SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
__________________
FOR QUARTER ENDED DECEMBER 31, 2002
COMMISSION FILE NO. 0-30689
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ROCKY MOUNTAIN ENERGY CORPORATION
(Exact name of registrant as specified in charter)
NEVADA 90-0031918
- --------------------------------------------------------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation)
333 NORTH SAM HOUSTON PARKWAY E., SUITE 910
HOUSTON, TEXAS 77060
- --------------------------------------------------------------------------------
(Address of principal (Postal Code)
executive offices)
Registrant's telephone number, including area code: (281) 448-6500
--------------
EMISSION CONTROL DEVICES, INC.
------------------------------
(Former Name, Former Address and Former
Fiscal Year, if Changed Since Last Report)
As of January 31, 2002 there were 61,690,604 shares of the common stock, $0.001
---------------- ----------
par value, of the registrant issued and outstanding.
Transitional Small Business Disclosure Format (check one)
YES NO X
--- ---
ROCKY MOUNTAIN ENERGY CORPORATION
(FORMERLY KNOWN AS EMISSIONS CONTROL DEVICES, INC.)
(A DEVELOPMENT STAGE COMPANY)
FEBRUARY 14, 2003
INDEX
PART I. FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Statements............................................. 2
------
Item 2. Management's Discussion and Analysis and Plan of Operation....... 13
------
PART II. OTHER INFORMATION
SIGNATURES................................................................... 23
i
ROCKY MOUNTAIN ENERGY CORPORATION
FORM 10-QSB
DECEMBER 31, 2002
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ROCKY MOUNTAIN ENERGY CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
__________
UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2002
ROCKY MOUNTAIN ENERGY CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
TABLE OF CONTENTS
__________
PAGE
----
Unaudited Consolidated Condensed Financial Statements:
Consolidated Condensed Balance Sheet as of September 30,
2002 and December 31, 2002 (Unaudited) 4
Unaudited Consolidated Condensed Statement of Operations
for the three months ended December 31, 2002 and for the
period from inception, May 10, 2002, to December 31, 2002 5
Unaudited Consolidated Condensed Statement of Stockholders'
Deficit for the three months ended December 31, 2002 6
Unaudited Consolidated Condensed Statement of Cash Flows
for the three months ended December 31, 2002 and
for the period from inception, May 10, 2002, to
December 31, 2002 7
Notes to Unaudited Consolidated Condensed Financial Statements. 8
Page 3 of 27
ROCKY MOUNTAIN ENERGY CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
CONSOLIDATED CONDENSED BALANCE SHEETS
DECEMBER 31, 2002 AND SEPTEMBER 30, 2002
__________
DECEMBER 31, SEPTEMBER 30,
2002 2002
ASSETS (UNAUDITED) (NOTE)
------ -------------- ---------------
Current assets $ - $ -
-------------- ---------------
Property and equipment
Oil and gas properties 175,000 -
Office furniture and fixtures 3,749 3,749
Office equipment under capital leases 52,114 52,114
-------------- ---------------
230,863 55,863
Less accumulated depreciation and amortization (7,138) (3,677)
-------------- ---------------
Net property and equipment 223,725 52,186
Deferred loan costs 19,000 -
Lease deposits 4,225 4,225
-------------- ---------------
Total assets $ 246,950 $ 56,411
============== ===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------
Current liabilities:
Note payable $ 100,000 $ 100,000
Book overdraft 4,481 445
Notes payable to stockholders 173,231 35,131
Capital lease obligation 52,114 52,114
Accounts payable and accrued liabilities 486,772 315,509
-------------- ---------------
Total current liabilities 816,598 503,199
-------------- ---------------
Commitments and contingencies
Stockholders' deficit:
Common stock: $.001 par value; 200,000,000 shares
authorized, 54,989,735 and 57,983,061 issued and
26,546,323 and 24,747,373 outstanding at December 31,
2002 and September 30, 2002, respectively 26,546 24,747
Additional paid-in capital 948,496 725,384
Unissued common stock 100,000 100,000
Deferred compensation (159,667) (222,167)
Losses accumulated in the development stage (1,485,023) (1,074,752)
-------------- ---------------
Total stockholders' deficit (569,648) (446,788)
-------------- ---------------
Total liabilities and stockholders' deficit $ 246,950 $ 56,411
============== ===============
<FN>
Note: The balance sheet at September 30, 2002 has been derived from the audited financial
statements at that date but does not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
The accompanying notes are an integral part of these
unaudited consolidated condensed financial statements.
Page 4 of 27
ROCKY MOUNTAIN ENERGY CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2002 AND FOR
THE PERIOD FROM INCEPTION, MAY 10, 2002, TO DECEMBER 31, 2002
__________
THREE MONTHS
ENDED INCEPTION TO
DECEMBER 31, DECEMBER 31,
2002 2002
-------------- --------------
Costs and expenses:
General and administrative $ 401,027 $ 920,611
Depreciation and amortization 3,461 7,138
Loss from unsuccessful acquisitions - 82,875
Loss from unfunded loan agreement - 310,000
Recapitalization costs - 153,897
Interest expense 5,783 10,502
-------------- --------------
Net loss $ (410,271) $ (1,485,023)
============== ==============
Basic and diluted net loss per common share $ (0.02)
==============
Weighted average common shares 25,646,873
==============
The accompanying notes are an integral part of these
unaudited consolidated condensed financial statements.
Page 5 of 27
ROCKY MOUNTAIN ENERGY CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE THREE MONTHS ENDED DECEMBER 31, 2002
__________
Additional Unissued
COMMON STOCK PAID-IN COMMON DEFERRED ACCUMULATED
SHARES AMOUNT CAPITAL STOCK COMPENSATION DEFICIT TOTAL
----------- -------- --------- -------- -------------- ------------ ----------
Balance at September 30, 2002 24,747,373 $24,747 $725,384 $100,000 $ (222,167) $(1,074,752) $(446,788)
Stock issued for services 1,350,000 1,350 46,500 - - - 47,850
Acquisition of interest in Stratus
Energy, LLC 1,000,000 1,000 174,000 - - - 175,000
Ten percent stock dividend to
Stockholders of record on
November 27, 2002 2,322,398 2,322 (2,322) - - - -
Shares cancelled (2,873,398) (2,873) 2,873 - - - -
Interest on loans from
stockholders - - 2,061 - - - 2,061
Amortization of deferred
compensation - - - - 62,500 - 62,500
Net loss - - - - - (410,271) (410,271)
----------- -------- --------- -------- -------------- ------------ ----------
Balance at December 31, 2002 26,546,373 $26,546 $948,496 $100,000 $ (159,667) $(1,485,023) $(569,648)
=========== ======== ========= ======== ============== ============ ==========
The accompanying notes are an integral part of these
unaudited consolidated condensed financial statements.
