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 16, 1998 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 July 7, 1998
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 16, 1998 AND DECEMBER 30, 1997 2
CONSOLIDATED STATEMENTS OF INCOME
FOR THE TWELVE WEEKS ENDED
JUNE 16, 1998 AND JUNE 17, 1997 3
CONSOLIDATED STATEMENTS OF INCOME
FOR THE TWENTY-FOUR WEEKS ENDED
JUNE 16, 1998 AND PRO FORMA FOR THE
TWENTY-FOUR WEEKS ENDED JUNE 17, 1997 4
CONDENSED CONSOLIDATED STATEMENT OF
CASH FLOWS FOR THE TWENTY-FOUR WEEKS ENDED
JUNE 16, 1998 AND FOR THE PERIOD FROM
FEBRUARY 7, 1997 (INCEPTION) THROUGH
JUNE 17, 1997 5
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS 6
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 7
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS 13
ITEM 5. OTHER INFORMATION 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
-1-
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 16, 1998 December 30, 1997
------------- -----------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,988,026 $ 1,220,598
Marketable securities, available for sale -- 3,315,056
Inventories 462,446 396,758
Pre-opening costs - net 457,608 386,402
Deferred income taxes 185,360 156,571
Other current assets 412,743 350,324
----------- -----------
Total current assets 4,506,183 5,825,709
Property and equipment, net 15,496,227 12,582,081
Intangible and other assets, net (principally goodwill) 4,918,577 4,816,479
----------- -----------
Total assets $24,920,987 $23,224,269
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,143,141 $ 823,765
Other current liabilities 725,632 422,983
----------- -----------
Total current liabilities 1,868,773 1,246,748
Deferred income taxes 381,264 312,450
Stockholders' Equity:
Preferred stock -- --
Common stock 104,150 104,150
Additional paid-in capital 20,580,764 20,580,764
Retained earnings 1,986,036 980,157
----------- -----------
Total stockholders' equity 22,670,950 21,665,071
----------- -----------
Total liabilities and stockholders' equity $24,920,987 $23,224,269
=========== ===========
</TABLE>
See accompanying notes.
- 2 -
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Twelve weeks ended
June 16, 1998 June 17, 1997
------------- -------------
<S> <C> <C>
Net sales:
Food and beverage $ 4,883,221 $ 3,298,371
Entertainment and other 820,524 694,389
---------- ------------
Total net sales 5,703,745 3,992,760
Costs and expenses:
Costs of sales 1,524,743 1,046,479
Restaurant operating expenses 2,593,687 1,856,381
Depreciation and amortization 489,867 241,919
---------- ------------
Entertainment and restaurant costs and expenses 4,608,297 3,144,779
---------- ------------
Entertainment and restaurant operating income 1,095,448 847,981
General and administrative expenses 553,589 505,898
Goodwill amortization 56,345 54,687
---------- ------------
Income from operations 485,514 287,396
Other income (expense):
Other income, principally interest 33,259 148
Interest expense - (216,538)
---------- ------------
Income before income taxes 518,773 71,006
Provision for income taxes 191,735 26,627
---------- ------------
Net income $ 327,038 $ 44,379
========== ============
Basic and diluted earnings per share $ 0.03 $ 0.01
========== ============
Average shares outstanding 10,415,000 8,000,000
========== ============
</TABLE>
See accompanying notes.
- 3 -
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Company
Pro Forma
-------------
Twenty-four Twenty-four
weeks ended weeks ended
June 16, 1998 June 17, 1997
------------- -------------
<S> <C> <C>
Net sales:
Food and beverage $ 10,625,203 $ 6,658,564
Entertainment and other 1,853,125 1,419,027
------------ ------------
Total net sales 12,478,328 8,077,591
Costs and expenses:
Costs of sales 3,310,056 2,130,176
Restaurant operating expenses 5,449,484 3,656,520
Depreciation and amortization 954,609 464,588
------------ ------------
Entertainment and restaurant costs and expenses 9,714,149 6,251,284
------------ ------------
Entertainment and restaurant operating income 2,764,179 1,826,307
General and administrative expenses 1,120,445 934,960
Goodwill amortization 112,690 108,460
------------ ------------
Income from operations 1,531,044 782,887
Other income (expense):
Other income, principally interest 65,433 148
Interest expense (178) (407,257)
------------ ------------
Income before income taxes 1,596,299 375,778
Provision for income taxes 590,420 140,917
------------ ------------
Net income $ 1,005,879 $ 234,861
============ ============
Basic and diluted earnings per share $ 0.10 $ 0.03
============ ============
Average shares outstanding 10,415,000 8,000,000
============ ============
</TABLE>
See accompanying notes.
