U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
|X| Quarterly report under Section 13 or 15(d) of the Securities and Exchange
Act of 1934 for the quarterly period ended July 15, 1997.
|_| Transition report under Section 13 or 15(d) of the Securities and
Exchange Act of 1934 for the transition period from _____ to_______.
COMMISSION FILE NUMBER 333-5488-D
STOICO RESTAURANT GROUP, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 48-1177558
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Brittany Two Place, 1938 N. Woodlawn, Suite 301
Wichita, Kansas 67208
(Address of principal executive office) (Zip code)
(316) 691-8880
(Issuer's telephone number, including area code)
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 past 90 days. Yes |X| No |_|.
At July 15, 1997, 5,708,966 shares of common stock, $0.01 per share par
value were outstanding.
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
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STOICO RESTAURANT GROUP, INC.
INDEX TO 10-QSB FOR THE QUARTERLY
PERIOD ENDED JULY 15, 1997
PAGE
----
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Stoico Restaurant Group, Inc. and Subsidiaries Consolidated
Balance Sheets - July 15, 1997 and December 31, 1996 3
Stoico Restaurant Group, Inc. and Subsidiaries Consolidated
Statements of Operations - Twelve Week Period and Twenty-
Eight Week Period ended July 15, 1997 and July 9, 1996,
respectively. 4
Stoico Restaurant Group, Inc. and Subsidiaries Consolidated
Statements of Cash Flows - Twenty-Eight Week Period ended
July 15, 1997 and July 9, 1996, respectively. 5
Notes to Consolidated Financial Statements - July 15, 1997 6
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION8
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS 16
ITEM 2: CHANGES IN SECURITIES 16
ITEM 3: DEFAULTS UPON SENIOR SECURITIES 16
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 16
ITEM 5: OTHER INFORMATION 16
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 17
SIGNATURES 18
2
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<TABLE>
<CAPTION>
Stoico Restaurant Group, Inc. and Subsidiaries
Consolidated Balance Sheets
July 15, 1997 and December 31, 1996
<S> <C> <C>
July 15, December 31,
Assets 1997 1996
------ --------- -----------
(Unaudited)
Current assets:
Cash and cash equivalent $ 136,743 $ 2,271,550
Receivables 125,290 59,351
Inventories 189,270 177,909
Prepaid expenses and other current assets 181,667 253,216
----------- -----------
Total current assets 632,970 2,762,026
Property and equipment 5,301,905 4,521,779
Goodwill, net of amortization of $118,855 and $76,655,
respectively 947,214 989,413
Notes receivable:
Former Officer 66,873 225,000
Other, net of related deferred income of
$201,560 33,024 22,077
Other assets 13,046 51,225
----------- -----------
Total assets $ 6,995,032 $ 8,571,520
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 1,384,726 $ 1,963,764
Accrued expenses 336,112 300,282
Current portion of long-term debt 653,002 190,191
Note Payable - officer 68,000 -
Deferred revenue 75,000 195,000
----------- -----------
Total current liabilities 2,516,840 2,649,237
Long-term debt, less current portion 22,343 43,580
Long-term lease obligation on closed store 80,965 116,951
Deferred revenue 35,000 95,000
----------- -----------
Total liabilities 2,655,148 2,904,768
Stockholder's equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, -0- shares issued-and outstanding - -
Common stock, $.01 par value, 20,000,000 shares
authorized, 5,708,966 issued and outstanding 57,090 57,090
Additional paid-in capita1 4,285,754 14,285,754
Accumulated deficit (10,002,960) (8,676,092)
----------- -----------
Total stockholders' equity 4,339,884 5,666,752
----------- -----------
Commitments - -
----------- -----------
Total liabilities and stockholders' equity $6,995,032 $ 8,571,520
=========== ===========
</TABLE>
3
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<TABLE>
<CAPTION>
Stoico Restaurant Group, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Twelve Week Period Twenty-Eight Week
Ended Period Ended
_______________________________________________________
<S> <C> <C> <C> <C>
July 15, July 9, July 15, July 9,
1997 1996 1997 1996
_______________________________________________________
Revenues:
Sales $2,140,227 $1,656,574 $5,137,715 $3,649,014
Royalty income 20,345 28,707 50,313 73,575
Franchise Fees 15,000 34,000 60,000 34,000
