Annual Report (Form 10-K), fiscal year 1994

ITEM 1. BUSINESS.
GENERAL
Industrial Funding Corp. ("Industrial" or the "Company") is an Oregon corporation organized in October 1989, which, through its subsidiary, Industrial Leasing Corporation ("Industrial Leasing") services a nonperforming lease portfolio through asset collection and disposition activities. Industrial also manages an investment portfolio, collection of a note (the "Purchase Note") received by the Company in part consideration for the sale of substantially all of the Company's assets in May 1993 (the "Asset Sale"), and certain litigation relating to reimbursement of legal costs associated with the defense of certain securities class action lawsuits. After the Asset Sale, the Company significantly changed its focus and business operations.
Prior to the Asset Sale, the Company provided small-ticket capital equipment lease financing to smaller businesses. Industrial's lease portfolio was widely diversified as to equipment type, lessee and location. The small-ticket leasing market generally includes leases covering capital equipment with original cost of up to $250,000 and with terms of three to five years. Industrial also owned and managed a mid-ticket equipment leasing portfolio. Effective April 1989, the Company ceased originating mid-ticket leases. Industrial conducted its lease activity principally through four sales offices located on the West Coast of the United States. These offices were closed prior to the Asset Sale.
As of November 30, 1994, the total assets of the Company were comprised of the following: (i) $20.8 million in Cash and cash equivalents; (ii) $6.2 million in Restricted cash; (iii) $6.6 million in Short-term investments; (iv) $9.5 million Purchase Note; and (v) $1 million in nonperforming and other assets.
On May 20, 1994, the Company's Board of Directors approved a Plan of Dissolution and Complete Liquidation (the "Plan of Liquidation") for submission to the shareholders of the Company. This Plan which provides for the liquidation of all of the Company's assets, will be effective the date on which it is approved by the shareholders. A Special Meeting of shareholders was scheduled for August 18, 1994, but was adjourned due to the material financial implications of the proposed settlement of the securities litigation. No date has been set for the continuation of the Special Meeting.
IFC Holdings, Inc., an Ontario, Canada company and record owner of 100% of the Class B Common Stock, which represents 75% of the ownership of the Company and 96.8% of the outstanding Common Stock voting rights, has a sufficient number of votes to approve the Plan of Liquidation, regardless of the vote of any other shareholder. IFC Holdings, Inc. has provided the Company with a proxy for these shares, to be voted by management in favor of approving the proposed Plan of Liquidation, and, therefore approval of the Plan is assured.
As a result of the Board's approval of the Plan of Liquidation, the Company's financial statements have been prepared on a liquidation basis of accounting. Accordingly, assets are valued at their net estimated realizable value, and liabilities include the estimated costs to carry out the Plan of Liquidation.
NONPERFORMING PORTFOLIO
Prior to the Asset Sale the Company had a policy whereby those leases that were either seriously delinquent or considered to be impaired were written down to their estimated net realizable value. The revised balances were reflected as nonperforming assets on the Company's balance sheet. These nonperforming assets were specifically excluded from the Asset Sale.
Subsequent to the Asset Sale, the Company has continued to carry its nonperforming portfolio at its estimated net realizable value. As of November 30, 1993, the balance of nonperforming assets was $3 million. As assets written down to their estimated net realizable value cannot be written back up, in compliance with Generally Accepted Accounting Principles, the Company has applied all cash proceeds received to reduce the outstanding balance of the nonperforming assets. During the year ended
November 30, 1994, the Company, through the application of such cash proceeds, has reduced the balance of these assets to zero. All subsequent recoveries have been reflected in the Consolidated Statement of Changes in Net Assets in Liquidation of the Company as Gains on nonperforming assets of $2 million for the year ended November 30, 1994. Of this amount approximately $1 million was derived from the sale of nonperforming assets which was completed on December 6, 1994.
INVESTMENT ACTIVITIES
The Company invests its financial resources primarily in securities issued or guaranteed by the United States government, in mutual funds, or in investments identified by investment advisors in conformity with the Company's Investment Policy. Additionally, the Company generates interest income in connection with the Purchase Note and from funds on deposit with banks. Management and the Board of Directors review the performance of the investment portfolio on a regular basis, determine that they are within the limitations provided in its Investment Policy, and make investment decisions based upon general government security market conditions.
FINANCING
Using proceeds of the Asset Sale, all of the Company's long-term debt was repaid. The Company currently has no short-term or long-term debt facilities available.
COMPETITION
Due to the change in the nature of the Company's business, Industrial no longer competes in providing financial services of any kind.
EMPLOYEES
The Company had 7 employees at November 30, 1994. The Company believes that its relationship with its employees is excellent.
MANAGEMENT INFORMATION SYSTEMS
Industrial maintains its accounting records using a personal computer based general ledger software system. The Company had also contracted with Parrish Financial Servicing Company, L.P. to provide specific software and database services to manage its nonperforming portfolio. This contractual arrangement concluded December 31, 1994 with the final disposition of the nonperforming assets.
