UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-------------------------
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended Commission file number
September 9, 1997 000-22753
----------------- ---------
TOTAL ENTERTAINMENT RESTAURANT CORP.
(Exact name of registrant as specified in its charter)
Delaware 52-2016614
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
300 Crescent Court
Building 300, Suite 850
Dallas, Texas 75201
(Address of principal executive offices) (Zip code)
(214) 754-0414
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
documents and 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.
/X/ Yes / / No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at October 24, 1997
Common Stock, $.01 par value 10,415,000 shares
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
Index
Page
Number
------
PART I. FINANCIAL INFORMATION
- -------------------------------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
at September 9, 1997, March 25, 1997, and
February 7, 1997 2
Consolidated Statements of Income
for the twelve weeks ended
September 9, 1997 and Pro Forma for
the twelve weeks ended September 3, 1996 3
Consolidated Statements of Income for the
30 weeks and 5 days ended September 9, 1997
(since inception) and Pro Forma for the
thirty-six weeks ended September 9, 1997
and September 3, 1996 4
Condensed Consolidated Statement of Cash Flows
for the 30 weeks and 5 days ended
September 9, 1997 (since inception) 5
Notes to Condensed Consolidated
Financial Statements 6
Item 2. Management's Discussion and
Analysis of Financial Condition and
Results of Operations 9
PART II. OTHER INFORMATION
- ---------------------------
Item 2. Changes in Securities and Use of Proceeds 15
Item 6. Exhibits and Reports on Form 8-K 16
-1-
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 9, 1997 March 25,1997 February 7, 1997
----------------- -------------- ----------------
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 8,553,639 $ 1,458,789 $ 1,000
Accounts receivable 56,934 106,731 -
Inventories 279,949 261,517 -
Pre-opening costs - net 187,739 124,883 -
Deferred income taxes 185,376 100,194 -
Other current assets 310,119 211,249 -
----------- ----------- --------
Total current assets 9,573,756 2,263,363 1,000
Property and equipment, net 8,627,754 7,147,349 -
Intangible and other assets, net (principally goodwill) 4,749,798 4,777,871 -
----------- ----------- --------
Total assets $22,951,308 $ 14,188,583 $ 1,000
=========== =========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ - $ 10,835,695 -
Accounts payable 1,289,078 962,610 $ -
Other current liabilities 469,759 594,715 -
------------ ------------ --------
Total current liabilities 1,758,837 12,393,020 -
Deferred income taxes 211,088 175,726 -
Stockholders' Equity:
Preferred stock - - -
Common stock 104,150 80,000 80
Additional paid-in capital 20,553,772 1,450,390 920
Retained earnings 323,461 89,447 -
------------ ------------ --------
Total stockholders' equity 20,981,383 1,619,837 1,000
------------ ------------ --------
Total liabilities and stockholders' equity $ 22,951,308 $ 14,188,583 $ 1,000
============ ============ ========
</TABLE>
See accompanying notes.
