<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-QSB
Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the quarterly period ended June 30, 1997
Commission file number 0-22582
NASHVILLE COUNTRY CLUB, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Tennessee 62-1535897
(State or Other Jurisdiction of I.R.S. Employer Identification Number
Incorporation or Organization)
402 Heritage Planation Way, Hickory Valley, Tennessee 38042
(Address of Principal Executive Offices)
(901) 764-2300
(Registrant's Telephone Number, Including Area Code)
Not applicable
(Former Name, Former Address and Former Fiscal Year, if
Changed Since Last Report)
Check whether the Registrant: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 [ ]
As of July 31, 1997, the Registrant had outstanding 8,000,275 shares of Common
Stock, no par value per share.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE> 2
NASHVILLE COUNTRY CLUB, INC., AND SUBSIDIARIES
FORM 10-QSB
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I - Financial Information
------------------------------
Item 1. Financial Statements
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Cash Flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis or Plan of Operation . . . . . . . . . . . . . . . . . . . . . . . . . 8
PART II - Other Information
---------------------------
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
<PAGE> 3
NASHVILLE COUNTRY CLUB, INC., AND SUBSIDIARIES
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
------------ ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,659,921 $ 876,626
Accounts receivable 611,279 980,743
Due from Joint Venture -- 250,000
Inventories 429,987 369,580
Prepaid expenses and other current assets 139,771 296,905
------------ ------------
Total current assets 3,840,958 2,773,854
Property and equipment, net 34,043,605 33,860,515
Investment in Joint Venture -- 360,564
Other assets, net:
Goodwill -- 7,616,452
Deferred offering costs and other 223,544 1,325,691
------------ ------------
Total assets $ 38,108,107 $ 45,937,076
============ ============
Current liabilities:
Short-term notes payable $ -- $ 2,780,000
Current portion of long-term debt 884,311 2,327,461
Accounts payable 1,282,723 787,195
Advance deposits 1,739,839 1,401,272
Accrued expenses 1,733,170 2,636,259
------------ ------------
Total current liabilities 5,640,043 9,932,187
Capital land lease obligation 733,000 733,000
Long-term debt, net of current portion 19,521,739 17,649,759
------------ ------------
Total liabilities 25,894,782 28,314,946
------------ ------------
Stockholders' equity:
Preferred stock, no par value; authorized 1,000,000
shares, 334,285 of Series A convertible preferred stock
issued and outstanding, $10,029 liquidation preference 10,000 10,000
Common stock, no par value; authorized 20,000,000 shares,
5,400,275 shares issued and outstanding 16,770,423 21,090,423
Accumulated deficit (4,567,098) (3,478,293)
------------ ------------
Total stockholders' equity 12,213,325 17,622,130
------------ ------------
Total liabilities and stockholders' equity $ 38,108,107 $ 45,937,076
============ ============
</TABLE>
See notes to financial statements.
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NASHVILLE COUNTRY CLUB, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma
Six Months Ended Six Months Ended
June 30, June 30,
---------------------------- -----------------------------
1996 1997 1996 1997
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Resort . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,294,201 $ 13,477,032 $ 12,440,488 $ 13,477,032
Entertainment . . . . . . . . . . . . . . . . . . . . . -- 1,491,360 2,472,742 3,414,533
----------- ------------ ------------ ------------
Total revenues . . . . . . . . . . . . . . . . . . . . 2,294,201 14,968,392 14,913,230 16,891,565
----------- ------------ ------------ ------------
Operating expenses:
Resort . . . . . . . . . . . . . . . . . . . . . . . . . 2,769,913 11,013,699 10,364,932 11,013,699
Entertainment . . . . . . . . . . . . . . . . . . . . . -- 1,565,392 2,594,547 3,498,083
Depreciation and amortization . . . . . . . . . . . . . 192,527 590,550 670,446 716,133
Corporate expenses . . . . . . . . . . . . . . . . . . . 91,053 256,827 91,053 256,827
----------- ------------ ------------ ------------
Total operating expenses . . . . . . . . . . . . . . . 3,053,493 13,426,468 13,720,978 15,484,742
----------- ------------ ------------ ------------
(Loss) income from operations . . . . . . . . . . . . . . (759,292) 1,541,924 1,192,252 1,406,823
Equity in income of Joint Venture . . . . . . . . . . . . -- 424,347 372,163 455,825
Interest expense, net . . . . . . . . . . . . . . . . . . (231,236) (877,466) (952,233) (948,638)
----------- ------------ ------------ ------------
(Loss) income before taxes . . . . . . . . . . . . . . . . (990,528) 1,088,805 612,182 914,010
Provision for taxes . . . . . . . . . . . . . . . . . . . -- -- -- --
----------- ------------ ------------ ------------
Net (loss) income . . . . . . . . . . . . . . . . . . . . $ (990,528) $ 1,088,805 $ 612,182 $ 914,010
=========== ============ ============ ============
Earnings (loss) per common and common equivalent share . . $ (.40) $ .21 $ .11 $ .16
=========== ============ ============ ============
Weighted average shares outstanding . . . . . . . . . . . 2,459,660 5,237,918 5,734,560 5,734,560
=========== ============ ============ ============
</TABLE>
See notes to financial statements.