ITEM 2.



ITEM 2. PROPERTIES.
The Company's administrative office is located in a leased facility in Portland, Oregon, comprising a total of approximately 6,000 square feet. The lease has a two-year term expiring May 27, 1995.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS.
During 1994 and 1993, there was securities litigation pending against the Company, Industrial Leasing, the Company's previous majority shareholder, First City, and certain of its former affiliates and subsidiaries, certain directors, certain former directors and officers, its Certified Public Accountants, and the underwriters of the Company's December 8, 1989, initial public offering. The class action lawsuits, WADE ET AL. V. INDUSTRIAL ET AL., filed January 1992, and a related case BOWER ET AL. V. BELZBERG ET AL., which was filed February 1992, alleged violations of federal securities laws. The Wade lawsuit also alleged violations under California state law; however, these claims were dismissed by the Court in January 1994. These lawsuits were filed in the United States District Court for the Northern District of California (the "Court") and alleged that plaintiffs were damaged as a result of alleged misstatements and omissions in documents disseminated in connection with the Company's initial public offering and subsequent communications and public filings through February 1991. Damages of approximately $22.5 million plus prejudgment interest were alleged.
On August 15, 1994 a preliminary agreement was reached to settle these lawsuits. A settlement agreement was executed by the parties on October 7, 1994. The settlement was approved by the Court on December 19, 1994 and became effective January 19, 1995, at which time all claims were fully settled.
Under the terms of the settlement, the Company contributed $5 million, without any presumption or admission of liability, of a total settlement of $10 million. The Company maintains that its litigation positions have merit, but has agreed to the settlement to avoid the risk, exposure, and costs of further legal proceedings.
In January 1993, Alex. Brown & Sons and Piper Jaffray, Inc., the underwriters of the initial public offering, filed an action against the Company, demanding that the Company pay the underwriters' attorney fees and expenses associated with their defense of the securities litigation, in accordance with the Underwriting Agreement between the Company and the underwriters. The Court granted the underwriters' motion for summary judgment, on July 9, 1993, and ordered the Company to pay the underwriters' legal costs as they were incurred. The Company appealed this decision to the Court of Appeals. In the interim, pending a decision regarding this appeal, the Company deposited funds with the Court to cover these costs. As of November 30, 1994, the amount on deposit with the court was $1.2 million, and is included in the Consolidated Statement of Net Assets in restricted cash. Under the terms of the final settlement of the securities litigation, this deposit was returned by the Court to the Company on January 20, 1995.
In connection with the securities litigation, the Company has filed a lawsuit against two insurance companies, demanding coverage against American Home Assurance Company under a directors and officers liability policy in the amount of approximately $5.0 million (Canadian), and against Continental Insurance Company (Continental Insurance) under a general liability policy and umbrella policy of approximately $4.0 million (Canadian) and $16.0 million (Canadian), respectively. All claims against such insurers other than claims for reimbursement against Continental Insurance were settled.
Continental Insurance has agreed to reimburse the Company for reasonable defense fees and expenses. As of November 30, 1994, Continental Insurance has advanced $1.6 million of legal fees which represents approximately 27 percent of the total legal costs incurred to date by the Company in defense of the class action lawsuit. The Company and Continental Insurance have agreed to negotiate the amount of the remaining reimbursement. Both parties have further agreed to submit the matter to binding arbitration if negotiations are not successful. The Company has submitted approximately $5.9 million of fees and expenses for reimbursement. Both parties have further agreed to submit the matter to binding arbitration if negotiations are not successful.
The Company is also a defendant in various lawsuits resulting from normal business activity. In the opinion of management, the disposition of all other such litigation currently pending will not have a material effect on the net assets or changes in net assets of the Company.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On April 27, 1994, the Company held its annual meeting and the shareholders of the Company approved the following proposals: (i) the election of Messrs. Alan R. Hibben, Brent S. Belzberg,
Richard L. Doege, John J. Estok, and K. Peter Zech to the Board of Directors; and (ii) the selection of Deloitte & Touche LLP as the Company's independent certified public accountants. The table below shows the results of the shareholder voting:
ITEM 4.1. EXECUTIVE OFFICERS OF THE REGISTRANT.
The name, age and current office of the executive officer of Industrial, who is to serve until the next annual meeting of the Board of Directors or his early resignation, are set forth below. Also indicated is the date when such person commenced serving as an executive officer of Industrial.
PART II
ITEM 5.

ITEM 5. MARKET PRICE AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
Industrial's Class A Common Stock is traded in the over-the-counter market and reported on Nasdaq under the ticker symbol "IFDCA." On December 6, 1993, the Company was informed by the National Association of Securities Dealers, that pursuant to its bylaws, the Company did not meet the requirements to continue inclusion under the Nasdaq National Market due to its failure to maintain a sustained bid price of $1 per share during the preceding 6 month period. On December 22, 1993, at the Company's request, it was removed from the National Market, and included in the Nasdaq Small Capitalization Market.
