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
June 17, 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.
/ / Yes /x/ 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 August 25, 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 June 17, 1997, March 25, 1997, and
February 7, 1997 2
Consolidated Statements of Income
for the twelve weeks ended
June 17, 1997 and June 11, 1996 3
Consolidated Statements of Income
for the 18 weeks and 5 days ended
June 17, 1997 (since inception) and for
the twenty-four weeks ended
June 17, 1997 and June 11, 1996 4
Condensed Consolidated Statement of
Cash Flows for the 18 weeks and 5 days
ended June 17, 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 4. Submission of Matters to Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 16
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 17, 1997 March 25,1997 February 7, 1997
------------- ------------- -----------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 960,198 $ 1,458,789 $ 1,000
Accounts receivable 58,905 106,731 --
Inventories 260,654 261,517 --
Pre-opening costs - net 86,819 124,883 --
Deferred income taxes 142,785 100,194 --
Other current assets 151,142 211,249 --
----------- ----------- -----------
Total current assets 1,660,503 2,263,363 1,000
Property and equipment, net 7,262,430 7,147,349 --
Intangible and other assets, net (principally goodwill) 4,883,068 4,777,871 --
----------- ----------- -----------
Total assets $13,806,001 $14,188,583 $ 1,000
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $10,835,695 $10,835,695 --
Accounts payable 690,489 962,610 $ --
Other current liabilities 422,194 594,715 --
----------- ----------- -----------
Total current liabilities 11,948,378 12,393,020 --
Deferred income taxes 193,407 175,726 --
Stockholders' Equity:
Preferred stock -- -- --
Common stock 80,000 80,000 80
Additional paid-in capital 1,450,390 1,450,390 920
Retained earnings 133,826 89,447 --
----------- ----------- -----------
Total stockholders' equity 1,664,216 1,619,837 1,000
----------- ----------- -----------
Total liabilities and stockholders' equity $13,806,001 $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
June 17, 1997 June 11, 1996
----------- -----------
<S> <C> <C>
Net sales:
Food and beverage $ 3,298,371 $ 2,616,828
Entertainment and other 694,389 536,524
----------- -----------
Total net sales 3,992,760 3,153,352
Costs and expenses:
Costs of sales 1,046,479 891,751
Restaurant operating expenses 1,856,381 1,500,481
Depreciation and amortization 241,919 159,764
----------- -----------
Entertainment and restaurant costs and expenses 3,144,779 2,551,996
----------- -----------
Entertainment and restaurant operating income 847,981 601,356
General and administrative expenses 505,898 166,701
Goodwill amortization 54,687 54,687
----------- -----------
Income from operations 287,396 379,968
Other income (expense):
Other income, principally interest -- 9,680
Interest expense (216,390) (142,117)
----------- -----------
Income before income taxes 71,006 247,531
Provision for income taxes 26,627 92,824
----------- -----------
Net income $ 44,379 $ 154,707
=========== ===========
Net income per share $ 0.01 $ 0.02
=========== ===========
Average shares outstanding 8,000,000 8,000,000
=========== ===========
</TABLE>
See accompanying notes.
- 3 -
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
----------------
For the 18 weeks Company Pro Forma
-------------------------------------------
and 5 days ended
June 17, 1997 For the twenty-four weeks ended
-------------------------------------------
(since inception) June 17, 1997 June 11, 1996
----------------- ---------------- -----------------
<S> <C> <C> <C>
Net sales:
Food and beverage $ 4,686,637 $ 6,658,564 $ 5,284,139
Entertainment and other 996,496 1,419,027 1,105,966
----------- ----------- -----------
Total net sales 5,683,133 8,077,591 6,390,105
Costs and expenses:
Costs of sales 1,475,465 2,130,176 1,790,549
Restaurant operating expenses 2,583,166 3,656,520 2,946,658
Depreciation and amortization 336,020 464,588 343,385
----------- ----------- -----------
Restaurant costs and expenses 4,394,651 6,251,284 5,080,592
----------- ----------- -----------
Restaurant operating income 1,288,482 1,826,307 1,309,513
General and administrative expenses 694,885 934,960 300,477
Goodwill amortization 76,171 108,460 109,374
----------- ----------- -----------
Income from operations 517,426 782,887 899,662
Other income (expense):
Other income, principally interest 85 148 13,676
Interest expense (303,390) (407,257) (279,426)
----------- ----------- -----------
Income before income taxes and minority interest 214,121 375,778 633,912
Provision for income taxes 80,295 140,917 237,717
----------- ----------- -----------
Net income $ 133,826 $ 234,861 $ 396,195
=========== =========== ===========
Net income per share $ 0.02 $ 0.03 $ 0.05
=========== =========== ===========
Average shares outstanding 8,000,000 8,000,000 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)
<TABLE>
<CAPTION>
For the 18 weeks
and 5 days ended
June 17, 1997
(since inception)
-----------------
<S> <C>
Cash flows from operating activities:
Net income $ 133,826
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 430,609
Net change in operating assets
and liabilities:
Change in operating assets (179,426)
Change in operating liabilities 313,146
------------
Net cash provided by operating activities 698,155
Cash flows from investing activities:
Purchases of property and equipment (503,120)
Cash of companies acquired in Exchange 733,804
------------
Net cash provided by investing activities 230,684
Cash flows from financing activities:
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)
------------
Net cash provided by financing activities 30,359
------------
Net increase in cash and cash equivalents 959,198
Cash and cash equivalents at beginning of period 1,000
------------
Cash and cash equivalents at end of period $ 960,198
============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 290,148
Cash paid for income taxes 109,603
</TABLE>
See accompanying notes.
