SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 1996.
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from to . ------------ --------------
Commission file number: I-9418
CYBERAMERICA CORPORATION
(Exact name of small business issuer as specified in its charter)
Nevada 87-0509512
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
268 West 400 South, Salt Lake City, Utah 84101
(Address of principal executive office) (Zip Code)
(801) 575-8073
(Issuer's telephone number)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes XX No
The number of outstanding shares of the issuer's common stock, $0.001
par value (the only class of voting stock), as of November 15, 1996 was
8,711,039.
TABLE OF CONTENTS
PART I
ITEM 1. FINANCIAL STATEMENTS................................................. 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS................................. 5
PART II
ITEM 1. LEGAL PROCEEDINGS.................................................... 9
ITEM 5. OTHER INFORMATION ...................................................10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ..................................10
SIGNATURES.......................................................... 11
INDEX TO EXHIBITS ...................................................12
[THIS SPACE HAS BEEN INTENTIONALLY LEFT BLANK]
PART I
ITEM 1. FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE
Consolidated Balance Sheets................................................. F-1
Consolidated Statements of Operations....................................... F-3
Consolidated Statements of Stockholders' Equity .............................F-4
Consolidated Statements of Cash Flows....................................... F-5
Condensed Notes to Consolidated Financial Statements ........................F-6
[THIS SPACE HAS BEEN INTENTIONALLY LEFT BLANK]
CYBERAMERICA CORPORATION
(FORMERLY KNOWN AS THE CANTON INDUSTRIAL CORPORATION)
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1996 (Unaudited) and December 31, 1995
ASSETS
- ------ September 30 December 31
1996 1995
------------ -----------
CURRENT ASSETS
Cash ........................................... $ 249,051 $ 18,605
Receivable - brokerage account ................. -- 3,337
Accounts receivable - trade .................... 1,141,710 248,129
Accounts receivable - related parties .......... 380,536 200,017
Accounts receivable - other .................... 148,903 --
Note receivable - current portion .............. 246,499 12,000
Inventories .................................... -- 36,371
Prepaid expenses ............................... 151,996 36,677
----------- -----------
TOTAL CURRENT ASSETS ............................. 2,318,695 555,136
----------- -----------
PROPERTY AND EQUIPMENT ........................... 6,342,480 4,860,260
----------- -----------
OTHER ASSETS
Investment - securities ....................... 1,343,227 968,396
Mortgages receivable .......................... 353,000 353,000
Notes receivable - net of current portion ..... 677,927 653,027
Investments - other ........................... 221,341 244,321
Deposits ...................................... 61,462 16,345
Media and other credits ....................... 279,315 223,885
-----------
TOTAL OTHER ASSETS ............................... 2,936,272 2,458,974
----------- -----------
$11,597,447 $ 7,874,370
=========== ===========
See notes to consolidated unaudited financial statements.
F-1
CYBERAMERICA CORPORATION
(FORMERLY KNOWN AS THE CANTON INDUSTRIAL CORPORATION)
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
September 30, 1996 (Unaudited) and December 31, 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
September 30 December 31
1996 1995
CURRENT LIABILITIES
Notes payable ............................... $ 300,000 $ 57,493
Current maturities of long-term debt ........ 363,703 149,059
Accounts payable ............................ 290,321 328,751
Accounts payable - related parties .......... 114,915 17,413
Accrued liabilities ......................... 640,719 160,000
Accrued Interest ............................ 18,538 19,330
Accrued Real estate taxes ................... 343,726 317,751
Accrued Payroll and related taxes payable ... 69,285 143,200
Deferred income and deposits ................ 66,754 25,979
Deposit - real estate sales ................. 171,900 171,900
------------ ------------
TOTAL CURRENT LIABILITIES ...................... 2,379,861 1,390,876
------------ ------------
LONG-TERM LIABILITIES
Long-term debt, less current portion ........ 3,283,474 2,764,757
------------
MINORITY INTEREST .............................. 701,694 347,923
------------ ------------
SHAREHOLDERS' EQUITY
Preferred stock par value $.001; 20,000,000
shares authorized; No shares issued
Common stock par value $.001; 200,000,000
shares authorized; 8,576,169 and 5,886,799
shares issued ............................. 8,576 5,887
Additional paid-in capital .................. 14,789,951 11,428,674
Stock subscriptions receivable .............. (871,582) --
Accumulated deficit ......................... (8,694,527) (8,063,747)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY ..................... 5,232,418 3,370,814
------------
$ 11,597,447 $ 7,874,370
============ ============
See notes to consolidated unaudited financial statements.
