SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 2054
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1997 Commission File Number 0-29644
------------------
SIERRA-ROCKIES CORPORATION
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(Exact name of registrant as specified in its charter)
CALIFORNIA 33-0300193
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2 North Cascade Avenue, Suite 330, Colorado Springs, Colorado 80903
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: 719-520-1800
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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) Yes _X_
of the Securities Exchange Act of 1934 during the pre-
ceding 12 months (or for such shorter period that the No ___
registrant was required to file such reports), and (2)
has been subject to such filing requirements for the
past 90 days.
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 September 30, 1997
----- ---------------------
Common stock, $.001 par value 17,393,048
shares
<PAGE>
FORM 10-Q
3rd QUARTER
INDEX
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PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements -
Balance Sheets - September 30, 1997 (Unaudited .................... 3
Statements of Operations - Three months ended
September 30, 1997 and
September 30, 1996 and nine months ended
September 30, 1997 and September 30, 1996 (Unaudited) .......... 4
Statement of Cash Flows - Nine months ended
September 30, 1997 and September 30, 1996 (Unaudited) ............. 5
Notes to Financial Statements (Unaudited) ......................... 6
Item 2. Management's Discussion and Analysis (Unaudited) ......... 8
PART II - OTHER INFORMATION
Items 1 through 6 ................................................ 9
SIGNATURES ........................................................ 10
- The accompanying financial statements are not covered by an independent
certified public accountant's report.
<PAGE>
Part I. Item 1. Financial Information
SIERRA ROCKIES CORPORATION
<TABLE>
<CAPTION>
Condensed Consolidated Balance Sheet
September 30, 1997
ASSETS
<S> <C>
Cash ............................................................................. $ 2, 195
Accounts receivable - affiliate .................................................. 32,151
Cost in excess of billings on uncompleted contracts .............................. 112,517
-----------
Total current assets 146,863
Land ............................................................................. 2,150,000
Property & equipment, net ........................................................ 4,776
Construction in progress ......................................................... 13,187
Deferred financing costs, net .................................................... 12,211
Notes receivable - related party ................................................. 1,476,266
Allowance for doubtful notes receivable .......................................... (1,476,266)
-----------
Total assets $ 2,327,037
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable - trade ......................................................... $ 256,938
Accounts payable - affiliate ..................................................... 708,432
Accrued interest payable ......................................................... 104,946
Billings in excess of costs on uncompleted contracts ............................. 50,158
Notes payable - related party .................................................... 491,839
Notes payable .................................................................... 690,960
----------
Total current liabilities 2,303,273
==========
Convertible debentures ........................................................... 20,000
Common stock ..................................................................... 17,146
Additional paid in capital ....................................................... 5,404,010
Deferred gain-transactions with parties under common control ..................... 784,232
Costs in excess of net assets acquired-related party ............................. (114,982)
Retained deficit ................................................................. (5,383,663)
Current loss ..................................................................... (702,978)
-----------
Total liabilities and shareholders' equity ....................................... $ 2,327,037
===========
</TABLE>
See accompanying notes to condensed consolidated financial statements
3
<PAGE>
SIERRA ROCKIES CORPORATION
<TABLE>
<CAPTION>
Condensed Consolidated Statements of Operations
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
------------ ------------ -------------- ----------------
<S> <C> <C> <C> <C>
Construction contract revenues earned ........... $ 28,439 -0- $ 119,372 $ -0-
Cost of construction contract revenues earned ... 28,042 -0- 104,891 -0-
------------ --------
Gross profit .................................... 397 -0- 14,482 -0-
Hospitality revenue ............................. 13,567 -0- 13,567 -0-
Operating Expenses
Management fees ............................ 120,000 315,619 360,000 395,619
General and administrative fees ............ 58,193 -0- 179,081 90,447
------------ ------------ ------------ --------
178,193 315,619 539,081 486,066
(Loss) from operations .......................... (164,229) (315,619) (511,032) (486,066)
Other Income (Expense)
Loss on equity investment-subsidiaries ... -0- (123,106)
Write off notes of former employees ..... (215,500) (215,500)
Buyout of former president's mgmt contract -0- (350,000)
Interest income (expense), net ........... (66,385) (108,177) (193,438) (170,134)
Other, net ............................... (23) 1,250 1,492 2,121
------------ ------------ ------------ --------
Loss before taxes ............................... (230,637) (638,046) (702,978) (1,342,685)
Income taxes .................................... -0- -0- -0- -0-
Net loss ........................................ $ (230,637) $ (638,046) $ (702,978) $ (1,342,685)
============ ============ ============ ===========
Net loss per share .............................. $ (.01) $ (.04) $ (.04) $ (.09)
Weighted average shares outstanding ............. 17,393,048 15,761,125 17,393,048 15,761,125
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE>
SIERRA ROCKIES CORPORATION
<TABLE>
<CAPTION>
Condensed Consolidated Statements of Cash Flows
Nine Months Ended
September 30,
1997 1996
---- ----
<S> <C> <C>
Cash flows used in operating activities .............. $(202,151) $(414,141)
--------- ---------
Cash flows (used in)/provided by investing activities:
Proceeds from sale of property ................... -0- 150,000
Redemption notes receivable ...................... -0- 708,333
Purchase of equipment ............................ (62) (7,028)
--------- ---------
Net cash (used in)/provided by investing activities .. (62) 851,305
--------- ---------
Cash flows used in financing activities
Debt refinancing costs ........................... (39,846) -0-
Debt repayments, net ............................. 28,960 (435,600)
Advances/repayments from/to related party, net ... 215,294 -0-
--------- ---------
Net cash used in financing activities ................ 204,408 (435,600)
--------- ---------
Net increase in cash ................................. 2,195 1,564
Cash, beginning of year .............................. -0- 303
Cash, end of period .................................. $ 2,195 $ 1,867
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements
5
<PAGE>
SIERRA ROCKIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1997
Note A: Basis of presentation
- ------- ---------------------
The financial statements presented herein have been prepared by the Company in
accordance with the accounting policies in its annual 10-KSB report dated
December 31, 1996 and should be read in conjunction with the notes thereto.
