<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended Commission File Number
April 30, 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, Minnesota 55431
- - --------------------------------------------------------- ----------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (612) 888-6555
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered
Common Shares, no par value Over-the-Counter
--------------------------- ----------------
Securities registered pursuant to section 12(g) of the Act:
Common Shares, no par value
-----------------------------------------------------------
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 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. (X) Yes (_) No
There was no market value of the voting stock held by non-affiliates of the
registrant as of August 10, 1995.
The number of shares outstanding of the registrant's Common Stock is
5,425,920.
<PAGE>
PART I
Item 1. Business.
GENERAL
The Registrant was incorporated on February 11, 1959 under the laws of the State
of Minnesota under the name Rogers Hardware and Lumber Company. In 1969, the
Company changed its name to Component Systems, Inc. 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's name was changed to High Country
Ventures, Inc. On April 28, 1988, High Country Fashions, Inc. a wholly owned
subsidiary of High Country Ventures, Inc. acquired substantially all of the
assets, as well as all open contract balances and future marketing rights of
Continental Casuals, Ltd., a sister company wholly owned by an officer/major
shareholder of High Country Ventures, Inc. The assets of Continental Casuals
were also purchased.
High Country Fashions, Inc. has been in business since 1977. The Registrant,
through High Country Fashions, Inc. is principally engaged in the business of
assisting new prospects in setting up their own retail clothing and shoe stores.
Services that are provided include store fixtures and initial inventory,
management training and consulting, assistance with selection of accessories and
arranging a grand opening. The selection of stores offered has grown from four
types to sixteen types.
PRODUCT
In 1984, the Company offered four different types of stores: Jeans and
sportswear, infants to preteen, ladies' apparel and large sizes. In 1985,
Registrant expanded its lines to offer accessories such as jewelry, handbags,
and belts to stores. In 1987, Registrant added the following stores to its list:
Leather goods, men's big and tall clothes, dancewear/aerobics stores, men's
shoes, ladies' shoes, athletic and childrens shoe stores, ladies' petite
clothes, ladies large size apparel, bridal, lingerie and color analysis for
ladies. In 1991, the maternity store was added. In 1992 western wear and work
clothes stores were added.
SERVICES OFFERED
Registrant, through High Country Fashions, Inc., provides its services in
packaged sales varying from $26,900 to $38,900. Packages are paid in two
installments: $2,900 in initial deposit and balance due when inventory is
selected. Selection of inventory takes place at the Company's training center in
Atlanta, Georgia. Registrant offers a two to four-day training program run by
three trainers at its facility in Atlanta, Georgia. When the customer arrives in
Atlanta, he/she pays the balance of the contract. The inventory is selected and
the contract amount of inventory ranging from $9,000 to $15,000 is shipped at
the Registrant's expense while inventory in excess of the contract amount is
shipped at the customer's expense. Registrant also offers a selection of store
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<PAGE>
fixtures which are manufactured in Mt. Vernon, Arkansas. Fixtures are stored in
a building leased by the Registrant and transported in one of the Registrant's
five maxivans to the stores where they are installed. Wooden store fixtures that
are manufactured in Arkansas are installed in the store by the driver and helper
of the van. Chrome and brass store fixtures are stored in Minnesota and are
shipped at the Registrant's expense to the store owners who assemble and install
these type of fixtures themselves. The chrome and brass fixtures are purchased
from nonaffiliated sources and represent approximately half of the fixtures
purchased by each store owner.
Registrant also offers assistance in selection of the location for the proposed
store and assistance in selection of merchandise to be purchased for sale in the
store. It provides a grand opening, training manuals, an advertising manual,
promotional ideas and accessories.
Some packages include in-store training. There are eight trainers who spend two
to four days doing in-store training. There are three trainers who conduct two-
day training seminars in Atlanta. Registrant maintains two training centers in
Atlanta, one for clothing store owners and one for shoe store owners.
MARKETING
The Registrant advertises throughout the country and Canada in business
magazines as well as selected newspapers in most of the States of the Union.
After prospects respond to the advertisements, by mail or phone, they are
contacted by telephone by the sales staff of the Registrant for a further
explanation of the business opportunities offered. A complete detailed package
of information is sent to the prospect and periodic contact is made with the
prospect until the sale is made or until the prospect is no longer interested in
any business opportunity.
SALES AND DISTRIBUTION
Sales offices are located in the head office of the Registrant in Bloomington,
Minnesota, Atlanta, Georgia, Edmonton, Alberta, Canada, Orlando and Panama City,
Florida. Sales are made directly to customers who are prospects, most of whom
answer advertisements in national magazines or local newspapers.
COMPETITION
Competition consists of two small companies who offer substantially similar
packages. There is no particular advantage between the Registrant and its two
competitors. A customer who answers the Registrant's advertisement has a
tendency to purchase the package offered by the Registrant.
EMPLOYEES
On April 30, 1996, the Registrant had 14 full-time employees and commissioned
sales people, of whom 5 are engaged in general administration and in sales, 3 in
training and related activities, and 6 who are doing office work. No employee is
represented by a
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<PAGE>
union. Management considers its employee relations to be satisfactory and does
not anticipate any interruption in work flow.
Item 2. Properties.
