<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
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Commission File No.
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UTAH RESOURCES INTERNATIONAL, INC.
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(Exact Name of Small Business Issuer as Specified in its Charter)
Utah 87-0273519
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
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297 W. Hilton Drive, Suite #4
St. George, Utah 84770
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(Address of Principal Executive Offices)
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(801) 628-8080
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(Issuer's Telephone Number, Including Area Code)
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(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
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.
(1) Yes X No
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(2) Yes X No
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APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity as of the latest practicable date: 2,522,808 shares as of
December 31, 1996.
Transitional Small Business Disclosure Format (check one):
Yes No x
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
UTAH RESOURCES INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FOR THE DATES INDICATED
<TABLE>
<CAPTION>
QUARTER
ENDED
ASSETS 3/31/97
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<S> <C>
Cash and cash equivalents $ 366,141
Accounts receivable 315,830
Notes receivable 108,365
Property and equipment, net of
accumulated depreciation and
amortization of $44,047.28 25,779
Real estate held for resale 878,118
Royalty interest in petroleum and mineral
production, net of amortization of 4,991
Other assets 103,281
TOTAL ASSETS 1,802,506
LIABILITIES AND STOCKHOLDERS' EQUITY
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Accounts payable $ 499,984
Accrued expenses 324,703
Earnest money deposits 36,000
Notes payable 289,281
TOTAL LIABILITIES 1,149,968
Minority interest 110,903
Commitment and contingencies
5,000,000 shares authorized,
2,522,808 shares issued and outstanding 252,281
Additional paid-in capital 4,431,232
Note Receivable from Stock Sale -3,633,159
Retained earnings -508,719
TOTAL STOCKHOLDERS' EQUITY 541,635
TOTAL STOCKHOLDERS' EQUITY & LIABILITIES 1,802,506
</TABLE>
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UTAH RESOURCES INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
QUARTER QUARTER
ENDED ENDED
3/31/97 3/31/96
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<S> <C> <C>
Sales $ 0 35,121
Cost of sales 0 10,071
Gross profit 0 25,050
General and administrative 265,675 90,822
Income from operations -265,675 -65,772
Other income (expense):
Royalty income 68,573 27,796
Interest and dividend income 9,237 0
Interest expense -97 -29,570
Total other income (expense) 77,713 -1,774
Income (loss) before minority interest and
provision for income taxes -187,963 -67,546
Minority interest in net loss of subsidiaries 332
Income (loss) before provision for income taxes -187,963 -67,214
Income tax (provision) benefit 22,850
Income (loss) from continuing operations -187,963 -44,364
Discontinued operations:
Income (loss) from discontinued operations 0 132,140
Income from disposal of discontinued
operations 0 -91,838
Total discontinued operations 0 40,302
Net income (loss) -187,963 -4,062
Weighted Average Shares
Outstanding 2,522,808 1,284,027
Earnings (loss) per share -0.07 0.00
</TABLE>
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UTAH RESOURCES INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE DATES INDICATED
QUARTER QUARTER
ENDED ENDED
3/31/97 3/31/96
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ -187,963 -4,062
Less income from discontinued operations 0 -132,140
Add loss from disposition of discontinued operation 0 91,838
Adjustments to reconcile net income (loss) to net cash
(used in) operating activities:
Depreciation and amortization 1,476 2,300
Minority interest in net (income)
of subsidiaries -332
(Increase) decrease in:
Accounts receivable -53,162 -35,447
Real estate held for resale -2,030 113,286
Refundable income taxes -2,150
(Decrease) increase in:
Account Payable
247,520 -146,309
Accrued expenses -221,367 -46,078
Net cash used in continuing operations -215,525 -159,094
Net cash provided by discontinued operations 41,007
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NET CASH (USED IN) OPERATING ACTIVITIES -215,525 -118,087
Cash flows from investing activities:
Purchase of property and equipment -399 -791
Payments on notes receivable 32,307 3,531
Increase (decrease) in minority interest
Decrease (increase) in other assets 33,730
NET CASH (USED IN) INVESTING ACTIVITIES 65,637 2,740
Cash flows from financing activities:
Proceeds from notes payable
Payments on notes payable -1,829 -2,268
NET CASH (USED IN) INVESTING ACTIVITIES -1,829 -2,268
Increase in cash -151,717 -117,615
Cash and cash equivalents, beginning of year (period) 517,858 765,831
Cash and cash equivalents, end of year (period) 366,141 648,216
</TABLE>
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UTAH RESOURCES INTERNATIONAL
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(1) The unaudited financial statements include the accounts of Utah
Resources International, Inc., and subsidiaries and include all
adjustments (consisting of normal recurring items) which are, in the
opinion of management, necessary to present fairly the financial
position as of March 31, 1997 and the results of operations and cash
flows for the three months ended March 31, 1997 and 1996. The results
of operations for the three months ended March 31, 1997 are not
necessarily indicative of the results to be expected for the entire
year.
