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| INDEX TO FINANCIAL STATEMENTS | |
| ROCKY MOUNTAIN POWER CO. AND CONSOLIDATED SUBSIDIARIES | |
| FINANCIAL STATEMENTS | |
| June 30, 1999 and 1998 | |
| 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-10 |
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, 1999 and 1998, and the related consolidated statements of income, changes in stockholders' equity and cash flows for the years ended June 30, 1999 and 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, 1999 and June 30, 1998, and the results of its operations, changes in stockholders' equity and its cash flows for the years ended June 30, 1999 and June 30, 1998, in conformity with generally accepted accounting principles.
| Miller and McCollom |
| Certified Public Accountants |
| 7400 W. 14th Avenue |
| Lakewood, Colorado 80215 |
September 15, 1999
| ROCKY MOUNTAIN POWER CO. | ||||
| AND CONSOLIDATED SUBSIDIARIES | ||||
| CONSOLIDATED BALANCE SHEETS | ||||
| ASSETS | ||||
| June 30, 1999 | June 30, 1998 | |||
| Current Assets: | ||||
| Cash | $ | 445,158 | $ | 70,229 |
| Certificates of purchase, real estate | ||||
| foreclosures (Note 3) | 197,247 | 799,801 | ||
| Mortgage notes receivable, current | ||||
| portion (Note 3) | 111,108 | 301,574 | ||
| Mortgage note receivable, related | ||||
| party (Note 3) 139,079 | 139,079 | |||
| Deferred income taxes receivable, | ||||
| current (Note 5) 4,626 | 4,626 | |||
| Sale proceeds receivable (Note 7) | 246,500 | - | ||
| Other | 26,831 | 26,685 | ||
| Total Current Assets | 1,170,549 | 1,341,994 | ||
| Real estate, net of accumulated deprec- | ||||
| iation of $5,500 at June 30, 1999 and | ||||
| $4,000 at June 30, 1998 (Note 3) | 234,817 | 244,317 | ||
| Transportation equipment, net of accumulated | ||||
| depreciation of $6,125 at June 30, 1999 | ||||
| and $3,125 at June 30, 1998 8,875 | 11,875 | |||
| Mortgage notes receivable, net of | ||||
| current portion (Note 3) 795,356 | 814,010 | |||
| Deferred income taxes receivable, | ||||
| of current portion (Note 5) | 53,557 | 57,213 | ||
| TOTAL ASSETS | $ 2,263,154 | $ 2,469,409 | ||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||
| Current Liabilities: | ||||
| Accounts payable | $ | 8,158 | $ | 6,931 |
| Notes payable, current portion (Note 2) | 10,005 | 318,519 | ||
| Income taxes payable (Note 5) | 41,689 | 39,531 | ||
| Deferred taxes payable, current portion (Note 5) | 2,104 | 1,621 | ||
| Accrued expenses and other | 24,598 | 22,243 | ||
| Total Current Liabilities | 86,554 | 388,845 | ||
| Deferred taxes payable, long term (Note 5) | 27,595 | 35,906 | ||
| Notes payable, net of current portion (Note 2) | 18,872 | 28,109 | ||
| TOTAL LIABILITIES | 133,021 | 452,860 | ||
| 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, 608,917 shares issued | ||||
| and outstanding at June 30, 1999 and | ||||
| 607,853 at June 30, 1998 | 30,446 | 30,393 | ||
| Additional paid-in capital 1,614,435 | 1,610,988 | |||
| Retained earnings 485,252 | 375,168 | |||
| TOTAL STOCKHOLDERS' EQUITY | 2,130,133 | 2,016,549 | ||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,263,154 | $ 2,469,409 | |||
The accompanying notes are an integral part of the financial statements
| ROCKY MOUNTAIN POWER CO. | |||||
| AND CONSOLIDATED SUBSIDIARIES | |||||
| CONSOLIDATED STATEMENTS OF INCOME | |||||
| Year Ended | Year Ended | ||||
| June 30, | June 30, | ||||
| 1999 | 1998 | ||||
| Revenue: | |||||
| Rent income | $ | 7,960 | $ | 26,557 | |
| Interest income | 150,261 | 157,838 | |||
| Management fee income | - | 38,350 | |||
| Gain on the sale of real estate | 43,570 | 97,174 | |||
| Other income | 7,293 | - | |||
| 209,084 | 319,919 | ||||
| Expenses: | |||||
| Property management fees | 660 | 15,591 | |||
| Rent | - | 28,219 | |||
| Depreciation | 4,500 | 12,250 | |||
| Interest | 3,163 | 47,401 | |||
| Real estate taxes and insurance | 3,677 | 9,079 | |||
| Repairs and maintenance | 229 | 5,101 | |||
| Professional fees | 28,119 | 21,487 | |||
| Stock issued for services | 3,500 | 12,386 | |||
| Other | 14,902 | 30,876 | |||
| 58,750 | 182,390 | ||||
| Net income before provision | |||||
| for income taxes | 150,334 | 137,529 | |||
| Provision for income taxes (Note 5): | |||||
| Current | 41,686 | 39,531 | |||
| Deferred | (1,436) | (2,515) | |||
| 40,250 | 37,016 | ||||
| Net income | $ 110,084 | $ 100,513 | |||
| Per Share | $ .18 | $ | .14 | ||
| Weighted Average Shares | |||||
| Outstanding | 608,917 | 721,364 | |||
The accompanying notes are an integral part of the financial statements.
