U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly period ended June 30, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from to
Commission File No. 0-3802
WESTERN STANDARD CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
WYOMING 83-0184378
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
400 East Snow King Avenue, JACKSON, WY 83001
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(address of principal executive offices)
307-733-5200
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(Issuer's telephone number)
CHANGED
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205 SOUTH BROADWAY, RIVERTON, WY 82501 (former address)
Check whether the issuer (1) filed all reports required 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 _____.
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APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 9,963,015 common $.05 par at June 30,
2004.
PART 1, ITEM 1
CLIFFORD H. MOORE AND COMPANY, CPAs
205 South Broadway
Riverton, Wyoming 82501
INDEPENDENT ACCOUNTANT'S REPORT
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We have reviewed the accompanying interim financial statements required by the
Securities and Exchange Commission (SEC) form 10QSB of Western Standard
Corporation and consolidated subsidiaries as of June 30, 2004, and for the
six-month period then ended. These financial statements are the responsibility
of the company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
/s/ Clifford H. Moore and
Company, CPAs
Riverton, Wyoming
August 12, 2004
WESTERN STANDARD CORPORATION
Consolidated Balance Sheet
Unaudited
June 30, 2004
Current Assets:
Cash $ 813,462
Accounts Receivable 771,232
Allowance for Doubtful Accounts ( 16,580)
Inventory - at cost 58,242
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Total Current Assets $ 1,626,356
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Property & Equipment, Net of
Accumulated Depreciation,
Amortization and Depletion $ 8,902,996
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Other Assets:
Accounts Receivable - Snow King Resort
Center, Inc. $ 1,674,547
Allowance for collectibility ( 1,573,000)
Investment in JH Spring Water 5,610
Prepaid expenses 165,536
Prepaid loan fees and leases 45,693
Leasehold Interest 26,837
Patronage capital 296,751
Other 15,853
Restricted cash -0-
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Total Other Assets $ 657,827
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TOTAL ASSETS $11,187,179
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WESTERN STANDARD CORPORATION
Consolidated Balance Sheet
Unaudited
June 30, 20
Liabilities:
Accounts Payable $ 478,473
Portion of Long Term Debt
payable within one year 43,740
First Interstate Bank Mortgage Payable 227,959
Advance Deposit 565,368
Accrued Expenses 630,700
Love Ridge Development Notes 695,000
A-1 Credit-Ins. Note Payable 35,499
Note Payable-Officer 160,000
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Subtotal $ 2,836,739
Long Term Debt
FIB-Mortgage Payable $ 5,772,041
JSB-Mortgage Payable 3,200,000
Fee Payable - Officer 90,000
Vehicle Loan 33,547
Snowcat Loan 17,114
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TOTAL LIABILITIES $11,949,441
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Minority Interest in Subsidiary
2,150 shares of Class A stock
in SKRI $ 1,816,015
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STOCKHOLDERS INVESTMENT:
Common Stock, $0.05 par
value, 10,000,000 shares
authorized, 9,963,015
issued and outstanding
at June 30, 2004 $ 401,201
Capital in Excess of Par
Value 3,334,701
Accumulated Deficit ( 6,314,179)
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Net Stockholders
Investment ($ 2,578,277)
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TOTAL LIABILITIES AND CAPITAL $11,187,179
============
WESTERN STANDARD CORPORATION
Consolidated Statement of Operations
Unaudited
Profit and Loss Information
Second Quarter For the (6) Six Months
Ended June 30, Ended June 30,
2004 2003 2004 2003
1. Gross sales less discounts,
returns and allowances $1,954,819 $1,899,817 $4,159,397 $4,173,004
2. Non-operating revenues-
Gain on sale -0- -0- -0- -0-
3. Total of Captions 1 and 2 1,954,819 1,899,817 4,159,397 4,173,004
4. Costs and Expenses
(a) Operating Expenses 2,068,415 1,958,433 4,666,923 4,476,211
