SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
The Canton Industrial Corporation
(Name of Registrant as Specified in Its Charter)
Richard D. Surber, President
(Name of Person Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule.
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
1) Title of each class of securities to which transaction applies.
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11.*
4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------
* Set forth the amount on which the filing fee is calculated and state how it
was determined.
[X] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form of Schedule and the date of its filing.
1) Amount Previously Paid:
$125
2) Form, Schedule or Registration Statement No.:
Schedule 14(a) Preliminary Proxy Materials
3) Filing Party:
Registrant
4) Date Filed
May 16, 1996
<PAGE>
THE CANTON INDUSTRIAL CORPORATION
268 West 400 South, Suite 300
Salt Lake City, Utah 84101
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 18, 1996
TO THE SHAREHOLDERS OF THE CANTON INDUSTRIAL CORPORATION:
You are cordially invited to attend the annual meeting of the
shareholders (the "Annual Meeting") of The Canton Industrial Corporation (the
"Company") to be held at the offices of the Company, 268 West 400 South, Suite
300, Salt Lake City, Utah, on Tuesday, June 18, 1996, commencing at 10:00 A.M.
Mountain Daylight Time. The purpose of this Annual Meeting is to consider and
vote on the following proposals, as more fully described in the accompanying
Proxy Statement:
1. To amend the Company's Articles of Incorporation by changing the
Company's name from The Canton Industrial Corporation to
CyberAmerica Corporation.
2. To elect Richard Surber, Philip Lamb and Lorin Pace to the Board
of Directors.
3. To ratify the selection of Andersen, Andersen, and Strong, L.C.
as the Company's independent auditors for the fiscal year ending
December 31, 1996.
4. To transact such other business as may properly come before the
Annual Meeting or any adjournment thereof.
The complete text of these proposals and the reasons the Company's
Board of Directors has proposed their adoption are contained in the Proxy
Statement attached hereto and I urge you to carefully study them. If you do not
plan to attend the Annual Meeting, you are respectfully requested to sign, date,
and return the enclosed Form of Proxy promptly. You may return the Form of Proxy
by mail or by faxing the signed Form to the Company's offices at (801) 575-8340.
A return envelope is enclosed for your convenience.
FOR THE REASONS STATED HEREIN, THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
"FOR" THE PROPOSALS SET FORTH IN THE PROXY STATEMENT. YOUR VOTE IS IMPORTANT NO
MATTER HOW MANY SHARES YOU OWN. TO BE SURE THAT YOUR SHARES WILL BE VOTED AT THE
MEETING, PLEASE SIGN AND DATE THE ENCLOSED FORM OF PROXY. THIS WILL NOT PREVENT
YOU FROM ATTENDING THE MEETING AND VOTING YOUR SHARES IN PERSON.
Only shareholders of record as shown on the Company's books at the
close of business on May 27, 1996 (the "Record Date") will be entitled to vote
at the Annual Meeting or any adjournment thereof. A list of the Company's
shareholders entitled to notice of, and vote at, the Annual Meeting will be made
available during regular business hours at the Company's corporate offices at
268 West 400 South, Suite 300, Salt Lake City, Utah from the date of this notice
for inspection by any shareholder for purposes germane to the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Susan S. Waldrop, Secretary
Salt Lake City, Utah
Dated: May 29, 1996
<PAGE>
PROXY STATEMENT
THE CANTON INDUSTRIAL CORPORATION
268 West 400 South, Suite 300
Salt Lake City, Utah 84101
I. INFORMATION CONCERNING SOLICITATION AND VOTING
This Proxy Statement is being furnished in connection with the
solicitation of proxies on behalf of the Board of Directors of The Canton
Industrial Corporation, a Nevada corporation with principal offices at 268 West
400 South, Suite 300, Salt Lake City, Utah, 84101 (the "Company"), to be voted
at the Annual Meeting of shareholders to be held on June 18, 1996, and/or at any
adjournment thereof. The Company's telephone number is (801) 575-8073. A Notice
of the Annual Meeting of Shareholders and Annual Report as required by Rule
14a-3 under the Securities Exchange Act of 1934 accompany this Proxy Statement
and Form of Proxy. The Annual report is attached as an appendix to this Proxy
Statement. The approximate date of mailing for these materials is May 29, 1996.
The Company itself is soliciting proxies to the shareholders of record
and it alone will bear the costs associated with such solicitation. No
additional compensation will be paid to any director, officer, or regular
employee for the solicitation of proxies. The Company also expects to utilize
the services of Automated Data Processing Corporation in contacting beneficial
owners whose shares are held in street name. The Company expects the costs of
such services not to exceed $2,500. In addition to soliciting proxies by mail,
the Company's employees may solicit proxies personally, by telephone or by
facsimile. The Company expects such other solicitation to do no more than
request that Forms of Proxy be signed and returned.
Please return the enclosed Form of Proxy immediately. A Form of Proxy
may be returned by faxing the Form, once signed, to the Company's corporate
offices at (801) 575-8340 or by mailing the Form in the enclosed envelope. When
a Form of Proxy is returned to the Company properly executed and not revoked,
the shares represented thereby will be voted at the Annual Meeting and/or any
adjournment thereof by Susan S. Waldrop, the Company's Secretary (hereinafter
known as the "Proxy Holder"). Forms of Proxy may be returned by mailing in the
enclosed envelope or by faxing the Form of Proxy to (801) 575-8340. If the Form
of Proxy is signed with preferences indicated, the shares represented thereby
will be voted accordingly. Forms of Proxy signed by shareholders but lacking any
such specification will be voted in favor of the proposals set forth in the
Notice of Annual Meeting of Shareholders. The Company does not know of any other
matters not included as proposals which will be presented for action at the
Annual Meeting. However, the Proxy Holder intends to vote on, and act with
respect to, any other proposal which may be properly presented in accordance
with her best judgment. A stockholder submitting a Form of Proxy may revoke it
at any time before it is voted at the Annual Meeting by executing a Form of
Proxy bearing a later date or by sending a written revocation addressed to the
Corporate Secretary of The Canton Industrial Corporation, 268 West 400 South,
Suite 300, Salt Lake City, Utah, 84101. A shareholder who attends the Annual
Meeting may also revoke a previously executed proxy by voting a ballot at the
Annual Meeting. The Board of Directors recommends a vote FOR all the proposals
discussed in this Proxy Statement.
Only shareholders of record at the close of business on May 27, 1996
(the "Record Date") are entitled to vote at the Annual Meeting. On the Record
Date there were 7,161,822 shares of the Company's common stock, $0.001 par value
("Common Stock"), issued, outstanding, and entitled to vote. Holders of Common
Stock, the Company's only class of voting stock, are entitled to one vote per
share on each issue proposed at the Annual Meeting. The proposal to amend the
Restated Articles of Incorporation by changing the Company's name shall be
adopted by receiving the affirmative vote of a majority of the issued and
outstanding shares of Common Stock. All other proposals voted upon at the Annual
meeting shall be adopted upon receiving the affirmative vote of a majority of
the shares represented by person or proxy at the Annual Meeting.
Holders of a majority of the Common Stock issued and outstanding on the
Record Date must be represented in person or by proxy at the Annual Meeting to
constitute a quorum for conducting business. Any shares which abstain from
voting will be counted for the purpose of obtaining a quorum but will not be
counted in calculating the votes for the proposals. Broker non-votes will not be
counted either for purposes of determining a quorum or in calculating the vote
on any proposal.
<PAGE>
II. SHAREHOLDER BALLOT ITEMS
A.Proposal Number One: Amendment to Restated Articles of Incorporation
Changing Company's Name to CyberAmerica Corporation
The Company was originally incorporated on July 10, 1984. Soon after,
the Company acquired substantially all of the assets of a manufacturing plant
located in Canton, Illinois, which it operated until February 1988. At that
time, the Company filed a voluntary petition for relief under Chapter 11 of the
United States Bankruptcy Code in the United States Bankruptcy Court for the
Central District of Illinois. Under the leadership of current management, the
Company began to operate a tire recycling business in its Canton plant. Due to
tire shredding equipment that failed to perform according to the manufacture's
specifications, this venture was largely unsuccessful. Accordingly, the Company
discontinued its tire shredding operations in the third quarter of 1993.
Since 1993, the Company has changed the focus of its operations. The
Company, through its subsidiary, Canton Financial Services Corporation, provides
a range of financial consulting services targeted to distressed public companies
and private entities seeking to become publicly owned. The services provided by
the Company include document preparation, capital formation, financial analysis,
debt settlement, and general corporate problem solving. The Company also
acquires, manages, leases, and sells commercial real estate holdings. It seeks
to acquire real estate with little or no cash and turn these properties into
profitable assets. In pursuit of this objective, the Company has purchased, or
leased with the option to purchase, properties throughout the United States.
The newest division of the Company's current operations involves the
provision of Internet related business services. The Company is currently
creating electronic shopping malls on the Internet and sites within these malls.
It is also designing "Net Safari," a revolutionary search engine that should be
available soon. This engine specifically targets searches to virtual shopping
malls located throughout the world, and will therefore greatly facilitate the
purchase and sale of products online. The Company is optimistic about the future
market for Internet related business and marketing services. It is aggressively
searching for new ways to enter this market.
In the opinion of the Board of Directors, the Company's current name,
The Canton Industrial Corporation, no longer reflects the Company's operations
or objectives. The Company has discontinued all of its manufacturing operations
and now focuses primarily on financial consulting, real estate and Internet
services. Moreover, in the Company's opinion, the name The Canton Industrial
Corporation retains the stigma associated with the voluntary bankruptcy petition
filed by the prior management group, even though the Company exited bankruptcy
on November 17, 1994. Accordingly, the Board of Directors is recommending that
the Company change its name to CyberAmerica Corporation. The proposed name
better reflects the Company's entry into the market for 21ST century virtual
business systems and coincides with its emphasis on aggressively developing
Internet products and services. The names of all the Company's subsidiaries,
including Canton Financial Services Corporation, will remain unchanged by this
proposal.
To officially change the name of the Company from The Canton Industrial
Corporation to CyberAmerica Corporation, the Company must amend its Restated
Articles of Incorporation. To effect this amendment, the Company must obtain the
approval of the owners of a majority of the Company's issued and outstanding
Common Stock.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT TO THE RESTATED
ARTICLES OF INCORPORATION CHANGING THE COMPANY'S NAME FROM THE CANTON INDUSTRIAL
CORPORATION TO CYBERAMERICA CORPORATION.
B. Proposal Number Two: Election of Directors
The Company's Restated Articles of Incorporation provide that the Board
of Directors shall consist of no less than three (3) and no more than seven (7)
members. Three directors will be elected at the Annual Meeting and each director
elected will hold office until the next annual meeting of shareholders. Provided
a quorum is present, the affirmative vote of a majority of shares of Common
Stock represented at the Annual Meeting is necessary to elect each director.
Shareholders are not entitled to cumulate their votes for the election of
directors.
Each of the nominees listed below is currently serving as a director of
the Company and their terms of office expire upon the election of new directors.
Each of the current directors has indicated his willingness to serve if
reelected. If any nominee becomes unable to serve, each proxy conferring
authority to vote for the nominee will be voted, in the discretion of the Proxy
Holder, for any substitute nominee designated by the board of directors. The
following directors are nominated for reelection:
<PAGE>
Richard D. Surber, age 23, was appointed to the Board of
Directors of the Company in June 1992 and was appointed as its Chief
Executive Officer in March 1994. He was appointed as the Company's
President on May 6, 1996, and served a prior term as President from
March 1994 to August 1995. Mr. Surber was the Company's Secretary from
June 1992 to March 1994. Since 1991, Mr. Surber has been a
professional consultant for various public and private companies. Mr.
Surber is a graduate of the University of Utah with a B.S. in Finance
and is currently attending the University of Utah, College of Law. Mr.
Surber is also the president and sole director of A-Z Professional
Consultants, Inc. ("A-Z"), Wasatch Capital Corporation ("WCC"), and
Investment Sanctuary Corporation ("ISC").
During the last two years, the Company has completed several
transactions with A-Z, WCC, and ISC. Richard Surber is the president
and sole director of all three corporations. Because of his respective
positions with A-Z, WCC, ISC, and the Company, Mr. Surber may be
deemed to have had an indirect interest in the transactions listed
below.
On December 22, 1995, the Company entered into two Stock Option
Agreements, one with A-Z, and one with ISC. Pursuant to the
Agreements, the Company granted options (the "Options") to A-Z and ISC
giving each the respective right to purchase a quantity of shares of
the Company's Common Stock equivalent to 26% and 25% of the issued and
outstanding shares on the exercise date. The exercise price of the
Options was established in the Agreements at $0.59 per share. The
Options can be exercised in full or in part in accordance with the
terms of the Agreements and any Stock Option Plan the Company may have
in effect at the time of exercise. Notice must be delivered to the
Company setting forth the number of shares to be optioned together
with either: (a) a certified check or bank check payable to the
Company; or (b) other consideration acceptable to the Company, which
consideration shall be approved by the Board of Directors of the
Company, with the exclusion of a promissory note, which shall not be
acceptable. The Options were granted to compensate Richard Surber,
Allen Wolfson, ISC, and A-Z for consulting services rendered to the
Company as well as to entice them to continue to perform such services
for the Company. Allen Wolfson is the uncle of Mr. Surber, as well as
the sole shareholder in A-Z. The granting of the Options effectively
gives control of the Company to Allen Wolfson and Richard Surber.
Since 1992, A-Z has had agreements with the Company to provide
consulting services, office space, supplies and equipment. The first
such agreement was entered into in June 1992 and extended on
substantially similar terms for an additional year by an Amended
Management & Consulting Contract, dated May 7, 1993. Under these
contracts, the Company was obligated to pay A-Z fees of 5,000 shares
or $8,000 per month for services rendered after June 30, 1993.
Additionally, A-Z was entitled to a bonus of ten percent (10%) of any
transactions brought to closing as a result of A-Z's services or
efforts ("Ten Percent Bonus"). The Company issued 27,105 shares of its
restricted Common Stock and paid $120,000 to A-Z during 1993. On April
7, 1994, the Company and A-Z entered into an Amendment to the Amended
Management & Consulting Contract ("Amendment") because of the
difficulties in determining the value of the Ten Percent Bonus, the
possibility of legal action and other issues involving the Ten Percent
Bonus. Pursuant to the Amendment, the Ten Percent Bonus provision was
removed completely from the Amended Management & Consulting Contract.
Upon expiration of the Amended Management & Consulting Contract,
the Company entered into a new one year Consulting Agreement dated
June 1, 1994, but effective May 7, 1994. Under the Consulting
Agreement, the Company agreed to pay A-Z $8,000 or 20,000 shares of
the Company's restricted Common Stock each month. Instead of paying
cash or issuing stock for services rendered through August 6, 1994,
the Company and A-Z agreed the Company would assign its interest in a
note made by TAC, Inc., a Utah corporation, and transfer carpet
credits to A-Z. The Company's interest in the note and the credits
were valued at $15,424 and $8,810, respectively. On September 30,
1994, A-Z and the Company terminated the Consulting Agreement. The
Company agreed to pay A-Z for consulting fees earned and expenses
incurred through the termination date.
On May 1, 1995, the Company and A-Z entered into a Settlement
Agreement to settle the fees and expenses earned and incurred by A-Z
but unpaid as of the date A-Z's June 1, 1994 Consulting Agreement
terminated. Pursuant to this Settlement Agreement, the Company issued
Allen Wolfson, personally, 80,000 shares of its Common Stock. On
August 30, 1995, the Company and A-Z entered into a one year
Consulting Agreement whereby the Company agreed to again retain A-Z as
one of its primary consultants.
On December 30, 1994, the Company entered into a Stock Purchase
and Debt Settlement Agreement with WCC. Under the terms of the
agreement, the Company advanced WCC $208,702 which enabled WCC to
exercise an option to purchase real estate located as 55-57, 61-65
West 100 South, Salt Lake City, Utah (the "Bennett Building").
Throughout the course of the year the Company advanced WCC an
additional $67,849 for improvement and other expenses related to the
Bennett Building. In exchange for these funds, the Company accepted a
20% interest in WCC. The Company's investment is secured by the
Bennett Building and WCC is not allowed to dilute the Company's
interest in WCC or lease, sell, exchange, or encumber the property in
any way unless approved by the Company.