(2) Loss per common share is based on the weighted average number of
shares outstanding during the period.
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Item 2. Management's Discussion and Analysis or Plan of Operation.
RESULTS OF OPERATIONS
The Company had no land sales during the three month period ended
March 31, 1997 as compared with land sales of $35,121 for the three month
period ended March 31, 1996. Management attributes the lack of sales in 1997
to a slowdown in the sale of high-end market lots as well as there being no
developable lots available in inventory. Interest income was $9,237 during the
first quarter of 1997 as compared to zero in 1996 due to the fact that the
Company held more money in interest bearing accounts. Income on royalties from
production under oil and gas and mineral leases amounted to $68,573 for the
three month period ended March 31, 1997 as compared to $27,296 for the three
month period ended March 31, 1996. The increase in royalties income is due
almost entirely to an increase in production and less significantly to an
increase in oil and gas prices during this period due to price fluctuations.
Cost of land sold decreased from $10,071 in 1996 to zero in 1997,
reflecting that there were no land sales in the first quarter of 1997 as
compared to land sales of $35,121 for the same period in 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash requirements of the Company are met by funds provided from
operations consisting of (a) the sale of improved lots and undeveloped
property; (b) royalty income; (c) interest income earned on money held in
interest bearing accounts; and (d) interest income earned on the IMCC Note, as
discussed below and as described herein under Item 5. Other Information/Stock
Purchase Agreement - July 3, 1996. The ratio of assets to liabilities at March
31, 1997 was approximately 1.57 to 1. The Company's assets as of March 31,
1997 were valued at $1,802,506, as against liabilities of $1,149,968.
The Company presently anticipates that cash from land sales and
royalties will be the primary sources for future additional liquidity for the
Company.
From January, 1995, through July, 1996, litigation expenses imposed a
significant drain on the Company's liquidity. The litigation which occasioned
such expenses has been terminated by settlement, and management expects future
legal fees will decrease dramatically. For a more detailed description of the
Company's litigation, see "ITEM 1 LEGAL PROCEEDINGS."
The Company also expects to be required to expend funds for the
cleanup of gasoline which has apparently leaked from tanks owned by the Service
Station Partnership, which have been replaced. Engineering estimates of total
cleanup costs are not determinable due to uncertainties with respect to state
compliance requirements and the, as yet, unknown extent of the contamination.
During the first quarter of 1997, $6,450 was expended toward this clean-up
operation and approximately $232,155 has been expended by the Company to date.
It is anticipated that the Company's need for cash in excess of its
present resources will be met through revenues and real estate secured
borrowings. No firm financing commitment has been obtained for the purpose of
completing the 1,000 to 1 reverse stock split as more fully discussed herein.
The Company does not have backup lines of credit.
The Company has no plans for major capital expenditures beyond the
cost of improving portions of its real property.
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The Company's business is influenced by interest rates, inflation and
market demands. Its royalty income from oil and gas interests affected by
fluctuations in the price of oil and the related decisions to drill new wells
and the rates at which wells are pumped. The Company has no control over the
oil and gas field operations.
As of March 31, 1997, the Company holds a promissory note from
Inter-Mountain Capital Corporation, a Delaware corporation ("IMCC"), which is
wholly owned by John Fife (the President and CEO of the Company), in the
original principal amount of $3,633,159.42 (the "Note"). The Note bears
interest at a rate equal to the short-term applicable federal rate published by
the Internal Revenue Service in effect at the time of closing the Stock
Purchase Agreement, and is adjusted on each anniversary of the Note to the
applicable short-term federal rate in effect on such anniversary date.
Interest on the Note is expected to be paid currently in arrears on each
anniversary of the Note. At the closing, IMCC paid the Company $197,872.52,
which amount represented the present value first year of interest due under the
Note. The principal and any unpaid interest accrued under the Note is due and
payable August 1, 2001. The Note is secured by the 1,275,912 shares purchased
by IMCC as evidenced by a stock pledge agreement, dated as of July 3, 1996
between IMCC and the Company (the "Stock Pledge Agreement"). Pursuant to a
separate written guaranty agreement, John Fife personally guaranteed payment of
25% of all amounts due under the Note.
