UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1998
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OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transaction period from to
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Commission File Number 0 - 23136
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COUNTRY STAR RESTAURANTS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 62-1536550
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
4929 WILSHIRE BOULEVARD,
- --------------------------------------------------------------------------------
SUITE # 428, LOS ANGELES, CA 90025
(Address of Principal Executive
Offices) (Zip Code)
(213) 634-5588
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(Registrant's telephone number, including area code)
Not Applicable
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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 Sections 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.
Yes [X] No [ ]
The number of shares of common stock outstanding as of May 14, 1998: 9,004,293
<PAGE>
COUNTRY STAR RESTAURANTS, INC.
INDEX
Page
----
PART I - Financial Information
Item 1. Financial Statements
Condensed Balance Sheet at
March 31, 1998 (unaudited)............... 3
Condensed Statements of Operations
for the Quarter Ended March 31, 1998
and March 31, 1997 (unaudited).......... 4
Condensed Statements of Cash Flows
for the Quarter Ended March 31, 1998
and March 31, 1997 (unaudited).......... 5
Notes to Condensed Financial Statements
(unaudited).............................. 6
Item 2. Management's Discussion and Analysis
of Financial Condition
and Results of Operations................ 7
PART II - Other Information
Item 2. Changes in securities......................... 9
Item 6. Exhibits and Reports on Form 8-K.............. 9
SIGNATURES ......................................... 10
2
<PAGE>
COUNTRY STAR RESTAURANTS, INC.
Condensed Balance Sheet
March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 144,943
Inventories 183,194
Other 223,314
-------------
TOTAL CURRENT ASSETS 551,451
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PROPERTY AND EQUIPMENT AT COST, NET OF ACCUMULATED
DEPRECIATION AND AMORTIZATION OF $861,758:
Leasehold improvements 3,374,062
Furniture and equipment 1,321,952
Memorabilia 345,507
-------------
TOTAL PROPERTY AND EQUIPMENT 5,041,521
OTHER 263,925
-------------
$ 5,856,897
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 1,750,000
Accounts payable 513,997
Accrued legal settlements 332,000
Accrued salaries 100,000
Other accrued expenses 253,217
-------------
TOTAL CURRENT LIABILITIES 2,949,214
-------------
STOCKHOLDERS' EQUITY:
PREFERRED STOCK, $0.001 par value, 2,000,000 shares authorized,
no shares issued and outstanding --
-------------
COMMON STOCK, $0.01 par value, 250,000,000 shares authorized,
9,004,293 shares issued and outstanding 90,043
ADDITIONAL PAID-IN CAPITAL 47,719,927
ACCUMULATED DEFICIT (44,902,287)
-------------
NET STOCKHOLDERS' EQUITY 2,907,683
-------------
$ 5,856,897
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
COUNTRY STAR RESTAURANTS, INC.
Condensed Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For The Quarter Ended March 31,
-------------------------------
1998 1997
------------- --------------
<S> <C> <C>
REVENUES:
Food and beverage $ 845,778 $ 2,027,617
Merchandise 43,482 236,858
----------- -----------
889,260 2,264,475
----------- -----------
COST AND EXPENSES:
Cost of revenues:
Food and beverage 293,532 730,615
Merchandise 39,492 189,821
Labor 453,599 940,143
Rent 81,629 676,175
Other restaurant operating 187,064 476,074
Selling, general and administrative 547,813 1,401,356
Depreciation and amortization 148,349 385,522
----------- -----------
1,751,478 4,799,706
----------- -----------
LOSS FROM OPERATIONS (862,218) (2,535,231)
----------- -----------
OTHER INCOME (EXPENSE):
Interest income -- 2,447
Interest expense (30,876) (70,204)
Embedded interest expense (212,500) (1,009,662)
----------- -----------
(243,376) (1,077,419)
----------- -----------
LOSS BEFORE MINORITY INTEREST AND EXTRAORDINARY ITEM (1,105,594) (3,612,650)
MINORITY INTEREST -- 413,050
----------- -----------
LOSS BEFORE EXTRAORDINARY ITEM (1,105,594) (3,199,600)
EXTRAORDINARY ITEM - SETTLEMENT OF NOTES PAYABLE,
NET OF 0 TAXES 1,527,890 --
----------- -----------
NET INCOME (LOSS) $ 422,296 $(3,199,600)
=========== ===========
BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE:
Loss before extraordinary item $ (0.13) $ (2.18)
Extraordinary item 0.18 --
----------- -----------
Net income (loss) per common share $ 0.05 $ (2.18)
=========== ===========
BASIC AND DILUTED WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 8,493,113 1,470,800
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
COUNTRY STAR RESTAURANTS, INC.
