SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 30, 2001.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 333-36964
MOUNTAIN STATES CAPITAL, INC.
(Exact name of registrant as specified in its charter)
Arizona 86-0859332
(State or jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1407 East Thomas Road
Phoenix, Arizona 85014
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (602) 954-4000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. (1) Yes [X] No [ ]
(2) Yes [ ] No [X]
At November 14, 2001, an aggregate of 1,000,000 shares of the registrant's
Common Stock, no par value (being the registrant's only class of common stock),
were outstanding.
Transitional Small Business Disclosure Format Yes [ ] No [X]
MOUNTAIN STATES CAPITAL, INC.
FORM 10-QSB, QUARTER ENDED SEPTEMBER 30, 2001
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet as of September 30, 2001.........................................3
Statement of Operations for the Three Months Ended
September 30, 2001 and 2000 and Nine Months Ended
September 30, 2001 and 2000...................................................4
Statement of Cash Flows for the Nine Months Ended September 30, 2001...........5
Notes to Interim Financial Statements..........................................6
Item 2. Management's Discussion and Analysis...................................8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.....................................................11
Item 2. Changes in Securities.................................................12
Item 3. Defaults Upon Senior Securities.......................................13
Item 6. Exhibits and Reports on Form 8-K......................................13
Signatures ...................................................................13
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEET
MOUNTAIN STATES CAPITAL, INC.
(UNAUDITED)
September 30, December 31,
2001 2000
------------ ------------
ASSETS
Cash $ 399,332 $ 430,767
Finance and Notes Receivables, Net (Note 2) 2,805,638 2,335,349
Prepaid Expenses 45,425 32,833
Fixed Assets, Net (Note 3) 483,155 467,297
Security Deposits 14,847 4,847
Officer Loans 44,619 45,908
Deferred Tax Asset 26,250 26,250
------------ ------------
Total Assets 3,819,266 3,343,251
LIABILITIES
Senior Debt (Note 4) 448,737 491,924
Subordinated Debt (Note 5) 3,943,849 2,344,565
Bridge Loans 0 580,000
Accounts Payable and Accrued Liabilities 0 104,832
Capital Lease Obligations 42,797 49,992
------------ ------------
Total Liabilities 4,435,383 3,571,313
Contingencies and Commitments
STOCKHOLDERS' EQUITY
Preferred Stock: Authorized 1,000,000 Shares of No
Par Value, Issued and Outstanding, 409,090 Shares 409,090 409,090
Common Stock: Authorized 25,000,000 Shares of No Par
Value, Issued and Outstanding, 1,000,000 Shares 1,000 1,000
Retained Earnings (A Deficit) (1,026,207) (638,152)
------------ ------------
Total Stockholder's Equity (A Deficit) (616,117) (228,062)
------------ ------------
Total Liabilities and Stockholders' Equity $ 3,819,266 $ 3,343,251
============ ============
3
MOUNTAIN STATES CAPITAL, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
------------- ------------- ------------- -------------
2001 2000 2001 2000
------------- ------------- ------------- -------------
Revenues
Finance Fee Income $ 208,066 $ 201,776 $ 714,540 $ 665,027
Document Fee Income 40,240 39,120 125,300 124,614
----------- ----------- ----------- -----------
Total Income 248,306 240,896 839,840 789,641
Expenses
Interest Expense 201,043 140,029 527,549 409,671
Salaries and Fringe Benefits 112,840 95,503 345,363 254,133
Other Operating Expenses 92,935 196,298 299,756 496,450
----------- ----------- ----------- -----------
Total Expenses 406,818 431,830 1,172,668 1,160,254
Net Loss (158,512) (190,934) (332,828) (370,613)
Less: Preferred Dividends (18,409) (18,409) (55,227) (55,227)
----------- ----------- ----------- -----------
Net Loss Available to Common Stockholders $ (176,921) $ (209,343) $ (388,055) $ (425,840)
=========== =========== =========== ===========
Basic Loss Per Common Share $ (0.18) $ (0.21) $ (.39) $ (.43)
=========== =========== =========== ===========
