statement have been presented assuming the Company
will continue as a going concern. As discussed in Notes 5 and 6 to the financial
statements, the Company disposed of all its assets May 20, 1992 and has not
generated revenue since. This raises substantial doubt about its ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty
May 20, 1997
<PAGE>
HYTK INDUSTRIES, INC.
Balance Sheet
May 31, 1996
May 31, 1996
-----------------
ASSETS
Current Assets ..................................... $ --
Other Assets ....................................... --
------
TOTAL ASSETS ....................................... $ --
======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses ......... $ 50,190
Note payable, related party ................... 27,500
------
77,690
------
Commitments and contingencies ...................... --
Stockholders' Equity
Preferred stock, par value $.001,
50,000,000 shares authorized,
no share issued and outstanding ........... --
Common stock, par value $.001
950,000,000 shares authorized,
52,266 issued and outstanding ............. 52
Additional paid-in-capital .................... 1,108,846
Retained earnings (deficit) ................... (1,186,588)
------
Total Stockholders' equity ......................... (77,690)
------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY ......... $ --
======
See notes to financial statements.
F-1
<PAGE>
HYTK INDUSTRIES, INC.
Statements of Operations
For the Years Ended May 31, 1996 and 1995
May 31, May 31,
1996 1995
---------- ---------
Revenues ................................... $ -- $ --
-------- --------
General and administrative expenses ........ 29,451 9,800
-------- --------
(29,451) (9,800)
-------- --------
Non-Operating Income (Expense)
Gain on sale of interest in property .. 10,000 --
Interest expense ...................... (2,500) (2,500)
-------- --------
Total non-operating income (expense) .. 7,500 (2,500)
-------- ---------
Net Income (loss) .......................... $(21,951) $(12,300)
======== ========
Earnings (loss) per share:
Net income (loss) ..................... $ (0.42) $ (0.50)
======== ========
Weighted-average shares outstanding ........ 52,266 24,636
<PAGE>
<TABLE>
<CAPTION>
HYTK INDUSTRIES, INC.
Statements of Stockholders' Equity
Years Ended May 31, 1996 and 1995
Common Stock
----------------------
Retained
Additional Earnings Total
Number of Paid In (Deficit) Stockholders'
Shares Par Value Capital Accumulated Equity
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, May 31, 1994 .................................. 24,636 $ 25 $ 1,108,612 $(1,152,337) $ (43,700)
Net loss ............................................... -- -- -- (12,300) (12,300)
- ---- ----------- ----------- -----------
Balance, May 31, 1995 .................................. 24,636 $ 25 $ 1,108,612 $(1,164,637) $ (56,000)
Common shares issued for services ...................... 500 -- 5 -- 5
Common shares issued as finders fee .................... 25,643 26 230 -- 256
Fractional shares issued per reverse split ............. 1,487 1 (1) -- --
Net loss ............................................... -- -- -- (21,951) (21,951)
- ---- ----------- ----------- -----------
Balance, May 31, 1996 .................................. 52,266 $ 52 $ 1,108,846 $(1,186,588) $ (77,690)
======= = ==== =========== =========== ===========
See notes to financial statements.
F-3
</TABLE>
<PAGE>
HYTK INDUSTRIES, INC.
Statements of Cash Flows
For the Years Ended May 31, 1996 and 1995
May 31, May 31,
1996 1995
--------- -------
Cash Flows From Operating Activities
Net income (loss) ............................. $ (21,951) $(12,300)
Noncash expenses included in net income (loss):
Services paid with common stock ............ 261 --
Increase (decrease) in accounts
payable and accrued expenses .............. 21,690 12,300
-------------- --------
Net cash provided by (used for)
operating activities ............................. -- --
-------------- --------
Cash Flows From Investing Activities
Net cash provided by (used for)
investing activities ............................. -- --
-------------- --------
Cash Flows From Financing Activities
Net cash provided by (used for)
financing activities ............................. -- --
-------------- --------
Increase (decrease) in cash and
cash equivalents ................................. -- --
Cash and cash equivalents,
beginning of year ................................ -- --
-------------- --------
Cash and cash equivalents, end of year ............. $ $ --
============== ========
Supplement Disclosures Of Cash Flow Information
Cash payments for Interest .................... $ $ --
Cash payment for Income Taxes ................. $ $ --
See notes to financial statements.