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<PAGE> 5
NASHVILLE COUNTRY CLUB, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma
Three Months Ended Three Months Ended
June 30, June 30,
----------------------------- -----------------------------
1996 1997 1996 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Resort . . . . . . . . . . . . . . . . . . . . . . . . $ 1,778,959 $ 3,375,503 $ 3,068,627 $ 3,375,503
Entertainment . . . . . . . . . . . . . . . . . . . . . -- 1,491,360 1,432,879 1,871,017
------------ ------------ ------------ ------------
Total revenues . . . . . . . . . . . . . . . . . . . 1,778,959 4,866,863 4,501,506 5,246,520
------------ ------------ ------------ ------------
Operating expenses:
Resort . . . . . . . . . . . . . . . . . . . . . . . . 2,253,344 3,462,809 3,428,188 3,462,809
Entertainment . . . . . . . . . . . . . . . . . . . . . -- 1,565,392 1,486,081 1,931,819
Depreciation and amortization . . . . . . . . . . . . . 163,422 334,441 337,975 357,467
Corporate expenses . . . . . . . . . . . . . . . . . . 20,064 152,314 20,064 152,314
------------ ------------ ------------ ------------
Total operating expenses . . . . . . . . . . . . . . 2,436,830 5,514,956 5,272,308 5,904,409
------------ ------------ ------------ ------------
Loss from operations . . . . . . . . . . . . . . . . . . (657,871) (648,093) (770,802) (657,889)
Equity in income of Joint Venture . . . . . . . . . . . . -- 424,347 154,810 447,782
Interest expense, net . . . . . . . . . . . . . . . . . . (233,198) (466,061) (439,666) (480,527)
------------ ------------ ------------ ------------
Loss before taxes . . . . . . . . . . . . . . . . . . . . (891,069) (689,807) (1,055,658) (690,634)
Provision for taxes . . . . . . . . . . . . . . . . . . . -- -- -- --
------------ ------------ ------------ ------------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . $ (891,069) $ (689,807) $ (1,055,658) $ (690,634)
============ ============ ============ ============
Loss per common and common equivalent share . . . . . . . $ (.25) $ (.13) $ (.20) $ (.13)
============ ============ ============ ============
Weighted average shares outstanding . . . . . . . . . . 3,596,011 5,213,389 5,400,275 5,400,275
============ ============ ============ ============
</TABLE>
See notes to financial statements.
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<PAGE> 6
NASHVILLE COUNTRY CLUB, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------------
1996 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (990,528) $ 1,088,805
------------ ------------
Adjustments to reconcile net (loss) income to net cash used in
operating activities:
Depreciation and amortization 192,527 590,550
Undistributed earnings of Joint Venture -- (424,347)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 16,649 (269,919)
(Increase) decrease in inventory (106,741) 60,407
(Increase) decrease in prepaid expenses and other current
assets (203,100) 231,944
Decrease (increase) in other assets 89,387 (61,192)
Increase (decrease) in accounts payable and accrued
expenses 938,035 (2,831,699)
------------ ------------
Total adjustments (926,757) (2,704,256)
------------ ------------
Net cash used in operating activities (1,917,285) (1,615,451)
------------ ------------
Cash flows from investing activities:
Acquisition of the Resort, including cash acquired (6,148,158) --
Acquisition of AEG, including cash acquired -- 486,236
Advances to Joint Venture -- (250,000)
Expenditures for property and equipment -- (275,250)
------------ ------------
Net cash used in investing activities (6,148,158) (39,014)
------------ ------------
Cash flows from financing activities:
Proceeds from sale of common stock 11,300,661 --
Proceeds from borrowings -- 300,000
Repayments of borrowings (312,431) (428,830)
------------ ------------
Net cash provided by (used in) financing activities 10,988,230 (128,830)
------------ ------------
Net increase (decrease) in cash and cash equivalents 2,922,787 (1,783,295)
Cash and cash equivalents - beginning of period 235,711 2,659,921
------------ ------------
Cash and cash equivalents - end of period $ 3,158,498 $ 876,626
============ ============
</TABLE>
Supplemental disclosure of non-cash investing and financing activities:
The Company issued common stock valued at $2,097,627 in connection with the
acquisition of the Resort in April 1996.
