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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee required) For the fiscal year ended
X December 31, 1996
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or
Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No fee required)
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For the Transition Period from ____________ to _____________
Commission File Number 0-22027
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ROCKY MOUNTAIN POWER CO.
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(Name of Small business Issuer as Specified in its charter)
N/A
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(Previous name of Registrant)
Colorado 84-0503585
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(State or other jurisdiction
of incorporation or organization) (IRS Employer ID Number)
12835 E. Arapahoe Road, T-II #110, Englewood, Colorado 80112
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (303) 792-2466
Securities to be registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock Name of each exchange on which registered
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N/A
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(b) 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 of such filing requirements for
the past 90 days.
YES X NO
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Check if there is no disclosure of delinquent filers in response 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, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. ( X )
The Issuer's revenues for its most recent eight month period were $340,845.
The Issuer is unable to calculate the aggregate market value of the common
stock of the Registrant held by nonaffiliates because there is no market
for the common stock.
As of June 30, 1997, 749,742 shares of common stock were outstanding.
Documents incorporated by reference: None.
Transitional Small Business Disclosure Format
(Check One):
Yes No X
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PART I
Item 1. Description of Business
General
Rocky Mountain Power Co. (RMPC) is a corporation which was formed
under the laws of the State of Colorado on September 30, 1958. The
Articles of Incorporation of the Company authorize it to issue
100,000,000 shares of common stock with $.05 per share par value
and 200,000 shares of preferred stock with a par value of $25.00
per share.
Recent Developments
During December 1996, and subsequently amended March 20, 1997, RMPC
entered into an agreement with Prime Rate Investment Management
Enterprises, Inc. (PRIME), a Colorado corporation, incorporated on
May 1, 1995. Under the terms of the amended agreement, PRIME
became a 93.65% owned subsidiary of RMPC. Prime Rate Income &
Dividend Enterprises, Inc. (PRIDE), a wholly owned subsidiary of
PRIME) owned approximately 40% of the issued and outstanding common
stock and 100% of the issued and outstanding preferred stock of
RMPC prior to the March 31, 1997 business
combination/reorganization. Effective April 30, 1997 PRIME was
merged into RMPC with PRIDE then becoming a wholly-owned subsidiary
of RMPC.
The Company's Board of Directors and stockholders approved a 1 for
50 reverse stock split. Effective March 31, 1997, the effective
date of the business combination/reorganization, the preferred
stock of RMPC was cancelled and shares of RMPC common stock were
issued for PRIME and for cancelling of the preferred and common
shares of RMPC owned by PRIDE. The shares of RMPC representing 40%
ownership of RMPC by PRIDE were also cancelled. Upon completion of
the business combination/reorganization, and merger of PRIME into
RMPC, the former PRIME shareholders own approximately 97% of the
approximate 718,226 shares outstanding of RMPC and the transaction
has been accounted for as a reverse acquisition. The business
combination that occurred March 31, 1997 was a transaction between
two related parties and, therefore, not at arms-length. Mr.
Michael L. Schumacher and Mr. George A. Powell are President and
Vice-President, respectively of both RMPC and PRIME. Mr.
Schumacher and Mr. Powell are the sole directors of PRIME and are
two of the five directors of RMPC. Prior to the business
combination, RMPC had approximately 218 shareholders and PRIME had
approximately 232 beneficial shareholders. PRIDE was a wholly-
owned subsidiary of PRIME and was a shareholder of RMPC prior to
the business combination and owned approximately 40% of RMPC. Mr.
Schumacher had beneficial ownership of approximately 30% of PRIME
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and Mr. Powell had approximately 1% beneficial ownership of PRIME.
Seven other stockholders owned beneficially various percentages
ranging from approximately 3% to 10% each. These nine individuals
beneficially owned together approximately 90% of PRIME and own
approximately 87% of RMPC after the business combination. To
effect this business combination, RMPC issued 655,582 shares of
common stock to 12 shareholders of PRIME in exchange for their
93.65% ownership of PRIME while PRIDE returned its 40% ownership of
RMPC for cancellation; thus, the net effect was that the former
owners of PRIME became 97% owners of RMPC, resulting in a change in
control of RMPC. References to ("the Company") refer to RMPC and
subsidiaries on a combined basis. All references to PRIME refer to
Prime Rate Investment Management Enterprises, Inc., the full name
as shown in the financial statements. RMPC and PRIME have not been
subject to any bankruptcies, receiverships or similar proceedings.
After completion of the merger of PRIME into RMPC, RMPC has
approximately 450 shareholders.
RMPC filed a registration statement Form 10-SB which became
effective during the period ended June 30, 1997. The RMPC common
stock is traded on the NASDAQ Bulletin Board under the symbol RMPC.
The principal executive offices of the Company are located at 12835
E. Arapahoe Road, T-II, #110, Englewood, Colorado 80112, and the
Company's telephone number is (303) 792-2466.
The Company has selected June 30 as its fiscal year end.
Description of Business
RMPC was previously in the business of investing in water rights in
Colorado. During the three years ended June 30, 1996 and
subsequent to June 30, 1996, prior to the business combination,
RMPC had no operating income and incurred various operating
expenses totaling approximately $36,000, $30,000 and $10,000,
respectively, during the three years ended June 30, 1994, 1995 and
1996. In addition, during the year ended June 30, 1995, RMPC wrote
off its investment in water rights resulting in a loss of
approximately $445,000. RMPC was originally decreed certain
conditional water rights in Garfield and Eagle Counties, Colorado,
on the South Fork of the White River and some tributaries. These
water rights required continued due diligence activities to
maintain those water rights. RMPC did not file the required
application for due diligence by June, 1995, thus, the water rights
lapsed. The carrying amount of approximately $445,000 of RMPC's
investment in the water rights was charged against operations for
the year ended June 30, 1995. RMPC has no remaining claims related
to the lapsed water rights and has no claim against any individual,
entity or the federal government for the loss. During the year
ended June 30, 1995, RMPC abandoned all water rights previously
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controlled. Effective November 1, 1996, RMPC acquired nine
residential lots in exchange for 12,000 shares post split shares of
its common stock issued to PRIDE. RMPC also acquired effective
November 1, 1996, approximately $800,000 of mortgage loans from
PRIDE in exchange for 32,000 shares of $25.00 par value, 6%
cumulative preferred stock. The principal balances on these
mortgage loans totalled approximately $800,000 with a weighted
average interest rate of approximately 8% per annum. As a part of
the business combination effective March 31, 1997, these common and
preferred shares were cancelled.
As of June 30, 1997 the Company had $1,563,977 invested in mortgage
notes receivable. The Company's investments in mortgage loans are
collateralized principally by deeds of trust on real estate located
primarily in Colorado, California and Arizona. As of June 30,
1997, the Company had 8 mortgage loans receivable from one
individual totalling approximately $1,190,000. The loans as a
percentage of value of the real estate collateral are approximately
90%. The Company also had, as of June 30, 1997 11 mortgage loans
receivable from another non-affiliated individual totalling
approximately $285,000. The second individual's loans as a
percentage of value of the real estate collateral are approximately
100% but, as additional collateral for the loans receivable from
this individual, the Company has a junior lien on another property
owned by this individual. These mortgage loans to the two
individuals are a material concentration of credit risk.
The business purposes of the reverse acquisition from PRIME's
perspective include a larger stockholder base, the potential to
possibly utilize certain net operating loss carryovers of RMPC,
having a corporate charter that dates back to 1958, and the
continued service of certain directors and an officer of RMPC.
From RMPC's perspective, the business purpose was principally to
become engaged in an active business for the benefit of its
shareholders.
