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FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended
DECEMBER 31, 1996
Commission file number
UTAH RESOURCES INTERNATIONAL, INC.
(Name of small business issuer in its charter)
Utah 87-0273519
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(State of Incorporation) (I.R.S. Employer Identification No.)
297 W. Hilton Drive, Suite #4
St. George, Utah 84770
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(Address of principal executive offices including zip code)
Issuer's telephone number: (801) 628-8080
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
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Common Stock
Par Value $.10 Per Share
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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
--- ---
Check if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge,
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in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-KSB or any amendments of this Form 10-KSB. [ ]
Issuer's revenues for its most recent 1996 Fiscal Year was $761,352
(excluding any revenues from Midwest Railroad Construction and Maintenance
Corporation which have been classified as discontinued operations).
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, based on the
last sales transaction which occurred December 9, 1996 at approximately $.875
per share, is $795,403.13.
The number of shares of Common Stock, $.10 par value, outstanding on
December 31, 1996 was 2,522,808 shares.
DOCUMENTS INCORPORATED BY REFERENCE
PART OF FORM 10-KSB DOCUMENT
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PART I None
PART II None
PART III
Item 13 - Exhibits and Exhibits as specified in
Reports on Form 8-K Item 13 of this Report
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
(a) Business Development.
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Form and Year of Organization
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Utah Resources International, Inc. ("URI" or the "Company") is a Utah
corporation, organized in 1966 as Utah Industrial, Inc. It was renamed Utah
Resources International, Inc. in 1969. The Company's executive offices are
located at 297 W. Hilton Drive, Suite #4, St. George, Utah 84770.
Stock Purchase Agreement - July 3, 1996
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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 URI'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 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. 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.
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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. A copy of the Morgan Settlement Agreement is attached as
Exhibit 10.37 to the Company's Form 10-KSB for the fiscal year ending December
31, 1995, filed with the SEC on January 8, 1997. 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,
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, 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 the
fiscal year ending December 31, 1995, filed with the SEC on January 8, 1997.
For a more detailed description of the Company's legal proceedings, see "Item
3. Legal Proceedings," and copies of the Morgan Settlement Agreement and the
1996 Settlement Agreement which were attached as Exhibits 10.37 and 10.38
respectively to the Company's Form 10-KSB for the fiscal year ending December
31, 1995, filed with the SEC on January 8, 1997. 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%. 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.
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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
with the SEC on July 19, 1996, and to review a copy of the Stock Purchase
Agreement, see Schedule 13D-A filed by IMCC with the SEC 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 as part of 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 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
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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 $10 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 addition to the contractual requirement that a reverse stock split
occur, as provided for in the Stock Purchase Agreement, the Company's senior
management and its Board of Directors have assessed the advantages and
disadvantages of the Company's status as a "reporting company" under the
Exchange Act. First, such reporting is very costly. Furthermore, a
majority of the Board of Directors does not believe that being a "reporting
company" has given
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the Company any significant advantage the Company would not otherwise have
had as a "non-SEC reporting company." The Company's registration with the
SEC has not improved flexibility for current or future financing of corporate
expansion through the building of a broader equity base, nor has it made the
valuation of shares of the Common Stock significantly easier (since no active
market exists for the sale of stock which is reflective of the Company's
operations and earnings potential). Finally, such registration has not
resulted in the development of an active public market for the Common Stock and
thus has not provided substantially increased liquidity for shareholders who
desire to sell their Common Stock. For a more detailed description of the
history of the Stock Purchase Agreement see "ITEM 3 LEGAL PROCEEDINGS,"
Schedule 13D/A filed September 9, 1996, Form 8-K filed July 19, 1996, and
Schedule 13D filed April 16, 1996.
Subsequent to the period covered by this report, 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 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
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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
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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
the 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 as
compensation 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, 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
2:95CV661J, 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
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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 the Company's Form 10-KSB for the fiscal year ending December 31, 1995,
filed with the SEC on January 8, 1997. Pursuant to the terms of the Splitoff
Agreement, URI transferred all of the outstanding shares of Midwest stock held
by the Company to the Wolffs in exchange for the 590,000 shares of URI 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 canceled. RD Wolff
ceased to be the President of URI. Midwest received a net intercompany
transfer of approximately $316,974 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, then URI would pay Midwest the
difference; or (ii) more than $316,974, then Midwest would pay URI 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, URI 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 URI 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 URI 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 calculate 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.
Pursuant to the terms of the Splitoff Agreement, 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
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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's accountants have
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.
(b) Business of Company.
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URI is a real property development corporation. The Company directly owns
approximately 408 acres of undeveloped land in St. George, Utah, approximately
362 acres of which are developable on which it conducts its real property
development business, primarily through its wholly-owned subsidiary, Tonaquint,
Inc. ("Tonaquint"). Most of the land is near the Southgate golf course. URI
also has interests in partnerships that own and are developing other real
property in St. George. The Company receives revenues from its ownership of
overriding royalty interests in producing oil and gas leases in Utah and
Wyoming, dating from the Company's historic business of acquiring and selling
oil, gas and mineral leases.
The Company's undeveloped real property is adjacent to Interstate Highway
15, a major traffic route from Salt Lake City to Las Vegas and Southern
California. URI's real estate development activities in recent years have
concentrated on subdividing and selling improved lots for residential
construction, as the financial condition of the Company and the St. George,
Utah real estate market have permitted. The Company's lands include premium
priced hillside view lots, as well as lower-priced lots. In addition, the
Company pursues commercial real estate development of some of its undeveloped
real property.
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, for 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"). 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.
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. Through the remainder of 1995 and
through April 25, 1996, Midwest and URI conducted the above activities. On
April 25, 1996, Midwest and URI entered into a Splitoff Agreement, whereby,
among other things, the Share Exchange Agreement was rescinded. For 1995
reporting purposes, Midwest's operations were classified as discontinued
operations, with a net income of approximately $93,000 from operations and a
net loss on disposal of discontinued items of approximately $684,000 to the
Company. For 1996 reporting purposes, Midwest's operations were classified as
discontinued operations, with a net loss of approximately $19,000 from
operations and a net income on
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disposal of discontinued items of approximately $93,000 to the Company. For
a more detailed description of Midwest and the Splitoff Agreement see,
"ITEM 3 LEGAL PROCEEDINGS," and Form 10-KSB for the fiscal year ending
December 31, 1995, filed with the SEC on January 8, 1997.
Real Property Development Activities
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In 1996, the Company sold a total of four (4) improved residential
building lots. The Company sold three (3) lots from its Southgate Hills Phase
II subdivision and one (1) lot from its Southgate Hills Phase I subdivision
generating $163,500 in gross revenues. No residential lots remained in
inventory at the end of 1996. In addition, in 1996 the Company through a
partnership sold 5.24 acres for $167,973. In 1995, the Company sold a total of
three (3) improved residential building lots in its Southgate Hills Phase II
subdivision, generating $145,000 in gross revenues. The Company sold its
one/half interest in a one and one/half acre parcel of golf course commercial
property through the partnership of Southgate Resort located on Tonaquint
Drive, for $171,098. In 1994, the Company sold a total of 17 improved
residential building lots in its Southgate Hills Phase II subdivision
generating approximately $800,000 in gross revenues.
In July of 1992, Tonaquint executed a Sale and Option Agreement with Kay
H. Traveler (the "Sale and Option Agreement"), pursuant to which Tonaquint was
to sell 14 acres to Mr. Traveler, for a total purchase price of $350,000
($25,000 per acre), and grant Mr. Traveler an option to acquire an additional
40 acres at option exercise prices ranging from $20,000 to $50,000 per acre,
exercisable over five years, so long as minimum option exercises occurred each
year. Mr. Traveler's inspection of the 14 acres disclosed adverse soil
conditions, resulting in the execution of an Addendum to the Sale and Option
Agreement by the parties in March of 1993. Mr. Traveler was granted an option
to acquire a total of 56 acres at prices ranging from $22,000 to $50,000 per
acre. The Kay Traveler Sale and Option Agreement resulted in 1996 sales of
2.11 acres for the sum of $106,432 and 1995 sales of 3.48 acres for the sum of
$152,137. From July 1992 through December 31, 1996, Kay Traveler exercised his
option for a cumulative total of 32.68 of the 75.98 acres available, for the
sum of $942,638. Approximately 43.3 acres remain under option to Mr. Traveler.
During the latter half of 1994, the Company began its development efforts
for Southgate Phase III, consisting of a total of 37 acres of land above the
Southgate golf course, suitable for view-lot residential construction. The
land to be developed is on the hillside directly to the south of the Southgate
golf course and directly to the west of Interstate 15. The sloping topography
of the land requires that the Hillside Ordinance Committee of the St. George
Planning and Zoning Commission approve the Company's planned development of the
acreage. The Company is seeking approval for development of all 37 acres for a
total of 79 lots. This approval has taken longer than originally anticipated,
due in part to the restrictions of the hillside ordinance and the increasing
political pressure to restrict real estate development generally in St. George,
which has resulted in an increasing regulatory burden on real estate
development. Approval is expected no earlier than the second quarter of 1997.
Thereafter, the Company anticipates, upon Board
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<PAGE> 12
approval, excavating, building roads, bringing utilities to the property,
constructing curbs and gutters, and selling the improved lots.
Beginning in late 1994, the Company began planning for the development of
its Southgate Valley subdivision, 125 lots on 32 acres of the Company's
property located west of the Southgate golf course. The Company received
approval from the St. George Planning and Zoning Commission for development of
the property. The Company is considering alternative development opportunities
from residential to commercial, based upon zoning requirements and market need.
Real Property Development, Industry Overview, Government Regulation, and
Competition
- ------------------------------------------------------------------------
The real estate development industry in general and the residential real
estate development industry in particular is a high risk industry, subject to
changes in general economic conditions, fluctuating interest rates, and
changing demand for the types of developments being considered. Volatility in
local and regional land use demands, as well as changing supply and demand for
the specific uses for which the real property is being developed are also
factors in assessing the relative risks of the business. The demand for
residential real estate development is particularly sensitive to changing
interest rates and shifting demographics. Both of these factors affecting the
demand for residential housing are highly unpredictable over both the short and
long-term.
Real estate development is a government regulated industry. The
regulation of real estate development is often carried out in an unpredictable
fashion, reflective of both political and rational considerations. Regulation
is carried on by municipal, county, state and federal agencies, but municipal
and county governments have the greatest regulatory impact. St. George City,
in which URI operates, has been adopting increasingly restrictive regulations
associated with development activities, including the adoption of more
restrictive building codes and ordinances, greater emphasis on land use
planning, pressure to increase the number of low density residential
developments, and heightened public concern aimed at limiting development as a
means to control growth. Development in some areas close to the Company's
lands may be limited by governmental environmental protection activities.
Government regulation can have an effect on the viability of real estate
development by the Company.
The real property development industry is highly competitive. Several
development companies with interests in St. George have longer operating
histories, greater financial strength and more experience in the industry than
does the Company. The Company's development activities historically have
represented less than 5% of total real estate development activity in the area
in and around St. George, and, in management's view, that percentage is likely
to decrease in the near term given the increase in overall development
activities in the area. The perceived strength of the St. George real estate
market has recently attracted many more developers to the area, increasing the
competition for the Company. The Company has very little debt, which has
served it well in being able to weather the ups and downs in the St. George
real estate market. Management believes that the Company's positive equity to
debt ratio could provide the Company with increased liquidity through improved
borrowing capabilities.
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<PAGE> 13
Partnerships
- ------------
TONAQUINT-INDIAN HILLS LIMITED PARTNERSHIP
All but approximately $15,369 of the remaining assets of Tonaquint-Indian
Hills Limited Partnership, which constructed 26 condominium townhomes on 4
acres of land in the late 1980's, were distributed in 1993. The Company plans
to dissolve the partnership in 1997 and distribute its remaining assets. The
Tonaquint-Indian Hills Limited Partnership has been inactive through 1996.