The Company issued notes payable totalling $2,480,000 and common stock
valued at $4,320,000 in connection with the acquisition of AEG in April
1997.
See notes to financial statements.
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<PAGE> 7
NASHVILLE COUNTRY CLUB, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements include
the accounts of Nashville Country Club, Inc. and its wholly owned subsidiaries,
including The Village at Breckenridge Resort, acquired on April 29, 1996 and
Avalon Entertainment Group, Inc., acquired on April 21, 1997 (collectively, the
"Company"). The accompanying unaudited consolidated financial statements of
the Company have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-QSB and Item 310(b) of Regulation S-B under the Securities Exchange Act of
1934. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included.
Operating results for the six months ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 1997. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Form
10-KSB for the year ended December 31, 1996.
Certain prior period amounts have been reclassified to conform with
the 1997 presentation. Such reclassifications had no impact on the Company's
net loss.
2. ACQUISITION OF AVALON ENTERTAINMENT GROUP, INC.
On April 21, 1997, the Company acquired 100% of the common stock of
Avalon Entertainment Group, Inc., (a Tennessee corporation) ("AEG"), an
entertainment marketing company whose primary operations occur in the second
and third quarters. AEG specializes in Entertainment Marketing, Corporate
Entertainment and artist management.
The $7.2 million purchase price was satisfied by the issuance of
$4,320,000 in aggregate fair value of common stock of the Company (809,840
shares), $2,480,000 of promissory notes and $400,000 in cash. The promissory
notes accrue interest at 18% through the August 29, 1997 due date. The Company
expects to repay the promissory notes with proceeds from debt and/or equity
financing which the Company is currently seeking to obtain.
The Merger Agreement relating to the acquisition of AEG provides for
an adjustment to the purchase price based on AEG's net income before taxes for
the year ending December 31, 1997 (the "1997 Pre-Tax Net Income"). In the
event that AEG's 1997 Pre-Tax Net Income equals or exceeds $1.2 million, the
purchase price is not adjusted. In the event that AEG's 1997 Pre-Tax Net
Income is less than $1.2 million, the purchase price is adjusted downward in an
amount equal to six multiplied by the difference between the 1997 Pre-Tax Net
Income and $1.2 million. The former owners of AEG may satisfy the adjusted
purchase price by delivering to the Company either cash or shares of common
stock valued based on the average closing price of the common stock for the 30
days ending 5 days prior to the calculation of the 1997 Pre-Tax Net Income.
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<PAGE> 8
The acquisition is accounted for using the purchase method of
accounting and, accordingly, the net purchase price has been allocated to the
assets acquired and the liabilities assumed based on their estimated fair
values on the date of acquisition. The net purchase price was allocated as
follows:
<TABLE>
<S> <C>
Assets acquired:
Cash $ 886,245
Other current assets 424,840
Property and equipment 61,249
---------
1,372,334
Liabilities assumed:
Accounts payable and accrued expenses 1,562,483
---------
Net liabilities assumed $ 190,149
=========
</TABLE>
The acquisition of AEG results in the recognition of goodwill of
approximately $7,690,000. The goodwill is being amortized over an estimated
useful life of 20 years.
3. INVESTMENT IN JOINT VENTURE
AEG has a 50% interest in a joint venture with Warner Custom Music
Corp., a California corporation and a wholly owned subsidiary of Time Warner,
Inc. The joint venture, Warner/Avalon, was formally organized as a Delaware
general partnership on November 25, 1995, and commenced limited operations in
1994. Warner/Avalon develops and coordinates live, sponsored music
entertainment marketing tours and programs and related projects. AEG accounts
for the investment using the equity method of accounting.
Warner/Avalon generates revenues primarily from third party corporate
sponsorships. Warner/Avalon recognizes revenue by amortizing the contract
sponsorship funds over the life of the related tour. Tours may range from a
single day event to several months.
Summary statement of operations data of Warner/Avalon, used to
determine AEG's equity in income of Joint Venture in the accompanying proforma
consolidated statements of operations for the three-month period and six-month
period ended June 30, 1997, is as follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, 1997 June 30, 1997
------------- -------------
<S> <C> <C>
Revenues $7,128,000 $8,378,000
Gross Profit 1,206,000 1,512,000
Net Income 896,000 912,000
</TABLE>
4. PRO FORMA OPERATIONS
The acquisition of the Resort was effective April 29, 1996. The
acquisition of AEG was effective April 21, 1997. The pro forma unaudited
consolidated statements of operations for the three-month and six-month periods
ended June 30, 1996 and 1997, include the results of operations of the Resort
and AEG assuming the acquisitions of the Resort and AEG had occurred effective
January 1, 1996.
