U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
_X_ Quarterly report under Section 13 or 15 (d) of the Securities Exchange Act
of 1934 For the quarterly period ended DECEMBER 30, 1998.
___ Transition report under 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.
(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 13-3905598
(State or other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1163 FOREST AVENUE, STATEN ISLAND, NY 10310
(Address of Principal Executive Offices)
(718) 720-5959
(Issuer's Telephone Number)
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report)
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 ___
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 3,503,000 shares of common stock as
of February 16, 1999.
Transitional Small Business Disclosure Format (check one):
Yes _X_ No ___
<PAGE>
TAM RESTAURANTS, INC. AND SUBSIDIARIES
QUARTER ENDED DECEMBER 30, 1998
FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
Part I. FINANCIAL STATEMENTS Page(s)
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheet as of December 30, 1998 (unaudited). 1
Condensed Consolidated Statements of Operations
For the Thirteen weeks ended December 30, 1998 and
December 28, 1997 (unaudited). 2
Condensed Consolidated Statements of Cash flow For the Thirteen
weeks ended December 30, 1998 and
December 28, 1997 (unaudited). 3
Notes to unaudited Condensed Consolidated
Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition And Results of Operation 6
Part II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 10
Item 6. Exhibits and reports on Form 8-K 10
Signature Page 11
</TABLE>
(i)
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TAM RESTAURANTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
ASSETS
December 30, 1998
<S> <C>
Current Assets
Cash $ 154,458
Accounts receivable (net of allowance for doubtful accounts of $15,000) 375,882
Inventory 405,005
Prepaid and other expenses 438,101
-----------
Total Current Assets 1,373,446
Property and Equipment-Net 5,941,901
Due from Affiliates 298,289
Other Assets 534,849
Loan Receivable - Officer 60,412
-----------
TOTAL ASSETS $ 8,208,897
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 1,267,843
Current portion of loans payable, related parties 1,618
Current portion of capitalized lease obligations 106,972
Accounts payable 1,237,572
Contract deposits payable 206,190
Accrued expenses and other 1,500,594
-----------
Total Current Liabilities 4,320,789
-----------
Long-term Liabilities
Deferred rent expense 272,169
Long-term debt - net of current portion 69,755
Loans payable-related parties - net of current portion 291,180
Capitalized lease obligations-net of current portion 185,903
Barter advances - net of current portion 317,170
-----------
Total Long-term Liabilities 1,136,177
-----------
TOTAL LIABILITIES 5,456,966
-----------
Commitments and Contingencies
STOCKHOLDERS' EQUITY
Stockholders' Equity
Preferred stock; $.0001 par value; 1,000,000 shares authorized,
144,081 shares issued and outstanding 14
Common stock; $.0001 par value, 19,000,000 shares authorized;
3,503,000 shares issued and outstanding 350
Additional paid-in capital 7,947,366
Accumulated deficit (5,195,799)
-----------
TOTAL STOCKHOLDERS' EQUITY 2,751,931
-----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 8,208,897
===========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
1
<PAGE>
TAM RESTAURANTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Thirteen Weeks Ended
December 28, December 30,
1997 1998
----------- -----------
Sales $ 2,378,827 $ 3,954,551
Cost of Sales 1,525,996 2,324,826
----------- -----------
Gross Profit 852,831 1,629,725
Operating and Administrative Expenses 1,070,469 1,506,103
----------- -----------
Income (Loss) from Operations (217,638) 123,622
----------- -----------
Other Expense
Interest expense 107,316 157,608
Barter expense 101,474 80,469
----------- -----------
Total Other Expense 208,790 238,077
----------- -----------
Net Loss $ (426,428) $ (114,455)
=========== ===========
Net loss per share:
Basic and Diluted $(.17) $(.03)
=========== ===========
Weighted average number of
common shares outstanding - basic and diluted 2,500,000 3,503,000
=========== ===========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
2
<PAGE>
TAM RESTAURANTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Thirteen weeks Ended
December 28, 1997 December 30, 1998
----------------- -----------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (426,428) $ (114,455)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation and amortization expense 90,086 287,479
Deferred rent expense 12,840 --