(b) Interest Expense 139,260 90,288 260,343 204,136
(c) Depreciation 138,946 141,035 276,685 283,718
Total Costs and Expenses 2,346,621 2,189,756 5,203,951 4,964,065
5. Income (Loss) before taxes
on income & extraordinary
items ( 391,802)( 289,939)(1,044,554)( 791,061)
6. Discontinued Operations -0- -0- -0- -0-
7. Provisions for taxes on
income -0- -0- -0- -0-
8. Income or (Loss) ( 391,802)( 289,939)(1,044,554)( 791,061)
9. Minority interest in
profit (loss) of
subsidiary ( 91,567)( 66,284)( 245,421)( 182,822)
10. Income (Loss) before
extraordinary items ( 300,235)( 223,655)( 799,133)( 608,239)
11. Income tax, benefit of
net operating loss
carryover and minority
share of tax -0- -0- -0- -0-
12. Net Income (Loss) ( 300,235)( 233,655)( 799,133)( 608,239)
13. Earnings (Loss) per share:
9,963,015 shares ( .03)( .22)( .080)( .061)
14. Dividends per share -0- -0- -0- -0-
The results for interim periods are not necessarily indicative of results to be
expected for the year.
The information furnished for Western Standard Corporation reflects adjustments
which are, in the opinion of management, necessary to a fair statement of the
results for this interim period.
WESTERN STANDARD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
Second Quarter For the (6) Six Months
Ended June 30, Ended June 30,
2004 2003 2004 2003
INCREASE (DECREASE) IN CASH:
Cash flows from operating
activities:
Cash received from
customers $1,508,256 $1,909,073 $3,668,495 $4,036,923
Cash paid to suppliers
and employees ( 1,948,114)( 1,875,207)( 4,185,487)( 3,946,295)
Interest paid ( 139,260)( 90,288)( 260,343)( 204,136)
Interest received 20 52 33 283
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Net cash provided
by operations ($ 579,098)($ 56,370)($ 777,302)($ 113,225)
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Cash flows from investing
activities:
Acquisition of Resort
Ass'n Shares $ -0- $ -0- $ -0- ($ 10,810)
Increase in other assets ( 1,948) ( 100)( 2,793)( 100)
Increase in prepaid loan
fees ( 35,708) -0- ( 35,708) -0-
Distribution to retiring
officer -0- -0- 13,843 -0-
Capital expenditures ( 99,650) ( 365,239)( 171,714)( 432,279)
(Increase) decrease in
restricted cash 2,345 8,028 55,537 21,274
(Increase) reduction in
Snow King Center loan 6,599 303 ( 36,113) 4,682
Repayment (loan)
Loveridge Receivable 4,382 393,656 18,465 395,000
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Net cash provided
(used) by investing
activities ($ 123,980) $ 36,648 ($ 158,483)($ 22,233)
----------- --------- ---------- ----------
Cash flows from financing
activities:
New loans $3,360,000 $ 50,000 $4,170,000 $ 357,818
Principal payments to
banks (2,407,491) ( 94,240) (2,661,961) ( 318,462)
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Net cash provided
(used) by financing
activities $ 952,509 ($ 44,240) $1,508,039 $ 39,356
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Net increase (decrease) in
cash $ 249,431 ($ 63,962) $ 572,254 ($ 96,102)
Cash at beginning of period 564,031 275,131 241,208 307,271
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Cash at end of quarter $ 813,462 $ 211,169 $ 813,462 $ 211,169
========== ========= ========= =========
RECONCILIATION OF NET INCOME
TO NET CASH USED BY OPERATING
ACTIVITIES: FOR THE SIX MONTHS ENDED JUNE 30,
2004 AND 2003
Net income (loss) ($ 799,133) ($ 608,239)
Adjustments:
Depreciation and amortization 276,685 283,718
Decrease (increase) in
advance deposits 251,762 145,224
Increase (decrease) in
accrued expenses 41,018 2,968
Decrease (increase) in
accounts receivable ( 490,868) ( 281,025)
Decrease in leasehold
expense 708 -0-
Decrease in prepaid
expenses 172,996 160,086
Decrease (increase)in
inventories ( 5,739) ( 1,358)
(Decrease) increase in
accounts payable 20,690 366,879
Decrease in Love Ridge
receivables -0- 1,344
Allocation of minority
interest in profit
(loss) of subsidiary ( 245,421) ( 182,822)
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Net cash provided (used)
by operations ($ 777,302) ($ 113,225)
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WESTERN STANDARD CORPORATION
(ii) Material Subsequent Events and Contingencies
None
(iii) Significant Equity Investors
Six investors own approximately 23.57% of Snow King Resort, Inc., a
Western Standard Corporation subsidiary.
