<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
July 31, 1996 33-26692
HIGH COUNTRY VENTURES, INC.
- ------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Minnesota 44-0825298
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8120 Penn Avenue South, Suite 446, Bloomington, MN 55431
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(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including Area Code: (612) 888-6555
N/A
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(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 July 31, 1996
- -------------------------- ----------------------------
Common shares, no par value 5,425,920 Shares
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HIGH COUNTRY VENTURES, INC.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended July 31, 1996 and 1995
<PAGE>
HIGH COUNTRY VENTURES, INC.
INDEX
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Page
PART I FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheet 1
Consolidated Statement of Operations 2
Consolidated Statement of Shareholders' Equity 3
Consolidated Statement of Cash Flows 4
Selected Information 5 - 7
Item 2 - Management Discussion and Analysis 8 - 9
PART II OTHER INFORMATION
Item 6 - Exhibits 10
Exhibit 11 - Per Share Calculation 11
<PAGE>
HIGH COUNTRY VENTURES, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
July 31, 1996
July 31, April 30,
ASSETS 1996 1996
Current assets: ----------- -----------
Cash $ 182,708 $ 23,079
Inventory 13,762 15,201
Prepaid expenses 63,450 35,825
----------- -----------
Total current assets 259,920 74,105
Property and equipment - net 65,567 68,624
Notes receivable - related parties 57,826 57,826
Note receivable 15,950 17,110
----------- -----------
Total assets $ 399,263 $ 217,665
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable - Related Party 838,365 421,309
Accounts payable 478,637 609,487
Accounts Payable - Related Party 27,478 82,151
Accrued payroll and payroll taxes 96,207 95,921
Accrued interest - related parties 164,949 164,949
Current portion of long-term debt 14,058 14,058
Deferred revenue 200,700 173,060
Current portion of obligations
under capital lease 4,650 4,650
----------- -----------
Total current liabilities 1,825,044 1,565,585
Long-term debt - net of current portion 24,651 24,651
Obligations under capital leases 12,320 12,320
----------- -----------
Total liabilities 1,862,015 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 (1,900,167) (1,822,306)
----------- -----------
Total shareholders'
equity (deficit) (1,462,752) (1,384,891)
----------- -----------
Total liabilities and
shareholders' equity (deficit) $ 399,263 $ 217,665
=========== ===========
The accompanying selected information is an integral
part of the consolidated financial statements.
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<PAGE>
HIGH COUNTRY VENTURES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED JULY 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Revenues $ 724,679 $1,094,793
Cost of revenues 270,566 427,953
--------- ---------
Gross profit 454,113 666,840
Selling, general and
administrative expenses 500,273 596,111
--------- ---------
Income (loss) from operations (46,160) 70,729
Miscellaneous and interest income 340 -
Interest expense (32,041) (11,111)
--------- ---------
Income (loss) before income taxes (77,861) 59,618
Income tax benefit - -
--------- ---------
Net income (loss) $ (77,861) 59,618
--------- ---------
Net income (loss) per share $ (.01) .01
--------- ---------
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.
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<PAGE>
HIGH COUNTRY VENTURES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Unaudited)
For the Three Months Ended July 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 three months
ended July 31,
1996 -- -- (77,861) (77,861)
--------- --------- ------------ ------------
5,425,920 $ 437,415 $(1,900,167) $(1,462,752)
========= ========= ============ ============
</TABLE>
The accompanying selected information is an integral
part of the consolidated financial statements.
