<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: NOVEMBER 3, 1997
----------------
OR
[ ] 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: 0-6054
STAR BUFFET, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 84-1433454
- ------------------------------- -------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
440 LAWNDALE DRIVE,
SALT LAKE CITY, UT 84115
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
(801) 463-5500
----------------------------------------------------
(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.
Yes No X
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. AS OF DECEMBER 11, 1997 THERE
WERE 5,450,000 SHARES OF COMMON STOCK, $ .001 PAR VALUE, OUTSTANDING.
<PAGE> 2
STAR BUFFET, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEETS AS OF NOVEMBER 3, 1997 AND JANUARY 27, 1997 2
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE TWELVE AND FORTY WEEKS
ENDED NOVEMBER 3, 1997 AND NOVEMBER 4, 1996 4
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE FORTY WEEKS ENDED NOVEMBER
3, 1997 AND SIXTEEN WEEKS ENDED NOVEMBER 4, 1996 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 11
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17
</TABLE>
1
<PAGE> 3
STAR BUFFET, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
PART I: FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
NOVEMBER 3, JANUARY 27,
ASSETS 1997 1997
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $14,771,000 $ 353,000
Short term investments -- 180,000
Receivables 311,000 71,000
Inventories 445,000 383,000
Deferred taxes, net 207,000 193,000
Prepaid expenses 470,000 84,000
----------- -----------
Total current assets 16,204,000 1,264,000
----------- -----------
Property, buildings and equipment, at
cost, less accumulated depreciation
15,175,000 12,430,000
----------- -----------
Real property and equipment under
capitalized leases, at cost, less
accumulated amortization 2,361,000 2,396,000
----------- -----------
Other assets:
Notes receivable, net of current
portion 3,023,000 --
Deposits and other 1,378,000 375,000
----------- -----------
Total other assets 4,401,000 375,000
----------- -----------
Goodwill, less accumulated
amortization 1,321,000 --
Other intangible assets 299,000 318,000
----------- -----------
Total intangible assets 1,620,000 318,000
----------- -----------
Total assets $39,761,000 $16,783,000
=========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
2
<PAGE> 4
STAR BUFFET, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
LIABILITIES AND NOVEMBER 3, JANUARY 27,
STOCKHOLDERS' EQUITY 1997 1997
----------- -----------
<S> <C> <C>
Current liabilities:
Accounts payable - trade $ 1,943,000 $ 2,226,000
Accrued liabilities 2,755,000 2,206,000
Current maturities of obligations under
capital leases 253,000 239,000
----------- -----------
Total current liabilities 4,951,000 4,671,000
----------- -----------
Capitalized lease obligations 2,171,000 2,370,000
----------- -----------
Preferred stock, $.001 par value;
authorized 1,500,000 shares; none
issued or outstanding -- --
Common stock, $.001 par value; authorized
18,500,000 shares; issued and
outstanding 5,450,000 and 0 shares 5,000 --
Additional paid-in capital 29,997,000 9,272,000
Retained earnings 2,637,000 470,000
----------- -----------
Total stockholders' equity 32,639,000 9,742,000
----------- -----------
Total liabilities and stockholders' equity $39,761,000 $16,783,000
=========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
3
<PAGE> 5
STAR BUFFET, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FORTY SIXTEEN
TWELVE WEEKS ENDED WEEKS ENDED WEEKS ENDED
------------------------------ -------------------------------
NOVEMBER 3, NOVEMBER 4, NOVEMBER 3, NOVEMBER 4,
1997(1) 1996(2) 1997(3) 1996(4)
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Total revenues $ 12,178,000 $ 9,573,000 $ 41,484,000 $ 12,599,000
Costs and expenses
Food costs 4,063,000 3,426,000 13,578,000 4,550,000
Labor costs 3,905,000 3,005,000 13,092,000 3,889,000
Occupancy and other expenses 2,524,000 1,994,000 7,956,000 2,635,000
General and administrative expenses 502,000 443,000 1,559,000 623,000
Depreciation and amortization 487,000 403,000 1,616,000 536,000
------------ ----------- ------------ ------------
Total costs and expenses 11,481,000 9,271,000 37,801,000 12,233,000
------------ ----------- ------------ ------------
Income from operations 697,000 302,000 3,683,000 366,000
Interest expense (46,000) (50,000) (154,000) (60,000)
Interest income 82,000 -- 82,000 --
------------ ----------- ------------ ------------
Income before income taxes 733,000 252,000 3,611,000 306,000
Income tax expense (293,000) (101,000) (1,444,000) (122,000)
------------ ----------- ------------ ------------
Net income $ 440,000 $ 151,000 $ 2,167,000 $ 184,000
============ =========== ============ ============
Net income per common share $ 0.12 $ 0.06 $ 0.74 $ 0.07
============ =========== ============ ============
Weighted average shares outstanding 3,716,071 2,600,000 2,934,821 2,600,000
</TABLE>
(1) Includes HomeTown Buffet and Casa Bonita from August 12, 1997 (12 weeks)
and JJ North's from September 30, 1997 (5 weeks).