SERVICE STATION PARTNERSHIP
The Company, effective April 30, 1993, discontinued operations of the
Service Station Limited Partnership #2 other than the environmental remediation
described below, and the operations up to that date are included in
discontinued operations on the Company's financial statements. The Company,
together with Tonaquint, owned as of December 31, 1996, partnership interests
representing an approximate 79% interest in the Service Station Limited
Partnership #2, a Utah limited partnership organized to build and operate a
service station/mini-grocery store adjacent to the St. George Hilton Inn in
St. George, Utah. In a transaction coincident with the sale of the St. George
Hilton Inn, the partnership entered into a put/call option contract with
St. George Inn, L.C., dated May 21, 1993. Under the terms of the option
contract, St. George Inn, L.C. granted the partnership a one-year put option to
require St. George Inn, L.C. to purchase the service station for $200,000 in
cash, subject only to the requirement that the partnership complete the
environmental clean-up of the site prior to exercising the option and a
simultaneous call option granting St. George Inn, L.C. a two year option to
purchase the site for $200,000 in cash whether or not the environmental
remediation had occurred. The clean-up had not been completed by May 15, 1994,
when the partnership's put option expired. Further, the environmental
remediation had not been completed by May 15, 1995 when the two year option to
St. George, L.C. had expired. St. George Inn, L.C. claimed that the option
was extended by the partnership and that the partnership had not completed its
remediation operations. In settlement of the option dispute with St. George
Inn, L.C., on April 15, 1997, the Service Station Limited Partnership #2
transferred the service station property to St. George Inn, L.C. for $200,000,
less normal and customary closing costs. In connection with the closing,
St. George Inn, L.C. granted an easement to the partnership for purposes of
allowing the partnership to continue the environmental remediation of the
service station property. Among other things, the easement provides that if
requested by the owner of the service station property the partnership will pay
one-half of the costs of relocating the remediation equipment currently located
on the property up to a maximum of $5,000.
In 1989, the partnership replaced its gasoline underground storage
tanks, which the partnership was informed had been leaking. From November of
1992 through the end of the first quarter of 1997, the partnership has spent
approximately $232,155 on efforts to remediate the soil contamination by
gasoline and other hydrocarbons which is alleged to have occurred from
operation of the service station. The Company has hired consultants and
engineers and is following their recommendations to remediate the property as
required by Utah law and regulations.
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PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
Over the past nine years, the Company has been involved in various
disputes and controversies involving its ownership, operation and management.
This litigation has been resolved pursuant to the terms of two settlement
agreements. The first settlement agreement was by and among the Company,
John H. Morgan, Jr., Daisy R. Morgan, IMCC, John Fife, Robinson & Sheen,
L.L.C., R. Dee Erickson, Lyle D. Hurd and E. Jay Sheen ("Morgan Settlement
Agreement"), whereby certain disputes among the parties were resolved and
settled and the parties agreed to use their best efforts to terminate the 1993
Settlement Agreement, as that term is defined in Section 5, Stock Purchase
Agreement - July 3, 1996. The second settlement agreement was among the
Company, R. Dee Erickson, E. Jay Sheen, Lyle D. Hurd, Mark G. Jones, Mark
Technologies Corporation, Anne Morgan, Victoria Morgan, IMCC, John Fife and
Robinson & Sheen, L.L.C. (the "1996 Settlement Agreement"), whereby the parties
agreed, among other things, to dismiss the First Federal Action, the Order to
Show Cause, and the Second State Action, as those terms are defined in Section
5, Stock Purchase Agreement - July 3, 1996 and to use their best efforts to
terminate the 1993 Settlement Agreement. The litigation and its settlement are
described in the Company's 1996 Form 10-KSB, filed May 29, 1997.
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
STOCK PURCHASE AGREEMENT - JULY 3, 1996
On April 5, 1996, Inter-Mountain Capital Corporation, a Delaware
corporation wholly owned by John Fife ("IMCC"), entered into a Letter of Intent
with the Company (the "Letter of Intent"), whereby IMCC agreed, if certain
conditions were met, to purchase a 51% interest in the Company at a purchase
price of $3.35 per share. One of the conditions for consummating the
transaction contemplated by the Letter of Intent was the spinoff of Midwest
Railroad Construction and Maintenance Corporation ("Midwest"). Pursuant to the
Letter of Intent, IMCC agreed to pay 10% of the purchase price at closing with
the remaining 90% owing to be evidenced by a promissory note. The Letter of
Intent also provided that the Company grant IMCC a ten year option to purchase
an additional 150,000 or more shares of the Company's stock, so that IMCC, at
all times would have the right to own a 51% interest in the Company. The
Letter of Intent also provided that subsequent to the closing and subject to
financing and other conditions, the Company would cause either a: (i) 12,500
to 1 share reverse split of the Company's stock, at $3.35 per share, with
fractional shareholders given the option to round-up and maintain their
shareholder status; or (ii) tender offer for its shares at $3.35 per share
subject to certain payment options. If the transactions contemplated by the
Letter of Intent were consummated it was the intent of IMCC to delist the
common stock of the Company from any national securities exchange. In order to
obtain a copy of the Letter of Intent and for a more detailed description of
the terms of the Letter of Intent, see and Schedule 13D filed by IMCC with the
SEC on April 16, 1996. The Company entered into the Letter of Intent over the
objections of Mark G. Jones and Jenny Morgan, being two directors of the
Company.