F-2
CYBERAMERICA CORPORATION
(FORMERLY KNOWN AS THE CANTON INDUSTRIAL CORPORATION)
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
September 30, September 30,
(Unaudited) (Unaudited)
--------------------------------- ----------------------------
1996 1995 1996 1995
--------------------------------- ----------------------------
REVENUE
Consulting ........................................ $ 501,855 $ 680,524 $ 2,059,295 $ 1,362,245
Rentals ........................................... 116,301 87,651 339,390 185,915
Other ............................................. -- 1,080 63,234 11,161
----------- ----------- ----------- -----------
TOTAL REVENUE ........................................ 618,156 769,255 2,461,919 1,559,321
----------- ----------- ----------- -----------
COST OF REVENUE
Consulting ........................................ 481,330 208,012 1,242,798 686,275
Rental ............................................ 118,513 115,044 304,632 269,525
Other ............................................. -- 927 44,168 5,964
----------- ---------- ----------- -----------
TOTAL COST OF REVENUE ................................ 599,843 323,983 1,591,598 961,764
----------- ----------- ----------- -----------
GROSS PROFIT (LOSS) .................................. 18,313 445,272 870,321 597,557
----------- ----------- ---------- -----------
SELLING GENERAL AND
ADMINISTRATIVE EXPENSES .............................. 656,555 100,817 1,365,819 606,842
Environmental Cleanup ............................. -- 70,661 20,000 70,661
----------- ----------- ---------- ----------
TOTAL SELLING GENERAL
AND ADMINISTRATIVE ................................... 656,555 171,478 1,385,819 677,503
----------- ----------- ----------- ----------
OPERATING PROFIT (LOSS) .............................. (638,242) 273,794 (515,498) (79,946)
OTHER INCOME AND (EXPENSE):
----------- ----------- ----------- -----------
Interest income ................................... 2,341 -- 13,361 28,838
Interest expense .................................. (64,273) (120,015) (235,735) (195,216)
Gain (loss) from disposal of subsidiary ........... -- 70,544 -- 70,544
Gain (loss) from sale of assets ................... -- -- -- 71,660
Gain (loss) from investments ...................... (144,343) (93,361) (71,277) 49,201
Loss on foreclosure - related party ............... -- -- -- (519,342)
Other income (expense) ............................ (9,747) 27,743 57,089
----------- ----------- ----------- -----------
TOTAL OTHER INCOME (EXPENSE) ......................... (216,022) (157,233) (265,908) (437,226)
----------- ----------- ----------- ----------
INCOME (LOSS) BEFORE
DISCONTINUED OPERATIONS .............................. (854,264) 116,561 (781,406) (517,172)
GAIN (LOSS) FROM
DISCONTINUED OPERATIONS .............................. -- (4,614) -- 23,911
MINORITY INTEREST IN LOSS ............................ 100,263 -- 150,626 --
----------- ----------- ----------- ------------
NET INCOME (LOSS) .................................... $ (754,001) $ 111,947 $ (630,780) $ (493,261)
=========== =========== =========== ===========
INCOME (LOSS) PER SHARE:
Income (loss) before discontinued operations ...... $ (0.10) $ 0.03 $ (0.10) $ (0.15)
Gain (loss) from discontinued operations .......... -- -- .01
Minority interest in loss ......................... .01 -- .01 --
----------- ----------- ----------- -----------
Net income (loss) .................................... $ (0.09) $ 0.03 $ (0.09) $ (0.14)
=========== =========== =========== ===========
Weighted average number of common
shares outstanding ................................ 8,500,855 4,256,651 7,066,586 3,466,252
=========== =========== =========== ==========
See notes to consolidated unaudited financial statements.
F-3
CYBERAMERICA CORPORATION
(FORMERLY KNOWN AS THE CANTON INDUSTRIAL CORPORATION)
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF
SHAREHOLDERS' EQUITY
For The Nine Months Ended September 30, 1996 (Unaudited)
Stock Total
Common Stock Paid Subscriptions Shareholders'
Shares Amount Capital Receivable Deficit Equity
BALANCES AT DECEMBER 31, 1995 ................ 5,886,799 $ 5,887 $11,428,674 $ -- $ (8,063,747) $ 3,370,814
Common Stock Activity:
Issued for services ...................... 904,753 905 497,102 -- -- 498,007
Issued for assets ........................ 225,000 225 308,775 -- -- 309,000
Issued for cash .......................... 1,559,617 1,559 2,555,400 -- -- 2,556,959
Stock subscription receivable ............ -- -- -- (871,582) -- (871,582)
Net Profit (loss) for period ................. -- -- -- -- (630,780) ( 630,780)
----------- -----------
BALANCES AT SEPTEMBER 30, 1996 ............... 8,576,169 $ 8,576 $14,789,951 $ (871,582) $(8,694,527) $ 5,232,418
=========== =========== =========== =========== =========== ===========
See notes to consolidated unaudited financial statements.
F-4
CYBERAMERICA CORPORATION
(FORMERLY KNOWN AS THE CANTON INDUSTRIAL CORPORATION)
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
Unaudited
1996 1995
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ............................... $ (630,780) $ (493,261)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation and Amortization ................ 165,303 141,231
Stock issued for assets and debt ............. 309,000 122,186
Loss (gain) from foreclosure - related party . -- 519,342
Loss (gain) from investments ................. 71,277 (49,201)
Stock issued for services and expenses ....... 498,007 105,157
Minority interest in loss .................... 150,626 --
Loss (gain) from sale of assets .............. -- (71,660)
(Increase) decrease in:
Accounts receivable - trade .................. (893,581) 5,334
Receivable - related parties ................. (180,519) 8,746
Other current assets ......................... (459,013) 40,361
Increase (decrease) in:
Accounts payable ............................. (38,430) (11,870)
Payables - related parties ................... 97,502 35,236
Accrued liabilities .......................... 431,287 492, 029
Current portion of long-term debt ............ 214, 644 (28,802)
Deferred income .............................. 40,775 (129,426)
----------- -----------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES ...................................... $( 223,902) $ 685,402
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cost of property sold ........................ 1,100,000 215,965
Minority interest in Subsidiaries sold ....... (825,000) --
Minority interest in Subsidiaries ............ 1,178,771 --
Purchase of assets ........................... (3,511,795) (1,339,738)
Debt on Subsidiaries sold .................... (275,000) --
---------- -----------
NET CASH FLOWS (USED) IN INVESTING ACTIVITIES .... $(2,333,024) $( 1,183,773)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Stock issued for cash ......................... 2,556,959 397,941
Stock subscription receivable ................. (871,582) --
Proceeds from borrowing ....................... 1,300,008 --
Payment on debt ............................... (197,473) (148,313)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES ........ $ 2,787,912 $ 546,254
----------- -----------
INCREASE (DECREASE) IN CASH ...................... 230,986 47,883
CASH AT BEGINNING OF PERIOD ...................... 18,065 29,009
----------- -----------
CASH AT END OF PERIOD ............................ $ 249,051 $ 76,892
=========== ===========
See notes to consolidated unaudited financial statements.
