U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
Amendment No. 1 to Form 10-KSB
(Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 27, 1998
[ ] 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: 0-23757
TAM RESTAURANTS, INC.
(Name of small business issuer in its charter)
Delaware 13-3905598
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1163 Forest Avenue, Staten Island, New York 10310
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (718) 720-5959
Securities registered under Section 12 (b) of the Exchange Act:
Title of Each Class Name of Each Exchange on Which Registered
None None
Securities registered under Section 12 (g) of the Exchange Act:
Common Stock, $.0001 par value
(Title of class)
Redeemable Common Stock Purchase Warrants
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. [ ].
The Issuer's revenues for the fiscal year ended September 27, 1998 were
$16,202,892.
The aggregate market value of the voting and non-voting Common Stock held by
non-affiliates was approximately $2,164,662.19 as at the close of business on
December 31, 1998.
The number of shares of Common Stock outstanding as of December 31, 1998, was
3,503,000.
Documents incorporated by reference: None
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TAM Restaurants, Inc.
Form 10-KSB
Table of Contents
Part I.
ITEM 1. Description of the Business ................................. 1
ITEM 2. Description of Property ..................................... 9
ITEM 3. Legal Proceedings ........................................... 10
ITEM 4. Submission of Matters to a Vote of Security Holders.......... 10
Part II.
ITEM 5. Market for Common Equity and Related Stockholder Matters .... 11
ITEM 6. Management's Discussion and Analysis of Plan of Operation ... 11
ITEM 7. Financial Statements ........................................ 14
ITEM 8. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure. ................................... 14
Part III.
ITEM 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the
Exchange Act................................................. 15
ITEM 10. Executive Compensation ...................................... 17
ITEM 11. Principal Stockholders ...................................... 20
ITEM 12. Certain Transactions ........................................ 22
ITEM 13. Exhibits, List and Reports on Form 8-K ...................... 24
Signatures .................................................. 26
Consolidated Financial Statements ........................... F-1
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Part I
ITEM 1. Description of the Business
The Company operates Lundy Bros. Restaurant ("Lundy's) a high-volume,
casual, upscale seafood restaurant located in Brooklyn, New York, The Boathouse
in Central Park ("The Boathouse"), a multi-use facility featuring an upscale
restaurant and catering pavilion, located on the lake in New York City's Central
Park, and American Park at the Battery ("American Park"), a multi-use facility
featuring an upscale restaurant, catering floor, two outside patios and a fast
food kiosk, located at the water's edge in Battery Park, a New York City
landmark.
Lundy's
Lundy's is a high-volume, casual, upscale seafood restaurant located in
Brooklyn, New York. The Company opened Lundy's in December 1995, approximately
16 years after the original Lundy's restaurant closed. The original Lundy's, a
storied Brooklyn landmark, originally opened in 1934 and is believed to have
been the largest restaurant in the United States during the time it was open,
with seating capacity for approximately 2,400 guests. The building which Lundy's
occupies was declared a historic landmark building by the New York City
Landmarks Preservation Commission in 1992.
The Lundy's Concept
The Lundy's concept is designed to appeal to a broad range of guests by
serving generous portions of premium-quality seafood and other menu items and by
combining a grand dining experience with friendly and efficient service in a
high-energy environment. Lundy's commitment to offering its guests a casual,
exciting dining experience is highlighted by its "exhibition" kitchen where all
meals are cooked to order in view of its guests, a lobster pool from which
guests can select their lobsters, an experienced wait staff uniformed in crisp
white linen jackets which are knowledgeable about the preparation of seafood and
the history of Lundy's, a high wait staff-to-customer ratio to assure attentive
service and tables covered with multiple layers of colored linens and pristine
white butcher paper.
Menu
Lundy's menu features a wide variety of fresh seafood items, including
lobster, crab, shrimp, oysters, clams and daily fish specials, cooked to order
in a variety of ways: steamed, sauteed, broiled, grilled, blackened and fried.
In addition, Lundy's offers a selection of steaks, chicken dishes, pasta dishes,
pizzas, appetizers, chowders, salads and fresh-baked desserts. Lundy's also
offers full bar service, from which a variety of brand name alcohols, mixed
drinks, wines and beers, including selected micro-brewed beers, can be ordered,
at the bar or with table service. Lundy's feature menu selection is its "Shore
Dinner," which consists of a chowder or salad; steamed or baked clams, a whole
Maine lobster and chicken; fruit pie; and a beverage, for $22.95. The Company
believes that Lundy's is widely recognized for its "signature" biscuits,
chowders and apple, blueberry pies and its 60 item Sunday brunch buffet.
The menu mix has been carefully developed to balance the higher priced
items, such as lobster and fresh fish, with lower cost items, such as pizza and
pasta dishes. Dinner entrees range in price from $8.95 to $28.95 and the average
dinner check is approximately $33.00 per person.
Design, Decor and Atmosphere
Lundy's interior has been designed with a contemporary decor, rich polished
woods and granite surfaces, accented with copper, pottery, brushed-stainless
steel and earth tones, to impart "Old World" elegance and comfort. Lundy's
offers guests several seating selections in its multi-level interior, which
consists of an expansive, high-ceiling main dining area; a large upstairs dining
room which is also used for
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special events and to cater private functions; a mezzanine level cigar room
which overlooks the main dining area; and a 30-foot long oyster and beverage
bar; as well as outdoor seating.
Facility Operations
Lundy's occupies approximately 18,000 square feet and has a seating
capacity of approximately 730 seats. Lundy's is open for dinner from 5:00 P.M.
to 11:00 P.M. on weekdays (10:00 P.M. on Mondays) and for dining from 1:00 P.M.
to 12:00 midnight on Sunday. Lundy's oyster and beverage bar and outside bar
(weather permitting) are also open during such hours and also from 12:00 noon to
5:00 P.M. on weekdays.
In addition to the restaurant operations, Lundy's also houses a seafood
laboratory where seafood is tested to assure quality and freshness, and a gift
shop which carries a variety of "Lundy's" and "Brooklyn" themed merchandise,
such as T-shirts and other clothing, hats, plates and coffee and beer mugs, as
well as Lundy's chowders and sauces and seafood related products, such as
lobster bibs, crackers and forks.
The Boathouse
The Boathouse is a multi-use, lakeside facility which features an upscale
restaurant and catering pavilion, located on the lake in New York City's Central
Park.
Restaurant
The Boathouse restaurant, Park View at The Boathouse ("Park View"),
provides customers a pleasurable dining experience in a comfortable, relaxed and
romantic atmosphere and primarily al fresco seating. The restaurant serves
eclectic American cuisine, under the direction of The James Beard Foundation's
Rising Star Chef Nominee John Villa, that changes according to season and
consumer trends. The menu is limited in scope to permit the greatest attention
to quality while offering sufficient breadth to appeal to a variety of taste
preferences. The restaurant also offers full bar service. Dinner entrees range
in price from $19.00 to $28.00 and the average dinner check is approximately
$44.00 per person.
Park View's dining area occupies approximately 6,000 square feet of space
and has a seating capacity of approximately 225 seats, most of which are
covered, expanding approximately 150 feet alongside the Central Park lake. This
dining space is open from early March until early November. Part of Park View's
dining space and other underutilized areas in the main building were winterized
during renovations to The Boathouse facility in fiscal 1998. This new dining
space is open from early November to early March and features two fire places
and seating for approximately 80 guests.
Catering Pavilion
The catering pavilion is glass-enclosed, tented and heated. The catering
pavilion occupies approximately 4,600 square feet of space, is surrounded by an
english garden on two sides and resides a few feet from the Central Park lake.
The catering pavilion hosts private functions for up to 500 persons year round.
Other Attractions
The Boathouse incorporates the following additional attractions:
o Cocktail Area. The cocktail area offers full bar service at an
approximately 21-foot long bar with waitress service and features a
jazz band performing five nights a week. As a
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result of the renovations to The Boathouse facility, the capacity of
the cocktail area was increased to 200 persons, including 150 seats,
and is open from March through early November.
o The Boathouse Express. The Boathouse Express is a cafeteria-style
convenience counter which serves specialty sandwiches, salads, baked
goods and juices, as well as standard fast-food items, such as
hamburgers, hotdogs, french fries and sodas. The Boathouse Express has
indoor and outdoor seating available for approximately 75 persons year
round.
o Carts and Kiosks. Approximately six to eight free standing carts and
kiosks are strategically located on the facility's grounds offering a
variety of food and beverage items, such as fresh fruit drinks, New
York-style pretzels, pita sandwiches and espresso and cappuccino, from
early March to early November.
o Rowboat and Bicycle Rentals and Venetian Gondola Rides. Approximately
110 rowboats are available for rental by the hour on the Central Park
lake and approximately 120 bicycles are available for rental by the
hour or day from early March to early November. Additionally, Venetian
gondola rides on the lake are available from early March to early
November.
o Merchandise Counter. The merchandise counter carries a variety of The
Boathouse and other Central Park and New York City themed
merchandised, including T-shirts, sweatshirts, hats and coffee mugs,
as well as sundry items.
o Shuttle Bus. The Boathouse operates a shuttle bus which transports
guests between the facility and the Fifth Avenue and 72nd Street
entrance to Central Park. The shuttle bus runs when the Park View
restaurant is opened for dinner and during special events at the
catering pavilion.
The Company operates The Boathouse pursuant to a 15-year license agreement
with the City of New York Department of Parks and Recreation (the "Parks
Department"). Pursuant to the license agreement, the Company is required to pay
a fee to the Parks Department each license year (June 30 through the following
June 29) equal to the greater of (i) $90,000 (increasing to $95,000 per year on
June 30, 1999) or (ii) the sum of 13% of gross revenue from food and merchandise
sales and 16% of gross revenues (increasing to 17% on June 30, 1999) from
rowboat and bicycle rentals. The Company is required to maintain certain minimum
levels of insurance with respect to the facility. The license agreement expires
on June 29, 2000, provided that the Parks Department may terminate the license
upon ten days written notice so long as the termination is not arbitrary or
capricious. The Company expects to commence negotiations for the renewal of the
license agreement in the second quarter of fiscal 1999.
American Park
American Park opened in May 1998 in historic Battery Park at the southern
tip of Manhattan in close proximity to New York's financial district. American
Park occupies approximately 18,300 square feet and has a seating capacity of 725
persons.
American Park is designed with an urban mountain lodge motif, incorporating
natural fabrics, slate, stone, wood and brick with modern-style furnishings,
vibrant colors and designer lighting. Guests have panoramic views of the New
York City harbor and landmarks such as the Statute of Liberty, Ellis Island,
Governor's Island and the downtown Manhattan skyline. American Park offers
seating selections in its main dining room, second floor dining room and
bi-level outdoor patios.
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American Park's restaurant serves contemporary American cuisine featuring a
variety of fresh fish, lobsters, large steaks and daily specials. The "all day"
menu is served year round in the 110 seat main dining room and seasonally in the
150 seat upper-level outdoor patio.
American Park's lower level patio, with a capacity of 140 seats, extends to
the water's edge and has a casual moderately priced bistro type menu featuring
appetizers, grille items, sandwiches, salads, a raw bar and selected items from
the main menu. Most of the items come from a separate kitchen on the patio. The
lower-level patio also features a bar with a capacity of 25 bar seats and 55
persons standing and is used extensively during the cocktail hour and features
live entertainment during the summer.
American Park's second floor catering level is used to host private
parties, business meetings, conferences and weddings. The floor features a
spectacular panoramic view of the New York harbor and has a seating capacity of
300 persons.
The free-standing outdoor kiosk serves burgers, hots dogs, sandwiches,
snacks, cold beverages, beer, wine and fruit smoothies to tourists and park
visitors from April through October.
In December 1994, the Company entered into a license agreement with the
Parks Department to construct and operate, American Park, in Battery Park. The
Company is required to pay to the Parks Department a fee each license year
(November 1 through the following October 31) equal to the greater of (i)
$50,000 and (ii) 8% of gross receipts from the restaurant and 10% of gross
receipts from merchandise sales (increasing to 12% on November 1, 1999). For the
license year ended October 31, 1998, the license fee was $156,019. The Company
is required to maintain a certain level of insurance. The license agreement
expires on October 31, 2015, provided, however, that the Parks Department may
terminate the license upon 30 days written notice.
Strategy
The Company's strategy is to initially develop and operate a limited number
of additional Lundy's restaurants. The Company intends to focus its efforts in
the New York City metropolitan area. The Company has limited experience in
expanding its operations and there can be no assurance that it will be able to
successfully do so.
The Company's strategy is to capitalize on what it perceives to be a high
consumer recognition of the Lundy's name in markets where there is a significant
percentage of the population which remembers and had visited the old Lundy's
restaurant. The Company anticipates that future Lundy's restaurants will
incorporate the Lundy's concept into the existing building architecture to give
each location the atmosphere of a long-standing restaurant.
The Company's long-term plans include seeking to capitalize upon the
Lundy's name by marketing food and related products by mail, such as chowders,
sauces, pies, cookbooks, lobster bibs, crackers and forks and "Lundy's" and
"Brooklyn" themed T-shirts and other clothing items, hats, plates and coffee and
beer mugs. In addition, in connection with its strategy, the Company may seek to
open additional, high-volume landmark type restaurants as appropriate
opportunities arise.
Site Selection
The choice of site selection is critical to the potential success of a
particular restaurant. As a result, the Company devotes a significant amount of
time and resources to identifying and analyzing potential sites. The Company
seeks to identify locations in close proximity to upscale high-traffic, suburban
residential
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neighborhoods, hotel complexes and/or urban business or entertainment centers.
