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 March 31, 1998.
[ ] 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 Identification No.)
incorporation or organization)
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 May 15, 1998 was 2,988,166.
1
TABLE OF CONTENTS
PART I
ITEM 1. FINANCIAL STATEMENTS..................................................3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS..................................4
PART II
ITEM 1. LEGAL PROCEEDINGS.....................................................6
ITEM 5. OTHER INFORMATION.....................................................7
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K......................................8
SIGNATURES.....................................................................9
INDEX TO EXHIBITS.............................................................10
[THIS SPACE HAS BEEN INTENTIONALLY LEFT BLANK]
2
ITEM 1. FINANCIAL STATEMENTS
As used herein, the term "Company" refers to CyberAmerica Corporation,
a Nevada corporation, and its subsidiaries and predecessors unless otherwise
indicated. Consolidated, unaudited, condensed interim financial statements
including a balance sheet for the Company as of the quarter ended March 31, 1998
and statements of operations, statements of shareholders equity and statements
of cash flows for the interim period up to the date of such balance sheet and
the comparable period of the preceding year are attached hereto as Pages F-1
through F-6 and are incorporated herein by this reference.
This space intentionally left blank.
3
INDEX TO FINANCIAL STATEMENTS
PAGE
Consolidated Unaudited Condensed Balance Sheet March 31, 1998 F-2
Consolidated Unaudited Condensed Statements of Shareholder's
Equity March 31, 1998 F-3
Consolidated Unaudited Condensed Statements of Operations
March 31, 1998 and 1997 F-4
Consolidated Unaudited Condensed Statements of Cash Flows
March 31, 1998 and 1997 F-5
Notes to Consolidated Unaudited Condensed
Financial Statements March 31, 1998 F-6
This space intentionally left blank.
F-1
CYBERAMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED UNAUDITED CONDENSED BALANCE SHEETS
March 31, 1998
ASSETS
CURRENT ASSETS
Cash ...................................................... $ 6,078
Accounts receivable - trade ............................... 287,066
(Net of allowance for bad debt of $89,097)
Accounts receivable - related parties ..................... 424,980
Accounts receivable - other ............................... 58,250
-----------
Note receivable - current ................................. 1,138,645
Prepaid expenses .......................................... 40,668
Securities available for sale ............................. 122,626
-----------
TOTAL CURRENT ASSETS ......................................... 2,078,313
-----------
PROPERTY AND EQUIPMENT - NET ................................. 7,717,260
OTHER ASSETS
Investment securities at cost ............................. 48,426
Notes receivable - net of current ......................... 24,000
Investments - other ....................................... 221,694
Deposits .................................................. 10,000
Trade credits ............................................. 212,811
Prepaid Interest .......................................... 98,000
- -------------------------------------------------------------- -----------
TOTAL OTHER ASSETS ........................................... 614,931
TOTAL ASSETS ................................................. $10,410,504
===========
See notes to consolidated unaudited condensed financial statements.
F-2
CYBERAMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED UNAUDITED CONDENSED STATEMENT OF SHAREHOLDER'S EQUITY
March 31, 1998
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade .................................. $ 437,656
Accounts payable - related parties ........................ 128,481
Accrued liabilities
Interest ................................................ 19,744
Real estate taxes and assessments ....................... 415,552
Payroll and related taxes payable ....................... 382,572
EPA liabilities ......................................... 325,398
Refundable deposits ..................................... 14,580
Refund to investors ..................................... 67,485
Other ................................................... 1,300
Debenture payable ......................................... 240,000
Current maturities of long-term debt ...................... 1,608,726
TOTAL CURRENT LIABILITIES .................................... 3,641,494
LONG-TERM LIABILITIES
Long-term debt, less current portion ...................... 4,220,885
TOTAL LONG-TERM LIABILITIES .................................. 4,220,885
CONTINGENCIES
MINORITY INTEREST ............................................ 683,112
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; 2,190,064 shares issued .............. 2,190
Additional paid-in capital ................................ 14,991,814
Accumulated deficit ....................................... (12,682,491)
Unrealized loss from securities available for sale ........ (446,500)
TOTAL SHAREHOLDERS' EQUITY ................................... 1,865,013
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................... $ 10,410,504
============
See notes to consolidated unaudited condensed financial statements.
