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 March 31, 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Shares of Common Stock, $.01 par value,
outstanding as of March 31, 1998: 3,734,721
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 - March 31, 1998
Consolidated Condensed Statements of Income -
For the Three Months Ended March 31, 1998 and 1997
Consolidated Condensed Statements of Stockholders' Equity -
For the Three Months Ended March 31, 1998 and 1997
Consolidated Condensed Statements of Cash Flows -
For the Three Months Ended March 31, 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>
WESTERN COUNTRY CLUBS, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
(UNAUDITED)
March 31, 1998
ASSETS
CURRENT ASSETS
Cash $ 171,684
Accounts receivable 48,069
Notes and loans receivable 1,072,449
Inventories 50,208
Prepaid expenses 44,693
Deferred income taxes 232,484
----------
TOTAL CURRENT ASSETS 1,619,587
----------
PROPERTY AND EQUIPMENT, at cost
Land and improvements 73,297
Leasehold improvements 1,510,529
Equipment 387,161
Furniture and fixtures 277,549
----------
2,248,536
Less accumulated depreciation 938,684
----------
NET PROPERTY AND EQUIPMENT 1,309,852
----------
OTHER ASSETS
Deferred income taxes 135,256
Goodwill, net of amortization 22,260
Deposits and other 63,816
Investment 114,800
----------
TOTAL OTHER ASSETS 336,132
----------
TOTAL ASSETS $3,265,571
==========
See accompanying notes to consolidated condensed financial statements.
<PAGE>
WESTERN COUNTRY CLUBS, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
(UNAUDITED)
March 31, 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 300,478
Accrued expenses 295,894
Current portion of notes payable - related parties 100,836
Current portion of long-term debt 104,725
----------
TOTAL CURRENT LIABILITIES 801,933
NOTES PAYABLE - RELATED PARTIES,
less current portion 143,364
LONG-TERM DEBT, less current portion 25,290
----------
TOTAL LIABILITIES 970,587
MINORITY INTERESTS 168,709
----------
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) 560,000
Additional paid-in capital 4,363,739
Retained earnings (deficit) (2,834,811)
----------
TOTAL STOCKHOLDERS' EQUITY 2,126,275
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,265,571
==========
See accompanying consolidated condensed notes to financial statements.
<PAGE>
WESTERN COUNTRY CLUBS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
For the Three Months Ended March 31, 1998 and 1997
1998 1997
---------- ----------
REVENUES
Beverage and food sales $ 828,182 $1,476,812
Admission fees 341,490 537,984
Other revenue 92,378 90,089
Sale of partnership interest (Note 3) 220,000 -
Sale of fixed assets (Note 3) 64,861 -
---------- ----------
TOTAL REVENUES 1,546,911 2,104,885
---------- ----------
COSTS AND EXPENSES
Cost of products and services 284,609 773,167
Depreciation and amortization 67,448 116,475
Interest 13,019 29,651
General and administrative expenses 782,312 1,254,452
---------- ----------
TOTAL COSTS AND EXPENSES 1,147,388 2,173,745
---------- ----------
INCOME (LOSS) BEFORE TAXES AND
MINORITY INTERESTS 399,523 (68,860)
PROVISION FOR INCOME TAXES 49,670 -
---------- ----------
INCOME (LOSS) BEFORE MINORITY INTERESTS 349,853 (68,860)
MINORITY INTERESTS IN NET (INCOME) LOSS
OF CONSOLIDATED SUBSIDIARIES (24,813) 13,184
---------- ----------
NET INCOME (LOSS) $ 325,040 $ (82,044)
========== ==========
BASIC EARNINGS (LOSS) PER SHARE $ 0.085 $ (0.023)
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 3,680,277 3,587,525
========== ==========
DILUTED EARNINGS PER SHARE $ 0.077 $ *
========== ==========
WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING 4,197,239 *
========== ==========
*Antidilutive
See accompanying notes to consolidated condensed financial statements.
