<PAGE> 1
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 October 31, 2000 Commission File Number 0-28759
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Real Estate Opportunities, Inc.
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(Exact name of registrant as specified in its charter)
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<S> <C>
Colorado 84-1461919
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
3225 E Second Avenue, Denver, Colorado 80206
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(Address of principal executive offices) (Zip code)
(303) 393-1600
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(Registrant's telephone number, including area code)
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(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.
X Yes 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
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Number of shares outstanding at October 31, 2000
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This document is comprised of 11 pages.
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FORM 10QSB
3RD QUARTER
INDEX
PART I - FINANCIAL INFORMATION
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Item 1. Financial Statements*
Condensed, consolidated balance sheet - October 31, 2000 (Unaudited) ................ 3
Condensed, consolidated statements of operations - Three and nine months ended
October 31, 2000 and 1999 (Unaudited) ............................................... 4
Condensed, consolidated statements of cash flows - Nine months ended
October 31, 2000 and 1999 (Unaudited) ............................................... 5
Notes to condensed, consolidated financial statements (Unaudited) ................... 6
Item 2. Plan of operation ................................................................ 9
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. Other Information ............................................................... 10
Item 6. Exhibits and Reports on Form 8K ................................................. 10
Signatures ............................................................................... 11
</TABLE>
* The accompanying financial statements are not covered by an
Independent Certified Public Accountant's report.
2
<PAGE> 3
REAL ESTATE OPPORTUNITIES, INC.
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED, CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
October 31, 2000
----------------
<S> <C>
ASSETS
Current assets:
Cash .................................. $ 26,729
Prepaid expenses ...................... 2,000
---------
28,729
Intangible assets .............................. 594,937
---------
$ 623,666
=========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable ...................... $ 1,184
Accrued interest payable .............. 822
Short term debt ....................... 20,000
---------
Total current liabilities ............. 22,006
Long-term debt ................................. 606,076
---------
Total liabilities ..................... 628,082
Commitments .................................... --
Shareholders' deficit:
Common stock .......................... 6,873
Additional paid-in capital ............ 145,777
Stock Options Outstanding ............. 13,449
Retained deficit ...................... (170,515)
---------
Total shareholders' deficit... (4,416)
---------
$ 623,666
=========
</TABLE>
The accompanying notes are an integral part of the condensed,
consolidated financial statements.
3
<PAGE> 4
REAL ESTATE OPPORTUNITIES, INC.
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED, CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended October 31, Ended October 31,
---------------------------- -----------------------------
2000 1999 2000 1999
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Revenues ......................................... $ 56,362 $ -- $ 57,383 $ --
---------- ------------- ---------- -------------
Operating expenses:
General & administrative ...................... 13,527 -- 62,242 --
General & administrative -
stock based compensation .............. -- -- 20,100 --
General & administrative -
related parties ....................... 5,850 -- 17,200 --
---------- ------------- ---------- -------------
Total operating expenses .............. 19,377 -- 99,542 --
---------- ------------- ---------- -------------
Income (loss) before interest &
provision for income tax ............. 36,985 -- (42,159) --
Gain on sale of assets ........................ 46,303 -- 46,303 --
Interest expense ................................. 16,983 -- 51,067 --
---------- ------------- ---------- -------------
Income (loss) before provision for
income taxes ........................ 66,305 -- (46,923) --
Provision for income taxes (benefit) ............. -- -- -- --
---------- ------------- ---------- -------------
Net income (loss) ..................... $ 66,305 $ -- $ (46,923) $ --
========== ============= ========== =============
Per share data:
Basic net income (loss) per share ............. $ 0.01 $ (0.01)
========== ==========
Fully diluted ................................. $ 0.01 $ (0.01)
========== ==========
Weighted average number of shares outstanding
Basic ......................................... 6,872,433 5,284,801
========== ==========
Fully diluted ................................. 7,195,433 5,392,467
========== ==========
</TABLE>
The accompanying notes are an integral part of the condensed,
consolidated financial statements.
