SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended June 30, 1995.
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from to .
Commission file number: I-9418
The Canton Industrial Corporation
(Exact name of small business issuer as specified in its charter)
Nevada 87-0509512
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
268 West 400 South, Suite 300, Salt Lake City, Utah 84101
(Address of principal executive offices) (Zip Code)
(801) 575-8073
(Issuer's telephone number)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes XX No
The number of shares of the issuer's common stock (par value $0.001 per
share) outstanding as of August 4, 1995 was 3,727,229.
The number of shares of the issuer's preferred stock (par value $0.001
per share) outstanding as of May 12, 1995 was 0.
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TABLE OF CONTENTS
PART I
ITEM 1. FINANCIAL STATEMENTS ........................................3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION....4
PART II
ITEM 1. LEGAL PROCEEDINGS...........................................10
ITEM 5. OTHER INFORMATION...........................................10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................10
SIGNATURES....................................................................11
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PART I
ITEM 1. FINANCIAL STATEMENTS
Index to Consolidated Financial Statements Page
Consolidated Balance Sheets..................................................F-1
Consolidated Statements of Operations........................................F-3
Consolidated Statements of Cash Flows........................................F-4
Consolidated Statements of Stockholders' Equity..............................F-5
Condensed Notes to Consolidated Finan cial Statements........................F-6
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THE CANTON INDUSTRIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED UNAUDITED CONDENSED BALANCE SHEETS
JUNE 30, 1995 AND DECEMBER 31, 1994
ASSETS ............................................................................. June 30, December 31,
<S> <C> <C>
1995 1994
---------- ----------
CURRENT ASSETS
Cash ............................................................................ $ 138,081 $ 29,009
Receivable - brokerage account .................................................. -- 65,525
Accounts receivable - trade ..................................................... 117,359 35,242
Accounts receivable - related parties (Note 2) .................................. 113,072 165,474
Accounts receivable - other ..................................................... 31,000 9,925
Notes receivable ................................................................ 144,500 100,000
---------- ----------
TOTAL CURRENT ASSETS ............................. 544,012 405,175
PROPERTY AND EQUIPMENT (Note 2) .................................................... 3,408,237 3,192,778
OTHER ASSETS
Investment - securities ......................................................... 217,492 229,476
Mortgages receivable (Note 2) ................................................... 353,000 750,000
Notes receivable ................................................................ 665,027 592,827
Investments - other ............................................................. 255,195 170,196
Deposits ........................................................................ 19,403 22,345
Trade and media credits ......................................................... 199,261 192,261
---------- ----------
TOTAL OTHER ASSETS ............................. 1,709,378 1,957,105
---------- ----------
TOTAL ASSETS ............................. $5,661,627 5,555,058
========== ==========
See notes to consolidated unaudited condensed financial statements.
F-1
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THE CANTON INDUSTRIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED UNAUDITED CONDENSED BALANCE SHEETS
JUNE 30, 1995 AND DECEMBER 31, 1994
LIABILITIES AND SHAREHOLDERS' EQUITY ............................... June 30, December 31,
1995 1994
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt ............................... $ 196,412 $ 241,048
Accounts payable ................................................ 335,987 312,901
Accounts payable - related parties .............................. 178,991 99,563
Real estate taxes payable (Note 2) .............................. 272,797 96,472
Payroll and related taxes payable ............................... 199,981 154,768
Accrued and other liabilities (Note 2) .......................... 181,034 7,612
Deferred income ................................................. 8,940 146,264
------------ ------------
TOTAL CURRENT LIABILITIES 1,374,142 1,058,628
Long-term debt (less current portion) ........................... 1,669,147 1,719,495
------------ ------------
TOTAL LIABILITIES 3,043,289 2,778,123
------------ ------------
Contingent liabilities ............................................. -- --
Minority interest in subsidiary .................................... 119,000 151,000
SHAREHOLDERS' EQUITY
Common stock - $.001 par value: 200,000,000 shares
authorized; 4,097,929 issued (2,832,864 AT 12/31/94) ........... 4,098 2,833
Additional paid-in capital ...................................... 10,745,466 10,268,120
Retained deficit ................................................ (8,250,226) (7,645,018)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) 2,499,338 2,625,935
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,661,627 $ 5,555,058
============ ============
See notes to consolidated unaudited condensed financial statements.
