<PAGE>
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 SEPTEMBER 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.
3,119,921 common shares were outstanding as of October 16, 1996.<PAGE>
<PAGE>
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Unaudited Consolidated Balance Sheet - September
30, 1996 2 and 3
Unaudited Consolidated Statement of operations - For
the Nine Months Ended September 30, 1996 and 1995 4
Unaudited Consolidated Statement of Operations - For
the Three Months Ended September 30, 1996 and 1995 5
Unaudited Consolidated Statement of Stockholders'
Equity - For the Nine Months Ended September 30,
1996 6
Unaudited Consolidated Statement of Cash Flows -
For the Nine Months Ended September 30, 1996 and
1995 7
Notes to Unaudited Consolidated Financial Statements 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION 14
<PAGE>
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEET
September 30, 1996
ASSETS
Current assets:
Cash $ 186,509
Accounts receivable 104,771
Notes receivable - Cowboys 100,000
Inventories 84,599
Prepaid expenses 99,777
Pre-opening expenses 13,068
Deferred income taxes (Note 2) 154,000
Refundable income taxes 109,975
Total current assets 852,699
Property and equipment, at cost:
Land and improvements 224,989
Building and improvements 755,900
Leasehold improvements 2,605,709
Equipment 546,976
Furniture and fixtures 433,657
4,567,231
Less accumulated depreciation and amortization (1,037,694)
Net property and equipment 3,529,537
Other assets:
Deferred income taxes (Note 2) 136,000
Goodwill, net of amortization 507,184
Covenant not to compete, net of amortization 480,476
Deposits and other 123,027
Total other assets 1,246,687
$5,628,923
See accompanying notes.
<PAGE>
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEET
September 30, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 116,420
Notes payable 300,035
Income taxes payable 94,400
Accrued expenses 353,500
Current portion of long-term debt 78,083
Total current liabilities 942,438
Long-term debt 499,492
Equity interest of other partners in
consolidated subsidiary 215,320
Contingencies (Note 6)
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, 3,119,921 shares issued
and outstanding 31,199
Additional paid-in capital 4,183,986
Retained earnings (deficit) (243,512)
Total stockholders' equity 3,971,673
$5,628,923
See accompanying notes.
<PAGE>
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1996 and 1995
1996 1995
Revenues:
Beverage and food sales $3,544,385 $4,426,273
Admission fees and other revenues 1,967,085 1,971,865
Total revenues 5,511,470 6,398,138
Costs and expenses:
Cost of products and services 1,623,473 1,742,151
Depreciation and amortization 465,496 499,454
Interest 109,425 91,411
General and administrative expenses 3,390,571 3,553,953
Loss on write-off of improvements - 11,930
Total costs and expenses 5,588,965 5,898,899
Income (loss) before taxes, minority
interest, equity in loss of partnership
and extraordinary item (77,495) 499,239
Provision (benefit) for income taxes (Note 2) (26,481) 186,584
Income (loss) before minority interest, equity
in loss of partnership and extraordinary item (51,014) 312,655
Other partners' interests in net income of
consolidated subsidiary, net of income
tax provision of $9,338 (1996) and
$17,295 (1995) 16,528 28,980
Equity in loss of partnership, net of income
tax benefit of $23,289 - 39,024
Income (loss) before extraordinary item (67,542) 244,651
Extraordinary item:
Gain on extinguishment of debt, net of income
tax provision of $37,919 (Note 5) 67,587 -
Net income $ 45 $ 244,651
Income (loss) per share before extraordinary item $ (.02) $ .08
Extraordinary gain .02 -
Net income per common share $ * $ .08
Weighted average common shares outstanding 3,136,000 3,184,000
* Less than $.01 per share
See accompanying notes.
<PAGE>
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
For the Three Months Ended September 30, 1996 and 1995
1996 1995
Revenues:
Beverage and food sales $ 998,600 $1,124,682
Admission fees and other revenues 616,856 567,935
Total revenues 1,615,456 1,692,617
Costs and expenses:
Cost of products and services 448,419 422,705
Depreciation and amortization 152,832 94,101
Interest 32,624 31,483
General and administrative expenses 1,135,878 1,061,116
Loss on write-off of improvements - 11,930
Total costs and expenses 1,769,753 1,621,335
Income (loss) before taxes, minority
interest, equity in loss of partnership
and extraordinary item (154,297) 71,282
Provision (benefit) for income taxes (Note 2) (56,432) 26,877
Income (loss) before minority interest, equity
in loss of partnership and extraordinary item (97,865) 44,405
Other partners' interests in net income of
consolidated subsidiary, net of income
tax provision of $3,187 (1996) and
$2,588 (1995) 6,908 3,898
Equity in loss of partnership, net of income
tax benefit of $23,289 - 39,024
Income (loss) before extraordinary item (104,773) 1,483
Extraordinary item:
Gain on extinguishment of debt, net of income
tax provision of $37,919 (Note 5) 67,587 -
Net income (loss) $ (37,186) $ 1,483
Income (loss) per share before extraordinary item $ (.03) $ *
Extraordinary gain .02 -
Net income (loss) per common share $ (.01) $ *
Weighted average common shares outstanding 3,131,000 3,069,000
* Less than $.01 per share
See accompanying notes.