F-3
CYBERAMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
For The Three Months Ended March 31, 1998 and 1997
1998 1997
------ ------
REVENUE
Consulting revenue ............................. $ 41,724 $ 84,632
Rental revenue ................................. 116,540 143,980
----------- --------
TOTAL REVENUE ..................................... 158,264 228,612
COSTS OF REVENUE
Costs associated with consulting revenue ....... 28,764 44,265
Costs associated with rental revenue ........... 35,471 91,986
Interest expenses associated with rental revenue 64,786 45,916
----------- -------
TOTAL COSTS OF REVENUE ............................ 129,291 182,167
----------- -------
GROSS PROFIT ...................................... 28,973 46,445
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ...... 383,171 445,367
Computer development costs ..................... -- 121,720
----------- -------
TOTAL SELLING, GENERAL AND ADMINISTRATIVE ......... 383,171 567,087
OPERATING INCOME (LOSS) ........................... (354,198) (520,642)
---------
OTHER INCOME (EXPENSE):
Interest income ................................ 39,069 --
Interest expense ............................... (46,570) (78,004)
Gain (loss) from investment securities ......... -- (59,309)
Other income (expense) ......................... (4,114) (17,960)
---------- --------
TOTAL OTHER INCOME (EXPENSES) ..................... (11,615) 155,273)
---------- --------
INCOME (LOSS) BEFORE INCOME TAXES,
AND MINORITY INTEREST ............................ (365,813) (675,915)
MINORITY INTEREST IN LOSS ......................... 31,054 24,932
----------- --------
NET INCOME (LOSS) ................................. $ (334,759) $ (650,983)
=========== =========
INCOME (LOSS) PER COMMON SHARE
Income before minority interest ................ $ (.17) $ (.69)
Minority interest in loss ...................... .01 .02
----------- ------
Net income (loss) per weighted average
common share outstanding ..................... $ (.16) $ (.67)
=========== ========
Weighted average number of common
shares outstanding ........................... 2,180,564 974,671
=========== ========
See notes to consolidated unaudited condensed financial statements.
F-4
CYBERAMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
For Three Months Ended March 31, 1998 and 1997
1998 1997
------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ................................ $(334,759) $(650,983)
Adjustments to reconcile net income (loss)
to net cash provided
(Gain) loss from sale of investments ........... -- 59,309
Minority interest in loss ...................... (31,054) (24,973)
Depreciation and Amortization .................. 55,613 50,043
Services paid with common stock ................ 2,190 35,266
Common stock issued for assets and debt ........ -- 23,480
Decrease (increase) in assets:
Receivables .................................. 126,133 632,458
Prepaid expenses and other ................... 1,468 (16,589)
Investments - other .......................... 213 27,972
Increase (decrease) in liabilities:
Accounts and notes payable ................... 7,535 91,283
Accrued liabilities .......................... (152,505) (7,596)
--------- ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES ... $(325,166) $ 219,670
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ........................... (30,706) (719,211)
Proceeds from sales of investments ............. 75,463 179,673
--------- ---------
NET CASH FLOWS (USED) IN INVESTING ACTIVITIES ...... $ 447,537 $(539,538)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in long term debt ...................... 640,000 627,413
Reduction of long term debt ..................... (359,419) (358,701)
- ---------------------------------------------------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES .......... $ 280,581 $ 268,712
--------- ---------
INCREASE (DECREASE) IN CASH ........................ $ 172 $ (51,156)
CASH AT BEGINNING OF YEAR .......................... 5,906 78,368
---------
CASH AT END OF YEAR ................................ $ 6,078 $ 27,212
========= =========
See notes to consolidated unaudited condensed financial statements.
F-5
CYBERAMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED CONDENSED FINANCIAL STATEMENTS
March 31, 1998
1. Basis of Presentation
The accompanying consolidated unaudited condensed financial statements
have been prepared by management in accordance with the instructions in 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
the fiscal year ended December 31, 1997. These statements do include all normal
recurring adjustments which the Company believes necessary for a fair
presentation of the statements. The interim operations results are not
necessarily indicative of the results for the full year ended December 31, 1998.
2. Purchase of Building
In March 1998, Canton's Commercial Carpet Corporation purchased a
building formerly reported as a capitalized lease property for $381,000 and
incurred mortgage debt of $640,000.
3. Additional footnotes included by reference
Except as indicated in Notes 1-2 above, there have been no other
material changes in the information disclosed in the notes to the financial
statements included in the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1997. Therefore, those footnotes are included herein
by reference.
F-6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Company's operations primarily involve the acquisition, management,
lease and sale of real estate holdings. Over the past five years, the Company
has acquired a wide variety of commercial and residential properties. The
Company owns several real estate holdings in Utah and also owns properties in
other parts of the United States. The Company seeks to locate and acquire
undervalued real estate (which is primarily commercial) with little or no cash
down. Once acquired, the Company's real estate holdings are leased. While the
Company seeks to generate and maximize rental income through the management and
lease of the property, the Company's primary goal is to acquire real estate
which will substantially appreciate in value and for which the Company can
realize a substantial gain upon disposition.
Through its wholly owned subsidiaries Canton Financial Services
Corporation and Hudson Consulting Group, Inc., the Company also provides a
variety of financial consulting services to a wide range of clients. As used in
this Item, the term Company will encompass one or both of these subsidiaries.
The primary service performed by the Company involves assisting clients in
structuring mergers and acquisitions. This includes locating entities suitable
to be merged with or acquired by the Company's clients, as well as providing
general advice related to the structuring of mergers or acquisitions. The
Company also assists clients in restructuring their capital formation and
advises with respect to general corporate problem solving.