The Company leases, on a month-to-month basis, the following facilities from
High Country Real Estate Corporation, an affiliated company:
Bloomington, Minnesota office facility, 1756 square feet on a month to
month basis at a monthly rental of $2,855.
Atlanta or Marietta, Georgia training facilities, 951 square feet and 500
square feet at a monthly rental of $1,089 and $500, respectively.
The Company also leases a warehouse facility in Mt. Vernon, Arkansas from
Loughlin Investments, an affiliated company covering 1000 square feet at $500.00
per month on a month to month basis.
It is contemplated that the Registrant will renew the above leases when needed
at rates approximately the same as currently in effect.
Item 3. Legal Proceedings.
Management is not aware of any legal proceeding, the outcome of which would
adversely affect Registrant.
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of the Shareholders was held on October 11, 1995. The
three Directors of the Company, Stephen C. Loughlin, Timothy J. Larson and
Jan Lovlie were re-elected with no opposition.
The auditors were reappointed.
No other matters were voted on at the meeting.
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<PAGE>
PART II
Item 5. Market of Registrant's Common Equity and Related Stockholder Matters.
The Registrant's Common Stock is traded on the Local Over-the-Counter market
under the name High Country Ventures.
The following table sets forth High and Low closing sales prices for the
Registrant's Common Stock for the fiscal quarters indicated. These prices
represent inter-dealer quotations and do not include retail markup, markdown or
commission. They may not represent actual transactions.
<TABLE>
<CAPTION>
1994 1995
---- ----
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter None None None None
Second Quarter None None None None
Third Quarter None None None None
Fourth Quarter None None None None
</TABLE>
As of April 30, 1996 there were 381 Shareholders of record.
DIVIDEND HISTORY
Since the reorganization of the Registrant in 1988, Registrant has not paid a
cash dividend. It is the present intention of the Board of Directors to reinvest
any earnings of the Company into its business and, therefore, payment of cash
dividends is not anticipated in the foreseeable future.
Item 6. Selected Financial Data.
The following table sets forth certain financial information for the years ended
April 30, 1992 through April 30, 1996:
<TABLE>
<CAPTION>
For the year ended For the year ended
------------------ ------------------
April 30, 1996 April 30, 1995
------------------ ------------------
<S> <C> <C>
Revenue $3,598,991.00 $3,236,088.00
Income (Loss) from
Continuing Operations (135,836.00) (115,327.00)
Income (Loss) per
Common Share (0.03) (0.02)
Total Assets 217,655.00 355,460.00
Long Term Obligations 36,971.00 56,475.00
For the year ended For the year ended
------------------ ------------------
April 30, 1994 April 30, 1993
------------------ ------------------
Revenue $1,843,300.00 $2,040,651.00
Income (Loss) from
Continuing Operations (50,203.00) (277,593.00)
Income (Loss) per
Common Share (0.01) (0.05)
Total Assets 148,887.00 201,757.00
Long Term Obligations .00 .00
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
For the year ended
------------------
April 30, 1992
------------------
<S> <C>
Revenue $2,760,726.00
Income (Loss) from
Continuing Operations (49,795.00)
Income (Loss) per
Common Share (0.01)
Total Assets 209,470.00
Long Term Obligations .00
</TABLE>
Item 7. Management Discussion and Analysis of Financial Condition and Results
of Operation.
High Country Ventures, Inc. has been in operation since 1977. In the fiscal year
ended April 30, 1996, High Country Ventures, Inc. had consolidated revenues of
$3,598,991 and a consolidated net loss of $(135,836). The loss reported during
the year ended April 30, 1996 was due in large part to the third quarter which
was adversely effected by threatened Government shutdown which scared a lot of
sales prospects and which was followed by two actual shutdowns resulting in
delayed SBA loan processing. There has been a gradual increase in Small Business
Administration (SBA) funding over the last 3 years and they now appear to be
catching up and are providing individuals with the capital they need to get
started in their own business. Now that the funding is improving we should begin
to recover the delayed openings. During the last 3 fiscal years, we have
obtained initial deposits and store selections as follows:
<TABLE>
<CAPTION>
1996 1995 1994
Number Dollars Number Dollars Number Dollars
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Initial Deposits 207 $603,070 269 $703,722 124 $336,361
Store Selects 96 $2,835,131 100 $2,747,786 53 $1,417,897
--------- --------- ---------
Total Receipts $3,434,201 $3,451,508 $1,754,258
========= ========= =========
</TABLE>
With more banks understanding and using the SBA LowDoc Loan Guarantee Program
along with our increased involvement in helping prospects with business plans
and the entire loan process, we have dramatically increased our store select
ratio. In fiscal 1995, we helped close just over one-third of the store loans.
Whereas in fiscal 1996, we helped close a ratio of almost one-half of the loans.
We are expecting another increase in that ratio for 1997 with our increased
experience and with recent reports that consumer confidence jumped to a six year
high suggesting that consumer spending, representing two-thirds of the nation's
economic activity would continue. Also, leading ecomonic indicators have been up
the last few months which projects increased economic activity 6 - 8 months
ahead.
