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 JUNE 30, 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.
3,031,921 common shares were outstanding as of June 30, 1996.
<PAGE>
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
INDEX
-----
Page No.
--------
PART I. FINANCIAL INFORMATION
- ------- ---------------------
Unaudited Consolidated Balance Sheet - June 30, 1996 2 and 3
Unaudited Consolidated Income Statement - For the
Six Months Ended June 30, 1996 and 1995 4
Unaudited Consolidated Income Statement - For the
Three Months Ended June 30, 1996 and 1995 5
Unaudited Consolidated Statement of Stockholders' Equity -
For the Six Months Ended June 30, 1996 6
Unaudited Consolidated Statement of Cash Flows - For the
Six Months Ended June 30, 1996 and 1995 7
Notes to Unaudited Consolidated Financial Statements 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION 13
- -------- -----------------
1
<PAGE>
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEET
June 30, 1996
ASSETS
------
Current assets:
Cash $ 192,653
Accounts receivable 125,167
Notes receivable - Cowboys 100,000
Inventories 82,920
Prepaid expenses 119,743
Pre-opening expenses 26,136
Deferred income taxes (Note 2) 140,000
Refundable income taxes 108,561
-----------
Total current assets 895,180
Property and equipment, at cost:
Land and improvements 224,989
Building and improvements 755,900
Leasehold improvements 2,605,709
Equipment 533,709
Furniture and fixtures 433,657
-----------
4,553,964
Less accumulated depreciation and amortization (932,723)
-----------
Net property and equipment 3,621,241
Other assets:
Deferred income taxes (Note 2) 119,000
Goodwill, net of amortization 530,466
Covenant not to compete, net of amortization 489,657
Deposits and other 125,357
----------
Total other assets 1,264,480
----------
$5,780,901
==========
See accompanying notes.
2
<PAGE>
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEET
June 30, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable $ 108,397
Notes payable 131,003
Notes payable - related parties (Note 3) 100,000
Income taxes payable 85,100
Accrued expenses 325,872
Current portion of long-term debt 75,996
Current portion of liability under non-compete
agreement 238,712
----------
Total current liabilities 1,065,080
Long-term debt 519,812
Liability under non-compete agreement 156,527
Equity interest of other partners in
consolidated subsidiaries 215,623
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, 3,031,921 shares issued
and outstanding 30,319
Additional paid-in capital 3,999,866
Retained earnings (deficit) (206,326)
----------
Total stockholders' equity 3,823,859
----------
$5,780,901
==========
See accompanying notes.
3
<PAGE>
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED INCOME STATEMENT
For the Six Months Ended June 30, 1996 and 1995
1996 1995
Revenues: ---------- ----------
Beverage and food sales $2,545,785 $3,301,591
Admission fees and other revenues 1,350,229 1,403,930
---------- ----------
Total revenues 3,896,014 4,705,521
Costs and expenses:
Cost of products and services 1,175,054 1,319,446
Depreciation and amortization 312,664 405,353
Interest 76,801 59,928
General and administrative expenses 2,254,693 2,492,837
---------- ----------
Total costs and expenses 3,819,212 4,277,564
---------- ----------
Income before taxes and minority interest 76,802 427,957
Provision for income taxes (Note 2) 29,951 159,841
--------- --------
Income before minority interest 46,851 268,116
Other partners' interests in net income of
consolidated subsidiaries, net of income
tax provision of $6,151 (1996) and
$14,841 (1995) 9,620 24,948
---------- ----------
Net income $ 37,231 $ 243,168
========== ==========
Net income per common share $ .01 $ .07
========== ==========
Weighted average common shares outstanding 3,109,000 3,243,000
========== ==========
See accompanying notes.
4
<PAGE>
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED INCOME STATEMENT
For the Three Months Ended June 30, 1996 and 1995
1996 1995
Revenues: ---------- ----------
Beverage and food sales $1,105,189 $1,575,766
Admission fees and other revenues 653,097 675,589
---------- ----------
Total revenues 1,758,286 2,251,355
Costs and expenses:
Cost of products and services 554,156 668,345
Depreciation and amortization 152,833 197,182
Interest 39,311 29,248
General and administrative expenses 1,078,865 1,232,685
---------- ----------
Total costs and expenses 1,825,165 2,127,460
---------- ----------
Income (loss) before taxes and minority interest (66,879) 123,895
Provision for income taxes (Note 2) (15,022) 46,464
---------- ----------
Income (loss) before minority interest (51,857) 77,431
Other partners' interests in net income of
consolidated subsidiaries, net of income
tax provision of $4,078 (1996) and
$4,464 (1995) 1,582 7,505
---------- ----------
Net income (loss) $ (53,439) $ 69,926
========== ==========
Net income (loss) per common share $ (.02) $ .02
========== ==========
Weighted average common shares outstanding 3,133,000 3,040,000
========== ==========
See accompanying notes.