As a result of the foregoing, RMPC initially became the holder of
93.65% of the outstanding shares of PRIME. Each of the twelve
beneficial shareholders of PRIME who exchanged their respective
shares was an officer, director or principal shareholder of PRIME
and by reason thereof had access to all material information about
PRIME and were provided with all material information about the
business and financial position of the Company. Further, each such
person is sophisticated and knowledgeable in business and financial
matters and is able therefore to evaluate the information about
PRIME and the Company without need for protections that may be
available if the transactions were the subject of a registration
statement under the Securities Act of 1933. It is the position of
the Company that the exchange transactions with the twelve
shareholders of PRIME are exempt from registration under the 1933
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Act by reason of Section 4(2) as being transactions by an issuer
not involving a public distribution.
The remaining outstanding shares of PRIME representing
approximately 6.35% of the total outstanding shares were held
beneficially by 82 individuals. Effective April 30, 1997 pursuant
subject to the notice provisions of the Colorado Business
Corporation Act, the Company merged PRIME into RMPC through action
of the Boards of Directors of both companies and without seeking
approval of the respective shareholders of each company. Section
7-11-104 of the Colorado Business Corporation Act authorizes a
merger of a parent and subsidiary without a vote of shareholders of
either company if the parent holds at least 90% of the outstanding
shares of the subsidiary. Since there was no shareholders' vote or
consent on this matter, there was no sale, as contemplated by Rule
145 under the 1933 Act, of the Company's common stock which was
issued to the remaining shareholders of PRIME and thus, the
transaction was not subject to the registration requirements of
Section 5 of the 1933 Act.
PRIDE, is principally in the real estate investment business.
PRIDE owns residential rental real estate in California, Arkansas
and a health/racquetball club in California. PRIDE also is in the
business of investing in foreclosure sale real estate certificates
of purchase in the Denver Metropolitan area. PRIDE acquires the
certificates of purchase by bidding at foreclosure sales. Under
Colorado statutes, there is generally a minimum redemption period
of seventy-five (75) days whereby the property owner can redeem the
foreclosed property by paying the certificate of purchase balance
bid price plus interest at the rate specified on the mortgage note,
plus reimbursement of certain costs and expenses incurred by the
holder of the certificate of purchase during the redemption period.
If the former property owner fails to redeem the property, then
junior lienholders have a right to redeem. If the property is not
redeemed, the holder of the certificate of purchase will be granted
title to the property. It is PRIDE's investment policy to invest
in certificates of purchase that have sufficient equity such that
it is likely that the property will be redeemed.
The Market Opportunity
The market opportunity for investments in foreclosure real estate
certificates of purchase varies depending upon such factors as
interest rates, general economic conditions and real estate
construction costs. The Company markets its real estate generally
through listings with real estate brokers.
Competition
PRIME's real estate business is highly competitive. There are
thousands of real estate investors in the United States of America
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that are investing in similar rental properties. The level of
competition in the acquisition, sale and renting of real estate
properties is effected by economic conditions in the area as well
as interest rates available to borrowers. PRIME's business of
investing in certificates of purchase is also highly competitive
since there is open bidding allowed on all real estate
foreclosures. Typically at the foreclosure sales, there will be
between five and twenty individuals in attendance and between three
and seven actual bidders in addition to the foreclosing lenders
bidding on the properties collateralizing their loans.
Employees
The Company has no full time employees. Mr. Michael L. Schumacher,
the Company's President, Mr. George A. Powell, the Company's Vice
President and Mr. James D. Phelps, the Company's Secretary/
Treasurer devote approximately 25%, 50% and 1% respectively, of
their time to the Company's business. The real estate properties
are managed by various independent property management companies.
Item 2. Description of Property
(a) PRIDE and RMPC currently use minimal office space and
facilities provided at no cost by the Company's President.
(b) PRIDE and its subsidiaries invest in real estate and real
estate mortgages primarily for rental and interest income. By
investing in real estate that provides current income plus the
opportunity of long-term capital gains, the Company is attempting
to realize reasonable current operating income plus a potential
hedge against long-term inflation. Historically residential real
estate values have appreciated at least equal to the inflation
rate, but there can be no assurance of future appreciation. The
Company has no limitations or policies on the percentage of assets
which may be invested in any one investment, or type of
investment.
(1) The Company may invest in any type of real estate but
currently principally has investments in residential rental
houses. The Company also owns one residential condominium and
thirteen residential lots. The Company engages independent
property management companies to manage the rental properties.
The property management companies find tenants, collect the
rent and pay certain expenses on the Company's behalf and
remit net rent monthly to the Company. The Company has
financed its real estate acquisitions with its own capital
plus assumption of existing loans on properties or owner carry
back loans on properties. The Company has no limitation
policy on the number or amount of mortgages which may be
placed on any one piece of property. Appropriateness of
real estate investments and related financing decisions are
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determined by the officers of the Company.
(2) The Company's investments in mortgage loans are
principally loans carried back on properties sold. Management
has no current plans to actively invest in mortgage loans
other than those related to properties sold by the Company.
The Company has and may continue to provide carry back loans
on properties equal to 100% of the sales price of properties
if adequate additional collateral is provided.
(3) The Company currently has no investments and no plans to
invest in securities of or interests in persons primarily
engaged in real estate activities.
(c ) As of June 30, 1997, the Company had one single investment in
real estate which amounted to ten percent or more of the total
assets of the Company. The Company obtained title to this 18,500
square foot health club/racquetball court facility in Orange
County, California by foreclosing on a first mortgage loan
contributed to the Company by a shareholder in exchange for
additional common stock of PRIME. The principal balance, plus
accrued interest, plus related expenses totalled approximately
$550,000 at the time of the foreclosure sale. The Company now owns
the building located on ground, subject to a land lease with
approximately 36 years remaining. Monthly ground lease payments
approximate $2,500. The property has one tenant that occupies the
total facility, with a ten year lease which commenced in October,
1996. Monthly triple net lease payments start at approximately
$7,200 and increase to approximately $9,000 over the ten year term.
The tenants have an option to renew the lease for an additional ten
year period at the market rate, but not less than approximately
$9,000 per month. The current annual triple net lease rate is
approximately $5.00 per square foot. The Company is depreciating
its investment in this facility over the 39 year land lease term on
a straight-line basis. The federal income tax basis is
approximately $550,000. Real estate taxes on this property are
approximately $8,400 annually which amount to approximately 1.5% of
the $550,000 cost basis. The Company has no plans to renovate or
improve this property. The tenant has incurred approximately
$100,000 related to tenant improvements on this property. There
are numerous other health club/racquetball facilities in Orange
County, California, and numerous properties which are not now being
used as this type of facility, but could be converted to this use.
As such, should the tenant vacate the property or fail to pay rent,
the Company could have difficulty in finding another tenant.
Management believes that the property has adequate insurance
coverage. This property is free and clear with no mortgage on it.
As of June 30, 1997 the tenant of this racquetball facility was in
arrears about $17,000 on its rent payments.
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In addition to the Company's investment in the health
club/racquetball facility, the Company has approximately $289,000
invested in other real estate. Generally summarized as follows:
Description
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Three acres of land with a rental home on the property
located in Oakhurst, California, near Yosemite National
Park. This property is zoned for multiple family housing.$ 160,000
One rental home located in Fairfield Bay, Arkansas 40,000
Seventeen residential lots located in Nebraska, Arkansas,
Texas, Florida and North Dakota 89,000
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$ 289,000
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All of the above properties are free and clear of encumbrances.
All of the rental houses have annual leases. There are no options
or contracts related to the sale of any of the properties owned by
the Company. There are no plans for renovation, improvement or
development of any of the properties owned. The Company intends to
hold the residential rental properties for their current income
production and also for the possibility of long-term capital gains.
Management believes that all properties have adequate insurance
coverage. The residential rental properties have had vacancies of
less than 5% during the last two years.
Item 3. Legal Proceedings
RMPC is not party to any material legal proceeding, nor is the
Company's property the subject of any material legal proceeding.