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<PAGE>
The future looks very good for our industry due to the economic plan passed last
year which benefits start-up companies and investing, with regards to tax
benefits and capital gains for new business. This will make a tremendous
difference to new entrepreneurs as the banks start lending to new business
again. We hope to get back to store opening levels of 1988 and 1989 with half
the overhead. This should start in 1996 and increase upward through 1996 and
1997. To achieve the levels of 1988 and 1989, we have doubled our advertising in
the second quarter of 1997. We will maintain this aggressive approach through
the third quarter of 1997. This is our busiest time of year with the back-to-
school and Christmas sales. We hope this will double our sales and result in
double store openings. We have recently seen a upswing in apparel sales
especially Ladies Better Good Stores, which follows with an increase in shoe
stores which historically has been the last type of store to come back on-line.
In the late 1980's we were doing over 125 shoe stores a year. We hope this will
soon return.
The new fixture factory is running smoothly with a substantial savings in our
fixture production. By setting up our own fixture factory with a new building
and equipment, the company used cash that would have otherwise been used in
advertising. The long-term effect of building our fixture factory is a
substantial savings in the cost of store fixtures.
The company has also reduced their telephone costs by over 25% in the last year.
This is a big savings due to their heavy use of the telephone. In turn we will
be able to advertise more as the credit crunch for new business subsides.
Starting in August 1995 we returned to small town advertising as we did in 1988
through 1989. As the economy in small-town America continues to improve, we have
doubled our advertising budget in this market, which we believe
will dramatically increase our sales and store openings. Recently one of our top
salesmen of the 1980's returned to work for the company. He was away since
the Gulf War and Recession, and we are excited about the experience and
qualifications he brings back to our company.
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 promotion. The Company's contracts
are not written with specific contract prices for specific services. Rather, a
total contract price is negotiated along with each contract's level of service
and type of fixtures. Although this makes it difficult to assess the
contribution to revenue and profitability of each component of each contract,
management does monitor the relative cost of each component to the total
negotiated contract price. During fiscal 1996, the decline in the reported gross
profit percentage from 1995 and 1994 occured in spite of a decrease in the
relative cost of merchandise, fixtures and travel related expenses as this cost
decrease was offset by a greater proportion of contract completions to deposits
received than achieved in 1995 and 1994. Given the revenue recognition
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<PAGE>
methodology followed by the Company (as discussed below), an increase in the
proportion of revenue derived from completed contracts rather than from initial
deposits will result in a decline in the gross profit reported on recorded
revenues since there are minimal direct expenses incurred in connection with the
initial deposits.
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. As a result of using this method, the Company has deferred the
recognition of revenue for receipts totalling $173,060 as of April 30, 1996.
Furthermore, the balance due the Company under all uncompleted contracts has not
been recorded in the Company's financial statement in any manner. The total
balance due High Country under uncompleted contracts, which are less than 180
days old, aggregates $2,090,350 as of April 30, 1996.
This accounting method 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 non-refundable deposits are regarded as
liabilities when collected. These initial payments are recognized as revenue
when 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
possible 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. Management's
collection efforts after the 180 day period diminshes. After the initial deposit
is received and contract is signed, a representative will work continually, with
the party that entered into the contract in an effort to reach the point where
the party is in a position to open their store. The representative works closely
with the party in working up a business plan for presentation to the lending
institutions; with realtors or property management to assist the party in
obtaining a store location while providing continual follow-up to keep the party
motivated toward opening their store. As a result of these procedures, as a
contract balance-due ages, its likelihood of ultimate collection diminishes.
Accordingly, management does not record the balance due as a receivable or
revenue until it is received, and is unable to predict with any certainty, what
portion if any of the total balance due under all uncompleted contracts will
eventually be collected, although we believe our older contract completions
should gradually increase over the next 3 years with that long awaited help from
the financial institutions and SBA's new programs. We have 85% of all contracts
completed up to 1989. We hope to gradually climb toward that goal over the next
3 years.
At April 30, 1996 and 1995, the net deferred tax asset aggregated $199,000 and
$340,000, respectively, primarily related to net operating loss carryforwards.
Additionally, a valuation allowance has been recorded for the full amount of the
net deferred tax asset
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<PAGE>
as there is insufficient profitable operating history to support the realization
of its benefit.
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 related party debt.
Given the nature of the current banking environment, however, management has
been attempting to eliminate all outside bank debt. On April 30, 1996, the
Company had cash of $23,079 down by $86,126 from the prior year end balance.
Working capital was a negative $(1,491,480), caused by the effects of the
Company's current year net loss and as a result of the initial contract payments
received amounting to approximately $173,060 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 year ended April 30, 1996, the Company used net cash of $86,126 through its
operations, financing activities and investing activities. During this year,
operations provided net cash of $35,977. 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
operations 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 April 30, 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.
Item 8. Financial Statements and Supplementary Data
See attached.
Item 9. Changes in and Disagreements on Accounting and Financial Disclosure.
During the fiscal years ended April 30, 1995 and April 30, 1996, Registrant
neither changed its accountants nor reported a disagreement on Form 8-K on any
matter of accounting principle or practice or financial statement disclosure.
-9-
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
Below is information regarding the executive officers and directors of the
Registrant including information furnished by them as to principal occupations
for the last five years, certain other directorships held by them, and their
ages. Officers are elected by the Company's Board of Directors and serve at the
discretion of the Board.
