<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
- --- OF 1934
For the quarterly period ending March 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the transition period from N/A to
---
Commission file number: 0-19644
GALLERY RODEO INTERNATIONAL
(Name of Small Business Issuer in Its Charter)
CALIFORNIA 33-0300193
(State or Other Jurisdiction of Incorporation (I.R.S. Employer
or Organization) Identification No.)
421 North Rodeo Drive, Beverly Hills, California 90210
(Address of principal executive office)
Issuer's telephone number, including area code: (310) 273-2105
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 No X
--- ---
The number of shares outstanding of the Registrant's Common Stock as of
March 31, 1996 was 15,521,681 shares.
<PAGE>
GALLERY RODEO INTERNATIONAL
TABLE OF CONTENTS
Page
Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - Assets
March 31, 1996 (unaudited) and December 31, 1995 ..... 3
Consolidated Balance Sheets - Liabilities & Stockholders'
Equity March 31, 1996 (unaudited) and
December 31, 1995 .................................... 4
Consolidated Statements of Operations (unaudited)
Three Months ended March 31, 1996 and
Three Months ended March 31, 1995 .................... 5
Consolidated Statements of Cash Flows (unaudited)
Three Months ended March 31, 1996 and
Three Months ended March 31, 1995 .................... 6
Notes to Consolidated Financial Statements (unaudited) ... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................ 8
Item 2A. Factors That May Affect Future Results ................... 14
Item 3. Subsequent Event.......................................... 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..................................... 15
Item 2. Changes in Securities ................................ 15
Item 3. Defaults Upon Senior Securities ...................... 15
Item 4. Submission of Matters to a Vote of Security Holders .. 15
Item 5. Other Information .................................... 15
Item 6. Exhibits and Reports on Form 8-K ..................... 15
Footnotes to Exhibits and Reports on Form 8-K ........ 17
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GALLERY RODEO INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---------- ----------
(unaudited)
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 66,340 $ 357,753
Accounts Receivable, less allowance for doubtful 99,715 151,756
accounts of $18,796 and $53,748 at March 31, 1996
and December 31, 1995 respectively
Inventories 1,018,258 989,997
---------- ----------
Total Current Assets 1,184,313 1,499,506
LAND HELD FOR FUTURE DEVELOPMENT 2,150,000 2,150,000
LAND HELD FOR SALE 370,000 370,000
PROPERTY AND EQUIPMENT, net 235,863 221,234
OTHER ASSETS
Note Receivable 500,000 500,000
Advances to officers/shareholders 124,724 112,405
Distribution rights, net 67,730 66,230
Deposit on real property 260,614 260,614
Other (including deposits on work in progress) 492,545 136,429
---------- ----------
$5,385,789 $5,316,418
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE>
GALLERY RODEO INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---------- -----------
(unaudited)
CURRENT LIABILITIES
<S> <C> <C>
Current maturities of long-term debt $ 337,343 $ 595,112
Accounts payable 766,862 770,944
Accrued expenses and other liabilities 166,681 452,661
Customer deposits 1,652,538 1,156,684
---------- -----------
Total Current Assets 2,923,424 2,975,401
LONG TERM DEBT, less current maturities
(including $862,000 to stockholders) 1,132,048 945,682
ADVANCES FROM STOCKHOLDERS 83,090 83,090
STOCKHOLDERS' EQUITY
Common stock, 100,000,000 shares; $.001 par
value; 15,521,681 and 15,511,681 shares issued
and outstanding at March 31, 1996 and
December 31, 1995 respectively 15,522 15,511
Additional paid in capital 5,348,700 5,348,210
Accumulated deficit (3,951,495) (3,885,976)
---------- -----------
$1,412,727 $ 1,477,745
Less stockholders' loans (165,500) (165,500)
---------- -----------
Total stockholders' equity 1,247,227 1,312,245
---------- -----------
$5,385,789 $ 5,316,418
---------- -----------
---------- -----------
</TABLE>
The accompanying notes are an integral part of this statement.
