<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1997
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 0-12444-D
THE ROCKIES FUND, INC.
-------------------------
(Exact Name of Registrant as Specified in its Charter)
Nevada 84-0928022
- - - ----------------------------------- ---------------------
(State or other jurisdiction I.R.S. Employer
of incorporation or organization) Identification number
4465 Northpark Drive, Colorado Springs, Colorado 80907
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (719) 590-4900
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- ---------------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
$.01 Par Value Common Stock
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not 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-K or any
amendment to this Form 10-K. [ ]
As of December 31, 1997, the aggregate market value of the Common Stock
of the Registrant based upon the average of the closing bid and asked prices
of the Common Stock as quoted on the National Quotation Bureau, LLC held by
non-affiliates of the Registrant was $765,574. As of December 31, 1997,
640,256 shares of Common Stock of the Registrant were outstanding.
<PAGE>
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant hereby incorporates herein by reference the following
documents:
Part IV - Exhibits
- - - ------------------
1. Incorporated by reference from the Fund's final Registration
Statement on Form N-2, No. 2-86057, as filed with the Securities and Exchange
Commission.
2. Incorporated by reference from the Fund's Notification Pursuant to
Rule 14f-1 under the Securities Exchange Act of 1934, as filed with the
Commission on January 15, 1991.
3. Incorporated by reference from the Fund's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995.
Forward-Looking Statements
- - - --------------------------
In addition to historical information, this Annual Report contains
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, and are thus prospective. The forward-looking
statements contained herein are subject to certain risks and uncertainties
that could cause actual results to differ materially from those reflected in
the forward-looking statements. Factors that might cause such a difference
include, but are not limited to, competitive pressures, changing economic
conditions, those discussed in the Section entitled "Management's Discussion
and Analysis of Financial Condition and Results of Operations," and other
factors, some of which will be outside the control of the Fund. Readers are
cautioned not to place undue reliance on these forward-looking statements,
which reflect management's analysis only as of the date hereof. The Fund
undertakes no obligation to publicly revise these forward-looking statements
to reflect events or circumstances that arise after the date hereof. Readers
should refer to and carefully review the information in future documents the
Fund files with the Securities and Exchange Commission.<PAGE>
<PAGE>
PART I
ITEM 1. BUSINESS
History and Background
- - - ----------------------
The Rockies Fund, Inc. (the "Fund") was incorporated on August 2, 1983,
under the laws of the State of Nevada, for the principal purposes of making
venture capital investments in developing companies throughout the United
States. The Fund's initial capitalization consisted of a purchase of 12,500
shares of the Fund's Common Stock for a total of $100,000 by Galbreath
Financial Investment Corporation, an affiliate of the Fund's former Advisor,
Galbreath Financial Services Corporation, on August 5, 1983. On November 16,
1983, the Fund completed a public offering of its stock, whereby the Fund sold
a total of 425,000 shares of its $.01 par value Common Stock at a price of
$8.00 per share. The Fund received net proceeds from the offering of
$2,890,000.
Effective January 29, 1991, the Fund entered into an Agreement Concerning
the Change in Management ("Agreement"), which provided for the termination of
the Fund's management and advisor agreements and the resignation of the then
existing Board of Directors and executive officers of the Fund. Prior to
January 29, 1991, Galbreath Financial Services Corporation ("Advisor") had
provided management and administrative services to the Fund pursuant to a
Management Agreement between the parties and had provided investment services
pursuant to an Investment Advisory Agreement between the parties. Under the
terms of the Agreement, and with the approval of the Fund's majority and
controlling stockholder, D.A. Davidson & Company, the former five (5) members
of the Fund's Board of Directors, resigned in sequence and the vacancies
created by those resignations were filled by the Fund's current Board of
Directors, to serve until the next regular annual meeting of the Fund's
stockholders. (See Part III - "Directors and Executive Officers")
The Fund has elected treatment as a "business development company" under
the Investment Company Act of 1940, as amended (the "Act"), and is therefore
subject to the provisions of the Act which apply to such companies. As a
"business development company", the Fund is relieved from compliance with a
number of provisions of the Act which otherwise would significantly affect its
operations, but remains subject to other regulations affecting investment
companies. In order to maintain its status as a business development company,
approximately 70% of the Fund's assets must be comprised of venture capital
investments.
As a business development company, the Fund invests in, and makes
managerial assistance available to, new and developing companies. Prior to
making an investment in a company which is eligible for the Fund's venture
capital portfolio, the Fund's management conducts a review of the portfolio
company's operations to determine whether it is appropriate for investment by
the Fund. This review may include familiarization with the portfolio
company's business plan, a tour of the proposed portfolio company's
facilities, credit and reference checks and a careful review of the portfolio
company's product, its markets and growth prospects.
Consistent with the Fund's offer to provide managerial assistance to its
portfolio companies, the Fund attempts to arrange for its officers and
directors to serve as directors of such companies. Also, the Fund assists
portfolio companies in their efforts to recruit management, to define their
product planning and marketing strategies, to form financial plans and to
develop corporate goals. The Fund also assists such companies in establishing
professional relationships, in obtaining additional financing, in evaluating
merger opportunities and in conducting private and public offerings of their
securities.
Financial Information About Industry Segments
- - - ---------------------------------------------
Since inception, the Fund has operated primarily in the venture capital
industry and plans to continue to devote a majority of its resources to
operations within this arena. However, during the third quarter of fiscal
1993, the Fund acquired a 26,500 square foot office building which was sold
effective March 31, 1997 for a net gain of approximately $388,000. In a
concurrent transaction structured to qualify as a tax free exchange under
section 1031 of the Internal Revenue Code of 1986, as amended, the Fund, on
April 1, 1997, consummated the purchase of 5 acres of undeveloped commercial
real estate, and on September 4, 1997, consummated the purchase of a
commercial building to lease as a source of income.
The following table sets forth for each of the Fund's last three fiscal
years, the amounts of revenue, operating profit or loss and identifiable
assets, attributable to the Fund's investment activities and to the operation
of the Fund's office building as of March 31, 1997, and undeveloped and
developed commercial real estate purchased on April 1 and September 4, 1997,
respectively. The following information should be read in conjunction with
the Financial Statements and related Notes contained elsewhere in this report
and Management's Discussion and Analysis of Financial Condition and Results of
Operations.
As of or For the Years Ended
December 31
1997 1996 1995
Investment Income:
Venture Capital Industry $ 63,777 $36,057 $ 19,971
Real Estate 57,890 170,434 157,565
Net Investment Income (Loss):
Realized Investment Income (51,374) 1,549,196 31,889
Venture Capital Industry (11,276) (488,522) (289,512)
Real Estate (14,520) 59,833 30,570
Identifiable Assets:
Venture Capital Industry 3,322,424 2,733,821 1,525,053
Real Estate (land, building,
and construction in
progress at cost) 491,242 736,271 661,734
Narrative Description of Business
- - - ---------------------------------
Venture Capital Operations
The Fund's primary business remains investing in, and making managerial
assistance available to, new and developing companies. To this end, effective
July 19, 1994, the Fund changed and expanded its Investment Objective. As
amended, the Fund's Investment Objective is capital appreciation by making
venture capital investments primarily in developing companies located
throughout the United States and its territories which the Fund's management
believes offer significant growth opportunities. The Fund also invests in
more established companies which are experiencing financial difficulties if
such companies present special opportunities for growth. Thus, the Fund
invests in companies involving a high degree of risk and possessing the
potential for significant capital appreciation. In 1997, the Fund purchased
certain real estate which management believes represents investments
consistent with the Fund's investment objectives.
The Fund seeks to follow certain guidelines when identifying potential
portfolio companies, and attempts to invest in those companies which are
unique with regard to their products or their production or marketing
techniques. The Fund also looks for investment opportunities in companies
that produce products for which there is a discernible demand, at competitive
costs. Strong growth potential, a reasonable opportunity for liquidity,
increases in gross revenues in excess of industry averages and a lack of
dependence upon governmental contracts or any one sector of the economy, are
important factors which the Fund generally considers prior to making an
investment.
The Fund presently has four employees. The Fund's executive officers and
directors screen, evaluate and structure investments and provide managerial
assistance to portfolio companies. The Fund's officers and directors provide
guidance regarding the propriety and structuring of investments and establish
periodically the valuation of securities held by the Fund.
The venture capital business is highly competitive. A recent dramatic
increase in the number of businesses engaged in venture capital investment
activities has meant that a larger number of firms are competing for a limited
number of attractive investment opportunities. Notwithstanding these
developments, however, no single firm or group of firms dominates the
industry. Where possible, the Fund seeks to participate with other venture
capitalists in their investment activities.
The following descriptions of certain companies in which the Fund has
invested contain information which has been obtained from officers and
directors of the respective companies, and from documents furnished to the
Fund by such companies. The description of the Fund's investments includes
valuation information which is based upon certain valuation methods which are,
in order of preference, the Public Market Method (used when there is an
established public market for the portfolio company's securities), the Private
Market Method (based upon private transactions), the Appraisal Method
(reflecting a comparison between the portfolio company and other public or
private companies engaged in the same or similar business activities), and the
Cost Method (based upon the cost of the Fund's investments as adjusted to
reflect significant developments affecting the investment).
<PAGE>
<PAGE>
PORTFOLIO COMPANIES
AMERICAN EDUCATIONAL PRODUCTS, INC.
-----------------------------------
The Fund, at December 31, 1997, held 31,000 shares of American
Educational Products, Inc. common stock, after giving effect to a one-for-five
(1:5) reverse stock split. The stock is restricted as to sale due to the
company being an affiliate, non-income producing and has been valued by the
Board of Directors at its quoted market value of $5.875 per share or $182,125.
These shares are pledged as collateral, at December 31, 1997, on a $300,000
promissory note payable (See Redwood Broadcasting, Inc.). The Fund also held,
at December 31, 1997, common stock purchase warrants to purchase an
additional 40,000 shares of common stock of American Educational Products,
Inc. at an exercise price of $4.50 per share. The Board of Directors valued
these warrants at $1.375 each or $55,000, representing the difference between
their exercise price and the market value of the common stock. The Fund also
held at December 31, 1997 common stock purchase warrants to purchase an
additional 31,000 shares at an exercise price of $10.00 per share. These
warrants were valued at their quoted market price of $0.25 each or $7,750, and
are also pledged as collateral on the aforementioned $300,000 promissory note
payable.
ASTEA INTERNATIONAL
-------------------
The Fund, at December 31, 1997, held 15,000 shares of Astea International
common stock, which stock is unrestricted as to sale, non-income producing,
and has been valued at its quoted market price of $1.875 per share or $28,125.
BEAR STAR (fka COLUMBINE HOME SALES, LLC.)
------------------------------------------
The Fund has invested in Bear Star, which investment is restricted as to
sale, non-income producing, and has been valued by the Board of Directors at
$0. The Fund also holds a note receivable from Bear Star with remaining
amounts due of $5,814. The note accrues interest at the rate of 10% per year,
and is due on demand.
CABLE AND COMPANY WORLDWIDE
---------------------------
The Fund, at December 31, 1997, held 50,000 shares of Cable and Company
Worldwide common stock, which stock is unrestricted as to sale, non-income
producing, and has been valued at its quoted market price of $.125 per share
or $6,250.
