UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED MARCH 31, 1996
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
COMMISSION FILE NUMBER: O-24058
WESTERN COUNTRY CLUBS, INC.
Exact name of Registrant as specified in its charter
Colorado 84-1131343
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.
1601 WEST EVANS, DENVER, CO 80223
Address of principal executive offices Zip Code
Registrant's telephone number, including area code: 303-934-2424
Former name, former address and former fiscal year, if changed since
last report: NA
Check whether the Registrant (1) has filed an annual, quarterly and
other reports required to be filed by Section 13 of 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
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
2,973,921 common shares were outstanding as of March 31, 1996.<PAGE>
<PAGE>
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Unaudited Consolidated Balance Sheet - March 31, 1996 2 and 3
Unaudited Consolidated Income Statement - For the
Three Months Ended March 31, 1996 and 1995 4
Unaudited Consolidated Statement of Stockholders' Equity -
For the Three Months Ended March 31, 1996 5
Unaudited Consolidated Statement of Cash Flows - For the
Three Months Ended March 31, 1996 and 1995 6
Notes to Unaudited Financial Statements 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION 12
1
<PAGE>
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEET
March 31, 1996
ASSETS
Current assets:
Cash $ 199,667
Accounts receivable 104,006
Notes receivable - Cowboys 100,000
Inventories 92,413
Prepaid expenses 158,293
Pre-opening expenses 39,204
Deferred income taxes (Note 2) 126,000
Refundable income taxes 170,683
-------
Total current assets 990,266
Property and equipment, at cost:
Land and improvements 224,989
Building and improvements 755,900
Leasehold improvements 2,605,709
Equipment 526,709
Furniture and fixtures 427,009
---------
4,540,316
Less accumulated depreciation and amortization (827,752)
---------
Net property and equipment 3,712,564
Other assets:
Deferred income taxes (Note 2) 102,000
Goodwill, net of amortization 553,749
Covenant not to compete, net of amortization 498,838
Deposits and other 127,687
---------
Total other assets 1,282,274
----------
$5,985,104
==========
See accompanying notes.
2
<PAGE>
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEET
March 31, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 98,141
Notes payable 208,044
Notes payable - related parties (Note 3) 344,535
Income taxes payable 73,900
Accrued expenses 307,695
Current portion of long-term debt 73,964
Current portion of liability under non-compete
agreement 230,247
---------
Total current liabilities 1,336,526
Long-term debt 539,591
Liability under non-compete agreement 154,724
Equity interest of other partners in
consolidated subsidiaries 221,965
Contingencies (Note 5)
Stockholders' equity:
Preferred stock, $.10 par value;
10,000,000 shares authorized, none
issued and outstanding -
Common stock, $.01 par value; 25,000,000
shares authorized, 2,973,921 shares issued
and outstanding 29,739
Additional paid-in capital 3,855,446
Retained earnings (deficit) (152,887)
---------
Total stockholders' equity 3,732,298
----------
$5,985,104
==========
See accompanying notes.
3
<PAGE>
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED INCOME STATEMENT
For the Three Months Ended March 31, 1996 and 1995
1996 1995
Revenues: --------- ---------
Beverage and food sales $1,440,596 $1,725,825
Admission fees and other revenues 697,132 728,341
--------- ---------
Total revenues 2,137,728 2,454,166
Costs and expenses:
Cost of products and services 620,898 651,101
Depreciation and amortization 159,831 208,171
Interest 37,490 30,680
General and administrative expenses 1,175,828 1,260,152
--------- ---------
Total costs and expenses 1,994,047 2,150,104
--------- ---------
Income before taxes and minority interest 143,681 304,062
Provision for income taxes (Note 2) 44,973 113,377
--------- ---------
Income before minority interest 98,708 190,685
Other partners' interests in net income of
consolidated subsidiaries, net of income
tax benefit of $2,073 (1996) and
$10,377 (1995) 8,038 17,443
--------- ---------
Net income $ 90,670 $ 173,242
========= =========
Net income per common share $ .03 $ .05
========= =========
Weighted average common shares outstanding 3,085,000 3,456,000
========= =========
See accompanying notes.
4
<PAGE>
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Three Months Ended March 31, 1996
Additional Retained
Common stock paid-in earnings
shares amount capital (deficit)
--------- -------- --------- ---------
Balance, December 31, 1995 2,944,721 $29,447 $3,782,738 $(243,557)
Common stock issued for cash
in private placement
(Note 4) 29,200 292 72,708 -
Net income for the three
months ended March 31,
1996 - - - 90,670
--------- ------ --------- --------
Balance, March 31, 1996 2,973,921 $29,739 $3,855,446 $(152,887)
========= ====== ========= =========
See accompanying notes.