<TABLE>
<CAPTION>
Name Age Position
- - ---- --- --------
<S> <C> <C>
Stephen C. Loughlin 55 Chief Executive Officer, Chief Financial Officer,
Principal Accounting Officer, President,
Treasurer and Director.
Timothy J. Larson 40 Vice President, Secretary and Director
Jan Lovlie 56 Director
</TABLE>
All officers and directors are elected on an annual basis. The present term
of office for each director will expire at the next annual meeting of the
Shareholders of Registrant or at such time as his successor is duly elected.
Executive officers are elected by the Board of Directors and serve at the
discretion of the Board.
STEPHEN C. LOUGHLIN has been the President of High Country Fashions, Inc. for
more than seven years. He is a Director and shareholder of Regal Advertising,
Inc., Continental Casuals Ltd., High Country Real Estate Corporation, Loughlin
Investments, and Can American Investments, Inc.
TIMOTHY J. LARSON has been the Vice President of High Country Fashions, Inc.
for more than seven years.
JAN LOVLIE has been engaged in the private practice of accountancy for more
than seven years. He is also Director of Accounting Services. Inc.
Item 11. Executive Compensation.
The following tables sets for the cash compensation paid or accrued for services
performed during the year ended April 30, 1996 for the executive officers for
the Company:
<TABLE>
<CAPTION>
Name of Individual or Capacities in Cash Compensation
Number of Persons in Group Which Served Per Year
- - -------------------------- ------------- -----------------
<S> <C> <C>
Stephen C. Loughlin Chief Executive Officer $144,000.00
Chief Financial Officer
Principal Accounting
Officer and President
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Timothy J. Larson Vice President and 60,000.00*
Secretary
</TABLE>
*Mr. Larson also receives additional income in the form of commissions.
For the year ended April 30, 1996, he received commissions of $10,500.
No compensation is paid to Directors for serving as a member of the Board.
Item 12. Security Ownership of certain Beneficial Owners and Management.
As of April 30, 1996, Registrant had outstanding 5,425,920 shares of Common
Stock. The following table sets forth certain information regarding the
ownership of the Registrant's capital stock as of April 30, 1995 by (i) all
those known by Registrant to be beneficial owners of more than 5% of the Common
Stock, (ii) Directors, and (iii) all executive officers and directors as a
group. Ownership information is based upon information furnished by the
respective beneficial owners.
<TABLE>
<CAPTION>
Name of Beneficial Shares of Common Stock Percent of
Owner Beneficially Owned Voting Power
------------------ ---------------------- -------------
<S> <C> <C>
(i) Certain Beneficial Owners...
None
(ii) Directors...................
Stephen C. Loughlin 3,000,000 55.3%
Timothy J. Larson 30,000 .6%
Jan Lovlie 250,000 4.6%
(iii) All Officers and Directors..
As a Group (3 persons) 3,280,000 60.5%
</TABLE>
Items 13. Certain Relationships and Related Transactions.
Regal advertising is a company wholly owned by Stephen C. Loughlin. Regals only
activity is placing advertisements on behalf of High Country Fashion, Inc. for
which it receives reimbursement for its costs incurred. Registrant reimbursed
Regal for advertising costs of $780,228, $779,114, and $301,823, during the
years ended April 30, 1996, 1995 and 1994 respectively.
-11-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement, Schedules and Reports on
Form 8-K.
(a) Documents filed as part of this report:
Index to Financial Statements
-----------------------------
1. Financial Statements: Page
Report on examination of Financial Statements 1
years ended 4-30-96, 4-30-95 and 4-30-94
Index to Consolidated Financial Statements 1A
Independent Auditor's Report 1B
Consolidated Balance Sheet 2
Consolidated Statement of Operations 3
Consolidated Statement of Shareholders' Deficit 4
Consolidated Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6-13
2. Exhibits:
No change in Restatement of Articles of Incorporation or Amendment of
Articles of Registrant from previous 10K for year ending April 30, 1996.
(b) Reports on Form 8-K during the last quarter of the period covering this
report:
None.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf of the Undersigned, thereunto duly authorized.
HIGH COUNTRY VENTURES, INC.
By: /s/ Stephen C. Loughlin
--------------------------------
Stephen C. Loughlin, President
Dated: August 13, 1996.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Name Title Date
---- ----- ----
BY: /s/ Stephen C. Loughlin President and August 13, 1996
------------------------- Director
Stephen C. Loughlin
BY: /s/ Timothy J. Larson Vice President, August 13, 1996
-------------------------- Secretary and
Timothy J. Larson Director
BY: /s/ Jan Lovlie Director August 13, 1996
--------------------------
Jan Lovlie
<PAGE>
HIGH COUNTRY VENTURES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
APRIL 30, 1996, 1995 AND 1994
<PAGE>
HIGH COUNTRY VENTURES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report 1
Consolidated Balance Sheet 2
Consolidated Statement of Operations 3
Consolidated Statement of Shareholders' Deficit 4
Consolidated Statement of Cash Flows 5
Notes to Consolidated Financial Statements 7-13
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors and Shareholders
High Country Ventures, Inc.