The Company in the past has not paid dividends on its outstanding preferred or common stock. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Distributions to Shareholders."
As of November 30, 1994, the accumulated but undeclared dividends with respect to the preferred stock were $7.1 million. The Company redeemed its preferred stock and paid accumulated dividends thereon on January 26, 1995.
On November 30, 1994, there were approximately 103 holders of record of the Class A Common Stock of Industrial.
CLASS A COMMON STOCK INFORMATION
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth, for the periods and dates indicated, selected financial data derived from the financial statements of the Company. This data should be read in conjunction with the financial statements of the Company and related notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
SELECTED FINANCIAL DATA
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following is a discussion of the Company's financial condition and results of operations. This discussion should be read in conjunction with the audited financial statements appearing under Item 8


ITEM 8. FINANCIAL STATEMENTS.
INDEPENDENT AUDITORS' REPORT
The Board of Directors Industrial Funding Corp.
We have audited the accompanying consolidated statement of net assets (liquidation basis) of Industrial Funding Corp. and its subsidiary as of November 30, 1994, and the related consolidated statements of changes in net assets in liquidation and cash flows for the year then ended. In addition, we have audited the accompanying consolidated balance sheet of Industrial Funding Corp. and its subsidiary as of November 30, 1993, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the two years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 2 to the financial statements, the Board of Directors of Industrial Funding Corp. approved a plan of liquidation in 1994, and the Company commenced liquidation shortly thereafter. As a result, the Company changed its basis of accounting from the going concern basis to the liquidation basis.
In our opinion, such consolidated financial statements present fairly, in all material respects, (1) the net assets (liquidation basis) of Industrial Funding Corp. and its subsidiary at November 30, 1994, (2) the changes in their net assets in liquidation and cash flows for the year then ended, (3) their financial position at November 30, 1993, and (4) the results of their operations and their cash flows for the two years then ended, in conformity with generally accepted accounting principles on the bases described in the preceding paragraph.
As discussed in Note 11 to the financial statements, the Company redeemed the Series A cumulative preferred stock and paid all accrued dividends thereon on January 26, 1995; all remaining nonperforming assets were sold by auction on December 6, 1994; and litigation relating to alleged violations of federal securities laws, in which the Company was a defendant, was settled on January 19, 1995.
DELOITTE & TOUCHE LLP
Portland, Oregon February 14, 1995
INDUSTRIAL FUNDING CORP.
CONSOLIDATED STATEMENT OF NET ASSETS (LIQUIDATION BASIS) AS OF NOVEMBER 30, 1994
AND CONSOLIDATED BALANCE SHEET (GOING CONCERN BASIS) AS OF NOVEMBER 30, 1993
ASSETS
See Notes to Consolidated Financial Statements.
INDUSTRIAL FUNDING CORP.
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION, 1994 CONSOLIDATED STATEMENTS OF INCOME, 1993 AND 1992
See Notes to Consolidated Financial Statements.
INDUSTRIAL FUNDING CORP.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (GOING CONCERN BASIS)
During the year ended November 30, 1994 the Company changed to the liquidation basis of accounting as explained in Note 2. -- Plan of Dissolution and Complete Liquidation. The presentation format used in 1993 and 1992 is, therefore, no longer applicable. The effect of the changes of adopting the liquidation basis is reflected in the Consolidated Statement of Changes in Net Assets in Liquidation.
See Notes to Consolidated Financial Statements.
INDUSTRIAL FUNDING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOW
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION Industrial Funding Corp. ("Industrial" or the "Company"), a majority owned subsidiary of IFC Holdings Inc. ("IFC Holdings"), was incorporated in October 1989, as a holding company formed for the purpose of owning Industrial Leasing Corporation ("Industrial Leasing"). During 1992, First City Realty Investment Corp. ("FCRIC"), the Company's previous majority shareholder, transferred all of its interest in the Company to IFC Holdings. The accompanying consolidated financial statements include all of the accounts of the Company and its wholly-owned subsidiary. All significant intercompany transactions and accounts have been eliminated in consolidation.
Until May 27, 1993, the business of the Company was providing capital equipment lease financing to small businesses. At that time, the Company completed a sale of substantially all of the assets of Industrial Leasing (the "Asset Sale"), to ILC Acquisition Corp., a wholly-owned subsidiary of Parrish Equipment Partner L.P. ("Parrish"), in a transaction approved by shareholders of the Company on May 17, 1993.
Subsequent to the Asset Sale, Company activities include collection of the remaining assets, investment of its financial resources, and the management of legal proceedings against the Company.
The Company has adopted the liquidation basis of accounting as of May 20, 1994. This basis of accounting is considered appropriate when the Company has adopted a plan of liquidation and liquidation appears imminent, the Company is no longer viewed as a going concern and the net realizable value of the Company's assets are reasonably determinable. Under this basis of accounting, assets and liabilities are stated at their estimated net realizable value and estimated costs of liquidating the Company are provided to the extent they are reasonably determinable.
