SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 2054
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1996 Commission File Number 0-29644
SIERRA-ROCKIES CORPORATION
--------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 33-0300193
------------------------------------------------ --------------------
(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)
2 North Cascade Avenue, Suite 330, Colorado Springs, Colorado 80903
- ------------------------------------------------------------- -----------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (719)520-1800
GALLERY RODEO INTERNATIONAL
2 N. Cascade Avenue, Suite 330, Colorado Springs, CO, 80903
- ------------------------------------------------------------------
(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 pre- ceding 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.
Number of shares outstanding
Class at November 19, 1996
- --------------------------------- ------------------------------
Common stock, $.001 par value 17,220,848 shares
<PAGE>
FORM 10-Q
3rd QUARTER
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements -
Balance Sheets - September 30, 1996 (Unaudited) and
December 31, 1995 3
Statements of Operations - Three months ended
September 30, 1996 and 1995 and nine months ended
September 30, 1996 and 1995 (Unaudited). 4
Statement of Cash Flows - Nine months ended
September 30, 1996 (Unaudited) and 1995 (Unaudited) 5
Notes to Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis (Unaudited) 10
PART II - OTHER INFORMATION
Items 1 through 6. 11
SIGNATURES 12
- The accompanying financial statements are not
covered by an independent certified public
accountant's report.
<PAGE>
<TABLE>
<CAPTION>
SIERRA-ROCKIES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
ASSETS
September 30, December 31,
1996 1995
---- ----
(unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ........................ $ 1,867 $ 229
Accounts receivable .............................. 150,000 --
Prepaid expenses - Related Parties ............... 17,948 --
Accrued interest ................................. 21,403 --
Current assets of discontinued operations ........ -- 1,499,277
---------
Total Current Assets ............................. 191,218 1,499,506
LAND HELD FOR FUTURE DEVELOPMENT ................. 2,150,000 2,150,000
CONSTRUCTION IN PROGRESS ......................... 7,028 --
LAND HELD FOR SALE ............................... -- 370,000
PROPERTY AND EQUIPMENT, net ...................... -- 3,202
OTHER ASSETS
Note Receivable .................................. -- 500,000
Note Receivable - Related Parties ................ 476,667 --
Other (including deposits on work in progress) ... 9,550 27,500
Assets of discontinued operations ................ -- 766,210
-------
TOTAL ASSETS ..................................... $ 2,834,463 $ 5,316,418
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt ............. $ 832,000 $ 321,918
Accounts payable ................................. 309,870 115,427
Note payable - Shareholder ....................... 309,428 --
Current liabilities of discontinued operations ... -- 2,621,146
---------
Total current liabilities ........................ 1,451,298 3,058,491
LONG-TERM DEBT, net of current maturities
(including $862,000 to stockholders) ............. -- 945,682
DEFERRED GAIN ON SALE ............................ 690,500 --
STOCKHOLDERS' EQUITY
Common stock, 100,000,000 shares, $.001 par value;
15,786,681 and 15,511,681 shares issued and
outstanding and September 30, 1996 and
December 31, 1995, respectively .................. 15,787 15,511
Additional Paid in Capital ....................... 5,348,700 5,348,210
Accumulated deficit .............................. (4,242,394) (3,885,976)
---------- ----------
1,122,093 477,745
Less stockholders' loans - net ................... (429,428) (165,500)
-------- --------
Total stockholders' equity ....................... 692,665 1,312,245
------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ....... $ 2,834,463 $ 5,316,418
=========== ===========
</TABLE>
See accompanying notes to these financial statements.