5
<PAGE>
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 1996 and 1995
1996 1995
Cash flows from operating activities: --------- ----------
Net income $ 90,670 $ 173,242
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 159,831 208,171
Minority interest in earnings of
subsidiaries 10,111 27,820
Deferred tax provision (31,000) (35,000)
Increase in present value of liability
under non-compete agreement 10,268 10,268
Change in assets and liabilities:
Increase in accounts receivable (68,473) (83,668)
(Increase) decrease in inventories 4,454 (7,149)
Increase in prepaid expenses (61,552) -
Increase in refundable income taxes (10,563) -
Decrease in accounts payable (82,214) (6,652)
Increase in income taxes payable 73,900 23,000
Increase (decrease) in accrued expenses 48,196 (57,326)
------- -------
Total adjustments 52,958 79,464
------- -------
Net cash provided by operating activities 143,628 252,706
Cash flows from investing activities:
Acquisition of property and equipment (2,580) (43,406)
Decrease in deposits and other assets 9,750 22,273
------- -------
Net cash provided by (used in) investing
activities 7,170 (21,133)
Cash flows from financing activities:
Repurchase of common stock - (280,000)
Proceeds from sale of common stock 73,000 -
Partnership distributions to minority interest (6,000) (28,000)
Repayments of notes payable (341,970) (142,840)
Borrowings from related parties 100,000 -
------- -------
Net cash used in financing activities (174,970) (450,840)
------- -------
Decrease in cash (24,172) (219,267)
Cash at beginning of period 223,839 520,940
--------- ---------
Cash at end of period $ 199,667 $ 301,673
========= =========
See accompanying notes.
6
<PAGE>
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
1. Basis of presentation
The accompanying financial statements have been prepared by the
Company, without audit. In the opinion of management, the
accompanying unaudited financial statements contain all adjustments
(consisting of only normal recurring accruals) necessary for a fair
presentation of the financial position as of March 31, 1996, and
the results of operations and cash flows for the three months ended
March 31, 1996 and 1995.
Certain reclassifications have been made to the March 31, 1995
financial statements to conform to the March 31, 1996 presentation.
2. Income taxes
The provision for income taxes at March 31, 1996 and 1995 consists
of the following:
1996 1995
-------- --------
Current taxes $73,900 $138,000
Deferred taxes (31,000) (35,000)
------- -------
42,900 103,000
Taxes allocated to other partners'
interests in net income 2,073 10,377
------ -------
Provision for income taxes $44,974 $113,377
======= ========
At March 31, 1996, the Company has recorded a deferred income tax
asset of $228,000 arising from the compensation element of stock
options granted, book depreciation and amortization in excess of
tax depreciation and amortization and book/tax basis differences
arising from the acquisitions of minority interests of consolidated
partnerships.
3. Related party transactions
During the quarter ended March 31, 1996, the Company borrowed
$100,000 from a company owned by the Company's president and repaid
$248,465 to International Entertainment Consultants, Inc., a
company owned by a relative of the Company's president.
7
<PAGE>
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
4. Private placement
The Company is currently offering for sale in a private placement,
400,000 shares of the Company's common stock at $2.50 per share.
During the quarter ended March 31, 1996, the Company sold 29,200
shares of common stock resulting in gross proceeds of $73,000.
5. Contingent liabilities
The Company is currently negotiating to dispose of its interest in
Cowboys Concert Hall/Atlanta, Ltd. ("CCHA, Ltd.", the partnership
that owns the Atlanta club). The Company anticipates that it will
be relieved of any further obligations to fund the operations of
the Atlanta club, in exchange for its limited partnership interest
in CCHA, Ltd. and forgiveness of the loans made to the limited
partnership.
8
<PAGE>
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1996
************************************
MATERIAL CHANGES IN FINANCIAL CONDITION
Liquidity and Capital Resources
During the three months ended March 31, 1996, the Company generated
$143,628 in cash flows from operations compared to $252,706 from
operations for the three months ended March 31, 1995.
As of March 31, 1996, the Company had cash of $199,667, which was
generated from operating activities and financing activities and prior
period partner contributions. For additional details, see the
Consolidated Statement of Cash Flows.
The Company has and is aggressively looking toward expanding its
operations in the future. Potential club locations are being
considered in both the Midwestern and Southwestern sections of the
country. This growth strategy is what will dictate how funds will be
spent through the next quarter and the year beyond. Additional
nightclubs may be financed through the formation of limited
partnerships, internal funding, bank financing or private and/or
public equity or debt offerings, or a combination of the foregoing.
The Company may also purchase existing clubs through transactions
involving the issuance of the Company's stock and/or cash.
Pre-opening expenses for the Tucson club were incurred during the
renovation of the facility from July 18 through September 27, 1995 and
are reported as an asset. This asset is being written off against
income during the first year of operations and should be fully
amortized in the quarter ended September 30, 1996.
Property and equipment is primarily made up of assets required to open
and operate the country western clubs in Arizona, Indiana and
Missouri; and include additions and improvements made during the
Tucson club renovation in the quarter ended September 30, 1995.