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 1996, the partnership has spent approximately $225,705 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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<PAGE> 14
Morgan Gas & Oil Co., a limited partner of the Service Station Limited
Partnership #2, holds notes in the total principal amount of $110,932 from the
Service Station Limited Partnership #2, ostensibly representing loans made by
Morgan Gas & Oil Co. to the partnership. Morgan Gas & Oil Co. claims the loans
are overdue. However, since the transactions were between related parties, all
of whom were controlled by John H. Morgan, Jr. at the time of the transactions,
and since the Company also advanced funds to the partnership, the Company is
performing an internal audit to verify the legitimacy of the loans and their
proper characterization, before it determines whether to acknowledge
and pay the debt.
SOUTHGATE PARTNERSHIPS
The Company is a general partner in three separate Utah limited
partnerships, Southgate Palms, Southgate Resort and Southgate Plaza,
respectively, each of which is (or was) a partner in one of three separate
general partnerships having the same names, whose initial purpose was the
development of certain real property located near the St. George Hilton Inn.
This property consisted of the present Southgate Golf Course (formerly the Lava
Hills Resort Golf Course) and certain property acquired from Tonaquint
contiguous to or located near the Southgate Golf Course.
Southgate Palms General Partnership constructed the Fairway Hills
subdivision. During 1994, the homeowners association for the subdivision,
demanded the partnership build a tennis court, or pay an amount to each
homeowner constituting the value of a tennis court, claiming the partnership's
agents represented that one of the amenities in the project would be a tennis
court. The partnership denied liability but, in May of 1995, settled the
dispute by paying the homeowners $32,000 and forgiving a disputed debt of
approximately $11,000. The Company paid its 1/3rd share of the settlement.
Southgate Plaza General Partnership is selling parcels of its property,
primarily for commercial development. In 1996, the Company sold four (4)
parcels totaling 5.24 acres, with proceeds to the Company in the amount of
$167,973. In 1995, the partnership sold two (2) parcels totaling 2.4 acres,
with proceeds to URI in the amount of $96,595. Sales of 23 acres occurred in
1994, where the Company's portion of the proceeds totaled $658,612. The
Company intends to dissolve Southgate Palms, Southgate Plaza and Southgate
Resort partnerships in 1997.
COUNTRY CLUB PARTNERSHIP
The Country Club Partnership sold one developed lot for $33,000 of which
the Company received $8,980.
Overriding Royalties in Oil and Gas Leases
- ------------------------------------------
URI has overriding royalty interests in oil and gas properties held by
various other parties. All revenues from the Company's interests in the
properties have been received in cash.
14
<PAGE> 15
The Company received royalties in the amount of $153,051 in 1996 as compared
to $61,006 in 1995. URI has not engaged in the acquisition and sale of oil
and gas leases for many years and has no intention of doing so in the future,
nor does it have facilities or means to perform the exploration, development
and operation of oil and gas wells on properties in which it has interests.
Mineral or oil and gas exploration and development is undertaken by third
parties. If production is realized on any properties in which URI has an
interest, it receives a share of gross production revenues based upon the
percentage overriding royalty interest it has retained.
Employees
- ---------
In 1996, the Company employed two full-time employees and no part-time
employees. Pursuant to the Stock Purchase Agreement, the Company and John Fife
have agreed to enter into an employment agreement which would provide for,
among other things, (i) the employment of Mr. Fife as President, CEO, Chairman
of the Board of the Company and (ii) an annual salary to be paid to Mr. Fife of
no more than $200,000 for any year during the employment period. At this time
no employment agreement has been entered into with Mr. Fife. The Company's
Board, in a 3-2 vote passed a resolution delaying the negotiation of the terms
of the John Fife employment agreement until after the shareholders vote on the
proposed reverse stock split. To date, the Company has not paid, nor has any
salary accrued to John Fife for his services as President. URI and its
subsidiary currently employ Gerry Brown on a full-time basis, to act as the
Vice President of the Company, where he provides real estate planning,
development and sales services for the Company, Tonaquint, Inc., the Company's
wholly-owned subsidiary, and various affiliated partnerships. Mr. Brown is
currently the President of Tonaquint, Inc., where he assists in land use
planning, negotiating sales and financing arrangements, obtaining government
approvals, arranging for construction contracts, and supervising the
performance of engineering services as have been required. The Company
executed and presented Mr. Brown with a three year employment agreement on June
28, 1995, which employment agreement remains unexecuted by Mr. Brown. Ladd
Worth Eldredge is employed by the Company as its Secretary, Treasurer, CFO and
office manager. From June 1995 through April 1996, Robert D. Wolff served as
the CEO of the Company, with an annual salary of $125,000 and quarterly bonus
of $25,000. Gerry Brown served as President of the Company. Ladd Worth
Eldredge was employed as the Company's Secretary, Treasurer, CFO and office
manager. No employees are party to a collective bargaining agreement with URI.
ITEM 2. DESCRIPTION OF PROPERTY
St. George Properties
- ---------------------
As of December 31, 1996, Tonaquint, Inc., a wholly-owned subsidiary of the
Company, owned approximately 394 acres of undeveloped land in the general area
of the St. George Hilton Inn and the Southgate Golf Course in St. George, Utah,
approximately 353 acres of which are developable. As of December 31, 1996,
approximately 43.3 acres remained under option to Kay Traveler, at prices
ranging from $22,000 to $50,000 per acre.
15
<PAGE> 16
The Company intends to develop its property, primarily through subdividing
and selling improved lots for residential construction, although sales of
undeveloped parcels to other developers are also occurring. Additionally,
management believes that approximately 25 acres of the Company's lands are
suitable for commercial development. URI owns a combined 25% interest in
approximately 8.03 acres of land owned by the partnerships identified above,
primarily Southgate Plaza General Partnership.
Oil & Gas Interests
- -------------------
The Company has overriding royalty interests in oil and gas wells
producing primarily in the Unitah Basin, Unitah County, Utah, and Sublette
County, Wyoming. URI owns overriding royalty interests of from .025 of 1% to
3% of production.
URI was not the original lessee on several of the oil and gas property
leases. The original lessees were affiliates of, or related parties to, the
Company. As to those lessees, the Company's royalty interest was obtained by
assignment from the original lessees. In some cases, the assignments have not
been recorded. As to some royalty interests, the precise acreage held by the
Company cannot be determined without unreasonable effort and expense. The
Company does not have available to it reserve reports on the properties. Any
reserve analyses that have been made on the properties were made by third
parties, who view such information as confidential, making it unavailable to
the Company.
Many oil, gas and hydrocarbon leases issued by the State of Utah or the
United States are issued for definite periods of time, often from five to ten
years. If, at the end of the lease period, production has been realized and is
continuing on the property subject to the lease, the term of the lease
continues for the period of commercial production. Thus, the continuing
interest of URI in state and federal leases is dependent upon the ability of
the third party operators to develop significant production on the properties
subject to those leases. The expense of compliance with environmental
regulations on lands in which the Company may have overriding royalty interests
is not borne by the Company.
Through its wholly-owned subsidiary, New Mercur Gold Exploration, Inc.,
the Company holds a 50% joint interest in ten patented lode mining claims
covering approximately 137 acres in Tooele County, Utah. The claims have been
leased to Barrick Mercur Gold Mines for a nominal amount. There is presently
no production on the properties. Development of the Company's mineral
properties may be affected by federal and state regulation relating to the
protection of the environment. Such regulation may prevent the development of
properties owned by the Company, or those in which it retains an overriding
royalty interest.
Office Space
- ------------
URI leases an office for its headquarters at 297 W. Hilton Drive, Suite
#4, St. George, Utah. John Fife, President and CEO of the Company, maintains
his office at 360 E. Randolph Street, Suite 2403, Chicago, Illinois 60601,
where he carries out the business of the Company. To date, the Company has not
reimbursed Mr. Fife for the cost of the office space and related
16
<PAGE> 17
administrative costs incurred on behalf of the Company and these costs have
not been accrued by the Company.
ITEM 3. LEGAL PROCEEDINGS
Over the past ten years, the Company has been involved in various disputes
and controversies involving its ownership, operation and management. A
shareholders derivative action captioned as Ernest Muth, et al. v. John H.
Morgan, Jr., et al., was filed as Civil Number C-87-1632 in the Third Judicial
District Court of Salt Lake County, Utah (the "First State Action"), alleging
among other things that the officers and directors of the Company committed
various breaches of their fiduciary duties to the Company. A settlement
agreement was entered into in the First State Action on April 6, 1993 (the
"1993 Settlement Agreement"), wherein, among other things, parties to the
lawsuit agreed to the manner in which directors of the Company would be
selected until such time as the 1993 Settlement Agreement was terminated. 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 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. and Daisy R. Morgan (the
"Order to Show Cause").
On or about June 13, 1995, pursuant to a Plan of Share Exchange Agreement
dated as of February 15, 1995 by and among the Company, Midwest Railroad
Construction and Maintenance Corporation of Wyoming, a Wyoming corporation
("Midwest"), Robert D. Wolff ("RD Wolff") and Judith J. Wolff ("JJ Wolff") (the
"Share Exchange Agreement"), the Company acquired all of the outstanding shares
of Midwest from RD Wolff and JJ Wolff in exchange for 590,000 restricted shares
of authorized but unissued shares of the Company. Pursuant to the Share
Exchange Agreement, RD Wolff became the President of the Company. For a more
detailed description of the Share Exchange Agreement see "ITEM 1 DESCRIPTION OF
BUSINESS/(a) Business Development Share Exchange Agreement" and Form 8-K filed
with the SEC on July 20, 1995. A shareholders derivative action captioned as
Anne Morgan et al. v. R. Dee Erickson, et al., was filed as Case Number
2:95CV-0661C in the United States District Court for the District of Utah,
Central Division (the "First Federal Action"), alleging that the defendants
had, among other things, violated proxy solicitation rules, violated disclosure
rules under the Securities and 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 corporation and breached the duty of
loyalty. The complaint sought, among other things, rescission of the Share
Exchange Agreement. In April 1996, the Company, Midwest, RD Wolff and
JJ Wolff entered into a Split-Off Agreement whereby, among other things, the
Share Exchange Agreement was rescinded (the "Recision Agreement") and the
shares of Midwest acquired by the Company were returned to RD Wolff and
JJ Wolff.
17
<PAGE> 18
On April 5, 1996, the Company entered into a letter of intent ("Letter of
Intent") with IMCC to sell a controlling interest in the Company to IMCC, at a
purchase price equal to $3.35 per share. 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. On
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 ("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. 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, the Second State Action and to use their best
efforts to terminate the 1993 Settlement Agreement. On July 19, 1996, the
notice of hearing on proposed settlement of the Second State Action, the First
State Action and the First Federal Action and the notice of hearing on petition
to terminate the 1993 Settlement Agreement was mailed to all the Company's
shareholders of record as of June 24, 1996. Among other things, the notice
provided that the 1996 Settlement Agreement and the Morgan Settlement Agreement
(together the "Settlement Agreements") were to be considered approved by the
court on August 12, 1996, and that all objections to the Settlement Agreements
had to be presented at that time. On August 9, 1996, shareholders Jenny T.
Morgan, Gerard E. Morgan, John C. Morgan and Karen J. Morgan ("Objectors")
filed an objection to the hearing and requested that the court continue the
settlement approval hearing until after a URI shareholders' vote on the
Settlement Agreements and the IMCC Stock Purchase Agreement. In their
objections and request for continuance of hearing, the Objectors, among other
things, claimed that they had insufficient information with which to evaluate
the Stock Purchase Agreement between IMCC and URI; that they objected to the
"no shop" provision contained in the Letter of Intent; that they had
insufficient information regarding John Fife, the sole shareholder of IMCC, and
that they needed additional time and information to evaluate the fairness of
the Stock Purchase Agreement, and to solicit bids to sell the Company.