The Company also seeks to identify large spaces in tourist centers, such as
government buildings, concession stands and offices in municipal parks which are
not utilized to their potential. Additionally, to the extent opportunities
arise, the Company seeks to identify waterfront locations, which type of
location the Company believes has a synergy with the Lundy's concept and
primarily seafood menu. The Company, however, has no commitments or
understandings with respect to any proposed location.
The Company generally seeks to lease properties with 12,000 to 20,000
square feet of total space and seating capacity for 400 to 750 persons. The
Company anticipates that three to six months will typically be required to open
a new Lundy's restaurant from the time a location is identified and a lease is
negotiated.
Restaurant Operations
Management and Employees
Each location's operations is managed by a general manager and managers for
certain operations of the location, such as kitchen, dining room (waiters and
busboys), office (administration) and catering. The number of employees at each
location fluctuates from season to season and depending upon the number of
catering events. Because some restaurant seating areas and certain other
operations at The Boathouse and American Park are not open year round, the
Company is required to hire new personnel annually for each unit. The Company
introduced a management bonus plan, for unit level management, which provides
bonuses based on the financial results of the managements' particular location.
Service and Guest Satisfaction
The Company believes that providing friendly, courteous, efficient service
is critical to the long-term success of each location. The Company will attempt
to recruit managers for future locations with significant experience in the
restaurant industry. The Company is constantly refining its training program in
anticipation of opening additional Lundy's restaurants to teach restaurant
managers to promote the Company's team-oriented atmosphere among restaurant
employees, with emphasis on preparing and serving food in accordance with strict
standards and providing friendly, courteous and attentive service. Each
location's staff is trained on site by location managers and other designated
employees. The Company believes that the selection and training of its location
managers and staff result in friendly, courteous, efficient guest service which
contributes to a pleasurable dining experience for the guest.
The Company monitors each location's service and guest satisfaction. The
Company maintains a guest service department which contacts several guests from
each location's previous night's reservation list to inquire about their dining
experiences. The guest service department also contacts each party which
utilizes the Company's catering services to obtain feedback about their
experiences. The Company also maintains a toll-free telephone line for guests to
call with complaints or suggestions about the Company's locations. All calls are
personally responded to by an executive officer of the Company. The Company
utilizes guest feedback to continually improve its service, update its menu
selections and otherwise improve its operations.
Purchasing
Obtaining a reliable supply of quality seafood and other food and beverage
items at competitive prices is critical to the Company's success. The Company
has formed long-term relationships with several seafood suppliers, fish markets
and operators of fishing boats. Each restaurant purchases its own supply of food
and beverage items through a central purchasing department which maintains a
list of approved suppliers. The Company regularly arranges to purchase a fishing
boat's day catch of lobsters and select fish,
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reducing its price per pound and ensuring superior quality. The Company intends
to begin construction of a lobster pound at its Bayonne, New Jersey warehouse,
in the second quarter of 1999, to further reduce the cost of live lobsters and
ensure and adequate supply of all sizes. The Company has a computerized food
purchasing and tracking system which maintains a current database of suppliers
and continuously updates supplier's pricing to enable its restaurants to obtain
the lowest prices available from Company-approved suppliers.
The Company believes its diverse menu selection reduces the risk and
minimizes the effect of the shortage of any seafood products. The Company has
been able to anticipate and react to fluctuations in food costs through selected
menu price adjustments, purchasing seafood directly from numerous suppliers,
fish markets and fishing boats and promoting certain alternative menu selections
(in response to availability and price of supply). To date, the Company
generally has not experienced any significant delays in receiving its food and
beverage inventories, restaurant supplies or equipment.
Quality Control
The Company maintains a continuous inspection program for all of its
seafood purchases. Each shipment of seafood and other food items is inspected
for quality and weight by the restaurant steward. All food items must be
purchased from Company-approved suppliers. In addition, Lundy's houses a seafood
laboratory where shipments of seafood are randomly tested to assure quality.
The restaurants' management are responsible for properly training employees
and ensuring that the Company's restaurants are operated in accordance with
strict health and quality standards. Each restaurant employee is educated as to
the correct handling and proper characteristics of each product. Compliance with
the Company's quality standards are monitored by periodic on-site visits and
formal periodic inspections by management and third-party food sanitation
consultants. The Company believes that its inspection procedure and its employee
training practices assist the Company in maintaining high standards of quality
for the food and services it provides.
Restaurant Reporting
The Company maintains financial and accounting controls for each restaurant
through a central point-of-sale, accounting and cash management systems. Sales
data is collected daily, and store managers are provided with daily sales, cash
and inventory information for their respective restaurants. The point-of-sale,
accounting and cash management systems enables both store-level management and
senior management to quickly react to changing sales trends, better manage food,
beverage and labor costs, minimize theft and improve the quality and efficiency
of accounting and audit procedures.
Catering Operations
The Company's restaurants offer high-quality professional, on-premise and
off-premise catering services. Each restaurant provides its own catering
services and specially designs menus to the guests requirements. Lundy's
upstairs dinning room is used to cater private functions and has a capacity of
350 persons. In addition to catering private functions in the banquet area, The
Boathouse caters larger functions of up to 1,000 persons in the combined space
of the catering pavilion and restaurant. American Park can accommodate parties
of up to 300 persons in its up upstairs catering space, up to 780 persons for
the entire facility and outdoor tents to accommodate another 400 persons.
In April 1997, the Company entered into a five-year agreement with Bay
Cruises, LLC ("Bay Cruises") to act as exclusive caterer for all entertainment
cruises conducted by Bay Cruises from any location in the New York metropolitan
area. Bay Cruises conducted entertainment cruises from its
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Sheepshead Bay dock from December 1996 through February 1998 when it ceased
operation. In December 1998, the Company and Bay Casino, LLC ("Bay Casino"), the
sucessor to Bay Cruises, renegotiated the terms of the catering agreement
extending the initial term of the agreement by a year with an option to the
Company for an additional five-year extension. Further, under the new agreement,
the Company will offer all beverage service in addition to food services on Bay
Casino's vessels. The Company will pay Bay Casinos a license fee of 15% of all
food sales and 25% of all beverage sales generated from the agreement. The
Company will not receive any revenues from such agreement unless and until Bay
Casino resumes operation of such cruies. Bay Casino has advised the Company of
its plans to resume operations in the third quarter of fiscal 1999.
During the years ended September 28, 1997 and September 27, 1998, Lundy's
catered 157 and 210 private functions, respectively, and The Boathouse catered
317 and 298 private functions, respectively. During its first six months of
operations, American Park catered 89 private functions.
Advertising and Marketing
The Company employs a marketing strategy that seeks continuous visibility
and name recognition through the use of local radio, print and billboard
advertisements, as well as community events, for each restaurant. The Company
contracts with public relations and advertising agencies to more effectively
coordinate its advertising efforts. The Company also publishes and distributes a
newsletter which apprises readers of upcoming events at the Company's
restaurants and recent celebrity guests, answers guests' food, wine and
restaurant etiquette questions and provides recipes.
Each restaurant engages in community-based promotions designed to promote
the restaurant and foster goodwill within the community. Each restaurant
participates in the Company's "make a dent with 10%" program whereby 10% of the
proceeds from three designated tables from the restaurant are donated to local
charities.
Lundy's, The Boathouse and American Park are high-profile locations which
host many special events and receive extensive press coverage. All three units
have been featured in several magazines, including Gourmet, Travel & Leisure,
The New York Times Magazine and New York Magazine, and have been the subject of
several television news stories. As a result, these restaurants receive a great
deal of publicity in addition to the publicity obtained from the Company's
advertising efforts.
Competition
The restaurant industry is intensely competitive with respect to price,
service, location and food quality and variety. There are many well-established
competitors with substantially greater financial and other resources than the
Company, as well as a significant number of new market entrants. Such
competitors include national, regional and local full-service casual dining
chains, many of which specialize in or offer seafood products, as well as single
location restaurants. Some of the Company's competitors have been in existence
for substantially longer periods than the Company, may be better established in
the markets where the Company's restaurants are or may be located and engage in
extensive advertising and promotional campaigns, both generally and in response
to efforts by competitors to open new locations or introduce new concepts or
menu offerings. The Company can also be expected to face competition from a
broad range of other restaurants and food service establishments which
specialize in a variety of cuisines.
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Intellectual Property
The Company's business prospects will depend largely upon the Company's
ability to capitalize on favorable consumer recognition of the Lundy's name.
Although the Company holds a trademark registration for use of the Lundy's name
by the U.S. Patent and Trademark Office, there can be no assurance that the
Company's marks do not or will not violate the proprietary rights of others or
that the Company's marks would be upheld, or that the Company would not be
prevented from using its marks, if challenged, any of which could have an
adverse effect on the Company.
The Company previously entered into a settlement agreement with Sheepshead
Restaurant Associates, Inc. ("Sheepshead") to settle a dispute relating to the
Lundy's trademark. As part of the settlement, Sheepshead agreed to dismiss its
petition for the cancellation of the Lundy's trademark registration previously
granted to the Company. Additionally, the Company obtained all of Sheepshead's
alleged rights to the Lundy's marks and any goodwill associated therewith. In
consideration, the Company issued to the four principal stockholders of
Sheepshead an aggregate of 22,056 shares of unregistered common stock and
warrants to purchase an aggregate of 5,516 shares of common stock. The Company
further agreed (i) to pay a fee of $10,000 to Sheepshead upon the opening, by
the Company, of certain new restaurants with a seating capacity of up to 150
persons, (ii) to open a new restaurant utilizing the Lundy's name by September
1999, and (iii) to pay to Sheepshead .75% of gross revenues in excess of a
minimum threshold (as determined by the seating capacity of the restaurant)
earned by any new restaurant established by the Company that utilizes the
Lundy's name. The settlement agreement further provides that if the Company is
unable to meet the requirement set forth in (ii) above, the rights claimed by
Sheepshead to the Lundy's trademark and acquired by the Company revert back to
Sheepshead.
The Company also relies on trade secrets and proprietary know-how, and
employs various methods, to protect its concepts and recipes. However, such
methods may not afford complete protection and there can be no assurance that
others will not independently develop similar know-how or obtain access to the
Company's know-how, concepts and recipes. The Company does not maintain
confidentiality and non-competition agreements with all of its executives, key
personnel or suppliers. There can be no assurance that the Company will be able
to adequately protect its trade secrets.
Government Regulation
The Company is subject to extensive state and local government regulation
by various governmental agencies, including state and local licensing, zoning,
land use, construction and environmental regulations and various regulations
relating to the sale of food and beverages, sanitation, disposal of refuse and
waste products, public health, safety and fire standards. The Company's
restaurants are subject to periodic inspections by governmental agencies to
assure conformity with such regulations. Difficulties or failure in obtaining
required licensing or other regulatory approvals could delay or prevent the
opening of a new restaurant, and the suspension of, or inability to renew, a
license at an existing restaurant would adversely affect the operations of the
Company. Restaurant operating costs are also affected by other government
actions which are beyond the Company's control, including increases in the
minimum hourly wage requirements, workers compensation insurance rates, health
care insurance costs and unemployment and other taxes.
The Federal Americans With Disabilities Act prohibits discrimination on the
basis of disability in public accommodations and employment. The Company's
restaurants are currently designed to be accessible to the disabled, and the
Company believes that it is in compliance with all current applicable
regulations relating to accommodations for the disabled.
The Company is subject 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. New York law currently provides that a vendor of alcoholic beverages may
be held liable in a civil cause of action for injury or damage caused by or
resulting from the intoxication of a minor (under 21 years of age) if the vendor
willfully, knowingly and unlawfully sells or furnishes alcoholic beverages to
the minor and knows that the minor will soon thereafter be driving a motor
vehicle. A vendor can similarly be held liable if it knowingly provides
alcoholic beverages to a person who is in a noticeable state of intoxication,
knows that person will soon thereafter be driving a motor vehicle and injury or
damage is caused by that person.
Insurance
The operation of restaurants subjects the Company to possible liability
claims from others, including customers, employees and other service providers
for personal injury (resulting from, among other things, contaminated or spoiled
food or beverages, accidents or injuries caused by intoxicated persons
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served alcoholic beverages by a restaurant). The Company maintains insurance
(with coverage in amounts up to $2,000,000 per occurrence and $10,000,000 of
umbrella liability coverage), including insurance relating to personal injury,
in amounts which the Company believes to be adequate. The Company also maintains
property insurance for each location it operates in amounts it believes to be
adequate. Nevertheless, a partially or completely uninsured claim against the
Company, if successful, could have a material adverse effect on the Company.
Employees
As of September 27, 1998, the Company employed 643 persons, of whom 38 were
in management and 603 were in non-management restaurant operations.
Approximately 48 of those individuals were employed on a salary basis. The
Company believes its employee relations to be good. None of the Company's
employees is covered by a collective bargaining agreement.
ITEM 2. Description of Property
The Company leases approximately 2,500 square feet of space in Staten
Island, New York for its executive offices from Frank Cretella, Chief Executive
Officer, President, a director and a principal stockholder of the Company. The
current annual rent payable under the lease is currently $37,914 and increases
by 1.5% per annum in January of each subsequent year. The lease expires December
31, 2001. The Company believes that this lease is on commercially reasonable
terms. The Company is currently contemplating leasing an additional 1,800 square
feet of space at its current location, beginning in February 1999, in order to
accommodate the Company's expansion.
The Company leases 16,505 square feet of space in Sheepshead Bay, Brooklyn,
New York, where Lundy's is located pursuant to a lease which expires in 2014.
The current annual rent payable under the lease is $309,000 during 1998. In
December 1998 the Company completed renovations to one of the second floor
dining rooms making it better suited for handling private functions and
catering. This added 1,000 sq. ft. of space to the lease. The Company will begin
paying rent of $16,296 on this addition space in March 1999. Upon the expiration
of the lease, the Company has two 10-year renewal options.