- 4 -
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Period from
February 7, 1997
For the twenty- (inception)
four weeks ended through June 17,
June 16, 1998 1997
---------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,005,879 $ 133,826
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,084,031 430,609
Net change in operating assets and liabilities:
Change in operating assets (748,820) (179,426)
Change in operating liabilities 690,839 313,146
------------ -----------
Net cash provided by operating activities 2,031,929 698,155
Cash flows from investing activities:
Purchases of property and equipment (3,579,557) (503,120)
Proceeds from sale of marketable securities 3,315,056 -
Cash of companies acquired in Exchange - 733,804
------------ -----------
Net cash (used) provided by investing activities (264,501) 230,684
Cash flows from financing activities:
Net proceeds from sale of stock - -
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 1,767,428 959,198
Cash and cash equivalents at beginning of period 1,220,598 1,000
------------ -----------
Cash and cash equivalents at end of period $ 2,988,026 $ 960,198
============ ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 178 $ 290,148
Cash paid for income taxes 572,108 109,603
</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 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"). For further information
regarding the Exchange, refer to the Company's Form 10-K for the fiscal year
ended December 30, 1997. The unaudited pro forma consolidated statements of
income for the twenty-four weeks ended June 17, 1997 give effect to the Exchange
as if such transactions occurred on January 1, 1997.
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 Company's audited consolidated financial statements in its 1997 Form
10-K. The results of the twenty-four weeks ended June 16, 1998 are not
necessarily indicative of the results to be expected for the full year ending
December 29, 1998.
2. STOCK OPTIONS
During the twenty-four week period ended June 16, 1998, the Company
granted to certain key employees stock options for 73,150 shares of Common Stock
at exercise prices ranging from $4.75 to $7.00 per share pursuant to its 1997
Incentive and Nonqualified Stock Option Plan.
3. RECENTLY ISSUED ACCOUNTING STANDARDS
As of December 31, 1997, the Company adopted Statement 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
this Statement had no impact on the Company's net income or stockholders'
equity. The Company has no items of other comprehensive income in any period
presented.
The Accounting Standards Executive Committee recently issued Statement of
Position 98-5, Reporting on Costs of Start-Up Activities, which will require the
Company to expense start-up costs, including organizational costs, as incurred
and to report the initial adoption as a cumulative effect of a change in
accounting principle as described in APBO No. 20, Accounting Changes, during the
first quarter of its fiscal year 1999. The cumulative effect upon adoption would
result in a one-time charge to income in an amount equal to the net book value
of the Company's start-up costs. A resulting benefit of this change is the
discontinuance of amortization expense in subsequent periods.
-6-
<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 began operations February 20, 1997 with three Fox & Hound and
eight Bailey's entertainment restaurant locations. The Company opened two Fox &
Hound locations during the twenty-four weeks ended June 16, 1998, and currently
operates ten Bailey's units and ten Fox & Hound units located in Alabama,
Arkansas, Illinois, Indiana, Iowa, Nebraska, North Carolina, Ohio, 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 twenty-four
weeks ended June 16, 1998, food and non-alcoholic beverages were 28.9% of total
sales, alcoholic beverages were 56.2% of total sales and entertainment and other
were 14.9% of total sales.
Components of restaurant operating expenses include operating payroll and
fringe benefits, occupancy, advertising and promotion. 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 twelve month period, beginning in the period
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 are also included. Management,
supervisory and staff salaries, employee benefits, travel, information systems,
training, rent and office supplies as well as accounting services fees are major
items of costs in this category.