- 2 -
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Company
Historical Pro Forma
------------------- ---------------------
Twelve weeks Twelve weeks
ended ended
Sept. 9, 1997 Sept. 3, 1996
------------------- ---------------------
<S> <C> <C>
Net sales:
Food and beverage $ 3,028,242 $ 2,657,291
Entertainment and other 650,461 552,112
----------- -----------
Total net sales 3,678,703 3,209,403
Costs and expenses:
Costs of sales 967,522 899,709
Restaurant operating expenses 1,648,225 1,519,732
Depreciation and amortization 242,919 194,759
----------- -----------
Entertainment and restaurant costs and expenses 2,858,666 2,614,200
----------- -----------
Entertainment and restaurant operating income 820,037 595,203
General and administrative expenses 411,175 264,771
Goodwill amortization 54,684 54,684
----------- -----------
Income from operations 354,178 275,748
Other income (expense):
Other income, principally interest 41,017 4,933
Interest expense (91,778) (159,150)
----------- -----------
Income before income taxes 303,417 121,531
Provision for income taxes 113,781 45,574
----------- -----------
Net income $ 189,636 $ 75,957
=========== ===========
Net income per share $ 0.02 $ 0.01
=========== ===========
Average shares outstanding 9,610,000 8,000,000
=========== ===========
</TABLE>
See accompanying notes
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<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
---------------------- Company Pro Forma
For the 30 weeks --------------------------------------------------
and 5 days ended For the thirty-six weeks ended
September 9, 1997 --------------------------------------------------
(since inception) September 9, 1997 September 3, 1996
---------------------- ---------------------- ------------------------
<S> <C> <C> <C>
Net sales:
Food and beverage $ 7,714,879 $ 9,686,806 $ 7,941,430
Entertainment and other 1,646,957 2,069,488 1,658,078
------------ ------------ ------------
Total net sales 9,361,836 11,756,294 9,599,508
Costs and expenses:
Costs of sales 2,442,988 3,097,698 2,690,258
Restaurant operating expenses 4,231,391 5,304,745 4,466,390
Depreciation and amortization 578,939 707,507 538,144
------------ ------------ ------------
Restaurant costs and expenses 7,253,318 9,109,950 7,694,792
------------ ------------ ------------
Restaurant operating income 2,108,518 2,646,344 1,904,716
General and administrative expenses 1,106,060 1,346,135 565,248
Goodwill amortization 130,855 163,144 164,058
------------ ------------ ------------
Income from operations 871,603 1,137,065 1,175,410
Other income (expense):
Other income, principally interest 41,102 41,165 18,609
Interest expense (395,168) (499,035) (438,576)
------------ ------------ ------------
Income before income taxes and minority interest 517,537 679,195 755,443
Provision for income taxes 194,076 254,698 283,291
------------ ------------ ------------
Net income $ 323,461 $ 424,497 $ 472,152
============ ============ ============
Net income per share $ 0.04 $ 0.05 $ 0.06
============ ============ ============
Average shares outstanding 8,629,023 8,536,667 8,000,000
============ ============ ============
</TABLE>
See accompanying notes.
- 4 -
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
For the 30 weeks
and 5 days ended
September 9, 1997
(since inception)
--------------------
Cash flows from operating activities:
Net income $ 323,461
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 732,095
Net change in operating assets
and liabilities:
Change in operating assets (460,936)
Change in operating liabilities 976,981
------------
Net cash provided by operating activities 1,571,601
Cash flows from investing activities:
Purchases of property and equipment (2,074,963)
Cash of companies acquired in Exchange 733,804
------------
Net cash provided by investing activities (1,341,159)
Cash flows from financing activities:
Net proceeds from sale of stock 19,127,532
Proceeds from revolving note payable to bank 10,835,695
Payment of dividends to certain stockholders (1,675,332)
Payment of notes payable to stockholders (4,530,071)
Payment of notes payable to affiliates (233,000)
Payment of notes payable to banks (4,366,933)
Payment of revolving note payable to bank (10,835,695)
------------
Net cash provided by financing activities 8,322,196
------------
Net increase in cash and cash equivalents 8,552,639
Cash and cash equivalents at beginning of period 1,000
------------
Cash and cash equivalents at end of period $ 8,553,639
============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 425,527
Cash paid for income taxes 189,790
See accompanying notes.
- 5 -
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
Notes to Condensed Consolidated Financial Statements
(Note 1) Basis of Presentation and Description of Business
-------------------------------------------------
Total Entertainment Restaurant Corp. (the "Company") was organized
as a Delaware corporation on February 7, 1997, for the purpose of developing
entertainment restaurant locations. Effective February 20, 1997, the Company
entered into simultaneous securities exchange transactions pursuant to which the
Company issued an aggregate of 8,000,000 shares of its common stock, $.01 par
value per share (the "Common Stock"), in exchange for all of the outstanding
common stock of each of Bailey's Sports Grille, Inc., F&H Restaurant Corp., Fox
& Hound, Inc. and Fox & Hound II, Inc. and the remaining 25% minority interest
in each of 505 Entertainment, Ltd., F&H Dallas, L.P., Midway Entertainment, Ltd.
and N. Collins Entertainment, Ltd. (the "Exchange"). The Exchange was accounted
for as a business combination using the purchase method of accounting in
accordance with APB No. 16. For accounting purposes, F&H Restaurant Corp. was
deemed to be the acquiring corporation since, upon completion of the Exchange,
its former stockholders controlled 50% of the Company. Accordingly, the assets
and liabilities of F&H Restaurant Corp. were recorded by the Company on the
acquisition date using their historical amounts.