Amortization of original issue discount -- 77,085
Deferred income (7,819) (6,000)
(Increase) decrease in:
Accounts receivable (8,716) 284,640
Inventory (2,034) (23,247)
Prepaid and other expenses (17,823) (88,676)
Other assets 3,420 (1,937)
Increase (decrease) in:
Accounts payable 1,157,975 274,869
Contract deposits payable (4,671) (164,102)
Accrued expenses (625,615) (291,031)
----------- -----------
Net Cash provided by Operating Activities 171,215 234,625
----------- -----------
Cash Flows from Investing Activities:
Acquisition of property and equipment (726,033) (149,406)
----------- -----------
Cash Flows from Financing Activities:
Net repayments (advances) of officer's loans 10,158 (21,283)
Loans receivable 1,997 --
Proceeds from long-term debt 1,000,000 --
Principal payments on long-term
and capitalized lease obligations (257,166) (49,423)
Advances to affiliates and others (113,155) (81,539)
Deferred stock offering costs (206,474) --
----------- -----------
Net Cash provided by (used in) Financing Activities 435,360 (152,245)
----------- -----------
Net decrease in cash (119,458) (67,026)
Cash, Beginning of year 281,625 221,484
----------- -----------
Cash, End of period $ 162,167 $ 154,458
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements
3
<PAGE>
TAM RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-QSB
and Item 310(b) of Regulation S-B. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of only normal recurring accruals) considered
necessary for a fair presentation have been included. It is suggested that
the financial statements be read in conjunction with the Company's
consolidated audited financial statements and footnotes thereto contained
in the Company's Form 10-KSB for the fiscal year ending September 27, 1998.
Operating results for the thirteen week period ended December 30, 1998 are
not necessarily indicative of the results that may be expected for the full
fiscal year ending September 29, 1999.
2. Accounting Period
The Company reports on a 52/53 year. For fiscal 1999 the Company changed
its period end day from Sunday to Wednesday in order to facilitate better
cost controls and streamline its reporting systems. As a result the first
quarter of fiscal 1999 includes three additional days of revenues and
expenses when compared to fiscal 1998. The net effect of which had no
material effect on the revenues and expenses reported in the period ending
December 30, 1998.
3. Long-Term Debt
In October 1997, the Company obtained $1,000,000 in a secured loan from two
entities. The loan bears interest at 10% per annum, payable quarterly and
matures September 30, 1999. The loan is guaranteed by a principal
stockholder of the Company and the guarantee is secured by a pledge of
200,000 shares of common stock held by such stockholder.
Additionally, as partial consideration for the loan, the Company granted to
the entities warrants to purchase 200,000 shares of common stock at an
exercise price of $5.00 per share expiring in October 2002. The issuance of
these warrants gave rise to an original issue discount which has been
valued at $482,000. As of December 30, 1998 $231,255 of original issue
discount expense remains to be amortized.
In October 1997, 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. On December 30, 1998, Mr. Cretella converted the
$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.
4. Loss Per Share
For the calculation of the loss per share for the three months ended fiscal
1999 and 1998, all of the Company options and warrants are excluded for
basic and diluted loss per share as they are anti-diluted.
4
<PAGE>
5. Preferred Stock
The Company's Board of Directors authorized the designation of 150,000
shares of preferred stock, of the 1,000,000 previously authorized and
unallocated, to be 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 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.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 related to the opening of new restaurants, including
capital requirements, continued popularity of existing and 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 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.
Results of Operations
Sales for the thirteen weeks ended December 30, 1998 were $3,954,551, an
increase of $1,575,724 or 66.2%, as compared to $2,378,827 for the thirteen
weeks ended December 28, 1997. The increase in sales for the thirteen week
period was primarily due to the addition of American Park , which opened in the
third quarter of fiscal 1998 and increased sales at The Boathouse. American
Park's sales during the thirteen weeks ended December 30, 1998 were $850,107.