_______________________________________________________
Total revenue 2,175,572 1,719,281 5,248,028 3,756,589
_______________________________________________________
Cost of sales:
Food and paper 656,606 549,583 1,533,139 1,151,558
Wages and benefits 844,137 527,715 1,963,539 1,153,731
_______________________________________________________
Total cost of sales 1,500,743 1,077,298 3,496,678 2,305,289
_______________________________________________________
Gross profit 674,829 641,983 1,751,350 1,451,300
Restaurant operating expenses 854,287 509,839 1,886,781 1,094,571
Pre-opening expenses 7,217 36,584 123,036 36,584
Administrative expenses 455,376 340,091 1,105,006 854,626
Noncash compensation expense - 13,749 - 13,749
_______________________________________________________
Operating loss (642,051) (258,280) (1,363,491) 548,230)
Other income (expense):
Miscellaneous other income 28,351 (6,930) 31,303 26,074
Provision for lease obligation on
closed store - (175,855) - (175,855)
Interest income 7,841 11,871 28,999 25,768
Interest expense (14,157) (139,953) (23,679) (309,605)
_______________________________________________________
Loss before income (620,016) (569,147) (1,326,868) (981,848)
Income taxes - - - -
_______________________________________________________
Net loss $(620,$16) $ (569,147) $ (1,326,868) $(981,848)
========================================================
Total weighted average of common and common
equivalent shares 5,730,700 4,328,756 5,730,700 4,307,251
========================================================
Loss per common share $ (.11) $ (.13) $ (.23) $ (.23)
========================================================
</TABLE>
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<TABLE>
<CAPTION>
Stoico Restaurant Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<S> <C> <C>
Twenty-Eight Week
Period Ended
-----------------
July 15, July 9,
1997 1996
------- -------
Cash from operating activities:
Net loss $(1,326,86$) $ (981,848)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 508,291 251,216
Gain on disposal of equipment (24,786) (23)
Noncash compensation expense - 13,749
Income attributable to Area Development fee forfeiture (45,000) -
(Increase) decrease in receivables (65,939) 5,716
Increase in inventories (11,361) (1,553)
Decrease (increase) in notes receivable 147,180 (158,127)
Decrease (increase) in prepaid expenses and other current assets 71,549 (10,911)
Decrease in other assets 38,179 16,325
Decrease in accounts payable (579,038) (357,245)
Increase (decrease) in accrued expenses 35,830 (33,752)
(Decrease) increase in long term lease obligation on closed store (35,986) 123,333
(Decrease) increase in deferred revenue (15,000) 203,083
------- -------
Net cash used in operating activities (1,302,949) (930,037)
------- -------
Cash flows from investing activities:
Purchase of property, plant and equipment (1,309,338) (256,586)
Proceeds from sale of restaurant 87,906 251,300
----------- --------
Net cash (used in) provided by investing activities (1,221,432) (5,286)
----------- --------
Cash flows from financing activities:
Proceeds from issuance of long term debt 500,000 1,000,000
Principal payments on long-term debt (58,426) (183,224)
Principal payments on officer note payable (52,000) -
Proceeds from issuance of common stock - 315,095
Deferred offering costs - (124,722)
----------- --------
Net cash provided by financing activities 389,574 1,007,149
----------- --------
Net (increase) decrease in cash and cash equivalents (2,134,807) 71,826
Cash and cash equivalents at beginning of period 2,271,550 784,171
----------- --------
Cash and cash equivalents at end of period $ 136,743 $855,997
========== ========
</TABLE>
STOICO RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB and, therefore, do not include
all information and footnotes necessary for a fair presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles. The information furnished, in the opinion of
management, reflects all adjustments, which consist of normal recurring
adjustments, necessary to present fairly the results of operations of Stoico
Restaurant Group, Inc. and subsidiaries (the "Company") for the twenty-eight
week period ended July 15, 1997, and July 9, 1996. The consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto, together with management's discussion and analysis
of financial condition and results of operations, contained in the Company's
Annual Report dated March 27, 1997.