Real Estate Holdings
The Company's objective with respect to its real estate operations is
to acquire, through its subsidiaries, properties throughout the country which
the Company's management believes to be undervalued and which the Company is
able to acquire with limited amounts of cash. The Company attempts to acquire
such properties by assuming existing favorable financing and paying the balance
of the price with nominal cash payments or through the issuance of the Company's
common stock. The Company also makes limited investments in improvements to the
properties with the objective of increasing occupancy and improving cash flows.
During the first quarter of 1998, the Company purchased one commercial
property. On March 6, 1998, Canton's Commercial Carpet Corporation ("CCCC"), a
consolidated subsidiary of the Company exercised its option to purchase a
two-story 16,000 square foot building located at 268 West 400 South, Salt Lake
City, Utah. CCCC obtained the necessary financing to purchase the building for
$418,762, which amount includes fees and commissions. CCCC has leased the
building since May 1994 and the building has served as the Company's principal
executive offices for the past two years. CCCC borrowed an additional sum of
$222,489 which is secured by the property.
Subsequent to the first quarter, TAC, Inc., a consolidated subsidiary
of the Company acquired a hotel property in Baton Rouge, LA. For more
information regarding this transaction see " Item 5 - Other Information."
While the Company does lease a majority of its commercial properties,
its primary objective is to acquire real estate which will substantially
appreciate in value and for which the Company can realize a substantial gain
upon disposition. The Company intends to sell further real estate holdings on a
case by case basis provided that it believes that local market conditions make
such sales in the best interest of the company and its subsidiaries. The Company
did not sell any properties during the quarter ended March 31, 1998.
However, on April 9, 1998, the Company did enter into a real estate
purchase agreement for the sale of property in Oasis, Nevada. For more
information on this transaction see "Item 5 - Other Information."
4
Once such properties are acquired, the Company leases them to primarily
commercial tenants. The Company will also make limited investments in
improvements to the properties with the objective of increasing the occupancy
and improving cash flows. The Company leases its properties to commercial
tenants and applies the rental income toward its fixed obligations on the
properties. Currently, there are insufficient rental revenues to cover the debt
service and other expenses related to the Company's real estate operations, and
the Company therefore has to use capital from other sources to fund this
deficit.
This deficit has been primarily attributable to the Company's recent
investments in raw land and vacancies in the Company's commercial properties. To
eliminate these real estate operational losses the Company is attempting to
decrease the vacancies in its commercial properties, as well as, improve its raw
land for development and/or sale.
The Company recorded rental revenues of $116,540 from its real estate
operations for the first quarter as compared to $143,980 for the same period of
1997. This decrease over the past year was largely due to the sale of two
buildings during 1997 which decreased the available rental property.
There are five large balloon payments totaling $1,492,577 which come
due during 1998. All of these debts are secured by the Company's consolidated
real estate holdings. The Company intends to either fully satisfy or refinance
two of these obligations. The first, is a $100,000 note secured by the Plandome
building, plus $45,000 in accrued interest, which comes due in October, 1998.
The second, is a $315,000 note secured by the Company's principal executive
office building, which comes due in November, 1988. These obligations will have
a material effect on the Company's liquidity. Furthermore, there is a risk that
the Company may lose these properties to foreclosure if it is not able to meet
these obligations.
The third obligation is a $300,000 note secured by approximately 50 acres
of the Oasis, Nevada property. This note came due in March of 1998. However, at
the time of filing, there are current negotiations with respect to this note and
the sale of Oasis Nevada property, see "Item 5 - Other Information." The Holder
of this note has agreed to a reconveyance of his deed of trust, in exchange for
a new note from the purchaser, secured only by the 20 acres to be sold in the
transaction, common stock of the purchaser and 100,000 shares of the Company's
common stock.
The fourth obligation, a $400,000 note secured by the Vista, California
property was scheduled to become due in July 1988. However, in February of 1998,
the Company received notice that the office building located at 956 Vale Terrace
Drive, Vista, California was in default. On May 13, 1998 a Trustee's sale was
held and the Vale Terrace Property was sold. The $400,000 note secured by a
first deed of trust was satisfied in full. The sale also resulted in surplus
funds of approximately $59,942 which the trust deed company is required by law
to distribute to the rightful junior lien holders. It is the Company's intention
to pursue its rights with respect to this surplus of funds. The Company is also
considering its legal rights with respect to the initial purchase agreements.
The company believes that the seller failed to comply with the conditions
required by its agreements with TAC and Vale Terrace. These breaches are
believed to be the primary cause of the delinquency with regards to the first
mortgage on the property. For a more detailed description of the property and
the underlying transaction see the Company's Form 10-KSB for the fiscal year
ended December 31, 1997.
Finally, on May 24, 1998, a $332,577 note comes due on a 60,000 square
foot commercial warehouse in West Jordan, Utah. In May of 1997, TAC, Inc., a
consolidated subsidiary of the Company, closed on the sale of this property.