Minneapolis, Minnesota
We have audited the accompanying consolidated balance sheet of High Country
Ventures, Inc., as of April 30, 1996 and 1995, and the related consolidated
statements of operations, shareholders' deficit and of cash flows for each of
the three years in the period ended April 30, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of High Country
Ventures, Inc. as of April 30, 1996 and 1995, and the results of its operations
and its cash flows for each of the three years in the period ended April 30,
1996 in conformity with generally accepted accounting principles.
SILVERMAN OLSON THORVILSON & KAUFMANN LTD
CERTIFIED PUBLIC ACCOUNTANTS
Minneapolis, Minnesota
July 10, 1996
F-1
<PAGE>
HIGH COUNTRY VENTURES, INC.
CONSOLIDATED BALANCE SHEET
APRIL 30, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
----------- -----------
<S> <C> <C>
Current assets:
Cash $ 23,079 $ 109,205
Inventory (Note 4) 15,201 17,421
Prepaid expenses (Note 9) 35,825 67,059
----------- -----------
Total current assets 74,105 193,685
Property and equipment-net (Note 5) 68,624 83,949
Notes receivable - related parties (Note 3) 57,826 57,826
Note receivable (Note 3) 17,110 20,000
----------- -----------
Total assets $ 217,665 $ 355,460
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Notes payable - related parties (Note 2) $ 421,309 $ 522,831
Accounts payable 609,487 401,798
Accounts payable - related parties (Note 2) 82,151 77,036
Accrued payroll and payroll taxes 95,921 38,223
Accrued interest - related parties (Note 2) 164,949 157,302
Deferred revenue (Note 9) 173,060 333,850
Current portion of long-term debt (Note 6) 14,058 12,931
Current portion of obligations under capital leases (Note 7) 4,650 4,069
----------- ----------
Total current liabilities 1,565,585 1,548,040
Long-term debt (Note 6) 24,651 39,017
Obligations under capital leases (Note 7) 12,320 17,458
----------- -----------
Total liabilities 1,602,556 1,604,515
----------- -----------
Commitments and contingencies (Note 11) - -
Shareholders' 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 (1,822,306) (1,686,470)
----------- -----------
Total shareholders' deficit (1,384,891) (1,249,055)
----------- -----------
Total liabilities and shareholders' deficit $ 217,665 $ 355,460
=========== ===========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-2
<PAGE>
HIGH COUNTRY VENTURES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED APRIL 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Revenues (Note 9) $3,598,991 $3,236,088 $1,843,300
Cost of revenues 1,566,062 1,410,393 677,070
---------- ---------- ----------
Gross profit 2,032,929 1,825,695 1,166,230
Selling, general and administrative expenses 2,107,881 1,867,890 1,150,540
---------- ---------- ----------
Income (loss) from operations (74,952) (42,195) 15,690
Other income and (expense):
Gain on sale of equipment - 11,990 -
Miscellaneous income 2,553 - 755
Interest expense (63,437) (85,122) (66,648)
---------- ---------- ----------
Loss before income taxes (135,836) (115,327) (50,203)
Provision for income taxes (Note 8) - - -
---------- ---------- ----------
Net loss $ (135,836) $ (115,327) $ (50,203)
========== ========== ==========
Net loss per share $ (.03) $ (.02) $ (.01)
========== ========== ==========
Weighted average number of
shares outstanding 5,425,920 5,425,920 5,425,920
========== ========== ==========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-3
<PAGE>
HIGH COUNTRY VENTURES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT
FOR THE YEARS ENDED APRIL 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
COMMON STOCK
--------------------
NUMBER OF ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT DEFICIT DEFICIT
--------- --------- --------------- ---------------
<S> <C> <C> <C> <C>
Balances at April 30, 1993 5,425,920 $437,415 $ (1,520,940) $ (1,083,525)
Net loss for the year
ended April 30, 1994 - - (50,203) (50,203)
--------- --------- ------------ ------------
Balance at April 30, 1994 5,425,920 437,415 (1,571,143) (1,133,728)
Net loss for the year
ended April 30, 1995 - - (115,327) (115,327)
--------- --------- ------------ ------------
Balances at April 30, 1995 5,425,920 437,415 (1,686,470) (1,249,055)
Net loss for the year
ended April 30, 1996 - - (135,836) (135,836)
--------- --------- ------------ ------------
Balances at April 30, 1996 5,425,920 $437,415 $ (1,822,306) $ (1,384,891)
========= ========= ============ ============
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-4
<PAGE>
HIGH COUNTRY VENTURES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED APRIL 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $( 135,836) $( 115,327) $( 50,203)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation 21,000 18,025 9,092
Gain on sale of equipment - ( 11,990) -
Decrease (increase) in assets:
Inventory 2,220 970 30,127
Prepaid expenses 31,234 ( 41,925) ( 9,333)
Increase (decrease) in liabilities:
Accounts payable 207,689 229,319 12,287
Accounts payable - related parties 5,115 ( 38,808) 26,119
Accrued payroll and payroll taxes 57,698 ( 58,665) 28,940
Accrued interest - related party 7,647 28,288 37,130
Deferred revenue ( 160,790) 215,420 ( 89,042)
Other current liabilities - ( 13,918) 13,918
------------ ------------ -----------
Net cash provided by operating activities 35,977 211,389 9,035
------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ( 5,675) ( 5,062) -
Increase (decrease) in notes receivable 2,890 3,350 ( 31,126)
Proceeds from sale of equipment - 11,990 -
------------ ------------ -----------
Net cash provided by (used in)
investing activities ( 2,785) 10,278 ( 31,126)
------------ ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) in notes payable - related parties ( 101,522) ( 113,211) ( 32,019)
Payments of long term debt ( 13,239) ( 8,152) -
Payments of obligations under capital leases ( 4,557) ( 3,759) -
------------ ------------ -----------
Net cash used in
financing activities ( 119,318) ( 125,122) ( 32,019)
------------ ------------ -----------
Increase (decrease) in cash ( 86,126) 96,545 ( 54,110)
Cash - beginning of year 109,205 12,660 66,770
------------ ------------ -----------
Cash - end of year $ 23,079 $ 109,205 $ 12,660
============ ============ ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 55,790 $ 59,713 $ 26,639
============ ============ ===========
Cash paid for taxes $ - $ - $ -
============ ============ ===========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During 1995, the Company purchased equipment by issuing long-term debt and
obligations under capital leases totalling $60,100 and $25,286, respectively.