Page 6 of 27
ROCKY MOUNTAIN ENERGY CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2002 AND FOR
THE PERIOD FROM INCEPTION, MAY 10, 2002, TO DECEMBER 31, 2002
__________
THREE MONTHS
ENDED INCEPTION TO
DECEMBER 31, DECEMBER 31,
2002 2002
-------------- --------------
Cash flows from operating activities:
Net loss $ (410,271) $ (1,485,023)
Adjustments to reconcile net loss to net cash
used in operating activities 291,171 1,267,415
-------------- --------------
Net cash required by operating activities (119,100) (217,608)
-------------- --------------
Cash flows from investing activities:
Purchase of office furniture and fixtures - (3,749)
Acquisition costs - (82,874)
-------------- --------------
Net cash required by investing activities - (86,623)
-------------- --------------
Cash flows from financing activities:
Proceeds from notes payable - 100,000
Payment of loan costs (19,000) (119,000)
Proceeds from notes payable to stockholders 138,100 173,231
Proceeds from sale of common stock - 150,000
-------------- --------------
Net cash provided by financing activities 119,100 304,231
-------------- --------------
Net increase (decrease) in cash and cash equivalents - -
Cash and cash equivalents at beginning of year - -
-------------- --------------
Cash and cash equivalents at end of year $ - $ -
============== ==============
Non-Cash Investing and Financing Activities
Acquired interest in Stratus Energy, LLC in
exchange for 1,000,000 shares of the Company's
common stock $ 175,000 $ 175,000
Acquired office equipment under capital
lease obligations - 52,114
The accompanying notes are an integral part of these
unaudited consolidated condensed financial statements.
Page 7 of 27
ROCKY MOUNTAIN ENERGY CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
__________
1. ORGANIZATION AND CRITICAL ACCOUNTING POLICIES
----------------------------------------------
ORGANIZATION
------------
Rocky Mountain Energy Corporation (the 'Company") is a corporation in the
development stage that was formed to acquire and develop oil and gas
properties. The Company was originally incorporated in Texas on May 10,
2002, as Cavallo Energy Corporation but was merged with a non-operating
public shell company, Emission Control Devices, Inc., on May 29, 2002. The
merger transaction (the "Transaction") was treated as a recepitalization
because just prior to the Transaction , Emission Control Devices, Inc. had
no significant assets or liabilities. Emission Control Devices, Inc.
adopted a name change to Rocky Mountain Energy Corporation and remains the
legal reporting entity. Cavallo Energy Corporation is considered the
acquiror in the Transaction for financial reporting purposes and the
accompanying financial statements include the historical operations of
Cavallo Energy Corporation since its inception.
The legal reporting entity, Rocky Mountain Energy Corporation was
originally incorporated in the state of Colorado on May 16, 1985 as
Mountain Ashe, Inc. On September 23, 1987 the Company adopted a name change
to Holographic Systems, Inc. and re-incorporated in the state of Nevada. On
January 22, 2001, the Company's name was again changed to Emission Control
Devices, Inc. as part of a recapitalization involving a North Carolina
corporation of the same name. Finally, on May 30, 2002, in connection with
the Transaction, the Company adopted the name Rocky Mountain Energy
Corporation.
GENERAL
-------
The unaudited consolidated condensed financial statements included herein
have been prepared without audit pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted, pursuant to such rules and regulations. These
unaudited consolidated condensed financial statements should be read in
conjunction with the audited consolidated financial statements and notes
thereto of Rocky Mountain Energy Corporation(the "Company") included in the
Company's Annual Report on Form 10-KSB for the year ended September 30,
2002.
In the opinion of management, the unaudited consolidated condensed
financial information included herein reflect all adjustments, consisting
only of normal, recurring adjustments, which are necessary for a fair
presentation of the Company's financial position, results of operations and
cash flows for the interim periods presented. The results of operations for
the interim period presented herein is not necessarily indicative of the
results to be expected for a full year or any other interim period.
DEVELOPMENT STAGE ENTERPRISE
----------------------------
The Company reports as a development stage enterprise because, since its
inception, substantially all efforts by management have been directed in
the areas of financial planning, capital raising and identification of oil
and gas properties for acquisition.
Page 8 of 27
ROCKY MOUNTAIN ENERGY CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
__________
1. ORGANIZATION AND CRITICAL ACCOUNTING POLICIES, CONTINUED
--------------------------------------------------------
ACCOUNTING ESTIMATES
---------------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements
and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates. Currently, these
estimates mainly involve the useful lives of property and equipment and the
valuation of common stock issued for compensation or other reasons.
OIL AND GAS PRODUCING ACTIVITIES
------------------------------------
The Company uses the full cost method of accounting for its investment in
oil and gas properties. Under this method, the Company capitalizes all
acquisition, exploration and development costs incurred for the purpose of
finding oil and gas reserves, including salaries, benefits and other
internal costs directly attributable to these activities. Costs, however,
associated with production and general corporate activities are expensed in
the period incurred. Interest costs related to unproved properties and
properties under development are also capitalized to oil and gas
properties. Unless a significant portion of the Company's proved reserve
quantities are sold (greater than 25 percent), proceeds from the sale of
oil and gas properties are accounted for as a reduction to capitalized
costs, and gains and losses are not recognized.
The Company will compute the depreciation, depletion and amortization
("DD&A") of oil and gas properties on a quarterly basis using the
unit-of-production method based upon production and estimates of proved
reserve quantities. Unproved properties will be excluded from the
amortizable base until evaluated. Future development costs and
dismantlement, restoration and abandonment costs, net of estimated salvage
values, will be added to the amortizable base. These future costs, when
incurred, will be estimated by engineers employed by the Company.
The Company will limit the capitalized costs of proved oil and gas
properties, net of accumulated DD&A and deferred income taxes, to the
estimated future net cash flows from proved oil and gas reserves discounted
at 10 percent, net of related tax effects, plus the lower of cost or fair
value of unproved properties included in the costs being amortized. If
capitalized costs exceed this limit, the excess will be charged to
additional DD&A expense.