(2) Includes HomeTown Buffet from August 13, 1996 (12 weeks) and Casa Bonita
from October 1, 1996 (5 weeks).
(3) Includes HomeTown Buffet and Casa Bonita from January 28, 1997 (40 weeks)
and JJ North's from September 30, 1997 (5 weeks).
(4) Includes HomeTown Buffet for 16 weeks from July 16, 1996 and Casa Bonita
for 5 weeks from October 1, 1996.
See Accompanying Notes to Consolidated Financial Statements.
4
<PAGE> 6
STAR BUFFET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FORTY WEEKS ENDED SIXTEEN WEEKS ENDED
----------------- -------------------
NOVEMBER 3, NOVEMBER 4,
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,167,000 $ 184,000
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 1,616,000 536,000
Change in operating assets and liabilities
Increase in receivables (163,000) (22,000)
Increase in other assets (439,000) 7,000
(Decrease) Increase in accounts payable (283,000) 314,000
Increase in accrued liabilities 436,000 198,000
------------ -----------
Net cash provided by operating activities 3,334,000 1,217,000
Cash flows used in investing activities:
Increase in notes receivable (3,500,000) --
Acquisition, net of cash acquired (3,603,000) --
Acquisition of property, buildings and equipment (1,708,000) (285,000)
Deposits on future acquisitions (911,000) --
Payments to CKE for net assets of Casa Bonita (1,099,000) --
Sale of Short Term Investments 180,000 --
------------ -----------
Net cash used in investing activities (10,641,000) (285,000)
Cash flows from financing activities:
Proceeds from issuance of common stock 31,199,000 --
Payment of dividend to CKE (9,323,000) --
Principal payment on capital leases (151,000) (17,000)
Cash payment to CKE -- (127,000)
------------ -----------
Net cash provided (used) by financing activities 21,725,000 (144,000)
------------ -----------
Net increase in cash and cash equivalents 14,418,000 788,000
Cash and cash equivalents at beginning
of period 353,000 62,000
------------ -----------
Cash and cash equivalents at end of period $ 14,771,000 $ 850,000
============ ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
5
<PAGE> 7
STAR BUFFET, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
FORTY WEEKS ENDED SIXTEEN WEEKS ENDED
----------------- -------------------
NOVEMBER 3, 1997 NOVEMBER 4, 1996
---------------- ----------------
<S> <C>
Supplemental disclosures of cash flow
information
Cash paid for interest $ 154,000 $ 60,000
========== ==========
Cash paid for income taxes $ 0 $ 0
========== ==========
Non cash investing and financing activities:
Use of deposit to buy out operating equipment leases $ 366,000 $ --
Issuance of 2.6 million shares of common stock to CKE
to acquire interest in Summit Family Restaurants $1,000,000 $ --
Assets and liabilities of Casa Bonita assumed -- $1,281,000
</TABLE>
6
<PAGE> 8
STAR BUFFET, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE (A) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts for Star Buffet, Inc., together with its direct and indirect wholly
owned subsidiaries Summit Family Restaurants Inc. ("Summit"), HTB Restaurants,
Inc. ("HTB"), Northstar Buffet, Inc. ("NSBI") and Star Buffet Management, Inc.
("SBMI") (collectively the "Company") and have been prepared in accordance with
generally accepted accounting principles, the instructions to Form 10-Q and
Article 10 of Regulation S-X. These financial statements should be read in
conjunction with the audited combined financial statements, and the notes
thereto, included in the Company's Prospectus, dated September 24, 1997,
included as part of the Company's Registration Statement on Form S-1 (as
amended, the "Registration Statement"). In the opinion of management, all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of the financial position and results of operations for the interim
periods presented have been reflected herein. Results of operations for such
interim periods are not necessarily indicative of results to be expected for the
full fiscal year or for any future periods. Certain reclassifications have been
made to the fiscal 1997 consolidated financial statements to conform to the
fiscal 1998 presentation. The accompanying financial statements include the
results of operations and assets and liabilities directly related to the
Company's operations. Certain estimates, assumptions and allocations were made
in preparing such financial statements. In addition, prior to the Formation
Transactions described below, the entities comprising the Company operated
independently of each other and were not under common control or management
until October 1, 1996. As a result, such financial statements may not
necessarily be indicative of the results of operations, financial position or
cash flows that would have existed had the Company been a separate, independent
company.