F-2
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THE CANTON INDUSTRIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
-------------------------- ---------------------------
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue ............................................................ $ 180,174 $ 149,991 $ 790,066 $ 316,132
Cost of revenue .................................................... 247,678 193,012 483,300 587,040
----------- ----------- ----------- -----------
Gross Profit (loss) ................. (67,504) (43,021) 306,766 (270,908)
Selling, general and administrative expenses ....................... 366,332 146,783 660,506 268,002
----------- ----------- ----------- -----------
Operating Profit (loss) ................. (433,836) (189,804) (353,740) (538,910)
----------- ----------- ----------- -----------
Other income (expense):
Interest income ................................................. 12,958 35,917 28,838 35,917
Interest expense ................................................ (45,796) (21,736) (75,201) (47,386)
Gain (Loss) on sale of assets (Note 4) .......................... 71,660 46,538 71,660 46,538
Gain (Loss) on investments (Note 5) ............................. 33,812 -- 142,562 (250,000)
Loss on forclosure - related party (Note 2) ..................... (519,342) -- (519,342) --
Other income (expense) .......................................... 66,870 (7,101) 71,490 1,035
----------- ----------- ----------- -----------
Total Other Income (Expenses) ................. (379,838) 53,618 (279,993) (213,896)
----------- ----------- ----------- -----------
Income (Loss) Before Disc.Oper ..................................... (813,674) (136,186) (633,733) (752,806)
----------- ----------- ----------- -----------
Gain (Loss) from Discontinued Operations ........................ 28,525 -- 28,525 --
----------- ----------- ----------- -----------
Net Income (Loss) ................. $ (785,149) $ (136,186) $ (605,208) $ (752,806)
=========== =========== =========== ===========
Income (loss) per share:
Income (loss) before discontinued operations .................... (0.23) (0.05) (0.20) (0.27)
Gain (loss) from discontinued operations ........................ 0.01 -- 0.01 --
----------- ----------- ----------- -----------
Net income (loss) ................. $ (0.22) $ (0.05) $ (0.19) $ (0.27)
=========== =========== =========== ===========
Weighted average number of shares outstanding ...................... 3,511,133 2,823,999 3,114,071 2,823,999
=========== =========== =========== ===========
See notes to consolidated unaudited condensed financial statements.
F-3
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THE CANTON INDUSTRIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 30, 1994
Six Months Ended
----------------------
June 30, June 30,
1995 1994
--------- ---------
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ......................................................................... $(605,208) $(752,806)
--------- ---------
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and Amortization ......................................................... 88,500 73,383
Stock issued for assets and debt ...................................................... 62,886 --
Loss (gain) on forclosure - related party (Note 2) .................................... 519,342 --
Loss (gain) on investments (Note 5) ................................................... (142,562) 250,000
Stock issued for services and expenses ................................................ 99,784 --
--------- ---------
627,950 323,383
--------- ---------
(Increase) decrease in:
Accounts receivable - trade ........................................................... (82,117) (36,460)
Receivable - related parties .......................................................... 52,402 125,265
Other current assets .................................................................. (50) (51,261)
Increase (decrease) in:
Accounts payable ...................................................................... 23,086 (12,720)
Payables - related parties ............................................................ 79,428 (42,930)
Accrued liabilities ................................................................... (2,040) 249,293
Current portion of long-term debt ..................................................... (44,636) 30,220
Deferred income ....................................................................... (137,324) 16,587
--------- ---------
(111,251) 277,994
--------- ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES ................. (88,509) (151,429)
CASH FLOWS FROM INVESTING ACTIVITIES