4
<PAGE>
GALLERY RODEO INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months ended March 31,
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
SALES $ 947,675 $ 955,784
COST OF SALES 204,203 300,929
------------- -------------
GROSS PROFIT 743,472 654,855
OPERATING EXPENSES
Selling Expenses 227,069 294,027
General and administrative expenses 555,839 601,770
------------- -------------
INCOME (LOSS) FROM OPERATIONS (39,436) (240,942)
OTHER INCOME (EXPENSE)
Rental income 371 140,000
Interest income (expense), net (26,453) (107,819)
------------- -------------
LOSS BEFORE INCOME TAXES (65,518) (208,761)
INCOME TAXES - -
------------- -------------
NET LOSS $ (65,518) $ (208,761)
------------- -------------
------------- -------------
LOSS PER SHARE $ ( 0.00) $ ( 0.01)
------------- -------------
------------- -------------
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 15,516,681 15,369,919
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of this statement.
5
<PAGE>
GALLERY RODEO INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months ended March 31,
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
------------- ----------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net cash provided by (used in) operating activities $ (192,790) $ 37,355
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (27,720) (4,411)
------------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayment) proceeds from long-term debt, net (71,403) (51,070)
Proceeds from stockholder loan - 43,376
------------- ----------
Net cash (used in) provided by financing activities (71,403) (7,694)
------------- ----------
NET INCREASE (DECREASE) IN CASH (291,413) 25,250
CASH AT BEGINNING OF PERIOD 357,753 14,202
------------- ----------
CASH AT END OF PERIOD $ 66,340 $ 39,452
------------- ----------
------------- ----------
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ (45,917) $ (88,017)
------------- ----------
------------- ----------
NON CASH INVESTING AND FINANCING
ACTIVITIES:
Issuance of restricted stock in satisfaction of
certain debt $ - $ 47,969
------------- ----------
------------- ----------
</TABLE>
The accompanying notes are an integral part of this statement.
6
<PAGE>
GALLERY RODEO INTERNATIONAL AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments, consisting of normal
recurring adjustments, necessary to present fairly the consolidated
financial position of Gallery Rodeo International and Subsidiaries (the
Company) as of March 31, 1996 and December 31, 1995 and the results of its
operations and its cash flows for the three months ended March 31, 1996 and
March 31, 1995. The results of its operations and cash flows for the three
months ended March 31, 1996 are not necessarily indicative of the results
to be expected for any other interim period or the full year. These
consolidated financial statements should be read in combination with the
consolidated financial statements and notes thereto for the year ended
December 31, 1995.
2. On May 17, 1994, the Company entered into an agreement to lease the
premises previously known as the Turf Club Casino, which is located
contiguous to the Elk Creek Gaming Hall. Subsequently, on June 13, 1995,
the Company entered into an agreement for the sale of the Elk Creek Gaming
Hall and assignment of the lease of the Turf Club Casino. While the
agreement was executed on June 30, 1995, the terms of the agreement provide
that Elk Creek Gaming Hall is to be sold for $1,500,000 (not including
discount of $20,000) in the form of a $365,000 down payment; a promissory
note in the amount of $500,000 bearing interest at 10% with all principal
due in full within five years from close of escrow and the buyer's
assumption of two promissory notes - one in the principal amount of
$361,000 and another in the principal amount of $254,000.
3. 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 Cripple Creek's approved gaming district, at the entrance
to the downtown gaming district, and is situated along Highway 67, the only
paved road that carries traffic to the town. The Company anticipates that
the Wandering Star Project, when completed, will add approximately two
hundred hotel rooms to a town that currently has approximately 200 hotel
rooms, and which the Company estimates currently is in need of
approximately 1,500 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.
4. On June 30, 1995, the Company entered into an agreement for the sale of the
land and buildings in Cripple Creek, Colorado. Under the terms of the
Agreement, the buyer is to purchase the Bloomer Property at a price of
$1,160,000 with payment to the Company in the form of $150,000 on close of
escrow ($15,000 of which was paid on June 30, 1995 and the remaining
$135,000 to be paid subsequently); three promissory notes with an aggregate
principal amount of $624,000 (bearing interest at 7.50%); and assumption,
by the buyer, of existing indebtedness totalling $385,600. As of March 31,
1996, the buyer has not closed escrow and, as a result, the Company has not
recorded the sale of the Bloomer Property.