However, the purchaser has not paid the remaining principal and interest of
$985,000 which was due on April 15, 1998. The Company intended to utilize the
proceeds from this sale to satisfy this note, as well as another note secured by
the same property. The Company has sent the purchaser notice that the promissory
note and deed of trust are in default and is awaiting payment from them. For
more information on the TAC Warehouse see the Company's Form 10-KSB for the
fiscal year ended December 31, 1997.
Financial Consulting
The Company has reduced the scope and extent of the financial
consulting services it provides. Although the Company continues to provide
financial consulting services, this is done on a significantly smaller scale
than in past years. The Company has made an effort to limit the types of
consulting services it performs to those which have historically been the most
profitable and to reduce the number of clients retaining the Company's services.
5
The Company's consulting subsidiaries generate revenues through
consulting fees payable in the client's equity, cash, other assets or some
combination of the three. The primary form of compensation received is the
equity securities of clients. When payment is made in the form of equity, the
number of shares to be paid is dependent upon the price of the client's common
stock (if such price is available) and the extent of consulting services to be
provided. The typical value used to determine the number of shares to be paid is
one-half of the stock's bid price, which accounts for the fact that most of the
equity received as payment by the Company is restricted as to resale. The
Company accepts equity with the expectation that its services will assist in the
stock's appreciation, thus allowing the Company to be compensated and to make a
return on the payments for its services.
The Company generates cash flow by liquidating non-cash assets received
as fees for consulting services. As most fees are paid in the form of equity,
the revenues and cash flows realized by the Company are closely tied to the
price of its clients' securities. A decline in the market price of a client's
stock can greatly effect the total asset value of the Company's balance sheet
and can result in the Company incurring substantial losses on its income
statement.
Revenues from the Company's financial consulting operations decreased
during the quarter ended March 31, 1998. The Company recorded quarterly revenues
of $41,724 from its financial consulting operations as compared to $84,632 for
the same period of 1997. This decline was attributable to the Company's decision
to focus its operations primarily on real estate activities during the quarter.
For more information on this see the Company's Form 10-KSB for the fiscal year
ended December 31, 1997.
Results of Operations
Gross revenues for the quarter ended March 31, 1998 were $158,264
compared to $228,612 for the same period in 1997, a decline of 30%. This
decrease is attributable to the decline in consulting revenues, which were
$41,724 during the first quarter of 1998 compared to $84,632 for the same period
in 1997. Rental revenue decreased by 37% from $143,980 during the quarter ended
March 31, 1997 to $116,540 for the comparable period in 1998.
Costs of revenues were $129,291 for the first quarter of 1998 compared
to $182,167 for the quarter ended March 31, 1997. The decrease in the costs of
revenues is primarily due to the fact that the Company continued to reduce
personnel providing consulting services during 1997.
Gross profit was $28,973 for the first three months of 1998 and $46,445
for the quarter ended March 31, 1997. Gross profit as a percentage of revenues
was 18% and 20%.
Selling, general, and administrative expenses were $383,171 for the
first quarter of 1998 and $567,087 for the period ending March 31, 1997, a
decrease of $183,916. The primary reason for the decrease is that during the
first three months of 1997, the Company incurred $121,720 of computer
development costs associated with CyberMalls' operations, which did not exist in
1998.
Operating loss was $354,198 during the first quarter of 1998 compared
to an operating loss of $520,642 for the three months ending March 31, 1997.
This represented an improvement of $166,444 primarily because of reductions in
expenses due to personnel reductions and discontinuance of the CyberMalls
operations.
During the quarter ended March 31, 1997, the Company incurred other
expenses in the amount of $155,273. During the same period in 1998, the Company
incurred other expenses in the amount of $11,615. The major difference is in the
gain (loss) from investment securities together with a decrease of interest
expenses.
Capital Resources and Liquidity
Due to the Company's debt service on real estate holdings, willingness
to acquire properties with negative cash flows and acceptance of non-cash assets
for consulting services, the Company experiences occasional cash flow shortages.
To satisfy its cash requirements, including the debt service on its real estate
holdings, the Company must periodically raise funds from external sources. This
often involves the Company conducting exempt offerings of its equity securities.
On September 17, 1996, the Company issued a 6.0% Convertible Debenture
with a face amount of $300,000
6
(the "Debenture") to Legong Investments, N.V., a corporation organized under the
laws of Curacao, Netherlands Antilles ("Legong"). The Debenture was issued
pursuant to an Offshore Securities Subscription Agreement. As consideration for
issuing the Debenture, the Company received a cash payment of $258,000 from
Legong. The Debenture can be converted into the Company's Common Stock at any
time prior to maturity at the option of Legong. The conversion price of the
Debenture is seventy percent (70%) of the average closing bid prices for the
Common Stock during the five days immediately preceding conversion. The
Debenture was scheduled to mature on September 16, 1997, but the parties
mutually agreed to extend the Debenture until December 17, 1997. Since that
time, the parties have verbally agreed to extend the Debenture on a quarterly
basis.