F-4
<PAGE>
HYTK INDUSTRIES, INC.
Notes to Consolidated Financial Statements
Years ended May 31, 1996 and 1995
Note 1. Nature of Business and Significant Accounting Policies
The Company's operations were in the telecommunications industry
specializing in the sales, installations and maintenance of telephone systems.
A summary of the Company's significant accounting policies follows:
Principles of consolidation:
HYTK Industries, Inc. was formerly known as Digitel of Las
Vegas, Inc. On May 15, 1987, the Company changed its name to
HYTK Industries, Inc. On June 1, 1987, the Company's
interconnect operations were transferred to a wholly-owned
subsidiary formed by the Company, Digitel, Inc. HYTK
Industries Inc. acted only as a holding company for its
subsidiaries.
US Voice Corporation, a wholly-owned subsidiary of the
Company, was incorporated on January 12, 1989 to sell voice
mail equipment and to lease voice mail boxes on a monthly
basis. On October 1, 1989, operations of US Voice Corporation
were discontinued.
Ditigel, Inc. operated in the telecommunications industry,
specializing in the sales, installation and maintenance of
telephone and voice mail systems. On June 30, 1992, operations
of Ditigel, Inc. were discontinued.
As a result of discontinued operations in both subsidiaries,
the financial statements for the year ended May 31, 1996 and
1995 include only those of the parent Company, HYTK
Industries, Inc.
Earnings per share data:
Earnings per share have been computed on the basis of the
weighted average number of shares of common stock outstanding
during the year.
Note 2. Notes Payable, Related Party
During the year ended May 31, 1991, an officer/director of the
Company advanced the Company $25,000. The advance accrued interest at
the rate of 10 percent per annum and principal and interest were due
November 30, 1992; however, due to lack of funds, the Company was not
able to repay the loan as scheduled. The Company accrued interest at
10 percent per annum until the note was paid in full in August 1996.
Note 3. Income Taxes
The provision for income taxes included in the accompanying
consolidated statements of operations differs form the statutory
amount for the following:
<PAGE>
Years Ended May 31,
1996 1995
Income tax expense
at statutory federal tax rate $ - $ -
Graduated tax rates $ - $ -
----------------------------
$ - $ -
=============================
As of May 31, 1996, the Company had a net operating loss carryforward
of approximately $96,637 potentially available to offset future
taxable income. However, the Company's ability to utilize such losses
to offset future taxable income was subject to various limitations
imposed by the rules and regulations of the Internal Revenue Service.
Note 4. Stock Option Plan
The Company has adopted a qualified stock option plan under which 179
shares of its $0.001 par value common stock have been reserved for
options to employees. Option prices would be the fair market value
(110% of fair market value if the optionee had more than 10% voting
control) of the common stock on the date the options are granted. The
term of an option shall be for a period of no longer than ten years
from the date of the grant of the option. The Plan expired May 20,
1995 and no options were granted.
Note 5. Going Concern
The Company has ceased operations and disposed of most of its assets
and is now inactive. Consequently, it is not a going concern. Unless
additional funds and business activity come into the Company, it will
remain inactive.
Note 6. Stockholders' Equity
On September 1, 1991 the Company effected a 1-for-140 reverse stock
split of its common stock and on November 1, 1995 the Company
effected a 1-for-40 reverse stock split of its common stock. All
reference to quantities of common stock have been adjusted to reflect
both the 1991 and 1995 reverse stock splits.
During the year ended May 31, 1988 the Company approved a stock bonus
plan for its employees. The plan approved 90 shares to be set aside,
20% to be issued in the current year, and 10% yearly for eight years.
During the years ended May 31, 1996 and 1995, the Company did not
distribute any shares under this plan.
On September 1, 1995, the Company entered into a Consulting Agreement
with Canton Financial Services Corporation, a Nevada corporation that
provides professional business consulting services ("Canton").
