UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-------------------------
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended Commission file number
June 15, 1999 000-22753
TOTAL ENTERTAINMENT RESTAURANT CORP.
(Exact Name of Registrant as Specified in its Charter)
Delaware 52-2016614
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
9300 East Central Avenue
Suite 100
Wichita, Kansas 67206
(Address of principal executive offices) (Zip code)
(316) 634-0505
(Registrant's telephone number, including area code)
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.
|X| Yes |_| No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at July 15, 1999
Common Stock, $.01 par value 10,415,000 shares
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
Index
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at
June 15, 1999 and December 29, 1998 2
Condensed Consolidated Statements of
Operations for the twelve weeks ended
June 15, 1999 and June 16, 1998 3
Condensed Consolidated Statements of
Operations for the twenty-four weeks ended
June 15, 1999 and June 16, 1998 4
Condensed Consolidated Statements of
Cash Flows for the twenty-four weeks ended
June 15, 1999 and June 16, 1998 5
Notes to Condensed Consolidated
Financial Statements 6
Item 2. Management's Discussion and
Analysis of Financial Condition and
Results of Operations 7
Item 3. Quantitative and Qualitative
Disclosures About Market Risk 12
PART II. OTHER INFORMATION
Item 2. Changes in Securities 13
Item 4. Submission of Matters to a Vote of Stockholders 13
Item 6. Exhibits and Reports on Form 8-K 14
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<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
Condensed Consolidated Balance Sheets
(Unaudited)
June 15, December 29,
1999 1998
----------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 2,542,906 $ 945,861
Inventories 965,040 854,686
Pre-opening costs - net -- 1,789,740
Other current assets 667,033 769,155
----------- -----------
Total current assets 4,174,979 4,359,442
Property and equipment:
Land 600,000 600,000
Buildings 655,795 655,795
Leasehold improvements 21,023,319 19,175,677
Equipment 13,005,705 11,922,806
Furniture and fixtures 3,118,241 2,633,742
----------- -----------
38,403,060 34,988,020
Less accumulated depreciation and amortization 4,116,984 2,830,656
----------- -----------
34,286,076 32,157,364
Other assets:
Goodwill, net of accumulated amortization 4,280,931 4,393,621
Deferred taxes 234,667 --
Other assets 376,398 374,007
----------- -----------
Total other assets 4,891,996 4,767,628
----------- -----------
Total assets $43,353,051 $41,284,434
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,071,849 $3,666,310
Accounts payable - affiliates -- 11,451
Accrued payroll 607,506 465,519
Accrued income taxes 912,356 358,583
Other accrued liabilities 860,597 804,257
----------- -----------
Total current liabilities 4,452,308 5,306,120
Notes payable 15,320,000 $11,815,000
Deferred income taxes -- 427,537
Stockholders' Equity:
Preferred stock -- --
Common stock 104,150 104,150
Additional paid-in capital 20,571,178 20,571,178
Retained earnings 2,905,415 3,060,449
----------- -----------
Total stockholders' equity 23,580,743 23,735,777
----------- -----------
Total liabilities and stockholders' equity $43,353,051 $41,284,434
=========== ===========
See accompanying notes.
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<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
Condensed Consolidated Statements of Operations
(Unaudited)
Twelve weeks Twelve weeks
ended ended
June 15, 1999 June 16, 1998
-------------- --------------
Net sales:
Food and beverage $ 11,501,979 $ 4,883,221
Entertainment and other 1,294,438 820,524
------------ ------------
Total net sales 12,796,417 5,703,745
Costs and expenses:
Costs of sales 3,551,724 1,524,743
Restaurant operating expenses 6,876,297 2,593,687
Depreciation and amortization 861,505 489,867
------------ ------------
Entertainment and restaurant costs and expenses 11,289,526 4,608,297
------------ ------------
Entertainment and restaurant operating income 1,506,891 1,095,448
General and administrative expenses 1,003,924 553,589
Goodwill amortization 56,345 56,345
------------ ------------
Income from operations 446,622 485,514
Other income (expense):
Other income, principally interest -- 33,259
Interest expense (241,717) --
------------ ------------
Income before income taxes 204,905 518,773
Provision for income taxes 76,218 191,735
------------ ------------
Net income $ 128,687 $ 327,038
============ ============
Basic earnings per share $ 0.01 $ 0.03
============ ============
Diluted earnings per share $ 0.01 $ 0.03
============ ============
See accompanying notes.
