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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 June 30, 1998
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No fee required)
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 (IRS Employer
incorporation or organization) 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 fiscal year were $319,919.
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, 1998, 607,853 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 440 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, 1998 the Company had $1,115,584 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,
1998, the Company had 17 mortgage loans receivable from one
individual totalling approximately $589,503. The loans as a
percentage of value of the real estate collateral are approximately
90%. The Company also had, as of June 30, 1998, 9 mortgage loans
receivable from another non-affiliated individual totalling
approximately $195,740. 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 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 owned
the building located on ground, subject to a land lease with
approximately 36 years remaining. Effective March 31, 1998 the
Company sold its investment in this facility back to the
shareholder that originally contributed this property for stock.
Consideration for the sale was the return of 145,762 shares of the
Company's common stock plus a mortgage note receivable in the
amount of $139,079, collateralized by the property. This note
bears interest at 8% per annum and is due on March 31, 1999. The
Company recognized a gain of $78,947 on this sale. The shares of
the Company's common stock were recorded at book value per share
and were cancelled upon receipt and returned to authorized but
unissued stock. Monthly ground lease payments approximate $2,500.
The Company was depreciating its investment in this facility over
the 39 year land lease term on a straight-line basis. The federal
income tax basis was approximately $550,000.
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
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
Seventeen residential lots located in Nebraska, Arkansas,
Texas, Florida and North Dakota 89,000
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$ 249,000
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All of the above properties are free and clear of encumbrances.
The rental house has an annual lease. 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 property has 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, 1998, the shareholders of the
Company approved (a) the appointment of the independent auditing
firm, and (b) the election of Michael L. Schumacher, George A.
Powell, Robert S. Benham, Peter Porath, Norman L. Horsfield, Robert
F. Moreland and James D. Phelps.
PART II
Item 5. Market for Company's Common Equity and Related Stockholder
Matters
(a) Market Information. As of June 30, 1998 the RMPC common
stock was listed on the NASDAQ Bulletin Board under the symbol
"RMPC."The first available quotes on the bulletin board
appeared in the 4th quarter of 1997. The bid prices included
below have been obtained from sources believed to be reliable:
Low High
Quarters Ended Bid Bid
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December 31, 1997 3.25 3.50
March 31, 1998 3.00 3.25
June 30, 1998 3.00 3.50
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 607,853 shares of common
stock issued and outstanding as of June 30, 1998, which are
held by approximately 440 shareholders. Of such shares,
approximately 40,000 shares, held by approximately 420
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
common stock. The Company does not anticipate paying any
dividends on its common stock in the foreseeable future.
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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)
Eight Months Ended June 30, 1997
Revenue for the eight months ended June 30, 1997 was approximately
$341,000 as compared to revenue of approximately $342,000 for the
year 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
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.
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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.
Year Ended June 30, 1998
Revenue for the year ended June 30, 1998 was approximately $320,000
as compared to revenue of approximately $341,000 for the eight
months ended June 30, 1997. The average per month for the year
ended June 30, 1998 was approximately $27,000 as compared to
approximately $43,000 per eight month period ended June 30, 1997.
This decrease resulted principally from less rental income during
the period ended June 30, 1998 since various properties were sold
near the end of the period ended June 30, 1997. The Company's
interest income increased principally due to the carryback
mortgages on properties sold. During the year ended June 30, 1998
and the eight month period ended June 30, 1998 the Company had
gains from the sale of real estate of approximately $97,000 and
$114,000 respectively. Past gains may not necessarily be
indicative of future results.
Operating expenses were approximately $182,000 during the year
ended June 30, 1998, and approximately $167,000 during the eight
month period ended June 30, 1997. The average per month for the
period ended June 30, 1998 was approximately $15,000 as compared to
approximately $21,000 per month for the year ended October 31,
1996. The decreases relate principally to the decrease in
operating and interest expenses on properties previously owned.
