<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
January 31, 1997 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 prinicipal 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 January 31, 1997
- --------------------------- -------------------------------
Common shares, no par value 5,425,920 Shares
<PAGE>
HIGH COUNTRY VENTURES, INC.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Nine Months Ended January 31, 1997 and 1996
<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 2-3
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
Signature Page 13
Exhibit 11 - Per Share Calculation 14
<PAGE>
HIGH COUNTRY VENTURES, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
January 31, 1997
January 31, April 30,
ASSETS 1997 1996
----------- ----------
Current assets:
Cash $ 83,229 $ 23,079
Inventory 12,736 15,201
Prepaid expenses 37,100 35,825
--------- ----------
Total current assets 133,065 74,105
Property and equipment - net 55,967 68,624
Notes receivable - related parties 57,826 57,826
Note receivable 16,304 17,110
--------- ----------
Total assets $ 263,162 $ 217,665
========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable - Related Party 732,804 421,309
Accounts payable 504,589 609,487
Accounts Payable - Related Party 35,420 82,151
Accrued payroll and payroll taxes 65,031 95,921
Accrued interest - related parties 164,949 164,949
Current portion of long-term debt 14,058 14,058
Deferred revenue 158,150 173,060
Current portion of obligations
under capital lease 4,650 4,650
--------- ----------
Total current liabilities 1,679,651 1,565,585
Long-term debt - net of current portion 24,651 24,651
Obligations under capital leases 12,320 12,320
--------- ----------
Total liabilities 1,716,622 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 (1,890,875) (1,822,306)
---------- ----------
Total shareholders'
equity (deficit) (1,453,460) (1,384,891)
---------- ----------
Total liabilities and
shareholders' equity (deficit) $ 263,162 $ 217,665
========== ==========
The accompanying selected information is an integral
part of the consolidated financial statements.
-1-
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HIGH COUNTRY VENTURES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
For the Three Months Ended January 31, 1997 and 1996
1997 1996
----------- ----------
Revenues $ 536,138 $ 603,148
Cost of revenues 302,538 269,328
---------- ----------
Gross profit 233,600 333,820
Selling, general and
administrative expenses 314,553 363,070
---------- ----------
Income from operations (80,953) (29,250)
Miscellaneous and interest income 320 370
Interest expense (16,891) (9,991)
---------- ----------
Income before income taxes (97,524) (38,871)
Income tax benefit - -
---------- ----------
Net income $ (97,524) $ (38,871)
---------- ----------
Net income per share $ (.02) $ (.01)
========== ==========
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-
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HIGH COUNTRY VENTURES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
For the Nine Months Ended January 31, 1997 and 1996
1997 1996
---------- ----------
Revenues $2,111,931 $2,981,517
Cost of revenues 869,386 1,187,317
---------- ----------
Gross profit 1,242,545 1,794,200
Selling, general and
administrative expenses 1,250,348 1,584,478
---------- ----------
Income from operations (7,803) 209,722
Miscellaneous and interest income 980 760
Interest expense (61,746) (31,945)
---------- ----------
Income before income taxes (68,569) 178,537
Income tax benefit - -
---------- ----------
Net income $ (68,569) $ 178,537
---------- ----------
Net income per share $ (.01) $ .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.
-3-
<PAGE>
HIGH COUNTRY VENTURES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Unaudited)
For the Nine Months Ended January 31, 1997
Common Stock
-------------------- Shareholders'
Number of (Accumulated) Equity
Shares Amount Deficit) (Deficit)
--------- -------- ------------- -----------
Balances at
April 30, 1996 5,425,920 $ 437,415 $(1,822,306) $(1,384,891)
Net income for
the nine months
ended January 31,
1997 - - (68,569) (68,569)
--------- ---------- ------------ ------------
5,425,920 $ 437,415 $(1,890,875) $(1,453,460)
========= ========== ============ ===========
The accompanying selected information is an integral
part of the consolidated financial statements.