Given the volatility of oil and gas prices, it is reasonably possible that
estimates of discounted future net cash flows from proved oil and gas
reserves could change in the near term. If oil and gas prices decline
significantly, even if only for a short period of time, it is possible that
a write-down of oil and gas properties would result.
Significant unproved properties will be periodically assessed for possible
impairments or reductions in value. If a reduction in value occurs, the
impairment will be transferred to proved properties. Unproved properties
that are individually insignificant will be amortized over an average
holding period.
Page 9 of 27
ROCKY MOUNTAIN ENERGY CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
__________
1. ORGANIZATION AND CRITICAL ACCOUNTING POLICIES, CONTINUED
--------------------------------------------------------
OIL AND GAS REVENUES
-----------------------
Oil and gas revenues will be recorded under the sales method. Under this
method the Company will recognize oil and gas revenues when production
occurs and will accrue revenue relating to production for which the Company
has not received payment. As of December 31, 2002, the Company had not
completed the acquisition of any producing oil and gas properties.
Accordingly, no revenue related to oil and gas production has been
reported.
2. GOING CONCERN CONSIDERATIONS
------------------------------
Since it began operations on May 10, 2002, the Company suffered a
significant loss from operations and has been dependent on stockholders and
new investors to provide the cash resources to sustain its operations. The
capital required during the start-up phase of operations has caused the
Company to become delinquent in the payment of payroll and in the
remittance of payroll taxes. The Company's liquidity problems were
heightened when a loan agreement with a subsidiary of Marathon Holding
Corporation (the "Marathon Agreement"), that required a $100,000 up front
fee, turned out to be an effort by Marathon and certain officers and
associates of Marathon to defraud the Company. The effects of the Marathon
Agreement extended beyond the up front fees and origination costs to the
unraveling of certain planned acquisitions. These factors raise substantial
doubt about the Company's ability to continue as a going concern.
The Company's strategic plan for dealing with its liquidity problems is
based on direct sales of its common stock or use of its common stock to
collateralize working capital loans and to complete certain planned
acquisitions that management believes will produce cash flows from
operations. The Company is also seeking a NASD or American Stock Exchange
listed company with which to merge. Management believes that merging with a
NASD or American Stock Exchange listed company may improve its ability to
obtain sources of financing. There can be no assurance that any of the
plans developed by the Company will produce cash flows sufficient to
overcome current liquidity problems.
The Company's long-term viability as a going concern is dependent on
certain key factors, as follows:
- The Company's ability to obtain adequate sources of outside financing
to fund near-term development stage operations, satisfy past due
payroll liabilities and pay delinquent federal withholding
liabilities.
- The Company's ability to acquire and produce from economically viable
oil and gas reserves.
- The Company's ability to ultimately achieve adequate profitability and
cash flows to sustain continuing operations.
Page 10 of 27
ROCKY MOUNTAIN ENERGY CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
__________
3. ACQUISITION OF INTEREST IN STRATUS ENERGY, LLC
----------------------------------------------------
On December 1, 2002, the Company acquired H & N LLC's interest in Stratus
Energy, LLC, a limited liability corporation organized pursuant to the laws
of the state of Arkansas. The properties acquired in this transaction
consist of 16,438 acres in Las Animas County, Colorado and Colifax County,
New Mexico in the Raton Basin. The properties comprise the Trinidad Coal
Bed Methane project. The purchase price was 1,000,000 shares of the
Company's common stock which was valued at $175,000.
4. INCOME TAXES
-------------
The Company has incurred losses since its inception and, therefore, has not
been subject to federal income taxes. As of September 30, 2002, the Company
had net operating loss ("NOL") carryforwards for income tax purposes of
approximately $932,000 which expire in the tax year ending September 30,
2022. Because United States tax laws limit the time during which NOL
carryforwards may be applied against future taxable income, the Company may
be unable to take full advantage of its NOL for federal income tax purposes
should the Company generate taxable income.
The difference between the income tax benefit in the accompanying statement
of operations and the amount that would result if the United States Federal
statutory rate of 34% were applied to pre-tax loss for the period ended
September 30, 2002 is as follows:
Benefit for income tax at federal
statutory rate $(139,492) (34.0%)
Non-deductible expenses related primarily to
recapitalization and loan costs 37,519 9.1
Increase in valuation allowance 101,973 24.9
---------- --------
$ - -%
========== ========
5. LEGAL PROCEEDINGS
-----------------
The Company may also be periodically subject to legal proceedings and
claims that arise in the ordinary course of its business. To date, no legal
proceedings have been initiated against the Company as a defendant.
6. SUBSEQUENT EVENTS
------------------
ACQUISITION OF UNITED STATES OIL COMPANY PROPERTIES
---------------------------------------------------------
On November 1, 2002, the Company took steps to acquire the 8,000 acre Ten
Mile and Desert Spring Fields in Sweetwater County, Wyoming from United
States Oil Company ("U.S. Oil") for a total purchase price of $2,900,000.
This acquisition, when completed, will provide the Company with the
controlling interest in the coal bed methane gas project in Sweetwater
County, Wyoming. The terms of the transaction are $200,000 in cash on or
before November 15, 2002 and a convertible note bearing interest at 2% per
year for the remaining $2,700,000. Interest is payable quarterly on the
conventional note and the note cannot be converted during the first twelve
months. During the remaining term, the note can be converted to Company
common stock at the prevailing stock price. The Company, at
Page 11 of 27
ROCKY MOUNTAIN ENERGY CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
__________
6. SUBSEQUENT EVENTS, CONTINUED
------------------------------
its option, may force conversion when the share price averages $1.50 per
share for 60 days or longer. The Company was unable to make the required
cash down payment by November 15, 2002, but has subsequently made $120,000
in cash payments and received extensions for payment of the remaining
balance from U.S. Oil until March 13, 2003. The transaction to acquire
U.S. Oil is a related party transaction because Steve Lieberman, the
President of U.S. Oil is also a director of the Company.
RESIDENTIAL RESOURCES FINANCIAL SERVICES
-------------------------------------------
On November 12, 2002, the Company executed a financing arrangement with
Residential Resources Financial Services ("Residential"), an investment
banking firm, to provide up to $100 million of acquisition and development
financing for proved oil and gas projects. The funding will be secured by,
among other things, any proved oil and gas reserves the Company purchases
using proceeds received under the agreement. In January 2003, a commitment
fee of $50,000 was paid to Residential Resources in connection with the
execution of the financing arrangement.