F-5
CYBERAMERICA CORPORATION
(FORMERLY KNOWN AS THE CANTON INDUSTRIAL CORPORATION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED CONDENSED FINANCIAL STATEMENTS
September 30, 1996
NOTE 1: Basis of Presentation
The accompanying consolidated unaudited condensed financial statements have
been prepared by management in accordance with the instructions for Form 10-QSB
and therefore, do not include all information and footnotes required by
generally accepted accounting principles and should therefore, be read in
conjunction with the Company's Annual Report to Shareholders on Form 10-KSB for
fiscal year ended December 31, 1995.
In management's opinion, the accompanying consolidated unaudited condensed
financial statements contain all adjustments, consisting only of normal
recurring adjustments necessary for a fair statement of the results for the
interim periods presented. The interim operation results are not necessarily
indicative of the results for the fiscal year ending December 31, 1996.
Certain prior year amounts have been reclassified to conform to the 1996
classification.
NOTE 2: Revenue Recognition
Revenue from the sales of Internet mall sites is generally tied to certain
contingencies relating to product development and sales of the clients'
securities. As such, recognition of any revenue is postponed until those
contingencies are met. The contracts for the Internet mall sites also provide
for the client's payment of costs associated with the development and service of
the mall site. Revenue from these sources is generally recognized as the related
costs are incurred.
NOTE 3: Stock Option Plans and Agreement
On January 18, 1996 the Company established a new stock option plan for its
employees and consultants ("The 1996 Stock Option Plan of The Canton Industrial
Corporation"). Each option issued under the plan has a term of one year and an
exercise price of ninety percent (90%) of the bid price on the day of exercise.,
unless otherwise established by the Board of Directors. Under the plan, up to
one million (1,000,000) shares can be issued.
At September 30, 1996, the Company granted options under the plan for
636,909 shares, of which 578,259 shares were exercised.
As of September 30, 1996 no options had been exercised pursuant to the Stock
Option Agreements with AZ Professional Consultants ("AZ") and Investment
Sanctuary Corporation ("ISC") which were entered into on December 22, 1995.
Under the agreements, the Company granted options giving AZ and ISC the right to
purchase a quantity of shares of the Company's common stock equivalent to
twenty-six percent (26%) and twenty-five percent (25%), respectively, of the
issued and outstanding shares of the Company's common stock on the exercise
date, with an established price of $0.59 per share.
NOTE 4: Contingencies
In March 1995, Xeta Corporation filed suit against the Company seeking
recovery of $116,500 which Xeta contends was fraudulently transferred to the
Company by ATC, a client of the Company's subsidiary Canton Financial Services
Corporation, in order to avoid payment of a judgment held by Xeta against ATC.
On April 16, 1996 the Court granted Summary Judgment against the Company. An
objection to the entry of such a judgment has been filed and the Company
continues to dispute the allegations. All actions needed for the perfection of
an appeal are being taken and the Company intends to carry out the appeal
process.
CYBERAMERICA CORPORATION FORMERLY KNOWN AS
THE CANTON INDUSTRIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED CONDENSED FINANCIAL STATEMENTS
September 30, 1996
NOTE 4: Contingencies (continued)
KMC Foods, Inc. ("KMC"), a subsidiary of the Company, received a claim from
the Division of Revenue of the Department of Finance for the State of Delaware
in excess of $300,000. The claim is for alleged taxes due based upon the gross
revenues of KMC for the tax period April 1, 1989, through March 31, 1992. This
tax period is prior to the purchase of KMC by the Company. Prior management has
assured the Company that the tax does not apply as all sales of products were
outside the State of Delaware, and thus the Delaware tax is not due. The Company
has retained an attorney in Delaware to resolve the liability issue.
In April 1996, the State of Illinois informed the Company of its intent to
seek recovery of its estimated cost of $325,000 incurred in the removal of tires
at the Company's Canton, Illinois warehouse site. The Company believes the
ultimate intent of the Interim Order, the complete removal of the tires, has
been met because the tires had been completely removed or reduced to the IEPA's
control but not within the Court's exact specifications. The State has filed a
complaint with the Illinois Pollution Control Board seeking recovery of these
funds. The Company and the State are currently attempting to resolve a dispute
about the number of tires actually removed from the site.