Item 4. Submission of Matters to a Vote of Security Holders
During the period ended June 30, 1997, the shareholders of the
Company approved (a) a one for fifty reverse stock split, (b) the
increase in the authorized common stock to 100,000,000 shares, (c)
the change in the par value of the common stock to $.05, (d) the
authorization of 200,000 shares of $25.00 preferred stock, (e) the
appointment of the independent auditing firm, and (f) the election
of Michael L. Schumacher, George A. Powell, Robert S. Benham,
Norman L. Horsfield and Robert F. Moreland.
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PART II
Item 5. Market for Company's Common Equity and Related Stockholder
Matters
(a) Market Information. As of June 30, 1997 there was no
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public trading market for RMPC common stock. Subsequent to
June 30, 1997, the RMPC common stock became listed on the
NASDAQ Bulletin Board under the symbol "RMPC."
The Company has applied for quotation of the Common Stock on
the NASDAQ Small Cap Exchange operated by the National
Association of Securities Dealers, Inc. and has initially been
denied listing status. The Company is currently appealing the
decision.
(b) Holders. RMPC has approximately 749,742 shares of common
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stock issued and outstanding as of June 30, 1997, which are
held by approximately 450 shareholders. Of such shares,
approximately 40,000 shares, held by approximately 225
shareholders are eligible for resale. The remaining shares
are restricted shares under Rule 144. The Company presently
has no existing stock option or other plans nor are there any
outstanding options, warrants or securities convertible into
Common Stock.
(c) Dividend Policy. RMPC has never paid a dividend on its
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common stock. The Company does not anticipate paying any
dividends on its common stock in the foreseeable future.
Management anticipates that earnings, if any, will be retained
to fund the Company's working capital needs and the expansion
of its business. The payment of any dividends is at the
discretion of the Board of Directors.
Item 6. Management's Discussion and Analysis or Plan of Operations
Plan of Operations
GENERAL
RMPC was organized on September 30, 1958 but was relatively
inactive during the past three years. RMPC formerly held interests
in certain water rights in Colorado that now have been abandoned.
As described in Part I, Item 1, RMPC entered into a business
combination with PRIME, principally in the real estate investment
business.
RESULTS OF OPERATIONS (PRIME CONSOLIDATED)
Six Months Ended October 31, 1995 and Year Ended October 31, 1996
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Revenue for the six months ended October 31, 1995 was approximately
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$110,000. Revenue for the year ended October 31, 1996 was
approximately $342,000. From inception to October 31, 1995, rent
income totalled approximately $96,000 and interest income totalled
approximately $14,000. For the year ended October 31, 1996, rent
income totalled approximately $151,000 and interest income totalled
approximately $85,000. The gain on sale of real estate totalled
approximately $101,000 during the year ended October 31, 1996 and
the gain on the sale of security investments totalled approximately
$5,000 during the year ended October 31, 1996. There were no sales
of real estate or security investments during the six month period
ended October 31, 1995. During the year ended October 31, 1996,
the Company's management decided to sell its real estate in
Colorado resulting in a gain of approximately $101,000, because
management believed that the Colorado real estate values reached a
peak during 1996. The sale of the Colorado properties resulted in
less rental income on a monthly basis in 1996 but increased the
interest income per month related to the mortgage notes receivables
carried on the properties sold.
Operating expenses were approximately $92,000 during the six month
period ended October 31, 1995 as compared to approximately $151,000
during the year ended October 31, 1996. Expenses decreased on a
monthly basis during 1996 principally due to less real estate
expenses after the Colorado properties were sold.
Eight Months Ended June 30, 1997
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Revenue for the eight months ended June 30, 1997 was approximately
$341,000 as compared to revenue of approximately $342,000 for the
year months ended October 31, 1996. The average per month for the
period ended June 30, 1997 was approximately $43,000 as compared to
approximately $28,500 per month for the year ended October 31,
1996. This increase resulted principally from rent on the
Company's investment in the racquetball/health club facility in
California and increased interest income on new investments in
certificates of purchase and on carryback mortgages on real estate
sold. The racquetball/health club property was not owned by the
Company during the year ended October 31, 1996. The Company,
during the year ended October 31, 1996 sold various real estate
properties, while carrying back mortgages on the sold properties,
resulting in increased interest earned and decreased rental income
during the comparable prior period. During the eight month period
ended June 30, 1997 and the year ended October 31, 1996 the Company
had gains from the sale of real estate of approximately $114,000
and $101,000 respectively. Past gains may not necessarily be
indicative of future results.
Operating expenses were approximately $167,000 during the eight
month period ended June 30, 1997, and approximately $151,000 during
the year ended October 31, 1996. The average per month for the
period ended June 30, 1997 was approximately $21,000 as compared to
approximately $12,500 per month for the year ended October 31,
1996. The increases relate principally to the ground lease
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payments on the racquetball facility which are approximately $2,500
per month and increased interest costs related to the Company's
newly obtained line of credit used to finance some of the
acquisitions of the certificates of purchase.
Net income after the provision for income taxes increased from
approximately $127,000 during the year ended October 31, 1996 to
approximately $133,000 during the eight month period ended June 30,
1997, an increase of approximately $6,000 per month.
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 1996, the Company's combined cash balance was
approximately $45,000. The Company's current assets at October 31,
1996 totalled approximately $665,000 and its current liabilities
totalled approximately $215,000, resulting in net working capital
of $450,000, a current ratio of approximately three to one.
At June 30, 1997 the Company had an unrestricted cash balance of
approximately $159,000. The Company's current assets at June 30,
1997 totalled approximately $1,833,000 and its current liabilities
totalled approximately $1,228,000, resulting in net working capital
of approximately $547,000, a current ratio of approximately 1.49 to
one.
Effective January 31, 1997 the Company borrowed $1,000,000 from a
bank, due on January 31, 1998. The loan was initially
collateralized by invested cash balances. The bank agreed to allow
substitution of $800,000 of mortgage notes receivable as collateral
for $400,000 of the loan and subsequent to January 31, 1997 the
Company did substitute collateral for approximately $600,000 of the
note payable to the bank. The bank has also agreed in principal
that it will allow substitution of other collateral for the
remaining $400,000 loan balance, subject to the banks approval and
acceptance of the replacement collateral. The Company's President
has personally guaranteed the total loan balance as required by the
terms of the bank loan agreement. The Company intends to use the
proceeds of the bank loan to supplement its cash resources for
investments in real estate foreclosure certificates of purchase,
contingent upon the bank accepting the certificates of purchase,
real estate owned, investments in mortgage loans, or other assets
as substitute collateral. The interest rate on the $600,000
portion of the note is one percent over the bank's prime rate, with
the rate at closing of the note equal to 9.25%. The interest rate
on the remaining $400,000 is at 3% over the rate of interest paid
on the invested cash in the bank, resulting in an interest rate of
approximately 8% at January 31, 1997 on the $400,000. The bank
charged an annual loan fee of 1% on the loan. The Company's
President assigned a life insurance policy with a $500,000 death
benefit as additional collateral for the loan.
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FINANCIAL POSITION
Stockholders' equity totalled approximately $2,377,000 at June 30,
1997 as compared to approximately $2,097,000 at October 31, 1996,
an increase of approximately $280,000. This increase resulted from
a net income of approximately $133,000, additional stock issued in
the approximate amount of $49,000 and approximately $98,000 related
to the business combination transaction.
Management has not made any commitments which will require any
material financial resources in excess of resources now available
to the Company.
The fiscal year end of the combined company is June 30.
Subsequent Events
During July, 1997 the Company's note receivable on the Arizona
properties of $850,000 and the related underlying notes payable of
approximately $585,000 were restructured. The obligor on the
$850,000 note assumed the $585,000 in notes collateralized by first
mortgages and signed new notes to the Company for the approximate
difference of $265,000. These new notes are collateralized
principally by second mortgages payable monthly with interest at
the rate of 8% per annum, amortized over a 20 year period.
