<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended Commission File Number
October 31, 1996 33-26692
HIGH COUNTRY VENTURES, INC
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Minnesota 41-0825298
- ------------------------------------ ---------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8120 Penn Avenue South, Suite 446, Bloomington, MN 55431
-------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (612) 888 6555
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
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 twelve 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 ninety 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.
Class Outstanding at October 31, 1996
- --------------------------- -------------------------------
Common shares, no par value 5,425,920 shares
<PAGE>
HIGH COUNTRY VENTURES, INC.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended October 31, 1996 and 1995
<PAGE>
HIGH COUNTRY VENTURES, INC
INDEX
-----
Page
PART I FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheet 1
Consolidated Statement of Operations 2-3
Consolidated Statement of Shareholders' Equity 4
Consolidated Statement of Cash Flows 5-6
Notes to Consolidated Financial Statements 7
Selected Information 8-9
Item 2 - Management Discussion and Analysis 10-11
PART II OTHER INFORMATION
Item 6 - Exhibits 12
Exhibit 11 - Per Share Calculation 13
<PAGE>
HIGH COUNTRY VENTURES, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
October 31, 1996
October 31, April 30,
1996 1996
ASSETS ----------- -----------
Current assets:
Cash $ 213,589 $ 23,079
Inventory 10,337 15,201
Prepaid expenses 52,535 35,825
----------- -----------
Total current assets 276,461 74,105
Property and equipment - net 60,767 68,624
Notes receivable - related parties 57,826 57,826
Note receivable 15,270 17,110
----------- -----------
Total assets $ 410,324 $ 217,665
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable - Related Party 792,031 421,309
Accounts payable 473,547 609,487
Accounts payable - Related Party 44,110 82,151
Accrued payroll and payroll taxes 28,744 95,921
Accrued interest - related parties 164,949 164,949
Current portion of long-term debt 14,058 14,058
Deferred revenue 207,200 173,060
Current portion of obligations
under capital lease 4,650 4,650
----------- -----------
Total current liabilities 1,729,289 1,565,585
Long-term debt - net of current portion 24,651 24,651
Obligations under capital leases 12,320 12,320
----------- -----------
Total liabilities 1,766,260 1,602,556
----------- -----------
Shareholders' equity (deficit):
Common stock (no par value; 50,000,000
shares authorized; 5,425,920 shares
issued and outstanding) 437,415 437,415
Preferred stock (no par value;
5,000,000 shares authorized
no shares issued and outstanding)
Accumulated deficit (1,793,351) (1,822,306)
----------- -----------
Total shareholders'
equity (deficit) (1,355,936) (1,384,891)
----------- -----------
Total liabilities and
shareholders' equity (deficit) $ 410,324 $ 217,665
=========== ===========
The accompanying selected information is an integral
part of the consolidated financial statements.
-1-
<PAGE>
HIGH COUNTRY VENTURES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
For the Three Months Ended October 31, 1996 and 1995
1996 1995
----------- ----------
Revenues $ 851,114 $1,283,576
Cost of revenues 296,282 490,036
----------- ----------
Gross profit 554,282 793,540
Selling, general and
administrative expenses 435,522 625,297
----------- ----------
Income (loss) from operations 119,310 168,243
Miscellaneous and interest income 320 390
Interest expense (12,814) (10,843)
----------- ----------
Income (loss) before income taxes $ 106,816 $ 157,790
Income tax benefit - -
----------- ----------
Net income (loss) $ 106,816 $ 157,790
----------- ----------
Net income (loss) per share $ .02 $ .03
----------- ----------
Weighted average number of
shares outstanding 5,425,920 5,425,920
=========== ==========
The accompanying selected information is an integral
part of the consolidated financial statements.
-2-
<PAGE>
HIGH COUNTRY VENTURES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
For the Six Months Ended October 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Revenues $1,575,793 $2,378,369
Cost of revenues 566,848 917,989
---------- ----------
Gross profit 1,008,945 1,460,380
Selling, general and
administrative expenses 935,795 1,221,408
---------- ----------
Income from operations 73,150 238,972
Miscellaneous and interest income 660 390
Interest expense (44,855) (21,954)
---------- ----------
Income before income taxes $ 28,955 $ 217,408
Income tax benefit - -
---------- ----------
Net income $ 28,955 $ 217,408
---------- ----------
Net income per share $ .01 $ .04
---------- ----------
Weighted average number of
shares outstanding 5,425,920 5,425,920
========== ==========
</TABLE>
The accompanying selected information is an integral
part of the consolidated financial statements.