The Company leases an approximately 6,000 sq. ft. warehouse in Bayonne, New
Jersey, from Leisure Time Services, Inc., a company wholly-owned by Jeanne
Cretella, Vice President, a director and a principal stockholder of the Company.
The annual rent payable under the lease is currently $30,338 and increases by
1.5% per annum in January of each subsequent year. The lease expires in December
2001. The Company believes that this lease is on commercially reasonable terms.
In December 1998, the Company agreed to sublease 1,000 sq. ft. of the Bayonne
warehouse to KA Industries for a rent of $740.83 per month. The sublease is a
month to month lease terminable upon 120 days notice by either party. KA
Industries is a wholly owned subsidiary of Kayne Anderson Investment Management,
Inc., an affiliate of a principal stockholder of the Company. The Company
believes that this sublease is on commercially reasonable terms.
The Company operates The Boathouse in Central Park, New York City pursuant
to a license from the Parks Department which expires in June 2000.
The Company operates American Park in Battery Park, New York City pursuant
to a license from the Parks Department which expires in 2015.
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ITEM 3. Legal Proceedings
The operation of restaurants and rowboat and bicycle rentals subjects the
Company to potential claims from others, including customers, employees and
other service providers for personal injury (resulting from, among other things,
contaminated or spoiled food or beverages and accidents). The Company is a
defendant in several lawsuits arising in the ordinary course of its business
relating to personal injury claims by plaintiffs which are seeking damages
substantially in excess of the Company's assets and insurance coverage. The
lawsuits are being handled by the Company's insurance carriers. The Company is
vigorously defending each lawsuit and believes that such matters are adequately
covered by insurance or, if not so covered, are without merit or are of such
nature or involve such amounts that an unfavorable disposition would not have a
material adverse effect on the financial condition or operations of the Company.
However, since each lawsuit is in an early stage, there can be no assurance that
any of such actions will be resolved in favor of the Company or that the outcome
of any litigation or settlement will not have a material adverse effect on the
Company.
On or about July 13, 1998, an action was brought against the Company by
Acme Management ("Acme") in the Supreme Court of the State of New York, County
of Richmond, alleging that the Company owes to Acme $337,500 for "money had and
received." It is believed that this claim relates to a dispute between Acme and
a non-party which made a loan to the Company, which has since been repaid and/or
converted to equity. The Company has not yet been required to respond to the
action, which it intends to vigorously contest.
On or about September 24, 1998, Acme mistakenly obtained a judgement
against the Company in the sum of $343,828.56 in connection with its action. A
stipulation vacating the judgement, ab initio, has been executed by Acme's
counsel and filed with the court.
In the ordinary course of business, the Company is a party to other legal
proceedings, the outcome of which, either singly, or in the aggregate, is not
expected to be material.
ITEM 4. Submission of Matters to a Vote of Security Holders.
On October 6, 1997, by written consent in lieu of a special meeting
pursuant to Section 228 of the Delaware General Corporation Law ("DGCL") holders
of 1,679,235 shares (approximately 67% of the issued and outstanding Common
Stock of the Company) consented to the adoption of the Company's 1997 Stock
Option Plan and the reservation of 525,000 shares of Common Stock from the
authorized but unissued shares of the Company for issuance upon the exercise,
from time to time, of options to be granted under the plan.
On December 17, 1997, by written consent in lieu of a special meeting
pursuant to Section 228 of the DGCL, holders of 1,679,235 shares (approximately
67% of the issued and outstanding Common Stock of the Company) consented to the
change of the Company's name to TAM Restaurants, Inc.
On December 17, 1997, by written consent in lieu of a special meeting
pursuant to Section 228 of the DGCL, holders of 1,679,235 shares (approximately
67% of the issued and outstanding Common Stock of the Company) consented to the
1-for 1.8135268 reverse stock split of the then issued and outstanding Common
Stock of the Company.
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Part II
ITEM 5. Market for Common Equity and Related Stockholder Matters
The Company's Common Stock and Warrants are traded on the Nasdaq SmallCap
Market under the symbols "TAMR" and "TAMRW", respectively. The Company's
Registration Statement (SEC No. 333-39937) registering the Common Stock and
Warrants was declared effective by the Securities and Exchange Commission on
February 10, 1998 and trading in the securities commenced on February 10, 1998.
The Common Stock was offered and sold to the public at $5.00 per share, and the
Warrants were offered and sold at $.10 per Warrant. The high and low closing bid
price for the Common Stock below reflects the quotations for the period in which
trading in the Common Stock took place.
Year Ended September 27, 1998 High Low
Second Quarter Ended March 29, 1998 $5 1/8 $3 1/8
Third Quarter Ended June 28, 1998 $4 7/16 $3 3/8
Fourth Quarter Ended September 27, 1998 $3 3/4 $2
As of December 31, 1998 there were 3,503,000 shares of Common Stock
outstanding and held of record by approximately 54 stockholders. In addition,
the Company believes that there are in excess of 300 beneficial owners of the
Common Stock and Warrants whose shares are held of record or in "street name".
ITEM 6. Management's Discussion and Analysis of Plan of Operation
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995: The statements which are not historical facts contained in the
Management's Discussion and Analysis of Plan of Operation and elsewhere in this
report on Form 10-KSB are forward-looking statements that involve a number of
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, but are not
limited to, the risks relating to the opening of new restaurants, seasonality
and other risks detailed in the Company's filings with the Securities and
Exchange Commission. The words "believe", "expect", "anticipate", "intend" and
"plan" and similar expressions identify forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date the statement was made.
Overview
The Company operates Lundy's, a high-volume, casual, upscale seafood
restaurant located in Brooklyn, New York, The Boathouse, a multi-use facility
featuring an upscale restaurant and catering pavilion, located on the lake in
New York City's Central Park, and American Park, a multi-use facility featuring
an upscale restaurant, catering floor, two outside patios and a fast food kiosk,
located at the water's edge in Battery Park. a New York City landmark.
Results of Operations
Year Ended September 27, 1998 Compared to Year Ended September 28, 1997
Sales for the fiscal year ended September 27, 1998 ("fiscal 1998") were
$16,202,892, an increase of $2,177,424, or 15.5%, as compared to $14,025,468 for
the year ended September 28, 1997 ("fiscal 1997"). The increase in sales was due
to the addition of American Park in May 1998 and the opening of Park View at The
Boathouse with celebrity chef John Villa. Such increase was partially offset by
the temporary cessation of catering operations at Bay Casino, LLC (formerly Bay
Cruises, LLC) and a 4.5% decline in sales at Lundy's. The Company's food, liquor
and other revenues accounted for 74.1%, 18% and 7.9% of sales respectively for
fiscal 1998 and 76.8%, 15.3% and 7.9% of sales, respectively, for fiscal 1997.
Cost of sales for fiscal 1998 were $10,199,858, an increase of $2,124,446
or 26.3%, as compared to $8,075,412 for fiscal 1997. The increase in cost of
sales was attributable to expenses incurred with the operation of an additional
restaurant (American Park) for five months of fiscal 1998 as compared to fiscal
1997, start-up inefficiencies at American Park and Park View at The Boathouse,
increased lobster prices and a shift in the menu mix at Lundy's.
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Gross profit for fiscal 1998 was $6,003,034 or 37.0% of sales, as compared
to $5,950,056 or 42.4% of sales for fiscal 1997. The decrease in gross profit as
a percentage of sales was due primarily to opening inefficiencies at American
Park and Park View at The Boathouse and management inefficiencies at Lundy's.
The Company made management changes at Lundy's and American Park, tightened
purchasing specifications, and implemented menu changes and stringent labor cost
controls at all of the units. As a result operating profit as a percentage of
sales increased during the fourth quarter of fiscal 1998.
Operating and administrative expenses for fiscal 1998 were $7,094,273 or
43.8% of sales, as compared to $4,934,025 or 35.2% of sales for fiscal 1997.
Operating and administrative expenses for fiscal 1998 were higher primarily as a
result the increased costs associated with being a public company, a ramp up of
expenditures in anticipation of the Company's planned expansion, opening
inefficiencies at American Park and Park View at The Boathouse and the
distraction of the Company's key operating officers during the lengthy public
offering process. The Company has tightened cost controls at each of the units
and at the corporate level and has reduced staffing and expenses relative to
expansion. During fiscal 1998 and fiscal 1997, operating and administrative
expenses were reduced by $81,895 and $181,012 of management income fee,
respectively, received under the Company's operating agreement with American
Leisure. A portion of the management income fee received by the Company during
fiscal 1997, $125,000, was an initial fee relating to the formation of American
Leisure and establishment of operations relating to the operating agreement.
Other expenses for fiscal 1998 were $1,207,963, an increase of $453,712, or
60.2%, as compared to $754,251 for fiscal 1997. Other expenses for fiscal 1998
consisted of $554,376 of interest expense and $653,587 of barter expense. Other
expenses for fiscal 1997 consisted of $341,295 of interest expense and $412,956
of barter expense. Approximately $173,660 of interest expense for fiscal 1998
relates to the original issue discount associated with a $1,000,000 loan
provided to the Company by Kayne Anderson (defined below).
As a result of the foregoing, loss from continuing operations for fiscal
1998 was $2,299,202 as compared to a profit from continuing operations of
$261,780 for fiscal 1997.
Liquidity and Capital Resources
The Company's capital requirements have been and will continue to be
significant and its cash requirements have been exceeding its cash flow from
operations (at September 27, 1998, the Company had a working capital deficit of
$2,091,271), due to, among other things, costs associated with development,
opening and start-up costs of American Park and Park View at The Boathouse and
building a corporate infrastructure sufficient to support the Company's proposed
expanded operations. As a result, the Company has been substantially dependent
upon sales of its equity securities, loans from financial institutions and the
Company's officers, directors and stockholders and bartering transactions with
member dining clubs to finance a portion of its working capital requirements.
During fiscal 1998, net cash decreased by $60,141. Net cash used in
operating activities was $2,332,461, net cash used in investing activities was
$1,982,934, relating to the acquisition of property and equipment primarily for
American Park, and net cash provided from financing activities was $4,255,254,
consisting primarily of long-term borrowings of $1,000,000 and net proceeds of
$3,637,249 from sales of equity securities, which was partially offset by
principal payments on long-term debt and capitalized lease obligations of
$516,211.
During fiscal 1997, net cash increased by $215,009. Net cash provided by
operating activities was $1,044,290, net cash used in investing activities was
$1,117,856, relating to the acquisition of property and equipment primarily for
American Park, and net cash provided from financing activities was $288,575,
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consisting primarily of long-term borrowings of $905,158 and proceeds of
$200,000 from sales of equity securities, which was partially offset by
principal payments on long-term debt and capitalized lease obligations of
$527,558.
The Company enters into bartering agreements with member dining clubs
whereby member dining clubs advance cash to the Company in exchange for the
Company's agreement to provide to the clubs' members food and beverages at a
designated Company restaurant. The restaurant must permit the clubs' members to
purchase food and beverages at rates between 160% and 200% of the amount
advanced. Upon entering into the agreement, the Company records its obligation
to provide food and beverages at the amount of the advance it receives. Upon a
guest purchasing food or beverages, the Company records revenue for the amount
of food and beverage purchased by the guest, and the barter discount as a barter
expense.
In October 1997, Kayne Anderson Non-Traditional Investments, L.P. and ARBCO
Associates, L.P., affiliates of Kayne Anderson Investment Management, Inc.
(collectively, "Kayne Anderson"), loaned the Company an aggregate of $1,000,000.
The loans bear interest at the rate of 10% per annum, payable quarterly, and are
due May 31, 1999. Upon an event of default under the loans, the interest rate
increases to 15% per annum and the Company would be required to pay to Kayne
Anderson 50% of the operating profits from American Park on a monthly basis
until the loan is fully repaid. The loan is guaranteed by Frank Cretella,
President, Chief Executive Officer, a director and a principal stockholder of
the Company, and the guarantee is secured by a pledge of 200,000 shares of
Common Stock owned by Frank Cretella and Jeanne Cretella, Vice President, a
director and principal stockholder of the Company. As partial consideration for
the loans, the Company issued to Kayne Anderson warrants (the "KA Warrants") to
purchase 200,000 shares of Common Stock. The KA Warrants are exercisable at a
price of $5.00 per share (subject to adjustment under certain circumstances) and
are exercisable at any time until October 31, 2002. The Company will incur a
non-cash interest charge of $482,000 representing the original issue discount
relating to the promissory notes issued to Kayne Anderson over the life of the
promissory notes. In connection with the loan, the Company agreed to use its
best efforts to cause a representative designated by Kayne Anderson to be
elected to the Company's Board of Directors. Kenneth Harris has been elected a
director as Kayne Anderson's initial designee. In August 1998, the Company and
Kayne Anderson agreed to amend the loan agreement to extend the maturity date of
the loans to September 30, 1999. Under the terms of the amendment the Company
agreed to substitute 50% of The Boathouse operating profits for 50% of American
Park operating profits if the Company failed to repay the loan by September 30,
1999.
In February 1998, the Company consummated an initial public offering ("the
Public Offering") of 1,000,000 shares of Common Stock and 500,000 Warrants for
gross proceeds of $5,050,000. After payment of the underwriters discounts and
commissions and expenses of the Public Offering, net proceeds realized by the
Company were $3,637,249.
At the end of fiscal 1998 the Company had used its Public Offering proceeds
to fund operating losses, replenish working capital, construct American Park and
renovate The Boathouse. The Company will need to raise additional capital to
implement its expansion plans. Other than the ability to enter into bartering
transactions with member dining clubs, the Company has no current arrangements
with respect to, or potential sources of, additional financing, and it is not
anticipated that any officers, directors or stockholders will provide any
additional loans to the Company.