Leasehold improvements total $2,605,709; equipment, furniture and
fixtures $953,718; land and buildings $860,900; and parking lot
improvements of $119,989. The improvements were financed with
long-term borrowings, partnership capital and proceeds from the
Company's public offering.
9
<PAGE>
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
The Company has recorded a deferred tax asset of $228,000 at March 31,
1996 representing temporary differences of approximately $575,000
between book income and taxable income. the reversal of existing
temporary differences would allow approximately $42,000 of deferred
taxes to be recovered as a carryback against prior years' taxes paid.
Realization of the remaining $186,000 deferred tax asset is dependent
upon the Company generating sufficient taxable income to offset the
additional future tax deductions. Average annual taxable income
necessary for the next 15 years to realize the deferred tax asset
amounts to approximately $70,000. Although realization of the
deferred tax asset is not assured, management believes it is more
likely than not that all of the deferred tax asset will be realized
because if the Company had not owned 50% interest in the Atlanta club
for six months during 1995, the pro forma net income before provision
for income taxes would have been $308,266 for the year ended December
31, 1995.
MATERIAL CHANGES IN THE RESULTS OF OPERATIONS
Total revenues from operations from the Indianapolis club amounted to
$508,264 for the three months ended March 31, 1996. This represents
a 27.6% decrease in revenue from operations of $701,649 for the three
months ended March 31, 1995. The Company's second country western
club opened May 18, 1994 and a third country western club in Tucson,
Arizona was purchased and commenced Company operations on November 1,
1994. Total revenues from operations for the St. Louis and Tucson
clubs amounted to $1,024,822 and $595,804, respectively, for the three
months ended March 31, 1996. This represents a 3.1% decrease in
revenue from operations of $1,057,244 for the St. Louis club and a
6.9% decrease in revenue from operations of $639,973 for the Tucson
club for the three months ended March 31, 1995. Miscellaneous
revenues generated by the Company were $8,838 for the three month
period ended March 31, 1996.
The quarter's consolidated revenue of $2,137,728 represents beverage
and food sales, admission fees, and other income. Of the consolidated
revenue for the quarter, 23.8% represents revenue from the
Indianapolis club. The St. Louis and Tucson clubs generated revenues
of 47.9% and 27.9%, respectively, and miscellaneous income generated
0.4% of the revenue for the three months ended March 31, 1996. Total
revenue for the three months ended March 31, 1996 decreased $316,438
or 12.9% from total revenue reported for the quarter ended March 31,
1995.
The Company's consolidated net income before provision for income
taxes of $143,681 for the three months ended March 31, 1996 represents
a decrease from the net income before provision for income taxes of
$304,062 for the three months ended March 31, 1995.
10
<PAGE>
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
The decrease in cost of products and services, and general and
administrative expenses for the three months ended March 31, 1996
represent reductions in the cost of operations effected by management
as a result of the decreases in revenues for the period.
The decrease in depreciation and amortization expenses for the three
months ended March 31, 1996 represents a reduction in amortization of
pre-opening expenses for the St. Louis and Indianapolis facilities
which were written off against income during the first year of
operations and were fully amortized in the quarter ended June 30,
1995.
Other partners' and shareholders' interests in net income of
consolidated subsidiaries represents income attributable to limited
partners interests in WCC I, Ltd. and are treated as a reduction to
income for the Company's consolidated statement. Decreases in the
amount for the quarter ended March 31, 1996 are related to the
decrease in revenues experienced by the Company.
11
<PAGE>
PART II
OTHER INFORMATION
Item 1: Legal Proceedings
None
Item 2:Changes in Securities
None
Item 3:Default Upon Senior Securities
None
Item 4:Submission of Matters to a Vote of Security Holders
None
Item 5: Other Information
None
Item 6:Exhibits and Reports on Form 8-K
a. Exhibits
None
b. Reports on form 8-K:
During the quarter ended March 31, 1996, the
Registrant has filed no reports on Form 8-K.
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.
Western Country Clubs, Inc.
(Registrant)
By /s/ Troy Lowrie
Troy Lowrie, President
May 14, 1996
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-QSB FOR THE PERIOD ENDED MARCH 31, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-QSB
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<CASH> 199,667
<SECURITIES> 0
<RECEIVABLES> 204,006
<ALLOWANCES> 0
<INVENTORY> 92,413
<CURRENT-ASSETS> 990,266
<PP&E> 4,540,316
<DEPRECIATION> 827,752
<TOTAL-ASSETS> 5,985,104
<CURRENT-LIABILITIES> 1,336,526
<BONDS> 0
0
0
<COMMON> 29,739
<OTHER-SE> 3,702,559
<TOTAL-LIABILITY-AND-EQUITY> 5,985,104
<SALES> 0
<TOTAL-REVENUES> 2,137,728
<CGS> 0
<TOTAL-COSTS> 620,898
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,490
<INCOME-PRETAX> 143,681
<INCOME-TAX> 44,973
<INCOME-CONTINUING> 90,670
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 90,670
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