The Company was formed by CKE Restaurants, Inc. ("CKE") in July 1997 in
connection with the reorganization of CKE's buffet-style restaurant business.
Pursuant to a Contribution Agreement among the Company and CKE and certain of
their respective subsidiaries, CKE transferred to Summit the net assets of its
Casa Bonita Mexican theme restaurants (which were acquired by CKE on October 1,
1996), and Summit transferred substantially all of its assets and liabilities
(primarily those relating to the JB's Restaurant system and Galaxy Diner
restaurants, but excluding 16 HomeTown Buffet restaurants operated by HTB) to a
newly formed subsidiary of CKE. Summit was acquired by CKE on July 16, 1996.
Then, CKE contributed the outstanding shares of Summit to the Company in
exchange for 2,600,000 shares of the Company's Common Stock. All of the parties
to the foregoing transactions (the "Formation Transactions") were, upon
completion thereof, direct or indirect wholly owned subsidiaries of CKE, and
such Formation Transactions were accounted for as a reorganization among
companies under common control. Accordingly, results of operations are presented
for the period commencing on July 16, 1996 (the date of CKE's acquisition of
Summit), and include results of operations of the two Casa Bonita Mexican theme
restaurants only from October 1, 1996 (the date of acquisition by CKE) and the
results of operations of seven JJ North's Grand Buffet Restaurants operated by
the Company only from September 30, 1997 (the date of acquisition by the Company
- - See Note (C) below).
The operating results for the forty week period ended November 3, 1997 include
40 weeks of operations for the Company's 16 franchised HomeTown Buffet
restaurants, 40 weeks of operations for the Company's two Casa Bonita
restaurants and five weeks of operations for the seven JJ North's Grand Buffet
restaurants operated by the Company. The operations for the 16 week period ended
November 4, 1996 include 16 weeks of operations for the Company's 16 franchised
HomeTown Buffet restaurants, and five weeks of operations for the Company's two
Casa Bonita restaurants, but do not include the operations for JJ North's Grand
Buffet restaurants. Operations prior to acquisition by CKE or the Company are
not included.
The Company utilizes a 52/53 week fiscal year which ends on the last Monday in
January. The first quarter of each year contains 16 weeks while the other three
quarters each contain 12 weeks.
7
<PAGE> 9
NOTE (B) INITIAL PUBLIC OFFERING
On September 30, 1997 the Company completed an initial public offering (the
"Initial Public Offering") of 3,000,000 shares of its common stock at an
Initial Public Offering price of $12.00 per share. Of the 3,000,000 share
offering, 2,400,000 shares were sold by the company and 600,000 shares were sold
by CKE. On October 7, 1997, the underwriters exercised their over-allotment
option and acquired an additional 450,000 shares of common stock. The Initial
Public Offering generated total net proceeds to the Company of $31.2 million
after commissions and offering expenses. The company has used a portion of the
proceeds to pay a dividend to CKE and to repay indebtedness assumed in
connection with the acquisition of restaurants. The remaining proceeds are
being used for working capital and general corporate purposes (see Part II
other information).
NOTE (C) NORTH'S ACQUISITION
Concurrent with the Initial Public Offering, the Company acquired six JJ North's
Grand Buffet Restaurants from North's Restaurants, Inc., ("North's") and
completed a management agreement for a seventh restaurant. The total cash
consideration paid to North's was approximately $4.5 million, and the
acquisition was accounted for as a purchase. In connection with the North's
acquisition, the Company has entered into a $3.0 million term loan and has made
available a $750,000 line of credit to North's. The term loan and line of credit
are secured by North's remaining restaurants and bear interest at 8.0%. As of
November 3, 1997 the outstanding balance of the term loan and line of credit
were $3.0 million and $100,000, respectively.
