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 JUNE 30, 1998
-------------------------------------------------
OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transaction period from to
-------------------------------------------------
Commission File Number 0 - 23136
------------
COUNTRY STAR RESTAURANTS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 62-1536550
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
4929 WILSHIRE BOULEVARD, SUITE # 428, LOS ANGELES, CA 90010
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(323) 634-5588
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
- --------------------------------------------------------------------------------
(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 August 1, 1998: 9,004,293
<PAGE>
COUNTRY STAR RESTAURANTS, INC.
INDEX
Page
----
PART I - Financial Information
Item 1. Financial Statements
Condensed Balance Sheet at
June 30, 1998 (unaudited)........................... 3
Condensed Statements of Operations
for the Quarter Ended June 30, 1998
and June 30, 1997 (unaudited)...................... 4
Condensed Statements of Operations
for the Six Months Ended June 30, 1998
and June 30, 1997 (unaudited)...................... 5
Condensed Statements of Cash Flows
for the Quarter Ended June 30, 1998
and June 30, 1997 (unaudited)...................... 6
Condensed Statements of Cash Flows
for the Six Months Ended June 30, 1998
and June 30, 1997 (unaudited)...................... 7
Notes to Condensed Financial Statements
(unaudited)......................................... 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 10
PART II - Other Information
Item 2. Changes in Securities................................. 14
Item 6. Exhibits and Reports on Form 8-K...................... 15
SIGNATURES ................................................. 16
2
<PAGE>
COUNTRY STAR RESTAURANTS, INC.
Condensed Balance Sheet
June 30, 1998
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 8,810
Inventories 167,461
Prepaid expenses 78,389
Other 140,247
------------
TOTAL CURRENT ASSETS 394,907
------------
PROPERTY AND EQUIPMENT AT COST, NET OF ACCUMULATED
DEPRECIATION AND AMORTIZATION OF $1,004,959:
Leasehold improvements 3,316,875
Furniture and equipment 1,262,797
Memorabilia 318,648
------------
TOTAL PROPERTY AND EQUIPMENT 4,898,320
------------
OTHER 260,427
------------
$ 5,553,654
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 2,152,000
Accounts payable 506,618
Accrued legal settlements 332,000
Accrued salaries 140,000
Other accrued expenses 238,989
------------
TOTAL CURRENT LIABILITIES 3,369,607
------------
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 47,820,427
ACCUMULATED DEFICIT (45,726,423)
------------
NET STOCKHOLDERS' EQUITY 2,184,047
------------
$ 5,553,654
============
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
COUNTRY STAR RESTAURANTS, INC.
Condensed Statments of Operations
(Unaudited)
FOR THE QUARTER ENDED JUNE 30,
------------------------------
1998 1997
----------- -----------
<S> <C> <C>
REVENUES:
Food and beverage $ 1,103,129 $ 1,571,927
Merchandise 41,787 159,474
----------- -----------
1,144,916 1,731,401
----------- -----------
COST AND EXPENSES:
Cost of revenues:
Food and beverage 326,272 451,662
Merchandise 25,196 134,047
Labor 477,203 655,210
Rent 163,997 753,434
Other restaurant operating 216,636 238,681
Selling, general and administrative 448,057 813,090
Depreciation and amortization 146,699 386,011
----------- -----------
1,804,060 3,432,135
----------- -----------
LOSS FROM OPERATIONS (659,144) (1,700,734)
----------- -----------
OTHER INCOME (EXPENSE):
Interest income -- 1,609
Interest expense (64,492) (128,225)
Embedded interest expense (100,500) (992,064)
----------- -----------
(164,992) (1,118,680)
----------- -----------
LOSS BEFORE MINORITY INTEREST AND EXTRAORDINARY ITEM (824,136) (2,819,414)
MINORITY INTEREST -- 322,280
----------- -----------
LOSS BEFORE EXTRAORDINARY ITEM (824,136) (2,497,134)
EXTRAORDINARY ITEM - SETTLEMENT OF NOTES PAYABLE, NET OF 0 TAXES -- 1,325,986
----------- -----------
NET LOSS $ (824,136) $(1,171,148)
=========== ===========
BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE:
Loss before extraordinary item $ (0.09) $ (1.43)
Extraordinary item -- 0.76
----------- -----------
Net loss per common share $ (0.09) $ (0.67)
=========== ===========
BASIC AND DILUTED WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 9,004,293 1,752,408
=========== ===========
The accompanying notes are an integral part of these financial statements.
4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COUNTRY STAR RESTAURANTS, INC.