(iv) Significant Disposition and Purchase Business Combinations.
None
(v) Material accounting changes
None
Significant Equity Investors
Unaudited
January 1 to
June 30, 2004
Sales $ 4,159,397
Gross Income $ 4,159,397
Net Income (Loss) from continuing operations ($ 1,044,554)
Less Minority Interest in profit or (loss) -
23.57% ($ 245,421)
Net Income (Loss) ($ 799,133)
The above figures are for Snow King Resort, Inc., a Western Standard Corporation
subsidiary. The Registrant owns approximately 76.43 percent of the outstanding
Snow King Resort, Inc. voting stock.
Controls and Procedures
Under the supervision and with the participation of management, including our
Chief Executive Officer/Chief Financial Officer, we conducted an evaluation of
our disclosure controls and procedures, as such term is defined under Rule
13a-14(c) promulgated under the Securities Exchange Act of 1934, as amended
within 90 days of the filing date of this report. Based on the evaluation, our
Chief Executive Officer/Chief Financial Officer concluded that our disclosure
controls and procedures are effective.
There have been no significant changes (including corrective actions with regard
to significant deficiencies or material weaknesses) in our internal controls or
in other factors that could significantly affect these controls subsequent to
the date of the evaluation referenced above.
PART II
FORM 10QSB
WESTERN STANDARD CORPORATION
Other Information
1. Legal Proceedings.
At June 30, 2004, we are aware of only one pending lawsuit.
It involves a woman who slipped and fell in a parking lot
sustaining a left knee fracture. This allegedly took place
on November 23, 2002. Our exposure is limited to the
deductible on our insurance. We and our insurance company
Are actively contesting this claim.
2. Change in Securities
None
3. Defaults upon senior securities.
None
4. Submission of matters to a vote of security holders.
None
5. Other information.
None
6. Exhibits and reports on Form 8-K.
(a) Exhibit 99.1 & Exhibit 99.2
(b) Reports on Form 8-K
Form 8-K dated 6/12/01 is the last Form 8-K filed.
303(b) 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Introduction:
The following discussion should be read in conjunction with our Consolidated
Financial Statements included in this Form 10-QSB and other cautionary
statements contained herein. This discussion contains statements that are not of
a historical nature and that may be forward-looking statements, which involve
risks and uncertainties. Additionally, this discussion utilizes percentages and
dollar amounts in approximate terms.
Since the great majority of our operating revenues and our assets arise from our
interest in Snow King Resort, Inc. (SKRI), this discussion will primarily cover
our hotel and resort operations.
Results of Operations for the three months ended June 30, 2004 compared to the
three months ended June 30, 2003.
For the quarter, total Operating Revenues increased approximately 3%, while
Operating Expenses increased approximately 5.6%. We normally incur operating
losses during this quarter, and this year was no exception. Operating Loss
increased from approximately $59,000 to $114,000. More detailed operating
results follow, broken down by departments.
Room Department.