Selected unaudited pro forma combined results of operations for the forty-week
period ended November 3, 1997 and the sixteen weeks ended November 4, 1996,
assuming the acquisition occurred on July 16, 1996 using actual
restaurant-level margins and general and administrative expenses prior to the
acquisition are presented as follows:
<TABLE>
<CAPTION>
Forty Weeks Sixteen Weeks
Ended Ended
----------- -------------
November 3, November 4,
1997 1996
---------- -----------
<S> <C> <C>
Total Revenues 49,399,000 14,532,000
Net Income 1,779,000 181,000
Net Income per common and common
equivalent share $0.62 $0.07
</TABLE>
NOTE (D) STRATEGIC ALLIANCE WITH STACEY'S BUFFET, INC. AND OPTION TO PURCHASE
CERTAIN STACEY'S RESTAURANTS
On October 31, 1997 the Company entered into a strategic alliance ("Strategic
Alliance") with Stacey's Buffet, Inc. ("Stacey's"). Under the terms of the
Strategic Alliance, the Company will manage 23 Stacey's restaurants and provide
certain administrative and purchasing services to Stacey's. In exchange for
providing the services required under the Strategic Alliance, Stacey's will pay
the Company a fee equal to 4.5% of Stacey's revenues plus certain travel and
other expenses incurred by the Company in connection with the Strategic
Alliance.
In connection with the Strategic Alliance, the Company has entered into a credit
agreement with Stacey's. Under terms of the credit agreement, the Company has
agreed to make loans to Stacey's in an aggregate principal amount at any time
not to exceed $4,500,000 through October 31, 1998 provided, that the aggregate
amount of loans to be disbursed (i) during the one month period beginning
October 30, 1997 shall not exceed $400,000, (ii) during the period beginning
November 25, 1997 and ending January 1, 1998, shall not exceed $310,000, (iii)
during the period beginning January 2, 1998 and ending May 1, 1998, shall not
exceed $1,125,000, (iv) during the period beginning May 2, 1998 and ending July
31, 1998, shall not exceed $1,300,000 and (v) during the period beginning August
1, 1998 and ending October 31, 1998, shall not exceed $1,365,000. The agreement
8
<PAGE> 10
requires monthly interest payments at the rate of prime plus 4.0% on all
outstanding principal amounts up to $4.0 million and prime plus 5.0% on all
outstanding principal balances above $4.0 million. The entire outstanding
principal balance under the credit agreement is to be repaid on October 31,
2002. As of November 3, 1997, the outstanding principal balance of the Stacey's
loan was $400,000.
In consideration for making the loans, the Company received warrants to purchase
1,342,422 shares of Stacey's common stock at an exercise price of $1.00 per
share. In addition, the Company received an option to purchase six Stacey's
restaurants located in Florida for an aggregate purchase price of approximately
$1,065,000. The Company has notified Stacey's of the Company's intent to
exercise this option and pay the purchase price by the cancellation of an amount
of debt equal to the purchase price.
NOTE (E) NEW ACCOUNTING PRONOUNCEMENTS
In March 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
128"), effective for both interim and annual fiscal periods ending after
December 15, 1997. SFAS 128 introduces and requires the presentation of "basic"
earnings per share which represents net earnings divided by the weighted average
shares outstanding excluding all common stock equivalents. Dual presentation of
"diluted" earnings per share, reflecting the dilutive effects of all common
stock equivalents, will also be required. Management has not determined whether
the adoption of SFAS 128 will have a material impact on the Company's results
of operations.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes
standards for the reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of general
purpose financial statements. SFAS 130 requires all items that are required to
be recognized under accounting standards as components of comprehensive income
to be reported in a financial statement that is displayed with the same
prominence as other financial statements. SFAS 130 does not require a specific
format for that financial statement but requires that an enterprise display an
amount representing total comprehensive income for the period covered by that
financial statement. SFAS 130 requires an enterprise to (a) classify items of
other comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position. SFAS 130 is effective for fiscal years
beginning after December 15, 1997.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131 establishes standards for public business enterprises to
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to stockholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. This statement supersedes FASB Statement
No. 14 "Financial Reporting for Segments of a Business Enterprise," but retains
the requirements to report information about major customers. It amends FASB
Statement No. 94, " Consolidation of All Majority-Owned Subsidiaries," to remove
the special disclosure requirements for previously unconsolidated subsidiaries.
SFAS 131 requires, among other items, that a public business enterprise report a
measure of segment profit or loss, certain specific revenue and expense items,
and segments assets, information about the revenues derived from the
enterprise's products or services, and major customers. SFAS 131 also requires
that the enterprise report descriptive information about the way that the
operating segments were determined and the products and services provided by the
operating segments. SFAS 131 is effective for financial statements for periods
beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years is to be restated. SFAS 131 need not
be applied to interim financial statements in the initial year of its
application, but comparative information for interim periods in the initial year
of application is to be reported in financial statements for interim periods in
the second year of
9
<PAGE> 11
application. Management has not determined whether the adoption of SFAS 131 will
have a material impact on the Company's segment reporting.