Condensed Statements of Cash Flows
(Unaudited)
For The Quarter Ended March 31,
-------------------------------
1998 1997
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<S> <C> <C>
NET CASH USED IN OPERATING ACTIVITIES $ (623,902) $ (996,175)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES -- --
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit 850,000 500,000
Payment of note payable (1,300,000) --
Net proceeds from issuance of common and
preferred stock -- 7,857
Capital lease payments -- (35,526)
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (450,000) 472,331
----------- -----------
Net decrease in cash (1,073,902) (523,844)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,218,845 949,205
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 144,943 $ 425,361
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Common stock issued upon Conversion of Debt $ 150,000 --
Common stock issued upon extinguishment of Debt $ 167,500 --
Embedded interest relating to Convertible Debt $ 212,500 $ 1,009,662
The accompanying notes are an integral part of these financial statements.
</TABLE>
5
<PAGE>
COUNTRY STAR RESTAURANTS, INC.
Notes to Condensed Financial Statements
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of
Country Star Restaurants, Inc. have been prepared by the
Company pursuant to the rules and regulations of the
Securities and Exchange Commission.
The information furnished herein reflects all adjustments,
consisting of only normal recurring accruals and adjustments
which are, in the opinion of management, necessary to fairly
state the operating results for the respective periods.
Certain information and footnote disclosures normally included
in annual financial statements prepared in accordance with
generally accepted accounting principles have been omitted
pursuant to such rules and regulations. The notes to the
condensed financial statements should be read in conjunction
with the notes to the consolidated financial statements
contained in the Company's Form 10-KSB for the year ended
December 31, 1997. Company management believes that the
disclosures are sufficient for interim financial reporting
purposes.
NOTE B - EMBEDDED INTEREST EXPENSE
Under the terms of line of credit agreement, amounts advanced
may be converted to common stock at the lesser of (i) $13.30,
or (ii) 80% of the average closing bid price of the common
stock for the five consecutive trading days preceding the date
of conversion. Accordingly, the Company records embedded
interest expense for advances made under the line of credit.
For the three months ended March 31, 1998, the Company
recorded $212.5 thousand of net embedded interest expense
relating to these advances.
NOTE C - EXTRAORDINARY ITEM
During the three months ended March 31, 1998, the Company
recorded an extraordinary gain of $1.53 million on the
extinguishment of its $2,995,358 note payable to Cameron
Capital.
Under the terms of the Settlement Agreement dated February 18,
1998, Cameron agreed to dismiss its legal action against the
Company and to accept as payment in full of its unconverted
debt $1.3 million cash and 670 thousand shares of the
Company's common stock with a market value of $167,500.
Cameron does not have any registration rights with respect to
the common stock, but is eligible to resell certain amounts
immediately pursuant to the provisions of Rule 144 under the
Securities Act of 1933.
The Company funded Cameron's settlement with an advance on the
Company's $3.5 million line of credit. The Company also issued
to the lender warrants to acquire 43,333 shares of the
Company's common stock at an exercise price of $6.25 per
share. No value was assigned to these warrants. The Company
has recorded $212.5 thousand as additional paid-in capital for
the discount related to the embedded interest in the line of
credit advances and fully amortized the expense on February
18, 1998.
6
<PAGE>
COUNTRY STAR RESTAURANTS, INC.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three months ended March 31, 1998 compared to three months ended March 31, 1997
Revenues.
Total revenues decreased to $889 thousand for the three months ended March 31,
1998, compared with $2.264 million for the three months ended March 31, 1997, a
decrease of $1.375 million or 60%, partially due to the closing of Country Star
Atlanta. Same store revenues decreased 49% in Hollywood and 62% in Las Vegas.
The decreases were due to the Company's limited advertising budget and customer
resistance to changes in food preparation and presentation. Steps are being
taken which management believes will increase sales at each restaurant.
Costs and expenses.
Cost of revenues decreased from $920 thousand for the three months ended March
31, 1997 to $333 thousand for the three months ended March 31, 1998. Cost of
revenues as a percentage of revenues decreased from 41% to 37% primarily due to
the new plans and policies implemented by management.
Operating expenses decreased from $2.092 million for the three months ended
March 31, 1997 to $722 thousand for the three months ended March 31, 1998. As a
percentage of revenues, operating expenses decreased from 92% to 81% primarily
due to the new plans and policies implemented by management.
General and administrative expenses decreased from $1.401 million for the three
months ended March 31, 1997 to 548 thousand for the three months ended March 31,
1998. As a percentage of revenues, general and administrative expenses were 62%
of revenues for both periods.
