-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PFI6UKic+OOe/hRHCF7FLe8ttXZsKyNVpXFJq5JTEOexYZmuogjgtABb67zyjT3N 7/N4w/tFVp7eLJR0V6Hxng== 0000950147-98-000897.txt : 19981111 0000950147-98-000897.hdr.sgml : 19981111 ACCESSION NUMBER: 0000950147-98-000897 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980928 FILED AS OF DATE: 19981110 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MAIN STREET & MAIN INC CENTRAL INDEX KEY: 0000847466 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 112948370 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-18668 FILM NUMBER: 98741522 BUSINESS ADDRESS: STREET 1: 5050 NORTH 40TH ST STREET 2: STE 200 CITY: PHOENIX STATE: AZ ZIP: 85018 BUSINESS PHONE: 6028529000 MAIL ADDRESS: STREET 1: 5050 NORTH 40TH ST STREET 2: STE 200 CITY: PHOENIX STATE: AZ ZIP: 85018 FORMER COMPANY: FORMER CONFORMED NAME: ASSETRONICS INC DATE OF NAME CHANGE: 19900702 10-Q 1 QUARTERLY REPORT F.T.Q.E. 9/28/98 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly Period Ended September 28, 1998 Commission File Number: 000-18668 MAIN STREET AND MAIN INCORPORATED (Exact name of registrant as specified in its charter) DELAWARE 11-294-8370 (State of other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5050 N. 40TH STREET, SUITE 200, PHOENIX, ARIZONA 85018 (Address of principal executive offices) (602) 852-9000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 [ ] Number of shares of common stock, $.001 par value, of registrant outstanding at November 9, 1998: 9,975,041 MAIN STREET AND MAIN INCORPORATED INDEX PART 1. FINANCIAL INFORMATION Item 1. Financial Statements - Main Street and Main Incorporated Consolidated Balance Sheets - September 28, 1998 and December 29, 1997 3 Consolidated Statements of Operations - Three Months and Nine Months Ended September 28, 1998 and September 29, 1997 4 Consolidated Statements of Cash Flows - Nine Months Ended September 28, 1998 and September 29, 1997 5 Notes to Consolidated Financial Statements - September 28, 1998 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 11 SIGNATURES 11 2 MAIN STREET AND MAIN INCORPORATED CONSOLIDATED BALANCE SHEETS (In Thousands) SEPTEMBER 28, DECEMBER 29, 1998 1997 ------------- ------------ (UNAUDITED) ASSETS Current Assets: Cash and cash equivalents $ 10,145 $ 8,424 Accounts receivable, net 1,191 3,293 Inventories 1,128 1,043 Prepaid expenses 615 289 Assets held for disposal, net 363 363 -------- -------- Total current assets 13,442 13,412 Property and equipment, net 37,053 30,194 Other assets, net 3,398 3,091 Franchise costs, net 17,941 15,288 Note receivable -- 757 -------- -------- $ 71,834 $ 62,742 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt $ 1,233 $ 1,233 Accounts payable 3,536 3,890 Other accrued liabilities 10,877 9,619 -------- -------- Total current liabilities 15,646 14,742 -------- -------- Long-term debt, net of current portion 28,735 24,308 -------- -------- Other liabilities and deferred credits 1,743 1,489 -------- -------- Commitments and contingencies Stockholders' Equity: Common stock, $.001 par value, 25,000,000 shares authorized; 9,975,041 and 9,970,691 shares issued and outstanding in 1998 and 1997, respectively 10 10 Additional paid-in capital 44,149 44,145 Accumulated deficit (18,449) (21,952) -------- -------- 25,710 22,203 -------- -------- $ 71,834 $ 62,742 ======== ======== The accompanying notes are an integral part of these consolidated balance sheets. 3 MAIN STREET AND MAIN INCORPORATED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In Thousands, Except Per Share Amounts)
THREE MONTHS ENDED NINE MONTHS ENDED --------------------------- -------------------------- SEPTEMBER 28, SEPTEMBER 29, SEPTEMBER 28, SEPTEMBER 29, 1998 1997 1998 1997 ---- ---- ---- ---- Revenue $31,363 $29,050 $85,352 $ 84,580 ------- ------- ------- -------- Restaurant Operating Expenses: Cost of sales 9,022 8,441 24,309 24,189 Payroll and benefits 9,329 8,805 25,676 25,654 Depreciation and amortization 1,280 968 3,165 2,876 Other operating expenses 8,382 8,060 22,640 23,729 ------- ------- ------- -------- Total restaurant operating expenses 28,013 26,274 75,790 76,448 ------- ------- ------- -------- Income from restaurant operations 3,350 2,776 9,562 8,132 Other Operating (Income) Expenses: Depreciation and amortization 286 220 702 648 General and administrative expenses 1,305 1,340 3,594 3,468 Gain on disposal of assets -- -- -- (1,595) ------- ------- ------- -------- Operating income 1,759 1,216 5,266 5,611 Interest expense, net 537 622 1,763 1,905 ------- ------- ------- -------- Net income before taxes 1,222 594 3,503 3,706 Income tax expense -- -- -- -- ------- ------- ------- -------- Net income before extraordinary item 1,222 594 3,503 3,706 Extraordinary loss from debt extinguishment -- -- -- 1,638 ------- ------- ------- -------- Net income $ 1,222 $ 594 $ 3,503 $ 2,068 ======= ======= ======= ======== Diluted Earnings Per Share: Net income before extraordinary item $ 0.11 $ 0.06 $ 0.33 $ 0.37 Extraordinary loss from debt extinguishment -- -- -- (0.16) ------- ------- ------- -------- Net income $ 0.11 $ 0.06 $ 0.33 $ 0.21 ======= ======= ======= ======== Weighted average shares outstanding-diluted 10,747 10,266 10,619 10,026 ======= ======= ======= ========