-3-
<PAGE>
HIGH COUNTRY VENTURES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
FOR THE SIX MONTHS ENDED OCTOBER 31, 1996
<TABLE>
<CAPTION>
Common Stock
------------------------- Shareholders'
Number of (Accumulated) Equity
Shares Amount Deficit) (Deficit)
--------- --------- ------------- -------------
<S> <C> <C> <C> <C>
Balances at
April 30, 1996 5,425,920 $ 437,415 $(1,822,306) $(1,384,891)
Net income for
the six months
ended October 31,
1996 - - 28,955 28,955
---------- --------- ----------- -----------
5,425,920 $ 437,415 $(1,793,351) $(1,355,936)
========== ========= =========== ===========
</TABLE>
The accompanying selected information in an integral
part of the consolidated financial statements.
-4-
<PAGE>
HIGH COUNTRY VENTURES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the Three Months Ended October 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $106,816 $ 157,790
Adjustments to reconcile net income
to net cash provided
by operating activities:
Depreciation and amortization 4,800 5,251
Decrease (increase) in assets:
Inventory 3,425 (11,596)
Prepaid expenses 10,915 19,320
Increase (decrease) in liabilities:
Account payable 11,542 30,495
Accrued expenses (67,463) 30,338
Deferred revenue 6,500 (137,699)
-------- ---------
Net cash provided by
operating activities 76,535 98,899
-------- ---------
Cash flows from investing activities
Purchase of property and equipment - -
Note receivable - related party 680 1,109
-------- ---------
Net cash provided (used for)
investing activities 680 1,109
-------- ---------
Cash flows from financing activities:
Increase (decrease) notes payable
related parties (46,334) (107,879)
-------- ---------
Net cash provided by (used for)
financing activities (46,334) (107,879)
-------- ---------
Increase (decrease) in cash 30,881 (7,871)
Cash - beginning of period 182,708 67,796
-------- ---------
Cash - end of period $213,589 $ 59,925
======== =========
Supplemental disclosures of cash
flow information:
Cash paid for interest $ 12,814 $ 10,843
======== =========
</TABLE>
The accompanying selected information is an integral
part of the consolidated financial statements.
-5-
<PAGE>
HIGH COUNTRY VENTURES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the Six Months Ended October 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 28,955 $ 217,408
Adjustments to reconcile net income
to net cash provided
by operating activities:
Depreciation and amortization 9,600 10,500
Decrease (increase) in assets:
Inventory 4,864 (3,597)
Prepaid expenses (16,710) 14,559
Increase (decrease) in liabilities:
Account payable (173,981) (13,921)
Accrued expenses (67,177) 73,171
Deferred revenue 34,140 (92,899)
-------- ---------
Net cash provided by
operating activities (180,309) 205,221
-------- ---------
Cash flows from investing activities
Purchase of property and equipment (1,743) (2,330)
Note receivable - related party 1,840 1,610
-------- ---------
Net cash provided (used for)
investing activities 97 (720)
-------- ---------
Cash flows from financing activities:
Increase (decrease) notes payable
related parties 370,722 (253,781)
-------- ---------
Net cash provided by (used for)
financing activities 370,722 (253,781)
-------- ---------
Increase (decrease) in cash 190,510 (49,280)
Cash - beginning of period 23,079 109,205
-------- ---------
Cash - end of period $213,589 $ 59,925
======== =========
Supplemental disclosures of cash
flow information:
Cash paid for interest $ 44,855 $ 21,954
======== =========
</TABLE>
The accompanying selected information is an integral
part of the consolidated financial statements.
-6-
<PAGE>
HIGH COUNTRY VENTURES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Six Months Ended October 31, 1996 and 1995
Note 1: Summary of Significant Accounting Policies
Nature of Organization:
High Country Ventures, Inc. ("the Company") assists individuals in
opening retail clothing, accessories, and shoe stores. Customers
will contract with the Company to receive this assistance and at
the same time make an initial payment and agree to pay the balance
due at a future time. The initial payment approves a certain market
area and type of store as well as fixing the negotiated contract
price. The balance due will typically include initial inventory
purchases, introduction to suppliers of inventory, store fixtures
and accessories, supplies, training and assistance in coordinating
the store's grand opening. Once the space is opened, the customer
runs the store independently and the Company has no further rights
or obligations under the contract.
