<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----- -----
Commission File Number: 000-26354
LOGAN INTERNATIONAL CORP.
(Exact name of Registrant as specified in its charter)
Washington 91-1636980
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 1250, 400 Burrard Street, Vancouver,
British Columbia, Canada V6C 3A6
(Address of principal executive offices) (Postal Code)
(604) 683-5767
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
----- -----
Indicate the number of shares outstanding of each of the Registrant's classes
of common stock, as of the latest practicable date:
Class Outstanding at November 11, 1998
----- --------------------------------
Common Stock, $0.01 10,837,808
par value
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FORWARD-LOOKING STATEMENTS
Statements in this report, to the extent that 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, the 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.
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
LOGAN INTERNATIONAL CORP.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(Unaudited)
2
<PAGE> 3
LOGAN INTERNATIONAL CORP.
Consolidated Balance Sheets
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 654 $ 452
Cash held in escrow - 617
Accounts receivable, net 1,456 2,417
Notes receivable 2,080 680
Real estate held for development
and sale 4,198 4,544
Other assets 163 36
------------- -------------
Total current assets 8,551 8,746
Investments 9,933 7,014
------------- -------------
$ 18,484 $ 15,760
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable $ 287 $ 327
Accrued liabilities 548 641
Due to affiliates 5,691 1,868
Debt 1,942 2,136
------------- -------------
Total current liabilities 8,468 4,972
Long-term Debt 205 646
------------- -------------
Total liabilities 8,673 5,618
Minority Interest 3,075 750
Shareholders' Equity
Common stock 108 108
Preferred stock 1 1
Additional paid-in capital 14,673 14,673
Net unrealized (loss) gain on
investment valuation (1,980) 6
Retained deficit (6,066) (5,396)
------------- -------------
Total equity 6,736 9,392
------------- -------------
$ 18,484 $ 15,760
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
LOGAN INTERNATIONAL CORP.
Consolidated Statements of Operations and Deficit
(Unaudited)
(dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
For the Nine For the Nine
Months Ended Months Ended
September 30, 1998 September 30, 1997
------------------ ------------------
(Restated)
<S> <C> <C>
Revenues
Sale of real estate $ 400 $ 250
Dividend income 300 -
Gain on securities - 40
Gain on disposal of a subsidiary 437 -
Other 241 211
------------- -------------
1,378 501
------------- -------------
Costs and expenses
Cost of real estate sold and
related selling costs 433 222
General and administrative expenses 724 689
Real estate taxes 30 72
Interest 294 829
Bad debt recovery (100) -
Litigation settlement 260 -
------------- -------------
1,641 1,812
------------- -------------
Loss from continuing operations before
minority interest and income tax (263) (1,311)
Minority interest (95) 424
------------- -------------
Loss from continuing operations before
income tax (358) (887)
Income tax (12) -
------------- -------------
Loss from continuing operations after
income tax (370) (887)
Discontinued operations, net of minority
interest
Loss from discontinued operations - (365)
Gain on sale - 30
------------- -------------
Loss from discontinued operations - (335)
------------- -------------
Net loss (370) (1,222)
Deficit, beginning of period (5,396) (2,605)
Dividend paid on preferred shares (300) (172)
------------- -------------
Deficit, end of period $ (6,066) $ (3,999)
============= =============
Loss per share
Loss from continuing operations $ (0.05) $ (0.10)
Loss from discontinued operations - (0.03)
------------- -------------
$ (0.05) $ (0.13)
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
LOGAN INTERNATIONAL CORP.
Consolidated Statements of Operations and Deficit
(Unaudited)
(dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
For the Three For the Three
Months Ended Months Ended
September 30, 1998 September 30, 1997
------------------ ------------------
(Restated)
<S> <C> <C>
Revenues
Sale of real estate $ - $ 250
Dividend income 10 -
Gain on securities - 7
Other 114 25
------------- -------------
124 282
------------- -------------
Costs and expenses
Cost of real estate sold and related
selling costs - 222
General and administrative expenses 199 213
Real estate taxes 9 23
Interest 69 293
Litigation settlement 260 -
------------- -------------
537 751
------------- -------------
Loss from continuing operations before
minority interest and income tax (413) (469)
Minority interest (37) 149
------------- -------------
Loss from continuing operations
before income tax (450) (320)
Income tax (12) -
------------- -------------
Loss from continuing operations after
income tax (462) (320)
Discontinued operations, net of
minority interest
Loss from discontinued operations - (130)
------------- -------------
Loss from discontinued operations - (130)
------------- -------------
Net loss (462) (450)
Deficit, beginning of period (5,604) (3,549)
------------- -------------
Deficit, end of period $ (6,066) $ (3,999)
============= =============
Loss per share
Loss from continuing operations $ (0.05) $ (0.03)
Loss from discontinued operations - (0.01)
------------- -------------
$ (0.05) $ (0.04)
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
LOGAN INTERNATIONAL CORP.