5. EARNINGS (LOSS) PER COMMON SHARE:
The preferred stock is convertible into 334,285 shares of common
stock, is considered a common stock equivalent and has been included in
weighted average number of common and common equivalent shares outstanding for
those periods that the Company generated net income. The preferred stock is
not included in weighted average number of common and common equivalent shares
outstanding for those periods that the Company generated a net
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<PAGE> 9
loss as their inclusion would have been antidilutive. Outstanding warrants and
options were not included as their exercise price exceeded the market price for
the Company's common stock during all periods.
The Company is required to adopt Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS 128") in the fourth quarter of
1997. The adoption of SFAS No. 128 is not expected to have a material effect
on the Company's consolidated financial statements. Therefore, pro forma
results for SFAS No. 128 have not been presented.
6. INCOME TAXES:
The Company calculates and records the amounts of income taxes payable
or refundable currently or in future years for temporary differences between
the financial statement basis and income tax basis based on the current enacted
tax laws. No provision for income taxes has been provided in the accompanying
consolidated financial statements as the Company has net operating loss
carryforwards to offset future net income. The deferred tax asset for the
remaining net operating losses would be fully impaired as a result of the
uncertainty as to their ultimate utilization.
7. SUBSEQUENT EVENTS:
Stock Offering
On July 31, 1997, the Company completed an offering of 2,600,000
shares of its common stock for the purpose of completing the acquisition of
Avalon West Coast (see below) and for working capital purposes. The net
proceeds totaled approximately $8.6 million.
Acquisition of Avalon West Coast
On July 31, 1997, the Company acquired a 51% controlling interest in
a group of entities (collectively, "Avalon West Coast" or "AWC") affiliated with
AEG. Avalon West Coast manages amphitheaters, produces concerts, provides
advertising services and is involved in event merchandising for large-scale
entertainment events. The $7 million purchase price was paid with proceeds
from the Company's stock offering.
The final purchase price for the Company's 51% interest in AWC
will be equal to the greater of (i) $7 million or (ii) 51% of the sum of (a) six
times the average of the "earnings before interest, taxes and depreciation and
amortization for AWC's amphitheater operations for the years 1996, 1997 and 1998
and (b) six times the average of the net income before taxes of the remaining
business entities constituting AWC for the years 1996, 1997 and 1998. The
excess of the final purchase price over $7 million will be payable in common
stock of the Company based on an average of the common stock price for the years
1996, 1997 and 1998.
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<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
The Company, a diversified entertainment company, has pursued an aggressive
growth strategy since its formation in 1993 and operates in two primary
business divisions, Resorts and Entertainment. The Resort Division comprises
the Nashville Restaurant, opened in November 1994 and Breckenridge Resort,
acquired in April 1996. The Resort Division's revenues are derived from room
rentals, food and beverage sales, commercial leasing, travel services,
entertainment events and ancillary departments at the Breckenridge Resort and
the Nashville Restaurant. The Entertainment Division comprises the operations
of AEG, acquired in April 1997 and will include the operations of AWC, which
was acquired on July 31, 1997. The Entertainment Division's revenues through
June 30, 1997 are derived primarily from the production of Corporate
Entertainment events by AEG. AEG also is a 50% joint venture partner in
Warner/Avalon, which provides Entertainment Marketing programs.
To enhance comparability, the following discussion of the results of operations
of the Company is presented on a pro forma basis to reflect the acquisitions of
the Breckenridge Resort (acquired in April 1996) and AEG (acquired in April
1997) as though such transactions had occurred as of January 1, 1996 for
statements of operations purposes. The pro forma results are not necessarily
indicative of the combined results that would have occurred had the
acquisitions of the Breckenridge Resort and AEG actually occurred as of January
1, 1996.
Seasonality
The Breckenridge Resort's operations are subject to significant seasonal
variations with substantially all of the Breckenridge Resort's operating
profits generated in the first quarter and in the months of November and
December, which periods correspond to the winter ski season. Generally, the
Breckenridge Resort reports a loss for the spring, summer and fall periods. In
addition, the operations of the Breckenridge Resort may fluctuate significantly
due to a number of factors, including weather. Such fluctuations may materially
affect the Company's revenues and profitability.
Comparison of Six Months Ended June 30, 1997 and 1996
Total revenues increased $1,979,000, or 13%, to $16,892,000 for the six months
ended June 30, 1997 from $14,913,000 for the six months ended June 30, 1996.
