UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 29, 1998
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ TO ______
Commission file number 000-22753
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TOTAL ENTERTAINMENT RESTAURANT CORP.
(Exact name of Registrant as specified in its charter)
DELAWARE 52-2016614
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
9300 E. CENTRAL, SUITE 100
WICHITA, KS 67206
(Address of principal executive offices) (Zip code)
(316) 634-0505
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes X No
-- --
As of March 19, 1999, the aggregate market value of the Registrant's
Common Stock held by non-affiliates of the Registrant was $22,945,504. Solely
for the purposes of this calculation, shares held by directors and officers of
the Registrant have been excluded. Such exclusion should not be deemed a
determination or an admission by the Registrant that such individuals are in
fact, affiliates of the Registrant.
As of March 19, 1999, there were 10,415,000 shares outstanding of the
Registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III will be incorporated by reference to
certain portions of a definitive proxy statement which is expected to be filed
by the Registrant within 120 days after the close of its fiscal year.
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TABLE OF CONTENTS
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ITEM PAGE
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PART I
1. Business 3
2. Properties 12
3. Legal Proceedings 12
4. Submission of Matters to a Vote of Security Holders 12
PART II
5. Market for the Registrant's Common Equity and Related 13
Stockholder Matters
6. Selected Financial Data 15
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
7A. Quantitative and Qualitative Disclosures About Market
Risk 21
8. Financial Statements and Supplementary Data 21
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 21
PART III
10. Directors and Executive Officers of the Registrant 21
11. Executive Compensation 21
12. Security Ownership of Certain Beneficial Owners and Management 22
13. Certain Relationships and Related Transactions 22
PART IV
14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K 22
Signatures 25
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PART I
ITEM 1. BUSINESS
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GENERAL
Total Entertainment Restaurant Corp., a Delaware corporation ("the
Company"), owns and operates 37 entertainment restaurant locations which utilize
the Fox and Hound English Pub & Grille ("Fox and Hound"), Bailey's Sports Grille
and Bailey's Pub & Grille ("Bailey's") tradenames. The Company's entertainment
concepts combine a comfortable and inviting social gathering place, full menu
and full service bar, state-of-the-art audio and video systems for sports
entertainment, traditional games of skill such as pocket billiards and a
late-night dining and entertainment alternatives all in a single location. The
Company's entertainment restaurant concepts appeal to a broad range of guests
who can participate in one or more aspects of the Company's total entertainment
restaurant experience. Fox and Hound and Bailey's encompass the Company's
multi-dimensional concept and serve both larger urban and smaller regional
markets. The Company operates in one business segment.
The first Bailey's unit was opened in Charlotte, North Carolina in 1989
and the first Fox and Hound unit was opened in Arlington, Texas in 1994. As of
March 19, 1999, the Company owns and operates 24 Fox and Hound units and 13
Bailey's units in Alabama, Arkansas, Illinois, Indiana, Iowa, Georgia, Kansas,
Louisiana, Michigan, Missouri, Nebraska, North Carolina, Ohio, Pennsylvania,
South Carolina, Tennessee and Texas.
SECTION 351 EXCHANGE
The Company was organized on February 7, 1997 for the purpose of
developing entertainment restaurant locations. On February 20, 1997, the Company
effected an exchange (the "Exchange") of property under Section 351 of the
Internal Revenue Code of 1986, as amended (the "Code"), with the stockholders of
four corporations (the "Subsidiary Corporations") and certain limited partners
of four Texas limited partnerships (the "Subsidiary Limited Partnerships").
Pursuant to the Exchange, the Company became the owner of the eight
then-existing Bailey's locations and the three then-existing Fox and Hound
locations. The Company issued 8,000,000 shares of its common stock, $0.01 par
value (the "Common Stock"), in exchange for all the outstanding stock of the
Subsidiary Corporations and the outstanding limited partnership interests of the
Subsidiary Limited Partnerships not owned by the Subsidiary Corporations. The
Subsidiary Corporations and Subsidiary Limited Partnerships thereby became
wholly-owned subsidiaries of the Company.
CONCEPT
The Company's entertainment restaurant concept differentiates itself by
offering all of the following features in a single location:
0 Social Gathering Place. The Company's concepts provide a contemporary
social gathering place where friends and acquaintances can gather
regularly for food, drinks and entertainment in an upscale yet casual
environment.
0 Food and Beverage. The Company's concepts offer a full menu with a
wide range of mid-priced appetizers, entrees and desserts served in
generous portions. Each location features a full service bar and a
wide variety of domestic, imported and
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premium craft beers. Food and beverages can be enjoyed in all areas of
each location.
0 Sports Entertainment. The Company's concepts feature state-of-the-art
audio and video systems for viewing sporting events. Each location has
numerous TV's (including several mega-screen TV's) with satellite and
cable coverage of national, regional and local sporting events.
0 Games of Skill. The Company's concepts offer traditional games of
skill, including pocket billiards featuring tournament-quality tables,
shuffleboard and darts. Most locations also offer a variety of popular
interactive games.
0 Late-night Destination. The Company provides guests with an upscale
entertainment and dining alternative by serving food and beverages
during the increasingly popular late-night segment.
STRATEGY
Management believes its unique entertainment restaurant concept will enable
the Company to distinguish itself as the leader in this market segment.
Management's strategy for attaining this leadership position is based on the
following key elements:
Total Entertainment and Restaurant Experience. The Company's concept offers
a social gathering place, food and beverages, sports entertainment, games of
skill and a late-night destination all in a single location. Each location
provides guests with a multi-dimensional entertainment and restaurant experience
that enables them to participate in one or more elements of the experience.
Seasoned Management Team. The Company employs a seasoned management team
with experience in successfully developing and operating multi-unit concepts in
a variety of geographic markets throughout the United States. The Company
intends to leverage this experience to secure favorable real estate sites,
control costs and implement proven operating procedures. In addition, the
Company maintains centralized financial and accounting controls through
Franchise Services Company, a third party accounting and administrative services
company. By employing the services and infrastructure provided by Franchise
Services Company, the Company is able to focus its energy and resources on brand
and unit development.
Rapid Growth and Expansion. The Company believes its entertainment
restaurant concept will be attractive in a variety of geographic markets
throughout the United States. The Company plans to open up to eight locations in
1999 (five of which were opened during the first quarter of 1999) and between 10
and 12 locations in 2000. The Company is currently evaluating locations in
markets that are familiar to its management team and will be actively
negotiating additional leases at a number of sites.
Flexibility and Versatility of Concept. The Company is implementing its
concept through both the Fox and Hound and Bailey's brand names. This strategy
enables the Company to target both larger urban markets as well as smaller
regional markets. The Company's concept also allows for significant versatility
through the reconfiguration of the entertainment areas within each of its
locations to accommodate various special events.
Commitment to High Quality Products and Services. The Company is committed
to providing a superior experience that includes high quality menu items, a wide
variety of domestic, imported and premium craft beers, state-of-the-art audio
and video systems and tournament-quality pocket billiard tables. These features,
combined with the Company's focus on a high level of customer service, help
build a loyal clientele and attract new guests.
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LOCATIONS
The following table sets forth the location, opening date and approximate
square footage of the Company's existing entertainment and restaurant locations:
Approximate
Location Month Opened Square Footage
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Fox and Hound
Arlington, TX August 1994 6,500
College Station, TX September 1994 7,700
Dallas, TX December 1995 9,600
Memphis #1, TN September 1997 8,400
Omaha, NE December 1997 9,000
Chicago, IL December 1997 10,100
Montgomery, AL January 1998 7,700
Cleveland, OH May 1998 8,500
Davenport, IA June 1998 10,000
Evansville, IN July 1998 8,600
Springfield, MO August 1998 9,100
San Antonio, TX August 1998 8,400
Erie, PA August 1998 10,400
Lubbock, TX October 1998 10,600
Dayton, OH October 1998 8,700
Memphis #2, TN November 1998 7,600
Overland Park, KS November 1998 9,100
Canton, OH November 1998 9,700
New Orleans, LA December 1998 9,200
Pittsburgh, PA January 1999 10,500
Winston-Salem, NC January 1999 9,400
Indianapolis, IN February 1999 8,400
Houston, TX February 1999 9,100
Baton Rouge, LA March 1999 11,500
Bailey's Sports Grille
Charlotte #1, NC November 1989 6,100
Charlotte #2, NC October 1990 7,600
Little Rock, AR February 1994 8,400
Greenville, SC September 1994 7,000
Nashville #1, TN April 1995 9,400
Knoxville, TN December 1995 8,400
Johnson City, TN May 1996 8,250
Columbia, SC October 1996 10,000
Clarksville, IN March 1997 9,200
Nashville #2, TN October 1997 7,500
Bailey's Pub & Grille
Atlanta, GA October 1998 8,500
Detroit, MI November 1998 9,100
Chapel Hill, NC December 1998 9,000
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EXPANSION PLANS
The Company's management team has extensive experience in the restaurant
business and has successfully developed and operated numerous restaurants in
many geographic markets throughout the United States. The Company intends to
open up to eight entertainment restaurant locations in 1999 (five of which were
opened during the first quarter of 1999) and between 10 to 12 locations in 2000.
The Company is currently evaluating locations in markets familiar to its
management team. However, the number of locations actually opened and the timing
thereof may vary depending upon the ability of the Company to locate suitable
sites and negotiate favorable leases.
The Company may in the future franchise and/or grant license or joint
venture rights to the Fox and Hound and Bailey's concepts in certain limited
geographic areas of the United States. It is expected that these franchisees,
licensees or joint venture partners will be required to develop a specific
number of locations within a specified time frame and that a license fee and/or
a royalty fee will be paid to the Company in connection with the development and
operation of each such site. The Company anticipates that one of such licenses
may be granted to Dennis L. Thompson, Co-Chairman, and Thomas A. Hager, a
director of the Company. Such license is anticipated to grant the right to
operate up to eight locations utilizing the "Fox and Hound" name in North
Carolina. The Company has granted to Stephen P. Hartnett, Co-Chairman, the right
to operate one "Fox & Hound" concept in Dallas, Texas without the payment of any
license fee.
SELECTION CRITERIA AND LEASING
The Company believes the site selection process is critical in determining
the potential success of each entertainment restaurant location. Senior
management devotes significant time and resources in analyzing each prospective
site and inspects and approves each location prior to final lease execution. A
variety of factors are considered in the site selection process, including local
market demographics, site visibility, traffic count, nature of the retail
environment and accessibility and proximity to major retail centers, office
complexes, hotels and entertainment centers (e.g., stadiums, arenas, theaters).
The Company leases all locations, with the exception of the Bailey's unit
in Columbia, South Carolina, which is owned by the Company. Most of the units
are located in shopping centers. Leases are negotiated with initial terms of
three to five years, with multiple renewal options. The Company has generally
required approximately 90 to 120 days after the signing of a lease and obtaining
required permits to complete construction and open a new location. Additional
time is sometimes required to obtain certain government approvals and licenses,
such as liquor licenses. In the future, the Company anticipates principally
leasing its locations, although it may consider purchasing free-standing sites
where it is cost-effective to do so.
UNIT ECONOMICS
The Company's management team focuses on selecting locations with the
potential of producing significant revenues while controlling capital
expenditures and rent as a percentage of net sales. The Company's restaurants
have historically generated a sales to investment ratio of approximately 1.0 to
1, assuming that the average minimum annual rents pursuant to operating leases
were capitalized for purposes of determining the investment. The Company's
entertainment restaurants averaged approximately $1.6 million and $1.5 million
in sales during fiscal
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years ended December 29, 1998 and December 30, 1997, respectively. Of the 32
units open at December 29, 1998, 31 were leased facilities and had an average
cash investment of $1,093,000. The one open unit the Company owned as of
December 29, 1998 had a cost of $1,756,000 (including the costs for land
acquisition, construction, equipment and pre-opening costs). In the future the
Company anticipates most locations will be leased rather than purchased and
anticipates an average cash investment per unit between $1.2 million and $1.5
million.
MENU
Both Bailey's and Fox and Hound concepts offer a single menu for lunch
(weekends only in some locations), dinner and late-night dining. The menu
features a selection of appetizers, including quesadillas and nachos, soups and
salads, gourmet-style sandwiches, pizzas, pastas and burgers, a selection of
grilled entrees and desserts. Appetizers typically range in price from $3.99 to
$6.99, and entrees range from $5.29 to $13.99, with most entrees priced below
$10.00. Each location features a full service bar and most units have over 100
brands of ales, lagers, stouts and premium craft beers from around the world,
including over 35 on tap. Alcoholic beverage service accounted for approximately
56% of the Company's revenues in the fiscal year ended December 29, 1998.
AMBIANCE AND DESIGN
Fox and Hound. The Fox and Hound and Bailey's Pub & Grille entertainment
restaurant concepts incorporate the tradition, spirit and sophistication of a
contemporary social gathering place, with an elegant yet comfortable atmosphere
of finished wood, polished brass, embroidered chairs and booths, hunter green
and burgundy walls and etched glass. Each Fox and Hound features a full service
restaurant and bar as well as state-of-the-art audio and video technology
(including several mega-screen TV's) and traditional games of skill such as
pocket billiards generously spaced to avoid crowding, darts and shuffleboard.