The operations of the Company effectively commenced on February 20,
1997, and include the operating results of the companies acquired in the
Exchange from that date. The acquired assets and liabilities assumed have been
recorded at their estimated fair market values at the Exchange date, with the
exception of the F&H Restaurant Corp. which was recorded at its historical costs
as described above. The Exchange resulted in goodwill of approximately
$4,740,000, including approximately $3,448,000 previously recorded by F&H
Restaurant Corp. in its acquisition of its 75% partnership interest in each of
the four limited partnerships mentioned above, such goodwill is being amortized
over 20 years. The preliminary purchase price allocation to the assets acquired
and liabilities assumed in the Exchange are summarized as follows:
Assets acquired:
Current assets $1,498,276
Property and equipment 7,039,719
Goodwill and other assets 4,789,911
----------
13,327,906
Less assumed liabilities:
Current liabilities 822,428
Dividends payable to certain predecessor stockholders 1,675,332
Notes payable to stockholder 4,530,071
Notes payable to affiliates 233,000
Notes payable to banks 4,366,933
Deferred taxes 170,752
----------
Net assets acquired $1,529,390
==========
-6-
<PAGE>
Upon formation, the Company issued 8,000 shares of Common Stock at
$0.0125 per share. In connection with the Exchange, these shares were canceled
and 100,000 new shares of Common Stock were issued. In February 1997, the
Company's Board of Directors approved a 79 for 1 stock dividend. All share, per
share and stock option data included in the accompanying balance sheet, notes
thereto and elsewhere in the Form 10-Q give effect to the 79 for 1 stock
dividend.
The unaudited pro forma Consolidated Statements of Income for the 12
weeks ended September 3, 1996 and the 36 weeks ended September 9, 1997 and
September 3, 1996 give effect to the Exchange as if such transactions occurred
on January 1, 1996.
The unaudited Condensed Consolidated Financial Statements have been
prepared by the Company, 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 present the operating results
for the respective periods. Certain information and footnote disclosures
normally presented in annual financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant to such
rules and regulations. These financial statements should be read in conjunction
with the consolidated financial statements and unaudited pro forma combined
condensed statement of operations and notes thereto of the Company and its
predecessors contained in the Company's registration statement dated July 17,
1997. The results of the twelve weeks ended September 9, 1997 are not
necessarily indicative of the results to be expected for the full year ending
December 30, 1997.
2. Initial Public Offering
-----------------------
On July 17, 1997, the Company commenced the initial public offering
(the "Initial Public Offering") of 2,100,000 shares of its Common at $9.00 per
share. Total net proceeds to the Company of approximately $16,490,000 are being
used for debt retirement, restaurant development, working capital and general
corporate purposes. On July 23, 1997, the underwriters exercised their
over-allotment option and acquired an additional 315,000 shares of Common Stock
for which the Company received net proceeds of approximately $2,640,000.
3. Stock Options
-------------
o Incentive and Nonqualified Stock Option Plan
In March 1997, the Board of Directors adopted a stock option plan
providing for incentive and nonqualified stock options pursuant to which up to
1,500,000 shares of Common Stock have been reserved for issuance. The Plan
covers the Chairman of the Board, officers and key employees of the Company.
Concurrent with the effective date of the Initial Public Offering of the Company
on July 17, 1997, the Company granted options to the Chairman of the Board,
certain officers and key employees to purchase an aggregate of 801,340 shares of
Common Stock at an exercise price of $9.00 per share.
-7-
<PAGE>
o Directors Stock Option Plan
In March 1997, the Board of Directors adopted a stock option plan
providing for nondiscretionary grants to nonemployee directors pursuant to which
up to 150,000 shares of Common Stock have been reserved for issuance. The Plan
covers the nonemployee directors other than the Chairman of the Board.