5
<PAGE>
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Six Months Ended June 30, 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) 87,200 872 217,128 -
Net income for the six
months ended June 30,
1996 - - - 37,231
--------- ------- ---------- ----------
Balance, June 30, 1996 3,031,921 $30,319 $3,999,866 $(206,326)
========= ======= ========== ==========
See accompanying notes.
6
<PAGE>
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 1996 and 1995
1996 1995
Cash flows from operating activities: --------- -----------
Net income $ 37,231 $ 243,168
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 312,664 405,353
Minority interest in earnings of
subsidiaries 15,771 39,789
Deferred tax provision (62,000) (57,000)
Increase in present value of liability
under non-compete agreement 20,533 20,536
Change in assets and liabilities:
Increase in accounts receivable (89,634) (62,199)
(Increase) decrease in inventories 13,947 (7,930)
Increase in prepaid expenses (23,002) -
Decrease in refundable income taxes 51,559 -
Increase (decrease) in accounts payable (71,958) 32,162
Increase (decrease) in income taxes
payable 85,100 (23,000)
Increase (decrease) in accrued expenses 66,373 (59,428)
--------- -----------
Total adjustments 319,353 288,283
--------- -----------
Net cash provided by operating activities 356,584 531,451
Cash flows from investing activities:
Investment in limited partnership - (439,322)
Acquisition of property and equipment (16,227) (53,731)
Decrease in deposits and other assets 9,750 22,273
--------- ----------
Net cash used in investing activities (6,477) (470,780)
Cash flows from financing activities:
Repurchase of common stock - (280,000)
Proceeds from sale of common stock 218,000
Proceeds from exercise of stock options - 67,500
Partnership distributions to minority interest (18,000) (37,000)
Repayments of notes payable (681,293) (158,764)
Borrowings from related parties 100,000 -
--------- ----------
Net cash used in financing activities (381,293) (408,264)
--------- ----------
Decrease in cash (31,186) (347,593)
Cash at beginning of period 223,839 520,940
--------- ----------
Cash at end of period $ 192,653 $ 173,347
========== ==========
See accompanying notes.
7
<PAGE>
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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 June 30, 1996, and the
results of operations and cash flows for the three months and six
months ended June 30, 1996 and 1995.
Certain reclassifications have been made to the June 30, 1995
financial statements to conform to the June 30, 1996 presentation.
2. Income taxes
------------
The provision for income taxes for the six months ended June 30,
1996 and 1995 consists of the following:
1996 1995
--------- ---------
Current taxes $85,800 $202,000
Deferred taxes (62,000) 57,000
--------- ---------
23,800 145,000
Taxes allocated to other partners'
interests in net income 6,151 14,841
--------- ---------
Provision for income taxes $29,951 $159,841
========= =========
At June 30, 1996, the Company has recorded a deferred income tax
asset of $259,000 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 six months ended June 30, 1996, the Company borrowed
$100,000 from a company owned by the Company's president, which
amount was repaid prior to June 30, 1996, and repaid $393,000 to
International Entertainment Consultants, Inc., a company owned by
a relative of the Company's president.
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 six months ended June 30, 1996, the Company sold 87,200
shares of common stock resulting in net proceeds of $218,000.
8
<PAGE>
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
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. The limited partnership interest and loans were
written-off by the Company as of December 31, 1995.
9
<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 six months ended June 30, 1996, the Company generated
$356,584 in cash flows from operations compared to $531,451 from
operations for the six months ended June 30, 1995. The decrease in
cash flows for the six months ended June 30, 1996 is primarily due to
the decrease in revenues experienced by the Company during the six
months ended June 30, 1996.
As of June 30, 1996, the Company had cash of $192,653, 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 $967,366; 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.
10
<PAGE>
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
The Company has recorded a deferred tax asset of $259,000 at June 30,
1996 representing temporary differences of approximately $662,000
between book income and taxable income. The reversal of existing
temporary differences would allow approximately $42,000 of deferred
tax assets to be recovered as a carryback against prior years' taxes
paid. Realization of the remaining $217,000 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 $77,000. 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 the pro forma net income before provision for income taxes
would have been $308,266 for the year ended December 31, 1995 if the
Company had not owned a 50% interest in the Atlanta club for six
months during 1995.