The entertainment area can be readily configured into a comfortable "arena" for
viewing national, regional and local sporting and other television events. All
locations are also capable of accommodating business and social organizations
for special events.
Fox and Hound is the evolution of a concept originally conceived by Stephen
P. Hartnett, Co-Chairman. The first Fox & Hound unit was opened in August 1994.
Management believes the design of Fox and Hound plays an essential role in its
success. The bar and primary dining room are centrally located while the wing
rooms are partitioned from the bar and dining area by etched glass and house
games of skill along with state-of-the-art audio and video technology. This
layout provides guests with an open view of the main dining room, bar and gaming
areas. The open kitchen is organized for efficient work flow and is also
centrally located so as to entice guests with its flavorful aromas.
Bailey's. The Bailey's Sports Grille concept has a casual, relaxed
atmosphere that features a full-service restaurant and bar, numerous TV's
(including several big screen TV's) with satellite and cable coverage of
sporting events, pocket billiard tables, darts, foosball and shuffleboard. Most
locations also feature a variety of popular interactive games. Like Fox and
Hound, the bar and primary dining room in each Bailey's unit is centrally
located with games situated around the perimeter.
Bailey's is the evolution of a concept originally conceived by Dennis L.
Thompson, Co-Chairman and Thomas A. Hager, a director of the Company. The first
Bailey's unit opened in Charlotte, North Carolina in November 1989. There are
presently ten locations operating in
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five states. Since the opening of the first location in 1989, management has
modified and improved its original concept. With each successive opening, the
decor has been modified to a more upscale yet casual decor.
All locations opened since July 1997 (twenty-one Fox and Hound units, three
Bailey's Pub & Grille units and one Bailey's Sports Grille unit) have
incorporated the layout and design of the Fox and Hound unit in Dallas, Texas.
The Company anticipates this layout and design will be utilized for all future
locations for all three concepts.
MARKETING
The Company believes its entertainment restaurant concept attracts a loyal
clientele, and the Company relies primarily on word-of-mouth to attract new
business. The Company does, however, advertise through traditional marketing and
advertising media in selected markets. These media include billboard signage,
radio and print advertising, local store marketing to households and volunteer
community involvement.
The Company's marketing efforts also seek to focus on national, regional
and local sporting events such as the Super Bowl and the World Series, which
attract locally active groups of fans, supporters or alumni. The versatile
layout and design of the units can also accommodate group events.
OPERATIONS AND MANAGEMENT
The Company's operations and management systems are based upon systems and
controls that were developed by senior management and have been successfully
used to manage a large number of restaurants located in numerous states. The
Company strives to maintain quality and consistency in its entertainment
restaurant locations through the careful training and supervision of personnel
and the establishment of standards relating to food and beverage preparation,
maintenance of locations and conduct of personnel.
The management of a typical unit consists of one general manager and
between two and four supporting managers depending upon unit revenue. Each
general manager is responsible for the unit's day-to-day operations and is
required to follow the Company's established operating procedures and standards.
Each entertainment restaurant location also employs a staff of hourly employees,
many of whom are part-time personnel. Unit management personnel participate in
an eight-week training program which focuses on various aspects of the unit's
operations and customer service. Working in concert with general managers, the
Company's senior management team participates in an incentive cash bonus
program. Awards under the incentive plan are tied to achievement of specified
operating targets, including achievement of specific unit objectives and control
of operating expense budgets. Senior management regularly visits the Fox and
Hound and Bailey's locations and meets with the respective management teams to
ensure compliance with the Company's strategies and standards of quality.
The Company maintains financial and accounting controls for each of its
entertainment restaurant locations through the use of centralized accounting and
management information systems. Sales information is collected daily from each
location, and general managers are provided with operating statements for their
locations. Cash is controlled through daily deposits of sales proceeds in local
operating accounts, the balances of which are wire-transferred weekly to the
Company's principal operating account. The Company utilizes a comprehensive peer
review reporting system for its general managers. After the close of each
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28-day accounting period, profit and loss statements are produced and,
subsequently, the general managers of each location meet in person with the
senior management of the Company to review the profit and loss statements. The
participants offer each other feedback on their respective performances and
suggest ways of improving profitability. The Company believes the peer review
system enables each general manager to benefit from the collective experience of
all of the Company's management.
The Company believes customer service and satisfaction are keys to the
success of its operations. The Company's commitment to customer service and
satisfaction is evidenced by several Company practices and policies, including
periodic visits by unit management to guests' tables, active involvement of
management in responding to guest comments and assigning wait persons so as to
ensure customer satisfaction. Teamwork is emphasized for efficient and timely
service.
Each new unit employee of the Company participates in a training program
during which the employee works under the close supervision of a general
manager. Management strives to instill enthusiasm and dedication in its
employees and to create a stimulating and rewarding working environment where
employees know what is expected of them in measurable terms. Management
continuously solicits employee feedback concerning unit operations and strives
to be responsive to the employees' concerns.
PURCHASING
The Company's management negotiates directly with suppliers for most food
and beverage products to ensure uniform quality, adequate supplies, and to
obtain competitive prices. Food and supplies are shipped directly to the
entertainment restaurant locations, although invoices for purchases are
forwarded to a central location for payment. Due to the experience of the
Company's senior management in the restaurant business, the Company has been and
expects to continue to be able to purchase most of its restaurant equipment
directly from equipment manufacturers. The Company has not experienced any
significant delays in receiving supplies or equipment.
MANAGEMENT INFORMATION SYSTEMS
The Company utilizes an in-store computer-based management support system
which is designed to improve labor scheduling and food and beverage cost
management, provide corporate management quick access to financial data and
reduce the general manager's administrative time. Each general manager uses the
system for production planning, labor scheduling and food and beverage cost
variance analysis. The system generates reports on sales, bank deposits and
variance data for the Company's management on a daily basis.
The Company generates weekly consolidated sales reports and food, beverage
and lower-cost variance reports as well as detailed profit and loss statements
for each entertainment restaurant location every four weeks. Additionally, the
Company monitors sales mix, sales growth, labor variances and other sales trends
on a daily basis.
ACCOUNTING AND ADMINISTRATIVE SERVICES
On July 17, 1997, the Company entered into a services agreement with
Coulter Enterprises, Inc., a company owned by Jamie B. Coulter, the Company's
former Chairman of the Board, for certain accounting and administrative
services. The fixed annual charge, which was pro rated
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for 1997, was $94,000 and the per unit per 28-day period fee was $426. For
fiscal year 1998 and through February 28, 1999, the fixed annual charge was
$194,500 and the per unit per 28-day accounting period fee was $466, plus
reimbursement of all direct out-of-pocket costs and expenses. The increase in
the fixed charge was due to an increase in the number of entertainment
restaurants operated by the Company.
On March 1, 1999, the Company simultaneously terminated the services
agreement with Coulter Enterprises, Inc. and entered into a three-year services
agreement with Franchise Services Company ("FSC") for certain accounting and
administrative services. The per unit per 28-day accounting fee is at a maket
rate with no fixed annual charge and is to remain fixed for the entire
three-year agreement. At the conclusion of the three-year agreement FSC, the
Company may satisfy its accounting and administrative needs by hiring employees
directly.
COMPETITION
The entertainment and restaurant industries are highly competitive. There
are a large number of restaurants and entertainment businesses that compete
directly and indirectly with the Company. The Company competes with restaurants
primarily on the basis of quality of food and service, ambiance and location and
competes with sports bars and entertainment complexes on the basis of
entertainment quality, ambiance and location. Competition for sales in the
entertainment and restaurant industries is intense. While the Company believes
its entertainment restaurant units are distinctive in design and operating
concept, it is aware of competitors that operate with similar concepts. Many of
the Company's existing and potential competitors are well-established and have
significantly greater financial, marketing and other resources than does the
Company. In addition to other entertainment and restaurant companies, the
Company competes with numerous businesses for suitable locations for its units.
The legalization of casino gambling in geographic areas near any entertainment
restaurant location operated by the Company could also create the possibility
for entertainment alternatives that could have a material adverse effect on the
Company's business.
QUARTERLY FLUCTUATIONS, SEASONALITY AND INFLATION
As a result of the revenues associated with each new location, the timing
of new unit openings will result in significant fluctuations in quarterly
results. The Company expects seasonality to be a factor in the operation or
results of its business in the future due to expected lower second and third
quarter revenues due to the summer season. The primary inflationary factors
affecting the Company's operations include food, liquor and labor costs.
Significant numbers of the Company's personnel are paid at rates related to the
federal minimum wage which is currently $5.15 per hour. Accordingly, increases
in the minimum wage will increase the company's 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.
GOVERNMENT REGULATION
The Company's entertainment restaurant locations are subject to numerous
federal, state and local laws affecting health, sanitation, safety and Americans
with Disabilities Act
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accessibility standards, as well as to state and local licensing regulation of
the sale of alcoholic beverages. Each location has appropriate licenses from
regulatory authorities allowing it to sell liquor, beer and wine, and each
location has food service licenses from local health authorities. The Company's
licenses to sell alcoholic beverages must be renewed annually and may be
suspended or revoked at any time for cause, including violation by the Company
or its employees of any law or regulation pertaining to alcoholic beverage
control, such as those regulating the minimum age of patrons or employees,
advertising, wholesale, purchasing, and inventory control. The failure of a
location to obtain or retain liquor or food service licenses would have a
material adverse effect on the Company's operations. In order to reduce this
risk, each location is operated in accordance with standardized procedures
designed to ensure compliance with all applicable codes and regulations.
The Company may be subject in certain states to "dram-shop" statutes, which
generally provide a person injured by an intoxicated person the right to recover
damages from an establishment that wrongfully served alcoholic beverages to the
intoxicated person. The Company carries liquor liability coverage as part of its
existing comprehensive general liability insurance and has never been named as a
defendant in a lawsuit involving "dram-shop" statutes.
The development and construction of additional locations will be subject to
compliance with applicable zoning, land use and environmental regulations. The
Company's operations are also subject to federal and state minimum wage laws
governing such matters as working conditions, overtime and tip credits and other
employee matters. Significant numbers of the company's personnel are paid at
rates related to the federal minimum wage which is currently $5.15 per hour.
Accordingly, increases in the minimum wage will increase the Company's labor
costs.
A portion of the Company's revenues is derived from the use and operation
of video gaming machines. There can be no assurance that any future regulations
or legislation will not limit, restrict or eliminate the use or operation of
video gaming machines.
TRADEMARKS
The Company has federally registered its "Fox and Hound" and "Bailey's
Sports Grille" service marks. The Company's "7 Bailey's Sports Grille" and
"Serious Fun 7 Bailey's Sports Grille" design marks are also federally
registered. The Company regards its service and design marks as having
significant value and as being an important factor in the marketing of its
entertainment restaurant concept. The Company is aware of names and marks
similar to the service marks of the Company that are used by other persons in
certain geographic areas. The Company believes such uses will not have a
material adverse effect on the Company as either the Bailey's or Fox and Hound
tradenames may be used if either name is unavailable. The Company's policy is to
pursue registration of its marks whenever possible and to oppose vigorously any
infringement of its marks.
EMPLOYEES
As of December 29, 1998, the Company employed approximately 1,500 persons,
three of whom are executive officers, four of whom are multi-unit supervisors,
118 of whom are entertainment restaurant unit management personnel and the
remainder of whom are hourly entertainment restaurant personnel. None of the
Company's employees is covered by a collective bargaining agreement. The Company
believes its employee relations are
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satisfactory.
ITEM 2. PROPERTIES
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All of the Company's units are located in leased space with the exception
of the Bailey's unit in Columbia, South Carolina, which is owned by the Company.
Initial lease terms range from three to five years, with multiple renewal
options. All of the Company's leases provide for a minimum annual rent, and some
leases call for additional rent based on sales volume at the particular location
over specified minimum levels. Generally, the leases are net leases which
require the Company to pay the costs of insurance, taxes and a portion of
lessors" operating cost. See "Business-Locations."
The Company's executive offices are located at 9300 E. Central, Suite 100,
Wichita, Kansas 67206. The Company believes there is sufficient office space
available at favorable leasing terms in the Wichita, Kansas area to satisfy the
additional needs of the Company that may result from future expansion.
ITEM 3. LEGAL PROCEEDINGS
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The Company is involved from time to time in litigation arising in the
ordinary course of business, none of which is expected to have a material
adverse effect on the financial condition or results of operations of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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No matters were submitted to a vote of the holders of the Company's Common
Stock during the fourth quarter of the Company's fiscal year ended December 29,
1998.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
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AND RELATED STOCKHOLDER MATTERS
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MARKET INFORMATION
The Company's Common Stock is traded over-the-counter on the Nasdaq
National Market System (ticker symbol: TENT). The following table sets forth,
for the periods indicated, the high and low bid quotations for the Common Stock,
as reported by Nasdaq. These quotations reflect the inter-dealer prices, without
retail markup, markdown or commission and may not necessarily represent actual
transactions.