On September 30, 1994, the Company retained ISC to provide
consulting services for the Company. The agreement called for the
Company to pay ISC $20,000 per month, either in cash or shares of the
Company's restricted Common Stock valued at one-half of the average
between the low bid and ask price to be paid on quarterly basis. The
Company and ISC subsequently agreed that payments for services
rendered by ISC would not begin accruing until January 1, 1995. No
such payments were ever made, however, and ISC's rights under this
agreement were eventually incorporated into the aforementioned
December 22, 1995 Stock Option Agreement between ISC and the Company.
On May 4, 1995, the Company, A-Z, ISC, Richard Surber and Allen
Wolfson entered into an Assignment and Acknowledgment (the
"Assignment"). The Assignment related to services ISC had rendered to
the Company between January and April 1995 pursuant to a September 30,
1994 Consulting Agreement by and between ISC and the Company. ISC
assigned all rights to fees from the Company to Richard Surber and
Allen Wolfson personally. Mr. Surber and Mr. Wolfson were the primary
consultants who performed the consulting services for the Company on
behalf of ISC pursuant to the Consulting Agreement. Pursuant to the
Assignment, the Company agreed to issue 167,000 shares of its Common
Stock under the Company's 1994 Stock Option Plan. On May 9, 1995, the
Company issued Mr. Surber 87,000 shares and Mr. Wolfson 80,000 shares.
Mr. Surber is the subject of a lawsuit filed by Xeta Corporation,
an Oklahoma corporation ("Xeta"), in the United States District Court
for the District of Utah. Xeta seeks to recover $116,500 which it
contends was fraudulently transferred to the Company by ATC II, Inc.,
a Delaware corporation ("ATC"), in order to avoid payment of a
judgment that Xeta held against ATC. Xeta brought suit against the
Company, as well as Mr. Surber individually in his capacity as a
director of both the Company and ATC at the time the alleged transfer
took place. The Company is defending the lawsuit both on its own
behalf and on behalf of Mr. Surber, contending that the money
transferred was consideration for bona fide services the Company
rendered to ATC. On April 16, 1996, the Court granted Xeta's Motion
for Summary Judgment against the Company, but denied the Motion as it
pertains to Mr. Surber. The Company will continue to defend this
lawsuit, which is still pending.
Philip Lamb, age 37, was appointed to the Board of Directors in
January 1995. Prior to his appointment, Mr. Lamb was an employee of
the Company. From October 1994 to January 1995, he worked to obtain
financing for new purchases and other funding needed by clients of the
Company. Since January 1995, Mr. Lamb has been employed with
Green-Tree Financial Services as the market representative for Utah.
From 1993 to 1994, Mr. Lamb worked as a Loan Officer for Pacific Rim
Financial Services. Prior to joining Pacific Rim, Mr. Lamb had been a
Branch Area Manager for Zions First National Bank in Salt Lake City,
Utah. His duties included managing a successful group of branches for
the bank, supervising all lending operations at his branch and
managing day to day operations of the bank. Mr. Lamb is also the owner
of Mountain West Management, a rental property management firm in
Orem, Utah.
Lorin Pace, age 70, was appointed to the Board of Directors in
April 1995. Mr. Pace served as a representative of the Utah House of
Representatives from 1964 to 1986; Speaker of the House from 1969 to
1970; House Minority Leader from 1971 to 1972; a member of the Utah
State Senate from 1986 to 1990; and was a practicing attorney from
1953 to 1993. Since 1993, Mr. Pace has worked as an independent
consultant. Mr. Pace received a B.S. in Mathematics and B.A. in
Spanish from the University of Utah and Brigham Young University,
respectively, and a J.D. from the University of Utah College of Law.
<PAGE>
Based solely upon a review of Forms 3, 4 and 5 furnished to the Company,
the Company is not aware of any person who, at any time during the fiscal year
ended December 31, 1995, was a director, officer, or beneficial owner of more
than ten percent of the Common Stock of the Company, and who failed to file on a
timely basis reports required under Section 16(a) of the Securities Exchange Act
of 1934 during such fiscal year.
The Company does not have any standing audit, nominating, compensation, or
similar committees. During the 1995 fiscal year, the Board of Directors held
nine regularly scheduled and special meetings. Each member attended at least 75
percent of those meetings.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE
NOMINEES NAMED IN THIS PROXY STATEMENT.
<PAGE>
C.Proposal Number Three: Ratification of Andersen, Andersen & Strong as
Independent Auditors for the Fiscal Year Ending December 31, 1996
On December 30, 1995, the Company received the resignation of its
independent auditor, Smith & Company. Neither of Smith & Company's reports on
the financial statements for the past two years contained an adverse opinion or
disclaimer of opinion, nor were they modified as to uncertainty, audit scope or
accounting principles. However, the financial statements included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1993,
prepared by Smith & Company, included a single sentence expressing Smith &
Company's doubt as to the Company's ability to continue as a going concern.
There were no disagreements between Smith & Company and the Company on any
matter of accounting principles, financial statement disclosure or auditing
scope or procedure during the two most recent fiscal years and all subsequent
periods.
On January 2, 1996, the Company's Board of Directors engaged Andersen,
Andersen & Strong, L.C. to serve as the Company's certified accountants for the
fiscal year 1995. Andersen, Andersen & Strong audited the Company's financial
statements for 1995 and the Board of Directors has also selected them as the
Company's independent auditors for fiscal year 1996. Although it is not required
to do so, the Board of Directors wishes to submit the selection of Andersen,
Andersen, & Strong to the shareholders for ratification. If the selection of
Andersen, Andersen & Strong is not ratified, the Board of Directors may
reconsider its selection. The Company will request that a representative of
Andersen, Andersen & Strong attend the Annual Meeting and make a statement or,
at that representative's discretion, answer appropriate questions. The Company
expects that representative to be present at the Annual Meeting. The Company
will also invite a representative of Smith & Company to attend the Annual
Meeting, but does not expect that representative to be present at the Annual
Meeting. Approval of this proposal requires the affirmative vote of a majority
of the votes cast by shareholders entitled to vote at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF ANDERSEN,
ANDERSEN & STRONG AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE FISCAL YEAR
ENDING DECEMBER 31, 1996.
III. MANAGEMENT OF THE COMPANY
A. The Company's Officers
Below is a list of all of the Company's current officers excluding Richard
D. Surber, the Chief Executive Officer and President. The information includes
the time for which each officer has held office and the business experience of
each during the last five years. For more information on Mr.
Surber, please see the above proposal for the election of directors.
<PAGE>
Kevin S. Woltjen, age 27, was appointed Vice President of the
Company in August 1995 by the Board of Directors and has been employed
as a consultant and as in-house legal counsel by the Company since
November 1994. Mr. Woltjen has been an attorney licensed to practice
law in the State of Illinois since 1994. Between 1991 and 1994, Mr.
Woltjen studied for and received a J. D. and a M.B.A., with
Distinction, from DePaul University in Chicago, Illinois. Mr. Woltjen
received a B.A. in History from Southern Methodist University in
Dallas, Texas.
Susan S. Waldrop, age 26, was appointed Chief Financial Officer
and Secretary/Treasurer of the Company in October 1995 and has been
employed by the Company as an accountant since June 1994. Between 1987
and 1990, Ms. Waldrop worked as an accountant and office manager for a
title insurance company and a building materials supplier, while
studying for her B.S. in Accounting. Between 1990 and 1994, Ms.
Waldrop studied for and received a B.S. in Accounting and a Masters of
Professional Accountancy from Weber State University in Ogden, Utah.
B. Changes in Control of Company
On May 6, 1996, the Board of Directors dismissed Steven A. Christensen as
President of the Company. The reason for the dismissal was the Board's
determination that Mr. Christensen had failed to adequately manage the Company
during his nine-month tenure as President. Mr. Christensen was replaced as
President by Richard D. Surber, pursuant to a unanimous resolution of the Board
of Directors effective May 6, 1996. Mr. Surber gained control of the Company
due, in part, to his direct and indirect ownership of stock options which, if
exercised, would give Mr. Surber a majority interest in the Company's
outstanding shares. Mr. Surber has also served a previous term as the Company's
President from March 1994 to August 1995. For more information on Mr. Surber or
his indirect control of the Company, see the above proposal for election of
directors. The Company knows of no arrangements or understandings which may lead
to a further change of control in the Company.
<PAGE>
IV. COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
A. Executive Compensation
No compensation in excess of $100,000 was awarded to, earned by, or paid to
any executive officer of the Company during 1995. The directors of the Company
are paid a salary of $300 per meeting. The following table and the accompanying
notes provide summary information for each of the last three fiscal years
concerning cash and non-cash compensation paid to or accrued by the Company's
Chief Executive Officers: Ramon Smullin (June 1992 - August 1993); Alan D.
Hansen (August 1993 - December 1993); and Richard D. Surber (March 1994 -
Present). The notes accompanying the information in the table below are
necessary for a complete understanding of the figures provided. All references
to share amounts reflect the 1-for-10 reverse stock split effective August 1,
1994.
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
Awards Payouts
Restricted Securities
Name and Principal . Other Annual Stock Underlying LTIP All Other
Position ...... Year Salary Bonus Compensation Award(s) Options Payouts Compensation
<S> <C> <C> <C> <C> <C> <C> <C> <C>
($) ($) ($) ($) SARs(#) ($) ($)
Alan D. Hansen ... 1995 -- -- -- -- --
Former CEO ... 1994 -- -- -- 54,000 15,000 -- --
and V.P ....... 1993 22,615 -- 22,615 12,500 18,500 -- --
Ramon Smullin .... 1995 -- -- -- -- -- -- --
Former CEO ... 1994 -- -- -- 48,000 100,000 -- --
1993 9,180 -- -- 127,167 9,859 -- --
Richard Surber .... 1995 30,000 -- -- -- -- -- 41,677(1)
Current CEO and .. 1994 21,000 -- -- 50,000 -- -- --
President ..... 1993 -- -- -- -- -- -- --
</TABLE>
(1) This compensation was paid to Mr. Surber, personally, in the form
of 87,000 shares of the Company's Common Stock, valued at $0.48 per
share, in consideration of consulting services rendered by Mr. Surber
over a three month period pursuant to a consulting agreement between
the Company and Investment Sanctuary Corporation, a Utah corporation,
of which Mr. Surber is president and sole director and shareholder.
The shares issued to Mr. Surber were issued pursuant to Form S-8 and
Registration Statement and Reoffer Prospectus filed with the
Securities and Exchange Commission on May 9, 1995. The price per share
was determined by calculating the average monthly bid price for the
three months during which consulting services were rendered.
During the fiscal year ended December 31, 1993, the Company established a
Stock Option Plan (the "1993 Plan") for its employees and consultants. Under the
1993 Plan, options to purchase 600,000 shares were allowed to be granted. The
1993 Plan was registered with the Securities and Exchange Commission ("SEC")
pursuant to Form S-8 under the Securities Act of 1993, as amended ("Form S-8").
During the year ended December 31, 1994, the Company established a Stock Option
Plan (the "1994 Plan") for its employees and consultants. The 1994 Plan was
registered with the SEC pursuant to Form S-8. Under the 1994 Plan, options to
purchase 500,000 shares were allowed to be granted. As of December 31, 1995, all
shares included in the 1993 and 1994 Plans had been issued.
In January 1996, the Company established a Stock Option Plan (the "1996
Plan") for its employees and consultants. The 1996 Plan was registered with the
SEC pursuant to Form S-8. Under the 1996 Plan, options to purchase 1,000,000
shares of the Company's Common Stock may be granted. The 1996 Plan is designed
to provide compensation and incentive bonuses to the Company's employees and
consultants who, due to current financial constraints of the Company, cannot be
adequately compensated in cash.
B. Options Granted and Exercised
During the 1995 fiscal year, the Company granted options to purchase Common
Stock to both Investment Sanctuary Corporation ("ISC") and A-Z Professional
Consultants, Inc. ("A-Z"). None of these options have been exercised as of May
24, 1996. Richard Surber, the Company's president, chief executive officer and
director, is also the president and sole director of both ISC and A-Z. Mr.
Surber is therefore deemed to have indirect control over the shares represented
by these options. For more information on these options and the Stock Option
Agreements pursuant to which they were granted, see the proposal to reelect
Richard Surber as director. The following two tables summarize the options that
have been granted to the Company's chief executive officer and owners of more
than 5% of the Company's outstanding Common Stock between the beginning of the
1995 fiscal year and May 24, 1996. The tables also summarize the value of
options which remain unexercised as of May 24, 1996.
[THIS SPACE LEFT INTENTIONALLY BLANK]
<PAGE>
<TABLE>
<CAPTION>
1. OPTION GRANTS IN LAST FISCAL YEAR
Number of Securities % of Total Options Granted Exercise Expiration
Name Underlying Options Granted(#) to Employees in Fiscal Year Price($/Share) Date
---- ----------------------------- --------------------------- -------------- -----------
<S><C> <C> <C> <C> <C>
Investment 3,572,360 (1) 46.8% 0.59 December 22,
Sanctuary 2000
Corporation
A-Z Professional 3,555,253 (2) 48.7% 0.59 December 22,
Consultants, Inc. 2000
2. AGGREGATED OPTION EXERCISES 1995 FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Securities Underlying Value of Unexercised
Shares Acquired Unexercised Options as of "in-the-Money" Options
Name on Exercise (#) Value Realized ($) May 24, 1996 (#) as of May 24, 1996
---- --------------- ------------------ ---------------- ------------------
<S><C> <C> <C> <C> <C>
Investment - 0 - - 0 - 3,572,360 (1) $4,608,344 (3)
Sanctuary
Corporation
A-Z Professional - 0 - - 0 - 3,555,253 (2) $4,586,276 (4)
Consultants, Inc.
</TABLE>
(1) On December 22, 1995, the Company granted Investment Sanctuary
Corporation an option to purchase an amount of shares equivalent to
25% of the issued and outstanding shares of the Company's Common Stock
at the time of exercise. To date none of the options have been
exercised. The option expires five years from the date of the grant.
This number listed in the table reflects the shares of Common Stock
which would have been issued to ISC if the options had been exercised
on May 24, 1996.
(2) On December 22, 1995, the Company granted A-Z Professional
Consultants, Inc. an option to purchase an amount of shares such that
A-Z will own 26% of the issued and outstanding shares of the Company's
Common Stock at the time of exercise. To date none of the options have
been exercised. The option expires five years from the date of the
grant. This number listed in the table reflects the shares of Common
Stock which would have been issued to A-Z if the options had been
exercised on May 24, 1996, and accounts for the 160,000 shares of
Common Stock already owned by A-Z. These 160,000 shares of Common
Stock reduce the total number of shares of Common Stock to be issued
under the option.
(3) The closing price for Common Stock on May 24, 1996 was $1.88 per
share, meaning the $0.59 strike price options were "in-the-money"
$1.29. Multiplying this figure by the number of shares of Common Stock
which would be issued to ISC assuming the options had been exercised
on May 24, 1996 results in the number appearing in the table.
(4) The closing price for Common Stock on May 24, 1996 was $1.88 per
share, meaning the $0.59 strike price options were "in-the-money"
$1.29. Multiplying this figure by the number of shares of Common Stock
which would be issued to A-Z assuming the options had been exercised
on May 24, 1996 results in the number appearing in the table.
V. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the
Company's stock ownership as of May 24, 1996. The table discloses each entity
known to the Company to be the beneficial owner of more than 5 percent of the
Company's common stock. The table also shows the stock holdings of all Company
directors, as well as the shares held by directors and executive officers of the
Company as a group. The notes accompanying the information in the table below
are necessary for a complete understanding of the figures provided.
[THIS SPACE LEFT INTENTIONALLY BLANK]
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature of
Title of Class Name and Address of Beneficial Owner Beneficial Ownership Percent of Class
-------------- ------------------------------------ -------------------- ----------------
<S> <C> <C> <C>
Common Stock Par Value A-Z Professional Consultants, Inc. 3,715,253 (1) 26.0% (5)
$0.001 268 West 400 South, Suite 306
Salt Lake City, Utah 84101
Common Stock Par Value Investment Sanctuary Corporation 3,572,360 (2) 25.0% (5)
$0.001 268 West 400 South, Suite 305
Salt Lake City, Utah 84101
Common Stock Par Value Philip Lamb, Director 267 *
$0.001
Common Stock Par Value Lorin Pace, Director 267 *
$0.001
Common Stock Par Value Richard D. Surber, CEO and Director 7,361,253 (3) 51.5% (5)
$0.001
Common Stock Par Value Directors and Officers as a Group 7,561,258 (4) 52.9% (5)
$0.001
* Less than 0.1% of the Common Stock.