The accompanying notes are an integral part of these consolidated financial statements. 4 MAIN STREET AND MAIN INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In Thousands) NINE MONTHS ENDED ----------------------------- SEPTEMBER 28, SEPTEMBER 29, 1998 1997 ---- ---- Cash Flows From Operating Activities Net Income $ 3,503 $ 2,068 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,867 3,524 Gain on disposal of assets -- (1,595) Extraordinary loss from debt extinguishment -- 1,638 Changes in assets and liabilities: Accounts receivable, net 40 (707) Inventories (85) 147 Prepaid expenses (326) (86) Other assets, net (870) (462) Accounts payable (354) (914) Other accrued liabilities 1,512 (2,103) -------- -------- Net Cash Flows - Operating Activities 7,287 1,510 -------- -------- Cash Flows From Investing Activities: Cash paid to acquire assets through business combination -- (880) Net additions to property and equipment (12,563) (2,913) Cash received from sale-leaseback transactions 2,920 1,641 Cash received from note receivable 757 -- Cash paid to acquire franchise rights (3,173) -- Cash received from sale of assets 2,062 11,588 -------- -------- Net Cash Flows - Investing Activities (9,997) 9,436 -------- -------- Cash Flows From Financing Activities: Proceeds from sale of common stock 4 2,449 Long-term debt borrowings 5,620 21,554 Principal payments on long-term debt (1,193) (29,740) -------- -------- Net Cash Flows - Financing Activities 4,431 (5,737) -------- -------- Net change in cash and cash equivalents 1,721 5,209 Cash and cash equivalents, beginning 8,424 2,613 -------- -------- Cash and cash equivalents, end $ 10,145 $ 7,822 ======== ======== Supplemental Disclosure of Cash Flow Information: Cash paid during the period for interest $ 1,968 $ 2,803 ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 5 MAIN STREET AND MAIN INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 28, 1998 (Unaudited) 1. The financial statements have been prepared by the Company without audit pursuant to the rules and regulations of the Securities and Exchange Commission. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly state the operating results for the respective periods. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations, although management of the Company believes that the disclosures are adequate to make the information presented not misleading. For a complete description of the accounting policies, see the Company's Form 10-K Report for the year ended December 29, 1997. 2. The Company operates on fiscal quarters of 13 weeks. 3. The results of operations for the three and nine months ended September 28, 1998 are not necessarily indicative of the results to be expected for a full year. 4. On January 16, 1997, the Company sold five restaurants in northern California (the "Northern California Sale") for $10,575,000 in cash and entered into a Management Agreement with the buyer to manage the restaurants. This transaction resulted in a gain before taxes of approximately $1,595,000. Of the total proceeds, $8,000,000 was used to reduce the Company's Term Loan with the balance used for working capital purposes. 5. During 1997, $26,500,000 of debt was repaid with proceeds from the Northern California Sale and with proceeds from new borrowings. The early extinguishment of the debt resulted in an extraordinary loss of approximately $1,638,000 before taxes. 6. In May 1998, the Company acquired six T.G.I. Friday's restaurants in northern California for approximately $6,800,000, funded in part by the assumption of existing long-term debt and the addition of new long-term debt for a total increase in debt of $5,737,000. 