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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Vcg Holding Corp | AMEX:PTT | AMEX | Ordinary Share |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 0.00 | - |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: September 30, 2007
o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT
For The Transition Period from to .
Commission file number: 001-32208
(Name of small business issuer in its charter)
Colorado |
84-1157022 |
(State or other jurisdiction of |
(I.R.S. Employer |
incorporation or organization) |
Identification No.) |
390 Union Blvd., Suite 540, Lakewood, Colorado 80228
(Address of principal executive offices, including zip code)
(303) 934-2424
(Issuers telephone number)
Check whether the issuer (1) filed all reports to be filed by Section 13 or 15(d) of the Exchange Act 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 the past 90 days. Yes x No o
Applicable only to corporate issuers:
State the number of shares outstanding of each of the issuers classes of common equity, as of the latest practicable date:
As of September 30, 2007, there were 16,890,653 shares of the issuers common stock, $.0001 par value, outstanding.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes o No x
Transitional Small Business Disclosure Format (check one): Yes o No x
TABLE OF CONTENTS
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PART I - FINANCIAL INFORMATION |
3 |
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3 |
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Consolidated Balance Sheets at December 31, 2006 and September 30, 2007 |
3 |
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Consolidated Statements of Stockholders Equity for the Nine Months Ended, September 30, 2007 |
5 |
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6 |
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7 |
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Managements Discussion and Analysis of Financial Condition And Results of Operations |
12 |
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20 |
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PART II - OTHER INFORMATION |
21 |
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21 |
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21 |
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2
PART I- FINANCIAL INFORMATION
VCG Holding Corp.
Unaudited
|
|
December 31, |
|
September 30, |
|
||
|
|
2006 |
|
2007 |
|
||
Assets |
|
|
|
|
|
||
Current Assets |
|
|
|
|
|
||
Cash & cash equivalents |
|
$ |
2,011,178 |
|
$ |
2,731,437 |
|
Investments |
|
259,652 |
|
308,834 |
|
||
Other receivables |
|
250,458 |
|
461,382 |
|
||
Inventories |
|
450,784 |
|
662,652 |
|
||
Prepaid expenses |
|
274,325 |
|
274,049 |
|
||
Income taxes receivable |
|
272,244 |
|
272,244 |
|
||
Total Current Assets |
|
3,518,641 |
|
4,710,598 |
|
||
Property, Plant and Equipment |
|
|
|
|
|
||
Property, plant and equipment |
|
14,032,998 |
|
31,153,242 |
|
||
Less accumulated depreciation |
|
2,007,371 |
|
(7,034,055 |
) |
||
Net property, plant and equipment |
|
12,025,627 |
|
24,119,187 |
|
||
Other Assets |
|
|
|
|
|
||
Other receivables long-term |
|
78,205 |
|
|
|
||
Deposits |
|
961,129 |
|
1,487,355 |
|
||
License costs |
|
15,169,928 |
|
2,392,675 |
|
||
Loan fees, net |
|
126,944 |
|
106,105 |
|
||
Goodwill |
|
75,628 |
|
50,300,198 |
|
||
Plans and drawings |
|
2,591,068 |
|
75,628 |
|
||
Deferred offering costs |
|
32,528 |
|
37,011 |
|
||
Covenant not to compete |
|
|
|
10,000 |
|
||
Total Other Assets |
|
19,535,430 |
|
54,408,972 |
|
||
Total Assets |
|
$ |
35,079,698 |
|
$ |
83,238,757 |
|
Liabilities and Stockholders Equity |
|
|
|
|
|
||
Current Liabilities |
|
|
|
|
|
||
Accounts payable trade |
|
$ |
566,707 |
|
$ |
628,089 |
|
Accrued expenses |
|
414,209 |
|
1,085,448 |
|
||
Deferred revenue |
|
41,226 |
|
162,662 |
|
||
Current portion of capitalized lease |
|
949,664 |
|
|
|
||
Current portion of long-term debt |
|
1,811,533 |
|
11,259,552 |
|
||
Total current liabilities |
|
3,783,339 |
|
13,135,751 |
|
||
Long-term Debt |
|
|
|
|
|
||
Deferred income taxes |
|
200,000 |
|
656,000 |
|
||
Liabilities to be disposed of |
|
99,144 |
|
|
|
||
Capitalized lease |
|
28,455 |
|
|
|
||
Long-term debt |
|
17,202,105 |
|
19,876,557 |
|
||
Total long-term debt |
|
17,529,704 |
|
20,532,557 |
|
||
Minority Interest Liability |
|
646,032 |
|
4,635,178 |
|
||
Redeemable Preferred Stock |
|
|
|
|
|
||
Preferred stock $.0001 par value; 1,000,000 shares authorized; 32,500 (2006) and -0- (2007) issued and outstanding |
|
325,000 |
|
|
|
||
Stockholders Equity |
|
|
|
|
|
||
Common stock $.0001 par value; 50,000,000 shares authorized; 12,165,441 (2006) and 16,890,653 (2007) shares issued and outstanding Common Stock |
|
1,265 |
|
1,693 |
|
||
Paid-in capital |
|
15,235,465 |
|
41,741,405 |
|
||
Treasury stock |
|
|
|
(257,732 |
) |
||
Retained earnings |
|
(2,441,107 |
) |
3,449,905 |
|
||
Total stockholders equity |
|
12,795,623 |
|
44,935,271 |
|
||
Total Liabilities and Stockholders Equity |
|
$ |
35,079,698 |
|
$ |
83,238,757 |
|
The accompanying notes are an integral part of the financial statements
3
VCG Holding Corp.
Consolidated Statements of Income
Unaudited
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||
|
|
September 30, |
|
||||||
|
|
2006 |
|
2007 |
|
2006 |
|
2007 |
|
Revenues |
|
|
|
|
|
|
|
|
|
Sales of alcoholic beverages |
|
1,885,517 |
|
5,350,924 |
|
5,671,405 |
|
13,197,154 |
|
Sales of food and merchandise |
|
222,752 |
|
645,183 |
|
781,749 |
|
1,536,961 |
|
Service revenue |
|
1,006,506 |
|
4,251,364 |
|
2,942,246 |
|
9,402,356 |
|
Management fees and other income |
|
1,026,215 |
|
651,916 |
|
3,258,424 |
|
2,667,288 |
|
Total revenue |
|
4,140,990 |
|
10,899,387 |
|
12,653,824 |
|
26,803,759 |
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
584,716 |
|
1,438,290 |
|
1,888,801 |
|
3,612,060 |
|
Salaries and wages |
|
1,200,900 |
|
2,091,462 |
|
3,703,059 |
|
5,586,606 |
|
Other general and administrative |
|
|
|
|
|
|
|
|
|
Taxes and permits |
|
98,504 |
|
430,582 |
|
306,284 |
|
1,025,091 |
|
Charge card and bank fees |
|
62,399 |
|
146,461 |
|
186,219 |
|
308,162 |
|
Rent |
|
160,974 |
|
1,061,935 |
|
608,887 |
|
2,577,105 |
|
Legal and professional |
|
42,666 |
|
102,213 |
|
205,080 |
|
475,176 |
|
Advertising and marketing |
|
124,883 |
|
486,171 |
|
370,115 |
|
1,134,094 |
|
Other |
|
806,775 |
|
790,610 |
|
2,321,472 |
|
3,381,018 |
|
Depreciation & amortization |
|
214,440 |
|
339,889 |
|
646,373 |
|
845,653 |
|
Total operating expenses |
|
3,296,257 |
|
6,887,613 |
|
10,236,290 |
|
18,944,965 |
|
Income from operations |
|
844,733 |
|
4,011,774 |
|
2,417,534 |
|
7,858,794 |
|
Other income (expenses) |
|
|
|
|
|
|
|
|
|
Interest expense |
|
(354,594 |
) |
(707,758 |
) |
(1,035,693 |
) |
(1,826,444 |
) |
Interest income |
|
5,412 |
|
30,311 |
|
12,574 |
|
320,529 |
|
Unrealized gain (loss) on marketable securities |
|
(2,500 |
) |
(8,934 |
) |
2,200 |
|
|
|
Gain on sale of assets |
|
|
|
|
|
44,184 |
|
190,256 |
|
Total Other Income (Expenses) |
|
(351,682 |
) |
(686,381 |
) |
(976,735 |
) |
(1,315,659 |