Statement of Comprehensive Income
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
For the Nine For the Nine
Months Ended Months Ended
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
Net loss $ (370) $ (1,222)
Other comprehensive loss:
Unrealized loss on securities (1,986) (30)
------------- -------------
Total comprehensive loss $ (2,356) $ (1,252)
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
LOGAN INTERNATIONAL CORP.
Statement of Comprehensive Income
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
For the Three For the Three
Months Ended Months Ended
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
Net loss $ (462) $ (450)
Other comprehensive loss:
Unrealized loss on securities (1,845) (16)
------------- -------------
Total comprehensive loss $ (2,307) $ (466)
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
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LOGAN INTERNATIONAL CORP.
Consolidated Statements of Cash Flows
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
For the Nine For the Nine
Months Ended Months Ended
September 30, 1998 September 30, 1997
------------------ ------------------
(Restated)
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss from continuing operations $ (370) $ (887)
Adjustments to reconcile net loss to
net cash from operating activities
Minority interest 95 (424)
Gain on securities - (40)
Gain on disposal of a subsidiary (437) -
Bad debt recovery (100) -
Depreciation 1 -
------------- -------------
(811) (1,351)
Changes in current assets
and liabilities
Decrease in cash held in escrow 145 495
Decrease in real estate held for
development and sale 346 120
Increase in prepaid and other assets (133) (256)
Decrease (increase) in accounts
receivable 1,218 (27)
Decrease in payables (133) (442)
Increase in amounts due
to affiliates 3,823 825
Other - 12
------------- -------------
4,455 (624)
Purchase of trading securities - (3,438)
Proceeds from sales of
trading securities - 3,329
------------- -------------
Net cash provided by (used in)
operating activities of
continuing operations 4,455 (733)
Cash Flows from Investing Activities:
Purchase of available-for-sale
securities (4,830) -
Note receivable (1,400) -
Other (75) -
------------- -------------
Net cash used in investing
activities of continuing
operations (6,305) -
Cash Flows from Financing Activities:
Borrowing 465 1,820
Payment of debts (343) (1,371)
Issuance of preferred shares by a
subsidiary 2,230 -
Repurchase of common shares by a
subsidiary - (19)
Dividend (300) (172)
------------- -------------
Net cash provided by financing
activities of continuing
operations 2,052 258
------------- -------------
Net cash provided by (used in)
continuing operations 202 (475)
Net cash used in discontinued operations - (17)
------------- -------------
Increase (decrease) in cash and
cash equivalents 202 (492)
Cash and cash equivalents, beginning
of period 452 705
------------- -------------
Cash and cash equivalents, end
of period $ 654 $ 213
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
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LOGAN INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
September 30, 1998
(Unaudited)
Note 1. Basis of Presentation
- ------------------------------
The interim period consolidated financial statements contained herein have
been prepared by the Registrant pursuant to the rules and regulations of the
United States Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations. These interim period
statements should be read together with the audited consolidated financial
statements and accompanying notes included in the Registrant's latest annual
report on Form 10-K for the year ended December 31, 1997. In the opinion of
the Registrant, the unaudited consolidated financial statements contained
herein contain all adjustments necessary in order to present a fair statement
of the results for the interim periods presented.
Note 2. Acquisition and Disposition
- ------------------------------------
In December 1996, the Registrant acquired a 50.3% interest in ICHOR
Corporation ("Ichor"), which operated in the environmental services business.
Ichor sold its environmental remediation services operations in April 1997 and
its waste oil recycling facility in December 1997. The consolidated financial
statements contained herein have been restated to record the disposed
businesses as discontinued operations. Ichor's results of operations have
been included in the consolidated financial statements contained herein as
discontinued operations. Effective March 31, 1998, Ichor sold its wholly-
owned subsidiary, ICHOR Services, Inc.
Note 3. Earnings (Loss) Per Share
- ----------------------------------
Basic earnings (loss) per share is computed on the weighted average number of
shares outstanding during the period. The weighted average number of shares
outstanding was 10,837,808 for the nine months ended September 30, 1998 and
1997, respectively.
9
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PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of the results of operations and
financial condition of Logan International Corp. (the "Corporation") for the
nine months and three months ended September 30, 1998, respectively, should be
read in conjunction with the consolidated financial statements and related
notes included elsewhere herein.