Net income after the provision for income taxes decreased from
approximately $133,000 during the eight month period ended June 30,
1997 to approximately $100,000 during the year ended June 30, 1998,
a decrease of approximately $2,700 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 approximately $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.
At June 30, 1998 the Company had an unrestricted cash balance of
approximately $70,000. The Company's current assets were
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approximately $1,342,000 at June 30, 1998 and its current
liabilities totalled approximately $389,000, resulting in net
working capital of approximately $953,000, a current ratio of
approximately 3.45 to one.
FINANCIAL POSITION
Stockholders' equity totalled approximately $2,017,000 at June 30,
1998 as compared to approximately $2,377,000 at June 30, 1997, a
decrease of approximately $360,000. This decrease resulted from a
net income of approximately $101,000, additional stock issued in
the approximate amount of $12,000 and approximately $474,000
decrease related to the retirement of common stock received as
partial consideration for the sale of the health club/racquetball
facility.
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 October 1998 the Company increased its line of credit from
$1,000,000 to $1,500,000.
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 49 President and Director October 31, 1996
to present
George A. Powell 71 Vice President and October 31, 1996
Director to present
James D. Phelps 58 Secretary and Director 1992 to present
Robert S. Benham 55 Director October 1996
to present
Robert F. Moreland 57 Director 1989 to present
Norman L. Horsfield 73 Director 1989 to present
Peter Porath 67 Director 1997 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.
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Powell was previously a director and president of Continental
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 of RMPC since 1992 and a
director since 1997. 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 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 since 1989. 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 since 1982. Mr.
Horsfield has a degree from England in Electrical Engineering and
has retired as an electrical engineer with English Electric
Corporation.
Peter Porath has been a director of RMPC since 1997. Mr. Porath
has a Bachelor's Degree from RIPON College and an L.L.B. degree
from DePaul University. Mr. Porath is currently President of
Dunhill Sports, a private company in the sports products industry.
Mr. Porath was previously President of Vacation Ownership
Marketing, a real estate development company. Mr. Porath also was
previously Vice-president of Investment Corporation of Florida, a
real estate development company that developed the City of
Wellington, Florida and Palm Beach Polo Club.
Item 10. Executive Compensation
There was no compensation paid to any officer of RMPC or PRIME
other than director fees paid to RMPC directors.
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Board of Director Meetings and Committees
The Board of Directors held six meetings during the period ended
June 30, 1998, 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
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 $100,000 in 1996.
Annual Compensation Long-Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
Other
Annual Restricted
Compen- Stock Options /LTIP
Sation Award(s) SARs Payouts
Name & Principal Year Salary($) Bonus($) ($) (%) (#) ($)
- ---------------- ---- --------- -------- ------ -------- -------- -------
Position
Michael L. 1997 $- $- $- $- - $-
Schumacher
(1) Mr. Schumacher received $750 of common stock as directors fees
during the period ended June 30, 1998.
Compensation of Directors
There was no compensation paid to any director of RMPC or PRIME
other than $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,
and $3,500 paid as directors fees to RMPC directors for the year
ended June 30, 1998.
