UNITED STATES
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 JULY 31, 2000 Commission File Number 0-28759
REAL ESTATE OPPORTUNITIES, INC.
(Exact name of registrant as specified in its charter)
Colorado 84-1461919
(State or other jurisdiction of incorporation or organization) (I.R.S.
Employer Identification No.)
3225 E SECOND AVENUE, DENVER, COLORADO 80206
(Address of principal executive offices) (Zip code)
(303) 393-1600
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check 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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
6,872,433
Class Number of shares outstanding at August
18, 2000
This document is comprised of 11 pages.
<PAGE>
FORM 10-QSB
2ND QUARTER
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements*
Condensed, consolidated balance sheet - July 31, 2000 (Unaudited)
.......................... 3
Condensed, consolidated statements of operations - Six months ended
July 31, 2000 and 1999 (Unaudited)............................ 4
Condensed, consolidated statements of cash flows - Six months ended
July 31, 2000 and 1999 (Unaudited).................................. 5
Notes to condensed, consolidated financial statements (Unaudited)
.......................... 6
Item 2. Plan of operation.............................................. 8
PART II - OTHER INFORMATION
Item 1. Legal proceedings.............................................. 10
Item 2. Changes In Securities......................................... 10
Item 3. Defaults Upon Senior Securities................................ 10
Item 4. Submission of Matters To A Vote of Security Holders....... 10
Item 5. OtherInformation............................................ 10
Item 6. Exhibits and Reports on Form 8K............................. 10
Signatures.......................................................... 11
* The accompanying financial statements are not covered by an Independent
Certified Public Accountant's report.
2
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<TABLE>
<CAPTION>
REAL ESTATE OPPORTUNITIES, INC.
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED, CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<S> <C>
JULY 31, 2000
ASSETS
Current assets:
Cash ........................................$ 170
Notes receivable, net........................ 65,394
Other receivables, net......................... 6,500
Accrued interest receivable.................... 200
Prepaid expenses .............................. 5,000
77,264
Intangible assets ..................................622,177
$ 699,441
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable .............................$ 12
Accrued interest payable....................... 33,048
Short term debt ............................... 69,592
Current maturities long term debt ............. 21,500
Total current liabilities .....................124,152
Long-term debt......................................646,010
Total liabilities..............................770,162
Commitments......................................... -
Shareholders' deficit:
Common stock .................................. 6,873
Additional paid-in capital.....................145,777
Stock Options Outstanding ..................... 13,449
Retained deficit .............................(236,820)
Total shareholders' deficit .............(70,721)
$ 699,441
</TABLE>
The accompanying notes are an integral part of the condensed, consolidated
financial statements.
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<TABLE>
<CAPTION>
REAL ESTATE OPPORTUNITIES, INC.
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED, CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<S> <C> <C> <C> <C>
For the Three Months For the Six Months
ENDED JULY 31, ENDED JULY 31,
2000 1999 2000 1999
Revenues ................... $ 804 $ - $ 1,021 $ -
Operating expenses:
General & administrative 28,908 - 48,715 -
General & administrative -
stock based compensation.. 16,500 - 20,100 -
General & administrative -
related parties .......... 4,850 - 11,350 -
Total operating expenses... 50,258 - 80,165 -
Loss before interest & provision
for income tax......... (49,454) - (79,144) -
Interest expense ............ 18,175 - 34,084 -
Loss before provision for
income taxes........... (67,629) - (113,228) -
Provision for income
taxes (benefit)........... - - - -
Net loss ..............$(67,629) $ - $ (113,228) $ -
</TABLE>
The accompanying notes are an integral part of the condensed, consolidated
financial statements.
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<PAGE>
<TABLE>
<CAPTION>
REAL ESTATE OPPORTUNITIES, INC.