The accompanying notes are an integral part
of the consolidated financial statements.
F-5
<PAGE>
HIGH COUNTRY VENTURES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 1996, 1995 AND 1994
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Organization:
High Country Ventures, Inc. ("the Company") assists individuals in
opening retail clothing and shoe stores throughout the United
States. 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. The Company does business under the names
High Country Fashions and Continental Casuals.
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. for all periods presented.
All significant inter-company accounts and transactions have been
eliminated in the consolidated financial statements.
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.
F-6
<PAGE>
HIGH COUNTRY VENTURES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 1996, 1995 AND 1994
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition:
The Company records revenue when all material services and
conditions relating to a contract have 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.
Per Share Data:
The net income or loss per share was computed based on the weighted
average number of shares of common stock outstanding during the
years.
Advertising Costs:
The costs incurred to advertise the Company's services are expensed
as incurred.
Income Taxes:
Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes currently
due plus deferred taxes, if any. Deferred taxes represent the net
tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Reclassifications:
Certain amounts in the 1994 financial statements have been
reclassified to conform with the 1995 presentation. These
reclassifications have no effect on the accumulated deficit or net
loss as originally reported.
F-7
<PAGE>
HIGH COUNTRY VENTURES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 1996, 1995 AND 1994
NOTE 2: RELATED PARTY TRANSACTIONS
Notes Payable - Related Parties:
During 1996, 1995 and 1994, the officer/majority shareholder, a
wholly owned company of the officer/majority shareholder and other
related parties made various loans to the company. The loans are due
on demand and bear interest at rates from 8.00% to 18.15%. At April
30, 1996 and 1995, accrued and unpaid interest on these related
party notes totalled $164,949 and $157,302, respectively. Related
party interest expense aggregated $33,647, $57,288 and $67,130
during 1996, 1995 and 1994, respectively.
Due From Majority Shareholders:
The Company made advances to and paid expenses on behalf of its
majority shareholders and recorded a receivable for such amounts.
This receivable is netted against the notes payable to the
shareholders included in notes payable - related parties on the
accompanying consolidated balance sheet. These advances to and
expenses paid on behalf of the shareholders aggregated $273,815 and
$111,452 during 1996 and 1995, respectively.
Regal Advertising Agency:
Regal Advertising Agency (Regal) is a Company wholly owned by the
officer/majority shareholder of the Company. Regal's only activity
is placing advertisements on behalf of the Company for which it
receives reimbursements of its costs incurred. The Company incurred
total advertising expense, all of which was placed through Regal, of
$780,228, $779,114 and $301,823 during 1996, 1995 and 1994,
respectively. As of April 30, 1996 and 1995, the Company owed Regal
$53,626 and $77,036, respectively, which is included in accounts
payable - related parties on the accompanying consolidated balance
sheet.
High Country Real Estate Corporation:
High Country Real Estate Corporation ("HCRE") is a company wholly-
owned by the Company's officer/majority shareholder. HCRE's only
activity is entering property leases on behalf of the Company and
then subleasing the premises to the Company on a month to month
basis at rates equivalent to HCRE's lease with the related landlord
less subrental payments received from third parties. During 1996,
1995 and 1994, the Company leased its office in Minneapolis,
Minnesota and its national training/sales facility in Atlanta,
Georgia from HCRE at an aggregate monthly cost of $7,418 less
varying monthly subrentals received. As of April 30, 1996 and 1995,
the Company owed HCRE $28,525 and $-0-, respectively, which is
included in accounts payable - related parties on the accompanying
consolidated balance sheet.
F-8
<PAGE>
HIGH COUNTRY VENTURES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 1996, 1995 AND 1994
NOTE 2: RELATED PARTY TRANSACTIONS (CONTINUED)
Loughlin Investments:
During 1996, 1995 and 1994, Loughlin Investments, a Company wholly
owned by the Company's officer/majority shareholder leased a
warehouse/office facility in Mt. Vernon, Arkansas to the Company at
a monthly cost of $500.
S & S Shoe Co., Inc.