Beginning in fiscal 1999, the Company changed its period end from Sunday to
Wednesday the result of which added three additional days of sales into the
thirteen weeks ended December 30, 1998 when compared to the thirteen weeks ended
December 28, 1997. A total of $43,237 in sales were generated by the additional
three days included in the thirteen weeks ended December 30, 1998.
Cost of sales for the thirteen weeks ended December 30, 1998 were
$2,324,826 or 58.8% of sales as compared to $1,525,996 or 64.1% of sales for the
thirteen weeks ended December 28, 1997. The decrease in the cost of sales
relative to overall sales can be attributed to the Company's tightening of
purchasing specifications and the implementation of menu changes and labor cost
controls at all of the units which were initiated in the fourth quarter of
fiscal 1998.
As a result of the foregoing, gross profit for the thirteen weeks ended
December 30, 1998 was $1,629,725 or 41.2% of sales as compared to $852,831 or
35.9% of sales for the thirteen weeks ended December 27, 1997.
Operating and administrative expenses for the thirteen weeks ended December
30, 1998 were $1,506,103, an increase of $435,634 as compared with $1,070,469
for the thirteen weeks ended December 27, 1997. The increase relates primarily
to the addition of $362,568 in expenses for American Park, which opened in the
third quarter of fiscal 1998, and increased rent and depreciation at The
Boathouse. Operating and administrative expenses as a percentage of sales was
38.1% for the thirteen weeks ended December 30, 1998, as compared to 45.0% for
the thirteen weeks ended December 27, 1997, a decrease of 6.9%. The decrease in
operating and administrative
6
<PAGE>
expenses relative to overall sales can be attributed to operating efficiencies
accomplished through contract negotiations with significant vendors and a
reduction in corporate overhead.
Other expenses for the thirteen weeks ended December 30, 1998 were
$238,077 an increase of $29,287 or 14.0% as compared to $208,790 for the
thirteen weeks ended December 27, 1997. Other expenses for the thirteen weeks
ended December 30, 1998 consisted of $80,469 of barter expense as compared to
$101,474 in fiscal 1998. However, the decrease in barter expense was offset by
an increase in interest expense related to a $77,085 charge for original issue
discount for the Kayne Anderson warrants.
As a result of the foregoing, the net loss amounted to $114,455 or $.03 per
share for the thirteen weeks ended December 30, 1998 as compared to a net loss
of $426,428 or $.17 per share for the thirteen weeks ending December 27, 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 December 30, 1998, the Company had a working capital deficit of
$2,947,343), 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
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 the thirteen weeks ended December 30, 1998, net cash decreased by
$67,026. Net cash provided by operating activities was $234,625. Net cash used
in investing activities was $149,406, relating primarily to the additional
catering space at Lundy's and the renovation of the indoor dining space at The
Boathouse. The net decrease in cash from financing activities was $152,245.
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
were originally 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
7
<PAGE>
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 pay 50% of The Boathouse operating profits
rather than 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.
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 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.
8
<PAGE>
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 has evaluated and is in the process of updating its internal
Management Information Systems to ensure that it will have the capability to
manage and manipulate data in the year 200 and beyond. As the Company takes
measures to be in compliance, new programs are currently being tested. It is
anticipated that the Company's information technology ("IT") systems will be
substantially compliant by the end of the third quarter of the fiscal year
ending September 29, 1999. Costs incurred by the Company to date to implement
its plan have not been material and are not expected to have a material effect
on the Company's financial condition or results of operations.
The Company has begun to assess the compliance of its non-IT systems. It is
anticipated that these systems will be compliant by December 31, 1999.
The Company has addressed year 2000 compliance with its major vendors and
service providers and anticipates that those key vendors and service providers
who are not yet compliant will be prior to year end.
Inflation
The effect of inflation on the Company has not been significant during the
last two fiscal years.
9
<PAGE>
PART II
OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
(a) 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 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.
(b) 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 $6.00 per share.
Item 6. Changes in Securities and Use of Proceeds.
(a) Exhibits.
3.1 Certificate of Designation, Powers, Preferences, and Rights of the 10%
Cumlative Convertible Redeemable Preferred Stock, Series A.