The Company was incorporated on February 11, 1959, under the laws
of the State of Minnesota, under the name of Rogers Hardware and
Lumber Company. In 1969, the Company changed its name to Component
Systems, Inc. The Company was formerly engaged in the building of
prefabricated rafters for the construction industry but had been
inactive since 1980. In May, 1987, the shareholders restated its
articles of incorporation and approved a name change to Prestine,
Inc. On April 1, 1988, concurrent with a business combination with
High Country Fashions, Inc., the Company name was changed to High
Country Ventures, Inc.
Principles of Consolidation:
The accompanying consolidated financial statements include the
operations of High Country Ventures, Inc. and its wholly owned
subsidiary High Country Fashions, Inc. All intercompany
transactions have been eliminated in consolidation.
-7-
<PAGE>
HIGH COUNTRY VENTURES, INC.
SELECTED INFORMATION
(Unaudited)
For the Six Months Ended October 31, 1996 and 1995
Note 1: Summary of Significant Accounting Policies (Continued)
Basis of Presentation:
The accompanying unaudited consolidated financial statements
reflect all adjustments which, in the opinion of management, are
necessary for a fair presentation of the results of operation,
financial position and changes in cash flows. All such adjustments
are of a normal recurring nature. The results of operations for the
interm period are not necessarily indicative of the results for the
full year.
Inventory:
The Company's inventory consists of constructed fixtures and other
store displays. Inventory is recorded at the lower of cost
(determined on a first-in, first-out basis) or market.
Property and Equipment:
Property and equipment is stated at cost. Depreciation is computed
using the straight-line method and is charged to expense based upon
the estimated useful lives of the assets. Expenditures for
additions and improvements are capitalized, while repairs and
maintenance are expensed as incurred.
Revenue Recognition:
The Company records revenue when all services and conditions
relating to the contract has been substantially performed. The
initial, nonrefundable contract payment is deferred and recognized
as revenue upon the earlier of the contract balance being collected
and services performed by the Company, or when it is reasonably
certain the customer will not complete the contract, based upon
operating history.
-8-
<PAGE>
HIGH COUNTRY VENTURES, INC.
SELECTED INFORMATION
(Unaudited)
For the Six Months Ended October 31, 1996 and 1995
Note 1: Summary of Significant Accounting Policies (Continued)
The balance due under the contract is reported as income when
collected and the contracted services are provided. As of October
31, 1996 the balance due to the Company under the terms of the
uncompleted contracts underlying the recorded deferred revenue
aggregated $3,510,000.
-9-
<PAGE>
Item 2. Management Discussion and Analysis of Financial Condition and Results
of Operations.
During the quarter ended October 31, 1996, consolidated revenues are down
$432,462 from the $1,283,576 reported for the same period last year.
Management believes that several economic conditions continue to slow down
business in terms of new contracts as well as the contract close rate; these
economic conditions show signs of improving. Given the Company's heavy reliance
on printed advertising for new business, management is continuing to control and
minimize other indirect administrative expenses, thereby improving cash flow and
allowing for more funds to be expended on advertising and other business
generating promotions. This has had the effect of holding selling general and
administrative expenses at $435,522 for the quarter ended October 31, 1996 from
$625,297 for the quarter ended October 31, 1995. This decrease of $189,775
related principally to a more limited and focused advertising and promotion
effort.
The overall tightening of credit and more conservative posture taken by many
lending institutions has slowed down the number of new prospects signed and
corresponding initial deposits collected. Further, the slowdown in construction
of specialty retail space, such as strip centers, which has traditionally been a
primary target location for new stores, has slowed down overall sales effort.
Historically, management has experienced similar economic downturns with
similar effects on volume and profitability. Based on this experience,
management is attempting to control and monitor all indirect operating costs in
order to minimize costs during this slow period. The Company believes that this
economic condition is temporary and when it reverses, will create opportunities
for significant increases in volume and profitability.
It should be noted that for financial reporting purposes the Company follows
accounting guidance established for franchisers, even though the Company
provides consulting and assistance relative to business opportunities, not
franchises. This is felt to be appropriate given the lack of authority guidance
covering the Company's situation and the conservative nature of this method.
