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 June 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Shares of Common Stock, $.01 par value,
outstanding as of August 14, 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 - June 30, 1998
Consolidated Condensed Statements of Income -
For the Three Months and Six Months Ended June 30, 1998
and 1997
Consolidated Condensed Statements of Stockholders' Equity -
For the Six Months Ended June 30, 1998 and 1997
Consolidated Condensed Statements of Cash Flows -
For the Six Months Ended June 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 2 Exhibits and Reports on Form 8-K
<PAGE>
PART 1 - Item 1
Financial Statements
WESTERN COUNTRY CLUBS, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
(UNAUDITED)
JUNE 30, 1998
ASSETS
CURRENT ASSETS
Cash $ 151,092
Accounts receivable 23,094
Accounts receivable from related parties 15,103
Notes and loans receivable 387,016
Notes receivable from related parties 703,340
Inventories 49,933
Prepaid expenses 37,393
Deferred income taxes 232,484
----------
TOTAL CURRENT ASSETS 1,599,455
----------
PROPERTY AND EQUIPMENT, at cost
Land and improvements 77,010
Leasehold improvements 1,510,529
Equipment 387,161
Furniture and fixtures 279,838
----------
2,254,538
Less accumulated depreciation 1,001,827
----------
NET PROPERTY AND EQUIPMENT 1,252,711
----------
OTHER ASSETS
Deferred income taxes 135,256
Goodwill, net of amortization 18,550
Deposits and other 84,541
Investment 114,800
----------
TOTAL OTHER ASSETS 353,147
----------
TOTAL ASSETS $3,205,313
==========
See accompanying notes to consolidated condensed financial statements.
<PAGE>
WESTERN COUNTRY CLUBS, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
(UNAUDITED)
JUNE 30, 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 312,177
Accrued expenses 271,310
Current portion of notes payable - related parties 127,557
Current portion of long-term debt 94,189
----------
TOTAL CURRENT LIABILITIES 805,233
NOTES PAYABLE - RELATED PARTIES, less current portion 93,845
LONG-TERM DEBT, less current portion 2,000
----------
TOTAL LIABILITIES 901,078
MINORITY INTERESTS 169,657
----------
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) (2,826,508)
----------
TOTAL STOCKHOLDERS' EQUITY 2,134,578
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,205,313
==========
See accompanying notes to consolidated condensed financial statements.
<PAGE>
WESTERN COUNTRY CLUBS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
REVENUES
Beverage and food sales $ 731,983 $1,098,948 $1,560,165 $2,575,760
Admission fees 307,095 672,198 648,585 1,340,271
Other revenues 105,698 -- 198,076 --
Sale of partnership interest
(Note 3) -- -- 220,000 --
Sale of fixed assets (Note 3) -- 261,800 64,861 261,800
---------- ---------- ---------- ----------
TOTAL REVENUES 1,144,776 2,032,946 2,691,687 4,177,831
---------- ---------- ---------- ----------
COSTS AND EXPENSES
Cost of products and services 270,246 798,696 554,855 1,571,863
Depreciation and amortization 67,687 116,917 135,135 233,392
Interest 8,105 39,069 21,124 68,720
General and administrative
expenses 772,410 1,095,809 1,554,722 2,390,261
---------- ---------- ---------- ----------
TOTAL COSTS AND EXPENSES 1,118,448 2,050,491 2,265,836 4,264,236
INCOME (LOSS) BEFORE TAXES AND
MINORITY INTERESTS 26,328 (17,545) 425,851 (86,405)
PROVISION FOR INCOME TAXES -- -- 49,670 --
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE MINORITY
INTERESTS 26,328 (17,545) 376,181 (86,405)
MINORITY INTERESTS IN NET
(INCOME) LOSS OF
CONSOLIDATED SUBSIDIARIES (3,449) 8,162 (28,262) (5,022)
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ 22,879 $ (9,383) $ 347,919 $ (91,427)
========== ========== ========== ==========
EARNINGS (LOSS) PER SHARE * * $ .09 $ (.03)
========== ========== ========== ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING 3,734,721 3,634,721 3,707,649 3,611,254
========== ========== ========== ==========
EARNINGS (LOSS) PER SHARE
ASSUMING DILUTION * * $ .08 $ (.03)
