UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: January 31, 2008
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 0-9060
ROCKY MOUNTAIN MINERALS, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
Wyoming 83-0221102
------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation of organization)
2480 North Tolemac Way, Prescott, Arizona 86305
-----------------------------------------------
(Address of principal executive offices) (Zip Code)
(928) 778 1450
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(Registrant's telephone number, including area code)
N/A
(Former name, former address and formal fiscal year,
if changes since last report)
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 whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of "large accelerated filer," "accelerated filer" and
"smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if smaller reporting company)
Smaller reporting company [x]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ x]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
102,176,139 shares of common stock, $0.001 par value, as of March 12, 2008.
FORM 10-Q
For the Quarter Ended
January 31, 2008
Table of Contents
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets, January 31, 2008 (unaudited)
and October 31, 2007 (audited)
Consolidated Statement of Operations for the three months
ended January 31, 2008 and 2007, and cumulative since
inception (unaudited)
Consolidated Statements of Cash Flows for the Three Months
Ended January 31, 2008 and 2007, and cumulative since
inception (unaudited)
Notes to Consolidate Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis and Results of
Operations.
Item 4T. Controls and Procedures.
Part II. OTHER INFORMATION
Item 6. Exhibits.
Signatures
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
ROCKY MOUNTAIN MINERALS, INC.
(An Exploration Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
October 31, 2007 and January 31, 2008
ASSETS
(Amounts in thousands, except per share data)
October 31, January 31,
2007 2008
(Audited) (Unaudited)
ASSETS ---------- ----------
Current Assets:
Cash $ 37 $ 2
Prepaid items 4 8
---- ----
Total current assets $ 41 $ 10
Assets held for sale-net (Note 2) 150 150
Investment in joint venture (Note 3) 4 --
Deferred offering costs 68 68
---- ----
TOTAL ASSETS $263 $228
==== ====
See accompanying notes.
2
ROCKY MOUNTAIN MINERALS, INC.
(An Exploration Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
October 31, 2007 and January 31, 2008
LIABILITIES AND STOCKHOLDERS' EQUITY
(Amounts in thousands, except per share data)
October 31, January 31,
2007 2008
(Audited) (Unaudited)
---------- ----------
Current liabilities:
Accounts payable $ 38 $ 81
Accrued Interest-related party (Note 4) 11 17
Accrued expenses -- 9
Note Payable - related party net
of discount of $11 (2007) and $7 (2008) (Note 4) 289 293
------- -------
Total current liabilities 338 400
Stockholders' equity (deficit):
Preferred Stock; $.05 par value,
$.015 cumulative dividends,
convertible; 44,000,000 shares
authorized, 44,000,000 shares
issued and outstanding 2,200 2,200
Common Stock; $.001 par value,
250,000,000 shares authorized,
102,176,139 (2007) 102,176,139
(2008) shares issued and
outstanding 102 102
Capital in excess of par value 4,027 4,027
Accumulated other comprehensive income (loss) (12) (15)
Deficit accumulated during the
exploration stage (6,392) (6,486)
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Total stockholder's equity (deficit) (75) (172)
------- -------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (deficit) $ 263 $ 228
======= =======
See accompanying notes.
3
ROCKY MOUNTAIN MINERALS, INC.
(An Exploration Stage Enterprise)
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(Amounts in Thousands, except per share data)
For the Three Months Cumulative
Ended January 31, amounts since
2007 2008 inception
-------- ------- -------------
Revenues $ -- $ -- $ 874
-------- ------- -------------
Costs and expenses:
Mill expense 10 51 3,814
General and administrative 12 32 3,313
Depreciation, depletion
and amortization -- -- 286
Interest -- 11 849
-------- ------- -------------
Total costs and expenses 22 94 8,262
Loss before
extraordinary item (22) (94) (7,388)
Extraordinary gain on
extinguishment of debt -- -- 902
-------- ------- -------------
Net loss (Note 2) $ (22) $ (94) (6,486)
======= ======= =============
Basic and fully diluted loss per
common share (Note 8):
Loss before extraordinary item $ * $ * $ (.11)
Extraordinary gain on
extinguishment of debt -- -- .01
======= ======= =============
Loss per share $ * $ * $ (.10)
======= ======= =============
*Less than $0.01 per share.
See accompanying notes.
4
ROCKY MOUNTAIN MINERALS, INC.
(An Exploration Stage Enterprise)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Amounts in Thousands, except per share data)
Cumulative
For the Three Months Amounts
Ended January 31, since
2007 2008 inception
------- ------- -------
Net loss $ (22) $ (94) (6,486)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Write-downs and asset sales -- -- 3,355
Depreciation, depletion
and amortization -- -- 286
Common stock issued for
Services -- -- 505
Changes in assets and liabilities:
Prepaid expenses and deposits -- 4 --
Deferred offering costs -- -- (68)
Accounts payable 8 43 86
Accrued expenses -- 15 (14)
Gain(loss) from foreign currency -- (3) (15)
Cost of Beneficial Conversion -- 4 22
------- ------- -------
Net cash used in operating
activities (14) (31) (2,329)
Cash flows from investing activities:
Proceeds from sale of assets -- -- 320
Acquisition of assets (10) (4) (3,600)
------- ------- -------
Net cash used in
investing activities (10) (4) (3,280)
------- ------- -------
Cash flows from financing activities:
Proceeds from Stock and
borrowings -- -- 5,611
------- ------- -------
Increase (Decrease) in cash (24) (35) 2
Cash at beginning of period 48 37 --
------- ------- -------
Cash at end of period $ 24 $ 2 $ 2
======= ======= =======
See accompanying notes.
5
ROCKY MOUNTAIN MINERALS, INC.