Forward-Looking Statements
Certain statements concerning the Company's plans and intentions
included herein constitute forward-looking statements for purposes
of the Securities Litigation Reform Act of 1995 for which the
Company claims a safe harbor under that Act.
There are a number of factors that may affect the future results of
the Company, including, but not limited to, (a) interest rates, (b)
general economic conditions and specific economic conditions
within the areas where the Company operates.
This annual report contains both historical facts and forward-
looking statements. Any forward-looking statements involve risks
and uncertainties, including, but not limited to, those mentioned
above. Moreover, future revenue and margin trends cannot be
reliably predicted.
Item 7. Financial Statements
Please see pages F-1 through F-13.
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Item 8. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure
There have been no disagreements between the Company and its
independent accountants on any matter of accounting principles or
practices or financial statement disclosure. There have been no
changes in the Company's independent accountants.
PART III
Item 9. Directors, Executive Officers, and Control Persons
The directors and officers of RMPC are as follows:
NAME AGE POSITION(S) TENURE
Michael L. Schumacher 48 President and Director October 31, 1996
to present
George A. Powell 70 Vice President and Director October 31, 1996
to present
James D. Phelps 57 Secretary and Treasurer 1992 to present
Robert S. Benham 54 Director October 1996 to
present
Robert F. Moreland 56 Director 1989 to present
Norman L. Horsfield 72 Director 1989 to present
Michael L. Schumacher has been a director and president of RMPC
since October 31, 1996. He also has been a director and president
of PRIME and its subsidiaries since inception, May 1, 1995. Mr.
Schumacher was previously, until 1995, a director and president of
Universal Capital Corporation and High Hopes, Inc., both public
reporting companies . Universal Capital Corporation was an
inactive public shell and High Hopes, Inc. was a real estate
investment company while Mr. Schumacher was serving as president
and director. Mr. Schumacher is the director and President of
Schumacher & Associates, Inc., a certified public accounting firm
located in Englewood, Colorado that provides audit services,
principally to public companies on a national basis throughout the
U.S.A. Mr. Schumacher is a Certified Public Accountant, Certified
Management Accountant and an Accredited Financial Planning
Specialist. Mr. Schumacher has a bachelors degree in Business
Administration with a major in accounting from the University of
Nebraska at Kearney and a Masters in Business Administration from
the University of Colorado.
George A. Powell has been a director and vice president of RMPC
since October, 1996. He also has been a director and vice
president of PRIME and its subsidiaries since October, 1996. Mr.
Powell was previously a director and president of Continental
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Investors Life, Inc., a public reporting insurance company. Since
Mr. Powell's retirement from the insurance business in 1988, he has
been self-employed as a business consultant.
James D. Phelps has been secretary and treasurer of RMPC since
September 8, 1992. Mr. Phelps also serves as a board member on
the City of Englewood Police Pension Board. Mr. Phelps is
temporarily serving as president-treasurer of Mountain Specialists
Limited and for the past ten years has been self employed as a
consultant/accountant for various clients in the Denver
metropolitan area.
Robert S. Benham has been a director of RMPC since October, 1996.
Until 1994, Mr. Benham served as a receiver for the State of
Colorado, Division of Insurance, for various insurance company
receivership and liquidation proceedings. Mr. Benham is currently
a director and president of Robert S. Benham & Associates, Inc.
(DBA Bookworld, Inc.) in the rare and collectible book business in
Aurora, Colorado. Mr. Benham has a bachelors degree in accounting
and finance from the University of Denver. Mr. Benham previously
was a licensed real estate broker.
Robert F. Moreland has been a director of RMPC for eight years.
Mr. Moreland was also president of RMPC from 1992 through October,
1996. Mr. Moreland is currently employed by the State of Texas
General Land Office. Mr. Moreland is a graduate of Louisiana State
University and Southern Methodist University School of Law, and is
a member of the Colorado and Texas state bars.
Norman L. Horsfield has been a director of RMPC for more than 15
years. Mr. Horsfield has a degree from England in Electrical
Engineering and has retired as an electrical engineer with English
Electric Corporation.
Item 10. Executive Compensation
There was no compensation paid to any officer of RMPC or PRIME
other than director fees paid to RMPC directors, and approximately
$500 per year paid to Mr. James D. Phelps, Secretary and Treasurer
of RMPC for contract accounting services.
Board of Director Meetings and Committees
The Board of Directors held six meetings during the period ended
June 30, 1997, including any and all written actions in lieu of a
meeting. All directors attended all of the meetings of the Board.
During the period ended June 30, 1997, the Company's Board of
Directors established an Audit Committee. The function of the
Audit Committee is to review the results and scope of the audit and
other services provided by the Company's independent auditors,
review and evaluate the Company's internal audit and control
functions and monitor transactions between the Company and its
-14-
<PAGE>
employees, officers and directors.
Summary Compensation Table
The following table sets forth the aggregate cash compensation paid
by the Company for services rendered during the last three years to
the Company by its Chief Executive Officer and to each of the
Company's other executive officers whose annual salary, bonus and
other compensation exceeded $100,000 in 1996.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
Other
Annual Restricted
Compen- Stock Options /LTIP
Sation Award(s) SARs Payouts
Name & Principal Year Salary($) Bonus($) ($) (%) (#) ($)
Position ------ --------- -------- ----- --------- -------- -----
- ----------------
<S> <C> <C> <C> <C> <C> <C>
Michael L. Schumacher 1997 $- $- $- $- - $-
</TABLE>
(1) Mr. Schumacher received $750 of common stock as directors fees
during the period ended June 30, 1997.
Compensation of Directors
There was no compensation paid to any director of RMPC or PRIME
other than $2,750 paid as director fees to RMPC directors during
the year ended June 30, 1996, and $2,750 paid as directors fees to
RMPC directors for the four months ended October 31, 1996, and
$3,500 paid as directors fees to RMPC directors for the eight
months ended June 30, 1997.
Employment Agreements
None
Long-Term Incentive Plan
None
Item 11. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth, all individuals known to
beneficially own 5% or more of the Company's common stock, and all
officers and directors of the registrant, with the amount and
percentage of stock beneficially owned, as of June 30, 1997:
-15-
<PAGE>
Name and Address Amount and Nature Percent
of Beneficial Holder of Beneficial -------
- -------------------- Ownership
---------
Michael L. Schumacher (1) 219,037 shares 29.215%
12835 E. Arapahoe, T-II, #110
Englewood, CO 80112
Terry and Susan R. Seipelt 52,959 shares 7.064%
11330 North Scioto Avenue
Oro Valley, AZ 85737
Duane Gomer 68,374 shares 9.120%
26332 Ganiza
Mission Viejo, CA 92692
Ray Foster 68,206 shares 9.097%
9713 Emperor Avenue
Arcadia, CA 91006
Ray Ellis 68,315 shares 9.112%
545 N. Trayer
Glendora, CA 91740
Jackie Sanders 68,304 shares 9.110%
1301 Electric Avenue
Seal Beach, CA 90740
Harold L. Morris (2) 73,653 shares 9.824%
3991 MacArthur Blvd. #100
Newport Beach, CA 92660
George A. Powell 7,399 shares .987%
Vice President and Director
7333 S. Fillmore Circle
Littleton, CO 80122
Norman L. Horsfield 745 shares .099%
Director
2567 Wilt Road
Fallbrook, CA 92028
James D. Phelps 258 shares .034%
Secretary/Treasurer
4735 S. Kalamath Street
Englewood, CO 80110
Robert S. Benham 245 shares .033%
Director
9273 E. Eastman Place
Denver, CO 80231
-16-
<PAGE>
Robert F. Moreland 163 shares .022%
Director
12 Parrot Trail
Round Rock, TX 78681
Officers and directors as a 227,847 shares 30.390%
group (1)
(1) Michael L. Schumacher, President and Director of RMPC and his
spouse Zona R. Schumacher are the sole beneficiaries of the
Schumacher & Associates, Inc. Money Purchase Plan & Trust
(Schumacher Plan) which will own 215,267 shares of RMPC. Shares
owned by the Schumacher Plan are considered to be beneficially
owned by Mr. Schumacher. Mr. Schumacher's beneficial ownership
also includes the following shares to be owned by certain relatives
of Mr. Schumacher:
Owner Relationship Number of Shares
- --------------- -------------- ------------------
Zona Schumacher Spouse 493
Jada Schumacher Daughter 512
Spencer Schumacher Son 512
Quinn Schumacher Son 512
Ralph and Alma Schumacher Parents 183
Roberta and Timothy Weiss Sister and her spouse 164
Constance and Gary Novak Sister and her spouse 164
Cynthia and Greg Becker Sister and her spouse 164
Katheryn and Ken Zeeb Sister-in-law and her spouse 164
Lowell and Ginett Janssen Brother-in-law and his spouse 329
Warren and Cathy Janssen Brother-in-law and his spouse 164
Rachel and Charles Paprocki Sister-in-law and her spouse 164
-----
Total 3,525
=====
Mr. Schumacher disclaims beneficial ownership of an additional
76,703 shares held by the Plan as collateral for promissory notes
totalling approximately $240,000 including accrued interest at June
30, 1997. The promissory notes are nonrecourse, bear interest at
8% per annum and are totally due January 6, 2000. Failure to
collect the note balances and accrued interest at that time would
result in the Schumacher Plan obtaining ownership of the 76,703
additional shares.