</TABLE>
(1) Includes 3,555,253 shares considered to be beneficially owned by
A-Z Professional Consultants stemming from the terms of a Stock Option
Agreement, dated December 22, 1995. Pursuant to this Agreement, A-Z
Professional Consultants was granted an option to purchase a quantity
of shares such that A-Z will own 26% of the Company's issued and
outstanding common stock on the date the options are exercised. This
number reflects the number of Common Stock shares that would have been
issued if the option was exercised on May 24, 1996. It also includes
the 160,000 shares of Common Stock shares already issued to A-Z. Mr.
Surber disclaims beneficial ownership of the shares held by A-Z.
(2) Includes shares considered to be beneficially owned by Investment
Sanctuary Corporation ("ISC") stemming from the terms of a Stock
Option Agreement, dated December 22, 1995. Pursuant to this Agreement,
A-Z Professional Consultants was granted an option to purchase a
quantity of shares equivalent to 25% of the Company's issued and
outstanding common stock on the date the options are exercised. This
number reflects the number of Common Stock shares that would have been
issued if the option was exercised on May 24, 1996.
(3) Includes the 3,715,253 shares beneficially owned by A-Z. Mr.
Surber is the president and sole director of A-Z and is therefore
considered to be an indirect beneficial owner of these shares. Also
includes the 3,572,360 shares beneficially owned by ISC. Mr. Surber is
the president and sole shareholder and director of ISC and is
therefore considered to be an indirect beneficial owner of these
shares.
(4) Includes 95,213 shares beneficially owned by Kevin Woltjen, the
Company's vice president, acquired pursuant to a stock option plan as
specified in Mr. Woltjen's employment contract. On May 23, 1996, Mr.
Woltjen exercised an option to buy 75,950 shares of Common Stock at an
exercise price equaling 90% of that day's closing price and an
additional 12,000 shares with no exercise price. Mr. Woltjen retains
an option to purchase 7,263 shares at no exercise price. Further
includes 81,651 shares beneficially owned by Susan Waldrop, the
Company's secretary/treasurer and chief financial officer, acquired
pursuant to a stock option plan as specified in Ms. Waldrop's
employment contract. On May 22, 1996, Ms. Waldrop exercised an option
to buy 76,189 shares of Common Stock at an exercise price equaling 90%
of that day's closing price and an additional 3,000 shares with no
exercise price. Ms. Waldrop retains the right to purchase 2,462 shares
at no exercise price.
(5) These percentages reflect the exercise of all options granted
pursuant to two Stock Option Agreements dated December 22, 1995. If
all such options were exercised, there would be, as of May 24, 1996,
14,289,435 shares of the Company's Common Stock issued and
outstanding.
<PAGE>
VI. SHAREHOLDER PROPOSALS FOR THE FOLLOWING ANNUAL MEETING
Shareholder proposals to be presented in the proxy materials relating
to the next annual meeting of shareholders must be delivered to the Corporate
Secretary at the Company's offices at 268 West 400 South, Suite 300, Salt Lake
City, Utah, 84101, on or before November 30, 1996.
VII. OTHER MATTERS
The Company does not know of any matters that will be considered at the
Annual Meeting other than the proposals described in this Proxy Statement.
However, if any other matters properly come before the Annual Meeting, or any of
its adjournments, the Proxy Holder intends to vote the shares represented by the
Forms of Proxy according to her best judgment.
In order to assure the presence of the necessary quorum, please date,
sign, and promptly return the enclosed Form of Proxy in the envelope provided.
No postage is required if mailed in the United States. The signing of a Form of
Proxy by no means prevents you from attending the meeting and voting your shares
in person.
By order of the Board of Directors,
/s/ Susan S. Waldrop
Susan S. Waldrop, Secretary
Salt Lake City, Utah
May 29, 1995
<PAGE>
APPENDIX I
TO PROXY STATEMENT OF
THE CANTON INDUSTRIAL CORPORATION
ANNUAL REPORT AS REQUIRED BY RULE 14A-3(B)
OF THE EXCHANGE ACT OF 1934, AS AMENDED
<PAGE>
DESCRIPTION OF BUSINESS AND RELATED INFORMATION
BUSINESS DEVELOPMENT.
As used herein, the term "Company" refers to The Canton Industrial
Corporation, a Nevada corporation, and its subsidiaries and predecessors, unless
the context indicates otherwise. Originally incorporated on July 10, 1984 in
Ohio as The Canton Corporation, the Company adopted its present name in May
1985. In September 1984, the Company acquired substantially all of the assets of
a manufacturing plant located in Canton, Illinois (the "Canton Plant"). Under
the direction of prior management, the Company filed a voluntary petition for
relief under Chapter 11 of the United States Bankruptcy Code, in the United
States Bankruptcy Court for the Central District of Illinois on February 22,
1988. Current management led the Company's exit from bankruptcy on November 7,
1994 pursuant to the Bankruptcy Court's order of the same date.
Current management obtained controlling ownership of the Company in the
second quarter of 1992. Soon after control changed, the Company formed a wholly
owned subsidiary, Canton Tire Recycling Corporation, an Illinois corporation
("CTR"), to engage in tire recycling operations at the Canton Plant. CTR began
operations on November 5, 1992. During the third quarter of 1993, CTR ceased its
tire recycling operations because the recycling process did not achieve the
planned level of productivity and profitability. This was in large part due to
problems with the tire shredding equipment which did not perform to manufacturer
specifications. Therefore, the Company ceased payment on the shredding equipment
which was then reclaimed by the manufacturer. The Company has filed a complaint
seeking damages against the manufacturer of this equipment. Pursuant to the
September 30, 1994 Corporate Acquisitions Agreement and concurrent with the
Company's new focus on financial consulting and real estate acquisitions, the
Company transferred its ownership of CTR to Sabina Services, Inc., a Utah
corporation.
Diversification of the Company's operations began in 1993 when its tire
recycling activities continued to be unprofitable. The Company started
concentrating on providing consulting services and acquiring real estate in the
later half of 1993 and today focuses its operations almost exclusively in these
areas.
BUSINESS OF ISSUER
The Company provides financial consulting services and invests in real
estate. The Company employs professionals with expertise in law, accounting,
finance, Internet services, and public and investor relations in its consulting
operations. Typically, the Company provides services and support functions which
include advice relating to regulatory compliance, document preparation, capital
formation, financial analysis, promotional campaigns, debt settlement, and
general corporate problem solving.
Prospective clients for the Company's consulting services are located
by the Company's Acquisition Department as well as through advertising and
referrals. This department researches various databases looking for public
companies who are interested in the Company's services. The Company also
advertises its services to private entities seeking to raise capital or become
public corporations. Referrals by current and previous clients have provided the
Company with additional clients.
The Company charges clients monthly fees that vary in both amount and
form. Acceptable payments for these services include cash, securities of the
client company, or some combination of both. This payment arrangement allows
many organizations, especially start-up ventures and those experiencing
financial difficulties, to obtain the Company's services without the use of
valuable cash flows. Acceptable payments and the size of payments the Company
charges for its services vary with the volatility of the clients' securities,
the amount and nature of work involved, and the expenses related to the services
being rendered.
Entities from many different industries employ the Company's consulting
services and the Company strives to maintain this diversity. The Company
primarily targets distressed public companies and private companies seeking to
become publicly owned. The decision of accepting a prospective client depends on
its financial stability, the type of services needed and the compensation
format. A key to the Company's success is management's ability to improve and
maintain its client base and successfully liquidate its compensation.
<PAGE>
Part of the Company's business operations include the acquisition,
management, lease and sale of real estate holdings. The Company has acquired a
wide variety of commercial properties. While most of the Company's real estate
holdings are in Utah, the Company also owns several properties in other parts of
the United States. The Company hopes to increase revenues generated from these
properties and obtain additional real estate holdings. A key to the Company's
success is the ability of management to locate and acquire real estate with
little or no cash down and turn such properties into profitable assets.
The Company has been successful in generating sufficient revenues to
sustain its current operations and intends to expand its current consulting
services and acquisition of additional real estate, with the goal of increasing
revenues. Long range plans are to broaden its client base and to provide
additional consulting services. These plans include the possibility of
conducting promotional seminars focused on the Company's services. Other plans
involve the preparation and development of Internet mall sites within which
organizations can advertise their products and services on individual Internet
locations. The Company also assists private organizations in need of capital by
preparing limited private placement offering documentation.
The Company has three proceedings pending which involve the
investigation of the Company's compliance with local and state environmental
laws. The cost and effect of these proceedings are dependant upon the outcome of
the proceedings and investigations which are currently pending with state and
local agencies. The Company is unable to forecast, and can give no assurances as
to the outcome and resulting costs of these proceedings, if any, and the effect
they may have upon the Company.
The Company had approximately 55 employees, 40 of whom were full time
employees, on May 3, 1996.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company is continuing to proactively search for ways to expand its
client base for consulting services and its real estate holdings in its effort
to become more profitable. During the 1995 fiscal year, the Company was engaged
by several new clients to perform consulting services. Further, numerous real
estate transactions were initiated, conducted or finalized in 1995, most notably
the purchase and continued development of 1120 acres of land in Oasis, Nevada.
Although it recorded a net loss for the fiscal year, the Company
believes that its overall financial condition improved in 1995. This improvement
was evidenced by the fact that the Company recorded a net profit for the quarter
ended March 31, 1996. Under the direction of prior management, the Company filed
a voluntary petition for relief under Chapter 11 of the United States Bankruptcy
Code, in the United States Bankruptcy Court for the Central District of Illinois
on February 22, 1988. The Company exited from bankruptcy on November 7, 1994
pursuant to the Bankruptcy Court's order of this same date.
The Company implemented or improved several employee benefits,
including a 401(k) plan, health insurance, and a profit sharing plan. Although
the Company intends on retaining and hopes to improve such benefits, the
maintenance of these is premised on the continued fiscal health of the Company,
and no such assurances can be given.
From 1991 to 1993, the Company, through a wholly owned subsidiary
Canton Tire Recycling ("CTR"), was involved in the recycling of used tires.
Although the operations of CTR ceased during the third quarter of 1993 because
the recycling process did not achieve the planned level of productivity and
profitability, the Company has not extinguished all liabilities stemming from
its ownership of CTR. In 1995, the Company paid approximately $132,000 to remove
a portion of the used tires located on the site formerly used by CTR. Currently,
the State of Illinois has concluded work believing that all used tires have been
removed from the site. The State has informed the Company that it may seek
recovery of costs incurred to remove the tires. The Company expects this issue
to be completely resolved by the middle of 1996, although no such assurances can
be given.
<PAGE>
One of the Company's subsidiaries, KMC Foods, Inc., operated a food
processing plant in Cheriton Virginia prior to KMC's acquisition by the Company.
KMC sold this plant to Potomac Engineering Management Systems Co. ("PEMSCO"),
retaining a security interest in the property. PEMSCO, which still owes
approximately $600,000, has since filed a Chapter 11 bankruptcy case in the
United States Bankruptcy Court for the Eastern District of Virginia, Norfolk
Division, Case No. 95-23691-DHA. The property is subject to a consent order in
PEMSCO's Chapter 11 Bankruptcy that governs PEMSCO's continued ownership of the
property and KMC Foods' secured position in the property. PEMSCO has until June
5, 1996 to pay an agreed amount ($600,000) to KMC in full satisfaction of KMC's
secured interest in the property. Such a payment would have a positive material
impact on the Company's short-term liquidity, revenue and income. In the event
that such payment is not received, KMC has the permission of the Bankruptcy
Court to proceed with foreclosure. The Agreement also provides that if PEMSCO
retains the property, it will be responsible for cleaning up the existing
environmental concerns on the property and indemnifying KMC from any liability
for the costs thereof.
CONSULTING SERVICES
The Company employs approximately 55 people, including over 30
professionals with expertise in law, accounting, finance and public relations to
support the Company's operations. The Company was engaged by several new clients
to provide consulting services in 1995 as well as 1994 and will seek further
engagements throughout 1996. The following comprise a summary of the types of
consulting services the Company performs for its clients: document preparation,
capital formation, financial analysis, debt settlement and general corporate
problem solving. Acceptable payments and the size of payments the Company
charges for its services vary with the volatility of the clients' securities,
the amount and nature of work involved, and the expenses related to the services
being rendered.
The number of the Company's clients, the nature of services being
rendered and the type of compensation received from clients vary greatly. At a
given time, the Company may be actively providing consulting services to over 35
clients. Therefore, projecting the revenues that could be produced by the
Company's performance of these services is very difficult. The difficulty of
such projections is further enhanced because the Company receives a majority of
its compensation in the form of equity payments which cannot be readily resold,
thereby limiting the Company's cash flow and reducing its liquidity. The Company
estimates that it, or its subsidiaries, will be able to obtain at least two
additional clients per quarter for a term of no less than one year.
Consulting fees the Company accepts, in order of frequency, range from
the clients' equity, to cash, to other assets. When equity is the form of
payment, the number of shares to be paid is tied to the price of the clients'
equity, when available. The typical value used to determine the number of shares
to be paid is 50% of the stock's price divided by the amount of the Company's
fee because resale of the equity the Company receives is restricted. The Company
accepts equity with the expectation that its services will assist its
appreciation, thus allowing the Company to be paid and make a return on its
fees.
The Company generates a substantial portion of its cash flows by
liquidating the non-cash assets received as fees for consulting services. As
most fees are paid in the form of equity, the Company's ability to generate cash
flows is somewhat tied to the price of its clients' equity. Therefore, material
fluctuations in the price of clients' equity may materially impact the
short-term and long-term liquidity of the Company.
During the fourth quarter of 1995, four of the Company's wholly owned
subsidiaries conducted private placement offerings of common stock pursuant to
Rule 504 of Regulation D as promulgated by the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended ("Rule 504"). Each
subsidiary's business surrounded the ownership, management, lease and sale of
real estate. These offerings diluted the Company's ownership in all four
entities to 51%. The motivation behind these offerings was to allow each
subsidiary to raise funds sufficient for their partial financial independence.
The offerings were successful from the perspective that all shares offered were
sold, although the underlying motive has not been achieved as the Company still,
to varying degrees, supports the ongoing operations of the four entities. The
Company has also been structuring Rule 504 offerings for its consulting service
clients.
<PAGE>
INTERNET SERVICES
In the first quarter of fiscal 1996, the Company began focusing on
providing Internet services and established an Internet Services Division. The
Company is involved in the preparation and development of Internet mall sites
within which organizations can advertise their products and services on
individual Internet locations. The Company is seeking to obtain sales and
marketing experts who will advertise and promote its various Internet mall
opportunities. Also under development is a new type of search engine that
approaches Internet use in a new manner. Sales from this new focus of the
Company are expected to constitute a substantial portion of future cash flows.
The Company is proposing a change of its name to CyberAmerica Corporation to
reflect its entry into the Internet and electronic commerce market.
STOCK ISSUANCES
During 1995, the Company continued selling restricted shares of its
common stock, par value $0.001 ("Common Stock"), to various investors at prices
discounted from prevailing market prices. This practice was utilized to meet
certain financial obligations and to fund portions of the Company's expansion
and improvements. The Company issued 1,594,741 restricted shares of its Common
Stock during 1995 in exchange for cash payments totaling $581,441. The Company
also issued 567,051 restricted shares of its Common Stock during 1995 in
exchange for services rendered to it by various entities. Although no such
assurances can be given, the Company seeks to halt the sale of its stock as a
means of meeting revenue shortfalls.
On August 7, 1995, the Company's board of directors approved a
resolution that authorized Option Agreements and resulting stock issuances, to
five non U.S. entities. The Option Agreements allow these entities to purchase
shares of the Company's common stock pursuant to Regulation S of the Securities
Act of 1933, as amended. The quantity of shares included in the respective
Options ranged from 250,000 shares to 385,000 shares, with a total of 1,765,000
total shares included in the five Options. The exercise price of each option was
set at $0.30 per share and they expired one year from the date of approval and
was exercisable in full or in part. Pursuant to these Option Agreements, the
following shares have been exercised to the following entities as of September
30, 1995: 100,001 shares issued to Lexington Sales Corporation, a corporation
organized under the laws of the Isle of Man, with headquarters on the Isle of
Man; 196,668 shares issued to East-West Trading Corporation, a corporation
organized under the laws of the British Virgin Islands, with headquarters in
Nevis, West Indies; 15,000 shares issued to World Financial Securities, a
corporation organized under the laws of the British Virgin Islands, with
headquarters in London, England; and, 98,334 shares issued to Karston
Electronics Ltd., a corporation organized under the laws of the British Virgin
Islands, with headquarters in Tortola, BVI.