(An Exploration Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The accompanying financial statements of the Company have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information and with the instructions to Form
10-Q. Certain notes and other information have been condensed or omitted from
the interim financial statements presented in this report. Accordingly, they do
not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for complete
financial statements. In the opinion of management, the financial statements
reflect all adjustments considered necessary for a fair presentation. The
results of operations for the three months ended January 31, 2008 and January
31, 2007 are not necessarily indicative of the results to be expected for the
full year. These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the fiscal year ended October 31, 2007 as filed with the
Securities and Exchange Commission (the "SEC").
1. Organization and summary of significant accounting policies
Organization:
Rocky Mountain Minerals, Inc. (the "Company") was incorporated on February 21,
1974, and began operations on May 19, 1978 (inception) and is considered to be a
mining company in the exploratory stage and a development stage company as
defined by SFAS No. 7, and since inception, has been engaged in the acquisition
of mineral interests, oil and gas properties and leases, financing activities,
and initiated milling of the Company's mine tailings in 1983. During the year
ended October 31, 1982, the Company disposed of the majority of its then oil and
gas properties. In January 1984, the Company discontinued milling. Subsequent to
October 31, 1991, the Company was inactive and had limited receipts and
expenditures until 2003 when the Company issued stock for an investment in a
joint venture.
Basis of presentation:
The financial statements have been prepared on a going concern basis which
contemplates the realization of assets and liquidation of liabilities in the
ordinary course of business. As shown in the accompanying financial statements,
the Company has incurred significant losses and at October 31, 2007 had minimal
cash. As a development stage company, the Company relies on infusions of cash
through the sale of assets held for sale, the performance of its investment in
joint venture and the issuance of equity capital. As a result, substantial doubt
exists about the Company's ability to continue to fund future operations using
its existing resources.
To meet the Company's working capital requirements, the Company or, if the such
financing is undertaken following the Merger (as described below and elsewhere
in this Quarterly Report), New Rocky, may seek to undertake a capital raising
from a variety of sources, or a partial or complete sale of our exploration
interest or interests.
6
Use of 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 amounts reported in the financial
statements and footnotes thereto. Significant items subject to such estimates
and assumptions include the carrying value of assets held for sale and
long-lived assets. The Company bases its estimates on historical experience and
on various other assumptions that are believed to be reasonable under the
circumstances. Actual results could differ from those estimates.
Principles of Consolidation:
The Consolidated Financial Statements include the accounts of Rocky Mountain
Minerals, Inc. and its subsidiary, RMMI Australia Pty Ltd. All significant
intercompany balances and transactions have been eliminated. The functional
currency for the majority of the Company's operations, including the Australian
operations, is the U.S. dollar.
Depreciation, depletion and amortization:
Depreciation was provided by the Company on the straight-line and declining
balance methods.
Depletion of developed mineral interests (mine dumps and tailings) was computed
by the unit-of-production method based on estimated recoverable quantities of
gold and silver.
Undeveloped mineral interests and oil and gas properties:
The Company utilized the "successful efforts" method of accounting for
undeveloped mineral interests and oil and gas properties. Capitalized costs were
charged to operations at the time the Company determined that no economic
reserves existed. Costs of sampling and retaining undeveloped properties were
charged to expense when incurred.
Mineral exploration costs are expensed as incurred. When it has been determined
that a mineral property can be economically developed as a result of
establishing proven and probable reserves, costs incurred prospectively to
develop the property are capitalized as incurred and are amortized using the
units of production method over the estimated life of the ore body based on
estimated recoverable ounces or pounds in proven and probable reserves.
Proceeds from the sale of undeveloped properties were treated as a recovery of
cost. Proceeds in excess of the capitalized cost realized in the sale of any
such properties, if any, were to be recognized as gain to the extent of the
excess.
Income taxes:
The Company provides for income taxes utilizing the liability approach under
which deferred income taxes are provided based upon enacted tax laws and rates
applicable to the periods in which the taxes became payable.
Cash equivalents:
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
Impairment of long-lived assets:
The Company evaluates the potential impairment of long-lived assets in
accordance with Statement of Financial Accounting Standards No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets. The Company annually
reviews the amount of recorded long-lived assets for impairment. If the carrying
amount of a long-lived asset is not recoverable from its undiscounted cash
flows, the Company will recognize an impairment loss in such period.
7
Concentrations of credit risk:
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of cash and cash equivalents. The Company places
its cash with high quality financial institutions.
2. Purchase of Rochester mining properties
In October 1980, the Company entered into an agreement with certain individuals,
including officers and directors of the Company, whereby the Company sold each
of them a certain number of shares of its common stock (1,400,000 in the
aggregate); a percentage of the net profits, if any, on an accumulated basis
(10.5% in the aggregate) from the operations of the mill being acquired from
Rochester; and a perpetual non-participating royalty interest in the patented
mining claims being acquired from Rochester (10.5% aggregate). The Company
valued the shares issued under the agreements at $.28225 per share that
represented approximately 60% of the quoted market "bid" price on October 28,
1980. The balance of the amount received from the "private placement" ($348,400)
was deferred until closing of the agreement with Rochester, at which time, the
amount deferred was credited to the total purchase price of the properties.
On November 30, 1981, the Company closed the agreement with Rochester
Enterprises, a Montana limited partnership, acquiring 11 patented lode mining
claims, certain improvements, buildings and machinery, and certain mill tailings
and mine dumps located in Montana for a purchase price totalling $3,029,765 and
2,530,000 shares of the Company's common stock. Pursuant to the agreement, the
Company agreed, on a one-time basis only, to prepare and file a registration
statement under the Securities Act of 1933, as amended, or a notification of
exemption pursuant to Regulation A, if available, from such act at its expense
to sell or otherwise dispose of any of the shares issued to Rochester under the
agreement, upon the request of any one or more of the partners of Rochester.
During 1987 and 1988, the Company repurchased 7.125% (aggregate) of both of the
net profits and royalty interests for a total of $47,500 in cash and the
issuance of 2,425,000 shares of its common stock ($.01 per share).