<PAGE>
<TABLE>
<CAPTION>
SIERRA-ROCKIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For Three and Nine Months Ended September 30, 1996
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES .......................... $ 150,000 $ -- $ 150,000 $ --
COST OF GOODS SOLD ................. 150,000 -- 150,000 --
------- -------
GROSS PROFIT ....................... -- -- -- --
OPERATING EXPENSES ................. 315,619 223,000 486,066 698,790
------- ------- ------- -------
(LOSS) FROM CONTINUING OPERATIONS .. (315,619) (223,000) (486,066) (698,790)
OTHER INCOME (EXPENSES):
Buyout management contract ......... -- -- (350,000) --
Write off notes of former employees (215,500) -- (215,500) --
Gain on sale ....................... -- -- 99,500 --
Rental income ...................... 1,250 -- 2,121 --
Interest income (expense), net ..... (108,177) (76,270) (170,134) (287,772)
-------- ------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES
AND DISCONTINUED OPERATIONS ........ (638,046) (299,270) (1,120,079) (986,562)
PROVISION FOR INCOME TAXES ......... -- -- -- --
INCOME (LOSS) BEFORE DISCONTINUED
OPERATIONS ......................... (638,046) (299,270) (1,120,079) (986,562)
GAIN ON DISPOSITION OF SUBSIDIARIES 1,031,182 -- 1,031,182 --
DISCONTINUED OPERATIONS, NET OF TAX -- (267,561) (267,520) 99,918
-------- -------- ------
NET INCOME (LOSS) .................. $ 393,136 $ (566,831) $ (356,417) $ (886,644)
============ ============ ============ ============
INCOME (LOSS) PER SHARE ............ $ .02 $ (0.04) $ (0.02) $ (0.06)
============ ============ ============ ============
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING ........................ 15,761,125 16,146,015 15,761,125 15,781,585
========== ========== ========== ==========
</TABLE>
See accompanying notes to these financial statements.
<PAGE>
<TABLE>
<CAPTION>
SIERRA-ROCKIES CORPORATION AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
September 30,
1996 1995
------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) .................................. $ (356,417) $ (886,644)
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization ...................... 37,430 --
Gain on sale of land ............................... (99,500) --
Gain on disposition of subsidiaries ................ (1,031,182) --
Accounts receivable ................................ (150,000) --
Accrued interest ................................... (21,403) --
Prepaid expenses ................................... (17,948) --
Other assets ....................................... 17,950 --
Accounts payable ................................... 194,443 --
Changes in assets and liabilities related to
Discontinued Operations ............................ 1,012,560 807,261
--------- -------
Net cash provided by (used in)
operating activities ............................... (414,067) (79,383)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property ..................... 150,000 --
Redemption notes receivable ........................ 708,333 251,343
Capital expenditures ............................... (7,028) (17,019)
------ -------
Net cash provided by (used in)
investing activities ............................... 851,305 234,324
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt, net .................. (435,600) (74,005)
Proceeds from related party loans .................. -- 66
--
Net cash provided by (used in)
financing activities ............................... (435,600) (73,939)
-------- -------
Net increase (decrease) ............................ 1,638 81,002
CASH AT BEGINNING OF PERIOD ........................ 229 14,202
--- ------
CASH AT END OF PERIOD .............................. $ 1,867 $ 95,204
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid for year:
Interest ........................................... $ 239,772 $ 211,502
=========== ===========
</TABLE>
See accompanying notes to these financial statements.
<PAGE>
<TABLE>
<CAPTION>
SIERRA-ROCKIES CORPORATION AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
June 30,
1996 1995
<S> <C> <C>
Noncash investing and financing activities:
Issuance of restricted stock in satisfaction
for certain debt ................................. $ 265 $ 47,969
========== ==========
Sale of Elk Creek Gaming Hall
Notes receivable ................................. $ -- $ 780,000
Liabilities assumed by purchaser ................. -- 615,000
Cash received .................................... -- 120,000
-------
Total proceeds ................................... $ -- $1,515,000
====== ==========
Sale of Bloomer property
Notes receivable ................................. $ 684,400 $ --
Liabilities assumed by purchaser ................. 435,600 --
Cash received .................................... 40,000 --
------
Total proceeds ................................... $1,160,000 $ --
========== ======
</TABLE>
See accompanying notes to these financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL:
Sierra-Rockies Corporation (the Company), formerly Gallery Rodeo
International, 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 reflect properly 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. PREPAID EXPENSES:
The company has prepaid management fees to related entity, controlled by
members of the Board, of $125,000 at September 30, 1996. The related entity has
loaned back approximately $108,000 to the company to cover operating expenses.