(2) Harold L. Morris individually owns 5,504 shares of RMPC. In
addition, Harold L. Morris and his spouse, Connie Morris are the
sole beneficiaries of the Harold L. Morris Profit Sharing Plan
which owns 34,978 shares of RMPC. Applegates Landing I, a Harold
L. Morris family partnership owns 24,299 shares. Professional
Investors, a Utah Limited Partnership, of which Mr. Morris is a
partner, owns 1,679 shares. Mr. Morris' beneficial ownership also
includes the following shares owned by certain relatives:
-17-
<PAGE>
Owner Relationship Number of Shares
- --------- -------------- ------------------
Debra L. Morris Daughter 4,796
Gary A. Morris Brother 2,397
-----
Total 7,193
=====
Mr. Morris disclaims beneficial ownership of an additional 272,880
shares held by Mr. Morris, or entities controlled by him, as
collateral for promissory notes, totalling approximately $853,000
including accrued interest at June 30, 1997. The promissory notes
are nonrecourse, bear interest at 8% per annum and are totally due
January 6, 2000. Failure to collect the note balances and accrued
interest would result in Mr. Morris, or entities controlled by him,
obtaining ownership of the additional 272,880 shares.
Section 16(a) Beneficial Ownership Reporting Compliance
To the best knowledge of the Company, all beneficial ownership
reports of officers, directors and holders of 10% of the Company's
common stock have been filed on timely reports.
Item 12. Certain Relationships and Related Transactions
On or about May 1, 1995, PRIME issued 301,311 shares of its common
stock, (exchanged for 550,453 shares of RMPC) for assets totalling
$1,506,555, consisting principally of real estate and mortgage
notes receivable, net of related mortgage notes payable. The real
estate assets were appraised by independent appraisers and
exchanged for common stock at appraised value which approximated
historical cost. Mortgage notes receivable were valued at the
unpaid principal balances plus accrued interest, not to exceed the
value of the underlying real estate collateral. Approximately one
half of the shares were issued to Michael L. Schumacher and one
half to Harold L. Morris, or entities controlled by him. During
the year ended October 31, 1996, PRIME issued 80,682 shares of its
common stock (exchanged for 146,902 shares of RMPC) for mortgage
notes receivable valued at $442,268 determined by the unpaid
principal balances plus accrued interest, not to exceed the value
of the underlying real estate collateral. Approximately 11% of
these shares were issued to Michael L. Schumacher and approximately
89% were issued to Harold L. Morris, or entities controlled by
them.
Michael L. Schumacher is a director and president and George A.
Powell is a director and vice president of PRIME and RMPC. PRIDE,
a wholly-owned subsidiary owned approximately 40% of the
outstanding common stock and 100% of the outstanding preferred
stock of RMPC prior to the business combination. Prior to the
business combination, Michael L. Schumacher owned approximately 30%
of PRIME. Terry and Susan Seipelt together owned approximately 7%
of PRIME. Duane Gomer, Ray Foster, Ray Ellis, Jackie Sanders and
Harold L. Morris each owned approximately 10% of PRIME. J. Ben
Trujillo owned approximately 2% of PRIME and George A. Powell owned
-18-
<PAGE>
approximately 1% of PRIME. These nine stockholders controlled
PRIME and PRIDE through their ownership of approximately 90%.
Since PRIDE owned 40% of RMPC and was by far the single largest
stockholder of RMPC, the same nine individuals effectively
controlled RMPC. The business combination, therefore, was a
transaction between two related parties.
Effective January 6, 1997, Harold L. Morris, sold 149,370 of
PRIME's common shares to four individuals. Also, Michael L.
Schumacher sold 41,986 shares of PRIME's common stock to two
individuals. These shares were sold at approximately $5.50 per
share which approximated book value of PRIME. As consideration for
these shares, the individuals signed personal non-recourse notes
collateralized by the stock. These notes bear interest at 8% per
annum with interest due annually and the principal due in three
years. These 191,356 shares were exchanged for 314,736 shares of
RMPC at the time of the business combination. Mr. Morris and Mr.
Schumacher believe these shares were sold at fair market value at
reasonable terms. Mr. Morris and Mr. Schumacher sold these shares
to allow individuals that have been instrumental in their business
careers to be shareholders in the company.
Mr. Morris is considered to be a promoter of the Company. All real
estate exchanged by Mr. Schumacher and Mr. Morris for stock was
valued at appraised value not to exceed historical cost. Mortgage
notes receivable were valued at the unpaid principal and interest
balance not in excess of the value of the collateral and also not
in excess of historical cost.
Michael L. Schumacher from time to time makes working capital loans
to the Company. The loans are uncollateralized, bear interest at
8% per annum and are payable on demand. As of October 31, 1996 and
June 30, 1997 the outstanding balances payable to Mr. Schumacher
were $119,700 and $150,000 respectively.
As summarized in "Item 11. Security Ownership of Certain Beneficial
Owners and Management", Mr. Schumacher and Mr. Morris have
beneficial ownership of shares of the Company through their pension
plans and various family partnerships. Due to their control and
beneficial ownership of these entities, transactions referred to
above include transactions with these entities.
Certain shares of PRIME's common stock were originally issued in
trust for the benefit of Universal Capital Corporation
shareholders. While Mr. Schumacher was not a stockholder of
Universal Capital Corporation, he was previously a director and
President of Universal Capital Corporation. These shares
previously held in trust have been subsequently exchanged for RMPC
common stock and distributed to the former Universal Capital
Corporation stockholders.
-19-
<PAGE>
PART IV
Item 13. Exhibits and Reports on Form 8-K
None
-20-
<PAGE>
SIGNATURES
In accordance with Section 13 of 15(d) of the Securities Exchange Act of 1934,
the Company has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
(Registrant) ROCKY MOUNTAIN POWER CO.
(Date) August 21, 1997
BY:(Signature) /s/ Michael L. Schumacher
(Name and Title) Michael L. Schumacher
President, Chief Executive Officer and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated:
Signature Capacity Date
/s/ Michael L. Schumacher President, Chief Executive Officer August 21,
Michael L. Schumacher and Chief Financial Officer 1997
/s/ George A. Powell Vice President and Director August 21,
George A. Powell 1997
/s/ Robert S. Benham Director August 21,
Robert S. Benham 1997
/s/ Robert F. Moreland Director August 21,
Robert F. Moreland 1997
/s/ Norman l. Horsfield Director August 21,
Norman L. Horsfield 1997
-21-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
ROCKY MOUNTAIN POWER CO.