-7-
<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 Statement of Income
bear to net sales, and (ii) other selected operating data:
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA (2)
------------------------------- ---------- -------------
TWELVE WEEKS ENDED(1) TWENTY-FOUR WEEKS ENDED(1)
--------------------- --------------------------
JUNE 16, JUNE 17, JUNE 16, JUNE 17,
1998 1997 1998 1997
---- ---- ---- ----
(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............................... 26.7 26.2 26.5 26.4
Restaurant operating expenses................ 45.5 46.5 43.6 45.3
Depreciation and amortization................ 8.6 6.1 7.7 5.7
--- ----- ----- -----
Restaurant costs and expenses........... 80.8 78.8 77.8 77.4
----- ----- ----- ----
Restaurant operating income........................ 19.2 21.2 22.2 22.6
General and administrative expenses................ 9.7 12.6 9.0 11.6
Goodwill amortization.............................. 1.0 1.4 0.9 1.3
----- ----- ----- -----
Income from operations............................. 8.5 7.2 12.3 9.7
Other income, principally interest................. 0.6 -- 0.5 --
Interest expense .................................. -- 5.4 -- 5.0
----- ----- ----- -----
Income before provision for income taxes........... 9.1 1.8 12.8 4.7
Provision for income taxes......................... 3.4 0.7 4.7 1.8
----- ----- ----- -----
Net income......................................... 5.7% 1.1% 8.1% 2.9%
RESTAURANT OPERATING DATA:
Annualized average weekly sales per location (3)... $1,433 $ 1,437 $ 1,594 $ 1,502
Number of restaurants at end of the period........ 18 12 18 12
</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, 1997.
(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.
-8-
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
TWELVE WEEKS ENDED JUNE 16, 1998 COMPARED TO TWELVE WEEKS ENDED JUNE 17, 1997
Net sales increased $1,711,000 (42.9%) for the twelve weeks ended June 16,
1998 to $5,704,000 from $3,993,000 for the twelve weeks ended June 17, 1997,
which is principally attributable to sales from the six new locations opened
since June 1997. Same store sales decreased 5.3% in the twelve weeks ended June
16, 1998 compared to the twelve weeks ended June 17, 1997.
Costs of sales, primarily food and beverages increased $478,000 (45.7%)
for the twelve weeks ended June 16, 1998 to $1,524,000 from $1,046,000 in the
twelve weeks ended June 17, 1997, and increased as a percentage of sales from
26.2% to 26.7%. This increase is attributable to an increase in the food sales
mix, which has a higher cost of sales compared to beverages and entertainment.
Restaurant operating expenses increased $738,000 (39.7%) for the twelve
weeks ended June 16, 1998 to $2,594,000 from $1,856,000 in the twelve weeks
ended June 17, 1997, and decreased as a percentage of net sales from 46.5% to
45.5%. Most of this improvement is attributable to improved labor controls at
the locations.
Depreciation and amortization increased $248,000 (102.5%) for the twelve
weeks ended June 16, 1998 to $490,000 from $242,000 in the twelve weeks ended
June 17, 1997, and increased as a percentage of sales from 6.1% to 8.6%. This
increase is due principally to the depreciation and amortization relating to the
opening of six new restaurants since June 1997.
General and administrative expenses increased $48,000 (9.4%) for the
twelve weeks ended June 16, 1998 to $554,000 from $506,000 in the twelve weeks
ended June 17, 1997, and decreased as a percentage of sales from 12.6% to 9.7%.
This increase reflects the additional corporate infrastructure added during the
first and second quarter of 1997 enabling the Company to rapidly develop
additional units and operate as a public company. Certain accounting and
administrative services are contracted from Coulter Enterprises, Inc., a
restaurant management services company owned by the Company's Chairman of the
Board. The service agreement provides for specified accounting and
administrative services to be provided on a cost pass-through basis. For fiscal
1998, the fixed annual charge is $194,500, plus and an additional fee of $466
per restaurant per 28-day accounting period.
Other income, principally interest, was $33,000 for the twelve weeks ended
June 16, 1998 (none in 1997). The interest was earned from the investment of the
net proceeds of the initial public offering of the Company, which commenced on
July 17, 1997 (the "Initial Public Offering").
Interest expense decreased $217,000 for the twelve weeks ended June 16,
1998 to zero from $217,000 in the twelve weeks ended June 17, 1997. 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 June 16, 1998 was
37.0% and the effective income tax rate for the twelve weeks ended June 17, 1997
was 37.5%. This decrease was primarily due to the impact of tax exempt interest
income earned during the twelve weeks ended June 16, 1998.