7
<PAGE>
GALLERY RODEO INTERNATIONAL AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report has been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information normally included in
annual reports has been condensed or omitted pursuant to such rules and
regulations. This report should be read in conjunction with the Company's
latest Annual Report on Form 10-KSB for year ended December 31, 1995, a copy of
which may be obtained by writing to Gallery Rodeo International, 320 East
Costilla, Colorado Springs, Colorado 80903.
INTRODUCTION
Although the Company is operating primarily as a fine retailer and
publisher, as it has since inception, the Company has also acquired various
properties in Colorado on which the Company intends to conduct hotel and gaming
casino operations.
On May 29, 1996, the Company filed Form 8-K disclosing that the Company's
Board of Directors has approved a management agreement that resulted in a
restructuring of its Board of Directors and a change of focus to concentrate its
business on the development of its hotel and gaming properties. Stephen M.
Thompson will resign as Chairman and CEO and remain as a Director. Mr. Kenneth
M. Cahill, with an extensive background in the hotel and gaming industry, will
be named as the Company's new Chairman, President and CEO. Messrs. Jack
Schneider and George M. Maxson will resign from the Board, being replaced with
Messrs. Darel Tiegs, J. Royce Renfrow and Ray Buchard.
The art gallery operations of the Company will be spun out to management
for $1 million in cash and securities. The Company's decision to divest itself
of its art business stemmed from results of a series of meeting with the
investment banking community over the past year, wherein management learned that
funding would not be available to Gallery Rodeo International, Inc. to further
the development of its gaming properties without the Company obtaining qualified
management in the field of gaming and hotel operations.
FINE ART BUSINESS
The Company operates fine art galleries in key resort and upscale
communities. The primary gallery is located in the "Rodeo Collection" building
at 421 North Rodeo Drive in the exclusive "Golden Triangle" section of Beverly
Hills, California. The Company also maintains its principal executive offices
at this location. In addition to the primary gallery located in Beverly Hills,
the Company operates three other Company-owned galleries, two located in Beverly
Hills, California and one in Lake Arrowhead, California.
8
<PAGE>
In November 1994, the Company entered into a license agreement with Macy's
California, Inc., a national retail chain department store. Pursuant to the
agreement, the Company is granted the right to operate a retail art facility in
Macy/Bullock's San Francisco store. The initial term of the agreement is four
years with Macy's entitled to 15% of the net sales.
Pursuant to agreements, the Company has been granted certain reproduction
and marketing rights from the estate of Picasso to market certain Picasso
artworks. The Company's rights are exclusive only with respect to certain
images and editions. Sales under the Picasso agreements accounted for
approximately 3% of the Company's total sales in 1995.
Pursuant to license agreements, the Company has been granted certain
reproduction and marketing rights from Red Star Corporation through its
licensee, the Renoir Foundation for the Arts, to reproduce and market certain
Renoir bronze sculptings. These limited edition bronzes are cast from original
plasters with rights supported by the Renoir Foundation for the Arts and certain
members of the Renoir family. The Company has the exclusive reproduction and
marketing rights to such bronzes under such agreements. Such rights are
nonassignable. Sales under these agreements accounted for approximately 1% of
the Company's total sales in 1995.
The Company also contracts with a number of living artists. Generally,
these artists create artworks on an exclusive basis for the Company. The
Company then sells and distributes original works and publishes limited edition
reproductions of certain works. Among the artists with contractual
relationships with the Company are Brett-Livingstone Strong, Cai Jiang Bai,
Frederick E. Hart, Jiang Li, and Hu Yong Kai, and it is the focus of the Company
to review constantly and evaluate art and artists that will fit the marketing
profile consistent with the Company's growth.
