FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the
Securities and Exchange Act of 1934
For Three Months Ended Commission File Number
July 31, 1996 33-4734-D
RILEY INVESTMENTS, INC.
(Formerly Pace Group International, Inc.)
(Exact Name of Registrant as Specified in its Charter)
OREGON 93-095078
State of Incorporation (Federal I.D. Number)
12725 S.W. 66th, Portland, OR 97223
(Address of Principal Executive Offices) (Zip Code)
(503) 684-4111
(Registrant's Telephone Number)
Indicate by check mark whether the Registrant (1) has filed all reports to be
filed by Section 13 of 15 (d) of the Securities Act of 1934 during the preceding
12 months (or for the 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
-----
The number of shares outstanding of each of the Issuer's classes of Common
Shares, as of the latest practicable date.
$.0001 Par Value 386,702 Common Shares
Common Shares Outstanding at April 30, 1996
(Class of Securities) (Outstanding Securities)
RILEY INVESTMENTS, INC.
(Formerly Pace Group International and Subsidiary)
PART I: FINANCIAL INFORMATION
RILEY INVESTMENTS, INC.
(Formerly Pace Group International, Inc. and Subsidiary)
Condensed Balance Sheets
Unaudited
ASSETS July 31, 1996 July 31,1995
Current Assets
Cash $10 $ 134,469
Accounts receivable, net 0 159,493
Inventory 0 12,025
Other 0 26,633
-------- -----------
Total current assets 10 332,620
-------- -----------
Property and equipment, at cost:
Furniture and equipment 0 2,662,062
Less accumulated depreciation 0 (2,520,614)
-------- -----------
Net property and equipment 0 141,448
-------- -----------
Capitalized production costs 0 33,312
-------- -----------
Total assets $10 $ 507,380
======== ============
LIABILITIES AND NET CAPITAL DEFICIENCY
Current Liabilities:
Notes payable $0 $ 20,000
Accounts payable 0 21,343
Accrued liabilities 0 168,064
Deferred revenues 0 162,014
Long-term debt due within one year 0 39,753
-------- -----------
Total current liabilities 0 411,174
Long-term debt due after one year 0 39,897
Long-term debt due to related party 0 370,570
-------- -----------
Total liabilities 0 821,641
-------- -----------
Stockholder's Equity (Deficiency):
Common stock, $.0001 par value;
16,000,000 shares authorized, 386,702
issued and outstanding as of July
31, 1996 (after 15 to 1 reverse 39 580
split); 5,800,531 issued and
outstanding July 31, 1995
Additional paid-in capital 544,131 543,580
Retained deficit (544,160) (858,421)
-------- -----------
Total stockholders' equity 10 (314,261)
(deficiency)
-------- -----------
Total liabilities and $10 $ 507,380
stockholders' equity ======== ===========
See accompanying notes to financial statements.
RILEY INVESTMENTS, INC.
(Formerly Pace Group International, Inc. and Subsidiary)
Condensed Statements of Operations
Unaudited
Three Months Ended Nine Months Ended
July 31, July 31, July 31, July 31,
1996 1995 1996 1995
Revenues $0 $788,074 $0 $987,318
Cost of revenues 0 (640,411) 0 (792,682)
---- --------- -------- ---------
Gross profit 0 147,663 0 194,636
---- --------- -------- ---------
Operating Expenses:
Marketing 0 35,861 0 59,953
General and administrative 0 74,800 0 203,722
---- --------- -------- ---------
Total operating expenses 0 164,783 0 263,675
---- --------- -------- ---------
Operating loss 0 (17,120) 0 (69,039)
---- --------- -------- ---------
Other Income (Expense):
Interest, net 0 (16,947) 0 (25,214)
Gain on transfer of assets and
liabilities 0 0 353,228 0
---- --------- -------- ---------
Total income (expense) 0 (16,947) 353,228 (25,214)
---- --------- -------- ---------
Net loss $0 $(34,067) $353,228 $ (94,253)
---- --------- -------- ---------
Net loss per share
(retroactively restated for 15 $0.0 $(0.0881) $0.9134 $(0.2437)
to 1 reverse stock split) ===== ======== ======= ========
See accompanying notes to financial statements.
RILEY INVESTMENTS, INC.