-9-
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
TWENTY-FOUR WEEKS ENDED JUNE 16, 1998 COMPARED TO TWENTY-FOUR WEEKS ENDED JUNE
17, 1997
Net sales increased $4,400,000 (54.5%) for the twenty-four weeks ended
June 16, 1998 to $12,478,000 from $8,078,000 for the twenty-four weeks ended
June 17, 1997, which is principally attributable to sales from the six new
locations opened since June 1997. Same store sales decreased 1.0% in the
twenty-four weeks ended June 16, 1998 compared to the twenty-four weeks ended
June 17, 1997.
Costs of sales, primarily food and beverages increased $1,180,000 (55.4%)
for the twenty-four weeks ended June 16, 1998 to $3,310,000 from $2,130,000 in
the twenty-four weeks ended June 17, 1997, and increased as a percentage of
sales from 26.4% to 26.5%. This increase is attributable to an increase in the
food sales mix, which has a higher cost of sales compared to beverages and
entertainment.
Restaurant operating expenses increased $1,792,000 (49.0%) for the
twenty-four weeks ended June 16, 1998 to $5,449,000 from $3,657,000 in the
twenty-four weeks ended June 17, 1997, and decreased as a percentage of net
sales from 45.3% to 43.6%. Most of this improvement is attributable to improved
labor controls at the locations and leveraging the fixed portion of these costs
with higher sales volumes.
Depreciation and amortization increased $490,000 (105.5%) for the
twenty-four weeks ended June 16, 1998 to $955,000 from $465,000 in the
twenty-four weeks ended June 17, 1997, and increased as a percentage of sales
from 5.7% to 7.7%. This increase is due principally to the depreciation and
amortization relating to the opening of six new restaurants since June 1997.
General and administrative expenses increased $185,000 (19.8%) for the
twenty-four weeks ended June 16, 1998 to $1,120,000 from $935,000 in the
twenty-four weeks ended June 17, 1997, and decreased as a percentage of sales
from 11.6% to 9.0%. This increase reflects the additional corporate
infrastructure added during the first and second quarter of 1997 enabling the
Company to rapidly develop additional units and operate as a public company.
Certain accounting and administrative services are contracted from Coulter
Enterprises, Inc., a restaurant management services company owned by the
Company's Chairman of the Board. The service agreement provides for specified
accounting and administrative services to be provided on a cost pass-through
basis. For fiscal 1998, the fixed annual charge is $194,500, plus and an
additional fee of $466 per restaurant per 28-day accounting period.
Other income, principally interest, was $65,000 for the twenty-four weeks
ended June 16, 1998 (none in 1997). The interest was earned from the investment
of the net proceeds of the Initial Public Offering.
Interest expense decreased $407,000 for the twenty-four weeks ended June
16, 1998 to zero from $407,000 in the twenty-four weeks ended June 17, 1997.
This decrease reflects the repayment of all debt outstanding immediately
following the Initial Public Offering.
The effective income tax rate for the twenty-four weeks ended June 16,
1998 was 37.0% and the effective income tax rate for the twenty-four weeks ended
June 17, 1997 was 37.5%. This decrease was primarily due to the impact of tax
exempt interest income earned during the twenty-four weeks ended June 16, 1998.
-10-
<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
Cash flows from operations were $2,032,000 and purchases of property and
equipment were $3,580,000 for the twenty-four week period ending June 16, 1998.
At June 16, 1998, the Company had $2,988,000 in cash and cash equivalents.
The Company intends to open twenty locations in 1998 (two of which were opened
during the twenty-four week period ending June 16, 1998 and two of which have
been opened since June 16, 1998). Four additional units are currently under
construction, and leases have been signed on eleven additional sites. The
Company expects to expend approximately $19.0 million to open new locations
through the remainder of fiscal 1998. In order to fund new unit development, the
Company has entered into a short-term $6 million line of credit with Intrust
Bank, N.A. (the "Intrust Line") and is currently negotiating a $20-25 million
line of credit with several banks to replace the Intrust Line.