In February 1997, FASB issued Statement No. 128, Earnings Per Share (FAS
128), effective for the Company for the interim periods and years ended after
December 15, 1997. FAS 128 replaces the presentation of primary earnings per
share (EPS) with a presentation of "basic" EPS. Basic EPS excludes the dilutive
effects of common stock equivalent shares in its calculation. A diluted EPS will
still be required, and will be computed similarly to the current fully diluted
EPS . Under FAS 128, both the basic and diluted EPS amounts will be presented in
the financial statements. Also, the statement will require restatement of all
prior period EPS data presented in the financial statements. EPS as calculated
at June 30, 1997 would not be materially different if calculated using basic
EPS.
(2) Income (Loss) Per Share
Loss per share is determined based on the weighted average number of common
and common equivalent shares outstanding during each period. The weighted
average number of common and common equivalent shares outstanding for the
twenty-eight weeks ended July 15, 1997 and July 9, 1996 were 5,730,700 and
4,307,251, respectively.
(3) Statements of Cash Flow
Noncash financing and investing activities consist of the following for the
period ended July 15, 1997 and July 9, 1996 respectively:
July 15, 1997
o Deferred revenue reclassified to note payable to an officer of $120,000.
July 9, 1996
o Property and equipment sold in exchange for note receivable, net of related
deferred income of $201,560
5
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(4) Related Party Transactions
On July 17 1996, the Company made a loan to Timothy J. Jeffrey, the former
President, Chief Executive Officer and a director of the Company in the amount
of $66,873.31 due July 31, 1997. As of the filing of this report that loan has
not been paid.
In February 1997 the Company's board of directors determined that $120,000
advanced to the Company by one of its officers should be refunded. Accordingly,
this amount was reclassified from deferred revenue to note payable - officer, of
which $68,000 is still payable as of July 15, 1997.
(5) Subsequent Events
The following events occurred subsequent to July 15, 1997:
o Corporate office was moved on August 29, 1997.
o Six under performing restaurants have been closed that were previously
opened earlier in 1997 or late 1996.
o The Company borrowed $500,000 on a short term basis from WFB, Inc., a major
stockholder of the Company, to fund a portion of the Company's cash flow
deficit.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
Company-Owned Restaurants Opened at End of Period
Twenty-Eight Weeks Ended
------------------------
July 15 July 9,
1997 1996
---------- ---------
Spaghetti Jack's 11 4
Sub & Stuff 22 16
Results of Operations
The following table sets forth information derived from the Company's
statement of operations expressed as a percentage of revenues:
Twenty-Eight Weeks Ended
------------------------------
July 15, July 9,
1997 1996
--------------- --------------
Revenues................................ 100.00% 100.00%
Cost of sales........................... 66.6 61.3
Restaurant operating expenses........... 36.0 29.1
Pre-opening expenses.................... 2.3 1.0
Administrative expenses................. 21.1 22.7
Other income (expense).................. .7 (11.6)
Income taxes............................ 0.0 0.0
Noncash compensation expense............ 0.0 .4
Net loss................................ (25.3) (26.1)
7
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Twelve Week Period Ended July 15, 1997 and July 9, 1996
Revenues
Revenues for the twelve week period ended July 15, 1997 increased by
$456,291 or 26.5% compared to the twelve week period ended July 9, 1996
primarily for the reasons discussed below. Spaghetti Jack's restaurant sales
increased by $377,436 or 88.0% in 1997. The increase in sales is the result of
the opening of three Company-owned restaurants during 1997, and the opening of
four Company-owned restaurants late in 1996. Comparable restaurant sales
(defined as sales from restaurants open during both fiscal periods for the
entire period) for Spaghetti Jack's decreased by $127,033 or 30.1% in the
aggregate. Sub & Stuff restaurant sales increased by $106,216 or 8.7% in 1997.