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the thirteen weeks
ended December 30, 1998.
10
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TAM RESTAURANTS, INC. AND SUBSIDIARIES
Signature Page
In accordance with the requirements of the Exchange Act , the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized on the 16th day of February, 1999.
TAM RESTAURANTS, INC.
(Registrant)
Dated: February 16, 1999 /s/ Frank Cretella
--------------------------------------
Frank Cretella
President and Chief Executive officer
Dated: February 16, 1999 /s/ Anthony B. Golio
--------------------------------------
Anthony B. Golio
Vice President
11
TAM RESTAURANTS, INC.
CERTIFICATE OF DESIGNATION, POWERS, PREFERENCES,
AND RIGHTS OF THE 10% CUMULATIVE CONVERTIBLE
REDEEMABLE PREFERRED STOCK, SERIES A
($.0001 Par Value)
------------------------------
Pursuant to the provisions of Section 151(g) of the Delaware General
Corporation Law, the undersigned President and Chief Executive Officer of TAM
Restaurants, Inc., a Delaware corporation (the "Corporation") hereby certifies
that the following resolution stating the relative rights, preferences and
limitations of a series of preferred stock of the Corporation, was approved by
the unanimous vote of all of the members of the Board of Directors of the
Corporation at a meeting of the Board of Directors held on November 19, 1998:
RESOLVED, that the Board of Directors, pursuant to authority expressly
vested in it by the provisions of the Certificate of Incorporation of the
Corporation, as amended (hereinafter the "Certificate of Incorporation"), hereby
authorizes the issue from time to time of a series of Preferred Stock, par value
$.0001 per share, of the Corporation and hereby fixes the designation,
preferences and relative, participating, optional or other rights, and the
qualifications, limitations or restrictions thereof, in addition to those set
forth in said Certificate of Incorporation to be in their entirety as follows:
Section 1. Designation. The series of Preferred Stock shall be designated
and known as "10% Cumulative Convertible
<PAGE>
Redeemable Preferred Stock, Series A" (the "Series A Preferred Stock"). The
number of shares constituting such series shall be 150,000.
Section 2. Liquidation Rights. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation, the
holders of each share of Series A Preferred Stock shall be entitled to receive,
prior and in preference to any distribution of any of the assets or surplus
funds of the Corporation to the holders of the Common Stock or any other class
or series of the Corporation's capital stock ranking junior as to liquidation
rights to the Series A Preferred Stock of the Corporation by reason of their
ownership thereof, an amount equal to the dividends accrued and unpaid thereon
to the date of final distribution to such holders, whether or not declared, and
a sum equal to Five Dollars ($5.00) per share.
All of the preferential amounts to be paid to the holders of the Series A
Preferred Stock under this Section 2 shall be paid or set apart for payment
before the payment or setting apart for payment of any amount for, or the
distribution of any assets of the Corporation to, the holders of the Common
Stock or any other series of capital stock of the Corporation ranking junior as
to liquidation rights to the holders of Series A Preferred Stock, in connection
with such liquidation, dissolution or winding up. After the payment or the
setting apart of payment to the holders of the Series A Preferred Stock of the
preferential amounts so payable to them, the holders of Common Stock shall be
entitled to receive all remaining assets of the Corporation available for
-2-
<PAGE>
distribution to stockholders subject to the rights of the holders, if any, of
the Corporation's capital stock that rank prior to or on a parity with the
Common Stock as to liquidation rights.
If the assets or surplus funds to be distributed to the holders of the
Series A Preferred Stock are insufficient to permit the payment to such holders
of their preferential amount, the assets and surplus funds legally available for
distribution shall be distributed ratably among the holders of the Series A
Preferred Stock in proportion to the full preferential amount each such holder
is otherwise entitled to receive.
Neither a consolidation or merger of the Corporation with another
corporation nor a sale or transfer of all or part of the Corporation's assets
for cash, securities or other property will be considered a liquidation,
dissolution or winding up of the Corporation.
Section 3. Dividends and Distributions.