On December 11, 1995, the Company's board of directors approved a
resolution that authorized 500,000 shares of the Company's restricted common
stock to Howard Bernstein in consideration of his loan to the Company in the
amount of $500,000.
On June 28, 1995, the Company entered into an agreement with Ms. Prenn
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 as promulgated by the Securities and Exchange Commission pursuant
to the Securities Act of 1933, as amended. This capital-for-equity infusion
provided the Company with the funds needed to satisfy its obligations regarding
the clean up of the Canton Plant. As 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,
on August 4, 1995, the Company 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. This latter issuance fully discharged the Company's
obligations to Ms. Chow.
A settlement with Ozora Corporation and Mark Hungerford was executed on
December 12, 1995. On December 12, 1995, the Company received the first
installment of $25,000, with the balance of $235,000 paid to the Company on
February 13, 1996.
<PAGE>
REAL ESTATE HOLDINGS
The Company manages its real estate holdings in-house and plans to fill
vacancies for the Company's property holdings in Salt Lake City, Utah. The
Company, as of December 31, 1995 had approximately 37% of its commercial space
vacant, generated approximately $36,000 in gross monthly rents, and operated at
a loss of approximately $5,000 per month. The Company has reduced its real
estate operating losses by approximately $2,000 per month since December 31,
1994. These real estate operations are continued despite the losses for two
reasons. First, the Company hopes to eliminate the losses by increasing the
rental income from the property. Second, these operations are pursued primarily
for appreciation purposes. Thus, while the Company seeks to minimize and reverse
its real estate operating losses, its long term goal is to generate a capital
gain upon disposition sufficient to offset any previous losses, although no such
assurances can be given.
The Company's primary reason for acquiring most of its real estate is
potential appreciation. It had been anticipated that the Company's real estate
holdings in total would generate approximately $5,000 in profit per month by the
end of 1995 with a 10% vacancy rate. These results have not yet been achieved
because the Company has been unwilling to accept less than prevailing rates for
similar real estate.
The Company is continually searching for additional properties. The
amount the Company is willing to pay for a property is determined by management.
The criteria for purchasing properties is broad. Management's determination of
value, as well as the terms of financing, are critical factors in the Company's
decision to purchase properties. The Company generally searches for properties
that it believes are undervalued and can be financed by assuming an existing
mortgage along with the issuance of equity securities or a nominal amount of
cash as the down payment. This method of financing real estate purchases has
been utilized to preserve the Company's cash flows. The Company has been
successful in acquiring several properties using this method of financing.
There is a risk that the Company may lose control of the properties,
(e.g., through foreclosure), if enough funds are not derived from the rental
income for both the financing obligations and ongoing operations. Currently, due
to expanded acquisition activity and deficiencies in rental income from the
properties acquired, the Company does not have sufficient rental revenues to
cover the debt service and operating costs of all properties. The Company
currently has to use capital from other sources to fund this deficit. Although
management's goal is to increase the occupancy and rental rates and thus
increase the rental income so that such income will cover both operating costs
and debt service, no such assurances can be made. The Company's primary reason
for acquiring most of its real estate is for potential appreciation.
MATERIAL EVENTS
On December 27, 1995, the Company purchased approximately 1,100 acres
of land in Oasis, Nevada. Also included in the purchase were all improvements to
the property, consisting of a service station, small retail and food service
operations, and a mobile home park. Additionally, water rights of more than
sixteen hundred acre feet of water per year were purchased as part of the
transaction. On March 9, 1996, The Company entered into a Lease Agreement with
William and Pamela Wiegand (the "Wiegands"). Pursuant to the Lease Agreement,
the Wiegands will lease and maintain the operations of the service station,
small retail and food service operations and the mobile home park. The Wiegands
also purchased all inventory associated with the operations of the service
station, small retail and food service operations and the mobile home park.
TAC, Inc., a wholly owned subsidiary of the Company, filed suit on
January 25, 1995 against Ozora Corporation and Mark C. Hungerford seeking
recovery of a promissory note plus interest due and/or the recovery of the
note's collateral, 99,800 shares of class A common stock of Transcisco
Industries, Inc. On May 30, 1995, a Judgment against Ozora and Hungerford was
entered that included interest and associated costs. TAC pursued action to
enforce this judgement, and filed liens against Ozora and Hungerford's real
property in California and Montana. In November 1995, TAC, Ozora and Hungerford
entered into settlement discussions which continued until the parties reached a
settlement agreement that called for a total of $250,000 to be paid as follows:
an initial payment of $25,000 in November 1995; $60,000 on or before February 1,
1996; and the balance being due on or before March 15, 1996. The Agreement also
states that a penalty of $10,000 would be assessed against Ozora and Mr.
Hungerford if any of the payments were late. On February 13, 1996, Ozora and
Hungerford paid the balance due under the Agreement, including the $10,000 late
fee.
A wholly owned subsidiary of the Company, Cyber Real Estate, Inc.
("CRE"), a Nevada corporation, purchased a dormitory building located at 830
Edgebrook Drive, in DeKalb, Illinois, on February 20, 1996, pursuant to a
Memorandum of Agreement. The property was purchased by CRE on that date for a
purchase price of $1,100,000. The purchase price was paid by CRE's issuance of
its preferred stock valued at $825,000 and a $275,000 Mortgage evidenced by a
Uniform Real Estate Contract, with an interest rate of 6% per annum payable to
the seller. Payments of interest only are due quarterly with the entire balance
due on or before February 20, 1997, with no penalties for prepayment.
On February 18, 1995, the Company entered into a Memorandum of
Understanding to purchase a 50% interest in a contract of sale on property
located in Huntsville, Alabama. On February 28, 1995, Homes for America
Holdings, Inc., a Nevada corporation ("Homes"), conducted a private placement
offering of its common stock pursuant to Rule 504 of Regulation D under the
Securities Act of 1933, as amended ("Rule 504"). The Company assisted in the
formation of Homes and it retained a fifty percent (50%) ownership interest.
Under this offering, Homes issued 500,000 shares of its common stock to the
Company for a $50,000 cash infusion; thereby increasing the Company's ownership
to fifty-six percent (56%). The Company has subsequently sold a portion of their
ownership in Homes that reduced its interest to forty-six percent (46%). The
contract for the purchase of the property was executed by the parties and
effective on February 29, 1996, and is scheduled to close on or before August
15, 1996. The closing may be extended to October 15, 1996 if the sellers are
delayed on their Internal Revenue Code Section 1031 exchange. The property
consists of two apartment complexes and the purchase price is $7,900,000 for
both properties. The Inducement Resolution Package, which contained $8,400,000
of tax exempt bonds for a subsidiary of Homes, was officially approved on April
16, 1996 by the Alabama Housing Finance Authority in a public board meeting.
On March 1, 1996, Oasis International Corporation, a Nevada corporation
and wholly owned subsidiary of the Company ("OIC"), entered into a Stock
Purchase Agreement with East-West Corporation, a corporation organized under the
laws of Nevis, West Indies ("East-West"). The Stock Purchase Agreement provided
for the East-West's purchase of 85,950 shares of the common stock of Oasis
Hotel, Resort & Casino I, Inc., a Nevada corporation ("OHRCI"), and 85,950
shares of the common stock of Oasis Hotel, Resort & Casino II, Inc., a Nevada
corporation ("OHRCII"). These shares were owned by OIC. In accordance with the
Stock Purchase Agreement and a Promissory Note, East-West will pay OIC $1.00 per
share or $171,900. OIC acquired the shares of both OHRCI and OHRCII as a result
of separate Real Estate Option Agreements each involving the sale of an option
to purchase a tract of land approximately ten (10) acres in size which the
Company is in the process of jointly developing.
RESULTS OF OPERATIONS
Revenues for fiscal year 1995 were $2,049,068 compared to $2,371,960
during 1994, a decrease of $322,892. This decrease was primarily due to a
substantial decrease in consulting revenues during the second quarter of 1995.
During the second quarter, management implemented cost saving measures to adjust
to the loss in revenue. These cost reducing measures included a temporary
decrease in the number of employees and a corresponding decrease in salary and
wage costs during the second and third quarters. As revenues again increased,
additional employees were hired to maintain the quality and level of work for
the Company's clients. The consulting revenues decreased in the second quarter
of 1995 when the Company was unable to begin rendering its consulting services
for new clients added late in the first quarter because the clients failed to
provide the necessary information to the Company in an expedient manner.
Revenue from consulting services for the quarter ended March 31, 1996,
was $765,628 compared to $545,695 for the first quarter of 1995. The increase is
attributable to an increase in the Company's number of clients. Costs of
providing services increased from $232,398 in 1995 to $342,162 primarily due to
an increase in personnel to perform consulting services.
Revenue from rental of the Company's properties in the first quarter of
1996 increased to $105,218 from $55,586 for the same period of 1995. This
increase is primarily due to an increase in the number of properties under the
Company's control. This is also the reason for the increase in cost of rental
revenue from $57,933 in 1995 to $102,337 in 1996.
Other revenue was $59,792 for the quarter ended March 31, 1996,
compared with $8,611 for the same period of 1995. This increase of $51,181 is
primarily due to the Company's operation of a retail complex in Oasis, Nevada
until March 9, 1996. The Company has leased this retail operation to an operator
and therefore revenue from this source will not continue, although the Company
will receive rental revenue from this lease.
Net income for the quarter ended March 31, 1996, was $174,005 compared with
$179,941 in the first quarter of 1995.
During the first quarter of fiscal 1996, the Company expended
significant costs in developing its Internet Services Division ("Internet
Services"). The Company expects this increase in Internet Services expenses to
expand.
In addition, the company changed the method of marketing its services
which resulted in a substantial reduction in selling General and Administrative
expenses another cost saving charge implemented by management. General and
Administrative expenses in 1995 were $1,469,518 compared with $1,880,503 for
1994, a reduction of $410,985.
These actions by management resulted in a decrease in the operating
loss of $256,795, from a loss of $629,107 in 1994 to a loss of $372,312 in 1995.
Profit before discontinued operations and other items improved by $327,516 from
a loss of $284,705 in 1994 to a profit of $42,811 in 1995 primarily due to
managements policies improving efficiency and reducing costs.
Four of the Company's subsidiaries issued stock during the fourth
quarter of 1995, diluting the company's ownership from 100% to 51%. This
resulted in a gain on issuance of $151,966 and minority interest in loss of
$63,500.
During the second quarter of 1995 the Company foreclosed on a property
in Illinois that had been previously sold. This resulted in an extraordinary
loss of $562,406 charged against income in 1995, a gain on the sale of $752,467
had been previously reported by the Company during 1994.
CAPITAL RESOURCES AND LIQUIDITY
The Company continued to suffer from a working capital deficiency. The
working capital deficit has increased to $834,294 as of December 31, 1995 from
$653,453 as of December 31, 1994. The increase is primarily due to several
factors: (1) an increase in deferred income of approximately $50,000 due to the
method of accounting for real estate sales on the Nevada property; (2) an
increase in real property taxes; and (3) the accrued liability for environmental
cleanup. Both items 2 & 3 above are a result of the foreclosure on the Canton,
Illinois property.
The deficiency in working capital increased from $573,289 on March 31,
1995 to $924,310 at March 31, 1996, primarily as the result of the purchase of a
building which utilized short-term financing. For more information on this
building in DeKalb Illinois, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Material Events." The Company
intends to refinance this purchase with long-term financing. The Company
generated negative cash flows during the first quarter of 1996. 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 53 employees. The Company expects
an increase in payroll expenses if its consulting services division is increased
as a result of a substantial influx of clients.
FINANCIAL STATEMENTS
Please see Pages F-1 through F-26 which follow this Annual Report.
<PAGE>
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On December 30, 1995, the Company received the resignation of its
independent auditor Smith & Company.
Neither of Smith & Company's reports on the financial statements for
the past two years contained an adverse opinion nor disclaimer of opinion, nor
were they modified as to uncertainty, audit scope or accounting principles.
However, the financial statements included in the Company's annual report on
Form 10-KSB for the year ended December 31, 1993, prepared by Smith & Company,
included a single sentence expressing Smith & Company's doubt as to the
Company's ability to continue as a going concern.
There were no disagreements between Smith & Company and the Company on
any matter of accounting principles, financial statement disclosure or auditing
scope or procedure during the two most recent fiscal years and subsequent
period.
On January 2, 1996, the Company's board of directors engaged Andersen,
Andersen & Strong, L.C. to serve as the Company's new independent auditors.
Andersen, Andersen & Strong is located at:
Andersen, Andersen & Strong, L.C.
Certified Public Accountants and Business Consultants
941 East 3300 South, Suite 202
Salt Lake City, Utah 84106
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
---------------------------------------------------------------------
Directors, Executive Officers and Control Persons
----------------------------------------------------------------------
Name Age Position(s) and Office(s)
----------------------------------------------------------------------
Richard D. Surber 23 Director, President and Chief Executive Officer
----------------------------------------------------------------------
Philip Lamb 37 Director
----------------------------------------------------------------------
Lorin Pace 70 Director
----------------------------------------------------------------------
Kevin S. Woltjen 27 Vice President
----------------------------------------------------------------------
Susan S. Waldrop 26 Chief Financial Officer and Secretary/Treasurer
----------------------------------------------------------------------
Allen Wolfson 50 Control Person
----------------------------------------------------------------------
Richard D. Surber was appointed to the Board of Directors of the
Company in June 1992 and was appointed as its Chief Executive Officer in March
1994 and its President on May 6, 1996. He had also served as the Company's
President from March 1994 to August 1995 and was its Secretary from June 1992 to
March 1994.
Philip Lamb was appointed to the Board of Directors in January 1995.
Currently, and since January 1995, Mr. Lamb has been employed with Green-Tree
Financial Services as the market representative for Utah. From 1993 to 1994, Mr.
Lamb worked as a Loan Officer for Pacific Rim Financial Services. Mr. Lamb is
also the owner of Mountain West Management, a rental property management firm in
Orem, Utah.
Lorin Pace was appointed to the Board of Directors in April 1995. Mr.
Pace served as a representative of the Utah House of Representatives from 1964
to 1986; Speaker of the House from 1969 to 1970; House Minority Leader from 1971
to 1972; a member of the Utah State Senate from 1986 to 1990; and was a
practicing attorney from 1953 to 1993. Since 1993, Mr. Pace has worked as an
independent consultant.
Kevin S. Woltjen was appointed Vice President of the Company in August
1995 by the Board of Directors and has been employed as a consultant and as
in-house legal counsel by the Company since November 1994.
Susan S. Waldrop was appointed Chief Financial Officer and
Secretary/Treasurer of the Company in October 1995 by the Board of Directors and
has been employed by the Company as an accountant since June 1994.
Allen Wolfson has never been named as an officer or director of the
Company. He does, however, have significant influence and "control" (as defined
in Rule 12b-2 of the Securities Exchange Act of 1934) over the affairs of the
Company and is sole owner of A-Z Professional Consultants, Inc., formerly one of
the Company's largest shareholders. Mr. Wolfson is the uncle of Richard Surber.
He has also been a licensed general contractor and a real estate agent and
developer. Mr. Wolfson has consulted for A-Z Professional Consultants, Inc.
since April 11, 1990. Mr. Wolfson has been a professional consultant for various
public and private companies for 20 years.
CHANGE OF CONTROL
On May 6, 1996, the Board of Directors dismissed Steven A. Christensen
as President of the Company. The reason for the dismissal was the Board's
determination that Mr. Christensen had failed to adequately manage the Company
during his nine-month tenure as President. Mr. Christensen was replaced as
President by Richard D. Surber, pursuant to a unanimous resolution of the Board
of Directors effective May 6, 1996. Mr. Surber gained control of the Company
due, in part, to his direct and indirect ownership of stock options which, if
exercised, would give Mr. Surber a majority interest in the Company's
outstanding shares. Mr. Surber has also served a previous term as the Company's
President from March 1994 to August 1995. For more information on Mr. Surber or
his indirect control of the Company, see the above proposal for election of
directors. The Company knows of no arrangements or understandings which may lead
to a further change of control in the Company.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the Boston Stock Exchange under
the symbol "CND" on the OTC Bulletin Board under the symbol "CICP." The
following table sets forth the high and low sales prices for the Company's
Common Stock as reported on the Boston Stock Exchange for each quarter of 1994
and 1995, and the first quarter of 1996:
Quarter High Low
------- ---- ---
1994 First $0.50 $0.13
Second $0.94 $0.31
Third $0.94 $0.19
Fourth $1.31 $0.38
1995 First $0.53 $0.34
Second $0.65 $0.60
Third $0.51 $0.42
Fourth $2.31 $0.50
1996 First $2.44 $0.94
On May 24, 1996, the closing price for the Common Stock was $1.88.