) |
Income from continuing operations before income taxes |
|
493,051 |
|
3,325,393 |
|
1,440,799 |
|
6,543,135 |
|
Income tax expense current |
|
|
|
|
|
|
|
|
|
Income tax expense deferred |
|
|
|
(106,000 |
) |
|
|
(456,000 |
) |
Total income taxes |
|
|
|
(106,000 |
) |
|
|
(456,000 |
) |
Minority interest |
|
(39,879 |
) |
(80,584 |
) |
(84,859 |
) |
(173,400 |
) |
Net income from continuing operations |
|
453,172 |
|
3,138,809 |
|
1,355,940 |
|
5,913,735 |
|
Discontinued operations |
|
|
|
|
|
|
|
|
|
Loss from operations of discontinued operating segment |
|
|
|
(22,723 |
) |
|
|
(22,723 |
) |
Income tax |
|
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
|
|
(22,723 |
) |
|
|
(22,723 |
) |
Net Income |
|
453,172 |
|
3,116,086 |
|
1,355,940 |
|
5,891,012 |
|
Preferred stock dividends |
|
(204,733 |
) |
|
|
(651,988 |
) |
|
|
Net income (loss) applicable to common shareholders |
|
248,439 |
|
3,116,086 |
|
703,952 |
|
5,891,012 |
|
Earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
Basic income per common share |
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
0.05 |
|
0.19 |
|
0.16 |
|
0.44 |
|
(Loss) from discontinued operations |
|
|
|
|
|
|
|
|
|
Preferred stock dividend |
|
(0.02 |
) |
|
|
(0.08 |
) |
|
|
Net income applicable to common shareholders |
|
0.03 |
|
0.19 |
|
0.08 |
|
0.44 |
|
Fully diluted income per common share |
|
|
|
|
|
|
|
|
|
Net income from continuing operations |
|
0.05 |
|
0.19 |
|
0.16 |
|
0.44 |
|
(Loss) from discontinued operations |
|
|
|
|
|
|
|
|
|
Preferred stock dividend |
|
(0.02 |
) |
|
|
(0.08 |
) |
|
|
Net income applicable to common shareholder |
|
0.03 |
|
0.19 |
|
0.08 |
|
0.44 |
|
Weighted average shares outstanding |
|
8,800,243 |
|
16,970,404 |
|
8,714,497 |
|
13,357,204 |
|
Fully diluted weighted average shares outstanding |
|
8,800,243 |
|
16,976,747 |
|
8,714,497 |
|
13,359,318 |
|
The accompanying notes are an integral part of the financial statements
4
VCG Holding Corp.
Statement of Stockholders Equity
For the Nine Months Ended September 30, 2007
Unaudited
|
|
|
|
|
|
Additional
|
|
Treasury
|
|
Retained |
|
Total Stockholders Equity |
|
|
|
Common Stock |
|
|
(Deficit)
|
|
|
||||||
|
|
Shares |
|
Amount |
|
|
|
|
|||||
Balances, December 31, 2006 |
|
12,645,441 |
|
1,265 |
|
15,235,465 |
|
|
|
(2,441,107 |
) |
12,795,623 |
|
Sale of common stock for cash |
|
3,246,772 |
|
324 |
|
21,200,890 |
|
|
|
|
|
21,201,214 |
|
Conversation of preferred stock to common stock |
|
88,798 |
|
9 |
|
324,991 |
|
|
|
|
|
325,000 |
|
Offering costs |
|
|
|
|
|
(124,347 |
) |
|
|
|
|
(124,347 |
) |
Cashless warrants |
|
162,212 |
|
17 |
|
(17 |
) |
|
|
|
|
|
|
Common stock issued for General Partnership interest |
|
200,000 |
|
20 |
|
2,228,286 |
|
|
|
|
|
2,228,306 |
|
Common stock issued for limited partnership interest |
|
38,235 |
|
3 |
|
326,906 |
|
|
|
|
|
326,909 |
|
Common stock issued for common stock of Kentucky Restaurant Concepts, Inc. |
|
800,000 |
|
80 |
|
4,391,920 |
|
|
|
|
|
4,392,000 |
|
Cancel common stock for part payment on sale of Epicurean Enterprises, LLC |
|
(300,000 |
) |
(30 |
) |
(2,369,970 |
) |
|
|
|
|
(2,370,000 |
) |
Issue warrants for services |
|
|
|
|
|
61,372 |
|
|
|
|
|
61,372 |
|
Issue common stock for services |
|
49,195 |
|
5 |
|
465,909 |
|
|
|
|
|
465,914 |
|
Repurchase of common stock (Treasury Stock) |
|
(40,000 |
) |
|
|
|
|
(257,732 |
) |
|
|
(257,732 |
) |
Net income for the nine months ended, September 30, 2007 |
|
|
|
1,693 |
|
|
|
|
|
5,891,012 |
|
5,891,012 |
|
Balances, September 30, 2007 |
|
16,890,653 |
|
1,693 |
|
41,741,405 |
|
(257,732 |
) |
3,449,905 |
|
44,935,271 |
|
The accompanying notes are an integral part of the financial statements.
5
VCG Holding Corp.
Consolidated Statement of Cash Flow
For the Nine Months Ended September 30, 2007
Unaudited
|
|
September 30, |
|
|||||||
|
|
2006 |
|
2007 |
|
|||||
Net income |
|
$ |
1,355,940 |
|
$ |
5,891,012 |
|
|||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|||||
Stocks and warrants issued for services |
|
|
|
527,286 |
|
|||||
Depreciation and amortization |
|
799,982 |
|
845,643 |
|
|||||
(Increase) decrease in other receivables |
|
61,197 |
|
(210,924 |
) |
|||||
(Increase) decrease in inventory |
|
17,580 |
|
(211,868 |
) |
|||||
(Increase) decrease in prepaid expenses |
|
98,397 |
|
276 |
|
|||||
(Increase) decrease in other current assets |
|
|
|
|
|
|||||
(Gain) loss on disposition of assets |
|
(44,184 |
) |
(179,189 |
) |
|||||
Unrealized (gain) loss on marketable securities |
|
(2,200 |
) |
|
|
|||||
Increase (decrease) in trade accounts payable |
|
(100,574 |
) |
61,382 |
|
|||||
Increase (decrease) in deferred taxes payable |
|
|
|
456,000 |
|
|||||
Increase (decrease) in deferred revenue |
|
9,848 |
|
121,436 |
|
|||||
Increase (decrease) in accrued expenses |
|
(286,096 |
) |
572,095 |
|
|||||
Net cash provided by operating activities |
|
1,909,890 |
|
7,873,149 |
|
|||||
Investing Activities |
|
|
|
|
|
|||||
Investments |
|
10,299 |
|
(49,182 |
) |
|||||
Goodwill |
|
|
|
(27,683,055 |
) |
|||||
Purchases of equipment and leasehold improvements |
|
|
|
(15,330,014 |
) |
|||||
Costs of licenses |
|
|
|
198,393 |
|
|||||
Deposits |
|
(105,171 |
) |
(526,226 |
) |
|||||
Covenant not to compete |
|
|
|
(10,000 |
) |
|||||
Proceeds from disposition of assets |
|
434,897 |
|
200,000 |
|
|||||
Net cash used by investing activities |
|
183,974 |
|
(43,200,084 |
) |
|||||
Financing Activities |
|
|
|
|
|
|||||
Cost of loan fees |
|
(14,883 |
) |
20,839 |
|
|||||
Deferred offering costs |
|
|
|
(128,830 |
) |
|||||
Payments on notes receivable |
|
99,555 |
|
78,205 |
|
|||||
Payment on capitalized lease |
|
(40,837 |
) |
(978,119 |
) |
|||||
Proceeds from mortgage payable |
|
6,232,086 |
|
|
|
|||||
Payments on mortgage payable |
|
(6,264,735 |
) |
|
|
|||||
Loan from related party |
|
|
|
12,122,471 |
|
|||||
Minority Interest |
|
|
|
3,989,146 |
|
|||||
Purchase of treasury stock |
|
|
|
(257,732 |
) |
|||||
Preferred stock dividend |
|
(601,552 |
) |
|
|
|||||
Redemption of preferred stock |
|
(1,253,167 |
) |
|
|
|||||
Proceeds from additional paid in capital |
|
|
|
21,201,214 |
|
|||||
Net cash provided (used) by financing activities |
|
(1,843,533 |
) |
36,047,194 |
|
|||||
Net increase in cash |
|
250,331 |
|
720,259 |
|
|||||
Cash beginning of period |
|
547,937 |
|
2,011,178 |
|
|||||
Cash end of period |
|
$ |
798,268 |
|
$ |
2,731,437 |
|
|||
Interest paid |
|
$ |
887,974 |
|
$ |
1,826,444 |
|
|||
Supplemental disclosure of non-cash investing and financing activities: |
|
|
|
|
|
|||||
Amortization of preferred stock offering costs |
|
$ |
50,436 |
|
$ |
124,347 |
|
|||
Common stock issued for services |
|
$ |
165,833 |
|
$ |
527,286 |
|
|||
Preferred stock converted to common stock |
|
$ |
254,811 |
|
$ |
325,000 |
|
|||
Purchased general partnership interests for common stock |
|
$ |
300,000 |
|
$ |
2,555,192 |
|
|||
Purchase common stock of wholly owned subsidiary for common stock |
|
$ |
30,300 |
|
$ |
4,392,000 |
|
|||
Cancelled common stock for payment of Epicurean |
|
|
|
|
$ |
(2,370,000 |
) |
|||
The accompanying notes are an integral part of the financial statements.
