SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended September 29, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------------------------------------
Commission file number 0-10213
-------------------------------------
FAST FOOD OPERATORS, INC. d/b/a
POPEYES FAMOUS FRIED CHICKEN OF NEW YORK
(Exact name of registrant as specified in its charter)
NEW YORK
(State or other jurisdiction of
incorporation or organization)
42-40 BELL BOULEVARD
BAYSIDE, NEW YORK
(Address of principal executive offices)
11361
(Zip Code)
13-2974867
(IRS Employer Identification Number)
(718) 229-1113
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No
The number of shares outstanding of each of the issuer's
classes of common stock was 8,914,300 shares of common stock,
par value $.01, outstanding as at October 31, 1996.
FAST FOOD OPERATORS, INC. AND SUBSIDIARIES
FORM 10-Q THIRD QUARTER 1996
INDEX
-----
PART I PAGE NO.
- ------ -------
Financial Information:
Condensed Consolidated Balance Sheets-
September 29, 1996 and December 31, 1995 2
Condensed Consolidated Statements of
Operations-for the Three and Nine Months
Ended September 29, 1996 and September 24, 1995 3-4
Condensed Consolidated Statements of
Cash Flows-for the Nine Months Ended
September 29, 1996 and September 24, 1995 5-6
Notes to Condensed Consolidated Financial
Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-9
PART II
- -------
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults upon Senior Securities 10
Item 4. Submission of Matters to a Vote
of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 10
FAST FOOD OPERATORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 29, December 31,
1996 1995
(UNAUDITED) *
----------- -----------
ASSETS
Current assets:
Cash $ 311,124 $ 106,569
Inventory 32,839 35,676
Due from Integrated Food
Systems, Inc. 0 153,010
Prepaid expenses and other
current assets 45,937 138,576
---------- ----------
Total current assets 389,900 433,831
Property, plant and equipment, net 480,822 477,476
Other assets:
Franchise fees, net 3,542 5,417
Deferred costs 11,474 12,630
Security deposits 13,500 20,014
---------- ----------
Total assets $ 899,238 $ 949,368
========== ==========
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities:
Due to Integrated Food
Systems, Inc. $ 14,318 $ 0
Accounts payable, accrued expenses
and other current liabilities 307,379 396,521
Taxes payable 55,866 49,042
---------- ----------
Total current liabilities: 377,563 445,563
Security deposits payable 21,000 10,630
---------- ----------
Total liabilities: 398,563 456,193
---------- ----------
Shareholders' equity -
Common stock - $.01 par value;
authorized 10,000,000 shares;
issued and outstanding
8,914,300 shares 89,143 89,143
Additional paid-in capital 2,232,005 2,232,005
Retained earnings (deficit) (1,820,473) (1,827,973)
---------- ----------
500,675 493,175
---------- ----------
Total liabilities and
shareholders' equity $ 899,238 $ 949,368
========== ==========
See accompanying notes to condensed consolidated financial statements.
*Condensed from audited financial statements.
FAST FOOD OPERATORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
September 29, September 24,
1996 1995
------------ ------------
Sales $1,502,519 $1,606,045
Cost of sales 519,286 559,003
---------- ----------
Gross Profit 983,233 1,047,042
---------- ----------
Store labor expenses 381,884 449,182
Store operating and occupancy expenses 386,906 395,063
Advertising and royalty expenses 121,205 129,804
General and administrative expenses 51,442 86,144
Interest expense 0 0
Rental income (7,291) ( 16,731)
Interest income ( 161) ( 1,098)
Gain on sales of restaurants 0 (247,909)
Loss on termination of development
agreement 0 0
Loss on termination of lease 0 0
---------- ----------
933,985 794,455
---------- ----------
Income before income taxes 49,248 252,587
Provision for income taxes 1,000 6,500
---------- ----------
Net income $ 48,248 $ 246,087
========== ==========
Weighted average number of shares
outstanding 8,914,300 8,914,300
========== ==========
Net income per share $ 0 $ .03
========== ==========
See accompanying notes to condensed consolidated financial statements.