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On May 17, 1996, a shareholders derivative suit captioned as Mark
Technologies Corp., et al. v. Utah Resources International, Inc. et al., was
filed as Civil No. 96-090-3332CV in the Third Judicial Court of Salt Lake
County, Utah (the "Second State Action"). Mark G. Jones, a director of the
Company, is the controlling shareholder of Mark Technologies Corporation. The
Second State Action, included, among other things, a request for the issuance
of a temporary restraining order and injunction against the transactions
contemplated in the Letter of Intent. Furthermore, plaintiff wished to have
the sale of the 51% interest to IMCC voted on by the shareholders of the
Company.
On or about June 26, 1996, the Company entered into two settlement
agreements. The first settlement agreement was by and among the Company, John
H. Morgan, Jr., Daisy R. Morgan, IMCC, John Fife, Robinson & Sheen, L.L.C., R.
Dee Erickson, Lyle D. Hurd, and E. Jay Sheen (the "Morgan Settlement
Agreement"), whereby certain disputes among the parties were resolved and
settled and the parties agreed to use their best efforts to terminate the 1993
Settlement Agreement as hereinafter defined. A copy of the Morgan Settlement
Agreement is attached as Exhibit 10.37 to the Company's Form 10-KSB for Fiscal
Year End 1995. The 1993 Settlement Agreement was the result of the settlement
of a shareholders' derivative action captioned as Ernest Muth, et al. v.
John H. Morgan, Jr. et al., which was filed as Civil Number C-87-1632 in the
Third Judicial District Court of Salt Lake County, Utah (the "First State
Action"), where plaintiffs therein alleged, among other things, that the
officers and directors of the Company committed various breaches of their
fiduciary duties to the Company. A settlement agreement in the First State
Action was entered on April 6, 1993 (the "1993 Settlement Agreement"). On or
about July 21, 1995, attorneys for the Company on behalf of the Company filed
an action against John H. Morgan and Daisy R. Morgan, directors of the Company,
to enforce the 1993 Settlement Agreement in the First State Action which
resulted in certain findings of fact and conclusions of law and an order
enforcing the 1993 Settlement Agreement entered by Judge Michael R. Murphy on
October 4, 1995 (the "Murphy Order"). The Murphy Order was appealed by John H.
Morgan, Jr. and Daisy R. Morgan and cross-appealed by the Company. An Order to
Show Cause was subsequently filed in the First State Action on behalf of the
Company by attorneys for the Company against John H. Morgan, Jr., Daisy R.
Morgan, and Mark G. Jones and others (the "Order to Show Cause"). The second
settlement agreement was by and among the Company, R. Dee Erickson, E. Jay
Sheen, Lyle D. Hurd, Mark G. Jones, Mark Technologies Corporation, Anne Morgan,
Victoria Morgan, IMCC, John Fife and Robinson & Sheen, L.L.C. (the "1996
Settlement Agreement"), whereby the parties, among other things, agreed to
dismiss the Second State Action and to use their best efforts to terminate the
1993 Settlement Agreement and to settle certain other litigation. A copy of
the 1996 Settlement Agreement is attached as Exhibit 10.38 to the Company's
Form 10-KSB for Fiscal Year End 1995. For a more detailed description of the
Company's legal proceedings, see "PART II OTHER INFORMATION/Item 1. Legal
Proceedings," and copies of the Morgan Settlement Agreement and the 1996
Settlement Agreement which are attached as Exhibits 10.37 and 10.38 to the
Company's Form 10-KSB for Fiscal Year End 1995, respectively. In addition, the
1996 Settlement Agreement amended certain provisions of the Letter of Intent
including, the elimination of the option that IMCC would cause the Company to
initiate a tender offer for its shares and the reduction in the reverse split
from 12,500 shares to 1 to 1,000 shares to 1 and an increase in the IMCC
payment at closing from 10% of the purchase price to 15% of the purchase price.