During 1997, the Company decided to sell its remaining undeveloped mineral
interests at Rochester Montana including the mine dumps and tailings. The assets
have been reclassified to net assets held for sale and stated at their net
realizable value resulting in a loss of $1,749,000.
During 2002 and 2003 the Company sold all its interest in the thirteen patented
claims, together with the dump and tailings material and equipment, that it
purchased from Rochester Enterprises, Ltd. for a total of $82,000. The Company
is pursuing the sale of the additional eighteen claims in the district.
3. Investment in joint ventures
In April 2003 the Company acquired a 25% interest in two petroleum exploration
permits, WA-329-P and WA-322-P, in the North West Shelf area of the Carnarvon
Basin, offshore Western Australia, from two unlisted public companies. Mr. E. G.
Albers, a former member of the Company's board and a significant shareholder, is
a shareholder and director of these two public companies.
8
The area represented by the permits was approximately 356,000 acres, and the
project was known as the Exmouth Joint Venture Project. In agreeing to earn a
25% interest in the project, the Company issued 5,000,000 shares of Restricted
Common Stock and 19,091,550 shares of Restricted $0.015 Cumulative Convertible
Preferred Stock. The Company estimates registration costs to be $40,000. In
October 2003, the Company issued an additional 10,000,000 shares of Restricted
Common Stock, when taken with the previous issue aforesaid, to meet a $969,550
funding requirement associated with the interest.
In May 2004 the Exmouth Joint Venture sold exploration permit WA-322-P to BHP
Billiton Petroleum Limited ("BHP"). In return BHP agreed to the acquisition and
processing of 3D seismic in the Joint Venture's adjacent exploration permit, WA-
329-P, as well as a $600,000 initial cash payment, a deferred cash payment of
$1,100,000 contingent upon BHP drilling a well in WA-322-P, and granting an
overriding royalty interest ranging from 2.75 to 3.75 percent on WA-322-P.
In July 2004 the Company's 25% share of the initial cash proceeds from the BHP
sale, $150,000, were offset against existing Year 2 seismic acquisition
obligations pursuant to the Farmin Agreement. As a term of this arrangement the
Company entered into an agreement to reacquire 10,000,000 shares of its Common
Stock previously issued to Octanex NL and Strata Resources NL, the Company's
Joint Venture partners, for no further outlay.
In July 2005 the Exmouth Joint Venture finalized a second transaction for the
sale of WA-322-P to BHP Billiton Petroleum and Apache Northwest Pty Ltd. The
sale consists of the buyers becoming responsible for the terms and conditions of
the WA-329-P permit, the payment of $400,000, which was received on August 9,
2005, a deferred cash payment of $1,000,000 contingent upon the drilling of a
well, and the grant of an overriding royalty interest ranging from 2.75 to 3.75
percent on WA-329-P.
On September 17, 2007, the Company received notice from, respectively, BHP and
Apache that BHP intended to surrender, effectively, to the State of Western
Australia, WA-322-P, and BHP and Apache intended to surrender, effectively, to
the State of Western Australia, WA-329-P. On October 1, 2007, following the
receipt of the Notice, we gave notice to Octanex and Strata to the effect that
we did not wish to accept a reassignment of the Permits and, on October 3, 2007,
we gave notice to BHP and Apache to the same effect. The Company has recorded an
impairment loss of $107,929 at October 31, 2007.
In November 2006, our wholly owned subsidiary, RMMI Australia Pty Ltd (RMMI),
entered into a joint venture heads of agreement with Eagle bay Resources N.L.
and Audax Resources Limited, in respect to the "Carr-Boyd Joint Venture". To
earn our 51% interest in the two exploration licences, RMMI must contribute AU$1
million (the "Contribution") to the joint venture expenditures prior to
September 30, 2010, and to spend at least AU$100,000 in the first six months
following the execution of the Carr Boyd Agreement (this requirement has been
met). RMMI also agreed to contribute at least $48,000 towards the joint venture
expenditure for each exploration licence per permit year.
4. Note payable-related party
On April 30, 2007, the Company entered into a non-negotiable convertible
promissory note with Great Missenden Holdings Pty. Ltd. Pursuant to the Note,
Great Missenden Holdings Pty Ltd has advanced an aggregate total of $300,000.The
Note bears interest at a rate of 9% per annum, and is payable in full on June
30, 2008. The principal amount then outstanding under the Note is convertible by
Great Missenden Holdings Pty Ltd at any time into shares of common stock of the
Company at a conversion price of $0.025 per share. In addition, the Note is
automatically convertible immediately prior to a merger of the Company with a
wholly-owned Delaware subsidiary of the Company, into such number of shares of
the Company's common stock which would result in the Lender owning 10% of the
outstanding shares of the Delaware subsidiary after the merger. The Company
recorded a discount on the note of $18,750 relating to the beneficial conversion
feature. This discount will be amortized to interest expense over the term of
the debt.
9
5. Preferred stock
During fiscal 1981, the stockholders voted to amend its Articles of
Incorporation to authorize the issuance of preferred stock having a par value of
$.05. The Board of Directors designated 44,000,000 shares of the preferred stock
as $.015 cumulative convertible preferred stock (hereinafter referred to as
"preferred stock"). The holders of the preferred stock are, subject to
declaration, entitled to receive $.015 per share annual dividends, and $.10 per
share, plus accrued but unpaid dividends, upon liquidation, dissolution or
winding up of the Company. The dividends, which may be paid in cash, common
stock or gold, are payable annually, if and when declared by the Board of
Directors only from earned surplus. Cumulative dividends in arrears as of
January 31, 2008 amount to $11,146,163 ($.255 per share). Each share of the
preferred stock is convertible by the holder, at his option, into .4 shares of
common stock. The preferred stock may be called for redemption at $.15 per
share, plus accrued but unpaid dividends, either in cash, in common stock or
gold. As no profit has been achieved and as no dividends have been declared, no
provision has been made for unpaid dividends. (See Note 7)
6. Common stock
In connection with a stock purchase agreement consummated on April 22, 1988,
with Quillium Nominees Pty., Ltd. (Quillium) pursuant to which 33,333,000 shares
of the Company's restricted common stock were issued, the Company agreed to
prepare and file a registration statement under the Securities Act of 1933, as
amended, for the 33,333,000 shares issued under the agreement. This has not been
performed as of January 31, 2008.