(Formerly Pace Group International, Inc. and Subsidiary)
Condensed Statements of Stockholders' Equity (Deficiency)
for the nine months ended July 31, 1996 and 1995
(Unaudited)
Common Stock Additional Net
Issued and Paid-in Retained Capital
Outstanding $ Capital Deficit Deficiency
Balance at November 1,
1994 5,800,531 $580 $543,580 ($764,168) ($220,008)
Net loss (94,253) (94,253)
--------- ---- -------- ---------- --------
Balance at July 31,
1995 5,800,531 $580 $543,580 ($858,421) ($314,261)
========= ==== ======== ========== =========
Balance at November 1,
1995 5,800,531 $580 $543,580 ($897,388) ($353,228)
Net income from
transfer of
substantially all
assets and liabilities 353,228 353,228
to former majority
shareholder
15 to 1 reverse stock (5,413,829) (541) 541 0
split
Additional capital
contribution 10 10
---------- ----- -------- --------- -----
Balance at July 31,
1996 386,702 $39 $544,131 ($544,160) $10
========== ==== ======== ========= ====
See accompanying notes to financial statements.
RILEY INVESTMENTS, INC.
(Formerly Pace Group International, Inc. and Subsidiary)
Condensed Statements of Cash Flows
Unaudited
Three Months Ended Six Months Ended
July 31, July 31, July 31, July 31,
1996 1995 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $0 $(34,067) $353,228 $(94,253)
Adjustment to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization 0 25,544 0 77,447
Changes in assets and liabilities:
Accounts receivable 0 61,315 0 129,183
Inventory 0 518 0 1,042
Capitalized production costs 0 55 0 110
Other assets 0 10,199 0 (7,632)
Accounts payable 0 11,719 0 (9,814)
Accrued liabilities 0 91,665 0 127,156
Deferred revenue 0 (65,938) 0 (122,597)
Assets and liabilities transferred to
former majority shareholder not
affecting operations 0 0 (353,228) 0
--- ------- ------- --------
Net cash provided by operating
activities 0 74,709 0 100,642
--- ------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Transfer of cash assets to former
majority shareholder 0 (550) (36,562) (550)
--- ------- ------- -------
Net cash used in investing
activities 0 (550) (36,562) (550)
--- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt 0 (13,534) 0 (27,441)
--- ------- ------- -------
Net increase (decrease) in cash 0 60,625 (36,562) 72,651
Cash, beginning of period 10 73,844 36,562 61,818
--- ------- ------- -------
Cash, end of period $10 $134,469 $0 $134,469
=== ======= ====== =======
See accompanying notes to financial statements.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JULY 31, 1996
RILEY INVESTMENTS, INC.
(Formerly Pace Group International, Inc. and Subsidiary)
Notes to Condensed Financial Statements
1. Significant Accounting Policies
THE COMPANY AND DESCRIPTION OF BUSINESS
Riley Investments, Inc. (the Company) was incorporated in October, 1987 in
the State of Oregon under the name Pace Group International, Inc. On November
1, 1995 the name of Pace Group International, Inc. was changed to Riley
Investments, Inc.
Prior to November 1, 1995 the Company owned 100% of Pace International
Research (PIR) and produced, developed and finished English-Language-Training
programs for worldwide sale, distribution or licensing in the form of
audio/video tapes and desktop publishing text materials as well as post
production services for commercial and industrial enterprises.
Effective November 1, 1995, substantially all of the Company's assets and
liabilities, consisting of the common stock in PIR, the corporate name and
goodwill associated therewith were transferred to the former majority
shareholder of the Company, Edwin T. Cornelius, Jr. Also, on November 1, 1995,
Mr. Cornelius and others sold shares of common stock to Bridgeworks Capital to
enable Bridgeworks Capital to have majority control of the Company.
The assets and liabilities transferred to Mr. Cornelius were recognized at
their estimated fair market value and a gain of $353,228 on the transfer was
recognized by the Company in the financial statements as of November 1, 1995.
Following is a summary of the assets and liabilities transferred:
Liabilities, consisting primarily of a note
payable to Mr. Cornelius for $370,570 $615,028
Current assets, consisting primarily of
cash of $36,562 and accounts receivable
of $75,865, at cost which approximates
fair market value (144,473)
Property and equipment, at cost (fair
market value was $470,555) (117,327)
-----------
Gain on transfer $ 353,228
===========
After the transfer of assets and liabilities, the Company has no operations
and is basically a "shell" corporation.
BASIS OF CONSOLIDATION
Through October 31, 1995, the financial statements included the accounts of
the Company and its wholly owned subsidiary, PIR. All significant intercompany
accounts and transactions have been eliminated.
DEPRECIATION
Depreciation of furniture and equipment through October 31, 1995 has been
computed using straight-line and accelerated methods over estimated useful lives
of five to seven years.