REAL PROPERTY DEVELOPMENT
Wandering Star Project in Cripple Creek, Colorado
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 Cripple Creek's approved gaming district, at the entrance to the downtown
gaming district, and is situated along Highway 67, the only paved road that
carries traffic to the town. The Company anticipates that the Wandering Star
Project, when completed, will add approximately two hundred hotel rooms to a
town that currently has approximately 200 hotel rooms, and which the Company
estimates currently is in need of approximately 1,500 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.
9
<PAGE>
Based upon preliminary construction budget estimates obtained by the
Company, it is currently estimated that the Wandering Star Project will require
over $12 million to complete, excluding additional costs for offsite road,
utility construction and furniture, fixtures and equipment. In order to
complete the Wandering Star Project, the Company would need to seek additional
third-party financing in the form of equity investments and/or the incurrence of
additional debt. There can be no assurance that the Company would be able to
obtain such financing.
There currently are 24 casinos located in Cripple Creek, most of which are
relatively small and strictly gaming operations without hotel rooms. The
Holiday Inn has 62 rooms and the older Imperial Hotel contains 27 rooms. In
addition, a 50-room expansion to the existing 16-room Best Western Hotel and
Casino is planned. An addition to the Holiday Inn is in progress. Competition
in the gaming industry also comes from gaming facilities nationwide, including
casinos in Nevada and New Jersey, and other sources, such as state sponsored
lotteries, parimutuel wagering and gaming in new jurisdictions.
The Company's gaming operations for the Wandering Star Project are subject
to licensing by Colorado governmental authorities. The Company's applications
for project approval for the site have been granted by the City of Cripple
Creek. The Company currently is awaiting building approval for the project. No
assurance can be made that the necessary licenses and approvals will be
obtained.
Elk Creek Gaming Hall
On May 5, 1994, the Company purchased the Elk Creek Gaming Hall in Cripple
Creek, Colorado. The property was acquired by the Company from Mountainscape
Holding Corporation in consideration of 1,000,000 shares of the Company's
restricted Common Stock at a value of $.50 per share, the Company's assumption
of approximately $635,000 in debt and payment of $150,000.
On May 17, 1994, the Company entered into an agreement to lease the
premises previously knows as the Turf Club Casino, which is located contiguous
to the Elk Creek Gaming Hall. Subsequently, on June 13, 1995, the Company
entered into an agreement for the sale of the Elk Creek Gaming Hall and
assignment of the lease of the Turf Club Casino. While the agreement was
executed on June 30, 1995, the terms of the agreement provide that Elk Creek
Gaming Hall is to be sold for $1,500,000 (not including discount of $20,000) in
the form of a $365,000 down payment; a promissory note in the amount of $500,000
bearing interest at 10% with all principal due in full within five years from
close of escrow and the buyer's assumption of two promissory notes - one in the
principal amount of $361,000 and another in the principal amount of $254,000.
10
<PAGE>
RESULTS OF OPERATIONS
Three Month Periods Ended March 31, 1996 and March 31, 1995
Net sales for the three month period ended March 31, 1996 (the "1996 First
Quarter") were $947,675 as compared to $955,784 for the three months ending
March 31, 1995 (the "1995 First Quarter") which represents a decrease of .84%.
Cost of sales for 1996 First Quarter were $204,203 as compared to $309,929
for 1995 First Quarter. Cost of sales as a percentage of net sales was 21.54%
and 31.49% for 1996 First Quarter and 1995 First Quarter respectively. The
decrease in the cost of sales percentage from 1995 First Quarter to 1996 First
Quarter primarily was due to changes in the makeup of the Company's sales.
Gross profits for 1996 First Quarter was $743,472 or 78.45% of sales,
compared to $654,855 or 68.51% of sales in 1995 First Quarter.
Selling expenses for 1996 First Quarter were $227,069, compared to $294,027
for 1995 First Quarter. Selling expenses, as a percentage of net sales were
23.96% and 30.76% in the first quarter of 1996 and 1995 respectively. Selling
expenses include advertising, sales commission, brochures, and other promotional
material costs, and certain salary expenses. The decrease in selling expenses
as a percentage of net sales from 1996 to 1995 was due primarily to the decrease
in advertising and promotional expenses.