The Company's Plan of Dissolution and Complete Liquidation (the "Plan of Liquidation") (see NOTE 2. -- Plan of Dissolution and Complete Liquidation) provides for the liquidation of all of the Company's assets. In connection with the adoption of the liquidation basis of accounting, the Company has accrued what management believes are reasonable estimates of costs to liquidate its remaining assets and to defend legal claims. The actual costs may differ significantly depending on a number of factors, including the length of time it takes to dispose of and the amount received for the remaining assets and the holding costs associated therewith, and the resolution of the claims against the Company's insurance carriers for reimbursement of legal fees and expenses related to the security litigation. Estimated cost to liquidate are reflected in the Consolidated Statement of Net Assets as "Reserve for estimated costs during the period of liquidation".
The Consolidated Financial Statements for 1993 and 1992 were prepared on a going concern basis of accounting which contemplated the realization of assets and the satisfaction of liabilities in the normal course of business. The 1994 Consolidated Financial Statements were prepared on the liquidation basis of accounting. The effects of adopting the Plan of Liquidation are explained in NOTE 2. -- Plan of Dissolution and Complete Liquidation.
NOTE 2. PLAN OF DISSOLUTION AND COMPLETE LIQUIDATION The Board of Directors of the Company approved the Plan of Liquidation, on May 20, 1994, for submission to the shareholders of the Company. A Special Meeting of Shareholders was scheduled for August 18, 1994, for shareholders to consider approval of the Plan of Liquidation. However, on August 15, 1994, the Company reached a preliminary agreement to settle the securities class action lawsuits pending against the Company. (See NOTE 8. -- Commitments and Contingencies). Due to the material financial implications of this proposed settlement, the Special Meeting was adjourned to enable the Company to revise the Proxy Statement, and provide its shareholders with additional information concerning the terms of the proposed settlement. No date has been set for the continuation of the Special Meeting.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. PLAN OF DISSOLUTION AND COMPLETE LIQUIDATION (CONTINUED) The Plan of Liquidation will be effective the date on which it is approved by the shareholders. IFC Holdings Inc., record owner of 100% of the Company's Class B Common Stock, which represents 75% of the ownership of the Company and of 96.8% of the outstanding Common Stock voting rights, has a sufficient number of votes to approve the Plan of Liquidation, regardless of the vote of any other shareholder. IFC Holdings has provided the Company with a proxy for those shares, to be voted by management in favor of the proposed Plan of Liquidation, and, consequently, approval of the Plan of Liquidation is assured.
As a result of the Board's approval of the Plan of Liquidation, the Company's 1994 Consolidated Financial Statements have been prepared on a liquidation basis of accounting. Accordingly, assets are valued at their estimated net realizable value, and liabilities include the estimated costs to carry out the Plan of Liquidation.
The net adjustment at May 31, 1994 required to convert from the going concern (historical cost) basis to the liquidation basis of accounting was a decrease in the carrying value of net assets of $4.2 million which was included in the Consolidated Statement of Changes in Net Assets in Liquidation. This decrease in the carrying value of net assets is principally a result of recording estimated costs associated with carrying out the Plan of Liquidation. For the period from June 1, 1994 to November 30, 1994, the Company reduced the Reserve for estimated costs during the period of liquidation by $529,000, reflecting accrued legal fees which are not expected to be incurred of $975,000 and estimated liabilities in excess of previous estimates of $446,000.
Under the liquidation basis, the Company has accrued future liabilities associated with carrying out the Plan of Liquidation (see assumptions below). The Company has not reflected future revenues from interest income or income associated with investment activities as such income will be recognized when realized.
The Consolidated Balance Sheet as of November 30, 1993, and the Consolidated Statements of Income for the years ended November 30, 1993 and 1992 have been prepared using the going concern (historical cost) basis of accounting which the Company has previously used to report its financial condition and results of operations.
The conversion of the Company's assets and liabilities from the going concern (historical cost) basis to the liquidation basis of accounting has required the determination of significant estimates and judgments by management of the Company. A summary of the Plan of Liquidation, and of the significant estimates and judgments made, are described below.
The Plan of Liquidation calls for an orderly liquidation of the Company over a five year period from the effective date of the Plan. This period may be shortened or lengthened if it is deemed to be in the best interest of the shareholders. The Company may engage in transactions as may be appropriate to complete its liquidation, including the sale, exchange, or other disposition of all or part of its remaining assets for cash, shares, bonds, or other security or property, or any combination of the foregoing. Prior to distributions of the assets of the Company to its shareholders, the Company will invest its financial resources and will discharge or otherwise provide for all of its known liabilities and obligations.