The amounts are shown net for financial statement purposes.
4. 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. Subsequently,
on July 1, 1966, the Company sold its interest in the above- referenced $500,000
promissory note and its accompanying deed of trust for $450,000 cash.
b. On June 30, 1995, the Company entered into an agreement for the sale of
certain land and buildings known as the Boomer property located in Cripple
Creek, Colorado to a related entity controlled by a member of management. 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.
Subsequently, on August 1, 1996, the Company sold its interest in one of the
above-referenced promissory notes (Note #1 in the amount of $208,133.34) and its
accompanying deed of trust for $200,000 cash.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
c. Management has elected to write off certain notes receivable , pursuant
to transactions negotiated by former management, from former employees in the
amount of $215,500. Management will aggressively pursue collection of these
amounts, however, it is uncertain as to amounts collectible.
5. 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 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.
6. DISCONTINUED 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 in the
Company. The note will bear interest at 8%, and will be due and payable May 9,
2001, with first payment of interest due in February, 1997.
On May 9, 1996, the effective date of the sale, Sierra-Rockies Corporation
had an investment in the Subsidiaries sold of approximately $1,183,000 through
intercompany advances made under prior management. As Management is uncertain as
to the collectibility of these advances, it has elected to reserve a loss on the
investment in subsidiaries of approximately $587,000. A gain on disposition of
subsidiary is disclosed in the operating statement of approximately $1,031,000,
net of this reserve.
The note for Thompson has been booked in an amount equal to the underlying
value of shares securing the $1,000,000 note receivable from Thompson.
Management is uncertain as to the collectibility of any amounts in excess of the
value of shares owned by Thompson and therefore has elected to reserve $880,000
of the note and the related gain on sale of stock in subsidiaries acquired by
Thompson.
A note payable to Thompson in the amount of $309,428 is the balance due on
the buyout of his management contract and a note payable paid by Thompson on the
company s behalf.
7. 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.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
8. NEW LINE OF BUSINESS:
The Company s Nevada subsidiary acquired the assets of a construction
company located in Colorado Springs, Colorado. The acquisition was accomplished
through the Company s assumption of certain debt and payroll expenses of the
construction company. This acquisition will enable the Company to take advantage
of the growing market relating to the installation of manufactured homes in the
Colorado Springs area.
I. RESTATEMENT OF OPERATING RESULTS:
The operating results of the company have been restated for the nine months
ended September 30, 1995. The restatement reverses a recognized gain on sale of
property of approximately $945,000. The sale was never completed and was not
included in the December 31, 1995 financial statements.
13. SUBSEQUENT EVENTS:
In September 1996, the Company entered into the following the following
transactions for the following purposes:
- The Company pursuant to shareholder approval at their September 20, 1996
meeting changed its name from Gallery Rodeo International to Sierra-Rockies
Corporation effective November 15, 1996.
- On October 10, 1996, the Company received its Certificate of
Appropriateness for the Wandering Star Project subject to final height variance
approval.
- Pursuant to the buyout of the management contract with Stephen M.
Thompson, the company issued 1,434,167 shares of common stock to an entity
controlled by Thompson. The issue of these shares brings to a total 4,000,000
shares, or 23.23 % of outstanding shares, controlled by Thompson. SIERRA-ROCKIES
CORPORATION
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 the 2nd day of October, 1996, the Company acquired in its Nevada
subsidiary the assets of a construction company located in Colorado Springs,
Colorado, in exchange for certain assumption of debt and payroll expenses of the
construction company. The purpose of the transaction was to take advantage of
commercialized construction market having to do with the installation of
manufactured homes in the Colorado Springs area.
Following shareholder approval, the Company changed its name to
Sierra-Rockies Corporation, with the name change to be effective November 15,
1996.
The Company received a Certificate of Appropriateness, subject to height
variance requirements, from the City of Cripple Creek, Colorado, with respect to
its Wandering Star Hotel & Casino project on October 10, 1996.