Results of Operations - Nine Months Ended September 30, 1998
- ------------------------------------------------------------
Revenues for the nine months ended September 30, 1998 increased to $1.4
million from $0.5 million for the nine months ended September 30, 1997. In
the nine months ended September 30, 1998, the Corporation sold real estate for
$0.4 million, compared to $0.3 million in the comparative period of 1997, and
received $0.3 million in dividend income.
Effective March 31, 1998, the Corporation's 50.9% owned subsidiary, ICHOR
Corporation ("Ichor"), sold its wholly-owned subsidiary, ICHOR Services, Inc.
("Services"). The Corporation recognized a gain of $0.4 million on the sale
in the nine months ended September 30, 1998, as a result of the disposal of
net liabilities of Services.
Costs and expenses decreased to $1.6 million in the nine months ended
September 30, 1998 from $1.8 million in the nine months ended September 30,
1997. The cost of real estate sold and related selling costs increased to
$0.4 million in the nine months ended September 30, 1998 from $0.2 million in
the comparative period of 1997. General and administrative expenses were $0.7
million for the nine months ended September 30, 1998 and 1997, respectively.
Interest expense decreased to $0.3 million in the nine months ended September
30, 1998 from $0.8 million in the same period of 1997, primarily as a result of
reduced indebtedness in the current period.
In the nine months ended September 30, 1998, the Corporation accrued $0.3
million in settlement of a class action lawsuit. See "Part II. Other
Information - Item 1. Legal Proceedings" herein for further details with
respect to the action.
The Corporation reported a loss from continuing operations of $0.4 million or
$0.05 per share after the accrual of dividends on the Corporation's preferred
stock in the nine months ended September 30, 1998, compared to $0.9 million or
$0.10 per share in the nine months ended September 30, 1997. The Corporation
reported a loss of $0.3 million or $0.03 per share from discontinued
operations in the nine months ended September 30, 1997.
10
<PAGE> 11
Results of Operations - Three Months Ended September 30, 1998
- -------------------------------------------------------------
Revenues for the three months ended September 30, 1998 decreased to $0.1
million from $0.3 million for the three months ended September 30, 1997,
primarily as a result of a reduction in the sale of real estate in the current
period.
Costs and expenses decreased to $0.5 million in the three months ended
September 30, 1998 from $0.8 million in the three months ended September 30,
1997, primarily as a result of a reduction in the cost of real estate sold and
related selling costs and a decrease in interest expense as a result of
reduced indebtedness in the current period. General and administrative
expenses were $0.2 million in the three months ended September 30, 1998 and
1997, respectively.
In the three months ended September 30, 1998, the Corporation accrued $0.3
million in settlement of a class action lawsuit. See "Part II. Other
Information - Item 1. Legal Proceedings" herein for further details with
respect to the action.
The Corporation reported a loss from continuing operations of $0.5 million or
$0.05 per share in the three months ended September 30, 1998, compared to $0.3
million or $0.03 per share in the three months ended September 30, 1997. The
Corporation reported a loss from discontinued operations of $0.1 million or
$0.01 per share in the three months ended September 30, 1997.
Liquidity and Capital Resources
- -------------------------------
The Corporation had cash and cash equivalents of $0.7 million at September 30,
1998, compared to $0.5 million at December 31, 1997.
Continuing operating activities before any activities in trading securities
provided cash of $4.5 million in the nine months ended September 30, 1998,
compared to using cash of $0.6 million in the comparative period of 1997. Net
purchases of trading securities used cash of $0.1 million in the nine months
ended September 30, 1997. An increase in amounts due to affiliates provided
cash of $3.8 million in the nine months ended September 30, 1998, compared to
$0.8 million in the comparative period of 1997. A decrease in accounts
receivable provided cash of $1.2 million in the nine months ended September
30, 1998, compared to an increase in accounts receivable using cash of $27,000
in the same period of 1997.
Investing activities used cash of $6.3 million in the nine months ended
September 30, 1998, primarily as a result of the purchase of available-for-
sale securities and an increase in a note receivable.
Financing activities provided cash of $2.1 million in the nine months ended
September 30, 1998, compared to $0.3 million in the nine months ended
September 30, 1997. A net increase in indebtedness provided cash of $0.1
million in the nine months ended September 30, 1998, compared to $0.4 million
in the comparative period of 1997. The Corporation paid $0.3 million in
dividends on its preferred stock in the nine months ended September 30, 1998,
compared to $0.2 million in the comparative period of 1997.