COVA TECHNOLOGIES
-----------------
The Fund, at December 31, 1997, held 917 shares of Cova Technologies
common stock, which stock is restricted as to sale, non-income producing, and
has been valued by the Board of Directors at its cost of $20,035.
CUSA TECHNOLOGIES, INC.
-----------------------
The Fund, at December 31, 1997, held 30,000 shares of Cusa Technologies,
Inc. common stock, which stock is unrestricted as to sale, non-income
producing and has been valued at its quoted market price of $1.031 per share
or $30,938. These shares are pledged as collateral, at December 31, 1997, on
a $300,000 promissory note payable (See Redwood Broadcasting, Inc.).
DAMACH, INC.
------------
The Fund, at December 31, 1997, held a note receivable from Damach in the
amount of $32,500 which accrues interest at the rate of 12% per year and was
originally due on December 31, 1996. An agreement was signed on March 4, 1997
to extend this promissory note on a month to month basis or until the Fund
makes a written request for payment.
EXPLORATION COMPANY, THE
------------------------
The Fund, at December 31, 1997, held 36,000 shares of The Exploration
Company common stock, which stock is unrestricted as to sale, non-income
producing, and has been valued at its quoted market price of $2.00 per share
or $72,000.
GEORGESON, PHIL
---------------
The Fund, at December 31, 1997, held a note receivable from Phil
Georgeson in the amount of $4,602. The note is unsecured, accrues interest at
the rate of 12% per year and is due on demand.
GLOBAL CASINOS, INC.
--------------------
The Fund, at December 31, 1997, held 17,680 shares of Global Casinos,
Inc. common stock, after giving effect to a 1-for-10 reverse split. The stock
is restricted as to sale due to the company being an affiliate, non-income
producing, and has been valued at its quoted market price of $3.50 per share,
or $61,880. The Fund, at December 31, 1997, also held a note receivable from
Global Casinos, Inc. in the amount of $175,000, which note is unsecured,
accrues interest at 8% per year, and is due November 1, 1998. This note is
convertible into shares of Global Casinos, Inc. common stock at a conversion
price of $5.00 per share. The Fund holds a second note receivable from Global
Casinos in the amount of $43,904, which is unsecured, accrues interest at 9%
per year, is due on demand, and is convertible into Global Casinos, Inc.
common stock at $5.00 per share. The Fund holds a third note receivable from
Global Casinos, Inc. in the amount of $75,000, which is secured, accrues
interest at 12% per year plus an additional 12% fee per year and is due April
15, 1998. The Fund also owns 35,000 Global warrants exercisable at $6.00,
35,000 warrants exercisable at $7.00 and 35,000 warrants exercisable at $8.00
per share, all of which expire as of February 1, 1999 and have been valued at
$0 by the Board of Directors.
GUARDIAN TECHNOLOGIES, INC.
---------------------------
The Fund, at December 31, 1997, held 126,366 shares of Guardian
Technologies common stock, after giving effect to a one-for-three (1:3)
reverse split. The Fund has pledged 22,500 shares as collateral, at December
31, 1997, on a $300,000 promissory note payable (See Redwood Broadcasting,
Inc.). The stock is restricted due to the company being an affiliate, non-
income producing, and has been valued at its quoted market price of $2.75 per
share or $347,506. The Fund also held warrants to purchase an additional
137,000 shares of Guardian Technologies common stock, which warrants are also
restricted due to the company being an affiliate, non-income producing, and
have been valued at their quoted market price of $.3125 each or $42,813. The
Fund has pledged 67,000 warrants as collateral, at December 31, 1997, on a
promissory note payable to Redwood Microcap, Inc.
HAMPTON COURT RESOURCES
-----------------------
The Fund, at December 31, 1997, held 12,500 shares of Hampton Court
Resources common stock, which stock is restricted as to sale, non-income
producing and has been valued at its quoted market price of $1.29 per share or
$16,162. These shares are pledged as collateral, at December 31, 1997, on a
$300,000 promissory note payable (See Redwood Broadcasting, Inc.).
KINETIKS.COM
------------
The Fund, at December 31, 1997, held 113,500 shares of Kinetiks.com
common stock, which stock is unrestricted as to sale, non-income producing,
and has been valued at $0. The Fund also held warrants to purchase and
additional 400,000 shares of Kinetiks.com common stock at an exercise price of
$.25 per share. The warrants have been valued by the Board of Directors at
$0. The Fund also held a note receivable in the amount of $25,000 which is
unsecured, accrues interest at the rate of 10% per year, and is due on demand.
The note provides for a default interest rate of 18% and an additional 50,000
warrants for each 30-day period that it goes unpaid.
LAND RESOURCE CORPORATION
-------------------------
The fund, at December 31, 1997, held 10,000 shares of Land Resource
Corporation common stock, which stock is restricted as to sale, non-income
producing, and has been valued by the Board of Directors at its cost of $1.00
each or $10,000.
LONE OAK VINEYARDS, INC.
------------------------
The Fund, at December 31, 1997, held 49,000 shares of Loan Oak Vineyards,
Inc. common stock, which stock is restricted as to sale, non-income producing,
and has been valued by the Board of Directors at $2.66 per share or $130,536
which represents an estimate of the underlying fair value of the Fund's
interest in Lone Oak Vineyards, Inc. equity.
MARCO FOODS, INC.
-----------------
The Fund, at December 31, 1997, held a note receivable from Marco Foods,
an affiliate of the Fund, in the amount of $127,338, which is unsecured,
accrues interest at 12% per year and is due on demand.
OPTIMAX INDUSTRIES, INC. (fka PLANTS FOR TOMORROW, INC.)
--------------------------------------------------------
At December 31, 1997, the Fund held 115,191 shares of Optimax Industries,
Inc. common stock, which stock is unrestricted as to sale, non-income
producing and has been valued at its quoted market price of $.156 per share or
$18,004. The shares of Optimax are pledged as collateral securing the Fund's
line of credit with a bank.
PREMIUM CIGARS, INC.
--------------------
The Fund, at December 31, 1997, held 5,000 shares of Premium Cigars
common stock, which stock is unrestricted as to sale, non-income producing and
has been valued at its quoted market price of $1.5625 per share or $12,813.
These shares are pledged as collateral, at December 31, 1997, on a $300,000
promissory note payable (See Redwood Broadcasting, Inc.).
REDWOOD BROADCASTING, INC.
--------------------------
The Fund, at December 31, 1997, held 255,000 shares of Redwood
Broadcasting, Inc. common stock, which stock is restricted as to sale, non-
income producing, and has been valued at its quoted market price of $1.75 per
share or $446,250. The shares were purchased in exchange for a $300,000, 10
year, 8% promissory note.
SHIVA CORPORATION
-----------------
The Fund, at December 31, 1997, held 2,630 shares of Shiva Corporation
common stock, which is unrestricted as to sale, non-income producing and has
been valued at its quoted market price of $8.5625 per share or $22,519.
SOUTHSHORE CORPORATION
----------------------
At December 31, 1997, the Fund held 15,000 shares of Southshore
Corporation common stock, which stock is unrestricted as to sale, non-income
producing, and has been valued at its quoted market price of $.25 per share or
$3,750. These shares are pledged as collateral, at December 31, 1997, on a
$300,000 promissory note payable (See Redwood Broadcasting, Inc.).
TELS CORPORATION
----------------
The Fund, at December 31, 1997, held 30,000 shares of TELS Corporation
common stock, which stock is unrestricted as to sale, non-income producing,
and has been valued at its quoted market price of $.3125 per share or $9,375.
TRAINING DEVICES, INC.
----------------------
The Fund, at December 31, 1997, held 20,000 shares of Training Devices,
Inc. common stock, which stock is restricted as to sale, non-income producing,
and has been valued by the Board of Directors at $2.00 per share or $40,000,
based on the price of the company's most recent financing in October of 1997.
USASURANCE GROUP
----------------
The Fund, at December 31, 1997, held 73,500 shares of Usasurance Group
common stock, which stock is unrestricted as to sale, non-income producing,
and has been valued at its quoted market price of $2.00 per share or $147,000.
WHITEWING LABS
--------------
The Fund, at December 31, 1997, held 20,000 shares of Whitewing Labs
common stock, which stock is unrestricted as to sale, non-income producing,
and has been valued at its quoted market price of $.75 per share or $15,000.
WILSHIRE TECHNOLOGIES, INC.
---------------------------
The Fund, at December 31, 1997, held 247 Wilshire Technologies, Inc.
warrants, which warrants are restricted as to sale, non-income producing, and
have been valued by the Board of Directors at $0 based on their exercise price
being greater than the market price of Wilshire Technologies common stock.
<PAGE>
<PAGE>
ITEM 2. PROPERTIES
Real Estate Operations
----------------------
During the third quarter of fiscal 1993 the Fund purchased a 26,500
square foot office building located in Colorado Springs, Colorado (the
"Northpark Building"). The Building was acquired primarily to provide office
space for the Fund and as a potential source of income. The Fund sold its
Northpark Building, effective March 31, 1997. The sale was structured as a
tax-free exchange under Section 1031 of the Internal Revenue Code of 1986, as
amended, (the "Code"). The proceeds received were utilized to pay
approximately $478,000 of mortgage, line of credit and other debt resulting in
a net gain of $388,000.
In a concurrent transaction structured to qualify as a tax-free exchange
under Section 1031 of the Code, the Fund, on April 1, 1997, consummated the
purchase of 5 acres of undeveloped commercial real estate located at 3210
Woodmen Road, Colorado Springs, Colorado (the "Woodmen Property"). The Fund
plans to undertake a phased development of two commercial office buildings on
the Woodmen Property which will, upon completion, consist of an aggregate of
55,000 square feet of commercial office space. The purchase price for the
Property was $390,000 and was paid in cash at the time of closing, utilizing a
portion of the proceeds realized by the Fund from the sale of the Northpark
Building. The Fund intends to hold this new real estate in a wholly owned
subsidiary called Strategic Properties, Inc.
Real Estate Investments
-----------------------
Effective September 4, 1997, The Fund purchased commercial real estate
located at 3515 North Chestnut, Colorado Springs, (the "Chestnut Building")
for a purchase price of $600,000 and incurred approximately $20,000 of
improvements as of December 31, 1997. The Fund utilized $100,000 from the
Northpark Building sale proceeds towards the purchase of the new Chestnut
Building as a tax-free exchange under Section 1031 of the Code and borrowed
the remaining $500,000 from State Bank and Trust at an initial interest rate
of 9.75% with the assignment of all rents as collateral. The Fund as of
December 31, 1997, has signed an agreement to lease the Chestnut Building for
8 months and 9 days expiring on September 1, 1998 for $35,000. The tenant
agreeing to pay for all property taxes, utilities, insurance and maintenance
associated with the building during the term of the lease. In addition, the
Fund agreed to sell and the tenant agreed to buy the Chestnut Building for
$775,000 upon the completion of the lease, September 1, 1998, for an
approximate net gain of $155,000. The tenant as of December 23, 1997, paid
the Fund $35,000 prepaid rent through September 1, 1998. The tenant as of
January 1998 paid the Fund $7,500 earnest and partial payment of the Chestnut
purchase price.
In addition, effective September 24, 1997, $50,000 of the Northpark
Building sale proceeds were utilized to purchase a 20% investment in Plaza
Hotel & Apartments, a 40 room hotel, located at 116 East Park Street, Hot
Springs Park, Thermopolis, Wyoming, (the "Hotel Investment"), as a tax free
exchange under section 1031 of the Code for a total investment of $200,000.
