<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
- --------------------------------------------------------------------------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
- --------------------------------------------------------------------------------
Commission File No.
-----------
UTAH RESOURCES INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
Utah 87-0273519
- ------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
- --------------------------------------------------------------------------------
297 W. Hilton Drive, Suite #4
St. George, Utah 84770
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices)
- --------------------------------------------------------------------------------
(801) 628-8080
- --------------------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(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
----- -----
(2) Yes X No
----- -----
<PAGE> 2
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 July
1, 1997.
Transitional Small Business Disclosure Format (check one):
Yes No X
----- -----
-2-
<PAGE> 3
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
UTAH RESOURCES INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------
<S> <C>
ASSETS
Cash and cash equivalents $ 392,404
Accounts receivable 297,070
Notes receivable 268,691
Property and equipment, net of accumulated depreciation and
amortization of $44,686.25 25,140
Real estate held for resale 830,755
Royalty interest in petroleum and mineral production, net of
amortization of 46,055.45 4,155
Other assets 103,281
-----------
Total assets $ 1,921,496
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 405,592
Accrued expenses 284,485
Earnest money deposits 36,000
Notes payable 287,838
-----------
Total liabilities 1,013,915
Minority interest 110,904
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 (253,677)
-----------
Total stockholders' equity 796,677
-----------
Total stockholders' equity and liabilities $ 1,921,496
===========
</TABLE>
-3-
<PAGE> 4
UTAH RESOURCES INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
FOR THE PERIODS INDICATED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 1997 JUNE 1996
--------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (23,819) $ (19,010)
Less income from discontinued operations - (132,140)
Add loss from disposition of discontinued operations 90,899 93,694
Adjustments to reconcile net (loss) to net cash
(used in) operating activities:
Depreciation and amortization 1,674 4,600
Minority interest in net (income) of subsidiaries - (1,048)
(Increase) decrease in:
Accounts receivable (34,402) (35,447)
Real estate held for resale 45,333 199,688
Refundable income taxes - (9,800)
(Decrease) increase in:
Accounts payable 153,128 (229,020)
Accrued expenses (261,585) (50,645)
--------------------------
Net cash used in continuing operations (28,772) (179,128)
Net cash provided by discontinued operations - 39,151
--------------------------
Net cash (used in) operating activities (28,772) (139,977)
--------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment 879 (976)
Payments on notes receivable (128,019) 14,269
Increase (decrease) in minority interest - -
Decrease (increase) in other assets 33,730 -
--------------------------
Net cash (used in) investing activities (93,410) 13,293
--------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable - -
Payments on notes payable (3,272) (406,964)
--------------------------
Net cash (used in) financing activities (3,272) (406,964)
--------------------------
Increase in cash (125,454) (533,648)
Cash and cash equivalents, beginning of period 517,858 765,831
--------------------------
Cash and cash equivalents, end of period $ 392,404 $ 232,183
==========================
</TABLE>
-4-
<PAGE> 5
UTAH RESOURCES INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIODS INDICATED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
6/30/97 6/30/96 6/30/97 6/30/96
----------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 229,523 $ 142,949 $ 317,066 $ 178,070
Cost of sales 3,448 50,215 5,010 60,286
---------------------------------------------------
Gross profit 226,075 92,734 312,056 117,784
General and administrative 231,314 147,280 456,874 238,102
---------------------------------------------------
Income from operations (5,239) (54,546) (144,818) (120,318)
---------------------------------------------------
Other income (expense):
Royalty income 37,703 47,104 106,275 74,900
Interest and dividend income - - 8,338
Interest income (expense) 6,950 (13,116) 6,386 (42,686)
---------------------------------------------------
Total other income (expense) 44,653 33,988 120,999 32,214
---------------------------------------------------
Income (loss) before minority interest
and provision for income taxes 39,414 (20,558) (23,819) (88,104)
Minority interest in net income of
subsidiaries - 716 - 1,048
---------------------------------------------------
Income (loss) before provision for
income taxes 39,414 (19,842) (23,819) (87,056)
Income tax (provision) benefit - 6,750 - 29,600
---------------------------------------------------
Income (loss) from continuing
operations 39,414 (13,092) (23,819) (57,456)
Discontinued operations:
Income (loss) from discontinued
operations - - - 132,140
Income from disposal of
discontinued operations - (1,856) - (93,694)
---------------------------------------------------
Total discontinued operations - (1,856) - 38,446
---------------------------------------------------
Net income (loss) $ 39,414 $ (14,948) $ (23,819) $ (19,010)
===================================================
Weighted average shares outstanding - 1,851,198 2,522,808 1,851,198
===================================================
Earnings (loss) per share 0.016 (0.010) (0.009) (0.010)
===================================================
</TABLE>
-5-
<PAGE> 6
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 June
30, 1997 and the results of operations and cash flows for the three and six
months ended June 30, 1997 and 1996. The results of operations for the
three months ended June 30, 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.
