FORM 10QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1998
Commission File Number: 0-24058
WESTERN COUNTRY CLUBS, INC.
(Exact name of registrant as specified in its charter)
Colorado 84-1131343
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1601 N.W. Expressway, Suite 1610
Oklahoma City, Oklahoma 73118
Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (405) 848-0996
Check whether the issuer (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 at least the past 90 days. Yes [X] No [ ]
Shares of Common Stock, $.01 par value,
outstanding as of November 12, 1998 3,749,721
Traditional Small Business Disclosure Format: Yes [X] No [ ]
<PAGE>
WESTERN COUNTRY CLUBS, INC.
INDEX
Part I. FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Condensed Balance Sheet - September 30, 1998
Consolidated Condensed Statements of Income -
For the Three Months and Nine Months Ended September 30, 1998
and 1997
Consolidated Condensed Statements of Stockholders' Equity -
For the Nine Months Ended September 30, 1998 and 1997
Consolidated Condensed Statements of Cash Flows -
For the Nine Months Ended September 30, 1998 and 1997
Notes to Consolidated Condensed Financial Statements
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
Item 1 Legal Proceedings
Item 6 Exhibits and Reports on Form 8-K
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
WESTERN COUNTRY CLUBS, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30, 1998
ASSETS
CURRENT ASSETS
Cash $ 196,997
Accounts receivable 41,648
Accounts receivable from related parties 27,019
Notes and loans receivable 351,232
Notes receivable from related parties 728,340
Inventories 45,829
Prepaid expenses 20,684
Deferred income taxes 232,484
----------
TOTAL CURRENT ASSETS 1,644,233
----------
PROPERTY AND EQUIPMENT, at cost
Land and improvements 77,010
Leasehold improvements 1,515,689
Equipment 388,477
Furniture and fixtures 279,838
----------
2,261,014
Less accumulated depreciation (1,065,104)
----------
NET PROPERTY AND EQUIPMENT 1,195,910
----------
OTHER ASSETS
Deferred income taxes 135,256
Goodwill, net of amortization 14,840
Deposits and other 90,707
Investment 114,800
----------
TOTAL OTHER ASSETS 355,603
----------
TOTAL ASSETS $3,195,746
==========
See accompanying notes to consolidated condensed financial statements.
<PAGE>
WESTERN COUNTRY CLUBS, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30, 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 264,685
Accrued expenses 272,633
Current portion of notes payable - related parties 128,817
Current portion of long-term debt 71,571
----------
TOTAL CURRENT LIABILITIES 737,706
NOTES PAYABLE - RELATED PARTIES, less current portion 60,748
LONG-TERM DEBT, less current portion -
----------
TOTAL LIABILITIES 798,454
----------
MINORITY INTERESTS 171,615
----------
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; 25,000,000
shares authorized, 3,734,721 shares
issued and outstanding 37,347
Preferred stock (Note 2) 552,500
Additional paid-in capital 4,363,739
Retained deficit (2,727,909)
----------
TOTAL STOCKHOLDERS' EQUITY 2,225,677
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,195,746
==========
See accompanying notes to consolidated condensed financial statements.