The Fund owes $150,000 to Wyoming Resorts, LLC at an 8% per annum interest
rate. The Fund is currently under contract to sell the Hotel Investment for
$200,000.
Office Facilities
-----------------
The Fund is currently leasing executive office space in the Northpark
Building under a lease with the new owners, Northpark, L.L.C., for $900 a
month.
The commercial real estate market in Colorado Springs, Colorado, although
steadily improving over the last several years, still remains very
competitive. While the Board does not believe that a single firm or group
dominates the commercial real estate industry in Colorado Springs, many of the
participants are well-established and possess far greater financial and market
resources than the Fund.
The Fund's principal executive offices are maintained in the office
Building located at 4465 Northpark Drive, Colorado Springs, Colorado 80907.
The Fund's telephone number at that address is (719) 590-4900.
ITEM 3. LEGAL PROCEEDINGS
In early 1996, the Fund received requests for information from the United
States Securities and Exchange Commission ("SEC") related to an investigation
begun by the SEC in 1994 into various matters, including the administrative
and record keeping practices of the Fund, its securities trading activities
and those of its officers and directors. In September 1996, the Company was
notified by the Commission's Staff that it intends to request that the
Commission commence an administrative proceeding against the Company and its
directors based upon certain transactions in securities formerly included in
the Company's securities portfolio. The Company has responded to the
Commission with a written submission which sets forth why there exists no
basis in fact or law for such a proceeding. It is impossible to predict
whether the Staff will recommend a proceeding against the Company or any of
its directors, and if such a recommendation is made, whether the Commission
will authorize the institution of a proceeding. There can be no assurance of
the outcome of this matter or the ultimate effect on the Fund's financial
position.
Other than the foregoing, the Fund is not a party to any material pending
legal proceeding.
ITEM 4. MATTERS SUBMITTED TO VOTE OF SECURITY HOLDERS
The Fund did not submit any matters to a vote of its security holders
during the fourth quarter of its fiscal year ending December 31, 1997.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED SECURITY HOLDER MATTERS
Price Range of Common Stock
The outstanding shares of common stock, are traded over-the-counter and
quoted in the OTC Electronic Bulletin Board under the symbol "ROCE." The
reported high and low bid prices for the common stock are shown below for the
period from January 1, 1996 through March 31, 1998:
Bid
1996 Low High
--------------------------------------------------
First Quarter 1.75 2.00
Second Quarter 2.00 2.50
Third Quarter 2.50 3.75
Fourth Quarter 3.50 4.00
1997
--------------------------------------------------
First Quarter 4.00 4.125
Second Quarter 3.50 4.125
Third Quarter 4.00 4.375
Fourth Quarter 4.375 4.375
1998
--------------------------------------------------
First Quarter 4.375 4.43
(through 03/31/98)
The high bid price of the Fund's common stock as of March 31, 1998
was $4.43. The prices presented are bid prices which represent prices between
broker-dealers and do not include retail mark-ups and mark-downs or any
commissions to the broker-dealer. The prices do not reflect prices in actual
transactions.
As of December 31, 1997, there were approximately 106 holders of
record of the Fund's common stock. The closing bid price of the stock on that
date was $ 4.375.
Dividends
No cash dividends were paid by the Fund in 1996 or 1997.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below is derived from audited
financial statements of the Fund. The following information should be read in
conjunction with the Financial Statements and related Notes contained
elsewhere in this report and Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Balance Sheet Data at December 31
- - - ---------------------------------------------------------------------------
1997 1996 1995 1994 1993
- - - ---------------------------------------------------------------------------
Assets
Investments $3,148,989 $2,154,497 $1,400,374 $ 1,699,582 $1,830,719
Cash 21,890 499,404 1,193 37,081 9,072
Property
and
equipment,
net 509,669 764,521 714,918 655,556 660,982
Other 133,118 51,670 70,302 30,858 3,323
----------- ----------- ----------- ----------- ----------
Total assets 3,813,666 3,470,092 2,186,787 2,423,077 2,504,096
----------- ----------- ----------- ----------- ----------
Liabilities
Long-term
debt,
current 899,106 262,821 191,627 195,444 165,444
Payables 164,268 342,107 165,542 65,114 115,879
Accrued
interest
payable 8,565 7,428 19,588 14,628 14,268
Other accrued
liabilities 23,011 33,901 39,697 12,500 70,123
Cash overdraft 8,049 -0- 8,653 -0- 24,522
Deposits,
deferred rent
and taxes 54,334 -0- -0- -0- -0-
Long-term
liabilities 351,531 375,103 454,116 428,352 462,274
Accrued income
taxes -0- 118,000 -0- -0- -0-
----------- ----------- ----------- ----------- ----------
Total
liabilities 1,508,864 1,139,360 879,223 716,038 852,510
----------- ----------- ----------- ----------- ----------
Net assets $2,304,802 $2,330,732 $1,307,564 $1,707,039 $1,651,586
=========== =========== =========== =========== ==========
Net assets per
share (shares
issued and
outstanding:
640,256
in 1992
- 1997) $ 3.60 $ 3.64 $ 2.04 $ 2.67 $ 2.58
<PAGE>
<PAGE>
Statement of Operations Data for Years Ended December 31
- - - ---------------------------------------------------------------------------
1997 1996 1995 1994 1993
- - - ---------------------------------------------------------------------------
Investment Income $ 121,667 $ 206,491 $177,536 $166,575 $ 67,795
Gain on sale of land
and building 388,476
Less expenses 535,939 635,180 436,478 531,724 304,139
----------------------------------------------
Net Investment loss (25,796) (428,689) (258,942) (365,149) (236,344)
Net realized gain
(loss) from sales
and permanent write-
downs of securities (51,374) 1,549,196 31,889 192,577 642,478
Unrealized net
appreciation
(depreciation)
of investments 51,240 (97,339) (172,422) 228,025 188,444
- - - --------- --------- ----------------------------
Net increase (decrease)
in net assets
from investment
activities $ (25,930) $1,023,168 $(399,475) $ 55,453 $594,578
Per share amounts:
Net investment loss $ (0.04) $ (0.67) $ (0.40) $ (0.56) $ (0.36)
Net realized (losses)
gains from
investments (0.08) 2.42 0.05 0.30 1.00
Net unrealized
appreciation
(depreciation) of
investments 0.08 (0.15) (0.27) 0.35 0.29
Net increase(decrease)
in net assets per
common share from
investment
activities $ (0.04) $ 1.60 $ (.62) $ 0.09 $ 0.93
<PAGE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion and analysis should be read in conjunction with
the Financial Statements and Notes thereto appearing elsewhere in this report.
Liquidity and Capital Resources - December 31, 1997
During the year ended December 31, 1997, the Fund incurred realized
gains from sales of securities (before income tax) and unrealized appreciation
of investments. Total assets increased accordingly:
Investments increased from $2,154,497 on December 31, 1996 to $3,148,989
on December 31, 1997, an increase of $994,492 or 46.2%, primarily due to
increases of approximately 7% in the value of the Fund's holdings of American
Education Products, 12% in the value of the FunD's holdings of Guardian
Technologies, 14% in the value of the Fund's holdings of Redwood Broadcasting
and 5% in the value of the Fund's holdings of Usasurance Group. Notes
receivable, net of allowances, increased from $313,404 on December 31, 1996 to
$458,158 on December 31, 1997, an increase of $144,754 or 46%, attributable to
new notes from Global Casinos and Marco Foods. Global Casinos, Inc., an
international gaming company and affiliate, comprises approximately 64%, and
Marco Foods, Inc., also an affiliate, comprises approximately 28% of total
notes receivable. Also contributing to the increase in investments was the
purchase of commercial real estate for $621,358, including improvements, and a
$200,000 hotel investment. The commercial real estate and hotel investment
are under contracts for sale for a total of $975,000, representing an increase
in value of approximately $145,000 as of December 31, 1997.
Cash decreased significantly from $499,404 at December 31, 1996 to
$21,890 at December 31, 1997, primarily due to the purchase of property and
improvements during 1997. Property and equipment decreased from $764,521 at
December 31, 1996 to $509,669 at December 31, 1997, a decrease of 254,852 or
33.3% as a result of the Northpark building sale, which had a carrying value
of $775,356 and the purchase of 5 acres of undeveloped commercial real estate
and subsequent improvements for $491,2442. Other assets increased from
$51,670 as of December 31, 1996 to $133,118 as of December 31, 1997 an
increase of $81,448 or 158%, due to an increase in accrued interest receivable
in conjunction with notes receivable and investment securities sold for those
securities sold yet awaiting proceeds as of December 31, 1997.
Based on the foregoing, total assets increased from $3,470,092 at
December 31, 1996, to $3,813,667 as of December 31, 1997, an increase of
343,575 or 10%.
Long-term debt increased significantly from $262,821 as of December 31,
1996 to $899,106 as of December 31, 1997, an increase of $636,285 or 242%.
The increase in long-term debt is mainly attributable to the commercial real
estate "Chestnut Building" loan with a balance of $497,528, an increase in
margin account balances of $96,885, a $150,000 balance for the Thermopolis
Hotel Investment, and a note payable of $281,348 at December 31, 1997,
incurred in connection with the purchase of Redwood Broadcasting, Inc. shares.
As of December 31, 1997, the Fund had a line of credit for $75,000 with an
outstanding balance of $74,500, that accrues interest at 10.5%, collateralized
by the Fund's security holdings. As of December 31, 1996, The Fund had an
additional line of credit for $100,000 with State Bank & Trust which was paid
with the Northpark building sale proceeds on March 31, 1997. Payables
decreased significantly from $342,107 at December 31, 1996 to $164,268 at
December 31, 1997, mainly attributable to a decrease in trades pending during
1996. The Fund, as of December 31, 1997 had an overdrawn cash account of
$8,049.
As a result, total liabilities increased from $1,139,360 at December 31,
1996 to $1,508,864 on December 31, 1997 an increase of $369,504 or 32.4%
Due to the increase in liabilities, net assets decreased from $2,330,732
at December 31, 1996 to $2,304,802 at December 31, 1997 and from $3.64 per
share to $3.60 per share, respectively, a decrease of $.04 per share or 1.1%.
Other than the 1998 anticipated sale of the Fund's Chestnut building and
Hotel investment, Management knows of no trends or demands, commitments,
events or uncertainties which will result in the Fund's liquidity or capital
resources materially increasing or decreasing.
Results of Operations - 1997 Compared to 1996 and 1995
As a direct result of the sale of the Northpark building as of March 31,
1997, rental income decreased to $57,890 in 1997. This compares with rental
income of $170,434 in 1996 and$157,565 in 1995. Interest and dividend income
on the other hand increased significantly from $614 in 1995 to $30,248 in
1996 and $63,777 in 1997. This increase is mainly attributable to an increase
in notes receivable. As a result of the foregoing, total investment income
changed from $177,536 in 1995, to $206,491 in 1996, and $121,667 as of
December 31, 1997.