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<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
Condensed Consolidated Statements of Operations
(Unaudited)
Twenty-four Twenty-four
weeks ended weeks ended
June 15, 1999 June 16, 1998
------------- -------------
Net sales:
Food and beverage $ 24,428,511 $ 10,625,203
Entertainment and other 2,751,425 1,853,125
------------ ------------
Total net sales 27,179,936 12,478,328
Costs and expenses:
Costs of sales 7,510,821 3,310,056
Restaurant operating expenses 13,984,596 5,449,484
Depreciation and amortization 1,658,061 954,609
------------ ------------
Entertainment and restaurant costs and expenses 23,153,478 9,714,149
------------ ------------
Entertainment and restaurant operating income 4,026,458 2,764,179
General and administrative expenses 1,897,586 1,120,445
Goodwill amortization 112,690 112,690
------------ ------------
Income from operations 2,016,182 1,531,044
Other income (expense):
Other income, principally interest -- 65,433
Interest expense (471,888) (178)
------------ ------------
Income before income taxes 1,544,294 1,596,299
Provision for income taxes 571,792 590,420
------------ ------------
Net income before cumulative effect of a
change in accounting principle 972,502 1,005,879
Cumulative effect of change in
accounting principle (net of income tax) (1,127,536) 0
------------ ------------
Net (loss) income $ (155,034) $ 1,005,879
============ ============
Basic (loss) earnings per share:
Net income before cumulative effect of a
change in accounting principle $ 0.09 $ 0.10
Cumulative effect of change in
accounting principle (net of income tax) (0.11) --
------------ ------------
Basic (loss) earnings per share $ (0.02) $ 0.10
============ ============
Diluted (loss) earnings per share:
Net income before cumulative effect of a
change in accounting principle $ 0.09 $ 0.10
Cumulative effect of change in
accounting principle (net of income tax) (0.11) --
------------ ------------
Diluted (loss) earnings per share $ (0.02) $ 0.10
============ ============
See accompanying notes.
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<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Twenty-four Twenty-four
weeks ended weeks ended
June 15, 1999 June 16, 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (155,034) $ 1,005,879
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Cumulative effect of change in accounting principle 1,127,536 --
Depreciation and amortization 1,770,751 1,084,031
Net change in operating assets and liabilities:
Change in operating assets (22,386) (748,820)
Change in operating liabilities (853,812) 690,839
----------- -----------
Net cash provided by operating activities 1,867,055 2,031,929
Cash flows from investing activities:
Purchases of property and equipment (3,775,010) (3,579,557)
Proceeds from sale of marketable securities -- 3,315,056
----------- -----------
Net cash used in investing activities (3,775,010) (264,501)
Cash flows from financing activities:
Proceeds from revolving note payable to bank, net 3,505,000 --
----------- -----------
Net cash provided by financing activities 3,505,000 --
----------- -----------
Net increase in cash and cash equivalents 1,597,045 1,767,428
Cash and cash equivalents at beginning of period 945,861 1,220,598
----------- -----------
Cash and cash equivalents at end of period $ 2,542,906 $ 2,988,026
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 500,298 $ 178
Cash paid for income taxes 15,400 572,108
</TABLE>
See accompanying notes.