Concurrent with the effective date of the Initial Public Offering, the Company
granted options to directors to purchase an aggregate of 50,000 shares of Common
Stock at an exercise price of $9.00 per share.
4. Recently Issued Accounting Standards
------------------------------------
In February 1997, the Financial Accounting Standards Board issued
Statement of Final Accounting Standards No. 128, "Earnings per
Share" ("FAS 128"), which specifies the computation, presentation,
and disclosure requirements for earnings per share with the
objective to simplify the computation of earnings per share. FAS 128
is effective for financial statements for periods ending after
December 15, 1997 and earlier application is not permitted. After
the effective date, all prior period earnings per share data shall
be restated to conform with the provisions of FAS 128. The adoption
of FAS 128 is not expected to have a material impact on the
Company's earnings per share data.
-8-
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The following discussion and analysis should be read in conjunction
with the Financial Statements and Notes thereto included elsewhere in this Form
10-Q.
The Company was formed on February 7, 1997 and, pursuant to the
Exchange, the Company became the owner of eight then-existing Bailey's and the
three Fox & Hound locations. The first Bailey's was opened in Charlotte, North
Carolina in 1989 and the first Fox & Hound was opened in Arlington, Texas in
1994. As of September 9, 1997, the Company operated nine Bailey's and four Fox &
Hounds located in Arkansas, Indiana, North Carolina, South Carolina, Tennessee
and Texas.
The components of the Company's net sales are food and non-alcoholic
beverages, alcoholic beverages, and entertainment and other. For the thirty-six
weeks ended September 9, 1997, food and non-alcoholic beverages were 24.8% of
total sales, alcoholic beverages were 57.6% of total sales and entertainment and
other were 17.6% of total sales.
Components of restaurant operating expenses include operating
payroll and fringe benefit costs, occupancy costs and advertising and promotion
costs. These costs are generally variable and will fluctuate with changes in
sales volume and sales mix. All but one of the Company's locations are leased
and provide for a minimum annual rent, with some leases calling for additional
rent based on sales volume at the particular location of specified minimum
levels.
Pre-opening costs include labor costs, costs of hiring and training
personnel and certain other costs relating to opening new restaurants, and are
capitalized and amortized over a 12 month period, beginning in the period that
the restaurants open.
General and administrative expenses include all corporate and
administrative functions that support existing operations and provide an
infrastructure to support future growth. In addition, certain expenses of
recruiting and training unit management personnel prior to meeting the criteria
to be capitalized as pre-opening expenses are also included. Management,
supervisory and staff salaries, employee benefits, travel, information systems,
training, rent and office supplies are major items of costs in this category.
From February 20, 1997 through the effective date of the Initial Public
Offering, the Company has been provided with certain accounting and
administrative services from Coulter Enterprises, Inc. a corporation controlled
by Jamie B. Coulter, Chairman of the Board of the Company, for a charge of 4.0%
of net sales. Concurrent with the effective date of the Initial Public Offering,
the Company entered into a services agreement with Coulter Enterprises, Inc. for
a continuation of such services. The fixed annual charge for such services is
$94,000, pro rated for 1997 plus an additional per 28-day period fee of $426 per
unit.