10
<PAGE> 12
STAR BUFFET, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
On September 23, 1997, CKE Restaurants, Inc. ("CKE") completed a
reorganization of its buffet-style restaurant businesses into a new company.
Star Buffet, Inc., the new company, was initially composed of 16 HomeTown Buffet
restaurants operated by HTB Restaurants, Inc., a wholly owned subsidiary of
Summit Family Restaurants Inc. which is a wholly owned subsidiary of the
Company, and two Casa Bonita Mexican theme restaurants. The HomeTown Buffet
restaurants were acquired by CKE on July 16, 1997 as part of CKE's acquisition
of Summit Family Restaurants Inc. ("Summit"), and the Casa Bonita restaurants
were acquired by CKE on October 1, 1996 as part of CKE's acquisition of Taco
Bueno Restaurants, Inc.
On September 30, 1997, the Company completed its Initial Public Offering of
3,450,000 shares of Common Stock at $12.00 per share. The Company sold
2,850,000 shares, resulting in net proceeds of approximately $31.2 million. The
remaining 600,000 shares of Common Stock were sold by CKE as a selling
stockholder. Concurrently with the Initial Public Offering, the Company acquired
certain operating assets of North's Restaurants, Inc., as a result of which the
Company now operates seven JJ North's Grand Buffet restaurants.
The following Management's Discussion and Analysis should be read in conjunction
with the unaudited condensed combined financial statements, and the notes
thereto, presented elsewhere in this Report. The addition of the two Casa Bonita
and seven JJ North's Grand Buffet restaurants are the principal reasons for the
significant differences when comparing results of operations for the twelve week
period ended November 3, 1997 with the results of operations for the twelve week
period ended November 4, 1996. Comparability of future periods may also from
time to time be affected by the implementation of the Company's acquisition and
strategic alliance strategies, and the costs associated with integrating new
restaurants or underperforming or unprofitable restaurants, if any, acquired or
otherwise operated by the Company may have a material adverse effect on the
Company's results of operations.
Consolidated net income for the 12-week period ended November 3, 1997 increased
$289,000 or 191.4% to $440,000 or $0.12 per share as compared with net income of
$151,000 for the comparable prior year period. The increase in net income is
primarily due to the impact of twleve weeks of operating results from the
Company's two Casa Bonita restaurants in the current quarter as compared to five
weeks of operating results in the prior year comparable period and the impact of
the JJ North's acquisition which was completed on September 30, 1997.
This Quarterly Report on Form 10-Q contains forward looking statements, which
are subject to known and unknown risks, uncertainties and other factors which
may cause the actual results, performance, or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: general economic and business conditions; the
impact of competitive products and pricing; success of operating initiatives;
advertising and promotional efforts; adverse publicity; changes in business
strategy or development plans; quality of management; availability, terms and
deployment of capital; changes in prevailing interest rates and the availability
of financing; food, labor, and employee benefits costs; changes in, or the
failure to comply with, government regulations; weather conditions; construction
schedules; implementation of the Company's acquisition and strategic alliance
strategy; the effect of the Company's accounting polices and other risks
detailed in the Company's Prospectus dated September 24, 1997 and other filings
with the Securities and Exchange Commission.
COMPONENTS OF INCOME FROM OPERATIONS
Total revenues include a combination of food and beverage sales and are net of
applicable state and city sales taxes.
11
<PAGE> 13
Food costs primarily consist of the costs of food and beverage items. Various
factors beyond the Company's control, including adverse weather and natural
disasters, may affect food costs. Accordingly, the Company may incur periodic
fluctuations in food costs. Generally, these temporary increases are absorbed by
the Company and not passed on to customers; however, management may adjust menu
prices to compensate for increased costs of a more permanent nature.
Labor costs include restaurant management salaries, bonuses, hourly wages for
unit level employees, various health, life and dental insurance programs,
vacations and sick pay and payroll taxes.
Occupancy and other expenses are primarily fixed in nature and generally do not
vary with restaurant sales volume. Rent, insurance, property taxes, utilities,
maintenance and advertising account for the major expenditures in this category.
General and administrative expenses include all corporate and administrative
functions that serve to support the existing restaurant base and provide the
infrastructure for future growth. Management, supervisory and staff salaries,
employee benefits, data processing, training and office supplies are the major
items of expense in this category.