AND CONSOLIDATED SUBSIDIARIES
FINANCIAL STATEMENTS
June 30, 1997, October 31, 1996 and October 31, 1995
Report of Independent Certified Public Accountants F-2
Consolidated Financial Statements:
Consolidated Balance Sheets F-3
Consolidated Statements of Income F-4
Consolidated Statement of Changes in F-5
Stockholders' Equity
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Rocky Mountain Power Co.
Englewood, CO 80112
We have audited the accompanying consolidated balance sheets of
Rocky Mountain Power Co. and Consolidated Subsidiaries as of June
30, 1997, and October 31, 1996, and the related consolidated
statements of income, changes in stockholders' equity and cash
flows for the period from May 1, 1995 (date of inception) through
October 31, 1995, for the year ended October 31, 1996 and for the
eight months ended June 30, 1997. These financial statements are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements, referred
to above, present fairly, in all material respects, the financial
position of Rocky Mountain Power Co. and Consolidated
Subsidiaries as of June 30, 1997 and October 31, 1996, and the
results of its operations, changes in stockholders' equity and
its cash flows for the period from May 1, 1995 (date of
inception) through October 31, 1995, for the year ended October
31, 1996, and for the eight months ended June 30, 1997, in
conformity with generally accepted accounting principles.
/s/ Miller and McCollom
Miller and McCollom
Certified Public Accountants
1285 W. Byers Place
Denver, Colorado 80223
July 25, 1997
F-2
<PAGE>
ROCKY MOUNTAIN POWER CO.
------------------------
AND CONSOLIDATED SUBSIDIARIES
-----------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
------
June 30, October 31,
1997 1996
------- -----------
<S> <C> <C>
Current Assets:
Cash (Note 7) $ 1,159,431 $ 33,920
Certificates of purchase, real estate
foreclosures (Note 3) 566,577 372,074
Mortgage notes receivable, current
portion (Note 3) 59,655 219,318
Deferred income taxes receivable,
current (Note 6) 5,773 -
Other 41,140 27,333
--------- --------
Total Current Assets 1,832,576 652,645
Real estate, net of accumulated deprec-
iation of $14,267 at June 30, 1997 and
$21,758 at October 31, 1996 (Note 3) 824,930 1,039,057
Transportation equipment, net of
accumulated depreciation of $125 14,875 -
Mortgage notes receivable, net of
current portion (Note 3) 1,504,322 733,842
Mortgage note receivable, in process
of foreclosure (Note 3) - 547,634
Deferred income taxes receivable, net
of current portion (Note 6) 80,827 -
--------- ---------
TOTAL ASSETS $ 4,257,530 $ 2,973,178
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 8,301 $ 30,641
Notes payable, current portion (Note 2) 1,018,758 17,347
Note payable, related party (Note 4) 150,000 119,700
Income taxes payable (Note 6) 16,160 23,389
Deferred taxes payable, current portion
(Note 6) 21,927 7,696
Accrued expenses and other 12,523 16,197
--------- -------
Total Current Liabilities 1,227,669 214,970
Deferred taxes payable, long term (Note 6) 41,822 32,299
Notes payable, net of current portion (Note 2) 610,663 629,131
--------- --------
TOTAL LIABILITIES 1,880,154 876,400
--------- --------
Stockholders' Equity:
Preferred stock, $25.00 par value, 200,000
shares authorized, none issued & outstanding - -
Common stock, $.05 par value, 100,000,000
shares authorized, 749,742 shares issued
and outstanding at June 30, 1997 and
700,000 shares at October 31, 1996 37,487 35,000
Additional paid-in capital 2,065,234 1,920,298
Retained earnings 274,655 141,480
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 2,377,376 2,096,778
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,257,530 $ 2,973,178
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
ROCKY MOUNTAIN POWER CO.
------------------------
AND CONSOLIDATED SUBSIDIARIES
-----------------------------
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
From May
1, 1995
(date of
Eight Months inception)
Ended Year Ended through
June 30, October 31, October 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
Rent income $ 117,038 $ 150,707 $ 96,478
Interest income 84,654 85,441 13,738
Management fee income 25,386 - -
Gain on the sale of real estate 113,767 100,614 -
Gain on the sale of stock - 5,100 -
------- ------- -------
340,845 341,862 110,216
Expenses: ------- ------- -------
Property management fees 4,138 12,813 10,663
Rent 14,557 - -
Depreciation 20,466 23,431 14,581
Interest 73,775 66,490 36,100
Real estate taxes and insurance 9,998 17,436 11,908
Repairs and maintenance 6,963 9,046 6,966
Stock issued for services 12,470 - -
Utilities and other 24,778 21,662 12,016
------ ------ ------
167,145 150,878 92,234
------- ------- ------
Net income before provision
for income taxes 173,700 190,984 17,982
------- ------- ------
Provision for income taxes (Note 9):
Current 16,160 24,030 3,461
------- ------- -------
Deferred 24,365 39,995 -
------- ------- ------
40,525 64,025 3,461
Net income $ 133,175 $ 126,959 $ 14,521
======== ======== =======
Per Share $ .18 $ .18 $ .03
======== ======== =======
Weighted Average Shares
Outstanding 749,742 700,000 550,453
======== ======== =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
ROCKY MOUNTAIN POWER CO.
AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
From May 1, 1995 (inception) through June 30, 1997
<TABLE>
<CAPTION>
Common Stock Additional Retained
No./Shares Amount Paid-in Earnings Total
----------- Capital ----------- ----------- ------
----------
<S> <C> <C> <C> <C> <C>
Balance at
May 1, 1995 $ - $ - $ - $ - $ -
Common stock issued 550,453 27,523 1,479,032 - 1,506,555
Net income for the
period from May 1,
1995 through October
31, 1995 - - - 14,521 14,521
------- ------- --------- ------- --------
Balance at October
31, 1995 550,453 27,523 1,479,032 14,521 1,521,076
Common stock issued 149,547 7,477 441,266 - 448,743
Net income for the
year ended October
31, 1996 - - - 126,959 126,959
------- ------- ------- ------- -------
Balance at October
31, 1996 700,000 35,000 1,920,298 141,480 2,096,778
Additional paid-in
capital from reverse
acquisition/
business
combination 32,704 1,635 96,477 - 98,112
Common stock issued 17,038 852 48,459 - 49,311
Net income for the
eight months ended
June 30, 1997 133,175 133,175
-------- ------- -------- ------- -------
Balance at June
30, 1997 $ 749,742 $ 37,487 $ 2,065,234 $274,655 $2,377,376
======== ========= ========== ======= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
ROCKY MOUNTAIN POWER CO.