-9-
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following table sets forth for the periods indicated (i) the
percentages which certain items included in the Consolidated Statements of
Income bear to net sales, and (ii) other selected operating data:
<TABLE>
<CAPTION>
Historical Company Pro Forma (2)
---------- --------------------------------------
Twelve Weeks Twelve Weeks
Ended Ended Thirty-six Weeks Ended
----- ----- ----------------------
Sept. 9, Sept. 3, Sept. 9, Sept. 3,
1997 1996 1997 1996
---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C>
Income Statement Data:
Net sales .......................................................... 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Costs of sales ......................................... 26.3 28.0 26.4 28.0
Restaurant operating expenses .......................... 44.8 47.4 45.1 46.5
Depreciation and amortization .......................... 6.6 6.1 6.0 5.6
--- --- --- ---
Restaurant costs and expenses ....................... 77.7 81.5 77.5 80.2
---- ---- ---- ----
Restaurant operating income ........................................ 22.3 18.5 22.5 19.8
General and administrative expenses ................................ 11.2 8.2 11.5 5.9
Goodwill amortization .............................................. 1.5 1.7 1.4 1.7
--- --- --- ---
Income from operations ............................................. 9.6 8.6 9.6 12.2
Other income, principally interest ................................. 1.1 0.2 0.4 0.2
Interest expense ................................................... (2.5) (5.0) (4.2) (4.5)
--- --- --- ---
Income before provision for income taxes (2) ....................... 8.2 3.8 5.8 7.9
Provision for income taxes ......................................... 3.1 1.4 2.2 3.0
--- --- --- ---
Net income ......................................................... 5.1% 2.4% 3.6% 4.9%
=== === === ===
Restaurant Operating Data:
Annualized average weekly sales per location (3)$ ......... 1,319 $ 1,388 $ 1,437 $ 1,468
Number of restaurants at end of the period ................ 13 10 13 10
</TABLE>
(1) The Company operates on a fifty-two or fifty-three week fiscal year ending
the last Tuesday in December. The fiscal quarters for the Company consist of
accounting periods of twelve, twelve, twelve and sixteen or seventeen weeks,
respectively.
(2) The pro forma data gives effect to the Exchange as if it occurred on January
1, 1996.
(3) Annualized average weekly sales per location are computed by dividing net
sales for full weeks open during the period by the number of full weeks open
and multiplying the result by fifty-two.
-10-
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
TWELVE WEEKS ENDED SEPTEMBER 9, 1997 COMPARED TO
TWELVE WEEKS ENDED SEPTEMBER 3, 1996
Net sales increased $469,000 (14.6%) for the twelve weeks ended
September 9, 1997 compared to the twelve weeks ended September 3, 1996
principally attributable to $549,000 in sales from the three new locations
opened since June 1996. Same store sales were down 0.4% in the third quarter.
Costs of sales, primarily food and beverages increased $68,000 (7.5%)
in the twelve weeks ended September 9, 1997 to $968,000 from $900,000 in the
twelve weeks ended September 3, 1996, and such expenses decreased as a
percentage of sales from 28.0% to 26.3%. This decrease is attributable to
improved control procedures and a new menu implemented during the first quarter
of 1997.
Restaurant operating expenses for the twelve weeks ended September 9,
1997 increased $128,000 (8.5%) from $1,520,000 in the twelve weeks ended
September 3, 1996 to $1,648,000, and such expenses decreased as a percentage of
net sales from 47.4% to 44.8%. Most of this improvement is attributable to
improved labor controls at the locations.
Depreciation and amortization increased $48,000 (24.7%) in the twelve
weeks ended September 9, 1997 over the twelve weeks ended September 3, 1996,
principally reflecting the depreciation relating to the opening of three new
restaurants since June 1996 including one owned property.
General and administrative expenses for the twelve weeks ended
September 9, 1997 increased $146,000 (55.3%) from the comparable period in 1996.
The increase reflects the management fee paid to Coulter Enterprises, Inc. prior
to the Initial Public Offering and the additional corporate infrastructure added
during the first quarter of 1997 to enable the Company to rapidly develop
additional units.
Interest expense for the twelve weeks ended September 9, 1997 was
$92,000, a $67,000 decrease from the comparable period in 1996. This decrease
reflects the repayment of all debt outstanding immediately following the initial
public offering.
The effective income tax rate for the twelve weeks ended September 9,
1997 and the effective pro forma income tax rate for the twelve weeks ended
September 3, 1996 were both 37.5%.
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<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
THIRTY-SIX WEEKS ENDED SEPTEMBER 9, 1997
COMPARED TO THIRTY-SIX WEEKS ENDED SEPTEMBER 3, 1996
Net sales increased $2,157,000 (22.5%) for the thirty-six weeks ended
September 9, 1997 compared to the thirty-six weeks ended September 3, 1996
principally attributable to $2,477,000 in sales from the four new locations
opened since December 1995. Same store sales were up 4.9% for the period.