BID PRICES
FISCAL YEAR 1997 HIGH LOW
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Third Quarter (1) 11-1/4 8-1/4
Fourth Quarter 9 4-1/2
FISCAL YEAR 1998
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First Quarter 7 4-1/2
Second Quarter 7-5/8 4-3/8
Third Quarter 4-5/8 2-1/4
Fourth Quarter 4-5/8 2-1/2
- ------------------------
(1) The Company's Common Stock commenced trading on July 18, 1997.
HOLDERS
As of March 19, 1999, there were 128 holders of record of the Company's
Common Stock.
DIVIDENDS
The Company has not paid any cash dividends on its Common Stock and does
not intend to pay cash dividends on its Common Stock for the foreseeable future.
The Company intends to retain future earnings to finance future development.
-13-
<PAGE>
SALE OF UNREGISTERED SECURITIES
(c) The following unregistered securities were issued by the Company during the
sixteen weeks ended December 29, 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>
September 9, 1998 Common Stock Options 12,121 $4.125
September 9, 1998 Common Stock Options 12,121 $4.125
October 9, 1998 Common Stock Options 14,286 $3.500
October 22, 1998 Common Stock Options 17,391 $2.875
October 22, 1998 Common Stock Options 17,391 $2.875
October 28, 1998 Common Stock Options 16,327 $3.063
November 2, 1998 Common Stock Options 18,182 $2.750
November 4, 1998 Common Stock Options 17,391 $2.875
November 4, 1998 Common Stock Options 17,391 $2.875
November 5, 1998 Common Stock Options 13,793 $3.625
November 7, 1998 Common Stock Options 13,793 $3.625
November 22, 1998 Common Stock Options 17,391 $2.875
December 20, 1998 Common Stock Options 18,182 $2.750
December 23, 1998 Common Stock Options 17,021 $2.938
</TABLE>
All of the above options were granted to certain key employees
pursuant to the 1997 Incentive and Nonqualified Stock Option Plan.
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.
-14-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
The following selected financial data of the Company and its predecessors
should be read in conjunction with the financial statements and the notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Form 10-K. The historical
income statement data for the Company for the 52 weeks ended December 29, 1998
and period from February 7, 1997 through December 30, 1997, the historical
income statement data for F&H Restaurant Corp. ("FHRC") for the period from
January 1, 1997 through February 20, 1997, the historical income statement data
for Fox & Hound Entertainment and Restaurant Group ("FHERG") for the fiscal
years ended December 31, 1996, 1995 and 1994, the balance sheet data for the
Company as of December 29, 1998 and December 30, 1997, and the balance sheet
data for FHERG as of December 31, 1996, 1995 and 1994 are derived from the
Company's and its predecessors' audited financial statements. The table also
sets forth the pro forma income statement data for the Company as if the
Exchange had occurred on January 1, 1996. The pro forma data set forth below for
the periods presented are unaudited and have been prepared by management solely
to facilitate period-to-period comparison and do not purport to be indicative of
the consolidated results of operations that would have occurred had the Exchange
occurred at January 1, 1996, or which may be expected to occur in the future.
<TABLE>
<CAPTION>
Historical
-----------------------------------------------------------------------
F&H Fox & Hound The Company
The Company Restaurant Entertainment and Pro Forma
---------------------------- Corp. Restaurant Group --------------------
52 Weeks 46 Weeks And ------------- ------------------------- Year Ended
Ended 5 Days Ended 51 Days Ended Year Ended December 31, Dec. 30, Dec. 31,
Dec. 29, 1998 Dec. 30, 1997 Feb. 20, 1997 1996 1995 1994 1997 1996
------------- ------------- ------------- ---- ---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $ 34,114 $ 16,163 $ 858 $ 5,507 $ 2,618 $ 730 $ 18,557 $ 14,844
Costs and expenses:
Cost of sales 9,429 4,287 245 1,721 824 246 4,912 4,177
Operating expenses 15,586 7,142 393 2,759 1,390 456 8,281 6,747
Depreciation and amortization 2,875 939 35 311 224 90 1,052 855
-------- -------- -------- -------- -------- -------- -------- --------
Entertainment and restaurant costs
and expenses 27,890 12,368 673 4,791 2,439 792 14,245 11,779
-------- -------- -------- -------- -------- -------- -------- --------
Entertainment and restaurant
operating income 6,224 3,795 185 716 179 (62) 4,312 3,065
General and administrative expenses 2,609 1,794 36 296 70 21 2,014 915
Goodwill amortization 244 210 24 -- -- -- 242 237
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) from operations 3,371 1,791 125 420 109 (83) 2,056 1,913
Other income (expense) (70) 266 63 (56) (13) (1) 370 656
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before provision for
income taxes 3,301 1,525 62 364 96 (84) 1,686 1,257
Provision for income taxes 1,221 545 11 -- -- -- 605 471
Minority interest -- -- 34 -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) $ 2,080 $ 980 $ 17 $ 364 $ 96 $ (84) $ 1,081 $ 786
======== ======== ======== ======== ======== ======== ======== ========
Basic and diluted net income per share $ .20 $ .11 $ .12 $ .10
======== ======== ======== ========
Weighted number of shares outstanding 10,415 9,182 9,062 8,000
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Historical
-------------------------------------------------------------------------
Fox & Hound
Entertainment and
The Company Restaurant Group
-------------------------------- -----------------------------------
December 29, December 30, Year Ended December 31,
1998 1998 1996 1995 1994
-------------- -------------- --------- --------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit) $ (947) $ 4,579 $ (554) $ (447) $ (44)
Total assets 41,284 23,224 2,520 2,638 1,346
Long-term debt, including current portion 11,815 -- 696 759 198
Stockholders'/partners' equity 23,736 21,665 1,564 1,559 1,012
</TABLE>
-15-
<PAGE>
ITEM 7. 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 information set forth under "Selected Financial Data" and the Financial
Statements and Notes thereto included elsewhere in this Form 10-K.
The Company began operations February 20, 1997 with three Fox and Hound
and eight Bailey's entertainment restaurant locations, and opened three Fox and
Hound and two Bailey's entertainment restaurant locations during the year ended
December 30, 1997 and opened thirteen Fox and Hound and three Bailey's
entertainment restaurant locations during the year ended December 29, 1998.
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. Effective December 30, 1998, pre-opening costs will be
expensed as incurred.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentages
which certain items included in the Condensed Consolidated Statement of Income
bear to net sales and other selected operating data.
<TABLE>
<CAPTION>
Historical Pro Forma
---------- ------------------------------
Year Ended(1)
--------------------------------------------------
Dec. 29, Dec. 30, Dec. 31,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales 100.0% 100.0% 100.0%
Costs and expenses:
Cost of sales 27.6 26.4 28.1
Operating expenses 45.7 44.6 45.4
Depreciation and amortization 8.4 5.7 5.8
-------- -------- --------
Restaurant costs and expenses 81.7 76.7 79.3
-------- -------- --------
Restaurant operating income 18.3 23.3 20.7
General and administrative 7.6 10.8 6.2
Goodwill amortization 0.7 1.3 1.6
-------- -------- --------
Income from operations 10.0 11.2 12.9
Other income, principally interest 0.2 0.6 0.2
Interest expense (0.4) (2.7) (4.6)
-------- -------- --------
Income before provision for income taxes 9.8 9.1 8.5
Provision for income taxes 3.6 3.3 3.2
-------- -------- --------
Net income 6.2% 5.8% 5.3%
======== ======== ========
RESTAURANT OPERATING DATA:
Number of locations at end of period 32 16 11
Number of store operating weeks (2) 1,085 644 516
Annualized average weekly sales per location (3) $ 1,634 $ 1,492 $ 1,491
- --------------------------------------
</TABLE>
-16-
<PAGE>
(1) The Company operates on a 52 or 53 week fiscal year ending the
last Tuesday in December. The fiscal quarters for the Company
consist of accounting periods of 12, 12, 12 and 16 or 17
weeks, respectively.
(2) Store operating weeks represents the number of full weeks all
locations were open during the period.
(3) Annualized average weekly sales per location are computed by
dividing net sales for full weeks open during the period by
the number of store operating weeks and multiplying the result
by fifty-two.
THE COMPANY
Fifty-two Weeks Ended December 29, 1998 (Historical) Compared to Fifty-two
Weeks Ended December 30, 1997 (Pro Forma)
Net sales increased $15,557,000 (83.8%) for the fifty-two weeks ended
December 29, 1998 to $34,114,000 from $18,557,000 in the fifty-two weeks ended
December 30, 1997, which is principally attributable to a 68.5% increase in
store operating weeks (1,085 versus 644) and 9.5% increase in average unit
volumes ($1,634,000 versus $1,492,000). However, same store sales decreased 0.9%
for the fifty-two weeks ended December 29, 1998.
Costs of sales, primarily food and beverages, increased $4,517,000 (91.9%)
for the fifty-two weeks ended December 29, 1998 to $9,429,000 from $4,912,000 in
the fifty-two weeks ended December 30, 1997, and such expenses increased as a
percentage of sales from 26.4% to 27.6%. This increase is attributable to a
higher food & beverage sales mix.
Restaurant operating expenses for the fifty-two weeks ended December 29,
1998 increased $7,305,000 (88.2%) to $15,586,000 from $8,281,000 in the
fifty-two weeks ended December 30, 1997, and such expenses increased as a
percentage of net sales to 45.7% from 44.6%. This increase was mainly
attributable to additional labor required during the first few months after a
new unit opens as well as the additional labor required by the higher food &
beverage sales.
Depreciation and amortization increased $1,823,000 (173.4%) for the
fifty-two weeks ended December 29, 1998 to $2,875,000 from $1,052,000 in the
fifty-two weeks ended December 30, 1997, principally reflecting the depreciation
and preopening amortization relating to the opening of sixteen new restaurants
since December 1997.
General and administrative expenses increased $595,000 (29.6%) for the
fifty-two weeks ended December 29, 1998 to $2,609,000 from $2,014,000 in the
fifty-two weeks ended December 30, 1997, and such expenses decreased as a
percentage of net sales from 10.8% to 7.6%. The decrease reflects the effect of
leveraging the general and administrative expenses against higher sales.
Other income, principally interest, decreased $59,000 (45.1%) for the
fifty-two weeks ended December 29, 1998 to $70,000 from $129,000 in the
fifty-two weeks ended December 30, 1997. This decrease was a result of the
utilization of the remaining net proceeds of the initial public offering of the
Company, which commenced on July 17, 1997 (the "Initial Public Offering").
Interest expense decreased $359,000 for the fifty-two weeks ended December
29, 1998 to $140,000 from $499,000 in the fifty-two weeks ended December 30,
1997. All debt was repaid in July 1997 from the net proceeds of the Initial
Public Offering and the Company began borrowing to fund additional unit
development in July 1998.
The effective income tax rate for the fifty-two weeks ended December 29,
1998 was 37.0% and the effective pro forma income tax rate for the fifty-two
weeks ended December 30, 1997 was 35.9%. This increase was primarily due to the
impact of higher tax exempt interest income earned during 1997 as compared to
1998.
-17-
<PAGE>
THE COMPANY (PRO FORMA)
Fifty-two Weeks Ended December 30, 1997 (Pro Forma) Compared to
Fifty-three Weeks Ended December 31, 1996 (Pro Forma)
Net sales increased $3,713,000 (25.0%) for the fifty-two weeks ended
December 30, 1997 to $18,557,000 from $14,844,000 in the fifty-three weeks ended
December 31, 1996, which is principally attributable to $2,327,000 in sales from
the five new locations opened since December 1996. Same store sales increased
2.7% for the fifty-two weeks ended December 30, 1997.
Costs of sales, primarily food and beverages, increased $735,000 (17.6%)
for the fifty-two weeks ended December 30, 1997 to $4,912,000 from $4,177,000 in
the fifty-three weeks ended December 31, 1996, and such expenses decreased as a
percentage of sales from 28.1% 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 fifty-two weeks ended December 30,
1997 increased $1,534,000 (22.7%) to $8,281,000 from $6,747,000 in the
fifty-three weeks ended December 31, 1996, and such expenses decreased as a
percentage of net sales to 44.6% from 45.4%. Substantially all of this
improvement is attributable to improved labor controls at the locations.
Depreciation and amortization increased $197,000 (23.0%) for the fifty-two
weeks ended December 30, 1997 to $1,052,000 from $855,000 in the fifty-three
weeks ended December 31, 1996, principally reflecting the depreciation relating
to the opening of five new restaurants since December 1996.