Any projects funded under this financing arrangement will be subject to due
diligence by Residential. Debt financing obtained will be at market rates
at the time bonds are issued. Management believes that any transactions
funded by Residential will take approximately four months to close.
However, no assurances can be made as to when or if any project will close.
Page 12 of 27
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
As of the September 30, 2002, the end of the Company's prior fiscal year, the
Company had closed no property acquisitions. Accordingly, the Company did not
generate any revenues from operations during the period from inception, May 10,
2002, to September 30, 2002. During December 2002, the Company completed the
acquisition of an interest in Stratus Energy, LLC and since September 30 2002,
the Company has taken steps to close three other acquisitions of
properties/companies in the Rocky Mountain region of the United States. The
Company must complete funding of a $200,000 short-term note to complete one of
these acquisitions. The remaining two potential acquisitions will require that
the Company raise and fund $5,500,000. A letter of intent for another
acquisition with a purchase price of $8,000,000, for currently producing/cash
flowing properties has been signed. The Company believes that it current
acquisition prospects will meet the criteria for funding under the Residential
Resources Credit Facility, discussed below. The Company is continually searching
for properties within the Rocky Mountain region that fit within the operating,
technical, and cash flow parameters that we believe will allow us to be
successful.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's discussion and analysis of its financial condition and results of
operations are based upon its consolidated financial statements, which have been
prepared in accordance with generally accepted accounting principles in the
United States. The preparation of these financial statements requires the
Company to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenue and expenses, and related disclosure of contingent
assets and liabilities. On an ongoing basis, the Company evaluates its
estimates. The Company bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances. These estimates and assumptions provide a basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions, and these differences may
be material.
The Company believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its consolidated
financial statements.
DEVELOPMENT STAGE ENTERPRISE
The Company reports as a development stage enterprise because, since its
inception, substantially all efforts by management have been directed in the
areas of financial planning, capital raising and identification of oil and gas
properties for acquisition.
OIL AND GAS PRODUCING ACTIVITIES
The Company uses the full cost method of accounting for its investment in oil
and gas properties. Under this method, the Company capitalizes all acquisition,
exploration and development costs incurred for the purpose of finding oil and
gas reserves, including salaries, benefits and other internal costs directly
attributable to these activities. Costs, however, associated with production and
general corporate activities are expensed in the period incurred. Interest costs
related to unproved properties and properties under development are also
capitalized to oil and gas properties. Unless a significant portion of the
Company's proved reserve quantities are sold (greater than 25 percent), proceeds
from the sale of oil and gas properties are accounted for as a reduction to
capitalized costs, and gains and losses are not recognized.
The Company will compute the depreciation, depletion and amortization ("DD&A")
of oil and gas properties on a quarterly basis using the unit-of-production
method based upon production and estimates of proved reserve quantities.
Unproved properties will be excluded from the amortizable base until evaluated.
Future development costs and dismantlement, restoration and abandonment costs,
net of estimated salvage values, will be added to the amortizable base. These
future costs, when incurred, will be estimated by engineers employed by the
Company.
The Company will limit the capitalized costs of proved oil and gas properties,
net of accumulated DD&A and deferred income taxes, to the estimated future net
cash flows from proved oil and gas reserves discounted at 10 percent, net of
related tax effects, plus the lower of cost or fair value of unproved properties
included in the costs being amortized. If capitalized costs exceed this limit,
the excess will be charged to additional DD&A expense.
Page 13 of 27
Given the volatility of oil and gas prices, it is reasonably possible that
estimates of discounted future net cash flows from proved oil and gas reserves
could change in the near term. If oil and gas prices decline significantly, even
if only for a short period of time, it is possible that a write-down of oil and
gas properties would result.
Significant unproved properties will be periodically assessed for possible
impairments or reductions in value. If a reduction in value occurs, the
impairment will be transferred to proved properties. Unproved properties that
are individually insignificant will be amortized over an average holding period.
OIL AND GAS REVENUES
Oil and gas revenues will be recorded under the sales method. Under this method
the Company will recognize oil and gas revenues when production occurs and will
accrues revenue relating to production for which the Company has not received
payment.
BUSINESS STRATEGY
Our business strategy is to acquire proved oil and natural gas reserves,
including proved undeveloped reserves, and to expand reserves, production and
cash flow through development and exploitation of such reserves. The key
elements of our strategy are:
Regional Focus. We seek to acquire proved reserves in the geographic core areas
- ---------------
in which we maintain operational expertise in the San Juan Basin, New Mexico and
Rocky Mountain region. Based on the results of recent activities in the San
Juan Basin of New Mexico and in Rocky Mountain region by other participants in
the oil and natural gas industry, we believe that sizable unexploited reserves
remain in these areas
Property Mix. We seek to acquire properties that are a combination of producing
- -------------
and non-producing assets. We believe that producing properties will provide
immediate revenue and cash flow, while non-producing assets will provide future
development opportunities and, ultimately, reserves at a reduced cost, because
based on the experience of our management, proved undeveloped properties are
typically sold at a reduced price compared to producing properties.
Additionally, we seek properties that have additional development potential for
non-proved reserves, such as probable and possible reserves.
Aggressive Management And Exploitation Of Assets. Our goal is, when possible,
- ---------------------------------------------------
to act as the "operator" of the properties that we acquire. As operator, we
believe that we can most economically direct critical functions in the
exploration and production process. These functions include:
- determining the area to develop and explore;
- managing production;
- managing the permitting and optioning process;
- determining seismic survey design;
- overseeing data acquisition and processing; and
- identifying each prospect and drill site.
Technological Expertise. We have operational expertise in each geographic core
- -------------------------
area in which our recent property acquisitions are located. We will use these
skills, together with 3-D seismic data visualization and interpretation
techniques, to develop our oil and gas reserves. We expect to add experienced
technical personnel to our current team; however, we can give no assurance that
such additional personnel will be hired or that it will be on terms satisfactory
to us.
