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 June 30, 1996
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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 0-19644
GALLERY RODEO INTERNATIONAL, INC.
---------------------------------
(Exact name of registrant as specified in its charter)
California 33-0300193
---------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
421 North Rodeo Drive, Beverly Hills, California 90210
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (719) 525-1800
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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 periods 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
---- ----
As of June 30, 1996, there were 15,521,681 shares of Common Stock outstanding.
<PAGE>
INDEX
GALLERY RODEO INTERNATIONAL, INC.
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets-March 31, 1996
and December 31, 1995...........................................3
Condensed consolidated income statements-Quarter
ended March 31, 1996 and 1995 ...................................4
Condensed consolidated statements of cash flows-Quarter
ended March 31, 1996 and 1995....................................5
Notes to condensed consolidated financial statements-
March 31, 1996...................................................7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.........................................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 8-K..................................10
SIGNATURE.................................................................11
2
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Part I. Financial Information
Item 1. Financial Statements
<TABLE>
GALLERY RODEO INTERNATIONAL AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
<CAPTION>
ASSETS
June 30, December 31,
1996 1995
----------- -----------
(Unaudited) (Note 1)
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 327 $ 229
Current assets of discontinued operations 1,120,903 1,499,277
----------- -----------
Total Current Assets 1,121,230 1,499,506
LAND HELD FOR FUTURE DEVELOPMENT 2,150,000 2,150,000
LAND HELD FOR SALE -- 370,000
PROPERTY AND EQUIPMENT, net 3,822 3,202
OTHER ASSETS
Note Receivable 1,184,400 500,000
Other (including deposits on work in progress) -- 27,500
Assets of discontinued operations 1,144,812 766,210
----------- -----------
TOTAL ASSETS $ 5,604,264 $ 5,316,418
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 997,000 $ 577,369
Accounts payable 233,309 115,427
Accrued liabilities 350,000 --
Current liabilities of discontinued operations 2,625,849 2,365,695
----------- -----------
Total current liabilities 4,206,158 3,058,491
LONG-TERM DEBT, net of current maturities
(including $862,000 to stockholders) -- 945,682
DEFERRED GAIN ON SALE OF LAND 690,500 --
STOCKHOLDERS' EQUITY
Common stock, 100,000,000 shares, $.001 par value;
15,521,681 and 15,511,681 shares issued and
outstanding and June 30, 1996 and December 31,
1995, respectively 15,522 15,511
Additional Paid in Capital 5,348,700 5,348,210
Accumulated deficit (4,491,116) (3,885,976)
----------- -----------
873,106 1,477,745
Less stockholders' loans (165,500) (165,500)
----------- -----------
Total stockholders' equity 707,606 1,312,245
----------- -----------
$ 5,604,264 $ 5,316,418
----------- -----------
<FN>
See accompanying notes to these financial statements.
Note 1: The balance sheet at December 31, 1995 has been derived from audited
financial statements at that date, but does not include all of the information
and footnotes required by generally accepted principles for complete financial
statements.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
GALLERY RODEO INTERNATIONAL AND SUBSIDIARIES
Consolidated Statements of Operations
For Six Months Ended June 30, 1996
(Unaudited)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, JUNE 30,
--------------------------------- ---------------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ -- $ -- $ -- $ --
COST OF GOODS SOLD -- -- -- --
------------ ------------ ------------ ------------
GROSS PROFIT -- -- -- --
OPERATING EXPENSES 34,796 216,816 170,447 475,790
------------ ------------ ------------ ------------
(LOSS) FROM CONTINUING OPERATIONS (34,796) (216,816) (170,447) (475,790)
OTHER INCOME (EXPENSES):
Gain on sale of land -- -- 99,500 --
Buyout of employment contract -- -- (350,000) --
Rental income 371 140,000 871 305,000
Interest income (expense), net (27,265) (86,773) (61,957) (183,139)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES
AND DISCONTINUED OPERATIONS (61,690) (163,589) (482,033) (353,929)
PROVISION FOR INCOME TAXES -- -- -- --
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE DISCONTINUED
OPERATIONS (61,690) (163,589) (482,033) (353,929)
DISCONTINUED OPERATIONS, NET OF TAX (3,828) (45,172) (123,105) 34,116
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (65,518) $ (208,761) $ (605,138) $ (319,813)
------------ ------------ ------------ ------------
INCOME (LOSS) PER SHARE $ (0.00) $ (0.01) $ (0.04) $ (0.02)
------------ ------------ ------------ ------------
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING 15,516,681 15,369,919 15,516,681 15,650,634
------------ ------------ ------------ ------------
<FN>
See accompanying notes to these financial statements.