The increase in sales is the result of opening four Company-owned restaurants in
the first quarter 1997, the opening of three restaurants late in 1996, the
opening of two restaurants in the second quarter of 1996, relocating one store,
relocating and dual branding the second Sub & Stuff restaurant by adding the
Spaghetti Jack's menu, and dual branding the third Sub & Stuff restaurant in an
existing location by adding the Spaghetti Jack's menu. Comparable restaurant
sales for Sub & Stuff decreased by $53,752 or 5.1% in the aggregate. These
decreases in comparable restaurant sales for Spaghetti Jack's and Sub & Stuff
are due to discontinuing couponing as a marketing tool in early 1997, and
increased competition in their core market. Spaghetti Jack's royalty income
decreased by $7,959 or 32.2% in 1997, compared to the same period in 1996, due
to the closing of three franchise stores. Sub & Stuff royalty income decreased
$403 or 10.0% in 1997, compared to the same period in 1996. Sub & Stuff's
franchise fees for the twelve week period ended July 15, 1997 were $15,000 which
is the result of the addition of one franchisee. For the period ended July 9,
1996, Sub & Stuff's franchise fees were $9,000 which is the result of the
addition of one franchisee. Spaghetti Jack's franchise fees for the same period
ended July 9, 1996 were $25,000 which is the result of the addition of one
franchisee.
Cost of Sales
Cost of sales for the twelve week period ended July 15, 1997, compared to
the twelve week period ended July 9, 1996, increased $423,445 or 39.3% primarily
as a result of opening seven Company-owned restaurants in 1997, and six
Company-owned restaurants in the last quarter of 1996, and two Company-owned
restaurants in the second quarter of 1996. Spaghetti Jack's food and paper costs
increased by $128,863 or 102.6% in 1997, compared to the same period in 1996.
This increase is attributed to the opening of three Company-owned restaurants in
1997 and four Company-owned restaurants in the comparable period in 1996. As a
percentage of Spaghetti Jack's sales, the cost of food and paper increased to
31.5% in 1997 from 29.3% compared to the same period in 1996. This increase is
due to a decrease in sales and an increase in product specifications. Sub &
Stuff food and paper cost decreased by $21,839 or 5.2% in 1997, compared to the
same
8
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period in 1996. This decrease is attributed to operational efficiencies,
reductions in product specifications and a price increase. As a percentage of
Sub & Stuff sales, the cost of food and paper decreased to 30.2% in 1997 from
34.5% in the comparable period in 1996. Spaghetti Jack's cost of wages and
benefits increased by $217,590 or 170.2% in 1997, compared to the twelve week
period ended July 9, 1996. As a percentage of Spaghetti Jack's restaurant sales,
the cost of wages and benefits increased to 42.8% in 1997 from 29.8% in 1996.
This increase in wages and benefits, as a percentage of restaurant sales, is a
result of the fixed component of management salaries and crew wages, compared to
the low sales volume of the new restaurants, sales decreases in same store
sales, labor efficiencies and productivity of the new restaurants, Sub & Stuff
wages and benefits increased by $98,836 or 24.7% in 1997, compared to the same
period in 1996. As a percentage of Sub & Stuff restaurant sales, the cost of
wages and benefits increased to 37.4% in 1997 from 32.6% in the comparable
period in 1996. This increase is attributed to the opening of Company-owned
restaurants as stated above.
Restaurant Operating Expense
Overall restaurant operating expenses for the twelve week period ended July
15, 1997, compared to the twelve week period ended July 9, 1996, increased by
$344,448 or 67.6% primarily as a result of opening seven Company-owned
restaurants in 1997, six Company-owned restaurants in the last quarter of 1996
two Company-owned restaurants in the second quarter of 1996, as well as, an
increase in depreciation and amortization associated with new restaurant
development. Spaghetti Jack's restaurant operating expenses increased by
$232,718 or 138.8% primarily a result of opening three Company-owned restaurants
in 1997, four Company-owned restaurants in the last quarter of 1996. As a
percentage of Spaghetti Jack's restaurant sales, operating expenses increased to
49.6% in 1997, compared to 39.1% in the comparable twelve week period ended July
9, 1996. Spaghetti Jack's fixed costs totaled $78,846 for the twelve week period
ended July 9, 1996, as compared to $266,138 for the comparable period in 1997
due to the new store additions. Sub & Stuff's operating expenses increased by
$112,008 or 32.8% in 1997, primarily the result of new store openings, as well
as an increase in depreciation and amortization associated with new restaurant
development. As a percentage of Sub & Stuff restaurant sales, operating expenses
increased to 34.% compared to 27.9% in the comparable twelve week period ended
July 9, 1996. Spaghetti Jack's depreciation and amortization costs totaled
$74,517 for the twelve week period ended July 15, 1997, as compared to $31,498
for the comparable twelve week period ended July 9, 1996.
