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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
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OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-26354
LOGAN INTERNATIONAL CORP.
(Name of small business issuer in its charter)
Washington 91-1636980
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
#108 - 1201 SW 7th Street
P.O. Box 860, Renton WA 98055-0860
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (206) 271-3350
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common
Stock, $0.01 Par Value
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is 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 revenues for the most recent fiscal year were $3,818,000.
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based upon the average of the closing bid and asked prices on
March 17, 1997 was $841,258.
Check whether the issuer has filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court. Yes X No
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The number of shares outstanding of the Registrant's Common Stock, as of
December 31, 1996 was 10,837,808.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1996 Proxy Statement to be filed within 120 days of the
fiscal year ended December 31,1996 are incorporated by reference into Part
III. Certain exhibits in Part III are incorporated by reference from prior
filings made by the Registrant under the Securities Act of 1933, as amended,
and the Securities Exchange Act of 1934, as amended.
Transitional Small Business Disclosure Format: Yes No X
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FORWARD-LOOKING STATEMENTS
Statements in this report, to the extent they are not based on historical
events, constitute forward-looking statements. Forward-looking statements
include, without limitation, statements regarding the outlook for future
operations, forecasts of future costs and expenditures, evaluation of market
conditions, the outcome of legal proceedings, the adequacy of reserves, or
other business plans. Investors are cautioned that forward-looking statements
are subject to an inherent risk that actual results may vary materially from
those described herein. Factors that may result in such variance, in addition
to those accompanying the forward-looking statements, include changes in
interest rates, prices and other economic conditions; actions by competitors;
natural phenomena; actions by government and regulatory authorities;
uncertainties associated with legal proceedings; technological development;
future decisions by management in response to changing conditions; and
misjudgments in the course of preparing forward-looking statements.
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TABLE OF CONTENTS
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PAGE
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PART I
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ITEM 1. DESCRIPTION OF BUSINESS. . . . . . . . . . . . . . . . . . . . .4
ITEM 2. DESCRIPTION OF PROPERTY. . . . . . . . . . . . . . . . . . . . .8
ITEM 3. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . .9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS. . . . . . . . . . . . . . . . . . . . . . . . 10
PART II
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ITEM 5. MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS. . . . . . . . . . . . . . . . . . .10
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. . . . . . . . 11
ITEM 7. FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . 14
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE. . . . . . . . . . . . . . .14
PART III
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ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a)
OF THE EXCHANGE ACT. . . . . . . . . . . . . . . . . . . . . . .14
ITEM 10. EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . . . . . 14
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT. . . . . . . . . . . . . . . . . . . . . .14
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . . . . . . . . 14
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . . . . . . . . . 14
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
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PART I
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ITEM 1. DESCRIPTION OF BUSINESS
The Company
Logan International Corp. ("Logan" or the "Company") was incorporated in the
State of Washington on September 15, 1993 and commenced operations in April
1994.
General
On August 5, 1993, five Washington State real estate limited partnerships
controlled by the same general partner filed a petition under Chapter 11 of
the Federal Bankruptcy Act. These partnerships were Olympia Highlands
Associates; Olympia II; Thompson Properties 3; Thompson Properties Four; and
Thompson Properties Five (collectively, the "Thompson Partnerships"). On
March 31, 1994, the Federal Bankruptcy Court in Seattle, Washington, confirmed
the Thompson Partnerships' Plan of Reorganization (the "Plan"). The assets of
the Thompson Partnerships consisted of multiple parcels of undeveloped real
estate and one office building. The Plan provided that certain of the
undeveloped parcels and the office building were transferred to creditors of
the Thompson Partnerships in exchange for debt relief and that the balance of
the assets of the Thompson Partnerships were transferred to Logan in exchange
for an aggregate of 3,235,291 shares of common stock, which shares were
distributed to the partners of the Thompson Partnerships. In addition, Logan
assumed the remaining indebtedness of the Thompson Partnerships.
In July 1994, the Company acquired another parcel of undeveloped real estate
consisting of approximately 17.2 acres in Federal Way, Washington, in exchange
for 2,153,625 shares of common stock at a price of $1.393 per share, warrants
to purchase additional shares which were subsequently cancelled unexercised,
and the assumption of $138,090 of unpaid real estate liens.
In December 1996, the Company acquired approximately 50.3% of the issued
shares of common stock of ICHOR Corporation ("ICHOR"), a Delaware company
engaged in the environmental services business, based in Monroeville,
Pennsylvania and whose shares of common stock are listed on the NASDAQ
SmallCap Market. ICHOR's operations include providing environmental
remediation services and refining petroleum waste products and processing and
disposing of oily waste waters. ICHOR's results of operations have not been
included in the Company's financial statements for 1996 as it was acquired
near year end, but its assets and liabilities are included in the Company's
consolidated balance sheets at December 31, 1996.
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The Company is a subsidiary of MFC Bancorp Ltd. ("MFC"), who initially
acquired approximately 48% of the Company's shares of common stock in the
first half of 1996. Subsequently, in December 1996, MFC acquired an
additional 4,172,082 shares of common stock from the treasury of the Company
at a price of $0.58 per share to increase its holdings to approximately 69.0%
of the issued common stock of the Company. In addition, Drummond Financial
Corporation ("Drummond"), a subsidiary of MFC, acquired $6 million of
preferred shares, series B (the "Series B Preferred Shares") in the capital
stock of the Company in June of 1996.
Business of the Company
Since it commenced operations in April 1994, the Company has been engaged in
the real estate business. All of the Company's real estate assets are located
in the Puget Sound region in the State of Washington, are undeveloped and a
substantial portion are in a pre-development state. Logan intends to utilize
and redeploy its real estate assets to finance the acquisition of controlling
interests in operating businesses. Therefore, while Logan is active in real
estate operations, it is not anticipated that Logan will remain a real estate
company. If opportunities arise, Logan may acquire additional real estate
assets. Logan does not intend to develop any of the undeveloped real estate
properties, but in certain instances may participate in development joint
venture arrangements as an interim step in the sale of a property and will
continue pre-development work on the properties to the extent necessary to
protect or enhance their value.
Logan has undertaken the active marketing of certain of its real estate assets
in order to raise cash to pay operating expenses and the carrying costs of the
remaining properties. It may be necessary to sell certain properties at a
discount to their appraised values in order to sell them in a timely fashion
for cash. Logan believes, however, that this will allow the remainder of the
portfolio to be marketed in an orderly fashion and to obtain greater value.
In the year ended December 31, 1996, the Company sold six registered pieces of
real estate for proceeds of $3.6 million. Additionally, the Company
transferred 10 registered pieces of real estate to lenders in exchange for
extinguishment of indebtedness totalling $1.7 million which resulted in an
extraordinary gain of $0.3 million.
The development of real property in the State of Washington is subject to
multiple layers of government regulation, including state law and ordinances
of the city and county where the property is located. Environmental
regulations at the federal, state and local levels with regard to wetlands,
stormwater retention and discharge, wildlife, tree preservation, slopes and
groundwater recharge have greatly increased the cost and uncertainty of
development and have lengthened the time necessary to receive permits. As a
consequence, fewer developers are buying properties and these developers tend
to wait until the permitting process is near completion before committing to a
purchase.