All Share prices for the first two quarters of 1994 are 1:4
post-reverse split prices, and the Share prices for the last two quarters of
1994 are 1:4 and 1:10 post-reverse split prices, as described immediately below.
On October 12, 1992, the Company effected a 1:4 reverse split of the
outstanding shares of its common stock, par value $0.001 per share (the "Common
Stock"), pursuant to a special meeting of the Company's shareholders. The
Company changed its domicile to Nevada on March 9, 1993 through a merger with a
Nevada corporation bearing the exact name as the Company. On April 28, 1993, the
Company's shareholders and board of directors voted to increase the number of
shares of Common Stock authorized for issuance to 100,000,000 shares, and also
authorized for issuance 20,000,000 preferred shares, par value $0.001 per share.
On May 24, 1994, the Company's shareholders approved a proposal to
increase the number of shares of Common Stock authorized for issuance from
100,000,000 to 200,000,000 shares as well as a proposal to effect a 1:10 reverse
split of the Common Stock. The increase in authorized shares became effective on
or about July 26, 1994, while the 1:10 reverse stock split was effective on
August 1, 1994. (Unless otherwise noted all amounts of shares issued before
these dates have been restated to reflect both the 1:4 and the 1:10 reverse
splits.)
SHAREHOLDERS
As of May 24, 1996 there were approximately 769 shareholders of record
of Common Stock.
DIVIDENDS
The Company has not declared any cash dividends for the last two fiscal
years. Under the terms of the Company's Second Amended Plan of Reorganization,
as modified, no dividends could be paid until the Company's creditors were paid
as specified in the Plan. The Company exited from bankruptcy on November 7,
1994, and is therefore not restricted from issuing dividends. However, the
Company does not anticipate declaring any cash dividends in the near future.
On March 4, 1996, the Company declared a dividend consisting of either
common stock in both OHRCI and OHRCII or the cash equivalent of this stock. The
record date of this dividend was March 27, 1996. The Company's board of
directors has valued this dividend at $0.02 per 100 shares of Common Stock held
by shareholders of record ("Record Owners"). The Record Owners who do not live
in Arizona, Colorado, Iowa, Maine, Ohio, Rhode Island and Utah, will receive one
share of common stock in both OHRCI and OHRCII for every 100 shares of Common
Stock owned on the record date. Although Record Owners holding less than 100
shares of Common Stock on the record date will receive one share of common stock
in both OHRCI and OHRCII, all other fractions will be rounded down. The Company
will also give these Record Owners the option to receive the cash value of the
dividend instead of the stock, although the Company will not issue dividends of
fractional pennies (no dividends of less than one cent will be issued). Record
Owners whose record address is in Arizona, Colorado, Iowa, Maine, Ohio, Rhode
Island and Utah, will be given the option to receive the cash value of this
dividend, as stated above. The Company will not issue shares of OHRCI and OHRCII
in those states because their securities laws do not allow stock dividends of
this nature. The Company has experienced delays in the distribution of this
dividend because it has expended additional efforts to ensure compliance with
all federal and state requirements. The Company expects to commence this
distribution within 30 days.
On March 21, 1996, the Company declared a similar dividend consisting
of either common stock of Zahav, Inc. ("Zahav") and Cyber Information, Inc.
("CI"), both of which are Nevada corporations, or the cash equivalent of this
stock. The dividend rate was declared to be one share in both Zahav and CI per
100 shares of the Common Stock of the Company owned by each shareholder of
record. The board of directors also valued this dividend at $0.02 per 100 shares
of Common Stock held by shareholders of record. The same option and distribution
formula as described in the immediately preceding paragraph will be employed for
this dividend. The Company also expects to commence this distribution within 30
days.
UNDERTAKING REGARDING FORM 10-KSB
The Company hereby undertakes to provide without charge to each person
solicited with this proxy statement, on the written request of any such person,
a copy of its annual report on Form 10-KSB including the financial statements
and the financial statement schedules, required to be filed with the Securities
and Exchange Commission pursuant to Rule 13a-1 under the Act for the fiscal year
ended December 31, 1996. This written request should be addressed to Brent Brown
at the Company's headquarters at 268 West 400 South, Suite 300, Salt Lake City,
Utah 84101.
<PAGE>
- --------------------------------------------------------------------------------
ADDENDUM TO APPENDIX I
- --------------------------------------------------------------------------------
ANNUAL REPORT AS REQUIRED BY RULE 14A-3(B)
OF THE EXCHANGE ACT OF 1934, AS AMENDED
On Page A-9 of the Annual Report to Shareholders, included as Appendix
I to the Proxy Statement, certain information was disclosed about Allen Z.
Wolfson's involvement with the Company as a control person. Due to ministerial
error, this information was not copied verbatim from the Company's quarterly
report for the period ended March 31, 1996 as intended, and this fact was not
discovered until the Proxy Statement and Annual Report had already gone to
print. PLEASE READ THE FOLLOWING TEXT IN CONJUNCTION WITH THE INFORMATION
PROVIDED CONCERNING ALLEN WOLFSON ON PAGE A-9 OF APPENDIX I TO THE PROXY
STATEMENT:
- --------------------------------------------------------------------------------
Allen Wolfson has never been named as an officer or director of the
Company. He does, however, have significant influence and "control" (as defined
in Rule 12b-2 of the Securities Exchange Act of 1934) over the affairs of the
Company and is sole owner of A-Z Professional Consultants, Inc., formerly one of
the Company's largest shareholders. Mr. Wolfson is the uncle of Richard Surber.
Mr. Wolfson obtained a B.S. in Marketing from the University of Southern
Florida in 1968 and in 1970 he graduated with an M.A. in Distributive Vocational
Education. Mr. Wolfson has worked 59 credit hours towards an MBA from Troy State
University in Montgomery, Alabama. He has also been a licensed general
contractor and a real estate agent and developer. Mr. Wolfson has consulted for
A-Z Professional Consultants, Inc. since April 11, 1990. Mr. Wolfson has been a
professional consultant for various public and private companies for 20 years.
In 1986, Mr. Wolfson was convicted of violating 18 U.S.C. ss.371; 18
U.S.C. ss.ss.1001 and 1002; and 18 U.S.C. ss.ss.1014 and 1002 in the U.S.
District Court for the Middle District of Florida, Tampa Division (the "Florida
Court"). Mr. Wolfson was on probation for these offenses until May 1995. In
February 1995, a complaint was filed with the Florida Court alleging that Mr.
Wolfson had violated the terms of the probation. The Florida Court changed the
jurisdiction of the matter to the U.S. District Court for the District of Utah,
Central Division (the "Utah Court"). The Utah Court heard the matter in August
1995 and on October 20, 1995, Senior U.S. District Court Judge Bruce S. Jenkins
ruled that a violation of the original terms of the probation had occurred. This
finding effectively revoked Mr. Wolfson's probation. On January 25, 1996, a
sentencing hearing was held before the Utah Court. At this hearing the Utah
Court imposed a three-year sentence, suspended pursuant to additional terms of
probation. On April 11, 1996, the Utah Court judge signed a written order
containing new probation terms that are effective for three years. Mr. Wolfson
has filed an objection seeking clarification of the probation terms, which is
presently before the Utah Court. For more information on Mr. Wolfson and his
affiliation with the Company, see "Proposal Number Two - Election of Directors"
in the enclosed Proxy Statement.
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX II
- --------------------------------------------------------------------------------
TO PROXY STATEMENT OF
THE CANTON INDUSTRIAL CORPORATION
AUDITED FINANCIAL STATEMENTS
NUMBERED F-1 TO F-26
<PAGE>
ANDERSEN ANDERSEN & STRONG, L. C. 941 East 3300 South, Suite 202
Certified Public Accountants and Business Consultants Salt Lake City, UT 84106
Member SEC Practice Section of the AICPA Telephone: (801)486-0096
Fax: (801)486-0098
E-Mail: K Anderson @msn.com
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
The Canton Industrial Corporation
Salt Lake City, Utah
We have audited the accompanying consolidated balance sheets of The Canton
Industrial Corporation and Subsidiaries as of December 31, 1995 and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the years ended December 31, 1995 and 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express and
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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Canton
Industrial Corporation and Subsidiaries as of December 31, 1995, and the
consolidated results of their operations, shareholders' equity, and cash flows
for the years ended December 31, 1995 and 1994, in conformity with generally
accepted accounting principles.
/s/ Anderson, Anderson & Strong
Salt Lake City, Utah
April 14, 1996
A member of ACF International with affiliated offices worldwide
F-2
<PAGE>
<TABLE>
<CAPTION>
THE CANTON INDUSTRIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1995
ASSETS
CURRENT ASSETS
<S> <C>
Cash ...................................................... $ 18,605
Receivable - brokerage account ............................ 3,337
Accounts receivable - trade ............................... 248,129
Accounts receivable - related parties ..................... 200,017
Note receivable - current (Note 11) ....................... 12,000
Inventories - cost ........................................ 36,371
Prepaid expenses .......................................... 36,677
----------
TOTAL CURRENT ASSETS ......................................... 555,136
PROPERTY AND EQUIPMENT
Schedules V and VI ........................................ 4,860,260
OTHER ASSETS
Investments - securities (Note 10) ........................ 968,396
Mortgages receivable (Note 11) ............................ 353,000
Notes receivable - net of current (Note 11) ............... 653,027
Investments - other ....................................... 244,321
Deposits .................................................. 16,345
Media and other credits ................................... 223,885
----------
TOTAL OTHER ASSETS ........................................... 2,458,974
----------
TOTAL ASSETS ................................................. $7,874,370
==========
See notes to consolidated financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
THE CANTON INDUSTRIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Continued)
December 31, 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
<S> <C>
Notes payable (Note 5) .................................. $ 57,493
Current maturities of long-term debt (Note 5) ........... 149,059
Accounts payable ........................................ 328,751
Accounts payable - related parties ...................... 17,413
Accrued liabilities (Note 13) ........................... 160,000
Interest .............................................. 19,330
Real estate taxes and assessments (Note 7) ............ 317,751
Payroll and related taxes payable ..................... 143,200
Deferred income ......................................... 25,979
Deposit - real estate sales (Note 2) .................... 171,900
------------
TOTAL CURRENT LIABILITIES .................................. 1,390,876
LONG-TERM LIABILITIES
Long-term debt, less current portion (Note 5) ........... 2,764,757
------------
CONTINGENCIES (Note 13) .................................... --
MINORITY INTEREST .......................................... 347,923
SHAREHOLDERS' EQUITY
Preferred stock par value $.001; 20,000,000
shares authorized; No shares issued .................... --
Common stock par value $.001; 200,000,000
shares authorized; 5,886,799 shares issued ............ 5,887
Additional paid-in capital .............................. 11,428,674
Accumulated deficit ..................................... (8,063,747)
------------
TOTAL SHAREHOLDERS' EQUITY ................................. 3,370,814
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................. $ 7,874,370
============
See notes to consolidated financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
THE CANTON INDUSTRIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
December 31, 1995 and 1994
1995 1994
----------- -----------
<S> <C> <C>
REVENUE ........................................................ $ 2,049,968 $ 2,371,960
COST OF REVENUE ................................................ 952,762 1,120,564
----------- -----------
GROSS PROFIT ................................................... 1,097,206 1,251,396
SELLING GENERAL AND ADMINISTRATIVE ............................. 1,336,675 1,880,503
ENVIRONMENTAL CLEANUP (Note 13) ................................ 132,843 --
----------- -----------
OPERATING LOSS ................................................. $ (372,312) $ (629,107)
----------- -----------
OTHER INCOME AND (EXPENSE):
Interest income ............................................. 86,565 133,842
Interest expense ............................................ (256,457) (142,321)
Other income ................................................ 217,420 102,995
Gain (loss) from investment securities ...................... 73,425 (502,581)
Gain from sale of property - related parties (Note 8, Item 4) -- 752,467
Gain from issuance of shares by subsidiary .................. 151,966 --
Gain from disposal of subsidiary ............................ 70,544 --
Gain from sale of assets .................................... 71,660 --
----------- -----------
TOTAL OTHER INCOME ............................................. 415,123 344,402
----------- -----------
GAIN (LOSS) BEFORE DISCONTINUED
OPERATIONS AND OTHER ITEMS ................................... 42,811 (284,705)
DISCONTINUED OPERATIONS:
Gain from discontinued operations ........................... 23,912 374,081
----------- -----------
GAIN BEFORE INCOME TAXES,
EXTRAORDINARY ITEMS, AND MINORITY INTEREST .................... 66,723 89,376
PROVISION FOR INCOME TAXES .................................... -- --
----------- -----------
GAIN BEFORE EXTRAORDINARY ITEMS ................................ 66,723 89,376
AND MINORITY INTEREST:
Gain from extinguishment of debt ............................ 13,454 89,023
Loss on foreclosure (Note 16) ............................... (562,406) --
----------- -----------
NET INCOME (LOSS) BEFORE MINORITY INTEREST ..................... (482,229) 178,399
----------- -----------
MINORITY INTEREST IN LOSS ................................... 63,500 --
----------- -----------
NET INCOME (LOSS) .............................................. $ (418,729) $ 178,399
=========== ===========
INCOME (LOSS) PER COMMON SHARE
Gain (loss) before discontinued operations
and other items ........................................... $ .01 $ (.11)
Gain from discontinued operations ........................... .01 .14
Extraordinary items ......................................... (.14) .03
Minority interest in loss ................................... .01 --
----------- -----------
Net income (loss) per weighted average
common share outstanding .................................. $ (.11) $ .06
=========== ===========
Weighted average number of common shares outstanding (Note 2) 3,825,264 2,621,243
=========== ===========
See notes to consolidated financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
THE CANTON INDUSTRIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 31, 1995 and 1994
Stock Total
Common Stock Paid-in Subscription Debenture Shareholders'
Shares Amount Capital Deficit Receivable Receivable Equity
--------- ------- ---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1993 ..... 2,588,258 $ 2,588 $10,466,154 $(7,736,703) $(750,000) $(250,000) $ 1,732,039
Common stock activity:
Issued for debt ................... 17,824 18 5,035 -- -- -- 5,053
Issued for assets ................. 163,670 164 101,936 -- -- -- 102,100
Issued for services - related party 260,402 260 186,293 -- -- -- 186,553
Issued for services ............... 454,844 455 451,520 -- -- -- 451,975
Issued for cash ................... 697,917 698 426,463 -- -- -- 427,161
Adjust prior periods .............. 100,000 100 (100) -- -- -- --
Cancellations ..................... (92,750) (93 (242,677) -- -- -- (242,770)
Cancel debentures ................. (100,000) (100) -- -- -- 250,000 249,900
Cancel stock subscriptions ........ (1,257,301) (1,257 (975,504) -- 750,000 -- (226,761)
Subsidiary minority interest ...... -- -- (151,000) -- -- -- (151,000)
Deficit of subsidiary acquired .... -- -- -- (86,714) -- -- (86,714)
Net income for year ............... -- -- -- 178,399 -- -- 178,399
---------- ------- ---------- ------------ ----------- -------------- ----------
BALANCES AT DECEMBER 31, 1994 ..... 2,832,864 $ 2,833$ 10,268,120 $(7,645,018) -- -- $ 2,625,935
---------- ------- ---------- ------------ ----------- -------------- ----------
Common stock activity:
Issued for debt ................... 241,743 242 82,073 -- -- -- 82,315
Issued for assets ................. 420,000 420 267,330 -- -- -- 267,750
Issued for services - related parties 407,000 407 148,045 -- -- -- 148,452
Issued for services ............... 390,451 390 83,260 -- -- -- 83,650
Issued for cash ................... 1,594,741 1,595 579,846 -- -- -- 581,441
Net loss for year ................. -- -- -- (418,729) -- -- (481,729)
---------- ------- ----------- ----------- ----------- -------------- ----------
BALANCES AT DECEMBER 31, 1995 ..... 5,886,799 $5, 887 $11,428,674 $(8,063,747) -- -- $3,307,814
========== ======= =========== =========== =========== =============== ==========
See notes to consolidated financial statements.