<PAGE>
WESTERN COUNTRY CLUBS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
REVENUES
Beverage and food sales $ 794,031 $ 934,215 $2,354,196 $3,509,975
Admission fees 407,171 613,003 1,055,756 1,953,274
Other revenues 78,887 - 276,963 -
Sale of partnership interest
(Note 3) - - 220,000 -
Sale of fixed assets (Note 3) - - 64,861 210,645
---------- ---------- ---------- ----------
TOTAL REVENUES 1,280,089 1,547,218 3,971,776 5,673,894
---------- ---------- ---------- ----------
COSTS AND EXPENSES
Cost of products and services 305,317 519,674 860,172 2,091,537
Depreciation and amortization 67,821 116,780 202,956 350,172
Interest 6,911 33,633 28,035 102,353
General and administrative
expenses 780,933 905,849 2,335,655 3,296,110
---------- ---------- ---------- ----------
TOTAL COSTS AND EXPENSES 1,160,982 1,575,936 3,426,818 5,840,172
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE TAXES AND
MINORITY INTERESTS 119,107 (28,718) 544,958 (166,278)
PROVISION FOR INCOME TAXES - - 49,670 -
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE MINORITY
INTERESTS 119,107 (28,718) 495,288 (166,278)
MINORITY INTERESTS IN NET
(INCOME) LOSS OF CONSOLIDATED
SUBSIDIARIES (5,708) 10,164 (33,970) 5,142
---------- ---------- ---------- ----------
NET INCOME (LOSS) 113,399 (18,554) 461,318 (161,136)
PREFERRED DIVIDENDS 14,800 - 42,000 -
---------- ---------- ---------- ----------
NET EARNINGS AVAILABLE FOR
COMMON SHARES $ 98,599 $ (18,554) $ 419,318 $ (161,136)
========== ========== ========== ==========
EARNINGS (LOSS) PER SHARE $ 0.02 * $ 0.11 $ (0.04)
========== ========== ========== ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING 3,734,721 3,634,721 3,717,138 3,619,162
========== ========== ========== ==========
EARNINGS (LOSS) PER SHARE
ASSUMING DILUTION $ 0.02 * $ 0.10 $ (0.04)
========== ========== ========== ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING - ASSUMING
DILUTION 4,294,639 3,634,721 4,248,979 3,619,162
========== ========== ========== ==========
* less than $.01 per share
See accompanying notes to consolidated condensed financial statements.
<PAGE>
WESTERN COUNTRY CLUBS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
For the Nine Months Ended September 30, 1998 and 1997
Common Stock Pre- Additional Retained Total
----------------- ferred Paid-in Earnings Stockholders'
Shares Amount Stock Capital (Deficit) Equity
--------- ------- -------- ---------- ----------- -----------
Balance,
December 31,
1996 3,519,921 $35,199 $ - $4,201,087 $(2,159,851) $2,076,435
Common stock
issued 114,800 1,148 - 113,652 - 114,800
Net loss for the
nine months
ended September
30, 1997 - - - - (161,136) (161,136)
--------- ------- -------- ---------- ----------- ----------
Balance,
September 30,
1997 3,634,721 $36,347 $ - $4,314,739 $(2,320,987) $2,030,099
========= ======= ======== ========== =========== ==========
Balance,
December 31,
1997 3,634,721 $36,347 - $4,314,739 $(3,147,227) $1,203,859
Preferred
stock issued
(Note 2) - - 560,000 - - 560,000
Preferred stock
redeemed - - (7,500) - - (7,500)
Common stock
issued
(Note 4) 100,000 1,000 - 49,000 - 50,000
Preferred stock
dividends - - - - (42,000) (42,000)
Net income
for the nine
months ended
September 30,
1998 - - - - 461,318 461,318
--------- ------- -------- ---------- ----------- ----------
Balance,
September 30,
1998 3,734,721 $37,347 $552,500 $4,363,739 $(2,727,909) $2,225,677
========= ======= ======== ========== =========== ==========
See accompanying notes to consolidated condensed financial statements.
