SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Three Months Ended Commission File Number
September 28, 1997 0-22315
ARTHUR TREACHER'S, INC
7400 Baymeadows Way, Suite 300
Jacksonville, Florida 32256
(904) 739-1200
Utah 22-2312917
(State of Incorporation) (I.R.S. Employer Identification No.)
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No[ ]
At October 31, 1997, the latest practicable date, there were 14,399,548
shares of Common Stock outstanding, $.01 par value.
1
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ARTHUR TREACHER'S, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements:
Consolidated Balance Sheets for 3-4
September 28, 1997 and June 30, 1997
Consolidated Statements of Operations 5
for the three months
July 1, 1997 through September 28, 1997 and
July 1, 1996 through September 29, 1996
Consolidated Statements of Cash Flows 7
for the three months
July 1, 1997 through September 28, 1997 and
July 1, 1996 through September 29, 1996
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 9
PART II. OTHER INFORMATION 12
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ARTHUR TREACHER'S INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 28, 1997 AND JUNE 30, 1997
ASSETS September June
1997 1997
(unaudited) (audited)
CURRENT ASSETS
Cash and cash equivalents $ 705,256 $ 867,847
Accounts receivable, net of allowance
for doubtful accounts of $26,653 in
September 1997 and $25,900 in June 1997 163,270 137,598
Inventories 277,846 288,663
Prepaid Expenses 249,533 181,544
Other 18,906 0
TOTAL CURRENT ASSETS 1,414,811 1,475,652
OTHER ASSETS
Security deposits 139,116 151,451
Goodwill 312,934 317,016
Other 89,613 8,233
TOTAL OTHER ASSETS 541,663 476,700
PROPERTY AND EQUIPMENT, at cost
Land 150,000 150,000
Buildings 306,300 306,300
Leasehold improvements 4,143,011 4,160,812
Furniture, Fixtures and Equipment 3,146,969 3,166,180
TOTAL PROPERTY AND EQUIPMENT 7,746,280 7,783,292
Less - accumulated depreciation 2,357,273 2,112,778
PROPERTY AND EQUIPMENT, NET 5,389,007 5,670,514
TOTAL ASSETS $7,345,481 $7,622,866
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ARTHUR TREACHER'S INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 28, 1997 AND JUNE 30, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY (Deficit) September June
1997 1997
(unaudited) (audited)
CURRENT LIABILITIES
Accounts payable $1,311,529 $1,050,956
Accrued expenses and taxes withheld 559,962 654,527
Current maturities of long-term debt 445,837 369,863
TOTAL CURRENT LIABILITIES 2,317,328 2,075,346
LONG-TERM DEBT, net of current portion 1,419,379 1,570,305
Other liabilities 405,856 392,705
TOTAL LIABILITIES 4,142,563 4,038,356
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock 577,200 577,200
Common Stock 143,992 143,992
Additional Paid-in-capital 9,704,248 9,704,248
Accumulated Deficit (7,222,522) (6,840,930)
TOTAL STOCKHOLDERS' EQUITY 3,202,918 3,584,510
TOTAL LIABILITIES and STOCKHOLDERS' EQUITY $7,345,481 $7,622,866
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ARTHUR TREACHER'S INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
July 1, 1997 July 1, 1996
through through
September 28,1997 September 29, 1996
(unaudited) (unaudited)
TOTAL REVENUE $5,885,766 $2,184,477
OPERATING EXPENSES :
Cost of Sales, including occupancy
except depreciation 3,062,703 1,182,376
Operating Expenses 2,433,086 788,575
Depreciation and Amortization 262,093 68,674
General and Administrative and Franchise
services 438,734 428,415
TOTAL OPERATING EXPENSES 6,196,616 2,468,040
LOSS FROM OPERATIONS (310,850) (283,563)
OTHER INCOME, net (70,742) (118,438)
NET LOSS ($381,592) ($402,001)
NET LOSS PER COMMON SHARE ($0.03) ($0.04)
AVERAGE SHARES OUTSTANDING 14,399,248 11,145,996
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ARTHUR TREACHER'S INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS
July 1, 1997 July 1, 1996
through through
September September
28, 1997 29, 1996
(unaudited) (unaudited)
Operating activities:
Net loss (381,592) (402,001)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 262,093 68,674
Loss on disposition of restaurants - 24,994
(increase) decrease in accounts
receivable (25,672) (3,859)
(increase) decrease in deposits
and other assets 2,356 4,840
(increase) decrease in prepaid expenses (67,989) (47,401)
(increase) decrease in inventory 10,817 (38,522)
(Decrease) increase in accounts payable 260,573 113,771