========== ========== ========== ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING - ASSUMING
DILUTION 4,338,795 3,634,721 4,268,408 3,611,254
========== ========== ========== ==========
*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 Six Months Ended June 30, 1998 and 1997
Pre- Additional Retained Total
Common Stock 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 for
investment 114,800 1,148 -- 113,652 -- 114,800
Net loss for
the six months
ended June 30,
1997 -- -- -- -- (91,427) (91,427)
--------- ------- -------- ---------- ----------- ----------
Balance,
June 30,
1997 3,634,721 $36,347 $ -- $4,314,739 $(2,251,278) $2,099,808
========= ======= ======== ========== =========== ==========
Balance,
December 31,
1997 3,634,721 $36,347 $ -- $4,314,739 $(3,147,227) $1,203,859
Preferred
stock -- -- 560,000 -- -- 560,000
Common stock
issued for
investment 100,000 1,000 -- 49,000 -- 50,000
Preferred stock
dividends -- -- -- -- (27,200) (27,200)
Net income
for the
six months
ended June 30,
1998 -- -- -- -- 347,919 347,919
--------- ------- -------- ---------- ----------- -----------
Balance,
June 30,
1998 3,734,721 $37,347 $560,000 $4,363,739 $(2,826,508) $(2,134,578)
========= ======= ======== ========== =========== ===========
See accompanying notes to consolidated condensed financial statements.
<PAGE>
WESTERN COUNTRY CLUBS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six Months Ended June 30, 1998 and 1997
1998 1997
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $347,919 $(91,427)
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Depreciation and amortization 135,135 233,392
Minority interest in earnings of subsidiaries 28,262 5,022
Gain on sales of assets (284,861) (261,800)
Deferred tax provision 49,670 --
Changes in assets and liabilities, net of
effects of sales of assets
(Increase) decrease in account receivables 2,516 (3,706)
Decrease in inventories 4,964 13,670
Increase in prepaid expenses (6,070) (33,613)
Decrease in income taxes receivable -- 7,269
Increase in capitalized offering costs -- (160,117)
Increase in deposits and other (14,577) (5,818)
Increase (decrease) in accounts payable (55,229) 46,225
Decrease in accrued expenses (21,467) (46,075)
-------- --------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 186,262 (296,978)
-------- --------
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 26,245 9,392
Advances on notes receivable (87,626) (3,000)
Purchase of property and equipment (7,351) (13,571)
-------- --------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (58,732) 292,821
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable (123,187) (321,334)
Proceeds from issuance of notes payable 88,000 190,000
Dividends paid on preferred stock (27,200) --
Partnership distributions to minority interests -- (5,000)
-------- --------
NET CASH USED BY FINANCING ACTIVITIES (62,387) (136,334)
-------- --------
NET INCREASE (DECREASE) IN CASH 65,143 (140,491)
CASH AT BEGINNING OF PERIOD 85,949 190,624
-------- --------
CASH AT END OF PERIOD $151,092 $ 50,133
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid during the period $ 8,030 $ 71,102
======== ========
Income taxes 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 June 30, 1998, the results
of operations for the three months and six months ended June 30, 1998 and
June 30, 1997, and cash flows for the six months ended June 30, 1998 and
June 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 six months ended
June 30, 1998 and June 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 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.
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 parties anticipate entering into a formal contract in the near
future and are continuing due diligence and further discussions.
Liquidity and Capital Resources
For the six months ended June 30, 1998, cash increased by $65,143
and is primarily due to increased income from operations during 1998 compared
to a loss from operations during the first six months of 1997. The
improvement was partially due to the closing of two nonprofitable clubs in
1997.