<PAGE>
WESTERN COUNTRY CLUBS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
For the Three Months Ended March 31, 1998 and 1997
Additional Retained Total
Common Stock Preferred 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 for
investment 114,800 1,148 - 113,652 - 114,800
Net loss for
the three
months ended
March 31,
1997 - - - - (82,044) (82,044)
--------- ------- -------- ---------- ----------- ----------
Balance,
March 31,
1997 3,634,721 $36,347 $ - $4,314,739 $(2,241,895) $2,109,191
========= ======= ======== ========== =========== ==========
Balance,
December 31,
1997 3,634,721 $36,347 $ - $4,314,739 $(3,147,227) $1,203,859
Preferred
stock (Note 2) - - 560,000 - - 560,000
Common stock
issued for
investment
(Note 4) 100,000 1,000 - 49,000 - 50,000
Preferred
stock dividends - - - - (12,624) (12,624)
Net income for
the three months
ended March 31,
1998 - - - - 325,040 325,040
--------- ------- --------- ---------- ----------- ----------
Balance,
March 31,
1998 3,734,721 $37,347 $560,000 $4,363,739 $(2,834,811) $2,126,275
========= ======= ======== ========== =========== ==========
See accompanying notes to consolidated condensed financial statements.
<PAGE>
WESTERN COUNTRY CLUBS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Three Months Ended March 31, 1998 and 1997
1998 1997
----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 325,040 $ (82,044)
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating
activities
Depreciation and amortization 67,068 116,475
Minority interests in earnings of subsidiaries 24,813 13,184
Gain on sale of partnership interest (220,000) -
Gain on sale of fixed assets (64,861) -
Deferred tax provision 49,670 -
Changes in assets and liabilities
Increase in accounts receivable (7,356) (10,345)
Decrease in inventories 4,689 15,057
Increase in prepaid expenses (27,606) (27,377)
Decrease (increase) in refundable income taxes - 3,088
Increase in capitalized offering costs - (66,134)
Decrease in accounts payable (65,993) (77,812)
Increase in accrued expenses 36,060 18,691
----------- -----------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES 121,524 (97,217)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Notes receivable (5,786) -
Receipts on notes receivable 38,820 -
Loans to related parties (28,465) -
Sale of certificate of deposit - 200,000
Acquisition of property and equipment (1,349) (12,351)
(Increase) decrease in deposits and other assets 10,162 (16,318)
----------- -----------
NET CASH PROVIDED BY INVESTING ACTIVITIES 13,382 171,331
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of notes payable,
related parties 75,000 140,000
Preferred stock dividends paid (12,624) -
Partnership distributions to minority interests (3,750) (2,500)
Payments on notes payable - (200,000)
Payments on notes payable, related parties (81,519) (27,714)
Payments on long-term debt (26,278) (20,372)
----------- -----------
NET CASH USED BY FINANCING ACTIVITIES (49,171) (110,586)
----------- -----------
NET INCREASE (DECREASE) IN CASH (Note 5) 85,735 (36,472)
----------- -----------
CASH AT BEGINNING OF PERIOD 85,949 190,624
----------- -----------
CASH AT END OF PERIOD $ 171,684 $ 154,152
=========== ===========
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 March 31, 1998 and the results
of operations and cash flows for the quarters ended March 31, 1998 and
March 31, 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
quarters ended March 31, 1998 and March 31, 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.
The amount of interest paid during the three months ended March 31, 1998
and 1997 was $39,758 and $46,630, respectively.
<PAGE>
WESTERN COUNTRY CLUBS, INC.
Part I
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 been had and none are anticipated.
The Company is continuing to seek opportunities for expansion of its
concept, as well as seeking potential vehicles for development of a
restaurant concept. The Company intends to explore other club and
restaurant opportunities in the future, for either acquisitions or
development of a concept. There is no assurance, however, that the Company
will be able to find suitable clubs or restaurants through which to expand.
Management believes, however, that such opportunities exist and that the
Company will be able to obtain a viable restaurant concept through which to
expand. Management also believes that the Company will be able to locate
suitable clubs for acquisition and suitable locations for expansion of its
club business.
Liquidity and Capital Resources
Historically, the Company has funded its capital needs through a
combination of cash flows from operations, proceeds from public and private
securities issuances, and loans from commercial banks, principal
shareholders or related persons or entities. During the first quarter
1998, the Company acquired $75,000 of additional funds through borrowings
to enhance its working capital. Uses of cash included repayment of notes
payable of $107,797 ($81,519 to related parties on notes outstanding, and
$26,278 on the Company's long-term debt), $12,624 in dividend payments on
the Company's preferred stock, and $3,750 in partnership distributions to
minority interests.