Condensed Statments of Operations
(Unaudited)
FOR THE SIX MONTHS ENDED JUNE 30,
---------------------------------
1998 1997
----------- -----------
<S> <C> <C>
REVENUES:
Food and beverage $ 1,950,680 $ 3,599,544
Merchandise 83,497 396,332
----------- -----------
2,034,177 3,995,876
----------- -----------
COST AND EXPENSES:
Cost of revenues:
Food and beverage 619,804 1,182,275
Merchandise 64,688 323,868
Labor 930,802 1,595,354
Rent 245,626 1,429,608
Other restaurant operating 403,700 714,755
Selling, general and administrative 995,839 2,241,939
Depreciation and amortization 295,047 771,533
----------- -----------
3,555,506 8,259,332
----------- -----------
LOSS FROM OPERATIONS (1,521,329) (4,263,456)
----------- -----------
OTHER INCOME (EXPENSE):
Interest income -- 4,055
Interest expense (95,369) (198,429)
Embedded interest expense (313,000) (2,001,786)
----------- -----------
(408,369) (2,196,160)
----------- -----------
LOSS BEFORE MINORITY INTEREST AND EXTRAORDINARY ITEM (1,929,698) (6,459,616)
MINORITY INTEREST -- 735,330
----------- -----------
LOSS BEFORE EXTRAORDINARY ITEM (1,929,698) (5,724,286)
EXTRAORDINARY ITEM - SETTLEMENT OF NOTES PAYABLE, NET OF 0 TAXES 1,527,858 1,353,478
----------- -----------
NET LOSS $ (401,840) $(4,370,808)
=========== ===========
BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE:
Loss before extraordinary item $ (0.22) $ (3.55)
Extraordinary item 0.17 0.84
----------- -----------
Net loss per common share $ (0.05) $ (2.71)
=========== ===========
BASIC AND DILUTED WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 8,750,115 1,612,239
=========== ===========
The accompanying notes are an integral part of these financial statements.
5
</TABLE>
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<TABLE>
<CAPTION>
COUNTRY STAR RESTAURANTS, INC.
Condensed Statments of Cash Flows
(Unaudited)
FOR THE QUARTER ENDED JUNE 30,
-------------------------------
1998 1997
----------- -----------
<S> <C> <C>
NET CASH USED IN OPERATING ACTIVITIES $ (538,133) $(1,727,505)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES -- (10,445)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit 402,000 --
Payment of note payable -- --
Net proceeds from issuance of common and preferred stock -- 1,983,999
Capital lease payments -- (504,711)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 402,000 1,479,288
----------- -----------
Net decrease in cash (136,133) (258,662)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 144,943 425,361
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 8,810 $ 166,699
=========== ===========
SUPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Common stock issued upon conversion of debt -- --
Common stock issued upon extinguishment of debt -- --
Common stock issued upon purchase of leased equipment -- $ 447,462
Embedded interest relating to convertible debt $ 100,500 $ 992,064
The accompanying notes are an integral part of these financial statements.
6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COUNTRY STAR RESTAURANTS, INC.
Condensed Statments of Cash Flows
(Unaudited)
FOR THE SIX MONTHS ENDED JUNE 30,
---------------------------------
1998 1997
----------- -----------
<S> <C> <C>
NET CASH USED IN OPERATING ACTIVITIES $(1,162,035) $(2,723,680)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES -- (10,445)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit 1,252,000 500,000
Payment of note payable (1,300,000) --
Net proceeds from issuance of common and preferred stock -- 1,991,856
Capital lease payments -- (540,237)
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (48,000) 1,951,619
----------- -----------
Net decrease in cash (1,210,035) (782,506)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,218,845 949,205
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 8,810 $ 166,699
=========== ===========
SUPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Common stock issued upon conversion of debt $ 150,000 --
Common stock issued upon extinguishment of debt $ 167,500 --
Common stock issued upon purchase of leased equipment -- $ 447,462
Embedded interest relating to convertible debt $ 313,000 $ 2,001,726
The accompanying notes are an integral part of these financial statements.
7
</TABLE>
<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 June 30, 1998, the
Company recorded $100,500 of net embedded interest expense relating to
these advances.
NOTE C - EXTRAORDINARY ITEM
During the six months ended June 30, 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
(continued)
8
<PAGE>
COUNTRY STAR RESTAURANTS, INC.
Notes to Condensed Financial Statements-Continued
(Unaudited)
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.
9
<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 JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
Revenues.
Total revenues decreased to $1.145 million for the three months ended June 30,
1998, compared with $1.731 million for the three months ended June 30, 1997, a
decrease of $586 thousand or 34%. Same store revenues decreased 26% in Hollywood
and 38% 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 $586 thousand for the three months ended June
30, 1997 to $351 thousand for the three months ended June 30, 1998. Cost of
revenues as a percentage of revenues decreased from 34% to 31% primarily due to
the new plans and policies implemented by management.
Operating expenses decreased from $1.647 million for the three months ended June
30, 1997 to $858 thousand for the three months ended June 30, 1998. As a
percentage of revenues, operating expenses decreased from 95% to 75% primarily
due to the new plans and policies implemented by management.