MATERIAL CHANGES IN THE RESULTS OF OPERATIONS
- ---------------------------------------------
Total revenues from operations from the Indianapolis club amounted to
$502,040 for the three months ended June 30, 1996. This represents
a 13.2% decrease in revenue from operations of $578,573 for the three
months ended June 30, 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 $806,758 and $448,347, respectively, for the three
months ended June 30, 1996. This represents a 15.4% decrease in
revenue from operations of $953,427 for the St. Louis club and a 34.7%
decrease in revenue from operations of $686,438 for the Tucson club
for the three months ended June 30, 1995. Miscellaneous revenues
generated by the Company were $1,141 for the three month period ended
June 30, 1996.
Total revenues from operations from the Indianapolis club amounted to
$1,010,304 for the six months ended June 30, 1996. This represents
a 21.1% decrease in revenue from operations of $1,280,222 for the six
months ended June 30, 1995. Total revenues from operations for the
St. Louis and Tucson clubs amounted to $1,831,580 and $1,044,151,
respectively, for the six months ended June 30, 1996. This represents
an 8.9% decrease in revenue from operations of $2,010,671 for the St.
Louis club and a 21.3% decrease in revenue from operations of
$1,326,411 for the Tucson club for the six months ended June 30, 1995.
Miscellaneous revenues generated by the Company were $9,979 for the
six month period ended June 30, 1996.
The quarter's consolidated revenue of $1,758,286 represents beverage
and food sales, admission fees, and other income. Of the consolidated
revenue for the quarter, 28.6% represents revenue from the
Indianapolis club. The St. Louis and Tucson clubs generated revenues
of 45.9% and 25.5%, respectively, for the three months ended June 30,
1996. Total revenue for the three months ended June 30, 1996
decreased $493,069 or 21.9% from total revenue reported for the
quarter ended June 30, 1995.
11
<PAGE>
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
The six month period consolidated revenue of $3,896,014 represents
beverage and food sales, admission fees, and other income. Of the
consolidated revenue for the quarter, 26.0% represents revenue from
the Indianapolis club. The St. Louis and Tucson clubs generated
revenues of 47.1% and 26.9%, respectively, for the six months ended
June 30, 1996. Total revenue for the six months ended June 30, 1996
decreased $809,507 or 17.2% from total revenue reported for the six
months ended June 30, 1995.
The Company's consolidated net loss before provision for income taxes
and minority interest of $(66,879) for the three months ended June 30,
1996 represents a decrease from the net income before provision for
taxes and minority interest of $123,895 for the three months ended
June 30, 1995.
The Company's consolidated net income before provision for income
taxes and minority interest of $76,802 for the six months ended June
30, 1996 represents a decrease of 82.1% from the net income before
provision for taxes and minority interest of $427,957 for the six
months ended June 30, 1995.
The decreases in cost of products and services, and general and
administrative expenses for the three months and six months ended June
30, 1996 represent reductions in the cost of operations effected by
management as a result of the decrease in revenues for the period.
The decrease in depreciation and amortization expenses for the three
months and six months ended June 30, 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 three months and six months ended June 30, 1996 are
related to the decrease in revenues experienced by the Company.
12
<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 June 30, 1996, the
Registrant has filed no reports on Form 8-K.
13
<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
July 24, 1996
14
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM FORM 10-QSB FOR THE PERIOD ENDED JUNE 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-QSB
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 192,653
<SECURITIES> 0
<RECEIVABLES> 225,167
<ALLOWANCES> 0
<INVENTORY> 82,920
<CURRENT-ASSETS> 895,180
<PP&E> 4,553,964
<DEPRECIATION> 932,723
<TOTAL-ASSETS> 5,780,901
<CURRENT-LIABILITIES> 1,065,080
<BONDS> 0
0
0
<COMMON> 30,319
<OTHER-SE> 3,793,540
<TOTAL-LIABILITY-AND-EQUITY> 5,780,901
<SALES> 0
<TOTAL-REVENUES> 3,896,014
<CGS> 0
<TOTAL-COSTS> 1,175,054
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 76,801
<INCOME-PRETAX> 76,802
<INCOME-TAX> 29,951
<INCOME-CONTINUING> 37,231
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,231
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