General and administrative expenses for 1996 First Quarter were $555,839,
compared to $601,770 for 1995 First Quarter. General and administrative
expenses as a percentage of net sales were 58.65% and 62.96% in the first
quarter of 1996 and 1995 respectively. General and administrative expense costs
include all corporate overhead, all occupancy costs and interest. General and
administrative expenses are primarily fixed expenses.
The increase in general and administrative expense as a percentage of net
sales in 1996 Quarter was primarily due to costs incurred by the Company in
connection to real property acquisitions and management as compared to 1995
First Quarter. The Company also recorded rental income of $140,000 during the
1995 First Quarter arising from the rental of Elk Creek Gaming Hall in Cripple
Creek, Colorado. The Company also recorded $107,910 in interest expense (net of
interest income) during 1995 First Quarter. By comparison, the Company did not
record any rental income during the 1996 First Quarter and it recorded $26,453
in interest expenses.
As a result, the Company reported a net loss of $65,518 for the 1996 First
Quarter, compared with a net loss of $208,761 for the 1995 First Quarter. This
resulted in a net loss per share of $0.00 in the 1996 First Quarter, compared
with net loss per share of $0.01 for 1995 First Quarter. The decrease in the
loss was due primarily to reduced selling expenses, a decrease in the cost of
sales relative to net sales, and the decrease in rental income.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
There are several components which affect the Company's ability to meet its
financial needs, including funds generated from operations, levels of accounts
receivable and inventories, capital expenditures, short-term borrowing capacity
and the ability to obtain long-term capital on reasonable terms.
For 1996 First Quarter, the Company experienced a negative cash flow before
financing activities of $220,510. After financing activities (which generated a
net negative $71,403), the Company recorded a net decrease in cash for the 1996
First Quarter of $291,413. In the 1995 First Quarter, the Company experienced a
positive cash flow of $32,944 before any financing activities. The increase in
negative cash flow before financing activities was attributable primarily to the
Company's increase in the amount of deposits received on art.
As of March 31, 1996, the Company had $337,343 in long-term debt due and
payable on or before March 31, 1997.
Note payable, non-interest bearing, payable in
monthly principal installments of $5,000. Note
collateralized by a fourth deed of trust on the
Bloomer property. $ 60,000
Notes payable, bearing interest at rates ranging
from 11.05% to 20.5%, payable in monthly principal
and interest payments through June 1997. Note
collateralized by certain inventory. 190,048
Note payable, bearing interest at 18%, interest only
payable monthly with final principal and interest due
May 1996. Note collateralized by a first deed of
trust on the Bloomer property. 325,600
10% debenture due November 1999, convertible to the
Company's common stock at an exercise price of $1.50
per share. 20,000
Note payable to stockholder, bearing interest at 18%,
interest only payable monthly with final principal and
interest due May 1997. Note collateralized by a first
deed of trust on the Wandering Star property. 200,000
Note payable to stockholder, bearing interest at 15%,
interest only payable monthly with final principal and
12
<PAGE>
interest due June 1997. Note collateralized by a second
deed of trust on the Wandering Star property. 100,000
Note payable to stockholder, bearing interest at 15%,
interest only payable monthly with final principal and
interest due June 1997. Note collateralized by a second
deed of trust on the Wandering Star property. 200,000
Note payable to stockholder, bearing interest at 16%,
interest only payable monthly with final principal and
interest due July 1997. Note collateralized by a first
deed of trust on the Wandering Star property. 162,000
Note payable to stockholder, bearing interest at 15%,
interest only payable monthly with final principal and
interest due May 1997. Note collateralized by a first
deed of trust on the Wandering Star property. $ 150,000
Note payable to stockholder, bearing interest at 12 - 15%,
interest only payable monthly with final principal and
interest due May 1997. Note collateralized by a second
deed of trust on the Wandering Star property. 50,000
Note payable to stockholder, bearing interest at
the bank's prime rate plus 2.75%, (effective rate
of 11.25 at March 31, 1996), payable in monthly
installments of $2,000 11,743
----------
1,469,391
Less current maturities 337,343
----------
$1,132,048
----------
----------
Estimated principal maturities of long-term debt are as follows:
Year ending
December 31,
------------
1997 $ 337,343
1998 1,132,048
-----------
$ 1,469,391
-----------
-----------
13
<PAGE>
In order to meet its obligations at maturity with respect to the
outstanding principal and interest on such notes payable, the Company will be
required to restructure the terms of such notes and/or refinance such notes
through additional third-party debt and/or equity financing. The Company can
make no assurance that it will be able to restructure such notes or as to the
ultimate terms thereof. In addition, there can be no assurance that the Company
will be successful in obtaining such third-party financing.