11
<PAGE> 12
At September 30, 1998, the Corporation had $1.7 million in outstanding notes
which are secured by deeds of trust on a portion of the Corporation's real
estate assets and are non-recourse to the Corporation. Pursuant to such deeds
of trust, the Corporation is obligated to make property tax and assessment
payments on the secured properties on a timely basis.
At September 30, 1998, overdue real estate taxes on the Corporation's
properties amounted to $0.1 million. In addition, there is approximately $0.1
million in assessments to local improvement districts ("LIDs") which are
overdue. Certain of the Corporation's properties are subject to overdue LIDs
and property taxes. Overdue 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 Corporation
anticipates that for the foreseeable future it will permit real estate taxes
to remain overdue, but may pay such taxes and LIDs as are necessary to prevent
foreclosure proceedings from occurring. No non-judicial or judicial
foreclosure actions have been commenced as a result of the Corporation's
failure to make property tax or assessment payments on a timely basis.
The following table summarizes the repayment schedule of the Corporation's
debt obligations, LIDs and unpaid property taxes at September 30, 1998:
Year Ending Dollars in
September 30, Thousands
------------- ----------
1999 $ 1,942
2000 41
2001 41
2002 41
2003 41
Thereafter 41
----------
$ 2,147
==========
The Corporation 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 in order to enhance their marketability
and sale value.
The Corporation believes that its assets should enable the Corporation to meet
its current ongoing liquidity requirements.
Year 2000
- ---------
Many of the world's computer systems currently record years in a two-digit
format. These computer systems will be unable to properly interpret dates
beyond the year 1999, which could lead to business disruptions and is commonly
referred to as the "Year 2000" issue. Based on its current information,
management of the Corporation has determined that the Year 2000 issue will not
pose significant operational problems for its computer systems as it only
utilizes commercially available
12
<PAGE> 13
software and personal computers, which are Year 2000 compliant. The total
cost to the Corporation of Year 2000 compliance activities has not been and is
not currently anticipated to be material to its financial position or results
of operations in any given year. In addition, management of the Corporation
has initiated communications with clients to ascertain their Year 2000
readiness and develop contingency plans as required, and management intends to
address this issue with any prospective client. The determination by
management and costs relating to the Year 2000 issue are based on management's
best estimates, which were derived utilizing numerous assumptions of future
events. However, there can be no assurance that these estimates will be
achieved and actual results could vary materially from those anticipated.
13
<PAGE> 14
PART II. OTHER INFORMATION
-----------------
ITEM 1. LEGAL PROCEEDINGS
Ichor has accrued $259,500 in settlement of a class action law suit alleging
that Ichor, its former parent, certain of its officers and directors, and the
underwriters of its initial public offering violated certain federal
securities laws. The action was initiated by the persons and entities
purchasing Ichor's common stock from February 9, 1995 through May 23, 1995.
The settlement documents have been executed, preliminary court approval for
the settlement has been obtained and the settlement amount was paid on October
14, 1998. However, the settlement is subject to final court approval. See
"Item 3. Legal Proceedings" contained in the Corporation's annual report on
Form 10-K for the year ended December 31, 1997 for further details with
respect to the action.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Corporation held its annual meeting of shareholders on July 9, 1998. At
the meeting, Leonard Petersen was elected a Class III director of the
Corporation for a three-year term, as follows:
Broker Non-Votes
VOTES For VOTES Withheld and Abstentions
--------- -------------- ----------------
Leonard Petersen 7,624,650 5,958 -
Michael Smith and Roland Waldvogel continued their terms as directors of the
Corporation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
------ -----------
27 Article 5 - Financial Data Schedule for the 3rd Quarter 1998
Form 10-Q.
(b) Reports on Form 8-K
None.
14
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: November 12, 1998 LOGAN INTERNATIONAL CORP.
By: /s/ Michael J. Smith
----------------------------------
Michael J. Smith, President, Chief
Financial Officer and Director
15
<PAGE> 16
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
27 Article 5 - Financial Data Schedule for the 3rd Quarter 1998
Form 10-Q.
<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-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 654
<SECURITIES> 0
<RECEIVABLES> 3,536
<ALLOWANCES> 0
<INVENTORY> 4,198
<CURRENT-ASSETS> 8,551
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 18,484
<CURRENT-LIABILITIES> 8,468
<BONDS> 0
0
1
<COMMON> 108
<OTHER-SE> 6,627
<TOTAL-LIABILITY-AND-EQUITY> 18,484
<SALES> 400
<TOTAL-REVENUES> 1,378
<CGS> 433
<TOTAL-COSTS> 1,641
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 294
<INCOME-PRETAX> (358)
<INCOME-TAX> 12
<INCOME-CONTINUING> (370)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (370)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