On November 19, 1998 the Company's Board of Directors authorized the
designation of 150,000 shares of a series of preferred stock ("Series A
Preferred Stock) bearing a 10% cumulative dividend payable quarterly in cash,
convertible into Common Stock at anytime after issuance, at the holder's option,
at the rate of one share of Common Stock for each share of Series A Preferred
Stock, subject to adjustment under certain circumstances. The Series A Preferred
Stock is senior in rights and preferences to any subsequently designated series
and/or class of preferred stock and is entitled to one vote per share of Common
Stock into
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which the issued and outstanding shares of Series A Preferred Stock is then
convertible, on all matters submitted to a vote of the Company's stockholders.
Outstanding shares of Series A Preferred Stock are redeemable at any time by the
Company, at its option, at the redemption price of $5.00 per share, upon timely
notice of its intent to redeem.
In December 1998, Frank Cretella converted $720,405 of indebtedness owed by
the Company to him into shares of Series A Preferred Stock at the ratio of one
share of Series A Preferred Stock for each $5.00 of indebtedness outstanding. As
an inducement to Mr. Cretella to convert the debt to equity, the Company also
issued Mr. Cretella 72,040 warrants to purchase the Company's Common Stock at
$6.00 per share.
Seasonality and Fluctuations in Quarterly Operating Results.
The Company's business is seasonal. The bicycle, rowboat rentals and
outdoor dining at The Boathouse are open only March through November. The
catering facilities, indoor section of the Park View restaurant and the fast
food operation are opened year round, but at a substantially reduced sales
volume during the winter due to the Boathouse's location in the middle of
Central Park.
The two outdoor patios at American Park and the fast food kiosk are only
open March through November and its location in Battery Park also restricts
winter sales potential. The indoor restaurant and catering level are open year
round.
Lundy's is a waterside location and attracts more guests during warmer
months. As a result, the Company's average weekly restaurant sales and operating
cash flow generally increases from April through October and decreases from
November through March.
The Company also expects that future quarterly operating results will
fluctuate as a result of the timing of and expenses related to the openings of
new restaurants (as the Company will incur significant expenses during the
months preceding the opening of a restaurant), as well as due to various
factors, including the seasonal nature of its business, weather conditions in
New York City, the health of New York City's economy in general and its tourism
industry in particular. Accordingly, the Company's sales and earnings may
fluctuate significantly from quarter to quarter and operating results for any
quarter will not necessarily be indicative of the results that may be achieved
for a full year.
Year 2000
The Company is currently evaluating the impact of the Year 2000 on its
management and information systems. At this time, management believes that the
impact of the Year 2000 will have no material effect on its operations or
financial results.
Inflation
The effect of inflation on the Company has not been significant during the
last two fiscal years.
ITEM 7. Financial Statements
The Consolidated Financial Statements of the Company appear herein
following Item 13 below. Commencing on Page F-1
ITEM 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not applicable
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Part III.
ITEM 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
The following are the directors and executive officers of the Company:
Name Age Position
- ------------------ ------ -----------------------------------------------
Frank Cretella 40 President, Chief Executive Officer and Director
Jeanne Cretella 40 Vice President and Director
Anthony B. Golio 38 Vice President
Kenneth L. Harris 56 Chairman of the Board
Peter J. Salvatore 61 Director
Barry E. Krantz 54 Director
Frank Argenziano 51 Director
Frank Cretella co-founded the Company's predecessor in 1981 and has been
President, Chief Executive Officer and a director of the Company since
inception.
Jeanne Cretella co-founded the Company's predecessor in 1981, and has been
Vice President, Secretary and a director of the Company since inception. Ms.
Cretella is the wife of Frank Cretella.
Anthony B. Golio has been Vice President of the Company since October 1997.
In June 1996, Mr. Golio founded The Pineapple Group Inc., a consulting company
to the restaurant industry. From February 1994 until October 1996, Mr. Golio was
director of operations of Whiskey River Restaurant Group, a restaurant holding
company. From January 1991 through February 1994, Mr. Golio was Vice President -
Operations and Marketing of HMG, Inc., a restaurant holding company. From 1988
to 1991, Mr. Golio was manager of guest services of the New York Zoological
Society. From 1984 to 1988, Mr. Golio was area manager of Chi-Chi's Restaurants,
Inc.
Kenneth L. Harris has been Chairman of the Board of the Company since June
1997. Since March 1998, Mr. Harris has been a Senior Vice President and Managing
Director of Kayne Anderson Investment Management, Inc. Since January 1995, Mr.
Harris has been President and Chief Executive Officer of Platinum Restaurant
Group, a management consulting firm. From February 1994 through January 1995,
Mr. Harris was Chief Operating Officer of HOB Entertainment, Inc., a theme
restaurant company. From January 1975 through January 1994, Mr. Harris was
employed by W.R. Grace & Co. ("Grace") and its subsidiary, Restaurant
Enterprises Group, Inc. ("REGI"), most recently as President and Chief Executive
Officer of REGI's Dinnerhouse division.
Peter J. Salvatore has been a director of the Company since February, 1998.
Mr. Salvatore has been Managing Director of Spear Leeds & Kellogg, an NASD
member firm, since March 1991.
Barry E. Krantz has been a director of the Company Since February, 1998.
Mr. Krantz has been an independent restaurant industry consultant since August
1995. Mr. Krantz was Chief Operating Officer and a director of REGI from January
1989 through January 1994 when it was sold by Grace to an investor group. From
January 1994 to August 1995, Mr. Krantz was President, Chief Operating Officer
of Family Restaurants, Inc., the successor of REGI. Mr. Krantz is currently a
director of Sizzler International, Inc. and Fresh Choice, Inc., both publicly
traded companies in the restaurant industry.
Frank Argenziano became a director of the Company on November 19, 1998.
Since February 1989, Mr. Argenziano has been Chief Financial Officer of Paragon
Capital Corporation, a member of the NASD. From 1970 to 1989, Mr. Argenziano was
employed at Schroder & Co. Inc., formerly Wertheim & Co. Inc.
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<PAGE>
All directors currently hold office until the next annual meeting of
stockholders and until their successors are duly elected and qualified.
Executive officers of the Company serve at the direction of the Board and until
their successors are duly elected and qualified. The Company reimburses
directors for reasonable travel expenses incurred in connection with their
activities on behalf of the Company but does not pay its directors any fees for
Board participation. Each outside Director is granted 5,000 options annually to
purchase Company common shares as compensation for services.
The Company has agreed that it will, for the period ending February 10,
2001, upon the request of the Underwriter, nominate and use its best efforts to
elect a designee of the Underwriter (which designee may change from time to
time) as a director of the Company or, at the Underwriter's option, appoint such
designee as a non-voting advisor to the Company's Board of Directors. In August
1998, the Underwriter exercised its right and designated Frank Argenziano to be
a member of the Board of Directors. Mr. Argenziano was elected to the Board of
Directors on November 19, 1998.
Audit Committee
The Board of Directors has established an audit committee comprised of
Kenneth Harris and Peter Salvatore. The audit committee is responsible for
making recommendations concerning the engagement of independent public
accountants, reviewing the plans and results of the audit engagement with the
independent public accounts, approving professional services provided by the
independent public accounts and reviewing the adequacy of the Company's internal
accounting contracts.
Executive Committee
The Board of Directors has established an executive committee comprised of
Kenneth Harris, Frank Cretella and Jeanne Cretella. The executive committee
meets on a monthly basis to review the Company's operating results pursuant to
directives of the Board of Directors and to make operating and strategic
decisions on items authorized by the Board.
Real Estate Committee
The Board of Directors has established a real estate committee comprised of
Kenneth Harris, Barry Krantz and Peter Salvatore. The real estate committee is
responsible for reviewing proposed real estate transactions and making
recommendations to the Board of Directors with respect to specific transactions.
Compensation Committee
The Board of Directors has established a compensation committee comprised
of Kenneth Harris, Barry Krantz and Peter Salvatore. The compensation committee
is responsible for determining compensation for executive officers of the
Company, and for reviewing and presenting the Board of Directors with proposed
bonus grants, stock option grants and employment contracts.
Compliance with Section 16(a) of the Securities Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Securities Exchange Act"), requires the Company's officers and directors, and
persons who own more than 10% of a registered class of the Company's equity
securities, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission ("SEC"). Officers, directors and greater than
10% stockholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely on the Company's review of the copies of such forms received
by the Company, the Company believes that, during the year ended September 27,
1998, all filing requirements applicable to its
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officers, directors and greater than 10% beneficial owners were complied with,
except that (i) a Form 3 for Peter J. Salvatore was filed late, (ii) a From 3
for Barry E. Krantz was filed late, and (iii) a Form 4 for Peter J. Salvatore
reporting one transaction in February 1998 was filed late.
ITEM 10. Executive Compensation
The following table sets forth certain compensation paid by the Company
during the fiscal years ended September 27, 1998, September 28, 1997 and
September 29, 1996 to Frank Cretella, its President and Chief Executive Officer
and certain compensation paid by the Company to Anthony B. Golio, its Vice
President for the fiscal year ended September 27, 1998. No other officer of the
Company received compensation in excess of $100,000 for any such fiscal year.
Summary Compensation Table
Annual Compensation
-------------------------------------------
Other Annual
Name and Principal Position Year Salary Bonus Compensation
- --------------------------- ---- ------ ----- ------------
Frank Cretella ................... 1998 $175,000 $ 0 $ 2,000
President and Chief
Executive Officer
1997 $175,000(1) $ 0 $ 2,000
1996 $168,000 $ 0 $ 2,000
Anthony B. Golio ................. 1998 $102,445 $ 0 $ 0
Vice President
- --------------
(1) Mr. Cretella deferred approximately $25,000 of his salary from fiscal 1997
and such payment was made in fiscal 1998.
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The following table provides information relating to stock options awarded
to each of the above-named executive officers during the year ended September
27, 1998. All such options were awarded under the Stock Option Plan.
<TABLE>
<CAPTION>
Option Grants in Fiscal 1998
------------------------------------------------------------------
Number of % of Total
Shares Options Granted Exercise
Underlying to Employees in Price Per Expiration
Name and Principal Position Options Granted Fiscal 1998(1) Share (2) Date
- --------------------------- --------------- --------------- --------- ----------
<S> <C> <C> <C> <C>
Frank Cretella
President and Chief Executive Officer.. 37,500 15% $5.00 2/10/2003
18,750 (3) 8% $5.00 2/10/2004
18,750 (4) 8% $5.00 2/10/2005
Anthony B. Golio
Vice President.......................... 12,500 5% $5.00 2/10/2003
6,250 (3) 3% $5.00 2/10/2004
6,250 (4) 3% $5.00 2/10/2005
</TABLE>
- ----------
(1) The number of options granted to employees during fiscal 1998 used to
compute this percentage excludes options to purchase 48,625 shares of
Common Stock due the termination of such options pursuant to their terms.
(2) Options were granted at an exercise price equal to the fair market value of
the Company's Common Stock on the date of grant, as determined by the Board
of Directors.
(3) These options vest on the first anniversary of the date of grant provided
that the optionee is then employed by the Company.
(4) These options vest on the second anniversary of the date of grant provided
that the optionee is then employed by the Company.
Employment Agreements
Effective February 10, 1998, the Company entered into three-year employment
agreements with Frank Cretella and Jeanne Cretella, which are automatically
renewable and provide for an annual base compensation of $175,000 and $75,000,
respectively, and such bonuses as the Board of Directors may from time to time
determine. Each of the employment agreements requires the officer to devote a
majority of such officer's business time to the Company's business and affairs
and contains a provision that such officer will not compete or engage in a
business competitive with the current or anticipated business of the Company
during the term of the employment agreement and for a period of one year
thereafter. Each of the agreements also provides that if the officer is
terminated without cause (including as a result of a change in control), such
officer will be entitled to receive severance pay equal to the base compensation
through the term of the agreement, provided that if such officer is terminated
during the third year or the last year of any renewal term, such officer will be
entitled to receive additional compensation equal to the base compensation
received from the Company during the one-year period prior to the date of
termination.
Consulting Agreement
In July 1996, the Company entered into a two-year consulting agreement with
Kenneth L. Harris, Chairman of the Board of the Company, pursuant to which Mr.
Harris (through Platinum Restaurant Group, a
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company wholly owned by Mr. Harris) has provided strategic planning, restaurant
operations, marketing and site evaluation consulting services for a fee equal to
$2,500 per month through December 1997 and $5,000 per month thereafter. The
agreement is automatically renewable for successive one-year periods, unless
either party gives written notice of its intention not to renew the agreement at
least 30 days prior to the end of the term or renewal term. In addition,
pursuant to the consulting agreement, in March, 1998 the Company paid to Mr.
Harris $50,000 as payment for consulting services rendered to the Company prior
to entering into the consulting agreement.
1997 Stock Option Plan
In October 1997, the Company's stockholders approved a stock option plan
(the "Option Plan") pursuant to which 525,000 shares of Common Stock have been
reserved for issuance upon the exercise of options designated as either (i)
incentive stock options ("ISOs") under the Internal Revenue Code of 1986, as
amended (the "Code") or (ii) nonqualified options. ISOs may be granted under the
Option Plan to officers and employees of the Company. Non-qualified options may
be granted to consultants, directors (whether or not they are employees),
employees or officers of the Company.
The purpose of the Option Plan is to encourage stock ownership by certain
directors, officers and employees of the Company and other persons instrumental
to the success of the Company. The Option Plan is intended to qualify under Rule
16b-3 under the Exchange Act, and is administered by the Board of Directors. The
Board, within the limitations of the Option Plan, determines the persons to whom
options will be granted, the number of shares to be covered by each option,
whether the options granted are intended to be ISOs, the duration and rate of
exercise of each option, the option purchase price per share and the manner of
exercise, and the time, manner and form of payment upon exercise of an option.