During the first quarter of 1998, two note holders converted their
notes amounting to $560,000 due from the Company into new issues of preferred
stock. Mr. Lowrie received 40,000 shares of Series A 10% Cumulative
Convertible Preferred Stock in exchange for the Company's note and accrued
interest of $400,000 owing at December 31, 1997. Ceres, L.L.C., an Oklahoma
limited liability company, exchanged its $160,000 note for 16,000 shares of
Series B 12% Cumulative Convertible Preferred Stock. Subsequently, both
issues of preferred stock were amended to eliminate the redemption feature
initially provided for by the terms of said preferred stock.
As of March 31, 1998, the Company had cash of $171,684, which was
generated from operating activities, financing activities and equity
participation. This amount represented a 100% increase from cash at the end
of 1997, due primarily to $121,524 from operations compared to a negative
cash flow from operations for the same quarter in 1997 of $97,217. This
increase of $218,741 in cash flow from operations is primarily due to income
from operations of $325,040 compared to a loss from operations during the
first quarter of 1997 of $28,044, as well as a reduction in depreciation
expenses due to the closing of two stores during 1997.
At March 31, 1998, the Company's working capital position (current
assets minus current liabilities) was $817,654, compared with a negative
$833,348 at the end of 1997, and a negative $817,654 at March 31, 1997. This
increase in working capital position is primarily due to the conversion of
two notes totaling $560,000 owed by the Company into preferred stock, an
increase in notes receivable of $916,927 due to the sale of the
Indianapolis club and the sale of the Atlanta partnership interest for cash
and notes. Management believes the positive working capital position is a
strong indicator that the Company is making progress operationally and is
indicative that the Company has cleaned up some of its previously existing
problems.
Property and equipment primarily consists of assets required to open
and operate the St. Louis and Wichita Clubs. Leasehold improvements
total $1,510,529; equipment, furniture and fixtures are $664,710; and land
and improvements total $73,297.
The deferred income tax asset of $367,740 at March 31, 1998, is down
from the 1997 year-end amount of $417,410 because of the income tax expense
attributed to the Company's net income for the first quarter 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 quarter of 1998 increase the likelihood that this
asset will be fully realized. The amount of the deferred income tax asset
at March 31, 1998 is net of $520,232 reserved as a deferred income tax
valuation allowance, due to the uncertainty of the Company being
able to realize the benefit from such losses in future periods. However,
management expects to receive the benefit from the amount reserved in
future periods.
The Company's total liabilities decreased by $1,216,049 during the
first quarter of 1998 to $970,587 at quarter end. The decrease resulted from
the conversion of $560,000 in notes to preferred stock, reduction of $234,056
in accrued expenses, reduction of accounts payable of $65,993 and reduction
in other notes payable of $356,000. Long-term debt decreased by $411,794
during the quarter due to the sale of the Indianapolis unit.
Based upon the results of the first quarter of 1998, the Company's
management is comfortable that the existing operations can adequately support
the Company's debt and provide some financial support for future endeavors.
Results of Operations - Quarter Ended March 31, 1998, Compared to the
Quarter Ended March 31, 1997
For the period ended March 31, 1998, total revenues of the Company
decreased by $557,974 or 26.5% compared to the first quarter of 1997. This
decline in revenues was primarily due to the closing of the Tucson and
Indianapolis stores, both of which were open during the first quarter of
1997. Other operating items of income were likewise reduced as a result of
the two closed units, including beverage and food sales, off by $648,630
and admission fees, off by $196,494.
Total costs and expenses for the quarter were also substantially less
as a result of the two closing, reduced by $1,026,357 or 47% from the same
period a year ago. Cost of products and services were reduced by $488,558 to
$284,609 compared to $773,167 during the first quarter of 1997.
Depreciation and amortization were off by $49,027, interest expenses was
reduced by $16,632 to $13,019 for the quarter, and general and
administrative expenses dropped by $472,140 to $782,312. Virtually all of
these reductions in expenses was a direct result of the closings of the
Tucson and Indianapolis units.
The Company operated two clubs during the first quarter of 1998: the
St. Louis Club and the Wichita Club. The St. Louis Club had sales of
$775,960 for the quarter compared to sales of $721,867 for the same period
a year ago, or an increase of 6.9%. Management believes this increase is
due to the policies and procedures that management has installed in the clubs
since the change of control of the Company at the end of 1996, as well as
more effective marketing strategies and stabilization of the in-club
management and other personnel.