| ROCKY MOUNTAIN POWER CO. | |||||
| AND CONSOLIDATED SUBSIDIARIES | |||||
| CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY | |||||
| From June 30, 1997 through June 30, 1999 | |||||
| Common | Stock | Paid-in | Retained | ||
| No./Shares | Amount | Capital | Earnings | Total | |
| 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 |
| Common stock issued | 1,064 | 53 | 3,447 | - | 3,500 |
| Net income for the year | |||||
| ended June 30, 1999 | - - - 110,084 110,084 | ||||
| Balance at June 30, 1999 | 608,917 | $ 30,446 | $1,614,435 | $ 485,252 | $2,130,133 |
The accompanying notes are an integral part of the financial statements.
| ROCKY MOUNTAIN POWER CO. | ||||
| AND CONSOLIDATED SUBSIDIARIES | ||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||
| Year ended | Year ended | |||
| June 30, 1999 | June 30, 1998 | |||
| Cash Flows Operating Activities: | ||||
| Net income | $ | 110,084 | $ | 100,513 |
| Depreciation | 4,500 | 12,250 | ||
| Stock issued for services | 3,500 | - | ||
| Increase in income taxes payable | 2,158 | 23,371 | ||
| (Decrease) in deferred income taxes payable | (4,172) | (2,515) | ||
| Increase in accounts payable and accrued | ||||
| expenses | 3,582 8,293 | |||
| (Gain) on sale of assets | - | (78,947) | ||
| Net Cash Provided by Operating Activities | 119,652 | 62,965 | ||
| Cash Flows from Investing Activities: | ||||
| (Increase) in sales proceeds receivable | (246,500) | - | ||
| Collection of (Investments in) certificates | ||||
| of purchase | 602,554 (233,224) | |||
| Collection of notes receivable | 485,666 | 564,554 | ||
| (Investment) in mortgage notes receivable | (276,546) | (255,240) | ||
| Disposition of real estate | 8,000 | 37,877 | ||
| Other | (146) | 154,273 | ||
| Net Cash Provided by Investing Activities | 573,028 | 268,240 | ||
| Cash Flows from Financing Activities: | ||||
| Common stock issued and additional | ||||
| paid-in capital | - | 12,386 | ||
| (Repayment) of notes payable | (7,851) | (1,282,793) | ||
| Loan from bank | 2,565,004 | - | ||
| (Repayment) of loan from bank | (2,774,904) | - | ||
| (Repayment) of loan from related party | (100,000) | (150,000) | ||
| Net Cash Provided by | ||||
| Financing Activities | (317,751) | (1,420,407) | ||
| Increase (decrease) in Cash | 374,929 | (1,089,202) | ||
| Cash, Beginning of Period | 70,229 | 1,159,431 | ||
| Cash, End of Period | $ 445,158 | $ 70,229 | ||
| Interest Paid | $ 3,163 | $ 47,401 | ||
| Income Taxes Paid | $ 42,846 | $ 16,122 | ||
The accompanying notes are an integral part of the financial statements.
(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.
(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. Depreciation on rental real estate is being computed using the straight-line method over estimated useful lives of 40 years. 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.