On or about August 9, 1996, a Motion to Intervene was filed by shareholders
Jenny T. Morgan, Gerard E. Morgan, John C. Morgan and Karen J. Morgan (together
the "Objectors"). On or about August 22, 1996, the court in the Second State
Action reviewed and considered the 1996 Settlement Agreement, the Stock
Purchase Agreement and the 1993 Settlement Agreement, written memoranda
submitted by various parties and other comments and objections and ordered
that: (1) the notice given pursuant to Rule 23.1 of the applicable rules of
civil procedure for the State of Utah was adequate, fair and proper; (2) the
procedural and substantive objections of Jenny T. Morgan (a director and
shareholder of the Company), Gerard E. Morgan, John C. Morgan and Karen J.
Morgan be overruled; (3) the 1996 Settlement Agreement was fair, adequate and
reasonable; (4) the Petition to Terminate the 1993 Settlement Agreement was
fair, adequate and reasonable; and (5) the 1996 Settlement Agreement and
Petition to Terminate the 1993 Settlement Agreement was approved. The 1996
Settlement Agreement and the Morgan Settlement were approved by the Third
Judicial District Court of Salt Lake County, West Valley Department of Utah, on
or about August 23, 1996. The First Federal Action and the Second State Action
were dismissed with prejudice on August 28, 1996. The Order to Show Cause was
dismissed with prejudice and the 1993 Settlement Agreement was terminated on
August 29, 1996.
On July 3, 1996, pursuant to the Letter of Intent and the 1996
Settlement Agreement, the Company and IMCC entered into a Stock Purchase
Agreement (the "Stock Purchase Agreement"), whereby the Company issued and sold
1,275,912 shares (the "Purchased Shares") of its common, $.10 par value per
share stock (the "Common Stock") to IMCC, so that IMCC owned a 50.5%
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interest in the Company. IMCC acquired the Purchased Shares at a price equal
to $3.35 per share for an aggregate purchase price of $4,274,305.20 (the
"Purchase Price"), of which $641,145.78 was paid in cash by IMCC to the Company
at the closing. The remaining portion of the purchase price of $3,633,159.42
was evidenced by IMCC's promissory note (the "Note"). The Note bears interest
at a rate equal to the short-term applicable federal rate published by the
Internal Revenue Service in effect at the time of closing, and is adjusted on
each anniversary of the Note to the applicable short-term federal rate in
effect on such anniversary date. Interest on the Note is to be paid currently
in arrears on each anniversary of the Note. At the closing, IMCC paid
$197,872.52 to the Company, which amount represented the present value first
year of interest due under the Note. The principal and any unpaid interest
accrued under the Note is due and payable August 1, 2001. The Note is secured
by the Purchased Shares as evidenced by a stock pledge agreement, dated as of
July 3, 1996, by and between IMCC and the Company (the "Stock Pledge
Agreement"). Pursuant to a separate written guaranty agreement, John Fife
personally guaranteed payment of 25% of all amounts due under the Note from
time to time. For a more detailed description of the Stock Purchase Agreement,
see Form 8-K filed by the Company on July 19, 1996, and to review a copy of the
Stock Purchase Agreement, see Schedule 13D-A filed by IMCC on September 9,
1996.
As required by the Stock Purchase Agreement, E. Jay Sheen and R. Dee
Erickson, submitted their resignations as directors of the Company, effective
July 13, 1996. As further required by the Stock Purchase Agreement, John Fife
was appointed a director of the Company. David Fife, the brother of John Fife,
was also appointed as a director of the Company. John Fife and David Fife were
appointed directors of the Company by the Muth Group pursuant to the 1993
Settlement Agreement, effective July 13, 1996. As required by the Stock
Purchase Agreement, John Fife was elected President and Chief Executive Officer
of the Company in July, 1996 pursuant to a 3-0 vote of the Board (Mark G. Jones
and Jenny Morgan were not present for the vote). John Fife also serves as
Chairman of the Board of the Company pursuant to a 3-2 vote of the Board.