Employment Agreements
None
Long-Term Incentive Plan
None
14
<PAGE>
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, 1998:
Name and Address Amount and Nature Percent
of Beneficial Holder of Beneficial
Ownership
- --------------------- ------------------- ---------
Michael L. Schumacher (1) 226,992 shares 37.343%
12835 E. Arapahoe, T-II, #110
Englewood, CO 80112
Terry and Susan R. Seipelt 52,959 shares 8.712%
11330 North Scioto Avenue
Oro Valley, AZ 85737
Jackie Sanders 68,304 shares 11.237%
1301 Electric Avenue
Seal Beach, CA 90740
Harold L. Morris (2) 132,548 shares 21.806%
3991 MacArthur Blvd. #100
Newport Beach, CA 92660
George A. Powell 1,132 shares .186%
Vice President and Director
7333 S. Fillmore Circle
Littleton, CO 80122
Norman L. Horsfield 976 shares .161%
Director
2567 Wilt Road
Fallbrook, CA 92028
James D. Phelps 258 shares .042%
Secretary and Director
4735 S. Kalamath Street
Englewood, CO 80110
Robert S. Benham 476 shares .078%
Director
9273 E. Eastman Place
Denver, CO 80231
Robert F. Moreland 317 shares .052%
Director
12 Parrot Trail
Round Rock, TX 78681
15
<PAGE>
Peter Porath 183 shares .030%
Director
12773 Forest Hill Blvd. #209
Wellington, FL 33414
Officers and directors as a 230,334 shares 37.893%
group (1)
(1) Michael L. Schumacher owns 476 shares individually. In
addition, Mr. 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 owns 222,991 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 $255,000 including accrued interest at June
30, 1998. 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 64,637 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
16
<PAGE>
includes the following shares owned by certain relatives:
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 68,304
shares held by Mr. Morris, or entities controlled by him, as
collateral for promissory notes, totalling approximately $231,000
including accrued interest at June 30, 1998. 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 68,304 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
17
<PAGE>
Harold L. Morris each owned approximately 10% of PRIME. J. Ben
Trujillo owned approximately 2% of PRIME and George A. Powell owned
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. Effective March 31,
1998 Mr. Morris took back the shares from three of the individuals
and cancelled the promissory notes. Mr. Morris then returned
145,762 of these shares to the Company plus a note totalling
$139,079 as consideration for acquiring the Company's health club/
racquetball facility. See Item 2, "Description of Property" for
additional information regarding this transaction.
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 June 30, 1997 and
June 30, 1998 the outstanding balances payable to Mr. Schumacher
were $150,000 and $0 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
18
<PAGE>
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
EX-27 Financial Data Schedule
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.
(Dated) this 14th day of October, 1998
(Registrant) ROCKY MOUNTAIN POWER CO.
(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:
BY(Signature) /s/ Michael L. Schumacher
(Name and Title) Michael L. Schumacher
President, Chief Executive Officer
and Chief Financial Officer
BY(Signature) /s/ George A. Powell
(Name and Title) George A. Powell
Vice President and Director
BY(Signature) /s/ Robert S. Benham
(Name and Title) Robert S. Benham
Director
(Name and Title ) Robert F. Moreland
Director
(Name and Title) Norman L. Horsfield
Director
BY(Signature) /s/Peter Poreth
(Name and Title) Peter Poreth
Director
(Name and Title) James Phelps
Secretary and Director
21
<PAGE>
INDEX TO FINANCIAL STATEMENTS
ROCKY MOUNTAIN POWER CO.
AND CONSOLIDATED SUBSIDIARIES
FINANCIAL STATEMENTS
June 30, 1998, June 30, 1997, and October 31, 1996
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, 1998 and June 30, 1997, and the related consolidated statements
of income, changes in stockholders' equity and cash flows for the
year ended October 31, 1996, for the eight months ended June 30,
1997 and for the year ended June 30, 1998. 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, 1998 and June 30, 1997, and the results of its
operations, changes in stockholders' equity and its cash flows for
the year ended October 31, 1996, for the eight months ended June
30, 1997, and for the year ended June 30, 1998, in conformity with
generally accepted accounting principles.
Miller and McCollom
Certified Public Accountants
1285 W. Byers Place
Denver, Colorado 80223
September 4, 1998
F-2
<PAGE>
ROCKY MOUNTAIN POWER CO.
AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
------
<TABLE>
<CAPTION>
June 30, June 30,
1998 1997
----------- -----------
<S> <C> <C>
Current Assets:
Cash (Note 7) $ 70,229 $ 1,159,431
Certificates of purchase, real estate
foreclosures (Note 3) 799,801 566,577
Mortgage notes receivable, current
portion (Note 3) 301,574 59,655
Mortgage note receivable, related
party (Note 3) 139,079 -
Deferred income taxes receivable,
current (Note 6) 4,626 5,773
Other 26,685 41,140
--------- ---------
Total Current Assets 1,341,994 1,832,576
Real estate, net of accumulated deprec-
iation of $4,000 at June 30, 1998 and
$14,267 at June 30, 1997 (Note 3) 244,317 824,930
Transportation equipment, net of accumulated
depreciation of $3,125 at June 30, 1998
and $125 at June 30, 1997 11,875 14,875
Mortgage notes receivable, net of
current portion (Note 3) 814,010 1,504,322
Deferred income taxes receivable, net
of current portion (Note 6) 57,213 80,827
TOTAL ASSETS $ 2,469,409 $ 4,257,530
=========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Accounts payable $ 6,931 $ 8,301
Notes payable, current portion (Note 2) 318,519 1,018,758
Note payable, related party (Note 4) - 150,000
Income taxes payable (Note 6) 39,531 16,160
Deferred taxes payable, current portion (Note 6) 1,621 21,927
Accrued expenses and other 22,186 12,523
------- ---------
Total Current Liabilities 388,788 1,227,669
Deferred taxes payable, long term (Note 6) 35,906 41,822
Notes payable, net of current portion (Note 2) 28,109 610,663
------- ---------
TOTAL LIABILITIES 452,803 1,880,154
------- ---------
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, 607,853 shares issued
and outstanding at June 30, 1998 and
749,742 at June 30, 1997 30,393 37,487
Additional paid-in capital 1,610,988 2,065,234
Retained earnings 375,168 274,655
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 2,016,549 2,377,376
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,469,352 $ 4,257,530
=========== ===========
</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>
Eight Months
Year Ended Ended Year Ended
June 30, June 30, October 31,
1998 1997 1996
---------- --------- -----------
<S> <C> <C> <C>
Revenue:
Rent income $ 26,557 $ 117,038 $ 150,707
Interest income 157,838 84,654 85,441
Management fee income 38,350 25,386 -
Gain on the sale of real estate 97,174 113,767 100,614
Gain on the sale of stock - - 5,100
------- ------- -------
319,919 340,845 341,862
------- ------- -------
Expenses:
Property management fees 15,591 4,138 12,813
Rent 28,219 14,557 -
Depreciation 12,250 20,466 23,431
Interest 47,401 73,775 66,490
Real estate taxes and insurance 9,079 9,998 17,436
Repairs and maintenance 5,101 6,963 9,046
Professional fees 21,487 11,925 -
Stock issued for services 12,386 12,470 -
Other 30,876 12,853 21,662
------- ------- -------
182,390 167,145 150,878
------- ------- -------
Net income before provision
for income taxes 137,529 173,700 190,984
------- ------- -------
Provision for income taxes (Note 9):
Current 39,531 16,160 24,030
Deferred (2,515) 24,365 39,995
------- ------ ------
37,016 40,525 64,025
------- ------ ------
Net income $ 100,513 $ 133,175 $ 126,959
========== ========== ===========
Per Share $ .14 $ .18 $ .18
========== ========== ===========
Weighted Average Shares
Outstanding 721,364 749,742 700,000
========== ========== ===========
</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, 1998
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained
No./Shares Stock Amount Capital Earnings Total
---------- ------------ -------- -------- -------
<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
Common stock
issued 3,873 194 12,192 - 12,386
Common stock
cancelled (145,762) (7,288) (466,438) - (473,726)
Net income
for the year
ended June 30,
1998 - - - 100,513 100,513
------- ---------- ----------- --------- --------
Balance at
June 30, 1998 607,853 $ 30,393 $ 1,610,988 $ 375,168 $2,016,549
======= ========== =========== ========= ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
ROCKY MOUNTAIN POWER CO.
AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Eight months
Year ended ended Year ended
June 30, June 30, October 31,
1998 1997 1996
---------- ---------- ---------
<S> <C> <C> <C>
Cash Flows Operating Activities:
Net income $ 100,513 $ 133,175 $ 126,959
Depreciation 12,250 20,466 23,431
Increase (decrease) in income taxes
payable 23,371 (7,229) 19,928
Increase (decrease) in deferred income
taxes payable (2,515) 23,754 39,995
Increase (decrease) in accounts payable
and accrued expenses 8,293 (26,014) 25,865
(Gain) on sale of assets (78,947) (86,995) (106,614)
-------- -------- ---------
Net Cash Provided by Operating Activities 62,965 57,157 129,564
-------- -------- ---------
Cash Flows from Investing Activities:
(Investments) in certificates of
purchase (233,224) (194,503) (372,074)
Collection of notes receivable 564,554 239,183 151,964
(Investment) in mortgage notes
receivable (255,240) - (155,366)
(Acquisition) of real estate - (11,748) (93,316)
Disposition of real estate 37,877
Other 154,273 8,817 (33,215)
------- -------- --------
Net Cash Provided by (Used in)
Investing Activities 268,240 41,749 (502,007)
------- -------- ---------
Cash Flows from Financing Activities:
Common stock issued and additional
paid-in capital 12,386 13,362 4,000
(Repayment) of notes payable (1,282,793) (17,057) (20,711)
Loan from bank - 1,000,000 -
Loan from related party - 150,000 119,700
(Repayment) of loan from related party (150,000) (119,700) -
-------- --------- -------
Net Cash Provided by
Financing Activities (1,420,407) 1,026,605 102,989
----------- --------- -------
Increase (decrease) in Cash (1,089,202) 1,125,511 (269,454)
Cash, Beginning of Period 1,159,431 33,920 303,374
--------- --------- ---------
Cash, End of Period $ 70,229 $1,159,431 $ 33,920
========== ========== ==========
Interest Paid $ 47,401 $ 73,775 $ 66,490
========== ========== ==========
Income Taxes Paid $ 16,122 $ 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, 1998, June 30, 1997 and October 31, 1996
(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 for
F-7
<PAGE>
ROCKY MOUNTAIN POWER CO.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998, June 30, 1997 and October 31, 1996
(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 at June 30, 1997 also
included 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 was 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, 1998, June 30, 1997 and October 31, 1996
(1) Summary of Accounting Policies, Continued
- ----------------------------------------------
(e) Geographic Area of Operations and Interest Rates
- --------------------------------------------------------
The Company owns properties principally in Colorado, California, Nebraska,
Texas, Florida 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, 1998 the Company had outstanding $346,628 of notes payable.
Interest rates range from 8% to 15%. Maturities of notes payable are
summarized as follows:
Year ending June 30,
1999 $ 318,519
2000 10,005
2001 11,614
2002 6,490
Thereafter -
----------
Total $ 346,628
==========
Of this amount $36,728 was collateralized by certain real estate and is due
in monthly installments of $1,129 through 2002. Also included in notes
payable is $209,900 payable to a bank collateralized by certain mortgage
notes receivable and certificates of purchase. The terms of the bank loan
are more fully disclosed in Note 7. In addition, the Company had a $100,000
note payable to an individual which was uncollateralized and becomes totally
due in 1998.
F-9
<PAGE>
ROCKY MOUNTAIN POWER CO.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998, June 30, 1997 and October 31, 1996
(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, 1998, the Company had nine mortgage loans receivable from one
individual totalling approximately $195,740. The loans as a percentage of
value are approximately 90%. The Company also had seventeen mortgage loans
receivable from another individual totalling approximately $589,503. 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 nine investments in foreclosure certificates of purchase
totalling $799,801 as of June 30, 1998. 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
11.25%.
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. This building was contributed to the Company by a stockholder of
the Company in exchange for 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 related to additional costs incurred by the Company
during the foreclosure period.