General and administrative expenses increased $1,098,000 (120.0%) for the
fifty-two weeks ended December 30, 1997 to $2,014,000 from $915,000 in the
fifty-three weeks ended December 31, 1996, and such expenses increased as a
percentage of net sales from 6.2% to 10.8%. The increase reflects the management
fee paid to Coulter Enterprises 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.
Other income, principally interest, increased $97,000 (307.9%) for the
fifty-two weeks ended December 30, 1997 to $129,000 from $32,000 in the
fifty-three weeks ended December 31, 1996. This increase was a result of
interest earned from the investment of the net proceeds of the Initial Public
Offering.
Interest expense decreased $188,000 for the fifty-two weeks ended December
30, 1997 to $499,000 from $687,000 in the fifty-three weeks ended December 31,
1996. All debt was repaid in July 1997 from the net proceeds of the Initial
Public Offering.
The effective pro forma income tax rate for the fifty-two weeks ended
December 30, 1997 was 35.9% and the effective pro forma income tax rate for the
fifty-two weeks ended December 31, 1996 was 37.5%. This decrease was primarily
due to the impact of tax exempt interest income earned during 1997.
-18-
<PAGE>
QUARTERLY FLUCTUATIONS, SEASONALITY AND INFLATION
As a result of the revenues associated with each new location, the timing
of new unit openings will result in significant fluctuations in quarterly
results. The Company expects seasonality to be a factor in the operation or
results of its business in the future due to expected lower second and third
quarter revenues due to the summer season. 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 are likely to 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
on February 20, 1997, the Company became the owner of the eight then-existing
Bailey's locations and three then-existing 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, prior to the Initial Public
Offering the Company 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.
On September 1, 1998 the Company entered into a loan agreement with
Intrust Bank, N.A. (the "Facility") which provides for a line of credit of
$20,000,000 subject to certain limitations based on earnings before interest,
interest taxes, depreciation and amortization of the past fifty-two weeks. The
Facility requires monthly payments of interest only until November 1, 2001, at
which time equal monthly installments of principal and interest are required as
necessary to fully amortize the outstanding indebtedness plus future interest
over a period of four years. Interest is accrued at a rate of 1/2% below the
prime rate as published in The Wall Street Journal. Proceeds from the Facility
were used for restaurant development. As of December 29, 1998, the Company had
borrowed $11,815,000 under the Facility. The Company is in compliance with all
debt covenants.
Cash flows from operations were $4,364,000 and purchases of property and
equipment were $19,759,000 for the 52 weeks ended December 29, 1998.
The Company intends to open up to eight entertainment restaurant locations
in 1999 (five of which were opened during the first quarter of 1999) and between
10 to 12 locations in 2000.
-19-
<PAGE>
The Company expects to expend approximately $12.0 million to open new locations
over the next 12 months.
The Company believes the funds available from the Facility and its cash
flow from operations 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, 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, prevent the
Company from achieving the goals of its expansion strategy or prevent any newly
opened locations from operating profitably. There can be no assurance that
additional financing will be available on acceptable terms or at all.
YEAR 2000 COMPLIANCE
The Company utilizes and is dependent upon computer systems and software
to conduct its business. In 1997, the Company initiated a review and assessment
of all hardware and software to confirm they will function properly in the year
2000. The systems and software include those developed and maintained by FSC
in-house computer department as well as purchased software which is run on
in-house computer systems, including POS systems and back-of-house systems in
the units. The systems and software utilized by FSC are believed to be Year 2000
compliant. The Company is currently undergoing an upgrade of its POS and
back-of-house systems to allow for a seamless interface with its home office
accounting systems. Certain back-of-house applications which were not Year 2000
compliant will be made compliant as part of this upgrade. This upgrade is
expected to be completed by the end of the second quarter, at which time all
systems and software are expected to be Year 2000 compliant. The total cost of
this upgrade including updating the hardware and software as well as training
costs is expected to be between $150,000 and $200,000.
Management of the Company believes it has an effective program in place to
resolve the Year 2000 issue in a timely manner. As noted above, the Company has
not yet completed all necessary phases of the Year 2000 project. In the event
the Company does not complete any aditional phases, the Company might be unable
to process transactional and financial reporting information. In addition,
disruption in the economy generally resulting from the year 2000 issued could
also materially adversely affect the Company. The Company could be subject to
litigation for computer systems product failure, for example, equipment shutdown
or failure to properly date business records. Th eamount of potential liability
and lost revenue cannot be reasonably estimated at this time.
The Company has contingency plans for certain critical applications and is
working on such plans for others. These contingency plans involve, amont other
actions, manual workarounds and adjusting staffing agencies.
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 1936, as amended, which are intended to be covered by
the safe harbors created thereby. Although the Company believes that 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 included in this
-20-
<PAGE>
report will prove to be accurate. Factors that could cause actual results to
differ from the results discussed in the forward-looking statements include, but
are not limited to, potential increases in food and liquor costs, competition
and the inability to find suitable new locations. In light of the significant
uncertainties inherent in the forward-looking statements included herein, the
inclusion of such information should not be regarded as a representation by the
Company or any other person that the objectives and plans of the Company will be
achieved.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
Interest Rate Risk
The Company's Facility has a variable rate which is directly affected by
changes in U.S. interest rates. The average interest rate of the Facility was
7.76% for the year ended December 29, 1998. The following table presents the
quantitative interest rate risks at December 29, 1998:
<TABLE>
<CAPTION>
Principal Amount By Expected Maturity
-----------------------------------------------------------------------------
(In thousands) Fair
There- Value
(DOLLARS IN THOUSANDS) 1999 2000 2001 2002 2003 After Total 12/29/98
---------------------- ---- ---- ---- ---- ---- ----- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Variable rate debt -- -- $ 591 $ 3,702 $ 3,979 $ 3,542 $11,815 $11,815
Average Interest Rate-
1/2% below prime 7.25% 7.25% 7.25% 7.25% 7.25% 7.25%
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
See the Consolidated Financial Statements listed in the accompanying Index
to Financial Statements on Page F-1 herein. Information required for financial
schedules under Regulation S-X is either not applicable or is included in the
financial statements or notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
---------------------------------------------
ON ACCOUNTING AND FINANCIAL DISCLOSURE
--------------------------------------
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The information required by this Item 10 will be in the Company's
definitive proxy materials to be filed with the Securities and Exchange
Commission and is incorporated in this Annual Report on Form 10-K by this
reference.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The information required by this Item 11 will be in the Company's
definitive proxy materials to be filed with the Securities and Exchange
Commission and is incorporated in this Annual Report on Form 10-K by this
reference.
-21-
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The information required by this Item 12 will be in the Company's
definitive proxy materials to be filed with the Securities and Exchange
Commission and is incorporated in this Annual Report on Form 10-K by this
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The information required by this Item 13 will be in the Company's
definitive proxy materials to be filed with the Securities and Exchange
Commission and is incorporated in this Annual Report on Form 10-K by this
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
--------------------------------------------
AND REPORTS ON FORM 8-K
-----------------------
(a) The following documents are filed as part of this report:
(1) Financial Statements.
See Index to Financial Statements which appears on
page F-1 herein.
(2) Exhibits
INDEX TO EXHIBITS
Exhibit
Number Exhibit
------ -------
*2.1 Form of Stock for Stock Exchange Agreement between
the Registrant, the Shareholders of F&H Restaurant
Corp., Fox & Hound, Inc., Fox & Hound II, Inc. and
Bailey's Sports Grille, Inc. and Certain Limited
Partners of N. Collins Entertainment, Ltd., 505
Entertainment, Ltd., Midway Entertainment, Ltd.
and F&H Dallas, L.P., dated February 20, 1997.
*3.1 Certificate of Incorporation of the Registrant.
*3.1.1 Amendment to the Certificate of Incorporation of
the Registrant.
*3.2 By-laws of the Registrant.
*4.1 Specimen Certificate of the Registrant's Common
Stock.
*10.1 Form of Services Agreement between the Registrant
and Coulter Enterprises, Inc.
**10.1.1 Amendment to Services Agreement between the
Registrant and Coulter Enterprises, Inc., dated
February 8, 1998.
-22-
<PAGE>
*10.2 Form of Employment Agreement between the
Registrant and Gary M. Judd.
*10.3 Form of Employment Agreement between the
Registrant and James K. Zielke.
*10.4 Form of 1997 Incentive and Nonqualified Stock
Option Plan of the Registrant.
*10.5 Form of 1997 Directors' Stock Option Plan of the
Registrant.
*10.6 Form of Indemnification Agreement for officers and
directors of the Registrant.
*10.7 Confidentiality and Non-Competition Agreement
among F&H Dallas, L.P., Midway Entertainment,
Ltd., N. Collins Entertainment, Ltd., 505
Entertainment, Ltd. and Jamie B. Coulter, dated
December 6, 1996.
*10.8 Non-Competition, Confidentiality and
Non-Solicitation Agreement between the Registrant
and Dennis L. Thompson, dated February 20, 1997.
*10.9 Non-Competition, Confidentiality and
Non-Solicitation Agreement between the Registrant
and Thomas A. Hager, dated February 20, 1997.
*10.10 Lease by and between Real Alchemy, I, L.P. and
Midway Entertainment, Ltd., dated June 1, 1995.
*10.11 First Amendment to Lease by and between Real
Alchemy I, L.P. and Midway Entertainment, Ltd.,
dated December 6, 1996.
*10.12 Amendment to Lease by and between Real Alchemy I,
L.P. and Midway Entertainment, Ltd., dated
December 6, 1996.
*10.13 Lease by and between 505 Center, L.P. and 505
Entertainment, Ltd., dated January 31, 1994.
*10.14 Amendment to Lease by and between 505 Center, L.P.
and 505 Entertainment, Ltd., dated December 6,
1996.
***21.1 Subsidiaries of Registrant.
***24.1 Powers of Attorney (included on the signature page
of this Form 10-K).
***27.1 Financial Data Schedule.
-23-
<PAGE>
(b) Reports on Form 8-K filed in the fourth quarter of 1998: none
* Incorporated by reference to the Company's Registration
Statement on Form S-1, as amended (Commission File No.
333-23343).
** Incorporated by reference to the Company's Form 10-K for the
fiscal year ended December 30, 1997.
*** Filed herewith.
-24-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Wichita, State of Kansas, on this 29th day of March 1999.
TOTAL ENTERTAINMENT RESTAURANT CORP.
(Registrant)
/s/ James K. Zielke
---------------------------------------
James K. Zielke
Chief Financial Officer,
Treasurer, Secretary and Director
(principal accounting officer)
-25-
<PAGE>
SIGNATORIES
Know all men by these presents, that each person whose signature appears below
hereby constitutes and appoints James K. Zielke his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments to this Form 10-K and to file the same, with exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent or either of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Dennis L. Thompson Co-Chairman of the Board March 29, 1999
- ------------------------------
Dennis L. Thompson
/s/ Stephen P. Hartnett Co-Chairman of the Board March 29, 1999
- ------------------------------
Stephen P. Hartnett
/s/ Steven M. Johnson Chief Executive Officer and March 29, 1999
- ------------------------------
Steven M. Johnson Director
(principal executive officer)
/s/ Gary M. Judd President and Director March 29, 1999
- ------------------------------
Gary M. Judd
/s/ James K. Zielke Chief Financial Officer, March 29, 1999
- ------------------------------
James K. Zielke Treasurer, Secretary
and Director
(principal accounting officer)
<PAGE>
/s/ Thomas A. Hager Director March 29, 1999
- ------------------------------
Thomas A. Hager
/s/ C. Wells Hall, III Director March 29, 1999
- ------------------------------
C. Wells Hall, III
/s/ E. Gene Street Director March 29, 1999
- ------------------------------
E. Gene Street
/s/ John D. Harkey, Jr.
- ------------------------------ Director March 29, 1999
John D. Harkey, Jr.
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
INDEX TO FINANCIAL STATEMENTS
PAGE
TOTAL ENTERTAINMENT RESTAURANT CORP.
Report of Independent Auditors----------------------------------------------F-2
Consolidated Balance Sheets as of December 29, 1998
and December 30, 1997-------------------------------------------------F-3
Consolidated Statements of Income for the year ended
December 29, 1998 and the period from February 7, 1997
(Inception) through December 30, 1997 --------------------------------F-5
Consolidated Statements of Stockholders' Equity for the year
ended December 29, 1998 and the period from
February 7, 1997 (Inception) through December 30, 1997----------------F-6
Consolidated Statements of Cash Flows for the year ended
December 29, 1998 and the period from February 7, 1997
(Inception) through December 30, 1997---------------------------------F-7
Notes to Consolidated Financial Statements----------------------------------F-9
F & H RESTAURANT CORP.