The Stock Purchase Agreement contemplated that subject to applicable
state and federal securities and state corporate law, the Company would cause a
1,000 to 1 share reverse split of the Company's stock to the shareholders of
record at $3.35 per share, with fractional shareholders given the option to
either purchase additional fractional shares at $3.35 per share to round up to
one whole share following the reverse split or sell their fractional shares for
cash to the Company. IMCC was granted a ten year option to purchase 150,000 or
more additional shares of stock at a purchase price equal to $3.35 per share
and on the same terms and conditions as those provided under the Stock Purchase
Agreement, so that after the reverse split IMCC may maintain its 50.5% majority
interest in the Company. Subsequent to the reverse split and subject to
applicable state and federal securities and state corporate law, any Company
shares redeemed by the Company pursuant to the reverse split (the "Returned
Shares") may be acquired by the remaining shareholders, other than IMCC or its
affiliates, in increments of 1,000 shares (the "Returned Share Option"), at a
purchase price equal to the pre-reverse-split price of $3.35 per share (the
"Returned Share Purchase Price"). Only those shares for which the Company has
received a fully and properly executed letter of transmittal, accompanied by
the required documents, will qualify as Returned Shares for the purposes of
this Returned Share Option. Such Common Stock shall be purchased in blocks of
1,000 shares of Common Stock such that each purchase of a 1,000 share block of
Common Stock shall be converted into one (1) share of common $100.00 par value
per share stock of the Company (the "New Stock"). In the event the Returned
Share Option is over-subscribed, then each of the exercising shareholders may
purchase the Returned Shares on a pro-rata basis (as determined by the number
of shares held by each of the exercising shareholders as of the record date
less those shares held by IMCC), but in no event in less than 1,000 share
blocks. In the event of such over-subscription, each qualified shareholder
could elect to purchase that percentage of Returned Shares equal to x/(y-z)
where "x" equals the number of New Stock shares owned by the qualified
shareholder wishing to purchase the Returned Shares, "y" equals the total
number of issued shares of New Stock, and "z" equals the number of issued
shares of New Stock owned by IMCC. Twenty-five percent (25%) of the Returned
Share Purchase Price shall be payable in cash upon exercise, with the remaining
balance of $2.51 per share being evidenced by a note (the "Returned Share
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<PAGE> 12
Note"), payable in three (3) years. Subject to applicable Internal Revenue
Service rules, the Returned Share Note shall bear simple interest at the short
term applicable federal rate as stated in June, 1996, which interest shall be
payable annually in arrears. Payment of the Returned Share Note will be
secured by a pledge of the Returned Shares purchased, as converted into
share(s) of New Stock, pursuant to a stock pledge agreement to be provided by
the Company. Exercising shareholders purchasing Returned Shares shall be
required to apply any dividends, distributions or other payments made to the
shareholder of the Company on the Returned Shares/New Stock to payment of the
unpaid balance of the Returned Share Note. Returned Shares, as converted into
New Stock, purchased by an exercising shareholder shall be fully votable in
accordance with the terms of the Company's organizational documents and other
agreements binding the Company for so long as the exercising shareholder is not
in default under the pledge agreement or the Returned Share Note.
As a result of the reverse split, the Company is expected to become a
non-reporting company. A company with assets of over $5 million becomes a
"reporting company" when its shareholders number 500 or more. To thereafter be
allowed to become a "non-reporting company" and cease reporting to the
Securities and Exchange Commission, the number of shareholders must decline to
less than 300. Of the approximately 558 shareholders, approximately 479
shareholders of record own fewer than 1,000 shares, leaving approximately 79
shareholders post reverse-split if none of these shareholders exercise their
option to round up.
In February, 1997, the Company filed a Schedule 13e-3 and a
Preliminary Proxy Statement with the Securities and Exchange Commission. The
Preliminary Proxy Statement relates to a solicitation of proxies by the Company
to be used at the annual meeting of shareholders of the Company to consider and
vote upon: (i) a proposal to amend the Company's Articles of Incorporation to
effect a reverse split of the Company's issued and outstanding stock on the
basis that each 1,000 share of common stock then outstanding will be converted
into one share, at $3.35 per share pre-reverse-split price, with fractional
shareholders given the option to either receive cash in lieu of their resulting
fractional share or purchase additional fractional shares at $3.35 per share to
round up to one whole share following the reverse split; (ii) the election of
directors; (iii) an amendment to the by-laws changing the annual meeting date;
(iv) certain proposals submitted by Mark G. Jones on behalf of Mark
Technologies Corporation, and other matters. The Securities and Exchange
Commission is currently in the process of reviewing the Schedule 13e-3 and the
Preliminary Proxy Statement.
SHARE EXCHANGE AGREEMENT
On June 13, 1995, the Company consummated the exchange of 590,000
shares of its common stock, representing approximately 33% of the total issued
and outstanding shares of the Company's common stock following the transaction,
in return for receipt of all of the issued and outstanding stock of Midwest
Railroad Construction and Maintenance Corporation ("Midwest") pursuant to a
Plan of Share Exchange and Share Exchange Agreement, dated February 16, 1995 by
and among the Company, Midwest, Robert D. Wolff ("RD Wolff") and Judith J.