Pursuant to the consulting agreement, Canton assisted the Company in
restructuring its capitalization and provided related business and
accounting services. As consideration, the Company issued 102,567
restricted shares of Common Stock to Park Street Investments, Inc., a
Utah corporation ("Park Street"), and 923,108 restricted shares of
Common Stock to A-Z Professional Consultants, Inc., a Utah
corporation ("A-Z").1 In the aggregate, the Common Stock issued to
Park Street and A-Z constituted 51% of the Company's then-outstanding
Common Stock. Both Park Street and A-Z were designees of Canton who
received their shares of Common Stock as a finder's fee for
introducing the Company to Canton.
On November 1, 1995 the Company effected a 1-for-40 reverse stock
split of its common stock. All reference to quantities of common
stock have been adjusted to reflect the 1995 reverse stock split.
Note 7. Assignment and Disposition of Real Estate Property and Subsequent
Event
The Company retained its interest in the sale-leaseback of the
Russell Road property. This asset was not recognized on the books of
the Company since it was questionable as to its value. On April 22,
1995, this interest was transferred to BeckWork LLC ("Beckwork"),
whose 50% owner was then president and director of the Company. In
exchange, the Company received a commitment to share in the profits
derived from the eventual sale of the property by BeckWork. Such
agreement was evidenced by a promissory note and a deed of trust
executed by BeckWork. During early 1996, the City of Las Vegas
condemned the frontage of the property by paying $57,900. The
Company's share of the payment amounting to $10,000, was received by
Beckwork and Beckwork paid off $10,000 of the debts directly for the
Company before May 31, 1996. In July 1996, BeckWork sold the Russel
Road Property. Under the terms of the April 22, 1995 agreement, the
Company received $83,606.
- --------
1 These two proceeding references to shares of Common Stock include the
September 1, 1991 1-for-140 reverse stock split but DO NOT include the November
1, 1995 1-for-40 reverse split.
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During the fiscal years 1989 to 1991, Mitchell, Londer & Company served
as the Company's principal auditors. In September 1995, the Company's principal
offices moved from Denver, Colorado to Salt Lake City, Utah. In conjunction with
this move, the Company terminated its relationship with Mitchell, Londer &
Company. This decision was based on the Company's relocation and the Company had
no disagreements with its former accountant with respect to accounting
principles or practices, financial statement disclosure, or auditing scope and
procedures at the time of the dismissal.
The last report on Form 10-KSB prior to the Company's move to Salt Lake
City was filed for the fiscal year ended May 31, 1991. Mitchell Londer &
Company's report on the financial statements included therein did not contain
any adverse opinion or disclaimer of opinion, nor was it modified as to
uncertainty, audit scope or accounting principles. The auditor's unqualified
report, however, was subsequently retracted as a result of a February 23, 1994
consent order entered by the Securities and Exchange Commission which sanctioned
the Company for its accounting treatment of real property as an asset. For more
information on this consent order, see "Item 3 - Legal Proceedings." Mitchell
Londer & Company's report also contained an explanatory paragraph stating that
due to recurring losses there was "substantial doubt about [the Company's]
ability to continue as a going concern."
On June 27, 1996, the Company retained Sellers & Company as its
principal accountant. The Company did not consult with Sellers & Company
regarding the application of accounting principles, type of audit opinion, or
any other matters outlined in Item 304(a)(2) of Regulation S-B under the
Securities Exchange Act of 1934. Sellers & Company audited the Company's
financial statements for the fiscal years 1989-1996. None of the auditor's
reports prepared by Sellers & Company contained an adverse opinion or disclaimer
of opinion, nor were modified as to uncertainty, audit scope or accounting
principles. The report did, however, contain an explanatory paragraph stating
that due to recurring losses there was "substantial doubt about [the Company's]
ability to continue as a going concern."
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Directors and Executive Officers:
Ken Kurtz, age 28, was appointed as the Company's president and
director on September 5, 1995. Mr. Kurtz is currently the only officer and
director of the Company. Mr. Kurtz is, and has been since February 1992, the
president and sole director of Park Street Investments, Inc., a Utah corporation
and one of the Company's largest shareholders. From November 1990 to February
1992, Mr. Kurtz was secretary-treasurer of Boss International, Inc., a company
which published time management systems.