Basis Weighted Average Number of
Common Shares Outstanding 1,000,000 1,000,000 1,000,000 1,000,000
=========== =========== =========== ===========
4
MOUNTAIN STATES CAPITAL, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(UNAUDITED)
For the Nine Months Ended September 30,
---------------------------------------
2001 2000
------------ ------------
Cash Flows From Operating Activities
Net Loss $ (332,828) $ (370,613)
Adjustments to Reconcile Net Loss to Net Cash
Provided By Operating Activities
Depreciation and Amortization 40,051 18,092
Gain on Sale of Asset (4,506) 2,986
Allowance for Doubtful Accounts 0 (4,598)
Changes in Assets and Liabilities
(Increase) Decrease in Prepaid Expenses (12,592) 11,078
(Increase) Decrease in Security Deposits (10,000) 1,565
(Increase) Decrease in Accrued Interest Receivable 0 3,528
Increase (Decrease) in Accounts Payable and
Accrued Liabilities (104,832) (33,601)
------------ ------------
Total Adjustments (91,879) (950)
------------ ------------
Net Cash Provided By Operating Activities (424,707) (371,563)
Cash Flows From Investing Activities
Loans Originated 19,192,155 14,058,477
Loans Repaid (19,443,672) (13,680,799)
Purchase Of Fixed Assets (32,602) (63,724)
Proceeds From Sale of Fixed Assets 550 0
Advances To Officer 1,289 0
------------ ------------
Net Cash Flows Used In Investing Activities (282,280) 313,954
Cash Flows From Financing Activities
Advances Under Notes Receivable (207,072) (31,243)
Borrowings Under Promissory Notes 1,276,532 (383,380)
Repayments Under Promissory Notes (255,461) 0
Repayments Under Installment Notes 0 (3,409)
Borrowings(Repayments) Under Promissory
Note/ Bridge Loan (25,000) 500,000
Commissions Paid (26,025) 0
Dividends (55,227) (55,227)
Repayments Under Notes Payable 0 (27,694)
Repayments Under Line of Credit (25,000) 0
Distributions to Stockholder 0 (16,723)
Advance to Officers 0 (1,368)
Repayments Under Capital Leases (7,195) 0
------------ ------------
Net Cash Provided By Financing Activities 675,552 (19,044)
------------ ------------
Increase (Decrease) in Cash and Cash Equivalents (31,435) (76,653)
Cash and Cash Equivalents, Beginning of Period 430,767 227,958
------------ ------------
Cash and Cash Equivalents, End of Period $ 399,332 $ 151,305
============ ============
Supplemental Information
Cash paid for:
Interest $ 527,549 $ 409,671
============ ============
Income taxes $ 0 $ 0
============ ============
See accompanying notes to condensed financial statements.
5
MOUNTAIN STATES CAPITAL, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- STATEMENT OF INFORMATION FURNISHED
The accompanying unaudited interim financial statements have been prepared in
accordance with Form 10QSB instructions and in the opinion of management
contains all adjustments, consisting of only normal recurring adjustments,
necessary to present fairly the financial position as of September 30, 2001, the
results of operations for three and nine months ended September 30, 2001, and
the statement of cash flows for nine months ended September 30, 2001, and 2000.
These results have been determined on the basis of generally accepted accounting
principles and practices and applied consistently with those used in the
preparation of Mountain States' 2000 Annual Report on form 10-KSB.
Certain information and footnote disclosure normally included in the financial
statements presented in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that the accompanying financial
statements be read in conjunction with the accompanying financial statements and
notes thereto incorporated by reference in Mountain States' 2000 Annual Report
on form 10-KSB.
NOTE 2 -- FINANCE AND NOTES RECEIVABLE
Finance and Notes Receivable, net of allowance for loan losses of $48,520
consists of the following at September 30:
2001
-----------
Finance Receivable (1) $ 1,876,161
Notes Receivable (2) 977,997
-----------
Total Finance and Notes Receivable 2,854,158
Allowance for Loan Losses (48,520)
-----------
Finance and Notes receivable Net $ 2,805,638
===========
- ----------
(1) Finance receivable consists entirely of dealer floor plan loans secured by
the vehicle title, and due within thirty days.