F-10
<PAGE>
ROCKY MOUNTAIN POWER CO.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998, June 30, 1997 and October 31, 1996
(3) Concentration of Credit Risk, Continued
- --------------------------------------------
During November 1996, the Company obtained title to this property at the
foreclosure sale and as of June 30, 1997 carried its investment in the
property at approximately $550,000. The Company was depreciating this
property on a straight-line basis over the remaining 36 year term of the
ground lease. Effective March 31, 1998, the Company sold its investment
in the health club/racquetball building to the shareholder that originally
contributed the property for stock. The gross proceeds to the Company were
145,762 shares of the Company's common stock and a mortgage note receivable
of $139,079 collateralized by the property. This note bears interest
at 8% per annum and is totally due on March 31, 1999. The Company recognized
a gain on this sale of $78,947. The shares of stock returned to the Company
were recorded at net book value, cancelled and returned to authorized but
unissued stock.
(4) Note Payable, Related Party
- --------------------------------
As of June 30, 1997, a related party had loaned $150,000 to the Company.
This balance was paid during the year ended June 30, 1998.
(5) Fair Value Financial Instruments
- -------------------------------------
As of June 30, 1998, 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.
(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:
Year Eight Months Year
Ended Ended Ended
June 30, June 30, October 31,
1998 1997 1996
------------ ------------- -----------
Expected income tax $ 53,636 $ 67,743 $ 74,484
Graduated tax brackets (16,750) (16,750) (16,750)
Benefit of utilization of net
operating loss carryover (4,626) - -
State tax net of federal
deficit 4,194 5,211 5,730
Other, net 562 (5,279) 561
------------ ---------- -----------
$ 37,016 $ 40,525 $ 64,025
============ ========= ===========
F-11
<PAGE>
ROCKY MOUNTAIN POWER CO.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998, June 30, 1997 and October 31, 1996
(6) Income Taxes, Continued
- ----------------------------
The tax effects of temporary differences that give rise to the deferred tax
liability at June 30, 1998 follow:
Installment sale reporting $ 37,527
less current portion (1,621)
----------
$ 35,906
The change in the net deferred tax asset and liability during the year ended
June 30,1998 was $1,461.
As of June 30, 1998 RMPC had $61,839 of deferred tax assets related to net
operating loss carryovers. RMPC has useable loss carryovers of approximately
$200,000 expiring in various years through the year 2012. Due to a change
in ownership of RMPC the net operating loss carryover was reduced from
approximately $540,000 to approximately $200,000, of which $13,750 has been
utilized by the Company since the change of ownership.
(7) Notes Payable, Bank
- ------------------------
As of June 30, 1998, the Company has a line of credit from a bank of
$1,000,000.
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 anual audited finacial statements to the
bank. The terms of the loan agreement require that the Company maintain
a debt to tangable net worth ratio not to exceed one to one, a debt service
coverage ratio of greater than 1.25 to one and current ratio of greater than
one to one.
Of this line of credit, $209,900 was used as of June 30, 1998. This loan
is collateralized by certain real estate mortgage notes receivable and
certificates of purchase. The loan bears interest at .5% over prime
plus has annual fee of .5% of the total amount of the line. The line of
credit is subject to renewal and is due in February 1999.
F-12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 70,229
<SECURITIES> 0
<RECEIVABLES> 440,653
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,341,994
<PP&E> 248,317
<DEPRECIATION> 4,000
<TOTAL-ASSETS> 2,469,409
<CURRENT-LIABILITIES> 388,845
<BONDS> 0
0
0
<COMMON> 607,853
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,469,409
<SALES> 0
<TOTAL-REVENUES> 319,919
<CGS> 0
<TOTAL-COSTS> 182,390
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47,401
<INCOME-PRETAX> 137,529
<INCOME-TAX> 37,016
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 100,513
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