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED, CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<S> <C> <C>
For the Six Months Ended
JULY 31,
2000 1999
Operating Activities:
Net cash used in operating activities...........$(65,292) $ -
Investing activities:
Cash paid for rights to future revenues
from the sale of common stock, acquired
from a related party............................(26,480) -
Cash paid for rights to future revenues
from a certain note receivable, acquired
from a related party ..........................(14,430) -
Cash paid for rights to future revenues
from real estate development, acquired
from a related party ...........................(92,154) -
Cash paid for property additions ................(46,589) -
Cash paid for short borrowing for
a related party ............................... (6,500) -
Net cash used in investing activities ... (186,153) -
Financing activities:
Principle payments to related party on notes
payable.........................................(29,490) -
Principle payment to shareholder note.............(6,000) -
Proceeds from short-term borrowing ............30,000 -
Proceeds from exercised stock options ............23,425 -
Proceeds from the sale of common stock,
net of offering costs .....................219,614 -
Net cash provided from financing
activities .............................. 237,549 -
Net change in cash ..............................(13,896) -
Cash at beginning of period ..................... 14,066 -
Cash at end of period .................$ 170 $ -
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest ........................$ 1,010 $ -
Cash paid for income taxes ................$ - $ _
</TABLE>
The accompanying notes are an integral part of the condensed, consolidated
financial statements.
5
<PAGE>
REAL ESTATE OPPORTUNITIES, INC.
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1: BASIS OF PRESENTATION
The financial statements presented herein have been prepared by the
Company in accordance with the accounting policies in its annual 10-
KSB report date January 31, 2000 and should be read in conjunction
with the notes thereto.
In the opinion of management, all adjustments (consisting only of
normal recurring adjustments) which are necessary to provide a fair
presentation of operating results for the interim period presented
have been made. The results of operations for the periods presented
are not necessarily indicative of the results to be expected for the
year.
Interim financial data presented herein are unaudited.
NOTE 2: INTANGIBLE ASSETS
Intangible assets consisted of the following at July 31, 2000:
Rights to interest in commercial real estate acquired
from related party......................................$30,526
Rights to interest in residential real estate development
including water rights, from related party .............499,899
Rights to interest in proceeds from the sale of
American Tire Corporation common stock...................91,752
$ 622,177
NOTE 3: RELATED PARTY TRANSACTIONS
During the six months ended July 31, 2000 the Company:
(a) rented office space from an affiliate at a cost of $2,900 and
$6,650 for the three months and six months ended July 31, 2000,
respectively.
(b) paid an affiliate $600 and $1,200 for accounting services for
the three months and six months ended July 31, 2000, respectively.
(c) paid an affiliate $2,000 and $3,500 for consulting services
related to real estate property investments for the three months
and six months ended July 31, 2000, respectively.
NOTE 4: LONG-TERM DEBT
Notes payable, related parties consists of the following as of July
31, 2000:
Note payable to Asset Realization, Inc. (an affiliate),
collateralized by a first deed of trust, at 13.5 percent
interest, with interest due August 1, 2000 and $46,045
due August 1,2001 ................................$ 40,261
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REAL ESTATE OPPORTUNITIES, INC.
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note payable to Krupka-Brophy Profit Sharing Plan (an affiliate),
collateralized by a first deed of trust, at 9 percent interest,
with semi-annual payments fo $39,730 and a balloon payment
of $503,410 due February 3, 2002................... 513,960
554,221
Less current maturities............................ 15,779
$ 538,442
Notes payable, other consists of the following as of July 31, 2000:
Note payable to an unrelated third-party, collateralized by a
first deed of trust, at 13.5 percent interest, with semi-annual
payments fo $6,338 and a balloon payment of $32,971
due February 3, 2002 ...........................$ 38,387
Note payable to an unrelated third-party, collateralized by a
first deed of trust, at 13.5 percent interest, with semi-annual
payments of $5,363 and a balloon payment of $53,520
due February 3, 2002 ............................ 53,402
91,789
Less current maturities ......................... 5,721
$ 86,068
NOTE 5: INCOME TAXES
The Company records its income taxes in accordance with Statement of
Financial Accounting Standard No. 109, "Accounting for Income Taxes.
The Company incurred net operating losses during the six months ended
July 31, 2000 resulting in a deferred tax asset, which was fully
allowed for, therefore the net benefit and expense result in $-0-
income taxes.