Report of Independent Auditors----------------------------------------------F-21
Consolidated Balance Sheet as of December 31, 1996--------------------------F-22
Consolidated Statements of Income for the period from
January 1, 1997 through February 20, 1997 and
for the period from November 4, 1996 (Inception)
through December 31, 1996---------------------------------------------F-24
Consolidated Statements of Stockholders' Equity
for the period from January 1, 1997 through
February 20, 1997 and for the period from
November 4, 1996 (Inception) through December 31, 1996----------------F-25
Consolidated Statements of Cash Flows for the period
from January 1, 1997 through February 20, 1997 and
for the period from November 4, 1996 (Inception)
through December 31, 1996---------------------------------------------F-26
Notes to Consolidated Financial Statements----------------------------------F-27
FOX & HOUND ENTERTAINMENT AND RESTAURANT GROUP
Report of Independent Auditors----------------------------------------------F-33
Combined Balance Sheet as of December 31,1996-------------------------------F-34
Combined Statement of Income for the Year Ended December 31, 1996-----------F-36
Combined Statement of Partners' Equity for the Year
Ended December 31, 1996-----------------------------------------------F-37
Combined Statement of Cash Flows for the Year Ended December 31, 1996-------F-38
Notes to Combined Financial Statements--------------------------------------F-39
All financial statement schedules have been omitted since the required
information is not present.
F-1
<PAGE>
Report of Independent Auditors
The Stockholders
Total Entertainment Restaurant Corp.
We have audited the accompanying consolidated balance sheets of Total
Entertainment Restaurant Corp. as of December 29, 1998 and December 30, 1997,
and the related consolidated statements of income, stockholders' equity and cash
flows for the year ended December 29, 1998 and the period from February 7, 1997
(Inception) through December 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Total
Entertainment Restaurant Corp. at December 29, 1998 and December 30, 1997, and
the consolidated results of its operations and its cash flows for the year ended
December 29, 1998 and the period from February 7, 1997 (Inception) through
December 30, 1997, in conformity with generally accepted accounting principles.
/S/ ERNST & YOUNG LLP
March 22, 1999
Wichita, Kansas
F-2
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
CONSOLIDATED BALANCE SHEETS
DECEMBER 29, DECEMBER 30,
1998 1997
----------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 945,861 $ 1,220,598
Marketable securities, available for sale -- 3,315,056
Inventories 854,686 396,758
Preopening costs, net 1,789,740 386,402
Deferred income taxes 106,408 156,571
Prepaid expenses 662,747 350,324
--------------------------
Total current assets 4,359,442 5,825,709
Property and equipment:
Land 600,000 600,000
Buildings 655,795 655,795
Leasehold improvements 19,175,677 6,018,499
Equipment 11,922,806 4,980,541
Furniture and fixtures 2,633,742 1,225,981
--------------------------
34,988,020 13,480,816
Less accumulated depreciation and amortization 2,830,656 898,735
--------------------------
Net property and equipment 32,157,364 12,582,081
Other assets:
Goodwill, net of accumulated amortization of
$489,633 ($245,471 at December 30, 1997) 4,393,621 4,637,784
Other assets 374,007 178,695
--------------------------
Total other assets 4,767,628 4,816,479
--------------------------
Total assets $41,284,434 $23,224,269
==========================
F-3
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 30,
1998 1997
--------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable $ 3,384,159 $ 765,728
Accounts payable - affiliates 11,451 24,646
Sales tax payable 282,151 33,391
Accrued payroll 465,519 154,693
Accrued income taxes 358,583 -
Other accrued liabilities 804,257 268,290
--------------------------------------------
Total current liabilities 5,306,120 1,246,748
Notes payable 11,815,000 -
Deferred income taxes 427,537 312,450
Commitments - -
Stockholders' equity:
Preferred stock, $.10 par value, 2,000,000 shares
authorized; none issued - -
Common stock, $.01 par value; 20,000,000 shares
authorized; 10,415,000 shares issued
and outstanding 104,150 104,150
Additional paid-in capital 20,571,178 20,580,764
Retained earnings 3,060,449 980,157
--------------------------------------------
Total stockholders' equity 23,735,777 21,665,071
--------------------------------------------
Total liabilities and stockholders' equity $41,284,434 $23,224,269
============================================
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 7, 1997
YEAR ENDED (INCEPTION) THROUGH
DECEMBER 29, 1998 DECEMBER 30, 1997
----------------------------------------------------
<S> <C> <C>
Sales:
Food and beverage $30,009,876 $13,509,874
Entertainment and other 4,103,743 2,652,783
----------------------------------------------------
Total net sales 34,113,619 16,162,657
Cost and expenses:
Cost of sales 9,428,645 4,287,185
Entertainment and restaurant operating expenses 15,585,758 7,141,800
Depreciation and amortization 2,875,262 939,160
----------------------------------------------------
Entertainment and restaurant costs and expenses 27,889,665 12,368,145
----------------------------------------------------
Entertainment and restaurant operating income 6,223,954 3,794,512
General and administrative expenses:
Related parties 320,599 337,140
Other 2,288,663 1,456,684
Goodwill amortization 244,163 209,539
----------------------------------------------------
Income from operations 3,370,529 1,791,149
Other income (expense):
Other income (principally interest income) 70,914 129,011
Interest expense:
Related parties - (27,315)
Other (140,376) (367,960)
----------------------------------------------------
Income before provision for income taxes 3,301,067 1,524,885
Provision for income taxes 1,220,775 544,728
----------------------------------------------------
Net income $ 2,080,292 $ 980,157
====================================================
Basic and diluted earnings per share $ 0.20 $ 0.11
====================================================
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
---------------------------- Additional
Paid-in Retained
Number Amount Capital Earnings Total
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at February 7,
1997 (inception) 8,000 $ 80 $ 920 $ -- $ 1,000
Common stock canceled (8,000) (80) 80 -- --
Shares issued to acquire
restaurant companies 8,000,000 80,000 1,449,390 -- 1,529,390
Shares issued - initial public
offering 2,415,000 24,150 19,130,374 -- 19,154,524
Net income -- -- -- 980,157 980,157
------------------------------------------------------------------------------
Balance at December 30, 1997 10,415,000 104,150 20,580,764 980,157 21,665,071
Additional initial public offering
expenses -- -- (9,586) -- (9,586)
Net income -- -- -- 2,080,292 2,080,292
------------------------------------------------------------------------------
Balance at December 29, 1998 10,415,000 $ 104,150 $ 20,571,178 $ 3,060,449 $ 23,735,777
=============================================================================
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period From
February 7, 1997
Year Ended December 29, (Inception) Through
1998 December 30,
1997
-------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,080,292 $ 980,157
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,917,027 638,598
Amortization 1,202,398 510,101
Deferred taxes 165,250 77,284
Net change in operating assets and liabilities:
Accounts receivable - affiliate - 20,774
Accounts receivable - 56,702
Inventories (457,928) (122,644)
Preopening costs (2,343,896) (399,640)
Other current assets (312,423) (150,307)
Other assets (212,989) (236,649)
Accounts payable 851,460 620,515
Accounts payable - affiliates (13,195) (104,404)
Accrued liabilities 1,487,527 (66,932)
-------------------------------------------------
Net cash provided by operating activities 4,363,523 1,823,555
INVESTING ACTIVITIES
Purchases of property and equipment (19,758,730) (6,358,118)
Cash of companies acquired in Exchange - 720,029
Purchase of marketable securities - (7,465,056)
Proceeds from sale of marketable securities 3,315,056 4,150,000
-------------------------------------------------
Net cash used in investing activities (16,443,674) (8,953,145)
FINANCING ACTIVITIES
Proceeds from revolving note payable to bank 11,815,000 10,835,695
Payment of revolving note payable to bank - (10,835,695)
Payment of dividends payable to certain predecessor stockholders - (1,675,332)
Payment of notes payable to affiliates - (233,000)
Payment of notes payable to banks - (4,366,933)
Payment of notes payable to stockholders - (4,530,071)
Net (expenses) proceeds from issuance of common stock (9,586) 19,154,524
-------------------------------------------------
Net cash provided by financing activities 11,805,414 8,349,188
Net (decrease) increase in cash and cash equivalents (274,737) 1,219,598
Cash and cash equivalents at beginning of period 1,220,598 1,000
=================================================
Cash and cash equivalents at end of period $ 945,861 $ 1,220,598
=================================================
</TABLE>
F-7
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 7, 1997
YEAR ENDED DECEMBER 29, (INCEPTION) THROUGH
1998 DECEMBER 30,
1997
------------------------------------------------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $ 194,801 $458,971
Cash paid for income taxes 561,600 547,812
SUPPLEMENTAL DISCLOSURE OF NON CASH ACTIVITY
Additions to property and equipment in accounts
payable at year end $1,733,580 $ -
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 29, 1998 AND DECEMBER 30, 1997
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 stock exchange transactions and issued an aggregate of 8,000,000
shares of its common stock for all the common stock of Bailey's Sports Grille,
Inc., all the common stock of F&H Restaurant Corp. and the remaining 25%
minority interest in Fox & Hound Entertainment and Restaurant Group
(collectively, the "Exchange"). The Exchange among the Company and F&H
Restaurant Corp. was accounted for as a business combination using the purchase
method of accounting. For accounting purposes, F&H Restaurant Corp. was deemed
to be the acquiring corporation since, on 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 Exchange among the Company and the owners of the remaining 25% of Fox &
Hound Entertainment and Restaurant Group and the owners of Bailey's Sports
Grille, Inc. was also accounted for using the purchase method of accounting. 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 values at the Exchange date, with exception of F&H
Restaurant Corp. which was recorded at historical costs as described previously.
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 the Fox & Hound Entertainment and
Restaurant Group. The purchase price allocation to the assets and liabilities
acquired in the Exchange is 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
===================
F-9
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 29, 1998 AND DECEMBER 30, 1997
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS (CONTINUED)
Upon formation, the Company issued 8,000 shares of common stock at $0.125 per
share. In connection with the Exchange, the shares originally issued 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 financial
statements and notes thereto have been restated to reflect the stock dividend.
The following supplemental proforma information for the 52 weeks ended December
30, 1997 presents the combined results of operations of the Company as though
the Exchange had occurred at January 1, 1997. The proforma information is
unaudited and not necessarily indicative of the results of the Company had the
Exchange occurred at such date.
Revenues $18,557,115
Net income $1,081,192
Basic net income per share $0.12
As of December 29, 1998, the Company owned and operated 32 entertainment and
restaurant locations under the Fox and Hound English Pub & Grille (Fox & Hound),
Bailey's Sports Grille and Bailey's Pub & Grille (Bailey's) brand names. The
Company's entertainment restaurant locations combine a comfortable and inviting
social gathering place, full menu and full service bar, state-of-the-art audio
and video systems for sports entertainment, traditional games of skill such as
pocket billiards and late-night dining alternatives in a single location. The
Company's entertainment restaurant locations appeal to a broad range of guests
who can participate in one or more aspects of the Company's total entertainment
restaurant experience. Fox & Hound and Bailey's encompass the Company's
multi-dimensional concept and serve both larger urban and smaller regional
markets. As of December 29, 1998, the Company owned and operated 19 Fox & Hounds
and 13 Bailey's in Alabama, Georgia, Illinois, Indiana, Iowa, Kansas, Louisiana,
Michigan, Missouri, Nebraska, North Carolina, Ohio, Pennsylvania, South
Carolina, Tennessee and Texas. The Company operates in one business segment.
The company has a 52/53 week fiscal year ending on the last Tuesday in December.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying financial statements include the accounts of Total
Entertainment Restaurant Corp. and its wholly-owned subsidiaries. All
significant intercompany accounts have been eliminated.
F-10
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 29, 1998 AND DECEMBER 30, 1997
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
o Cash and Cash Equivalents
The Company considers cash and cash equivalents to include currency on hand,
demand deposits with banks or financial institutions, and short-term investments
with maturities of three months or less when purchased. Cash and cash
equivalents are carried at cost which approximates fair value.
o Concentration of Credit Risk
The Company's financial instruments exposed to credit risk consist primarily of
cash and marketable securities. The Company places its cash with high credit
financial institutions and, at times, such cash may be in excess of the Federal
Depository insurance limit.
o Marketable securities
The company's marketable securities represent debt securities classified as
available-for-sale. These securities are stated at fair value, with the
unrealized gains and losses, net of tax, reported in a separate component of
shareholders' equity. As of December 30, 1997, the fair value of these
securities approximated cost. Interest on these securities is included in other
income.
o Inventories
Inventories consist of food and beverages and are stated at the lower of cost
(first-in, first-out) or market.
o Pre-opening Costs
Labor costs and costs of hiring and training personnel and certain other costs
relating to opening new restaurants are capitalized until the restaurant is open
and then amortized over the subsequent 12 months. Accumulated amortization was
$1,515,356 and $137,023 at December 29, 1998 and December 30, 1997,
respectively.
In April 1998, the American Institute of Certified Public Accountants issued SOP
98-5, Reporting on the Costs of Start-Up Activities, requiring the costs related
to pre-opening activities to be expensed as incurred. The Company will adopt the
new pronouncement effective December 30, 1998. The cumulative effect of the
accounting change will be $1,789,740.
o Property and Equipment
Property and equipment are stated at cost. Maintenance, repairs and renewals
which do not enhance the value of or increase the life of the assets are
expensed as incurred.