Wolff ("JJ Wolff") (the "Share Exchange Agreement"). The Share Exchange
Agreement was approved by a 3-2 vote of the Board. Directors John H. Morgan,
Jr., and Daisy R. Morgan voted against the Share Exchange Agreement. All of
the common stock of Midwest was owned by RD Wolff and JJ Wolff. The Share
Exchange Agreement was accomplished as a tax free reorganization pursuant to
Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended (the
"Code"). Midwest, headquartered in Salt Lake City, Utah, is in the railroad
construction and maintenance business, operating out of five regional offices
located in Utah, Wyoming, Colorado, Nebraska and New Mexico. Midwest also
provides railroad engineering, surveying, bridge and structural maintenance,
grade crossing and in-plant switching services. Pursuant to the terms of the
Share Exchange Agreement, the Company agreed to: (i) indemnify Midwest and the
Wolffs from any liability to the Company's shareholders, its officers or
directors, whether brought directly by the person or in a derivative capacity
arising from Midwest's or the Wolffs' negotiation, execution, or consummation
of
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<PAGE> 13
the Share Exchange Agreement; (ii) execute a three year employment agreement
between RD Wolff and the Company, whereby RD Wolff would act as the President
of Midwest; (iii) apply for a listing of its stock on the NASDAQ; and (iv) lend
Midwest, in the form of a line of credit, a sum not to exceed $250,000, with
the first draw available after February 15, 1995, evidenced by a promissory
note in standard form, bearing an interest rate of 1% over the posted prime
lending rate at First Security Bank of Utah, N.A., as of February 15, 1995, and
adjusted each three months thereafter. Prior to closing of the Share Exchange
Agreement, Midwest borrowed a total of $100,000 against the line of credit.
Pursuant to the terms and conditions of the Share Exchange Agreement, the line
of credit from the Company became subordinate to Midwest's existing credit line
of $350,000. The line of credit was secured by the assets and equipment of
Midwest. The Company entered into an employment agreement with RD Wolff, dated
as of June 13, 1995 (the "Wolff Employment Agreement"), and an operating
agreement between Midwest and RD Wolff, dated as of June 13, 1995 (the
"Operating Agreement"). Pursuant to the Wolff Employment Agreement, RD Wolff
was to serve as CEO of the Company and Midwest, and RD Wolff was to receive
$125,000 per year in compensation during the term of the Wolff Employment
Agreement. Furthermore, during the first five quarters of the Wolff Employment
Agreement, beginning July 1, 1995, RD Wolff was to receive $25,000 in
additional compensation per quarter. In addition to his base salary, RD Wolff
was to receive an annual bonus computed on the after tax net earnings of
Midwest, as follows: (a) 5% of the first $200,000 in net earnings of Midwest,
(b) 7% of the next $200,000, and (c) 10% of all amounts over the first $400,000
in net earnings of Midwest. RD Wolff was also entitled to participate in the
Company's health and benefit plans. Pursuant to the terms of the Operating
Agreement and for services performed in connection with the consummation of the
Share Exchange Agreement, the Company paid to each of R. Dee Erickson and E.
Jay Sheen, both of whom were directors of the Company at the time of the
execution of the Share Exchange Agreement, as compensation, 38,000 shares each
of the Company's Common Stock and $104,000 in cash. For a more detailed
description of the Share Exchange Agreement, the Wolff Employment Agreement and
the Operating Agreement and for copies of the above listed agreements see
Form 8-K filed on behalf of the Company with the SEC on July 20, 1995.
On July 18, 1995, Anne Morgan and Victoria Morgan, at the time
shareholders of the Company and the adult daughters of John H. Morgan, Jr. ("JH
Morgan") and Daisy R. Morgan ("DR Morgan"), both former directors and
shareholders of the Company, filed a shareholders derivative action against R.
Dee Erickson ("Erickson"), E. Jay Sheen ("Sheen"), Lyle D. Hurd ("Hurd")
(Messrs. Erickson, Sheen and Hurd were three of the five directors of the
Company at the time the suit was filed, with JH Morgan and DR Morgan being the
remaining two directors), the Company, Midwest, RD Wolff and JJ Wolff, in the
United States District Court for the Central District of Utah, Case
Number 2:95CV 661J, captioned as Anne Morgan et al. v. R. Dee Erickson, et al.
(the "First Federal Action"). The complainants alleged, among other things
that the defendants had violated proxy solicitation rules, violated disclosure
rules under the Exchange Act of 1934, breached their fiduciary duties to the
Company's shareholders, breached professional duties, committed fraud, wasted
and looted the Company's assets, converted Company property, engaged in
self-dealing, mismanaged the Company and breached their duty of loyalty. The
complaint sought, among other things, the rescission of the Share Exchange
Agreement.