Total expenses changed from $436,478 at 1995, to $635,180 at 1996, and
$535,939 in 1997. Contributing to the change in expenses from 1996 to 1997
was a decrease in wages and salaries of 16.9%, as one employee became part-
time on August 1, 1997; a significant decrease in professional fees of 42.8%
due to a decrease in legal fees; travel and entertainment increased 197.1%, as
some investments required travel in 1997; building expenses decreased
significantly, 58.3% due to the sale of the Northpark building and minimal
expenses incurred on the Chestnut building; investment expense decreased 40%
as the Fund experienced lower trading activity in 1997; and donations
increased 667.1% as the Fund donates approximately $1,000 per month to The
Good News Foundation.
As a result of decreased investment income and expenses in 1997,
investment loss decreased to $(414,267) in 1997, compared to $(428,689) in
1996, and $(258,942) in 1995.
Net realized gain (loss) from sale of investments decreased significantly
in 1997 to $(51,374) from $1,549,196 in 1996 and $31,889 in 1995, a decrease
of $1,600,570. This decrease is mainly attributable to the sale of Shiva
Corp. (fka Airsoft) which increased $1,846,098 in value during 1996. Net
unrealized appreciation (depreciation) of investments increased in 1997 to
$51,240 from $(97,339) in 1996 and (172,422) in 1995. Net loss from
investments was ($134) for 1997.
Other than the 1998 anticipated sale of the Fund's Chestnut building and
Hotel Investment, Management knows of no trends or uncertainties that will
have any material impact on the income or expenses of the Fund.
Recently issued accounting pronouncements
The Financial Accounting Standard's Board recently issued Statement of
Financial Accounting Standard (SFAS) No.'s 130 and 131, "Reporting
Comprehensive Income" and "Disclosures about Segments of an Enterprise and
Related Information," respectively. Both of these statements are effective
for fiscal years beginning after December 15, 1997. SFAS No. 130 establishes
requirements for disclosure of comprehensive income which includes certain
items previously not included on the statement of income including minimum
pension liability adjustments and foreign currency translation adjustments,
among others. Reclassification of earlier financial statements for
comparative purposes is required. SFAS No. 131 revises existing standards for
reporting information about operating segments and requires the reporting of
selected information in interim financial reports. SFAS No. 131 also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. Management believes that
implementation of SFAS No. 130 and No. 131 will not materially impact the
Fund's financial statements.
Year 2000 issues
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. Software failures due to
processing errors potentially arising from calculations using the Year 2000
date are a known risk. The Company is addressing this risk to the
availability and integrity of financial systems and the reliability of the
operational systems. The Company is evaluating and managing the risks and
cost associated with this problem, including communicating with brokers,
custodians and trust companies, and others with which it does business to
coordinate Year 2000 conversion. The total cost of compliance and its effect
on the Fund's future results of operations is being determined as part of
the detailed conversion planning process.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14(a) below for a list of the Financial Statements and Financial
Statement Schedules included in this report following the signature page. The
supplementary financial information required by Item 302 of Regulation S-K
does not apply to the Fund.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
<PAGE>
THE ROCKIES FUND, INC.
YEARS ENDED
DECEMBER 31, 1997 AND 1996
<PAGE>
THE ROCKIES FUND, INC.
YEARS ENDED DECEMBER 31, 1997 AND 1996
TABLE OF CONTENTS
Page
Independent auditors' report F-3
Financial statements:
Statements of assets and liabilities F-4 - F-5
Schedule of investments F-6 - F-11
Statements of operations F-12 - F-13
Statements of shareholders' equity F-14
Statements of cash flows F-15 - F-16
Statements of changes in net assets F-17
Notes to financial statements F-18 - F-28
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders and Directors
The Rockies Fund, Inc.
We have audited the accompanying statements of assets and liabilities of The
Rockies Fund, Inc. (the "Fund"), including the schedule of investments as of
December 31, 1997 and 1996 and the related statements of operations,
shareholders' equity, cash flows, and changes in net assets for the years then
ended. These financial statements and schedule are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
schedule are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997 and 1996, by correspondence with the brokers or verification
by examination. 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 financial statements and schedule referred to above
present fairly, in all material respects, the financial position of The
Rockies Fund, Inc. as of December 31, 1997 and 1996 and the results of its
operations, its cash flows, and changes in net assets for the years then ended
in conformity with generally accepted accounting principles.
As explained in Note 1, the financial statements include securities valued at
$256,000 (12% of net assets) at December 31, 1997, whose values have been
estimated by the Board of Directors in the absence of readily ascertainable
market values. We have reviewed the procedures used by the Board of Directors
in arriving at its estimate of value of such securities and have inspected
underlying documentation, and, in the circumstances, we believe the procedures
are reasonable and the documentation appropriate. However, because of the
inherent uncertainty of valuation, those estimated values may differ
significantly from the values that would have been used had a ready market for
the securities existed, and the differences could be material.
GELFOND HOCHSTADT PANGBURN & CO.
Denver, Colorado
March 30, 1998<PAGE>
THE ROCKIES FUND, INC.
Statements of Assets and Liabilities
December 31, 1997 and 1996
- - - ---------------------------------------------------------------------------
ASSETS 1997 1996
- - - ---------------------------------------------------------------------------
Investments, at value (cost of $3,118,071,
1997 and $1,999,819, 1996) (Note 3):
Restricted and unrestricted securities $ 1,725,831 $1,841,093
Notes receivable 458,158 138,404
Real estate 965,000 -
------------ ------------
3,148,989 1,979,497
Cash:
Held by related party (Note 6) - 391,698
Held by others 21,890 107,706
Investment securities sold (Note 6) 79,511 15,809
Accrued interest receivable 53,045 12,789
Receivables from investees (Note 6) 562 23,072
------------- ------------
Total current assets 3,303,997 2,530,571
------------- ------------
Property and equipment (Notes 2 and 3):
Land 390,000 102,775
Building - 633,496
Leasehold improvements - 86,614
Automobile 15,162 -
Furniture and fixtures 8,739 12,461
Equipment - 1,484
Construction in progress 101,242 -
------------- ------------
515,143 836,830
Less accumulated depreciation 5,474 72,309
------------- ------------
509,669 764,521
------------- ------------
Investment in long-term note receivable,
related party (cost of $175,000) - 175,000
------------- ------------
Total assets $ 3,813,666 $ 3,470,092
------------- ------------
(continued)
See Notes to Financial Statements
<PAGE>
THE ROCKIES FUND, INC.
Statements of Assets and Liabilities (Continued)
December 31, 1997 and 1996
- - - ---------------------------------------------------------------------------
LIABILITIES AND NET ASSETS 1997 1996
- - - ---------------------------------------------------------------------------
Cash overdraft $ 8,049 $ -
Payables:
Trade 108,506 71,659
Construction (Note 2) 55,762 -
Related party (Note 6) - 153,566
Investment securities purchased (Note 6) - 116,882
Accrued liabilities:
Property taxes and other 23,011 33,901
Income taxes (Note 4) - 118,000
Interest payable 8,565 7,428
Current maturities of long-term debt (Note 3):
Related parties 172,374 6,500
Others 726,732 256,321
Deposits and deferred rent (Note 2) 41,334 -
Deferred tax liability (Note 4) 13,000
-------------------------------
Total current liabilities 1,157,333 764,257
Security deposits and other liabilities - 59,754
Long term debt, net of current maturities
(Note 3) 259,531 315,349
Deferred tax liability (Note 4) 92,000 -
---------- - -----------
Total liabilities 1,508,864 1,139,360
Commitments and contingencies
(Notes 2 and 5) ----------- ------------
Net assets and shareholders' equity
(equivalent to $3.60 per share for
1997 and $3.64 per share for 1996) $ 2,304,802 $ 2,330,732
============ ===========
COMPONENTS OF NET ASSETS
Common stock, $.01 par value; authorized
5,000,000 shares; 640,256 shares
issued and outstanding $ 6,403 $ 6,403
------------ -----------
Additional paid-in capital 2,901,243 2,901,243
------------ -----------
Accumulated deficit:
Accumulated net investment loss (1,919,099) (1,893,303)
Accumulated net realized gains from sales
of securities 1,285,337 1,336,711
Unrealized net appreciation
(depreciation) of investments 30,918 (20,322)
----------- -----------
Total accumulated deficit (602,844) (576,914)
Net assets $ 2,304,802 $ 2,330,732
=========== ===========
<PAGE>
THE ROCKIES FUND, INC.