At maturity, the Company has the option of paying the face amount of the
Debenture plus accrued interest in either cash or shares of Common Stock in
accordance with the conversion price set forth above. Interest is payable only
at maturity or upon conversion. Interest paid upon conversion only accrues as to
the face amount being converted. All Common Stock to be issued either upon
conversion or maturity is to be issued pursuant to Regulation S. During the
fourth fiscal quarter of 1996, the price of the Company's Common Stock dropped
precipitously which had the effect of greatly increasing the number of shares
issuable to the holder pursuant to conversion or maturity of the Debenture.
As of March 31, 1998, $60,000 of the Debenture's face amount has been
converted into Common Stock. The remaining $240,000 face amount of the Debenture
is convertible into 2,272,590 shares of Common Stock based upon the average
closing bid prices on the Common Stock for the five days immediately preceding
March 31, 1998. Accordingly, Legong may be deemed to have a 40% beneficial
ownership interest in the Company. The Company is currently in negotiations to
reacquire the Debenture or otherwise settle the outstanding obligation on the
Debenture without issuing a larger percentage of the Company's Common Stock to
the holder. However, there is a significant risk that the Company will be
required to either issue a substantial amount of Common Stock or pay a
significant percentage of the principal in order to settle this liability. This
risk could greatly affect the Company's future liquidity and capital structure.
The Company had a net working capital deficiency of $1,563,181 as of
March 31, 1998, compared to $1,447,494 at the end of December 1997. This
deficiency is primarily due to the fact that the Company has several mortgages
maturing within a year. In addition, the Company purchased a building utilizing
short-term debt during this quarter. The Company is presently negotiating for
suitable long-term financing on some of these properties.
Net shareholders' equity in the Company was $2,819,533 at the end of
March 1997 compared to $1,865,013 at the end of March 1998, a net decrease of
$954,520 for the twelve month period. The reason for the decrease during this
period is that the Company recorded a net loss of $1,930,000. This is offset by
the Company's issuance of common stock for $867,517 and a decrease in the
unrealized loss from securities available for sale of $96,311.
PART II
ITEM 1. LEGAL PROCEEDINGS
CyberAmerica Corporation vs. MJMC, Inc., Lanco International, Inc. and
Mi-Jack Products, Inc. - A complaint was filed on January 10, 1997 in the
Circuit Court of Cook County, Law Division as File Number 97L 000369 seeking
recovery of damages suffered by Canton Tire Recycling Corporation, a subsidiary
of the Company which assigned this cause of action to the Company. The complaint
sets forth several causes of action involving the lease of tire shredding
equipment which did not perform according to warranties and representations made
by defendants. Defendants' motions to dismiss the complaint have been granted in
part and the company has filed a final amended complaint in response to the
Court's orders. Pre-trial discovery has commenced and the court will consider
the new amended complaint and new motions by Defendants before the end of May
1998. The amended complaint seeks total damages in an amount of not less than $1
million.
State of Illinois vs. The Canton Industrial Corporation (n/k/a
CyberAmerica Corporation) - This action has been pending in the Ninth Judicial
Circuit, State of Illinois, County of Fulton, Case Number 93MR45, since
September 1993. The action seeks environmental cleanup of the Canton Plant site
located in Canton, Illinois in compliance with federal and state requirements
and in cooperation with the Illinois Environmental Protection Agency. For more
information on the Canton Plant, see "Item 2 Description of Property." This
action sought the removal of
7
accumulated tires which remained on the site after the Company discontinued its
tire recycling operations in 1993, as well as the removal of suspected hazardous
material from the property. By the first quarter of 1996 all tires had been
removed. The State continues to seek the removal of suspected hazardous material
from the site and the additional cleanup and testing required at the site. There
is a status hearing set for May 29, 1998.
State of Illinois v. The Canton Industrial Corporation (n/k/a
CyberAmerica Corporation) - The State of Illinois filed a separate action before
the Illinois Pollution Control Board, PCB Case Number 97-8, Enforcement, in July
1996. This action seeks recovery of $325,398 in costs that were allegedly
incurred by the State to remove waste tires from the Canton Plant site located
in Canton, Illinois. In a decision adopted on March 5, 1998, the Board denied
all punitive damages and ordered the Company to pay $326,154 into the State's
Used Tire Management Fund. This amount was determined to be the amount expended
by the state to remove tires from the Canton Plant. The State has filed a motion
requesting that the Board reconsider its denial of punitive damages, to which
the Company has filed a responsive pleading.
Xeta Corporation vs. The Canton Industrial Corporation (n/k/a
CyberAmerica Corporation) - Suit was filed in the United States District Court,
in the Central District of Utah, Case Number 95CV218G on March 8, 1995. Xeta
alleged that $116,500 was fraudulently transferred to the Company by ATC, II,
Inc. a Delaware corporation. Richard Surber, the Company's president, was also
named as a defendant in the cause of action based upon his position as an
officer of ATC II and alleged insider in the transaction. The Court granted
Xeta's motion for summary judgment against the Company, and an appeal of that
decision was sustained by the Tenth Circuit Court of Appeals. Xeta has sought
satisfaction of its $116,500 judgment through service of a writ of execution
pursuant to which it seeks to compel the Company's sale of the restricted
securities of an affiliate of the Company in an amount sufficient to satisfy the
judgment. Xeta has filed a motion seeking damages based upon an allegation that
the Company has improperly delayed its collection activity.