The Company has made the following assumptions in the valuation of the assets and liabilities of the Company on the liquidation basis of accounting:
1) SHORT-TERM INVESTMENTS are carried at their estimated market value. No accrual has been made for future income or loss on investments except for unrealized gains or losses that existed on November 30, 1994.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. PLAN OF DISSOLUTION AND COMPLETE LIQUIDATION (CONTINUED) 2) NOTE RECEIVABLE. The Company has the intent and ability to hold this receivable, acquired in connection with the Asset Sale, to maturity, which is May 27, 1996. No valuation allowance is deemed necessary. Interest income will be recognized when earned, calculated at the stated rate of 6% per annum.
3) NONPERFORMING ASSETS are carried at their estimated net realizable value. Bad debt recoveries of $41,000 and auction proceeds of $948,000 were received in December 1994 and are reflected in the carrying value as of November 30, 1994.
4) PREFERRED STOCK DIVIDENDS are accreted through November 30, 1994. The Company redeemed the preferred stock and accumulated dividends on January 26, 1995 for a total of $20.8 million, which includes $297,000 in dividends accreted subsequent to November 30, 1994.
5) RESERVE FOR ESTIMATED COSTS DURING THE PERIOD OF LIQUIDATION represents management estimates of costs to be incurred in the future to liquidate the company. Major considerations and assumptions are as follows:
a) Nonperforming assets were sold at auction as of December 15, 1994
b) Administrative costs have been accrued through May 31, 1996, the anticipated date of the final payment on the note receivable. No costs have been accrued subsequent to May 1996, as the Company currently anticipates that all significant outstanding matters will be resolved by that time.
6) RESERVE FOR THE LITIGATION SETTLEMENT represents the amount paid by the Company subsequent to November 30, 1994 to settle its share of the securities litigation outstanding against the Company, pursuant to a settlement agreement which was finalized as of January 19, 1995.
All of the above assumptions may be subject to change as facts emerge and circumstances change.
NOTE 3. SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING FOR LEASES. Prior to the Asset Sale, for financial reporting purposes, the Company's leases were classified as direct financing leases and were accounted for in accordance with Statement of Financial Accounting Standards No. 13. -- "Accounting for Leases".
REVENUE RECOGNITION. For its mid-ticket leases, the Company has recognized the related unearned Income as lease revenue over the term of the lease by the interest method. For its small-ticket portfolio the Company recognized unearned lease income by the sum-of-the-months digits method on leases booked has prior to September 1, 1989 and by the interest method on leases booked subsequent to that date. Revenue was recognized on an accrual basis for both lease categories.
INITIAL DIRECT COSTS OF LEASES. Prior to the Asset Sale, the Company deferred certain initial direct costs of originating leases and recognized these costs over the lives of the related leases as a reduction of their yields.
NON-ACCRUAL LEASES. Prior to the Asset Sale, the Company ceased income recognition when a lease receivable became 90 days past due, or when other conditions adversely affected collectibility of the receivable.
NONPERFORMING ASSETS. Nonperforming assets consist primarily of equipment held for sale or equipment repossessed, leases which are more than 180 days past due, and lease deficiencies which represent the remaining balance due to the Company after proceeds from equipment sales have been applied to the outstanding lease receivable. The nonperforming assets are valued at their estimated net realizable value.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) SHORT-TERM INVESTMENTS. Short-term investments consisted of Treasury Bills and U.S. Government Agency Securities at November 30, 1994, recorded at market value, which is lower than cost and of mutual funds at November 30, 1993, recorded at the lower of average cost or market. Aggregate net unrealized investment losses are included in the Consolidated Statement of Changes in Net Assets in Liquidation and the Consolidated Statement of Income.
CONSOLIDATED STATEMENT OF CASH FLOW. For purposes of reporting cash flows, cash and cash equivalents includes cash in banks and temporary investments with an original maturity of three months or less.
ACCOUNTING FOR INCOME TAXES. Under Federal income tax laws, the Company is not part of a controlled group and files its tax return separately.
Effective December 1, 1993, the Company prospectively adopted Statement of Financial Accounting Standards No. 109. -- Accounting for Income Taxes. The effects of adopting this Statement were not material.
NOTE 4. SHORT-TERM INVESTMENTS
At November 30, 1994 and 1993, short-term investments consist of the following:
At November 30, 1994, short-term investments with an original cost of $6,586,000 were recorded at market. Mutual funds at November 30, 1993 with an original cost of $18,470,000 were recorded at the lower of average cost or market. To reduce the carrying amount of the short-term investments to market, the Company recorded a valuation allowance of $17,000 at November 30, 1994 and of $210,000 at November 30, 1993 with a corresponding charge to net income.
At November 30, 1994 and 1993, gross unrealized losses were $17,000 and $210,000, respectively.
NOTE 5. NOTE RECEIVABLE As part of the sale of substantially all of Industrial Leasing's assets to ILC Acquisition Corp., on May 27, 1993, the Company received a note in the amount of $19,043,000 bearing interest at 6 percent per annum. The note is payable in equal semi-annual installments of $3,174,000, plus accrued interest, through May 27, 1996.