The Wichita Club had revenues during the quarter of $458,357 compared
to $526,694 for the same period in 1997, or a decrease of 12.9%. Management
believes this decline is due to the need for remodeling at the Wichita
Club, as well as reflecting a reduced amount of marketing during the
quarter as the Club used its available cash flow to settle the Jana Oelkers
lawsuit and judgment. However, the two clubs had an operating profit
during the quarter of $58,503 at Wichita and $159,881 at St. Louis.
The Company recognized additional income during the quarter by virtue
of selling its interest in a limited partnership for $220,000 consisting of
$10,000 cash and a note for $210,000. The entire amount was recognized as
a gain since the investment had been previously written off. The Company
also recognized a gain of $64,861 on the sale of its Indy Club. These
transactions, after reflecting a provision for income taxes, resulted in a
gain for the quarter of $325,040 compared to a loss of $82,044 for the same
period in 1997. Management believes that the strong operating performance
of the two clubs during the quarter will continue throughout the year, and
enable the Company to continue to increase its stockholders' equity. The
Company's management also believes that it will be able to further expand
its concept on a profitable basis, though with a more careful and more
conservative approach than previous management utilized.
Part II
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.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
11. Statement Re: Computation of Per Share Earnings
27. Financial Data Schedule
(b) During the quarter ended March 31, 1998, the Company
filed one Report on Form 8-K on February 26, 1998,
reporting the following by Item number:
Item 2: Disposition of Assets:
Sale of Atlanta Partnership Interest
Sale of Indianapolis Partnership Interest
Item 5: Other Events
Wichita Club Lawsuit Judgment Settlement
Conversion of Debt into Preferred Stock
Item 7: Financial Staements and Exhibits
Pro Forma Consolidated Balance Sheet as of
December 31, 1997
Pro Forma Consoildated Statement of Income
for the Year Ended December 31, 1997
<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.
May 20, 1998 Western Country Clubs, Inc.
By: /s/ James E. Blacketer
James E. Blacketer
President and Chief Financial Officer
<PAGE>
EXHIBIT 11
WESTERN COUNTRY CLUBS, INC.
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
Quarter Ended Quarter Ended
March 31, 1998 March 31, 1997
-------------- --------------
BASIC EARNINGS PER SHARE
Net income $ 325,040 $ (82,044)
Dividends on preferred stock (12,624) -
---------- ----------
Net income (loss) applicable to common stock $ 312,416 $ (82,044)
========== ==========
Shares used in computing basic earnings per
share 3,680,277 3,587,525
========== ==========
Basic earnings per common share $ 0.085 $ (0.023)
========== ==========
DILUTED EARNINGS PER SHARE
Net income (loss) $ 325,040 $ (82,044)
========== ==========
Shares used in computing basic earnings
per share 3,680,277 3,587,525
Effect of shares issuable under common
stock warrants using Treasury stock method 7,407 *
Effect of shares issuable under stock
options using Treasury stock method 36,667 *
Effect of shares issuable under conversion
of preferred stock 472,889 *
---------- ----------
Shares used in computing diluted earnings
per share 4,197,239 *
========== ==========
Diluted earnings per common share $ 0.077 $ *
========== ==========
* Antidilutive
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Mar-31-1998
<CASH> 171,684
<SECURITIES> 0
<RECEIVABLES> 48,069
<ALLOWANCES> 0
<INVENTORY> 50,208
<CURRENT-ASSETS> 1,619,587
<PP&E> 2,248,536
<DEPRECIATION> 938,684
<TOTAL-ASSETS> 3,265,571
<CURRENT-LIABILITIES> 801,933
<BONDS> 0
<COMMON> 37,347
0
560,000
<OTHER-SE> 1,528,928
<TOTAL-LIABILITY-AND-EQUITY> 3,265,571
<SALES> 828,182
<TOTAL-REVENUES> 1,546,911
<CGS> 284,609
<TOTAL-COSTS> 1,147,388
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<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,019
<INCOME-PRETAX> 399,523
<INCOME-TAX> 49,670
<INCOME-CONTINUING> 325,040
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 325,040
<EPS-PRIMARY> .085
<EPS-DILUTED> .077
</TABLE>