Two of the Company's majority owned subsidiaries, CyberConnect, Inc., a
Nevada corporation ("CC"), and CyberDimensions, Inc., a Nevada corporation
("CD"), conducted offerings of their common stock during the third quarter of
1996. The Company has become aware that problems may exist with the manner of
these offerings which may require the rescission of the entire offerings. CC and
CD have begun to rescind these offerings and hope to have the rescissions
completed within 90 days. If a determination is made that the offerings were
conducted outside the parameters of the appropriate offering exemptions, CC and
CD could face potential liability. The Company believes CC and CD have
sufficient reserves to cover such expenses. However, if CC and CD cannot cover
the expenses the Company could be obliged to cover such shortfalls.
The Company believes that the ultimate outcome of all pending litigation
matters should not have a material adverse effect on the financial position of
the Company; however it is possible that the results of operations or cash flows
of the Company in any particular quarterly or annual periods or the financial
condition of the Company could be materially affected by the ultimate outcome of
certain pending litigation matters. Management is unable to derive a meaningful
estimate of the amount or range of any possible loss in any particular quarterly
or annual period or in the aggregate.
NOTE 5: Stockholders' Equity
During the nine months ended September 30, 1996, the Company issued 904,753
shares of its common stock in exchange for services provided to the Company by
employees and consultants; 225,000 shares were exchanged for assets; 259,616
shares of its restricted common stock were issued for cash; and 1,300,001 were
issued under Regulation S for cash and pursuant to promissory notes. At
September 30, 1996, the Company is owed $871,582 under the promissory notes by
the various entities for the 1,300,001 shares of the Company's common stock that
they purchased.
On May 15, 1996, the Company paid a property dividend in the form of common
stock of Oasis Hotel, Resort & Casino I, Inc. ("OHRCI") and Oasis Hotel, Resort
& Casino II, Inc. ("OHRCII"). The dividend declared March 4, 1996 was one share
in each OHRCI and OHRCII for every 100 shares of the common stock of the Company
owned by each shareholder of record on March 27, 1996.
On June 1, 1996, the Company paid a property dividend in the form of common
stock of Zahav, Inc. ("Zahav") and Cyber Information, Inc. ("CI"). The dividend
declared March 21, 1996 was one share in each Zahav and CI for every 100 shares
of common stock of the Company owned by each shareholder of record on April 23,
1996. The Company has requested its shareholders who received the CI dividend to
return their stock so a restrictive legend can be affixed. If such shareholders
are not interested in receiving restricted CI stock, the Company has given the
right to instead receive the cash equivalent, $0.02 per CI share.
CYBERAMERICA CORPORATION FORMERLY KNOWN AS
THE CANTON INDUSTRIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED CONDENSED FINANCIAL STATEMENTS
September 30, 1996
NOTE 5: Stockholders' Equity (continued)
On June 14, 1996, the Company declared a property dividend in the form of
common stock of INFOTECH International, Inc. The dividend declared was one share
in INFOTECH for every 100 shares of common stock of the Company owned by each
shareholder of record on June 24, 1996. On October 25, 1996, the board of
directors restated the dividend's terms to be payable only in $0.02 per 100
shares of Common Stock held June 24, 1996. The Company has not yet declared the
payable date for this distribution.
NOTE 6: Sale of Cyber Real Estate
On July 2, 1996, Canton Financial Services Corporation, a wholly-owned
subsidiary of the Company ("CFSC"), sold 90% of the outstanding stock of Cyber
Real Estate, Inc., a Nevada corporation ("CRE"), pursuant to an agreement with
Premier Sales Corporation, Ltd., a foreign corporation ("Premier"). CRE's sole
asset is a dormitory located in DeKalb, Illinois. Premier executed a promissory
note for $1,000,000 in exchange for the stock. The note requires no payments
until maturity on July 2, 1998 and bears no interest. The Company has recognized
no income from this sale.
NOTE 7: Additional footnotes included by reference
Except as indicated in the footnotes above there has been no other material
change in the information disclosed in the notes to the financial statements
included in the Company Annual Report on Form 10-KSB for the year ended December
31, 1995. Therefore those footnotes are included herein be reference.
[THIS SPACE HAS BEEN INTENTIONALLY LEFT BLANK]
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
As used herein, the term "Company" refers to CyberAmerica Corporation, a
Nevada corporation, its subsidiaries and predecessors, unless otherwise
indicated.
The Company provides a variety of Internet-related products and services,
financial consulting services, and invests in real estate. The Company employs
professionals with expertise in law, accounting, finance, the Internet, public
and investor relations, and real estate. Typically, the Company provides
services and support functions that include: advice relating to regulatory
compliance; document preparation; capital formation; financial analysis;
promotional campaigns; debt settlement; and general corporate problem solving.
The Company recorded a net loss of $630,780 for the nine months ended
September 30, 1996 and a net loss of $754,001 for the three months ended
September 30, 1996.
Subsequent to the quarter ended September 30, 1996, the Company effected a
substantial downsizing of personnel. On November 15, 1996, the Company concluded
downsizing its staff from 70 employees to 36 and thereby reduced payroll by
approximately 48%. In addition to paring down its personnel, the Company has
also restructured its operations to be more efficient and revenue producing. Its
current workforce will continue rendering consulting and Internet services,
although in slightly varied forms. CyberAmerica hopes this downsizing will allow
it to improve the quality of its services as well as its profitability.