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The type and intensity of development of real property is subject to the
comprehensive plan and zoning designation within the city or county in which
the property is located. Development of real property is also affected by any
sensitive areas, such as wetlands, streams or wildlife habitat, located on the
site. Both the local government and the Army Corps of Engineers have
jurisdiction over wetland areas. Upon delivery of a development proposal the
government agency will examine the site and delineate any wetland areas.
These areas must either be left undisturbed with sufficient buffers or a
mitigation plan must be approved. Due to the broad definition of wetlands, it
is common for undeveloped property in the western Washington area to have some
wetlands present. The majority of the Company's properties have had some
wetland areas delineated.
In 1990, the Washington legislature passed the Growth Management Act ("GMA")to
"guide the development and adoption of comprehensive plans and development
regulations" in Washington State. The goal of the comprehensive development
plans was to, among other things, reduce the development density in rural
areas, encourage affordable housing and a variety of housing densities,
maintain and conserve natural resource industries and lands and protect and
enhance the environment and the availability of water.
Under the GMA, the counties in which the Company's properties are located have
a several year period in which to develop county-wide growth plans which will
delineate those areas in which growth will be accommodated over the next
twenty years. As a result of the uncertainty which has resulted from the
formulation of these growth plans, the permitting process has been delayed.
It is believed, however, that all of the Company's properties are located in
areas where additional growth will be permitted.
The Company intends to use the proceeds from the sale of its real estate
assets to acquire controlling equity interests in operating businesses. The
Company may also seek to exchange its real estate assets for equity interests.
The Company will seek to acquire interests in companies in which management
believes its expertise in financial restructuring and asset management can add
value to the Company's investment. In order to accomplish such acquisitions,
the Company may engage in joint ventures with affiliated companies.
In December 1996, the Company acquired a 50.3% interest in ICHOR through a
series of transactions whereby it initially indirectly acquired a loan
receivable (the "McCook Loan") of Drummond for $2.4 million which was secured
by, inter alia, the assets of a waste oil recycling facility located in McCook
County, Illinois (the "McCook Facility"). The Company subsequently
transferred the McCook Loan to ICHOR in consideration for a promissory note in
the amount of $1.4 million, which matures on December 16, 1999 and bears
interest at 8% per annum and 2,500,000 of common stock of ICHOR. ICHOR
subsequently acquired the McCook Facility pursuant to a bankruptcy court sale.
The purchase price for the McCook Facility was credited against the amount
outstanding under the McCook Loan.
ICHOR is in the environmental services business, including remediation and
recycling. Its operations consist of providing remediation services to assist
commercial, industrial and government
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customers in complying with environmental laws and regulations and re-refining
petroleum waste products and processing and disposing of oily waste waters.
ICHOR's remediation services range from initial assessment of site
contamination through the design and implementation of remediation and
treatment systems to remove contamination. The McCook Facility converts waste
oil into distillate and other recycled petroleum products and processes and
disposes of oily waste waters. This plant is one of four such facilities in
North America. ICHOR is in the process of bringing the McCook Facility on-
line in the second quarter of 1997. The facility was not operated by ICHOR in
1996.
ICHOR's environmental remediation services business is primarily derived from
and regulated by the environmental laws and regulations promulgated by the
U.S. Congress and federal departments and agencies, such as the U.S.
Environmental Protection Agency and the U.S. Occupational Safety and Health
Administration, which are responsible for protecting and monitoring certain
natural resources (such as air, water and soil) and occupational working
conditions. Environmental laws are also adopted by many states and local
governments, which are often responsible for the enforcement of the same.
Projects involving remediation and potential closure of contaminated
facilities are generally generated by: (i) clean-up programs funded by federal
agencies such as the Department of Energy and the Department of Defense and
under the Superfund Amendments and Reauthorization Act of 1986; (ii)
corrective actions and closures mandated by regulations effecting both
government and industry; and (iii) vendors, purchasers and lenders in real
estate transfers.
Government regulations applicable to the McCook Facility govern, among other
things, the handling of the waste streams collected by ICHOR, the operation of
the facility, and the ultimate of disposal of waste that ICHOR removes from
the substances it processes. Operating permits for the McCook Facility are
required by federal and state environmental agencies and are periodically
reviewed. The governmental authorities involved have the power, under various
circumstances, to revoke, modify, or deny issuance or renewal of these
permits.
The environmental remediation services business is highly competitive with
several national firms with significant financial resources and personnel and
numerous small local firms providing remediation and/or waste processing
services. The ability of ICHOR to compete in this area depends on its ability
to price its services and products competitively and to maintain a reputation
for safety and quality. The recycled waste-oil products which can be
manufactured at the McCook Facility will face strong competition from a
variety of re-refined and virgin-based products, including those of major oil
companies. Such competitors include companies that are well established and
have greater marketing, financial and operational resources than ICHOR.
As at December 31, 1996, ICHOR had total assets of $6.6 million, total
liabilities of $4.6 million and shareholders' equity of $2.0 million. For the
11 months ended December 31, 1996, ICHOR reported a net loss of $1.4 million
or $0.54 per share on revenues of $4.1 million. ICHOR has been going through
a reorganization and did not own or operate the McCook Facility in 1996. For
pro
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forma information respecting ICHOR see Note 2 to the financial statements
included in this annual report.
ICHOR has 32 full-time employees who assist with its environmental services
activities. The executive officers of the Company are not full-time
employees, but devote such time to the business of the Company as is required.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's administrative offices are located in Renton, Washington and are
leased. In addition, ICHOR maintains its head office in Monroeville,
Pennsylvania in approximately 7,500 square feet of leased space.
The Company's undeveloped real estate properties are located in the Puget
Sound region of Washington State and consist of 11 parcels totaling
approximately 207 acres which are zoned for various commercial uses including
retail, office and business park, and 3 parcels totaling approximately 43
acres which are zoned for medium to high residential use. The Company is
seeking to sell these parcels and does not intend to fully develop the
majority of them prior to sale. The Company typically engages in such
preliminary development work as is necessary to maximize the value of the
parcels prior to their sale.
The aggregate 1996 real property taxes on the commercially zoned properties
were $92,504, on the multi-family residentially zoned properties were $312,
and on the unzoned properties were $9,849.
Gig Harbour Property
The Company owns approximately 102 acres of undeveloped real property which
was, in early 1997, annexed to the City of Gig Harbour, Washington, which is
located at the West end of the Tacoma Narrows Bridge from Tacoma, Washington.
This annexation provides for much higher intensity development than was
allowed under its previous jurisdiction (Pierce County), and opens the way for
a new major thoroughfare to be built through the middle of the property
connecting State Route 16 and the North entrance of Gig Harbour. Of the total
acreage, 50 acres are now zoned for retail/commercial uses, 35 acres for
medium density (8 units per acre) residential use and 17 acres for business
park/professional office. The retail portion of the property is under an
option agreement for development into a regional shopping center. The Company
may develop all or a portion of the remaining land through partnerships, joint
ventures or other economic associations with local developers. The Company's
current involvement is limited to pre-development work, including
infrastructure (roads, sewer and water services), preliminary permits, market
studies, feasibility studies and related activities.