ISOs granted under the Option Plan may not be granted at a price less than
the fair market value of the Common Stock on the date of grant (or 110% of fair
market value in the case of persons holding 10% or more of the voting stock of
the Company). The aggregate fair market value of shares for which ISOs granted
to any employee are exercisable for the first time by such employee during any
calendar year (under all stock option plans of the Company and any related
corporation) may not exceed $100,000. Non-qualified options granted under the
Option Plan may not be granted at a price less than the fair market value of the
Common Stock on the date of grant. Options granted under the Option Plan will
expire not more than ten years from the date of grant (five years in the case of
ISOs granted to persons holding 10% or more of the voting stock of the Company).
All options granted under the Option Plan are not transferable during an
optionee's lifetime but are transferable at death by will or by the laws of
descent and distribution. In general, upon termination of employment of an
optionee, all options granted to such person which are not exercisable on the
date of such termination immediately terminate, and any options that are
exercisable terminate 90 days following termination of employment.
Effective as of February 10, 1998 the Company granted options under the
Option Plan to purchase an aggregate of 293,250 shares. Of such options, options
to purchase 75,000, 50,000, 35,000, and 25,000 shares were granted to Mr.
Cretella, Mrs. Cretella, Mr. Harris and Mr. Golio, respectively, at an exercise
price of $5.00 per share. Of the options granted to each of Mr. Cretella, Mrs.
Cretella, Mr. Harris and Mr. Golio, 50% vested immediately and the balance will
vest in increments of 25% of the shares covered thereby on each of the first and
second anniversaries of the date of grant, respectively. On November 19, 1998
the Board authorized the grant of 204,000 options under the Option Plan. Of such
options, options to purchase 75,000, 50,000, 17,500 and 12,500 were authorized
for granting to each of Mr. Cretella, Mrs. Cretella, Mr. Harris and Mr. Golio,
respectively, no earlier than five days after the date on which the Company
files its Form 10KSB for fiscal 1998. All of such options vest in increments of
50% on the date of grant and 25% on each of the first and second anniversaries
of the date of grant and are exercisable upon vesting at a price that is equal
to the closing bid price of the Company's Common Stock on the date of grant. The
options expire five years from the date of vesting, subject to earlier
termination.
-19-
<PAGE>
Compensation to Directors
Each outside director receives options to purchase 5,000 shares of the
Company's Common Stock for each year of service rendered as a member of the
Board of Directors. On November 19, 1998 the Board authorized that 5,000 options
under the Options Plan be granted to each of Messrs, Harris, Salvatore and
Krantz, on the date that is five days after the date on which the Company files
its Form 10KSB for fiscal 1998, for services rendered during fiscal 1998. On
November 19, 1998 the Board authorized that 5,000 options under the Option Plan
be granted to each of Messrs. Harris, Salvatore, Krantz and Argenziano on the
date of the Company's annual meeting of stockholders, for services to be
rendered during fiscal 1999. All options are non-qualified stock options, vest
in full on the date of grant and expire five years from date of grant.
Mr. Harris provided consulting services to the Company under the terms of
his consulting agreement. In fiscal 1998 he received compensation of $97,500,
including $50,000 for services rendered prior to fiscal 1998.
Mr. Krantz provided consulting services to the Company and received
compensation of $1,360 in fiscal 1998.
Indemnification and Exculpation Provisions
The Company's Certificate of Incorporation provides for indemnification of
officers and directors to the fullest extent permitted by Delaware law. In
addition, under the Company's Certificate of Incorporation, no director shall be
liable personally to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director; provided that the Certificate of
Incorporation does not eliminate the liability of a director for (i) any breach
of the director's duty of loyalty to the Company or its stockholders; (ii) acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) acts or omissions in respect of certain unlawful
dividend payments or stock redemptions or repurchases; or (iv) any transaction
from which such director derives improper personal benefit. The Company has also
obtained directors and officers insurance.
ITEM 11. Principal Stockholders
The following table sets forth certain information as of December 21, 1998
(based on information obtained from the persons named below), relating to the
beneficial ownership of shares of Common Stock by: (i) each person or entity who
is known by the Company to own beneficially five percent or more of the
outstanding Common Stock, (ii) each of the Company's directors and (iii) all
directors and executive officers of the Company as a group.
Number of Percentage of
Shares Shares
Beneficially Beneficially
Name and Address of Beneficial Owners(1) Owned Owned(2)
- ---------------------------------------- ------------ -------------
Frank Cretella ................................. 1,979,566(3) 52.0%
Jeanne Cretella ................................ 1,979,566(3) 52.0
Richard A. Kayne (4) ........................... 598,082(5) 16.2
KAIM Non-Traditional, L.P.
Offense Group Associates, L.P. (6) ............. 193,898(7) 5.5
Peter J. Salvatore(8) .......................... 184,371(9) 5.3
Kenneth L. Harris .............................. 155,282(10) 4.4
Frank Argenziano (11) .......................... 9,000(12) *
Barry Krantz ................................... 5,000(13) *
All directors and executive officers as a group
(seven persons) ............................... 2,372,004(14) 61.0%
-20-
<PAGE>
- ----------
* Less than 1%
(1) Unless otherwise indicated, the address for each named individual or group
is in care of TAM Restaurants, Inc., 1163 Forest Avenue, Staten Island, New
York 10310.
(2) Unless otherwise indicated, the Company believes that all persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock beneficially owned by them. A person is deemed to be the
beneficial owner of securities that can be acquired by such person within
60 days from the date of this Prospectus upon the exercise of options,
warrants or convertible securities. Each beneficial owner's percentage
ownership is determined by assuming that options, warrants or convertible
securities that are held by such person (but not those held by any other
person) and which are exercisable within 60 days of the date of this
Prospectus have been exercised and converted. Assumes a base of
approximately 3,503,000 shares of Common Stock outstanding, before any
consideration is given to other outstanding options or warrants.
(3) Represents (i) 1,179,235 shares held jointly by Frank Cretella and Jeanne
Cretella, (ii) 500,000 shares held by trusts of which Mr. Cretella is a
co-trustee and Mr. and Mrs. Cretella's daughter is the beneficiary. Mr.
Cretella has sole voting and dispositive power over the shares held in the
trusts (iii) 93,750 shares of Common Stock issuable upon exercise of
options held by Frank Cretella, (iv) 62,500 shares of Common Stock issuable
upon exercise of options held by Jeanne Cretella, (v) 144,081 shares of
Common Stock issuable upon conversion of Series A Preferred Stock held by
Frank Cretella. Does not include (i) 56,250 shares of Common Stock issuable
upon exercise of options held by Frank Cretella, (ii) 37,500 shares of
Common Stock issuable upon exercise of options held by Jeanne Cretella,
(iii) Selling Securityholders' Warrants to purchase 4,724 shares of Common
Stock held by Jeanne Cretella and (iv) 72,040 shares of Common Stock
issuable upon exercise of a warrant held by Frank Cretella.
(4) The address for Richard A. Kayne and KAIM Non-Traditional, L.P. ("KAIM
N-T") is 1800 Avenue of the Stars, Second Floor, Los Angeles, California
90067.
(5) Based solely on a Schedule 13D, and amendments thereto, jointly filed with
the Securities and Exchange Commission by Mr. Kayne and KAIM N-T for which
each party reports shared voting and dispositive power over securities held
by several investment funds, including Offense Group Associates, L.P. (see
footnote (7) below), for which KAIM N-T acts as general partner and
investment advisor, except for one investment fund for which KAIM N-T acts
solely as investment advisor. Both parties report shared voting and
dispositive powers over a portion of the securities held under a 401(K)
plan of an affiliated entity. Mr. Kayne is an officer, director and
controlling stockholder of the company that acts as the general partner of
KAIM N-T. Includes 200,000 shares of Common Stock issuable upon exercise of
warrants held by two investment funds. Does not include 120,141 shares of
Common Stock issuable upon exercise of warrants held by the investment
funds.
(6) The address for Offense Group Associates, L.P. ("OGALP") is 1800 Avenue of
the Stars, Second Floor, Los Angeles, California 90067.
(7) Based solely on a Schedule 13D, filed with the Securities and Exchange
Commission by OGALP, reporting shared voting and dispositive powers over
the securities held by OGALP, an investment fund, together with KAIM N-T,
its general partner and investment advisor and Mr. Kayne, the officer,
director and controlling stockholder of the company that acts as the
general partner of KAIM N-T. Does not include 53,599 shares of Common Stock
issuable upon exercise of warrants held OGALP.
-21-
<PAGE>
(8) The address for Mr. Salvatore is 35 Seagate Road, Staten Island, New York
10310.
(9) Includes (i) 9,082 shares of Common Stock held by Peter and Gail Salvatore
Foundation, Inc., a trust of which by Mr. and Mrs. Salvatore are the
beneficiaries and (ii) 5,000 shares of Common Stock issuable upon exercise
of options to be granted to Mr. Salvatore. Does not include Selling
Securityholders' Warrants to purchase 88,191 shares of Common Stock.
(10) Includes (i) 110,282 shares owned jointly by Kenneth and Maureen Harris,
(ii) 5,000 shares owned by Maureen Harris, (iii) 35,000 shares of Common
Stock issuable upon exercise of options held by Mr. Harris and (iv) 5,000
shares of Common Stock issuable upon options to be granted to Mr. Harris.
Does not include (i) 2,500 shares of Common Stock issuable upon exercise of
warrants held by Mrs. Harris, and (ii) 17,500 shares of Common Stock
issuable upon exercise of options held by Mr. Harris. Mr. Harris is an
officer of an affiliate of KAIM N-T but does not have voting or dispositive
power over the Company's securities reported by KAIM N-T (see footnote (5)
above), and therefore disclaims any beneficial ownership of such
securities.
(11) The address for Mr. Argenziano is 7 Hanover Square, New York, New York
10004
(12) Represents 9,000 shares of the Company's Common Stock issuable upon
exercise of warrants held by Mr. Argenziano. Does not include 4,500 share
of the Company's Common Stock issuable upon exercise of warrants held by
Mr. Argenziano.
(13) Represents 5,000 shares of the Company's Common Stock issuable upon
exercise of options to be granted to Mr. Krantz.
(14) Includes an aggregate of 384,331 shares of Common Stock issuable upon the
exercise of options and warrants. Does not include an aggregate of 295,705
shares of Common Stock issuable upon exercise of options and warrants.
ITEM 12. Certain Transactions
Prior to January 1994, Ernest Cretella, father of Frank Cretella,
President, Chief Executive Officer, a director and a principal stockholder of
the Company, loaned the Company $100,000. In January 1994, Ernest Cretella
borrowed $125,000 from a bank, which was then loaned to the Company, and secured
the loan by mortgaging his personal residence. The Company repaid $50,000 of the
outstanding indebtedness owed to Ernest Cretella and the Company agreed to make
Ernest Cretella's mortgage payments to the bank. In September 1995, Ernest
Cretella converted the additional $50,000 principal amount of indebtedness owed
to him into 25,000 shares of Common Stock and 2,500 warrants. The Company
remains obligated to make Ernest Cretella's mortgage payments. In July 1996,
Ernest Cretella, loaned the Company an additional $55,000. Such loan bears
interest at the rate of 10% per annum, payable quarterly, and is due June 30,
2000.
In March 1994, the Company entered into a lease agreement to sublease the
space where Lundy's is located. Frank Cretella personally guaranteed the
Company's obligations to pay rent during the time which it occupies the leased
premises.
During 1994, Frank Cretella loaned the Company $12,500. In September 1996,
Mr. Cretella borrowed $65,000 from the Company. During the year ended September
28, 1997, Mr. Cretella repaid the $52,500 owed to the Company.
During 1995 and 1996, the Company borrowed an aggregate of $840,000 from
Fleet Bank, N.A. Such loans were collateralized by the Company's principal
executive offices, which are owned by Mr. Cretella, the warehouse leased by the
Company and owned by Leisure Time Services, Inc. ("Leisure Time"), a company
owned by Jeanne Cretella, Vice President, director and a principal stockholder
of the Company, and Mr. and
-22-
<PAGE>
Ms. Cretella's personal residence, and guaranteed by Mr. and Mrs. Cretella and
Leisure Time. In June 1997, Mr. Cretella agreed to pay to Fleet $640,000 as
payment for the amount owed by the Company (approximately $720,000 as of October
15, 1997). In August 1997, Mr. Cretella paid to Fleet $140,000 as part of the
settlement. Mr. Cretella paid the balance of the principal owed to Fleet and the
Company paid accrued interest of approximately $39,000 owed to Fleet in October
1997. As consideration for repaying the loan, the Company issued to Mr. Cretella
a promissory note in the original principal amount of $720,405 which bears
interest at the rate of 10% per annum. Interest is payable in monthly
installments of $6,003, with the outstanding principal balance payable in
November 2002 upon maturity of the note. In December 1998, Mr. Cretella
converted $720,405 of indebtedness owed to him by the Company into 144,081
shares of Series A Preferred Stock. As further inducement to Mr. Cretella to
convert the debt to equity the Company also issued to Mr. Cretella 72,040
warrants to purchase the Company's Common Stock at $6.00 per share. The Company
received a fairness opinion with respect to this transaction.
Prior to his employment by the Company, from October 1996 through September
1997, Anthony Golio, Vice President of the Company, provided consulting services
to the Company through The Pineapple Group, Inc., a restaurant consulting firm,
wholly-owned by Mr. Golio, for which he was paid an aggregate of $88,000. Such
consulting services included organizational and managerial training, labor and
cost management, negotiating with vendors and creating and restructuring
management programs.