<PAGE>
WESTERN COUNTRY CLUBS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine Months Ended September 30, 1998 and 1997
1998 1997
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 461,318 $(161,136)
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Depreciation and amortization 202,956 350,172
Minority interest in earnings (loss) of
subsidiaries 33,970 (5,142)
Gain on sales of assets (284,861) (210,645)
Deferred tax provision 49,670 -
Changes in assets and liabilities, net of
effects of sales of assets
Increase in account receivables (22,169) (12,851)
Decrease in inventories 9,068 15,108
Decrease in prepaid expenses 10,639 3,878
Decrease in income taxes receivable - 7,269
Increase in capitalized offering costs - (192,016)
Increase in deposits and other (16,995) (7,419)
Increase (decrease) in accounts payable (101,786) 35,373
Decrease in accrued expenses (18,992) (3,743)
--------- ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 322,818 (181,152)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from redemption of a certificate of deposit - 200,000
Sale of assets 10,000 100,000
Receipts on notes receivable 36,633 9,392
Advances on notes receivable (112,625) (3,000)
Purchase of property and equipment (13,827) (16,870)
--------- ---------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (79,819) 289,522
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable (160,451) (402,152)
Proceeds from issuance of notes payable 88,000 190,000
Dividends paid on preferred stock (42,000) -
Partnership distributions to minority interests (10,000) (7,750)
Redemption of preferred stock (7,500) -
--------- ---------
NET CASH USED BY FINANCING ACTIVITIES (131,951) (219,902)
========= =========
NET INCREASE (DECREASE) IN CASH 111,048 (111,532)
CASH AT BEGINNING OF PERIOD 85,949 190,624
--------- ---------
CASH AT END OF PERIOD $ 196,997 $ 79,092
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid during the period $ 21,409 $ 103,915
========= =========
Income tax paid during the period $ - $ -
========= =========
See accompanying notes to consolidated condensed financial statements.
<PAGE>
WESTERN COUNTRY CLUBS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1
In the opinion of Western Country Clubs, Inc. (the "Company"), the
accompanying unaudited consolidated condensed financial statements contain
all adjustments (consisting of only normal recurring accruals) necessary to
present fairly the financial position as of September 30, 1998, the
results of operations for the three months and six months ended September 30,
1998 and September 30, 1997, and cash flows for the nine months ended
September 30, 1998 and September 30, 1997. These statements are condensed
and, therefore, do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
The statements should be read in conjunction with the consolidated financial
statements and footnotes included in the Company's Annual Report on Form
10-KSB for the year ended December 31, 1997. The results of operations for
the nine months ended September 30, 1998 and September 30, 1997 are not
necessarily indicative of the results to be expected for the full year.
Note 2
On January 1, 1998, two notes payable to a major stockholder
totaling $378,275 with accrued interest of $21,725 were converted to 40,000
shares of the Company's Series A 10% cumulative convertible preferred stock.
On February 18, 1998, a note payable of $160,000 was converted to
16,000 shares of the Company's Series B 12% cumulative convertible
preferred stock.
Note 3
Effective January 9, 1998, the Company sold its interest in a limited
partnership for $10,000 in cash and a $210,000 note. Due to extensive
losses of the partnership, the investment in the partnership had been
reduced to zero in 1995. The sale resulted in a gain of $192,869, net
of the tax effect of $27,131.
On February 6, 1998, the Company sold its Indianapolis club to a
major stockholder of the Company for a $600,000 note and the assumption of
$490,426 of long-term debt and $56,341 of accrued interest and taxes,
less $13,000 to be refunded to the buyer. The sale resulted in a gain
of $43,890, net of the tax effect of $7,999 and minority interests of
$12,972.
Note 4
On February 19, 1998, the Company settled a lawsuit for $92,808 in
cash, a payment agreement totaling $74,000 and 100,000 shares of the Company's
stock valued at $50,000. Cash of $34,308 was paid in 1997 and the
remainder of the loss was fully accrued at December 31, 1997.
Note 5
The transactions described in Notes 2, 3 and 4 were treated as noncash
transactions for cash flow statement purposes.
<PAGE>
PART 1 - Item 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Special Note Regarding Forward-Looking Statements
Certain statements in this Form 10-QSB under "Part I, Item 2.
Management's Discussion and Analysis" constitute "forward-looking
statements" within the meaning of the Private Securities Litigation
Reform Act of 1995 (the "Reform Act"). Such forward-looking statements
involve known and unknown risks, uncertainties and other facts which may
cause the actual results, performance or achievements of Western Country
Clubs, Inc. (the "Company") and its nightclubs to be materially
different from any future results, performance or achievements expressed
or implied by such forward-looking statements. Such factors include,
among others, the following: general economic and business conditions;
competition; success of operating initiatives; development and operating
costs; advertising and promotional efforts; adverse publicity; customer
appeal and loyalty; availability, locations and terms of sites for
nightclub development; changes in business strategy or development
plans; quality of management; availability, terms and development of
capital; business abilities and judgment of personnel; availability of
qualified personnel; food, labor and employee benefit costs; changes in,
or the failure to comply with, government regulations; regional weather
conditions; construction schedules; and other factors. The use in this
Form 10-QSB of such words as "believes," "anticipates," "expects,"
"intends," and similar expressions are intended to identify forward-looking
statements, but they are not the exclusive means of identifying such
statements. The success of the Company is dependent on the efforts of the
Company and its management and personnel and the manner in which they
operate and develop clubs.