Compliance with Section 16(a) of the Exchange Act
Based solely upon the Company's review of Forms 3, 4 and 5 and
amendments thereto furnished to the registrant under Rule 16a-3(d) during the
fiscal year preceding the filing of this Form 10-KSB, the Company is not aware
of any person who was a director, officer, or beneficial owner of more than ten
percent of the Company's Common Stock and who failed to file reports required by
Section 16(a) of the Securities Exchange Act of 1934 in a timely manner except
those listed in this subsection.
<PAGE>
<TABLE>
<CAPTION>
On September 1, 1995, Park Street Investments, a Utah corporation
("Park Street"), acquired 2,565 shares of Common Stock pursuant to a Consulting
Agreement with the Company. At the time, this constituted greater than 10% of
the Company's then-outstanding Common Stock. Accordingly, Park Street was
required to file a Form 3 pursuant to Section 16(a) of the Securities Exchange
Act of 1934 ("Form 3") within 10 days of that acquisition. Ken Kurtz, the
Company's president and director, is also the president and sole director of
Park Street. Accordingly, Mr. Kurtz was required to file a separate Form 3 based
on his position as an officer/director of the Company and his indirect
beneficial ownership of more than 10% of the Common Stock. On November 1, 1995,
separate Forms 3 were filed for both Mr. Kurtz and Park Street. Neither was
filed in a timely manner.
On September 1, 1995, A-Z Professional Consultants, Inc., a Utah
corporation ("A-Z"), acquired 23,078 shares of Common Stock pursuant to a
Consulting Agreement with the Company. This amount constituted greater than 10%
of the Company's outstanding Common Stock. Accordingly, A-Z was required to file
a Form 3 within 10 days of the acquisition. Richard Surber was then the
Company's vice president and director and was also the president and sole
director of A-Z,. Mr. Surber, therefore, was also required to file a Form 3
based on his position as an officer/director and his indirect, beneficial
ownership of more than 10% of the Common Stock. Both Mr. Surber and A-Z filed
their respective Forms 3 on November 1, 1995. Neither was filed in a timely
manner.
On May 1, 1997, A-Z Professional Consultants transferred all of its
interest in the Company's Common Stock to two irrevocable trusts. The Alexander
W. Senkovski Irrevocable Trust acquired 11,539 shares of Common Stock pursuant
to a Stock Purchase Agreement. The David Michael Irrevocable Trust also acquired
11,539 shares of Common Stock pursuant to a Stock Purchase Agreement. The shares
acquired on May 1 made each irrevocable trust the beneficial owner of over 10%
of the Company's Common Stock. The Company is aware that neither The Alexander
W. Senkovski Irrevocable Trust nor The David Michael Irrevocable Trust has filed
a Form 3 to evidence the acquisition of these holdings, but the Company has been
informed that these entities are now preparing these documents.
ITEM 10. EXECUTIVE COMPENSATION
No compensation in excess of $100,000 was awarded to, earned by, or
paid to any executive officer of the Company between the years 1991 and 1996.
The following table provides summary information for the years 1989 to 1996
concerning cash and noncash compensation paid or accrued by the Company to or on
behalf of Gordon Beckstead, the Company's president and director from May 1985
to September 1995, and Ken Kurtz, the Company's current president and director.
SUMMARY COMPENSATION TABLE
Annual Compensation Awards Payouts
Restricted Securities Other
Name & Fiscal Other Annual Stock Underlying LTIP Compen-
Position Year Salary Bonus($) Compensation Award(s)($) Options/SARs(#) Payouts sation
-------- ---- ------ -------- ------------ ----------- --------------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ken Kurtz 1997 -0- -0- -0- -0- -0- -0- -0-
Current 1996 -0- -0- -0- -0- -0- -0- -0-
President 1995 -0- -0- -0- -0- -0- -0- -0-
Gordon 1995 -0- -0- -0- -0- -0- -0- -0-
Beckstead 1994 -0- -0- -0- -0- -0- -0- -0-
Former 1993 -0- -0- -0- -0- -0- -0- -0-
President 1992 $36,000+ -0- -0- -0- -0- -0- -0-
1991 $36,000 -0- -0- $84, 000* -0- -0- -0-
1990 $60,000 -0- -0- -0- -0- -0- -0-
1989 $30,000 -0- -0- -0- -0- -0- -0-
</TABLE>
____________________
+ Mr. Beckstead's annual salary was discontinued on or before May 20, 1992, when
the Company transferred 100% of Digitel's assets to Southwestern Communications,
Inc. No salary has been paid to any executive officer since the fiscal year
ended May 31, 1992.