Resort revenues increased $1,037,000, or 8%, to $13,477,000 for the six months
ended June 30, 1997 from $12,440,000 for the six months ended June 30, 1996,
due primarily to an increase in rooms revenue at the Breckenridge Resort. The
rooms revenue increase is attributable to a 6% increase in the number of
occupied room nights and a 10% increase in average daily rate for the six
months ended June 30, 1997 compared to the six months ended June 30, 1996.
Entertainment revenues increased $942,000, or 38%, to $3,415,000 for the six
months ended June 30, 1997 from $2,473,000 for the six months ended June 30,
1996. The increase resulted primarily from the production of 12 additional
Corporate Entertainment events, to 69 events produced in the six months ended
June 30, 1997 compared to 57 events produced in the six months ended June 30,
1996. In addition, the average revenue per event increased to $49,000 in the
1997 period compared to $43,000 for the 1996 period as AEG sought to increase
the number of larger events produced.
Total operating expenses increased $1,764,000, or 13%, to $15,485,000 for the
six months ended June 30, 1997 from $13,721,000 for the six months ended June
30, 1996. Resort operating expenses increased $649,000, or 6%, to $11,014,000
for the six months ended June 30, 1997 from $10,365,000 for the six months
ended June 30, 1996. Resort operating expenses, as a percent of Resort
revenues, decreased to 82% for the six months ended June 30, 1997 from 83% for
the six months ended June 30, 1996. The decrease was primarily due to the
Breckenridge Resort's ability to leverage staffing levels in revenue and
overhead departments, thereby providing the ability to increase revenues
without corresponding increases in operating costs.
Entertainment operating expenses increased $904,000, or 35%, to $3,498,000 for
the six months ended June 30, 1997 from $2,594,000 for the six months ended June
30, 1996. Direct costs of producing Corporate Entertainment events increased
$863,000, or 50%, to $2,602,000 for the six months ended June 30, 1997 from
$1,739,000 for the six months ended June 30, 1996. The increase was due to the
increase in the number and size of events produced. Direct costs, as a
percentage of revenues increased to 76% for the 1997 period from 70% for the
1996 period. The increase was primarily due to the production of several large
Corporate Entertainment events at lower profit margins for the six months ended
June 30, 1997 compared to the production of two very large Corporate
Entertainment events at higher profit margins for the six months ended June 30,
1996. Other entertainment operating expenses increased $41,000 for the six
months ended June 30, 1997 compared to the six months ended June 30, 1996
primarily due to salary and related expense increases. This increase resulted
primarily from general salary increases and the addition of staff members
associated with the increased number of Corporate Entertainment events.
Depreciation expense increased $46,000, or 7%, to $716,000 for the six months
ended June 30, 1997 from $670,000 for the six months ended June 30, 1996,
primarily due to the effect of $618,000 of capital expenditures at the
Breckenridge Resort in 1996.
Corporate expenses increased from $91,000 for the six months ended June 30, 1996
to $257,000 for the six months ended June 30, 1997, primarily as a result of
increased compensation expense associated with the addition of a Chief Financial
Officer for the six months ended June 30, 1997 and the waiver of the Chief
Executive Officer's salary in the second quarter of 1996.
Equity income from AEG's 50% joint venture interest in Warner/Avalon increased
$84,000, or 22%, to $456,000 for the six months ended June 30, 1997 from
$372,000 for the six months ended June 30, 1996, primarily due to a change in
the timing of Warner/Avalon's primary Entertainment Marketing programs. Revenues
for Warner/Avalon increased $4,656,000, or 125%, to $8,378,000 for the six
months ended June 30, 1997 from $3,722,000 for the six months ended June 30,
1996. The increase results primarily from the production of two large single day
Entertainment Marketing events, representing $5,268,000 of revenues, which was
partially offset by a decrease in revenues due to the loss of an Entertainment
Marketing tour in 1997. One of the single day events occurred in the third
quarter of 1996 and the other was a new event in 1997. Direct costs of producing
entertainment marketing programs increased $4,243,000, or 162%, to $6,866,000
for the six months ended June 30, 1997 from $2,623,000 for the six months ended
June 30, 1996. The increase was primarily due to costs associated with the
production of the two single day events in the second quarter of 1997. Other
general and administrative expenses for Warner/Avalon increased $187,000 for the
six months ended June 30, 1997 compared to the six months ended June 30, 1996
primarily due to an increase in staffing levels associated with the increased
business activity of Warner/Avalon.
Net income increased $302,000, or 49%, to $914,000 for the six months ended June
30, 1997 from $612,000 for the six months ended June 30, 1996 due to the reasons
described above.