F-11
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 29, 1998 AND DECEMBER 30, 1997
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Buildings and leasehold improvements are amortized on the straight-line method
over the lesser of the life of the lease, including renewal options, or the
estimated useful lives of the assets which range from 5 to 30 years. Equipment
and furniture and fixtures are depreciated using the straight-line method over
the estimated useful lives of the assets which range from two to seven years.
o Goodwill
Goodwill represents the excess of the cost of companies acquired over the fair
value of the net assets at the date of acquisition and is being amortized over
20 years. The carrying value of goodwill will be reviewed if the facts and
circumstances suggest it may be impaired.
o Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Valuation allowances are established when necessary to reduce deferred
tax assets to the amounts expected to be realized. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
o Advertising Costs
Advertising costs are expensed as incurred. Advertising expense for the periods
ended December 29, 1998 and December 30, 1997, were $489,929 and $179,737,
respectively.
o Accounting for Stock-Based Compensation
In accordance with APB Opinion No. 25, the Company uses the intrinsic
value-based method for measuring stock-based compensation cost which measures
compensation cost as the excess, if any, of the quoted market price of Company's
common stock at the grant date over the amount the employee must pay for the
stock. The Company's policy is to grant stock options with grant prices equal to
the fair value of the Company's common stock at the date of grant. Proceeds from
the exercise of common stock options issued to officers, directors and key
employees under the Company's stock option plans are credited to common stock to
the extent of par value and to additional paid-in capital for the excess.
Required pro forma disclosures of compensation expense determined under the fair
value method of Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation, are presented in Note 6.
F-12
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 29, 1998 AND DECEMBER 30, 1997
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
o Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from estimates.
o Earnings per Share
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 128, Earnings per Share, which was adopted by the Company during
1997. The Company has changed the method previously used to compute earnings per
share and restated all prior period amounts. Statement No. 128 replaced primary
and fully diluted earnings per share with basic and diluted earnings per share.
Under the new requirements for calculating earnings per share, the dilutive
effect of stock options is excluded from basic earnings per share but included
in the computation of diluted earnings per share. The impact of Statement No.
128 on the calculation of basic and diluted earnings per share over primary and
fully diluted earnings per share for these period is not material.
o Comprehensive Income
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive Income,
establishing new rules for the reporting and display of comprehensive income and
its components; however, adoption in 1998 had no impact on the Company's net
income or shareholders' equity.
o Segment Reporting
In June 1997, the FASB issued Statement No. 131, Disclosures about Segments of
an Enterprise and Related Information requiring disclosure of certain
information about reportable operating segments. As the Company operates in only
one segment, adoption of this statement in 1998 had no impact on the Company's
financial statements.
F-13
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 29, 1998 AND DECEMBER 30, 1997
3. INITIAL PUBLIC OFFERING
On July 17, 1997, the Company completed an initial public offering of 2,415,000
shares of its common stock at an offering price of $9.00 per share. Total net
proceeds to the Company from the offering, after deducting commissions and
offering costs were $19,144,938.
4. PREFERRED STOCK
The Company's Board of Directors has the authority to issue up to 2,000,000
shares of preferred stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
conversion rights, voting rights, terms of redemption, liquidation preference
and the number of shares constituting any series or the designation of such
series.
5. REVOLVING NOTE PAYABLE
On February 24, 1997, the Company borrowed approximately $10,800,000 under a
$12,000,000 revolving line of credit with Intrust Bank, N.A., Wichita, Kansas.
The proceeds from the borrowing were used to retire certain indebtedness assumed
in connection with the Exchange, including all notes payable to affiliates,
notes payable to banks and dividends payable to certain predecessor stockholders
representing substantially all of the undistributed S Corporation earnings
attributable to such stockholders prior to the Exchange. The line of credit was
retired upon completion of the Company's initial public offering in July 1997.
On September 1, 1998 the Company entered into a loan agreement with Intrust
Bank, N.A. (the "Facility") which provides for a line of credit of $20,000,000
subject to certain limitations based on earnings before interest, income taxes,
depreciation and amortization of the past fifty-two weeks. The note is secured
by substantially all assets of the Company. The note restricts the ability of
the Company to pay dividends. The Facility requires monthly payments of interest
only until November 1, 2001, at which time equal monthly installments of
principal and interest are required as necessary to fully amortize the
outstanding indebtedness plus future interest over a period of four years.
Interest is accrued at a rate of 1/2% below the prime rate as published in The
Wall Street Journal (7.25% at December 29, 1998). Proceeds from the Facility
were used for restaurant development. As of December 29, 1998, the Company had
borrowed $11,815,000 under the Facility.
F-14
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 29, 1998 AND DECEMBER 30, 1997
5. REVOLVING NOTE PAYABLE (CONTINUED)
The following represents future maturities of the note:
2001 $ 591,346
2002 3,701,662
2003 3,979,132
Thereafter 3,542,860
=================
Total $11,815,000
=================
6. STOCK OPTIONS
The Company has elected to follow APB Opinion No. 25, Accounting for Stock
Issued to Employees and related interpretations in accounting for its employee
stock options because, as described below, the alternative fair value accounting
provided for under FASB Statement No. 123, Accounting for Stock-Based
Compensation, requires the use of option valuation models that were not
developed for use in valuing employee stock options. Under APB Opinion No. 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
o 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 will be available for
issuance. The Plan covers the former Chairman of the Board, certain
officers and key employees. Options granted have a vesting period of
five years and a life of ten years.
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 will be available for
issuance.
Pro forma information regarding net income and earnings per share is required by
Statement No. 123, which also requires the information be determined as if the
Company has accounted for its employee stock options granted under the fair
value of that Statement. The fair value method for these options were estimated
at the date of grant using a Black-Scholes option pricing model with the
following weighted-average assumptions: risk-free interest rate ranging from
5.0% to 5.3%; no dividend yields; volatility factor ranging from .344 to .800;
and a weighted-average expected life of the option of 5 years.
F-15
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 29, 1998 AND DECEMBER 30, 1997
6. STOCK OPTIONS (CONTINUED)
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different than those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the option's vesting period. The Company's pro
forma information is as follows:
December 29, December 30,
1998 1997
-------------- ------------
Pro forma net income $1,719,143 $838,152
Pro forma earnings per share:
Basic $0.17 $0.09
Diluted $0.17 $0.09
Weighted average fair value of options
granted during the year $2.56 $3.45
A summary of the Company's stock option activity and related information for the
periods ended December 29, 1998 and December 30, 1997, respectively, follows:
<TABLE>
<CAPTION>
December 29, 1998 December 30, 1997
-------------------------------------------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Price Options Price Options
-------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding beginning of period $ 8.87 812,746 $-- --
Granted 3.80 432,584 8.89 829,414
Exercised -- -- -- --
Canceled (6.30) (115,929) (9.00) (16,668)
===== ==========
Outstanding end of period $ 7.19 1,129,401 $ 8.87 812,746
===== ==========
</TABLE>
As of December 29, 1998, the Company's outstanding options have a weighted
average remaining contract life of 8.9 years and exercise prices ranging from
$2.75 to $9.00. There were 150,650 options exercisable at December 29, 1998 and
no options exercisable at December 30, 1997.
F-16
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 29, 1998 AND DECEMBER 30, 1997
7. RELATED PARTY TRANSACTIONS
The Company utilized an affiliate to provide certain accounting, computer, and
administrative services during 1998 and 1997. The Company incurred fees of
$320,599 and $337,140 related to these services for the periods ended December
29, 1998 and December 30, 1997, respectively.
Additionally, the Company paid interest to a certain stockholder in the amount
of $27,315 for the period ended December 30, 1997 related to a note payable
acquired in the Exchange.
8. LEASES
The Company leases many of its facilities under noncancelable operating leases
having terms expiring between 1999 and 2007. The leases have renewal clauses of
3 to 5 years, exercisable at the option of the lessee. In addition, certain
leases contain escalation clauses based on a fixed percentage increase and
provisions for contingent rentals based on a percentage of gross revenues, as
defined by the lease. Total rental expense for the periods ended December 29,
1998 and December 30, 1997, were $1,564,399 and $846,330, respectively, of which
$241,892 and $229,218, respectively, were paid to a related party. There were no
contingent rentals during 1998 or 1997.
As of December 29, 1998, future minimum lease payments under noncancelable
operating leases with initial terms in excess of one year for each of the next
five years and thereafter total $15,126,576 (1999 - $3,220,517; 2000 -
$3,516,301; 2001 - $2,858,019; 2002 - $2,672,661; 2003 - 1,996,002; and
thereafter - $1,223,076).
F-17
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 29, 1998 AND DECEMBER 30, 1997
9. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share data):
<TABLE>
<CAPTION>
1998 1997
---------------------------------
<S> <C> <C>
Numerator
Net income $ 2,080 $ 980
=================================
Denominator
Denominator for basic earnings per
share - weighted-average shares 10,415 9,182
Effect of dilutive securities:
Employee stock options 21 --
---------------------------------
Dilutive potential common shares
Denominator for diluted earnings per share - adjusted
weighted-average shares and assumed conversions 10,436 9,182
=================================
Basic earnings per common share $ 0.20 $ 0.11
=================================
Diluted earnings per common share $ 0.20 $ 0.11
=================================
</TABLE>
10. INCOME TAXES
The Company's provision for income taxes consists of the following:
<TABLE>
<CAPTION>
December 29, December 30,
1998 1997
------------------------------
<S> <C> <C>
Current:
Federal $ 836,853 $ 378,051
State 218,672 89,393
-----------------------------
Total Current 1,055,525 467,444
Deferred:
Federal 137,563 64,165
State 27,687 13,119
-----------------------------
Total Deferred 165,250 77,284
=============================
Total income tax expense $1,220,775 $ 544,728
=============================
</TABLE>
F-18
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 29, 1998 AND DECEMBER 30, 1997
10. INCOME TAXES (CONTINUED)
The income tax effects of temporary differences that give rise to significant
portions of deferred income tax assets and liabilities at December 29, 1998 and
December 30, 1997, are as follows:
<TABLE>
<CAPTION>
December 29, December 30,
1998 1997
-----------------------------------------------
<S> <C> <C>
Deferred tax assets:
Preopening and organization costs $ 78,406 $149,151
Vacation 39,309 16,456
Other 38,828 18,034
-----------------------------------------------
Total deferred tax assets 156,543 183,641
-----------------------------------------------
Deferred tax liabilities:
Property and equipment 334,042 235,587
Goodwill 118,171 103,933
Other 25,458 -
-----------------------------------------------
Total deferred tax liabilities 477,672 339,520
===============================================
Net deferred tax liabilities $321,129 $155,879
===============================================
</TABLE>
A reconciliation between the reported provision for income taxes and tax
determined by applying the applicable U.S. Federal Statutory income tax rate to
income before taxes follows:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 30,
1998 1997
------------------------------------------------------
AMOUNT RATE AMOUNT RATE
------------------------------------------------------
<S> <C> <C> <C> <C>
Income tax expense at federal statutory rate $1,122,363 34.0% $518,460 34.0%
State income taxes, net of federal benefit 141,616 4.3 65,418 4.3
Tax credits (92,565) (2.8) (59,151) (3.9)
Other items, net, none of which individually exceeds 5% of federal
taxes at statutory rates 49,361 1.5 20,001 1.3
======================================================
Actual income tax expense $1,220,775 37.0% $544,728 35.7%
======================================================
</TABLE>
11. MARKETABLE SECURITIES
The Company's marketable securities (primarily bonds and commercial paper from
municipalities) are classified as available-for-sale securities. As of December
30, 1997, the cost and estimated fair market value of these securities was
$3,315,056. There have been no realized or unrealized gains and losses recorded
on these securities for 1998 and 1997. Interest income during 1998 and 1997 were
$70,035 and $115,806, respectively. All of the securities have a maturity date
of less than one year.
F-19
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 29, 1998 AND DECEMBER 30, 1997
12. FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amount reported in the balance sheet for all financial instruments,
including cash and cash equivalents and debt instruments, approximates its fair
value.
F-20
<PAGE>
Report of Independent Auditors
The Stockholders
F & H Restaurant Corp.
We have audited the accompanying consolidated balance sheet of F & H Restaurant
Corp. as of December 31, 1996, and the related consolidated statements of
income, stockholders' equity and cash flows for the period from January 1, 1997
through February 20, 1997 and the period from November 4, 1996 (inception)
through December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of F & H Restaurant
Corp. at December 31, 1996, and the consolidated results of its operations and
its cash flows for the period from January 1, 1997 through February 20, 1997 and
for the period from November 4, 1996 (inception) through December 31, 1996, in
conformity with generally accepted accounting principles.
/S/ ERNST & YOUNG LLP
March 25, 1998
Wichita, Kansas
F-21
<PAGE>
F & H RESTAURANT CORP.