6
VCG Holding Corp.
Notes To Consolidated Financial Statements
For the Nine months ended September 30, 2007
Unaudited
1. Summary of Significant Accounting Policies
Nature of Business
VCG Holding Corp. (VCG or the Company) is an owner, operator and consolidator of adult nightclubs throughout the United States. The Company currently owns 18 adult nightclubs and one upscale dance lounge. The nightclubs are located in Indianapolis, IN., St. Louis, MO., Denver and Colorado Springs, CO., Ft. Worth, TX., Raleigh, NC., Minneapolis, MN., Louisville, KY., and Portland, ME.
Basis of Presentation
The accompanying financial statements have been prepared by the Company, without audit. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary for fair presentation of the financial position as of December 31, 2006 and September 30, 2007, and the results of operations and cash flows for the periods ended September 30, 2006 and 2007.
The financial statements included herein have been prepared in accordance with the rules of The Securities and Exchange Commission for Form 10-QSB and accordingly do not include all footnote disclosures that would normally be included in financial statements prepared in accordance with generally accepted accounting principles, although the Company believes that the disclosures presented are adequate to make the information presented not misleading. The unaudited financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Companys Annual Report on Form 10-KSB for the year ended December 31, 2006.
The Company utilizes a December 31 fiscal year, and references herein to fiscal 2006 relate to the year ended December 31, 2006, and references to the first, second, third, and fourth quarter of a fiscal year relate to the quarters ended March 31, June 30, September 30 and December 31, respectively, of the related year.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. All significant inter-company balances and transactions are eliminated in the consolidation.
Net Income (Loss) Per Common Share
The Company computes net income (loss) per common share in accordance with Statement of Financial Accounting Standards No. 128, Earnings Per Share (SFAS 128). SFAS 128 provides for the calculation of basic and diluted earnings per share. Basic earnings per share includes no dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Dilutive earnings per share reflects the potential dilution of securities that could share in the earnings of the Company.
Use of Estimates in the Preparation of Financial Statements
Preparation of the Companys financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Accordingly, actual results could differ from those estimates.
7
2. Acquisitions and Discontinued Operations
In January 2007, VCG sold its ownership interest of Epicurean Enterprises, LLC EEP. VCG transferred some of the building improvements presently attached or are part of the building into VCG Real Estate Holdings, Inc. VCGRE and other equipment, inventory related to the Penthouse name, and the Penthouse license agreement to VCG or subsidiaries as needed for operations. The board had elected to sell the operations and related partnership, and rent the building on a twenty year lease to an unrelated third party.
The terms of the sale are $200,000 cash and 300,000 shares of VCG stock that was held by an unrelated third party for a total sales price of $2,570,000. VCG had a carrying basis in the partnership of $2,390,811 and a gain on the transaction of $179,189.
The following reconciles on a summarized basis the results of operations for the nine months ended September 30, 2006, previously presented with those presented herein adjusted for the effects of the discontinued operation discussed above:
|
|
As |
|
Discontinued |
|
As |
|
|||
|
|
previously |
|
Operations of |
|
presented |
|
|||
|
|
reported |
|
EEP |
|
herein |
|
|||
Revenues |
|
$ |
12,653,824 |
|
$ |
(978,875 |
) |
$ |
11,674,949 |
|
Operating expenses |
|
10,236,290 |
|
(1,230,127 |
) |
9,006,163 |
|
|||
Income from operations |
|
2,417,534 |
|
251,252 |
|
2,668,786 |
|
|||
Other income (expense) |
|
(976,735 |
) |
(22 |
) |
(976,757 |
) |
|||
Income tax expense |
|
|
|
|
|
|
|
|||
Minority interest expense |
|
(84,859 |
) |
|
|
(84,859 |
) |
|||
Income from continuing operations |
|
1,355,940 |
|
251,230 |
|
1,607,170 |
|
|||
Loss from discontinued operations |
|
|
|
(251,230 |
) |
(251,230 |
) |
|||
Net income |
|
$ |
1,355,940 |
|
$ |
|
|
$ |
1,355,940 |
|
The following reconciles on a summarized basis the results of operations for the three months ended September 30, 2006, previously presented with those presented herein adjusted for the effects of the discontinued operation discussed above:
|
|
As |
|
Discontinued |
|
As |
|
|||
|
|
previously |
|
Operations of |
|
presented |
|
|||
|
|
reported |
|
EEP |
|
herein |
|
|||
Revenues |
|
$ |
4,140,991 |
|
$ |
(293,496 |
) |
$ |
3,847,495 |
|
Operating expenses |
|
3,296,257 |
|
(413,435 |
) |
2,882,822 |
|
|||
Income from operations |
|
844,734 |
|
119,939 |
|
964,673 |
|
|||
Other income (expense) |
|
(351,682 |
) |
556 |
|
(351,126 |
) |
|||
Income tax expense |
|
|
|
|
|
|
|
|||
Minority interest expense |
|
(39,879 |
) |
|
|
(39,879 |
) |
|||
Income from continuing operations |
|
453,173 |
|
120,495 |
|
573,668 |
|
|||
Loss from discontinued operations |
|
|
|
(120,495 |
) |
(120,495 |
) |
|||
Net income |
|
$ |
453,173 |
|
$ |
|
|
$ |
453,173 |
|
On October 2, 2006, the Company acquired assets of Consolidated Restaurants Limited, LLC, a Colorado Limited Liability Company. The acquisition of Consolidated Restaurants Limited, LLC was accounted for by the purchase method of accounting; therefore the operations have been included in the accompanying statements of operations since the date of acquisition. The operations are included as VCG CO Springs, Inc. The following pro forma financial information includes the consolidated results of operations as if Consolidated Restaurants Limited, LLC had occurred at January 1, 2006 and do not purport to be indicative of the results that would have occurred had the acquisition been made as of that date or of results which may occur in the future.