Canton Financial Services Corporation vs. Pacific Stock Transfer
Company - A complaint was filed by CFSC against Pacific Stock Transfer in the
District Court of Clark County, Nevada, Case Number A365081. CFSC seeks to
secure the lifting of the restrictive legend on 325,214 shares of stock in Air
Vegas Enterprises, Inc. Pacific has responded contending that the shares were
previously canceled by the unilateral action of the board of directors of Air
Vegas. CFSC is seeking relief under ss.104.8403(2) of the Nevada statutes and
all fees and costs incurred in the suit. Local counsel has been retained in Las
Vegas. The case was not reached on its May 4, 1998 trial setting and pre-trial
discovery is ongoing.
ITEM 5. OTHER INFORMATION
Events Subsequent to the End of the First Quarter
On May 13, 1998 a Trustee's sale was held and the office building located
at 956 Vale Terrace Drive, Vista CA was sold. The $400,000 note secured by a
first deed of trust was satisfied in full. The sale also resulted in surplus
funds of approximately $59,942 which the trust deed company is required by law
to distribute to the rightful junior lien holders. It is the Company's intention
to pursue its rights with respect to this surplus of funds. The Company is
considering its legal rights with respect to the initial purchase agreements.
The company believes that the seller failed to comply with the conditions
required by its agreements with TAC and Vale Terrace. These breaches are
believed to be the primary cause of the delinquency with regards to the first
mortgage on the property.
This particular property was acquired by TAC Inc., a consolidated
subsidiary of the Company, in September of 1997. For a more detailed description
of the property and the underlying transaction see the Company's Form 10-KSB for
the fiscal year ended December 31, 1997.
Subsequent to the first quarter, TAC, Inc., a consolidated subsidiary
of the Company, acquired, through a Stock Acquisition Agreement ( the
"Agreement"), 51% of the shares of common stock of a Louisiana Corporation known
as Golden Opportunity Development Corporation ("Golden"). Golden's sole asset is
the General Lafayette Inn, a 134 unit hotel and restaurant, and four adjacent
office/retail buildings, in Baton Rouge, LA. This property is located next to
the Mississippi River, three blocks from a river boat dock, at 427 Lafayette
Street, Baton Rouge, LA 70802. The hotel and surrounding property is subject to
a $1,900,000 note.
8
In exchange for the Golden stock, TAC agreed to advance the sum of
$15,810 for current operating deficiencies related to the General Lafayette Inn
and to transfer, within 30 days of execution of the agreement, restricted stock
in a company of TAC's choosing valued at $800,000. In addition, TAC agreed to
offer consulting services to Golden, as well as work with current ownership and
management to renovate the hotel. TAC acquired the Golden stock from the Smith
Trust and San Pedro Securities, Ltd.
The Promissory Note on the General Lafayette Inn property has a
principal amount of $1,900,000. Principal and interest on the first mortgage are
payable in monthly installments of $11,391.46 until July 1, 2027, when the
remaining principal and interest are due in full.
On April 9, 1998, the Company entered into a Real Estate Purchase
Agreement (the "Agreement") for the sale of real property in Oasis, Nevada. The
Agreement is between Oasis International Hotel & Casino, Inc. ("Oasis
International"), a wholly owned subsidiary of the Company, and Oasis Hotel,
Resort & Casino III, Inc. ("Oasis III"), in which the Company owns a beneficial
interest. The property consists of 20 acres and all improvements thereupon
including a nonoperating service station and a nonoperating retail and food
service operation. Closing is scheduled for July 1998 but may be extended by
agreement of the parties. The total sale price of the property is $5,000,000.
The current agreement requires a $1,000,000 payment in cash at closing with
credit given for a deposit to be made with common stock of the purchaser. The
Agreement has not closed, and the parties are currently renegotiating the terms
of the Agreement, including the $1,000,000 cash payment due at closing. The
Company is considering taking common stock from the purchaser in lieu of some of
the cash payment.
In addition, the Holder of the $300,000 note, secured by 50 acres of the
Oasis, Nevada property, has agreed to a reconveyance of his deed of trust. The
Holder agreed to this reconveyance in exchange for a new note from the
purchaser, Oasis III, secured only by the 20 acres to be sold in the
transaction, common stock of the purchaser and 100,000 shares of the Company's
common stock. After completion of the transaction, the title to the remaining 30
acres of Oasis property the Company owns will be clear of all liens.