(e) Geographic Area of Operations and Interest Rates
The Company owns properties principally in California, Nebraska, North Dakota, 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.
(2) Notes Payable
As of June 30, 1999 the Company had outstanding $28,877 on a note payable bearing interest at 15%. Maturities of this note payable is summarized as follows:
| Year ending June 30, | |
| 2000 | $ 10,005 |
| 2001 | 11,614 |
| 2002 | 7,258 |
| 2003 | - |
| Thereafter | - |
| Total | $ 28,877 |
This note is due in monthly installments of $1,129 through December, 2002. This note is not collateralized by any assets of the Company. Also included in notes payable at June 30, 1998, was $209,900 payable to a bank collateralized by certain mortgage notes receivable and certificates of purchase. This note was paid in full during the year ended June 30, 1999. The terms of the bank loan are more fully disclosed in Note 6. In addition, the Company had a $100,000 note payable to a shareholder which was uncollateralized and was paid in full during the year ended June 30, 1999.
(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 or second deeds of trust on real estate located primarily in Colorado, Arizona and California. At June 30, 1999, the Company had seven mortgage loans receivable from one individual totaling approximately $87,243. The loans as a percentage of value were approximately 90% at the time of sale. The Company also had seventeen mortgage loans receivable from another individual totaling approximately $565,497. The second individual's loans as a percentage of value were approximately 100% at the time of sale 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 one investment in a foreclosure certificate of purchase totaling $197,247 as of June 30, 1999. This certificate of purchase entitles 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. The interest rate on the Company's investment in certificate of purchase was 30%. Subsequent to June 30, 1999, the Company obtained title to the property that was subject to the certificate of purchase.
Effective March 31, 1998, the Company sold its investment in a 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, 2000. 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) | instruments that potentially subject the Company to concentrations of credit risk consist primarily of temporary cash investments. The Company places its temporary cash investments with financial institutions. As of June 30, 1999, the Company had a concentration of credit risk since it had temporary cash investments in bank accounts totaling $309,112 in excess of the FDIC insured amounts. (4) Fair Value Financial Instruments As of June 30, 1999, 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. |
| (5) | 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 Year | ||
| Ended Ended | ||
| June 30, June 30, | ||
| 1999 1998 | ||
| Expected income tax | $ 58,630 | $ 53,636 |
| Graduated tax brackets | (16,750) (16,750) | |
| Benefit of utilization of net | ||
| operating loss carryover | (4,626) (4,626) | |
| State tax net of federal | ||
| benefit 4,584 4,194 | ||
| Other, net (1,588) | 562 | |
| $ 40,250 | $ 37,016 | |
The tax effects of temporary differences that give rise to the deferred tax liability at June 30, 1999 follow:
| Installment sale reporting | $ 29,699 |
| less current portion | (2,104) |
| $ 27,595 | |
The change in the deferred tax liability during the year ended June 30, 1999 was $8,311.
As of June 30, 1999 RMPC had $58,183 of deferred tax assets related to net operating loss carryovers. RMPC had useable loss carryovers of approximately $200,000 at the time of the business combination, expiring in various years through the year 2017. Due to a change in ownership of RMPC the net operating loss carryover has been reduced from approximately $540,000 to approximately $200,000, of which $24,750 has been utilized by the Company since the change of ownership.
(6) Notes Payable, Bank
As of June 30, 1999, the Company had a line of credit from a bank of $1,500,000.
The Company's President has personally guaranteed the total $1,500,000 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.
The line of credit is collateralized by certain real estate mortgage notes receivable and certificates of purchase, and bears interest at .5% over prime plus has an annual fee of .5% of the total amount of the line. The line of credit is subject to annual renewal and is due in December, 1999. At June 30, 1999, the Company had no outstanding borrowing on this line of credit.
(7) Sale Proceeds Receivable
Effective June 30, 1999, the Company sold a real estate property resulting in a receivable of $246,500. During July, 1999 the Company received the $246,500 in cash.
(8) Year 2000 Compliance
The Company is aware of the issues associated with the programming code in existing computer systems as the year 2000 approaches. The Company has assessed these issues as they relate to the Company, and since the Company currently has no operating business and does not use any computers, and since it has no customers or supplier, it does not believe that there are any material year 2000 issues to disclose in this Report.
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