The following discussion and analysis should be read in conjunction
with the Company's unaudited Consolidated Condensed Financial Statements and
Notes thereto appearing elsewhere in this Report.
General
The Company commenced operations in April 1993 with a country-western
nightclub in Indianapolis, Indiana (the "Indy Club"). In April 1994, the
Company opened a nightclub in a suburb of St. Louis, Missouri (the "St. Louis
Club"). The Company financed these Clubs through limited partnerships in
which it was the general partner. In May 1994, the Company completed its
initial public offering of securities receiving net proceeds of approximately
$1.9 million. In November 1994, the Company purchased a nightclub in Tucson,
Arizona (the "Tucson Club"). At this time, the Company also increased its
ownership of the Indy Club to 80% and acquired 100% of the St. Louis Club.
In June 1995, the Company participated as a 50% limited partner in a
partnership formed to acquire a nightclub in Atlanta, Georgia (the
"Atlanta Club"). The Company contributed $500 in partnership capital
and loaned an additional $638,832 to the partnership. Due to continuing
losses, the Company wrote off its interest in the Atlanta Club effective
December 31, 1995. On January 9, 1998, the Company sold its interest in
the Atlanta Club for $220,000.
In September 1996, Troy H. Lowrie, then President and the largest
shareholder of the Company, entered into a Stock Purchase Agreement
whereby (i) Red River Concepts, Inc., a Delaware corporation ("Red
River"), or its designees would acquire in three installments 1,300,000
shares of Mr. Lowrie's Common Stock; (ii) new management assumed control
of the operations of the Company; and (iii) James E. Blacketer and Joe
R. Love, directors of Red River, were appointed to the Company's Board
of Directors. The change in control occurred in October 1996.
Subsequently, on December 16, 1996, new management acquired a
nightclub in Wichita, Kansas (the "Wichita Club") for 400,000 shares of the
Company's Common Stock and assumption of $150,000 in debt. The Wichita
Club was owned in part by entities affiliated with James E. Blacketer
and Joe R. Love, directors of the Company.
New management also undertook steps to improve the financial
performance of the Tucson Club, which was hampered by high acquisition,
leasehold and operating costs and declining revenues. During October 1996,
the Club was remodeled into two entertainment venues in order to attract new
customers and revenues, cost cutting measures were instituted, and new
unit-level management was installed. Despite these measures, based on
the Club's continuing decline in performance, high overhead and
occupancy costs, the Tucson Club's assets were deemed to be impaired and
were written off as of December 31, 1996. The Company sold the Tucson
Club's assets in May 1997 and completed an agreement to settle the
leasehold obligations in August 1997.
In February 1997, the Company filed a registration statement for a
public offering of up to 460,000 shares of preferred stock and up to
1,150,000 warrants to purchase the Company's Common Stock (the "Public
Offering"). The Company cleared all regulatory requirements concerning
the Public Offering but the Company's underwriter was not successful in
placing the preferred shares. Therefore, costs associated with the
Public Offering which had previously been capitalized were written off
at December 31, 1997.
During the fourth quarter of 1997, the Stock Purchase Agreement
between Troy H. Lowrie and Red River Concepts, Inc. was amended whereby Mr.
Lowrie retained 430,000 of the shares which were originally to be sold
to Red River.
On February 6, 1998, the Company sold all of the assets of the Indy
Club to A Little Bit of Texas, Ltd. ("Texas"), a company controlled by Mr.
Lowrie, for $1.15 million.