All utilities are available to the site, but extension of utilities would be
required prior to development. In addition, internal roadways will need to be
constructed to provide access and the site will require grading prior to
development. The Company has not determined whether it will be involved in
any of the actual site work, but estimates that it will spend approximately
$20,000 on
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additional pre-development work, including annexation proceedings in 1997.
The City of Gig Harbour is planning the extension of a city street past the
site, which when completed, will provide improved access to the site from the
City of Gig Harbour. This street extension may take up to two years to
complete. The 1996 property taxes for the 102.6 acre parcel were $14,053.
McCook Facility
The McCook Facility acquired by ICHOR is located on approximately 6 acres of
land in McCook, Illinois, on the outskirts of Chicago. The McCook Facility
primarily converts waste oil into distillate and processes and disposes of
oily waste waters. When operating, the facility has a production capacity of
approximately one million gallons per month of distillate and processes
approximately 13,000 to 15,000 gallons of oily waste water per day. The
McCook Facility has certain soil and groundwater contamination for which ICHOR
has accrued $0.8 million for remediation and also has PCB's stored on site for
which ICHOR is developing a plan for removal in 1997. The facility was not
operated in 1996.
ITEM 3. LEGAL PROCEEDINGS
In 1995, Triad Investment Corporation ("Triad") commenced an action in the
Pierce County Superior Court in respect of an option agreement made between it
and the Company whereby Triad had a right to purchase approximately 68 acres
of the Gig Harbour property for approximately $12.5 million. Triad sought a
declaration that the said option was valid, specific performance and
unspecified damages. The Company filed a counterclaim against Triad for a
declaratory judgment that the option agreement was terminated, quit title to
the property and unspecified damages. In 1997, the Company and Triad agreed
in principle, subject to final documentation and court approval, to settle all
claims in exchange for the Company granting an option to Triad to purchase up
to approximately 45 acres of the Gig Harbour property for approximately $7.8
million, exercisable on or before December 31, 1998, provided that if the
optionee does not acquire at least 10 acres for approximately $1.9 million by
December 31, 1997, the same shall terminate.
In June 1995, Klein v. PDG Remediation, Inc., et al., No. CIV-4954 (DAB), was
filed in the United States District Court for the Southern District of New
York asserting federal securities law claims against ICHOR, its directors and
certain of its officers, ICHOR's former parent company and the underwriters of
ICHOR's initial public offering. The Klein action is brought as a purported
class action on behalf of all purchasers of ICHOR's common stock from February
9, 1995, the effective date of the initial public offering, through May 23,
1995. The plaintiff alleges that the defendants issued or participated in
issuing a registration statement and prospectus which contained material
misstatements or omissions, which were relied upon by the plaintiff. The
plaintiff is seeking certification of the action as a class action and
recision of the purchase of shares of common stock by members of the purported
class or statutory damages, as well as interest, attorneys' fees and other
costs and expenses. The plaintiff has filed a motion for class certification
which is pending.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
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ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information. The Company's common stock is quoted for trading on
the NASD OTC Bulletin Board under the symbol "LGIC". The following table sets
forth the quarterly high and low sales prices per share of the Company's
common stock for the periods indicated:
Fiscal Quarter Ended High Low
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1995
September 30(1)..................$1.75 $0.75
December 31...................... 1.38 0.38
1996
March 31......................... 0.75 0.38
June 30.......................... 0.50 0.25
September 30..................... 0.38 0.13
December 31...................... 0.30 0.25
1997
January 1 to March 17............ 0.26 0.25
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(1)The Company commenced trading in July 1995.
(b) Shareholders. At March 17, 1997, the Company had approximately 1,709
holders of record of its common stock.
(c) Dividends. The Company has not paid any dividends on its common stock
and does not anticipate that it will pay dividends in the future.
(d) Recent Sales of Unregistered Securities. In June 1996, the Company
issued 60,000 shares of Series B preferred stock to Drummond at a price of
$100 per share, or aggregate consideration of $6.0 million. In December 1996,
the Company issued 4,172,082 shares of common stock to MFC for $0.58 per share
or aggregate consideration of $2.4 million. The shares of preferred stock and
common stock were issued in reliance on the exemption from registration
provided by section 4(2) of the Securities Act of 1933, as amended.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of the results of operations and the
financial condition of the Company for the year ended December 31, 1996 should
be read in conjunction with the consolidated financial statements and related
notes included elsewhere herein. In December 1996, the Company acquired a
50.3% interest in ICHOR, which operates in the environmental services
industry. As ICHOR was acquired in December 1996, its results of operations
have not been included in the Company's financial statements. ICHOR's assets
and liabilities are included in the Company's consolidated balance sheets as
at December 31, 1996.
Results of Operations for the Year Ended December 31, 1996 Compared with the
Year Ended December 31, 1995
Revenues for the year ended December 31, 1996 increased to $3.8 million from
$93,000 for the year ended December 31, 1995, primarily as a result of the
sale of real estate for proceeds of $3.6 million and a gain of $0.2 million
from the sale of securities.
Costs and expenses for the year ended 1996 increased to $3.8 million from $3.4
million in the comparable period of 1995, primarily as a result of the cost of
real estate sold and related selling costs, which totalled $2.4 million. In
the period ended December 31, 1996, the Company had a write-down of property
of $0.2 million, compared to $1.5 million in the comparative period of 1995.
Interest expense in the year ended December 31, 1996 decreased to $0.3 million
from $0.8 million in the same period of 1995, as a result of reduced
indebtedness during most of the year. General and administrative expenses
increased to $0.7 million in the current period from $0.6 million in the
comparative period of 1995, primarily as a result of higher legal fees.
In the year ended December 31, 1996, the Company transferred 10 registered
pieces of land to lenders in exchange for the extinguishment of indebtedness
totalling $1.7 million which resulted in the Company recognizing an
extraordinary gain of $0.3 million. The Company recognized an extraordinary
gain of $1.0 million in the comparative period of 1995.
The Company had net income of $0.3 million or $0.04 per share in the year
ended December 31, 1996, compared to a net loss of $2.3 million or $0.36 per
share in the year ended December 31, 1995.
Liquidity and Capital Resources
The Company had cash of $0.8 million at December 31, 1996, compared to $0.3
million at December 31, 1995. Additionally, at December 31, 1996, $1.3
million of cash was held in escrow in respect of ICHOR's environmental
services operations.
The Company has a $4.0 million line of credit of which $0.5 million was
utilized as at December 31, 1996. The line of credit is secured by certain
parcels of real estate, matures on December 30,
<PAGE> 12
1997 and bears interest at a rate of prime plus 4% per annum. As the
Company's principal source of revenue has been the sale of real estate, and is
therefore unpredictable, the Company utilizes this credit facility to cover
its cash shortfalls.