Pursuant to the buyout of the management contract with Stephen M. Thompson,
the company issued 1,434,167 shares of common stock to an entity controlled by
Thompson. The issue of these shares brings to a total 4,000,000 shares, or 23.23
% of outstanding shares, controlled by Thompson.
Financial Condition
The Company s current financial status has current liabilities in excess of
current assets of approximately $1,260,000. This is due primarily to debt
maturing in the next twelve months of $832,000 and the balance due Stephen M.
Thompson on the buyout of his management contract of approximately $309,500.
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 payable and/or refinance such
notes through additional third party debt and/or equity financing. The Company
can make no assurances that it will be able to restructure the debt 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.
Result of Operations:
The company incurred net losses of $356,417 and $886,644 (restated) for the
nine months ended September 30, 1996 and 1995, respectively. The September 30,
1995 operating results as previously reported were net income of $58,065. This
has been restated to exclude a gain on sale of property of $944,709. The sales
transaction was never completed.
For the nine months ended September 30, 1996, Income from continuing
operations was a loss of $1,120,079 versus a loss from continuing operations of
$986,562 the prior year period. Third Quarter 1996 results include a one time
charges of $350,000 on the buyout of the Stephen M. Thompson management contract
and the write off of notes receivable from former employees of $215,500. Should
the one time charges be excluded, the operating loss for the nine months ended
September 30, 1996 would be $554,579, or an increase in income of $431,983 over
the prior year period.
Loss from discontinued operations was $267,520 for the period ended May 9,
1996 versus income of $99,918 for the nine months ended September 30, 1995.
The Company also has recognized a partial gain on disposition of its art
business subsidiaries of approximately $1,031,000. The gain is realized in
excess of a loss reserve of $586,870 in 1996. At the sale date, the Company had
approximately $1,183,000 invested in the subsidiaries through loans. Management
has elected to write off a substantial amount of this investment due to
uncertainty as to collectibility.
PART II - OTHER INFORMATION
Item 1 Through 5 - No response required.
Item 6 - Exhibits and reports on Form 8-K.
(a) Exhibits
11.1* Statement Regarding Computation of Per Share Earnings.
27 Financial Data Schedule.
(b) Reports on Form 8-K
- A Form 8-K was filed August 22, 1996 regarding its intention to change
independent auditors.
- A Form 8-K/A was filed August 22, 1996 in order to amend and restate the
August 22, 1996 Form 8-K and to file Exhibit 16.1.
* These exhibits will be filed by amendment.
<PAGE>
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.
SIERRA-ROCKIES CORPORATION
(Registrant)
DATE: 11/14/96 BY: /s/ Kenneth M. Cahill
KENNETH M. CAHILL, PRESIDENT
DATE: 11/14/96 BY: /s/ J. Royce Renfrow
J. ROYCE RENFROW, SECRETARY
DATE: 11/14/96 BY: /s/ James A. Humpal
JAMES A. HUMPAL, TREASURER
Principal Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SIERRA-
ROCKIES CORPORATION AND IT SUBSIDIARIES UNAUDITED BALANCE SHEET
AS OF SEPTEMBER 30, 1996 AND THE RELATED STATEMENT OF INCOME FOR THE
NINE MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> dec-31-1996
<PERIOD-START> jan-01-1996
<PERIOD-END> sep-30-1996
<EXCHANGE-RATE> 1
<CASH> 1,867
<SECURITIES> 0
<RECEIVABLES> 150,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 191,218
<PP&E> 2,157,028
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,834,463
<CURRENT-LIABILITIES> 1,451,298
<BONDS> 0
0
0
<COMMON> 5,364,222
<OTHER-SE> (4,242,394)
<TOTAL-LIABILITY-AND-EQUITY> 2,834,463
<SALES> 150,000
<TOTAL-REVENUES> 150,000
<CGS> 150,000
<TOTAL-COSTS> 150,000
<OTHER-EXPENSES> 486,066
<LOSS-PROVISION> 565,500
<INTEREST-EXPENSE> 170,134
<INCOME-PRETAX> (1,120,079)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,120,079)
<DISCONTINUED> 763,662
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (356,417)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