Cost of land sold (Note 4) ................................................................ 77,840 --
Purchase of assets ................................................................... (113,852) (227,927)
--------- ---------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES ................. (36,012) (227,927)
CASH FLOWS FROM FINANCING ACTIVITIES
Stock issued for cash (Note 3) ............................................................ 283,941 23,731
Proceeds from borrowing ............................................................... -- 349,449
Payment on debt ....................................................................... (50,348) --
--------- ---------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES ................. 233,593 373,180
NET INCREASE (DECREASE) IN CASH ............................................................. 109,072 (6,176)
CASH AT BEGINNING OF PERIOD ................................................................. 29,009 6,176
--------- ---------
CASH AT END OF PERIOD ................. $ 138,081 $ --
========= =========
See notes to consolidated unaudited condensed financial statements
F-4
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THE CANTON INDUSTRIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED UNAUDITED CONDENSED STATEMENTS OF SHAREHOLDERS EQUITY
SIX MONTHS ENDED JUNE 30, 1995
Common Stock Paid-in Shareholders'
Shares Amount Capital Deficit Equity
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCES AT
DECEMBER 31, 1994 ........................... 2,832,864 $ 2,833 $10,268,120 $(7,645,018) $ 2,625,935
Common Stock activity:
Issued for Services .......................... 382,830 383 99,401 -- 99,784
Issued for Debt .............................. 207,500 207 20,404 -- 20,611
Issued for Assets ............................ 65,000 65 42,210 -- 42,275
Issued for Cash (Note 3) ..................... 609,735 610 283,331 -- 283,941
Subsidiary Minority Interest ................. -- -- 32,000 -- 32,000
Net Income ...................................... -- -- -- (605,208) (605,208)
----------- ----------- ----------- ----------- -----------
BALANCES AT
JUNE 30, 1995 ............................... 4,097,929 $ 4,098 $10,745,466 $(8,250,226) $ 2,499,338
=========== =========== =========== =========== ===========
See notes to consolidated unaudited condensed financial statements
F-5
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THE CANTON INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying consolidated unaudited condensed financial statements have been
prepared by management in accordance with the instructions in Form 10-QSB and,
therefore, do not include all information and footnotes required by generally
accepted accounting principles and should therefore, be read in conjunction with
the Company s Annual Report to Shareholders on Form 10-KSB for fiscal year ended
December 31, 1994. These statements do include all normal recurring adjustments
which the Company believes necessary for a fair presentation of the statements.
The interim operation results are not necessarily indicative of the results for
the full year ending December 31, 1995.
2. ATC II, Inc. Default and Foreclosure
On May 4, 1995, the Company sent a Notice of Default of Real Estate Lien Note to
Thistle Properties, Inc. (Thistle), a wholly-owned subsidiary of ATC II, Inc. on
that certain Real Estate Lien Note as amended by the Amendment to the Real
Estate Sale Agreement (RESA) dated August 23, 1994 and June 20, 1994 between
Thistle Properties, Inc. and the Company in the principal amount of $397,000
plus accrued interest. Thistle was unable to meet the terms of the RESA and the
Company foreclosed on 100% of the stock of Thistle, effectively making Thistle
properties a wholly owned subsidiary of the Company.
The effect of this transaction on the financial statements is as follows: the
accounts receivable - related party account was reduced by $167,904; the
property and equipment account increased by $357,546 (the net historical cost
for the Company); the mortgages receivable account was reduced by the $397,000
note on the property; the real estate taxes payable account was increased by the
$150,783 in taxes outstanding on the property; the accrued liabilities account
was increased by the $160,000 EPA liability reassumed on the property; and a
loss on foreclosure was recorded at $519,342. A previous gain on the sale had
been recorded at $752,467 during the 3rd quarter of 1994.
3. Contingent Liabilities
During the quarter, the Company issued 250,000 shares of common stock for
$140,000. The company guaranteed the price of this stock for a period of one
year. During the 3rd quarter of 1995, the company issued 144,634 shares of
stock, pursuant to this guarantee.