In 1997, ICHOR established two new lines of credit, one with Drummond in the
aggregate amount of $0.3 million and another with a separate lender in the
amount of $0.8 million to fund the working capital requirements of the McCook
Facility. At December 31, 1996, ICHOR was fully funded in the amount of $4.8
million under two agreements with Sirrom Environmental Funding, LLC which
enable ICHOR to fund amounts billed under certain Florida State rehabilitation
programs at rates of prime plus 2% and prime plus 3%, respectively.
Operating activities provided cash of $1.7 million in the year ended December
31, 1996, compared to using cash of $0.7 million in the comparable period of
1995, primarily as a result of the sale of real estate for proceeds of $3.6
million.
Financing activities provided cash of $7.3 million in the year ended 1996,
compared to $0.9 million in the comparative period of 1995, primarily as a
result of the sale of 60,000 Series B Preferred Shares to Drummond for $6.0
million in June 1996 and the issuance of 4,172,082 shares of common stock to
MFC for proceeds of $2.4 million. The Series B Preferred Shares provide for,
among other things: (i) a cumulative dividend of 5% per annum; (ii) interest
on accrued and unpaid dividends; (iii) redemption by the Company at anytime;
(iv) an issue price of $100 per share; (v) one vote per share; and (vi) a 10%
premium on the amount paid-up thereon on redemption, liquidation, dissolution
or winding-up.
Investing activities used cash of $8.4 million in the year ended December 31,
1996, compared to using cash of $0.1 million in the same period of 1995.
Investing activities in the year ended 1996 included the acquisition of an
aggregate of $6.2 million of convertible preferred shares of MFC and the
acquisition of the McCook Loan, which was subsequently sold to ICHOR for
2,500,000 shares of common stock of ICHOR and a promissory note in the amount
of $1.4 million.
At December 31, 1996, the Company had $1.2 million in outstanding notes which
are non-recourse to the Company and secured by deeds of trust on a portion of
the Company's real estate assets. Pursuant to such deeds of trust, the
Company is obligated to make property tax and assessment payments on the
secured properties on a timely basis. Two of the foregoing notes are in
default and the holders of such notes have the right to foreclose on the
properties securing same. In the event that any such holder commences a non-
judicial foreclosure action, under Washington State law the Company has the
right to cure its default by paying all past due taxes and assessments at any
time prior to 10 days before the foreclosure sale. In the event that a holder
of a note commences a judicial foreclosure action under Washington State law,
the Company will not have the right to cure the default by paying the past due
obligations. If such a holder is successful in a judicial foreclosure action,
the property will be sold at a sheriff's sale and the Company will have an
eight-month period following such sale to redeem the property by paying the
sheriff's sale price plus interest at 8% per annum.
<PAGE> 13
In the fourth quarter of 1996, 56.6 acres of the Company's Gig Harbour
property (which totals 102.6 acres with a total book value of $3.1 million)
was subject to a legal foreclosure action by the holder of a $0.6 note secured
by the subject property. As a result, the Company has until July 15, 1997 to
pay all of the outstanding principal and interest due on the note otherwise
title to the subject property will pass to the lender. The Company initially
had an option agreement to sell the subject property to Triad pursuant to an
option agreement which the Company believed had expired and was the subject of
a court action. The Company and Triad have reached an agreement in principle
to resolve the action and the Company does not intend to lose title to the
property under the foreclosure action. See "Legal Proceedings".
Except as aforesaid, no non-judicial or judicial foreclosure actions have been
commenced as a result of the Company's failure to make property tax or
assessment payments on a timely basis.
At December 31, 1996, delinquent real estate taxes on the Company's properties
amounted to $0.7 million. In addition, there is approximately $0.5 million in
assessments to local improvement districts ("LIDs") which are delinquent.
Substantially all of the Company's properties are subject to delinquent LIDs
and property taxes. Delinquent real estate taxes and LIDs accrue interest at
approximately 12% per annum. Under Washington State law, if real estate taxes
or LIDs remain delinquent for three years, the governing jurisdiction can
commence foreclosure proceedings against the property. The Company
anticipates that for the foreseeable future it will permit real estate taxes
to remain delinquent, but may pay such taxes and LIDs as are necessary to
prevent foreclosure proceedings from occurring.
The following table summarizes the repayment schedule of the Company's secured
debt obligations at December 31, 1996:
Year Ending Dollars in
December 31, Thousands
------------ ----------
1997 $ 3,118
1998 476
1999 52
2000 363
----------
$ 4,009
==========
The Company has no commitments for capital expenditures in relation to its
undeveloped real estate, although it may need to provide funds for pre-
development work on certain parcels to enhance their marketability and sale
value. Based upon appraisals prepared for the Company, the Company believes
that the value of its undeveloped real estate assets substantially exceeds the
amount of indebtedness related thereto. All of the Company's real estate
assets are undeveloped, which makes the appraisal process inherently less
certain than with developed properties.
The Company continues to seek controlling interests in operating businesses as
opportunities arise. The Company has acquired one such interest to date, but
may divest itself of such interest. The Company has not identified any other
opportunities at the date hereof. The Company anticipates that
<PAGE> 14
it may require substantial capital to pursue any such opportunities and
anticipates that such capital will be provided through the sale or exchange of
assets, or through debt or equity financing.
ITEM 7. FINANCIAL STATEMENTS
The financial statements and supplementary data required with respect to this
Item 7, and as identified in Item 13 of this report, are included in this
report commencing on page 16.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
--------
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Incorporated by reference from the Registrant's definitive proxy statement to
be filed within 120 days of the end of the Registrant's fiscal year.
ITEM 10. EXECUTIVE COMPENSATION
Incorporated by reference from the Registrant's definitive proxy statement to
be filed within 120 days of the end of the Registrant's fiscal year.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Incorporated by reference from the Registrant's definitive proxy statement to
be filed within 120 days of the end of the Registrant's fiscal year.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the Registrant's definitive proxy statement to
be filed within 120 days of the end of the Registrant's fiscal year.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) (1) Index to Financial Statements
Consolidated Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Operations
<PAGE> 15
Consolidated Statements of Changes in Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Financial Statements
(2) Exhibits
3.1 Articles of Incorporation(1)
3.2 Amendment to Articles of Incorporation dated November 5, 1993(1)
3.3 Amendment to Articles of Incorporation dated April 22, 1994(1)
3.4 Amendment to Articles of Incorporation dated April 14, 1995(1)
3.5 Amendment to Articles of Incorporation dated July 10, 1996(2)
3.6 Bylaws(1)
10.1 Revolving Credit Agreement between E H P Finco Ltd. and Logan
International Corp.(1)
10.2 1994 Non-Qualified Stock Option Plan(1)
10.3 1994 Employee Incentive Plan(1)
10.4 Executive Employment Agreement between Logan International Corp.
and Mr. Lee(1)
10.5 Executive Employment Agreement between Logan International Corp.
and Mr. Smith(1)
10.6 Subscription Agreement between Logan International Corp. and
Drummond Financial Corporation (formerly CVD Financial
Corporation) dated June 20, 1996(2)
10.7 Subscription Agreement between Logan International Corp. and MFC
Bancorp Ltd. (formerly Arbatax International Inc.) dated December
2, 1996. Incorporated by reference to Schedule 13D/A (Amendment
No. 1) dated December 16, 1996
10.8 Assignment Agreement between Logan International Corp. and MFC
Bancorp Ltd. (formerly Arbatax International Inc.) dated December
2, 1996(3)
10.9 Purchase and Sale Agreement between Logan International Corp. and
ICHOR Corporation dated December 13, 1996(3)
21 List of Subsidiaries of the Registrant
27 Article 5 - Financial Data Schedule for the year ended December
31, 1996
- ------------------------
(1) Incorporated by reference to Registration Statement on Form 10-SB.