The Company believes the net 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 its working capital and capital
expenditure requirements for at least the next twelve months. There can be no
assurance, however, that changes in the Company's operating plans, the
availability 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 additional
financing will be available on terms acceptable to the Company 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 the forward-looking statements contained in the report will
prove to be accurate.
-11-
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
YEAR 2000 COMPLIANCE
The Company currently believes its essential processes, systems and
business functions will be ready for the millennium transition and is taking the
necessary steps to accomplish this objective. The Year 2000 issue is not
anticipated to have a material impact on the Company's results of operations,
financial position or its cash flows.
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 June 16, 1998:
<TABLE>
<CAPTION>
Number of Shares
Description of Sold/Issued/Subject Offering/Exercise
Date of Sale/Issuance Securities Issued to Options or Warrants Price Per Share
--------------------- ----------------- ---------------------- ---------------
<S> <C> <C> <C>
March 31, 1998 Common Stock Options 7,143 $ 7.00
May 27, 1998 Common Stock Options 8,696 $ 5.75
</TABLE>
All of the above options were granted to certain key employees
pursuant to the 1997 Incentive and Nonqualified Stock Option Plan.
These options have a vesting period of five years and a life of
ten years.
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.
USE OF PROCEEDS OF INITIAL PUBLIC OFFERING
(4) (vii) Estimated purchases and installation of furniture,
fixtures and equipment 6,365,807
Estimated remaining net offering proceeds invested
in various tax exempt securities and funds 1,894,069
-12-
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
On May 26, 1998, the Company held its Annual Meeting of Stockholders(the
"Meeting"). At the Meeting, the stockholders elected Dennis L. Thompson and
Thomas A. Hager to the Board of Directors to serve until the 2001 Annual Meeting
of Stockholders and until their successors have been duly elected and qualified.
As to the new elected Directors, there were 8,969,609 votes "For" and 1,000
votes "Withheld" for Dennis L. Thompson, and 8,969,609 votes "For" and 1,000
votes "Withheld" for Thomas A. Hager. In addition, the stockholders ratified the
apointment of Ernst & Young as the Company's independent auditors for the year
ending December 29, 1998. As to the ratification of auditors there were
8,970,049 votes "For", 0 votes "Against", and 560 votes "Abstained."
ITEM 5. OTHER INFORMATION
Pursuant to recent amendments to the proxy rules under the Securities
Exchange Act of 1934, as amended, the Company's stockholders are notified that
the deadline for providing the Company timely notice of any stockholder proposal
to be submitted outside of the Rule 14a-8 process for consideration at the
Company's 1999 Annual Meeting of Stockholders (the "Annual Meeting") will be
March 13, 1999. As to all such matters which the Company does not have notice on
or prior to March 13, 1999, discretionary authority shall be granted to the
designated persons in the Company's proxy statement for the Annual Meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
The following exhibits are filed as part of this report:
Exhibit No.
10.1.....................Promissory Note to Intrust Bank, N.A.
issued by the Company, dated June 24,
1998.
27.......................Financial Data Schedule
Reports on Form 8-K
None
-13-
<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.
(Registrant)
Date JULY 31, 1998 /s/ James K. Zielke
------------------------
James K. Zielke
Chief Financial Officer,
Secretary and Treasurer
(Duly Authorized Officer)
-14-
PROMISSORY NOTE
BORROWER: TENT Finance, Inc.; ET. AL. LENDER: INTRUST Bank, N.A
P.O. Box 12248 P.O. Box One
Wichita, KS 67277-2248 105 N. Main
Wichita, KS 67201
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PRINCIPAL AMOUNT: $6,000,000.00 INITIAL RATE: 8.000% DATE OF NOTE:June 24, 1998
</TABLE>
PROMISE TO PAY. TENT Finance, Inc. and Total Entertainment Restaurant Corp.
(referred to in this Note individually and collectively as "Borrower") jointly
and severally promise to pay to INTRUST Bank, N.A. ("Lender"), or order, in
lawful money of the United States of America, the principal amount of Six
Million & 00/100 Dollars ($6,000,000.00) or so much as may be outstanding,
together with interest on the unpaid outstanding principal balance of each
advance. Interest shall be calculated from the date of each advance until
repayment of each advance.