4. Sale of 230 West Land
On May 26, 1995, the Company sold its interest in property located at 230 West,
400 South, Salt Lake City to Asset Recovery, Inc. for a $149,500 sales price.
The effect of this transaction on the financial statements is as follows: the
land account was reduced by the $77,840 historical cost of the property and a
gain on the sale of assets was recorded at $71,660.
5. Transcisco Industries Stock ( Transcisco )
The financial statements reflect a $33,812 gain on investments resulting from
the sale of Transcisco stock during the quarter. The Company previously
reflected a gain on investments of $108,750 because of a change in
classification of Transcisco stock as trading securities under FAS 115. The
change in classification was made when the restriction was lifted on 100,000
shares of Transcisco stock in March, 1995 at which time the stock was adjusted
to fair market value. The Company has a total gain on investments relating to
the Transcisco stock of $142,562.
6. Additional footnotes included by reference
Except as indicated in the footnotes above there has been no other material
change in the information disclosed in the notes to the financial statements
included in the Company s Annual Report on Form 10-KSB for the year ended
December 31, 1994. Therefore those footnotes are included herein by reference.
F-6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
Introduction
The Canton Industrial Corporation (the "Company") is an international
holding company that, through its subsidiaries, provides financial consulting
services and invests in undervalued real estate. The Company employs several
in-house attorneys, certified public accountants, consultants, and support
employees in its consulting operations. Advisory services being provided range
from mergers and acquisitions to turnarounds and work-outs. Typical services and
support functions include document preparation, capital formation, financial
analysis, debt settlement and general corporate problem solving.
The Company charges its clients monthly fees which range up to $30,000.
The Company negotiates fees on an individual basis and accepts cash, securities
of the client company, or both, as payment. For many companies, especially
start-up ventures and those experiencing financial difficulties, this fee
arrangement has enabled them to obtain quality services without the use of
valuable cash flows. The Company attempts to base its fees upon the risk
involved in the securities of a client and the cost of providing the service or
services desired.
The Company's clients are not limited to any one particular industry.
Instead, the Company focuses on public companies which need the services
provided by the Company or private companies that need assistance in going
public. The Company determines whether or not to accept a prospective client
based upon the nature of the services needed and the financial stability of its
potential clients.
The Company did not substantially expand its client base during the
quarter ended June 30, 1995. The Company intends to increase its efforts to
obtain additional clients. However, no assurances can be given that the
Company's financial consulting operations will expand. In addition, because the
number of clients, the financial strength of clients, and the range of services
provided can vary greatly from quarter to quarter, it is difficult to project
the revenue that can, or is likely, to be produced by performing these services.
Through its real estate divisions, the Company has acquired a wide
variety of commercial properties. While the heart of the Company's real estate
holdings are in Salt Lake City, Utah, the Company also owns several properties
in other parts of the United States. The Company's commercial real estate
subsidiaries handle acquisitions, leasing and other management functions as well
as sales of Company properties and the properties of its clients. The Company
hopes to increase its revenues generated from these properties and obtain
additional real estate. The ability of management to locate and acquire
undervalued real estate, with little or no cash down, and turn such properties
into profitable assets is a key to the Company's success.
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Material Events
On May 4, 1995, the Company served Thistle Properties, Inc., an
Illinois corporation, a wholly owned subsidiary of ATC II, Inc. and purchaser of
the property located in Canton, Illinois ("Canton Plant") under a Real Estate
Sales Agreement ("RESA"), as amended, with a Notice of Default of the Real
Estate Lien Note entered into pursuant to the said RESA. Thistle Properties
subsequently informed the Company that due to its poor financial position, it
would be unable to comply with the terms of the RESA. Thistle proposed to
forfeit all payments made and that the Company foreclose on the security
provided by RESA, being 100% of ATC II's stockholding in Thistle Properties, in
exchange for a mutual release of all claims.