(2) Incorporated by reference to Form 8-K dated June 27, 1996.
(3) Incorporated by reference to Form 8-K dated December 18, 1996.
(b) Reports on Form 8-K
A report on Form 8-K dated December 18, 1996 was filed reporting under:
Item 2. Acquisition or Disposition of Assets.
Item 5. Other Events.
Item 7. Financial Statements and Exhibits.
<PAGE> 16
- ------------------------------------------------------------------------------
PETERSON SULLIVAN P.L.L.C.
601 Union Street Suite 2300 Seattle WA 98101 (206) 382 7777 Fax 382-7700
Certified Public Accountants
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Shareholders
Logan International Corp.
We have audited the accompanying consolidated balance sheet of Logan
International Corp. and subsidiaries as of December 31, 1996, and the related
statements of operations, changes in shareholders' equity and cash flows for
the years ended December 31, 1996 and 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
from 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Logan
International Corp. and subsidiaries, as of December 31, 1996, and the results
of their operations and their cash flows for the years ended December 31, 1996
and 1995, in conformity with generally accepted accounting principles.
/s/ Peterson Sullivan P.L.L.C.
January 24, 1997
Seattle, Washington
<PAGE> 17
LOGAN INTERNATIONAL CORP.
CONSOLIDATED BALANCE SHEET
December 31, 1996
(In Thousands of Dollars)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash $ 809
Cash held in escrow 1,254
Accounts receivable, less allowance for doubtful
accounts of $690 851
Investments 6,825
Real estate held for development and resale 6,086
Other assets 641
------------
Total current assets 16,466
Long-term assets
Investments 201
Property and equipment, at cost 3,674
------------
3,875
------------
$ 20,341
============
</TABLE>
<PAGE> 18
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C>
Liabilities
Accounts payable $ 790
Accrued liabilities 668
Due to affiliates 683
Debt
Secured 2,565
Unsecured 456
Redeemable preferred stock 139
------------
Total current liabilities 5,301
Long-term liabilities
Debt 849
Other 955
------------
1,804
------------
Total liabilities 7,105
Minority interest 987
Shareholders' equity
Preferred shares, Series B, $.01 par value, 100,000 shares
authorized, 5% cumulative, voting, redeemable, preference
in liquidation, 60,000 issued and outstanding 1
Common shares, $.01 par value, 100,000,000 authorized,
10,837,808 issued and outstanding 108
Additional paid-in capital 14,673
Net unrealized gain on investment valuation 72
Retained deficit (2,605)
------------
12,249
------------
$ 20,341
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 19
LOGAN INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1996 and 1995
(In Thousands of Dollars, Except Earnings Per Share)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Revenue
Sales of real estate $ 3,627 $ -
Gain from sale of available-for-sale securities 175 66
Other 16 27
---------- ----------
3,818 93
Costs and expenses
Cost of real estate sold and related selling costs 2,446 -
General and administrative 744 610
Loan extension fee - 268
Real estate taxes 103 242
Writedown of real estate 205 1,478
Interest 325 808
---------- ----------
3,823 3,406
---------- ----------
Loss before extraordinary item (5) (3,313)
Extraordinary item, gain on extinguishment of debt 257 976
---------- ----------
Net income (loss) $ 252 $ (2,337)
========== ==========
Earnings per share
Loss before extraordinary item $ (.00) $ (.51)
Extraordinary item .04 .15
---------- ----------
Net income (loss) $ .04 $ (.36)
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 20
LOGAN INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1996 and 1995
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Net
Unrealized
Number of Number of Preferred Additional Gain on
Common Preferred Shares Common Paid-in Retained Investment
Shares Shares Series B Shares Capital Deficit Valuation Total
--------- --------- --------- ------ ---------- -------- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 6,469,875 - $ - $ 65 $ 5,944 $ (520) $ - $ 5,489
Common shares issued in exchange for:
Redeemable preferred stock 33,645 - - - 253 - - 253
Services performed by affiliate 17,206 - - - 23 - - 23
Net unrealized gain on investment
valuation - - - - - - 96 96
Net loss for the year - - - - - (2,337) - (2,337)
---------- --------- --------- ------ ---------- -------- -------- --------
Balance at December 31, 1995 6,520,726 - - 65 6,220 (2,857) 96 3,524
Sale of preferred shares - 60,000 1 - 5,999 - - 6,000
Sale of common shares 4,217,082 - - 42 2,405 - - 2,447
Shares issued on debt modification 100,000 - - 1 49 - - 50
Net unrealized loss on investment
valuation - - - - - - (24) (24)
Net income for the year - - - - - 252 - 252
---------- --------- --------- ------ ---------- -------- -------- --------
Balance at December 31, 1996 10,837,808 60,000 $ 1 $ 108 $ 14,673 $ (2,605) $ 72 $ 12,249
========== ========= ========= ======= ========== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 21
LOGAN INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996 and 1995
(In Thousands of Dollars)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income (loss) $ 252 $ (2,337)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Gain on sale of available-for-sale securities (175) (66)
Extension fee - 268
Extraordinary item (257) (976)
Real estate writedowns 205 1,478
Decrease in real estate held for development and resale 1,796 -
Increase in accounts receivable (417) -
Increase in interest payable 46 515
Increase (decrease) in real estate taxes payable (52) 303
Increase in amount due to affiliate 263 -
Other 5 95
----------- -----------
Net cash provided by (used in)
operating activities 1,666 (720)
Cash Flows from Investing Activities
Purchases of investments (9,341) (1,072)
Acquisition of subsidiary, net of cash acquired 628 -
Proceeds from the sale of available-for-sale securities 313 959
----------- -----------
Net cash used in investing activities (8,400) (113)
Cash Flows from Financing Activities
Redemption of redeemable preferred stock (4) (172)
Proceeds from secured debt borrowings 104 2,463
Payment of secured debt (1,065) (1,569)
Payments to affiliate (200) 200
Proceeds from common stock issuance 2,447 -
Proceeds from preferred stock issuance 6,000 -
----------- -----------
Net cash provided by financing activities 7,282 922
----------- -----------
Net increase in cash 548 89
Cash, beginning of year 261 172
----------- -----------
Cash, end of year $ 809 $ 261
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS
Note 1. Nature of Operations and Significant Accounting Policies
Nature of Operations
- --------------------
Prior to 1996, Logan International Corp. ("the Company") was involved in the
development and resale of real estate located in the State of Washington,
U.S.A. However, during 1996 the Company increased its financial services
activities as part of its stated diversification plan. The Company believes
that its current real estate development and sales activities are a part of
its diversification plan which contemplates a more significant emphasis on
financial services. Financial services includes the acquisition of assets
which management believes may be undervalued.