* On November 30, 1990, Mr. Beckstead was issued 107,142 shares of Common Stock
in consideration for services he had previously rendered to the Company and for
Mr. Beckstead's agreement to reduce his annual salary from $60,000 to $36,000.
These shares were issued pursuant to a November 19, 1990 Stock Escrow Agreement.
According to that Agreement, Mr. Beckstead's shares vested at a rate of 8,928
shares per month beginning February 28, 1991 or became fully vested upon the
sale of the Company. All 107,142 shares ultimately vested on or before September
1, 1995 when a controlling interest in the Company was transferred to Park
Street Investments, Inc. and A-Z Professional Consultants, Inc.
<PAGE>
<TABLE>
<CAPTION>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the
Company's stock ownership as of August 31, 1997 with respect to: (i) each person
who is known to the Company to be a beneficial owner of more than five percent
of the Company's Common Stock; (ii) all directors; (iii) each of the executive
officers; and (iv) all directors and executive officers as a group:
Amount and Nature of Percent of
Title of Class Name and Address of Beneficial Owner Beneficial Ownership Class
<S> <C> <C> <C>
Common Stock, The Alexander W. Senkovski Irrevocable Trust 11,539 22.1%
Par Value $0.001 5519 Rawls Road
Tampa, Florida 33625
Common Stock, Gordon Beckstead 5,373 10.3%
Par Value $0.001 6244 Elmira Cir
Englewood, Colorado 80111
Common Stock, The David Michael Irrevocable Trust 11,539 22.1%
Par Value $0.001 5519 Rawls Road
Tampa, Florida 33625
Common Stock, Wendell Hall & BonnieJean C. Tippets, Trustees 23,078 44.2%
Par Value $0.001 5519 Rawls Road
Tampa, Florida 33625
Common Stock, Ken Kurtz 2,565 4.9%
Par Value $0.001 2133 East 9400 South, Suite 151
Sandy, Utah 84093
Common Stock, Officers and Directors as a Group 2,565 4.9%
Par Value $0.001
</TABLE>
____________________
Wendell Hall and BonnieJean C. Tippetts are co-trustees of both the David
Michael Irrevocable Trust and the Alexander Senkovski Irrevocable Trust. Neither
Wendell Hall nor BonnieJean C. Tippetts has a beneficial interest in either
trust.
These shares are owned by Park Streeet Investments, Inc., a Utah corporation
of which Ken Kurtz is the only officer and director.
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions Involving Property Located at 3900 Russell Road
On February 1, 1989, William Workman, then the Company's
secretary-treasurer and chairman of the board of directors, acquired an
office/warehouse complex located at 3900 West Russell Road, Las Vegas, Nevada
from Century Manufacturing, Inc. ("Century"). Mr. Workman's purchase of the
property was structured as a sale-leaseback. As consideration for the property,
Mr. Workman agreed to assume a mortgage of approximately $926,000 and released
Century from a $273,500 debt Century owed him. Mr. Workman subsequently assigned
this interest to the Workman Family Partnership ("WFP"), an entity under his
control.
On May 26, 1989, WFP assigned all of its interest in the property to
the Company in consideration for the Company's assumption of all obligations
under the agreement with Century and the Company's issuance of 15,000,000 (not
accounting for either the September 1, 1991 1-for-140 reverse stock split or the
November 10, 1995 1-for-40 reverse stock split) restricted shares of Common
Stock. The shares issued to Mr. Workman were valued at $0.03, the closing price
of free trading stock on May 26. Accordingly, the Company recorded Mr. Workman's
interest in the transaction at $450,000. The Company entered this transaction
because it believed that ownership of industrial real estate in Las Vegas was a
prudent investment and because the agreement allowed the Company to acquire an
asset without expending cash. A majority of the Company's disinterested
directors approved of this transaction.
From 1989 to 1995, the Company leased the property to Century under the
leaseback provisions of the Agreement. On April 22, 1995, the Company
transferred its rights, interests, and obligations under the agreement with
Century to BeckWork, LLC, a Nevada limited liability company ("BeckWork").