Costs of sales, primarily food and beverages increased $408,000 (15.1%)
in the thirty-six weeks ended September 9, 1997 to $3,098,000 from $2,690,000 in
the thirty-six weeks ended September 3, 1996, and such expenses decreased as a
percentage of sales from 28.0% to 26.4%. This decrease is attributable to
improved control procedures and a new menu implemented during the first quarter
of 1997.
Restaurant operating expenses for the thirty-six weeks ended September
9, 1997 increased $838,000 (18.8%) from $4,467,000 in the thirty-six weeks ended
September 3, 1996 to $5,305,000, and such expenses decreased as a percentage of
net sales from 46.5% to 45.1%. Most of this improvement is attributable to
improved labor controls at the locations.
Depreciation and amortization increased $169,000 (31.5%) in the
thirty-six weeks ended September 9, 1997 over the thirty-six weeks ended
September 3, 1996, principally reflecting the depreciation relating to the
opening of four new restaurants since December 1995 including one owned
property.
General and administrative expenses for the thirty-six weeks ended
September 9, 1997 increased $781,000 (138.1%) from the comparable period in
1996. The increase reflects the management fee paid to Coulter Enterprises, Inc.
prior to the Initial Public Offering and the additional corporate infrastructure
added during the first quarter of 1997 to enable the Company to rapidly develop
additional units.
Interest expense for the thirty-six weeks ended September 9, 1997 was
$499,000, a $60,000 increase from the comparable period in 1996.
The effective income tax rate for the thirty-six weeks ended September
9, 1997 and the effective pro forma income tax rate for the thirty-six weeks
ended September 3, 1996 were both 37.5%.
-12-
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
IMPACT OF INFLATION
The primary inflationary factors affecting the Company's operations
include food, liquor and labor costs. Although a large number of the Company's
restaurant personnel are paid at the federal minimum wage level, the majority of
personnel are tipped employees, and therefore, recent as well as future minimum
wage changes will have very little effect on labor costs. As costs of food and
labor have increased, the Company has historically been able to offset these
increases through economies of scale and improved operating procedures. To date,
inflation has not had a material impact on operating margins.
LIQUIDITY AND CAPITAL RESOURCES
The Company was formed on February 7, 1997 and, pursuant to the
Exchange, the Company became the owner of the eight then-existing Bailey's
locations and three Fox & Hound locations. Prior to the Exchange, Bailey's
financed its expansion primarily with loans from stockholders and loans from
banks. Prior to the Exchange, Fox & Hound financed its expansion primarily with
partners' equity contributions and loans from related parties.
As is customary in the restaurant industry, the Company prior to the
Initial Public Offering had operated with negative working capital. The Company
does not have significant receivables or inventory and receives trade credit
based upon negotiated terms in purchasing food and supplies. Because funds
available from cash sales are not needed immediately to pay for food and
supplies, or to finance inventory, they may be considered as a source of
financing for noncurrent capital expenditures.
Immediately following the Initial Public Offering, the Company
repaid outstanding indebtedness to Intrust Bank, N.A., Wichita, in the principal
amount of approximately $10.8 million out of a total credit line of $12.0
million available to the Company. This outstanding indebtedness was incurred to
refinance the debt of the acquired entities in the Exchange of approximately
$9.1 million and to finance the stockholder dividend payment to the former
stockholders of Bailey's of approximately $1.7 million. While the Company
believes it can arrange a new working capital line with Intrust Bank, N.A., no
definitive agreement has been entered into for a new line of credit facility and
there is no assurance that the Company will be able to establish such facility.
The Company intends to open five locations in 1997 (two of which
were opened during the thirty-six week period ending September 9, 1997, one of
which was opened in October 1997 and two of which are currently under
construction). One additional unit is currently under construction and the
Company is in active negotiations for leases on five additional sites. The
Company expects to expend approximately $19.8 million to open new locations over
the next 12 months.