During 1996, the Company acquired a controlling interest in Ichor Corporation
("Ichor") which is involved in the environmental remediation industry. This
includes providing environmental remediation services to the public and
private sectors primarily in the eastern United States and operating a waste
oil recycling facility located in Illinois. The Company may seek to reduce
its interest in Ichor. The results of Ichor's operations have not been
included in these financial statements because it was acquired near year-end.
The Company is a 69%-owned subsidiary of MFC Bancorp Ltd. ("MFC").
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash Held In Escrow
- -------------------
Cash held in escrow represents amounts which are subject to withdrawal
restrictions and principally relate to a credit arrangement and work performed
as a subcontractor.
Investments
- -----------
The Company has classified certain of its investments as available-for-sale or
trading securities which are stated at their fair values. Any unrealized
holding gains or losses of available-for-sale securities are reported as a
separate component of shareholders' equity until realized and included in
earnings for trading securities. If a loss in value in available-for-sale
securities is considered to be other than temporary, it is recognized in the
determination of net income. Cost is based on the specific identification
method to determine realized gains or losses.
<PAGE> 23
Note 1. (Continued)
Real Estate Held For Development and Resale
- -------------------------------------------
Real estate held for development and resale is stated at the lower of cost or
net realizable value as determined by management based on current market
conditions in the same geographic region. This resulted in real estate
holdings being written down by $205 in 1996 and $1,478 in 1995. The Company's
real estate is treated as inventory which is to be disposed of in the near-
term and is, therefore, classified as a current asset.
Depreciation
- ------------
Property and equipment are depreciated over the estimated useful lives of the
assets using the straight-line method. Permits are amortized over a 40-year
period representing their estimated economic lives.
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated.
Environmental Conservation
- --------------------------
Liabilities for environmental conservation are recorded when it is probable
that obligations have been incurred and the amounts can be reasonably
estimated. Any potential recoveries of such liabilities are recorded when
there is an agreement with a reimbursing entity.
Stock-Based Compensation
- ------------------------
The Company has no stock option plan, however, Ichor does. Statement of
Financial Accounting Standards No. 123 ("FAS 123"), "Accounting for Stock-
Based Compensation," encourages, but does not require, companies to record
compensation cost for stock-based employee compensation plans at fair value.
Ichor has chosen to account for stock-based compensation using Accounting
Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to
Employees." Accordingly, compensation cost for stock options is measured as
the excess, if any, of the quoted market price of Ichor's stock at the date of
the grant over the amount an employee is required to pay for the stock. There
is no compensation effect under APB 25 and any disclosures under FAS 123 are
not material with respect to these consolidated financial statements.
<PAGE> 24
Note 1. (Continued)
Taxes on Income
- ---------------
The Company accounts for income taxes under an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. In estimating future tax
consequences, the Company generally considers all expected future events other
than enactments of changes in the tax laws or rates.
Earnings Per Share
- ------------------
Earnings per share is computed based on the weighted average number of common
shares outstanding during the year. The weighted average number of shares
outstanding was 6,862,348 and 6,512,950 for the years ended December 31, 1996
and 1995, respectively.
Note 2. Transactions With Affiliates
In December 1996, the Company sold 4,172,082 of its common shares to MFC for
$2,425 in cash. The Company then used the cash to acquire a subsidiary from
MFC which held as its only asset a loan collateralized primarily by the waste
oil recycling facility located in Illinois. Next, the Company exchanged the
subsidiary for 2.5 million shares of Ichor valued at $1,000 plus a promissory
note in the amount of $1,425. The loan was valued at $2,425 based primarily
on the independent appraisal of the waste oil recycling facility.
The acquisition of the Ichor shares resulted in the Company owning 50.3% of
Ichor's common shares. Another subsidiary of MFC owns 29.6% of Ichor. The
cost of the assets acquired in this transaction was approximately $6,608 and
approximately $4,621 in liabilities were assumed.
During December 1996, Ichor's subsidiary acquired the waste oil recycling
facility in partial settlement of the loan. The facility was not operated
during 1996. The cost of the assets acquired in this transaction amounted to
$3,619 and liabilities assumed amounted to $1,194.
The following 1996 and 1995 proforma amounts with respect to the purchase of
Ichor are provided below for information purposes only. Management believes
that the proforma amounts are not necessarily indicative of what actual
results may have been if the acquisition had been effective at the beginning
of 1995 nor is it indicative of any future results of operations. The waste
oil recycling facility was acquired in a bankruptcy proceeding and as a result
no reliable financial information with respect to its operations exist prior
to the end of 1996. Therefore, its results of its operations are not included
in the proforma amounts below.
<PAGE> 25
Note 2. (Continued)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Revenues $ 7,868 $ 4,872
========== ==========
Loss from continuing operations before
discontinued operations and extraordinary item $ (754) $ (3,942)
Discontinued operations 45 (809)
---------- ----------
(709) (4,751)
Extraordinary item 257 976
---------- ----------
Net loss $ (452) $ (3,775)
========== ==========
Earnings (loss) per share
Loss from continuing operations $ (.12) $ (.61)
Discontinued operations .01 (.12)
Extraordinary item .04 .15
---------- ----------
$ (.07) $ (.58)
========== ==========
</TABLE>
During 1996, the Company together with MFC sold to a third party one of the
Company's subsidiaries which had as its only asset a parcel of real estate.
The carrying value of the real estate was $1,250. The shares of the
subsidiary were sold for a total of $3,340. The proceeds were shared equally
between the Company and MFC resulting in a profit of $417 to the Company. The
property had environmental problems which made it difficult to develop or
sell, however, MFC was able to facilitate the sale to a foreign purchaser.
Under the circumstances, the Company and MFC agreed to the sharing of income
from the sale. A cash downpayment of $1,752 was made of which the Company
received $1,250 and the remaining amount due is at the option of MFC. The
Company has included its balance of $417 in accounts receivable. The
receivable states no rate of interest and is collateralized by the real estate
parcel sold. Management expects to collect the receivable in the near-term
and also believes its fair value approximates carrying value based on similar
transactions in the industry involving this type of property.
During 1996, the Company acquired 60,000 MFC Class A Preferred Shares, Series
1, without par value, for $6,200. These shares are convertible, have a
dividend rate of $3.65 per share, are redeemable at any time and are
retractable after five years of issuance subject to certain conditions. The
shares are convertible at $3.65 per share of common stock for the first year
and then at $.18 increments each through the fifth year with no adjustment
thereafter. These shares have been classified as current assets and are
stated at cost because they have no readily determinable fair value.
Advances from an affiliate of $420 at December 31, 1996, is expected to be
paid in March 1997. The remaining amount of $263 is on an open account and is
due to MFC for services rendered.