7. In April 1998, the Accounting Standards Executive Committee issued Statement of Position 98-5 ("SOP 98-5"), "Reporting on the Costs of Start-Up Activities". This statement is effective for fiscal years beginning after December 15, 1998. SOP 98-5 provides authoritative guidance on the financial reporting of start-up and organization costs, including the costs incurred prior to the opening of a restaurant, or preopening costs. This statement requires that such costs be expensed as incurred and not capitalized and amortized. The Company currently capitalizes and amortizes these costs over a one year period. The Company will adopt SOP 98-5 for its fiscal year beginning on December 29, 1998 and will commence expensing preopening costs as they are incurred. All unamortized costs outstanding at the end of the fiscal year ending December 28, 1998 will be 6 reported as the cumulative effect of a change in accounting principle, as described in Accounting Principles Board Opinion No. 20, "Accounting Changes", to be included in the financial statements for the fiscal year ended December 27, 1999. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the percentages that certain items of income and expense bear to total revenue:
THREE MONTHS ENDED NINE MONTHS ENDED --------------------------- --------------------------- SEPTEMBER 28, SEPTEMBER 29, SEPTEMBER 28, SEPTEMBER 29, 1998 1997 1998 1997 ---- ---- ---- ---- Revenue 100.0% 100.0% 100.0% 100.0% Restaurant Operating Expenses: Cost of sales 28.8 29.1 28.5 28.6 Payroll and benefits 29.7 30.3 30.1 30.3 Depreciation and amortization 4.1 3.3 3.7 3.4 Other operating expenses 26.7 27.7 26.5 28.1 ----- ----- ----- ----- Total restaurant operating expenses 89.3 90.4 88.8 90.4 ----- ----- ----- ----- Income from restaurant operations 10.7 9.6 11.2 9.6 Other Operating (Income) Expenses: Depreciation and amortization 0.9 0.8 0.8 0.8 General and administrative expenses 4.2 4.6 4.2 4.1 Gain on disposal of assets -- -- -- (1.9) ----- ----- ----- ----- Operating income 5.6 4.2 6.2 6.6 Interest expense, net 1.7 2.1 2.1 2.2 ----- ----- ----- ----- Net income before taxes 3.9% 2.1% 4.1% 4.4% ===== ===== ===== =====
Revenue for the three months ended September 28, 1998 increased by 8.0% to $31,363,000 compared with $29,050,000 for the comparable period in 1997. Revenue for the nine months ended September 28, 1998 increased 0.9% to $85,352,000 compared to $84,580,000 for the comparable period in 1997. These increases are attributed to increased same store sales and new units acquired and developed during 1998. Included in revenue are management fees derived from the Company's agreements to manage five restaurants in northern California, one restaurant in 7 El Paso, Texas, and three restaurants in Louisiana. Management fee income was $343,000 and $785,000 for the three months and nine months ended September 28, 1998, respectively. Same store sales for the quarter were up 4.3% as compared with an increase of 7.0% for the comparable period in 1997. Year-to-date same store sales were up 4.2% as compared with an increase in same store sales of 1.3% for the same period of the prior year. Cost of sales decreased as a percentage of revenue to 28.8% in the three months ended September 28, 1998 from 29.1% in the comparable period in 1997 and to 28.5% for the nine months ended September 28, 1998 from 28.6% for the comparable period in 1997. These decreases are primarily due to the Company's food cost reduction efforts and optimum pricing of all menu items. Labor costs as a percentage of revenue were 29.7% in the three months ended September 28, 1998, a decrease of 0.6% as compared with the same period in 1997. Labor costs as a percentage of revenue for the nine months ended September 28, 1998 were 30.1% as compared with 30.3% for the comparable period in 1997. The current quarter and year-to-date decreases as a percentage of revenue are in spite of the acquisition of six restaurants in May 1998, a $0.40 per hour increase in the federal minimum wage rate in September 1997 and an additional $0.60 per hour increase in California in March 1998. Other operating expenses decreased as a percentage of revenue to 26.7% in the three months ended September 28, 1998 from 27.7% in the comparable period in 1997 and to 26.5% for the nine months ended September 28, 1998 from 28.1% for the comparable period in 1997. These decreases are the result of the Company's programs to lower supply, insurance, and maintenance costs, as well as fluctuations in the percentage of revenue the Company pays to a national marketing fund administered by T.G.I. Friday's, Inc. Interest expense was $537,000 for the three months ended September 28, 1998 compared with $622,000 in the same period of 1997. This decrease is due to the allocation of interest costs to new restaurants under construction. No income tax provision was recorded in 1998 or 1997 due to the availability of net loss carryforwards. At December 29, 1997, the Company had approximately $14,700,000 of net operating and capital loss carryforwards to be used to offset future income for income tax purposes. LIQUIDITY AND CAPITAL RESOURCES The Company's current liabilities exceed its current assets