Comparison of Three Months Ended June 30, 1997 and 1996
Total revenues increased $745,000, or 17%, to $5,247,000 for the second quarter
of 1997 from $4,502,000 for the second quarter of 1996. Resort revenues
increased $307,000, or 10%, to $3,376,000 for the second quarter of 1997 from
$3,069,000 for the second quarter of 1996, due primarily to an increase in
rooms revenue at the Breckenridge Resort. The rooms revenue increase is
attributable to a 24% increase in the number of occupied room nights and a 2%
increase in average daily rate for the second quarter of 1997 compared to the
second quarter of 1996.
Entertainment revenues increased $438,000, or 31%, to $1,871,000 for the second
quarter of 1997 from $1,433,000 for the second quarter of 1996. The increase
resulted primarily from the production of seven additional Corporate
Entertainment events, to 39 events produced in the second quarter of 1997
compared to 32 events produced in the second quarter of 1996. In addition, the
average revenue per event increased to $48,000 for the second quarter of 1997
compared to $45,000 for the second quarter of 1996 as AEG sought to increase
the number of larger events produced.
Total operating expenses increased $632,000, or 12%, to $5,904,000 for the
second quarter of 1997 from $5,272,000 for the second quarter of 1996. Resort
operating expenses increased $35,000, or 1%, to $3,463,000 for the second
quarter of 1997 from $3,428,000 for the second quarter of 1996. Resort
operating expenses, as a percent of Resort revenues, decreased to 103% for the
second quarter of 1997 from 112% for the second quarter of 1996. The decrease
was primarily due to the Breckenridge Resort's ability to leverage staffing
levels in revenue and overhead departments, thereby providing the ability to
increase revenues without corresponding increases in operating costs.
Entertainment operating expenses increased $446,000, or 30%, to $1,932,000 for
the second quarter of 1997 from $1,486,000 for the second quarter of 1996.
Direct costs of producing Corporate Entertainment events increased $379,000, or
38%, to $1,381,000 for the second quarter of 1997 from $1,002,000 for the second
quarter of 1996. The increase was due to the increase in the number and size of
events produced. Direct costs, as a percentage of revenues, increased to 74% for
the second quarter of 1997 from 70% for the second quarter of 1996. The increase
was primarily due to the production of two large Corporate Entertainment events
at lower profit margins of approximately 17% in the second quarter of 1997
compared to the production of one very large Corporate Entertainment event at a
higher profit margin of approximately 52% in the second quarter of 1996. Other
entertainment operating expenses increased $67,000 for the second quarter of
1997 compared to the second quarter of 1996 primarily due to salary and related
expense increases. This increase resulted primarily from general salary
increases and the addition of staff members associated with the increased number
of Corporate Entertainment events.
Depreciation expense increased $19,000, or 6%, to $357,000 for the second
quarter of 1997 from $338,000 for the second quarter of 1996, primarily due to
the effect of $618,000 of capital expenditures at the Breckenridge Resort in
1996.
Corporate expenses increased from $20,000 in the second quarter of 1996 to
$152,000 in the second quarter of 1997, primarily as a result of increased
compensation expense associated with the addition of a Chief Financial Officer
in the second quarter of 1997 and the waiver of the Chief Executive Officer's
salary in the second quarter of 1996.
Equity income from AEG's 50% joint venture interest in Warner/Avalon increased
$293,000, or 189%, to $448,000 for the second quarter of 1997 from $155,000 for
the second quarter of 1996, primarily due to a change in the timing of
Warner/Avalon's primary Entertainment Marketing programs. Revenues for
Warner/Avalon increased $5,322,000, or 295%, to $7,128,000 for the second
quarter of 1997 from $1,806,000 for the second quarter of 1996. The increase
results primarily from the production of two large single day Entertainment
Marketing events, representing $5,268,000 of revenues. One of these events
occurred in the third quarter of 1996 and the other was a new event in 1997.
Direct costs of producing entertainment marketing programs increased $4,622,000,
or 355%, to $5,923,000 for the second quarter of 1997 from $1,301,000 for the
second quarter of 1996. The increase was primarily due to costs associated with
the production of the two single day events in the second quarter of 1997.
Other general and administrative expenses for Warner/Avalon increased $84,000
for the second quarter of 1997 compared to the second quarter of 1996
primarily due to an increase in staffing levels associated with the increased
business activity of Warner/Avalon.
Net loss decreased $365,000, or 35%, to a net loss of $691,000 for the second
quarter of 1997 from a net loss of $1,056,000 for the second quarter of 1996
due to the reasons described above.
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<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997, the Company had cash and cash equivalents of
approximately $877,000 and a working capital deficit of approximately
$7,158,000, including $5,107,000 of short-term notes payable and current
maturities of long-term debt.