The sale of the property is considered a high risk transaction based
upon the lack of credit worthiness of the purchaser. The Company's success in
realizing the purchase price is solely contingent upon the business plans and
managerial skills of Oasis III's officers and directors. Accordingly, there is a
high level of risk. However, the Company believes that the transaction is still
in the best interest of its shareholders for several reasons. First, the
transaction enabled the Company to renegotiate the terms of financing concerning
all of the Oasis property. Second, the Company has confidence in the skills of
Oasis III's management in constructing and operating casinos. Based upon these
skills and experience, the Company believes that the risk involved in the sale
based upon the purchase price and the Company's interest in the surrounding land
may ultimately inure to the benefit of the Company and its shareholders.
Subsequent to the first quarter of 1998, the Company sold a total of
272,000 shares of Common Stock pursuant to Regulation S ("Regulation S") under
the Securities Act of 1933, as amended (the "Act") to Pienne Chow, an individual
and resident of Hong Kong, in exchange for an investment of $17,000 in the
Company pursuant to an April 17, 1998 transaction. For more information on this
transaction, see the Form 8-K filed by the Company on January 13, 1998.
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 10 of this Form 10-QSB, and
are incorporated herein by this reference.
(b) Reports on Form 8-K. On January 15, 1998 the Company filed a report on
Form 8-K disclosing the issuance of 111,113 shares of Common Stock
pursuant to Regulation S. Subsequent to the end of the first quarter,
the Company filed two additional reports on Form 8-K. On April 6, 1998
the Company filed a Form 8-K disclosing the resignation of its
independent auditor Andersen, Andersen & Strong, L.C. Disclosed on the
same Form 8-K was the engagement of Crouch, Bierwolf & Chisholm as the
Company's new independent auditor. On May 8, 1998 the Company filed a
Form 8-K disclosing the issuance of 272,000 shares of Common Stock
pursuant to Regulation S.
9
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 20TH day of May 1998.
CYBERAMERICA CORPORATION
/s/Richard Surber May 20, 1998
Richard Surber
President, Chief Executive Officer and Director
/s/Wayne Newton May 20, 1998
Wayne Newton
Controller
10
INDEX TO EXHIBITS
EXHIBIT PAGE
NO. NO. DESCRIPTION
2 * Articles of Merger of The Canton Industrial
Corporation (an Ohio corporation) into The Canton
Industrial Corporation (a Nevada corporation),
filed in Nevada on May 3, 1993 (incorporated by
reference from Exhibit No. 2 of the Company's Form
10-KSB for the year ended December 31, 1993).
3(i) * Articles of Incorporation of the Company (note that
these were amended by the Articles of Merger
constituting Exhibit 2 to this Form 10-KSB)
(incorporated herein by reference from Exhibit No.
3(i) to the Company's Form 10-KSB for the year
ended December 31, 1993).
3(ii) * Bylaws of the Company, as amended (incorporated
herein by reference from Exhibit 3(ii) of the
Company's Form 10 KSB for the year ended December
31, 1995).
4(a) * Form of certificate evidencing shares of "Common
Stock" in the Company (incorporated from Exhibit
4(a) to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1994).
4(b) * Form of certificate evidencing shares of
"Preferred Stock" in the Company (incorporated
herein by reference from Exhibit No. 4(b) to the
Company's Form 10- KSB for the year ended December
31, 1993).
MATERIAL CONTRACTS
10(i)(a) 12 Stock Acquisition Agreement between TAC, Inc. and
Golden Opportunity Development Corporation
regarding the acquisition of the General Lafayette
Inn in Baton Rouge, LA.
10(i)(b) 13 Real Estate Purchase Agreement between Oasis Hotel,
Resort & Casino III, Inc. and Oasis International
Hotel & Casino, Inc. regarding the purchase of
twenty acres in Oasis, NV.
10(i)(c) * Lease Agreement between the Company's wholly owned
subsidiary, Canton Financial Services Corporation,
and Richard Surber, dated August 29, 1997, pursuant
to which the Company's subsidiary has leased a
condominium unit from Mr. Surber (incorporated
herein by reference from Exhibit 10(i)(a) of the
Company's Form 10-KSB for the period ended December
31, 1997).
10(i)(d) * Real Estate Purchase contract between the Company's
wholly owned subsidiary, Cyberstate, Inc., and
James Stacy, dated July 14, 1997, pursuant to which
Cyberstate contracted to acquire the New Brigham
Building (incorporated herein by reference from
Exhibit 10(i)(b) of the Company's Form 10-KSB for
the period ended December 31, 1997).
10(i)(e) * Real Estate Purchase Contract between the Company's
wholly owned subsidiary, Cyberstate, Inc., and
Richard Surber, dated October 10, 1997, pursuant to
which Cyberstate will sell a condominium unit in
the New Brigham Building subject to closing of
Cyberstate's purchase and successful application to
convert the New Brigham Building into condominium
units (incorporated herein by reference from
Exhibit 10(i)(c) of the Company's Form 10-KSB for
the period ended December 31, 1997).
10(i)(f) * Real Estate Purchase Contract between the Company's
wholly owned subsidiary, Cyberstate, Inc., and
Allen Wolfson, dated October 10, 1997, pursuant to
which Cyberstate will sell a condominium unit in
the New Brigham Building subject to closing of
Cyberstate's purchase and successful application to
convert the New Brigham Building into condominium
units (incorporated herein by reference from
Exhibit 10(i)(d) of the Company's Form 10-KSB for
the period ended December 31, 1997).