-6-
<PAGE> 7
Item 2. Management's Discussion and Analysis or Plan of Operation.
RESULTS OF OPERATIONS
The Company had land sales of $229,523 for the quarter ended June 30,
1997, as compared with land sales of $142,949 for the quarter ended June 30,
1996. The Company had land sales of $317,066 for the six months period ended
June 30, 1997, as compared with land sales of $178,070, for the six months
period ended June 30, 1996. There was interest income in the amount of $14,724
during the first six months of 1997, as compared with an expense of $42,686 for
the same period in 1996, which represents, in part, payments due under the
Mortenson Note, which note was paid in full in 1996. Income on royalties from
production under oil and gas and mineral leases amounted to $37,703 for the
quarter ended June 30, 1997, which was down from $47,104 for the quarter ended
June 30, 1996. However, the income on royalties from production under oil and
gas and mineral leases for the six months period ended June 30, 1997, is
$106,275, which is an increase over the $74,900 which was earned over the same
period in 1996.
Cost of land sold in the second quarter decreased from $50,125 in 1996 to
$3,448 in 1997. For the six months period ending June 30, cost of land sold
fell from $60,286 in 1996 to $5,009 in 1997.
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 June 30, 1997
was approximately 1.90 to 1. The Company's assets as of June 30, 1997 were
valued at $1,921,496, as against liabilities of $1,013,915.
The Company presently anticipates that cash from land sales and royalties
will be the primary sources for future additional liquidity for the Company.
General and administrative expenses increased substantially from 1996 to
1997. For the second quarter, general and administrative expenses rose from
$147,280 in 1996 to $231,314 in 1997. Furthermore, for the six months period
ended June 30, general and administrative expenses increased from $238,102 in
1996 to $456,874 in 1997. A significant portion of such expenses were legal
fees and expenses incurred on behalf of the Company. This increase is due to
the fact that from July 3, 1996 to the present, the Company has been engaged in
activities to: (i) bring the Company into compliance with various state and
federal securities laws; and (ii) perform a 1,000 to 1 reverse stock split at
$3.35 per share, as required by the 1996 Settlement Agreement, see "Item 1
LEGAL PROCEEDINGS", and (iii) take the Company to a non-Securities and Exchange
Commission ("SEC") reporting status. In order to bring the Company into SEC
reporting compliance, the Company filed its; (1) 1995 Form 10-KSB with the SEC
on January 8, 1997, (2) Form 10-QSB for the first, second and third quarters
of 1996 on January 22, 1997, (3) 1996 Form 10-KSB on May 28, 1997, and (4)
first quarter 10-QSB on June 5, 1997. With respect to the reverse stock split,
the Company filed its Schedule 13e-3 and Preliminary Proxy Statement with the
SEC in February of this year. The Company has responded to an SEC comment
letter dated March 28, 1997 and is currently responding to a second SEC comment
letter dated June 27, 1997. These activities have imposed a significant drain
on the Company's resources. The Company anticipates that once the reverse
stock split is completed and the Company ceases to be an SEC reporting Company,
the Company's future legal fees will decrease significantly.