Business Strategy. Our business strategy is to acquire oil and natural gas
- ------------------
properties with existing proved reserves of oil and natural gas and to develop
proved undeveloped reserves of oil and natural gas. Key elements of our
strategy are:
Page 14 of 27
- - Focus on acquiring additional producing oil and gas properties in areas
that we have identified in our geographic core areas the San Juan Basin of
New Mexico and the Rocky Mountains;
- - Acquire properties containing both developed and undeveloped reserves;
- - Aggressively manage and exploit all properties acquired; and
- - Use technological expertise to develop reserves.
- - We have operational expertise in each geographic core area in which our
properties are located. We will use these skills, together with 3-D seismic
data visualization and interpretation techniques, to develop our oil and
gas reserves. We expect to add experienced technical personnel to our
current team; however, we can give no assurance that such additional
personnel will be hired or that it will be on terms satisfactory to us.
ACQUISITIONS AND PROPOSED ACQUISITIONS
UNITED STATES OIL CO.
On November 1, 2002, Rocky Mountain Energy Corporation took steps to acquire the
8,000 acre Ten Mile and Desert Spring Fields in Sweetwater County, Wyoming from
United States Oil Co. (U.S. Oil). This acquisition, if completed according to
its terms will result in the Company's ownership of a controlling interest in a
coal bed methane gas project in Sweetwater County, Wyoming. Net proved reserves
to the interest purchased (at a price of $2,900,000) is estimated to be 56.4
billion cubic feet (Bcf) gas. The proved reserves represented by this
acquisition are proved undeveloped and development activities must take place in
order to generate cash flow to the company. Development funding of $3 million
is needed to drill shallow wells at approximately 2,300' to 4,200' in depth.
Development will begin with the drilling of a proved undeveloped Almond location
(4,200') well in which the Company will also encounter the prolific Lewis sand
at 3,500' and coal bed methane formations at shallower depths, around 2,300'.
Expected initial flow rate is 1,000 Mcfpd. Reserves are long-term gas reserves
with moderate decline curves. There are two wells already drilled which
encountered the gas sands mentioned above awaiting completion which will begin
immediately.
PROVED RESERVES
(000S OMITTED)
Net
BCF Undiscounted. Net PV10%
------------ ------------ ------------
Proved Undeveloped 56.4 $ 100,333 $ 51,300
The purchase price for U.S. Oil is $2,900,000 to be satisfied with a $200,000
short term note due on November 15, 2002, and a convertible note bearing 2%
interest per annum for two years for the remaining $2.7 million. Interest is
payable quarterly on the convertible note. The convertible note cannot be
converted during the first twelve months, but can be converted to Company common
stock thereafter through maturity at the then prevailing stock price. The
Company, at its option, may force conversion should the share price averages
$1.50 per share for 60 days or longer. In January, partial payments totaling
$80,000 have been made on the $200,000 note. Because of the partial payments,
the term of the note has been extended by U. S. Oil Co. to April 30, 2003. The
Company is currently raising cash to pay the remaining $120,000 balance of the
$200,000 short term-note. The lender is withholding the revenues which are due
to the Company from November and December 2002 production until the $200,000
note has been paid.
The transaction to acquire U.S. Oil is a related party transaction since Mr.
Steve Lieberman, the President of U.S. Oil is also a director of the Company.
Mr. Lieberman owns 275,000 shares of the Company's common stock as of December
31, 2002.
Page 15 of 27
H & N LLC
On December 1, 2002, the Company acquired H&N LLC's interest in Stratus Energy,
LLC a Limited Liability Corporation organized pursuant to the laws of the state
of Arkansas. The properties acquired in this transaction consist of 16,438
acres in Las Animas County, Colorado and Colifax County, New Mexico in the Raton
Basin producing area. The properties comprise the Trinidad Coal bed Methane
project. The purchase price was 1,000,000 shares of the Company's common stock
which was valued at $175,000. The Trinidad project is an ideal acquisition for
the Company since it is geographically favorable to the Company's existing
properties and within the areas of its expertise. We anticipate that this
acquisition will produce significant production income for the year 2003.
Additionally, the property itself will be used for development financing. Upon
development, this property could produce in excess of $3,000,000 in revenues per
month to the Company's interest. Estimated ultimate recoverable reserves for
the Trinidad Coal bed Methane Project are 200 Bcf, being 2 Bcf per well for 100
wells drilled on 160 acre spacing. Under the terms of the purchase and sales
agreement, the seller has also agreed to provide development capital to produce
and maximize cash flow on the properties.
The Company expects to begin development of the property in March 2003.
Drilling will be done in a "five spot" pattern, being four gas wells drilled
around a saltwater disposal well. Coal gas wells produce significant amounts of
water along with the gas. Coal gas wells are very low-risk drilling. The gas
is found in layers of coal which blanket an area measured in the thousands of
acres. The gas will be marketed through the El Paso gas line, which runs near
the field.
The Company's field is located between the Trinidad Gas Field, which has
produced over 150 Billion cubic feet of gas to date, and the Garcia Field. The
coal bed sections average 12 feet to 14 feet in thickness and wells are
estimated to produce up to 2 Bcf per well from a relatively shallow 3,300'. The
discovery well, the Phillips Petroleum #6-17, was completed from 3,055' to
3,240' in 23 feet of coal beds. Reservoir shut-in pressure was 1,504 pounds per
square inch (psi). After twenty-four years of production, shut-in pressure was
still 1,472 psi, denoting very little decline and indicating the possibility of
large volumes of remaining reserves.
HORSESHOE GALLUP/NORTHEAST HOGBACK
On January 10, 2003, the Company announced that it had executed a purchase and
sale agreement for the purchase of the Horseshoe Gallup and Northeast Hogback
Unit, (HGU/NEHU) from Regent Energy Corporation. The acquisition includes
approximately 24,000 acres of oil producing property in the San Juan Basin, near
Farmington, New Mexico. Current production is approximately 250 barrels of oil
per day. These properties have an estimated 10 million barrels of proven
reserves of oil, 8.4 million of which is proved undeveloped, at depths from
1,300 feet to 2,300 feet. Some 100 development wells are planned over the next
three years which are designed to raise production to 3,000 barrels of oil per
day. A reserve report by Ryder Scott & Co., values the reserves at $60 million
discounted at the net present value of 10%. The non-discounted value of these
reserves is $120 million. These values were derived using a price of $23.50 per
barrel, while the current price is over $30 per barrel.