Further, the Objectors alleged that URI had refused to provide documentation
relating to the Stock Purchase Agreement to them. After considering the
Objectors' and the parties' initial arguments, the court granted both the
parties and the Objectors an additional seven days, through August 19, 1996, to
submit written memoranda in support of their positions. Both the Objectors and
the parties submitted written memoranda supporting their positions in regard to
the Settlement Agreements and the Stock Purchase Agreement. After considering
the written memoranda and arguments presented by both sides, on or about August
23, 1996 the court denied the Objector's petition, and entered an order
approving the Settlement Agreements. As required by the Transaction
Agreements, as defined below, the 1996 Settlement Agreement and the Morgan
Settlement Agreement were approved by the Third Judicial District Court of Salt
Lake County, West Valley Department Utah, on or about August 28, 1996. The
Order to Show
18
<PAGE> 19
Cause was dismissed with prejudice and the 1993 Settlement Agreement was
terminated on August 29, 1996.
On July 3, 1996, following the execution of the Letter of Intent, the
Morgan Settlement Agreement and the 1996 Settlement Agreement, the Company and
IMCC entered into a Stock Purchase Agreement (the "Stock Purchase Agreement")
(the Letter of Intent, the Morgan Settlement Agreement, the 1996 Settlement
Agreement and the Stock Purchase Agreement are hereinafter collectively
referred to as the "Transaction Agreements") whereby the Company issued and
sold 1,275,912 shares (the "Purchased Shares") of common, $.10 par value per
share stock (the "Common Stock") to IMCC, which is wholly owned by John Fife,
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 $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 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. For a more detailed description of the
Stock Purchase Agreement, see Form 8-K filed by the Company with the SEC 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 director of the Company. John Fife and David Fife were
appointed as 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 Letter of Intent and the Transaction Agreements, including 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 Common Stock to the shareholders of record at
$3.35 per share (the "Reverse Split"), with fractional shareholders being given
the option to either purchase additional fractional shares to round up to one
whole share following the reverse split or sell their fractional shares for
cash to the
19
<PAGE> 20
Company. IMCC was granted a ten year option to purchase 150,000 or more
additional shares of stock at a 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 $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 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. Twenty-five percent (25%) of the Returned
Share Purchase Price will be payable in cash upon exercise, with the remaining
balance of $2.51 per share being evidenced by the Return Share Note. The terms
and conditions of the Reverse Split are described in greater detail in "ITEM 1
DESCRIPTION OF BUSINESS/Stock Purchase Agreement July 3, 1996."
In December, 1995, Mark Technologies Corporation received 201,210 shares
of the Company's Common Stock from Morgan Gas & Oil Co., as partial payment of
a promissory note. The promissory note was in consideration of the sale to
Morgan Gas & Oil Co. from Mark Technologies Corporation of a limited
partnership interest in Alta Mesa Wind Partners, a California limited
partnership in the wind generated power business. The Company is a shareholder
of Morgan Gas & Oil Co. The Company brought a shareholders derivative action
against Morgan Gas & Oil Co. and its directors and against Mark Jones, Mark
Technologies Corporation, Alta Mesa Wind Partners, John H. Morgan, Jr., Daisy
R. Morgan, Sylvia Wunderly, John Wunderly, and Melbourne Romney, III, alleging
among other things, that in connection with the sale of Alta Mesa Wind Partners
limited partnership interest to Morgan Gas & Oil Co., Mark G. Jones, Mark
Technologies Corporation and Alta Mesa Wind Partners concealed and
misrepresented material information to be provided to Morgan Gas & Oil Co.
directors and that the Morgan Gas & Oil Co. directors committed a breach of
fiduciary duty and a wasting of corporate assets. A majority of the Board of
Directors of the Company voted to have the suit dismissed without prejudice.
Directors Jenny Morgan and Mark G. Jones objected. The suit has been dismissed
without prejudice.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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<PAGE> 21
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed on the National Association of
Securities Dealers bulletin board system and is traded in the over-the-counter
securities through the Automated Quotation System, under the NASDAQ symbol
"UTRS." The following table sets forth the quarterly high and low bid prices
for 1995 and the closing bid prices for 1996 for the Company's Common Stock
during the last two fiscal years of the Company, as reported by National
Quotation Bureau, Inc. The quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission, and do not represent actual
transactions and have not been adjusted for stock dividends or splits.
<TABLE>
<CAPTION>
1996 1995
LOW HIGH LOW HIGH
--- ---- --- ----
<S> <C> <C> <C> <C>
1st quarter $.625 $1.00 $1.25 $4.00
2nd quarter $.75 $1.50 $1.00 $2.00
3rd quarter $.875 $1.00 $1.00 $1.75
4th quarter $.875 $.875 $ .50 $1.00
</TABLE>
Except for certain transactions including: (i) the Splitoff Agreement by
and between Midwest and the Company, wherein the Company returned its Midwest
shares to RD Wolff and JJ Wolff in exchange for the 590,000 shares of the
Company's stock held by the Wolffs; (ii) the 1996 Settlement Agreement, wherein
the Company redeemed 22,950 shares of Anne Morgan's URI stock and 17,602 shares
of Victoria Morgan's URI stock, in cash, at $3.35 per share; and (iii) the
conclusion of the exchange of 10.6 acres of land and 34,150 shares of C.E.C.
Industries Corporation stock for 103,488 shares of the Company's stock, the
Company has made no repurchases of its stock during the Company's second full
fiscal year preceding this Form 10-KSB. The Splitoff Agreement and the 1996
Settlement Agreement are described in greater detail in "ITEM 3 LEGAL
PROCEEDINGS." The Company did declare a $.10 cash dividend which was paid
January 26, 1995, to shareholders of record January 12, 1995. A decision to
pay dividends in the future will depend upon the Company's profitability, need
for liquidity and other financial considerations. There are approximately 558
shareholders of the 2,522,808 outstanding shares of the Company's Common Stock.
Approximately 479 shareholders hold less than 1,000 shares of the Company's
Common Stock.
21
<PAGE> 22
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
---------------------
The Company had together with the partnership land sales of $451,406 in
1996 as compared with land sales of $587,663 in 1995. Management attributes
the reduced sales in 1996 to a slowdown in the sale of high-end market lots as
well as there being only a limited amount of developed lots available. Income
on royalties from production under oil and gas and mineral leases amounted to
$153,051 and $61,006 for 1996 and 1995, respectively. The increase in
royalties income is due to expanded production.
Cost of land sold decreased to $139,175 in 1996 from $156,250 in 1995 due
to fewer properties being sold. General and administrative expenses increased
by $484,434 to $1,530,288, due to the cost of acquiring Midwest and the cost of
litigating subsequent lawsuits. For a more detailed description of the
Company's lawsuits see "ITEM 3 LEGAL PROCEEDINGS." The Company's total income
of $73,701 relating to discontinued operations in 1996 compared with a loss of
$489,593 in 1995.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Cash requirements of URI 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) from proceeds from the sale of its Common Stock. The Company
used $291,521 from operations in 1996 compared with using $1,071,087 in 1995.
The primary reason for the decrease in cash used in 1996 was due to the fact
that the Company did not incur large land development costs (the Company's
management was defending against litigation instead of developing property for
inventory) and there was a reduction in the income tax receivable.
The Company presently anticipates that cash on hand, 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 3 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.
In 1996, approximately $61,127 was expended toward this clean-up operation and
approximately $225,705 has been expended by the Company to date.
22
<PAGE> 23
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. The Company does not have
backup lines of credit.
URI has no 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 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 IMCC in the
original principal amount of $3,633,159 (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 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.
DISCONTINUED OPERATIONS
-----------------------
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 Agreement, dated February 16, 1995 (the "Share Exchange
Agreement"). All of the common stock of Midwest was owned by Robert D. Wolff
("RD Wolff") and Judith J. Wolff ("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
23
<PAGE> 24
Company, where RD Wolff would act as the President of Midwest; (iii) apply for
a listing of Midwest's 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, 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, following the
closing. The line of credit was secured by the assets and equipment of
Midwest. In order to carry out the above listed covenants, the Company entered
into an employment agreement with RD Wolff, dated as of June 13, 1995 (the
"Wolff Employment Agreement"), and an operating agreement with Midwest and RD
Wolff, dated as of June 13, 1995 (the "Operating Agreement"). Pursuant to the
terms of the Operating Agreement and for services performed by R. Dee Erickson
and E. Jay Sheen 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, see Form 8-K filed 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. and
Daisy R. Morgan, 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
John H. Morgan, Jr. and Daisy R. 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, among other
things, 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 and engaged in self-dealing,
mismanaged the corporation and breached the 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. According to the terms of the Splitoff Agreement, URI
transferred all of the outstanding shares of Midwest Stock to the Wolffs in
exchange for the 590,000 shares of URI 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 canceled. RD Wolff ceased to be the President of
URI. Midwest received a net intercompany transfer of approximately
$316,974.17 through March 31, 1996, which Midwest retained.
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<PAGE> 25
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 URI would pay Midwest the
difference; and (ii) more than $316,974.17, then Midwest would pay URI the
difference. Based upon its own review, the Company believes that Midwest owes
the Company approximately $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 URI or the Share Exchange Agreement. This
indemnification provision would not apply to acts of fraud, gross negligence or
willful misconduct done by RD Wolff. The Wolffs and Midwest agreed to
indemnify URI 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 would 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 was to be paid in 11
additional equal monthly installments, 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.
For 1995 reporting purposes, Midwest's operations were classified as
discontinued operations, with income of approximately $93,000 from operations
and a net loss on disposal of discontinued items of approximately $583,000 to
the Company. For 1996 reporting purposes, Midwest's operations were classified
as discontinued operations with a net loss of $19,365 from operations and a net
gain on disposal of discontinued items of approximately $93,066 to the Company.
For a more detailed description of both the acquisition of Midwest and its
subsequent Splitoff, see "ITEM 3 LEGAL PROCEEDINGS," and Form 8-K filed with
the SEC on July 20, 1996.
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<PAGE> 26
ITEM 7. FINANCIAL STATEMENTS
See Index to Financial Statements appearing on page F-1B of this Form
10-KSB Annual Report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Tanner + Co. of Salt Lake City, Utah has been the independent public
accountant for the Company's December 31, 1995 and 1996 financial statements.
During the Company's two most recent fiscal years, there were no
disagreements between the Company and Tanner + Co. on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure that, if not resolved to the satisfaction of Tanner + Co., would have
caused Tanner + Co. to make a reference to the subject matter of the
disagreement in connection with its reports on the Company's financial
statements.
The Company currently engages the independent public accounting firm of
Tanner + Co.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CENTRAL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Certain information regarding the Company's directors and executive
officers and their backgrounds is set out below. The Company has been provided
with the information from certain of the people listed below. In addition to
the primary affiliations noted below, the nominees are active in various
cultural, charitable, professional and trade associations and organizations.
CURRENT DIRECTORS
-----------------
DAVID FIFE, 34, was appointed a director of the Company effective
July 13, 1996 by the Muth Group pursuant to the terms of the 1993
Settlement Agreement. Mr. Fife is currently the President and sole
beneficial owner of Home Equity Lending L.L.C., a mortgage origination and
finance company located in Salt Lake City, Utah. Prior to 1993, Mr. Fife
was the President of Property Tax Assessor Records Corp., a Chicago based
real estate tax consulting company. David Fife and John Fife are
brothers.