14
<PAGE>
ITEM 2A. FACTORS THAT MAY AFFECT FUTURE RESULTS
1. CONTINUED OPERATING LOSSES. For the calendar years ended December 31, 1994
and 1995, and the three month period ended March 31, 1996, the Company incurred
net loss of $3,286,737, net income of $144,815, and net loss of $65,518
respectively. At March 31, 1996, the Company had negative working capital of
$1,739,111 (as Total Current Liabilities exceeded Total Current Assets by that
amount), an accumulated deficit of $3,951,495 and shareholders' equity of
$1,247,227. Because of, among other things, the lack of a substantial operating
history with respect to the Company's venture into the gaming industry on which
to base its anticipated expense and revenues, the Company may continue to incur
further losses. There is no assurance that the Company's operations will be
successful or will be profitable in the future.
2. UNCERTAINTIES & LACK OF REVENUES FROM GAMING OPERATIONS. While the Company
has expanded substantial resources for the development of gaming properties, the
Company currently generates only limited rental revenues from these properties
and there can be no assurances that the Company will be successful in generating
revenues from gaming operations in the near future despite the Company's
obligation to service substantial amounts of debt incurred thereby.
3. PROPOSED SALE OF ART BUSINESS TO COMPANY MANAGEMENT. The Company announced
that its Board of Directors has approved a management agreement that resulted in
a restructuring of its Board of Directors and a change of focus to concentrate
its business on the development of its hotel and gaming properties. Under the
terms of the agreement, to be submitted to the Company's shareholders for their
approval, the art gallery operations of the Company will be sold to management
for $1 million in cash and securities. In that connection, Stephen M. Thompson
will resign as Chairman and CEO and remain as a Director. Mr. Kenneth M.
Cahill, with an extensive background in the hotel and gaming industry, will be
named as the Company's new Chairman, President and CEO. Messrs. Jack Schneider
and George M. Maxson will resign from the Board, being replaced with Messrs.
Darel Tiegs, J. Royce Renfrow and Ray Buchard.
The Company's decision to divest itself of its art business stemmed from
results of a series of meetings with the investment banking community over the
past year, wherein management learned that funding would not be available to the
Company to further the development of its gaming properties without the Company
obtaining qualified management in the field of gaming and hotel operations.
15
<PAGE>
PART II. OTHER INFORMATION (UNAUDITED)
ITEM 1. LEGAL PROCEEDINGS
There have been no material developments in any of the Company's legal
proceedings since disclosed in the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1995.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
2. Agreement and Plan of Reorganization dated September 23, 1991.
(1)
3.1 Articles of Incorporation of the Company, as amended. (3)
3.2 Bylaws of the Company. (2)
10.1 Agreement dated April 16, 1991 between Donald Tilson, Elizabeth
Tilson and Steve Thompson and assignees. (3)
10.2 Sublease dated June 15, 1988 between T.R. Rogers, Inc. and
Gallery Rodeo of Beverly Hills, Inc. (3)
10.3 Lease agreement dated March 29, 1990 between Wade Stockhouse and
Gallery Rodeo of Taos, Inc. (3)
16
<PAGE>
10.4 Shopping Center Lease Agreement dated November 11, 1987 between
Lake Arrowhead Associates Limited Partnership and the Company.