(Decrease) increase in accrued
expenses and other liabilities (94,565) (98,541)
Net cash (used in) and provided
by operating activities (33,979) (378,045)
Investing activities:
Purchase acquisitions of restaurants (230,974)
Deposits in escrow (28,004)
Capital expenditures (53,660)
Proceeds from disposition of restaurants - 19,500
Net cash used in investing
activities (53,660) (239,478)
Financing activities:
Issuance of common stock 99,051
Cash received from common stock subscribed 359,105
Principal payments on long-term debt (74,952) (67,630)
Net cash provided by
financing activities (74,952) 390,526
Net (decrease) increase in cash
and cash equivalents (162,591) (226,997)
Cash and cash equivalents beginning
of period 867,847 990,683
Cash and cash equivalents end of period 705,256 763,686
Supplemental disclosure of cash flow information:
Cash paid for interest 22,857 36,476
Supplemental disclosure of noncash transactions:
Seller finance debt incurred
in restaurant purchase 69,962
6
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ARTHUR TREACHER'S, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 28, 1997
NOTE 1 - BASIS OF PRESENTATION
The accompanying interim unaudited financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission,
and reflect all adjustments which, in the opinion of management, are necessary
to properly state the results of operations and financial position. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations although management
believes that the disclosures are adequate to make the information presented not
misleading. The results of operations are not necessarily indicative of the
results for the full year. These financial statements should be read in
conjunction with the financials and notes thereto included in the Company's
audited financial statements included in the Form 10K-SB for the fiscal year
ended June 30, 1997 filed with the Securities and Exchange Commission on
September 2, 1997.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation: The interim consolidated financial statements
include the accounts of the company and its wholly-owned subsidiaries.
MIE Hospitality, Inc., a wholly-owned subsidiary, which operates 31 Arthur
Treacher's Fish and Chip's restaurants in Pennsylvania, New York, New Jersey and
Delaware.
Arthur Treacher's Management Co., a wholly-owned subsidiary, provides
payroll services to the company.
Arthur Treacher's Advertising Co., a wholly-owned subsidiary, provides
certain advertising services to the company and the franchisee's.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
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The Company is involved in various other claims and legal actions arising
in the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated results of opeations or financal position.
The Company has entered into an agreement with the former president and
Chief Executive Officer to provide consulting services to the Company at a rate
of $100,000 per year for two years, which commenced June 1, 1996 and terminates
on May 31, 1998.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
Safe Harbor Statement Under the Private Securities Litigation Reform Act of
1995.
Information set forth herein contains "forward-looking statements" which
can be identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "should" or "anticipates" or the negative thereof or other
variations thereon or comparable terminology, or by discussions of strategy. No
assurance can be given that the future results covered by the forward-looking
statements will be achieved. The Company cautions readers that important factors
may affect the Company's actual results and could cause such results to differ
materially from forward-looking statements made by or on behalf of the Company.
Such factors include, but are not limited to, changing market conditions, the
impact of competition, pricing and acceptance of the Company's products.
Overview
The Company's principal sources of revenues are from the operations of the
Company owned restaurants and the receipt of royalties from franchisees. The
Company's cost of sales includes food, supplies and occupancy costs (rent and
utilities at Company owned stores). Operating expenses include labor costs at
the Company owned stores and advertising, marketing and maintenance costs.