PAYMENT. Borrower will pay this loan in one payment of all outstanding principal
plus all accrued unpaid interest on September 1, 1998. In addition, Borrower
will pay regular monthly payments of accrued unpaid interest beginning July 1,
1998, and all subsequent interest payments are due on the same day of each month
after that. The annual interest rate for this Note is computed on a 365/360
basis; that is, by applying the ratio of the annual interest rate over a year of
360 days, multiplied by the outstanding principal balance, multiplied by the
actual number of days the principal balance is outstanding. Borrower will pay
Lender at Lender's address shown above or at such other place as Lender may
designate in writing. Unless otherwise agreed or required by applicable law,
payments will be applied first to accrued unpaid interest, then to principal,
and any remaining amount to any unpaid collection costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an independent index which is the Prime Rate as
published in the Wall Street Journal Southwestern Edition (the "Index"). The
Index is not necessarily the lowest rate changed by Lender on its loans. If the
Index becomes unavailable during the term of this loan, Lender may designate a
substitute index after notice to Borrower. Lender will tell Borrower the current
Index rate upon Borrower's request. Borrower understands that Lender may make
loans based on other rates as well. The interest rate change will not occur more
often than each month on the first day of the month following the change of the
index. The Index currently is a 8.500% per annum. The interest rate to be
applied to the unpaid principal balance of this Note will be at a rate of 0.500
percentage points under the Index, resulting in an initial rate of 8.000% per
annum. NOTICE: Under no circumstances will the interest rate on this Note be
more than the maximum rate allowed by applicable law.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed
earlier than it is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower's obligation to continue to make payments
of accrued unpaid interest. Rather, they will reduce the principal balance due.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.000% of the unpaid portion of the regularly scheduled payment or $100.00,
whichever is less.
DEFAULT: Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Any representation or statement made or furnished to Lender
by Borrower or on Borrower's behalf is false or misleading in any material
respect either now or at the time made or furnished. (d) Borrower becomes
insolvent, a receiver is appointed for any part of Borrower's property, Borrower
makes an assignment for the benefit of creditors, or any proceeding is commenced
either by Borrower or against Borrower under any bankruptcy or insolvency laws.
(e) Any creditor tries to take any
<PAGE>
of Borrower's property on or in which Lender has a lien or security interest.
This includes a garnishment of any of Borrower's accounts with Lender. (f) Any
guarantor dies or any of the other events described in this default section
occurs with respect to any guarantor of this Note. (g) A material adverse change
occurs in Borrower's financial condition, or Lender believes the prospect of
payment or performance of the indebtedness is impaired. (h) Lender in good faith
deems itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid balance of
this Note and all accrued unpaid interest immediately due, without notice, and
then Borrower will pay that amount. Upon default, including failure to pay upon
final maturity, Lender, at its option, may also, if permitted under applicable
law, increase the variable interest rate of this Note 5.000 percentage points.
The interest rate will not exceed the maximum rate permitted by applicable law.
Lender may hire or pay someone else who is not a salaried employee of Lender to
help collect this Note if Borrower does not pay. Borrower will be liable for all
reasonable costs incurred in the collection of this Note, including but not
limited to, court costs, attorneys' fees, and collection agency fees, except
that such costs of collection shall not include the recovery of both attorneys'
fees and collection agency fees. This Note has been delivered to Lender and
accepted by Lender in the State of Kansas. If there is a lawsuit, Borrower
agrees upon Lender's request to submit to the jurisdiction of Sedgwick County,
the State of Kansas. This Note shall be governed by and construed in accordance
with the laws of the State of Kansas.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $20.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest in,
and hereby assigns, conveys, delivers, pledges, and transfers to Lender all
Borrower's right, title and interest in and to, Borrower's accounts with Lender
(whether checking, savings, or some other account), including without limitation
all accounts held jointly with someone else and all accounts Borrower may open
in the future, excluding however all IRA and Keogh accounts, and all trust
accounts for which the grant of a security interest would be prohibited by law.