INTERNET SERVICES
CyberMalls, Inc. is a wholly owned subsidiary of the Company that began
focusing on providing Internet services in the first part of 1996. Through
CyberMalls, the Company is involved in the preparation, development and sales of
Internet virtual malls within which organizations can advertise their products
and services on individual Internet locations or malls. An Internet virtual mall
is similar to a real-world shopping mall because they are both collections of
retail and informational shops, but virtual malls are accessible via a computer.
Each shop within a virtual mall has its own home page and catalog of sales and
promotional information on its goods and services. Companies involved in the
same business or industry often group their home pages together for synergistic
results.
The Company is attempting to assert its niche and gain market position
within this rapidly growing industry through its development of a revolutionary
new search engine called "Web SafariTM"surrounding a collective association of
retailers. This type of engine, as opposed to others currently on the market,
will allow people to enter a single query and have the engine search from shop
to shop and mall to mall to locate the specific item sought, and make all
purchases together. WebSafari(TM) was initially planned to be developed in three
phases. As of September 1996, WebSafari(TM) successfully completed phase one.
Development of phases two and three began in November 1996. However, both phases
are currently pending due to the Company's immediate focus on retaining
additional clientele and increasing revenues. The Company believes that the
current success of phase one has created an urgency to acquire additional
clientele. Upon completion, the Company hopes phases two and three will create a
significant advantage for the Company's clients because of the technological
sophistication associated with these phases. However, no assurances can be given
that the technological strategies will be implemented at all or as planned, or
if they are implemented, that they will perform as predicted, or that if it
performs as predicted that it will become successful or profitable.
To enhance its working capital, the Company is considering the possible
sale of a substantial interest in CyberMalls. For instance, on November 5, 1996,
the Company signed a non-binding Letter of Intent with Packaging Plus Services,
Inc., a New York corporation ("Packaging") by which the Company is required to
give Packaging first right of refusal to purchase a minimum of 51% stock
interest in CyberMalls at a purchase price in cash or stock in an amount to be
mutually determined. This right of refusal will expire December 5, 1996. The
Company will seriously consider this sale only if the purchase price meets the
Company's expectation of the value of a majority interest in CyberMalls. This
value is currently being determined.
Internet Product and Service Development
The Company is currently developing a number of products and services for
the use on the Internet, including "virtual malls." These malls will allow
individual businesses to congregate and sell their products and services. These
businesses pay "rent" for space to advertise and sell their products on the
Internet and pay for the initiation and maintenance of their information. The
Company provides both the space for this information and the technical support,
maintenance and service for these individual businesses, thus generating
revenues upon the initial sale of the malls as well as related support
functions. Additionally, the Company is contemplating selling licensing
agreements for the Company's proprietary software, WebSafariTM and other related
support services.
As of November 14, 1996, there were 6 employees working in the Company's
Internet division. This number of Internet personnel represents a decrease from
August 12, 1996 of approximately 25 persons. The Company believes that the
current staff can meet anticipated demand due to a decrease in programming needs
since WebSafari(TM) has completed phase one and mall sites require less
programming and maintenance expenditures. Currently, the Company does not
anticipate hiring additional personnel. No assurances can be given that its
current staff can meet anticipated demand or that the Company will not need to
hire additional employees. In the event the Company is unsuccessful in keeping
its current Internet personnel, it may experience problems in meeting clients'
deadlines which could result in reduced revenues.
The Company's objective in downsizing its Internet division is to make
CyberMalls self-sufficient by reducing its administrative expenses and
increasing revenues by expanding its support services and marketing its
products. Toward that end, further development of WebSafari(TM) phases two and
three is pending until CyberMalls generates sufficient revenues to cover its
development expenses. The Company's current Internet staff will focus on
marketing its services and products and supporting other consulting services.
The Company has expended approximately $500,000 toward the research and
development of the Company's Internet products and services, as of September 30,
1996. Expenses for the research, development and sales of the Company's Internet
products and services are not expected to increase in the immediate future.
Estimations of such expenses are very difficult to make because the amount
incurred will relate directly to the amount of business generated by the
Company's Internet division, which the Company cannot guarantee. The Company's
best estimate is that the Internet expenses should approximately double before
the end of the fiscal year 1996.
Trends, Events or Uncertainties in the Internet Industry & the Regulation
of the Internet
The commercial use of the Internet is still very new. Technology relating to
the Internet is developing extremely rapidly and its structure is very complex.
Although not currently subject to governmental regulations, the possibility
exists that governmental intervention will occur and regulate the content,
quantity, type of access providers, and other aspects of the Internet. This
underlying uncertainty renders an analysis of future trends unreliable and
requires strong warnings to investors that no assurances can be given that the
Company's Internet goals will be achieved or if they are, that they will benefit
the Company in any manner.
CONSULTING SERVICES
The types of consulting services the Company performs for its clients
include: document preparation; capital formation; financial analysis; debt
settlement; and general corporate problem solving. The Company has also begun
assisting private organizations in need of capital by preparing stock offering
documentation, although the Company does not actively assist in the actual
placement (i.e., the selling of shares) of the offering. Acceptable payments and
the size of payments the Company charges for its services vary with the
volatility of the clients' securities, the amount and nature of work involved,
and the expenses related to the services being rendered. The Company accepts
consulting fees that range, in order of frequency, from the clients' equity, to
cash, to other assets. When payment is made in equity, the number of shares to
be paid is dependent on the price of the clients' equity, when available. The
Company accepts equity with the expectation that its services will assist in the
stock's appreciation, thus allowing the Company to be paid and make a return on
the payments for its services.