The terms of the Letter of Intent between IMCC and the Company
required that the Company rescind the Share Exchange Agreement. For the
foregoing reason, Midwest and the Company entered into a Splitoff Agreement,
dated as of April 25, 1996 (the "Splitoff Agreement"), whereby the Share
Exchange Agreement was rescinded. A copy of the Splitoff Agreement is attached
as Exhibit 10.36 to Company's Form 10-KSB for the year ending December 31,
1995, which was filed with the SEC on January 8, 1997. Pursuant to the terms
of the Splitoff Agreement, the Company transferred all of the outstanding
shares of Midwest stock held by the Company to the Wolffs in exchange for the
590,000 shares of the Company's stock then held by the Wolffs which transfer
was accomplished tax free in accordance with Section 355 of the Code.
Furthermore, the Share Exchange Agreement, the Wolff Employment Agreement and
the Operating Agreement were cancelled. RD Wolff ceased to be the President of
the Company. Midwest received a net
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<PAGE> 14
intercompany transfer of approximately $316,974.17 through March 31, 1996,
which Midwest retained. Furthermore, the parties to the Splitoff Agreement
agreed that in the event intercompany transfers for the period from July 1,
1995 through March 31, 1996 were: (i) less than $316,974.17, then the Company
would pay Midwest the difference; or (ii) more than $316,974.17, then Midwest
would pay the Company the difference. Based upon its own review, the Company
believes that Midwest owes the Company $4,769 in excess intercompany transfers
and $8,118 for Midwest's portion of Ladd Worth Eldredge's employment
compensation pursuant to the terms of an agreement by and between Midwest and
the Company, dated July 24, 1996, and which agreement is no longer in effect.
Pursuant to the Splitoff Agreement, the Company agreed to indemnify
Midwest and the Wolffs and their respective agents, employees, attorneys,
officers, directors and assigns from any and all claims, causes of action,
liabilities, damages, costs, expenses and attorneys' fees arising from or
relating in any way to the Company or the Share Exchange Agreement. This
indemnification provision would not apply to acts of fraud, gross negligence or
willful misconduct by RD Wolff. The Wolffs and Midwest agreed to indemnify the
Company and its respective agents, employees, attorneys, officers, directors,
successors and assigns from any and all claims, causes of action, liabilities
and damages arising from or relating in any way to the Splitoff Agreement,
which indemnification obligation is limited to $312,000. Within 30 days from
the date of execution of the Splitoff Agreement, the Company's accountants were
to have calculated the federal, state and local income taxes attributable to
Midwest's business operations (excluding any impact of salary payable or paid
to RD Wolff or any intercompany charges to the Company for rent, overhead and
administrative expenses) for the period commencing June 1, 1995 and terminating
on December 31, 1995. Such taxes were to be determined on the basis as if the
Company and Midwest were not filing a consolidated tax return for the same
period or part thereof (whether or not a consolidated return is filed). The
amount of such taxes is to be considered an intercompany receivable between the
Company and Midwest. Midwest agreed to pay such tax amount to the Company in
12 installments. Simultaneous with the execution of the Splitoff Agreement,
Midwest paid the Company the sum of $10,000 as an initial tax payment. The
balance due the Company is to be paid in 11 additional equal monthly
installments, with each such installment due on the first day of each month
until all 11 installments have been paid in full. The first of the 11 monthly
installments is due and payable on the first day of the month following the
determination of the taxes owed by Midwest to the Company. The Company has
determined that Midwest owes the Company $41,799 in taxes, of which $31,799
remains due. The Company has not yet made a demand for payment to Midwest.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 27, Financial Data Schedule
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<PAGE> 15
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.
Utah Resources International, Inc.
Date: ___________ _______________________________
John Fife, President and CEO
Date: ___________ _______________________________
Ladd Worth Eldredge, Chief Financial
Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UTAH
RESOURCES INTERNATIONAL, INC. MARCH 31, 1997 FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 366,141
<SECURITIES> 0
<RECEIVABLES> 424,195
<ALLOWANCES> 0
<INVENTORY> 878,118
<CURRENT-ASSETS> 0
<PP&E> 69,826
<DEPRECIATION> 44,047
<TOTAL-ASSETS> 1,802,506
<CURRENT-LIABILITIES> 0
<BONDS> 289,281
0
0
<COMMON> 252,281
<OTHER-SE> 289,354
<TOTAL-LIABILITY-AND-EQUITY> 1,802,506
<SALES> 0
<TOTAL-REVENUES> 77,810
<CGS> 0
<TOTAL-COSTS> 265,675
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 97
<INCOME-PRETAX> (187,963)
<INCOME-TAX> 0
<INCOME-CONTINUING> (187,963)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (187,963)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