Gordon Beckstead, who was then the Company's president and director, owned a 50%
interest in BeckWork. The remainder of BeckWork was owned by William Workman,
who was no longer an officer or director of the Company at the time of the
transaction. At the time the Russell Road property was transferred to BeckWork,
the Company had discontinued all of its operations and had no assets to secure
the mortgages on the property other than the property itself. The first mortgage
holder was preparing to foreclose on the property and the Company felt that the
property was worth more than would be realized in a foreclosure sale. BeckWork
was deemed to be an acceptable debtor by the first and second mortgage holders.
The Company therefore believed that transferring the property to BeckWork would
prevent a forced sale of the property and thereby allow the Company to realize
some of the proceeds of the sale. Accordingly, a majority of the disinterested
directors voted to approve this related party transaction.
As consideration for the transfer of all the Company's rights to the
Russell Road property, BeckWork agreed to assume the first and second mortgages
on the Russell Road property. BeckWork also promised to transfer to the Company
a specified percentage of the proceeds resulting from BeckWork's sale of the
property. This obligation was secured by a promissory note executed by BeckWork
and a deed of trust on the property. For more information on the deed of trust
and underlying obligation see "Item 2 - Description of Property."
On July 23, 1996, BeckWork sold the property to an unrelated third
party for $1,810,000 Under the promissory note executed by BeckWork, the Company
was entitled to $83,606 of the total proceeds of the sale. At the time that
BeckWork sold the property, Gordon Beckstead was no longer a director or officer
of the Company.
Of the $83,606 the Company was entitled to under the promissory note,
$40,000 was paid to Gordon Beckstead in full payment of a note Mr. Beckstead had
previously purchased from another former director of the Company. Gordon E.
Beckstead Associates, Inc., a Company controlled by Mr. Beckstead, received an
additional $17,883 as repayment for advancements made on behalf to the Company,
including the payment of legal fees accrued through the Company's defense of
1994 proceeding initiated by the Securities Exchange Commission. For more
information on this proceeding, see "Item 3 - Legal Proceedings." An additional
$12,962 was paid to the Law Offices of Fay M. Matsukage in settlement of legal
services performed on behalf of the Company. Ms. Matsukage served as the
Company's corporate counsel for over 10 years and is the wife of Gordon
Beckstead. The Company's current board of directors, none of whom were
interested parties to these transactions, ratified the Company's payment of
these debts.
<PAGE>
The Company's Sale of Digitel
On May 20, 1992, the Company transferred substantially all of the
assets owned by its wholly-owned subsidiary, Digitel, Inc., to Western
Communications, Inc. (n/k/a Southwestern Communications, Inc.), a Nevada
corporation ("Southwestern"). At the time of the transaction, Southwestern was
controlled by Gordon Beckstead, then the Company's president and director, and
Michael Curry, an unrelated party. Mr. Beckstead owned approximately 40% of the
outstanding common stock of Southwestern and therefore had a material interest
in the transaction.
Digitel had experienced recurring losses from operations and had a
negative net worth at the time that its assets were transferred to Southwestern.
At the time of the Agreement, Digitel's assets were valued at $675,000. As
consideration for Digitel's transfer of assets, Southwestern assumed an
identical amount of the liabilities of Digitel. No additional consideration was
paid because the debts assumed were equivalent to the assets transferred. The
Agreement was structured as a bulk sale under Article 6 of the Uniform
Commercial Code and a notice to creditors was promulgated by Southwestern.
The Company decided to engage in this transaction because Digitel had
experienced continuing losses from operations and had liabilities that exceeded
its assets. The Company also believed that liquidating Digitel would enable the
Company to engage in future mergers or acquisitions that would help reverse the
Company's fortunes. A majority of the Company's disinterested directors voted to
approve this transaction.
The Company's Acquisition of Cactus Club
On July 9, 1990, the Company executed a Stock Exchange Agreement with
Cactus Club USA, Inc., a Colorado corporation ("Cactus Club"), and its
shareholders. Pursuant to the terms of the Agreement, the Company was to acquire
all of the issued and outstanding common stock of Cactus Club in exchange for
32,142 restricted shares of the Company's Common Stock and warrants to purchase
up to 71,428 shares. Cactus Club was a closely-held corporation that
manufactured and marketed a proprietary line of sportswear for men. It was
expected that Cactus Club would continue to operate as the Company's
wholly-owned subsidiary.