NOTE 6. RESTRICTED CASH Restricted cash of $6,176,000 at November 30, 1994 consists of collateral for the underwriters' defense costs for the securities litigation and for funds required to settle the Company's share of this litigation. Of this balance, $1,174,000 and $800,000 as of November 30, 1994 and 1993 respectively, represent security to support underwriters' defense costs as ordered by the U.S. District Court for the Northern District of California. The remainder of $5,000,000 was placed in escrow pursuant to the preliminary agreement to settle the securities litigation. (See NOTE 8. -- Commitments and Contingencies).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. INCOME TAXES The difference between taxes calculated at the federal statutory tax rate and the recorded tax benefit was as follows:
Income tax benefit consists of the following:
The Company has determined that it has adequate net operating loss carry forwards and other deductions that no future income tax liability is anticipated. As all timing differences were eliminated as a result of the Asset Sale in 1993, the Company reviewed its deferred tax obligations and concluded that no future income tax obligations existed as of November 30, 1993. Consequently, the results of the year ended November 30, 1993, include the reversal of all outstanding deferred tax obligations previously recorded.
As discussed in NOTE 1. -- Organization and Basis of Presentation, during 1992 the Company's previous majority shareholder transferred all of its interest in the Company to IFC Holdings. This resulted in a change in ownership for federal and state income tax purposes, which could limit the use in future years of net operating losses and other tax credit carry forwards. The amount which will be usable in any one year is limited to the value of the Company at the time of the change in ownership multiplied by the interest rate on federal long-term exempt securities at that date. At November 30, 1994 the Company had $37 million of net operating loss carry forwards, which are not expected to be utilized by the Company, expiring in the years 2007 through 2009.
NOTE 8. COMMITMENTS AND CONTINGENCIES On August 20, 1994, the Company established a reserve in the amount of $5.0 million as its share of the settlement of the securities lawsuits previously filed against the Company, Industrial Leasing, the Company's previous majority shareholder First City and certain of its former affiliates and subsidiaries, certain directors, certain former directors and officers, its certified public accountants,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. COMMITMENTS AND CONTINGENCIES (CONTINUED) and the underwriters of the December 8, 1989, initial public offering. The class action lawsuits, WADE ET. AL. V. INDUSTRIAL ET. AL., filed January 1992, and a related case BOWER ET. AL. V. BELZBERG ET. AL., filed February 1992, alleged violations of federal securities laws. The WADE lawsuit also alleged violations under California state law. These lawsuits were filed in the United States District Court for the Northern District of California, and alleged that plaintiffs were damaged as a result of alleged misstatements and omissions in documents disseminated in connection with the Company's initial public offering and subsequent communications and public filings through February 1991. Damages of approximately $22.5 million plus prejudgement interest were alleged.
On August 15, 1994 a preliminary agreement was reached to settle these lawsuits. A settlement agreement was executed by the parties on October 7, 1994. The settlement was approved by the Court on December 19, 1994 and became effective January 19, 1995, at which time all claims were fully settled.
Under the terms of the settlement, the Company contributed $5 million, without any presumption or admission of liability, of a total settlement of $10 million. The Company maintains that its litigation positions have merit, but has agreed to the settlement to avoid the risk, exposure, and costs of further legal proceedings.
In January 1993, Alex. Brown & Sons and Piper Jaffray, Inc., the underwriters of the initial public offering, filed an action against the Company, demanding that the Company pay the underwriters' attorney fees and expenses associated with their defense of the securities litigation, in accordance with the Underwriting Agreement between the Company and the underwriters. The Court granted the underwriters' motion for summary judgment, on July 9, 1993, and ordered the Company to pay the underwriters' legal costs as they were incurred. The Company appealed this decision to the Court of Appeals. In the interim, pending a decision regarding this appeal, the Company deposited funds with the Court to cover these costs. As of November 30, 1994, the amount on deposit with the court was $1.2 million, and is included in the Consolidated Statement of Net Assets in restricted cash. Under the terms of the final settlement of the securities litigation, this deposit was returned by the Court to the Company on January 20, 1995.
In connection with the securities litigation, the Company has filed a lawsuit against two insurance companies, demanding coverage against American Home Assurance Company under a directors and officers liability policy in the amount of approximately $5.0 million (Canadian), and against The Continental Insurance Company (Continental Insurance) under a general liability policy and umbrella policy of approximately $4.0 million (Canadian) and $16.0 million (Canadian), respectively.
Continental Insurance has agreed to reimburse the Company for reasonable defense fees and expenses. As of November 30, 1994, Continental Insurance has advanced $1.6 million of legal costs which represents approximately 27 percent of the total legal costs incurred to date by the Company in defense of the class action lawsuit. The Company and Continental Insurance have agreed to negotiate the amount of the remaining reimbursement. Both parties have further agreed to submit the matter to binding arbitration if negotiations are not successful. The Company has submitted approximately $5.9 million of fees and expenses for reimbursement to Continental Insurance. Any additional reimbursements from Continental Insurance will be recorded as income when received.