-----------------------------
AND CONSOLIDATED SUBSIDIARIES
-----------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
From
May 1, 1995
(date of
Eight months inception)
ended Year ended through
June 30, October 31, October 31,
1997 1996 1995
----------- ------------ -----------
<S> <C> <C> <C>
Cash Flows Operating Activities:
Net income $ 133,175 $ 126,959 $ 14,521
Depreciation 20,466 23,431 14,581
Increase (decrease) in income
taxes payable (7,229) 19,928 3,461
Increase in deferred income
taxes payable 23,754 39,995 -
Increase (decrease) in accounts
payable
and accrued expenses (26,014) 25,865 3,794
(Gain) on sale of assets (86,995) (106,614) -
------- ------- -----
Net Cash Provided by Operating
Activities 57,157 129,564 36,357
------- ------- ------
Cash Flows from Investing Activities:
(Investments) in certificates of
purchase (194,503) (372,074) -
Collection of notes receivable 239,183 151,964 1,149
(Investment) in mortgage notes
receivable - (155,366) -
(Acquisition) of real estate (11,748) (93,316) -
Other 8,817 (33,215) -
Net Cash Provided by (Used in) ------ ------- ------
Investing Activities 41,749 (502,007) 1,140
------ ------- ------
Cash Flows from Financing Activities:
Common stock issued and additional
paid-in capital 13,362 4,000 278,000
(Repayment) of notes payable (17,057) (20,711) (12,132)
Loan from bank 1,000,000 - -
Loan from related party 150,000 119,700 -
(Repayment) of loan from related
party (119,700) - -
Net Cash Provided by --------- ------- -------
Financing Activities 1,026,605 102,989 265,868
--------- ------- -------
Increase (decrease) in Cash 1,125,511 (269,454) 303,374
Cash, Beginning of Period 33,920 303,374 -
-------- ------- ------
Cash, End of Period $1,159,431 33,920 $ 303,374
========= ======= =======
Interest Paid $ 73,775 $ 66,490 $ 41,042
========= ======== ========
Income Taxes Paid $ 24,641 $ 4,102 $ -
========= ======== ========
</TABLE>
Note: During the period ended October 31, 1995, 245,711 shares of common
stock were issued in exchange for real estate, mortgage notes receivable and
other assets, net of related liabilities, with the net equity totalling
$1,228,555. During the year ended October 31, 1996, 80,682 shares of common
stock were issued in exchange for two mortgage notes receivable totalling
$442,268, including accrued interest. Also during the year ended October 31,
1996, real estate was sold in exchange for mortgage notes receivable totalling
$856,993 less a mortgage note payable of $32,843 which was assumed. During
the period ended June 30, 1997 the Company sold certain real estate with
sales prices totalling $850,000 whereby the Company received a note
receivable collateralized by a second deed of trust on a real property in the
amount of $85,000, as the downpayment. The Company also carried back a note
receivable in the amount of $765,000 for the remainder of the purchase price.
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
ROCKY MOUNTAIN POWER CO.
------------------------
AND CONSOLIDATED SUBSIDIARIES
-----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997, October 31, 1996 and October 31, 1995
(1) Summary of Accounting Policies
------------------------------
This summary of significant accounting policies of Rocky Mountain Power
Co. (RMPC) and its wholly-owned subsidiary, Prime Rate Income & Dividend
Enterprises, Inc. (PRIDE) and Birch Branch, Inc., and GAP Enterprises, Inc.,
wholly-owned subsidiaries of PRIDE is presented to assist in understanding
the Company's financial statements. The financial statements and notes
are representations of the Company's management who is responsible for their
integrity and objectivity. These accounting policies conform to generally
accepted accounting principles and have been consistently applied in the
preparation of the financial statements.
(a) Organization and Principles of Consolidation
--------------------------------------------
The consolidated financial statements include the accounts of the
companies listed above. The Company is principally in the real
estate ownership and rental business. The Company also invests in
mortgage notes receivable and certificates of purchase related
to real estate foreclosures. All intercompany account balances have
been eliminated in the consolidation. The Company has selected June
30 as its year end.
During November 1996, PRIDE exchanged its investment in nine
residential lots for approximately 40% ownership of RMPC. Also
during November 1996, PRIDE exchanged investments in mortgage notes
receivable in the approximate principal amount of $800,000 for
preferred stock of RMPC. The preferred stock in the approximate
amount of $800,000 had a cumulative dividend rate of 6% per annum.
As a part of the business combination agreement, these common and
preferred shares were cancelled effective March 31, 1997.
Effective March 31, 1997, Prime Rate Investment Management
Enterprises, Inc. (PRIME) became a 93.65% owned subsidiary of RMPC
through the issuance of 655,582 common shares of RMPC. Effective
April 30, 1997, PRIME was merged into RMPC. The minority interest
shareholders of PRIME were issued 44,418 shares of RMPC, resulting
in PRIDE, formerly a wholly-owned subsidiary of PRIME, becoming a
wholly-owned subsidiary of RMPC. The business combination agreement
was accounted for as a reverse acquisition since former controlling
shareholders of PRIME own approximately 96% of RMPC after the
combination. The net monetary assets of RMPC at March 31, 1997
totaling approximately $98,112 have been accounted for as additional
paid-in capital in the accompanying financial statements. For
comparative purposes the balance sheet as of October 31, 1996 and
the statements of income, cash flow and changes in stockholders'
equity for the periods ended October 31, 1996 and October 31, 1995.
F-7
<PAGE>
ROCKY MOUNTAIN POWER CO.
------------------------
AND CONSOLIDATED SUBSIDIARIES
-----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997, October 31, 1996 and October 31, 1995
(1) Summary of Accounting Policies, Continued
-----------------------------------------
(a) Organization and Principles of Consolidation, Continued
-------------------------------------------------------
PRIME and consolidated subsidiaries has been presented. RMPC was an
inactive shell corporation during the two years prior to the business
combination with PRIME and PRIDE.
(b) Per Share Information
---------------------
Per share information is based upon the weighted average number of
shares outstanding during the period.
(c) Investment in Real Estate and Related Depreciation
--------------------------------------------------
The Company's investments in rental real estate are carried at cost,
net of accumulated depreciation. Real estate owned consists principally
of single family and condominium residential residences located
principally in Colorado, Arizona and California. Real estate also
includes the Company's investment in a health club/ racquetball building
as further described in Note 3. Deprecation is being computed using the
straight-line method over estimated useful lives of 40 years.
Depreciation on the health club/racquetball facility is being computed
over 36 years, the remaining term of the underlying ground lease.
Major renovations are capitalized. Repairs and maintenance costs are
expensed as incurred.
(d) 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 amounts of revenue and
expenses during the reporting period. Actual results could differ from
those estimates.
F-8
<PAGE>
ROCKY MOUNTAIN POWER CO.
------------------------
AND CONSOLIDATED SUBSIDIARIES
-----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997, October 31, 1996 and October 31, 1995
(1) Summary of Accounting Policies, Continued
-----------------------------------------
(e) Geographic Area of Operations and Interest Rates
-------------------------------------------------
The Company owns properties principally in Colorado, California and
Arkansas. The potential for severe financial impact can result from
negative effects of economic conditions within the market or
geographic area. Since the Company's business is principally in four
areas, this concentration of operations results in an associated risk
and uncertainty.
(f) Provision for Deferred Income Taxes
-----------------------------------
Timing differences exist related to recognition of gains on sale of
real estate for income tax purposes and financial reporting purposes.
Income tax regulations allow the use of the installment method for
reporting sales of assets. The Company has provided a deferred income
tax provision for this timing difference.
(g) Reverse Stock Split
-------------------
Effective November 1, 1996 RMPC effected a one for fifty reverse
stock split with RMPC shareholders retaining a minimum of 100 shares
each. All references to common stock have been retroactively adjusted
to give effect to the reverse stock split.
(2) Notes Payable
-------------
As of June 30, 1997 the Company had outstanding $1,629,421 of mortgage
notes payable collateralized by certain real estate. Monthly payments,
including principal and interest at rates ranging from 8.5% to 15%, total
approximately $6,800. Maturities of notes payable are summarized as
follows:
Year ending June 30,
1998 $1,018,758
1999 21,103
2000 23,758
2001 26,766
2002 23,185
Thereafter 515,851
--------
Total $1,629,421
=========
F-9
<PAGE>
ROCKY MOUNTAIN POWER CO.
------------------------
AND CONSOLIDATED SUBSIDIARIES
-----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997, October 31, 1996 and October 31, 1995
(3) Concentration of Credit Risk
The Company's material concentration of credit risk consists principally
of investments in mortgage loans and certificates of purchase. The
Company's investments in mortgage loans are collateralized principally by
first deeds of trust in real estate located primarily in Colorado and
California. At June 30, 1997, the Company had eight mortgage loans
receivable from one individual totalling approximately $1,190,000. The
loans as a percentage of value are approximately 90%. The Company also had
eleven mortgage loans receivable from another individual totalling
approximately $285,000. The second individual's loans as a percentage of
value are approximately 100% but, as additional collateral for the loans
receivable from this individual, the Company has a junior lien on another
property owned by this individual. The weighted average interest rate on
mortgagee notes receivable is approximately 8% per annum with monthly
repayment terms being amortized over periods up to twenty years.