Depreciation and amortization decreased from $386 thousand for the three months
ended March 31, 1997 to $148 thousand for the three months ended March 31, 1998,
reflecting the decrease in the number of restaurants from three to two. As a
percentage of total revenues, depreciation and amortization were 17% of revenues
for both periods.
Interest expense decreased from $1.080 million to $243 thousand, reflecting
primarily the embedded interest expense associated with the convertible debt
financing arrangements entered into on February 12, 1997.
(continued)
7
<PAGE>
COUNTRY STAR RESTAURANTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Minority interest for the three months ended March 31, 1997 reflected the
Company's controlling interest of 50.05% in Country Star Las Vegas LLC triggered
by the opening of the Las Vegas facility in July, 1996. The Company sold its
interest in Country Star Las Vegas LLC on December 30, 1997, and entered into in
a new lease agreement directly between the Company and the landlord. The Company
is obligated to pay base rent of 50% of monthly positive cash flow. During the
three months ended March 31, 1998, the Las Vegas location did not generate
positive cash flow and, therefore, no rental payments were made.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by financing activities for the three months ended March 31,
1997 and used in the three months ended March 31, 1998 were $472 thousand and
$450 thousand respectively, due to the borrowing and repayments of the
convertible debts in 1997 and 1998.
Net cash used in operating activities for the three months ended March 31, 1997
and March 31, 1998 decreased from $996 thousand to $624 thousand due primarily
to the extraordinary gain of $1.5 million in 1998.
The Company will need to raise additional capital before it can attain
profitability from operations. Management believes it can raise this capital
through private placements of equity and the granting by lenders of
discretionary advances under outstanding lines of credit.
8
<PAGE>
COUNTRY STAR RESTAURANTS, INC.
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On February 12, 1998 the Company effected a one for ten
reverse common stock split. Accordingly, all references to
numbers of common shares, except shares authorized, and to per
share information in the financial statements have been
adjusted to reflect the reverse stock split on a retroactive
basis.
On January 31, 1998 the Company's Convertible Debentures
issued in October 1997 for $150,000 were automatically
converted into 461,538 common shares in accordance with their
terms.
On February 18, 1998, the Company issued 670,000 shares of
Common Stock to Cameron Capital Ltd. under a Settlement
Agreement relating to settlement of the Company's long term
debt obligation to Cameron and warrants to acquire 43,333
shares of the Company's Common Stock at an exercise price of
$6.25 per share to an institutional lender in connection with
the settlement.
The issuance of the warrants and of the Common Stock was
exempt from registration pursuant to Section 4 (2) of the
Securities Act of 1933, as amended.
On March 10, 1998 the National Association of Securities
Dealers, Inc. (the "NASD") delisted the Company's securities
from the NASDAQ National Market because of the Company's
failure to meet listing requirements concerning minimum bid
price and market value of public float and advised the Company
its securities may be eligible to trade on the OTC Bulletin
Board. The Company will take all actions reasonably necessary
for there to be an active trading market for its outstanding
Common Stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits None
(b) Reports on Form 8-K
On January 20, 1998, the Company filed a Current
Report on Form 8-K on the sale of its interest in the
restaurant operations of the Company's Las Vegas, Nevada
restaurant and entering into a new lease of the restaurant
directly to the Company.
9
<PAGE>
COUNTRY STAR RESTAURANTS, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly authorized and caused the undersigned to sign this
Report on the Registrant's behalf.
COUNTRY STAR RESTAURANTS, INC.
By: /s/ DAN J. RUBIN
--------------------------------------------
Dan J. Rubin
Chief Executive Officer, President, and
Chairman of the Board
Dated: May 19, 1998
10
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000911220
<NAME> COUNTRY STAR RESTAURANTS, INC.
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 3-MOA
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 144,943
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 183,194
<CURRENT-ASSETS> 551,451
<PP&E> 5,903,279
<DEPRECIATION> 861,758
<TOTAL-ASSETS> 5,856,897
<CURRENT-LIABILITIES> 2,949,214
<BONDS> 0
90,043
0
<COMMON> 0
<OTHER-SE> 2,817,640
<TOTAL-LIABILITY-AND-EQUITY> 5,856,897
<SALES> 889,260
<TOTAL-REVENUES> 889,260
<CGS> 333,024
<TOTAL-COSTS> 1,751,478
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 243,376
<INCOME-PRETAX> (1,105,594)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,105,594)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,527,890
<CHANGES> 0
<NET-INCOME> 422,296
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
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