The number of the Company's clients, the nature of services being rendered
and the type of compensation received from clients vary greatly. At a given
time, the Company may be actively providing consulting services to more than 35
clients. Therefore, projecting the revenues that could be produced by the
Company's performance of these services is very difficult. The difficulty of
such projections is further enhanced because the Company receives a majority of
its compensation in the form of equity payments which cannot be readily resold,
thereby limiting its cash flow and reducing its liquidity. The Company estimates
that it will be able to obtain at least two additional clients per quarter for a
term of no less than one year.
For most of its recent history, the Company has assisted organizations is
raising capital. During the third quarter of 1996 and immediately thereafter,
the Company has focused a portion of its resources toward Internet securities
offerings. The Company believes a synergy exists in this area between its
current Internet division and its current consulting services division. The
popularity of the Internet and the Securities and Exchange Commission's
favorable position with respect to the Internet has fostered this modification
in focus. The Company desires to provide the most advanced consulting services
in its field and hopes that the clarification and mastery of this modified focus
on the Internet will allow the realization of this goal. Pursuant to providing
services relating to Internet offerings, the Company plans to bill at least a
portion of its fees in cash, as opposed to equity as it has primarily done in
the past. However, the Company cannot give any assurances that the Company will
be able to provide services relating to Internet offerings of securities or that
the provision of such services will improve the Company's financial position. In
addition, because the number of clients, the financial strength of clients, the
types of payments and the range of services provided can vary greatly from
quarter to quarter, it is difficult for the Company to project the revenue that
can or is likely to be produced by performing these services.
Typical services rendered by the Company's consulting services branch
include assisting corporations in effecting stock offerings pursuant to certain
statutory exemptions. These offerings require strict adherence to the
appropriate restrictions and provisions contained in the statutory exemptions
upon which the offerings are premised. The Company notifies these clients of the
restrictions and provisions in the exemptions and relies upon the clients to
ensure compliance with the exemptions. Because the Company cannot control the
actions of its clients, it is possible that in the event an offering is
conducted outside the requirements of appropriate exemptions, the Company could
be included in claims by investors in improper offerings. CyberConnect, Inc., a
Nevada corporation ("CC"), and CyberDimensions, Inc., a Nevada corporation
("CD"), are majority owned subsidiaries of the Company that conducted offerings
of their common stock during the second and third quarters of 1996. The
executive officers of CC and CD responsible for the conduct of these offerings
are not directly affiliated with the Company. However, the Company has become
aware that problems may exist with the manner of these offerings which may
require the rescission of the entire offerings. CC and CD have begun to rescind
these offerings and hope to have the rescissions completed within 90 days. If a
determination is made that the offerings were conducted outside the parameters
of the appropriate offering exemptions, CC and CD could face potential
liability. The Company believes CC and CD have sufficient reserves to cover such
expenses. A possibility exists, however, that if CC and CD cannot cover the
expenses that the Company could be obliged to cover such shortfalls.
The Company generates a substantial portion of its cash flow by liquidating
the non-cash assets received as fees for consulting services. As most fees are
paid in the form of equity, the Company's ability to generate cash flows is
somewhat tied to the price of its clients' equity. Therefore, material
fluctuations in the price of clients' equity may significantly impact both the
short-term and long-term liquidity of the Company.
REAL ESTATE HOLDINGS
Part of the Company's business operations include the acquisition,
management, lease and sale of real estate. The Company has acquired a variety of
commercial properties. While most of the Company's real estate holdings are in
Utah, the Company also owns several properties in other parts of the United
States. The Company hopes to increase revenues generated from these properties
and obtain additional real estate holdings. A key to the Company's success is
the ability of management to locate and acquire real estate with little or no
cash down and turn such properties into profitable assets.
The Company manages its real estate holdings in-house and plans to fill
vacancies for the Company's property holdings in Salt Lake City, Utah. The
Company, as of September 30, 1996, had approximately 51.5% of its commercial
space vacant, generated approximately $39,000 in gross monthly rents, and
operated at a loss of approximately $700 per month as compared to a loss of
approximately $9,000 for the same period in 1995. The real estate operations are
continued despite the losses for two reasons. First, the Company hopes to
eliminate the losses by increasing the rental income from the property. Second,
these operations are pursued primarily for appreciation purposes. Thus, while
the Company seeks to minimize and reverse its real estate operating losses, its
long term goal is to generate a capital gain upon disposition that is sufficient
to offset any previous losses, although no such assurances can be given. Many of
these properties have MAI appraisals valuing them at twice the current book
value, although no assurances can be given that the values of such properties
will be maintained.
There is a risk that the Company may lose control of the properties, (e.g.,
through foreclosure), if enough funds are not derived from the rental income for
both the financing obligations and ongoing operations. Currently, due to
expanded acquisition activity and deficiencies in rental income from the
properties acquired, the Company does not have sufficient rental revenues to
service the debt and cover operating costs of all properties. The Company
currently has to use capital from other sources to fund this deficit. Although
management's goal is to increase the occupancy and rental rates and thus
increase the rental income so that such income will cover both operating costs
and debt service, no such assurances can be made. The Company's primary reason
for acquiring most of its real estate is for potential appreciation.