(2) Notes Receivable represents certain finance receivables that management
converted to notes due to lack of payment on a timely basis. Mountain
States has successfully obtained a secured interest in all of the property
collateralized by the notes and does not anticipate any significant losses
from these loans. Mountain States is committed to protecting its interests.
There were no changes in the allowance for loan losses during the nine
months ending September 30, 2001.
NOTE 3 -- FIXED ASSETS
Fixed Assets consisted of the following at September 30:
2001
--------
Building and Improvements $407,551
Vehicles 61,813
Furniture and Fixtures 14,776
Computer Equipment 57,356
--------
Total 541,496
Less Accumulated Depreciation 58,341
--------
Net Book Value $483,155
========
Depreciation expense charged to operations during the nine months ended
September 30, 2001,was $9,000.
6
NOTE 4 -- SENIOR DEBT
Senior debt consists of the following at September 30:
2001
--------
Line of Credit (1) $256,250
Promissory Notes Payable (2) 192,487
--------
Total $448,737
========
- ----------
(1) Line of Credit - Mountain States operates under a line of credit dated
November 9, 1999, in the original amount of $281,250. Interest payments are
due monthly on the ninth of each month, payable at 7% of the unpaid
outstanding principal balance of each advance. The line of credit is
secured by the building located at 1407 E. Thomas Road, Phoenix, Arizona,
the Company's headquarters, and personally guaranteed by the Company's
president. The loan is due in full on November 9, 2001. The Company is in
process of renewing the line of credit. The Company has available $25,000
for advances under a line of credit at September 30, 2001.
(2) Promissory Notes Payable- represents various promissory notes (consisting
of nine at September 30 2001), written for a basic period of nine months,
paying simple interest on the principal balance of the note at varying
rates from 18-24% per annum, monthly on the last day of the month unless
the holder elects to defer interest payments, which are compounded monthly
until paid. All accrued interest was paid through September 30, 2001. The
Company has the right to prepay the outstanding principal, in whole or in
part, without penalty at any time. These notes are technically in default
and due on demand by the holder. All notes are secured by a general pledge
of all assets owned or later acquired by the Company, which primarily
represent cash, finance and notes receivable, and the Company's office
building where it is headquartered. See Note 5.
NOTE 5 -- SUBORDINATED DEBT
Subordinated debt consists of the following at September 30:
Promissory Notes $3,464,258
Less Deferred Charges (25,409)
----------
Subtotal 3,438,849
Line of Credit 505,000
----------
Net Subordinated Debt $3,943,849
==========
Promissory notes - 18% per annum, 12 month, unsecured promissory notes. As of
September 30, 2001, total commission fees paid to Heritage West Securities,
Inc., the Company's registered broker/dealer underwriting the offering of these
notes was $56,460. These fees represent deferred charges classified as a contra
account to promissory notes and amortized ratably over the life of the
promissory notes, which is twelve months. Amortization charged to operations for
the nine months ended September 30, 2001 was $31,049.
7
NOTE 5 -- SUBORDINATED DEBT (CONTINUED)
Line of Credit - unsecured, dated March 31, 2001, from Heritage West, L.L.C., in
the amount of $505,000, interest at the rate of 2% per calendar month and due at
the end of each month. The line of credit matures on March 31, 2002.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
This periodic filing contains certain "forward-looking" statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Actual
results may differ materially from the forward-looking statements contained
herein. Certain information about risk factors is set forth in this periodic
filing including, but not limited to, the risks and uncertainties listed in this
"Management's Discussion and Analysis" section. Mountain States is under no
obligation (and expressly disclaims any obligation) to update or alter its
forward-looking statements, whether as a result of new information, future
events or otherwise.