Room department revenues consist of hotel room rentals. Expenses attributable to
this department include the labor costs (including benefits), travel agency
commissions, courtesy vans, cable TV and supplies associated with housekeeping
and front desk operations.
In the second quarter of 2004 our hotel's average occupancy rate for the quarter
was 50.6% as compared with 49.9% for the same quarter of 2003. The average daily
rate (ADR) decreased from $100.68 in the second quarter of 2003 to $95.66 in
2004. Room department revenues decreased approximately 3.6% to approximately
$899,000. Room department expenses increased approximately 5.5%. Although we
were able to reduce labor costs, the department's operating expenses increased
mostly due to linen and guest supplies purchases and higher courtesy van repair
expenses. The departmental margin decreased from 63.9% for the second quarter of
2003 to 60.5% for the same period in 2004. Therefore the department's profit
decreased by approximately 3.4%.
Food and Beverage Department.
The food and beverage department revenues include those derived from operating
the restaurant, room service, banquet, lounge and conference services
departments. Departmental costs include the cost of purchasing food and
beverages, labor and associated benefits, entertainment, advertising for food
and beverage outlets and other miscellaneous supplies and expenses associated
with the department.
Second quarter 2004 revenues for this department decreased approximately 10%
from the second quarter of 2003. This decrease is mostly a result of the reduced
hotel group/conference occupancy particularly during April and May. The Beverage
sub-department was particularly affected with revenues down 31.8% for the
quarter. Banquet beverage revenues were down almost $20,000 to $13,600. The
department's loss of $23,000 for the 2004 second quarter compares with a profit
of $8,600 in 2003.
Mountain Operations.
Mountain operations revenues include ski lift tickets, season passes,
commissions, tubing park, scenic chairlift rides and alpine slide revenues.
Departmental Revenues were down 7.9% for the second quarter of 2004 compared to
the same period of 2003. Weather is always a factor when operating outdoor
recreational activities, and this June we had more rainy days that last year,
affecting our revenues. Additionally, we were confronted with considerable
repairs to the alpine slide track as a result of winter snow load damage and we
were not able to operate the slide for several days in early June. However, we
were able to decrease the amount of this department's quarterly operating loss
from $57,600 in 2003 to $34,900 in 2004. The existing alpine slide track
contains asbestos and we are replacing it over time with newer track sections
made from fiberglass. We are incurring additional training, repair and
replacement costs to the track. We conducted a voluntary survey of asbestos
contamination and had several of our employees certified as asbestos abatement
supervisors. All this additional expense affected our operating results for the
quarter. With the Alpine Slide in operation July and August this department's
performance is expected to improve during the third quarter.
Snow King Center.
Snow King Center operations are accounted for separately since Snow King Resort
Center, Inc (SKRCI) holds the lease of this facility. Revenues are derived from
ice floor rentals, dry floor rentals, food, beverage and resort surcharge sales.
Labor, food and beverage costs, utilities, insurance, supplies, lease payments
and other costs attributable to the Center constitute the operating expenses.
The Snow King Center revenues increased approximately 27% for the second quarter
of 2004 compared to the same period of 2003, while expenses increased almost
10%. We were able to attract more events to the Center this year and the
departmental profit increased 68% to $66,000 from $39,000 for the same period
last year.
Condominium Rentals.
We manage, under annual renewable contracts, rental operations for individual
condominium owners. Additionally, we manage the day-to-day affairs of 3
homeowners associations. For all these activities we earn fees. The departmental
expenses include direct housekeeping and maintenance labor, as well as a
pro-rata portion of the front desk and other sub-departments. Total sales,
including gross rentals, increased approximately 41% from 2003 to 2004, reaching
approximately $480,000. Profitability increased from $5,000 to $60,000.
Other Departments.
Income and expenses for this category consist of telecommunications, shop rentals, guest
services, laundry machines, activity/concierge desk and other miscellaneous income.
Departmental profit increased from $2,000 to $8,700.
Administration and General.