</FN>
</TABLE>
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<PAGE>
<TABLE>
GALLERY RODEO INTERNATIONAL AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
<CAPTION>
June 30,
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $(605,138) $(319,813)
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization 27,880 641
Gain on sale of land 99,500 --
Accounts payable 117,882 201,278
Accrued liabilities 350,000
Changes in assets and liabilities related to
Discontinued Operations 169,931 (59,308)
--------- ---------
Net cash provided by (used in) operating activities 160,055 (177,202)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property 150,000 120,000
Increase in deposits on property -- 15,000
Capital expenditures (28,720) (4,411)
--------- ---------
Net cash provided by (used in) investing activities 121,280 130,589
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt, net (281,237) 16,545
Proceeds from shareholder loans -- 15,866
Net cash provided by (used in) financing activities (281,237) 32,411
--------- ---------
Net increase (decrease) 98 (14,202)
CASH AT BEGINNING OF PERIOD 229 14,202
--------- ---------
CASH AT END OF PERIOD $ 327 $ --
--------- ---------
Supplemental disclosures of cash flow information:
Cash paid for year:
Interest $ 101,524 $ 183,456
--------- ---------
<FN>
See accompanying notes to these financial statements.
</FN>
</TABLE>
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GALLERY RODEO INTERNATIONAL AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
June 30,
1996 1995
---------- ----------
Noncash investing and financing activities:
Issuance of restricted stock in satisfaction
of certain debt $ -- $ 47,969
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Sale of Elk Creek Gaming Hall
Notes receivable $ -- $ 780,000
Liabilities assumed by purchaser 615,000
Cash received 120,000
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Total proceeds $ -- $1,515,000
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Sale of Bloomer property
Notes receivable $ 684,400 $ --
Liabilities assumed by purchaser 435,600
Cash received 40,000
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Total proceeds $1,160,000 $ --
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See accompanying notes to these financial statements.
6
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GALLERY RODEO INTERNATIONAL AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL:
Gallery Rodeo International (the "Company") has elected to omit
substantially all other notes to the financial statements. These interim
financial statements should be read in conjunction with the Company's
annual report and report Form 10-KSB for the year ended December 31, 1995.
2. UNAUDITED INFORMATION:
The information furnished herein was taken from the books and records of
the Company without audit. However, such information reflects all
adjustments (consisting only of normal recurring adjustments) which are,
in the opinion of management, necessary to properly reflect results of
interim periods presented. The results of operations for the periods
presented are not necessarily indicative of the results to be expected for
the year.
3. NOTES RECEIVABLE:
a. On May 17, 1994, the Company entered into an agreement to lease
the premises previously known as the Turf Club Casino, which was located
contiguous to the Elk Creek Gaming Hall. Subsequently, on June 30, 1995
the Company sold the Elk Creek Gaming Hall and assigned the Turf Club
lease. The terms of the agreement provided the terms of the sale of the
Elk Creek Gaming Hall to be a sales price of $1,500,000 (not including a
$20,000 discount) in the form of a $365,000 down payment; a promissory
note of $500,000 bearing interest at 10% with all principal due in full
within five years from the close of escrow, and the buyer's assumption of
two promissory notes totaling $615,000.
b. On June 30, 1995, the Company entered into an agreement for the
sale of certain land and buildings known as the Bloomer property located
in Cripple Creek, Colorado. Escrow closed with respect to the transaction
in May, 1996. Under the terms of the agreement, the Company received
$150,000 on close of escrow ($15,000 of which was paid on June 30, 1995,
and the remaining paid subsequently); three promissory notes with an
aggregate principal of $624,400 (bearing interest at 7.5%); and assumption
by the buyer of existing indebtedness totaling $385,600.
4. LAND HELD FOR FUTURE DEVELOPMENT:
In May, 1993, the Company purchased 10 contiguous lots in Cripple Creek,
Colorado, to be the site of the Company's proposed Wandering Star Hotel
Casino project (the "Wandering Star Project"). The Wandering Star Project
is located within the Cripple Creek approved gaming district. The Company
anticipates the Wandering Star Project, when completed, will add
approximately 200 hotel rooms to a town that currently has approximately
400 hotel rooms, and which the Company estimates currently is in need of
approximately 1500 rooms. In addition, the Company expects that the casino
floor area of the Wandering Star Project, at approximately 24,000 square
feet, will be approximately three times larger than the average casino
floor area in the town of Cripple Creek.