-3-
<PAGE>
HIGH COUNTRY VENTURES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED JULY 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ (77,861) $ 59,618
Adjustments to reconcile net income
to net cash provided
by operating activities:
Depreciation and amortization 4,800 5,249
Decrease (increase) in assets:
Inventory 1,439 7,999
Prepaid expenses (27,625) (4,761)
Increase (decrease) in liabilities:
Accounts payable (185,523) (44,416)
Accrued expenses 286 42,833
Deferred revenue 27,640 39,800
---------- ---------
Net cash provided (used for)
operating activities (256,844) 106,322
---------- ---------
Cash flows from investing activities
Purchase of property and equipment (1,743) (2,330)
Note receivable - related party 1,160 501
---------- ---------
Net cash (used for)
investing activities (583) (1,829)
---------- ---------
Cash flows from financing activities:
Additional borrowings (payment of) debt 417,056 (145,902)
---------- ---------
Increase (Decrease) in cash 159,629 (41,409)
Cash -- beginning of period 23,079 109,205
---------- ---------
Cash -- end of period $ 182,708 $ 67,796
========== =========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 32,041 $ 11,111
========== =========
</TABLE>
The accompanying selected information is an integral
part of the consolidated financial statements.
-4-
<PAGE>
HIGH COUNTRY VENTURES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Three Months Ended July 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.
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<PAGE>
HIGH COUNTRY VENTURES, INC.
SELECTED INFORMATION
(UNAUDITED)
FOR THE THREE MONTHS ENDED JULY 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 interim
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 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.
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<PAGE>
HIGH COUNTRY VENTURES, INC.
SELECTED INFORMATION
(UNAUDITED)
FOR THE THREE MONTHS ENDED JULY 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 July 31,
1996 the balance due to the Company under the terms of the
uncompleted contracts underlying the recorded deferred revenue
aggregated $3,837,510.
-7-
<PAGE>
Item 2. Management Discussion and Analysis of Financial Condition
and Results of Operations.
During the quarter ended July 31, 1996, consolidated revenues are down $370,114
from the $1,094,793 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 $500,273 for the quarter ended July 31,
1996 from $596,111 for the quarter ended July 31, 1995. This decrease of $95,838
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 the 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 authoritative
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 make 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 $200,700 as of July 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 $21,656,918 as of July 31, 1996 of
which $3,837,510 relates to contracts which are less than 180 days old.
-8-
<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 July 31, 1996, the Company had cash of $182,708 up by $159,629
from the prior quarter balance. Working capital was a negative income of
$(1,565,124), caused by the effects of the Company's current year net income and
as a result of the initial contract payments received amounting to $201,000
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 July 31, 1996, the Company used
net cash of $159,629 through its operations, financing activities and investing
activities. During this quarter operations accounted for net cash used for
$256,844. 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 July 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.
-9-
<PAGE>
HIGH COUNTRY VENTURES, INC.
PART II - OTHER INFORMATION
Item 6 - Exhibits
Exhibit 11 - Per Share Calculation
-10-
<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
/s/ Stephen C. Loughlin
________________________________
Stephen C. Loughlin, President
(On behalf of Registrant and as
its principal financial officer)
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<PAGE>
Exhibit 11
HIGH COUNTRY VENTURES, INC.
Net Income Per Share Calculation
<TABLE>
<CAPTION>
3 months 3 months
Ending 7/31/1996 Ending 7/31/1995
----------------- ----------------
<S> <C> <C>
Net Income $ <77,861> $ 59,618
=========== ===========
Weighted Average
Number of Shares
Outstanding $ 5,425,920 $ 5,425,920
=========== ===========
Net Income per share $ <.01> $ .01
=========== ===========
</TABLE>
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
HIGH COUNTRY VENTURES INC. and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> APR-30-1997 APR-30-1996
<PERIOD-START> MAY-01-1996 MAY-01-1995
<PERIOD-END> JUL-31-1996 JUL-31-1995
<CASH> 182,708 67,796
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 13,762 9,422
<CURRENT-ASSETS> 259,920 149,038
<PP&E> 63,450 71,820
<DEPRECIATION> 4,800 5,249
<TOTAL-ASSETS> 399,263 307,393
<CURRENT-LIABILITIES> 1,825,044 1,440,355
<BONDS> 0 0
<COMMON> 437,415 437,415
0 0
0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 399,263 307,393
<SALES> 724,679 1,094,793
<TOTAL-REVENUES> 724,679 1,094,793
<CGS> 270,566 427,953
<TOTAL-COSTS> 500,273 596,111
<OTHER-EXPENSES> (340) 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 32,041 11,111
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (77,861) 59,618
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