The Company records depreciation on its property and equipment on a
straight-line basis over their estimated useful lives.
12
<PAGE> 14
RESULTS OF OPERATIONS
The following table summarizes the Company's results of operations as a
percentage of total revenues for the twelve weeks ended November 3, 1997 and
November 4, 1996, the forty weeks ended November 3, 1997 and the sixteen weeks
ended November 4, 1996.
<TABLE>
<CAPTION>
FORTY WEEKS SIXTEEN
TWELVE WEEKS ENDED ENDED WEEKS ENDED
----------------------- ------------------------
NOVEMBER 3, NOVEMBER 4, NOVEMBER 3, NOVEMBER 4,
1997 1996 1997 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Total revenues 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
Costs and expenses
Food costs 33.4 35.8 32.6 36.0
Labor costs 32.1 31.4 31.6 30.9
Occupancy and other expenses 20.7 20.8 19.2 20.9
General and administrative
expenses 4.1 4.6 3.8 5.0
Depreciation and amortization 4.0 4.2 3.9 4.3
----- ----- ----- -----
Total costs and expenses 94.3 96.8 91.1 97.1
----- ----- ----- -----
Income from operations 5.7 3.2 8.9 2.9
Interest expense (0.4) (0.5) (0.4) (0.5)
Interest income 0.7 -- 0.2 --
----- ----- ----- -----
Income before income taxes 6.0 2.7 8.7 2.4
Income tax expense (2.4) (1.1) (3.5) (0.9)
----- ----- ----- -----
Net income 3.6% 1.6% 5.2% 1.5%
===== ===== ===== =====
Effective income tax rate 40.0% 40.1% 40.0% 39.9%
===== ===== ===== =====
</TABLE>
Total revenues increased $2,605,000 or 27.2% from $9.6 million in the twelve
weeks ended November 4, 1996 to $12.2 million in the twelve weeks ended November
3, 1997. The increase is primarily due to the impact of the two Casa Bonita
restaurants for the full quarter ($1,459,000), the addition of JJ North's Grand
Buffet restaurants ($807,000) and a 3.9% or $339,000 same store sales increase
in the Company's HomeTown Buffet restaurants.
Food costs as a percentage of total revenues declined from 35.8% and 36.0%, in
the respective twelve and sixteen week periods ended November 4, 1996 to 33.4%
and 32.6% in the respective twelve and forty week periods ended November 3,
1997. The decline as a percentage of total revenues was attributable to an
overall improvement in food cost at the Company's HomeTown Buffet restaurants
and the inclusion of Casa Bonita since its acquisition by CKE, which operates at
a lower level of food cost due to menu offering differences between the two
concepts.
Labor costs as a percentage of total revenues increased from 31.4% and 30.9%, in
the respective twelve and sixteen week periods ended November 4, 1996 to 32.1%
and 31.6% in the respective twelve and forty week periods ended November 3,
1997. The increase as a percentage of total revenues was primarily attributable
to
13
<PAGE> 15
the inclusion of Casa Bonita since its acquisition by CKE, which operates at a
higher level of labor costs due to entertainment wages, than the Company's
HomeTown Buffet Restaurants.
Occupancy and other expenses as a percentage of total revenues declined from
20.8% and 20.9%, in the respective twelve and sixteen week periods ended
November 4, 1996 to 20.7% and 19.2% in the respective twelve and forty week
periods ended November 3, 1997. The decline as a percentage of total revenues
was primarily attributable to the inclusion of the Company's two Casa Bonita
Restaurants since October 1, 1996 which operate at a lower level of occupancy
and other costs due to the $5.5 million average annual unit volume of these two
restaurants compared to average annual volumes of approximately $2.5 million in
the Company's 16 HomeTown Buffet restaurants.
General and administrative costs as a percentage of total revenues declined from
4.6% and 5.0%, in the respective twelve and sixteen week periods ended November
4, 1996 to 4.1% and 3.8% in the respective twelve and forty week periods ended
November 3, 1997. The decline as a percentage of total revenues was primarily
attributable to the increased revenue base resulting from the inclusion of Casa
Bonita since October 1, 1996.
Interest expense as a percentage of total revenues declined from 0.5% in both
the twelve and sixteen week periods ended November 4, 1996 to 0.4% in both the
twelve and forty week periods ended November 3, 1997. The decline as a
percentage of total revenues was primarily attributable to the increased revenue
base resulting from the inclusion of Casa Bonita since October 1, 1996.