The Company subsequently executed a Mutual Release with ATC II and
Thistle Properties, effective May 12, 1995. The net effect of the Release is
that Thistle Properties, which holds the title to the Canton Plant subject to a
Trust Deed with the Company as the beneficiary, is now a wholly owned subsidiary
of the Company. This resulted in a loss of $519,342, which loss has been
accounted for as follows: the accounts receivable - related party account was
reduced by $167,904; the property and equipment account increased by $357,546
(the net historical cost for the Company); the mortgages receivable account was
reduced by the $397,000 note on the property; the real estate taxes payable
account was increased by the $150,783 in taxes oustanding on the property; the
accrued liabilities account was increased by the $160,000 EPA liability
reassumed on the property; and, a loss on foreclosure was recorded at $519,342.
A previous gain on the sale of $752,467 had been recorded by the Company during
the 3rd quarter of 1994. Although the Company hopes to dispose of the Canton
Plant in the near future at an ultimate gain from the Company's perspective, no
such assurances can be given.
On September 28, 1994, 42 Exchange Place, Inc., a subsidiary of the
Company, purchased a 3,000 square ft. office space located at 42 Exchange Place
in Salt Lake City, Utah for $141,000. On April 5, 1995, the Company entered into
a Real Estate Purchase Contract with Ras Mussen & Miner to sell the exchange
property for $223,000. Exchange Place has agreed to carry a second mortgage in
the amount of $72,000 at a 9% rate, with a 48 month call provision.
KMC Foods, Inc. ("KMC"), a subsidiary of the Company, has instituted
foreclosure proceedings on the property occupied by the old KMC Foods Plant near
Cheriton, Virginia. The property's owner of record, Potomac Engineering and
Management Systems Company, Inc. ("PEMSCO"), is in default on notes owned by KMC
and secured by a deed of trust and a judgment lien. The foreclosure sale was
scheduled for July 21, 1995. On July 19, 1995, PEMSCO filed for reorganization
under Chapter 11 of the Bankruptcy Code, thus automatically staying the sale
pending further proceedings before the bankruptcy court.
On April 28, 1995, Canton Properties V, Inc., a subsidiary of the
Company, entered into an agreement to purchase the mortgage on property located
on 550-554 Atlantic Street, 560-564 Atlantic Street and 28 Columbia Street,
Bridgeport, Connecticut, for $8,400 and 25,000 restricted
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shares of the Company. The face value of the mortgage is $650,000. The
properties contain a total of twelve three-bedroom apartments and are located
within close proximity to the University of Bridgeport. The mortgage is
currently in judicial foreclosure. Once the mortgage has been purchased, the
Company intends to seek financing to renovate the properties and, ultimately,
lease the properties.
On July 27, 1995, the Company and Gardens, Inc., an Illinois
corporation, entered into an agreement whereby Gardens would remove those waste
tires presently located at the Canton, Illinois plant and property. Gardens
subsequently subcontracted performance under this agreement with Eco-Systems,
Inc., a New York company, which is active in the handling and disposal of waste
tires. Eco-Systems plans to bale the waste tires and cast them in concrete forms
at a rate of between 400 and 500 bales per month and dispose of these bales in
an environmentally sound manner.
On May 22, 1995, the Company and its subsidiary Canton Financial
Services Corp. made a proposal to restructure eleven real estate holding
corporations to be financed with a possible new issue of the Company's preferred
stock. The Company had hoped to assist these organizations, as their performance
records were relatively poor compared to similar organizations; however, each
one rejected the proposal in writing. Thereafter, on June 5, 1995, a follow-up
proposal was made to five of these eleven companies to restructure these
entities with cash which the Company would obtain from selling or mortgaging the
assets, these five being the entities which the Company felt would most benefit
from the Company's assistance. This was rejected in writing by each of these
entities. In a similar manner, and contemporaneously with these proposals, the
Company made an offer to purchase all of the assets of the Prudential Realty
Trust, in response to a formal solicitation of bids. The Company was not the
highest cash bidder and its offer was not accepted.