- 5 -
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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
==========
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
-6-
<PAGE>
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 June 11, 1996 and the 24 weeks ended June 17, 1997 and June 11, 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 June 17, 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
of 2,100,000 shares of its Common at $9.00 per share. Total net proceeds to the
Company of approximately $16,850,000 are being used for restaurant development,
working capital and general corporate purposes. On July 23, 1997, the
underwriters exercised their over-allotment option for an additional 315,000
shares for which the Company received net proceeds of approximately $2,640,000.
3. STOCK OPTIONS
- 1997 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 "Initial Public Offering"), 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. There were no such options outstanding as of June 17, 1997.
-7-
<PAGE>
- 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. There were no such options
outstanding as of June 17, 1997.
-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 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 June 17, 1997, the Company operated nine Bailey's and three Fox &
Hounds located in Arkansas, Indiana, North Carolina, South Carolina, Tennessee
and Texas.
The components of the Company's net sales are food, non-alcoholic
beverages, alcoholic beverages, and entertainment and other. For the twenty-four
weeks ended June 17, 1997, food and non-alcoholic beverages were 24.2% of total
sales, alcoholic beverages were 58.2% 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 and other operating expenses. 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 over 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 restaurant opens.
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 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 Condensed Consolidated Statement
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 Twenty-four Weeks Ended
----- ----- -----------------------
June 17, June 11, June 17, June 11,
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 .................................. 26.2 28.3 26.4 28.0
Restaurant operating expenses ................... 46.5 47.6 45.3 46.1
Depreciation and amortization ................... 6.1 5.1 5.8 5.4
-------- -------- -------- --------
Restaurant costs and expenses ................ 78.8 81.0 77.5 79.5
-------- -------- -------- --------
Restaurant operating income .......................... 21.2 19.0 22.5 20.5
General and administrative expenses .................. 12.7 5.3 11.6 4.7
Goodwill amortization ................................ 1.3 1.7 1.3 1.7
-------- -------- -------- --------
Income from operations ............................... 7.2 12.0 9.6 14.1
Other income, principally interest ................... 0.0 0.3 0.0 0.2
Interest expense ..................................... (5.4) (4.5) (5.0) (4.4)
-------- -------- -------- --------
Income before provision for income taxes ............. 1.7 7.8 4.6 9.9
Provision for income taxes ........................... 0.7 2.9 1.7 3.7
-------- -------- -------- --------
Net income ........................................... 1.1% 4.9% 2.9% 6.2%
======== ======== ======== ========
Restaurant Operating Data:
Annualized average weekly sales per location (3) ..... $ 1,437 $ 1,458 $ 1,502 $ 1,514
Number of restaurants at end of the period ........... 12 9 12 9
</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 JUNE 17, 1997 COMPARED TO TWELVE WEEKS ENDED JUNE 11, 1996
Net sales increased $840,000 (26.6%) for the twelve weeks ended June
17, 1997 to $3,993,000 from $3,153,000 in the twelve weeks ended June 11, 1996,
principally attributable to $787,000 in sales from the three new locations
opened since March 1996. Same store sales increased 8.2% in the twelve weeks
ended June 17, 1997 compared to the twelve weeks ended June 11, 1996.
Costs of sales, primarily food and beverages, increased $155,000
(17.4%) in the twelve weeks ended June 17, 1997 to $1,046,000 from $892,000 in
the twelve weeks ended June 11, 1996, and such expenses decreased as a
percentage of sales from 28.3% to 26.2%. 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 June 17,
1997 increased $356,000 (23.7%) to $1,856,000 from $1,500,000 in the twelve
weeks ended June 11, 1996, and such expenses decreased as a percentage of net
sales from 47.6% to 46.5%. Most of this improvement is attributable to improved
labor efficiencies at the locations.
Depreciation and amortization increased $82,000 (51.4%) for the
twelve weeks ended June 17, 1997 to $242,000 from $160,000 in the twelve weeks
ended June 11, 1996, principally reflecting the amortization of capitalized
pre-opening expenses relating to the opening of three new restaurants since
March 1996 and increases in depreciation relating to one owned property added
since March 1996.
General and administrative expenses for the twelve weeks ended June
17, 1997, increased $339,000 (203.5%) to $506,000 from $167,000 in the twelve
weeks ended June 11, 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 in the future.
Interest expense for the twelve weeks ended June 17, 1997, was
$216,000, a $74,000 (52.3%) increase from $142,000 in the twelve weeks ended
June 11, 1996. This increase was attributable to debt incurred to finance three
locations added since December 1995.
The effective income tax rate for the twelve weeks ended June 17,
1997 and the effective pro forma income tax rate for the twelve weeks ended June
11, 1996 were both 37.5%.