On October 10, 2007, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement"), with Rocky Mountain Minerals (DE), Inc., a Delaware
corporation ("New Rocky"), our wholly-owned subsidiary. Under the Merger
Agreement, (a) holders of our common stock, par value $0.001 per share (other
than holders who exercise and perfect their dissenters' rights and the Company
itself as a holder of treasury shares) will receive, in consideration for each
share of such common stock they own, 0.195 shares of common stock, $0.0001 par
value, of New Rocky ("New Rocky's Common Stock") and cash in lieu of any
fractional shares, and (b) holders of our preferred stock, par value $0.05 per
share (other than holders who exercise and perfect their dissenters' rights and
the Company itself as a holder of treasury shares) will receive, in
consideration for each share of such stock they own, 0.36535 shares of New
Rocky's Common Stock and cash in lieu of any fractional shares (the "Merger").
In the Merger, the Company will be merged with and into New Rocky, New Rocky
will survive the Merger, and the Company will cease to exist as a separate
corporate entity. The Merger will not result in any other change in our
business, management, fiscal year, assets, liabilities, or location of our
principal facilities.
The consummation of the Merger is subject to (a) the Company's approval as New
Rocky's sole shareholder, (b) the approval of the Company's shareholders in
accordance with applicable provisions of the Wyoming Business Corporation Act,
and (c) any and all consents, permits, authorizations, approvals, and orders
deemed, in our sole discretion, to be material to consummation of the Merger,
including, without limitation, an authorization of New Rocky's Common Stock for
quotation on the Over The Counter Bulletin Board (the "OTCBB"), having been
obtained.
10
A date for closing the Merger has not yet been determined.
7. Income taxes
At January 31, 2008, the Company had net operating loss carryforwards for tax
purposes of approximately $1,608,000. If not used to offset future taxable
income, the carryforwards will expire as follows:
Fiscal Year of expiration Amount
2008 $ 33,000
2010 108,000
2011 25,000
2017 125,000
2019 29,000
2020 35,000
2021 89,000
2022 135,000
2023 98,000
2024 53,000
2025 399,000
2026 28,000
2027 357,000
2028 94,000
At January 31, 2008 and January 31, 2007, total deferred tax assets and
valuation allowances are as follows:
January 31, 2008 January 31, 2007
---------------- ----------------
Net operating loss 563,000 461,000
Write-down of assets held 612,000 612,000
Total 1,175,000 1,073,000
Less valuation allowance (1,175,000) (1,073,000)
A 100% valuation allowance has been established against the deferred tax assets,
as utilization of the loss carryforwards and realization of other deferred tax
assets cannot be reasonably assured.
8. Basic and fully diluted loss per common share
Basic and fully diluted loss per common share is based on the weighted average
number of shares of common stock outstanding during the three month periods
ended January 31, 2008 and January 31, 2007, 102,176,139 shares in 2008 and
100,730,398 shares in 2007, and 67,824,980 shares for the period from May 19,
1978 through January 31, 2008. Basic and fully diluted earnings per share are
the same in loss periods.
11
9. Commitments and contingencies
Insurance:
The Company is, to a significant degree, without insurance pertaining to various
potential risks with respect to its properties, including general liability,
because it is presently not able to obtain insurance for such risks at rates and
on terms, which it considers reasonable. The financial position of the Company
in future periods could be adversely affected if uninsured losses were to be
incurred.
10. Related party transactions
In fiscal 2007, the Company entered into a verbal agreement to reimburse Mr E
Geoffrey Albers for office space and overhead. Total amounts paid and payable to
Mr. E Geoffrey Albers for office usage during the three month period ended
January 31, 2008 was $3,300, as compared to $1,100 in the same period during
2007.
During 2005, the Company issued an aggregate of 6,000,000 shares of common stock
to two officers of the Company for prior services valued at $180,000. In 2006,
the Company issued an aggregate of 4,000,000 shares of common stock to two
officers of the Company for services during 2006 valued at $220,000.
11. Recent accounting pronouncements
During the past year the Financial Accounting Standards Board (FASB), issued
several new accounting pronouncements. Following are certain of those
pronouncements that may have some applicability to the Company and its
subsidiary.
FAS No. 157
In September 2006, the Financial Accounting Standards Board (FASB) issued FAS
157, Fair Value Measurements, which establishes a fair value hierarchy to
measure assets and liabilities, and expands disclosures about fair value
measurements. FAS No. 157 does not require any new fair value measurements, but
provides guidance on how to measure fair value by providing a fair value
hierarchy used to classify the source of the information. This statement is
effective for fiscal years beginning after November 15, 2007. We are currently
evaluating the potential impact, if any, of the adoption of FAS 157 on our
financial statements.
FAS No. 159
In February 2007, the FASB issued FAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities- including an Amendment of FAS 115,
which allows an entity to choose to measure certain financial instruments and
liabilities at fair value. Subsequent measurements for the financial instruments
and liabilities an entity elects to fair value will be recognized in earnings.
FAS 159 also establishes additional disclosure requirements. FAS 159 is
effective for fiscal years beginning after November 15, 2007, with early
adoption permitted provided that the entity also adopts FAS No. 157. We are
currently evaluating whether to adopt FAS 159 and, if adopted, the impact of
such adoption.