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<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
Notes to Condensed Consolidated Financial Statements
1. Basis of Presentation and Description of Business
The unaudited condensed consolidated financial statements have been
prepared by the Company, pursuant to the rules and regulations of the Securities
and Exchange Commission. The information furnished herein reflects all
adjustments (consisting of normal recurring accruals and adjustments) which are,
in the opinion of management, necessary to fairly present the operating results
for the respective periods. Certain information and footnote disclosures
normally presented in annual financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant to such
rules and regulations. These financial statements should be read in conjunction
with the Company's audited consolidated financial statements in its 1998 Form
10-K. The results of the twelve weeks and twenty-four weeks ended June 15, 1999
are not necessarily indicative of the results to be expected for the full year
ending December 28, 1999.
2. Stock Options
During the twenty-four week period ended June 15, 1999, the Company granted
to certain key employees stock options for 459,292 shares of Common Stock at
exercise prices ranging from $2.8125 to $4.7500 per share pursuant to its 1997
Incentive and Nonqualified Stock Option Plan. The Company also granted to
certain non-employee Directors stock options for 40,000 shares of Common Stock
at exercise prices ranging from $3.3750 to $4.3125 per share pursuant to its
1997 Directors Stock Option Plan.
3. Earnings Per Share
Basic earnings per share amounts are computed based on the weighted average
number of shares actually outstanding. The number of weighted averaged shares
outstanding for all periods presented were 10,415,000.
For purposes of diluted computations, the number of shares that would be
issued from the exercise of stock options has been reduced by the number of
shares which could have been purchased from the proceeds at the average market
price of the Company's stock or the price of the Company's stock on the exercise
date if options were exercised during the period presented. The number of shares
resulting from this computation of diluted earnings per share for the twelve
weeks ended June 15, 1999 and June 16, 1998 was 10,437,681 and 10,428,863 and
for the twenty-four weeks ended June 15, 1999 and June 16, 1998 was 10,478,502
and 10,426,032, respectively.
4. Recently Issued Accounting Standards
The Company adopted Statement of Position 98-5, Reporting on Costs of
Start-Up Activities, which requires that preopening and other start-up costs be
expensed as incurred rather than capitalized. The adoption has been made
effective as of the beginning of the Company's current fiscal year. As a result
of the adoption, the Company has begun to report preopening costs as part of its
entertainment and restaurant operating expenses, which in turn will result in
lower future amortization expense. The Company had amortized preopening costs
over a one-year period following the opening of its restaurants. The cumulative
effect of the change in accounting, which totaled approximately $1,128,000 net
of taxes or $0.11 per share, was recorded as a one-time charge in the Company's
first quarter results.
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<PAGE>
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 defines derivative instruments
and requires that these items be recognized as assets or liabilities in the
statement of financial position. This Statement is effective for fiscal years
beginning after June 15, 1999. As of June 15, 1999, the Company does not have
any derivative instruments.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The following discussion and analysis should be read in conjunction with
the Financial Statements and Notes thereto included elsewhere in this Form 10-Q.
As of June 15, 1999, the Company owned and operated 36 entertainment and
restaurant locations under the Fox and Hound English Pub & Grille ("Fox and
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 and music entertainment,
traditional games of skill such as pocket billiards and a late-night dining
alternative, all in a single location. As of June 15, 1999, the Company owned
and operated 24 Fox and Hounds and 12 Bailey's located in Alabama, Arkansas,
Georgia, Illinois, Indiana, Iowa, Kansas, Louisiana, Michigan, Missouri,
Nebraska, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee and
Texas. As of June 16, 1998, the Company owned and operated 8 Fox and Hounds and
10 Bailey's.
The components of the Company's net sales are food and non-alcoholic
beverages, alcoholic beverages, and entertainment and other. For the twenty-four
weeks ended June 15, 1999, food and non-alcoholic beverages were 35.2% of total
sales, alcoholic beverages were 54.7% of total sales and entertainment and other
were 10.1% of total sales. For the twenty-four weeks ended June 16, 1998, food
and non-alcholic beverages were 28.9% of total sales, alcoholic beverages were
56.2% of total sales and entertainment and other were 14.9% of total sales.
Components of restaurant operating expenses include operating payroll and
fringe benefits, occupancy, advertising and promotion. These costs are generally
variable and will fluctuate with changes in sales volume and sales mix. All but
one of the Company's locations are leased and provide for a minimum annual rent,
with some leases calling for additional rent based on sales volume at the
particular location of specified minimum levels.