The Company believes that the proceeds from the Initial Public
Offering, its cash flow from operations and funds anticipated to be available
from a credit facility will be sufficient to satisfy
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<PAGE>
its working capital and capital expenditure requirements for at least the next
12 months. There can be no assurance, however, that changes in the Company's
operating plans, the unavailability of a credit facility, the acceleration of
the Company's expansion plans, lower than anticipated revenues, increased
expenses, potential acquisitions or other events will not cause the Company to
seek additional financing sooner than anticipated. There can be no assurance
that additional financing will be available on acceptable terms or at all.
FORWARD LOOKING STATEMENTS
This report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Stockholders are
cautioned that all forward-looking statements involve risks and uncertainty,
including without limitation, the ability of the Company to open new
restaurants, general market conditions, competition and pricing. Although the
Company believes the assumptions underlying the forward-looking statements
contained herein are reasonable, any of the assumptions could be inaccurate,
and, therefore, there can be no assurance that the forward-looking statements
contained in the report will prove to be accurate.
-14-
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
PART II. OTHER INFORMATION
- ---------------------------
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
Securities Sold
- ---------------
(c) The following unregistered securities were issued by the Company during
the twelve weeks ended September 9, 1997:
<TABLE>
<CAPTION>
Description of Number of Shares Sold/Issued/ Offering/Exercise Purchaser or
Date of Sale/Issuance Securities Issued Subject to Options or Warrants Price Per Share Class
- --------------------- ----------------- ------------------------------ --------------- -----
<S> <C> <C> <C> <C>
July 17, 1997 Common Stock Options 801,340 $ 9.00 Chairman of the
Board, certain officers
and key employees
pursuant to 1997
Incentive and
Nonqualified Stock
Option Plan
July 17, 1997 Common Stock Options 50,000 $ 9.00 Issuance to non-
employee directors
pursuant to 1997
Directors Stock
Option Plan
</TABLE>
The issuance of these securities is claimed to be exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933, as amended, as
transactions by an issuer not involving a public offering. There were no
underwriting discounts or commissions paid in connection with the issuance of
any of these securities.
-15-
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
Use of Proceeds of Initial Public Offering
------------------------------------------
(4) (v) Actual underwriting discounts and commissions $ 1,521,450
Actual other expenses paid to a corporation
controlled by Jamie B. Coulter, Chairman of
the Board of the Company, for air travel 82,325
Estimated other expenses paid to others 1,003,693
---------
Total expenses $ 2,607,468
(vi) Net offering proceeds $ 19,127,532
(vii) Amount of net offering proceeds used for:
Actual repayment of indebtedness including interest $ 10,894,648
Estimated purchases and installation of
furniture, fixtures and equipment 590,982
Estimated remaining net offering proceeds invested
in various tax exempt securities and funds 7,631,902
---------
Total net offering proceeds $ 19,127,532
(viii) Not applicable
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibit 27. . . . . .. . . . . . . Financial Data Schedule
(b) Forms on 8-K. . . . . . . . . . . None
-16-
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
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.
Total Entertainment Restaurant Corp.
(Registrant)
Date 10/24/97 /s/ James K. Zielke
------------------------------------
Chief Financial Officer,
Secretary and Treasurer
(Duly Authorized Officer)
-18-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 9, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-30-1997
<PERIOD-START> FEB-7-1997
<PERIOD-END> SEP-9-1997
<CASH> 8,554
<SECURITIES> 0
<RECEIVABLES> 57
<ALLOWANCES> 0
<INVENTORY> 280
<CURRENT-ASSETS> 9,574
<PP&E> 8,628
<DEPRECIATION> 0
<TOTAL-ASSETS> 22,951
<CURRENT-LIABILITIES> 1,759
<BONDS> 0
0
0
<COMMON> 104
<OTHER-SE> 20,877
<TOTAL-LIABILITY-AND-EQUITY> 22,951
<SALES> 9,362
<TOTAL-REVENUES> 9,362
<CGS> 2,443
<TOTAL-COSTS> 7,253
<OTHER-EXPENSES> 1,237
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 395
<INCOME-PRETAX> 518
<INCOME-TAX> 194
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 323
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