Pre-opening Expenses
Pre-opening expenses are those costs associated with the opening of a
Company-owned restaurant. The expenses consist principally of non-recurring
costs such as employee recruiting and training and supplies and miscellaneous
expenditures. During the twelve week period ended July 15, 1997, expenses
totaled $7,217 related to the conversion
9
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of the third dual branded Sub & Stuff restaurant by adding the Spaghetti Jack's
menu to an existing location. For the twelve week period ended July 9, 1997,
expenses totaled $36,584 of which $20,195 was related to the opening of two
Company-owned restaurants and $16,389 was related to stores that were not opened
as of the end of second quarter.
Costs are expensed as incurred.
Administrative Expenses
Administrative expenses increased by 33.9% or $115,285 for the twelve week
period ended July 15, 1997, compared to the twelve week period ended July 9,
1996. This increase is attributed to the following: 1)increased insurance costs
to include a directors and officers policy that was issued in late 1996, the
expense impact on second quarter 1997, over second quarter 1996 was $16,955
2)increased depreciation and amortization expense of $11,974 3)increased
professional fee expense of $60,017 4)expenses related to three locations
leased, build outs not done due to the lack of funding of $31,532 5)reduction in
the amount of $60,253 due to the elimination of nine staff positions and all
associated expenses.
Other Income and Expense
Interest income decreased by $4,030 to $7,841 for the twelve week period
ended July 15, 1997, compared to the twelve week period ended July 9, 1996.
Interest expense decreased by $125,796 to $14,157 for the twelve week period
ended July 15, 1997, compared to $139,953 for the comparable period ended July
9, 1996. This decrease in interest expense is the result of the repayment of
debt with proceeds of the Company's initial public offering completed December
18, 1996. During second quarter 1996, the Company recorded a provision of
$175,855 for a lease obligation on a closed Company owned restaurant based on
management's assessment of the loss exposure to this lease.
Income Taxes
The Company continues to operate unprofitably and to accumulate net
operating loss carryforwards, and as a result, does not have taxable income.
Twenty-Eight Week Period Ended July 15, 1997 and July 9, 1996
Revenues
Revenues for the twenty-eight week period ended July 15, 1997 increased by
$1,491,438 or 39.7% compared to the twenty-eight week period ended July 9, 1997
primarily for the reasons discussed below. Spaghetti Jack's restaurant sales
increased by $959,755 or 93.4% in 1997, compared to the same period in 1996. The
increase in sales
10
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is the result of opening three Company-owned restaurants during 1997 and opening
four Company-owned restaurants late in 1996. Comparable restaurant sales
(defined as sales from restaurants open during both fiscal periods for the
entire period) for Spaghetti Jack's decreased by $324,574 or 46.7% in the
aggregate. This decrease in comparable restaurant sales for Spaghetti Jack's due
to the performance of the new stores not meeting up to management's
expectations, and increased competition in the core market. Sub & Stuff
restaurant sales increased $536,457 or 20.4% for the twenty-eight week period
ended July 15, 1997, as compared to the same period in 1996. The increase in
sales is the result of opening four Company-owned restaurants in the first
quarter 1997, the opening of three Company-owned restaurants late in 1996, the
opening of two Company-owned restaurants in the second quarter 1997, relocating
one store, relocating and dual branding the second Sub & Stuff restaurant by
adding the Spaghetti Jack's menu, and dual branding the third Sub & Stuff
restaurant in an existing location by adding the Spaghetti Jack's menu.