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<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
TWENTY-FOUR WEEKS ENDED JUNE 17, 1997 COMPARED TO TWENTY-FOUR WEEKS ENDED JUNE
11, 1996
Net sales increased $1,688,000 (26.4%) for the twenty-four weeks
ended June 17, 1997 to $8,078,000 from $6,390,000 in the twenty-four weeks ended
June 11, 1996 principally attributable to $1,510,000 in sales from the three new
locations opened since December 1995. Same store sales increased 8.5% in the
twenty-four weeks ended June 17, 1997 compared to the twenty-four weeks ended
June 11, 1996.
Costs of sales, primarily food and beverages increased $340,000
(19.0%) in the twenty-four weeks ended June 17, 1997 to $2,130,000 from
$1,790,000 in the twenty-four weeks ended June 11, 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 twenty-four weeks ended June
17, 1997 increased $710,000 (24.1%) to $3,657,000 from $2,947,000 in the
twenty-four weeks ended June 11, 1996, and such expenses decreased as a
percentage of net sales from 46.1% to 45.3%. Most of this improvement is
attributable to improved labor efficiencies at the locations.
Depreciation and amortization increased $121,000 (35.3%) in the
twenty-four weeks ended June 17, 1997 to $464,000 from $343,000 in the
twenty-four weeks ended June 11, 1996, principally reflecting the amortization
of capitalized pre-opening expenses relating to the opening of three new
restaurants since December 1995 and increases in depreciation relating to one
owned property added since December 1995.
General and administrative expenses for the twenty-four weeks ended
June 17, 1997, increased $635,000 (211.2%) to $935,000 from $300,000 in the
twenty-four weeks ended June 11, 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 in the future.
Interest expense for the twenty-four weeks ended June 17, 1997, was
$407,000, a $128,000 (45.7%) increase from $279,000 in the twenty-four weeks
ended June 11, 1996. This increase was attributable to debt incurred to finance
three locations added since December 1995.
The effective income tax rate for the twenty-four weeks ended June
17, 1997 and the effective pro forma income tax rate for the twenty-four weeks
ended June 11, 1996 were both 37.5%.
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<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.
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, 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.
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<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
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 has 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.
At June 17, 1997, the Company had 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. Such indebtedness was repaid with a portion of the
net proceeds from the Company's Initial Public Offering. 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 (one of which was
opened in March 1997 and two of which are currently under construction), and is
in active negotiations for leases on five additional sites. The Company expects
to expend approximately $3.8 million to open new locations through the remainder
of fiscal 1997.
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, for which the Company has a commitment but has not yet
entered into a definitive agreement, will be sufficient to satisfy 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, 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.
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<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
Part II. - OTHER INFORMATION
- ----------------------------
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
In the twelve weeks ended June 17, 1997, the following actions were
taken by written consent of the stockholders of the Company pursuant to Section
228 of the General Corporation Law of the State of Delaware:
No. of Shares
Approving Date of
Action Taken Action Taken Approval
------------ ------------ --------
1. Changing Company name to "Total
Entertainment Restaurant Corp." 7,343,280 June 3, 1997
2. Approving 1997 Incentive and
Nonqualified Stock Option Plan 7,198,200 June 3, 1997
3. Approving Directors Stock
Option Plan 7,290,800 June 3, 1997
4. Removing Michael A. Nahkunst as
a Director of the Company 7,293,920 June 6, 1997
5. Appointing Gary M. Judd as
a Director of the Company 6,894,400 June 11, 1997
The terms of Jamie B. Coulter and Dennis L. Thompson as Directors of
the Company were unaffected by the actions described in number 4 and 5 above.
There were 8,000,000 shares of Common Stock outstanding during the
period in which written consents were delivered to the Company. Written notice
of the actions described above was sent to all stockholders on June 24, 1997.
-15-
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27................Financial Data Schedule
(b) Reports on Form 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 in its behalf by the
undersigned thereunto duly authorized.
Total Entertainment Restaurant Corp.
Date August 29, 1997 /s/ James K. Zielke
------------------------------------
James K. Zielke
Chief Financial Officer,
Secretary and Treasurer
-17-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q FOR THE QUARTER ENDED JUNE 17, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-30-1997
<PERIOD-START> FEB-7-1997
<PERIOD-END> JUN-17-1997
<CASH> 960
<SECURITIES> 0
<RECEIVABLES> 59
<ALLOWANCES> 0
<INVENTORY> 261
<CURRENT-ASSETS> 1,618
<PP&E> 7,262
<DEPRECIATION> 0
<TOTAL-ASSETS> 13,763
<CURRENT-LIABILITIES> 11,923
<BONDS> 0
0
0
<COMMON> 80
<OTHER-SE> 1,584
<TOTAL-LIABILITY-AND-EQUITY> 13,763
<SALES> 5,683
<TOTAL-REVENUES> 5,683
<CGS> 1,475
<TOTAL-COSTS> 4,395
<OTHER-EXPENSES> 771
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 303
<INCOME-PRETAX> 214
<INCOME-TAX> 80
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 134
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