12
FIN 48 - Public Disclosure
On November 1, 2007, we adopted the provisions of FASB Interpretation No. 48
(FIN 48), Accounting for Uncertainty in Income Taxes - an interpretation of FAS
109, which provides a financial statement recognition threshold and measurement
attribute for a tax position taken or expected to be taken in a tax return.
Under FIN 48, we may recognize the tax benefit from an uncertain tax position
only if it is more likely than not that the tax position will be sustained on
examination by the taxing authorities, based on the technical merits of the
position. The tax benefits recognized in the financial statements from such a
position should be measured based on the largest benefit that has a greater than
50% likelihood of being realized upon ultimate settlement. FIN 48 also provides
guidance on derecognition of income tax assets and liabilities, classification
of current and deferred income tax assets and liabilities, accounting for
interest and penalties associated with tax positions, and income tax
disclosures. The adoption of FIN 48 had an immaterial impact on our financial
position and our results of operations.
Item 2. Management's Discussion and Analysis or Plan of Operation.
General
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's results
of operations and financial condition. This discussion and analysis should be
read in conjunction with the consolidated financial statements contained in the
latest Annual Report on Form 10-K dated October 31, 2007.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Statements contained in this Quarterly Report on Form 10-Q include
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Securities Exchange Act of 1934, as amended,
including, in particular and without limitation, statements contained herein
under the heading "Management's Discussion and Analysis of Financial Condition
and Results of Operations." Forward-looking statements involve known and unknown
risks, uncertainties and other factors which could cause the Company's actual
results, performance and achievements, whether expressed or implied by such
forward-looking statements, not to occur or be realized. Such forward-looking
statements generally are based upon the Company's best estimates of future
results, performance or achievement, based upon current conditions and the most
recent results of operations. Forward-looking statements may be identified by
the use of forward-looking terminology such as "may," "will," "expect,"
"believe," "estimate," "project," "anticipate," "continue" or similar terms,
variations of those terms or the negative of those terms.
You should carefully consider such risks, uncertainties and other information,
disclosures and discussions which contain cautionary statements identifying
important factors that could cause actual results to differ materially from
those provided in the forward-looking statements. Readers should carefully
review the risk factors and any other cautionary statements contained in the
Company's Annual Report on Form 10-K and other public filings, as well as the
risks and uncertainties described below. The Company undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise.
The following factors, among others, could cause actual results to differ
materially from forward-looking statements or historical performance:
o an inability to complete the Merger, as set forth in "Recapitalization
and Reincorporation in Delaware Merger" or obtain its intended
benefits;
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o an inability to complete exploration activities, prove reserves of
mineral resources in commercial quantities, extract such mineral
resources in a cost-effective and timely manner, and sell such mineral
resources on commercially attractive terms;
o a lack of managerial control over our projects;
o an inability to attract and retain management and qualified employees;
o a lack of liquidity and capital resources;
o an inability to obtain additional financings on favorable terms;
o an inability to meet our financial commitments under existing
exploration agreements;
o fluctuations or declines in commodity prices and, in particular, in
prices of nickel;
o land title disputes;
o an introduction, withdrawal and timing of new business initiatives and
strategies;
o changes in political, economic and industry conditions, the interest
rate environment, and the financial and capital markets, in either
Australia or the United States;
o the impact of increased competition;
o the impact of future acquisitions or divestitures;
o unfavorable resolution of legal proceedings;
o the impact, extent and timing of technological changes and the
adequacy of intellectual property protection;
o the impact of legislative and regulatory actions and reforms and
regulatory, supervisory or enforcement actions of government agencies;
o terrorist activities and international hostilities; and
o changes to tax legislation and our tax position.
Overview
We were incorporated as a corporation under the laws of the State of Wyoming on
February 21, 1974 and commenced operations on May 19, 1978. We have been engaged
primarily in the acquisition, licensing, development, exploration and operation
of properties that we believe may contain mineral resources. We have no proven
reserves. Our business focuses on continued search of further mineral resource
exploration and production properties in the U.S. and in Australia.
Recapitalization and Reincorporation in Delaware Merger
On October 10, 2007, we entered into an Agreement and Plan of Merger (the
"Merger Agreement"), with Rocky Mountain Minerals (DE), Inc., a Delaware
corporation ("New Rocky"), our wholly-owned subsidiary. Under the Merger
Agreement, (a) holders of our common stock, par value $0.001 per share (other
than holders who exercise and perfect their dissenters' rights and the Company
itself as a holder of treasury shares) will receive, in consideration for each
share of such common stock they own, 0.195 shares of common stock, $0.0001 par
value, of New Rocky ("New Rocky's Common Stock") and cash in lieu of any
fractional shares, and (b) holders of our preferred stock, par value $0.05 per
share (other than holders who exercise and perfect their dissenters' rights and
the Company itself as a holder of treasury shares) will receive, in
consideration for each share of such stock they own, 0.36535 shares of New
Rocky's Common Stock and cash in lieu of any fractional shares (the "Merger").
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If the Merger is completed, we will be merged with and into New Rocky, New Rocky
will survive the Merger, and we will cease to exist as a separate corporate
entity. The Merger will not result in any other change in our business,
management, fiscal year, assets, liabilities, or location of our principal
facilities.
The main purposes of the Merger are to (a) change our capital structure [to
eliminate the preferred stock], and (b) change the state of our incorporation
from Wyoming to Delaware. The key intended benefits of the Merger are (a) the
fact that the Merger is expected to enhance our ability to undertake financings,
without which we will be unable to continue our current business, and (b) the
fact that investors are generally more familiar with Delaware law than Wyoming
law, and Delaware law affords a greater degree of certainty to investors and
corporations.
The consummation of the Merger is subject to (a) our approval as New Rocky's
sole shareholder, (b) the approval of our shareholders in accordance with
applicable provisions of the Wyoming Business Corporation Act, and (c) any and
all consents, permits, authorizations, approvals, and orders deemed, in our sole
discretion, to be material to consummation of the Merger, including, without
limitation, an authorization of New Rocky's Common Stock for quotation on the
Over The Counter Bulletin Board (the "OTCBB"), having been obtained.