Schedule of Investments
December 31, 1997 and December 31, 1996
Initial **Cost at Fair value at Fair
value at
Investment December 31, December 31,
December 31,
Company Position date 1997 1997
1996
Restricted Securities:
American Educational31,000 common shares *** September 1996 $155,000 $182,125$
145,313
Products, Inc.* (1) 9,000 common shares September 1996 - -
42,188
40,000 warrants
(exercisable @ $4.50) September 1996 - 55,000 -
31,000 warrants
(exercisable @ $10.00)*** June 1997 - 7,750 -
155,000 244,875
187,500
Bear Star, LLC* 5% partnership interest November 1994 - - -
COVA Technologies* 917 common shares July 1996 20,035 20,035
20,035
Global Casinos, Inc.* (2)3,800 common shares November 1993 76,000 13,300
16,150
4,331 common shares January 1994 50,068 15,159
18,407 1,724 common shares January 1994 19,932 6,034 7,327
1,250 common shares February 1994 25,000 4,375 5,313
75 common shares March 1994 - 263 319
500 common shares October 1994 10,000 1,750 2,125
5,000 common shares February 1996 17,208 17,500
21,250
1,000 common shares March 1996 3,125 3,500 4,250
105,000 warrants November 1996 - - -
201,333 61,880
75,140
Guardian Technologies, Inc.* (3)8,333 common sharesFebruary 1997 8,750
22,916 -
90,533 common shares March 1997 126,450 248,966 -
5,000 common shares June 1997 6,260 13,750 -
20,000 common shares *** August 1997 29,005 55,000 -
2,500 common shares *** September 1997 8,061 6,875 -
70,000 warrants March 1997 13,440 21,910 -
67,000 warrants *** March 1997 12,815 20,903 -
204,781 390,319 -
Hampton Court Resources12,500 common shares ***September 1997 11,542
16,162 -
Land Resource Corporation*10,000 common shares March 1997
10,000 10,000 -
Lone Oak Vineyards, Inc.*35,000 common shares February 1997 35,000
93,240 -
7,000 common shares October 1997 7,000
18,648 -
7,000 common shares November 1997 7,000
18,648 -
49,000
130,536 -
Redwood Broadcasting, Inc.5,000 common shares February 1997 -
8,750 -
200,000 common shares December 1997 240,000
350,000 -
50,000 common shares December 1997 60,000
87,500 -
300,000
446,250 -
Training Devices, Inc.20,000 common shares February 1997 25,000
40,000 -
Wilshire Technologies, Inc. 247 warrants December 1997 -
- -
Total Restricted Securities 976,691
1,360,057
282,675
Unrestricted Securities:
Alouette Cosmetics 2,500 common shares November 1996 -
- 7,500
Astea International 5,000 common shares September 1996 -
-
28,438
5,000 common shares November 1996 -
- 28,438
10,000 common shares February 1997 54,875
18,750 -
5,000 common shares June 1997 16,354
9,375 -
71,229
28,125
56,875
Corfacts, Inc. 200,000 common shares July 1996 -
- 10,000
Cusa Technologies, Inc.***30,000 common sharesNovember 1997 33,360
30,938 -
Enhanced Services 2,500 common shares December 1996 -
- 8,125
Exploration Company, The7,500 common shares August 1996 -
- 41,250
3,000 common shares September 1996 -
- 16,500
7,500 common shares October 1996 -
- 41,250
36,000 common shares October 1997 109,080
72,000 -
109,080
72,000
99,000
Healthwatch, Inc. 34,400 common shares October 1996 -
- 68,800
45,000 common shares December 1996 -
- 90,000
-
- 158,800
Image Matrix 10,000 units (1com/1wrnt) June 1996 -
- 33,750
J T's Restaurants 1,500 common shares December 1996 -
- 3,188
Kinetiks.com 10,000 common shares September 1996 38,125
- 6,250
11,000 common shares October 1996 24,313
- 6,875
20,000 common shares November 1996 12,188
- 12,500
62,500 common shares December 1996 44,852
- 39,063
10,000 common shares July 1997 3,281
- -
400,000 warrantsFebruary 97-September 97
- - -
122,758
-
64,688
Laser Recording Systems, Inc.100,000 common sharesJune 1995 -
- 2,000
Optimax Industries, Inc.115,191 common shares ***June 1994 138,229
18,004
287,978
20,000 common shares *** June 1994 -
-
50,000
12,500 warrants September 1993 -
- 9,375
138,229
18,004 347,353
Pacific Biometrics, Inc.7,500 common shares October 1996 -
- 23,438
7,500 warrants October 1996 -
- 1,406
-
- 24,844
Poore Brothers 4,000 common shares December 1996 -
- 14,250
Progress Software 1,000 common shares December 1996 -
- 19,750
Premium Cigars International, Inc.5,000 common shares ***August 199723,893
12,813 -
S&P 500 10 puts December 1997 550 July 1996 -
- 5,875
10 puts December 1997 550 August 1996 -
- 5,875
20 puts December 1997 550 September 1996 -
- 11,750
40 puts December 1997 600 December 1996 -
- 33,000
-
- 56,500
S2 Golf, Inc. 20,825 common shares July 1996 -
- 19,523
Shiva Corporation 2,630 common shares December 1996 -
22,519 91,098
Shopsmith 10,000 common shares September 1996 -
- 25,000
10,000 common shares October 1996 -
- 25,000
-
- 50,000
Southshore Corporation 7,400 common shares March 1994 -
- 3,700
10,000 common shares December 1995 -
- 5,000
15,000 common shares *** September 1997 7,715
3,750 -
7,715
3,750 8,700
Tampa Bay Corporation 10,000 common shares September 1996 -
- 13,750
5,000 common shares December 1996 -
- 6,785
-
-
20,535
TELS Corporation 20,000 common shares August 1996 12,813
6,250 9,376
10,000 common shares September 1996 5,938
3,125 4,688
18,750
9,375 14,064
Topro, Inc. 2,500 common shares September 1996 -
- 6,250
2,500 common shares November 1996 -
- 6,250
2,500 common shares December 1996 -
- 6,250
-
- 18,750
Usasurance Group 15,000 common shares July 1996 94,550
30,000 60,000
10,000 common shares September 1996 62,750
20,000 40,000
2,500 common shares October 1996 12,375
5,000 10,000
31,500 common shares December 1996 73,777
63,000 126,000
1,500 common shares December 1996 -
- 6,000
2,500 common shares January 1997 8,750
5,000 -
4,500 common shares June 1997 6,106
9,000 -
7,500 common shares December 1997 7,875
15,000 -
266,183
147,000
242,000
Whitewing Labs 20,000 common shares January 1997 31,350
15,000 -
Total Unrestricted Securities 836,678
365,774 1,558,418
Total Restricted and Unrestricted 1,813,369
1,725,831
1,841,093
Notes Receivable:
Columbine Home Sales, LLC*Note Receivable, 10%
due on demand December 1995 -
5,814 5,814
Damach Note Receivable, 12%
due on demand October 1996 32,500
32,500 32,500
Phil Georgeson Note Receivable, 12%
due on demand August 1996 4,602
4,602 15,090
Global Casinos, Inc.* Note Receivable, 8%
due 11/1/98 November 1996 175,000
175,000 175,000
Note Receivable, 9%
due on demand March 1997 43,904
43,904 -
Note Receivable, 24%
due 4/15/98 August 1997 75,000
75,000 -
293,904
293,904 175,000
Kinetiks.com Note Receivable, 10%
due on demand February 1997 25,000
25,000 -
Marchco Foods, Inc.* Note Receivable, 12%
due on demand January 1997 127,338
127,338 -
Navidec, Inc. Note Receivable, 10% October 1996 -
- 25,000
NECO Land Resources, LLC*Note Receivable, 8%
due on demand August 1996 -
- 10,000
Topro, Inc. Note Receivable, 12% September 1997 -
- 50,000
Subtotal Notes Receivable 483,344
489,158 313,404
Allowance for Doubtful Notes -
(31,000) -
Net Notes Receivable 483,344
458,158 313,404
Investments in Real Estate:
Chestnut Building Land & Building at
3515 N. Chestnut
Colorado Springs, Colorado September 1997 621,358
765,000 -
Hotel Investment Building at
116 E. Park St.
Thermopolis, Wyoming September 1997 200,000
200,000 -
Total Real Estate Investments 821,358
965,000 -
TOTAL INVESTMENTS $3,118,071
$3,148,989 $2,154,497
* These entities are considered to be affiliated companies as a result of the
Company's
investment and/or position on the entities' Board of Directors.
** After permanent write-downs.
*** These securities have been pledged as collateral on certain long-term debt
obligations.
(1) After giving effect to a 1:5 reverse split
(2) After giving effect to a 1:10 reverse split
(3) After giving effect to a 1:3 reverse split
(4) Restricted and unrestricted securities at December 31, 1996, have been
reclassified to
conform to the 1997 presentation. The total value of the securities
classified as restricted
and unrestricted at December 31, 1996 were as follows:
Restricted $964,166
Unrestricted 876,927
$1,841,093
See Notes to Financial Statements
<PAGE>
THE ROCKIES FUND, INC.
Statements of Operations
Years Ended December 31, 1997 and 1996
1997 1996
Investment income:
Rental (Note 2) $ 57,890 $ 170,434
Consulting and other services 10,822
5,809
Interest and dividends (Note 6) 52,955 30,248
121,667 206,491
Expenses:
Wages and salaries 141,817 170,762
Professional fees 79,579 139,207
Custodian fees (Note 6) - 9,109
Directors' fees 7,000 6,000
Interest 62,907 57,519
Travel and entertainment 45,959 15,365
Office 112,449 80,973
Building expenses 46,072 110,601
Investment expenses (Note 6) 25,076 43,679
Donations 15,080 1,965
535,939 635,180
Investment loss (414,272) (428,689)
Gain on sale of land and building (Note 2) 388,476 -
Net investment loss $ (25,796) $(428,689)
Realized and unrealized gain (loss)
from investments:
Net realized gain (loss) from
investments $ (51,374)
$1,667,196
Income tax expense (Note 4) - 118,000)
(51,374) 1,549,196
Net unrealized appreciation (depreciation) of investments
Beginning of year (20,322) 77,017
End of year 30,918 (20,322)
Net unrealized appreciation (depreciation) of investments
51,240 (97,339)
Net gain (loss)from investments $ (134) $1,451,857
Net increase (decrease) in net assets resulting from operations $
(25,930) $ 1,023,168
Basic per share amounts:
Net investment loss $ (0.04) $ (0.67)
Net realized gain (loss) from investments (0.08) 2.42
Net unrealized appreciation (deprecation) of investments
0.08 (0.15)
$ (0.04) $ 1 .60
Weighted average common shares outstanding 640,256 640,256
<PAGE>
THE ROCKIES FUND, INC.
Statements of Shareholders' Equity
Years Ended December 31, 1997 and 1996
Accumulated deficit
Accumulated
net
realized
gains
(losses)
Accumulated from sales
Unrealized net
Additional net and permanent
appreciation
Common paid-in investment write-
downs (depreciation) Net
stock capital loss of securities
of investments assets
Balances at January 1, 1996
$ 6,403 $2,901,243 $(1,464,614) $(212,485)
$ 77,017 $ 1,307,564
Net investment loss
(428,689)
(428,689)
Net realized gain on investments
1,549,196
1,549,196
Unrealized net depreciation
of investments
(97,339) (97,339)
Balances at December 31, 1996
6,403 2,901,243 (1,893,303) 1,336,711
(20,322) 2,330,732
Net investment loss
(25,796)
(25,796)
Net realized loss on investments
(51,374)
(51,374)
Unrealized net appreciation
of investments
51,240 51,240
Balances at December 31, 1997 $ 6,403 $2,901,243
$(1,919,099) $1,285,337
$ 30,918 $ 2,304,802
<PAGE>
THE ROCKIES FUND, INC.
Statements of Cash Flows
Years Ended December 31, 1997 and 1996
1997 1996
Cash flows from operating activities:
Net investment loss $(25,796) $(428,689)
Net realized (loss) gain from investments (51,374)1,549,196
(77,170) 1,120,507
Adjustments to reconcile net investment
loss and net realized (loss) gain from investments
to net cash used in operating activities:
Net realized (loss) gain from investments 51,374 (1,667,196)
Gain on sale of land and building (388,476) -
Depreciation expense 10,030 27,348
Decrease (increase) in operating assets:
Accrued interest receivable (40,256) (10,659)
Receivable from investees 22,510 38,446
Investment securities sold and other assets (63,702)(9,155)
Increase (decrease) in operating liabilities:
Payables (177,839) 237,606
Accrued liabilities (127,753) 138,551
Deposits and deferred rent 34,080 792
Net cash used in operating activities (757,202)(123,760)
Cash flows from investing activities:
Proceeds from sales of investments 2,313,477 4,567,702
Purchases of investments (2,188,031) (3,855,325)
Proceeds from sale of land and building1,080,000 1,000
Purchase of property (390,000) (3,414)
Capital expenditures - construction in progress (101,242)-
Net cash provided by investing activities 714,204 709,963
(continued)
<PAGE>
THE ROCKIES FUND, INC.
Statements of Cash Flows (Continued)
Years Ended December 31, 1997 and 1996
1997 1996
Cash flows from financing activities:
Increase (decrease) in cash overdraft 8,049 (8,653)
Proceeds from long-term debt - 96,022
Repayment of long-term debt (442,565) (175,361)
Net cash used in financing activities (434,516)(87,992)
Net increase (decrease) in cash (477,514) 498,211
Cash at beginning of year 499,404 1,193
Cash at end of year $21,890 $499,404
Supplemental disclosure of cash flows information:
Cash paid for interest $61,770 $ 69,671
Supplemental disclosures of noncash investing and financing activities:
During 1996, the Fund settled an $85,944 note payable, which entitled the
holder to convert the
note to 50% equity in the Fund's building. To cancel the note, the Fund gave
the note holder
40,321 shares of Redwood Broadcasting, Inc. common stock, 7,000 shares of Palo
Verde Group,
Inc. common stock, and a $93,000 promissory note payable. The transaction
resulted in
termination of the note holder's right to convert the note into equity in the
building. The
resultant cost to terminate the note holder's right of $74,537 was allocated to
the Fund's
building. The Fund subsequently reduced the $93,000 promissory note by
$35,876, in exchange
for 20,500 shares of Discovery Technologies, Inc. common stock.