Interest income of $82,000 for the twelve and forty week periods ended November
3, 1997 was generated by the Company's cash and outstanding notes receivable
balances during the period. Prior to September 30, 1997, the Company's excess
cash was used to reduce inter-company liabilities between the Company and CKE
and therefore no interest income is reflected for the twelve and sixteen week
periods ended November 4, 1996.
IMPACT OF INFLATION
Many of the Company's employees are paid hourly rates related to the federal and
state minimum wage laws. Legislation increasing the federal minimum wage as of
October 1, 1996 has resulted in higher labor costs to the Company. An additional
increase in the federal minimum wage became effective in September 1997.
Accordingly, increases in the minimum wage could materially increase the
Company's labor costs. Currently, there are no further scheduled increases in
the federal minimum wage. In addition, the cost of food commodities utilized by
the Company are subject to market supply and demand pressures. Shifts in these
costs may have a significant impact on the Company's food costs. The Company
anticipates that increases in these costs can be offset through pricing and
other cost control efforts; however, there is no assurance that the Company
would be able to pass such costs on to its guests or if it were able to do so,
it could do so in a short period of time.
LIQUIDITY AND CAPITAL RESOURCES
The Company, prior to the reorganization, historically financed operations
through a combination of cash on hand, cash provided from operations and
available borrowings under bank lines of credit. As of November 3, 1997, the
Company had $14.7 million in cash.
14
<PAGE> 16
Cash provided by operations was approximately $3.3 million for the forty weeks
ended November 3, 1997 and approximately $1.2 million for the sixteen weeks
ended November 4, 1996. The Company completed an Initial Public Offering on
September 30, 1997 generating net proceeds after commissions and offering
expenses of $31,199,000. Concurrent with the Initial Public Offering, the
Company used $9,323,000 to pay a dividend to CKE, $4,514,000 to acquire certain
JJ North's restaurants and $1,099,000 to acquire the net assets of two Casa
Bonita restaurants. In addition, as of November 3, 1997, the Company has loaned
$3.1 million to North's and $400,000 to Stacey's.
The Company, through its Strategic Alliance and Credit Agreement with Stacey's,
has agreed to loan Stacey's up to $4.1 million over the next year. In addition,
the Company, through its credit agreement with North's has committed to lend up
to an additional $650,000 to North's. The Company expects to provide these
funds through available cash on hand resulting from the Initial Public Offering.
The Company does not currently have a bank line of credit or other working
capital facility available to it. The Company intends to obtain a bank credit
facility to support its working capital requirements. Management anticipates
that the credit facility will contain customary affirmative and negative
covenants, including maintaining certain minimum working capital, net worth and
financial ratios and restrictions on the Company's ability to pay dividends on
the Company's common stock. There can be no assurance that the Company will be
able to arrange a credit facility when required or on terms acceptable to the
Company.
The Company intends to expand its operations through the opening of new
restaurants and the acquisition of regional buffet chains. In addition, the
Company may expand through the purchase of existing restaurant sites which would
be converted to one of the Company's restaurant concepts. Management estimates
the cost of opening its prototype restaurant to be approximately $1.5 million to
$1.7 million assuming leased real estate. In many instances, management believes
that existing restaurant locations can be acquired and converted to the
Company's prototype at a lower cost than new unit openings. These costs consist
primarily of exterior and interior appearance modifications and certain kitchen
and food service equipment. There can be no assurance that the Company will be
able to acquire additional restaurant chains or locations or, if acquired, that
these restaurants will have a positive contribution to the Company's results of
operations.
The Company believes that the proceeds from the Initial Public Offering 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. The
Company may require additional funds to support its working capital requirements
or for other purposes, including acquisitions, and may seek to raise such
additional funds through public or private equity and/or debt financings or from
other sources. There can be no assurance, however, that changes in the Company's
operating plans, the unavailability of a credit facility, the acceleration of
the Company's expansion plans, lower than anticipated revenues, increased
expenses, potential acquisitions of other events will not cause the Company to
seek additional financing sooner than anticipated. There can be no assurance
that additional financing will be available on acceptable terms or at all.
15
<PAGE> 17
PART II: OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(C) SECURITIES SOLD AND USE OF PROCEEDS
(1) Effective date: September 24, 1997
(2) Offering date: September 30, 1997
(3) Not Applicable
(4)
(i) Not applicable
(ii) Equitable Securities Corp., Everen Securities Inc.,
Cruttenden Roth Incorporated.