GENERAL
Mountain States was incorporated in the State of Arizona on March 13, 1997
to conduct the business of providing short-term inventory financing ("flooring"
or "floor plan" financing) to independent automobile dealers. Such financing
enables the automobile dealers to increase their inventory and offer a greater
selection of vehicles to customers, which can result in increased sales and
income.
Mountain States continues to offer both its original lending program and
its SourceOne floor plan program, which is usually less expensive to the dealer.
The SourceOne program is intended to attract a higher volume, more financially
stable automobile dealer. Mountain States anticipates that higher credit quality
associated with SourceOne lending should result in a lesser burden on Mountain
States' personnel and resources. Management expects SourceOne to contribute a
higher share of total revenue in future periods primarily because the generally
higher credit-quality clients who utilize the program justify greater lending
limits, and due to the larger number of such potential clients. Even though
interest rates and fees for SourceOne loans are usually lower than for other
loans made by Mountain States, management expects that lower loan losses and
lower costs of administering the SourceOne loans will in time offset the lower
marginal rates earned under SourceOne. There can be no assurance that the
SourceOne program can be successfully implemented or expanded or as to the
financial results thereof.
Management anticipates significant growth in Mountain States' funds
available for lending, and thus in floor plan loan volume, in the near future,
though there can be no assurance that additional funding can be obtained on
satisfactory terms. See "Liquidity and Capital Resources." Management believes
that current infrastructure, in terms of staffing, facilities, and other
operational factors, is sufficient to originate and service significantly
increased loan volumes. Therefore, management believes that the elements of
general and administrative costs related to ordinary operations should rise at a
rate less than the rate of increase in loan volume. Legal fees related to
Mountain States' current notes offering are expected to decrease. Management
anticipates that other costs of the offering, especially advertising costs
associated with marketing, will increase in the short term. Mountain States
expects an increase in floor plan loan volume, and a faster increase in
lower-rate SourceOne loans. Accordingly, finance fee revenue is expected to
increase. General and administrative expenses, especially those related to
non-employment-related variable costs, are expected to increase moderately.
Interest expense is expected to rise in total dollars, but diminish in terms of
average interest rate paid.
8
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THE THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 2000.
Total revenues increased 3%, or $7,410, from $240,896 for the three months
ended September 30, 2000, to $248,306 for the three months ended September 30,
2001, and 6%, or $50,199, from $789,641 for the nine months ended September 30,
2000, to $839,840 for the nine months ended September 30, 2001. SourceOne
contributed approximately $74,335, or 30%, to total revenue for the three months
ended September 30, 2001, compared to a revenue contribution of $59,766 or 25%
for the three months ended September 30, 2000, and $204,658, or 24%, to total
revenue for the nine months ended September 30, 2001, compared to revenue
contribution of $123,602 or 16% for the nine months ended September 30, 2000.
Management expects SourceOne to contribute a higher share of total revenue in
future periods due primarily to a desire to loan to the generally higher quality
clients who utilize the program and the larger number of such potential clients.
Mountain States does not intend to shift funds from the traditional Mountain
States Program to the SourceOne Program, but rather intends to increase
SourceOne loans by dedicating a large proportion of additional funds, such as
the proceeds of its current notes offering, to the SourceOne program. Although
the increase in the proportion of SourceOne loans to total loans would tend to
depress gross margins, Mountain States believes that SourceOne loans will in the
future result in lower per-unit loan losses and administrative costs and that
generating additional SourceOne loans will improve aggregate profits over time.
Total operating expenses consists of interest expense and general and
administrative expenses. General and administrative expenses consists of salary
and fringe benefits and other operating expenses. Interest expense increased
$61,014, or 44%, from $140,029 for the three months ended September 30, 2000, to
$201,043 for the three months ended September 30, 2001 and $117,878, or 29%,
from $409,671 for the nine months ended September 30, 2000, to $527,549 for the
nine months ended September 30, 2001. Management believes that interest expense
for the three months ended September 30, 2001 rose more rapidly compared to the
same period of 2000 than the corresponding rise in revenues (3%) for the same
periods because of a delay in loaning out the newly-available funds. Management
expects that similar delays could occur from time to time, depending on
unpredictable circumstances. Mountain States expects its interest expense to
continue to increase as additional proceeds of its current notes offering are
received. Mountain States believes its future average cost of funds will
decline. However, Mountain States' interest expense in the future will depend
largely on availability of funding and prevailing interest rates, over both of
which Mountain States has no control.