due in part to cash expended on the Company's development requirements and because the restaurant business receives substantially immediate payment for sales, while payables related to inventories and other current liabilities normally carry longer payment terms, usually 15 to 30 days. At September 28, 1998, the Company had a 8 cash balance of $10,145,000 and monthly cash receipts have been sufficient to pay all obligations as they become due. The Company currently has five restaurants under development and is on schedule to complete four by the end of 1998 or in January 1999. These new restaurants are being funded partially from corporate funds and partially from debt and sale/leasebacks. The Company believes that its current cash resources, its lines of credit, and expected cash flows from operations will be sufficient to fund the Company's recurring capital needs during the next 12 months at its current level of operations. The Company has available debt and sale/leaseback financing commitments totaling $30,000,000 that will be utilized to help fund development activity through 1999. The Company may be required to obtain additional capital to fund its planned growth during the next 12-18 months and beyond. Potential sources of any such capital may include bank financing, strategic alliances and additional offerings of the Company's equity or debt securities. There can be no assurance that such capital will be available from these or other potential sources, and the lack of capital could have a material adverse effect on the Company's business. The Company leases its restaurants with terms ranging from 10 to 20 years. Minimum payments on the Company's existing lease obligations are approximately $4,800,000 per year through 2002. YEAR 2000 The Company has completed its assessment of the impact the Year 2000 issue will have on its information systems and operations. The Company's corporate information system, which consolidates operating results from all the restaurants and processes accounts payable and payroll, will be Year 2000 compliant through vendor software upgrades which will be completed during the first quarter of 1999. These updates are part of the software vendor's regular maintenance program and will be provided at no additional cost to the Company. The Company is currently evaluating new point-of-sale equipment along with new back-office hardware and software for each of its restaurants. These systems and related equipment which process guest orders, schedule labor, and provide store level operating data, need to be upgraded periodically to incorporate the latest technology. To insure that these systems are Year 2000 compliant, the Company expects to invest approximately $600,000 over the next 12 months to upgrade the back-office hardware and software. These enhancements will be made in the normal course of business to keep the Company current in its technology and information systems, to keep it competitive with other restaurant companies and to insure the Company is Year 2000 compliant. 9 FORWARD-LOOKING STATEMENTS This report contains forward-looking statements, including statements regarding the Company's business strategies, the Company's business, and the industry in which the Company operates. These forward-looking statements are based primarily on the Company's expectations and are subject to a number of risks and uncertainties, some of which are beyond the Company's control. Actual results could differ materially from the forward-looking statements as a result of numerous factors, including those set forth in the Company's Form 10-K for the year ended December 29, 1997, as filed with the Securities and Exchange Commission. 10 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - 27.1 Financial Data Schedule (b) The Company did not file any reports on Form 8-K during the three months ended September 28, 1998 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Main Street and Main Incorporated Dated: November 9, 1998 /s/ Bart A. Brown Jr. ----------------------------------- Bart A. Brown Jr., President and Chief Executive Officer Dated: November 9, 1998 /s/ James Yeager ----------------------------------- James Yeager, Corporate Controller and Secretary 11 EX-27.1 2 FINANCIAL DATA SCHEDULE
5 THIS EXHIBIT CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE REGISTRANT'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED SEPTEMBER 28, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-28-1998 SEP-28-1998 10,145 0 1,191 0 1,128 13,442 51,278 (14,225) 71,834 15,646 28,735 0 0 10 25,700 71,834 85,352 85,352 24,309 75,790 4,296 0 1,763 3,503 0 3,503 0 0 0 3,503 .35 .35
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