The Company is also a defendant in various lawsuits resulting from normal business activity. In the opinion of management, the disposition of all other such litigation currently pending will not have a material effect on the net assets or changes in net assets of the Company.
The Company had noncancellable operating leases for office space. The cost to terminate these leases has been recorded as part of the loss on sale of assets at November 30, 1992.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. COMMITMENTS AND CONTINGENCIES (CONTINUED) The Company entered into a noncancellable operating lease for office space on May 27, 1993. This lease expires on May 27, 1995. Future minimum lease payments under this lease are $41,000 for the year ended November 30, 1995. Total rent expense was as follows:
NOTE 9. SHAREHOLDERS' EQUITY COMMON AND PREFERRED STOCK. The Company's authorized capital consists of 20,000,000 shares of Class A Common Stock, without par value, 10,000,000 shares of Class B Common Stock, without par value, and 10,000,000 shares of preferred stock, without par value. The Class A Common Stock has one vote per share and the Class B Common Stock has 10 votes per share.
In March 1991, the Company issued 134,310 shares of the Series A Cumulative Preferred Stock ("Shares") of the Company to FCRIC for $10,000,000 in cash and the forgiveness of $3,431,000 of indebtedness owed by the Company arising from federal income taxes of the Company paid by FCRIC in fiscal years ended prior to November 30, 1990. Under the terms of the issuance, cash dividends on these Shares accreted quarterly at a rate of $14.22 per share per annum. These dividends are cumulative. The Company may, at anytime and at its option, redeem all or any part of the shares at a redemption price of $100 per share plus all accreted and unpaid dividends. The holder of the redeemable preferred stock may, at its option, redeem the stock after March 15, 1996. In the event of any liquidation, whether voluntary or otherwise, each holder is entitled to receive an amount of $100 per share plus all accumulated but unpaid dividends before any distribution shall be made to the holders of the common stock. The Shares are not convertible into any other securities of the Company, including Class A or Class B Common Stock. The accumulated preferred stock dividends totaled $7.1 million, $5.2 million, and $3.3 million as of November 30, 1994, 1993 and 1992, respectively. On January 26, 1995, the Shares and accumulated dividends were redeemed for $20.8 million including $297,000 of dividends accreted subsequent to November 30, 1994.
STOCK OPTION PROGRAMS. In October 1989, the Company adopted two stock option plans for selected key executives and employees and directors, authorizing options to acquire 450,500 shares of Class A Common Stock. In April 1992, the directors' plan was amended and an additional 72,000 shares of stock were authorized for a total of 100,000 shares available under this plan. At November 30, 1994, the total shares Class A Common Stock authorized for issuance under the plans was 522,500.
There are six different vesting plans within both stock options plans. The following sets forth the activity relating to the stock options granted under the plans.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. SHAREHOLDERS' EQUITY (CONTINUED) OPTIONS OUTSTANDING UNDER THE 1989 PLANS
In October 1989, the Company also adopted a stock option plan for key executives authorizing options to acquire 135,000 shares of Class B Common Stock. These options were canceled and no options are outstanding as of November 30, 1994.
NOTE 10. PENSION PLAN Industrial Leasing had a Savings and Profit Sharing Plan covering substantially all employees. The plan provided for employees to contribute up to 10 percent of their salary to the plan under Section 401(k) of the Internal Revenue Code, and the Company could match up to 3 percent of the employee's compensation. The plan was terminated effective December 31, 1992, and, as a result, all Company contributions were 100 percent vested. The plan was fully funded and all benefits were distributed in 1993. The impact of the plan termination on the financial statements was not material. The total plan expenses were $9,000, and $38,000, for the years ended November 30, 1993 and 1992, respectively.
NOTE 11. SUBSEQUENT EVENTS All remaining nonperforming assets were sold at auction December 6. 1994. See NOTE 2. -- Plan of Dissolution and Complete Liquidation.
The class action lawsuits, WADE ET AL V. INDUSTRIAL ET AL, and the related case BOWER ET AL V. BELZBERG ET AL, were settled effective January 19, 1995. See NOTE 8. -- Commitments and Contingencies.
The Company redeemed its Series A Cumulative Preferred Stock and accumulated dividends January 26, 1995. See NOTE 2. -- Plan of Dissolution and Complete Liquidation.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12. QUARTERLY INFORMATION (UNAUDITED)
MANAGEMENT'S REPORT
To the Shareholders of Industrial Funding Corp.:
The management of Industrial Funding Corp. has prepared and is responsible for the financial statements and related financial data contained in this report. The financial statements were prepared in accordance with generally accepted principles and by necessity include certain amounts determined using management's best estimate and judgments.