5. DISCONTINUED CONTINUAL OPERATIONS:
As part of the March 29, 1996 agreement with Stephen R. Thompson which
brought about the management and Board of Directors restructuring of May,
1996, the Company entered into an asset purchase agreement dated May 9,
1996, pursuant to which the Company has agreed to sell, its retail art
sales and gallery operations, including all licenses, inventories, and
operating assets to Thompson for $1,000,000. In payment for the assets,
Thompson has delivered a note for $1,000,000 secured by stock owned by
Thompson and Clipper industries
7
<PAGE>
in the Company. The note will bear interest at 8%, and will be due and
payable five years from May 9, 1996, with first payment of interest due in
February, 1997.
As the Company intends to divest itself of the art operations, such
operations and related assets and liabilities have been reflected as
discontinued operations in the accompanying financial statements. Losses
from the art operations from April 1, 1996 to May 9, 1996 (the effective
date of the sale), have been deferred.
6. DEFERRED GAIN ON SALE:
The sale of the Bloomer property resulted in a gain on sale of $790,000.
The gain on sale will be recognized on the installment method as principal
is collected on the notes receivable of $624,400, and payoff of the
assumed debt of $385,600.
7. SUBSEQUENT EVENTS:
In July 1996, the Company entered into transactions with affiliated
corporations and individuals for the following purposes:
o Microtech Medical Systems, Inc. (a public company in which the control
group managed the corporation) - sale of $ 500,000 note receivable at a
discount for $450,000.
o InnerCircle Group Incorporated (a management company owned by the
control group) - $100,000 for management fees incurred pursuant to
management service contract.
o Microtech Medical Systems, Inc. (a public company in which the control
group managed the corporation) - sale of $ 208,000 note receivable at a
discount for $200,000.
o Stephen M. Thompson (former Chairman and CEO) - $165,000 note payable
to Thompson for his assumption of $165,000 note of third party, paid by
Thompson.
o Stephen M. Thompson (former Chairman and CEO) - $200,000 in partial
payment of $350,000 buyout on his employment contract.
8
<PAGE>
Item 2
GALLERY RODEO INTERNATIONAL AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Unaudited)
GENERAL:
The Company's financial condition and results of operations are directly
affected by the following transactions:
On May 9, 1996, the Company's former president, (Thompson) closed a management
restructuring agreement with the Company and present members of its Board of
Directors. In connection with the said agreement, the three prior members of the
Company's Board of Directors resigned and five new Board members and four new
officers affiliated with the new Control Group were appointed. As part of the
agreement, the Company has agreed to purchase Thompson's employment contract for
$350,000 and to sell to Thompson and his affiliates the Company's art business
for $1,000,000, which price was in excess of its appraised value.
As the Company has to divested itself of the art operations, such operations and
related assets and liabilities have been reflected as discontinued operations in
the accompanying financial statements.
The Company intends to take advantage of gaming and related real estate markets
and opportunities, especially those in Cripple Creek, Colorado for its planned
future operations, and specifically concentrate upon the development of its
Wandering Star Project.
FINANCIAL CONDITION
As of June 30, 1996, the Operating Company's working capital was a deficit of
approximately $1,580,000, a decrease of approximately $693,000. The increased
deficit was attributable primarily to the accrual of $350,000 for the buyout on
Stephen M. Thompson's employment agreement and reclassification of long-term
debt to current maturities of $420,000. Subsequent to June 30, 1996, working
capital was improved by the following transactions:
o $450,000 cash received on the sale of $500,000 note receivable due from an
unaffiliated company. This note was purchased by a public company, which is
also managed by the Control Group.
o $200,000 cash received on the sale of $208,000 note receivable due from an
entity owned by the Control Group.
RESULT OF OPERATIONS:
As the Company's Board of Directors has decided to sell the art business, the
statement of operations has been restated to reflect these operations as
discontinued operations. Discontinued operations represent income through May 9,
1996 related to the prior art operations.
9
<PAGE>
PART II - OTHER INFORMATION
Item 1 Through 5 - No response required.
Item 6 - Exhibits and reports on Form 8-K.
(a) Exhibit
11.1* Statement re Computation of Per Share Earnings.
27* Financial Data Schedule.
(b) Reports on Form 8-K
A Form 8-K was filed May 9, 1996 regarding management change.
* These exhibits will be filed by amendment.
10
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SIGNATURE
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.
GALLERY RODEO INTERNATIONAL
(Registrant)
DATE: 8/16/96 BY: /s/ Kenneth M. Cahill
------------------------ --------------------------------------
KENNETH M. CAHILL, PRESIDENT
DATE: 8/16/96 BY: /s/ J. Royce Renfrow
------------------------ --------------------------------------
J. ROYCE RENFROW, SECRETARY
DATE: 8/16/96 BY: /s/ James A. Humpal
------------------------ --------------------------------------
JAMES A. HUMPAL, TREASURER
Principal Financial Officer
11