<PAGE> 26
Note 2. (Continued)
During the years ended December 31, 1996 and 1995, management fees of $72 and
$78, respectively, were paid to a company affiliated with a director who
resigned during 1996. Also, during 1996, another entity affiliated with this
director loaned an additional $30 to the Company which is included in the $360
note payable described in Note 6.
Note 3. Investments
In addition to the Company's investment in MFC Class A Preferred Shares,
discussed in Note 2, the Company invested $625 into a unit trust during 1996
which has been designated as a trading security. There was no unrealized gain
or loss in this investment at December 31, 1996. There were no trading
securities at December 31, 1995.
The Company has investments in available-for-sale equity securities. The fair
value of these securities was $201 at December 31, 1996, and they are
classified as long-term investments. The Company sold some available-for-sale
securities during 1996 and 1995 for $313 and $959 which resulted in realized
gains of $175 and $66, respectively. The cost of the remaining shares was
$129 as of December 31, 1996. The shares remaining at December 31, 1995 had a
cost of $179 and a fair value of $275. The unrealized gains of $72 and $96
have been included in shareholders' equity as net unrealized gain on
investment valuation at December 31, 1996 and 1995, respectively.
Note 4. Property and Equipment
Land, building and equipment $ 2,291
Permits 1,750
----------
4,041
Less accumulated depreciation (367)
----------
$ 3,674
==========
Note 5. Preferred Stock
The Company's Preferred Shares, Series B require that dividends be paid
annually in arrears on December 31 (amounting to approximately $155,000 at
December 31, 1996). Should dividends not be paid as required, interest at 8%
is to be accrued on the unpaid amount. The Company may redeem these shares at
any time at an aggregate price which includes all unpaid dividends, accrued
interest and a redemption premium of 10% based on the amount paid for the
shares. Upon liquidation, these shares are entitled to receive the same
amounts as redemption in priority to the common or other shares. As long as
any of the Preferred Shares, Series B remain outstanding, the
<PAGE> 27
Note 5. (Continued)
Company cannot pay dividends on common or other junior shares, redeem less
than all of these shares or issue additional preferred stock unless all unpaid
dividends including interest have been paid. In any event, no shares may be
issued in priority to the Preferred Shares, Series B shares without their
approval. The Company sold 60,000 of these shares to a subsidiary of MFC for
$6.0 million during 1996.
In a prior year, the Company issued preferred shares in exchange for debt.
Because of certain redemption rights these shares have been classified as
debt. In 1995, preferred shares representing $425 of debt were exchanged for
33,645 shares of common stock and $172 in cash. The price for the common
shares was based on negotiations with the preferred shareholders. The shares
have a liquidation value of $100 per share and are nonvoting. Since any
remaining shares were to be paid by October 1, 1996, the debt attributable to
the balance at December 31, 1996 is in default and has been classified as
current.
Note 6. Debt
The Company has a $4.0 million line of credit agreement with a lender against
which $498 was borrowed as of December 31, 1996. The line of credit agreement
will expire on December 30, 1997, unless extended, and is secured by certain
parcels of real estate. The lender has a warrant allowing it to acquire
225,000 shares of common stock for $.50 per share by December 31, 2000. In
1995, the Company agreed to issue to the lender 100,000 common shares at $.50
per share in exchange for the lender releasing its conversion right to
1,435,750 common shares at $1.393 per share. The shares were issued in 1996
and an expense of $50 was accrued in 1995 to reflect this transaction.
The notes payable summarized below are nonrecourse to the Company and are
collateralized by various parcels of real estate.
Note payable, interest at 13%; due August, 1996 $ 240
Note payable, interest at 12%; payable July 15, 1997 555
Note payable, interest at 15.5%; payable in monthly
installments of $5 interest only, due March 2000 360
Other 73
----------
$ 1,228
==========
<PAGE> 28
Note 6. (Continued)
The note payable of $555 is collateralized by 56.6 acres which is part of a
larger 102.6 acre parcel with a total book value of $3,078. The lender
instituted a legal foreclosure action against this real estate which has
resulted in the Company having to pay all the principal balance including
interest by July 15, 1997. The Company had an option agreement to sell the
102.6 acres. Management believes that the agreement has expired under its
terms. However, the optionee instituted legal action to continue the option
in effect. At present, the Company is involved in negotiations to sell a
portion of the property in excess of its book value and settle any dispute
remaining. Management believes that the disputes will be satisfactorily
settled, however, there is no assurance that this will occur as currently
planned.
In addition to notes payable, the Company also has assessments due to local
improvement districts ("LID") and unpaid property taxes which are priority
liens on real estate. LID assessments payable are summarized as follows:
LID, interest at 9%; payable in annual installments of $41 plus
interest $ 368
LID, interest at 7.75%; payable $68 in March, 1997 and in annual
installments of $13 plus interest thereafter
163
---------
$ 531
=========
Property taxes which amount to $668 have not been paid as of December 31,
1996. This amount along with the current portion of notes payable and LID
assessments payable have been combined and disclosed as current secured debt
on the balance sheet.
The Company also has unsecured debt due to an insurance company in the total
amount of $945 of which $456 is due in 1997 and 1998 with the remainder due in
1999. No interest is charged on this debt and no interest has been imputed
since the amount is not material.
As of December 31, 1996, the principal maturities of debt are as follows:
1997 $ 3,118
1998 476
1999 52
2000 363
--------------
$ 4,009
==============
Based on borrowing rates available to the Company for debt with similar terms
and average maturities, management believes that the fair value of the
Company's secured debt approximates the amounts disclosed in this note. The
fair value of the unsecured debt is estimated to be $895 based on the terms of
this debt.
<PAGE> 29
Note 6. (Continued)
Ichor has credit arrangements under which its receivables from a state-
sponsored remediation program have been financed. Ichor is advanced 100% of
the amounts billed under the program. The total amounts subject to the credit
arrangements of $4,750 have been advanced. In connection with these credit
arrangements, a portion of the advances are required to be held in escrow.
One of the arrangements which amounts to $750 and carries interest at the
prime rate plus 2% expires in January, 1997. The other arrangement provides
interest at the prime rate plus 3% and expires in August, 1997.
Note 7. Other Long-Term Liabilities
Other long-term liabilities consist of a reserve for environmental liability
cost and federal taxes.
The reserve for environmental liability cost amounts to $800 and represents
expected soil and groundwater remediation costs at the waste oil recycling
facility. However, the ultimate cost may differ from the amount presently
accrued.
Note 8. Income Tax
The Company and Ichor file separate U.S. income tax returns. No income tax is
attributable to the extraordinary items in 1996 and 1995 because of the
existence of net operating tax losses. As of December 31, 1996, the Company
has a tax loss carryforward of approximately $2,600 of which $1,200 is limited
to the long-term exempt rate applied to the Company's value on an annual
basis. The losses will fully expire by 2011 if not used. Further, the
Company's income tax basis in its real estate is in excess of its book value
by approximately $1,300. Because the Company does not believe it is more
likely than not that the tax benefit of the temporary differences will be
realized, they are fully reserved.