Results of Operations
Revenue for the second quarter of 1995 was $180,174 compared with
$149,991 for the second quarter of 1994. This increase can be attributable to an
increase in the consulting services provided by the Company along with an
increase in rental revenues from the Company's real estate holdings.
The cost of revenues for the second quarter of 1995 increased over the
cost of revenues for the second quarter of 1994 by $54,666, although as a
recentage of revenue, it was comparable. Selling, and general and administrative
expenses for the second quarter of 1995 increased to $366,332 from $146,783 for
the second quarter of 1994. The increase in selling, general, and administration
costs was due primarily to the inherent costs involved in increasing the level
of consulting services performed by the Company. As the Company continues its
emphasis on its consulting services and real estate operations, it is expected
that these costs will rise significantly in 1995 compared to 1994.
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The net loss for the second quarter of 1995 was $785,149 as compared to
a $136,186 loss for the second quarter of 1994. The loss was chiefly due to the
loss incurred on the foreclosure of the Canton, Illinois property.
Capital Resources and Liquidity
The deficiency in working capital decreased from $1,221,574 in the
second quarter of 1994 to $830,130 in the second quarter of 1995. This
improvement was primarily attributable to a reduction of the accounts payable
and other current liabilities due to an increase in revenues resulting from the
refocusing of the Company's operations into consulting and real estate.
The Company generated positive cash flows during the first two quarters
of 1995. Operating cash flows are closely aligned with consulting revenue and
the cost of providing consulting services. The most significant cost of
providing consulting service is the payroll of the Company's approximately 26
employees. The payroll averaged $70,000 per month during the second quarter of
1995. The Company does not expect an increase in payroll expenses unless its
consulting services division is increased as a result of a substantial influx of
clients.
In the second quarter of 1995, the Company issued shares of common
stock pursuant to Richard Surber, the Company's president, and Allen Wolfson, a
consultant to the Company. The options granted and issuance of the underlying
shares were in consideration of services rendered from January 1, 1995 to April
30, 1995. In total, the Company issued 247,000 shares. On or about May 9, 1995
the Company registered such shares for resale under a post effective amendment
to a Form S-8 registration statement filed under the Securities Act of 1933, as
amended. The Company also issued 17,000 shares of its common stock to Charles R.
Levy for consulting services performed for its real estate operations.
On May 5, 1995, in three separate transactions, the Company issued a
total of 347,735 shares of its common stock pursuant to Regulation S. The shares
were sold for $0.375 per share or $130,400. Of these shares, 133,334 shares were
issue to Tamarisk Enterprises Ltd., a corporation organized under the laws of
the British Virgin Islands, with its headquarters located in London, England;
133,334 shares were issued to World Financial Services Ltd., a corporation
organized under the laws of the British Virgin Islands, with it headquarter
located in London, England; and 81,067 were issued to East-West Trading
Corporation, a corporation organized under the laws of the British Virgin
Islands, with its headquarters located in Nevis, West Indies.
On June 28, 1995, the Company entered into an agreement with Ms. Pienne
Chow Sau Har, a Hong Kong resident, whereby Ms. Chow purchased 250,000 shares of
the Company's common stock for $140,000 pursuant to an exemption provided by
Regulation S of the Securities Act of 1933. This capital-for-equity infusion
provided the Company with the funds needed to satisfy its obligations regarding
the clean-up of the Canton, Illinois, plant. In further consideration for the
infusion, the Company guaranteed the value of the investment at an interest rate
of 12% per annum for a period of one year from the date of the transaction.
Subsequently, the Company
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was required, by reason of the aforementioned guarantee, to issue 144,634
additional shares to Ms. Chow to cover shortfalls occasioned by a drop in the
Company's stock price, the exchange conversion rate, and the prepaid interest.