On December 31, 2006, the Company acquired the general partnership interest and a 97% limited partnership interest in Denver Restaurant Concepts, LP. The acquisition of Denver Restaurant Concepts, LP was accounted for by the purchase method of accounting; therefore the operations have been included in the accompanying statements of operations since the date of acquisition. The operations are included as Denver Restaurant Concepts, LP. The following pro forma financial information includes the consolidated results of operations as if Denver Restaurant Concepts, LP. Had occurred at January 1, 2006 and do not purport to be indicative of the results that would have occurred had the acquisition been made as of that date or of results which may occur in the future.
8
On January 1, 2007, the Company acquired 100% of the outstanding common stock in Kentucky Restaurant Concepts, Inc. and the management agreement from Restaurant Concepts of Kentucky, LP. The acquisition of Kentucky Restaurant Concepts, Inc. was accounted for by the purchase method of accounting; therefore the operations have been included in the accompanying statements of operations since the date of acquisition. The operations are included as Kentucky Restaurant Concepts, Inc. The following pro forma financial information includes the consolidated results of operations as if Kentucky Restaurant Concepts, Inc. had occurred at January 1, 2006 and do not purport to be indicative of the results that would have occurred had the acquisition been made as of that date or of results which may occur in the future.
On January 31, 2007, the Company acquired assets the general partnership interest and a 87% limited partnership interest in RCC LP. The acquisition of RCC LP was accounted for by the purchase method of accounting; therefore the operations have been included in the accompanying statements of operations since the date of acquisition. The operations are included as RCC LP. The following pro forma financial information includes the consolidated results of operations as if RCC LP. had occurred at January 1, 2006 and do not purport to be indicative of the results that would have occurred had the acquisition been made as of that date or of results which may occur in the future.
On January 31, 2007, the Company acquired the general partnership interest and an 82% limited partnership interest in Cardinal Management LP. The acquisition of Cardinal Management LP was accounted for by the purchase method of accounting; therefore the operations have been included in the accompanying statements of operations since the date of acquisition. The operations are included as Cardinal Management LP. The following pro forma financial information includes the consolidated results of operations as if Cardinal Management LP had occurred at January 1, 2006 and do not purport to be indicative of the results that would have occurred had the acquisition been made as of that date or of results which may occur in the future.
On February 28, 2007, the Company acquired the general partnership interest and a 99% limited partnership interest in MRC, LP. The acquisition of MRC, LP was accounted for by the purchase method of accounting; therefore the operations have been included in the accompanying statements of operations since the date of acquisition. The operations are included as MRC, LP. The following pro forma financial information includes the consolidated results of operations as if MRC, LP had occurred at January 1, 2006 and do not purport to be indicative of the results that would have occurred had the acquisition been made as of that date or of results which may occur in the future.
On February 28, 2007, the Company acquired the general partnership interest and a 89% limited partnership interest in IRC, LP. The acquisition of IRC, LP was accounted for by the purchase method of accounting; therefore the operations have been included in the accompanying statements of operations since the date of acquisition. The operations are included as IRC, LP. The following pro forma financial information includes the consolidated results of operations as if IRC, LP had occurred at January 1, 2006 and do not purport to be indicative of the results that would have occurred had the acquisition been made as of that date or of results which may occur in the future.
On April 1, 2007, the Company acquired the majority of the assets of Regale, Inc., Raleigh, North Carolina. The acquisition of Regale, Inc. was accounted for by the purchase method of accounting; therefore the operations have been included in the accompanying statements of operations since the date of acquisition. The operations are included as Raleigh Restaurant Concepts, Inc. The following pro forma financial information includes the consolidated results of operations as if Regale, Inc. had occurred at January 1, 2006 and do not purport to be indicative of the results that would have occurred had the acquisition been made as of that date or of results which may occur in the future.
On May 30, 2007, the Company acquired 100% of the common stock, including the common stock of Classic Affairs, Inc., Minneapolis, Minnesota. The acquisition of Classic Affairs, Inc. was accounted for by the purchase method of accounting; therefore the operations have been included in the accompanying statements of operations since the date of acquisition. The following pro forma financial information includes the consolidated results of operations as if Classic Affairs, Inc. had occurred at January 1, 2006 and do not purport to be indicative of the results that would have occurred had the acquisition been made as of that date or of results which may occur in the future.
9
On September 14, 2007, the Company acquired 100% of the issued and outstanding stock of KENKEV, Inc., which owns and operates Platinum Plus located in Portland, Maine. The acquisition of KENKEV, Inc. was accounted for by the purchase method of accounting; therefore the operations have been included in the accompanying statements of operations since the date of acquisition. The operations are included as KENKEV II, Inc. The following pro forma financial information includes the consolidated results of operations as if KENKEV II had occurred at January 1, 2006 and do not purport to be indicative of the results that would have occurred had the acquisition been made as of that date or of results which may occur in the future.
On September 17, 2007, the Company acquired 100% of the issued and outstanding membership units of Golden Productions JGC Fort Worth, LLC., which owns and operates Jaguars Gold Club of Ft. Worth located in Ft. Worth, Texas. The acquisition of Golden Productions JGC Fort Worth, LLC. was accounted for by the purchase method of accounting, therefore the operations have been included in the accompanying statements of operations since the date of acquisition. The operations are included as Golden Productions JGC Fort Worth, LLC. The following pro forma financial information includes the consolidated results of operations as if Golden Productions JGC Fort Worth, LLC had occurred at January 1, 2006 and do not purport to be indicative of the results that would have occurred had the acquisition been made as of that date or of results which may occur in the future.
The following combines the pro forma information for the above acquisitions and includes the information for each for the applicable periods:
Proformas |
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months |
|
Nine months |
|
|
|
Ended |
|
Ended |
|
|
|
September 30, 2006 |
|
September 30, 2007 |
|
Revenue |
|
17,695,021 |
|
36,561,263 |
|
Net income from continuing operations |
|
3,418,257 |
|
9,772,675 |
|
Net income |
|
3,418,257 |
|
9,772,675 |
|
Earnings per share |
|
|
|
|
|
Income from continuing operations |
|
0.36 |
|
0.73 |
|
Loss from discontinued |
|
0 |
|
0 |
|
Net income |
|
0.36 |
|
0.73 |
|
Weighted average shares (diluted) |
|
9,558,977 |
|
13,359,318 |
|
|
|
Three months |
|
Three months |
|
||
|
|
Ended |
|
Ended |
|
||
|
|
September 30, 2006 |
|
September 30, 2007 |
|
||
Revenue |
|
$ |
5,898,340 |
|
$ |
12,187,088 |
|
Net income from continuing operations |
|
$ |
1,139,419 |
|
$ |
3,257,558 |
|
Net income |
|
$ |
1,139,419 |
|
$ |
3,257,558 |
|
Earnings per share |
|
|
|
|
|
||
Income from continuing operations |
|
$ |
0.12 |
|
$ |
0.19 |
|
Loss from discontinued |
|
0 |
|
0 |
|
||
Net income |
|
$ |
0.12 |
|
$ |
0.19 |
|
Weighted average shares (diluted) |
|
9,644,723 |
|
16,976,747 |
|
3. Property, Plant and Equipment
Property, plant and equipment consist of the following:
|
|
December 31, |
|
September 30, |
|
||
|
|
2006 |
|
2007 |
|
||
Land |
|
$ |
556,225 |
|
$ |
1,055,539 |
|
Buildings |
|
7,614,133 |
|
12,873,088 |
|
||
Leasehold Improvements |
|
3,417,645 |
|
10,256,661 |
|
||
Equipment |
|
1,518,655 |
|
3,265,398 |
|
||
Signs |
|
185,957 |
|
373,428 |
|
||
Furniture and fixtures |
|
740,383 |
|
3,329,128 |
|
||
|
|
$ |
14,032,998 |
|
$ |
31,153,242.00 |
|
Less accumulated depreciation and amortization |
|
(2,007,371 |
) |
(7,034,055 |
) |
||
Net property, plant and equipment |
|
$ |
12,025,627 |
|
$ |
24,119,187 |
|
Depreciation and amortization expense was $646,373 and $845,653 for the nine months ended September 30, 2006 and 2007, respectively.