Ichor has net operating tax losses of approximately $4,600 at December 31,
1996, which will expire in years ending in 2011. Ichor's utilization of these
losses will be limited to the long-term exempt rate applied to the value of
Ichor on an annual basis. Any benefit related to this temporary difference
has also been fully reserved.
Note 9. Commitments and Contingencies
Ichor performed services as a subcontractor to companies with respect to work
performed in Florida. In certain circumstances, Ichor has provided
indemnification for any amounts not paid. At December 31, 1996, Ichor had
provided indemnification for the amount of $4,596 of work performed pursuant
to such subcontractor arrangements. Potential future losses associated with
these indemnifications have been estimated by management and are provided as
part of the allowance for doubtful accounts.
<PAGE> 30
Note 9. (Continued)
Cash balances are occasionally in excess of federally insured amounts.
Ichor was named as a defendant in a purported class action lawsuit filed in
U.S. Federal Court involving all persons and entities who purchased Ichor's
common stock from February 9, 1995, the effective date of the initial public
offering, through May 23, 1995. The plaintiff is seeking certification of the
action as a class action and recision for the purchase of shares of common
stock by members of the purported class or statutory damages, as well as
interest, attorneys' fees and other costs and expenses. Ichor believes that
the plaintiff's allegations are without merit or that there are meritorious
defenses, and intends to defend the action vigorously. However, if the
plaintiff is successful, it may have an adverse effect on Ichor. No liability
has been recorded in connection with this lawsuit.
Ichor leases certain facilities and equipment under non-cancelable operating
leases. Minimum rental payments under these leases with initial or remaining
terms of one year or more at December 31, 1996, are due as follows: 1997 -
$163; 1998 - $148; 1999 - $133; nominal thereafter.
Note 10. Supplementary Disclosures with Respect to the Statement of Cash
Flows
Cash paid for interest during the years ended December 31, 1996 and 1995, was
$32 and $145, respectively.
Significant noncash transactions in 1996 included:
1. The Company transferred parcels of land to a lender in exchange for
extinguishment of debt of $1,196. An extraordinary gain of $257 was
recognized as a result of this transaction. In addition, the Company
transferred a parcel of land to a lender in exchange for extinguishment
of debt of $511. No gain or loss was recognized as a result of this
transaction.
2. As described in Note 2, the Company exchanged a subsidiary of MFC in a
transaction valued at $2,425 for common stock and a note receivable from
Ichor.
3. The waste oil recycling facility valued at $2,425 was acquired in
satisfaction of a loan.
4. As described in Note 6, the Company issued 100,000 common shares at $.50
per share to a lender for the release of a conversion right.
Significant noncash transactions in 1995 included:
1. The Company transferred two parcels of land to lenders in exchange for
extinguishment of debt of $2,620. An extraordinary gain of $976 was
recognized on these transactions.
<PAGE> 31
Note 10. (Continued)
2. The Company redeemed preferred stock in exchange for 33,645 shares of
common stock and $172 in cash.
3. The Company issued common shares to an affiliate for consulting services
payable of $23.
4. The Company transferred a parcel of land with a book value of $305 to a
lender to extend the due date of a loan. The transaction resulted in a
net extension fee amount of $268.
<PAGE> 32
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
LOGAN INTERNATIONAL CORP.
Date: March 18, 1997. By: /s/ Michael J. Smith
-----------------------------------
Michael J. Smith
President, Chief Financial Officer,
and Director
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
/s/ Michael J. Smith
- ---------------------------------------
Michael J. Smith
President, Chief Financial Officer,
Director Date: March 18, 1997
/s/ Leonard Petersen
- ---------------------------------------
Leonard Petersen
Director Date: March 18, 1997
/s/ Roland Waldvogel
- ---------------------------------------
Roland Waldvogel
Director Date: March 18, 1997
<PAGE> 33
EXHIBIT INDEX
-------------
Exhibit Number Description
- -------------- -----------
3.1 Articles of Incorporation(1)
3.2 Amendment to Articles of Incorporation dated November 5, 1993(1)
3.3 Amendment to Articles of Incorporation dated April 22, 1994(1)
3.4 Amendment to Articles of Incorporation dated April 14, 1995(1)
3.5 Amendment to Articles of Incorporation dated July 10, 1996(2)
3.6 Bylaws(1)
10.1 Revolving Credit Agreement between E H P Finco Ltd. and Logan
International Corp.(1)
10.2 1994 Non-Qualified Stock Option Plan(1)
10.3 1994 Employee Incentive Plan(1)
10.4 Executive Employment Agreement between Logan International Corp.
and Mr. Lee(1)
10.5 Executive Employment Agreement between Logan International Corp.
and Mr. Smith(1)
10.6 Subscription Agreement between Logan International Corp. and
Drummond Financial Corporation (formerly CVD Financial
Corporation) dated June 20, 1996(2)
10.7 Subscription Agreement between Logan International Corp. and MFC
Bancorp Ltd. (formerly Arbatax International Inc.) dated December
2, 1996. Incorporated by reference to Schedule 13D/A (Amendment
No. 1) dated December 16, 1996
10.8 Assignment Agreement between Logan International Corp. and MFC
Bancorp Ltd. (formerly Arbatax International Inc.) dated December
2, 1996(3)
10.9 Purchase and Sale Agreement between Logan International Corp. and
ICHOR Corporation dated December 13, 1996(3)
21 List of Subsidiaries of the Registrant
27 Article 5 - Financial Data Schedule for the year ended December
31, 1996
- ------------------------
(1) Incorporated by reference to Registration Statement on Form 10-SB.
(2) Incorporated by reference to Form 8-K dated June 27, 1996.
(3) Incorporated by reference to Form 8-K dated December 18, 1996.
LOGAN INTERNATIONAL CORP.
EXHIBIT 21 - SUBSIDIARIES OF THE REGISTRANT
Shareholding at end
Name of Subsidiary Jurisdiction of Incorporation of year (Direct)
- ------------------ ----------------------------- -------------------
ICHOR Corporation (formerly State of Delaware 50.3%
PDG Remediation, Inc.)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES INCLUDED IN THIS FORM 10-KSB AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 809
<SECURITIES> 6,825
<RECEIVABLES> 1,541
<ALLOWANCES> 690
<INVENTORY> 6,086
<CURRENT-ASSETS> 16,466
<PP&E> 4,041
<DEPRECIATION> 3,670
<TOTAL-ASSETS> 20,341
<CURRENT-LIABILITIES> 5,301
<BONDS> 849
139
1
<COMMON> 108
<OTHER-SE> 12,140
<TOTAL-LIABILITY-AND-EQUITY> 20,341
<SALES> 3,627
<TOTAL-REVENUES> 3,818
<CGS> 2,446
<TOTAL-COSTS> 3,823
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 325
<INCOME-PRETAX> (5)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5)
<DISCONTINUED> 0
<EXTRAORDINARY> 257
<CHANGES> 0
<NET-INCOME> 252
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