JOHN FIFE, 36, was appointed as a director of the Company effective
July 13, 1996, by the Muth Group pursuant to the 1993 Settlement
Agreement. Mr. Fife was appointed the President and Chief Executive
Officer of the Company in July, 1996. He was named Chairman of the
Board of the Company on October 10, 1996. He is an investor and venture
capitalist and has pursued this course since July, 1990. Mr. Fife is
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<PAGE> 27
the President and sole shareholder of J.F. Venture, Inc. and IMCC, both
of which are investment companies. IMCC acquired a 50.5% (majority
interest) in the Company on July 3, 1996. For a more detailed
description of IMCC's acquisition of a majority interest in the
Company, see "ITEM 3 LEGAL PROCEEDINGS." He also serves as
President of Property Tax Assessor Records Corp., a Chicago-based real
estate tax consulting company. Mr. Fife also serves as a director of
Hyatt Research Corporation, a magazine publisher in Middlebury, Vermont.
Prior to 1993, Mr. Fife held the position of Assistant Vice President of
Continental Equity Capital Corp. ("CECC"), a subsidiary of Continental
Bank. At CECC, he negotiated, structured and financed LBO's and later
stage venture capital investments in the Mortgage Banking, Retail, Cable
and Cellular Telephone industries. Prior to CECC, Mr. Fife worked as a
financial analyst in the commercial real estate department of Trammel
Crow Company. Mr. Fife earned his M.B.A. degree from Harvard in 1990 and
his B.S. in statistics and computer science from Brigham Young University
in 1986. John Fife and David Fife are brothers.
LYLE D. HURD, 60, is a director of the Company and has performed
services as Marketing Consultant/Assistant to the President. He is
president of Hurd Owens Hafen Inc., a publisher of magazines and
periodicals located in St. George, Utah, since December of 1990. Hurd
Owens Hafen Inc. is the publisher of the St. George Magazine and various
other magazines and periodicals. For approximately 16 years prior to
December, 1990, Mr. Hurd provided marketing consulting services to
magazine publishers through Hurd & Associates, Inc., a privately owned
consulting firm. Mr. Hurd was appointed as an independent director of
the Company in May, 1993, pursuant to the terms of the 1993 Settlement
Agreement.
MARK G. JONES, 43, is a director of the Company and was designated
as such in January, 1996 by the Morgan Group pursuant to the 1993
Settlement Agreement. Mr. Jones is President of Mark Technologies
Corporation in San Francisco, California, a real estate and alternative
energy development firm, and has held that position for 16 years.
JENNY TATE MORGAN, 41, was appointed as a director of the Company,
effective January, 1996, by John H. Morgan, Jr., her relative, pursuant
to the terms of the 1993
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<PAGE> 28
Settlement Agreement. John H. Morgan, Jr. and Daisy R. Morgan resigned
as directors of the Company in December 1995. Pursuant to the terms of
the 1993 Settlement Agreement, John H. Morgan, Jr. and Daisy R. Morgan
exercised their powers of appointment and appointed Jenny T. Morgan and
Mark G. Jones, respectively, to serve as directors in their place.
John H. Morgan, Jr. and Daisy R. Morgan were parties to the 1993
Settlement Agreement. The remaining members of the Board of Directors
demanded that both Jenny T. Morgan and Mark G. Jones agree, in writing,
to be bound by the terms of the 1993 Settlement Agreement as though they
had been made parties to the 1993 Settlement Agreement before commencing
their responsibilities as Directors of the Company. Mark G. Jones and
Jenny T. Morgan refused to enter into that written agreement until
April 1996, at which time they executed a written commitment to be bound
by the terms of the 1993 Settlement Agreement and were seated as
Directors of the Company. From 1992 to the present, Ms. Morgan, through
JT Morgan Financial Consulting Services, has provided financial
consulting services to clients in the areas of investments, liquidity
management, financial strategy, tactical asset allocation, plan
design, re-engineering an entire retirement plan structure, analysis of
securities portfolio, strategic analysis and workouts. From 1993 to
1996, she served as Vice President/Institutional Trust Services for First
Interstate Bank of California. Before that, Ms. Morgan worked for one
year as a Financial Services/Account Executive for Citibank, F.S.B. From
July, 1982 to April, 1992, Ms. Morgan was the Director of Sales and
Marketing for Purcell International, Inc. Ms. Morgan earned her M.B.A.
from the University of Southern California, Los Angeles in 1995, where
her course-work included providing consulting services to Munchkin
Bottling Company, Inc. and Reebok, International. Ms. Morgan earned her
B.S. from the University of Arizona, in 1978. Ms. Morgan is a licensed
California Life and Disability Agent and has published articles
addressing 401(K) Plans in the Los Angeles Business Journal.
RESIGNED DIRECTORS FOR THE PERIOD COVERED BY THIS REPORT
--------------------------------------------------------
E. JAY SHEEN, 42, was appointed a director of the Company by the
Muth Group in June, 1993, pursuant to the terms of the 1993 Settlement
Agreement, and Secretary of the Company in January, 1994. He resigned as
a director and Secretary of the Company, effective July 13, 1996,
pursuant to the terms of the Stock Purchase Agreement. He is a member of
the law firm of Robinson & Sheen, L.L.C. Prior to April 1995, he was a
partner in the law firm of Moyle & Draper, P.C. in Salt Lake City, where
he had practiced law since 1982.
R. DEE ERICKSON, 53, was appointed a director of the Company by the
Muth Group in May, 1993, pursuant to the terms of the 1993 Settlement
Agreement, and appointed Chairman of the Board in March, 1995. He served
in these capacities for the Company until his resignation, effective
July 13, 1996, which took place pursuant to the terms of the Stock
Purchase Agreement. He is a self-employed real estate developer and
property manager, and has been so engaged since June 1, 1987. From
February, 1974 to May, 1987, he was employed by Hercules Incorporated
in the Hercules Aerospace Products Group variously as a manager,
superintendent and supervisor directing technical
28
<PAGE> 29
personnel in the planning, development, implementation and enhancement
of computer systems for manufacturing and engineering.
EXECUTIVE OFFICERS FOR THE PERIOD COVERED BY THIS REPORT
--------------------------------------------------------
JOHN FIFE, see description above.
GERRY T. BROWN, 56, was appointed Vice President of the Company July
3, 1996. He served as President of the Company from June 19, 1993 to
July 3, 1996. Mr. Brown has been employed by the Company or its
affiliates and related parties since March, 1985. He has provided real
estate planning, development and sales services for the Company,
Tonaquint, Inc., the Company's wholly-owned subsidiary, and various
affiliated partnerships. Mr. Brown is currently the President of
Tonaquint, Inc. Mr. Brown has assisted in land use planning, negotiating
sales and financing arrangements, obtaining government approvals,
arranging for construction contracts, and supervising the performance of
engineering services as have been required in connection with the
Company's property development and sales.
LADD WORTH ELDREDGE, 44, has been employed by the Company since
July, 1994, and is the Secretary, Treasurer, CFO and office manager for
the Company. Mr. Eldredge was appointed Treasurer of the Company in
November, 1994 and Secretary and CFO of the Company in November, 1995.
Prior to his employment by the Company, Mr. Eldredge was the Chief
Accountant at the Peppermill Resort in Mesquite, Nevada, a position he
held for two years. Mr. Eldredge has a Masters of Accountancy degree
from Southern Utah University.
ROBERT D. WOLFF, 56, became CEO of the Company on or about July 1,
1995, pursuant to the terms of the Wolff Employment Agreement. Mr. Wolff
ceased to be the CEO of the Company when the Share Exchange Agreement was
rescinded on April 25, 1996.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file with
the Securities and Exchange Commission initial reports of ownership and reports
of changes in ownership of Common Stock and other equity securities of the
Company. Officers, directors and greater than ten percent shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1996, the
Company's officers, directors and greater than ten-percent beneficial owners
complied with all applicable Section 16(a) filing requirements, except for the
following individuals with respect to the following forms:
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<PAGE> 30
Robert D. Wolff, Forms 4 and 5
Lyle Hurd, Form 5
Gerry Brown, Form 5
John Fife, Form 4
IMCC, Form 4
ITEM 10. EXECUTIVE COMPENSATION
EXECUTIVE OFFICERS
- ------------------
<TABLE>
<CAPTION>
NAME POSITION AGE
- ---- -------- ---
<S> <C> <C>
John Fife Chairman of the Board, 36
Chief Executive
Officer, President and
Director
Robert D. Wolff Former CEO 56
E. Jay Sheen Former Recorder of 42
Minutes and Former
Director
R. Dee Erickson Former Chairman of the 53
Board and Former
Director
Lyle Hurd Former Director of 60
Marketing and Director
Ladd Worth Eldredge CFO, Secretary and 44
Treasurer
Gerry T. Brown Former President and 56
current Vice President
</TABLE>
EXECUTIVE COMPENSATION
- ----------------------
The following table summarizes the compensation for Robert D. Wolff as the
CEO of the Company in 1995, and John Fife as the CEO of the Company in 1996, E.
Jay Sheen, R. Dee Erickson, Lyle Hurd, Ladd Worth Eldredge and Gerry T. Brown.
30
<PAGE> 31
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION AWARDS
NAME AND ------------------------- ------
PRINCIPAL FISCAL SHARES UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
- -------------------- -------------------- ------------ ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
John Fife, CEO, 1996 $200,000(1) - - 1,200(1a)
President, Chairman 1995 - - - -
of the Board and 1994 - - - -
Director
Robert D. Wolff, $25,000/
Former CEO(2) June 1995- $125,000(2a) quarter(2b) - -
April 1996
1994 - - - -
E. Jay Sheen, 1996 - - 8,000 $230,065(3)
Former Recorder 1995 $6,000 - 8,000 $298,066(4)(4a)
of Minutes and 1994 $6,000 - 9,000 $101,704 (5)
Former Director
R. Dee Erickson, 1996 - - 8,000 -
Former Chairman 1995 $6,000 - 8,000 $106,600(6)(6a)
of the Board and 1994 - - 9,000 $12,400 (7)
Former Director
Lyle Hurd, 1996 - - 8,000 $2,932 (8)
Former Director 1995 $30,000 - 8,000 $24,615 (9)
of Marketing and 1994 - - 9,000 $18,340 (10)
Director
Ladd Worth, 1996 $52,403 - - -
Eldredge, CFO 1995 $34,583 - - -
Secretary and 1994 $12,550 $500 - -
Treasurer
Gerry T. Brown, 1996 $70,720 - 8,000 $5,321 (11)
Former President 1995 $70,000 - 8,000 $8,237 (12)
and Vice President 1994 $70,000 $1,000 9,000 $14,412(13)
</TABLE>
(1) Pursuant to the terms of the Stock Purchase Agreement, the Company and
Mr. Fife agreed to enter into an employment agreement to provide for, among
other things, (i) the employment of Mr. Fife as President, Chief Executive
Officer, and Chairman of the Board of the Company, and (ii) an annual salary to
be paid to Mr. Fife of no more than $200,000 for any year during the employment
period. A proposed employment agreement was prepared by Mark G. Jones and
submitted to John Fife and the remaining members of the Board of
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<PAGE> 32
Directors. At this time no employment agreement has been entered into with
Mr. Fife. The Company's Board, in a 3-2 vote, decided that the negotiation of
the terms of the John Fife employment agreement would take place following the
shareholders' vote on the proposed reverse stock split. To date, John Fife had
received no compensation from the Company for his services as President.
(1a) Mr. Fife received $1,200 in directors fees.
(2) Mr. Wolff served as the CEO of the Company during the term that the
Share Exchange Agreement was in place, July 1, 1995 through April 25, 1996.