10(i)(g) * Promissory Note executed by the Company in favor of
Richard Surber, dated March 25, 1998 with a
principal amount of $47,295 and accruing interest
at 22% (incorporated herein by reference from
Exhibit 10(i)(e) of the Company's Form 10-KSB for
the period ended December 31, 1997).
11
10(i)(h) * Convertible Promissory Note executed by the Company
in favor of A-Z Professional Consultants Inc.,
dated March 31, 1998, with a principal amount of
$150,000 and bearing interest at a rate of 10%
(incorporated herein by reference from Exhibit
10(i)(f) of the Company's Form 10-KSB for the
period ended December 31, 1997).
10(i)(i) * Real Estate Purchase Contract between the Company's
wholly owned subsidiary, Taylor's Landing, Inc.,
and Loa Jean Carter and Jeffrey Dee Carter
regarding the acquisition of the Tiara Cafe
(incorporated herein by reference from Exhibit
Number 10(i)(b) of the Company's Form 10-QSB for
the period ended September 30, 1997).
10(i)(j) * Stock Purchase Agreement between TAC, Inc., a
consolidated subsidiary of the Company, and Chelsea
Capital Corporation, dated September 19, 1997,
pursuant to which the Company acquired all
outstanding capital stock of Vale Terrace
Corporation (incorporated herein by reference from
Exhibit Number 10(i)(d) of the Company's Form
10-QSB for the period ended September 30, 1997).
10(i)(k) * Lease Agreement between TAC, Inc., a consolidated
subsidiary of the Company, and Chelsea Capital
Corporation, dated September 23, 1997, pursuant to
which TAC has leased back the Vale Terrace property
to Chelsea Capital Corporation (incorporated herein
by reference from Exhibit Number 10(i)(e) of the
Company's Form 10-QSB for the period ended
September 30, 1997).
10(i)(l) * Real Estate Purchase Contract between the Company's
wholly owned subsidiary, Cyber LaCrosse, Inc., and
James Hansen regarding the acquisition of real
property in Nephi, Utah (incorporated herein by
reference from Exhibit Number 10(i)(a) of the
Company's Form 10-QSB for the period ended June 30,
1997).
10(i)(m) * Real Estate Purchase Contract between the Company's
wholly owned subsidiary, Taylor's Landing, Inc.,
Sydnie Colley and Cassandra Colley regarding the
acquisition of real property in Nephi, Utah
(incorporated herein by reference from Exhibit
Number 10(i)(b) of the Company's Form 10-QSB for
the period ended June 30, 1997).
10(i)(n) * Option Agreement, dated March 25, 1997, between the
Company's wholly owned subsidiary, Canton
Properties, and Chournos Land & Livestock
(incorporated herein by reference from Exhibit
Number 10(i)(c) of the Company's Form 10-QSB for
the period ended March 31, 1997).
10(i)(o) * Real Estate Purchase Contract dated January 28,
1997, between the Company and Durbano Properties,
LC (incorporated herein by reference from Exhibit
Number 10(i)(a) to the Company's Form 10-KSB for
the fiscal year ended December 31, 1996).
10(i)(p) * Real Estate Purchase Agreement, dated February 7,
1997, between the Company and ANA Development, LC
(incorporated herein by reference from Exhibit
Number 10(i)(a) to the Company's Form 10-KSB for
the fiscal year ended December 31, 1996).
10(i)(q) * Stock Exchange Agreement dated October 31, 1996,
between the Company and Investment Sanctuary
Corporation, a Utah corporation and Richard D.
Surber (incorporated herein by reference from
Exhibit Number 10(i)(a) to the Company's Form
10-KSB for the fiscal year ended December 31,
1996).
10(i)(r) * Development and Purchase Agreement by and between
Canton Financial Services Corporation (through its
subsidiary, CyberMalls) and Bust-it Records
regarding the development and sale of a Mall site
on the Internet, effective June 13, 1996
12
(incorporated herein by reference from Exhibit No.
10(i)(bb) to the Company's Form 10-QSB for the
period ended June 30, 1996).
10(i)(s) * Guaranty and Assumption, Modification and Extension
Agreement by and between Canton Financial Services
Corporation and the Canada Life Assurance Company
regarding the purchase of the TAC Warehouse
Building effective June 28, 1996 (incorporated
herein by reference from Exhibit No. 10(i)(cc) to
the Company's Form 10-QSB for the period ended June
30, 1996).
10(i)(t) * Offshore Securities Subscription Agreement for a
6.0% Convertible Debenture sold to Legong
Investments on September 16, 1996 (incorporated
herein by reference from Exhibit No. 10(i)(a) to
the Company's Form 10-QSB for the period ended
September 30, 1996).
* Previously filed as indicated and incorporated herein by reference from
the referenced filings previously made by the Company.
13