General and administrative expenses include all corporate and
administrative functions that support existing operations and provide an
infrastructure to support future growth. In addition, certain expenses of
recruiting and training unit management personnel are also included. Management,
supervisory and staff salaries, employee benefits, travel, information systems,
training, rent and office supplies as well as accounting services fees are major
items of costs in this category.
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<PAGE>
Results of Operations
The following table sets forth for the periods indicated (i) the
percentages which certain items included in the Condensed Consolidated Statement
of Operations bear to net sales, and (ii) other selected operating data:
<TABLE>
<CAPTION>
Twelve Weeks Ended(1) Twenty-four Weeks Ended(1)
--------------------- --------------------------
June 15, June 16, June 15, June 16,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating Statement Data:
Net sales 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Costs of sales 27.8 26.7 27.6 26.5
Restaurant operating expenses 53.7 45.5 51.5 43.7
Depreciation and amortization 6.7 8.6 6.1 7.6
-------- -------- -------- --------
Restaurant costs and expenses 88.2 80.8 85.2 77.8
-------- -------- -------- --------
Restaurant operating income 11.8 19.2 14.8 22.2
General and administrative expenses 7.8 9.7 7.0 9.0
Goodwill amortization 0.5 1.0 0.4 0.9
-------- -------- -------- --------
Income from operations 3.5 8.5 7.4 12.3
Other income, principally interest -- 0.6 -- 0.5
Interest expense 1.9 -- 1.7 --
-------- -------- -------- --------
Income before provision for income taxes and cumulative
effect of a change in accounting principle 1.6 9.1 5.7 12.8
Provision for income taxes 0.6 3.4 2.1 4.7
-------- -------- -------- --------
Income before cumulative effect of a change in
accounting principle 1.0 5.7 3.6 8.1
Cumulative effect of change in accounting principle -- -- (4.2) --
-------- -------- -------- --------
Net (loss) income 1.0% 5.7% (0.6) 8.1
======== ======== ======== ========
Restaurant Operating Data (dollars in thousands):
Annualized average weekly sales per location (2) $ 1,526 $ 1,433 $ 1,668 $ 1,594
Number of restaurants at end of the period 36 18 36 18
</TABLE>
(1) The Company operates on a fifty-two or fifty-three week fiscal year ending
the last Tuesday in December. The fiscal quarters for the Company consist
of accounting periods of twelve, twelve, twelve and sixteen or seventeen
weeks, respectively.
(2) Annualized average weekly sales per location are computed by dividing net
sales for full weeks open during the period by the number of full weeks
open and multiplying the result by fifty-two.
Twelve Weeks Ended June 15, 1999 Compared to Twelve Weeks Ended June 16, 1998
Net sales increased $7,093,000 (124.4%) for the twelve weeks ended June 15,
1999 to $12,796,000 from $5,704,000 for the twelve weeks ended June 16, 1998,
which is principally attributable to sales from the nineteen new locations
opened since June 1998. Same store sales increased 0.1% in the twelve weeks
ended June 15, 1999 compared to the twelve weeks ended June 16, 1998.
Costs of sales, primarily food and beverages increased $2,027,000 (132.9%)
for the twelve weeks ended June 15, 1999 to $3,552,000 from $1,525,000 in the
twelve weeks ended June 16, 1998, and increased as a percentage of sales to
27.8% from 26.7%. This increase is principally attributable to an increase in
the food sales mix, which has a higher cost of sales compared to beverages and
entertainment.
-8-
<PAGE>
Restaurant operating expenses increased $4,282,000 (165.1%) for the twelve
weeks ended June 15, 1999 to $6,876,000 from $2,594,000 in the twelve weeks
ended June 16, 1998, and increased as a percentage of net sales to 53.7% from
45.5%. Most of this increase is attributable to higher labor costs resulting
from the increase in food sales mix, which has a higher labor cost compared to
beverages and entertainment.