At June 30, 1998, the Company's working capital position (current
assets minus current liabilities) was $794,222, down slightly from the
Company's working capital at March 31, 1998 of $817,654, and increased
substantially from a negative $944,846 working capital position at the
end of 1997. The increase in working capital from year end is primarily
due 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 the sale of the Atlanta partnership interest for cash and notes.
The slight decrease in working capital of $23,432 from the first quarter
of 1998 is due primarily to a slight decrease in cash and to a slight
increase in accounts payable. Management believes the continued positive
working capital 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 $1,510,529; equipment, furniture and fixtures total $666,999; and land
and improvements total $77,010.
The deferred income tax asset of $367,740 at June 30, 1998, is
reduced 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 half 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 six months of 1998 increase the likelihood that this
asset will be fully realized. The amount of the deferred income tax asset
at June 30, 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 $1,285,558 from
year-end 1997, and decreased by $69,509 since March 31, 1998. These
decreases resulted primarily from the conversion of Company notes to
preferred stock, reduction in accrued expenses, accounts payable, and
other notes payable during the first half of 1998. Long-term debt
decreased by $435,084 since year end and decreased by $23,290 since
March 31, 1998, due almost totally to the sale of the Indianapolis unit.
Based upon the results of the first six months of 1998, 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 June 30, 1998, Compared to the
Quarter Ended June 30, 1997
For the quarter ended June 30, 1998, total revenues of the Company
decreased by $888,170 or 43.7% compared to the quarter ended June 30,
1997. This decline in revenues was primarily due to the closing of the Tucson
and Indianapolis units, both of which were open during the same period a
year ago. Beverage and food sales were off by $366,965 and admission
fees were off by $365,103, also as a result of the two closed units.
Total costs and expenses for the quarter, also substantially less
as a result of the two closings, were reduced by $932,043 or 45.5% from the
same period a year ago. This decrease in costs and expenses consists of a
reduction in cost of products and services in the amount of $528,450 to
$270,246; depreciation and amortization were reduced to $67,687 compared to
$116,917 during the second quarter of 1997; interest expense decreased to
$8,105 from $39,069; and general and administrative expenses were reduced to
$772,410 from $1,095,809 during the second quarter of 1997. Almost all
of the these expense reductions were a direct result of the closings of
the Tucson and Indianapolis units.
The Company operated two clubs during the second quarter of 1998: the
St. Louis Club and the Wichita Club. The St. Louis Club had total revenues
for the quarter of $702,298 compared with $706,305 for the same quarter
in 1997, while the Wichita Club has revenues during the quarter of $411,615
compared to $468,850 during the same quarter in 1997. The revenues at both
units represent the seasonal sluggishness of revenues during the summer
months, while the decrease in revenues at Wichita is also due to the
continuing need for remodeling and a reduced amount of marketing during the
quarter.
The Company had no extraordinary items of income or expense
during the second quarter of 1998. Management believes that the operating
performance of the two remaining clubs has been strong in 1998 and such
profitable performance is expected to continue during the third and
fourth quarters of 1998, thus enabling 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.
For the quarter ended June 30, 1998, the Company earned net
income of $22,879 compared to a loss of $9,383 for the quarter ended
June 30, 1997. The increase in earnings from the 1997 period of $32,262
reflects the improved operations at the Company's two clubs and also the
fact that the 1997 period included the since-closed Indianapolis Club.
Management believes that the results during the second quarter of 1998
generally reflect the seasonal club business which is typically slow
during the summer months. Management does believe that its two clubs
are performing well and expects increased profitability during the final
two quarters of 1998.
Results of Operations - Six Months Ended June 30, 1998 Compared to the
Six Months Ended June 30, 1997.
For the six months ended June 30, 1998, total revenues decreased
by $1,486,144 or 35.6% compared to the same period in 1997. This
decrease reflects the impact of having closed the Tucson and
Indianapolis units during 1997, and thus the 1998 revenues reflect only
the revenues from the St. Louis and Wichita units.