During 1997, the Fund purchased a 20% interest in a Hotel Investment property
in exchange for a
$150,000 promissory note payable and $50,000 cash, the Fund purchased 250,000
shares of Redwood
Broadcasting, Inc. in exchange for a $300,000 note payable, and the Fund
purchased the Chestnut
Building investment in exchange for a $500,000 mortgage note payable and
$100,000 cash.
<PAGE>
THE ROCKIES FUND, INC.
Statements of Changes in Net Assets
Years Ended December 31, 1997 and 1996
1997 1996
Increase (decrease) in net assets
from investment activities:
Net investment loss $(25,796) $(428,689)
Net realized (loss) gain from investments
(net of income tax expense of $118,000
in 1996) (51,374) 1,549,196
Net unrealized appreciation (depreciation)
of investments 51,240 (97,339)
Net increase (decrease) in net assets from
investment activities (25,930) 1,023,168
Net assets at beginning of year 2,330,732 1,307,564
Net assets at end of year $2,304,802 $2,330,732
<PAGE>
THE ROCKIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
1. Organization and summary of significant accounting policies:
Organization:
The Rockies Fund, Inc. (the "Fund") was incorporated in Nevada on
August 2, 1983 for the principal purpose of making venture
capital investments in developing companies throughout the United
States. The Fund is registered under the Investment Company Act
of 1940, as amended, as a business development company. In order
to maintain its status as a business development company,
approximately seventy percent of the Fund's assets must be
comprised of venture capital investments.
The Fund currently makes investments in small public and private
companies, some of which are in the early stages of development
with little or no operating history, or more developed companies
that operate at losses or which experience substantial
fluctuations in operating results. These companies may also need
substantial capital to support expansion or to achieve or
maintain a competitive position. Such companies may face intense
competition and risk of product and technological obsolescence or
rapidly changing regulatory environments which could adversely
affect such companies' operations. These companies may have
insufficient cash flow to service their debt obligations,
including bridge loans made by the Fund. As a result, no
assurance can be provided that the Fund's investments will not
result in substantial or complete losses. The Fund's management
serves on the boards of directors of a number of its portfolio
companies. In 1997, the Fund also invested in commercial real
estate ventures located in Colorado and Wyoming.
A significant portion of the Fund's investments consists of
securities that are subject to restrictions on sale. Restricted
securities cannot be sold publicly without prior agreement with
the issuer to register these securities under the Securities Act
of 1933, as amended (the "Act"), or by selling such securities
under Rule 144 of the Act, or other rules under the Act which
permit only limited sales under specified conditions. The Fund's
ability to sell its investments in restricted securities may be
limited by, and subject to, the lack or limited nature of a
trading market for such securities. These limitations could
prevent or delay any sale of the Fund's securities or reduce the
amount of proceeds that might otherwise be realized. Restricted
securities generally sell at a price lower than similar
securities that are not subject to restrictions on sale. When
restricted securities are sold to the public, the Fund, under
certain circumstances, may be deemed an Underwriter or a
Controlling Person for the purposes of the Act, and be subject to
liabilities as such under the Act.
As shown in the accompanying financial statements, the Fund
incurred net investment losses in 1997 and 1996. The Fund may be
required to liquidate investments or obtain debt or equity
financing to fund operations in the future.
Investment valuation and transactions:
Securities listed or traded on an exchange are valued at their
last bid price on the exchange where the securities are
principally traded. Securities reported on the NASDAQ National
Market System are valued at the closing bid price on the
valuation date. Securities traded in the over-the-counter market
are valued at the last bid price, based upon quotes furnished by
independent market makers for such securities. Investments in
notes receivable are unsecured and are valued at net realizable
value. The Fund performs on-going evaluations regarding
collectibility of receivables and provides allowances for
potential losses.
In the absence of readily ascertainable market values,
investments in restricted securities without quoted market prices
are carried at estimated fair value as determined by the Fund's
Board of Directors (the "Board"). Due to the inherent
uncertainty of valuation, those estimated values may differ
significantly from the values that would have been used had a
ready market for the investments existed, and the differences
could be material. The estimated fair value of restricted
securities at December 31, 1997 and 1996 total approximately
$1,360,000 and $964,000, respectively. The estimated fair value
of restricted securities whose values have been estimated by the
Board in the absence of readily attainable market values is
approximately $256,000 and $30,000 at December 31, 1997 and
December 31, 1996, respectively.
Securities transactions are accounted for on a trade date basis.
Where possible, realized gains and losses on the sales of
investments are determined using the specific identification
method. If the specific identification method cannot be
utilized, realized gains and losses are determined using the
first-in, first-out method. Substantially all of the Fund's
investments are non-income producing.
In September 1997, the Fund purchased two commercial real estate
investments located in Colorado and Wyoming. At December 31,
1997, these investments are under contract for sale in 1998, and
are recorded at their estimated fair values, which is based on
the agreed-upon, respective sales prices of these properties
(Note 2).
Use of estimates:
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 revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
Recently issued accounting pronouncements:
The Financial Accounting Standard's Board recently issued
Statement of Financial Accounting Standard (SFAS) No.'s 130 and
131, "Reporting Comprehensive Income" and "Disclosures about
Segments of an Enterprise and Related Information," respectively.
Both of these statements are effective for fiscal years beginning
after December 15, 1997. SFAS No. 130 establishes requirements
for disclosure of comprehensive income which includes certain
items previously not included on the statement of operations
including minimum pension liability adjustments and foreign
currency translation adjustments, among others. Reclassification
of earlier financial statements for comparative purposes is
required. SFAS No. 131 revises existing standards for reporting
information about operating segments and requires the reporting
of selected information in interim financial reports. SFAS No.
131 also establishes standards for related disclosures about
products and services, geographic areas, and major customers.
Management believes that implementation of SFAS No. 130 and No.
131 will not materially impact the Fund's financial statements.
Financial instruments:
The carrying values of the Fund's financial instruments (other
than investments), including cash, receivables, payables,
accruals and non-related party debt approximates fair values
primarily due to the short maturities of these instruments and
based on borrowing rates that management believes are currently
available to the Fund for instruments with similar terms. The
fair values of the related party debt are not practicable to
estimate, due to the related party nature of the underlying
transactions.
Property and equipment:
Property and equipment is recorded at cost. Deprecation is
provided over the estimated useful lives of the assets using the
straight-line method as follows: furniture, fixtures, automobile
and equipment, 3 to 10 years; leasehold improvements, 6 to 8
years; building, 40 years. Assets under construction are not
depreciated until placed into service.
Management assesses the carrying value of long-lived assets for
impairment when circumstances warrant such a review, primarily by
considering available appraisal information and current and
projected income and annual cash flows on an undiscounted basis.
If management determines that an impairment has occurred, an
impairment loss is recognized based on the difference between the
assets' carrying values over the estimated fair values. Based on
management's review, the Fund does not believe that any long-
lived asset impairments occurred in 1997.
Earnings (loss) per share:
The Company adopted SFAS No. 128 during 1997. This statement
requires dual presentation of basic and diluted earnings per
share ("EPS") with a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. Basic EPS amounts
are based on the weighted average shares of common stock
outstanding. Diluted EPS reflects the potential dilution that
could occur if securities other than contracts to issue common
stock were exercised or converted into common stock or resulted
in the issuance of common stock that then shared in the earnings
of the entity. The Company had no potential common stock
instruments which would result in diluted EPS in 1997 and 1996.
The adoption of SFAS No. 128 did not impact previously reported
EPS.
Reclassifications:
Certain 1996 amounts have been reclassified to conform to the
1997 presentation.
<PAGE>
2. Real estate transactions:
Real estate operations:
Through March 31, 1997, the Fund owned a building and land
located in Colorado Springs, Colorado (the "Northpark Building").
The Fund occupied certain office space in this building and
leased the remaining space to other parties under leases expiring
through 2002. Effective March 31, 1997, the Fund sold the
Northpark Building, as well as building improvements net of
certain liabilities for $1,080,000. The Fund paid the related
mortgage and other liabilities of approximately $478,000 and
transferred the existing leases to the new building owner. The
Fund recognized a $388,000 gain on the transaction. The Fund is
currently leasing office space in the Northpark Building from the
new owner on a month-to-month basis. Lease expense for 1997 was
approximately $8,100.
On April 1, 1997, the Fund purchased five acres of undeveloped
commercial land, also located in Colorado Springs, Colorado (the
"Woodmen Property"), for $390,000. The Fund intends to develop
and build a commercial office building on this property. Through
December 31, 1997, the Fund incurred approximately $101,000 of
land development and building design costs, which are recorded as
construction in progress.
Real estate investments:
During 1997, the Fund purchased two real estate investments
located in Colorado and Wyoming. In September 1997, the Fund
purchased a 49,000 square foot commercial office building located
in Colorado Springs, Colorado (the "Chestnut Building") for
$100,000 cash and a $500,000 mortgage note payable. In December
1997, the Fund entered into an agreement to lease the Chestnut
Building to an unrelated party for $35,000 through August 1998,
at which time the party has agreed to purchase the building for
$775,000. The Fund received the $35,000 rent in 1997, which has
been recorded as deferred rent.
In September 1997, the Fund also purchased a 20% interest in a
40-room hotel located in Thermopolis, Wyoming (the "Hotel
Investment"), for $50,000 cash and a $150,000 promissory note
payable. The Hotel Investment was purchased from a party who is
a shareholder and board member of certain Fund investee
companies. In March 1998, the Fund entered into a contract to
sell the 20% interest back to this party for $200,000.<PAGE>
3. Long-term debt:
1997 1996
Related parties:
Note payable, interest at 8%, default interest at
12%, due through September 1998, collateralized
by the Hotel Investment $150,000 $-
Notes payable, interest at 7%-12%,
unsecured, due on demand 9,244 6,500
Note payable, non-interest bearing, paid in March
1998, collateralized by certain Fund investments in
securities 13,130
-
Total related parties 172,374 6,500
<PAGE>
3. Long-term debt (continued):
1997 1996
Others:
Line of credit, interest at prime plus 2%
(10.5% at December 31, 1997), due May 1998,
collateralized by certain Fund investments in
securities, $500 remaining credit available
at December 31, 1997 74,500 74,500
Line of credit, interest at prime plus 2%
(10.25% at December 31, 1996), collateralized
by the Northpark Building, paid March 31, 1997
in connection with the sale of Northpark Building -
100,000
Note payable, interest at 8%, principal and
interest due in monthly installments of $3,640,
due January 2007, collateralized by
certain Fund investments in securities 281,348 -
Mortgage note payable, interest at prime plus 1.25%
(9.75% at December 31, 1997), principal and
interest due in monthly installments of $4,790,
remaining principal and interest due August 2002,
collateralized by the Chestnut Building and an
assignment of rents 497,528
-
Mortgage note payable, interest at 8%, collateralized
by Northpark Building, paid March 31, 1997 in
connection with the sale of Northpark Building -
358,436
Note payable, interest at 8%,
unsecured, paid in March 1997 - 14,125
<PAGE>
3. Long-term debt (continued):
Others (continued):
Borrowings on margin accounts, variable interest rates
(8% and 9.5% at December 31, 1997), due on demand 121,494
24,609
Other long-term obligation 11,393 -
Total others 986,263
571,670
Total long-term debt 1,158,637 578,170
Less current maturities (899,106)
(262,821)
$ 259,531 $
315,349
Aggregate long-term debt maturities are as follows:
1998 $899,106
1999 23,629
2000 25,590
2001 27,715
2002 30,015
Thereafter 152,581
$ 1,158,636
The weighted average interest rate on all debt for 1997 and 1996
was 8.8%. Interest expense incurred on related party debt was
$5,362 and $3,567 in 1997 and 1996, respectively.