4
<PAGE> 5
REAL ESTATE OPPORTUNITIES, INC.
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED, CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
October 31,
-------------------------
2000 1999
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<S> <C> <C>
Operating Activities:
Net cash used in operating activities.............................................. $ (26,843) $ --
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 .................................................. (56,889) --
Cash advance to a related party ................................................... (71,500) --
Repayment from a related party .................................................... 71,500 --
---------
Net cash used in investing activities ....................................... (189,953) --
Financing activities:
Principle payments to related party on notes payable .............................. (80,484) --
Principle payment to shareholder note ............................................. (6,000) --
Principle payments, others ........................................................ (62,030) --
Proceeds from sale of assets ...................................................... 102,934 --
Proceeds from short-term borrowing ................................................ 32,000 --
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 ................................. 229,459 --
Net change in cash ................................................................ 12,663 --
Cash at beginning of period ............................................................ 14,066 --
--------- -----
Cash at end of period ....................................................... $ 26,729 --
========= =====
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest ......................................................... $ 50,220 $ --
========= =====
Cash paid for income taxes ..................................................... $ -- $ --
========= =====
</TABLE>
The accompanying notes are an integral part of the condensed,
consolidated financial statements.
5
<PAGE> 6
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 Form
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 October 31, 2000:
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Rights to interest in commercial real estate acquired
from related party .......................................... $ 38,426
Rights to interest in residential real estate development
including water rights, from related party .................. 502,299
Rights to interest in proceeds from the sale of
American Tire Corporation common stock ...................... 54,213
---------
$ 594,937
=========
</TABLE>
NOTE 3: RELATED PARTY TRANSACTIONS
During the nine months ended October 31, 2000 the Company:
(a) rented office space from an affiliate at a cost of $3,750 and
$10,400 for the three months and nine months ended October 31,
2000, respectively.
(b) paid an affiliate $600 and $1,800 for accounting services for
the three months and nine months ended October 31, 2000,
respectively.
(c) paid an affiliate $1,500 and $5,000 for consulting services
related to real estate property investments for the three
months and nine months ended October 31, 2000, respectively.
(d) paid affiliates $45,995 and $38,977 for principal and interest
amounts due, respectively on debt obligations for the nine
months ended October 31, 2000. Refer to Note 4.
(e) advanced cash to affiliates in the total amount of $71,500
during the nine months ended October 31, 2000. The advances
were repaid prior to October 31, 2000.
6
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REAL ESTATE OPPORTUNITIES, INC.
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4: LONG-TERM DEBT
Notes payable, related parties consists of the following as of October
31, 2000:
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<S> <C>
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 $42,992
due August 1, 2001.................................................................................... $ 38,799
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 of $39,730 and a balloon payment of $458,859 due
February 3, 2002 ..................................................................................... 485,206
--------
485,206
Less current maturities .............................................................................. --
--------
$485,206
========
Notes payable, other consists of the following as of October 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 of
$6,338 and a balloon payment of $25,432 due February 3, 2002 ......................................... $ 33,266
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 $46,030 due February 3,
2002 ................................................................................................. 48,805
--------
82,071
Less current maturities .............................................................................. --
--------
$ 82,071
========
</TABLE>
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 nine months ended
October 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:
7
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REAL ESTATE OPPORTUNITIES, INC.