In February 1998, the Company signed a letter of intent to acquire
certain assets, including two Mexican restaurants, from Berryhill Hot
Tamales, L.L.C., for shares of the Company's common stock, newly issued
preferred stock, and assumption of certain debt. The parties anticipated
entering into a formal contract and closing on or before May 1, 1998.
However, the parties were unable to reach agreements on all relevant matters
and were unable to conclude the transaction. The letter of intent expired
on May 1, 1998, and no further discussions have occurred and none are
anticipated.
In June 1998, the Company signed a letter of intent to acquire Two
Rows Restaurant and Brewery ("Two Rows"), owners and operators of two
restaurant and brewery operations, for shares of the Company's common
stock, newly issued preferred stock, and assumption of certain debt.
The letter of intent expired without a formal agreement being entered
into, and the parties agreed in July to abandon the proposed acquisition.
No further discussions have occurred and none are anticipated at this time.
The Company has recently formed a subsidiary corporation, "Atomic
Burrito, Inc." for the purpose of developing a restaurant concept
specializing in a "Fresh-Mex" menu with a focus on burritos. Similar
concepts have become popular across the country during the past year and
management and the Company's board believe that this may be a lucrative
venture. The plan is to develop Company-owned units as well as license
to others the rights to the concept. The Company has agreed in principle
to enter into a seven-unit license agreement for the development of Atomic
Burrito restaurants with one group and has agreed in principle to enter
into a joint-venture agreement with another group for the development of
up to eight Atomic Burrito restaurants. Formal agreements are expected to
be executed in the near future. The proposed license agreements generally
provide for the Company to receive fees and royalties from the proposed
licensees in the future, and the joint venture agreement provides for the
joint development, operation and ownership of the proposed restaurants. The
proposed licensees of the planned seven-unit license agreement have already
opened two Atomic Burrito restaurants in Stillwater, Oklahoma, and in Norman,
Oklahoma. While the Company has received no compensation as of the end of
the third quarter, execution of the proposed agreement is expected to occur
during November 1998, and the Company does anticipate receiving revenue
from these operations during the fourth quarter of 1998.
Liquidity and Capital Resources
For the nine months ending September 30, 1998, the Company had cash
of $196,997, an increase of $111,048 from year end 1997 and an increase of
$45,905 from June 30, 1998. Virtually all of this increase is due to
increased income from the Company's operations. The operations improvement
was due in part to the closing of an unprofitable club during the first nine
months of 1997.
At September 30, 1998, the Company's working capital position (current
assets minus current liabilities) was $906,527, an increase of $112,305
from the second quarter of 1998, and increased substantially from the
Company's negative working capital position at year end 1997 of $833,348.
Compared to the Company's working capital position at the end of the third
quarter 1997, a negative $409,134, the current working capital position is
also greatly increased. These increases are due in part to the improved
operations of the Company during the first nine months of 1998 and in part
to the impact of the closing of two unprofitable restaurants in 1997. The
increase in working capital position is also due in part to the conversion
of two notes owed by the Company into preferred stock, an increase in notes
receivable due to the sale of the Indianapolis club, and to the sale of the
Atlanta partnership interest for cash and a note. Management believes that
the continued positive working position remains a strong indicator of the
Company's progress operationally and is indicative that the Company has
cleaned up some of its previously existing problems.
Property and equipment consists of assets required to open and
operate the St. Louis and Wichita Clubs. Leasehold improvements total
$1,515,689; equipment, furniture and fixtures total $668,315; and land and
improvements total $77,010.
Goodwill decreased to $14,840 at the end of the period, reflecting
additional amortization since the prior period and since year end, and
is significantly reduced from the same period a year ago due to the
write down of goodwill associated with the closing of the Indy club
during the fourth quarter of 1997.
The deferred income tax asset is reduced from year end 1997 as well
as from the third quarter of 1997, due primarily to the income tax expense
attributed to the Company's net income for the first nine months of 1998.