(2a) Mr. Wolff actually received approximately $57,292 as his pro-rated
portion for 1995.
(2b) Mr. Wolff actually received approximately $45,833 as his pro-rated
portion for 1995.
(3) Mr. Sheen's law firm served as legal counsel to the Company, for which
his law firm was paid $230,065 in 1996.
(4) Mr. Sheen, in addition to providing services as a recorder of the
minutes, served as a director of the Company, for which he received fees in the
amount of $2,600; and his law firms served as legal counsel to the Company, for
which his respective law firms were paid approximately $191,466 in 1995. Mr.
Sheen also received 38,000 shares of the Company's stock and $104,000 for
services performed with respect to the Share Exchange Agreement.
(4a) The market value of the 38,000 shares of the Company's stock received
by Mr. Sheen in 1995 is not included in the column.
(5) Mr. Sheen received fees as director of the Company in the amount of
$2,400. Mr. Sheen's law firm also served as legal counsel to the Company for
which his law firm was paid approximately $99,304 in 1994.
(6) Mr. Erickson received $2,600 in directors fees and 38,000 shares of
the Company's stock and $104,000 for services performed with respect to the
Share Exchange Agreement in 1995.
(6a) The market value of the 38,000 shares of the Company's stock received
by Mr. Sheen in 1995 is not included in the column.
(7) Mr. Erickson received $2,400 in directors fees and $10,000 for
consulting services rendered.
(8) Mr. Hurd received $2,200 in directors fees and $732 in insurance
reimbursements.
(9) In 1995, Mr. Hurd received $2,600 in directors fees, $13,750 in
consulting fees and an additional $8,265 was paid by the Company to St. George
Magazine for advertising. Mr. Hurd is the owner of Hurd Owens Hafen Inc.,
which publishes St. George Magazine.
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<PAGE> 33
(10) In 1994, Mr. Hurd received $2,400 in directors' fees, $12,500 in
consulting fees and $3,440 was paid to St. George Magazine for advertising.
Mr. Hurd is the owner of Hurd Owens Hafen, Inc., which publishes St. George
Magazine.
(11) Mr. Brown received $5,321 in commissions from sales of real estate.
(12) Mr. Brown received $8,237 in commissions from sales of real estate.
(13) Mr. Brown received $14,412 in commissions from sales of real estate.
The following table shows the total number of options granted to each of
the named persons during 1996 (both as the number of shares of Common Stock
subject to such options and as a percentage of all options granted to employees
during 1996) and, for each of these grants, the exercise price per share of
Common Stock and option expiration date.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
NAME NUMBER OF % OF TOTAL
- ---- SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE
GRANTED (#) FISCAL YEAR ($/SH) EXPIRATION DATE
-------------------- ------------ ----------- ---------------
<S> <C> <C> <C> <C>
IMCC(1) 150,000 or more (3) $3.35 2006
(50.5%
interest)(2)
Robert D. Wolff - - - -
R. Dee Erickson 8,000(4) 16.7% $2.50 4/7/2004
Lyle Hurd 8,000(4) 16.7% $2.50 4/7/2004
Ladd Worth Eldredge - - - -
Gerry Brown 8,000(4) 16.7% $2.50 4/7/2004
E. Jay Sheen 8,000(4) 16.7% $2.50 4/7/2004
</TABLE>
- --------------------
(1) John Fife, CEO of the Company is the sole shareholder of IMCC.
(2) For a more detailed description of the IMCC Option, see "ITEM 1
DESCRIPTION OF BUSINESS/Stock Purchase Agreement -- July 3, 1993."
(3) This option was not granted as a part of John Fife's employment.
(4) The option granted was made pursuant to the Company's 1994 Stock Option
Plan, described below. The plan was approved by the shareholders in
January 1995. None of
33
<PAGE> 34
these options were exercised during 1996. All of these presently
exercisable options are above the market price of the underlying Common
Stock.
No SARs were outstanding in 1996.
The Company has no long-term incentive compensation plans other than the
1994 Stock Option Plan described herein. Gerry Brown, as the former President
of the Company, is a participant in the Company's 1994 Stock Option Plan.
Under the Plan, each of the six individuals were granted options for 25,000
shares of the Company's Common Stock, pursuant to the terms of a Non-Qualified
Stock Option Agreement between each person and the Company, dated April 7,
1994. The option exercise price is $2.50 per share, the market price of the
stock on the date of grant. Each of the granted options vested as follows: (a)
9,000 shares on the date of the Option Agreement; and (b) 8,000 shares on each
of the next two anniversary dates of the Agreement (April 7, 1995, and April 7,
1996).
URI and its subsidiary currently employ Gerry Brown on a full time basis,
to act as the Vice President of the Company where he provides real estate
planning, development and sales services for the Company, Tonaquint, Inc., the
Company's wholly-owned subsidiary, and various affiliated partnerships. Mr.
Brown is currently the President of Tonaquint, Inc., where he assists in land
use planning, negotiating sales and financing arrangements, obtaining
government approvals, arranging for construction contracts, and supervising the
performance of engineering services as have been required. The Company
executed and presented Mr. Brown with a three year employment agreement on June
28, 1995, which employment agreement remains unexecuted by Mr. Brown.
DIRECTORS COMPENSATION
Each director receives $200 per director's meeting. Also, directors who
travel out of town to attend the meetings are, upon Board approval, reimbursed
for their travel, lodging and meals. During 1995 through August 29, 1996, the
directors served pursuant to the 1993 Settlement Agreement. The 1993
Settlement Agreement was terminated on August 29, 1996.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 1996, certain
information regarding the beneficial ownership of the Company's Common Stock
by: (1) each of the current directors of the Company; (2) each of the
Company's current executive officers; and (3) the Company's directors and
officers as a group.
34
<PAGE> 35
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
UTAH RESOURCES INTERNATIONAL, INC.
COMMON STOCK OWNERSHIP BY DIRECTORS AND NAMED EXECUTIVE OFFICERS
AS OF DECEMBER 31, 1996
- -------------------------------------------------------------------------------------------------
BEFORE STOCK SPLIT AFTER STOCK SPLIT*
- -------------------------------------------------------------------------------------------------
PERCENT OF PERCENT OF
NAME OF BENEFICIAL NUMBER OF OUTSTANDING NUMBER OF OUTSTANDING
OWNER POSITION SHARES SHARES SHARES SHARES
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
David Fife Director 0 0% 0 0%
- -------------------------------------------------------------------------------------------------
John Fife, as sole Director, Chief 1,275,912(1) 50.5% 1,276** 52%
shareholder of IMCC Executive Officer,
President and
Chairman of the
Board
- -------------------------------------------------------------------------------------------------
Lyle Hurd Director 2,000(2) .08% 2(3) .08%
- -------------------------------------------------------------------------------------------------
Mark Jones (4) Director 326,310 13% 327**(3) 13%
- -------------------------------------------------------------------------------------------------
Jenny Morgan Director 9,523 .38% 10**(3) .41%
- -------------------------------------------------------------------------------------------------
Gerry Brown Vice President 2,000(2) .08% 2(3) .08%
- -------------------------------------------------------------------------------------------------
Ladd Worth Eldredge CFO, Secretary, 0 0% 0 0%
Treasurer
- -------------------------------------------------------------------------------------------------
DIRECTORS AND Directors & Officers 1,613,745(2) 64% 1,617 66%
OFFICERS AS A GROUP (7 persons)
- -------------------------------------------------------------------------------------------------
</TABLE>
* Assumes No Small-Lot Shareholder exercises the Round Up Option,
and no remaining shareholder elects to purchase the Returned Shares.
** Assumes that Roundup Option is exercised by fractional shareholders.
(1) IMCC also holds a ten year option to purchase 150,000 or more
additional shares of stock, so as to maintain its 50.5% interest in URI.
(2) Lyle Hurd and Gerry Brown each contend that he was granted an
option for 25,000 shares pursuant to the Share Exchange Agreement. There is a
dispute as to whether the option was granted. This issue will be resolved
following an investigation in the coming year.
(3) In the event the proposed reverse split is effected, each of these
individuals will be granted an option to purchase additional shares of URI's
stock pursuant to the terms of the Returned Shares Option. For a more detailed
description of this Returned Shares Option, see "ITEM 1 DESCRIPTION OF
BUSINESS/Stock Purchase Agreement -- July 3, 1996."
(4) Mark G. Jones, Director of the Company, holds 100 shares
individually and an additional 326,210 shares in his capacity as the
controlling shareholder of Mark Technologies Corporation.
- --------------------------------------------------------------------------------
PRINCIPAL STOCKHOLDERS
- ----------------------
The following table sets forth information as of December 31, 1996
regarding each person other than directors of the Company who were known by the
Company to own
35
<PAGE> 36
beneficially more than 5% of the outstanding shares of Common Stock. Each
person named has sole voting and investment power with respect to the shares
beneficially owned by such person.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
UTAH RESOURCES INTERNATIONAL, INC.
5% OR GREATER BENEFICIAL OWNERS
AS OF DECEMBER 31, 1996
- -----------------------------------------------------------------
NUMBER OF SHARES AND
NAME AND ADDRESS OF NATURE OF PERCENT OF COMPANY
BENEFICIAL OWNER BENEFICIAL OWNER SHARES OUTSTANDING
- -----------------------------------------------------------------
<S> <C> <C>
Inter-Mountain 1,275,912 50.5%
Capital
Corporation(1)
- -----------------------------------------------------------------
Mark Technologies 326,310 13%
Corporation(2)
- -----------------------------------------------------------------
</TABLE>
(1) John Fife, Director, President, CEO and Chairman of the
Board of the Company, is the sole shareholder of Inter-Mountain
Capital Corporation.
(2) Mark G. Jones, Director of the Company, holds 100 shares
individually and an additional 326,210 shares in his capacity
as the controlling shareholder of Mark Technologies Corporation.
- -----------------------------------------------------------------
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
JOHN FIFE TRANSACTION
John Fife, as the sole shareholder of IMCC, acquired a 50.5% interest in
the Company on July 3, 1996. For a more detailed description of this
acquisition see "ITEM 1 DESCRIPTION OF BUSINESS/Stock Purchase Agreement --
July 3, 1996."
SHARE EXCHANGE AGREEMENT TRANSACTION
On June 13, 1995 the Company consummated the exchange of 590,000 shares of
its common stock in exchange for the receipt of all issued and outstanding
stock of Midwest (the "Share Exchange Agreement"). Midwest was wholly owned by
Robert D. Wolff, subsequent CEO of the Company, and Judith J. Wolff. Among
other things, the Share Exchange Agreement provided for the payment of
compensation, for services rendered, by the Company to R. Dee Erickson and E.
Jay Sheen (both directors of the Company) in the amount of 38,000 shares each
of the Company's Common Stock and $104,000 each. For a more detailed
description of the Share Exchange Agreement, see "ITEM 1 DESCRIPTION OF
BUSINESS/Share Exchange Agreement."
36
<PAGE> 37
1996 SETTLEMENT AGREEMENT TRANSACTION AND RELATED TRANSACTIONS
The following amounts were paid through December 31, 1996 by the Company
in connection with the 1996 Settlement Agreement, the Morgan Settlement
Agreement and the IMCC Stock Purchase Agreement:
Hunter & Brown, approximately $34,843.08, as legal counsel for Mark Jones,
Director of the Company;
Campbell, Maack & Sessions, approximately $167,987.68, as legal counsel,
as follows, $81,000 for legal services performed for Anne and Victoria Morgan,
daughters of John H. Morgan, Jr. and Daisy R. Morgan, both Directors of the
Company in 1995, pursuant to the 1996 Settlement Agreement with the balance of
$86,987.68 for services performed as legal counsel for Mark Technologies
Corporation, a corporation controlled by Mark Jones, Director of the Company;
Dorton, Jones, Nicolatus & Stuart Inc., approximately $4,225, as experts
for Mark Technologies Corporation, a corporation controlled by Mark Jones;
Mark Technologies Corporation, approximately $10,090.03, a corporation
controlled by Mark Jones, a Director of the Company, for a retainer paid to
Dorton, Jones, Nicolatus & Stuart, Inc. and for certain out-of-pocket expenses;
Victoria Morgan, daughter of John H. Morgan, Jr. and Daisy R. Morgan, in
the amount of $58,966.70 for repurchase of all shares owned in the Company by
Ms. Morgan;
Anne Morgan, daughter of John H. Morgan, Jr. and Daisy R. Morgan, in the
amount of $76,882.50 for a repurchase of all shares owned in the Company by Ms.