Depreciation and amortization increased $372,000 (75.9%) for the twelve
weeks ended June 15, 1999 to $862,000 from $490,000 in the twelve weeks ended
June 16, 1998, and decreased as a percentage of sales to 6.7% from 8.6%. This
percentage decrease is due principally to the change in accounting method for
preopening expenses which, prior to 1999, were capitalized and then amortized
over a twelve month period. The preopening amortization expense included for the
twelve weeks ended June 16, 1998 was 2.6% of sales.
General and administrative expenses increased $450,000 (81.3%) for the
twelve weeks ended June 15, 1999 to $1,004,000 from $554,000 in the twelve weeks
ended June 16, 1998, and decreased as a percentage of sales to 7.8% from 9.7%.
This percentage decrease reflects the leveraging of sales from the nineteen new
units added since June 1998.
The interest earned during the twelve weeks ended June 16, 1998 was from
the investment of the net proceeds of the initial public offering of the
Company, which commenced on July 17, 1997 (the "Initial Public Offering"). The
decrease in interest earned resulted from the prior utilization of the proceeds
from the Initial Public Offering to develop additional locations. Interest
expense increased $242,000 for the twelve weeks ended June 15, 1999 to $242,000.
This increase reflects the borrowings made to fund additional unit development
since June 1998.
The effective income tax rate for the twelve weeks ended June 15, 1999 and
June 16, 1998 was 37.0%.
Twenty-four Weeks Ended June 15, 1999 Compared to Twenty-four Weeks Ended June
16, 1998
Net sales increased $14,702,000 (117.8%) for the twenty-four weeks ended
June 15, 1999 to $27,180,000 from $12,478,000 for the twenty-four weeks ended
June 16, 1998, which is principally attributable to sales from the nineteen new
locations opened since June 1998. Same store sales decreased 3.5% in the
twenty-four weeks ended June 15, 1999 compared to the twenty-four weeks ended
June 16, 1998.
Costs of sales, primarily food and beverages increased $4,201,000 (126.9%)
for the twenty-four weeks ended June 15, 1999 to $7,511,000 from $3,311,000 in
the twenty-four weeks ended June 16, 1998, and increased as a percentage of
sales to 27.6% from 26.5%. This increase is principally attributable to an
increase in the food sales mix, which has a higher cost of sales compared to
beverages and entertainment.
Restaurant operating expenses increased $8,536,000 (156.6%) for the
twenty-four weeks ended June 15, 1999 to $13,985,000 from $5,449,000 in the
twenty-four weeks ended June 16, 1998, and increased as a percentage of net
sales to 51.5% from 43.8%. Most of this increase is attributable to higher labor
costs resulting from the increase in food sales mix, which has a higher labor
cost compared to beverages and entertainment. This increase is also attributable
to the change in accounting method for preopening expenses which, prior to 1999,
were capitalized and then amortized over a twelve month period. The preopening
expenses included in restaurant operating expenses for the twenty-four week
period ended June 15, 1999 was $463,000 or 1.7% of sales.
-9-
<PAGE>
Depreciation and amortization increased $703,000 (73.7%) for the
twenty-four weeks ended June 15, 1999 to $1,658,000 from $955,000 in the
twenty-four weeks ended June 16, 1998, and decreased as a percentage of sales to
6.1% from 7.6%. This percentage decrease is due principally to the change in
accounting method for preopening expenses. The preopening amortization expense
included for the twenty-four weeks ended June 16, 1998 was 2.6% of sales.
General and administrative expenses increased $777,000 (69.4%) for the
twenty-four weeks ended June 15, 1999 to $1,898,000 from $1,120,000 in the
twenty-four weeks ended June 16, 1998, and decreased as a percentage of sales to
7.0% from 9.0%. This percentage decrease reflects the leveraging of sales from
the nineteen new units added since June 1998. For fiscal 1998 and through
February 28, 1999, certain accounting and administrative services were
contracted from Coulter Enterprises, Inc. ("CEI"), a restaurant management
services company owned by the Company's former Chairman of the Board, Jamie B.