The condensed consolidated statement of cash flows presented in the annual
10-KSB report dated December 31, 1996 was presented in accordance with Statement
of Financial Accounting Standard No. 95 "Statement of Cash Flows", using the
direct method versus the indirect method which management has chosen to present
in the interim financial statements for the nine months ended September 30,
1997.
Certain 1996 financial information has been restated to conform with
presentation in the annual 10-KSB report dated December 31, 1996.
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 B: Income taxes
- ------- ------------
The Company records its income taxes in accordance with Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes". Income tax benefit
due to continuing net operating losses during the quarter ended September 30,
1997 were offset by an increase to the valuation allowance, bringing the net
deferred tax asset balance to $0.
Note C: Related party transactions
- ------- --------------------------
Construction revenue earned from contracts between Sierra Rockies Development
Company (a wholly-owned subsidiary of the Company) and Eclipse Corporation
("Eclipse"), an affiliate, for the nine months ended September 30, 1997 were
approximately $119,000. Approximately $16,000 is recorded in accounts receivable
- - affiliate, for amounts due from Eclipse. Approximately $76,000 is due to
Eclipse Corporation from the Company.
Throughout the period, working capital advances of approximately $96,000 were
received from Innercircle Group, Inc. ("IGI"), a corporation that provides
management services to the Company. Total management fees incurred and payable
to IGI for the nine months ended September 30, 1997 totalled $360,000. At
September 30, 1997, amounts payable to IGI totalled $631,633.
6
<PAGE>
SIERRA ROCKIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1997
Note C: Related party transactions continued
- ------- ------------------------------------
The Company's management agreement with IGI was amended on September 15, 1997,
retroactive to January 1, 1997, whereby the monthly management fee of $40,000 is
to be paid in cash of $20,000 each month and $60,000 paid quarterly in the
Company's common stock. The number of shares to be issued will be determined on
a monthly basis on the last closing price as of each month. As of September 30,
1997 no common stock had been issued to IGI as part of this amendment.
Note D: Notes payable
- ------- -------------
The Company entered into a promissory note, face value of $690,960 with an
unrelated party, bearing interest at 15.5%, with interest payments of $8,924.90,
commencing February 14, 1997, due monthly, and principal and any unpaid interest
due February 14, 1998. This note replaced four notes payable to various
shareholders and affiliates totalling $662,000. Proceeds from the note, paid off
the related party notes and all accrued interest due as of date of
extinguishment. (See "Subsequent Events")
Note E: Change in management
- ------- --------------------
On September 1, 1997, J. Royce Renfrow resigned as Secretary and Director of the
Company. He has been replaced as Secretary by Darel A. Tiegs. Stephen M.
Thompson resigned as Director of the Company.
Note F: Subsequent event
- ------- ----------------
On October 8, 1997, due to the Company's default upon certain promissory notes,
land related to the Wandering Star Project located in Cripple Creek, Colorado,
was sold in foreclosure. The Company has a statutory right to redeem the
property on or before December 22, 1997, and management is making efforts to
secure funding which will enable it to redeem the land. In the event that the
Company is not successful in redeeming the Wandering Star Property, total assets
will decrease approximately $2,163,187 (book value of land and associated costs)
and total liabilities will decrease approximately $1,182,799 (amount of
obligations secured by the property), without giving effect to any sums received
on the sale that are in excess of the net book value of the property.
The Bloomer property in which the Company had previously sold to a director and
member of management, in exchange for promissory notes, was foreclosed upon by
another creditor also holding promissory notes secured by the property.
Management has decided not to reacquire the property, even though it had a right
to do so, as it was not considered in the best interest of the Company. In 1996,
$476,266 was recorded as an allowance for doubtful notes receivable related to
the notes received in exchange for the sale of the Bloomer property.
7
<PAGE>
SIERRA ROCKIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1997
Note G: Going concern
- ------- -------------
As shown in the accompanying financial statements, the Company has incurred
recurring losses from operations and has a deficit in working capital. As a
result, the Company has experienced severe liquidity problems and has been
forced to restructure a portion of its long-term debt, of which is currently in
default. These factors raise substantial doubt about its ability to continue as
a going concern.