(a) The holders of shares of Series A Preferred Stock, in preference to the
holders of shares of Common Stock and any shares of other capital stock of the
Corporation ranking junior to the Series A Preferred Stock as to payment of
dividends, shall be entitled to receive, when, as and if declared by the Board
of Directors, out of the assets of the Corporation legally available therefor,
cumulative cash dividends at an annual rate of ten percent (10%) per share as
long as the shares of Series A Preferred Stock remains outstanding. Dividends
shall accrue and be payable quarterly, in arrears, on the first business day of
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<PAGE>
the month immediately following the last day of the Corporation's fiscal quarter
commencing April 1, 1999.
(b) Dividends payable pursuant to paragraph (a) of this Section 3 shall
begin to accrue and be cumulative from the date of original issuance by the
Corporation, whether or not funds are available for issuance. Dividends paid on
the shares of Series A Preferred Stock in an amount less than the total amount
of such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Series A Preferred Stock entitled to receive payment of
a dividend declared hereon, which record date shall be no more than sixty (60)
days prior to the date fixed for the payment thereof.
(c) The holders of shares of Series A Preferred Stock shall not be entitled
to receive any dividends or other distributions except as provided herein.
Section 4. Conversion.
(a) Conversion by Holder. Subject to the provisions of paragraph (c) of
this Section 4 and of Section 7 hereof, the holders of shares of the Series A
Preferred Stock shall have conversion rights as follows: Outstanding shares of
Series A Preferred Stock may be converted by the holders thereof into fully paid
and nonassessable shares of the Corporation's Common Stock in the manner
hereinafter provided in paragraphs (c) and (d) of this Section 4.
-4-
<PAGE>
(b) Conversion Ratio. Subject to the provisions regarding the redemption of
shares of Series A Preferred Stock as provided in Section 7 hereof, each share
of Series A Preferred Stock shall be convertible at the option of the Holder
into one (1) share of the Corporation's Common Stock (the "Conversion Ratio");
provided, however, in the event of a stock dividend, recapitalization,
reorganization, merger, consolidation, subdivision, combination or
reclassification of shares of the Corporation's Common Stock, as the case may
be, or any other change in the corporate structure or shares of the
Corporation's Common Stock, as the case may be, prior to the conversion of the
Series A Preferred Stock, the Corporation shall make such adjustment as the
Board of Directors of the Corporation, in its good faith judgment, shall deem
necessary, in the Conversion Ratio to give each holder of the Series A Preferred
Stock substantially the same rights as the holder of the Series A Preferred
Stock had immediately prior to the occurrence of such event. In the event of any
consolidation of the Corporation with, or merger of the Corporation into,
another corporation where the Corporation is not the successor entity, or in the
case of the sale or conveyance to another corporation of substantially all of
the property of the Corporation, then the holder of the Series A Preferred Stock
shall thereafter, upon conversion of the Series A Preferred Stock in accordance
with the terms hereof, prior to the record date for such consolidation, merger,
sale or conveyance, have the right to purchase and receive the kind and number
of shares of stock and other securities or properties
-5-
<PAGE>
receivable upon such consolidation, merger, sale or conveyance, that would have
been issued to the holder of the Series A Preferred Stock had the Series A
Preferred Stock been converted immediately prior to such event.
(c) Mechanics of Conversion. The right of the holders of the Series A
Preferred Stock to convert their shares shall be exercised by transmitting to
the Corporation at its principal executive offices or such other place as the
Corporation shall specify in writing, a notice of such conversion together with
certificates representing shares of the Series A Preferred Stock to be
converted, duly endorsed in blank and accompanied by such proper instruments of
transfer as may be requested by the Corporation. The notice shall state the
number of shares of Series A Preferred Stock to be converted together with the
applicable conversion ratio to be applied. The Corporation shall promptly, after
receipt of the foregoing together with such other documents and evidence of
payments of any required taxes on the part of the holder it may reasonably
require, issue to the holder of the Series A Preferred Stock the appropriate
number of shares of the Corporation's Common Stock.