In June 1996, the Company borrowed $88,000 from Joseph De Giulio, father of
Jeanne Cretella. The loan bears interest at the rate of 10% per annum. Interest
is payable in monthly installments of $733 and the principal is due on June 22,
2001.
In October 1996, the Company entered into a 10-year operating agreement
with American Leisure, a company wholly-owned by Frank Cretella, to manage the
food concessions at the Central Park Zoo and the Staten Island Zoo in New York
City for which the Company receives a management fee equal to 5% of gross sales.
During the year ended September 27, 1998, the Company received $81,895 in fees
from American Leisure. At September 27, 1998, American Leisure owed the Company
$78,107, which has no specified repayment terms. Effective November 1998,
American Leisure no longer operated the food concession at the Central Park Zoo,
accordingly, the operating agreement is no longer in effect with respect to such
concession.
In October 1996, the Company loaned to Leisure Time $153,863, pursuant to a
note which is payable in monthly installments of $1,996.01, that bears interest
at a rate of 9.56% per annum and expires on October 1, 2006. At September 27,
1998, Leisure Time owed the Company an additional $24,155, representing advances
made during such fiscal year. The advances have no specified repayment terms.
In October 1996, the Company entered into a lease agreement with Mr.
Cretella, pursuant to which the Company leases its executive offices in Staten
Island, New York. Annual rent under the lease was $37,500 during 1998,
increasing by 1.5% commencing in January of each subsequent year. The lease
expires on December 31, 2001. The Company believes that this lease is on
commercially reasonable terms.
In October 1996, the Company entered into a lease agreement with Leisure
Time, pursuant to which the Company leases a warehouse in Bayonne, New Jersey.
Annual rent under the lease was $30,000, during 1998, increasing by 1.5%
commencing in January of each subsequent year. The lease expires on December 31,
2001. The Company believes that this lease is on commercially reasonable terms.
In October 1997, Kayne Anderson Non-Traditional Investments, L.P. and ARBCO
Associates, L.P. affiliates of Kayne Anderson, loaned the Company an aggregate
of $1,000,000. The loans bear interest at the rate of 10% per annum and are due
May 31, 1999. The loan is guaranteed by Frank Cretella, President, Chief
Executive Officer, a director and a principal stockholder of the Company, and
the guarantee is secured by a pledge of 200,000 shares of Common Stock owned by
Frank Cretella and Jeanne Cretella, Vice President, a director and principal
stockholder of the Company. As partial consideration for the loans, the Company
issued to Kayne Anderson warrants (the "KA Warrants") to purchase 200,000 shares
of Common Stock. The KA Warrants are exercisable at a price of $5.00 per share
(subject to adjustment under certain circumstances) and are exercisable at any
time until October 31, 2002. In August, 1998 the Company and Kayne Anderson
agreed to amend the loan agreement whereby the maturity date of
-23-
<PAGE>
the loans was extended to September 30, 1999. Kayne Anderson is an affiliate of
KAIM Non-Traditional, LP, a principal stockholder of the Company.
In December 1998, the Company entered into a licensing agreement with KA
Industries, a wholly owned subsidiary of Kayne Anderson, to market products
bearing the names Lundy's, The Boathouse, and Stork Club through KA Industries'
"Mrs. Beasley's" mail order catalog and retail outlets. Pursuant to the
agreement the Company is to receive a royalty on products sold.
In December 1998, the Company agreed to sublease 1,000 sq. ft. of its 6,000
sq. ft. Bayonne warehouse to KA Industries, a wholly owned subsidiary of Kayne
Anderson, to operate a bakery. The sublease is a month to month lease at a rent
of $740.83 per month terminable upon 120 days notice by either party. In
conjunction with this transaction, KA Industries advanced $30,000 to the Company
to make modifications the Bayonne warehouse to accommodate the bakery as well as
an in-house laundry and a lobster pound with such advance recaptured from rent
and other charges due the Company from KA Industries.
From time to time the Company has entered into equipment financing leases
which have been guaranteed by Mr. Cretella and/or Leisure Time.
Any future transactions with affiliates will be on terms no less favorable
to the Company than could be obtained from unaffiliated parties and will be
approved by a majority of the independent and disinterested members of the Board
of Directors, outside the presence of any interested directors and, to the
extent deemed appropriate by the Board of Directors, the Company will obtain
stockholder approval or fairness opinions in connection with any such
transaction.
ITEM 13. Exhibits, Lists and Reports on Form 8-K
(a) Financial Statements
See list of Financial Statements on F-1
(b) Reports on Forms 8-K and 8-K/A
The Company did not file any reports with the Securities and Exchange
Commission on Form 8-K for the year ended September 27, 1998.
(c) Exhibits
Exhibit
Number Description
------ -----------
3.1 Certificate of Incorporation, as amended, of the Registrant
(1).
3.2 Bylaws, as amended, of the Registrant (1).
4.1 Form of Registrant's Common Stock Certificate (1)
4.4 Form of registrant's Public Warrant Certificate (1).
10.1 License Agreement between TAM Restaurant Group, Inc. (formerly
TAM Concessions, Inc.) and City of New York Department of Parks
and Recreation, dated February 8, 1985, as modified (1).
10.2 License Agreement between Shellbank Restaurant Corp. and City
of New York Department of Parks and Recreation, dated December
14, 1997 (1).
10.3 Lease by and between Lundy's Management Corp. and Bay Landing
Restaurant Corp. dated July 24, 1994, as amended (1).
10.4 Lease by and between Mr. Frank Cretella and the Registrant
dated October 1, 1996 (1).
10.5 Lease by and between Leisure Time Services and the Registrant
dated October 1, 1996 (1).
-24-
<PAGE>
10.6 Management Agreement by and between the Registrant and American
Leisure Today, Inc., formerly MAT Operating Corp., dated
October 1, 1996 (1).
10.7 Loan Agreement by and between the Registrant and each of ARBCO
Associates, L.P. and Kayne Anderson Non-Traditional
Investments, L.P. dated as of October 31, 1997 (1).
10.8 Form of Employment Agreement between Registrant and Frank
Cretella (1).
10.9 Form of Employment Agreement between Registrant and Jeanne
Cretella (1).
10.10 1997 Stock Option Plan (1).
10.11 Promissory Note of the Registrant dated October 15, 1997 issued
to Frank Cretella (1).
27 Financial Data Schedule (2).
- ----------
(1) Incorporated by reference to the comparable exhibit filed with the
Company's Registration Statement on Form SB-2, and the amendments thereto,
SEC No. 333-39937.
(2) Previously filed as an exhibit with the Company's Form 10-KSB for the
fiscal year ended September 27, 1998.
-25-
<PAGE>
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this amendment
to this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TAM RESTAURANT, INC.
Dated: January 27, 1999 By: /s/ FRANK CRETELLA
--------------------------------------
Frank Cretella
President, Chief Executive Officer
and Director
In accordance with the requirements of the Exchange Act, this amendment to
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signatures Title(s) Date
---------- -------- ----
/s/ FRANK CRETELLA President, Chief Executive January 27, 1999
- ------------------------ Officer and Director
Frank Cretella
/s/ ANTHONY B. GOLIO Vice President (Principal January 27, 1999
- ------------------------ Financial and Accounting
Anthony B. Golio Officer)
-26-
<PAGE>
TAM Restaurants, Inc.
and Subsidiaries
Contents
================================================================================
Report of independent certified public accountants F-2
Consolidated financial statements:
Balance sheet F-3
Statements of operations F-4
Statements of changes in stockholders' equity F-5
Statements of cash flows F-6
Notes to consolidated financial statements F-7-F-26
F-1
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors and Stockholders
TAM Restaurants, Inc.
Staten Island, New York
We have audited the accompanying consolidated balance sheet of TAM Restaurants,
Inc. and Subsidiaries as of September 27, 1998, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
each of the two years in the period ended September 27, 1998. 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of TAM
Restaurants, Inc. and Subsidiaries as of September 27, 1998, and the results of
their operations and their cash flows for each of the two years in the period
ended September 27, 1998, in conformity with generally accepted accounting
principles.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
New York, New York
December 15, 1998
F-2
<PAGE>
TAM Restaurants, Inc.
and Subsidiaries
Consolidated Balance Sheet
================================================================================
September 27, 1998
- --------------------------------------------------------------------------------
Assets
Current:
Cash $ 221,484
Accounts receivable - net of allowance for
doubtful accounts of $15,000 660,522
Inventory 381,758
Prepaid expenses and other 349,425
- --------------------------------------------------------------------------------
Total current assets 1,613,189
Property and equipment - net 5,941,616
Due from affiliates 216,750
Other assets 671,270
Loan receivable - officer 39,129
- --------------------------------------------------------------------------------
$ 8,481,954
================================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 497,865
Current portion of loans payable, related parties 1,618
Current portion of capitalized lease obligations 116,217
Accounts payable 962,703
Contract deposits payable 370,292
Accrued expenses and other 1,755,765
- --------------------------------------------------------------------------------
Total current liabilities 3,704,460
- --------------------------------------------------------------------------------
Long-term liabilities:
Deferred rent expense 272,169
Deferred income 6,000
Long-term debt - net of current portion 772,879
Loans payable, related parties - net of current portion 1,011,994
Capitalized lease obligations - net of current portion 215,441
Barter advances - net of current portion 353,030
- --------------------------------------------------------------------------------
Total long-term liabilities 2,631,513
- --------------------------------------------------------------------------------
Total liabilities 6,335,973
- --------------------------------------------------------------------------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.0001 par value, 1,000,000 shares
authorized; no shares issued and outstanding --
Common stock, $.0001 par value, 19,000,000 shares
authorized; 3,503,000 shares issued and outstanding 350
Additional paid-in capital 7,226,975
Accumulated deficit (5,081,344)
- -------------------------------------------------------------------------------
Total stockholders' equity 2,145,981
- --------------------------------------------------------------------------------
$ 8,481,954
================================================================================
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
TAM Restaurants, Inc.
and Subsidiaries
Consolidated Statements of Operations
================================================================================
Year ended
------------------------------
September 28, September 27,
1997 1998
- --------------------------------------------------------------------------------
Sales $ 14,025,468 $ 16,202,892
Cost of sales 8,075,412 10,199,858
- --------------------------------------------------------------------------------
Gross profit 5,950,056 6,003,034
Operating and administrative expenses 4,934,025 7,094,273
- --------------------------------------------------------------------------------
Income (loss) from operations 1,016,031 (1,091,239)
- --------------------------------------------------------------------------------
Other expenses:
Interest expense 341,295 554,376
Barter expense 412,956 653,587
- --------------------------------------------------------------------------------
Total other expenses 754,251 1,207,963
- --------------------------------------------------------------------------------
Net income (loss) $ 261,780 $ (2,299,202)
================================================================================
Net income (loss) per common share -
basic and diluted $ .11 $ (.73)
================================================================================
Weighted average number of common shares
outstanding - basic and diluted 2,478,943 3,129,426
================================================================================
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
TAM Restaurants, Inc.
and Subsidiaries
<TABLE>
Consolidated Statements of Changes in Stockholders' Equity
====================================================================================================
<CAPTION>
Years ended September 28, 1997 and September 27, 1998
- ----------------------------------------------------------------------------------------------------
Common stock Additional
------------------- paid-in Accumulated
Shares Amount capital deficit
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, September 29, 1996 2,444,859 $ 244 $ 2,907,802 $(3,043,922)
Issuance of common stock 55,141 6 199,994 --
Net income -- -- -- 261,780
- ----------------------------------------------------------------------------------------------------
Balance, September 28, 1997 2,500,000 250 3,107,796 (2,782,142)
Initial public offering of common stock 1,000,000 100 3,637,149 --
Warrants issued in connection with debt -- -- 482,000 --
Exercise of warrants 3,000 -- 30 --
Net loss -- -- -- (2,299,202)
- ----------------------------------------------------------------------------------------------------
Balance, September 27, 1998 3,503,000 $ 350 $ 7,226,975 $(5,081,344)
====================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
TAM Restaurants, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
===========================================================================================
<CAPTION>
Year ended
-----------------------------
September 28, September 27,
1997 1998
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 261,780 $(2,299,202)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization expense 334,896 553,431
Deferred rent expense 76,452 47,633
Amortization of original issue discount -- 173,660
Deferred income (35,181) (1,819)
Increase in allowance for doubtful accounts -- 15,000
(Increase) decrease in:
Accounts receivable (51,420) (388,154)
Inventory 3,272 (177,052)
Prepaid expenses and other (95,850) 16,641
Other assets (65,619) (552,051)
Increase (decrease) in:
Accounts payable (551,171) 439,879
Contract deposits payable 24,980 106,983
Accrued expenses 1,142,151 (267,410)
- -------------------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities 1,044,290 (2,332,461)
Cash flows from investing activities:
Acquisition of property and equipment (1,117,856) (1,982,934)
- -------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net repayments of officer's loans 7,143 7,330
Loans receivable 32,393 (3,060)
Repayment of revolving credit line (130,000) --
Proceeds from long-term debt and warrants 905,158 1,000,000
Principal payments on long-term debt and capitalized
lease obligations (527,558) (516,211)
Repayments (advances) from affiliates and others (70,239) 1,594
Deferred stock offering costs (128,322) 128,322
Proceeds from capital stock issue 200,000 --
Net proceeds from initial public offering of common stock -- 3,637,249
Proceeds from exercise of warrants -- 30
- -------------------------------------------------------------------------------------------
Net cash provided by financing activities 288,575 4,255,254
- -------------------------------------------------------------------------------------------
Net increase (decrease) in cash 215,009 (60,141)
Cash, beginning of year 66,616 281,625
- -------------------------------------------------------------------------------------------
Cash, end of year $ 281,625 $ 221,484
===========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
TAM Restaurants, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
1. Summary of Nature of Business
Significant
Accounting TAM Restaurants, Inc. (the "Company") was incorporated
Policies under the laws of the State of Delaware in July 1996
under the name TAM Restaurant Holding Corp. and changed
its name to TAM Restaurants, Inc. Effective September
29, 1996, the Company acquired all of the outstanding
capital stock of TAM Restaurant Group, Inc., Bay Landing
Restaurant Corp. and Shellbank Restaurant Corp. The
Company operates Lundy Bros. Restaurant, ("Lundy's") a
high volume, casual, upscale seafood restaurant located
in Brooklyn, New York, The Boathouse in Central Park,
("Boathouse"), a multi-use facility which features an
upscale restaurant and catering pavilion, located on the
lake in New York City's Central Park and American Park
at the Battery ("American Park"), a high-volume
premium-quality restaurant located at the water's edge
in Battery Park (Manhattan). In addition, the Company's
restaurants offer high-quality professional, on-premises
and off-premises catering services.