10
4. Transactions with Related Parties
The day to day management of all the Companys nightclubs is conducted through the Companys wholly-owned subsidiary International Entertainment Consultants, Inc. (IEC). In addition to managing the clubs owned by the Company, IEC managed clubs owned by Mr. Lowrie until March 1, 2007. IEC charges those clubs a management fee which is based on an allocation of the Companys common expenses incurred in maintaining its regional and corporate club management functions. Such fees are included in other income and were $1,918,294 and $2,023,949 for the nine months ended September 30, 2006 and 2007, respectively, and were $65,430 and $-0- for the three months ended September 30, 2006 and 2007, respectively.
5. Redeemable Preferred Stock
During the three months ended June 30, 2007, the Company converted 32,500 shares of its Series A Preferred Stock for 88,798 shares of common stock at $3.66 per share, or an aggregate of $325,000. At September 30, 2007, there are no shares of Series A Preferred Stock outstanding.
The redeemable preferred stock offering costs of $297,034 were being amortized over the holding period before the call or put option. The amortization of the offering costs of $0 and $0 for the nine months ended September 30, 2007 and 2006, respectively, is included in the preferred stock dividends.
6. Long-Term Debt
In June 2006, VCG entered into an additional line of credit agreement with a bank. The new line of credit is $5,000,000 and has an interest rate of 8.5%, and is due June 28, 2008. The note is secured by VCGs assets, common stock of VCG owned by Lowrie Management LLLP, and guaranteed by Troy H. Lowrie.
In September 2007, VCG entered into an additional line of credit agreement with a bank. The new line of credit is $1,600,000 and has an interest rate of 8.25%, and is due January 30, 2008. The note is cross collateralized with other notes.
7. 4th Street Partnership, LLLP Private Placement
The Company offered ownership interests in 4 th Street Partnership, LLLP in a private placement. The private placement is now closed and there was a total 99.9% ownership that sold for $3,000,000. The partnership purchased the land and building that houses the club in Minneapolis, Minnesota. The assets of the partnership are included in these financial statements.
8. Segment Information
The following information is presented in accordance with SFAS No 131, Disclosures about Segments of an Enterprise and Related Information. The Company is engaged in owning and operating adult nightclubs and the management of adult nightclubs. The Company has identified such segments based on management responsibility and the nature of the Companys products, services and costs. There are no major distinctions in geographical areas served, as all operations are in the United States. The Company measures segment profit as income from operations. The assets and liabilities are those controlled by each reportable segment. The Company eliminates all inter company revenues and expenses before the measurement of the segments.
The following table sets forth certain information about each segments financial information for the nine months ended September 30, 2006 and 2007.
|
|
September 30, |
|
||||
|
|
2006 |
|
2007 |
|
||
Business segment sales |
|
|
|
|
|
||
Nightclubs |
|
$ |
10,735,530 |
|
$ |
24,779,810 |
|
Management |
|
1,918,294 |
|
2,023,949 |
|
||
|
|
$ |
12,653,824 |
|
$ |
26,803,759 |
|
|
|
|
|
|
|
||
Business segment operating income |
|
|
|
|
|
||
Nightclubs |
|
$ |
2,405,421 |
|
$ |
7,486,132 |
|
Management |
|
12,113 |
|
372,662 |
|
||
|
|
$ |
2,417,534 |
|
$ |
7,858,794 |
|
11
Business segment assets |
|
|
|
|
|
||
Nightclubs |
|
$ |
26,102,226 |
|
$ |
82,552,766 |
|
Management |
|
623,760 |
|
685,991 |
|
||
|
|
$ |
26,725,986 |
|
$ |
83,238,757 |
|
|
|
|
|
|
|
||
Business segment liabilities |
|
|
|
|
|
||
Nightclubs |
|
$ |
14,112,991 |
|
$ |
33,443,426 |
|
Management |
|
467,106 |
|
224,882 |
|
||
|
|
$ |
14,580,097 |
|
$ |
33,668,308 |
|
The following table sets forth certain information about each segments financial information for the three months ended September 30, 2006 and 2007.
|
|
September 30, |
|
||||
|
|
2006 |
|
2007 |
|
||
Business segment sales |
|
|
|
|
|
||
Nightclubs |
|
$ |
3,543,386 |
|
$ |
10,310,110 |
|
Management |
|
597,605 |
|
589,277 |
|
||
|
|
$ |
4,140,991 |
|
$ |
10,899,387 |
|
|
|
|
|
|
|
||
Business segment operating income |
|
|
|
|
|
||
Nightclubs |
|
$ |
844,900 |
|
$ |
4,010,759 |
|
Management |
|
(167 |
) |
1,015 |
|
||
|
|
$ |
844,733 |
|
$ |
4,011,774 |
|
9. Subsequent Event
On October 30, 2007 the Company purchased 100% of the stock of Kenja II Corp. Pursuant to the terms of the agreement, the Company paid $6.8mm in cash consideration for the stock. The purchase of the stock included all the necessary assets, tangible as well as intangible, to operate the night club. The acquisition was funded with $2.0 million in available cash and through issuance of promissory notes. The transaction closed on October 30, 2007, whereby the Company took over operations on October 29, 2007.
On October 31, 2007 the Company purchased 100% of the stock of Manana Productions, Inc. for cash consideration of approximately $6.8 million. The Company will fund the operations with lines of credit. The purchase included a 25 year lease of the current facility and other tangible and intangible assets.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The information set forth hereunder, Managements Discussion and Analysis of Financial Condition and Results of Operations (the MD&A), presents significant factors affecting our consolidated operating results, financial condition, liquidity and capital resources that occurred during the nine months that ended September 30, 2006 and 2007. Likewise, the MD&A should be read in conjunction with the financial statements appearing elsewhere in this Form 10-QSB (this Report). In conjunction with this Report, the MD&A discussed in Form 10-KSB for the year ended December 31, 2006 and filed with The Securities and Exchange Commission (SEC) on March 31, 2007, should be referred to when reading this Report.
Safe Harbor Statement
Safe Harbor Statement under the Private Securities Litigation Reform Act: Statements made in this Report that relate to future operating periods are subject to important risks and uncertainties that could cause actual results to differ materially. These risks could affect certain nightclubs, while certain other risks could affect all of the Companys nightclubs and/or other business segments.
Forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended, are based on the exercise of business judgment as well as assumptions made by, and information currently available to us. When used in this MD&A, the words may, will, anticipate, believe, estimate, expect, intend, and other words of similar import, are intended to help identify forward-looking statements. One should not place undue reliance on these forward-looking statements. Such statements reflect our current view of future events and are subject to certain risks and uncertainties as noted below. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, the Companys actual results could differ materially from those anticipated in these forward-looking statements. Although, we believe that our expectations are based on reasonable assumptions; however, we cannot give any assurance, whatsoever, that our expectations will materialize.
12
Forward looking statements made herein are based on our current expectations that could involve a number of risks and uncertainties and therefore, such expectations should not be considered guarantees of future performance. Certain of those risk factors that could cause actual results to differ materially, include, without limitation, the following:
Dependence on key management personnel.
Competitors with greater financial resources.
The impact of competitive pricing.
The timing of openings of competitors clubs.
The ability of management to execute acquisition and expansion plans and motivate personnel in the execution of such plans.
Interruptions or cancellation of existing contracts.
Adverse publicity related to the company.
Changes in the laws governing the operation of adult entertainment businesses.
An inability to arrange additional debt or equity financing.
Adverse claims relating to our use of trademarks and/or tradenames.
The adoption of new, or changes in, accounting principles.
The costs inherent with complying with new statutes and regulations applicable to public reporting companies, such as the Sarbanes-Oxley Act of 2002.
Actual results may differ materially from those set forth in forward-looking statements as a result of certain of those factors set forth above, including such factors disclosed under Risk Factors, or any factors as may be included elsewhere in this Report. More information about factors that potentially could affect our financial results is included in the Companys filings with the SEC; however, we are under no obligation, nor do we intend to update, revise or otherwise publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of any unanticipated events.