(d) No Impairment. The Corporation shall not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation but will at
all times in good faith assist in the
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<PAGE>
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
conversion rights of the holders of the Series A Preferred Stock against
impairment.
(e) Certificate as to Adjustments. Upon the occurrence of each adjustment
to the Conversion Ratio pursuant to this Section 4, the Corporation, at its
expense, shall promptly compute such adjustment in accordance with the terms
hereof and furnish to each holder of Series A Preferred Stock a certificate
setting forth such adjustment and showing in detail the facts upon which such
adjustment is based. The Corporation shall, upon the written request at any time
of any holder of Series A Preferred Stock, furnish or cause to be furnished to
such holder a like certificate setting forth (i) such adjustments, (ii) the
Conversion Ratio, at the time in effect, and (iii) the number of shares of
Common Stock and the amount, if any, of other property which at the time would
be received upon the conversion of Series A Preferred Stock.
(f) Notices of Record Date. In the event of any taking by the Corporation
of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend (other
than a cash dividend which is the same as cash dividends paid in previous
quarters) or other distribution, the Corporation shall mail to each other holder
of Series A Preferred Stock at least ten (10) days prior to the date therein, a
notice specifying the date on which any such record is to be taken for the
purpose of such
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<PAGE>
dividend or distribution.
(g) Common Stock Reserved. The Corporation shall reserve and keep available
out of its authorized but unissued Common Stock such number of shares of its
Common Stock as shall from time to time be sufficient to effect the conversion
of the Series A Preferred Stock.
Section 5. Voting Rights. Except as otherwise required by law or as set
forth below the holders of shares of Series A Preferred Stock shall be entitled
to notice of all stockholders' meeting and shall be entitled to vote upon any
matter submitted to the stockholders of the Corporation for a vote. Each holder
of Series A Preferred Stock shall be entitled to one vote per share of Common
Stock into which such holder's Series A Preferred Stock is then convertible,
calculated as of the record date set forth in the notice of stockholders
meeting.
So long as any shares of the Series A Preferred Stock remain outstanding,
the Corporation will not, either directly or indirectly or through merger or
consolidation with any other corporation, without the affirmative vote at a
meeting or the written consent with or without a meeting of the holders of at
least a majority in voting power of the shares of Series A Preferred Stock then
outstanding, amend, alter or repeal any of the provisions of the Certificate of
Designation, Powers, Preferences and Rights of the Series A Preferred Stock or
Series A Preferred Stock or the Certificate of Incorporation of the Corporation,
or authorize any reclassification of the Series A Preferred Stock, so as in any
such case to affect adversely the
-8-
<PAGE>
preferences, special rights or powers of the Series A Preferred Stock, or to
increase the authorized number of shares of Preferred Stock or Series A
Preferred Stock or create or authorize any capital stock of the Corporation
ranking, either as to payment of dividends or upon liquidation, dissolution or
winding up of the Corporation, on a parity with or prior to the Series A
Preferred Stock.
Section 7. Redemption.
(a) The Corporation shall have the right, at its sole option and election
made in accordance with paragraph (c) of this Section 7, to redeem, out of funds
legally available therefor, shares of Series A Preferred Stock, in whole or in
part, at a price of $5.00 per share plus all accrued and unpaid dividends (the
"Redemption Price").
(b) If less than all shares of Series A Preferred Stock at the time
outstanding are to be redeemed, the shares to be redeemed shall, at the election
of the Board of Directors of the Corporation, be selected pro rata or by lot or
such other manner as the Board of Directors may determine;
(c) (i) Notice of any redemption of shares of Series A Preferred Stock
pursuant to this Section 7 shall be mailed at least ten (10), but not more than
sixty (60), days prior to the date fixed for redemption to each holder of shares
of Series A Preferred Stock to be redeemed, at such holder's address as it
appears on the transfer books of the Corporation. Holders of Series A Preferred
Stock shall have conversion rights, in accordance with the provsions of Section
4 hereof, until the
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<PAGE>
close of business on the business day immediately preceding the date fixed for
redemption. In order to facilitate the redemption of shares of Series A
Preferred Stock, the Board of Directors may fix a record date for the
determination of the holders of shares of Series A Preferred Stock to be
redeemed and the date fixed for such redemption. The Corporation shall redeem
the number of shares so specified on the date fixed for redemption. Any notice
which is mailed as herein provided shall be conclusively presumed to have been
duly given, whether or not the holder of the Series A Preferred Stock receives
such notice. On or after the date fixed for redemption as stated in such notice,
each holder of the shares called for redemption shall surrender the certificate
evidencing such shares to the Corporation at the place designated in such notice
and shall thereupon be entitled to receive payment of the Redemption Price. If
less than all the shares represented by any such surrendered certificate are
redeemed, a new certificate shall be issued representing the unredeemed shares.