Coulter. The service agreement provided for specified accounting and
administrative services to be provided on a cost pass-through basis. For fiscal
1998 and through February 28, 1999, the fixed annual charge was $194,500, plus
an additional fee of $466 per restaurant per 28-day accounting period.
On October 19, 1998, Lone Star Steakhouse & Saloon, Inc. ("Lone Star"), a
restaurant company of which Mr. Coulter is chairman and CEO, purchased certain
assets and assumed certain liabilities of CEI, including the former services
agreement with the Company. From October 19, 1998 to February 28, 1999, such
services were provided by Lone Star. Beginning March 1, 1999, these services
were provided by Franchise Services Company ("FSC") at a market rate.
The interest earned during the twenty-four weeks ended June 16, 1998 was
from the investment of the net proceeds of the Initial Public Offering. The
decrease in interest earned resulted from the prior utilization of the proceeds
from the Initial Public Offering to develop additional locations. Interest
expense increased $472,000 for the twenty-four weeks ended June 15, 1999 to
$472,000. This increase reflects the borrowings made to fund additional unit
development since June 1998.
The effective income tax rate for the twenty-four weeks ended June 15, 1999
and June 16, 1998 was 37.0%.
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 during 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
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.
-10-
<PAGE>
Liquidity and Capital Resources
Cash flows from operations were $1,867,000, purchases of property and
equipment were $3,775,000, and net proceeds from the revolving note payable to
bank were $3,505,000 for the twenty-four week period ending June 15, 1999.
At June 15, 1999, the Company had $2,543,000 in cash and cash equivalents.
The Company intends to open no additional new locations during the remainder of
1999 and intends to open up to 4 to 7 locations in 2000. Three units are
currently under non-binding letters of intent to lease with pending
contingencies. 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 expects to expend
approximately up to $9.0 million to open new locations over the next twelve
months. In order to fund new unit development, the Company has entered into a
$20 million line of credit with Intrust Bank, N.A. (the "Facility"), of which
$4,680,000 is available at June 15, 1999.
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 twelve months. There can
be no assurance, however, that changes in the Company's operating plans, the
acceleration or modification of the Company's expansion plans as outlined above,
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 terms
acceptable to the Company or at all.
Recently Issued Accounting Standards
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 defines derivative instruments
and requires that these items be recognized as assets or liabilities in the
statement of financial position. This Statement is effective for fiscal years
beginning after June 15, 1999. As of June 15, 1999 the Company does not have any
derivative instruments.
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's
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. FSC has informed the Company that the systems and software utilized
by FSC are year 2000 compliant. The Company has recently completed an upgrade of
its POS and back-of-house systems to allow for a seamless interface with FSC's
accounting systems. Certain back-of-house applications were made year 2000
compliant as part of this upgrade.
As noted above, the Company believes it has completed all necessary phases
of the year 2000 project and believe that all systems and software are now year
2000 compliant. In the event the Company does not have systems and software that
are year 2000 compliant, the Company might be unable to process transactional
and financial reporting information. In addition, disruptions in the economy
generally resulting from the year 2000 issues could also materially adversely
affect
-11-
<PAGE>
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. The amount of potential liability and lost revenue cannot be
reasonably estimated at this time.
The Company has contingency plans for certain applications and is working
on such plans for others. These contingency plans involve, among other actions,
manual workarounds and adjusting staffing strategies.