A date for completion of the Merger has not yet been determined.
The Merger Agreement may be terminated by our and New Rocky's mutual consent,
with no liability on either party's part, except that we will be required to pay
all expenses incurred in connection with the Merger, in respect of this Merger
Agreement and/or relating thereto.
The foregoing description of the Merger Agreement does not purport to be
complete and is qualified in its entirety by reference to the full text of the
Merger Agreement, which is filed as Exhibit 2.1 of our Annual Report on Form
10-K for the fiscal year ended October 31, 2007.
Business Strategy
Our business strategy relies on identification of locations that we believe may
contain mineral resources, and undertaking exploration and, if applicable in the
future, production activities in such locations, primarily through joint
ventures with third parties, with the costs of such activities being shared
amongst the joint venture participants.
If and when we or our commercial partners prove reserves of mineral resources at
any such locations, we expect to monetize our investment in their exploration
through producing mineral resources at such location, jointly with our joint
venture partners, or divesting of some or all of our interest in such location
to a third party or third parties possessing resources that would be adequate
for exploiting such reserves of mineral resources. It is likely that the terms
of any such divestment would include, or be limited to, a royalty in connection
with the production or sales of such mineral resources.
Products
Through several joint venture arrangements described in "--Status of Active
Joint Venture Projects" below, we are currently exploring for sulphide hosted
nickel and have previously explored for other mineral resources, including oil
and gas. We have not proven any reserves of any mineral resources. We may
explore for additional mineral resources in the future.
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Status of Active Joint Venture Projects
Carr-Boyd Joint Venture
In December 2006, our subsidiary RMMI Australia Pty Ltd ("RMMI Australia")
entered into a joint venture heads of agreement with Audax Resources Ltd
("Audax") and Eagle Bay NL ("Eagle Bay"), each an Australian Stock-Exchange
listed company, (the "Carr-Boyd Agreement"), in respect of an unincorporated
joint venture, referred to in this document as the "Carr-Boyd Joint Venture,"
for purposes of exploring and, if warranted, developing and mining sulphide
hosted nickel in areas covered by two existing exploration licenses in the State
of Western Australia, Australia.
Under the Carr-Boyd Agreement, RMMI Australia may contribute AU$1,000,000 (the
"Contribution"), to the joint venture expenditure prior to September 30, 2010
(the "Earning Period"), but agreed to spend at least AU$100,000 in the first six
months following the execution of the Carr-Boyd Agreement, which has been done.
RMMI Australia also agreed to contribute at least AU$48,000 towards the
joint venture expenditure for each permit year, being each consecutive 12 month
period from the date on which the exploration permits in respect of the
tenements were granted. This contribution has been made for next permit year.
If RMMI Australia fails to make the Contribution during the Earning Period, both
RMMI Australia and Eagle Bay will be deemed to have withdrawn from the Carr-Boyd
Joint Venture, subject to certain exceptions.
Once RMMI Australia has made the Contribution during the Earning Period, RMMI
Australia and Eagle Bay will be deemed to have earned the following interests in
the Carr-Boyd Joint Venture: (a) 51% by RMMI Australia, and (b) 19% by Eagle
Bay. Until the Contribution has been made, RMMI Australia and Eagle Bay have no
interest in the Carr-Boyd Joint Venture.
RMMI Australia is the manager of the Carr-Boyd Joint Venture while it is
the sole contributor to the expenditure and will have sole authority for
determining and carrying out all programs and budgets. Until the receipt of the
Contribution, RMMI Australia is required to pay costs in connection with the
Carr-Boyd property.
The Carr-Boyd Joint Venture has undertaken a sampling survey on the Carr-Boyd
property and has identified three areas of interest on the property. It does not
expect to focus on areas outside of those areas of interest. It has been
recommended that a ground electromagnetic survey be conducted over the area. The
survey is not expected to be conducted this year.
Australian Nickel Joint Venture
On December 6, 2006, RMMI Australia and Eagle Bay entered into a joint venture
heads of agreement (the "Eagle Bay Agreement") in respect of an unincorporated
joint venture (the "Australian Nickel Joint Venture"), for purposes of exploring
and, if warranted, developing and mining sulphide hosted nickel in the State of
Western Australia, Australia.
The participants in the Australian Nickel Joint Venture will each hold an
effective 50% interest in the joint venture. The joint venture is actively
searching for suitable nickel areas in the State of Western Australia,
Australia. The joint venture has been advised that it has been tentatively
successful in its application for an exploration licence in respect of the area
known as "Falcon Bridge", to be formally granted once to the participants have
complied with the relevant provisions of the Australian "Native (Aboriginal)
Title" legislation.
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Under the Eagle Bay Agreement, RMMI Australia's failure to meet its cash call
obligations in connection with the project's expenditures will result in RMMI
Australia incurring interest on the unpaid amounts and may result in its
interest in the Eagle Bay Agreement being diluted.
The Australian Nickel Joint Venture has not formally discussed an exploration
program at this stage.
Exploration Permits
Our joint venture activities are conducted in reliance on exploration permits
issued by the State of Western Australia, Australia. The validity and currency
of such exploration permits is critical to our and our joint venture partners'
ability to undertake exploration activities. As set forth in "--Australian
Nickel Joint
Venture" above, the Falcon Bridge exploration license has not been granted. If
and when granted, it will have a five-year term and we expect its terms to
require us to spend no more than $50,000 per annum in connection on our
exploration program.
The exploration licences in connection with the Carr-Boyd Joint Venture expire
in July 2011. Under the terms of the licences, we are required to spend no less
than $48,000 per annum in connection with our Carr-Boyd exploration program.