<PAGE>
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Nine Months Ended September 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) 95,200 952 237,048 -
Common stock issued pursuant
to stock compensation plan
for services rendered
(Note 4) 80,000 800 164,200 -
Net income for the nine
months ended September 30,
1996 - - - 45
Balance, September 30, 1996 3,119,921 $31,199 $4,183,986 $(243,512)
See accompanying notes.
<PAGE>
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 1996 and 1995
1996 1995
Cash flows from operating activities:
Net income $ 45 $ 244,651
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 465,496 499,454
Minority interest in earnings of
subsidiaries 25,866 46,275
Equity in loss of limited partnership - 62,313
Gain on extinguishment of debt (105,506) -
Deferred tax provision (93,000) (106,000)
Increase in present value of liability
under non-compete agreement 30,800 30,804
Common stock issued for services 165,000 45,000
Change in assets and liabilities:
Increase in accounts receivable (69,238) (161,789)
(Increase) decrease in inventories 12,268 (34,865)
Increase in prepaid expenses (3,036) -
Increase in pre-opening expenses - (69,696)
Decrease in refundable income taxes 50,145 -
Increase (decrease) in accounts payable (63,933) 381,465
Increase in income taxes payable 94,400 8,290
Increase (decrease) in accrued expenses 94,001 (70,248)
Total adjustments 603,263 631,003
Net cash provided by operating activities 603,308 875,654
Cash flows from investing activities:
Investment in limited partnership - (639,322)
Acquisition of property and equipment (29,494) (471,620)
Decrease in deposits and other assets 9,750 27,713
Net cash used in investing activities (19,744) (1,083,229)
Cash flows from financing activities:
Repurchase of common stock - (280,000)
Proceeds from sale of common stock 238,000 -
Proceeds from exercise of stock options - 67,500
Partnership distributions to minority interest (28,400) (43,400)
Proceeds from notes payable 169,032 300,000
Repayments of notes payable (1,099,526) (175,126)
Borrowings from related parties 100,000 -
Net cash used in financing activities (620,894) (131,026)
Decrease in cash (37,330) (338,601)
Cash at beginning of period 223,839 520,940
Cash at end of period $ 186,509 $ 182,339
See accompanying notes.
<PAGE>
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 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 September 30, 1996,
and the results of operations and cash flows for the three months
and nine months ended September 30, 1996 and 1995.
Certain reclassifications have been made to the September 30, 1995
financial statements to conform to the September 30, 1996
presentation.
2. Income taxes
The provision for income taxes for the nine months ended September
30, 1996 and 1995 consists of the following:
1996 1995
Current taxes $ 95,100 $252,000
Deferred taxes (93,000) (106,000)
(2,100) 146,000
Taxes allocated to other partners'
interests in net income 9,338 17,295
Taxes allocated to equity in loss of
partnership - 23,289
Taxes allocated to gain extinguish-
ment of debt (37,919) -
Provision (benefit) for income taxes $(26,481) $186,584
At September 30, 1996, the Company has recorded a deferred income
tax asset of $290,000 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.
<PAGE>
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
3. Related party transactions
During the nine months ended September 30, 1996, the Company
borrowed $100,000 from a company owned by the Company's president,
which amount was repaid, together with $100,000 owed to the
Company's president, prior to September 30, 1996. The Company
repaid $393,000 to International Entertainment Consultants, Inc.,
a company owned by a relative of the Company's president.
4. Issuances of common stock
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 nine months ended September 30, 1996, the Company sold
95,200 shares of common stock resulting in net proceeds of
$238,000.
Stock compensation plan:
During the quarter ended September 30, 1996, the Company issued (1)
10,000 shares of the Company's common stock to the Company's
president for services rendered and recorded compensation of
$35,000, (2) 15,000 shares of the Company's common stock to a
consultant as a reduction of accounts payable of $52,500, (3)
10,000 shares of the Company's common stock to a consultant for
services valued at $35,000 and (4) 45,000 shares of the Company's
common stock and 145,000 options to purchase the Company's common
stock at $3.50 per share for three years in exchange for the
cancellation of 240,000 options to purchase the Company's common
stock at $2.50 per share. Each of the above issuances of common
stock was valued at $3.50 per share less the previously recorded
compensation where warrants were returned.