The Company has four investments in foreclosure certificates of purchase
totalling $566,577 as of June 30, 1997. These certificates of purchase
entitle the Company to receive interest at the original foreclosed mortgage
loan rate over the redemption period, which is generally 75 days, or title
to the property if not redeemed within the redemption period. Interest
rates on the Company's investment in certificates of purchase range between
7% and 10.235%.
As of October 31, 1996, the Company had an investment in a first mortgage
note receivable with a health club/racquetball building as collateral. As
of October 31, 1996, the note was in default and the Company was in the
process of foreclosing on the property. During November, 1996, the Company
obtained title to this property at the foreclosure sale. The approximate
$550,000 carrying value of this note represented the unpaid principal
balance of the note plus costs incurred related to the property during the
foreclosure period. This property is located in Orange county, California
and is on land that is leased under a long-term ground lease with
approximately 39 years remaining. The ground lease payments are currently
approximately $2,500 per month with provisions for future inflationary
increases. The building is leased to a tenant under a ten year triple net
lease that became effected in March 1996. Rent under the terms of the lease
amounted to approximately $7,200 per month for October, November and
December 1996, then increased to $7,575 in January 1997, with various
increases throughout the ten year lease period with the monthly rent
approximately $9,000 in the tenth year. The tenants have an option to
renew the lease for an additional ten year period at fair market value,
but not less than approximately $9,000 per month. The lease is a net
lease with
F-10
<PAGE>
ROCKY MOUNTAIN POWER CO.
------------------------
AND CONSOLIDATED SUBSIDIARIES
-----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997, October 31, 1996 and October 31, 1995
(3) Concentration of Credit Risk, Continued
---------------------------------------
the tenants being required to pay all expenses related to the building.
This building was contributed to the Company by a stockholder of the
Company in exchange for 71,132 shares of the Company's common stock,
totalling $391,226, equaling the principal and accrued interest on the note
at the time of exchange. The difference between the $391,226 exchange value
of the property and the $550,000 relates to additional costs related to this
property incurred by the Company during the foreclosure period.
Included in the carrying value of the note are $24,000 of costs incurred
by the tenant related to property improvements. The Company has agreed to
reduce the rent by $2,000 per month for 12 months to compensate the tenant
for the $24,000 property improvement costs incurred. During November 1996,
the Company obtained title to this property at the foreclosure sale and
as of June 30, 1997 is carrying its investment in the property at
approximately $550,000. The Company is depreciating this property on a
straight-line basis over the remaining 36 year term of the ground lease.
Management has reviewed the carrying value and has determined that the
terms of the lease are sufficient to recover the cost of the property.
(4) Note Payable, Related Party
---------------------------
As of June 30, 1997, a related party had loaned $150,000 to the Company.
This balance is payable on demand and bears interest at the rate of 8% per
annum. This loan is uncollateralized. As of October 31, 1996 the note
payable balance to a related party was $119,700, which was repaid in full
during the period ended June 30, 1997.
(5) Fair Value Financial Instruments
--------------------------------
As of June 30, 1997, the Company had various investments in long term
mortgage notes receivable and was obligated under various mortgage notes
payable. Management believes that the fair value of these financial
instruments does not materially differ from the carrying value of these
notes based upon discounting at current market rates of interest.
F-11
<PAGE>
ROCKY MOUNTAIN POWER CO.
------------------------
AND CONSOLIDATED SUBSIDIARIES
-----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997, October 31, 1996 and October 31, 1995
(6) Income Taxes
------------
A reconciliation between the expected income tax provision computed at a
federal statutory rate of 39% and the actual income tax provision follows:
<TABLE>
<CAPTION>
Eight Months Year Six Months
Ended Ended Ended
June 30, October 31, October 31,
1997 1996 1995
----------- ----------- ------------
<S> <C> <C> <C>
Expected income tax $ 67,743 $ 74,484 $ 7,013
Graduated tax brackets (16,750) (16,750) (4,316)
Benefit of utilization of net
operating loss carryover (10,400) - -
State tax net of federal
deficit 5,211 5,730 539
Other, net (5,279) 561 225
---------- --------- ---------
$ 40,525 $ 64,025 $ 3,461
========== ========= =========
</TABLE>
The tax effects of temporary differences that give rise to the
deferred tax liability at June 30, 1997 follow:
Installment sale reporting $ 63,749
less current portion (21,927)
--------
$ 41,822
=======
The change in the deferred tax liability during the eight month
period ended June 30,1997 was an increase of $23,754.
As of June 30, 1997 RMPC had $86,600 of deferred tax assets
related to net operating loss carryovers. RMPC had useable loss carryovers
of approximately $235,000 expiring in various years through the year 2012.
Due to a change in ownership of RMPC the net operating loss carryover has
been reduced from approximately $540,000 to approximately $235,000.
F-12
<PAGE>
ROCKY MOUNTAIN POWER CO.
------------------------
AND CONSOLIDATED SUBSIDIARIES
-----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997, October 31, 1996 and October 31, 1995
(7) Notes Payable, Bank
-------------------
Effective January 31, 1997 the Company borrowed $1,000,000 from a
bank. At the time of closing of the loan, all proceeds were deposited into
an interest bearing account in the bank. The total $1,000,000 of interest
bearing bank account balances at January 31, 1997 was collateral for the loan.
Of this amount, $600,000 is also collateralized by the Company's mortgage
notes receivable. The interest rate on the $600,000 portion of the loan is a
floating rate equal to 1% over the bank's prime rate. The bank has agreed to
allow certificates of purchase as collateral for the $600,000 portion of the
loan during the loan period. During the period ended June 30, 1997 the
Company utilized $400,000 of the $600,000 borrowed funds to acquire
certificates of purchase which were redeemed prior to June 30, 1997.
Subsequent to June 30, 1997 the Company has utilized $600,000 of the loan
proceeds to acquire additional certificates of purchase. The Company paid a
$6,000 loan fee related to this portion of the loan.
The remaining $400,000 of the notes payable is collateralized by
the interest bearing bank account. The bank has agreed to allow substitution
of other collateral for the balance of this loan, solely and subject to
approval and acceptance of the replacement collateral by the bank. The
interest rate on the $400,000 portion of the loan is equal to 3% over the
rate of interest paid on the interest bearing bank accounts used as
collateral. The Company has agreed to pay a loan fee in the amount of
$1,500 per each three month period that the loan is outstanding. The total
principal balance of the notes payable to the bank is due January 31, 1998.
The Company's President has personally guaranteed the total
$1,000,000 balance of the notes payable and has assigned to the bank a life
insurance policy with a $500,000 death benefit as additional collateral.
The Company has agreed to provide annual audited financial
statements to the bank. The terms of the loan agreement require that the
Company maintain a debt to tangible net worth ratio not to exceed one to
one, a debt service coverage ratio of greater than 1.25 to one and a current
ratio of greater than one to one.
F-13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,159,431
<SECURITIES> 0
<RECEIVABLES> 59,655
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,832,576
<PP&E> 839,197
<DEPRECIATION> 14,267
<TOTAL-ASSETS> 4,257,530
<CURRENT-LIABILITIES> 1,227,669
<BONDS> 0
0
0
<COMMON> 749,742
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,257,530
<SALES> 0
<TOTAL-REVENUES> 340,845
<CGS> 0
<TOTAL-COSTS> 167,145
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 73,775
<INCOME-PRETAX> 173,700
<INCOME-TAX> 40,525
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 133,175
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