S & S Shoe Co., Inc. ("S & S") is a company wholly-owned by the
Company's officer/majority shareholder. S & S supplies the Company
with merchandise and occupies a showroom in the Company's Atlanta,
Georgia facility. During the 1996, 1995, and 1994, purchases from
S & S totalled $139,400, $81,092 and $40,713, respectively.
NOTE 3: NOTES RECEIVABLE
As of April 30, 1996 and 1995, the Company had outstanding notes
receivable from employees totalling $57,826, and from a supplier
totalling $17,110 and $20,000, respectively. These notes receivable
are due on demand and bear interest at 8%.
NOTE 4: INVENTORY
Inventory consisted entirely of completed fixtures and displays at
April 30, 1996 and 1995.
NOTE 5: PROPERTY AND EQUIPMENT - NET
Property and equipment - net consisted of the following at April 30:
<TABLE>
<CAPTION>
Estimated
Useful
1996 1995 Lives
-------- -------- ---------
<S> <C> <C> <C>
Vehicles $250,240 $250,240 5 years
Equipment 86,843 84,148 5 years
Equipment under capital lease 25,286 25,286 5 years
Leasehold improvements 17,429 14,449 5 years
-------- --------
Total property and equipment 379,798 374,123
Less: accumulated depreciation 311,174 290,174
-------- --------
Property and equipment - net $ 68,624 $ 83,949
======== ========
</TABLE>
Depreciation expense, including that on assets under capital lease,
was $21,000, $18,025 and $9,092 during 1996, 1995 and 1994,
respectively. Accumulated depreciation on the equipment under capital
lease totalled $7,581 and $2,527 as of April 30, 1996 and 1995,
respectively.
F-9
<PAGE>
HIGH COUNTRY VENTURES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 1996, 1995 AND 1994
NOTE 6: LONG-TERM DEBT
Long-term debt consisted of the following at April 30:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Note payable - bank bearing interest at
8.75%, maturing June 1997 and
collateralized by inventory. $ 7,864 $15,009
Notes payable bearing interest at rates varying
from 6.50% to 9.50%, maturing through
April 2000 and collateralized by vehicles. 30,845 36,939
------- -------
38,709 51,948
Less current portion 14,058 12,931
------- -------
Long-term debt $24,651 $39,017
======= =======
</TABLE>
Future maturities are as follows for the years ending April 30:
<TABLE>
<CAPTION>
<S> <C>
1997 $14,058
1998 8,097
1999 8,051
2000 8,503
-------
$38,709
=======
</TABLE>
NOTE 7: OBLIGATIONS UNDER CAPITAL LEASES
The Company leases certain equipment under capital leases. Future
minimum lease payments are as follows for the years ending April 30:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 6,964
1998 6,964
1999 6,964
2000 3,305
-------
Total minimum lease payments 24,197
Less amount representing interest 7,227
-------
Present value of net minimum lease payments 16,970
Less current portion 4,650
-------
Obligations under capital leases $12,320
=======
</TABLE>
F-10
<PAGE>
HIGH COUNTRY VENTURES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 1996, 1995 AND 1994
NOTE 8: INCOME TAXES
The effective tax rate varies from the maximum federal statutory rate
as a result of the following items:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ -------
<S> <C> <C> <C>
Tax benefit computed at the
maximum federal statutory rate (34.0)% (34.0)% (34.0)%
Life insurance premiums 3.1 2.5 5.3
Payroll tax penalties 3.6 3.7 7.5
Other permanent differences 1.6 3.8 6.0
Loss to be carried forward 25.7 24.0 15.2
------- ------ -------
Income tax provision $ - $ - $ -
======= ====== =======
</TABLE>
Deferred taxes consisted of the following at April 30:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Asset:
Net operating loss carryforward $ 161,000 $ 315,000
Other 38,000 25,000
---------- ----------
Net deferred tax asset 199,000 340,000
Less valuation allowance (199,000) (340,000)
---------- ----------
Net deferred tax asset $ - $ -
========== ==========
</TABLE>
The net changes in the valuation allowance for 1996, 1995 and 1994 was
an increase (decrease) of $(141,000), $68,000 and $43,700, respectively.
For financial statement purposes, no net tax provision or benefit has
been recorded in 1996 or 1995 relating to current or deferred taxes, as
the Company incurred a taxable net loss for each year resulting in an
increase in the Company's available net operating loss carryforward. In
1994, the Company utilized a portion of the net operating loss
carryforward to offset taxable income of approximately $34,000.
The Company has not filed tax returns for the years from which the
majority of its net operating losses have occurred (Note 11) as a result
of an on-going IRS income tax examination. Furthermore, there is
insufficient profitable operating history to support the likelihood of
ultimate realization of the benefit associated with the net operating
loss carryforward. Accordingly, a valuation allowance has been
established for the full amount of the deferred tax asset.
F-11
<PAGE>
HIGH COUNTRY VENTURES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 1996, 1995 AND 1994
NOTE 8: INCOME TAXES (CONTINUED)
At April 30, 1996, the Company had net operating loss carryforwards as
follows for income tax purposes:
Carryforward Net Operating
Expires Loss
April 30 Carryforwards
------------ -------------
2006 $410,000
2008 180,000
2010 50,000
2011 60,000
--------
$700,000
========
NOTE 9: DEFERRED REVENUE
As described in Note 1, the Company's accounting policy of recognizing
contract fees requires the initial contract fee received to be
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,
estimated to occur 180 days after a contract has been entered.