Financial Condition
We have not been profitable or generated significant cash flows from business
operations from inception to date and have no operating revenue. We have funded
our operations through financings, including issuances of stock in satisfaction
or our obligations, with related parties.
The following table sets forth certain relevant measures of our
liquidity and capital resources:
Year ended Three months
October 31, 2007 January 31, 2008
(in $000, (in $000,
except ratios) except ratios)
Cash and cash equivalents 37 2
Working Capital (deficit) (297) (390)
Current Assets 41 10
Current liabilities 338 400
Ratio of current assets to 0.12 0.025
current liabilities
Stockholders' equity (deficit) * *
per common share
o Less than $.01 per share.
Our cash has decreased from $37,000 to $2,000 from October 31, 2007 to January
31, 2008, a decrease of 95%, even following the advance of $300,000 pursuant to
the Convertible Note described below, primarily due to exploration costs and
legal costs associated with the Merger. Legal costs have been incurred during
the quarter, primarily associated with the Merger and review of our 2007 Form
10-K.
17
Our current liabilities increased from $338,000 to $400,000 from October 31,
2007 to January 31, 2008, an increase of 18%, due to an increase in exploration
activity.
We had a working capital deficit of $390,000 and a ratio of current assets to
current liabilities of 0.025 as of January 31, 2008, as compared to a working
capital deficit of $297,000 and a ratio of current assets to current liabilities
of 0.12 as of October 31, 2007, an increase in working capital deficit of 31%.
These changes are primarily due to the decrease in our current assets and an
increase in our current liabilities as a result of the incurrence of the costs
described in "--Results of Operation" below.
On April 30, 2007 we entered into a non-negotiable convertible promissory note,
referred to in this document as the Convertible Note, with Great Missenden
Holdings Pty Ltd ("Missenden"), an Australian proprietary limited liability
company. Ernest Geoffrey Albers, our former director who retired on July 31,
2006, who is our substantial shareholder, is the majority shareholder of
Missenden.
Pursuant to the Convertible Note, Missenden advanced a total of $300,000 to the
Company. The Convertible Note bears interest at a rate of 9% per annum, and is
payable in full on June 30, 2008. The Convertible Note is automatically
convertible immediately prior to the Merger described below into such number of
shares of our common stock which would result in Missenden owning 1% of New
Rocky's Common Stock immediately, assuming completion of the Merger, for each
$30,000 of outstanding principal under the Convertible Note at the time of the
Merger, up to a total of 10%. Accordingly, it is expected that, immediately
prior to the Merger, the Convertible Note will be automatically converted into
such number of our common stock which will result in Missenden owning 10% of New
Rocky's Common Stock immediately after the Merger. As of January 31, 2008, we
owed Missenden a total of approximately $317,000. No payments of principal or
interest have been made on the Convertible Note during its term.
Mineral resource exploration is capital intensive. Additional financings will be
required both in the near and longer-term future, both to meet our financial
obligations under our existing commercial agreements and other objectives. In
connection with our existing commercial agreements, we expect that we will be
required to meet the following financial obligations that we have under such
agreements:
As of January 31, 2008, our material commitments for capital expenditures under
our existing agreements totalled approximately $820,000, as compared to $850,000
as of October 31, 2007, of which we expect a total of $20,000 to fall in the
remainder of fiscal year ending October 31, 2008.
Additionally, we expect that the total direct costs of the Merger will be
approximately $300,000, of which approximately $120,000 has not yet been paid.
Additionally, if shareholders dissenting from the Merger exercise their rights
of appraisal, we may be required to pay significant amounts to such
shareholders. In the absence of an additional financing or financings, we will
not have sufficient funds to pay such amounts in connection with dissenting
shareholders' appraisal rights.
The financial requirements described in the preceding paragraphs of this
section will have the effect of decreasing our liquidity and exhausting our cash
resources within one month. We will not be able to meet such requirements
without additional financings. We expect that financings totalling at least
$200,000 will be required by us in the next month and financings totalling at
least an additional $200,000 will be required by us in the next twelve months,
to meet our working capital requirements and capital commitments.
18
To meet our working capital requirements, we or, if the such financing is
undertaken following the Merger, New Rocky, may seek to undertake a capital
raising from a variety of sources, or a partial or complete sale of our
exploration interest or interests. Additionally, we are currently pursuing the
sale of eighteen mining claims in relation to our Rochester property.
There is no assurance that a financing or financings will be available to us on
attractive terms or at all, particularly, given the fact that there is
substantial competition for capital available for investment in the mineral
resource exploration industry, and our existing capital structure (which capital
structure, we believe, makes a financing prior to the Merger extremely
difficult).
We believe that, in the absence of the Merger, our existing capital structure
makes financings extremely difficult. In particular, among other things, this is
due to the fact that interests of any new equity investors would be subordinated
to those of the existing holders of preferred stock, both in the event of a
liquidation and, effectively, as to dividends. No dividends could be paid to
holders of common stock without the holders of the cumulative preferred stock
first receiving cumulative preferred dividends accrued over a number of years.
We believe that these circumstances would make an equity investment in us
extremely unattractive to potential investors, at least until after the Merger
has been consummated.
The lack of proven reserves on our part or the part of our projects also renders
fund-raisings, whether before or after the Merger, extremely difficult and their
success extremely uncertain.
If we cannot obtain additional financings on favorable terms, our operating
results and financial condition will be adversely affected, our current business
will likely have to be discontinued, we may be wound-up, and you will likely be
unable to recover your investment in us.
Results of Operations
We have not been profitable or generated significant cash flows from business
operations from inception to date and have no operating revenue. We incurred net
losses of approximately $94,000 for the three months ended January 31, 2008, as
compared to approximately $22,000 for the three months ended January 31, 2007,
an increase of 327%, and had accumulated losses of approximately $6,486,000 as
of January 31, 2008.