NOTE 6: STOCK OPTIONS
During the first quarter ended April 30, 2000 the Company granted
options of 200,000 shares of its common stock for services. The
options were vested and exercisable as of the grant date and expire on
March 1, 2005. On May 2, 2000 and July 18, 2000 the Company granted
options for 200,000 shares and 150,000 shares, respectively, of its
common stock for services in accordance with the terms of its stock
option agreement. The options were vested and exercisable as of the
grant date and expire on May 2, 2001 and December 31, 2001,
respectively. Following is a schedule of the options and the related
strike prices:
<TABLE>
<CAPTION>
OPTION NUMBER EXERCISE
GROUP OF SHARES PRICE
<S> <C> <C>
No. 1 200,000 $ 0.080
No. 2 200,000 $ 0.275
No. 3 150,000 $ 0.275
The weighted average exercise price for the options was $0.204 at July
31, 2000. As of July 31, 2000 the market value of the Company's
common stock, as determined by a national quotation system, was $0.150
per share.
7
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REAL ESTATE OPPORTUNITIES, INC.
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The status of the Company's stock option plan is summarized as follows:
</TABLE>
<TABLE>
<CAPTION>
NUMBER WEIGHTED AVERAGE
OF SHARES EXERCISE PRICE
<S> <C> <C>
Outstanding at January 31, 2000 - $ -
Granted 550,000 0.204
Exercised 227,000 $ 0.103
Canceled - $ -
Outstanding at July 31, 2000 323,000 $ 0.275
</TABLE>
The Company continues to account for non-employee stock-based
compensation in accordance with SFAS 123.
The weighted average fair value of options granted during the six
months ended July 31, 2000 estimated on the date of grant using the
Black-Scholes option-pricing model was $0.077 per share. The fair
value of the options granted is estimated on the date of grant using
the following assumptions: dividend yield of zero, expected volatility
of 40.00 percent, risk-free interest rate of 5.80 percent, and an
expected life of three years.
NOTE 7: SHAREHOLDERS' DEFICIT
Below is a reconciliation of the number of shares of the Registrant's
outstanding common stock:
<TABLE>
<CAPTION>
<S> <C>
January 31, 2000 balance ................................. 751,750
April 4, 2000 common stock dividend ...................... 375,875
Number of shares of common stock outstanding prior to
recapitalization .................................... 1,127,625
July 31, 2000 exercise of common stock options............ 227,000
July 31, 2000 sale of common stock for the quarter this
report relates .......................................... 284,831
April 6, 2000 number of shares issued in recapitalization..5,232,977
Number of shares outstanding at July 31, 2000 ............ 6,872,433
</TABLE>
PART 1. FINANCIAL INFORMATION
ITEM 2. PLAN OF OPERATION
FORWARD-LOOKING STATEMENTS.
The following discussion contains forward-looking statements regarding our
Company, its business, prospects and results of operations that are subject
to certain risks and uncertainties posed by many factors and events that
could cause our actual business, prospects and results of operations to
differ materially from those that may be anticipated by such forward-
looking statements. Factors that may affect such forward-looking
statements include, without limitation: our ability to successfully develop
new products for new markets, the impact of competition on our revenues,
changes in law or regulatory requirements that adversely affect or preclude
clients from using our products for certain applications, delays our
introduction of new products or services, and our failure to keep pace with
emerging technologies. No product
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REAL ESTATE OPPORTUNITIES, INC.
PART 1. FINANCIAL INFORMATION
ITEM 2. PLAN OF OPERATION
research and development is planned for the next twelve months.
When used in this discussion, word such as "believes", "anticipates",
"expects", "intends" and similar expressions are intended to identify
forward-looking statements, but are not the exclusive means of identifying
forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the
date of this report. Our Company undertakes no obligation to revise any
forward-looking statements in order to reflect events or circumstances that
may subsequently arise. Readers are urged to carefully review and consider
the various disclosures made by us in this report and other reports filed
with the Securities and Exchange Commission that attempt to advise
interested parties of the risks and factors that may affect our business.
Organized on January 1, 2000 we acquired Monument Galleries, Inc., in a
reverse acquisition, on April 6, 2000. We are in the real estate
opportunities business. Monument Galleries, Inc. was in the retail arts
and craft industry before selling that business back to its principle
shareholders and merging with us. The Company does not expect any
significant changes in the number of employees in the next twelve months.
In the first quarter ended April 30, 2000 we acquired a 41% interest in
commercial real property from an affiliate. For the period ended July 31,
2000 we have received $482 and $-0-, respectively in rent and management
fees. It is our intent to develop the property into condominiums and sell
the property during 2001, subject to the availability of financing.