FAST FOOD OPERATORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine Months Ended
September 29, September 24,
1996 1995
------------ ------------
Sales $3,993,976 $5,104,573
Cost of sales 1,321,412 1,703,346
---------- ----------
Gross Profit 2,672,564 3,401,227
---------- ----------
Store labor expenses 1,078,911 1,483,784
Store operating and occupancy expenses 1,070,130 1,315,144
Advertising and royalty expenses 321,177 411,111
General and administrative expenses 235,144 267,478
Interest expense 0 5,714
Rental income (41,137) ( 50,451)
Interest income ( 161) ( 1,098)
Gain on sales of restaurants 0 (522,784)
Loss on termination of development
agreement 0 40,000
Loss on termination of lease 0 37,319
---------- ----------
2,664,064 2,986,217
---------- ----------
Income before income taxes 8,500 415,010
Provision for income taxes 1,000 13,000
---------- ----------
Net income $ 7,500 $ 402,010
========== ==========
Weighted average number of shares
outstanding 8,914,300 8,914,300
========== ==========
Net income per share $ 0 $ .05
========== ==========
See accompanying notes to condensed consolidated financial statements.
FAST FOOD OPERATORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 29, September 24,
1996 1995
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,500 $ 402,010
--------- ---------
Adjustments to reconcile net income
to net cash provided (used) by
operating activities
Depreciation and amortization 85,965 112,339
Gain on sale of restaurants 0 (522,784)
Loss on termination of development
agreement 0 40,000
Loss on termination of lease 0 37,319
Change in assets and liabilities:
Inventory 2,837 (8,666)
Prepaid expenses and other
current assets 92,639 98,310
Due to Integrated Food Systems 167,328 (485,385)
Accounts payable, accrued
expenses and other current
liabilities (89,142) (195,569)
Taxes payable 6,824 6,176
Security deposits 16,884 1,861
--------- ---------
283,335 (916,399)
--------- ---------
Net cash provided (used) by operating
activities 290,835 (514,389)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed and other assets (86,280) (133,994)
Proceeds from sales of restaurants 0 766,658
Collections on short-term receivable 0 17,500
Other 0 ( 2,500)
--------- ---------
Net cash provided (used) by investing
activities (86,280) 647,664
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of indebtedness 0 (133,221)
--------- ---------
Net increase (decrease) in cash 204,555 ( 54)
CASH, beginning of period 106,569 210,392
--------- ---------
CASH, end of period $ 311,124 $ 210,446
========= =========
See accompanying notes to condensed consolidated financial statements.
FAST FOOD OPERATORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 29, September 24,
1996 1995
------------ ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $ 0 $ 5,740
========= =========
Income taxes $ 17,000 $ 3,000
========= =========
Non-cash investing and financing
activities:
Book value of restaurant assets
sold $ 0 $ 313,874
========= =========
Book value of assets written-off
on lease termination $ 0 $ 88,319
========= =========
Short-term receivable arising from
sale of restaurant $ 0 $ 67,500
========= =========
Credit received from lessor on
lease termination $ 0 $ 51,000
========= =========
Write-off of franchise options $ 0 $ 40,000
========= =========
Discount on debt prepayment $ 0 $ 5,000
========= =========
See accompanying notes to condensed consolidated financial statements.
FAST FOOD OPERATORS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of the Company, the accompanying unaudited
condensed consolidated financial statements contain all adjustments
(consisting of only normal recurring accruals) necessary to present
fairly the financial position as of September 29, 1996, and the
results of operations and cash flows for the three and nine-month
periods ended September 29, 1996 and September 24, 1995.
2. The condensed consolidated results of operations for the three
and nine-month periods ended September 29, 1996, are not
necessarily indicative of the results to be expected for the full
year.