While future realization of this asset is dependent upon the generation of
sufficient future taxable income liability against which the tax loss
carryforward can be offset, the Company's strong, profitable results from
operations in the first nine months of 1998 increase the likelihood that
this asset will be fully realized. Management believes that full realization
of this asset will occur.
The Company's total liabilities of $798,454 represent a reduction of
$102,624 since the end of the second quarter of 1998, such decrease
resulting from the continued profitable operations of the Company and
continued payments on debt obligations and other payables. The total
liabilities are substantially reduced from the 1997 year end level of
$2,186,636 and from the third quarter 1997 amount of $2,045,670, attributable
primarily to the conversion of notes into preferred stock and repayments of
debt made possible by the sale of the Atlanta partnership interest and the
profitable operations during 1998. The Company has virtually no long-term
debt, and accounts payable total $264,685 compared to $312,177 at the end of
the second quarter of 1998, to $366,471 at year end 1997, and to $361,195 at
the end of the third quarter of 1997, all of which generally reflect the
Company's continued profitability during 1998.
Based upon the results of the first nine months of 1998, management
is comfortable that the existing operations can adequately support the
Company's debt level and can also support future endeavors.
Results of Operations - Quarter Ended September 30, 1998, Compared to
the Quarter Ended September 30, 1997
The Company's total revenues for the third quarter of 1998 decreased
by $267,129 from the same period of 1997, due to the closing in the fourth
quarter of 1997 of the Indy club. Beverage and food sales, as well as
admission fees, were reduced for the quarter due to the Indy closing.
Total costs and expenses for the quarter, also as a result of the
closed Indy operation, were reduced by $414,954. Every expense category,
including cost of products and services, depreciation and amortization,
interest, and general and administrative expenses, was substantially
reduced from the same period in 1997 due to the closing of the Indy club in
the fourth quarter of 1997.
The Company's two clubs in St. Louis and Wichita accounted for all of
the Company's revenue during the quarter, which revenue increased from
the second quarter of 1998 by $135,313, reflecting increased profitability
due in part to cost savings implemented by management, and to the continued
profitable operation of the clubs. Management believes that revenues
in general during the quarter are slower due to the seasonality of the
business and due to the continued need for remodeling of the Wichita club.
Management hopes to be able to use available cash flow during early 1999 to
make improvements at the Wichita club, including some remodeling.
For the quarter ended September 30, 1998, the Company earned net
income of $113,399, compared to a loss of $18,554 for the same period in 1997.
The increase in earnings reflects the items discussed above, a combination of
continued improvement of profitability of operations and the effect of
closing the unprofitable clubs in 1997. Management expects to have increased
profits during the final quarter of 1998, traditionally a strong quarter for
the Company's operations.
Results of Operations - Nine Months Ended September 30, 1998 Compared to
the Nine Months Ended September 30, 1997.
For the nine months ended September 30, 1998, total revenues
decreased by $1,702,118 compared to the same nine-month period in 1997.
This decrease reflects primarily the closing of the Tucson club during the
same period of 1997, with the 1998 revenues reflecting only the sales of the
St. Louis and Wichita clubs. Total costs and expenses for the nine
months in 1998 were reduced by $2,413,354, reflecting the impact of closing
the unprofitable operations during 1997. The impact of operating only two
clubs in 1998 compared with operating four clubs in 1997 is reflected in
reduced expenses in every expense category for the first nine months of
1998 compared with the same period in 1997. Management's ability to reduce
expenses, especially in the general and administrative area, is indicative
of the improvement that current management has made in the overall operation
of the Company. Management believes it will be able to continue this
improvement during the fourth quarter of 1998 and into 1999.
For the nine months ended September 30, 1998, the Company earned
$461,318, compared to a loss of $161,136 for the same period in 1997.
This reflects, in part, the sale of the Atlanta partnership interest as
well as a gain recognized as a result of the sale of the Indy club. The
improvement in income is a result of the improved operations as well as
the effect of closing the two clubs in 1997. Management believes that
this trend of improved and increased earnings will continue during the
fourth quarter of 1998 and will also continue into 1999.