The Company's primary capital requirements relate to maintaining the
property and equipment at the Breckenridge Resort and Nashville Restaurant,
servicing of the Company's indebtedness and the acquisition of businesses and
assets in the entertainment and resort industries. In 1996, the Company
expended $618,000 for capital expenditures at the Breckenridge Resort and
Nashville Restaurant and expects to incur a similar level of capital
expenditures in 1997, excluding capital expenditures, if any, associated with
the Nashville Hotel and proposed amphitheater developments. AEG does not expect
to incur significant capital expenditures in 1997.
The Company is currently highly leveraged. In connection with the
Breckenridge Resort Acquisition, the Company became subject to certain
long-term debt secured by liens on substantially all of the assets of the
Breckenridge Resort. The long-term debt of the Breckenridge Resort totaled
$20,277,000 at June 30, 1997, of which $2,627,000 represents current
maturities. The long-term debt consists of five notes payable to banks or
unaffiliated third parties (the "Loans"), which are secured by deeds of trust on
Breckenridge Resort property and equipment and security agreements on
substantially all other assets of the Breckenridge Resort, and various other
equipment and other notes payable. On June 30, 1997, the Company entered into a
letter agreement to refinance approximately $14.5 million of the Loans at an
interest rate of 9.0% for the first three years of the new loan (the "New
Loan") and adjusting to the lender's base rate plus 0.5% for the remaining four
years of the New Loan. The letter agreement contemplates the execution of
definitive loan documents providing for, among other things, (i) the
amortization of principal and interest payments under the New Loan over a
period of 20 years for the first three years of the loan and over a period of
12 years for the remaining four years of the loan, (ii) a security interest in
substantially all of the assets of the Breckenridge Resort and (iii) the
repayment of all principal and accrued interest under the New Loan seven years
from the date of funding. There can be no assurance that the
Company will consummate the New Loan in accordance with the terms of the letter
agreement or at all. In November 1996, the Company entered into a revolving
credit facility which provides up to a maximum of $300,000 of unsecured
borrowings through November 5, 1997. As of June 30, 1997, $300,000 was
outstanding under this revolving credit facility and is reflected as short-term
notes payable.
In April 1997, the Company acquired AEG. The purchase price for AEG of
$7,200,000 was paid through the issuance of common stock having an aggregate
value of $4,320,000 and the delivery of promissory notes in the aggregate
principal amount of $2,480,000 and cash in the amount of $400,000. The
promissory notes bear interest at 18% per annum after July 31, 1997 and are due
and payable on August 29, 1997. The Company intends to repay the promissory
notes with proceeds from debt and/or equity financing which the Company is
seeking to obtain. The Merger Agreement relating to the acquisition of AEG
provides for an adjustment to the purchase price based on AEG's 1997 Pre-Tax Net
income. In the event that AEG's 1997 Pre-Tax Net Income equals or exceeds $1.2
million, the purchase price is adjusted downward in an amount equal to six times
the difference between the 1997 Pre-Tax Net Income and $1.2 million. The former
-9-
<PAGE> 12
owners of AEG may satisfy the adjusted purchase price, if any, by delivering to
the Company either cash or shares of common stock valued based on the average
closing price of the common stock for the 30 trading days ending 5 days prior to
the calculation of the 1997 Pre-Tax Net Income. Management does not anticipate
that the purchase price will be adjusted materially.
On July 31, 1997, the Company completed an offering of 2,600,000 shares of
its common stock for the purpose of completing the acquisition of Avalon West
Coast (see below) and for working capital purposes. The net proceeds totaled
approximately $8.6 million.
On July 31, 1997, the Company acquired a 51% interest in Avalon West Coast
("AWC"). The $7 million purchase price was paid with proceeds from the Company's
stock offering. The purchase agreement provides for an aggregate purchase price
equal to the greater of (i) $7,000,000 or (ii) 51% of the sum of (a) six times
the average of earnings before interest, taxes and depreciation and amortization
for AWC's amphitheater operations for the computation period and (b) six times
the average of the net income before taxes of AWC's non-amphitheater operations
for the computation period. To the extent the aggregate purchase price exceeds
$7,000,000, the difference will be payable by the Company in shares of common
stock valued at the average closing price of the common stock for each day in
the computation period. Management does not anticipate that any adjustment in
the purchase price would result in the issuance of a material amount of common
stock, but there can be no assurance in this regard.
The Company is currently seeking to enter into a credit facility that will
provide the Company with up to $15 million in additional capital. Management
further anticipates that the credit facility will be secured by a security
interest in certain assets of the Company.