Franchise services and selling expenses include fees payable to regional
representatives and their expenses and the salary of the Company's Director of
Franchise Services. General and administrative expenses includ' costs incurred
for corporate support and administration, including the salaries and related
expenses of personnel at the Company's headquarters in Jacksonville, Florida
(except the Director of Franchise Services), the costs of operating the
headquarters offices (rent and utilities) and certain related costs (travel and
entertainment).
Results of Operations
The following discussions are based on the financial results for the following
periods:
Unaudited interim financial statements for the three months ended
September 28, 1997 and three months ended September 29, 1996.
The results for the three months ended September 29, 1996 do not include
the operations of M.I.E. Hospitality, Inc. which was acquired on November 27,
1996.
1997 Three months and 1996 Three months
The Company's revenues increased from $2,184,477 for the three month period
ended September 29, 1996 to $5,885,766, for the three month period ended
September 28, 1997,
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an increase of 169%. This increase was primarily driven by the Company's
acquisition of MIE Hospitality, Inc. ("MIE"), which produced $3,603,389 in
revenues. The increase in revenues was also stimulated by new marketing
campaigns and new menu promotion items such as scallops, oysters, popcorn shrimp
and jumbo shrimp.
The Company's total operating expenses increased by 151% or $3,728,576 to
$6,196,616 for the three month period ended September 28, 1997 compared to the
same period last year. 93% of the increase was attributable to the operation of
the 31 restaurants acquired in the MIE purchase which totaled $3,460,816 of the
increase. Total cost and expenses as a percentage to revenues improved 9% from
the same period last year.
The most significant increase from revenues came from net restaurant sales
(defined as total restaurant sales less coupons, promotions and discounts) which
increased 182.1% or $3,276,450 to $5,075,970 compared to the same period last
year of $1,799,520. The restaurants acquired in the purchase of MIE contributed
$3,138,531 on the increase in net restaurant sales. Franchise and royalty income
decreased 31.2% or $96,212 to $212,609 primarily because of the acquisition of
the MIE Hospitality, Inc., which owned 31 franchised restaurants. Regional
representative fees declined in conjunction with the purchase of several
franchise restaurants compared to the same period last year.
Cost of sales from restaurant operations declined by 6.77% on net
restaurant sales compared to the same period last year. This improvement was
primarily caused by reducing contract prices with several major suppliers,
improving cost controls and new promotional price points.
General and administrative cost increased by 12.4% or $35,371 to $320,056
for the three month period ended September 28, 1997 compared to $284,685 for the
same period last year. This was primarily a result of the various legal and
accounting charges incurred for NASD registration and the preparation of a
registration statement with the Securities and Exchange Commission.
Interest expense increased 19.3% to $45,743 for the three month period
ended September 28, 1997 compared to $38,357 the same period last year. The
increase in interest expense was a function of the recent acquisitions.
Depreciation and amortization increased to 281.7% to $262,093 for the three
month period ended September 28, 1997 from $68,674 compared to the same period
last year. This increase is primarily driven by the acquisitions and
construction of new restaurants which occurred subsequent to the comparable
period ended September 29, 1996.
The Company considers loss before other income (expense) and depreciation
and amortization to be a key indicator of performance. This loss has
significantly decreased by 77.3% to $48,757 for the period ended September 28,
1997 compared to
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214,889 the same period last year. This improvement was primarily a result
of the acquisition of MIE which contributed a net gain from restaurant
operations of $305,770 for the three month period ended September 28, 1997.
As a result of the foregoing, the Company's net loss decreased 5.1% to
$381,592 for the three month period ended September 28, 1997 compared to a loss
of $402,001 for the same period last year. A significant portion of the loss was
due to the increase in depreciation and amortization expense of $193,419.