Comparable restaurant sales for Sub & Stuff decreased $8,461 or .4% in the
aggregate. Spaghetti Jack's royalty income decreased $24,774 or 36.5% in 1997,
compared to the same period in 1996 due to the closing of three franchise
stores. Sub & Stuff royalty income increased $1,512 or 26.3% in 1997, as
compared to the same period in 1996. Sub & Stuff franchise fees for the
twenty-eight week period ended July 15, 1997 totaled $15,000 which is the result
of the addition of one franchisee. Sub & Stuff franchise fees for the
twenty-eight week period ended July 9, 1996 totaled $9,000 which is the result
of the addition of one franchisee. Spaghetti Jack's franchise fees for the
twenty-eight week period ended July 15, 1997 totaled $45,000 which is a fee
fortfeiture on an Area Development Agreement.
Cost of Sales
Cost of sales for the twenty-eight week period ended July 15, 1997,
compared to the twenty-eight week period ended July 9, 1996, increased
$1,191,389 or 51.7% primarily as a result of opening seven Company-owned
restaurants in 1997, and six Company-owned restaurants in the last quarter of
1996, and two Company-owned restaurants in the second quarter of 1996. Spaghetti
Jack's food and paper costs increased by $286,176 or 95.1%in 1997, compared to
the same period in 1996. This increase is attributed to the opening of
Company-owned restaurants as stated above. As a percentage of Spaghetti Jack's
sales, the cost of food and paper increased to 29.5% in 1997 from 29.3% in the
comparable period in 1996. Sub & Stuff food and paper increased by $95,405 or
11.2% in 1997, compared to the same period in 1996. As a percentage of Sub &
Stuff restaurant sales, the cost of food and paper decreased from 30.0% to 32.5%
in 1997, compared to the same period in 1996. This decrease is attributed to
operational efficiencies, reductions in product specifications and a price
increase. Spaghetti Jack's cost of wages and benefits increased by $810,688 or
179.8% in 1997 compared to the same period in 1996. As a percentage of Spaghetti
Jack's restaurant sales, the cost of wages and benefits increased to 40.8% in
1997 from 28.2% in the comparable period in 1996. This increase in wages and
benefits, as a percentage of restaurant sales, is a result of the fixed
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component of management salaries and crew wages, compared to the low sales
volume of the new restaurants, sales decreases in same store sales, lack of
efficiencies and labor productivity in the new restaurants. Sub & Stuff wages
and benefits increased by $288,836 or 33.4% in 1997 compared to the same period
in 1996. As a percentage of Sub & Stuff restaurant sales, the cost of wages and
benefits increased to 36.6% from 33.0% in 1997, compared to the same period in
1996. Sub & Stuff wages and benefits increased by $94,405 or 11.1% in 1997,
compared to the same period in 1996. This increase is attributed to the opening
of Company-owned restaurants as stated above.
Restaurant Operating Expenses
Overall restaurant operating expenses for the twenty-eight week period
ended July 15, 1997 compared to the twenty-eight week period ended July 9, 1996,
increased by $792,489 or 72.4% primarily as a result of opening seven
Company-owned restaurants in 1997, six Company-owned restaurants in the last
quarter of 1996, two Company-owned restaurants in the second quarter of 1996, as
well as, an increase in depreciation and amortization associated with new
restaurant development. Spaghetti Jack's restaurant operating expenses increased
by $523,072 or 144.8% primarily a result of opening three Company-owned
restaurants in 1997, four Company-owned restaurants in the last quarter of 1996.
As a percentage of Spaghetti Jack's restaurant sales, operating expenses
increased to 44.5% in 1997, compared to 35.2% in the comparable twenty-eight
week period ended July 9, 1996. Sub & Stuff operating expenses increased by
$269,417 or 36.8% in 1997 primarily as the result of new store openings, as well
as an increase in depreciation and amortization associated with new restaurant
development. As a percentage of Sub & Stuff restaurant sales, operating expenses
increased to 31.8%, compared to 28.0% in the comparable twenty-eight week period
ended July 9, 1996.