General Overview
It is our desire to provide all parties who may read this MD&A an understanding of the Companys past performance, its financial condition and its prospects of going forward in the future. Accordingly, we will discuss and provide our analysis of the following:
Overview of the business.
Critical accounting policies.
Results of operations.
Overview of business segments.
Liquidity and capital resources.
New accounting pronouncements.
The Company was incorporated under the laws of the State of Colorado in 1998, but did not begin its operations until April, 2002. The Company is engaged in owning and operating nightclubs which provide quality live adult entertainment, food and beverage services. Currently, we operate seventeen adult entertainment nightclubs and one upscale dance club (collectively referred to as the Clubs). Three of the Clubs offer full service restaurants with fine dining and have VIP facilities for its members. Fourteen Clubs serve alcoholic beverages.
We believe maximum profitability and sustained growth in the industry can only be obtained from owning and operating upscale adult entertainment nightclubs. Our current strategy is to acquire and upgrade existing adult nightclubs. Likewise, it is our intent to develop and build upscale nightclubs in areas that are not market saturated and are open to well-managed upscale clubs.
The Company owns International Entertainment Consultants, Inc. (IEC), which provides management services to our nightclubs and, on a fee basis, to non-owned affiliated nightclubs. IEC was originally formed in 1980; at the time of acquisition in October, 2003, IEC was owned by Troy H. Lowrie, our Chairman of the Board and Chief Executive Officer.
In June, 2002, the Company formed VCG Real Estate Holdings, Inc., a wholly owned subsidiary, that purchased the land and buildings which house four of our Clubs.
Management has substantial experience in owning and operating successful adult entertainment nightclubs and thereby, our management has gained an in-depth knowledge of the industry in which the Company does business.
13
Since the Company began its operations, we have acquired the following Clubs:
PTs Brooklyn in East Saint Louis, Illinois (acquired 2002)
PTs Nude in Denver, Colorado (acquired 2004)
The Penthouse Club in Denver, Colorado (acquired 2004)
Diamond Cabaret in Denver, Colorado (acquired 2004)
The Penthouse Club in Phoenix, Arizona (opened 2004 and sold in January 2007)
Tabu (Dance club) in Denver, Colorado (opened June 2005)
PTs® Appaloosa in Colorado Springs, Colorado (acquired October 2006)
PTs® Showclub in Denver, Colorado (acquired December 2006)
PTs® Showclub in Louisville, Kentucky (acquired January 2007)
Roxys in East Saint Louis, Illinois (acquired February 2007)
PTs® Showclub in East Saint Louis, Illinois (acquired February 2007)
PTs® Sports Cabaret St. Louis in East Saint Louis, Illinois (acquired March 2007)
Penthouse Club St. Louis in East Saint Louis, Illinois (acquired March 2007)
The Mens Club® in Raleigh, North Carolina (acquired April 2007)
Schieks Palace Royale in Minneapolis, Minnesota (acquired May 2007)
Platinum Plus in Portland, Maine (acquired September 2007)
Jaguars Gold Club in Ft. Worth, Texas (acquired September 2007)
The majority of the Clubs operate under the branded names PTs, Diamond Cabaret and The Penthouse Club , which are pursuant to non-exclusive licensing agreements.
The aggregate cost of acquisition for the eighteen operating clubs was approximately 78.0 million.
The day to day management of the Clubs is conducted through IEC. IEC provides the Clubs with management and supervisory personnel to oversee operations, hire and contract for all operating personnel, establish Club policies and procedures, compliance monitoring, purchasing, accounting and other administrative services, and prepares financial, operating reports, and income tax returns. IEC charges the Clubs a management fee based on the Companys common expenses incurred in maintaining these functions.
We classify the Companys operations into two reportable segments; the operations of the Clubs and the management of non-owned adult nightclubs. Financial information on our reportable segments is presented in Note 8 of the Notes to Consolidated Financial Statements. In general, we operate the management segment, not with a view to generate an operating profit from the operations of that segment alone, but rather with the view that the fees generated from that segment offsets certain expenses we incur in maintaining our regional and corporate staff and thereby, it assists us in achieving certain economies of scale in the management of the Clubs.
Critical Accounting Policies
The following discussion and analysis of the results of operations and financial condition are based on the Companys consolidated financial statements that have been prepared in accordance with accounting principles generally accepted in the United States of America. Our significant accounting policies are more fully described in Note 2 of the Notes to the Consolidated Financial Statements, which is included in our Annual Report, Form 10-KSB for the year ended December 31, 2006. However, certain accounting policies and estimates are particularly important to the understanding of our financial position and results of operations and require the application of significant judgment by us. Further, such accounting policies and estimates can be materially affected by changes from period to period in economic factors or conditions that are outside our control. As a result, our accounting policies and estimates are subject to an inherent degree of uncertainty. In applying these policies, we use our judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based on our historical operations, future business plans and projected financial results and the terms of existing contracts, observance of trends in the industry, information provided by our customers, and information available from other outside sources, as may be appropriate. Actual results may differ from these estimates. Those critical accounting policies are discussed in Managements Discussion and Analysis of Financial Position and Results of Operations Critical Accounting Policies, which is a part of our Annual report found on Form 10-KSB for the year ended December 31, 2006.
14
Results of Operations - Third Quarter ended September 30, 2006 Compared to September 30, 2007
Results of Continuing Operations
The following sets forth a comparison of the components of the results of our continuing operations for the nine months and three months ended September 30, 2006 and 2007:
|
|
Nine months ending September 30, |
|
Percentage change |
|
||||
|
|
2006 |
|
2007 |
|
|
|
||
Revenues |
|
|
|
|
|
|
|
||
Sales of alcoholic beverages |
|
5,671,405 |
|
13,197,154 |
|
132.7 |
% |
||
Sales of food and merchandise |
|
781,749 |
|
1,536,961 |
|
96.6 |
% |
||
Service revenue |
|
2,942,246 |
|
9,402,356 |
|
219.6 |
% |
||
Other |
|
3,258,424 |
|
2,667,288 |
|
(18.1 |
)% |
||
Total revenue |
|
12,653,824 |
|
26,803,759 |
|
111.8 |
% |
||
Operating Expenses |
|
|
|
|
|
|
|
||
Cost of goods sold |
|
1,888,801 |
|
3,612,060 |
|
91.2 |
% |
||
Salaries and wages |
|
3,703,059 |
|
5,586,606 |
|
50.9 |
% |
||
Management fee |
|
|
|
|
|
* |
|
||
Other general and administrative |
|
|
|
|
|
* |
|
||
Taxes and permits |
|
306,284 |
|
1,025,091 |
|
234.7 |
% |
||
Charge card and bank fees |
|
186,219 |
|
308,162 |
|
65.5 |
% |
||
Rent |
|
608,887 |
|
2,577,105 |
|
323.2 |