The purchase price for this property is $5.5 million, which is expected to be
financed thru the Company's Residential Resources credit line. No share
dilution is expected. Closing is scheduled for March 31, 2003. The acquisition
price for these reserves is $0.55 per barrel. Development cost are estimated to
be $0.75 per barrel provided that the Company can use its own equipment, which
it plans to acquire, in lieu of using outside contractors. Therefore, the
total acquisition and development cost of $1.30 per barrel make this an
attractively priced acquisition for the Company.
In connection with the acquisition of the HGU/NEHU property, the Company has
signed a $3.0 million note with Earl Hollingshead, (sole owner of Parawon
Operating LLC), in order to purchase the mortgage he has on the HGU/NEHU
properties. The term of this note is $300,000 payable on January 15, 2003 and
the remainder of $2.7 million due on March 31, 2003, (the closing date for
HGU/NEHU). This an interest free note. As of January 30, 2003, the Company has
paid $40,000 on this note. The balance of the purchase price will be paid to
Regent or to various lien holders on the property.
Regent is a related party in that the Chairman of the Board of the Company is
also a Board member of Regent, and the President/CEO of the Company is the
former President/CEO of Regent. The Chairman of the company owns 154,328 shares
of Regent stock which represents 0.43% of the common stock of Regent, while the
President of the Company is one beneficiary of a trust which owns 4,813,112
shares of Regent representing 13.61% of Regent's common shares.
Page 16 of 27
ACQUISITION OF COLORADO PRODUCING OIL AND GAS PROPERTY
On January 30, 2003, the Company announced that it has executed a letter of
intent to purchase a producing property located in central Colorado. The field
is currently producing and generating approximately $150,000 of revenues per
month. This acquisition contains proved reserves net to the Company of an
estimated 8.3 billion cubic feet of gas and 455,426 barrels of oil. Production
is anticipated to increase almost three fold by performance of behind pipe
mechanical operations.
The price of this property is $8 million with an effective date of January 1,
2003, thereby crediting the Company with sales proceeds from that day forward.
The price equates to $4.35 per barrel of oil equivalent. Current oil prices are
over $30 per barrel. Closing is set for March 31, 2003. The Company expects to
utilize the Residential Resources line of credit to fund this acquisition.
MERGER
The Company has decided to pursue a possible merger with a NASDAQ or American
Stock Exchange listed company as part of its strategy to maximize shareholder
value. The Company has executed an agreement with Stifel to seek a candidate
for such a merger. There are no assurances that a suitable candidate will be
found or that such a merger would ever take place.
CAPITAL RESOURCES
CURRENT SITUATION
Since it began operations on May 10, 2002 the Company has generated no cash
flows from operations. The cash needs are being met by advances from the CEO of
the Company and from certain investors. Management anticipates that the cash
flow from the properties we are purchasing from United States Oil Company will
provide the Company with sufficient cash flows to meet our normal general and
administrative expenses and field operating expenses, provided that our
development program produces the quantities of gas management anticipates. The
Company does not have an ongoing line of credit at this time, and without such
can not guarantee that there will be sufficient cash to meet daily ongoing
needs. We are counting on cash flow from operations and/or a future credit line
to satisfy our cash flow needs.
Due to the liquidity problems the Company is currently experiencing, the
Company's auditors have included an emphasis paragraph in their report on the
Company's September 30, 2002 consolidated financial statement that indicates
that there is substantial doubt about the Company's ability to continue as a
going concern.
RESIDENTIAL RESOURCES FINANCIAL SERVICES
On November 12, 2002, the Company executed an agreement with Residential
Resources Financial Services ("Residential"), an investment banking firm, to
provide up to $100 million of acquisition and development financing for proved
oil and gas projects. The funding will be secured, with, among other things,
each of the proved oil and gas reserves the Company purchases. A commitment fee
of $50,000 was paid to Residential Resources who has funded $2.9 billion in
secured loans to date.
Each project assigned for funding will need to pass due diligence by
Residential. Terms are likely to be at market rates at the time bonds are
issued. Interest rates are at their lowest in forty years and market conditions
for securitization are very favorable. The financing is asset based geared to
current cash flowing properties, so there is no dilution to our stock. The
process with Residential to close a transaction is expected to take
approximately 120 days from start to finish, and no assurances can be made when
or if every project will close, however.
INTERNATIONAL MERCANTILE HOLDING GROUP, INC. $3 MILLION CREDIT FACILITY
In the most recent Form 10-KSB, the Company reported that on January 7, 2003,
the Company signed a Loan Agreement with International Mercantile Holding Group,
Inc., a New York Corporation wherein the Company would borrow approximately
$90,000 from IMHG. The first $90,000 is a first tranch draw-down which can be
Page 17 of 27
drawn up to $3 million. Terms of the note are that interest is charged at prime
rate, currently 4.25%, with interest paid semi-annually beginning July 1, 2003.
The principal is due on December 30, 2005. The note is secured with 2 million
shares of RMEC section 144 Restricted stock, which will be returned to the
Company upon payment of the note.
However, on January 23, 2003, the Company filed a Form 8-K stating that this
agreement has been cancelled and all shares of stock associated with this
agreement have been cancelled.
AGREEMENTS WITH STIFEL, NICOLAUS & COMPANY
On January 8, 2003, the Company announced that it has hired Stifel, Nicolaus &
CO. Inc., investment bankers of Denver Colorado to locate and negotiate suitable
cash flowing acquisitions of proved oil and gas properties in the Rocky Mountain
region. Stifel, Nicolas was founded in 1890 and managed numerous significant
financings, including Chicago's O'Hare airport in 1961. In 1983 the firm went
public on the NYSE (ticker "SF"). Today, Stifel, Nicolaus is a full service
regional brokerage and investment-banking firm providing securities brokerage,
investment banking, trading, advisory and related financial services. The firm
has 77 offices in 30 states employing 1,200 employees. The energy unit has
completed $800 million in capital raising and advised on 19 M&A, valuation and
fairness opinions. The Company anticipates contracting in the near future with
several of the acquisition candidates that Stifel, Nicolaus has presented to
this point, as combining current high cash flow properties with our proved
undeveloped reserve base is the core of our business plan.
On February 13, 2003, the Company executed an agreement with Stifel Nicolaus to
locate and advise the Company on merger candidates wherein the Company would
merge into a NASDAQ or American Stock Exchange listed company. The Company is
actively seeking a candidate for this merger.