(3)
10.5 Agreement between the Company and Red Star Corporation. (6)
10.6 Purchase agreement and related documents between the Company and
MAXPRO Corporation. (5)
10.7 Agreement between the Company and Red Star Corporation. (6)
10.8 Lease dated October 15, 1992 between the Company and Rodeo
Collection, Ltd. (7)
10.9 Assignment of Lease dated October 30, 1992 between the Company
and Barney Goldberg, d.b.a. Golden West Galleries. (7)
10.10 Nonqualified Stock Option Agreement dated January 1, 1993 between
the Company and Gary D. Kucher. (7)
10.11 Demand Noted dated January 23, 1993 in the principal amount of
$143,750 by Gary D. Kucher in favor of the Company. (7)
10.12 Shopping Center Lease Agreement dated March 31, 1993 between the
Company and The Arrowhead Joint Venture. (7)
10.13 Option Agreement dated November 2, 1993 and First Addendum to
Option Agreement dated November 2, 1993, among the Company, the
D&L Jordan Trust, Walter-Laughlin Partnership and the Walter
Company. (7)
10.14 Agreement dated November 2, 1993, and First Addendum to Option
Agreement dated November 2, 1993, among the Company, Walter-
Laughlin Partnership and the Walter Company. (7)
10.15 Promissory Note of the Company dated December 15, 1993 in the
principal amount of $200,000 in favor of Sterling Bank, and
related loan documents. (7)
21 Subsidiaries of the Company. (2)
(footnotes on following page.)
17
<PAGE>
(b) REPORTS ON FORM 8-K
On May 29, 1996, the Company filed Form 8-K disclosing that the Company's
Board of Directors has approved a management agreement that resulted in a
restructuring of its Board of Directors and a change of focus to concentrate its
business on the development of its hotel and gaming properties. The proposed
transaction will be submitted to the Company's shareholders for their approval.
Stephen M. Thompson will resign as Chairman and CEO and remain as a Director.
Mr. Kenneth M. Cahill, with an extensive background in the hotel and gaming
industry, will be named as the Company's new Chairman, President and CEO.
Messrs. Jack Schneider and George M. Maxson will resign from the Board, being
replaced with Messrs. Darel Tiegs, J. Royce Renfrow and Ray Buchard.
The art gallery operations of the Company will be spun out to management
for $1 million in cash and securities. The Company's decision to divest itself
of its art business stemmed from results of a series of meetings with the
investment banking community over the past year, wherein management learned that
funding would not be available to Gallery Rodeo International, Inc. to further
the development of its gaming properties without the Company obtaining qualified
management in the field of gaming and hotel operations.
FOOTNOTES FROM PRIOR PAGE
1. Previously filed with the Securities and Exchange Commission as an exhibit
to Current Report on Form 8-K of the Company, as filed September 23, 1991.
2. Previously filed with the Securities and Exchange Commission as an exhibit
to Amendment No. 2 to the Registration Statement of Form 10 of the Company,
as filed April 6, 1992.
3. Previously filed with the Securities and Exchange Commission as an exhibit
to the Registration Statement on Form 10 of the Company, as filed November
8, 1991.
4. Previously filed with the Securities and Exchange Commission as an exhibit
to Current Report on Form 8-K of the Company, as filed May 17, 1993.
5. Previously filed with the Securities and Exchange Commission as an exhibit
to Current Report on Form 8-K of the Company, as filed May 28, 1993.
6. Previously filed with the Securities and Exchange Commission as an exhibit
to Current Report on Form 8-K of the Company, as filed June 18, 1993.
7. Previously filed with the Securities and Exchange Commission as an exhibit
to the 1993 Annual Report on Form 10-KSB, as filed August 2, 1994.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Registrant:
GALLERY RODEO INTERNATIONAL
/s/ STEPHEN M. THOMPSON
--------------------------
Stephen M. Thompson
President
Date: June 3, 1996
19
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