CONSOLIDATED BALANCE SHEET
DECEMBER 31,
1996
----------------
ASSETS
Current assets:
Cash and cash equivalents $ 254,463
Accounts receivable - affiliates 28,343
Accounts receivable 5,003
Inventories 92,455
Deferred taxes 47,289
Other current assets 25,758
----------
Total current assets 453,311
Property and equipment:
Leasehold improvements 1,150,312
Equipment 821,295
Furniture and fixtures 151,416
----------
2,123,023
Less accumulated depreciation and amortization 19,302
----------
2,103,721
Other assets:
Goodwill, net of accumulated amortization of $11,776 3,436,290
Other assets 15,760
----------
Total other assets 3,452,050
----------
Total assets $6,009,082
==========
F-22
<PAGE>
<TABLE>
<CAPTION>
December 31,
1996
------------
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Note payable to stockholder $1,500,000
Notes payable to affiliates 233,000
Amounts due to sellers 3,030,071
Accounts payable 66,363
Accounts payable - affiliates 15,128
Accrued liabilities:
Sales tax payable 70,057
Accrued payroll 69,298
Insurance 29,765
Other 61,672
Current maturities - long-term debt 463,465
----------
Total current liabilities 5,538,819
Deferred income taxes 67,057
Minority interest 390,214
Commitments --
Stockholders' equity
Common stock, no par value; 1,000 shares authorized,
issued and outstanding
1,000
Retained earnings 11,992
----------
Total stockholders' equity 12,992
----------
Total liabilities and stockholders' equity $6,009,082
==========
</TABLE>
See notes to consolidated financial statements.
F-23
<PAGE>
F & H RESTAURANT CORP.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Period From Period From
January 1, 1997 November 4, 1996
Through (Inception) Through
February 20, 1997 December 31, 1996
---------------------------------------
<S> <C> <C>
Net sales $ 858,312 $ 384,522
Cost and expenses:
Cost of sales 245,371 115,725
Entertainment and restaurant operating expenses 392,967 185,430
Depreciation and amortization 58,688 27,179
---------------------------------------
Entertainment and restaurant costs and expenses 697,026 328,334
---------------------------------------
Entertainment and restaurant operating income 161,286 56,188
General and administrative expenses:
Related parties 30,187 15,797
Other 5,647 4,337
---------------------------------------
Income from operations 125,452 36,054
Other income (expense):
Other income 64 4,775
Interest expense:
Related parties (63,250) (12,256)
Other -- (3,427)
---------------------------------------
Income before income taxes and minority interest 62,266 25,146
Provision for income taxes 10,440 3,181
Minority interest 34,428 9,973
=======================================
Net income $ 17,398 $ 11,992
=======================================
</TABLE>
See notes to consolidated financial statements.
F-24
<PAGE>
F & H RESTAURANT CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
----------------------------------------
Retained
Number Amount Earnings Total
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at November 4, 1996
(inception) - $ - $ - $ -
Issuance of common stock 1,000 1,000 - 1,000
Net income - - 11,992 11,992
-------------------------------------------------------------------------------
Balance at December 31, 1996 1,000 1,000 11,992 12,992
Net income - - 17,398 17,398
-------------------------------------------------------------------------------
Balance at February 20, 1997 1,000 $1,000 $29,390 $30,390
===============================================================================
</TABLE>
See notes to consolidated financial statements.
F-25
<PAGE>
F & H RESTAURANT CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM NOVEMBER 4,
JANUARY 1, 1997 THROUGH 1996 (INCEPTION) THROUGH
FEBRUARY 20, 1997 DECEMBER 31, 1996
-----------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 17,398 $ 11,992
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 58,688 31,156
Deferred taxes 7,199 1,809
Minority interest in income of subsidiaries 34,428 9,973
Net change in operating assets and liabilities:
Accounts receivable (21,767) 7,041
Inventories 5,695 (414)
Other current assets (47,505) 11,562
Other assets 11,192 --
Accounts payable 66,618 (20,926)
Accrued liabilities (59,205) 5,026
------------------------------------------
Net cash provided by operating activities 72,741 57,219
INVESTING ACTIVITIES
Payment for purchase of interest in Fox & Hound
Entertainment and Restaurant Group,
net of cash acquired -- (1,327,925)
Purchases of property and equipment -- (7,517)
Proceeds from sale of property and equipment 2,963 --
Other -- (1,000)
------------------------------------------
Net cash provided by (used in) investing activities 2,963 (1,336,442)
FINANCING ACTIVITIES
Net proceeds from issuance of common stock -- 1,000
Proceeds from notes payable - stockholder -- 1,500,000
Payment of note receivable - partner -- 42,322
Net proceeds from short term note payable to affiliate 5,232,515 --
Payment of notes payable - stockholder (1,500,000) --
Payment of notes payable - affiliates (233,000) --
Payment of amounts due to sellers (3,030,071) --
Payment of long-term debt (463,465) (9,636)
------------------------------------------
Net cash provided by financing activities 5,979 1,533,686
------------------------------------------
Net increase in cash and cash equivalents 81,683 254,463
Cash and cash equivalents at beginning of period 254,463 --
==========================================
Cash and cash equivalents at end of period $ 336,146 $ 254,463
==========================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 29,989 $ 11,628
</TABLE>
See notes to consolidated financial statements.
F-26
<PAGE>
F & H RESTAURANT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND ACQUISITION
F&H Restaurant Corp. (FHRC) was organized as a Delaware corporation on November
4, 1996, for the purpose of acquiring a 75% partnership interest in the Fox &
Hound Entertainment and Restaurant Group (FHERG). FHERG owned and operated three
entertainment restaurant locations in the state of Texas under the name of "Fox
& Hound English Pub and Grille." The acquisition was completed on December 6,
1996; thus, the accompanying consolidated financial statements as of December
31, 1996 and for the period from November 4, 1996 through December 31, 1996
include 25 days of operations of FHERG.
The acquisition was financed by a loan from a principal stockholder of FHRC in
the initial amount of $1,500,000 and an additional loan from such stockholder of
$3,030,071 in January 1997. The aggregate consideration paid by FHRC was
$4,568,995, consisting of $1,538,924 in cash and a promissory note for
$3,030,071 which was due January 2, 1997.
The acquisition was accounted for as a purchase and, accordingly, the acquired
underlying assets and liabilities were recorded at their estimated fair values
at the date of acquisition. The acquisition resulted in goodwill of
approximately $3,448,000 which is being amortized over 20 years. The purchase
price allocation to the assets and liabilities acquired was as follows:
Assets acquired
Current assets $ 388,913
Property and equipment 2,115,506
Goodwill and other assets 3,504,158
----------------
Total assets acquired 6,008,577
----------------
Liabilities assumed
Current liabilities 520,191
Long-term debt (including current portion) 473,101
Other 66,049
----------------
Total liabilities assumed 1,059,341
----------------
Net assets acquired 4,949,236
Minority interest 380,241
================
Total purchase price allocated $4,568,995
================
2. SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The accompanying financial statements include the accounts of FHRC and its
majority-owned subsidiaries. All significant intercompany accounts have been
eliminated.
F-27
<PAGE>
F & H RESTAURANT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
O Cash and Cash Equivalents
FHRC considers cash and cash equivalents to include currency on hand, demand
deposits with banks or financial institutions, and short-term investments with
maturities of three months or less when purchased. Cash and cash equivalents are
carried at cost which approximates fair value.
O Inventories
Inventories consist of food and beverages and are stated at the lower of cost
(first-in, first-out) or market.
O Property and Equipment
Property and equipment are stated at cost. Maintenance, repairs and renewals
which do not enhance the value of or increase the life of the assets are
expensed as incurred.
Leasehold improvements are amortized on the straight-line method over the lesser
of the maximum life of the lease or 20 years, or the estimated useful lives of
the assets. Equipment and furniture and fixtures are depreciated using the
straight-line method over the estimated useful lives of the assets, which range
from five to seven years.
O Goodwill
Goodwill represents the excess of the acquisition cost of the 75% interest in
FHERG over the fair value of its net assets at the date of acquisition and is
being amortized on a straight-line method over 20 years. The carrying value of
goodwill will be reviewed if the facts and circumstances suggest that it may be
impaired.
O Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from estimates.
O Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Valuation allowances are established when necessary to reduce
F-28
<PAGE>
F & H RESTAURANT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
deferred tax assets to the amounts expected to be realized. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
3. NOTE PAYABLE - STOCKHOLDER
At December 31, 1996, FHRC had an outstanding note payable to a principal
stockholder for $1,500,000. This note was payable on demand and accrued interest
at the prime interest rate as published in the Wall Street Journal (8.25% at
December 31, 1996). In January of 1997, this note was increased by $3,030,071 to
pay the remaining amount due to sellers in the acquisition as described in Note
1. Subsequent to the Exchange Transaction (Note 9), this note was refinanced
with a note payable to Total Entertainment Restaurant Corp.
4. NOTES PAYABLE TO AFFILIATES
Notes payable to affiliates represents notes to certain partners of FHERG
totaling $233,000 at December 31, 1996. These notes were payable on demand and
accrued interest at 10%. Subsequent to the Exchange Transaction (Note 9), this
note was refinanced with a note payable to Total Entertainment Restaurant Corp.
5. LONG-TERM DEBT
Long-term debt at December 31, 1996 consists of the following:
Installment loan to bank, payable in varying monthly
payments including interest at the bank's base rate plus
2% (10.25% at December 31, 1996), due September 1999,
secured by leasehold improvements and restaurant equipment
with an approximate carrying value of $1,960,000 and a
guarantee from a general partner.
$110,058
Installment loan to bank payable in varying monthly
payments including interest at the bank's base rate plus
1.5% (11.25% at December 31,1996), due September 2000,
secured by leasehold improvements and restaurant equipment
with an approximate carrying value of $1,960,000 and a
guarantee from several partners
353,407
-------
Less current portion 463,465
463,465
-------
-
=======
F-29
<PAGE>
F & H RESTAURANT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. LONG-TERM DEBT (CONTINUED)
Subsequent to the acquisition of FHRC as described in Note 9, the installment
notes payable were refinanced with a note payable to Total Entertainment
Restaurant Corp. Accordingly, the installment notes payable have been classified
as current.
6. RELATED PARTY TRANSACTIONS
FHRC utilizes an affiliate to provide certain accounting, computer
administrative services and certain management services. FHRC incurred fees of
$30,187 and $15,797 related to such services for the periods ended February 20,
1997 and December 31, 1996, respectively.
7. LEASES
FHRC leases two entertainment restaurant locations from affiliates and another
from a third party. These leases are noncancelable operating leases having terms
expiring between 1999 and 2000. The leases have renewal clauses of 5 to 20
years, exercisable at the option of the lessee. FHRC also leases various office,
entertainment and restaurant equipment under noncancelable operating leases
having terms from one to three years. Total rental expense for the periods ended
February 20, 1997 and December 31, 1996, was $23,568 and $19,066, respectively,
including $20,838 and $17,786, respectively, involving related parties.
Remaining minimum lease payments under operating leases in effect at December
31, 1996, are as follows:
Related Unrelated
Fiscal Year Parties Parties Total
------------- --------------------------------------------------
1997 $193,416 $36,132 $229,548
1998 178,416 36,132 214,548
1999 178,416 10,588 189,004
2000 163,548 - 163,548
F-30
<PAGE>
F & H RESTAURANT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. INCOME TAXES
Significant components of the provision for income taxes are as follows:
Period From Period From
January 1, 1997 November 4, 1996
Through Through
February 20, 1997 December 31, 1996
----------------------------------------
Current:
Federal $ 3,109 $ 318
State 132 1,054
----------------------------------------
Total current 3,241 $1,372
Deferred:
Federal 6,393 1,206
State 806 603
----------------------------------------
Total deferred 7,199 1,809
========================================
Total income tax expense $10,440 $3,181
========================================
Significant components of FHRC's deferred tax assets and liabilities at December
31, 1996, are as follows:
Deferred tax assets:
Other assets $47,289
Deferred tax liabilities:
Property and equipment 889
Goodwill and other assets 66,168
-------------
67,057
=============
Net deferred tax liabilities $19,768
=============
F-31
<PAGE>
F & H RESTAURANT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. INCOME TAXES (CONTINUED)
The reconciliation of income tax expense computed at the U.S. federal statutory
rate to the actual income tax expense for the periods ended February 20, 1997
and December 31, 1996, respectively, is:
<TABLE>
<CAPTION>
Period From Period From
January 1, November 4,
1997 Through 1996 Through
February 20, 1997 December 31, 1996
-----------------------------------------------------------------
Amount Rate Amount Rate
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Income tax expense at federal statutory rate $ 9,465 34% $ 5,158 34%
State income taxes, net of federal benefit 1,194 4 1,077 4
Tax credits (2,366) (8) (2,581) (10)
Effect of graduated tax rates -- -- (1,386) (19)
Other 2,147 8 913 4
=================================================================
Actual income tax expense $ 10,440 38% $ 3,181 21%
=================================================================
</TABLE>
9. EXCHANGE TRANSACTION
On February 20, 1997, the stockholders of FHRC completed an Exchange Transaction
whereby they exchanged all of their interests in FHRC's common stock for common
stock of Total Entertainment Restaurant Corp. Subsequent to the acquisition of
FHRC, the long-term installment note payable of $463,465, the note payable to a
stockholder of $4,530,071 and the note payable to affiliates of $233,000 were
refinanced with a short-term loan from Total Entertainment Restaurant Corp. from
funds it obtained from a revolving note payable to a bank. The aggregate debt
related to this refinancing was $5,226,536.
10. FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amount reported in the balance sheet for all financial instruments,
including cash and cash equivalents and debt instruments, approximates its fair
value.
F-32
<PAGE>
Report of Independent Auditors
The Partners
Fox & Hound Entertainment and Restaurant Group
We have audited the accompanying combined balance sheet of Fox & Hound
Entertainment and Restaurant Group as of December 31, 1996, and the related
combined statement of income, partners' equity and cash flows for the period
ended December 31, 1996. These financial statements are the responsibility of
the Fox & Hound Entertainment and Restaurant Group's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Fox & Hound
Entertainment and Restaurant Group at December 31, 1996, and the combined
results of its operations and its cash flows for the period ended December 31,
1996, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
March 10, 1997
Wichita, Kansas
F-33
<PAGE>
FOX & HOUND ENTERTAINMENT AND RESTAURANT GROUP
COMBINED BALANCE SHEET
DECEMBER 31,
1996
--------------
ASSETS
Current assets:
Cash and cash equivalents $ 252,229
Accounts receivable 5,003
Accounts receivable - affiliates 27,343
Inventories 92,455
Other current assets 25,758
--------------
Total current assets 402,788
Property and equipment:
Leasehold improvements 1,252,445
Equipment 1,048,438
Furniture and fixtures 186,232
--------------
2,487,115
Less accumulated depreciation and amortization 383,394
--------------
2,103,721
Other assets 13,720
--------------
Total assets $2,520,229
==============
F-34
<PAGE>
December 31,
1996
-----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - partners $ 233,000
Accounts payable 66,363
Accrued liabilities:
Sales and gross receipts tax payable 70,057
Payroll and related expenses 69,298
Insurance 29,765
Other 24,363
Current maturities - long-term debt 463,465
-----------------
Total current liabilities 956,311
Commitments -
Partners' equity 1,563,918
-----------------
Total liabilities and partners' equity $2,520,229
=================
See notes to combined financial statements.
F-35
<PAGE>
FOX & HOUND ENTERTAINMENT AND RESTAURANT GROUP
COMBINED STATEMENT OF INCOME
Year Ended
December 31,
1996
---------------
Net sales $5,506,697
Cost and expenses:
Cost of sales 1,721,088
Entertainment and restaurant operating expenses 2,759,146
Depreciation and amortization 310,512
---------------
Entertainment and restaurant costs and expenses 4,790,746
---------------
Entertainment and restaurant operating income 715,951
General and administrative expenses:
Related parties 225,600
Other 70,416
---------------
Income from operations 419,935 Other income (expense):
Other income 23,370
Interest expense:
Related parties (18,945)
Other (59,868)
---------------
(55,443)
---------------
Net income $ 364,492
===============
See notes to combined financial statements.
F-36
<PAGE>
FOX & HOUND ENTERTAINMENT AND RESTAURANT GROUP
COMBINED STATEMENT OF PARTNERS' EQUITY
<TABLE>
<CAPTION>
Note Total
Receivable Partners' Partners'
Partner Equity Equity
-------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1995 (50,000) 1,609,426 1,559,426
Partners' distributions - (410,000) (410,000)
Proceeds from note receivable 50,000 - 50,000
Net income - 364,492 364,492
=================================================
Balance at December 31, 1996 $ - $1,563,918 $1,563,918
=================================================
</TABLE>
See notes to combined financial statements.
F-37
<PAGE>
FOX & HOUND ENTERTAINMENT AND RESTAURANT GROUP
COMBINED STATEMENT OF CASH FLOWS
Year Ended
December 31,
1996
------------
OPERATING ACTIVITIES
Net income $ 364,492
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 310,512
Net change in operating assets and
liabilities:
Accounts receivable 7,689
Inventories (16,737)
Preopening costs --
Other current assets 18,350
Accounts payable 62,016
Accrued liabilities 12,280
------------
Net cash provided by operating activities 758,602
INVESTING ACTIVITIES
Purchases of property and equipment (371,212)
Other 7,195
------------
Net cash used in investing activities (364,017)
FINANCING ACTIVITIES
Capital contributions 50,000
Proceeds from long-term debt --
Proceeds from note payable - partner 70,000
Payment of long-term debt (132,875)
Partner distributions (410,000)
------------
Net cash used in financing activities (422,875)
Net decrease in cash and cash equivalents (28,290)
Cash and cash equivalents at beginning of period 280,519
============
Cash and cash equivalents at end of period $ 252,229
============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 79,118
See notes to combined financial statements.
F-38
<PAGE>
FOX & HOUND ENTERTAINMENT AND RESTAURANT GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Business Description
The accompanying combined financial statements include the assets, liabilities
and operations associated with the limited partnerships listed below. The
combined partnerships are collectively referred to as Fox & Hound Entertainment
and Restaurant Group (FHERG). Pursuant to an acquisition agreement entered into
on December 6, 1996, a 75% partnership interest was purchased from each partner
by F&H Restaurant Corp. All such limited partnerships have been presented on a
combined basis because they have common partners and management and significant
interrelated activities. All significant intercompany transactions have been
eliminated.
Entity Store Opening Date
---------------------------------------------------------------------
Midway Entertainment, Ltd. November 30, 1995
505 Entertainment , Ltd. September 10, 1994
North Collins Entertainment, Ltd. August 29, 1994
Each of the above entities operates a stand-alone entertainment restaurant
location in the state of Texas under the name of "Fox & Hound English Pub and
Grille."
Significant Accounting Policies
O Cash and Cash Equivalents
FHERG considers cash and cash equivalents to include currency on hand, demand
deposits with banks or other financial institutions, and short-term investments
with maturities of three months or less when purchased. Cash and cash
equivalents are carried at cost which approximates fair value.
O Inventories
Inventories consist of food and beverages, and are stated at the lower of cost
(first-in, first-out) or market.
O Property and Equipment
Property and equipment are stated at cost. Maintenance, repairs and renewals
which do not enhance the value of or increase the life of the assets are
expensed as incurred.
Leasehold improvements are amortized on the straight-line method over the lesser
of the maximum life of the lease or 20 years, or the estimated useful lives of
the assets. Equipment and furniture and fixtures are depreciated using the
straight-line method over seven years, which is
F-39
<PAGE>
FOX & HOUND ENTERTAINMENT AND RESTAURANT GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the estimated useful life of the assets. Depreciation expense incurred for the
year ended December 31, 1996 was approximately $128,900.
0 Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from estimates.
0 Pre-opening Costs
Labor costs and costs of hiring and training personnel and certain other costs
relating to opening new entertainment restaurant locations are capitalized until
the entertainment restaurant location is open and then amortized over the
subsequent 12 months. Accumulated amortization related to such entertainment
restaurant locations was approximately $237,800.
0 Income Taxes
The entities comprising FHERG are limited partnerships and are taxed as such
pursuant to the Internal Revenue Code and are not individually subject to
federal or state income taxes because their taxable income or loss accrues to
the individual partners or members. Accordingly, the accompanying combined
financial statements do not include a provision for income taxes.
2. NOTES PAYABLE
At December 31, 1995, FHERG had an available line of credit with a bank of up to
$450,000. Interest was payable on the outstanding balance at the bank's base
rate plus 2%. Borrowings under the line of credit were guaranteed by several
partners of FHERG. The note matured in May 1996 and was refinanced with an
installment loan with the bank (see Note 3). Notes payable to partners
represents notes to certain partners totaling $233,000 at December 31, 1996.
These notes are payable on demand and accrue interest at 10%.
F-40
<PAGE>
FOX & HOUND ENTERTAINMENT AND RESTAURANT GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
3. LONG-TERM DEBT
Long-term debt at December 31, 1996 consisted of the following:
Installment loan to bank, payable in varying monthly payments
including interest at the bank's base rate plus 2% (10.25% at
December 31, 1996), due September 1999, secured by leasehold
improvements and restaurant equipment and a guarantee from a
general partner.
$110,058
Installment loan to bank payable in varying monthly payments
including interest at the bank's base rate plus 1.5% (11.25%
at December 31,1996), due September 2000, secured by leasehold
improvements and restaurant equipment and a guarantee from
several partners
353,407
-------
Less current portion 463,465
463,465
-------
-
=======
In connection with the acquisition of FHERG as described in Note 8, the
installment notes payable were refinanced with a short-term note payable to
Total Entertainment Restaurant Corp. Accordingly, the installment notes payable
have been classified as current portion of long-term debt.
4. RELATED PARTY TRANSACTIONS
FHERG utilizes certain affiliates to provide accounting, computer,
administrative services and certain management services. The Company incurred
fees of $225,600 related to these services for fiscal year 1996.
5. LEASES
FHERG leases two entertainment restaurant locations from affiliates and another
from a third party. These leases are noncancelable operating leases having terms
expiring between 1999 and 2000. The leases have renewal clauses of 5 to 20
years, exercisable at the option of the lessee. FHERG also leases various
office, entertainment and restaurant equipment under noncancelable operating
leases having terms from one to three years. Total rental expense for the year
ended December 31, 1996 was $306,280, including $260,400 involving related
parties.
F-41
<PAGE>
FOX & HOUND ENTERTAINMENT AND RESTAURANT GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
5. LEASES (CONTINUED)
Remaining minimum lease payments under operating leases in effect at December
31, 1996, are as follows:
Related Unrelated
Fiscal Year Parties Parties Total
----------- ---------------------------------------------
1997 $193,416 $36,132 $229,548
1998 178,416 36,132 214,548
1999 178,416 10,588 189,004
2000 163,548 - 163,548
6. FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amount reported in the balance sheet for all financial instruments,
including cash and cash equivalents and all debt instruments, approximates fair
value.
7. EXCHANGE TRANSACTION
On February 20, 1997, the partners of FHERG completed an Exchange Transaction
whereby they exchanged all of their interests for common stock of Total
Entertainment Restaurant Corp. Subsequent to the Exchange Transaction, long-term
installment notes payable of $463,465 were refinanced with a short-term loan
from Total Entertainment Restaurant Corp. from funds it obtained from a
revolving note payable to a bank.
F-42
Exhibit 21.1
SUBSIDIARIES OF TOTAL ENTERTAINMENT RESTAURANT CORP.
----------------------------------------------------
AS OF MARCH 19, 1999
--------------------
Total Entertainment Restaurant Corp.
F&H Restaurant Corp.
TENT Finance, Inc.
Bailey's Sports Grille, Inc.
Fox & Hound, Inc.
Fox & Hound II, Inc.
Alabama Fox & Hound, Inc.
Fox & Hound of Colorado, Inc.
F&H Restaurant of Georgia, Inc.
Fox & Hound of Illinois, Inc.
Fox & Hound of Indiana, Inc.
F&H of Iowa, Inc.
Fox & Hound of Kansas, Inc.
Fox & Hound of Louisiana, Inc.
Fox & Hound of Michigan, Inc.
Fox & Hound of Missouri, Inc.
Fox & Hound of Nebraska, Inc.
Fox & Hound of North Carolina, Inc.
Fox & Hound of Ohio, Inc.
Pennsylvania Fox & Hound, Inc.
Fox & Hound of Tennessee, Inc.
Fox & Hound of Texas, Inc.
F&H Dallas, L.P.
Midway Entertainment, Ltd.
N. Collins Entertainment, Ltd.
505 Entertainment, Ltd.
N. Collins Beverage, Inc.
505 Beverage, Inc.
Fox & Hound of San Antonio, Ltd.
Fox & Hound of Lubbock, Ltd.
Fox & Hound of Houston, Ltd.
Fox & Hound of Lewisville, Ltd.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-K FOR THE YEAR ENDED DECEMBER 29, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-29-1998
<PERIOD-START> DEC-31-1997
<PERIOD-END> DEC-29-1998
<CASH> 946
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 855
<CURRENT-ASSETS> 4,359
<PP&E> 34,988
<DEPRECIATION> 2,831
<TOTAL-ASSETS> 41,284
<CURRENT-LIABILITIES> 5,306
<BONDS> 0
0
0
<COMMON> 104
<OTHER-SE> 23,632
<TOTAL-LIABILITY-AND-EQUITY> 41,284
<SALES> 34,114
<TOTAL-REVENUES> 34,114
<CGS> 9,429
<TOTAL-COSTS> 27,890
<OTHER-EXPENSES> 3,371
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 140
<INCOME-PRETAX> 3,301
<INCOME-TAX> 1,221
<INCOME-CONTINUING> 2,080
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,080
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.20
</TABLE>