COMPANY DECISION TO UTILIZE ASSET BASED FINANCING
On January 22, 2003, the Company announced that the recently announced
acquisitions and those in negotiation will be financed by asset-based financing
only. The Company is concentrating on acquiring properties with substantial
amounts of proved reserves and current production, thus lending itself to asset
based financing. Therefore, the Company will not consider either equity
offerings or convertible debt offerings at this time. The Company will continue
to move forward on acquisition opportunities which have current production with
associated high cash flow and we intend to utilize our financing vehicle with
Residential Resources to complete these acquisitions. This strategy will result
in non-dilution of the stock and provides the investor with the highest return
on investment that we can accomplish with our acquisition and development
program.
COMPANY BORROWINGS
SHORT TERM NOTE WITH MATHERS ASSOCIATES
On July 2, 2002, the Company entered into a 90-day note at 12% interest for the
sum of $100,000. The note is due and payable on October 2, 2002. Default
interest on this note is at a rate of 18%. The note is guaranteed by the Company
and personally by the President of the Company. The note has been extended
until April 30, 2003 by mutual consent of the parties. The lender has agreed to
take Company stock for the interest due on this note. Approximately 230,000
shares will be issued in this regard.
LONG TERM AND SHORT TERM NOTES WITH STEVE LIEBERMAN (UNITED STATES OIL COMPANY)
In conjunction with the purchase of the U. S. Oil properties, the company signed
two notes with Mr. Steve Lieberman, the President of U. S. Oil.
Page 18 of 27
The first note is a $200,000 note due by the Company as a down payment for the
properties. The note was due on January 15, 2003, but has been extended to April
30, 2003. As of January 30, 2003, the Company had paid $80,000 of the amount
owed leaving a balance of $120,000 owed to Lieberman. Interest accrues at 18%
per annum on this note.
A second note was signed with Mr. Lieberman for the $2.7 million. This
represents the balance of the purchase price for the U. S. Oil properties of
$2.9 million less the down payment of $200,000 mentioned above. The $2.7
million note has a term of two years beginning November 1, 2003 and provides for
interest of 2% per annum payable quarterly.
SHORT TERM NOTE WITH PARAWON LLC (EARL HOLLINGSHEAD)
In connection with the acquisition of the HGU/NEHU property, the Company has
signed a $3.0 million note with Earl Hollingshead, (sole owner of Parawon
Operating LLC), in order to purchase the mortgage he has on the HGU/NEHU
properties. The terms of this note are $300,000 payable on January 15, 2003 and
the remainder of $2.7 million due on March 31, 2003, (the closing date for
HGU/NEHU). The $300,000 payment date has been extended to March 31, 2003 to
coincide with the closing of the property and the financing anticipated to be
made by the Residential Resources line of credit of $100 million. This an
interest-free note. As of February 13, 2003, the Company has paid $56,000 on
this note. The President and CEO has personally guaranteed this note.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
1. The Company is not a defendant in any legal proceeding.
2. ROCKY MOUNTAIN ENERGY CORPORATION VS. SALVATORE RUSSO ET AL
On October 23, 2002, in the District Court of Harris County, Texas 113 Judicial
District, Rocky Mountain Energy, as plaintiff, filed a suit against Salvatore
Russo; SOS Resource Services, Inc. a New York corporation; Consolidated American
Finance Services Group LLC; Consolidated American Energy Resources, Inc.; George
Melina; Regent Consulting and EuroPacific Asset Management Corporation; Horst
Danning; Ron Brooks dba Marathon Corporation jointly as defendants.
Page 19 of 27
Rocky Mountain represented to Defendants Russo, Melina, Danning and Brooks that
Rocky was looking to make acquisitions of oil and gas properties and companies
and was in the need of financing in order to accomplish said acquisitions. Each
of the four Defendants represented to Rocky that Defendant Brooks ostensibly
controlled, (Marathon Corporation had $1.5 billion in assets), a credit line of
over $600 million, and that it would agree to give Rocky a line of credit in the
amount of $40 million in exchange for 20,000,000 shares of Rocky common stock to
Marathon Corporation with rights of registration.
Brooks also stated that in order to obtain the financing, Rocky would have to
put up $100,000 for various fees up front.In response to Rocky's request for
credit references and documentation, Defendant Brooks, on or about May 23, 2002,
delivered to Rocky documents ostensibly from Ernst and Young and from Union Bank
of Switzerland which appeared to be authentic, but which were determined to be
fake and fraudulent several months later, as well as a Credit Agreement,
ostensibly for the granting of credit of $40,000,000 to Rocky by Marathon
Corporation.
After reviewing the documentation, the Credit Agreement was signed on behalf of
Rocky who then wired $100,000 at Defendant Brooks direction. Of this $100,000,
it was later discovered that Defendant Russo received at least $12,500;
Defendant Melina received at least $12,500 and Defendant Danning received at
least $25,000.
As a result of the representations made and the Credit Agreement, Rocky
attempted to proceed with acquisitions of B,C&D properties from the credit line.
Along this line, a check was issued by Marathon Corporation and signed by
Defendant Brooks for $3,000,000 to fund this acquisition. On approximately
August 7, 2002, the check was returned for non-sufficient funds. Prior to the
return of the $3,000,000 check, Defendants Russo, Melina, and Brooks acquired a
total of 8,000,000 shares of Rocky common stock from existing shareholders,
which shared were escrowed with and through an attorney, Jim K. Choate, who was
introduced to Rocky by Defendant Russo.
In late August, Rocky determined that the $3,000,000 as well as the $40,000,000
were a fraud and demanded that any stock in the hands of Defendants Russo,
Melina and/or Brooks be returned.
The claims of Credit Agreements, and other funding have proved to be fraudulent,
Rocky is demanding return of the $100,000 initial amount paid to Ron Brooks for
the Marathon Corporation line of credit and the 9,000,000 shares of stock issued
by Rocky.
CURRENT UPDATE
On November 22, 2002, Rocky reached agreement on recovery of 5.9 million
disputed shares with Defendants Sal Russo, SOS Resources, George Melina,
Consolidated American Energy Resources Inc., Regent Consulting and Consolidated
American Finance Services Group LLC. These parties mutually released each other
from any future liability.
Rocky will continue its suit against Brooks, Marathon Corporation (no relation
to Marathon Oil Company or subsidiary of USX) and Danning for the balance of the
relief sought. Russo, on behalf of SOS Resources and Regent Consulting, as well
as Melina for Consolidated American Companies are joining Rocky in the suit
remaining against Defendant Brooks, Marathon Corporation and Danning, and give
their support to the decision to continue the action against them.