This cost category includes labor and expenses that are not directly
attributable to any operating departments. Labor includes the manager's office,
accounting, personnel and safety. Operating expenses include credit card
discounts, dues, subscriptions, data processing, supplies and other overhead
items. Labor costs associated with a quality and guest satisfaction initiatives
have increased costs. Second quarter 2004 expenses were $241,000 as compared
with $195,000 for the same period last year. Although we expect future increased
revenues as a result of these initiatives, we are continuing to incur added
initial costs.
Marketing.
We have increased our marketing efforts. Personnel, advertising and other
marketing costs for the second quarter of 2004 were $31,200 more than for the
same period in 2003, reaching $124,700. Internet marketing expenses are becoming
a larger share of the total marketing costs. The present competitive marketplace
requires constant monitoring of the various Internet wholesaler websites. We are
seeing results of our efforts in higher individual traveler advance bookings for
summer '04.
Maintenance.
Maintenance labor and expenses increased $8,000 to approximately $108,000. We
are improving our hotel's appearance and as a result our maintenance labor costs
have increased, particularly during our lower occupancy periods when we perform
most of the maintenance work.
Energy.
Electricity, gas and utilities were practically even with last year. Energy
costs decreased 0.2%for the second quarter.
Property Taxes and Insurance.
Property taxes have remained basically the same as for the prior year. Insurance
costs increased approximately 2% from $61,000 to $62,200.
Management Fees.
Management fees decreased 67% from last year.
Interest and Lease Expense.
Total interest and Lease expense for the second quarter increased from $90,300
in 2003 to $139,300 in 2004.
Depreciation and Amortization.
Depreciation and amortization expenses decreased by approximately $2,100 to
$139,000.
Profit and Loss.
Our net loss for the second quarter 2004 was approximately $391,800. This
compares with a net loss of $289,900 for the same period in 2003. We have
instituted further cuts in operational expenses and continue to expand our
marketing efforts. These efforts are expected to start showing positive results
in the third quarter.
Liquidity and Capital Resources.
Liquidity has been a problem for us and for SKRI for the past several years. Our
bank debt is higher than the operating business can support. This past winter
and spring we had drawn our lines of credit to the maximum and had to borrow
additional amounts from affiliated entities, such as Love Ridge Development,
from officers and directors and from bank borrowing guaranteed by officers and
directors.
We were able to refinance our debt by entering into a new mortgage loan with
Jackson State Bank. The net proceeds were used to pay down all the lines of
credit and the first mortgage on the hotel. It also gave the company some
operating capital. Personal guarantees were required for this new loan. SKRI
shareholders are guaranteeing the whole principal loan amount. We anticipate
that officers and directors will need to personally guarantee at least some
portions of any additional borrowings that will be necessary to construct
improvements for condominium expansion.
For the future we have decided to evolve the company from an operating entity
into an enterprise that incorporates operations as well as real estate
development, thereby unlocking our largest asset, the parcels of undeveloped
land under our control. We started this process over 4 years ago by preparing
and obtaining regulatory approval for a Master Development Plan for the entire
Snow King Resort. This Masterplan had an expiration date of December 2003,
unless a specific proposal for construction of a portion of the plan was
presented for approval. We accomplished that task on time and in April 2004 have
obtained final development plan approval for the construction of five buildings
containing approximately 40,000 square feet of condominiums. We applied for
building permits for 2 of these five buildings and obtained foundation permits
in August '04, so we could start construction this summer. Construction
financing is expected to be contingent upon further personal guarantees and
condominium pre-sales.
See our Annual Report on Form 10-KSB and particularly Item 1 thereof which
describes risks and challenges facing our company and our business.
WESTERN STANDARD CORPORATION
SIGNATURE
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.
WESTERN STANDARD CORPORATION
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(Registrant)
Dated: August 20, 2004 /s/ Manuel B. Lopez
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Manuel B. Lopez, President