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Special Note: Certain statements set forth below under this caption
constitute "forward-looking statements" within the meaning of the Reform
Act. See "Special Note Regarding Forward-Looking Statements" for
additional factors relating to such statements.
InCahoots Limited Partnership ("InCahoots"), owner of the Wichita
Club, was a party to a lawsuit claiming negligence on the owner/operator's
part, which action resulted in a jury award in the fall of 1997 in favor
of the plaintiff in the amount of $771,000 plus court costs, expenses
and interest. Shortly thereafter, the partnership's insurance carrier
won a declaratory judgment against the partnership declaring that the
carrier was not obligated to provide coverage against the plaintiff's
claims. In February of 1998, the Company and the partnership entered
into an Agreement and "Covenant Not to Execute," whereby InCahoots
agreed to pay the plaintiff $166,808 over two years, plus 100,000 shares
of the Company's common stock and 200,000 warrants to purchase the
Company's common stock in exchange for a covenant by the plaintiff not
to attempt collection of the judgment against InCahoots so long as the
agreed payments were made. The Agreement and Covenant allow the plaintiff
to pursue collection of the judgment against the insurance carrier. The
Company recorded settlement costs of $216,808 for the year ended December 31,
1997, to reflect the impact of this Agreement.
The Company is involved in various other legal actions associated
with the normal conduct of its business operations. No other such actions
involve known material gain or loss contingencies not reflected in the
consolidated financial statements of the Company.
<PAGE>
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
11. Statement Re: Computation of Per Share Earnings
27. Financial Data Schedule
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the period
covered by this report.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
November 13, 1998 Western Country Clubs, Inc.
/s/ James E. Blacketer
By:
James E. Blacketer
President and Chief Financial Officer
<PAGE>
PART II - Item 2
EXHIBIT 11
WESTERN COUNTRY CLUBS, INC.
COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
BASIC EARNINGS PER SHARE
Net income $ 113,399 $ (18,554) $ 461,318 $ (161,136)
Dividends on preferred stock (14,800) - (42,000) -
---------- ---------- ---------- ----------
Net income (loss) applicable
common stock $ 98,599 $ (18,554) $ 419,318 $ (161,136)
========== ========== ========== ==========
Shares used in computing
basic earnings per share 3,734,721 3,634,721 3,717,138 3,619,162
Basic earnings per common
share $ 0.02 Nil $ 0.11 $ (0.04)
========== ========== ========== =========
DILUTED EARNINGS PER SHARE
Net income (loss) $ 113,399 $ (18,554) $ 461,318 $ (161,136)
========== ========== ========== ==========
Shares used in computing
basic earnings per share 3,734,721 3,634,721 3,717,138 3,619,162
Effect of shares issuable
under conversion of
preferred stock 559,918 - 531,841 -
---------- ---------- ---------- ----------
Shares used in computing
diluted earnings per share 4,294,639 3,634,721 4,248,979 3,619,162
========== ========== ========== ==========
Diluted earnings per
common share $ 0.02 Nil $ 0.10 $ (0.04)
========== ========== =========== ==========
Nil - less than $.01
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jul-01-1998
<PERIOD-END> Sep-30-1998
<CASH> 196,997
<SECURITIES> 0
<RECEIVABLES> 68,667
<ALLOWANCES> 0
<INVENTORY> 45,829
<CURRENT-ASSETS> 1,644,233
<PP&E> 2,261,014
<DEPRECIATION> 1,065,104
<TOTAL-ASSETS> 3,195,746
<CURRENT-LIABILITIES> 737,706
<BONDS> 0
<COMMON> 37,347
0
552,500
<OTHER-SE> 1,635,830
<TOTAL-LIABILITY-AND-EQUITY> 3,195,746
<SALES> 1,201,202
<TOTAL-REVENUES> 1,280,089
<CGS> 305,317
<TOTAL-COSTS> 1,160,982
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,911
<INCOME-PRETAX> 113,399
<INCOME-TAX> 0
<INCOME-CONTINUING> 113,399
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 113,399
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