3. ROCKY MOUNTAIN ENERGY CORPORATION AND JOHN N. EHRMAN VS. CLYDE VANDERBROUK
AND DANIEL SILVERMAN
On September 16, 2002, in the District Court of Harris County, Texas 190
Judicial District. Rocky Mountain Energy (Rocky) filed suit as plaintiff against
Clyde Vanderbrouk and Daniel Silverman, defendants.
Plaintiff Rocky Mountain Energy Corporation and John N. Ehrman charge as
follows:
Defendants Vanderbrouk and Silverman both were officers of Regent Energy
Corporation when Plaintiff Ehrman was the President and CEO of the same.
Defendant Vanderbrouk sent out anonymous letters to creditors of Regent stating
that they would never see their money owed them by Regent, thus violating
fiduciary duty as an officer of Regent. Silverman was befriended by Vanderbrouk
who joined him in activities designed to damage Regent. Silverman continued to
feed confidential information to Vanderbrouk who would then post it on the
internet in a drive to push the company out of business.
Page 20 of 27
In May of 2002, Plaintiff left Regent and began as President/CEO of Rocky
Mountain Energy. As the business of Rocky developed and press releases were
being made concerning signing a line of Credit with Marathon Corporation,
followed by the acquisition of the B,C&D property, Defendants Silverman and
Vanderbrouk made statements on the Internet that the above mentioned
transactions did not occur and urged investors to short Rocky's common stock,
thus doing much harm to the company. The Defendants also alleged that Ehrman
was involved in a "pump and dump" scheme. This allegation is meritless since
Ehrman is subject to SEC Rule 144 for his ability to sell his restricted shares.
However, resulting from the assertions of Silverman and Vanderbrouk, a massive
short play was mounted, damaging the value of the stock of Rocky Mountain Energy
Corporation.
Rocky is seeking relief as follows: (1)where judgments against both Defendants
jointly and severally for Rocky's damages in an amount in jurisdictional limits
of this Court; (2) exemplary damages as determined by the trier of the fact,
together with interest at the legal rate from date of judgment until paid; (3)
Costs of Court and interest on such judgment until paid; (4) Such other and
further relief to which Plaintiff may be justly entitled; (5) Permanent
injunctive relief to stop the offensive behavior.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Rocky Mountain Energy Corporation was formed when a company named Cavallo Energy
Corporation (a privately held corporation) merged into Emission Control Devices,
Inc. (a publicly traded company), on May 29, 2002. The name of the new
corporation was changed to Rocky Mountain Energy Corporation and is listed on
the OTCBB with the symbol RMEC.
Cavallo Energy was formed on May 10, 2002 as a special purpose corporation to
merge with Emission Control Devices ("EMCD" OTCBB), a public company. On May 29,
2002, Cavallo reverse merged with "EMCD" and formed Rocky Mountain Energy
Corporation, a public company. Cavallo is now a wholly owned subsidiary of
Rocky Mountain Energy Corporation.
On October 31, 2002, the Board of Directors authorized the repurchase of up to
8,000,000 of its shares of common stock representing approximately 30% of the
outstanding trading shares. The purchases may be conducted from time to time on
the open market or in private transactions. The shares of common stock are
being purchased to return the shares to treasury for corporate purposes and
improve the Company's financial position.
On November 20, 2002, the Company announced that a ten percent stock dividend
will be payable to shareholders of record as of Wednesday, November 27, 2002.
All shareholders of record on November 27, 2002 as of the close of trading will
receive a 10% dividend payable in common shares on their holdings of Company
common stock. The ability of the Company to pay any future cash dividends is
directly dependant on the available cash flow from operations. Currently, there
is no excess cash flow from operations.
On January 2, 2003, the Company executed an agreement for public relations,
comprehensive business consulting and investor awareness programs with Boardwell
Financial. The sum of ten million shares of RMEC stock was granted as
compensation under the agreement.
The Company likewise executed agreements with Larry Vindman and William Brantley
for web site design, implementation and upkeep and other services which involved
the payment of 1.5 million shares of RMEC stock.
The Company sold 500,000 freely trading shares to H&N LLC, an accredited
investor at $0.12/share. Additionally, the Company sold two separate lots of
400,000 and 500,000 shares respectively to Bordwell Financial at $0.1144/share.
On February 5, 2003, the Company filed a Form S-8 whereby 7.6 million shares of
Company stock are to be given to employees and directors as compensation for
back wages and to consultants for fees.
On January 17 and January 21, the Company announced that it has cancelled
6,000,000 and 2,450,000 shares respectively, thereby reducing the outstanding
share count by 8,540,000 shares of its common stock.
Page 21 of 27
At December 31, 2002, the Company had approximately 2,100 shareholders of record
and 54,989,735 shares of its common stock issued and outstanding. Approximately
25 million shares are in the public float.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None of the Company's notes are in default. All notes that have been extended
beyond the original term as shown in Part I, Item 2.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no items submitted to a vote of Security Holders since the inception
of the Company.
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Page 22 of 27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ROCKY MOUNTAIN ENERGY CORPORATION
By /S/ JOHN N. EHRMAN
------------------------------
John N. Ehrman
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities on the date indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/S/ PAUL BORNSTEIN Chairman of the Board, Director February 14, 2003
- -------------------
Paul Bornstein
/S/ JOHN N. EHRMAN President, Chief Executive February 14, 2003
- ------------------- Officer and Director
John N. Ehrman
/S/ STEVE LIEBERMAN Director February 14, 2003
- -------------------
Steve Lieberman
/S/ MICHAEL PUGH Chief Financial Officer February 14, 2003
- -------------------
Michael Pugh
Page 23 of 27
CERTIFICATIONS
CEO CERTIFICATION
I, John N. Ehrman, certify that:
1. I have reviewed this annual report on Form 10-QSB of Rocky Mountain Energy
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiary, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: February 14, 2003 By /S/ JOHN N. EHRMAN
------------------------------
John N. Ehrman
President and Chief
Executive Officer
Page 24 of 27
CFO CERTIFICATION
I, Michael Pugh, certify that:
1. I have reviewed this annual report on Form 10-QSB of Rocky Mountain Energy
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiary, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: February 14, 2003 /S/ MICHAEL PUGH
------------------------------
Michael Pugh
Chief Financial Officer
Page 25 of 27