UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
This Form 10-KSB/A contains amendments to Item 7, Financial Statements for
the year ended December 31, 1995.
(Mark One)
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 (Fee required) for the fiscal year ended December 31, 1995
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No fee required) for the transition period from to:
Commission file number: I-9418
The Canton Industrial Corporation
(Name of Small Business Issuer in Its Charter)
Nevada 87-0509512
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
268 West 400 South, Suite 300, Salt Lake City, Utah 84101
(Address of Principal Executive Offices) (Zip Code)
(801) 575-8073
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Title of Each Class Name of each Exchange
Common Stock ($0.0001 Par Value) Boston Stock Exchange
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
The issuer's total consolidated revenues for the year ended December 31,
1995, were $2,049,968.
The aggregate market value of the registrant's Common Stock, $0.001 par
value (the only class of voting stock), held by non-affiliates was approximately
$8,705,148 based on the last sale price thereof reported on the consolidated
tape for March 31, 1996.
At March 31, 1996, the number of shares outstanding of the registrant's
Common Stock, $0.001 par value (the only class of voting stock), was 6,148,648.
DOCUMENTS INCORPORATED BY REFERENCE.
NONE
PAGE 1
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE
Independent Auditors' Report.................................................F-2
Consolidated Balance Sheet December 31, 1995.................................F-3
Consolidated Statements of Operations December 31, 1995 and 1994.............F-5
Consolidated Statements of Shareholders' Equity December 31, 1995 and 1994...F-6
Consolidated Statements of Cash Flows December 31, 1995 and 1994.............F-7
Notes to Consolidated Financial Statements December 31, 1995 and 1994........F-8
Independent Auditors' Report on Other Information...........................F-24
Schedules
V Property, Plant and Equipment......................................F-25
VI Accumulated Depreciation of Property, Plant and Equipment..........F-26
F-1
<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
$168,362
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
UNAUDITED CONDENSED FINANCIAL STATEMENTS FILED WITH THE COMPANY'S DECEMBER 31,
1995 ANNUAL REPORT ON FORM 10-KSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U. S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 18,605
<SECURITIES> 0
<RECEIVABLES> 463,483
<ALLOWANCES> 0
<INVENTORY> 36,371
<CURRENT-ASSETS> 555,136
<PP&E> 5,508,009
<DEPRECIATION> 647,749
<TOTAL-ASSETS> 7,874,370
<CURRENT-LIABILITIES> 1,390,876
<BONDS> 0
0
0
<COMMON> 5,887
<OTHER-SE> 3,364,917
<TOTAL-LIABILITY-AND-EQUITY> 7,874,370
<SALES> 0
<TOTAL-REVENUES> 2,049,968
<CGS> 0
<TOTAL-COSTS> 952,762
<OTHER-EXPENSES> 1,469,518
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 256,457
<INCOME-PRETAX> 66,723
<INCOME-TAX> 0
<INCOME-CONTINUING> (548,952)
<DISCONTINUED> 23,912
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (418,729)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