Morgan;
John H. Morgan, Jr., in the amount of $89,229.81, representing the total
monetary judgment collected from him by the Company pursuant to the Murphy
Order and all amounts covered by the Order regarding Stay of Execution and
Acceptance of Undertaking under the Murphy Order;
Robinson & Sheen, L.L.C. $100,486.88, as counsel for the Company;
Jardine, Linebaugh & Dunn, approximately $26,696.86, as counsel for the
Company;
Wildman, Harrold, Allen & Dixon, approximately $218,427.50, as counsel for
IMCC, a company wholly owned by John Fife, Director, CEO, President and
Chairman of the Board of the Company;
Giauque, Crockett, Bendinger & Peterson, $25,946.53, as counsel for IMCC,
a company wholly owned by John Fife, Director, CEO, President and
Chairman of the Board of the Company;
37
<PAGE> 38
IMCC, a company wholly owned by John Fife, Director, CEO, President and
Chairman of the Board of the Company, approximately $5,014.79 for reimbursement
of the retainer to Giauque, Crockett, Bendinger & Peterson; and
Brown Wright & Associates, approximately $19,937.45 as experts for the
Company.
Jenny Tate Morgan, approximately $2,041.23 for expenses related to
litigation
Kelly Drye & Warren L.L.P., approximately $2,458.41.
LEGAL REPRESENTATION OF THE COMPANY
During 1994, 1995 and 1996, the law firms of Moyle Draper and Robinson &
Sheen, L.L.C. provided legal representation to the Company. E. Jay Sheen, a
former director of the Company, was a partner at Moyle Draper and currently is
a partner at Robinson & Sheen. During 1994, Moyle Draper received
approximately $99,304 in legal fees. During 1995, Robinson & Sheen received
approximately $144,800.29 in legal fees and Moyle Draper received approximately
$46,666 in legal fees. In 1996, Robinson & Sheen received approximately
$230,065 in legal fees.
COMMISSION AND CONSULTING FEES
1995
----
During 1995, Lyle Hurd, a director of the Company and Director of
Marketing, received $13,750 in consulting fees. An additional $8,265 was paid
by the Company to St. George Magazine for advertising. Mr. Hurd, who also
served as Director of Marketing of the Company, is the owner of Hurd Owens
Hafen, Inc., which publishes St. George Magazine, among others. In 1995, Gerry
Brown, the President of the Company, received $8,327 in commissions.
1996
----
During 1996, Gerry Brown, the Vice President of the Company, received
$5,321 in commissions.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - See Exhibit Index below.
INCORPORATED BY REFERENCE TO EXHIBIT INDEX
ANNUAL REPORT ON FORM 10-KSB - 1996
UTAH RESOURCES INTERNATIONAL, INC.
SEC FILE NO. 0-9791
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION LOCATION/INCORPORATION BY REFERENCE
- ------------ -------------------- -----------------------------------
<S> <C> <C>
2.1 Share Exchange Agreement Incorporated by reference to Exhibit 3 to
Form 8-K as filed July 20, 1995
2.2 Stock Purchase Agreement Incorporated by reference to Exhibit 1 to 13D-A
as filed September 9, 1996
3.1 Articles of Incorporation of Utah Incorporated by reference to Exhibit 3.A to the
Resources International, Inc. Company's registration statement on Form 10
as filed June 22, 1981
3.2 Bylaws of Utah Resources Incorporated by reference to Exhibit 3.B to the
International, Inc. Company's registration statement on Form 10
as filed June 22, 1981
3.3 Amendment of Bylaws dated Incorporated by reference to Exhibit 3.3 to the
November 17, 1992 Company's Annual Report of Form 10-KSB for
the year ended December 31, 1992
3.4 Amendment of Bylaws - Incorporated by reference to Exhibit 3.4 to the
December, 1994 Company's Annual Report of Form 10-KSB for
the year ended December 31,1994
3.5 Amendment to Articles of Incorporated by reference to Exhibit 3.5 to the
Incorporation adopted by Company's Annual Report of Form 10-KSB for
shareholders January 26, 1995 the year ended December 31, 1994
10.1 B & E Securities Profit Sharing Incorporated by reference to Exhibit 10 to the
Agreement Company's registration statement on Form 10
as amended and filed May 20, 1982
10.2 Southgate Palms Partnership Incorporated by reference to Exhibit 10.2 to the
Agreement Company's Annual Report on Form 10-KSB for
the year ended December 31, 1986
10.3 Southgate Palms Plaza Limited Incorporated by reference to Exhibit 10.3
Partnership Agreement to the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1986
10.4 Southgate Plaza Partnership Incorporated by reference to Exhibit 10.4 to the
Agreement Company's Annual Report on Form 10-KSB for
the year ended December 31, 1986
10.5 Southgate Plaza Limited Incorporated by reference to Exhibit 10.5 to the
Partnership Agreement Company's Annual Report on Form 10-KSB for
the year ended December 31, 1985
10.6 Southgate Resort Partnership Incorporated by reference to Exhibit 10.6 to
Agreement Company's Annual Report on Form 10-KSB for
the year ended December 31, 1985
10.7 Southgate Resort Limited Incorporated by reference to Exhibit 10.7 to the
Partnership Agreement Company's Annual Report on Form 10-KSB for
the year ended December 31, 1985
10.8 Resources Limited Partnership Incorporated by reference to Exhibit 10.8 to the
Agreement with amendments Company's Annual Report on Form 10-KSB for
the year ended December 31, 1985
10.9 Tonaquint-Indian Hills Limited Incorporated by reference to Exhibit 10.9 to the
Partnership Agreement Company's Annual Report on Form 10-KSB for
the year ended December 31, 1985
10.10 Lease Agreement - Court Club Incorporated by reference to Exhibit 10.10 to the
Property Company's Annual Report on Form 10-KSB for
the year ended December 31, 1985
10.11 Service Station Limited Partnership Incorporated by reference to Exhibit 10.11 to the
#2 - Partnership Agreement Company's Annual Report on Form 10-KSB for
the year ended December 31, 1986
10.20 Settlement Agreement dated Incorporated by reference to Exhibit 10.20 to the
July 31, 1989, with C.E.C. Company's Annual Report on Form 10-KSB for
Industries Corp. the year ended December 31, 1989
10.21 Addendum to Settlement Agreement Incorporated by reference to Exhibit 10.21 to the
with C.E.C. Industries Corp. Company's Annual Report on Form 10-KSB for
the year ended December 31, 1989
10.22 Option Agreement dated Incorporated by reference to Exhibit 10.22 to the
November 29, 1989 re: C.E.C. Company's Annual Report on Form 10-KSB for
Industries Corp. the year ended December 31, 1989
10.23 Trust Deed Note dated November Incorporated by reference to Exhibit 10.23 to the
29, 1989 re: C.E.C. Industries Corp. Company's Annual Report on Form 10-KSB for
the year ended December 31, 1989
10.24 Trust Deed dated November 29, Incorporated by reference to Exhibit 10.24 to the
1989 re: C.E.C. Industries Corp. Company's Annual Report on Form 10-KSB for
the year ended December 31, 1989
10.25 Mutual Releases re: C.E.C. Incorporated by reference to Exhibit 10.25 to the
Industries Corp. Company's Annual Report on Form 10-KSB for
the year ended December 31, 1989
10.26 Mutual Release re: Counterclaim Incorporated by reference to Exhibit 10.26 to the
Company's Annual Report on Form 10-KSB for
the year ended December 31, 1989
10.27 Dissolution Agreement dated Incorporated by reference to Exhibit 10.27 to the
April 28, 1989 re: Southgate Palms Company's Annual Report on Form 10-KSB for
the year ended December 31, 1989
10.28 Promissory Note dated March 29, Incorporated by reference to Exhibit 10.28 to the
1991 executed by Resources Company's Annual Report on Form 10-KSB for
Limited Partnership the year ended December 31, 1990
10.29 Deed of Trust dated March 29, 1991 Incorporated by reference to Exhibit 10.29 to the
executed by Resources Limited Company's Annual Report on Form 10-KSB for
Partnership the year ended December 31, 1990
10.30 Settlement Agreement dated April Incorporated by reference to Exhibit 10.30 to the
6, 1993 ** Company's Annual Report on Form 10-KSB for
the year ended December 31, 1992
10.31 Real Estate Contract dated May 3, Incorporated by reference to Exhibit 10.31 to the
1993 between Resources Limited Company's Annual Report on Form 10-KSB for
Partnership, Tonaquint, Inc., and the year ended December 31, 1992
St. George Inn, L.C.
10.32 Options Contract dated May 21, Incorporated by reference to Exhibit 10.32 to the
1993, between Service Station Company's Annual Report on Form 10-KSB for
Limited Partnership #2 and St. the year ended December 31, 1992
George Inn, L.C.
10.33 Assignment of Partnership and Incorporated by reference to Exhibit 10.33 to the
Limited Partnership Interests Company's Annual Report on Form 10-KSB for
dated May 7, 1993 the year ended December 31, 1992
10.34 Share Exchange Agreement Incorporated by reference to Exhibit 3 to
Form 8-K as filed July 20, 1995
10.35 Stock Purchase Agreement Incorporated by reference to Exhibit 1 to
Form 13D-A as filed September 9, 1996
10.36 Splitoff Agreement Incorporated by reference to Exhibit 10.36 to the
Company's Annual Report on Form 10-KSB for
the year ended December 31, 1995
10.37 Morgan Settlement Agreement Incorporated by reference to Exhibit 10.37 to the
Company's Annual Report on Form 10-KSB for
the year ended December 31, 1995
10.38 1996 Settlement Agreement Incorporated by reference to Exhibit 10.38 to the
Company's Annual Report on Form 10-KSB for
the year ended December 31, 1995
21 List of Subsidiaries Incorporated by reference to Exhibit 21 to the
Company's Annual Report on Form 10-KSB for
the year ended December 31, 1992
27 Financial Data Schedule Filed herein
</TABLE>
______________
** Confidential treatment has been granted with respect to information
contained in this exhibit.
(b) Reports on Form 8-K None
38
<PAGE> 39
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.
Utah Resources International, Inc.
Date: By:
--------------- ---------------------------------------
John Fife
Its Director, President and Chairman of
the Board, and CEO
Date: By:
--------------- ---------------------------------------
Gerry T. Brown
Its Vice President
Date: By:
--------------- ---------------------------------------
Ladd Worth Eldredge
Its Treasurer, Secretary and CFO
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Date: By:
--------------- ---------------------------------------
Lyle D. Hurd
Director
Date: By:
--------------- ---------------------------------------
E. Jay Sheen
Former Director
Date: By:
--------------- ---------------------------------------
R. Dee Erickson
Former Director
39
<PAGE> 40
Date: By:
----------------- --------------------------------------
Jenny Morgan
Director
Date: By:
----------------- --------------------------------------
Mark G. Jones
Director
Date: By:
----------------- --------------------------------------
David Fife
Director
40
<PAGE> 41
UTAH RESOURCES
INTERNATIONAL, INC.
CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 42
UTAH RESOURCES INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONTENTS
PAGE
----
<S> <C>
Independent Auditors' Report F-1
Balance Sheet, December 31, 1996 F-2
Statements of operations for the years
ended December 31, 1996 and 1995 F-3
Statements of stockholders' equity for
the years ended December 31, 1996 and 1995 F-4
Statement of cash flows for the years ended
December 31, 1996 and 1995 F-5-7
Notes to consolidated financial statements F-8-18
</TABLE>
<PAGE> 43
[TANNER + CO. LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS OF
UTAH RESOURCES INTERNATIONAL, INC., AND SUBSIDIARIES
We have audited the accompanying consolidated balance sheet of UTAH RESOURCES
INTERNATIONAL, INC., AND SUBSIDIARIES at December 31, 1996 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the two years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated 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 consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
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.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of UTAH
RESOURCES INTERNATIONAL, INC., AND SUBSIDIARIES as of December 31, 1996 and the
results of their operations and their cash flows for the two years ended
December 31, 1996, in conformity with generally accepted accounting principles.
/s/ TANNER + CO.
Salt Lake City, Utah
April 4, 1997
F-1
<PAGE> 44
[LOGO]
- --------------------------------------------------------------------------------
UTAH RESOURCES INTERNATIONAL INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
Cash and cash equivalents $ 517,858
Accounts receivable from related parties 262,668
Notes receivable 140,672
Property and equipment, net of accumulated depreciation
and amortization of $43,408 26,019
Real estate held for resale 876,088
Royalty interest in petroleum and mineral production, net
of amortization of $44,382 5,828
Other assets 137,011
-----------
$ 1,966,144
===========
- -------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Accounts payable $ 252,464
Accrued expenses 546,070
Earnest money deposits 36,000
Notes payable 291,110
-----------
Total liabilities 1,125,644
-----------
Minority interest 110,903
Commitment and contingencies -
Stockholders' equity:
Common stock; par value $.10 per share, 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 deficit (320,757)
-----------
Total stockholders' equity 729,597
-----------
$ 1,966,144
===========
- -------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. F-2
</TABLE>
<PAGE> 45
[LOGO]
- --------------------------------------------------------------------------------
UTAH RESOURCES INTERNATIONAL, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
------------------------
<S> <C> <C>
Sales $ 451,406 $ 587,663
Cost of sales 139,175 156,250
------------------------
Gross profit 312,231 431,413
General and administrative expenses 1,530,288 1,045,854
------------------------
Loss from operations (1,218,057) (614,441)
------------------------
Other income (expense):
Royalty income 153,051 61,006
Interest and dividend income 156,895 102,794
Interest expense (86,405) (51,279)
Other income (expense) (8,772) 35,906
------------------------
Total other income (expense) 214,769 148,427
------------------------
Loss before minority interest and provision
for income taxes (1,003,288) (466,014)
Minority interest in net loss of subsidiaries 23,385 26,988
------------------------
Loss before provision for income taxes and
discontinued operations (979,903) (439,026)
Income tax benefit 54,000 179,000
------------------------
Loss from continuing operations (925,903) (260,026)
Discontinued operations:
(Loss) income from discontinued operations net of
income taxes of $-0- and $48,000 (19,365) 93,407
Income (loss) from disposal of discontinued operations
net of income taxes benefit of $-0- and $247,000 93,066 (583,000)
------------------------
Total discontinued operations 73,701 (489,593)
------------------------
Net loss $ (852,202) $ (749,619)
========================
Loss per share - continued operations (0.45) (0.16)
Income (loss) per share - discontinued operation 0.04 (0.30)
------------------------
Total loss per share $ (0.41) $ (0.46)
========================
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. F-3
<PAGE> 46
[LOGO]
- --------------------------------------------------------------------------------
UTAH RESOURCES INTERNATIONAL, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NOTES
COMMON SHARES ADDITIONAL RECEIVABLE
-------------------- PAID-IN FROM STOCK RETAINED
SHARES AMOUNT CAPITAL SALES EARNINGS
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance,
January 1, 1995 1,284,027 $ 128,403 $ 127,174 $ - $ 1,409,527
Common stock issued
to purchase subsidiary
valued at book value of
subsidiary 590,000 59,000 196,503 - -
Common stock issued
for services in
acquisition of
subsidiary 76,000 7,600 25,080 - -
Repurchase of stock
through land issuance (102,429) (10,243) - - -
Common stock issued
in settlement of dispute 3,600 360 - - -
Dividends - - - - (128,463)
Net loss - - - - (749,619)
--------------------------------------------------------------------
Balance,
December 31, 1995 1,851,198 185,120 348,757 - 531,445
Common stock retired
through split-off of
subsidiary (590,000) (59,000) 59,000 - -
Repurchase of
common stock (40,552) (4,055) (131,794) - -
Common stock issued
for:
Cash and note
receivable 1,275,912 127,591 4,146,714 (3,633,159) -
Accounts payable 26,250 2,625 8,555 - -
Net loss - - - - (852,202)
--------------------------------------------------------------------
Balance,
December 31, 1996 2,522,808 $252,281 $4,431,232 $(3,633,159) $ (320,757)
===================================================================
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. F-4
<PAGE> 47
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- --------------------------------------------------------------------------------
UTAH RESOURCES INTERNATIONAL, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
1996 1995
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(852,202) $(749,619)
Add loss from discontinued operations 19,365 (93,407)
Loss (gain) from disposition of discontinued operation (93,066) 583,000
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 12,567 12,349
Minority interest in net income of subsidiaries (23,385) (26,988)
Loss (gain) on disposition of assets 1,221 (3,106)
Bad debt expense - 10,899
Common stock issued for services - 33,040
(Increase) decrease in:
Accounts receivable 109,954 (118,310)
Other assets (32,935) (775)
Real estate held for resale 87,834 (237,850)
Income tax receivable 212,328 (212,529)
(Decrease) increase in:
Accounts payable (23,982) 115,912
Accrued expenses 153,787 21,143
Deferred income tax - (300,000)
--------- ---------
Net cash used in
continued operations (428,514) (966,241)
Net cash provided by (used in)
discontinued operations 136,993 (104,846)
--------- ---------
Net cash used in operating activities (291,521) (1,071,087)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposition of assets 500 18,140
Payments on notes receivable 189,367 137,348
Purchase of property and equipment - (2,690)
Increase in notes receivable (151,050) (112,137)
Decrease in minority interest (17,825) (4,020)
--------- ---------
Cash from investing activities - continuing operations 20,992 36,641
Cash for investing activities - discontinued operations (38) 76,839
--------- ---------
Net cash provided by investing activities 20,954 113,480
--------- ---------
</TABLE>
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See accompanying notes to consolidated financial statements. F-5
<PAGE> 48
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UTAH RESOURCES INTERNATIONAL, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended
December 31,
---------------------
1996 1995
---------------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of dividends - (128,463)
Payments on notes payable (419,449) (90,129)
Issuance of common stock 641,146 -
Retirement of common stock (135,849) -
--------- ----------
Cash from financing activities - continued operations 85,848 (218,592)
Cash for financing activities - discontinued operations (63,254) (196,765)
--------- ----------
Net cash provided by (used in)
financing activities 22,594 (415,357)
--------- ----------
Decrease in cash (247,973) (1,372,964)
Cash and cash equivalents, beginning of year 765,831 2,138,795
--------- ----------
Cash and cash equivalents, end of year $517,858 $765,831
========= ==========
</TABLE>
1996
The Company issued 1,275,912 shares of stock in exchange for cash and a note
receivable in the amount of $3,633,159.
The Company issued 26,250 shares of stock as payment of a liability in the
amount of $11,180.
The Company redeemed and retired 590,000 shares of stock in conjunction with
the split-off of Midwest Railroad at no value.
1995
The Company purchased the assets of another company for common stock valued at
$255,503.
The Company financed the purchase of equipment with debt in the amount of
$28,278.
The Company purchased and retired 102,429 shares of common stock through the
issuance of 10.6 acres of land under the terms of a prior year agreement.
The Company disposed of debt in the amount of $3,933, which was assumed in the
sale of land for which the Company received a note receivable.
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. F-6
<PAGE> 49
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UTAH RESOURCES INTERNATIONAL, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
CONTINUED
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
1996 1995
---------------------------
<S> <C> <C>
Interest $ 51,301 $ 62,427
===========================
Income taxes $ - $ -
===========================
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. F-7
</TABLE>
<PAGE> 50
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UTAH RESOURCES INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
1. SUMMARY OF BUSINESS
SIGNIFICANT Utah Resources International, Inc., and consolidated
ACCOUNTING entities (the Company) is engaged primarily in the
POLICIES development of real estate including the sale of developed
and undeveloped real estate. The Company's assets are
located in the Rocky Mountain West.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the
financial statements of Utah Resources, Inc., Tonaquint
Inc. and a number of limited partnerships of which the
Company has ownership in excess of 50 percent and has
management responsibility. All material intercompany
transactions and balances have been eliminated in
consolidation of the Companies and partnerships.
Discontinued operations include Midwest Railroad
Construction and Maintenance Corporation (Midwest) from June
13, 1995 ( date of acquisition) through March 31, 1996 (date
of disposition). The Company disposed of Midwest effective
March 31, 1996, see notes 7 and 8. Discontinued operations
in 1995 also included those of a Service Station which was
closed in 1993.
METHOD OF RECOGNITION OF INCOME
Real Estate
-----------
Profits on sale of developed lots, developed
land and raw land are recognized in accordance with
standards established for the real estate industry
which generally provide for deferral of all or part of
the profit on a sale if the buyer does not meet certain
down payment requirements or certain other tests of the
buyer's financial commitment to the purchase, or the
seller is required to perform significant obligations
subsequent to the sale.
Cost of sales include a pro rata portion of
acquisition and development costs (including estimated
costs to complete) along with sales commissions,
closing costs and other costs specifically related to
the sale.
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F-8
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UTAH RESOURCES INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
- --------------------------------------------------------------------------------
1. SUMMARY OF METHOD OF RECOGNITION OF INCOME
SIGNIFICANT Other
ACCOUNTING -----
POLICIES Royalty income is recognized when received. The
CONTINUED Company has overriding mineral and oil and gas royalty
interests and thus exercises no control over the
activities of the royalty payers and is notified of the
amounts or royalties due when the cash is received.
PROPERTY AND EQUIPMENT
Property and equipment is carried at cost. Depreciation
is computed using the straight-line method based upon the
following useful lives:
Building 15-30 years
Furniture and equipment 3-10 years
REAL ESTATE HELD FOR RESALE
Real estate held for resale includes developed lots,
land under development and raw land. Real estate held for
resale is carried at the lower of cost or market. The cost
of development of building lots includes the land and the
related costs of development (planning, survey, engineering
and other) which are capitalized. The cost of interest and
property taxes are expensed.
ROYALTY INTEREST IN PETROLEUM AND MINERAL PRODUCTION
The cost of identifiable intangible assets, consisting
of royalties, is being amortized on a straight-line basis
over the expected productive life of the asset of 15 years.
INCOME TAXES
Deferred income taxes are provided in amounts
sufficient to give effect to temporary differences between
financial statement and tax reporting purposes. The
differences are primarily a result of differing methods of
accounting for land sales and depreciation of property and
equipment.
EARNINGS PER SHARE
The weighted average of outstanding common shares is
approximately 2,072,105 shares and 1,619,000 shares for the
years ended December 31, 1996 and 1995, respectively.
Common stock equivalents have not been included as the
exercise price is in excess of the market price and the
amounts are antidilutive.