The Company hopes to further limit or discontinue the practice of
issuing shares for services in lieu of cash payments. The Company may have to
continue to pay for services through the issuance of its common stock until it
is able to further improve its cash flows from operations. Where appropriate,
the Company may also issue common stock to acquire real estate and other assets.
During the second quarter of 1995, the Company began to limit the issuance of
stock for the above purposes and hopes to further limit the issuance of stock as
cash flows improve.
PART II
ITEM 1. LEGAL PROCEEDINGS
The following are material pending legal proceedings involving the
Company.
TAC Inc. vs. Ozora Corporation and Mark C. Hungerford. This suit has
been pending in the United States District Court for the Central Division of
Utah with Case Number 95-C-75 G. Recovery is sought of a promissory note in the
amount of $100,000 plus the interest due or the recovery of 99,800 shares of
class A common stock of Transcisco Industries, Inc. Judgment was entered against
Ozora and Hungerford for $276,945.89 plus interest and costs on May 30, 1995.
Defendants have failed to attend scheduled Supplemental Proceedings to enforce
the judgment. The Court has issued a Show Cause Order to compel the Defendants'
compliance with its orders. The U.S. Marshalls are currently attempting to serve
those orders on Hungerford.
Canton Industrial Corporation and Canton Industrial of Salt Lake City
vs Delmar A. Janovec and KLH Engineering Group, Inc. This suit was filed on
April 19, 1995, in the United States District Court, in the Central District of
Utah, Civil Case No. 2:95 CV 363G. The Company has filed suit to seek
enforcement of the August 31, 1994 Settlement Agreement and Mutual Release
entered into between the Company and Janovec and KLH with respect to delivery to
the Company of 10,994,666 shares of common stock of KLH. The Company also seeks
recovery for the difference between the represented and the actual value of real
property located in Johnson County, Kansas to be conveyed to the Company by KLH.
The parties are currently seeking to settle this suit in an expeditious manner.
West Virginia Property. Canton Tire Recycling of West Virginia, Inc. a
wholly-owned subsidiary of the Company owns property located in the city of
Parkersburg, West Virginia. The West Virginia Division of Environmental
Protection ("WVDEPA") has notified the Company of violations regarding the
tanks, alleged stains and alleged hydrocarbon located on the property. Testing
has been recently conducted at the site by Kemron Environmental Services;
however,
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reports have not yet been received regarding this testing. The potential
liability will remain uncertain until the testing is complete.
State of Illinois vs. The Canton Industrial Corporation. This action is
pending in the Ninth Judicial Circuit, County of Fulton, State of Illinois, Case
No. 93MR45, seeking the removal and disposal of those waste tires presently
located at the Canton Plant in Canton, Illinois. A hearing was held on May 31,
1995, resulting in the court entering a Supplemental Contempt Order compelling
the Company to complete the removal of the waste tires from the site prior to
December 31, 1995 and imposing sanctions of $14,000 if the Company fails to
comply with that deadline. The Illinois Environmental Protection Agency ("IEPA")
has issued a notice that if the Company does not provide a plan for clean-up of
the site, the agency will proceed to complete the process and seek recovery of
all costs from the Company. A plan for the removal of all waste tires has been
filed with both the Court and the IEPA. The Company believes that it has
sufficient funding to complete the removal of all waste tires prior to the
December 31 deadline through the bailing of the tires via a contract with
Gardens, Inc.
Vincent Liotta vs. Joseph Roberts & Co., et al.. Suit has been filed by Mr.
Liotta in the U.S. District Court, Eastern District of New York, Case No.
CV-95-1659, alleging damages relating to his purchase of stock in ATC II, Inc.
("ATC"), naming the Company as a defendant. An answer has been filed denying any
involvement in the underlying transactions and the Company is disputing any
liability in the matter.
The Canton Industrial Corporation vs. Mi-Jack Products, Inc. Suit was filed
in the U.S. District Court, in the Central District of Utah, Civil Case No. 2:95
CV 651S, on July 14, 1995 seeking to recover damages based upon the failure of
equipment provided by Mi-Jack to operate properly at the Canton, Illinois
property. Service upon the defendant is pending verification of all legal names
of the supplier involved.