The increase in our net loss during this time frame was a result of an increase
in the exploration expenses for the Carr Boyd Joint Venture and legal costs
associated with the Merger and a review of our 2007 Form 10-K. The increases in
our exploration expenses were incurred due to the increase in our joint venture
and exploration activities in fiscal 2007. We expect that our costs will
decrease substantially over the next twelve months, as we have already incurred
approximately $180,000 of the $300,000 costs associated with the proposed Merger
and do not expect substantial additional exploration expenditure over the next
twelve months.
General and administrative expenses increased by approximately $20,000 for the
three months ended January 31, 2008 as compared to the same period in 2007, an
increase of 167%. The increase is primarily attributable to an increase in
Corporate activity, such as exploration on the Carr Boyd project.
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Critical Accounting Policies
Our financial statements have been prepared in accordance with accounting
principles generally accepted in the United States. The preparation of these
financial statements requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an ongoing basis, management
re-evaluates its estimates and judgments.
The going concern basis of presentation assumes we will continue in operation
throughout fiscal year 2008 and into the foreseeable future and will be able to
realize our assets and discharge our liabilities and commitments in the normal
course of business. Our auditors stipulated in their report dated February 11,
2008, as filed with our Annual Report on Form 10-K for the fiscal year ended
October 31, 2007, that they had substantial doubt about our ability to continue
as a going concern. The financial statements do not include any adjustments that
might result from the outcome of the uncertainty.
Undeveloped Mineral Interests and Oil and Gas Properties
The Company utilized the "successful efforts" method of accounting for
undeveloped mineral interests and oil and gas properties. Capitalized costs were
charged to operations at the time the Company determined that no economic
reserves existed. Costs of sampling and retaining undeveloped properties were
charged to expense when incurred.
Mineral exploration costs are expensed as incurred. When it has been determined
that a mineral property can be economically developed as a result of
establishing proven and probable reserves, costs incurred prospectively to
develop the property are capitalized as incurred and are amortized using the
units of production method over the estimated life of the ore body based on
estimated recoverable ounces or pounds in proven and probable reserves.
Proceeds from the sale of undeveloped properties were treated as a recovery of
cost. Proceeds in excess of the capitalized cost realized in the sale of any
such properties, if any, were to be recognized as gain to the extent of the
excess.
Impairment of Long-lived Assets
The Company evaluates the potential impairment of long-lived assets in
accordance with Statement of Financial Accounting Standards No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets. The Company annually
reviews the amount of recorded long-lived assets for impairment. If the carrying
amount of a long-lived asset is not recoverable from its undiscounted cash
flows, the Company will recognize an impairment loss in such period.
Recent Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (FASB) issued FAS
157, Fair Value Measurements, which establishes a fair value hierarchy to
measure assets and liabilities, and expands disclosures about fair value
measurements. FAS No. 157 does not require any new fair value measurements, but
provides guidance on how to measure fair value by providing a fair value
hierarchy used to classify the source of the information. This statement is
effective for fiscal years beginning after November 15, 2007, which is our
current fiscal year. We are currently evaluating the potential impact, if any,
of the adoption of FAS 157 on our financial statements.
20
In February 2007, the FASB issued FAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities- including an Amendment of FAS 115,
which allows an entity to choose to measure certain financial instruments and
liabilities at fair value. Subsequent measurements for the financial instruments
and liabilities an entity elects to fair value will be recognized in earnings.
FAS 159 also establishes additional disclosure requirements. FAS 159 is
effective for fiscal years beginning after November 15, 2007, which is our
current fiscal year, with
early adoption permitted provided that the entity also adopts FAS No. 157. We
are currently evaluating whether to adopt FAS 159 and, if adopted, the impact of
such adoption.
On November 1, 2007, we adopted the provisions of FASB Interpretation No.48 (FIN
48), Accounting for Uncertainty in Income Taxes - an interpretation of FAS 109,
which provides a financial statement recognition threshold and measurement
attribute for a tax position taken or expected to be taken in a tax return.
Under FIN 48 we may recognise the tax benefit from an uncertain tax position
only if it is more likely than not that the tax position will be sustained on
examination by the taxing authorities, based on the technical merits of the
position. The tax benefits recognized in the financial statements from such a
position should be measured based on the largest benefit that has a greater than
50% likelihood of being realized upon the ultimate settlement. FIN 48 also
provides guidance on derecognition of income tax assets and liabilities,
classification of current and deferred income tax assets and liabilities,
accounting for interest and penalties associated with tax positions, and income
tax disclosures. The adoption of FIN 48 had no impact on our financial position
and our results of operations.
Item 4T. Controls and Procedures
Disclosure Controls and Procedures
- ----------------------------------
As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the
"Exchange Act"), the Company evaluated the effectiveness of the design and
operation of its disclosure controls and procedures as of January 31, 2008. This
evaluation was carried out under the supervision and with the participation of
our Chief Executive Officer, who is also our Chief Financial Officer. Based upon
that evaluation, the Company concluded that its disclosure controls and
procedures were effective as of such date.
The Company's disclosure controls and procedures are designed to ensure that
information required to be disclosed by the Company in the reports that it files
or submits under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the SEC's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by the
Company in the reports that it files or submits under the Exchange Act is
accumulated and communicated to the Company's management, including its
principal executive and principal financial officers, or persons performing
similar functions, as appropriate to allow timely decisions regarding required
disclosure.
Internal Control Over Financial Reporting
- -----------------------------------------
During the period covered by this report, there were no changes in the Company's
internal control over financial reporting that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.
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Part II. OTHER INFORMATION
Item 6. Exhibits
List of Exhibits
31 Rule 13a-14(a)/15d-14(a) Certification
32 Section 1350 Certification
22
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ROCKY MOUNTAIN MINERALS, INC.
(Registrant)
By: /s/ Mark A. Muzzin
------------------
Mark A. Muzzin,
Chief Executive Officer and
Chief Financial Officer
March 14, 2008
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