% |
||
Legal and professional |
|
205,080 |
|
475,176 |
|
131.7 |
% |
||
Advertising and marketing |
|
370,115 |
|
1,134,094 |
|
206.4 |
% |
||
Other |
|
2,321,472 |
|
3,381,018 |
|
45.6 |
% |
||
Depreciation & amortization |
|
646,373 |
|
845,653 |
|
30.8 |
% |
||
Total operating expenses |
|
10,236,290 |
|
18,944,965 |
|
93.4 |
% |
||
Income from operations |
|
2,417,534 |
|
7,858,794 |
|
189.7 |
% |
||
Other income (expenses) |
|
|
|
|
|
|
|
||
Interest expense |
|
(1,035,693 |
) |
(1,826,444 |
) |
76.3 |
% |
||
Gain on sale of assets |
|
44,184 |
|
190,256 |
|
* |
|
||
Unrealized gain on marketable securities |
|
2,200 |
|
|
|
* |
|
||
Interest income |
|
12,574 |
|
320,529 |
|
2,449.1 |
% |
||
Total Other Income (Expenses) |
|
(976,735 |
) |
(1,315,659 |
) |
34.7 |
% |
||
Income continuing operations before income taxes |
|
1,440,799 |
|
6,543,135 |
|
354.1 |
% |
||
Income tax expense current |
|
|
|
|
|
* |
|
||
Income tax expense deferred |
|
|
|
(456,000 |
) |
* |
|
||
Total income taxes |
|
|
|
(456,000 |
) |
* |
|
||
Minority interest |
|
(84,859 |
) |
(173,400 |
) |
* |
|
||
Income continuing operations |
|
$ |
1,355,940 |
|
$ |
5,913,735 |
|
336.1 |
% |
* - not meaningful
15
|
|
Three months ending September 30, |
|
Percentage change |
|
||||
|
|
2006 |
|
2007 |
|
|
|||
Revenues |
|
|
|
|
|
|
|
||
Sales of alcoholic beverages |
|
1,885,517 |
|
5,350,924 |
|
183.8 |
% |
||
Sales of food and merchandise |
|
222,752 |
|
645,183 |
|
189.6 |
% |
||
Service revenue |
|
1,006,506 |
|
4,251,364 |
|
322.4 |
% |
||
Other |
|
1,026,215 |
|
651,916 |
|
(36.5 |
)% |
||
Total revenue |
|
4,140,990 |
|
10,899,387 |
|
163.2 |
% |
||
Operating Expenses |
|
|
|
|
|
|
|
||
Cost of goods sold |
|
584,716 |
|
1,438,290 |
|
146.0 |
% |
||
Salaries and wages |
|
1,200,900 |
|
2,091,462 |
|
74.2 |
% |
||
Management fee |
|
|
|
|
|
* |
|
||
Other general and administrative |
|
|
|
|
|
|
|
||
Taxes and permits |
|
98,504 |
|
430,582 |
|
48.7 |
% |
||
Charge card and bank fees |
|
62,399 |
|
146,461 |
|
134.7 |
% |
||
Rent |
|
160,974 |
|
1,061,935 |
|
559.7 |
% |
||
Legal and professional |
|
42,666 |
|
102,213 |
|
139.6 |
% |
||
Advertising and marketing |
|
124,883 |
|
486,171 |
|
289.3 |
% |
||
Other |
|
806,775 |
|
790,610 |
|
(2.0 |
)% |
||
Depreciation & amortization |
|
214,440 |
|
339,889 |
|
58.5 |
% |
||
Total operating expenses |
|
3,296,257 |
|
6,887,613 |
|
108.9 |
% |
||
Income from operations |
|
844,733 |
|
4,011,774 |
|
374.9 |
% |
||
Other income (expenses) |
|
|
|
|
|
|
|
||
Interest expense |
|
(354,594 |
) |
(707,758 |
) |
87.6 |
% |
||
Gain on sale of assets |
|
|
|
|
|
* |
|
||
Unrealized (loss) on marketable securities |
|
(2,500 |
) |
(8,934 |
) |
* |
|
||
Interest income |
|
5,412 |
|
30,311 |
|
460.1 |
% |
||
Total Other Income (Expenses) |
|
(351,682 |
) |
(686,381 |
) |
95.2 |
% |
||
Income continuing operations before income taxes |
|
493,051 |
|
3,325,393 |
|
574.5 |
% |
||
Income tax expense current |
|
|
|
|
|
* |
|
||
Income tax expense deferred |
|
|
|
350,000 |
|
* |
|
||
Total income taxes |
|
|
|
350,000 |
|
* |
|
||
Minority interest |
|
(39,879 |
) |
(80,584 |
) |
* |
|
||
Income continuing operations |
|
$ |
453,172 |
|
$ |
3,594,809 |
|
693.3 |
% |
* - not meaningful
Revenues
Revenue sources generated by the Clubs include: (i) the sale of alcoholic beverages; (ii) food and merchandise; (iii) service revenues, which include fees paid by entertainers to the Clubs for the opportunity to perform at the Clubs; (iv) fees charged for admission to the Clubs; (v) ATM fees; and (vi) other ancillary revenues (collectively referred to as Total Revenues). Total Revenues increased 163% to approximately $10.9 million for the third quarter of 2007, compared with a year ago, and increased approximately 112% to $26.8 million for nine months of 2007, compared with nine months of 2006. The increase in Total Revenues was a result of the Companys continued success in being able to acquire quality clubs
Cost of Goods Sold
Cost of sales consists of alcohol, food, and merchandise. Cost of sales increased by approximately 91% and 146%, for the third quarter and nine months ending 2007, compared to the same periods a year ago. The upsurge was primarily driven by a substantial increase in sales volume from our clubs acquired in the first and second quarters of this year.
Salaries
Salary and wage expense consist of all labor costs incurred throughout the entire organization. Labor costs increased by approximately 74% for the third quarter 2007 and approximately 50% for the nine months of 2007, when compared to the same periods in 2006.
Other General and Administrative Expenses
Taxes and permits increased by approximately 98% for the third quarter 2007 and increased by approximately 234% for nine months ending 2007, compared to the same periods in 2006. The increases in taxes and permits were primarily a result of new acquisitions.
16
Rent, increased approximately 559% for the third quarter of 2007 and by 323% for the nine months ending 2007, compared to the same periods in 2006.
Legal and professional expenses increased by approximately 140% for the third quarter of 2007 and 132% for the nine months ending 2007, when compared to the same periods for 2006.
Advertising and marketing expenses increased by approximately 289% for the third quarter and increased by approximately 206% for the nine months ending 2007, compared to the same periods in 2006.
Other general and administrative (G&A) expenses decreased approximately 2% in the third quarter and increased by approximately 45% for the nine months ending 2007, compared to the same periods in 2006.
Depreciation and Amortization
Depreciation and amortization increased by 58% the third quarter 2007 and increased by 30% for the nine months ending 2007 compared to the same periods in 2006. This increase is related to the acquisition of certain clubs.
Interest Expense
Interest expense increased approximately 99% during the third quarter 2007 and increased by approximately 76% for the nine months ending 2007, compared to the same periods in 2006. The increase in interest expense is a primary result of financing club acquisitions with debt.
Interest Income
Interest income increased by approx. $25,000 for the third quarter of 2007 and increased by $308,000 for the nine months ending 2007, compared to the same periods in 2006. The increase in income is primarily a result of increased cash flow based on the acquisitions of clubs.
Deferred Income Taxes
Deferred income taxes represent the estimate of income taxes due based on the difference between book net income and income tax for the period reduced by the remaining net operating loss carry-forward and income tax credits earned for the nine months ending September 30, 2007. The deferred income tax expense for the third quarter 2007 was $106,000 and $456,000 for the nine months ending 2007.
Net income from Continuing Operations
As a result of the factors discussed above, net income increased to $3.1 million for the third quarter 2007, compared with $248,439 for the same period in 2006 and increased to $5.9 million for the nine months ending of 2007, compared with $703,952 for the same period in 2006.
Net Income Applicable to Common Shareholders and Earnings Per Share
For the third quarter and nine months of 2007, we did not pay or accrue dividends of any kind. Therefore, net income applicable to common shareholders for the third quarter and nine months ending 2007, is approximately $3.1 million and $5.9 million, respectively.