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F-9
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UTAH RESOURCES INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
- --------------------------------------------------------------------------------
1. SUMMARY OF STATEMENT OF CASH FLOWS
SIGNIFICANT For purposes of the statement of cash flows, the
ACCOUNTING Company considers all highly liquid debt instruments
POLICIES purchased with a maturity of three months or less to be cash
CONTINUED equivalents.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the
Company to concentration of credit risk consist primarily of
trade receivables. In the normal course of business, the
Company provides credit terms to its customers.
Accordingly, the Company performs ongoing credit evaluations
of its customers and maintains allowances for possible
losses which, when realized, have been within the range of
management's expectations.
The Company maintains its cash in bank deposit accounts
which, at times, may exceed federally insured limits. The
Company has not experienced any losses in such account and
believes it is not exposed to any significant credit risk on
cash and cash equivalents.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amount of revenues and
expenses during the reporting period. Actual results could
differ from those estimates.
2. ACCOUNTS Accounts receivable at December 31, 1996, include
RECEIVABLE $120,086 which is due from an entity which has some
FROM RELATED shareholders in common with the Company and $142,582 which
PARTIES is due from various related partnerships.
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F-10
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UTAH RESOURCES INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
- --------------------------------------------------------------------------------
3. NOTES The Company has the following notes receivable at
RECEIVABLE December 31, 1996:
Note receivable from an individual with interest
at 9%, secured by real estate and due when real
estate is sold $131,642
Note receivable from a company due in 1997 with
interest at 8.5% 9,030
--------
$140,672
========
Future maturities of notes receivable are as follows:
YEAR AMOUNT
---- --------
1997 $ 9,030
1998 131,642
--------
Total $140,672
========
4. REAL ESTATE Real estate held for resale consists of the following
HELD FOR real estate located in the St. George, Utah area at December
RESALE 31, 1996:
RAW LAND AND PARTIALLY DEVELOPED LAND
The Company has approximately 410 acres of real estate
of which approximately 390 acres is currently planned for
single family dwelling lots, commercial development and
multiple housing. The aggregate cost of the raw land and
partially developed land is $766,987.
Property related to the Service Station, which is held
for resale, amounts to $109,101. Also, included in other
assets is $92,773 of assets relating to the Service Station.
- --------------------------------------------------------------------------------
F-11
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UTAH RESOURCES INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
- --------------------------------------------------------------------------------
5. ACCRUED Accrued expenses at December 31, 1996 consist of the
EXPENSES following:
Deficit in investment in partnerships $225,661
Accrued interest 120,358
Unearned interest received 98,869
Accrued costs for clean up 50,533
Accrued payroll and payroll taxes 7,978
Other accrued expenses 42,671
--------
Total $546,070
========
6. NOTES The Company has the following notes payable at December
PAYABLE 31, 1996:
Notes payable to a shareholder of the Company
with interest rates ranging from 7.5% to 9.5% $110,932
Notes payable to a governmental entity requiring
annual payments of approximately $15,000 plus
interest at 5.94%, secured by real estate 91,551
Note payable to entity requiring annual payments
of $10,386 including interest at 9%, secured by
real estate 67,282
Note payable to a financial institution requiring
monthly payments of $491 including interest at
10.5%, secured by a vehicle 20,074
Other 1,271
--------
Total $291,110
========
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F-12
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UTAH RESOURCES INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
- --------------------------------------------------------------------------------
6. NOTES Future maturities of notes payable are as follows:
PAYABLE
CONTINUED YEAR AMOUNT
---- --------
1997 $142,219
1998 25,490
1999 25,992
2000 27,057
2001 23,481
Thereafter 46,871
--------
$291,110
========
None of the Company's debt instruments are held for
trading purposes. The Company estimates that the fair value
of all financial instruments at December 31, 1996, does not
differ materially from the aggregate carrying values of its
financial instruments recorded in the accompanying balance
sheet.
7. INVESTMENT Effective June 13, 1995, the Company acquired 100%
IN MIDWEST ownership of Midwest through the issuance of 590,000 shares
of the Company's common stock for all of the outstanding
stock of Midwest. The acquisition was accounted for as a
purchase. The fair market value of the Midwest assets and
liabilities approximated the historical cost of the assets
and liabilities and no goodwill was therefore recorded. The
net equity of Midwest at the date of acquisition was
$255,503.
Effective March 31, 1996, the Company spun off Midwest to
its former owner. The Company received 590,000 shares of
its restricted common stock and agreed to forgive net cash
advances made to Midwest of $317,000. The return of the
590,000 shares of common stock to the Company was recorded
at no value as the Company exchanged its ownership in
Midwest for the return of the shares of the Company. The
1995 financial statements reflect a write down of
approximately $780,000 for its investment in Midwest to its
estimated realizable value. The write down in 1995, was a
result of the forgiveness of $317,000 of intercompany debt,
the write-off of the approximate $350,000 of Midwest
investment at December 31, 1995 and an estimate of $163,000
of loss from operations of Midwest through the date of
disposal.
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F-13
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UTAH RESOURCES INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
- --------------------------------------------------------------------------------
7. INVESTMENT During the year ended December 31, 1996, the disposal
IN MIDWEST of Midwest was finalized with an aggregate loss of $736,934
CONTINUED on the disposal before tax.
For the three months ended March 31, 1996, Midwest had
loss of $19,365 resulting in a net gain on disposition in
1996 of $73,701 to adjust the actual loss on disposition of
Midwest to approximately $707,000.
8. DISCONTINUED Condensed financial information for Midwest, which was
OPERATIONS discontinued, is as follows for the periods June 13, 1995
(date of acquisition) through December 31, 1995 and January
1, 1996 through March 31, 1996 (date of disposition).
<TABLE>
<CAPTION> June 13, 1995
January 1, 1996 (Date of
through March 31, Acquisition)
1996 (Date of Through
Disposition) December 31, 1995
------------------------------------
<S> <C> <C>
Revenues $2,690,730 $5,598,542
Costs and expenses 2,710,095 5,457,135
-------------------------------
Net (loss) income
before income tax (19,365) 141,407
Income tax expense - 48,000
-------------------------------
Net income (loss) $ (19,365) $ 93,407
===============================
</TABLE>
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F-14
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UTAH RESOURCES INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
- --------------------------------------------------------------------------------
9. INCOME The benefit for income taxes is as follows:
TAXES
Continuing Operations
---------------------
<TABLE>
<CAPTION>
1996 1995
-------------------
<S> <C> <C>
Current $ 54,000 $106,000
Deferred - 73,000
-------------------
Total continuing operations $ 54,000 $179,000
===================
</TABLE>
Discontinued Operations
-----------------------
<TABLE>
<CAPTION>
1996 1995
-------------------
<S> <C> <C>
Current $ - $ -
Deferred - 227,000
-------------------
Total continuing operations $ - $ 227,000
===================
</TABLE>
The benefit for income taxes differs from the amount
computed at the federal statutory rate as follows:
Continuing Operations
---------------------
<TABLE>
<CAPTION>
1996 1995
-------------------
<S> <C> <C>
Income tax benefit at federal
statutory rates $333,000 $158,000
State income taxes 49,000 23,000
Valuation allowance (328,000) -
Other - (2,000)
-------------------
Total current income taxes $ 54,000 $179,000
===================
</TABLE>
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F-15
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UTAH RESOURCES INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
- --------------------------------------------------------------------------------
9. INCOME Discontinued Operations
TAXES -----------------------
CONTINUED
<TABLE>
<CAPTION>
1996 1995
-----------------------
<S> <C> <C>
Income tax (expense) benefit
at federal statutory rates $ (11,000) $227,000
State income taxes (4,000) 20,000
Other 15,000 (20,000)
-----------------------
Total $ - $227,000
=======================
</TABLE>
Deferred income taxes have been established to reflect
timing differences between financial reporting and income
tax purposes. The primary differences are as follows:
<TABLE>
<CAPTION>
1996 1995
-----------------------
<S> <C> <C>
Condemnation sales $ - $300,000
Discontinued operations - (227,000)
Net operating loss carryforward (328,000) (73,000)
Valuation allowance 328,000 -
-----------------------
Total $ - $ -
=======================
</TABLE>
The Company has a net operating loss carryforward of
approximately $952,000, which expires in 2011. The benefit
of the net operating loss (NOL) carryforwards available to
offset future taxes will be limited by the tax laws in
effect at the time such NOL's can be utilized. Significant
changes in the ownership of the Company or tax laws could
limit the amount of NOL benefit.
- --------------------------------------------------------------------------------
F-16
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UTAH RESOURCES INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
- --------------------------------------------------------------------------------
10. STOCK The Company has a promissory note receivable at
SUBSCRIPTION December 31, 1996 in the amount of $3,633,159. The note
RECEIVABLE bears interest at the short-term Federal Internal Revenue
Service rate (6.77% at December 31, 1996). Interest is due
annually in July of each year with the principal balance due
August 1, 2001. The note is second by 1,285,912 shares of
the Company's common stock.
11. CONTINGENCIES The Company is aware of certain unasserted claims which
could result in claims in excess of amounts accrued in the
financial statements. Management believes that any such
claim, if asserted, will not result in any adverse effect on
the financial position of the Company.
The Company is in the process of remediation of the
service station property. It is not known if any additional
costs over what the Company has accrued will be needed to
complete the remediation.
The Company, in connection with the execution of the
stock purchase agreement, agreed to enter into an employment
agreement with the majority shareholder of the Company with
a salary not to exceed $200,000 per year. The agreement has
not been entered into and no accrual has been made for the
salary at December 31, 1996.
12. COMMITMENTS The Company leases its office facility under a year
lease requiring monthly payments of $500 which expires in
1997. Lease expense was $10,230 in 1996.
13. SIGNIFICANT The Company had land sales of $106,000 and $152,000 to
CUSTOMERS a significant customer in 1996 and 1995, respectively:
14. STOCK OPTION In 1994, the Company established a stock option plan
PLAN wherein the five directors and the Company's president were
each granted options to acquire 25,000 shares of the
Company's stock at $2.50 per share. The options vest as
follows: 9,000 shares at the option date and 8,000 shares
in 1995 and 8,000 shares in 1996.
- --------------------------------------------------------------------------------
F-17
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UTAH RESOURCES INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
- --------------------------------------------------------------------------------
15. SUBSEQUENT The Company filed with the Securities and Exchange
EVENT Commission in February 1997, documents to have the
shareholders of the Company consider and vote upon 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 prereverse-split price, with
fractional shareholders given the option to either receive
cash in lieu of their resulting fractional share of purchase
additional fractional shares to round up to one whole share
following the reverse split.
- --------------------------------------------------------------------------------
F-18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UTAH
RESOURCES INTERNATIONAL, INC., AND SUBSIDIARIES DECEMBER 31, 1996 FINANCIAL
STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 517,858
<SECURITIES> 0
<RECEIVABLES> 403,340
<ALLOWANCES> 0
<INVENTORY> 876,088
<CURRENT-ASSETS> 0
<PP&E> 69,427
<DEPRECIATION> 43,408
<TOTAL-ASSETS> 1,966,144
<CURRENT-LIABILITIES> 0
<BONDS> 291,110
0
0
<COMMON> 252,281
<OTHER-SE> 477,316
<TOTAL-LIABILITY-AND-EQUITY> 1,966,144
<SALES> 451,406
<TOTAL-REVENUES> 761,352
<CGS> 139,175
<TOTAL-COSTS> 1,669,463
<OTHER-EXPENSES> (8,772)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 86,405
<INCOME-PRETAX> (979,903)
<INCOME-TAX> (54,000)
<INCOME-CONTINUING> (925,903)
<DISCONTINUED> 73,701
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (852,202)
<EPS-PRIMARY> (0.41)
<EPS-DILUTED> (0.41)
</TABLE>