<PAGE>
4. Income taxes:
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to reverse. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
the statement of operations in the period that includes the
enactment date. Income tax expense (benefit) consists of the
following:
1997 1996
Current:
Federal $(94,000) $100,000
State (11,000) 18,000
(105,000) 118,000
Deferred
Federal 94,000 -
State 11,000 -
105,000 -
$ - $118,000
The reconciliation between the statutory federal expense
(benefit) and the effective tax is as follows:
1997 1996
Statutory federal income tax expense (benefit) (34%) $
(9,000) $388,000
State taxes, net of federal income tax benefit (1,000)
37,000
Net operating losses not utilized (utilized) 10,000
(315,000)
Alternative minimum tax - 8,000
Income tax expense $ - $118,000 <PAGE>
4. Income taxes (continued):
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 1997 and 1996 are as follows:
1997 1996
Deferred tax assets:
Net operating loss carryforwards $58,000 $ -
Investments, unrealized net losses 9,575
Less valuation allowance (9,575)
Net deferred tax assets 58,000 -
Deferred tax liabilities:
Investments, unrealized net gains (13,000) -
Property and equipment, deferred gain
(150,000) -
Gross deferred tax liabilities (163,000) -
Net deferred tax liabilities $(105,000) $ -
At December 31, 1997, the Fund has approximately $150,000 of net
operating loss carry forwards which expire through 2012.
5. Commitments and contingencies:
Securities and Exchange Commission investigation:
Beginning in 1994, the United States Securities and Exchange
Commission (the :"SEC") began an investigation into certain
matters, including the administrative and record keeping
practices of the Fund, its securities trading activities and
those of one of its officers.
In September 1996, the Fund received notification from the SEC
that the SEC staff was planning to recommend that an enforcement
action be brought against the Fund, its president, and each of
its directors for certain alleged violations of federal
securities laws. In July 1997, the Fund received notification
that the SEC was planning to recommend an enforcement action
against the Fund's President for certain additional alleged
violations of SEC laws.
The SEC invited the Fund and the Fund's president to make
submissions setting forth the position and arguments of the Fund
and the Fund's president regarding the SEC staff's planned
recommendation. The Fund did so in October 1996, and at the
SEC's request, the Fund supplemented its submission in December
1996. The Fund's president also did so in August 1997. The Fund
has not received a response to the
submissions and has not been advised of any timetable for the SEC
staff to make its final determination about whether to recommend
an enforcement action. Management is unable to predict, with any
certainty, the outcome of the investigation, or the ultimate
effect on the Fund.
Employee benefits:
The Fund maintains a salary-deferred, simplified employee pension
plan. Employer contributions are discretionary, and there were
no employer contributions in 1997 and 1996.
Consulting agreement:
In October 1996, the Fund entered into an agreement with a former
officer of the Fund, whereby the former officer provided
consulting services for $1,000 a month. The agreement was
terminated in 1997. Consulting expense for 1997 and 1996 was
$12,000 and $2,000, respectively.
6. Transactions with investees and related parties:
Receivables from investees represent reimbursable expenses
totaling $562 and $23,072 at December 1997 and 1996,
respectively.
The Fund utilizes a brokerage and trust company as primary
custodian of its securities. This company is also the majority
shareholder of the Fund. Custodial fees incurred in 1997 and
1996 were $13,234 and $8,900, respectively, and at December 31,
1996, the Fund has a payable due to this affiliate, for
investment securities purchased, of approximately $153,566. As
of December 31, 1997, the Fund has a receivable due from this
affiliate for investment securities sold of $4,959.<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The present term of office of each director will expire at the
next annual meeting of shareholders. The name, position with the
Fund, and age of each director and officer are as follows:
Officer/
Director
Name Age TitleSince
Stephen G. Calandrella 37 President,1991
Chief Executive Officer,
and Director
Charles C. Powell 44 Director1991
Clifford C. Thygesen 63 Director1991
Barbara A. Hamstad 32 Chief Accounting Officer1996
and Treasurer
Windy D. Haddad 25 Chief Administrative Officer1996
and Secretary
Stephen G. Calandrella, President and Director. Mr. Calandrella
has been President and a Director of The Rockies Fund, Inc. since
February, 1991, and Chief Executive Officer since January 30, 1994.
Mr. Calandrella has previously served as a Director of Kelly Motors,
Ltd., Good Times Restaurants, Inc., Southshore Corp., and Cogenco
International, Inc. Mr. Calandrella also served as a Director for
Combined Penny Stock Fund, Inc. and Redwood MicroCap Fund, Inc., both
of which are closed-end investment companies registered under the
Investment Company Act of 1940. Mr. Calandrella currently serves as
Interim President and a member of the Board of Directors of Global
Casinos, Inc., a publicly-held company engaged in the ownership and
operation of domestic and international casinos and limited stakes
gaming properties; and as a Director of Optimax Industries, Inc., a
NASDAQ listed holding company; American Educational Products, a
NASDAQ listed supplier of childrens' learning tools; and Guardian
Technologies, a NASDAQ listed maker of bullet proof vests; and Gold
Capital Corporation, a publicly traded mining company. Mr.
Calandrella has also engaged in financing and consulting activities
for development stage companies, which consist of advising public and
private companies on capital formation methods, enhancing shareholder
valuations, mergers, acquisitions and corporate restructuring, as well
as arranging for bridge loans and equity purchases.
Charles M. Powell, Director. Mr. Powell is currently President
and Director of Antalys Corporation, a wholly owned subsidiary of Baan
Company. From 1992 to 1996, Mr. Powell was Vice-President of Finance
for KaPre Software. From March 1992 to June 1993, Mr. Powell was CEO
of Generation 5 Technologies, Inc. From January 1989 to March 1992,
he was Director of International Operations at J.D. Edwards & Company,
a software company that develops and distributes general business
application financial software. From September to December, 1988, Mr.
Powell was employed by the company to provide assistance in financial
and operation areas. From April 1988 to June 1989, Mr. Powell was
President of Sheridan Securities, Inc., an investment banking firm.
From January 1987 to March 1988 he was international sales manager for
Columbine Systems, a software development Fund for the broadcast
industry. From January 1985 to December 1986, he was employed by
Aweida Systems engaged in the business of distributing company
products, first as Chief Financial Officer and subsequently as Vice
President of Marketing. From February 1979 to December 1985, he was
employed by Storage Technology, Inc., engaged in the business of
manufacturing computer storage devices in a variety of capacities,
with his last position being that of Vice President of Financial
Marketing. Mr. Powell graduated from the University of Colorado with
a Bachelor of Science degree in accounting and finance in 1976 and he
received his license as a Certified Public Accountant in 1976. Mr.
Powell currently serves as a Director for The Rockies Fund,
Kinetics.com, and International Nursing.
Clifford C. Thygesen, Director. Mr. Thygesen has been a director
of the Fund since February, 1991. Mr. Thygesen has also been a
Director of American Educational Products, Inc. since 1986, and
President since January, 1996. American Education Products is a
publicly traded company involved in the manufacture and distribution
of educational products, with principal offices in Boulder, Colorado.
Mr. Thygesen is also a current Director of Wall Street Racing Stables,
a publicly-traded company involved in the ownership, racing and
breeding of thoroughbred horses. Mr. Thygesen is also a partner in
two land development firms located on Colorado Springs and Fleming,
Colorado and a Director of Usasurance Group. From 1971 to 1973, Mr.
Thygesen was Vice-President of Operations for the Ithaca Gun Company
of Ithaca, New York, a manufacturer of high quality firearms. From
1973 to 1976, Mr. Thygesen served as President of Alpine Designs
Corporation, a company which produces backpacking equipment, ski wear
and hunting apparel. From 1977 to 1981, he served as Vice-President
of Manufacturing for Pure Cycle Corporation, a company that designed
water recycling systems for residential use. From 1981 until
February, 1988, Mr. Thygesen was President, Chief Operating Officer
and a Director of Tri Coast Environmental Corporation, formerly
Colorado Venture Capital Corporation. He received his B.S. degree in
Industrial Administration from the University of Illinois in 1961.
Barbara A. Hamstad, Mrs. Hamstad has served as Internal
Accountant for The Rockies Fund, Inc. since September of 1993 and as
Chief Accounting Officer and Treasurer since September, 1996. Mrs.
Hamstad also serves as Secretary and Director for Marco Foods, Inc., a
small public shell actively trading in the stock market. Prior to
Mrs. Hamstad's accounting positions she worked as a Vendor Cost
Analyst for Raytheon in Santa Barbara, California. From January,
1989, through June, 1992, she analyzed vendor cost proposals for
subcontracted components, conducted on-site evaluations of
subcontractors, and developed price recommendations based on detailed
analyses of cost structure. From June 1987 through August 1988, she
worked as a Financial Assistant at IDS Financial Services in San Luis
Opisbo, California. Mrs. Hamstad graduated from California
Polytechnic State University, San Luis Obispo, CA, with a bachelor's
degree in Business Administration, concentrating in Financial
Management.
Windy D. Haddad, has worked for The Rockies Fund, Inc. since
August 9, 1993 and has served as Chief Administrative Officer since
October 1, 1995 and as Corporate Secretary since September 1, 1996.
Ms. Haddad currently serves as Corporate Secretary of Global Casinos,
Inc., a NASDAQ listed gambling company. She also serves as Vice
President, Secretary and Director of Land Resources Corporation, a
real estate development Fund with operations in Flemming, Colorado,
and as a Director of Lone Oak Vineyards a 40 acre vineyard property in
Napa Valley, California. Ms. Haddad graduated from Colorado College
in 1993, earning her Bachelor of Arts Degree in Economics.
There are no material proceedings to which any director, officer
or affiliate of the Fund, or any owner of record or beneficially of
more than five percent (5%) of any class of voting securities of the
Fund, or any associate of any such director, officer, affiliate of the
Fund, or security holder is a party adverse to the Fund or any of its
subsidiaries or has a material interest adverse to the Fund or any of
its subsidiaries.
During the last five (5) years except as set forth herein no
director or officer of the Fund has:
(1) had any bankruptcy petition filed by or against any business
of which such person was a general partner or executive
officer either at the time of the bankruptcy or within two
years prior to that time;
(2) been convicted in a criminal proceeding or subject to a
pending criminal proceeding;
(3) been subject to any order, judgment, or decree, not
subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily
enjoining, barring, suspending or otherwise limiting his
involvement in any type of business, securities or banking
activities; or
(4) been found by a court of competent jurisdiction in a civil
action, the Commission or the Commodity Futures Trading
Commission to have violated a federal or state securities or
commodities law, and the judgment has not been reversed,
suspended, or vacated.
Mr. Calandrella serves as Interim President of Global Casinos,
Inc., a portfolio and affiliated company. During 1995, Global
Casinos, Inc. caused one of its wholly-owned subsidiaries, Casinos
USA, Inc. to file a voluntary petition for reorganization under
Chapter 11 of the United States Bankruptcy Code. In December 1996,
the United States Bankruptcy Court for the District of Colorado
entered an order confirming a plan of the organization for Casinos
USA, Inc.