The financial statements have been audited by independent accountants who were appointed by the Board for fiscal 1994. Their audit was made in accordance with generally accepted auditing standards and included a review of internal accounting controls, for the purpose of providing a basis for reliance thereon in connection with their audit of the financial statements.
Management of the Company has established and maintains an internal control structure that provides reasonable assurance as to the integrity and reliability of the financial statements, the protection of assets from unauthorized use or disposition and the prevention and detection of fraudulent financial report. The concept of reasonable assurance is based on the recognition that the cost of a system of internal control must be related to the benefit derived. The internal control structure is continually monitored for compliance.
The Board of Directors, through its Audit Committee, is responsible for reviewing and monitoring the financial statements and accounting practices. The Audit Committee meets annually with management and the independent accountants to ensure that each is properly discharging its duties. Independent accountants have full and free access to, and meet with the Audit Committee, with or without the presence of management.
JOHN PITT
-------------------------------------- VICE PRESIDENT FINANCE AND CHIEF EXECUTIVE OFFICER
February 28, 1995
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
No information is required to be reported under this item.
PART III
Certain information required by Part III is omitted from this Report in that the Registrant will file a definitive proxy statement pursuant to Regulation 14 (the "Annual Proxy Statement") no later than 120 days after the end of the fiscal year covered by this Report, and certain information included therein is incorporated herein by reference.
ITEM 10.



ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information concerning the Company's directors required by this Item is incorporated by reference to the Company's Annual Proxy Statement.
The information concerning the Company's executive officers required by this Item is incorporated by reference to the Section in Part 1, Item 4.1 hereof entitled "Executive Officers of the Registrant."
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated by reference to the Company's Annual Proxy Statement.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is incorporated by reference to the Company's Annual Proxy Statement.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated by reference to the Company's Annual Proxy Statement.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) List of Documents Filed.
(1) Financial statements, Industrial Funding Corp. (included in Item 8).
Independent Auditor's Report dated February 14, 1995.
Consolidated statement of net assets (Liquidation basis) November 30, 1994.
Consolidated balance sheet November 30, 1993.
Consolidated statement of change in net assets in liquidation November 30, 1994.
Consolidated statements of income for the two years ended November 30, 1993.
Consolidated statements of shareholders' equity for the two years ended November 30, 1993.
Consolidated statements of cash flows for the three years ended November 30, 1994.
Notes to consolidated financial statements.
(2) Schedules supporting consolidated financial statements:
Independent Auditors' Report.
Schedule VIII. Valuation and qualifying accounts for the year ended November 30, 1992.
All other schedules have been omitted because of the absence of conditions under which they are required or because the required information is included elsewhere in the financial statements.
(3) EXHIBITS. These exhibits indicated by an asterisk (*) are incorporated by reference to the same exhibit number unless otherwise noted as follows: (A) incorporated herein by reference to Registration Statement on Form S-1 filed on October 27, 1989 and amended on December 5, 1989 (File No. 33-31784)); (B) incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1990 as filed March 11, 1991; (C) incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1990 as filed February 28, 1992; (D) incorporated herein by reference to the Company's Report on Form 8 as filed May 5, 1992; (E) incorporated herein by reference to the Company's Report on Form 10-K for the period ended November 30, 1992, as filed February 25, 1993; (F) incorporated herein by reference to the Company's Report on Form 10-K for the period ended November 30, 1993, as filed February 23, 1994.
(b) Reports on Form 8-K
There were no reports on Form 8-K for the fourth quarter ended November 30, 1994.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Portland, State of Oregon, on February 27, 1995.
INDUSTRIAL FUNDING CORP.
/s/ JOHN PITT
-------------------------------------- John Pitt VICE PRESIDENT FINANCE AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on February 27, 1995, on behalf of the Registrant and in the capacities indicated.
SIGNATURES TITLE - ----------------------------------- -------------------------
/s/ BRENT S. BELZBERG - ----------------------------------- Chairman of the Board of Brent S. Belzberg Directors
/s/ RICHARD L. DOEGE - ----------------------------------- Director Richard L. Doege
/s/ ALAN R. HIBBEN - ----------------------------------- Director Alan R. Hibben
/s/ K. PETER ZECH - ----------------------------------- Director K. Peter Zech
INDEPENDENT AUDITORS' REPORT
Industrial Funding Corp.
We have audited the consolidated financial statements of Industrial Funding Corp. and subsidiary as of November 30, 1994 and 1993, and for each of the three years in the period ended November 30, 1994, and have issued our report thereon dated February 14, 1995, which report includes explanatory paragraphs relating to a change in the basis of accounting from the going concern basis to the liquidation basis and to subsequent events; such consolidated financial statements and report are included elsewhere in this Form 10-K. Our audits also included the consolidated financial statement schedule of Industrial Funding Corp. and subsidiary, listed in Item 14. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Portland, Oregon February 14, 1995
INDUSTRIAL FUNDING CORP. SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
EXHIBIT 11.1
INDUSTRIAL FUNDING CORP.