We previously acquired a note from an affiliate during the first quarter
that was collateralized by real property. The note was in default and we
have foreclosed on the note. We also had assumed three related debt
obligations when we acquired the note. We are liable under the debt
obligations only to the extent that we receive proceeds from the note. On
August 7, 2000 the debtor filed for protection under Chapter 13 of the
United States Bankruptcy Court. It is anticipated that the Company will
either receive payment in full plus additional interest at which time the
debt obligations would be retired, or be given the deed to the property.
Upon receipt of the deed, the property will be sold and the debt
obligations retired. The Company expects the bankruptcy procedure to be
completed during the third quarter of this year.
During the first quarter ended April 30, 2000 we used cash, stock and debt
in order to fund an acquisition of property from an affiliate. Our plan
is to develop this property and sell lots to builders beginning in 2001.
Our balance sheet reflected notes payable totaling $646,010 at July 31,
2000. Since the notes payable mature over three years (with most of the
principle due in the third year), we plan to use the proceeds from lot
sales to retire this debt. There is no assurance that the development will
take place or be profitable. For the six months ended July 31, 2000,
additions to the improvements in the property totaled $18,989 and $-0-,
respectively.
In the first period ended April 30, 2000 we acquired the right to proceeds
from the sale of 67,888 shares of American Tire Corporation (ATC) common
stock from Platinum Financial Fund, LLC, an affiliate. The ability to sell
the ATC shares is subject to Rule 144 of the Securities Act of 1933, as
amended. Once this restriction is lifted (September 2000, at the
earliest), we plan to sell all or a portion of our holdings. Proceeds from
the sale will be used to fund current and future projects. The ATC stock
is traded in the over-the-counter market and its price fluctuates. We have
not lined up a buyer for the stock, once the Rule 144 restriction is
lifted. As of July 31, 2000 the closing price of the ATC stock was $2.75
per share.
On July 24, 2000 we loaned money to an affiliate in the amount of $6,500 to
be repaid with the affiliate's share of the proceeds from the first sale of
ATC stock. The total amount to be received from the affiliate will be
$8,500 of which the $2,000 of proceeds will be used in the ordinary course
of business operations.
9
<PAGE>
REAL ESTATE OPPORTUNITIES, INC.
PART 1. FINANCIAL INFORMATION
ITEM 2. PLAN OF OPERATION
This is our second quarter of operations as a real estate opportunities
business. We conducted minimal income producing operations during the
period for which this Quarterly Report is filed. Our expenses consisted
principally of accounting, legal, and interest expense. We were not in
existence during the year earlier period.
We sold founder's shares to friends and relatives which provided $90,010
and on March 15, 2000 we commenced a private offering of 1 million shares
of our common stock, at $.15 per share. For the three months and six
months ended July 31, 2000 the stock sales provided capital totaling
$19,550 and $219,614,respectively, net of the costs of the private
offering. Stock options were issued totaling 550,000 shares with a
weighted average exercise price of $.204 per share. Outstanding stock
options expire between May 1, 2001 and December 31, 2001of which 227,000
shares have been exercised.
Our short-term debt obligations, totaling $69,592, will be retired only to
the extent that we receive proceeds from the sale of collateral or
redemption of the note. During the period ended July 31, 2000 we made
principle payments on notes payable totaling approximately $30,000 to the
affiliates noted above. Our liquidity and financial health will be
dependent upon the success or failure of our rights.
PART 11 - OTHER INFORMATION
Items 1 Through 5 - No response required.
Item 6 - Exhibits and reports on Form 8-K.
(a) Exhibits
27* Financial Data Schedule.
(b) Reports on Form 8-K were dated:
May 23, 2000
April 14, 2000
April 6, 2000
10
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REAL ESTATE OPPORTUNITIES, INC.
SIGNATURES
The financial information furnished herein has not been audited by an
independent accountant; however, in the opinion of management, all
adjustments (only consisting of normal recurring accruals) necessary for a
fair presentation of the results of operations for the three months ended
July 31, 2000 have been included.
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
REAL ESTATE OPPORTUNITIES, INC.
(FORMERLY MONUMENT GALLERIES, INC.)
(REGISTRANT)
Date: AUGUST 23, 2000 By: /S/ F. JEFFREY KRUPKA
F. Jeffrey Krupka, President
11