Management is working with its primary lenders to monitor the status of its
indebtedness and further restructuring of its long-term debt is expected. In
addition, management has commenced operations in the hospitality segment and is
currently evaluating plans to reduce staffing and other costs. Management is
also planning to commence collection efforts on certain related party notes
receivable.
There can be no assurance that management will be successful in its efforts to
restructure debt, reduce costs, operate profitably, or collect amounts due. If
the Company is unsuccessful in its efforts, it may be necessary to undertake
such other actions as may be appropriate to preserve asset value. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
8
<PAGE>
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 August 18, 1997, the Company's subsidiary, Sierra Hospitality Services, Inc.,
entered into a management contract with Little Rock Legacy Hotel LLC to provide
management services for the Legacy Hotel located in Little Rock, Arkansas. The
hotel is a 116-room, full-service hotel. Under the terms of a previous Interim
Management Agreement, Sierra Hospitality Services, Inc., began management of the
hotel on July 27, 1997. Approximately $7,000 was earned as of September 30,
1997.
The Company's Sierra Hospitality Services, Inc., subsidiary continues to manage
the Barrington Hotel and Brighton Place Motel, both located in Branson,
Missouri. Approximately $6,567 was earned during the third quarter of 1997.
The hospitality subsidiary is also in the process of negotiating additional
management contracts.
The Company has entered into negotiations to acquire the Barrington Hotel in
Branson, Missouri, from its current owner, and is further negotiating for the
acquisition of a hotel site near Denver, Colorado.
Further, the Company remains under contract to acquire the University Inn in
Laramie, Wyoming, and is in the process of finalizing its due diligence with
respect to that acquisition.
On September 1, 1997, J. Royce Renfrow resigned as Secretary and Director of the
Corporation. He has been replaced as Secretary by Darel A. Tiegs. Stephen M.
Thompson resigned as Director of the Corporation. These resignations were
accepted by the Board of Directors at regular meetings of the Board.
The Company's construction subsidiary, Sierra-Rockies Development Corporation,
contributed $28,439 to corporate revenue from operations during the quarter
ending September 30, 1997. The construction subsidiary is a company specializing
in the installation of manufactured houses.
The Company is continuing to pursue its Wandering Star Hotel & Casino project
located in Cripple Creek, Colorado. The Company is in negotiations with hotel
chains in order to establish a flag for its new hotel. Additionally, the Company
is still in the process of redesigning its hotel structure in order to conform
to flag requirements and in order to configure it to better fit upon the hotel
site currently owned by the Company.
9
<PAGE>
FINANCIAL CONDITION
- -------------------
The Company's financial condition has worsened from the previous report in its
June 30, 1997 Form 10-QSB.
The Company has defaulted upon certain notes held by Michael Chaussee secured by
its Wandering Star project located in Cripple Creek, Colorado. The foreclosure
sale upon the property was held on October 8, 1997, and the Company has a
statutory right to redeem the property on or before December 22, 1997.
Management is making efforts to secure funding which will enable it to redeem
said real estate.
Management determined not to exercise its redemption rights with respect to a
certain foreclosure upon other property previously owned by the Company and
secured by deeds of trust in its favor, although a technical right to do so
existed, as previously reported in the Company's second quarter report.
Management decided it was not in the best interest of the Company and its
shareholders to expend monies with regard to the re-acquisition of this real
estate previously sold by the Company.
RESULT OF OPERATIONS:
- ---------------------
The Company incurred net (losses)/profits of $(230,637), and $(638,046) for the
three months ended September 30, 1997 and 1996, respectively.
PART II - OTHER INFORMATION
- ---------------------------
Item 1 Through 5 - No response required.
Item 6 - Exhibits and reports on Form 8-K.
(a) Exhibits
27 Financial Data Schedule.
(b) Reports on Form 8-K
- None
10
<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: ___________________________ BY: /s/ Kenneth M. Cahill
-------------------------
KENNETH M. CAHILL, PRESIDENT
DATE: ___________________________ BY: /s/ Darel A. Tiegs
------------------
DAREL A. TIEGS, SECRETARY
DATE: ___________________________ BY: /s/ James A. Humpal
-------------------------
JAMES A. HUMPAL,
V. PRESIDENT/TREASURER
Principal Financial Officer
11
<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, 1997 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 32,151
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 146,863
<PP&E> 6,062
<DEPRECIATION> 1,286
<TOTAL-ASSETS> 2,327,037
<CURRENT-LIABILITIES> 2,303,273
<BONDS> 0
0
0
<COMMON> 17,146
<OTHER-SE> 689,597
<TOTAL-LIABILITY-AND-EQUITY> 2,327,037
<SALES> 119,372
<TOTAL-REVENUES> 132,939
<CGS> 104,891
<TOTAL-COSTS> 643,972
<OTHER-EXPENSES> (1,492)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 193,438
<INCOME-PRETAX> (702,978)
<INCOME-TAX> 0
<INCOME-CONTINUING> (702,978)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (702,978)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