-7-
<PAGE> 8
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 second quarter of 1997, $6,450 was expended toward this clean-up
operation and approximately $10,574 has been expended by the Company from
January 1, 1997 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. The Company does not have backup lines of credit.
The Company has no additional plans for major capital expenditures beyond
the cost of improving portions of its real property.
The Company's business is influenced by interest rates, inflation and
market demands. Its royalty income from oil and gas interests is 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 July 3, 1996, 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.,
-8-
<PAGE> 9
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 second quarter of 1997, the partnership has spent
approximately $236,279 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.
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.
On or about June 16, 1995, Mrs. Benecia Goka filed a suit against
Tonaquint, Inc., a wholly owned subsidiary of the Company, captioned Benecia
Goka vs. Tonaquint, Inc., in the Fifth Judicial District Court Washington
County, State of Utah. Mrs. Goka claimed that Tonaquint, Inc. failed to
transfer good and marketable title to Lots 7 and 8 of Williamsburg
West-Heritage Village Subdivision, as required by the land purchase agreement
between Mrs. Goka and Tonaquint, Inc. and sought specific performance. On
February 20, 1997, Tonaquint, Inc. settled the lawsuit with Mrs. Goka by paying
Mrs. Goka Seventy-Two Thousand Five Hundred Dollars ($72,500). In return for
the payment, Mrs. Goka relinquished her interest in Lots 7 and 8, transferred
the Lots to Tonaquint, Inc., and signed a release, releasing Tonaquint, Inc.,
from any liability with regard to the sale of Lots 7 and 8.
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
-9-
<PAGE> 10
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 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.
On May 17, 1996, a shareholders derivative suit captioned as Mark
Technologies Corp., et al. vs. 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. vs. 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, Jr., 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
-10-
<PAGE> 11
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 August 22, 1996, the
court denied the Objector's petition. 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% 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
-11-
<PAGE> 12
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 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 shares 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
-12-
<PAGE> 13
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 SEC reviewed the Schedule 13e-3 and the
Preliminary Proxy Statement, and sent its comment letter to the Company dated
March 28, 1997. The Company has since responded to the March 28, 1997 SEC
comment letter with a response letter and a revised Schedule 13e-3 and
Preliminary Proxy Statement, which documents were filed with the SEC on June 5,
1997. On June 27, 1997 the SEC sent the Company a second comment letter. The
Company is currently in the process of preparing its response to the SEC.
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 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
-13-
<PAGE> 14
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 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
-14-
<PAGE> 15
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.
None.
-15-
<PAGE> 16
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: 8-14-97 /s/ John Fife
-------------- ----------------------------------
John Fife, President and CEO
Date: 8-14-97 /s/ Ladd Worth Eldredge
-------------- ----------------------------------
Ladd Worth Eldredge, Chief Financial
Officer
-16-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UTAH
RESOURCES INTERNATIONAL, INC. JUNE 30, 1997 FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 392,404
<SECURITIES> 0
<RECEIVABLES> 565,761
<ALLOWANCES> 0
<INVENTORY> 830,755
<CURRENT-ASSETS> 0
<PP&E> 69,826
<DEPRECIATION> 44,686
<TOTAL-ASSETS> 1,921,496
<CURRENT-LIABILITIES> 726,077
<BONDS> 0
0
0
<COMMON> 252,281
<OTHER-SE> 544,396
<TOTAL-LIABILITY-AND-EQUITY> 1,921,496
<SALES> 317,066
<TOTAL-REVENUES> 438,065
<CGS> 5,010
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 456,874
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (23,819)
<INCOME-TAX> 0
<INCOME-CONTINUING> (23,819)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23,819)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