There currently exists no arrangement or understanding between
any executive officer and between any other person pursuant to which
any person is to be selected as an executive officer. No family
relationships exist between any current or prospective executive
officer or director.
Each director of the Fund who is not also an officer is paid the
sum of $1,000 for each director's meeting attended by such director.
All directors are reimbursed for expenses associated with attendance
at Board of Directors meetings of the Fund. Other than the foregoing,
no director receives any additional compensation or remuneration as a
member of the Fund's Board of Directors.
Each Director is elected to serve a term of one (1) year and is
elected annually at the regular annual meeting of the Fund's
stockholders. Each executive officer is elected annually at the first
meeting of the Fund's Board of Directors held immediately following
each annual meeting of shareholders. Each executive officer holds
office until his successor is duly elected and qualified or until his
resignation or until he has been removed in the manner provided by
Fund's By-laws.
No Director has resigned or declined to stand for reelection to
the Board of Directors since the date of the last annual meeting of
the Fund's stockholders due to any disagreement with the Fund on any
matter relating to the Fund's operations, policies or practices.
During the fiscal year ended December 31, 1997, the Fund had four
(4) directors meetings which were attended in person by all of the
Fund's directors. The Fund does not have a standing audit, nominating
or compensation committee of the Board of Directors, or committees
performing similar functions.
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Under the Securities Laws of the United States, the Fund's
Directors, its Executive (and certain other) officers, and any persons
holding more than ten percent (10%) of the Fund's common stock are
required to report their ownership of the Fund's common stock and any
changes in that ownership to the Securities and Exchange Commission
and the NASDAQ stock market. Specific due dates for these reports
have been established and the Fund is required to report in this
Report any failure to file. Based upon information provided to the
Company, all of these filing requirements were satisfied by its
Officers and Directors and ten percent holders as of December 31,
1997.
ITEM 11. EXECUTIVE COMPENSATION
The following tables and discussion set forth information with
respect to all plan and non-plan compensation awarded to, earned by or
paid to the Chief Executive Officer ("CEO"), and the Fund's three (3)
most highly compensated executive officers other than the CEO, for all
services rendered in all capacities to the Fund and its subsidiaries
for each of the Fund's last three (3) completed fiscal years;
provided, however, that no disclosure has been made for any executive
officer, other than the CEO, whose total annual salary and bonus does
not exceed $100,000.
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
Other
Name Annual Restricted
and Compen- Stock LTIP All Other
Principal Salary Bonus sationAward(s) Options/Payouts
Compensa-
Position Year ($) ($) ($) ($) SARs(#) ($) tion ($)
1997 $48,000 -0- -0- $-0- -0- -0- -0-
Stephen G.
Calandrella, 1996 $48,000 -0- -0-$-0- -0- -0- -0-
President
1995 $48,000 -0- -0- $-0- -0- -0- -0-
No other executive officer of the Fund received compensation
during the years ended December 31, 1997, 1996 or 1995, in excess of
$100,000.
All officers and employees of the Fund are eligible to
participate in the Fund's group health and dental insurance plan. The
Fund also provides a Salary Deferred Simplified Employee Pension Plan
(SAR-SEP) adopted since September, 1994. There has been no employer
contribution made to the Plan since inception, nor does the Fund incur
any administrative fees associated with this Plan. The Fund currently
has one (3 year) employment agreement written to an executive officer,
Ms. Windy D. Haddad, effective October 1, 1995. In 1996, the Fund
issued two cash bonuses to its employees, Mrs. Barbara Hamstad and Ms.
Windy Haddad.
Mr. John R. Overturf, Jr. resigned as Vice President of The
Rockies Fund Inc, effective August 28, 1996 and he signed a Consultant
Agreement with The Rockies Fund, Inc., effective October 1, 1996, as a
consultant for the Fund's Chestnut Building and other real estate
transactions at $1,000 per month and subject to a 30 day cancellation
by either party in writing. Mr. Craig T. Rogers resigned as Chief
Operating Officer and Secretary, effective October 1, 1996.<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth as of December 31, 1997, the
number of shares of the Fund's common stock owned by each person who
owned of record, or was known to own beneficially, more than five
percent (5%) of the Fund's outstanding shares of common stock, sets
forth the number of shares of the Fund's outstanding common stock
beneficially owned by each of the Fund's current directors and
officers and sets forth the number of shares of the Fund's common
stock beneficially owned by all of the Fund's current directors and
officers as a group:
Title of Name and Address Amount and Nature
Percent
Class of Beneficial Owner of Beneficial Ownership(1)
of Class
______________________________________________________________________
___________
Common D.A Davidson & Co.(2) 233,367
36.4%
Stock 8 Third Street, North
Great Falls, Montana 59401
Common Stephen G. Calandrella(3) 234,000
36.5%
Stock
Common Charles C. Powell -0-
0.0%
Stock
Common Clifford C. Thygesen 2,000
0.3%
Stock
Common Barbara A. Hamstad 1,500
0.2%
Stock
Common Windy D. Haddad 1,500
0.2%
Stock
Common All Officers and 239,000
37.3%
Stock Directors as a
Group (5 Persons)
1. Beneficial Owners listed have sole voting and investment power
with respect to the shares unless otherwise indicated.
2. Voting and investment power with respect to securities held by
D.A. Davidson & Company is exercised by its Board of Directors.
3. Includes 12,500 shares of common stock held by Aztec Capital
Corp. of which Mr. Calandrella is officer, director and majority
shareholder.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Notes payable to related parties at December 31, 1997 include
$6,500 payable to a related party of the Fund's President, which note
is unsecured, carries interest at the rate of twelve percent (12%) per
annum, and is due upon demand.
The Fund currently holds a 5% ownership interest in Bear Star,
LLC., formerly a wholly owned subsidiary of Columbine Home Sales,
LLC., and therefore Bear Star, LLC. would be considered to be an
affiliated company as a result of the Fund's ownership during 1996.
As a result of the Fund's investment during 1997 and/or position
on the entity's Board of Directors, the Fund would, at various times
during fiscal 1997, be considered to have been an affiliate of
American Educational Products, Inc., Guardian Technologies, Inc.,
Global Casinos, Inc., Optimax Industries, Inc., Southshore
Corporation, Cova Technologies, Kinetiks.com and Neco Land Resources,
LLC.
On October 1, 1995, Mr. Calandrella, the Fund's President and
Director, was elected to serve as Interim President of Global Casinos,
Inc., a portfolio company and affiliate of the Fund. In consideration
of his services as Interim President of Global Casinos, Inc., Mr.
Calandrella received 9,000 shares in 1996 and has also been granted
Incentive Stock Options under the Global Casinos, Inc. Stock Incentive
Plan, exercisable to purchase, in the aggregate, 15,000 shares of
common stock at an exercise price of $5.00 per share. Of those
Incentive Stock Options, 5,000 are fully vested, and the remaining
10,000 Incentive Stock Options vest ratably over two (2) years,
subject to Mr. Calandrella's continuing to serve as an executive
officer or key employee of Global Casinos, Inc. As of March 15, 1997,
Mr. Calandrella has continued to serve as Interim President of Global
Casinos.
Mr. Calandrella also serves as a member of the Board of Directors
of Global Casinos, Inc. In consideration of his services as a
director of Global Casinos, Inc., Mr. Calandrella has been granted
Non-Qualified Stock Options exercisable to purchase, in the aggregate,
an additional 15,000 shares of common stock at an exercise price of
$5.00 per share, of which 5,000 Non-Qualified Stock Options are fully
vested, and the remaining 10,000 Non-Qualified Stock Options vest
ratably over two (2) years, subject to Mr. Calandrella's continuing to
serve as a director of that Fund.
There exists no arrangement or agreement whereby the Fund has any
direct or indirect beneficial interest or pecuniary interest in any of
the securities or other compensation issued to Mr. Calandrella in
consideration of his services as an executive officer or director of
Global Casinos, Inc.<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.
a. 1. Financial Statements.
Independent Auditors' Report;
Statements of Assets and Liabilities - December 31,
1997 and 1996;
Schedules of Investments - December 31, 1997 and 1996;
Statements of Operations - Years Ended December 31,
1997 and 1996;
Statements of Stockholders' Equity - Years Ended
December 31, 1997 and 1996;
Statements of Cash Flows - Years Ended December 31,
1997 and 1996;
Statements of Changes in Net Assets - Years Ended
December 31, 1997 and 1996;
Notes to Financial Statements - December 31, 1997 and
1996
2. Financial Statement Schedules.
All schedules for which provision is made in the
applicable accounting regulations of Article 12 of Regulation S-X of
the Securities and Exchange commission have been omitted because
either (I) such schedules are not required under the related
instructions, (ii) the required information is not present or is not
in amounts sufficient to require submission of the schedule, or (iii)
the information required is included in the Financial Statements and
Notes thereto.
b. Current Reports on Form 8-K.
No current reports on Form 8-K were filed during the quarter
ended December 31, 1997.
c. Exhibits.
The following Exhibits are filed pursuant to Item 601 of
Regulation S-K:
Exhibit No. Title
3 Articles of Incorporation incorporated by
reference to Registration Statement on Form N-
2, No. 2-86057.
3(a) Certificate of Amendment to Articles of
Incorporation dated June 2, 1988, incorporated
by reference to Form 10-K for the fiscal year
ended December 31, 1988.
3(b) Bylaws, as amended March 16, 1988, incorporated
by reference to Form 10-K for the fiscal year
ended December 31, 1987.
10(a) Investment Advisory Agreement dated August 23,
1983, between Registrant and Galbreath
Financial Services Corporation incorporated by
reference to Registration Statement on Form N-
2, No. 2-86057.
10(b) Management Agreement dated August 23, 1983,
between Registrant and Galbreath Financial
Services corporation incorporated by reference
to Registration Statement on Form N-2, No. 2-
86057.
10(c) Agreement Concerning the Change in Management
incorporated by reference to Exhibit A to the
Fund's Notification Pursuant to Rule 14f-1.
10(d) Subscription Agreement incorporated by
reference to Exhibit A to the Fund's
Notification Pursuant to Rule 14f-1.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
annual report to be signed on its behalf by the undersigned, thereunto
duly authorized.
ROCKIES FUND, INC.
Date: By:
Stephen G. Calandrella, President
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 Registrant and in the capacities and on the dates
indicated.
Signature Position Date
President, Director
Stephen G. Calandrella Chief Executive Officer
Director
Charles M. Powell
Director
Clifford C. Thygesen
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
annual report to be signed on its behalf by the undersigned, thereunto
duly authorized.
ROCKIES FUND, INC.
Date: 4/15/98 By: /s/ Stephen G. Calandrella
Stephen G. Calandrella, President
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 Registrant and in the capacities and on the dates
indicated.
Signature Position Date
/s/ Stephen G. Calandrella President, Director
4/15/98
Stephen G. Calandrella Chief Executive Officer
/s/ Charles M. Powell Director 4/15/98
Charles M. Powell
/s/ Clifford C. Thygesen Director 4/15/98
Clifford C. Thygesen
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 3,118,071
<INVESTMENTS-AT-VALUE> 3,148,989
<RECEIVABLES> 53,607
<ASSETS-OTHER> 15,809
<OTHER-ITEMS-ASSETS> 595,261
<TOTAL-ASSETS> 3,813,666
<PAYABLE-FOR-SECURITIES> 125,120
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<TOTAL-LIABILITIES> 1,508,864
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