On July 2, 1996, the Company, through its wholly owned subsidiary Canton
Financial Services Corporation, entered into a Stock Purchase Agreement with
Premier Sales Corporation, Ltd., a foreign corporation ("PSC"), by which the PSC
acquired 100% of the issued and outstanding common stock in Cyber Real Estate,
Inc., a Nevada corporation ("CRE"), for $1 million, payable in the form of a
promissory note also dated July 2, 1996. CRE's sole asset is a dormitory located
in DeKalb, Illinois.
During August 1996, one of the Company's wholly owned subsidiaries, KMC
Foods, Inc., a Delaware corporation, foreclosed on property located in Cheriton,
Virginia, with its bid of $400,000. The Company is exploring the sale, use,
lease or development of the property.
RESULTS OF OPERATIONS
Consulting
Revenue from consulting services for the quarter ended September 30, 1996,
decreased to $501,855 from $680524 for the third quarter of 1995. Revenue from
consulting services for the nine months ended September 30, 1996, increased by
$697,050 over the same period in 1995. The increase is attributable to an
increase in the number of clients for which the Company provides services. The
costs of providing consulting services for the third quarter of 1996 increased
over the costs of providing services for the third quarter of 1995 by $273,318.
Gross profit from consulting services during the third quarter of 1996 was
$20,525 compared with a gross profit of $472,512 for the third quarter of 1995.
This reduction is, in the Company's opinion, attributable to the increase in
costs of providing consulting services which increased by $556,523 for the nine
months ended September 30, 1996, over the same period in 1995. The increase in
the costs of providing consulting services is due to an increase in personnel
expenses resulting from the addition of new employees hired to meet the needs of
the Company's expanded client base and subsequent costs related to the Internet
department for which no significant revenues have been earned. Gross profit from
consulting services for the nine months ended September 30, 1996, increased by
$140,527 over the same period in 1995.
Rental Properties
Revenue from rental of the Company's properties in the third quarter of
1996 increased to $118,513 from $87,651 for the same period of 1995. Revenue
from rental of the Company's properties for the nine months ended September 30,
1996, increased by $153,475 over the same period in 1995. This increase is
primarily due to an increase in the number of properties under the Company's
control and an increase in occupancy rates. This is also the reason for the
increase in cost of rental revenue from $115,044 for the third quarter of 1995
to $118,513 for the third quarter of 1996.
Other Revenue
Other revenue was $0 for the quarter ended September 30, 1996, compared
with $1,080 for the same period of 1995. Other revenue for the nine months ended
September 30, 1996, was $63,234 compared with $4,161 for the same period of
1995. This increase is primarily due to the Company's operation of a retail
complex in Oasis, Nevada until March 9, 1996. The Company has leased this retail
operation on a month to month basis to an operator and therefore revenue from
this source will not continue, although the Company is receiving rental revenue
from this lease.
Net loss for the first nine months ended September 30, 1996, was $630,780
compared with a net loss of $493,261 in the first nine months of 1995. This
increase in net loss is due to increased costs associated with the development
of WebSafariTM and an increase in personnel.
During the first two quarters of fiscal 1996, the Company expended
significant costs in developing its Internet division. For more information on
this division, please see "Part I, Item 2 - Management's Discussion and Analysis
or Plan of Operation - Internet Services." The Company expects this increase in
Internet expenses to continue, but at a slower pace than what has been
experienced due primarily to a reduction in personnel.
CAPITAL RESOURCES AND LIQUIDITY
The deficiency in working capital decreased from a deficit of $1,017,178 on
September 30, 1995, to a deficit of $61,166 on September 30, 1996. This decrease
is primarily due to an increase in receivables resulting from consulting
services. The Company had negative cash flows during the first nine months of
1996. Operating cash flows are closely aligned with consulting revenue and the
cost of consulting services and of the Internet division's research and
development. The most significant cost of providing consulting service is the
payroll for the Company's approximately 36 employees. The Company expects to
maintain its current personnel level which represents a significant reduction.
During the quarter ended September 30, 1996, the Company issued 259,935
shares of its common stock in exchange for services provided to the Company by
employees and consultants and 109,616 shares were issued cash
During the nine months ended September 30, 1996, the Company issued 904,753
shares of its common stock in exchange for services provided to the Company by
employees and consultants; 225,000 shares were exchanged for assets; 259,616
shares of its restricted common stock were issued for cash; and 1,300,001 were
issued pursuant to Regulation S under the Securities Act of 1933, as amended,
for cash and pursuant to promissory notes. At September 30, 1996, the Company is
owed $871,582 under the promissory notes by the various entities for the
1,300,001 shares of the Company's common stock that they purchased.
On September 16, 1996, the Company sold 6.0% Cumulative Convertible
Debentures for $300,000 to Legong Investments, N.V. of Curacao, Netherlands
Antilles through an Offshore Securities Subscription Agreement. Pursuant to the
terms of the Agreement the Company will either issue shares of its Common Stock
at an exercise price of 70% of the average bid and ask price for the five (5)
days preceding the date of conversion or pay $300,000 with all applicable
interest on the date of maturity. Such conversion is at the option of the
holder. The maturity date of the Debentures is September 17, 1997.