General and administrative expenses for the three months ended September
30, 2001 were $205,775 versus $291,801 for the three months ended September 30,
2000, which is a net decrease of $86,026, or 29%. Of this decrease, $40,000
pertains to the partial release of a disputed legal fee claim against Mountain
States. Mountain States had previously accrued the claim as a legal fee expense.
For the nine months ended September 30, 2001, general and administrative
expenses were $645,119 compared to $750,583 for the nine months ended September
30, 2001, which is a net decrease of $105,464, or 14%.
PROVISION FOR INCOME TAXES
As of September 30, 2001, Mountain States has approximately $1,000,000 in
net operating loss carryforwards available to offset future taxable income.
Therefore, no provision or benefit for income taxes has been included in the
statement of operations for the nine months ended September 30, 2001.
PREFERRED DIVIDENDS
During the nine months ended September 30, 2001 and 2000, Mountain States
paid dividends on its Series A Preferred Stock in the amount of $55,227. The
preferred dividends are paid monthly at the rate of 18% per annum through
December 31, 2002. All dividend payments are current.
9
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THE NINE
MONTHS ENDED SEPTEMBER 30, 2000
Net cash used in operating activities for the nine months ending September
30, 2001, was $424,707 resulting primarily from a net loss of $332,828 and
reduction in accounts payable due in part to the partial release of a disputed
legal fee claim against Mountain States. Mountain States had previously accrued
the claim as a legal fee expense. Net cash used in operating activities for the
nine months ended September 30, 2000 was $371,563 resulting primarily from fees
incurred in connection with the notes offering.
Net cash used in investing activities for the nine months ended September
30, 2001 was $282,280 whereas the net cash provided by investing activities for
the nine months ended September 30, 2000 was $313,954. The difference is
attributable to an increase in floorplan loan payoffs of $5,762,873 (from
$13,680,799 to $19,443,672) offset by the increase in floorplan loan
originations of $5,133,678, from the third quarter of 2000 to the third quarter
of 2001. Additionally, fixed asset acquisitions were $63,724 in the first nine
months of 2000, but only $32,602 for the nine months ended September 30, 2001.
Net cash provided by financing activities for the nine months ended
September 30, 2001 was $675,552, which is primarily attributable to sales of new
notes in connection with this offering. Net cash used in financing activities
for the nine months ended September 30, 2000 was $19,044,which was primarily
attributable to repayments of outstanding notes and other items, offset in part
by line of credit advances.
Notes issued pursuant to the note offering reach their one-year maturity
date at various dates throughout the year, including notes with an aggregate
principal amount of $1,527,000 maturing December 26, 2001. Based on prior
experience, the Company anticipates that substantially all of the holders of
these notes will continue to hold the Company's notes, but there can be no
assurance that this will be the case.
FINANCIAL IMPACT OF RESCISSION OFFER
During calendar year 2000, Mountain States offered rescission to many of
its note holders. Because the vast majority of the noteholders offered
rescission chose to apply the proceeds of their prior notes towards purchase of
new notes, Mountain States was not required to fund a significant amount of
rescission payments. However, Mountain States' capital resources and ability to
raise funds were limited by the rescission offer process and events related
thereto.
Mountain States has now settled a claim against former counsel which
related to the rescission offer. The settlement, which calls for payment to
Mountain States in the amount of $175,000, must now be committed to writing.