17
Business Segments and Results
The following table sets forth certain information about each segments financial information for the nine months ending September 30, 2006 and 2007.
|
|
September 30, |
|
||||
|
|
2006 |
|
2007 |
|
||
Business segment sales |
|
|
|
|
|
||
Nightclubs |
|
$ |
10,735,530 |
|
$ |
24,779,810 |
|
Management |
|
1,918,294 |
|
2,023,949 |
|
||
|
|
$ |
12,653,824 |
|
$ |
26,803,759 |
|
|
|
|
|
|
|
||
Business segment operating income |
|
|
|
|
|
||
Nightclubs |
|
$ |
2,405,421 |
|
$ |
7,486,132 |
|
Management |
|
12,113 |
|
372,662 |
|
||
|
|
$ |
2,417,534 |
|
$ |
7,858,794 |
|
|
|
|
|
|
|
||
Business segment assets |
|
|
|
|
|
||
Nightclubs |
|
$ |
26,102,226 |
|
$ |
82,552,766 |
|
Management |
|
623,760 |
|
685,991 |
|
||
|
|
$ |
26,725,986 |
|
$ |
83,238,757 |
|
|
|
|
|
|
|
||
Business segment liabilities |
|
|
|
|
|
||
Nightclubs |
|
$ |
14,112,991 |
|
$ |
33,443,426 |
|
Management |
|
467,106 |
|
224,882 |
|
||
|
|
$ |
14,580,097 |
|
$ |
33,668,308 |
|
The following table sets forth certain information about each segments financial information for the three months ended September 30, 2006 and 2007.
|
|
September 30, |
|
||||
|
|
2006 |
|
2007 |
|
||
Business segment sales |
|
|
|
|
|
||
Nightclubs |
|
$ |
3,543,385 |
|
$ |
10,310,110 |
|
Management |
|
597,605 |
|
589,277 |
|
||
|
|
$ |
4,140,990 |
|
$ |
10,899,387 |
|
|
|
|
|
|
|
||
Business segment operating income |
|
|
|
|
|
||
Nightclubs |
|
$ |
844,900 |
|
$ |
4,010,759 |
|
Management |
|
(167 |
) |
1,015 |
|
||
|
|
$ |
844,733 |
|
$ |
4,011,774 |
|
The day to day management of all nightclubs is conducted through, our wholly-owned subsidiary, International Entertainment Consultants, Inc. (IEC). All nightclubs managed by IEC are charged for direct expenses and a proportionate share of IECs general operating and administrative expenses. IEC provides management and supervisory personnel to oversee operations, hires and contracts for all operating personnel, establishes club policies and procedures, compliance monitoring, purchasing, financial and operating reports, income tax preparation, accounting services and other administrative needs. The management fees income and related expenses related to the Companys owned nightclubs have been eliminated.
18
Liquidity and Capital Resources
The level of current assets and liabilities necessary for nightclub operations does not materially fluctuate and is very predictable, and we anticipate that the cash flow from our existing operations will be sufficient to fund our current level of operations for the next twelve months. However, we have acquired twelve nightclubs during the period beginning December 31, 2006, for a total cost of approximately $78 million. We funded these acquisitions primarily through issuances of our common stock (approximately $28 million), assumption of indebtedness (approximately $25 million), internal funds, and issuance of notes. The acquisition of additional clubs will require us to obtain additional debt or equity capital. There can be no assurance that such capital will continue to be available upon terms that are acceptable to us, if such financing is available at all. An inability to obtain such additional financing could have an adverse effect on our strategy of growth through the acquisition of clubs, the upgrade of existing clubs and the development and construction of clubs in areas that are not market saturated and already receptive to well-managed upscale clubs.
Working Capital
At September 30, 2007 and December 31, 2006, the Company had cash and cash equivalents of approximately $2.7 million and $2.0 million and total current assets of approximately $4.7 million and $3.5 million, respectively. Our current liabilities exceeded our current assets by approximately $8.4 million at September 30, 2007, compared to the current liabilities exceeding our current assets by approximately $300,000 at December 31, 2006.
Capital Resources
We had stockholders equity of approximately $44.9 million on September 30, 2007 and approximately $12.8 million at December 31, 2006. The change is the result of income recognized during the first nine months of 2007, sale of common stock, conversion of preferred stock, and acquisition of nightclubs for common stock.
The net cash provided by operating activities was approximately $7.8 million for the nine months ending 2007 and $1.7 million for the first six months of 2006. The increase in the cash flow provided by operations was due to the increase in our net income for those periods and reduced by the cash flows used to decrease accounts payables.
Net cash used by investing activities for the nine months ending 2007 was approximately $43.2 million, whereby such use of cash was primarily for the purchase of Clubs. There was a small amount of proceeds we received for the disposition of assets of $200,000.
Net cash provided by financing activities for the nine months ending 2007 was approximately $21.2 million. The majority of the proceeds provided by financing activities were received from the sale of common stock, resulting in $21.2 million.
Off Balance Sheet Arrangements
We do not currently have any off balance sheet arrangements falling within the definition of Item 303(c) of Regulation S-B.
Inflation
To date, inflation has not had a material impact on our operations.
19
Item 3 . Controls and Procedures
As of September 30, 2007, our Chief Executive Officer and Chief Financial Officer (the Certifying Officers) conducted evaluations of our disclosure controls and procedures. As defined under Sections 13a-15(e) and 15d-15(e) of the Exchange Act, the term disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SECs rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuers management, including the Certifying Officers, to allow timely decisions regarding required disclosure. Based on this evaluation, the Certifying Officers have concluded that our disclosure controls and procedures were effective to ensure that material information is recorded, processed, summarized and reported by our management on a timely basis in order to comply with our disclosure obligations under the Exchange Act and the rules and regulations promulgated thereunder.
Further, there were no changes in our internal control over financial reporting during the first fiscal three quarters that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting
20
Other than as set forth below, we are not a party to any pending legal proceedings or aware of any pending legal proceedings against us that individually or in the aggregate, would have a material adverse affect on our business, results of operations or financial conditions.
On or around July 24, 2007 VCG Holding Corp., among other persons (the Defendant), were named in a lawsuit filed in District Court, 191 Judicial District, of Dallas County, Texas (the Complainant). The Complainant styled Thee Dollhouse Productions N.C., Inc. and Michael Joseph Peter (the Plaintiff) v. David Fairchild, Hospitality Licensing Corporation D/B/A The Mens Club, and VCG Holding Corp., Cause No. DC070738, was filed by the Plaintiff. The case was later removed to the United States District Court for the Northern District of Texas, Dallas Division and in assigned case no. 3-07-CV1455-L. Plaintiffs complaint alleges Tortuous Interference based on the conduct of the Defendants during a transaction that resulted in VCG Holding Corp. purchasing Regale. The Complainant alleges that the Defendants had knowledge of the existence of the Raleigh-Dollhouse Agreement, that was valid and enforceable, and that VCGs transaction with Regale, spearheaded by Fairchild, would cause a breach by, and result in, liability against Regale. Complainant alleges that the Defendants have caused Thee Dollhouse to sustain damages in the amounts of 6% of weekly gross receipts and 24.5% of operating profits.
The foregoing litigation is in an early stage, and therefore, we are unable to predict the outcome or reasonably estimate any range of loss, if any, that may result and accordingly. There has not been any recorded liability of any judgment or settlement that may result from the resolution of these matters. Though we believe that the outcome of this Compliant will not have a material impact on our business, results of operations, financial position, or liquidity, we intend to defend our Company vigorously in the foregoing action.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Default Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
None
21
Exhibit No. |
|
Exhibit |
|
|
|
31.1 |
|
Certification of Troy H. Lowrie, Chairman of the Board and Chief Executive Officer of VCG Holding Corp., pursuant to Section 302 of the Sarbanes - Oxley Act of 2002. |
|
|
|
31.2 |
|
Certification of Brent Lewis, Chief Accounting Officer and Chief Financial Officer of VCG Holding Corp., pursuant to Section 302 of the Sarbanes- Oxley Act of 2002. |
|
|
|
32.1 |
|
Certification Statement of Troy H. Lowrie, Chairman of the Board and Chief Executive Officer of VCG Holding Corp., pursuant to Section 906 of the Sarbanes - Oxley Act of 2002. |
|
|
|
32.2 |
|
Certification Statement of Brent Lewis, Chief Accounting Officer and Chief Financial Officer of VCG Holding Corp., pursuant to Section 906 of the Sarbanes- Oxley Act of 2002. |
In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
VCG HOLDING CORP. |
|
|
|
|
|
(Registrant) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date: November 18, 2007 |
By: |
/s/ Troy H. Lowrie |
|||
|
|
|
Troy H. Lowrie, Chairman of the Board |
|
|
|
|
|
and Chief Executive Officer |
|
|
|
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
|
Date: November 18, 2007 |
By: |
/s/ Brent Lewis |
|||
|
|
|
Brent Lewis, |
|
|
|
|
|
Chief Accounting Officer and |
|
|
|
|
|
Chief Financial Officer |
|
|
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