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
THE CANTON INDUSTRIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1995 and 1994
1995 1994
----------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) ................................... $ (418,729) $ 178,399
Adjustments to reconcile net income (loss)
to net cash provided:
Gain from debt settlements ........................ (13,454) (89,023)
(Gain) loss from sale of investments .............. (73,425) 502,581
(Gain) from sales to related party (Note 9, Item 4) -- (752,467)
Permanent decline in investments .................. 94,295 --
(Gain) from sale of assets ........................ (71,660) --
(Gain) from sale of subsidiary .................... (70,544) --
(Gain) from issuance of shares of subsidiary ...... (151,966) --
(Gain) from discontinued operations ............... (23,912) --
Loss from foreclosure ............................. 562,406 --
Book value of assets abandoned .................... -- 79,009
Minority interest ................................. (63,500) --
Depreciation and Amortization ..................... 205,937 154,278
Services paid with common stock ................... 232,102 638,528
Common stock issued for assets and debt ........... 82,315 107,153
Decrease (increase) in assets:
Receivables ..................................... (301,967) 51,520
Inventories ..................................... (36,371) --
Prepaid expenses and other ...................... (63,747) 53,905
Investments - other ............................. (74,125) (151,121)
Increase (decrease) in liabilities:
Accounts and notes payable ...................... (8,807) (216,232)
Accrued liabilities ............................. 381,429 (389,314)
Bank overdrafts ................................. -- (33,802)
Deferred income ................................. 51,615 125,477
----------- ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES ...... $ 237,892 $ 258,891
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures .............................. (223,220) (821,806)
Proceeds from sales of investments ................ 258,901 518,837
Purchase of non-current security investments ...... (1,018,691) (276,551)
----------- ---------
NET CASH FLOWS (USED) IN INVESTING ACTIVITIES ......... $ (983,010) $(579,520)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Sales of common stock for cash ..................... 981,441 427,161
Increase in long term debt ......................... 218,000 --
Reduction of long term debt ........................ (464,727) (83,699)
----------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES ............. $ 734,714 $ 343,462
----------- ---------
INCREASE (DECREASE) IN CASH ........................... (10,404) 22,833
CASH AT BEGINNING OF YEAR ............................. 29,009 6,176
----------- ---------
CASH AT END OF YEAR ................................... $ 18,605 $ 29,009
See note 3 for supplemental disclosures =========== =========
See notes to consolidated financial statements.
</TABLE>
F-7
<PAGE>
THE CANTON INDUSTRIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995 and 1994
NOTE 1: ORGANIZATION AND OPERATIONS
ORGANIZATION
The Canton Industrial Corporation (the "Company") was incorporated in the State
of Ohio on July 10, 1984 as The Canton Corporation and adopted its present name
in May 1985. Effective May 3, 1993, the Company's domicile was changed to
Nevada.
OPERATIONS
The Company provides financial consulting services and invests in undervalued
property. The Company provides services and support functions to its clients
including advice relating to regulatory compliance, document preparation,
capital formation, financial analysis, promotional campaigns, debt settlement,
and general corporate problem solving . Part of the Company's business
operations includes the acquisition, management, leasing and sale of real
estate.
REORGANIZATION
On February 22, 1988, the Company filed a voluntary petition for reorganization
under Chapter 11 of the United States Bankruptcy Code. On November 7, 1994, the
bankruptcy was discharged.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The Company's financial statements have been presented on the basis that it is a
going concern which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business.
COMPANY PLANS
The Company was discharged from bankruptcy in 1994 and no longer has to allocate
time and resources in this area. Also, a number of unprofitable operations have
been discontinued. This will save time and resources which the Company is now
devoting to profitable activities.
The Company expects to generate sufficient cash flow to cover operating
expenses, to meet its obligations and to generate revenues for expansion as set
forth below:
1.The Company's primary source of revenue is through providing
consulting services. The Company is increasing its client base by
broadening the type and number of clients. The Company currently
targets public companies who are interested in the Company's services
and private entities seeking to raise capital or becoming a public
corporation. The Company has expanded its range of services to
include large individual estates, non-profit and religious
organizations. In order to acquire additional clients, the Company
has expanded its Acquisition Department, increased its marketing
efforts, and is constantly refining the its techniques for locating
new clients.
F-8
<PAGE>
THE CANTON INDUSTRIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1995 and 1994
NOTE 1: ORGANIZATION AND OPERATIONS (continued)
COMPANY PLANS (CONTINUED)
2.The Company is expanding its real estate holdings to include a wide
variety of commercial properties. The Company hopes to increase the
revenues generated from these properties by increasing the occupancy
of available rentable space and has engaged various companies and
individuals to help lease and manage the real estate it owns. Real
estate holdings are also available for sale at prices which will
provide a reasonable return to the Company. Indications are that the
commercial real estate market is continuing to improve and that there
is a good demand for commercial rental space.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company's accounting policies reflect current accounting practices and
conform to generally accepted accounting principles. The following policies
considered to be significant are:
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of The
Canton Industrial Corporation and its subsidiaries as summarized in Note 4.
All significant intercompany accounts and transactions have been eliminated in
the consolidation.
ACCOUNTING METHOD
The accompanying financial statements have been prepared on the accrual method
using generally accepted accounting principles applicable to a going concern
which contemplates the realization of assets and the liquidation of liabilities
in the normal course of business. All assets are listed at historical cost.
INCOME TAXES
The Company reports income and losses for financial reporting and income tax
purposes on the accrual method of accounting in accordance with Financial
Accounting Standards ("FAS") No. 109 with the cumulative effects reflected in
the year ended December 31, 1993. FAS 109 requires deferred tax balances to be
adjusted to reflect the tax rates in effect when those amounts are expected to
become payable or refundable.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the assets. Depreciation
expense for 1995 and 1994 was $202,368 and $154,278, respectively. The cost of
assets sold or retired and the related amounts of accumulated depreciation are
removed from the accounts in the year of disposal. Any resulting gain or loss is
reflected in current operations.
Expenditures for maintenance and repairs are expended as incurred; additions and
improvements are capitalized.
SALES OF UNDEVELOPED LAND
The Company uses the deposit method for reporting sales of certain undeveloped
land. Under this method the effective date of sale is deferred until substantial
cash is collected. Until that time all cash received is accounted for as a
deposit.
F-9
<PAGE>
THE CANTON INDUSTRIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1995 and 1994
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
INVESTMENT SECURITIES
Marketable equity securities are stated at market value in accordance with
Financial Accounting Standards ("FAS") No. 115. Valuation of other security
investments is based on acquisition costs. Markdowns are made to reflect
significant impairment in values. During 1995, a markdown was recorded of
$94,295.
COMMON SHARES AND INCOME (LOSS) PER COMMON SHARE
All references to common shares are reflected as adjusted for the 1 for 10
reverse stock split approved on August 2, 1994. Income (loss) per common share
is computed using the weighted average number of common shares outstanding
(3,825,264 shares in 1995 and 2,621,243 shares in 1994).
INCOME OR LOSS PER SHARE
Income or loss per share of common stock is computed based on the weighted
average number of common shares outstanding during the periods shown. The
Company had common stock equivalents (CSE's) outstanding at December 31, 1995
and 1994 in the form of stock purchase options. The options are held by present
and former employees. The inclusion of the outstanding options would not affect
the income or loss per share in 1995 or 1994 and therefore such options have not
been included in the weighted average number of common shares. If all
outstanding options were exercised, the total proceeds would be approximately
$464,000. The Company's outstanding common stock purchase options at December
31, 1995 are as summarized as follows:
Expiration Exercise No. of Shares
Issue Date Date Price Subject to Options
---------- ---------- --------- -------------------
10/21/93 10/30/98 $4.44 98,472
09/08/93 09/30/98 $4.44 6,000
-------------------
Total 104,472
===================
ISSUANCE OF COMMON STOCK
The Company frequently issues shares of its common stock to acquire assets,
retire debt and pay for services. When stock is issued for services, the value
of the stock and related services is determined by the Board of Directors. In
the case of settling debt, the market value of the stock, the type and age of
the debt and any other related factors are considered. In the case of assets
acquired, the value is negotiated based on a combination of factors including,
but not limited to:
The significance of the assets to the Company; The
liquidity of the assets; The trading price and volume
of the assets (if a security), etc.
Final approval of the basis for issuance of capital stock is made by the Board
of Directors.
ENVIRONMENTAL COMPLIANCE AND REMEDIATION
Environmental expenditures are expensed or capitalized as appropriate.
Expenditures that relate to an existing condition caused by past operations, and
that do not have future economic benefit, are expensed. Expenditures which
extend the life of the related property or mitigate or prevent future
environmental contamination are capitalized. The Company determines its
liability on a site by site basis and records a liability at the time when it is
probable and can be reasonably estimated.
F-10
<PAGE>
THE CANTON INDUSTRIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1995 and 1994
NOTE 3: SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
The following are supplemental disclosures of cash flow information:
1. Cash paid for interest was $256,457 in 1995 and $142,321 in 1994.
2. Common stock was issued for the following purposes:
1995
Shares Amounts
--------- -----------
241,743 Issued for debt..................... $ 82,315
420,000 Issued for other assets............. 267,750
407,000 Issued for services - related party. 148,452
390,451 Issued for services................. 83,650
--------- -----------
1,459,194 $ 582,167
========= ===========
1994
Shares Amounts
--------- -----------
17,824 Issued for debt..................... $ 5,053
75,000 Issued for securities............... 7,500
88,670 Issued for other assets............. 94,600
260,402 Issued for services - related party. 186,553
454,844 Issued for services................. 451,975
--------- -----------
896,740 $ 745,681
========= ===========
During 1995, the Company incurred mortgage debt of $1,200,000 in connection with
a land acquisition.
During 1994, the Company assumed mortgages of $827,840 related to various
properties.
F-11
<PAGE>
THE CANTON INDUSTRIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1995 and 1994
NOTE 4: SUBSIDIARIES
Canton Financial Services Corporation
Canton Financial Services Corporation, a Utah corporation, ("CFS"), was formed
by the Company on June 8, 1994. CFS, a wholly-owned subsidiary of the Company,
provides a wide range of consulting services, primarily for public companies.
Canton Personnel, Inc.
Canton Personnel, Inc., a Utah corporation ("CPI), was incorporated by the
Company on January 21, 1994 for the purpose of managing the various personnel
and payroll operations of the Company and its subsidiaries. CPI, a wholly-owned
subsidiary, does not currently have any tangible assets.
Canton Properties I, Inc.
Canton Properties I, Inc., a Utah corporation ("CPII"), was incorporated by the
Company on May 4, 1994 for the purpose of acquiring, owning and managing the
property it acquires. On June 21, 1994, CPII, a wholly-owned subsidiary of the
Company, purchased a two-thirds undivided interest in the land located at 238
West 400 South, Salt Lake City, Utah. On May 26, 1995, CPII sold its interest in
the property and recorded a gain on the sale of assets of $71,660.
Canton Tire Recycling of West Virginia
Canton Tire Recycling of West Virginia, Inc. ("CTRWV"), was incorporated by the
Company on February 25, 1993 for the purpose of acquiring, owning and managing
the Parkersburg Terminal. CTRWV, a wholly-owned subsidiary of the Company,
purchased the Parkersburg Terminal on May 15, 1993.
Canton's Wild Horse Ranch, Inc.
Canton's Wild Horse Ranch, Inc., an Arizona corporation ("CWHR"), was
incorporated by the Company on November 10, 1993 for the purpose of leasing,
acquiring, owning and managing property related to the Wild Horse Ranch. CWHR, a
wholly-owned subsidiary of the Company, has ceased operations due to a lack of
profitability.
Canton's Wild Horse Ranch, II
Canton's Wild Horse Ranch, II, an Arizona corporation ("CWHRII"), was
incorporated by the Company on February 3, 1994, for the purpose of expanding
Canton's Wild Horse Ranch. On February 16, 1994 CWHRII, a wholly-owned
subsidiary of the Company, acquired ten acres of raw, unimproved land adjacent
to the Ranch suitable for expansion of the Ranch.
West Jordan Real Estate Holdings, Inc.
West Jordan Real Estate Holding, Inc., a Utah corporation ("WJREH"), was
incorporated by the Company on June 7, 1994 for the purpose of acquiring, owning
and managing a specific property. On August 31, 1995, WJREH, a wholly-owned
subsidiary of the Company, entered into a lease with an option to purchase a
retail shopping plaza in Salt Lake City, Utah.
Oasis International, Inc.
Oasis International, Inc., a Nevada corporation ("Oasis"), was incorporated by
the Company on November 20, 1995 for the purpose of acquiring, owning and
managing a specific property. On December 27, 1995, Oasis, a wholly-owned
subsidiary of the Company, purchased land in Elko County, Nevada.
F-12
<PAGE>
THE CANTON INDUSTRIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1995 and 1994
NOTE 4: SUBSIDIARIES (CONTINUED)
Oasis International Hotel & Casino, Inc.
Oasis International Hotel & Casino, Inc., a Nevada corporation ("OIHC"), was
incorporated by the Company on November 20, 1995 for the purpose of acquiring,
owning and managing a specific property. On December 27, OIHC, a wholly-owned
subsidiary of the Company, purchased land in Elko County, Nevada.
Oasis Property Management Services, Inc.
Oasis Property Management Services, Inc., a Nevada corporation ("OPMS"), was
incorporated by the Company on November 20, 1995 for the purpose of operating
the facilities in Elko County, Nevada. On December 27, 1995, OPMS, a
wholly-owned subsidiary of the Company, commenced operation of the facilities in
Elko County, Nevada.
KMC Foods, Incorporated
KMC Foods, Incorporated, a Virginia corporation ("KMC"), was purchased by the
Company in 1993. The Company acquired KMC and the mortgage on the former KMC
food plant and warehouse ("KMC Plant") in exchange for the issuance of the
Company's restricted common stock. The KMC Plant, located on approximately 65
acres in Cheriton, Virginia, has railroad spur access with the Penn Central
Railroad and structures for the manufacture, storage and distribution of food
products on property zoned for industrial use. The KMC Plant has been vacant and
used by the Company since its acquisition. The Company is seeking buyers or
tenants for the building. KMC Foods, Inc. was incorporated on April 12, 1988
under the laws of Virginia.
Canton Industrial Properties Management Corporation of Salt Lake City
Canton Industrial Properties Management of Salt Lake City, a Utah corporation
("CIPMC"), was incorporated by the Company on October 30, 1994 for the purpose
of acquiring, owning and managing property. On October 9, 1993, CIPMC purchased
an office building at 202 West 400 South in downtown Salt Lake City. The
property is an 18,000 sq. ft. office building with two stories of interior
rentable space and above ground level parking. CIPMC was a wholly-owned
subsidiary of the Company until the fourth quarter of 1995 when the subsidiary
sold additional shares in a private placement offering pursuant to a Regulation
D, 504 Offering and diluted the Company's ownership to just over fifty percent.
Canton Industrial Corporation of Salt Lake City
Canton Industrial Corporation of Salt Lake City, a Utah corporation ("CICSLC"),
was incorporated by the Company on September 29, 1993 for the purpose of
acquiring, owning and managing the Plandome Building. On September 30, 1993,
CICSLC acquired the Plandome Building located at 69-75 East 400 South, Salt Lake
City, Utah. CICSLC was a wholly-owned subsidiary of the Company until the fourth
quarter of 1995 when the subsidiary sold additional shares in a private
placement offering pursuant to a Regulation D, 504 Offering and diluted the
Company's ownership to just over fifty percent.
Canton Commercial Carpet Corporation
Canton Commercial Carpet Corporation, a Utah corporation ("CCCC"), was
incorporated by the Company on January 21, 1994 for the purposes of distributing
and wholesaling commercial carpet. On May 23, 1994, CCCC entered into a lease
with an option to purchase real property located at 268 West 400 South in Salt
Lake City, Utah. On February 1, 1995, the Company relocated its corporate
headquarters to this Building. CCCC was a wholly-owned subsidiary of the Company
until the fourth quarter of 1995 when the subsidiary sold additional shares in a
private placement offering pursuant to a Regulation D, 504 Offering and diluted
the Company's ownership to just over fifty percent.
F-13
<PAGE>
THE CANTON INDUSTRIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1995 and 1994
NOTE 4: SUBSIDIARIES (CONTINUED)
TAC, Inc.