On June 1, 1996, the Company paid a property dividend in the form of common
stock of Zahav, Inc. ("Zahav") and Cyber Information, Inc. ("CI"). The dividend
declared March 21, 1996 was one share in each Zahav and CI for every 100 shares
of common stock of the Company owned by each shareholder of record on April 23,
1996. The Company has requested its shareholders who received the CI dividend to
return their stock so a restrictive legend can be affixed. If such shareholders
are not interested in receiving restricted CI stock, the Company has given the
right to instead receive the cash equivalent, $0.02 per CI share.
On June 14, 1996, the Company declared a non-cash dividend of INFOTECH
International, Inc. ("INFOTECH") or the cash equivalent of this stock. The
dividend rate was declared to be one share in INFOTECH common stock or $0.02 per
100 shares of the Company's Common Stock held of record, with the record date
being June 24, 1996. On October 25, 1996, the board of directors restated the
dividend's terms to be payable only in $0.02 per 100 shares of Common Stock held
June 24, 1996. The Company has not yet declared the payable date for this
distribution.
PART II
ITEM 1. LEGAL PROCEEDINGS
The following are legal proceedings that had material developments during
the third quarter of 1996. Other material legal proceedings are pending,
however, no developments occurred during the third quarter of 1996. (For further
information, see "Part I, Item 3 - Legal Proceedings" in the Company's Annual
Report on Form 10-KSB/A for the year ended December 31, 1995).
Xeta Corporation vs. The Canton Industrial Corporation. A suit was
originally filed in the Northern District of Oklahoma but that matter was
dismissed based on a lack of jurisdiction. The same suit was refiled on March 8,
1995 in the United States District Court, in the Central District of Utah, Case
Number 95CV-218G. Richard Surber and Gerald Curtis both former officers of ATC
II are also named as individual defendants. Xeta contends that funds were
improperly transferred to the Company by ATC II, Inc., Xeta seeks the recovery
of those funds toward partial satisfaction of a judgment that it holds against
ATC II. Xeta has been granted a summary judgment in the amount of $116,000 as to
the Company only, the trial court has reserved a decision as to Surber and
Curtis until trial. Xeta applied for and the court granted a motion to sever the
judgment as to the Company. In response the Company has filed a notice of appeal
to take the summary judgment before the 10th Circuit Court of Appeals for
further review. The Company has indicated that it intends to appeal based upon
evidence that it provided bona fide services to ATC II and that the bulk of the
funds were used for operating expenditures of ATC II. All actions needed for the
perfection of an appeal are being taken and the Company intends to carry out the
appeal process.
Steven A. Christensen v. The Canton Industrial Corporation, Canton
Personnel, Inc. and Allen Z. Wolfson. Suit was filed on July 1, 1996 in the
Third Judicial District Court of Salt Lake County, State of Utah Civil Action
No. 96-0904584CV, by Christensen, former President of the Company. The suit
sought recovery of wages, benefits, bonuses, and other items. Christensen
dismissed this cause of action without prejudice on October 10, 1996.
ITEM 5. OTHER INFORMATION
On October 9, 1996, Allen Z. Wolfson, a control person of the Company because
of his indirect ownership of the Company's Common Stock, was charged with
securities law violations. This criminal matter was filed in the District Court
for the Southern District of New York. On October 10, 1996, the Securities and
Exchange Commission initiated administrative proceedings against Wolfson. This
administrative action is premised upon the same allegations contained in the
complaint pending in the Southern District of New York. Wolfson intends to
vigorously defend against both of these actions.
The Company had a consulting agreement with Wolfson's primary consulting
entity, A-Z Professional Consultants, that expired in August 1996 and was not
renewed. Wolfson's relationship with the Company, aside from his indirect
ownership of Common Stock, is therefore only informal and on an ad hoc basis.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits Exhibits required to be attached by Item 601 of
Regulation S-B are listed in the Index to Exhibits on page 14 of
this Form 10-QSB, and are incorporated herein by this reference.
(b) Reports on Form 8-K. The Company did not file any reports on Form
8-K during the quarter ended September 30, 1996.
[THIS SPACE HAS BEEN INTENTIONALLY LEFT BLANK]
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, this 14th day of November 1996.
CYBERAMERICA CORPORATION
Date: November 14, 1996 By: /s/ Richard D. Surber
--------------------------
Name : Richard D. Surber
Title: President
Date: November 14, 1996 By: /s/ Susan S. Waldrop
-----------------------
Name: Susan S. Waldrop
Title: Chief Financial Officer,
Secretary/Treasurer
INDEX TO EXHIBITS
EXHIBIT PAGE
NO. NO. DESCRIPTION OF EXHIBIT
3(i) * Articles of Incorporation are incorporated herein
by reference.
(3)(ii) * Bylaws are incorporated herein by reference.
10(i)a 14 Offshore Securities Subsrciption Agreement for
6.0% Convertible Debentures sold to Legong
Investments on September 16, 1996
10(i)b 52 May 22, 1996 Stock Purchase Agreement by which the
Company sold its wholly owned subsidiary, Cyber
Real Estate, Inc. to Premier Sales Corporation,
Ltd.
* Articles are incorporated herein by reference.