The balance due under the contracts is reported as income when
collected and not reported as a receivable due to of the contingent
nature of its collectibility.
As of April 30, 1996 and 1995, initial nonrefundable contract payments
of $173,060 and $333,850, respectively, have been deferred. The
related prepaid commissions on these uncompleted contracts of $26,880
and $66,584, respectively, are included in prepaid expenses on the
accompanying consolidated balance sheet.
The balance due to the Company under the terms of the uncompleted
contracts entered into within the 180-day period preceding April 30,
1996 and 1995 aggregated $2,096,350 and $3,562,350, respectively.
NOTE 10: OPERATING LEASES
The Company rents/leases office, training and warehouse facilities
(Note 2), and equipment under month to month operating leases. As of
April 30, 1995, the Company has no long term lease obligations
relating to these month-to-month leases. In addition, the Company
leases an automobile under a noncancelable operating lease for which
future minimum lease payments are as follows:
1997 $ 8,607
1998 2,154
---------
$ 10,761
=========
F-12
<PAGE>
HIGH COUNTRY VENTURES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 1996, 1995 AND 1994
NOTE 10: OPERATING LEASES (CONTINUED)
Total rental/lease expense was $73,124, $91,121 and $108,470 for the
years ended April 30 1996, 1995 and 1994, respectively, and has been
included in selling, general and administrative expenses as reported
on the accompanying consolidated statement of operations.
NOTE 11: COMMITMENTS AND CONTINGENCIES
Line of Credit:
At April 30, 1996, the Company had an available bank line of credit
for borrowings up to $300,000. At April 30, 1996, this credit
facility was unused, although $244,000 had been borrowed under the
terms of this agreement as of July 10, 1996. Borrowings under the
line of credit bear interest at a variable rate (9.5% at April 30,
1996), are secured by virtually all corporate assets and are
guaranteed by the Company's officer/majority shareholder.
Additionally, the agreement contains certain restrictive covenants
which the Company is not in compliance with. The lender has not
commenced any actions pursuant to their rights under the default
provisions of the line of credit agreement through July 10, 1996.
Employment Agreement:
The Company's officer/majority shareholder is bound by a non-compete
agreement which restricts the officer/majority shareholder from
engaging in business activities similar to the Company through April
1998.
The Company is also the beneficiary of two key-man life insurance
policies for the officer/majority shareholder totalling $1,250,000.
Tax Returns:
The Company has not filed tax returns for the years ended April 30,
1992, 1993, 1994, 1995 and 1996. Management is unable to estimate
the effect these late filings will have on the future availability
of the net operating loss carryforwards derived from these years
(Note 8).
F-13
<PAGE>
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES
Board of Directors and Shareholders
High Country Ventures, Inc.
Minneapolis, Minnesota
Our audits of the consolidated financial statements referred to in our report
dated July 10, 1996, appearing in the Annual Report on Form 10-K of High Country
Ventures, Inc. for the three years in the period ended April 30, 1996 also
included an audit of the Financial Statement Schedules for each of the three
years in the period ended April 30, 1996. In our opinion, these Financial
Statement Schedules present fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements.
SILVERMAN OLSON THORVILSON & KAUFMANN LTD
CERTIFIED PUBLIC ACCOUNTANTS
Minneapolis, Minnesota
July 10, 1996
F-14
<PAGE>
HIGH COUNTRY VENTURES, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN B COLUMN C - ADDITIONS COLUMN D COLUMN E
---------- ---------------------- ------------ ----------
CHARGED TO
COLUMN A BALANCE AT CHARGED TO OTHER BALANCE AT
- - ----------- BEGINNING COSTS AND ACCOUNTS- DEDUCTIONS END
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD
- - ----------- ---------- ---------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Year ended April 30, 1996:
Allowance for deferred tax asset $340,000 $ - $ - $(141,000) $199,000
Year ended April 30, 1995:
Allowance for deferred tax asset $272,000 $ 68,000 $ - $ - $340,000
Year ended April 30, 1994:
Allowance for deferred tax asset $ - $272,000 $ - $ - $272,000
</TABLE>
During 1996, the valuation allowance for the deferred tax asset declined
$118,000 as a result of an adjustment to the Company's net operating loss
carryforwards, resulting from an IRS examination of the Company's 1989, 1990 and
1991 federal income tax returns.
F-15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-START> MAY-01-1995
<PERIOD-END> APR-30-1996
<CASH> 23,079
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 15,201
<CURRENT-ASSETS> 74,105
<PP&E> 35,825
<DEPRECIATION> 21,000
<TOTAL-ASSETS> 217,665
<CURRENT-LIABILITIES> 1,565,585
<BONDS> 0
<COMMON> 437,415
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 217,665
<SALES> 3,598,991
<TOTAL-REVENUES> 3,598,991
<CGS> 1,566,062
<TOTAL-COSTS> 2,107,881
<OTHER-EXPENSES> (2,553)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63,437
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (135,836)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