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
date of the financial statements and the reported
amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
Accounting Period
The Company reports on a 52/53 week year ending on the
last Sunday in September. The fiscal years for the
consolidated financial statements presented all consist
of 52-week periods. References to years relate to fiscal
years rather than calendar years.
Revenue Recognition
Revenue is recognized at the point of sale.
F-7
<PAGE>
TAM Restaurants, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Inventory
Inventory is stated at the lower of cost, first-in,
first-out, or market. Inventory consists of itmes used
in operations and items held for resale.
Property and Equipment
Property and equipment are carried at cost. Depreciation
of equipment, furniture and fixtures and amortization of
leasehold improvements are provided using the
straight-line and double-declining balance methods for
financial reporting purposes at rates based on the
following estimated useful lives:
Years
--------------------------------------------------------
Transportation equipment 5
Furniture and fixtures 5-7
Equipment 5-10
Leasehold improvements Remaining life of lease
========================================================
Expenditures for major renewals and betterments that
extend the useful lives of property and equipment are
capitalized. Expenditures for maintenance and repairs
are charged to expense as incurred.
Trademarks
The name Lundy Bros. (registered July 9, 1996) and the
logo F.W.I.L. (registered December 17, 1996) are
registered with the United States Patent and Technical
Office. Each registration will remain in force for 10
years, subject to the filing of a Declaration of
Continuing Use between the fifth and sixth anniversaries
of the registration date. Included in other assets at
September 27, 1998 is $108,607 of net trademark costs.
Pre-Opening Costs
Pre-opening costs are deferred. Expenditures deferred
primarily relate to salaries paid to employees during
training, food and beverage preparation costs associated
with the development of the menus and other restaurant
operating expenses incurred prior to opening to the
public. Amortization begins once the restaurant is fully
operational and open to the public and is provided for
using the straight-line method over a period of twelve
months.
F-8
<PAGE>
TAM Restaurants, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
In April 1998, the Financial Accounting Standards Board
("FASB") issued Statement of Position ("SOP") 98-5,
"Reporting on the Costs of Start-Up Activities", which
provides guidance on the financial reporting of start-up
costs and organization costs. SOP 98-5 requires costs of
start-up activities and organization costs to be
expensed as incurred.
SOP 98-5 is effective for fiscal years beginning after
December 15, 1998 with early adoption encouraged. The
Company has not elected early implementation of SOP
98-5. Had it done so, the balance remaining in
pre-opening costs of $366,024 (Note 5) would have been
expensed during the year ended September 27, 1998.
Barter Advances
The Company has entered into various barter agreements,
which it uses as a source of financing. Under the
agreements, the Company is advanced cash in exchange to
provide food and beverage to the barter companies. For
every dollar advanced, the Company must return $1.60 to
$2.00 in food and beverage sales.
Contract Deposits Payable
Contract deposits payable are deposits received for
future catering events. Revenue is recognized when these
events occur.
Income Taxes
The Company accounts for its income taxes using the FASB
Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes" ("SFAS No. 109"),
which requires the establishment of a deferred tax asset
or liability for the recognition of future deductible or
taxable amounts and operating loss carryforwards.
Deferred tax expense or benefit is recognized as a
result of the changes in the assets and liabilities
during the year. Valuation allowances are established
when necessary to reduce deferred tax assets to amounts
expected to be realized.
Rent Expense
The Company amortizes its rental space at Lundy's using
the straight-line method over the life of the lease.
F-9
<PAGE>
TAM Restaurants, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Advertising Expenses
Advertising expenses are charged to earnings when
incurred.
Concentration of Credit Risk
The Company extends credit based on an evaluation of the
customer's financial condition, generally without
requiring collateral. Exposure to losses on receivables
is principally dependent on each customer's financial
condition. The Company monitors its exposure for credit
losses and maintains allowances for anticipated losses.
No individual customer is considered to be significant.
Net Income (Loss) Per Share
In February 1997, the FASB issued SFAS No. 128,
"Earnings per Share" ("SFAS No. 128"), which replaced
the calculation of primary and fully diluted earnings
per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per
share excludes any dilutive effects of options, warrants
and convertible securities. Diluted earnings per share
includes all such dilutive effects and, as such, is very
similar to the previously reported fully diluted
earnings per share. Earnings per share amounts for all
periods have been conformed to SFAS No. 128. There was
no material effect upon the adoption of SFAS No. 128.
Disclosure of Fair Value of Financial Instruments
The carrying amount of financial instruments including
cash, accounts receivable, accounts payable, accrued
expenses and short-term debt approximated fair value as
of September 27, 1998 because of the relatively short
maturity of these instruments. The carrying value of
long-term debt approximates the fair value for similar
debt issues based on quoted market prices or current
rates offered to the Company for debt of the same
maturities. Due to the unspecified payment terms, it was
not practicable to estimate the fair value of amounts
due from affiliates and due from an officer. Loans due
to and due from affiliates approximate fair value
because the repayment terms are subject to management's
discretion.
F-10
<PAGE>
TAM Restaurants, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Stock-Based Compensation
In October 1995, the FASB issued SFAS No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No.
123"). SFAS No. 123 encourages entities to adopt the
fair value method in place of the provisions of
Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB No. 25"), for all
arrangements under which employees receive shares of
stock or other equity instruments of the employer or the
employer incurs liabilities to employees in amounts
based on the price of its stock. In fiscal 1997, the
Company adopted the intrinsic value method as permitted
by SFAS No. 123 and will account for such transactions
in accordance with APB No. 25 and, as required by SFAS
No. 123, will provide pro forma information regarding
net income as if compensation costs for the Company's
stock system plan had been determined in accordance with
the fair value method presented by SFAS No. 123. The
adoption of the standard did not have a material effect
on the consolidated financial statements.
Long-Lived Assets
In fiscal 1997, the Company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of" ("SFAS No.
121"). SFAS No. 121 requires, among other things, an
impairment loss on assets to be held and gains or losses
from assets that are expected to be disposed of to be
included as a component of income from continuing
operations before taxes on income. The Company's
implementation of this standard did not have a material
effect on the consolidated financial statements.
Recent Accounting Standards
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130"), which
establishes standards for reporting and display of
comprehensive income, its components and accumulated
balances. Comprehensive income is defined to include all
changes in equity except those resulting from
investments by owners and distributions to owners. Among
F-11
<PAGE>
TAM Restaurants, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
other disclosures, SFAS No. 130 requires that all items
that are required to be recognized under current
accounting standards as components of comprehensive
income be reported in a financial statement that is
displayed with the same prominence as other financial
statement.
SFAS No. 130 is effective for financial statements for
periods beginning after December 15, 1997 and requires
comparative information for earlier years to be
restated. This statement is not expected to affect the
Company's financial statements or disclosures.
In June 1997, the FASB issued SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information"
("SFAS No. 131"), which supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business
Enterprise". SFAS No. 131 establishes standards for the
way that public companies report information about
operating segments in annual financial statements and
requires reporting of selected information about
operating segments in interim financial statements
issued to the public. It also establishes standards for
disclosures regarding products and services, geographic
areas and major customers. SFAS No. 131 defines
operating segments as components of a company about
which separate financial information is available that
is evaluated regularly by the chief operating decision
maker in deciding how to allocate resources and in
assessing performance.
SFAS No. 131 is effective for financial statements for
periods beginning after December 15, 1997 and requires
comparative information for earlier years to be
restated. The statement is not expected to affect the
Company's financial statements or disclosures.
F-12
<PAGE>
TAM Restaurants, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
2. Inventory Inventory consisted of:
September 27, 1998
--------------------------------------------------------
Food and beverage $ 34,448
Liquor 113,155
Paper 2,594
Retail merchandise 97,662
Small wares, utensils, and supplies 133,899
--------------------------------------------------------
$381,758
========================================================
3. Prepaid Expenses Prepaid expenses and other consisted of:
and Other
September 27, 1998
--------------------------------------------------------
Refundable deposit $ 10,000
Income taxes receivable 143,782
Prepaid expenses 86,708
Other receivables 108,935
--------------------------------------------------------
$349,425
========================================================
4. Property and
Equipment Property and equipment consisted of:
September 27, 1998
--------------------------------------------------------
Transportation equipment and trailers 282,319
Furniture and fixtures 453,349
Equipment 1,557,868
Leasehold improvements 5,673,568
Assets acquired under capital leases 577,706
Computer software 61,701
--------------------------------------------------------
8,606,511
Less: Accumulated depreciation and
amortization 2,664,895
--------------------------------------------------------
$5,941,616
========================================================
F-13
<PAGE>
TAM Restaurants, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Depreciation and amortization expense totaled $332,321
and $553,431 for the years ended 1997 and 1998,
respectively.
5. Other Assets Other assets consisted of:
September 27, 1998
--------------------------------------------------------
Trademarks, net of accumulated amortization
of $7,725 $108,607
Refundable rent security deposits 139,703
Pre-opening costs, net of accumulated
amortization of $260,864 366,024
Other 56,936
--------------------------------------------------------
$671,270
========================================================
6. Accrued Expenses Accrued expenses and other consisted of:
and Other
September 27, 1998
--------------------------------------------------------
Sales tax $ 179,924
Accrued rent and related taxes 457,400
Barter advances, current portion 286,775
Payroll, payroll taxes and benefits 461,815
Other 369,851
--------------------------------------------------------
$1,755,765
========================================================
F-14
<PAGE>
TAM Restaurants, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
7. Borrowings The Company's loans outstanding consisted of:
<TABLE>
<CAPTION>
September 27, 1998
------------------------------------------------------------------
<S> <C>
Loan from related party.(a) $ 115,207
Loan payable from outside investment firm
bearing interest at 10% per annum, payable
quarterly, due September 30, 1999, net of
original issue discount of $308,340. (See
Notes 10 and 16). An officer from the
investment firm is Chairman of the Board of
Directors. The loan is guaranteed by a
principal stockholder of the Company and is
secured by a pledge of 200,000 shares of
common stock held by such stockholder. 691,660
Installment loan payable in 60 monthly
payments of $3,187 to Brooklyn Union Gas
Company, including interest at a rate of 10%
beginning December 1, 1995. The loan is
collateralized by equipment with a net book
value of $127,500. 71,697
Unsecured loans from private investors bearing
interest at rates from 8% to 15% per annum,
maturing at various times through 2002. 487,527
Unsecured loan payable from Chief Executive
Officer bearing interest of 10%, due in 2002.
(See Note 16) 720,405
Unsecured loan payable from related parties,
bearing interest of 10% to 15%, due
June 2000. 178,000
Other 19,860
------------------------------------------------------------------
2,284,356
Less: Current portion due within one year 499,483
------------------------------------------------------------------
Long-term $1,784,873
==================================================================
</TABLE>
F-15
<PAGE>
TAM Restaurants, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Maturities of long-term debt at September 27, 1998 are
as follows:
--------------------------------------------------------
1999 $ 499,483
2000 1,143,079
2001 111,159
2002 10,598
2003 722,565
Thereafter 105,812
--------------------------------------------------------
Total maturities 2,592,696
Less: Unamortized portion of original issue
discount 308,340
--------------------------------------------------------
$2,284,356
========================================================
--------------
(a) This loan is secured by the personal residence of a
stockholder. The Company has agreed to make the
mortgage payments to the bank. The mortgage bears
interest at 7.25% and is payable in 360 monthly
installments of $853, including interest and is due
in 2024.
8. Capital Lease The Company leases equipment and various leasehold
Obligations improvements under capital leases. The assets acquired
under capital leases have a cost of $577,706 and
accumulated amortization of $246,048 as of September 27,
1998. Amortization of the leased assets is included in
depreciation expense.
F-16
<PAGE>
TAM Restaurants, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
The following is a schedule, by year, of future minimum
lease payments under capitalized leases, together with
the present value of the net minimum lease payments at
September 27, 1998.
--------------------------------------------------------
Payments for the year ending:
1999 $176,110
2000 132,219
2001 75,186
2002 52,939
2003 13,547
--------------------------------------------------------
Total minimum lease payments 450,001
Less: Amount representing interest 118,343
--------------------------------------------------------
Present value of net minimum lease
payments 331,658
Less: Current portion 116,217
--------------------------------------------------------
Long-term lease obligations $215,441
========================================================
9. Commitments and The Company has entered into various lease and licensing
Contingencies agreements, which expire through 2016.