Xeta Corporation vs. The Canton Industrial Corporation. This case was
filed in the United States District Court, in the Northern District of Oklahoma,
Case Number 94-C-1080-BU. Xeta Corporation sued the Company in the Federal
District Court in Oklahoma in an attempt to recover funds that it asserted were
improperly transferred to the Company from its client, ATC. The Company filed a
motion to dismiss the action for lack of personal jurisdiction which was granted
on February 16, 1995. Xeta refiled this case in the United States District
court, in the Central District of Utah, Case Number 95CV-218G on March 8, 1995.
Xeta asserted the same claim against the Company as the case filed against the
Company in Oklahoma. Xeta has filed a Motion for Summary Judgment which the
court has delayed consideration of until the completion of discovery in the
case. The Company is informed that current management of ATC is pursuing a
global settlement of all claims of Xeta, which would include the dismissal of
this suit.
Other material legal proceedings are pending, however, no changes in
such suits occurred in the first quarter of 1995. For more information
concerning these legal proceedings, see "Legal
9
<PAGE>
Proceedings" in the Company's annual report on Form 10-KSB for the fiscal year
ended December 31, 1994.
ITEM 5. OTHER INFORMATION
On April 5, 1995, Lorin N. Pace was appointed as a director of the
Company. This appointment was made to fill a vacancy created by the departure of
Ruairidh Campbell. Mr. Pace served as a representative of the Utah House of
Representatives from 1964-1986; Speaker of the House from 1969-1970; House
Minority Leader, 1971-1972; a member of the Utah State Senate from 1986-1990;
and was a practicing attorney from 1953-1993. Mr Pace currently works as an
independent consultant. Mr. Pace received his bachelor degrees in math and
Spanish from the University of Utah and Brigham Young University and his law
degree from the University of Utah College of Law.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. Exhibits required to be attached by Item 601 of Regulation
S-B are listed in the Index to Exhibits on page 10 of this Form 10-
QSB.
(b) Reports on Form 8-K. During the quarter ended June 30, 1995, the
Company did not file any reports on Form 8-K.
Index to Exhibits
EXHIBIT PAGE
NO. NO. DESCRIPTION
27 12 Financial Data Schedule
10
<PAGE>
SIGNATURES
In accordance with the requirements 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 December, 1995.
The Canton Industrial Corporation
Date: December 16, 1995 By: /s/ Steven A. Christensen
Name : Steven A. Christensen
Title: President
By: /s/ Susan S. Waldrop
Name: Susan S. Waldrop
Title: Chief Financial Officer
Secretary/Treasurer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED UNAUDITED CONDENSED FINANCIAL STATEMENTS FILED WITH THE COMPANY'S
JUNE 30 ,1995 QUARTERLY REPORT ON FORM 10-QSB/A AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U. S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<EXCHANGE-RATE> 1
<CASH> 138,081
<SECURITIES> 0
<RECEIVABLES> 261,431
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 544,012
<PP&E> 3,943,396
<DEPRECIATION> 535,159
<TOTAL-ASSETS> 5,661,627
<CURRENT-LIABILITIES> 1,374,142
<BONDS> 0
<COMMON> 4,098
0
0
<OTHER-SE> 2,495,240
<TOTAL-LIABILITY-AND-EQUITY> 5,661,627
<SALES> 0
<TOTAL-REVENUES> 180,174
<CGS> 0
<TOTAL-COSTS> 247,678
<OTHER-EXPENSES> 366,332
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45,796
<INCOME-PRETAX> (813,674)
<INCOME-TAX> 0
<INCOME-CONTINUING> (813,674)
<DISCONTINUED> 28,525
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (785,149)
<EPS-PRIMARY> (0.22)
<EPS-DILUTED> (0.22)
</TABLE>