TAC, Inc., a Utah corporation ("TAC"), was formed by Logos International, Inc.
("Logos") an affiliate of the Company, on August 27, 1992. TAC was acquired from
Logos on December 30, 1994 pursuant to a Settlement Agreement (See Note 9).
TAC's operations consisted of asset recovery, pawn and loan, automotive, and
indoor storage businesses. These businesses have been discontinued due to lack
of profitability. TAC has a lease on a portion of a warehouse facility with an
option to purchase the entire facility consisting of approximately 60,000 square
ft. located in West Jordan, Utah. TAC was a wholly-owned subsidiary of the
Company until the fourth quarter of 1995 when the subsidiary sold additional
shares in a private placement offering pursuant to a Regulation D, 504 Offering
and diluted the Company's ownership to just over fifty percent.
Wasatch Capital Corporation
Wasatch Capital Corporation, a Utah corporation ("Wasatch") was incorporated on
June 10, 1991. The Company acquired a 20% interest in Wasatch on December 30,
1994 in exchange for the Company advancing monies to exercise an option to
purchase real estate located at 55-57, 61-65 West 100 South, Salt Lake City,
Utah (the "Bennett Building"). Wasatch is consolidated because the Company,
through its officers, directors and affiliates, exercises significant control
over the decisions and operations of Wasatch. The Company's investment is
secured by the Bennett Building and Wasatch is not allowed to dilute the
Company's interest in Wasatch or lease, sell, exchange, or encumber the property
in any way unless the Company approves.
Thistle Properties, Inc.
Thistle Properties, Inc., an Illinois corporation ("Thistle") was acquired by
the Company on May 12, 1995 as a result of a Mutual Release Agreement between
the Company, ATC II and Thistle (Please see Note 16 for additional information
on this transaction). Thistle holds title to the Canton Plant in Canton,
Illinois.
42 Exchange Place - Disposition
42 Exchange Place, Inc., a Utah corporation, was incorporated by the Company on
April 21, 1994, for the purpose of acquiring, owning and managing a specific
property. On September 28, 1994, 42 Exchange Place, a wholly owned subsidiary of
the Company, purchased property located at 42 Exchange Place, Salt Lake City,
Utah. On August 4, 1995, the Company sold this corporation and realized a gain
of $70,544.
Canton Tire Recycling, Inc. - Disposition
On September 30, 1994, the Company transferred ownership of Canton Tire
Recycling Inc., ("CTR"), an Illinois company (formerly, a wholly owned
subsidiary of the Company) to Sabina Services, Inc., a Utah corporation. Sabina
is owned by a former officer of CTR. The transfer resulted in a gain from
disposition of a subsidiary of $329,182. Although Sabina assumed most of the
liabilities, the Company could still be liable for some payroll taxes.
Therefore, $51,186 is still included in accrued payroll taxes of the Company.
[THIS SPACE HAS BEEN INTENTIONALLY LEFT BLANK]
F-14
<PAGE>
<TABLE>
<CAPTION>
THE CANTON INDUSTRIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1995 and 1994
NOTE 5: LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1995:
1995
----------
<S> <C>
Mortgage payable, BP&G (10%), monthly payments
of $7,929, due 11/99 ............................................. $ 563,195
Mortgage payable, Rich Bennion, (9%) monthly
payments of $4,780, due 10/99 .................................... 565,571
Mortgage payable, Rick Lucas Keogh (9%)
monthly payments of $1,575, due 11/03 ............................ 167,825
Mortgage payable, Mark Cummings (9%)
monthly payments of $1,350, due 11/03 ............................ 140,000
Mortgage payable, Title Security Agency (8%),
monthly payments of $825, due 2/99 ............................... 59,224
Note payable, Paul R. Rubey (5%), due 10/98 ...................... 100,000
Note payable, Squires Construction (9.75%),
monthly payments of $5,598, due 2/95 ............................. 10,244
Mortgage payable, Solar Logos Foundation, (7%), quarterly
payments of interest only until 1/99, due 7/04 .................. 900,000
Mortgage payable, Howard Bernstein, (18%), monthly payments
of interest only, due 12/97 ..................................... 300,000
Note payable to The Capital Company, (18%), monthly payments
of interest only until 2/96, $5,000 monthly thereafter, due 4/97 60,500
Note payable to The Capital Company, (18%), monthly payments
of interest only until 4/96, $5,000 monthly thereafter, due 3/97 57,500
Note payable to Lexington Sales, (18%), interest only payments,
due 9/96 ........................................................ 47,250
Total ............................................................. 2,971,309
Current portion ................................................... 206,552
----------
Long-term portion ................................................... $2,764,757
==========
</TABLE>
Scheduled principal reductions are as follows:
December 31, 1996 206,552
December 31, 1997 395,880
December 31, 1998 172,880
December 31, 1999 1,088,932
Thereafter 1,107,137
-------------
$ 2,971,309
F-15
<PAGE>
THE CANTON INDUSTRIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1995 and 1994
NOTE 6: FEDERAL INCOME TAXES
At December 31, 1995, the Company had net operating loss carryovers of
approximately $3,714,000. The net operating loss carryovers expires as follows:
Expiration
Loss Year Date Amount
--------- ---------- -------------
12/31/91 12/31/2006 $ 1,248,000
12/31/92 12/31/2007 229,000
12/31/93 12/31/2008 1,616,000
12/31/94 12/31/2009 71,000
12/31/95 12/31/2010 550,000
-------------
$ 3,714,000
=============
At December 31, 1995, the Company has a capital loss carryover of approximately
$1,509,000 which expires December 31, 1998.
No benefit resulting from loss carry forwards has been reported in the financial
statements because the Company believes there is at least a fifty percent (50%)
chance that the carry forwards will expire unused. Accordingly, the tax benefit
of the loss carry forward has been offset by a valuation allowance of the same
amount. The expected tax benefit resulting from applying federal statutory tax
rate to the pretax loss differs from amounts reported in the financial
statements because of the increase in valuation allowance. Certain provisions of
the tax law may limit the net operating loss and capital loss carryovers in the
event of a significant change in ownership of the Company.
NOTE 7: REAL ESTATE TAXES PAYABLE
The Company owes real estate taxes and assessments of approximately $317,751
(including penalties and interest) as of December 31, 1995.
Unpaid property taxes consist of the following:
Canton Plant - Canton, Illinois............................ $ 227,309
202 West 400 South Property - Salt Lake City, Utah......... 5,737
Pima County Property - Tuscon, Arizona..................... 3,554
Plandome Building - Salt Lake City, Utah................... 71,450
268 West 400 South Property - Salt Lake City, Utah......... 6,843
Wallace / Bennett Building - Salt Lake City, Utah.......... 1,399
Parkersburg Terminal - Parkersburg, West Virginia.......... 1,459
---------
$ 317,751
=========
NOTE 8: DEBENTURES RECEIVABLE
During the quarter ended September 30, 1993, the Company sold debentures with a
cost of $2,000,000 for 4,000,000 shares of Logos stock and a note receivable
from Logos in the amount of $1,000,000. This transaction resulted in a loss of
$937,500.
The remaining debentures receivable were canceled during 1994.
F-16
<PAGE>
THE CANTON INDUSTRIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1995 and 1994
NOTE 9: RELATED PARTY TRANSACTIONS
1. A-Z Professional Consultants, Inc.
During the year ended December 31, 1994, A-Z Professional Consultants, Inc.
("A-Z"), a beneficial owner of more than 5% of the Company's common stock,
advanced approximately $479,000 for operating expenses of the Company. The
company repaid approximately $410,000 to A-Z for such advances.
On January 24, 1994, the Company entered into a Debt Conversion Agreement
with A-Z. The Debt Conversion Agreement settled a loan under which $517,950
was originally loaned to the Company by Abbot Products, Inc. ("Abbot"), a
former affiliate of the Company. A-Z purchased the loan from Abbot and
agreed to accept 59,003 shares of the Company's restricted common stock in
exchange for cancellation of the remaining balance of the loan, equal to
$182,909. The Company's stock given to A-Z under the agreement was
calculated at 25% of the market bid price on the date of the agreement.
Since 1992, A-Z has had agreements with the Company to provide consulting
services, office space, supplies and equipment.
Upon expiration of the prior Amended Management & Consulting Contract, the
Company entered into a new one year Consulting Agreement, dated June 1,
1994 but effective May 7, 1994. Under the Consulting Agreement, the Company
must pay A-Z $8,000 or 20,000 shares of the Company's restricted common
stock each month. Instead of paying cash or issuing stock for services
rendered through August 6, 1994, the Company and A-Z agreed that the
Company would assign its interest in a note made by TAC and transfer carpet
credits to A-Z. The Company's interest in the note and the credits were
valued at $15,424 and $8,810 respectively. On September 30, 1994, A-Z and
the Company terminated the Consulting Agreement. The Company agreed to pay
A-Z for consulting fees earned and expenses incurred through the
termination date and issued 80,000 shares of the Company's common stock in
full settlement. On August 30, 1995 the Company and A-Z entered into a one
year Consulting Agreement whereby the Company agreed to again retain A-Z as
one of its primary consultants. The agreement provides for 40,000 shares of
the Company's common stock to be issued monthly.
On December 22, 1995, the Company entered into a Stock Option
Agreement with A-Z. Pursuant to the agreement, the Company granted options
giving the right to purchase a quantity of shares of the Company's common stock
equivalent to 26% of the issued and outstanding shares on the exercise date,
with an established exercise price of $0.59 per share.
2. Logos International, Inc.
1994
On September 22, 1994, Logos International, Inc. ("Logos") entered into a
Debt Settlement Agreement with the Company. Logos was indebted to the
Company $186,382 for cash advances and services rendered to Logos. The
Company accepted assets of equal value in settlement. Those assets included
artwork and stock.
On September 26, 1994, Canton Financial Services Corporation ("CFS")
assumed $100,000 of debt in the form of two promissory notes owed by Logos
to two individuals. In exchange for the assumption of such debt, CFS
accepted stock owned by Logos in four entities.
F-17
<PAGE>
THE CANTON INDUSTRIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1995
NOTE 9: RELATED PARTY TRANSACTIONS (continued)
3. Richard Surber
On September 30, 1994, the Company retained Investment Sanctuary
Corporation, a Utah corporation ("ISC") owned 100% by Richard Surber ("Mr.
Surber"), to provide consulting services. The agreement calls for the
Company to pay ISC $20,000 per month effective January 1, 1995, either in
cash or shares of the Company's restricted common stock valued at one-half
of the average between the low bid and ask price to be paid on quarterly
basis. On May 4, 1995 the Company issued 167,000 shares of its common stock
under the Company's 1994 Stock Option Plan as payment under the agreement.
Mr. Surber entered into several Consulting Agreements to provide various
consulting services to clients, with the assistance of the Company's
consultants and certain employees. Payments were made in shares of the
clients' stock, which were later sold providing income to the Company in
the amount of $134,500.
Mr. Surber entered into a Consulting Agreement with Belmac Corporation on
September 1, 1994 to provide consulting services, with the assistance of
the Company's consultants and certain employees. Belmac canceled the
agreement after payment for initial services was made in 218,182 shares of
Belmac's common stock. The shares were liquidated prior to December 31,
1994.
On December 22, 1995, the Company entered into a Stock Option
Agreement with ISC. Pursuant to the agreement, the Company granted options
giving the right to purchase a quantity of shares of the Company's common stock
equivalent to 25% of the issued and outstanding shares on the exercise date,
with an established exercise price of $0.59 per share.
On June 16, 1994, CFS entered into a Consulting Agreement with Applied
Technology, Inc. ("APTC"). At that time, Mr. Surber was the President and a
Director of APTC. Certain disputes later arose among the Company, CFS,
Richard Surber and APTC and certain other parties related to APTC. On
December 16, 1994, the Company, CFS, Richard Surber and APTC and certain
other parties entered into a Settlement Agreement. The Settlement Agreement
canceled the Consulting Agreement, thereby reducing the amount of proceeds
CFS would have received. CFS received fees earned through November, 1994
totaling approximately $317,000 in cash. Richard Surber received 266,667
shares of APTC's shares of restricted stock as part of the settlement and
resigned from all positions with APTC. The Settlement Agreement was a
mutual release from all claims that arose prior to the date of the
Settlement Agreement.
4. Thistle Properties, Inc. - Foreclosure on Canton Property
On August 23, 1994, but effective June 20, 1994, the company entered into a
Real Estate Sales Agreement ("RESA") with Thistle Properties, Inc.
("Thistle"). On the effective date of both the RESA and an amended RESA,
Richard Surber was an executive officer of Thistle's parent company, ATC
II, Inc., although at the time the agreements were actually executed, Mr.
Surber was not an officer or director of ATC II, Inc. and did not have any
authority to approve or disapprove any transactions being contemplated by
ATC II, Inc. or any of its subsidiaries.
On May 4, 1995 the Company served Thistle with a Notice of Default
of the Real Estate Lien Note entered into pursuant to the amended RESA. The
Company subsequently executed a Mutual Release with ATC II and Thistle effective
May 12, 1995. The net effect of the Mutual Release is that Thistle, which holds
title to the Canton Plant, is now a wholly-owned subsidiary of the Company. This
resulted in a loss of $562,406. A gain on the sale of $752,467 had been
previously recorded by the Company during the third quarter of 1994.
F-18
<PAGE>
<TABLE>
<CAPTION>
THE CANTON INDUSTRIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1995
NOTE 10: INVESTMENT SECURITIES
Company Shares Amount
- --------------------------------- --------- -------
<S> <C> <C>
NobelTek Products, Inc. ......... 2,500,000 $ 1,000
ATC II .......................... 2,364,223 26,000
Air Vegas ....................... 325,214 32,521
Alaska Glacier .................. 190 1,000
Applied Technology .............. 40,500 49,800
Banyan Mgmt LPU-I ............... 2,000 347
Banyan Mgmt LPU-II .............. 2,000 108
Basic Natural Resources ......... 600,000 1,000
BRIA Communications ............. 1,614,721 188,519
Global .......................... 86,900 1,000
Hull ............................ 1,000,000 1,000
Juniper ......................... 23,000 1,610
Logos (nka OMAP) ................ 149,821 21,656
Novamed ......................... 95,295 1,000
Oasis Hotel, Resort & Casino - I 914,050 85,950
Oasis Hotel, Resort & Casino - II 914,050 85,950
Porton .......................... 180,000 9,000
Sterling AKG .................... 200 1,000
Tianrong ........................ 1,007,159 454,245
Topguard ........................ 150,000 1,000
United Entertainment ............ 40,500 1,000
Vu Data ......................... 4,000 3,690
--------
$968,396
========
</TABLE>
Investments in equity securities that have readily determinable fair values are
stated at their market value in accordance with Financial Accounting Standards
("FAS") No. 115. None of the above securities meet the specified requirement of
FAS No. 115. Valuation of other equity security investments are based on
acquisition costs. Markdowns are made to reflect significant impairment in
values. During 1995, a markdown of $94,295 was recorded.
F-19
<PAGE>
THE CANTON INDUSTRIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1995
NOTE 11: MORTGAGES AND NOTES RECEIVABLE
PEMSCO
Through the Company's acquisition of KMC Foods, Inc. on June 4, 1993, the
Company acquired a first mortgage note, payable on demand, in the amount of
$353,000 which is secured by real property in Cheriton, Virginia. The Company
also acquired at that time an unsecured demand note in the amount of $122,000.
The debtor on both instruments is Potomac Engineering and Management Systems
Company, Inc. ("PEMSCO"). A demand for payment in March 1995 was not honored.
The Company has signed a settlement that would result in full payment of the
debt. If the terms of the settlement are not met, the Company could foreclose on
the property. The Company believes that the fair value of the property exceeds
the amounts due from this debtor. No interest has been accrued on these notes.
For additional information, please see NOTE 13: CONTINGENT LIABILITIES -
CHERITON VIRGINIA PROPERTY - ENVIRONMENTAL PROBLEM.
Delmar Janovec
The Company became a creditor in 1994 on a non-recourse secured promissory note
in the amount of $1,248,046 from Delmar Janovec, secured by shares of KLH
Engineering Group, Inc. owned personally by Delmar Janovec. In that same year,
the Company believed that the value of the note was impaired and reduced its
value to $483,027, an amount which was based on the fair value of the security.