Pre-Opening Expenses
Pre-opening expenses are those costs associated with the opening of a
Company-owned restaurant. The expenses consist principally of non-recurring
costs such as employee recruiting and training and supplies and miscellaneous
expenditures. During the twenty-eight week period ended July 15, 1997, expenses
totaled $123,054 related to the opening of seven company restaurants. For the
twenty-six week period ended July 9, 1996, expenses totaled $36,584 of which
$20,195 was related to the opening of two Company-owned restaurants and $16,389
related to stores that were not opened as of the end of second quarter.
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Administrative Expenses
Administrative expenses increased by 29.3% or $250,380 for the twenty eight
week period ended July 15, 1997, compared to the twenty eight week period ended
July 9, 1996. This increase is attributed to the following: 1) increased
insurance costs of $38,994, 2) increased depreciation and amortization of
$27,638 3)professional fee expense of $143,968 4)relocation expenses of $16,373
incurred due to restaurant openings.
Other Income and Expense
Interest income increased by $3,231 to $28,999 for the twenty eight week
period ended July 15, 1997, over the comparable period in 1996. Interest expense
decreased by $285,926 to $23,679 for the period ended July 15, 1997, compared to
$309,605 for the comparable twenty-eight week period ended July 9, 1996. This
decrease in interest expense is the result of the repayment of debt with
proceeds of the Company's initial public offering completed December 18, 1996.
Income Taxes
The Company continues to operate unprofitably and to accumulate net
operating loss carryforwards, and as a result, does not have taxable income.
Liquidity and Capital Resources
The Company's restaurant operations do not have significant receivables or
inventory and receive trade credit based upon negotiated terms in purchasing
food and supplies. As of July 15, 1997, the Company had a working capital
deficit of $1,883,870, as compared to a deficit of $1,527,122, at July 9, 1996.
The increase in working capital deficit of $356,748 is due primarily to the use
of cash and cash equivalents in opening new restaurants and accumulated
operating losses.
The Company incurred losses for the twenty-eight week period ended July 15,
1997 and July 9, 1996 of $1,326,868 and $981,848 resulting in cash used by
operating activities of $1,302,949 and $930,037 in 1997 and 1996, respectively.
The Company will not be able to sustain losses or use of cash by operating
activities similar to the levels incurred through second quarter 1997 and 1996
without obtaining additional financing. The Company does not presently have any
commitments to obtain additional financing. Management's plans to address this
has included the elimination of ten corporate staff positions compared to the
positions, at year end 1996. Subsequent to July 15, 1997 the Company relocated
its corporate offices and closed six under performing restaurants that were
opened earlier in 1997 or late in 1996, in an effort to reduce operating
expenses and cash flow needs.
13
<PAGE>
Continued Negative Cash Flow
Since April 22, 1997, the Company has continued to experience negative cash
flow as sales revenues have not been sufficient to meet the Company's cash
needs. Subsequent to July 15, 1997, the Company borrowed $500,000 on a short
term basis from WFB, Inc., a major stockholder of the Company, to fund a portion
of the Company's cash flow deficit
The Company is continuing to monitor sales levels of certain other
restaurant locations and is considering additional closings of under-performing
units. In addition, the Company will attempt to liquidate assets from closed
units to raise cash to repay indebtedness, and if possible, to fund its
operations on a positive cash flow basis. In the event that sales levels
continue to decline or are not sufficient to meet the Company's cash needs, the
Company will be required to borrow additional funds, sell additional assets, or
otherwise raise liquid capital. There is no assurance that any such sources of
cash will be available or that the Company will be able to meet its cash needs.
During the twenty-eight week period ended July 15, 1997, the Company had a
cash deficit from investing activities of $1,221,432, as compared to a deficit
of $5,286 for 1996. The increase in the deficit was due primarily to the
purchases of property, plant and equipment related to the increased number of
restaurant openings in 1997. This increase was partially offset by the proceeds
from the sale of one Company-owned Sub & Stuff in 1997.