Certain of the Company's license and lease agreements
require the payment of rent based on a percentage of
gross receipts. Future minimum rental payments are as
follows:
Year ending September
--------------------------------------------------------
1999 $ 525,586
2000 511,573
2001 453,219
2002 408,042
2003 398,991
Thereafter 5,651,890
--------------------------------------------------------
$7,949,301
========================================================
F-17
<PAGE>
TAM Restaurants, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Rent expense, real estate taxes and common area charges
for the years ended September 28, 1997 and September 27,
1998 totaled $1,428,079 and $1,566,893, respectively.
TAM Restaurant Group, Inc. has a license agreement with
the Central Park Zoo. American Leisure (a related party
owned by the Chief Executive Officer) has assumed the
operation of the concession granted by such license
agreement as a result of a restructuring. However, TAM
Restaurant Group, Inc. is still responsible as a primary
concessionaire until October 1998 when the license
expires. The license requires payment of 39% of total
sales as a licensing fee. Sales for the year ended
September 27, 1998 relating to this license amounted to
$1,261,311.
TAM Restaurant Group, Inc. is currently being audited by
New York State for sales and use taxes for the period
December 1, 1989 to June 28, 1993. The Company has
accrued $50,000 for additional taxes that may be due,
exclusive of interest and penalties, if any. As of
December 1998, this audit has not been completed.
Effective February 10, 1998, the Company entered into
three-year employment agreements with the Chief
Executive Officer and a Vice President, which are
automatically renewable and provide for an annual base
compensation of $175,000 and $75,000, respectively, and
such bonuses as the Board of Directors may from time to
time determine.
In connection with a settlement agreement relating to
the Lundy's trademark, the Company is obligated to open
a new Lundy's restaurant by September 1999 or lose the
rights to the trademark. Additionally, the Company is
required to pay a fee of .75% of gross revenues in
excess of a minimum threshold (as determined by the
seating capacity of the restaurant), after the first
year of operations, earned by any new restaurant
established by the Company utilizing the Lundy's name.
For the years ending September 28, 1997 and September
27, 1998 no amounts have been incurred under this
agreement.
10. Related Party In March 1994, Leisure Time Services, Inc., which is
Transactions owned by a stockholder of the Company, was formed to
purchase, repair and store equipment and supplies for
the Company, as well as to assist the Company in the
performance of special catering events. Rent paid by the
Company for the years ended 1997 and 1998 for
utilization of a warehouse was $30,000, respectively. As
of September 27, 1998, included in the accompanying
consolidated balance sheets under the caption "due from
affiliates" is $141,986, which was used to secure the
title on the New Jersey warehouse.
F-18
<PAGE>
TAM Restaurants, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
The balance of this loan is being repaid in equal
monthly installments of $1,996, including interest at
9.6% through 2006. Additionally, included in due from
affiliates is $24,155 of additional amounts due from
Leisure Time Services, Inc. with no specific repayment
term.
In October 1996, the Company entered into a lease for
its corporate offices with its principal stockholders.
The lease expires in December 2001 and provides for
annual rental payments of approximately $38,000 plus
real estate taxes.
Additionally, the Company occasionally advanced monies
to officers of the Company. No terms of repayment or
interest rates have been determined on these advances.
As of September 27, 1998, the balance in this account
was $39,129.
The Company is indebted to relatives of the principal
stockholder in the amounts of $178,000 as of September
27, 1998. The notes are unsecured and bear interest from
10% to 15% per annum. Interest expense to these
relatives was approximately $28,000 for the years ended
1997 and 1998, respectively.
For the years ended 1997 and 1998, the Company has
reduced operating expenses by $181,012 and $81,895,
respectively, representing management fee income from
American Leisure. At September 27, 1998, included in due
from affiliates is $78,107 due from American Leisure
with no specific repayment term.
In July 1996, the Company entered into a two-year
consulting agreement with its Chairman of the Board of
Directors, pursuant to which he has provided strategic
planning, restaurant operations, marketing and site
evaluation consulting services for a fee equal to $2,500
per month through December 1997 and $5,000 per month
thereafter. The agreement is automatically renewable for
successive one-year periods, unless either party gives
written notice of its intention not to renew the
agreement at least 30 days prior to the end of the term
or renewal term. In addition, pursuant to the consulting
agreement, in March 1998, the Company paid $50,000 as
payment for consulting services rendered to the Company
prior to entering into the consulting agreement. (See
Notes 7 and 16.)
F-19
<PAGE>
TAM Restaurants, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
11. Capital Stock At September 27, 1998, there was an aggregate of
and Warrants 1,160,000 warrants outstanding at exercise prices
between $4.53 and $7.25 per share expiring at various
times through 2003, as follows:
In October 1997, as partial consideration for a loan,
the Company granted warrants to purchase 200,000 shares,
at an exercise price of $5.00 per share, expiring in
October 2002. These warrants were valued at $482,000 and
recorded as a debt discount. (See Note 7.)
As part of its initial public offering in February 1998,
the Company offered and sold warrants (the "Public
Warrants") to purchase 500,000 shares, at an exercise
price of $6.00 per share, expiring in February 2003.
Also upon the consummation of its initial public
offering, the Company issued warrants to purchase
310,000 shares, which are identical to the Public
Warrants, upon the conversion of an equal amount of
outstanding warrants.
Additionally, during February 1998, the Company sold to
the underwriter of the initial public offering, warrants
to purchase 100,000 shares, at an exercise price of
$6.00 per share and warrants to purchase 50,000
underlying warrants at an exercise price of $0.12 per
underlying warrant. Each underlying warrant is
exercisable at an exercise price of $7.25 per share.
These warrants expire in February 2003.
In December 1997, the Company effected a 1-for-1.8135268
reverse stock split. All shares and per share data in
the consolidated financial statements have been adjusted
to give retroactive effect to the reverse stock split.
The Board of Directors is authorized to fix the rights,
preferences, privileges and restrictions of any series
of preferred stock, including the dividend rights,
original issue price, conversion rights, voting rights,
terms of redemption, liquidation preferences and sinking
fund terms thereof, and the number of shares
constituting any such series and the designation thereof
and to increase or decrease the number of shares
subsequent to the issuance of shares of such series (but
not below the number of shares of such series then
outstanding).
12. Stock Option Plan The Company has a stock option plan (the "Option Plan")
pursuant to which 525,000 shares of common stock have
been reserved for issuance upon the exercise of options
designated as either (i) incentive stock options
("ISOs") under the Internal Revenue Code of 1986, as
amended (the "Code") or (ii) nonqualified options. ISOs
may be granted under the Option Plan to officers and
employees of the Company. Nonqualified options may be
granted to consultants, directors (whether or not they
are employees), employees or officers of the Company.
F-20
<PAGE>
TAM Restaurants, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
The purpose of the Option Plan is to encourage stock
ownership by certain directors, officers and employees
of the Company and other persons instrumental to the
success of the Company. The Option Plan is intended to
qualify under Rule 16b-3 under the Exchange Act, and is
administered by the Board of Directors. The Board,
within the limitations of the Option Plan, determines
the persons to whom options will be granted, the number
of shares to be covered by each option, whether the
options granted are intended to be ISOs, the duration
and rate of exercise of each option, the option purchase
price per share and the manner of exercise, and the
time, manner and form of payment upon exercise of an
option.
The Company applies APB Opinion 25, "Accounting for
Stock Issued to Employees" ("APB Opinion 25"), and
related Interpretations in accounting for the Option
Plan. Under APB Opinion 25, no compensation cost was
recognized because the exercise price of the Company's
employee stock options equaled the market price of the
underlying stock on the date of grant.
FASB Statement 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), requires the Company to
provide pro forma information regarding net income and
earnings per share as if compensation cost for the
Company's stock option plan had been determined in
accordance with the fair value method prescribed in SFAS
No. 123. The Company estimates the fair value of each
stock option at the grant date by using the
Black-Scholes option-pricing model with the following
weighted average assumptions used for grants in 1998:
dividend yield of 0%; expected volatility of 46.1% for
1998; risk-free interest rates of 5.47%; and expected
lives of 3 years.
F-21
<PAGE>
TAM Restaurants, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Under the accounting provisions of FASB Statement 123,
the Company's net income and earnings per share would
have been reduced to the pro forma amounts for 1999
indicated below:
--------------------------------------------------------
Net loss:
As reported $(2,299,202)
Pro forma (2,611,763)
Net loss per share (basic and diluted):
As reported (.73)
Pro forma (.83)
========================================================
A summary of the status of the Company's stock option
plan as of September 27, 1998, and changes during the
year ended, is presented below:
<TABLE>
<CAPTION>
Weighted
average
Shares exercise price
----------------------------------------------------------------------
<S> <C> <C>
Outstanding at beginning of year -- $ --
Granted 293,500 5.00
Exercised -- --
Forfeited 48,625 5.00
----------------------------------------------------------------------
Outstanding at end of year 244,875 $5.00
======================================================================
Options exercisable at year-end 130,437 $5.00
======================================================================
Weighted average fair value of
options granted during the year $2.13
======================================================================
</TABLE>
F-22
<PAGE>
TAM Restaurants, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
The following table summarizes information about stock
options outstanding at September 27, 1998.
<TABLE>
<CAPTION>
Options outstanding Options exercisable
--------------------------------------- -------------------------
Weighted
average Weighted Weighted
Number remaining average Number of average
Range of outstanding contractual exercise exercisable exercise
exercise prices at 9/27/98 life price at 9/27/98 price
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$5.00 244,875 5 years $5.00 130,437 $5.00
============================================================================================
</TABLE>
13. Income Taxes There is no current or deferred income tax expense for
the years ended 1997 and 1998. The Company in 1997
utilized net operating loss carryforwards and in 1998
was in a loss position.
The Company's deferred tax assets, deferred tax
liabilities and deferred tax asset valuation allowance
are as follows:
<TABLE>
<CAPTION>
September 28, September 27,
1997 1998
--------------------------------------------------------------------------
<S> <C> <C>
Deferred rent expense $106,000 $ 128,000
Deferred expenses 112,000 --
Net operating loss carryforward 679,000 1,476,000
Other 27,000 55,000
--------------------------------------------------------------------------
Total deferred tax assets 924,000 1,659,000
Less: Valuation allowance (924,000) (1,659,000)
--------------------------------------------------------------------------
Total deferred tax liabilities -- --
--------------------------------------------------------------------------
Net deferred tax asset $ -- $ --
==========================================================================
</TABLE>
For tax purposes, the Company has approximately
$3,100,000 of net operating loss carryforwards as of
September 27, 1998, which expire through 2011.
F-23
<PAGE>
TAM Restaurants, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
14. Pending Litigation The operation of restaurants and rowboat and bicycle
rentals subjects the Company to potential claims from
others, including customers, employees and other service
providers for personal injury (resulting from, among
other things, contaminated or spoiled food or beverages
and accidents). The Company is a defendant in several
lawsuits arising in the ordinary course of its business
relating to personal injury claims by plaintiffs which
are seeking damages substantially in excess of the
Company's assets and insurance coverage. The lawsuits
are being handled by the Company's insurance carriers.
The Company is vigorously defending each lawsuit and
believes that such matters are adequately covered by
insurance or, if not so covered, are without merit or
are of such nature or involve such amounts that an
unfavorable disposition would not have a material
adverse effect on the financial condition or operations
of the Company. However, since each lawsuit is in an
early stage, there can be no assurance that any of such
actions will be resolved in favor of the Company or that
the outcome of any litigation or settlement will not
have a material adverse effect on the Company.
F-24
<PAGE>
TAM Restaurants, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
In the ordinary course of business, the Company is a
party to other legal proceedings, the outcome of which,
either singly, or in the aggregate, is not expected to
be material.
15. Cash Flow Cash paid for interest and income taxes is as follows:
Disclosure
September 28, September 27,
Year ended 1997 1998
--------------------------------------------------------
Interest $302,372 $381,716
Income taxes -- 40,279
========================================================
Noncash transactions included the following:
For the year ended September 27, 1998, the Company
entered into new capital lease obligations of $221,135.
16. Subsequent Events In November 1998, the Company's Board of Directors
authorized the designation of 150,000 share of series of
preferred stock ("Series A Preferred Stock") bearing a
10% cumulative dividend payable quarterly in cash,
convertible into common stock at anytime after issuance,
at holder's option, at the rate of one share of common
stock for each share of Series A Preferred Stock,
subject to adjustment under certain circumstances. The
Series A Preferred Stock is senior in rights and
preferences to any subsequently designated series and/or
class of preferred stock and is entitled to one vote per
share of common stock into which the issued and
outstanding shares of Series A Preferred Stock is then
convertible, on all matters submitted to a vote of the
Company's stockholders. Outstanding shares of Series A
Preferred Stock are redeemable at any time by the
Company, at its option, at the redemption price of $5.00
per share, upon timely notice of its intent to redeem.
In December 1998, the Company's Chief Executive Officer
converted $720,405 of indebtedness owed to him into
144,081 shares of Series A Preferred Stock and 72,040
warrants to purchase the Company's common stock at $6
per share. (See Notes 7 and 11.)
In December 1998 the Company entered into a licensing
agreement with KA Industries, an affiliate of a
principal stockholder of the Company, to market products
bearing the names Lundy's, The Boathouse, and Stork Club
through KA Industries' Mrs. Beasley's retail stores,
third-party catalogues and retail establishments.
Pursuant to the agreement, the Company is to receive a
royalty on products sold.
F-25
<PAGE>
TAM Restaurants, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
In December 1998, the Company entered into an
arrangement with KA Industries to operate a commissary
for a bakery, in-house laundry and lobster pound. In
conjunction with the arrangement, the Company entered
into a month-to-month sublease of a portion of its
Bayonne warehouse at approximately $741 per month. In
addition, KA Industries advanced the Company $30,000 to
make modifications to the Bayonne warehouse with such
advance recaptured from rent and other charges due the
Company from KA Industries. (See Notes 7 and 10.)
F-26