(iii) Title of Securities Registered: Common Stock $.001 Par Value
(iv) Amount registered: 3,450,000 Shares
Aggregate offering at $12.00 per share: $41,400,000
(includes 600,000 shares sold by CKE)
The following registered securities were issued by the Company during the twelve
weeks ended November 3, 1997:
<TABLE>
<CAPTION>
Number of Shares
Date of Sale/Issue Description of Securities Issued Sold/Issued
- ------------------ -------------------------------- -----------
<S> <C> <C>
September 30, 1997 Common Stock 2,400,000
October 7, 1997 Common Stock 450,000
-----------
Total shares issued 2,850,000
Price per share $12.00
-----------
Total proceeds from sale common stock $34,200,000
Use of Proceeds of Initial Public Offering
Actual underwriting discounts and commissions 2,394,000
Organization costs 607,000
-----------
Total Expenses 3,001,000
-----------
Net Offering Proceeds $31,199,000
===========
Amount of net offering proceeds used for:
Dividend to CKE 9,323,000
Payment to CKE for net assets of Casa Bonita 1,099,000
Loan to North's Restaurants, Inc. 3,100,000
North's acquisition 4,514,000
Loan to Stacey's Buffet, Inc. 400,000
Remainder 12,763,000
-----------
$31,199,000
===========
</TABLE>
16
<PAGE> 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are attached to this report:
<TABLE>
<CAPTION>
Exhibit Description
Number of Exhibit
------ ----------
<S> <C>
11 Calculation of Earnings per Share
27.1 Financial Data Schedule.
</TABLE>
(b) Current Reports on Form 8-K:
(i) A current report on Form 8-K dated October 16, 1997, as
amended by the Current Report on Form 8-K/A dated December
12, 1997, was filed to report the Company's acquisition of
the JJ North's Grand Buffet restaurants from North's
Restaurants, Inc.
(ii) A current report on Form 8-K dated November 17, 1997, was
filed to report the Company's Strategic Alliance and related
agreements with Stacey's Buffet, Inc.
There were no other items to be reported under Part II of this report.
17
<PAGE> 19
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED HEREUNTO DULY AUTHORIZED.
STAR BUFFET, INC.
(Registrant)
Date: December 22, 1997 By: /s/ Theodore Abajian
----------------- --------------------
Theodore Abajian
Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
(A duly authorized officer)
18
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description
------ -----------
<S> <C>
11 Calculation of Earnings per Share
27.1 Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 11
STAR BUFFET, INC.
CALCULATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
FORTY WEEKS SIXTEEN WEEKS
TWELVE WEEKS ENDED ENDED ENDED
--------------------------- ---------------------------
NOVEMBER 3, NOVEMBER 4, NOVEMBER 3, NOVEMBER 4,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income $ 440,000 $ 151,000 $2,167,000 $ 184,000
---------- ---------- ---------- ----------
Weighted average number of common
shares outstanding during the period 3,716,071 2,600,000 2,934,821 2,600,000
Incremental common shares attributable
to exercise of outstanding options 32,117 9,634
---------- ----------
Total Shares 3,748,188 2,600,000 2,944,455 2,600,000
========== ========== ========== ==========
Earnings per share $ .12 $ .06 $ .74 $ .07
========== ========== ========== ==========
</TABLE>
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS BALANCE SHEET AND STATEMENTS OF OPERATIONS AS OF AND FOR THE SIXTEEN
WEEK PERIOD ENDED NOVEMBER 3, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-26-1998
<PERIOD-START> AUG-12-1997
<PERIOD-END> NOV-03-1997
<CASH> 14,771,000
<SECURITIES> 0
<RECEIVABLES> 311,000
<ALLOWANCES> 0
<INVENTORY> 445,000
<CURRENT-ASSETS> 16,204,000
<PP&E> 15,175,000
<DEPRECIATION> 1,616,000
<TOTAL-ASSETS> 39,761,000
<CURRENT-LIABILITIES> 4,951,000
<BONDS> 0
5,000
0
<COMMON> 0
<OTHER-SE> 32,634,000
<TOTAL-LIABILITY-AND-EQUITY> 39,761,000
<SALES> 12,178,000
<TOTAL-REVENUES> 12,178,000
<CGS> 10,979,000
<TOTAL-COSTS> 11,481,000
<OTHER-EXPENSES> (82,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,000
<INCOME-PRETAX> 733,000
<INCOME-TAX> 293,000
<INCOME-CONTINUING> 440,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 440,000
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