CAPITALIZED PRODUCTION COSTS
Costs associated with the production of video, audio and printed English-
Language-Training products were capitalized as either inventory or capitalized
production costs. Capitalized production costs were generally amortized in the
same ratio that current gross revenues bear to anticipated total gross revenues
for each product. In some instances the original estimates of gross revenues
may be revised as the sale pattern evolves.
REVENUE AND COST RECOGNITION
Revenues from sales of products through October 31, 1995 were recognized at
the time products were delivered. Revenues from services rendered were
recognized as they were performed. Through October 31, 1995, the Company also
received royalties on the sale of educational materials pursuant to the terms of
certain licensing agreements. Royalties were recognized as income when earned
pursuant to the agreements.
Licensees paid a fee for the right to distribute the Company's products in
designated territories. Recognition of income from these payments was deferred
until the period in which the materials were delivered and accepted by the
licensee in accordance with the terms of the license agreement.
INCOME (LOSS) PER SHARE
Net income (loss) per share has been computed based on the weighted average
common shares outstanding of 386,702, retroactively reflecting a 15 to 1
reverse stock split (Note 2).
2. Reverse Stock Split
Effective January 31, 1996, the Board of Directors approved a 15 to 1
reverse stock split of the Company's issued and outstanding common shares.
Accordingly, the total number of issued shares prior to the reverse stock
split was 5,800,531; the number after the split is 386,702.
3. Sales and Operating (Loss)
Through October 31, 1995, the Company developed, produced and finalized
English-Language-Training (ELT) programs and also provided audio/video post-
production services. The following table includes the relative amounts of net
sales and operating loss of the Company by ELT products and post-production
services for the three months and the six months in the periods ended July 31,
1995.
Three Months Six Months
NET SALES
Post-production services $382,812 $566,726
ELT products:
Books and audio/video tapes 405,262 420,592
-------- --------
Total net sales $788,074 $987,318
-------- --------
OPERATING LOSS
Post production services $(37,305) $ (8,563)
ELT products 20,185 60,476
-------- --------
Total operating loss $(17,120) $(69,039)
-------- --------
It is not practical to present the aggregate carrying amount of
identifiable assets by audio/video post-production services and ELT products.
The Company is unable to provide ELT programs without the use of the assets in
the post-production operation. Management believes it has no practical way of
allocating such costs for determining asset utilization.
4. Letter of Intent
On February 28, 1996, the Company signed a letter of intent to acquire
Airfair Publishing, Inc., an Austin, Texas-based travel services group that
includes Airfair Magazine, Interline Representatives, and Interline TRAVEL.
In the combination, the Company intends to issue an aggregate of 9,180,000
shares of common stock, which would represent approximately 96% of the common
stock to be outstanding after the transaction. As part of the transaction,
representatives of Aifair would assume control of the board of directors and
management of the Company, whose name would be changed to Airfair Publishing,
Inc.
The Company and management of Airfair have agreed to the terms of the
combination, however, the agreement has not yet been approved by the
shareholders of Airfair. Accordingly, this event had no effect on the
Company's financial statements since the agreement is subject to approval by
Airfair's shareholders.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
JULY 31, 1996
LIQUIDITY AND CAPITAL RESOURCES AND RESULTS OF OPERATIONS
Effective November 1, 1995, the Company, formerly Pace Group International,
Inc., transferred substantially all of its assets and liabilities to its former
majority shareholder, Edwin T. Cornelius, Jr. Additionally, on November 1, 1995
Mr. Cornelius and certain others relinquished control of the Company through the
sale of common shares to Bridgeworks Capital.
Accordingly, the Company incurred a gain on the transfer of net assets and
liabilities of $353,228 on November 1, 1995. Since the Company essentially had
no assets and liabilities after November 1, 1995, the Company had no liquidity,
capital resources or results of operations as of and for the three months and
the six months in the periods ended July 31, 1996. The Company is now
basically a shell corporation.
Accordingly, meaningful comparisons of liquidity, capital resources and
results of operations as of and for the three months and the six months in the
period ended July 31, 1996, as compared to the periods ended April 30, 1995,
is not practical.
PART II: OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
The following form 8-K was filed during the quarter ended July 31, 1996.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RILEY INVESTMENTS, INC.
(Registrant)
Dated: August 28, 1996 By: /s/ Mark T. Waller
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AS OF JULY 31, 1996, AND STATEMENTS OF OPERATIONS FOR THE NINE MONTHS
ENDED JULY 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
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