Forward Looking Statements
This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, 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 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 3. 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
7.25% for the twenty-four weeks ended June 15, 1999. The following table
presents the quantitative interest rate risks at June 15, 1999:
Principal Amount by Expected Maturity
(In thousands)
<TABLE>
<CAPTION>
Fair
There- Value
(dollars in thousands) 1999 2000 2001 2002 2003 after Total 6/15/99
---------------------- ---- ---- ---- ---- ---- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Variable rate debt -- -- $767 $4,800 $5,160 $4,593 $15,320 $15,320
Average Interest Rate -
1/2% below prime 7.25% 7.25% 7.25% 7.25% 7.25% 7.25%
</TABLE>
-12-
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Securities Sold
(c) The following unregistered securities were issued by the Company during the
twelve weeks ended June 15, 1999:
<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>
April 21, 1999 Common Stock Options 14,815 $ 3.375
April 28, 1999 Common Stock Options 16,667 $ 3.000
May 5, 1999 Common Stock Options 15,686 $ 3.188
June 3, 1999 Common Stock Options 5,000 $ 3.000
</TABLE>
All of the above options were granted to certain key employees pursuant to
the 1997 Incentive and Nonqualified Stock Option Plan or to non-employee
directors pursuant to the Directors Stock Option Plan. The options for
employees have a vesting period of three to five years and a life of ten
years and the options for non-employee directors have a vesting period of
three years and a life of five years.
The issuance of these securities is claimed to be exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933, as amended, as
transactions by an issuer not involving a public offering. There were no
underwriting discounts or commissions paid in connection with the issuance
of any of these securities.
Item 4. Submission of Matters to a Vote of Stockholders
On May 25, 1999, the Company held its Annual Meeting of Stockholders (the
"Meeting"). At the Meeting, the stockholders elected Steven M. Johnson, Gary M.
Judd and John D. Harkey, Jr. to the Board of Directors to serve until the 2002
Annual Meeting of Stockholders and until their successors have been duly elected
and qualified. As to the new elected Directors, there were 7,793,931 votes "For"
and 50,450 votes "Withheld" for Steven M. Johnson and 7,793,931 votes "For" and
50,450 votes "Withheld" for Gary M. Judd and 7,792,931 votes "For" and 51,450
votes "Withheld" for John D. Harkey, Jr. The continuing directors and the
expiration of their current terms as directors are as follows:
James K. Zielke ...........................................2000
C. Wells Hall, III ........................................2000
E. Gene Street ............................................2000
Dennis L. Thompson ........................................2001
Stephen P. Hartnett .......................................2001
Thomas A. Hager ...........................................2001
-13-
<PAGE>
In addition, the stockholders ratified the appointment of Ernst & Young, LLP as
the Company's independent auditors for the year ending December 28, 1999. As to
the ratification of auditors there were 7,734,081 votes "For" and 105,200 votes
"Against", and 5,100 votes "Abstained." In addition, the stockholders ratified
the increase in the number of authorized shares of common stock under the
Company's 1997 Incentive and Nonqualified Stock Option Plan by 100,000 shares to
1,600,000. As to the ratification of the increases in shares authorized, there
were 7,699,046 votes "For", 140,135 votes "Against", and 5,200 votes
"Abstained".
Item 6. Exhibits and Reports on Form 8-K
Exhibits
The following exhibits are filed as part of this report:
Exhibit No.
27...............................Financial Data Schedule
Reports on Form 8-K
None
-14-
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
Total Entertainment Restaurant Corp.
(Registrant)
Date July 27, 1999 /s/ James K. Zielke
------------------- ------------------------------------
James K. Zielke
Chief Financial Officer,
Secretary and Treasurer
(Duly Authorized Officer)
-15-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q FOR THE QUARTER ENDED JUNE 15, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-29-1998
<PERIOD-START> DEC-31-1997
<PERIOD-END> JUN-15-1999
<CASH> 2,543
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 965
<CURRENT-ASSETS> 4,175
<PP&E> 34,286
<DEPRECIATION> 0
<TOTAL-ASSETS> 43,353
<CURRENT-LIABILITIES> 4,452
<BONDS> 0
0
0
<COMMON> 104
<OTHER-SE> 23,477
<TOTAL-LIABILITY-AND-EQUITY> 43,353
<SALES> 12,796
<TOTAL-REVENUES> 12,796
<CGS> 3,552
<TOTAL-COSTS> 11,290
<OTHER-EXPENSES> 1,060
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 205
<INCOME-TAX> 76
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 129
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