FUTURE FUND-RAISING PLANS
Mountain States intends to diversify its fund-raising activities to reduce
its reliance on raising capital through the issuance of promissory notes. In
addition to its current new notes offering, Mountain States anticipates future
funding to be a combination of preferred and common stock offerings, and
institutional loans and/or lines of credit. Management believes that this
variation of debt and equity will decrease Mountain States' interest expense,
thus increasing margins and profitability. Mountain States also expects that
this diversification will allow for continued growth and financial stability in
future periods without undue reliance on a single source of funds. No assurance
can be given that Mountain States will be successful in such fund-raising
activities.
Mountain States has contracted with various individuals and entities for
their services in identifying and negotiating with potential sources of debt and
equity capital. Payment under these contracts is contingent upon success in
obtaining the capital sought for the benefit of Mountain States.
Management expects its expenditure and working capital requirements in the
foreseeable future to increase depending on the rate of Mountain States'
expansion, Mountain States' operating results, and other adjustments in its
operating plan as needed in response to competition or unexpected events.
Management believes that the net proceeds from this offering, together with
10
available borrowings and Mountain States' current cash and cash equivalents,
will be sufficient to meet anticipated cash needs for working capital, capital
expenditures, and required debt payments for the next year. If Mountain States
is unable to meet its liquidity requirements or if its liquidity requirements
increase, Mountain States may require additional financing; however there can be
no assurance that Mountain States will be able to access any additional funding.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141 "Business Combinations". SFAS No. 141 requires that all business
combinations be accounted for under the purchase method of accounting. SFAS No.
141 also changes the criteria for the separate recognition of intangible assets
acquired in a business combination. SFAS No. 141 is effective for all business
combinations initiated after June 30, 2001. This statement does not affect the
financial statements.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 142 addresses accounting and reporting for intangible assets
acquired, except for those acquired in a business combination. SFAS No. 142
presumes that goodwill and certain intangible assets have indefinite useful
lives. Accordingly, goodwill and certain intangibles will not be amortized but
rather will be tested at least annually for impairment. SFAS No. 142 also
addresses accounting and reporting for goodwill and other intangible assets
subsequent to their acquisition. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001. This statement does not have a material
effect on the financial statements.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. SFAS No. 143 is effective for
financial statements issued for fiscal years beginning after June 15, 2002. This
statement is not expected to have a material effect on the financial statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" which supersedes SFAS No. 121. This
statement addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. SFAS No. 144 is effective for financial
statements issued for fiscal years beginning after December 15, 2001, and
interim periods within those fiscal years. This statement is not expected to
have a material effect on the financial statements.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Mountain States presently is prosecuting several claims for the collection
of outstanding accounts receivable. Legal actions for collection of accounts
receivable, although the facts and legal issues may differ from case to case,
are routine litigation incidental to the business of Mountain States. Please
refer to "Part II, Item 1 - Legal Proceedings" in Mountain States' Report on
Form 10-QSB for the quarter ended June 30, 2001 for additional information.
On August 3, 2001 Mountain States filed suit against Edward Allen Tucker
and Deolinda V. Tucker dba Harvest Car Company in the Superior Court of Arizona
for Maricopa County, case number CV 2001-013414. That same day Mountain States
obtained a Temporary Restraining Order forbidding defendants from transferring
assets and other activities. Hearing on the Order and on Mountain States'
Application for Preliminary Injunction was set for August 17, 2001. Mountain
States chose to act because Harvest was selling cars financed by Mountain States
without paying for them. Then on August 8, 2001 Harvest(Tuckers) filed chapter
13 bankruptcy case 01-10348-PHX-RJH in the District of Arizona, which was
converted to a chapter 7 case on August 21, 2001. Mountain States has the first
position in about 22 cars, most floored by unsecured creditors. The principal
amount of Harvest's debt to Mountain States is less than $123,000. Mountain
states has already obtained $9,200 in the proceedings, and believes it will
recover at least the principal amount, by a combination of selling cars already
repossessed, obtaining the proceeds of other cars in inventory, and/or via
proceedings in connection with claims against the dealer's bond.
11
On September 7, 2001 Mountain States filed suit against George Kheir dba
Towne Motors, a Texas dealer, case number 2001-46055, 55th Judicial District of
Harris County, Texas, for failure to pay amounts due, including $ 69,325.00 in
principal amount, outstanding under the parties' Security Agreement.