The Company plans to use a portion of the proceeds of the credit facility
to finance the repayment of the promissory notes issued in connection with the
acquisition of AEG and for potential future development projects and
acquisitions, which may include the acquisition or development of amphitheaters.
The Company has begun development of a 107-room Nashville Hotel adjacent to
the Nashville Restaurant in Nashville. This development, which the Company
estimates will cost approximately $10,300,000, includes the acquisition of an
existing, multi-story parking facility, the purchase of land and the
construction of a hotel with guest suites and office space. The Company is
negotiating with a bank to provide financing for the construction of the
Nashville Hotel.
In August 1996, the Company entered into an agreement in principle with
East-West Partners relating to the proposed development of residential and
commercial facilities located at the Breckenridge Resort. The Company expects to
enter into a definitive agreement with East-West Partners relating to the
proposed joint venture which will provide, among other things, that the Company
will contribute undeveloped land, commercial space and capital to the venture
and East-West Partners will contribute capital and manage master planning,
development, construction, funding and sales for these properties. Following the
anticipated execution of a definitive agreement, the Company anticipates that
its capital requirements associated with this joint venture will not be material
in the aggregate and will arise from time to time over the course of the
development.
-10-
<PAGE> 13
In connection with the Breckenridge Resort Acquisition, the Company agreed
to repurchase shares of the Company's Common Stock owned by certain prior owners
of the Breckenridge Resort in an aggregate amount of up to $413,170 and agreed
to pay a fee of $97,000 to one of the former owners of the Breckenridge Resort.
The Company is currently negotiating the amount and timing of such repurchase
and payment.
Management believes that cash flow from operations of the Resort and
Entertainment divisions, the proceeds of future issuances of its equity and debt
securities and the use of short-term bank debt will be adequate to fund the
operations and expansion plans of the Company during 1997. In addition, to
provide any additional funds necessary for the continued pursuit of the
Company's growth strategies, the Company may incur, from time to time,
additional short- and long-term bank indebtedness. The availability and
attractiveness of any outside sources of financing will depend on a number of
factors, some of which will relate to the financial condition and performance
of the Company, and some of which will be beyond the Company's control, such as
prevailing interest rates and general economic conditions. There can be no
assurance that such additional financing will be available or, if available,
will be on terms acceptable to the Company. To the extent that the Company is
able to finance its growth through external sources of capital, the Company
intends to continue to grow its operations through additional acquisitions.
Management believes that there are currently a number of possible future
acquisition opportunities in the entertainment industry, and it is possible
that any acquisition could be material to the Company. Even if the Company is
able to secure external financing sources for its growth plans, there can be no
assurance that the Company will be able to acquire any additional businesses or
assets, that any businesses or assets that are acquired will be or will become
profitable or the Company will be able to effectively integrate any such
businesses into its existing operations.
-11-
<PAGE> 14
NASHVILLE COUNTRY CLUB, INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits:
Exhibit 27 Financial Data Schedule
(B) Form 8-K's filed during the quarterly period ended June 30, 1997:
1. Form 8-K and Form 8-K/A filed April 30, 1997 and July
3, 1997, respectively, with respect to the
Registrant's acquisition of Avalon Entertainment
Group, Inc., a Tennessee corporation, including
financial statements of Avalon Entertainment Group,
Inc.
2. Form 8-K filed June 20, 1997 with respect to the
Registrant's letter agreement regarding the
acquisition of a fifty-one percent interest in a
group of affiliated entertainment companies.
-12-
<PAGE> 15
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized in the city
of Hickory Valley, Tennessee, on the 14th day of August, 1997.
NASHVILLE COUNTRY CLUB, INC.
By: /s/ Thomas Jackson Weaver III
--------------------------------------------
Thomas Jackson Weaver III Chairman of the
Board, Chief Executive Officer and President
By: /s/ Bryan J. Cusworth
--------------------------------------------
Bryan J. Cusworth, Chief Financial Officer
-13-
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 FINANCIAL DATA SCHEDULE
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 876,626
<SECURITIES> 0
<RECEIVABLES> 1,230,743
<ALLOWANCES> 0
<INVENTORY> 369,580
<CURRENT-ASSETS> 2,773,854
<PP&E> 35,064,874
<DEPRECIATION> 1,204,359
<TOTAL-ASSETS> 45,937,076
<CURRENT-LIABILITIES> 9,932,187
<BONDS> 18,382,759
0
10,000
<COMMON> 21,090,423
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 45,937,076
<SALES> 0
<TOTAL-REVENUES> 14,968,392
<CGS> 0
<TOTAL-COSTS> 13,426,468
<OTHER-EXPENSES> (424,347)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 877,466
<INCOME-PRETAX> 1,088,805
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,088,805
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,088,805
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