Total costs and expenses for the first half of 1998 were
$1,998,400 or 46.8% less than the same period during 1997, reflecting
the effect of the closing of the two units during 1997. Every cost and
expense item was reduced dramatically during the first half of 1998,
reflecting the reduced cost of operating only two clubs instead of four
clubs. In addition, the Company's general and administrative expenses
were reduced by $835,539 during the period to $1,554,722 compared with a
total general and administrative expense during the same period of 1997
of $2,390,261. This reduction is a result of management's ability to
reduce its general and administrative expense in light of the reduced
number of units open, and management's overall cost reduction program
put into effect when it took over the Company in late 1996.
During the first six months of 1998, the Company earned $347,919
compared to a loss of $91,427 during the same period of 1997. This
earnings improvement reflects the gain on the sale of the Atlanta
partnership interest as well as improved operations at the St. Louis and
Indianapolis clubs. It also reflects the closing of the Tucson and
Indianapolis clubs during 1997. Management believes that this trend
toward improvement and increased earnings will continue during the rest
of 1998.
<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.
August 14, 1998 Western Country Clubs, Inc.
By: /s/ James E. Blacketer
James E. Blacketer
President and Chief Financial Officer
<PAGE>
PART II - Item 2
Exhibits and Reports on Form 8-K
WESTERN COUNTRY CLUBS, INC.
COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
Three Months Ended Six Months Ended
June 30 June 30
1998 1997 1998 1997
---------- ------- ---------- ----------
BASIC EARNINGS PER SHARE
Net income $ 22,879 ($9,383) $ 347,919 $ (91,427)
Dividends on preferred stock (14,576) -- (27,200) --
---------- ------ ---------- ----------
Net income (loss) applicable to
common stock $ 8,303 ($9,383) $ 320,719 $ (91,427)
========== ======= ========== =========
Shares used in computing basic
earnings per share 3,734,721 3,634,721 3,707,649 3,611,254
Basic earnings per common share Nil Nil $ 0.09 $ (0.03)
========= ========= ========== =========
DILUTED EARNINGS PER SHARE
Net income (loss) $ 22,879 ($9,383) $ 347,919 $ (91,427)
========= ======= ========== =========
Shares used in computing
basic earnings per share 3,734,721 3,634,721 3,707,649 3,611,254
Effect of shares issuable
under common stock warrants
using Treasury stock
method 7,407 * 7,407 *
Effect of shares issuable
under stock options using
treasury stock method 36,667 * 36,667 *
Effect of shares issuable
under conversion of
preferred stock 560,000 * 516,685 *
Shares used in computing
diluted earnings per share 4,338,795 3,634,721 4,268,408 3,611,254
Diluted earnings per
common share Nil Nil $ 0.08 $ (0.03)
Nil - less than $.01
*Antidilutive
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<ARTICLE> 5
<MULTIPLIER> 1
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Apr-01-1998
<PERIOD-END> Jun-30-1998
<CASH> 151,092
<SECURITIES> 0
<RECEIVABLES> 38,197
<ALLOWANCES> 0
<INVENTORY> 49,933
<CURRENT-ASSETS> 1,599,455
<PP&E> 2,254,538
<DEPRECIATION> 1,001,827
<TOTAL-ASSETS> 3,205,313
<CURRENT-LIABILITIES> 805,233
<BONDS> 0
<COMMON> 37,347
0
560,000
<OTHER-SE> 1,537,231
<TOTAL-LIABILITY-AND-EQUITY> 3,205,313
<SALES> 1,039,078
<TOTAL-REVENUES> 1,144,776
<CGS> 270,246
<TOTAL-COSTS> 1,118,448
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,105
<INCOME-PRETAX> 22,879
<INCOME-TAX> 0
<INCOME-CONTINUING> 22,879
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,879
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