-4-
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HIGH COUNTRY VENTURES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the Three Months Ended January 31, 1997 and 1996
1997 1996
----------- -----------
Cash flows from operating activities:
Net income $ (97,524) $ (38,871)
Adjustments to reconcile net income
to net cash provided
by operating activities:
Depreciation and amortization 4,800 5,250
Decrease (increase) in assets:
Inventory (2,399) (13,374)
Prepaid expenses 15,435 26,460
Increase (decrease) in liabilities:
Accounts payable 22,352 23,193
Accrued expenses 36,287 6,288
Deferred revenue (49,050) (83,751)
Net cash provided by ---------- ----------
operating activities (70,099) (74,805)
---------- ----------
Cash flows from investing activities
Purchase of property and equipment - -
Note receivable - related party (1,034) 130
---------- ----------
Net cash provided (used for)
investing activities (1,034) 130
---------- ----------
Cash flows from financing activities:
Increase (decrease) notes payable
related parties (59,227) 71,734
---------- ----------
Net cash provided by (used for)
financing activities (59,227) 71,734
---------- ----------
Increase (decrease) in cash (130,360) (2,941)
Cash - beginning of period 213,589 59,925
---------- ----------
Cash - end of period $ 83,229 $ 56,984
========== ==========
Supplemental disclosures of cash
flow information:
Cash paid for interest $ 16,891 $ 9,991
========== ==========
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 Nine Months Ended January 31, 1997 and 1996
1997 1996
---------- ----------
Cash flows from operating activities:
Net income $ (68,569) $ 178,537
Adjustments to reconcile net income
to net cash provided
by operating activities:
Depreciation and amortization 14,400 15,750
Decrease (increase) in assets:
Inventory 2,465 (16,971)
Prepaid expenses (1,275) 41,019
Increase (decrease) in liabilities:
Accounts payable (151,629) 9,272
Accrued expenses (30,890) 79,459
Deferred revenue (14,910) (176,650)
Net cash provided by ---------- ---------
operating activities (250,408) 130,416
---------- ---------
Cash flows from investing activities
Purchase of property and equipment (1,743) (2,330)
Note receivable - related party 806 1,740
---------- ---------
Net cash provided (used for)
investing activities (937) (590)
---------- ---------
Cash flows from financing activities:
Increase (decrease) notes payable
related parties 311,495 (182,047)
---------- ----------
Net cash provided by (used for)
financing activities 311,495 (182,047)
---------- ----------
Increase (decrease) in cash 60,150 (52,221)
Cash - beginning of period 23,079 109,205
---------- ----------
Cash - end of period $ 83,229 $ 56,984
========== ==========
Supplemental disclosures of cash
flow information:
Cash paid for interest $ 61,746 $ 31,945
========== ==========
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 Nine Months Ended January 31, 1997 and 1996
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 Nine Months Ended January 31, 1997 and 1996
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 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 Nine Months Ended January 31, 1997 and 1996
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 January 31, 1997 the balance due to the Company under
the terms of the uncompleted contracts underlying the
recorded deferred revenue aggregated $2,506,000.
-9-
<PAGE>
Item 2. Management Discussion and Analysis of Financial Condition
and Results of Operations.
During the quarter ended January 31, 1997, consolidated revenues are
down $67,010 from the $603,148 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 $314,553 for the quarter ended January 31,
1997 from $363,070 for the quarter ended January 31, 1996. This
decrease of $48,517 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 $158,150
as of January 31, 1997. 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 $22,831,484 as of January,31
1997 of which $2,506,000 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 January 31, 1997, the Company had
cash of $83,229 down by $130,360 from the prior quarter balance.
Working capital was a negative income of $(1,546,586), caused by the
effects of the Company's current year net income and as a result of the
initial contract payments received amounting to $158,000 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 January 31,
1997, the Company used net cash of $130,360 through its operations,
financing activities and investing activities. During this quarter
operations accounted for net cash used for $70,099. 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 January 31, 1997, 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: __________________, 1997
HIGH COUNTRY VENTURES,INC.
Registrant
-------------------------------------
Stephen C. Loughlin, President
(On behalf of Registrant and as its
principal financial officer)
-13-
<PAGE>
Exhibit 11
HIGH COUNTRY VENTURES, INC.
Net Income Per Share Calculation
3 months 9 months
Ending 1/31/1997 Ending 1/31/1997
---------------- ----------------
Net Income (Loss) $ (97,524) $ (68,569)
============ ===========
Weighted Average
Number of Shares
Outstanding $ 5,425,920 $ 5,425,920
=========== ===========
Net Income per share $ (.02) $ (.01)
=========== ===========
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> APR-30-1997 APR-30-1996
<PERIOD-START> MAY-01-1996 MAY-01-1995
<PERIOD-END> JAN-31-1997 JAN-31-1996
<CASH> 83,229 56,984
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 12,736 34,392
<CURRENT-ASSETS> 133,065 117,416
<PP&E> 37,100 24,040
<DEPRECIATION> 14,400 15,750
<TOTAL-ASSETS> 263,162 264,031
<CURRENT-LIABILITIES> 1,679,651 1,278,074
<BONDS> 0 0
<COMMON> 437,415 437,415
0 0
0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 263,162 264,031
<SALES> 2,111,931 2,981,517
<TOTAL-REVENUES> 2,111,931 2,981,517
<CGS> 869,386 1,187,317
<TOTAL-COSTS> 1,250,348 1,584,478
<OTHER-EXPENSES> (980) (760)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 61,746 31,945
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (68,569) 178,537
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