Contemporaneously, Mountain States exercised its right of self-help repossession
as a secured party and seized 26 automobiles and some of defendant's records.
Mountain States also obtained a Temporary Restraining Order against defendant on
September 7, 2001. The Court dissolved the TRO on September 14, 2001 and
Mountain States sought and obtained a writ of Sequestration on October 26, 2001,
pursuant to which it seized on November 5, 2001, 22 customer contracts
representing an aggregate cash price amount of $ 139,155.00. Mountain States
believes that only a portion of that amount is actually collectible. Mountain
States has sold six cars for $ 6,730.00, which will be applied against the
amount due. Mountain States is also considering an action against ADESA, Inc.
for releasing to defendants, without Mountain States' consent or permission, 17
of the cars previously seized. It is believed that Mountain States will recover
its principal amount, and perhaps part of its interest and attorneys' fees in
this matter. Mountain States obtained a second TRO in the matter November 1,
2001. Hearing on the second TRO is scheduled for November 16.
Mountain States does not believe that the outcome of the above cases and
matters will in the aggregate have a significant negative impact on its ability
to conduct its business.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The effective date and offering date of Registration Statement No.
333-36964, for which the following use of proceeds information is disclosed, is
November 22, 2000. The offering has not terminated. Heritage West Securities,
Inc. is the managing underwriter of the offering of $10,000,000 aggregate
principal amount of 18% 12-month unsecured promissory notes. Both the amount
registered and the aggregate price of the of the offering amount registered are
$10,000,000. Both the amount sold through September 30, 2001 and the aggregate
offering price of the amount sold to date is $3,937,000. Underwriting discounts
and commissions incurred by the registrant were $56,460.00.
The following table sets forth the actual expenses, other than underwriting
discounts and commissions, borne by the registrant in connection with the
issuance and distribution of the securities offered under the referenced
registration statement (11-22-00 through 9-30-01):
State Filing Fees 610.00
Printing and Engraving 11,828.11
Legal Fees and Expenses 71,701.29
Accounting Fees and Expenses 8,500.00
Trustee Fees 4,347.00
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Total $96,986.40
==========
The foregoing expenses were not payments to directors, officers or their
associates, to persons owning 10 percent or more of any class of equity
securities of the issuer or affiliates of the issuer, but were direct payments
to independent third parties.
The net offering proceeds to the issuer, after deducting all the foregoing
expenses, are $3,783,553.60.
Of this net amount, issuer estimates that over 95% was used for new loans to
commercial clients of issuer. Such payments were not payments to directors,
officers or their associates, to persons owning 10 percent or more of any class
of equity securities of the issuer or affiliates of the issuer.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As of September 30, 2001, at the election of the note holders, Mountain
States had not paid the principal of nine mature outstanding notes, which puts
Mountain States technically in default on these notes. The aggregate principal
amount of the notes is approximately $195,000.
The holders of all these outstanding notes had the option to receive cash
for their notes pursuant to the rescission offer, which concluded on February
14, 2001. All of these note holders instructed Mountain States to continue their
investments. Mountain States has promptly honored, and plans to continue to
honor, any requests for redemption of mature outstanding notes and continues to
timely pay the normal monthly interest payments on all mature outstanding notes.
Mountain States intends to redeem these notes as funds become available. As of
September 30, 2001, all interest payments relating to these notes had been made.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
ALL SCHEDULES ARE OMITTED BECAUSE THEY ARE NOT APPLICABLE OR THE REQUIRED
INFORMATION IS SHOWN IN THE FINANCIAL STATEMENTS OR NOTES THERETO.
(a) Exhibits: None.
(b) Reports on Form 8-K: None.
SIGNATURES
Pursuant to the requirements 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.
Dated:
MOUNTAIN STATES CAPITAL, INC.
By: /s/ Kim Collins
--------------------------------------
Kim Collins, Chief Executive Officer
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