Capital expenditures during the twenty-eight week period ended July 15,
1997 totaled $1,309,338, as compared to expenditures of $256,586 for the
comparable period in 1996. These expenditures are primarily associated with the
opening of seven Company owned restaurants of which four were Sub & Stuff's,
three were Spaghetti Jack's, and the addition of the third dual branded Sub &
Stuff adding the Spaghetti Jack's menu to an existing location in the
twenty-eight week period ended July 15, 1997. The Company opened two Sub & Stuff
restaurants during the comparable period in 1996. The amount of the Company's
cash requirements for capital expenditures depends in part on the number of new
restaurants opened and the development costs associated with such restaurants.
During the twenty-eight week period ended July 15, 1997, the Company had
cash flows from financing activities of $389,574, as compared to cash flows of
$1,007,149 for the comparable period in 1996. This decrease in cash flow is due
primarily to the level of financing activity, proceeds from the sale of common
stock, and principal payments on long-term debt during 1996, as compared to
1997.
14
<PAGE>
PART II
OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
A lawsuit has been filed in Sedgwick County, Kansas against the
Company and others by a group of shareholders seeking to represent the
class of shareholders that purchased shares of the Company's stock in
the registered stock offering concluded late last year. The petition
alleges that certain statements made by the Company, certain officers,
and the underwriter were untrue or misleading. The Company intends to
defend this lawsuit vigorously.
ITEM 2: CHANGES IN SECURITIES
None
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Matters submitted during the second quarter to a vote of security
holders, was submitted at the Annual Meeting held on May 5, 1997, and
was reported on in the First Quarter ended April 22, 1997, 10QSB.
ITEM 5: OTHER INFORMATION
None
15
<PAGE>
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS REQUIRED TO BE FILED BY ITEM 601 OF REGULATION
S-B
3(a)* Articles of Incorporation
3(b)* Bylaws
27 Financial Data Schedule
______________________
* Incorporated by reference to such numbered exhibits filed as part of
Registration Statement No. 333- 5488-D filed with the Commission on August 29,
1996.
(b) REPORTS ON FORM 8-K
None
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
Dated: September 12, 19 STOICO RESTAURANT GROUP, INC.
(Registrant)
/s/ Louis Stoico, Jr.
------------------------------------
Louis Stoico, Jr.
Chairman of the Board and President
/s/ Cathy K. Martsolf
-----------------------------------
Cathy K. Martsolf
Senior Vice President of Administration
and principal accounting officer
17
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
-------------- ------------
3(a)* Articles of Incorporation
3(b)* Bylaws
27 Financial Data Schedule
* Incorporated by reference to such numbered exhibits filed as part of
Registration Statement No. 333-5488-D filed with the Commission on August 29,
1996.
18
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
FINANCIAL DATA SCHEDULE
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENT OF STOICO RESTAURANT GROUP, INC. AS OF JULY 15,
1997, AND FOR THE TWENTY- EIGHT WEEKS THEN ENDED, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<PERIOD-TYPE> Other
<FISCAL-YEAR-END> Dec-30-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Jul-15-1997
<EXCHANGE-RATE> 1
<CASH> 136,743
<SECURITIES> 0
<RECEIVABLES> 125,290
<ALLOWANCES> 0
<INVENTORY> 189,270
<CURRENT-ASSETS> 632,970
<PP&E> 7,683,191
<DEPRECIATION> 2,381,285
<TOTAL-ASSETS> 6,995,032
<CURRENT-LIABILITIES> 2,516,840
<BONDS> 0
0
0
<COMMON> 57,090
<OTHER-SE> 4,282,794
<TOTAL-LIABILITY-AND-EQUITY> 6,995,032
<SALES> 5,137,715
<TOTAL-REVENUES> 5,248,028
<CGS> 3,496,678
<TOTAL-COSTS> 6,611,519
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,679
<INCOME-PRETAX> (1,326,868)
<INCOME-TAX> 0
19
<PAGE>
<INCOME-CONTINUING> (1,326,868)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,326,868)
<EPS-PRIMARY>
<EPS-DILUTED> 0
20
<PAGE>
</TABLE>