Borrower authorizes Lender, to the extent permitted by applicable law, to charge
or setoff all sums owing on this Note against any and all such accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note, as well as directions for payment from Borrower's accounts, may be
requested orally or in writing by Borrower or by an authorized person. Lender
may, but need not, require that all oral requests be confirmed in writing. The
following party or parties are authorized to request advances under the line of
credit until Lender receives from Borrower at Lender's address shown above
written notice of revocation of their authority: Gary M. Judd,
CEO/President/COO. Borrower agrees to be liable for all sums either: (a)
advanced in accordance with the instructions of an authorized person or (b)
credited to any of Borrower's accounts with Lender. The unpaid principal balance
owing on this Note at any time may be evidenced by endorsements on this Note or
by Lender's internal records, including daily computer printouts. Lender will
have no obligation to advance funds under this Note if: (a) Borrower or any
guarantor is in default under the terms of this Note or any agreement that
Borrower or any guarantor has with Lender, including any agreement made in
connection with the signing of this Note; (b) Borrower or any guarantor ceases
doing business or is insolvent; (c) any guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such guarantor's guarantee of this Note or
any other loan with Lender; (d) Borrower has applied funds provided pursuant to
this Note for purposes other than those authorized by Lender; or (e) Lender in
good faith deems itself insecure under this Note or any other agreement between
Lender and Borrower.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Each Borrower understands and
agrees that, with or without notice to Borrower, Lender may with respect to any
Borrower (a) make one or more additional secured or unsecured loans or otherwise
extend additional credit; (b) alter, compromise, renew, extend, accelerate, or
otherwise change one or more times the time for payment or other terms any
indebtedness, including increases and decreases of the rate of interest on the
indebtedness; (c) exchange, enforce, waive, subordinate, fail or decide not to
perfect, and release any security, with or without the substitution of new
collateral; (d) apply such security and direct the order or manner of sale
thereof,
-2-
<PAGE>
including without limitation, any nonjudicial sale permitted by the terms of the
controlling security agreements, as Lender in its discretion may determine; (e)
release, substitute, agree not to sue, or deal with any one or more of
Borrower's sureties, endorsers, or other guarantors on any terms or in any
manner Lender may choose; and (f) determine how, when and what application of
payments and credits shall be made on any other indebtedness owing by such other
borrower. Borrower and any other person who signs, guarantees or endorses this
Note, to the extent allowed by law, waive presentment, demand for payment,
protest and notice of dishonor. Upon any change in the terms of this Note, and
unless otherwise expressly stated in writing, no party show signs this Note,
whether as maker, guarantor, accommodation maker or endorser, shall be released
from liability. All such parties agree that Lender may renew or extend
(repeatedly and for any length of time) this loan, or release any party or
guarantor or collateral; or impair, fail to realize upon or perfect Lender's
security interest in the collateral; and take any other action deemed necessary
by Lender without the consent of or notice to anyone. All such parties also
agree that Lender may modify this loan without the consent of or notice to
anyone other than the party with whom the modification is made. The obligations
under this Note are joint and several.
NO ORAL AGREEMENTS. This written agreement is the final expression of the
agreement between Lender and Borrower and may not be contradicted by evidence of
any prior oral agreement or of a contemporaneous oral agreement between Lender
and Borrower.
PRIOR TO SIGNING THIS NOTE, EACH BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. EACH BORROWER
AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF
THE NOTE.
BORROWER
TENT Finance, Inc.
By:/S/ GARY M. JUDD
--------------------------------
Gary M. Judd, CEO/President/COO
Total Entertainment Restaurant Corp., Co-Borrower
By:/S/ GARY M. JUDD
--------------------------------
Gary M. Judd, CEO/President/COO
-3-
<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 16, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-29-1998
<PERIOD-START> DEC-31-1997
<PERIOD-END> JUN-16-1998
<CASH> 2,988
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 462
<CURRENT-ASSETS> 4,506
<PP&E> 15,496
<DEPRECIATION> 0
<TOTAL-ASSETS> 24,921
<CURRENT-LIABILITIES> 1,869
<BONDS> 0
0
0
<COMMON> 104
<OTHER-SE> 22,567
<TOTAL-LIABILITY-AND-EQUITY> 24,921
<SALES> 5,704
<TOTAL-REVENUES> 5,704
<CGS> 1,525
<TOTAL-COSTS> 4,608
<OTHER-EXPENSES> 610
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 519
<INCOME-TAX> 192
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 327
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