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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<CAPTION>
OPTION NUMBER EXERCISE
GROUP OF SHARES PRICE
------- --------- --------
<S> <C> <C> <C>
No. 1 200,000 $0.080
No. 2 200,000 $0.275
No. 3 150,000 $0.275
</TABLE>
The weighted average exercise price for the options was $0.204 at
October 31, 2000. As of October 31, 2000 the market value of the
Company's common stock, as determined by a national quotation system,
was $0.150 per share. The status of the Company's stock option plan
is summarized as follows:
<TABLE>
<CAPTION>
NUMBER WEIGHTED AVERAGE
OF SHARES EXERCISE PRICE
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<S> <C> <C>
Outstanding at January 31, 2000 -- $ --
Granted 550,000 0.204
Exercised 227,000 $0.103
Canceled -- $ --
------- ------
Outstanding at October 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 nine
months ended October 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>
<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 October 31, 2000 .......................... 6,872,433
=========
</TABLE>
NOTE 8: EARNINGS (LOSS) PER SHARE
Effective December 31, 1997, Statement of Financial Accounting
Standards No. 128 "Earnings Per Share" requires a dual presentation of
earnings per share - basic and diluted. Basic earnings per share have
been computed on the weighted average of common shares outstanding.
8
<PAGE> 9
REAL ESTATE OPPORTUNITIES, INC.
PART 1. FINANCIAL INFORMATION
ITEM 2. PLAN OF OPERATION
Diluted earnings per share reflects the increase in weighted average common
shares outstanding that would result from the assumed exercise of outstanding
stock options. For the nine months ended October 31, 2000, 107,666 shares were
excluded from the diluted earnings per share calculation, as these shares were
antidilutive.
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 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.
We were organized on May 15, 1998. We acquired Real Estate Opportunities, Inc.
in an acquisition on April 6, 2000. We are in the real estate opportunities
business. Prior to acquisition, we were in the retail arts and craft industry.
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 fiscal quarter ended October
31, 2000 we have received $1,175 in rent. 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. On
October 17, 2000 the property was redeemed and the Company received $119, 210
gross proceeds. The Company used the proceeds to extinguish the related debt and
paid the principal amount of $46,592 and $2,270 of related interest.
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 $606,076 at October 31, 2000. During the
related quarter for which these statements represent, principal and interest was
paid totaling $61,433 and $46,939, respectively on the outstanding debt
obligations. Of the total principal and interest payments paid, $45,995 and
$38,977, respectively, was paid to related parties. Additional proceeds from the
sale of the above foreclosure property were also used to reduce the outstanding
debt. 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 nine months ended October 31, 2000, additions to the
improvements in the property totaled $29,289.
9
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REAL ESTATE OPPORTUNITIES, INC.
PART I. FINANCIAL INFORMATION
ITEM 2. PLAN OF OPERATION
In the first period ended April 30, 2000 we acquired the right to proceeds from
the sale of 83,888 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. The Rule 144
restriction has lifted (September 2000, at the earliest), and 34,322 shares have
been sold. Proceeds from the sale of the stock totaled $82,706.
A portion of the proceeds was used as a short-term loan to an affiliate in the
amount of $65,000. The loan was repaid in the same period (Note 3). Our plan
will be to sell the remaining portion of our holdings and the 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. As of October 30, 2000
the closing price of the ATC stock was $3.75 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 received from the affiliate was $8,500 which was paid on
August 8, 2000 (Note 3). The $2,000 of proceeds has been used in the ordinary
course of business operations. This is our third quarter of operations as a real
estate opportunities business. 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 nine months ended October 31,
2000 the stock sales provided capital totaling $0.00 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, 2001 of
which 227,000 shares have been exercised.
Our short-term debt obligations, totaling $20,000, will be retired to the extent
that we receive proceeds from the sale of additional shares of ATC common stock.
During the period ended October 31, 2000 we made principal payments on notes
payable totaling approximately $45,995 to the affiliates noted above. Our
liquidity and financial health will be dependent upon the success or failure of
our rights.
PART II - 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) No reports on Form 8-K were filed on during the fiscal quarter.
10
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REAL ESTATE OPPORTUNITIES, INC.
SIGNATURES
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: 11/6/00 By: /s/ S. Jeffrey Krupka
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<PAGE> 12
INDEX TO EXHIBITS
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<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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27* Financial Data Schedule.
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