(d) On the date of any redemption being made pursuant to this Section 7
which is specified in a notice given pursuant to paragraph (c) of this Section 7
and at any time after such notice shall have been mailed and before the date of
redemption the Corporation may deposit, for the benefit of the holders of shares
of Series A Preferred Stock to be redeemed, the funds necessary for such
redemption with a bank or trust company. Any monies so deposited by the
Corporation and unclaimed at the end of three years from the date designated for
such redemption shall revert to the general funds of the Corporation. After such
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<PAGE>
reversion, any such bank or trust company shall, upon demand, pay over to the
Corporation such unclaimed amounts and thereupon such bank or trust company
shall be relieved of all responsibility in respect thereof and any holder of
shares of Series A Preferred Stock to be redeemed shall look only to the
Corporation for the payment of the Redemption Price. In the event that monies
are deposited pursuant to this paragraph (d) in respect of shares of Series A
Preferred Stock that are converted in accordance with the provisions of Section
4, such monies shall, upon such conversion, revert to the general funds of the
Corporation and, upon demand, such bank or trust company shall pay over to the
Corporation such monies and shall be relieved of all responsibility to the
holders of such converted shares in respect thereof. Any interest accrued on
funds deposited pursuant to this paragraph (d) shall be paid from time to time
to the Corporation for its own account.
(e) Notice of redemption having been given as aforesaid, notwithstanding
that any certificates for such shares shall not have been surrendered for
cancellation, from and after the date of redemption designated in the notice of
redemption (i) the shares represented thereby shall no longer be deemed
outstanding, (ii) the rights to receive dividends thereon shall cease to accrue,
and (iii) all rights of the holders of shares of Series A Preferred Stock to be
redeemed shall cease and terminates, excepting only the right to receive the
Redemption Price therefor and the right to convert such shares into shares of
Common Stock until the close of business on the business date
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<PAGE>
immediately preceding the date of redemption, in accordance with Section 4.
IN WITNESS WHEREOF, this Corporation has caused this Certificate to be duly
executed on its behalf by the undersigned Vice President this 29th day of
December 1998.
TAM RESTAURANTS, INC.
By: /s/ Anthony Golio
----------------------------
Anthony Golio
Vice President
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS IN THIS REPORT ON FORM 10-QSB AND IS QUALIFIED IN
ITS ENTIREDTY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-29-1999
<PERIOD-END> DEC-30-1998
<CASH> 154,458
<SECURITIES> 0
<RECEIVABLES> 390,882
<ALLOWANCES> 15,000
<INVENTORY> 405,005
<CURRENT-ASSETS> 1,373,446
<PP&E> 8,745,154
<DEPRECIATION> 2,803,253
<TOTAL-ASSETS> 8,208,897
<CURRENT-LIABILITIES> 4,320,789
<BONDS> 0
0
14
<COMMON> 350
<OTHER-SE> 2,751,567
<TOTAL-LIABILITY-AND-EQUITY> 8,208,897
<SALES> 3,954,551
<TOTAL-REVENUES> 3,954,551
<CGS> 2,324,826
<TOTAL-COSTS> 2,324,826
<OTHER-EXPENSES> 80,469
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 157,608
<INCOME-PRETAX> (114,455)
<INCOME-TAX> 0
<INCOME-CONTINUING> (114,455)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (114,455)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