General and administrative expenses decreased from $813 thousand for the three
months ended June 30, 1997 to 448 thousand for the three months ended June 30,
1998. As a percentage of revenues, general and administrative expenses decreased
from 47% to 39% primarily due to the new plans and policies implemented by
management.
Depreciation and amortization decreased from $386 thousand for the three months
ended June 30, 1997 to $147 thousand for the three months ended June 30, 1998,
reflecting the decrease in the number of buildings owned from three to one. As a
percentage of total revenues, depreciation and amortization decreased from 22%
to 13%.
Interest expense decreased from $1.119 million to $165 thousand, reflecting
primarily the embedded interest expense associated with the convertible debt
financing arrangements entered into on February 12, 1997.
(continued)
10
<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 June 30, 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 a
new sublease agreement directly between the Company and a nominee of the
landlord. The Company is obligated to pay base rent of 50% of monthly positive
cash flow. During the three months ended June 30, 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 June 30,
1997 and June 30, 1998 were $1.479 million and $402 thousand respectively, due
primarily to the net proceeds from issuance of common stock in 1997 and
borrowing through the convertible debts in 1998.
Net cash used in operating activities for the three months ended June 30, 1997
and June 30, 1998 decreased from $1.728 million to $538 thousand due primarily
to the settlement with over 300 creditors during the three months ended June 30,
1997.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Revenues.
Total revenues decreased to $2.034 million for the six months ended June 30,
1998, compared with $3.996 million for the six months ended June 30, 1997, a
decrease of $1.962 million or 49%. Same store revenues decreased 37% in
Hollywood and 50% 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.
(continued)
11
<PAGE>
COUNTRY STAR RESTAURANTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Costs and expenses.
Cost of revenues decreased from $1.506 million for the six months ended June 30,
1997 to $684 thousand for the six months ended June 30, 1998. Cost of revenues
as a percentage of revenues decreased from 38% to 34% primarily due to the new
plans and policies implemented by management.
Operating expenses decreased from $3.740 million for the six months ended June
30, 1997 to $1.580 million for the six months ended June 30, 1998. As a
percentage of revenues, operating expenses decreased from 94% to 78% primarily
due to the new plans and policies implemented by management.
General and administrative expenses decreased from $2.242 million for the six
months ended June 30, 1997 to 996 thousand for the six months ended June 30,
1998. As a percentage of revenues, general and administrative expenses decreased
from 56% to 49% primarily due to the new plans and policies implemented by
management.
Depreciation and amortization decreased from $772 thousand for the six months
ended June 30, 1997 to $295 thousand for the six months ended June 30, 1998,
reflecting the decrease in the number of buildings owned from three to one. As a
percentage of total revenues, depreciation and amortization decreased from 19%
to 15%.
Interest expense decreased from $2.196 million to $408 thousand, reflecting
primarily the embedded interest expense associated with the convertible debt
financing arrangements entered into on February 12, 1997.
Minority interest for the six months ended June 30, 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 a new
sublease agreement directly between the Company and a nominee of the landlord.
The Company is obligated to pay base rent of 50% of monthly positive cash flow.
During the six months ended June 30, 1998, the Las Vegas location did not
generate positive cash flow and, therefore, no rental payments were made.
(continued)
12
<PAGE>
COUNTRY STAR RESTAURANTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by financing activities for the six months ended June 30, 1997
and used in the six months ended June 30, 1998 were $1.952 million and $48
thousand respectively, due primarily to the net proceeds from issuance of common
stock and borrowings in 1997 and borrowing and repayment of the convertible
debts in 1998.
Net cash used in operating activities for the six months ended June 30, 1997 and
June 30, 1998 decreased from $2.724 million to $1.162 million due primarily to
the settlement with over 300 creditors during the six months ended June 30,
1997.
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.
13
<PAGE>
COUNTRY STAR RESTAURANTS, INC.
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
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 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 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.
(continued)
14
<PAGE>
COUNTRY STAR RESTAURANTS, INC.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits None
(b) Reports on Form 8-K None
15
<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: August 18, 1998
16
<TABLE> <S> <C>
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 8,810
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 167,461
<CURRENT-ASSETS> 394,907
<PP&E> 5,903,279
<DEPRECIATION> 1,004,959
<TOTAL-ASSETS> 5,553,654
<CURRENT-LIABILITIES> 3,369,607
<BONDS> 0
0
0
<COMMON> 90,043
<OTHER-SE> 2,094,004
<TOTAL-LIABILITY-AND-EQUITY> 5,553,654
<SALES> 1,144,916
<TOTAL-REVENUES> 1,144,916
<CGS> 351,468
<TOTAL-COSTS> 1,804,060
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 164,992
<INCOME-PRETAX> (824,136)
<INCOME-TAX> 0
<INCOME-CONTINUING> (824,136)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (824,136)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