5. Gain on extinguishment of debt
During September 1996, the Company settled its remaining
obligations under the liability relating to the Tucson covenant not
to compete for $300,000 in cash. The difference between the amount
paid and the basis of the obligation on the books has been recorded
as an extraordinary gain of $67,587 (net of the related income tax
effect of $37,919).
<PAGE>
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
6. 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.
The Company is presently offering to issue 154,000 of its common
stock to certain persons in exchange for 77,000 shares of common
stock of Cowboys Concert Hall - Arlington, Inc. ("Cowboys") and
warrants to purchase an additional 77,000 Cowboys shares as part of
a settlement with Cowboys. As partial consideration for the
settlement, Cowboys and Cowboys' president jointly and severally
will execute and deliver to the Company a promissory note in the
amount of $385,000 bearing interest at 8% per annum, and due in one
year. There can be no assurance that the exchange offer or the
settlement will occur.
<PAGE>
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 1996
************************************
MATERIAL CHANGES IN FINANCIAL CONDITION
Liquidity and Capital Resources
During the nine months ended September 30, 1996, the Company generated
$603,308 in cash flows from operations compared to $875,654 from
operations for the nine months ended September 30, 1995. The decrease
in cash flows for the nine months ended September 30, 1996 is
primarily due to the decrease in revenues experienced by the Company
during the nine months ended September 30, 1996.
As of September 30, 1996, the Company had cash of $186,509, 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 was 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 $980,633; 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.
<PAGE>
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
The Company has recorded a deferred tax asset of $290,000 at September
30, 1996 representing temporary differences of approximately $748,000
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 $248,000 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 $83,000. 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
$460,972 for the three months ended September 30, 1996. This
represents a 13.5% decrease in revenue from operations of $532,888 for
the three months ended September 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 $798,435 and $355,245, respectively, for
the three months ended September 30, 1996. This represents a 11.5%
decrease in revenue from operations of $902,344 for the St. Louis club
and a 63.7% increase in revenue from operations of $216,967 for the
Tucson club for the three months ended September 30, 1995.
Miscellaneous revenues generated by the Company were $804 for the
three month period ended September 30, 1996.
Total revenues from operations from the Indianapolis club amounted to
$1,471,276 for the nine months ended September 30, 1996. This
represents a 18.9% decrease in revenue from operations of $1,813,109
for the nine months ended September 30, 1995. Total revenues from
operations for the St. Louis and Tucson clubs amounted to $2,630,015
and $1,399,396, respectively, for the nine months ended September 30,
1996. This represents an 9.7% decrease in revenue from operations of
$2,912,995 for the St. Louis club and a 9.3% decrease in revenue from
operations of $1,543,378 for the Tucson club for the nine months ended
September 30, 1995. Miscellaneous revenues generated by the Company
were $10,783 for the nine month period ended September 30, 1996.
The quarter's consolidated revenue of $1,615,456 represents beverage
and food sales, admission fees, and other income. Of the consolidated
revenue for the quarter, 28.5% represents revenue from the
Indianapolis club. The St. Louis and Tucson clubs generated revenues
of 49.4% and 22.0%, respectively, for the three months ended September
30, 1996. Total revenue for the three months ended September 30, 1996
decreased $77,161 or 4.6% from total revenue reported for the quarter
ended September 30, 1995.
<PAGE>
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
The nine month period consolidated revenue of $5,511,470 represents
beverage and food sales, admission fees, and other income. Of the
consolidated revenue for the nine month period, 26.7% represents
revenue from the Indianapolis club. The St. Louis and Tucson clubs
generated revenues of 47.7% and 25.4%, respectively, for the nine
months ended September 30, 1996. Total revenue for the nine months
ended September 30, 1996 decreased $886,668 or 13.9% from total
revenue reported for the nine months ended September 30, 1995.
The Company's consolidated net loss before provision for income taxes,
minority interest and extraordinary item of $(154,297) for the three
months ended September 30, 1996 represents a decrease from the net
income before provision for taxes and minority interest of $71,282 for
the three months ended September 30, 1995.
The Company's consolidated net loss before provision for income taxes,
minority interest and extraordinary item of $(77,495) for the nine
months ended September 30, 1996 represents a decrease of 115.5% from
the net income before provision for taxes, minority interest and
extraordinary item of $499,239 for the nine months ended September 30,
1995.
The decreases in cost of products and services, and general and
administrative expenses for the three months and nine months ended
September 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 nine months ended September 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 September 30, 1995.
Other partners' and shareholders' interests in net income of
consolidated subsidiary 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 nine months ended September 30, 1996
are related to the decrease in revenues experienced by the Company.
<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:
The following reports on Form 8-K were filed
during the quarter ended September 30, 1996:
1. Form 8-K, dated August 26, 1996, reporting
information under Item 5 thereof.
<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______________________________
James E. Blacketer, President
October 23, 1996
<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/ James E. Blacketer
James E. Blacketer, President
October 23, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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