Under this method, initial nonrefundable deposits are regarded as liabilities
when collected. These initial payments are recognized as revenue once the
customer makes their remaining payment to High Country or after 180 days from
receipt of the initial deposit, whichever occurs first. The 180 day cutoff
represents the point in time when it is unlikely, based on historical
experience, that the customer will complete the contract, and thus it is
probable that they will forfeit their deposit. It should be noted, however, that
the contracts are written in perpetuity, so it is possible for any customer to
complete their contract even after the 180 day period has elapsed. As a result
of using this method, the Company has deferred the recognition of revenue for
receipts totalling $207,200 as of October 31, 1996. Furthermore, the balance due
the Company under all uncompleted contracts has not been recorded in the
Company's financial statements in any manner. The total balance due High Country
under all uncompleted contracts aggregates $21,329,408 as of October 31, 1996 of
which $3,510,000 relates to contracts which are less than 180 days old.
-10-
<PAGE>
Financial Condition, Liquidity and Capital Resources:
- -----------------------------------------------------
Historically, the Company has used cash in its operations, due in large part to
the heavy up-front costs associated with generating new business and the delay
in realizing the positive cash flow from an increased level of business. The
trend towards lowering the percentage of contracts going to completion has
further contributed to this usage. These traditional operating capital usages
have been funded by traditional outside debt such as bank term debt or through
private placements of its common shares. Given the nature of the current
banking environment, however, management has been attempting to eliminate all
outside bank debt. On October 31, 1996, the Company had cash of $213,589 up by
$30,881 from the prior quarter balance. Working capital was a negative income of
$<1,452,828>, caused by the effects of the Company's current year net income and
as a result of the initial contract payments received amounting to $207,000
which, as discussed above, are reflected as current liabilities on the balance
sheet although the Company has no obligation to repay these funds or provide any
additional services. During the quarter ended October 31, 1996, the Company
provided net cash of $30,881 through its operations, financing activities and
investing activities. During this quarter operations accounted for net cash
provided for $76,535. Although there is no assurance that the Company will be
able to generate positive cash flow from its operations in the future, nor
whether such cash flow, if any, will be adequate to fund future investment and
financing activities, management believes, given the level of the receivables
underlying all uncompleted contracts, that the Company's operation will be
adequate to sustain it. In the event that additional cash is needed, the Company
may turn to its officers, to traditional sources of debt financing, to factors,
to other asset-based lenders who may be interested in acquiring the receivables
underlying uncompleted contracts, or to the equity market. As of October 31,
1996, however, management does not anticipate requiring any additional infusion
of capital, beyond the funds advanced by its president, in order to maintain its
present level of operations above what is anticipated to be generated from
operations based on the results to date of management's active control and
minimization of indirect administrative costs. Accordingly, management has not
addressed which method would be employed.
Management is unaware of any material impact inflation has had on their
business, although other economic factors, as described under "Results of
Operations" are believed to be slowing down the Company's sales level.
-11-
<PAGE>
HIGH COUNTRY VENTURES, INC.
PART II - OTHER INFORMATION
Item 6 - Exhibits
Exhibit 11 - Per Share Calculation
-12-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: , 1996
---------------------
HIGH COUNTRY VENTURES, INC.
Registrant
------------------------------
Stephen C. Loughlin, President
(On behalf of Registrant and as its
principal financial officer)
<PAGE>
Exhibit 11
HIGH COUNTRY VENTURES, INC.
Net Income Per Share Calculation
3 months 6 months
Ending 10/31/1996 Ending 10/31/1996
----------------- -----------------
Net Income $ 106,816 $ 28,955
=========== ===========
Weighted Average
Number of Shares
Outstanding $ 5,425,920 $ 5,425,920
=========== ===========
Net Income per share $ .02 $ .01
=========== ===========
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> APR-30-1997 APR-30-1996
<PERIOD-START> MAY-01-1996 MAY-01-1995
<PERIOD-END> OCT-31-1996 OCT-31-1995
<CASH> 213,589 59,925
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 10,337 21,018
<CURRENT-ASSETS> 276,461 133,443
<PP&E> 52,535 52,500
<DEPRECIATION> 9,600 10,500
<TOTAL-ASSETS> 410,324 285,435
<CURRENT-LIABILITIES> 1,729,289 1,260,610
<BONDS> 0 0
<COMMON> 437,415 437,415
0 0
0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 410,324 285,438
<SALES> 1,575,793 2,378,369
<TOTAL-REVENUES> 1,575,793 2,378,369
<CGS> 566,848 917,989
<TOTAL-COSTS> 935,795 1,221,408
<OTHER-EXPENSES> (660) (390)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 44,855 21,954
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 28,955 217,408
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