Workman Family Partnership, a limited partnership organized in the
state of Idaho ("WFP"), owned 45% of the outstanding common stock of Cactus Club
prior to the Stock Exchange Agreement. William Workman, who at the time was the
Company's secretary-treasurer and chairman of the board of directors, was also
the general partner of WFP. Mr. Workman, therefore, had a material personal
interest in this transaction.
In September 1990, the Company terminated the Stock Exchange Agreement
with Cactus Club after determining that the Company could not provide the
$500,000 capital infusion that Cactus Club required. The Company then
transferred all of its right, title and interest in Cactus Club to Dudley
Investment Company, an unrelated third party in exchange for 84,000 shares of
preferred stock in Cactus Club. The Company does not believe that this preferred
stock has any current value and the Company has reflected a loss of $84,000 for
its investment in Cactus Club.
Although the Company recorded a significant loss as a result of the
Cactus Club Agreement, the Company believed that the transaction was in the
Company's best interest at the time it was executed because the Agreement
allowed the Company to acquire a business with impressive earnings projections
using only restricted shares of the Company's Common Stock and warrants to
purchase additional shares of Common Stock, and therefore did not adversely
affect the Company's cash flow. A majority of the Company's disinterested
directors approved the Agreement, finding that it contained terms no less
favorable than had such transaction been with an unrelated party.
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index to Exhibits. Exhibits required to be attached by Item 601 of
Regulation S-B are listed in the Index to Exhibits beginning on page 17
of this Form 10-KSB, which is incorporated herein by this reference.
(b) Reports on Form 8-K. The Company did not make any filings on Form 8-K
during the fourth quarter of the fiscal year ending May 31, 1996. The
Company's last Form 8-K was filed on February 23, 1994 and contained
unaudited financial statements for the fiscal years 1989 through 1992.
This Form 8-K was filed pursuant to a consent order the Company entered
with the Securities and Exchange Commission. See "Item 3 - Legal
Proceedings" for more information on this consent order.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, this 5TH day of September 1997.
HYTK Industries, Inc.
/s/ Ken Kurtz
Ken Kurtz, President
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and
on the dates indicated.
Signature Title Date
/s/ Ken Kurtz President and Director September 5, 1997
Ken Kurtz
<PAGE>
INDEX TO EXHIBITS
EXHIBIT PAGE
NO. NUMBER DESCRIPTION
3(i) * The Company's Articles of Incorporation (incorporated herein
by reference to the Exhibits to the Company's Registration
Statement on Form S-18, Registration No. 2-99737-LA ).
3(i) * The Company's Bylaws, as amended (incorporated herein by
reference to the Exhibits to the Company's Registration
Statement on Form S-18, Registration No. 2-99737-LA).
MATERIAL CONTRACTS
10(i)(a) * September 1, 1995 Consulting Agreement executed by and
between the Company and Canton Financial Services
Corporation (incorporated herein by reference to the
Company's Form 10-KSB for fiscal year ended May 31, 1992).
10(i)(b) * April 22, 1995 Deed of Trust executed by BeckWork, LLC. for
the benefit of the Company (incorporated herein by reference
to the Company's Form 10-KSB for fiscal year ended May 31,
1992).
10(i)(c) * May 20, 1992 Asset Purchase Agreement executed by and
between the Company and Western Communications (incorporated
herein by reference to the Company's Form 10-KSB for fiscal
year ended May 31, 1992).
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
AUDITED CONDENSED FINANCIAL STATEMENTS FILED WITH THE COMPANY'S MAY 31, 1996
ANNUAL REPORT ON FORM 10-KSB AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000775351
<NAME> HYTK INDUSTRIES INC
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<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> MAY-31-1995
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<SECURITIES> 0
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<CURRENT-LIABILITIES> 77,690
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0
0
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<TOTAL-LIABILITY-AND-EQUITY> 0
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<TOTAL-REVENUES> 10,000
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