In April 1995, the Company filed suit to enforce certain terms of the note
agreement, on of which was to complete proper delivery of the collateral to the
escrow agent. The Plaintiff in the case has made offsetting counter claims. A
trial court has ordered the case to mediation with the concurrence of both
parties. The Company believes that additional impairment in value of this note
is possible, however, due to the uncertainties of pending litigation, it is
unable to estimate such loss as of December 31, 1995. No interest has been
accrued on this note. For additional information, please see NOTE 13: CONTINGENT
LIABILITIES - CANTON INDUSTRIAL CORPORATION AND CANTON INDUSTRIAL OF SALT LAKE
CITY vs. DELMAR JANOVEC AND KLH ENGINEERING GROUP, INC.
Associated Technologies
On March 23, 1995, the Company entered into an Agreement of Purchase and Sale
with Associated Technologies, Inc. relating to certain equipment. Under the
agreement Associated Technologies is required to pay the Company $60,000 over a
5 year period. Each $12,000 payment is due on or before March 1 of each year,
with the final payment due in the year 2000.
The above receivables are included in the financial statements as follows:
Mortgages receivable:
PEMSCO ................ $353,000
--------
$353,000
========
Notes receivable:
PEMSCO ................ $122,000
Associated Technologies 60,000
Delmar Janovec ........ 483,027
--------
$665,027
Less current portion ...... 12,000
$653,027
========
F-20
<PAGE>
THE CANTON INDUSTRIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1995
NOTE 12: STOCK SUBSCRIPTION RECEIVABLE
A stock subscription in the amount of $375,000 for 9,836,238 shares was canceled
pursuant to a Settlement Agreement between Metallurgical Industries and the
Company on December 16, 1994.
A stock subscription in the amount of $375,000 for 750,000 shares was also
canceled pursuant to a new agreement with Topguard (U.K.) dated June 16, 1994.
The original Acquisition Agreement was canceled due to the Company's new
philosophy of not acquiring operating companies.
NOTE 13: CONTINGENT LIABILITIES
1. Canton Property - environmental cleanup
A legal action was filed in September, 1993 against the Company seeking the
cleanup of tires and toxic paint drums at the plant in Canton, Illinois. (A
previous lawsuit brought against the Company by Coleman Chemical, Inc. was
for the cost of removing the toxic drums located at the Plant.) An Interim
Order for the cleanup of the property was entered and approved by the court
on March 8, 1994. Pursuant to the Interim Order, the sum of $140,000 was to
have been deposited in an escrow account by May 15, 1994 to provide a fund
to cleanup the tires. The cleanup fund was to be established in the State
of Illinois and the funds were to be subject to Court approval prior to
being withdrawn. Under the order, the cleanup was to be completed no later
than December 31, 1995, if not, the Court could impose a penalty of
$14,000. If the Interim Order is not complied with, the Court may impose
additional penalties up to $50,000 for the occurrence plus $10,000 per day
from the date of the violation. The Company did not deposit the required
funds, however, the cleanup effort began during 1995 and the Company
expended $132,843 in its efforts to remove the tires from the facility. The
Company's balance sheet at December 31, 1995 included an additional accrued
amount of $160,000 representing its estimate of the cost to complete the
project. The potential exposure for such cost is estimated to range from
$160,000 to a reasonable upper exposure of $400,000.
2. Parkersburg Terminal - environmental investigation
The Parkersburg Terminal is subject to an investigation by the West
Virginia Division of Environmental Protection and has received a Notice of
Violation regarding storage tanks and certain alleged stains and
hydrocarbon contamination at the site. The Notice of Violation requires
that certain tests be performed. The Company has retained an environmental
engineering firm regarding the scope of testing required. Currently it is
estimated that the testing will cost about $8,000. The cost of further
remedial action will depend on the outcome of the tests. The potential
liability will remain uncertain until the testing is completed.
3. Xeta Corporation
Xeta is seeking recovery of funds alleged to have been improperly
transferred to the Company by ATC II, Inc. ("ATC") The amount sought by
Xeta is $116,000, an amount equal to that transferred by ATC to the Company
for consulting services and other expenses incurred for the benefit of ATC.
The Company believes that it provided bona fide services to ATC and intends
to contest the case vigorously.
F-21
<PAGE>
THE CANTON INDUSTRIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1995
NOTE 13: CONTINGENT LIABILITIES (continued)
4. Cheriton Virginia Property - Environmental Problem
KMC Foods, Inc. holds a promissory note secured by real property in the
city of Cheriton, Virginia. The Virginia State Water Control Board has
notified KMC that there was a leaking underground storage tank on the
property and that there may be other related contamination problems. A full
evaluation of the extent of the problem and the related costs of cleanup
has not been produced by the current title holder to the property. A
written demand for payment of the note secured by the property has been
served upon the title holder. Discussions are continuing with regard to
settlement of the note and the issues raised by the state of Virginia. For
additional information concerning the note on the KMC property, please
see NOTE 11: MORTGAGES AND NOTES RECEIVABLE - PEMSCO.
5. NICA vs. The Canton Industrial Corporation
A suit was filed against the Company in California on December 30, 1994.
NICA is seeking to recover damages of approximately $20,000 related to a
contract with another party. The Company had denied all liability and will
vigorously defend itself against the claims asserted in the lawsuit.
Management believes such suit to be groundless.
6. Canton Industrial Corporation and Canton Industrial of Salt Lake City vs.
Delmar Janovec and KLH Engineering Group, Inc.
A suit was filed by the Company in Utah on April 19, 1995. The Company is
seeking enforcement of the August 31, 1994 Settlement Agreement and Mutual
Release to which the company, Janovec and KLH were parties. The Company
filed suit to enforce certain terms of the note agreement, one of which was
to complete proper delivery of the collateral to the escrow agent. The
Plaintiff in the case has filed a counterclaim. The company believes all
issues raised by the counterclaim were either resolved by the Settlement
Agreement or are groundless. A trial court has ordered the case to
mediation with the concurrence of both parties. For additional information
on the note agreement, please see NOTE 11: MORTGAGES AND NOTES RECEIVABLE -
DELMAR JANOVEC.
NOTE 14: LEASE COMMITMENTS
The Company is obligated under three operating leases of approximately $15,460
per month on three buildings it rents. One lease is for ten years expiring May,
2004, the second is for 42 months, expiring July, 1996, and the third is for 3
years expiring August, 1998. During 1995, $140,540 was paid for rent which is
included in the statements of operations under the caption General and
Administrative expenses.
Scheduled rent payments are as follows:
December 31, 1996 ............................... $154,343
December 31, 1997 ............................... 123,143
December 31, 1998 ............................... 100,492
December 31, 1999 ............................... 55,192
December 31, 2000 ............................... 55,192
Thereafter .......................................... 183,960
--------
$672,322
========
The Company has treated the leases as operating leases. The Company does have an
option to purchase all three buildings.
F-22
<PAGE>
THE CANTON INDUSTRIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1995
NOTE 15: STOCK OPTION PLANS AND AGREEMENTS
During 1994, the Company established a new stock option plan for its employees
and consultants (The 1994 Stock Option Plan of the Canton Industrial
Corporation"). Each option issued under the plan has a term of five years and an
exercise price of either the average of the closing bid and ask price for the
Stock over the 20 day trading period immediately prior to the date of grant or
the bid price on the date of grant as determined by the Board of Directors or an
Authorized Committee.. Under the plan, up to 500,000 shares can be issued. In
1994, 203,584 shares were issued under the plan. In 1995, the Company issued the
balance of the shares under the plan.
On December 22, 1995, the Company entered into a Stock Option Agreement with A-Z
Professional Consultants. Pursuant to the agreement, the Company granted options
giving the right to purchase a quantity of shares of the Company's common stock
equivalent to 26% of the issued and outstanding shares on the exercise date,
with an established exercise price of $0.59 per share.
On December 22, 1995, the Company entered into a Stock Option Agreement with
Investment Sanctuary Corporation. Pursuant to the agreement, the Company granted
options giving the right to purchase a quantity of shares of the Company's
common stock equivalent to 25% of the issued and outstanding shares on the
exercise date, with an established exercise price of $0.59 per share.
NOTE 16: LOSS ON FORECLOSURE
On August 23, 1994, but effective June 20, 1994, the company entered into a Real
Estate Sales Agreement ("RESA") with Thistle Properties, Inc. ("Thistle"). On
the effective date of both the RESA and an amended RESA, Richard Surber was an
executive officer of Thistle's parent company, ATC II, Inc., although at the
time the agreements were actually executed, Mr. Surber was not an officer or
director of ATC II, Inc. and did not have any authority to approve or disapprove
any transactions being contemplated by ATC II, Inc. or any of its subsidiaries.
On May 4, 1995 the Company served Thistle with a Notice of Default of the Real
Estate Lien Note entered into pursuant to the amended RESA. The Company
subsequently executed a Mutual Release with ATC II and Thistle effective May 12,
1995. The net effect of the Mutual Release is that Thistle, which holds title to
the Canton Plant, is now a wholly-owned subsidiary of the Company. This resulted
in a loss of $562,406. A gain on the sale of $752,467 had been previously
recorded by the Company during the third quarter of 1994.
NOTE 17: SALE OF STOCK BY SUBSIDIARIES
<TABLE>
<CAPTION>
During 1995, the Company realized a gain when four of its subsidiaries issued
previously unissued shares to minority interests for cash, and at prices which
were greater than the Company's carrying amount per share. Additional
information about the transactions follows:
Company's Interest Price Number
Before After Per of
Subsidiary Issuance Issuance Share Shares Amount Gain
- ---------- -------- --------- ----- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
*CICSLC ............................ 100% 50% $ .20 500,000 $ 100,000 $ 81,971
*TAC ............................... 100% 50% $ .20 500,000 100,000 736
*CCCC .............................. 100% 50% $ .20 500,000 100,000 40,121
*CIPMC ............................. 100% 50% $ .20 500,000 100,000 29,138
-------- -------
$ 400,000 $151,966
======== =======
</TABLE>
*Refer to note 4 for additonal information about each subsidiary and the nature
of its operations.
F-23
<PAGE>
ANDERSEN ANDERSEN & STRONG, L. C. 941 East 3300 South, Suite 202
Certified Public Accountants and Business Consultants Salt Lake City, UT 84106
Member SEC Practice Section of the AICPA Telephone: (801)486-0096
Fax: (801)486-0098
E-Mail: K Anderson @msn.com
Board of Directors and Shareholders
The Canton Industrial Corporation
Salt Lake City, Utah
Our examinations of the basic financial statements presented in the preceding
section of this report were made primarily to from an opinion on such financial
statements taken as a whole. The additional information, contained in the
following pages, is not considered essential for the fair presentation of the
financial position of The Canton Industrial Corporation and Subsidiaries, the
results of their operations or cash flows in conformity with generally accepted
accounting principles. The following information consisting of Schedule V and
Schedule VI is included to comply with reporting requirements of the Securities
and Exchange Commission. Such data was subjected to the audit procedures applied
in the examination of the basis financial statements and, in our opinion, are
fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
/s/ Andersen Andersen & Strong
Salt Lake City, Utah
April 14, 1996
F-24
<PAGE>
<TABLE>
<CAPTION>
THE CANTON INDUSTRIAL CORPORATION AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
Balance at Balance
Beginning Additions at end
of Period at Cost Retirement of Period
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Year ended December 31, 1994:
Land .................. $ 117,500 $ 542,590 $ 42,900 $ 617,190
Leasehold improvements - 0 - 26,698 - 0 - 26,698
Building and Structures 2,034,385 588,541 389,525 2,233,401
Machinery and Equipment 629,439 - 0 - 129,439 500,000
Furniture and Fixtures 3,783 90,175 172 93,786
Trucks and Trailers ... 13,975 - 0 - 13,975 - 0 -
---------- ---------- ---------- ----------
$2,799,082 $1,248,004 $ 576,011 $3,471,075
========== ========== ========== ==========
Year ended December 31, 1995:
Land .................. $ 617,190 $1,734,150 $ 104,840 $2,246,500
Leasehold improvements 26,698 - 0 - - 0 - 26,698
Building and Structures 2,233,401 399,078 114,155 2,518,324
Machinery and Equipment 500,000 98,374 - 0 - 598,374
Furniture and Fixtures 93,786 26,728 2,401 18,113
---------- ---------- ---------- ----------
$3,471,075 $2,258,330 $ 221,396 $5,508,009
========== ========== ========== ==========
</TABLE>
F-25
<PAGE>
<TABLE>
<CAPTION>
THE CANTON INDUSTRIAL CORPORATION AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION OF
PROPERTY, PLANT AND EQUIPMENT
Balance at Balance
Beginning Additions at end
of Period at Cost Retirement of Period
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Year ended December 31, 1994:
Land ................... $ - 0 - $ - 0 - $ - 0 - $ - 0 -
Leasehold Improvements . - 0 - 3,949 - 0 - 3,949
Buildings and Structures 208,065 85,470 142,592 150,943
Machinery and Equipment 67,355 57,498 11,103 113,750
Furniture and Fixtures . 121 9,626 92 9,655
Trucks and Trailers .... - 0 - - 0 - - 0 - - 0 -
-------- -------- -------- --------
$ 275,541 $ 156,543 $ 153,787 $ 278,297
======== ======== ======== ========
Year ended December 31, 1995:
Land ................... $ - 0 - $ - 0 - $ - 0 - $ - 0 -
Leasehold Improvements . 3,949 (1) 4,428 - 0 - 8,377
Building and Structures 150,943 (2) 262,827 906 412,864
Machinery and Equipment 113,750 (3) 88,580 - 0 - 202,330
Furniture and Fixtures . 9,655 14,895 372 24,178
-------- -------- --------- ---------
$ 278,297 $ 370,730 $ 1,278 $ 647,749
======== ======== ========= =========
</TABLE>
Includes amounts acquired from subsidiary:
(1) $154,943
(2) 13,339
(3) 80
<PAGE>
APPENDIX III
FORM OF PROXY
ANNUAL MEETING OF THE SHAREHOLDERS OF
THE CANTON INDUSTRIAL CORPORATION, JUNE 18, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Susan Waldrop (the "Proxy Holder"),
secretary of The Canton Industrial Corporation (the "Company"), as proxy, with
full power of substitution, to vote, as directed below, the shares of the
Company's common stock which the undersigned is entitled to vote at the annual
meeting of shareholders to be held at 268 West 400 South, Suite 300, Salt Lake
City, Utah, on June 18, 1996, at 10:00 a.m., Mountain Daylight Time, or any
adjournment(s) thereof (the "Annual Meeting").
This proxy, when properly executed and returned to the Company as
provided below, will be voted in the manner directed by the undersigned
shareholder. If no direction is given, the Proxy Holder will vote the shares
represented by this proxy FOR all proposals. The Board of Directors recommends
voting FOR all proposals.
1. Amendment to Restated Articles of Incorporation Changing Company's Name to
CyberAmerica Corporation;
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. Election of Richard Surber, Philip Lamb and Lorin Pace as the Company's
directors;
FOR ALL NOMINEES [ ]
For Nominee(s)
AGAINST ALL NOMINEES [ ]
Against Nominee(s)
ABSTAIN AS TO ALL NOMINEES [ ]
Abstain as to Nominee(s)
3. Ratification of Andersen, Andersen, and Strong, L. C. as Company's
Independent Auditors for Fiscal Year Ending
December 31, 1996;
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. The Company does not know of any matters that will be considered at the
Annual Meeting other than the proposals described above. However, if any other
matters should properly come before the Annual Meeting, Susan Waldrop or her
substitute intends to vote the shares represented by the proxies according to
her best judgment. FOR [ ] AGAINST [ ] ABSTAIN [ ]
================================================================================
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS ON YOUR CERTIFICATE(S). WHEN SHARES ARE
HELD BY JOINT TENANTS, BOTH SHOULD SIGN. PLEASE MARK, SIGN, DATE, AND RETURN
THIS PROXY TO THE COMPANY IMMEDIATELY. YOU MAY RETURN THIS FORM BY FAXING A
SIGNED COPY TO THE COMPANY'S CORPORATE OFFICES AT (801) 575-8340. YOU MAY ALSO
RETURN THIS FORM BY MAIL, USING THE ENCLOSED ENVELOPE.
================================================================================
Date:___________________________
________________________________ _____________________________________
Name of Brokerage/Clearing House Number of Shares Held
________________________________ _____________________________________
Signature Signature (If Held Jointly)
________________________________ _____________________________________
Print Name Print Name (If Held Jointly)