Liquidity
The Company has financed its operations principally from revenues derived
from Company owned restaurants, franchise royalties, private placements of
equity and credit lines from various financial institutions. The Company's
current liabilities exceeded its current assets by $902,517 at September 28,
1997 compared to $599,694 at June 30, 1997. The Company had cash and cash
equivalents of $705,256 at September 28, 1997 compared to $867,847 at June 30,
1997.
Over the past 18 months, the Company has raised $7,505,313 in private
placements through the sale of shares of common stock to fund acquisitions,
develop the Seafood Grille concept and provide working capital. The Company is
in the process of a best efforts private placement offering of Preferred Stock
to raise between $500,000 and $1,500,000 in capital.
The Company anticipates that it will need additional capital to fund
investments in capital expenditures related to the Seafood Grille concept. The
Company also has begun a restaurant renovation program which is being financed
by a $750,000 credit line with a financial institution, in which the obligation
is secured by certain equipment and leasehold interests in restaurant locations.
Selected Company owned restaurants in northeast Ohio and central Pennsylvania
will receive new interiors, outdoor signage and exterior improvements. The
Company expects to have a significant portion of the renovations completed prior
to the end of November to capitalize on the high traffic generated from the
Christmas shopping season.
The promissory note in the principal amount of $1,139,563 incurred in the
purchase of MIE requires a semi-annual principal payment of $113,956 on June 1,
1998 in addition to the 8% interest payment which began on June 1, 1997. Also,
on September 1, 1998, a promissory note in the principal amount of $390,418 is
payable in full to Magee Industrial Enterprises.
For the three month period ended September 28, 1997, management has reduced
the cost of sales by 6.77%, total cost and expenses by 9.01%, general and
administrative costs by
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7.59% as a percentage to total revenues and reduced the loss from
operations before depreciation and amortization by $166,132 compared to the same
period last year.
For the three month period ended September 28, 1997, the Company
experienced a negative cash flow resulting primarily from cash losses in the
Cincinnati and Florida markets, the development of the new seafood grille
concept in Detroit, increased professional fees related to SEC and NASDAQ
registrations and lease obligation settlements. Management is pursuing
arrangements to limit its financial obligations and operating expenses at
certain under performing company owned restaurants. On July 28, 1997, the
Company entered into a management agreement to operate three restaurants in the
Cincinnati market. Under the management agreement, the manager is responsible
for operating costs in connection with these restaurants and the Company will
receive a fee based on a percentage of the stores revenues and certain minimum
monthly payments. The agreement transfers financial responsibilities to the
operator, who will become a franchisee at each location upon the contractual
fulfillment of each lease for each restaurant being operated under the
management agreement.
The Company believes that with its current cash resources including the
anticipated issue of Preferred Stock, cash flow from operations, continued cost
savings and anticipated proceeds from a sale-leaseback of real estate on one
location in central Pennsylvania there will be adequate working capital through
September 28, 1998.
Seasonality
The Company derives a significant portion of its sales during the November
and December holiday season, which is reflected in the Company's operating
results for the second quarter ending December 31. This seasonal effect is
dependent upon the general retailing environment and customers' preference to
shopping malls. Approximately 70% of the Company's restaurants are in shopping
malls. The Company derives approximately 15% of its total annual revenues from
operations of the stores located in shopping malls during the holiday season.
PART II OTHER INFORMATION
Item 1 Legal Proceedings
None
Item 2 Changes in Securities
None
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Item 3 Defaults on Senior Securities
None
Item 4 Submission of Matters to a Vote of Shareholders
None
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
None
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.
ARTHUR TREACHER'S, INC.
(Registrant)
/s/ R. Frank Brown
R. FRANK BROWN
President, Chief Executive
Officer and Treasurer
Date: November 12, 1997
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This is a 10-QSB.
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<FISCAL-YEAR-END> Jun-30-1997
<PERIOD-START> Jul-1-1997
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<CASH> 705,256
<SECURITIES> 0
<RECEIVABLES> 163,270
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577,200
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