3. Effective April 1, 1996 the Company entered into a management
agreement with an individual (the "Manager") to manage the
operations of its Popeye's Restaurant on Empire Boulevard in
Brooklyn. The agreement expires December 31, 1996 and may be
cancelled by the Company or the Manager, in each case, upon written
notice of 30 or 90 days, respectively. If the agreement is
terminated by reason of the Manager's breach or is otherwise
terminated by the Manager for any reason other than a breach by the
Company, the Manager must pay a $10,000 termination fee. The
Manager paid a $15,000 security deposit upon the commencement of
the agreement.
The agreement provides for a monthly management fee to the
Manager equal to the restaurant's cash flow less the greater of
$200 or five percent of such monthly cash flow, calculated monthly
and not cumulatively. Conversely stated, the Company receives the
greater of $200 per month or five percent of the restaurant's
monthly cash flow. Any negative cash flow in any month is borne by
the Manager and the Company still receives the $200 minimum amount
for such month. The Company earned the minimum $1,200 amount for
the six months ended September 29, 1996. The net amount retained
by the Manager for the six months ended September 29, 1996 was
$10,067. This amount is included with the management fee paid by
the Company to Integrated Food Systems, Inc.
4. On August 1, 1996, the Company assigned a lease for certain
former restaurant premises it was sub-leasing to a third party.
Such assignment resulted in neither gain nor loss but terminated
the Company's liability as lessee. The Company had been realizing
net monthly rental income on the property of $1,000 (over its
monthly rental expenses of $3,591).
5. Income per share is based upon the income for the period
divided by the weighted average number of common shares outstanding
during the period.
Item 2
- ------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Net sales for the quarter ended September 29, 1996 decreased by
$103,526 to $1,502,519 from $1,606,045 in 1995, a decrease of 6.4%,
attributable to the Company operating up to two fewer restaurants
during the current quarter due to the sales of restaurants in 1995.
Sales for the six restaurants which were operated throughout both
the 1996 and 1995 quarters increased by $127,281 or 9.2% to
$1,502,519 in 1996 from $1,378,238 in 1995. The increase in same-
store sales was due to the Company offering reduced discounts on
menu items during the quarter while retaining increased customer
counts gained during prior periods of higher discounting. Except
for a second consecutive quarterly sales loss at the Brooklyn
location sub-leased from and shared with a fast food restaurant
previously owned and operated by Integrated Food Systems, Inc.
(IFS) - this time at 17.0% off from the 1995 quarter - all
continuing stores had sales gains ranging from 0.9% to 22.7% for
the quarter. The sales decrease at the shared location was due to
a large discount offered by the other restaurant on a competing
chicken menu item. By borough, Brooklyn and Queens increased by
10.1% and 2.5% in the aggregate, respectively, and the sole
Manhattan location, believed by the Company to be the franchisor's
volume leader, increased by 14.2%. The largest sales gain, 22.7%
for the quarter (and 23.1% for the nine months), was recorded by
the oldest Brooklyn location, which again benefitted from a
significant interior remodel completed earlier in the year. For
the nine-month, year-to-date period, total sales decreased by
$1,110,597 or 21.8% to $3,993,976 in 1996 from $5,104,573 in 1995,
while same-store sales increased by $367,191 or 10.1% to $3,993,976
in 1996 from $3,626,786 in 1995.
Cost of sales decreased by $39,717 or 7.1% to $519,286 for the
quarter and by $381,934 or 22.4% to $1,321,412 for the nine months,
consistent with the sales declines. As a percentage of sales, cost
of sales decreased by 0.2% and 0.3%, respectively to 34.6% and
33.1% for the quarterly and nine-month periods, respectively. The
slight improvement in the gross profit percentage derives from
reduced discounting in the current quarter and year-to-date
periods. The current cost of chicken is averaging approximately
10.0% higher than last year; small but noticeable savings are being
made in paper costs this year due to a change in product mix
related to the menu prices charged.
Store labor expenses declined by $67,298 to $381,884 for the
quarter and by $404,873 to $1,078,911 for the nine months,
decreases of 15.0% and 27.3%, respectively. As a percentage of
sales, labor decreased by 2.6% to 25.4% for the quarter and by 2.1%
to 27.0% for the nine months. The savings for the quarterly and
year-to-date periods was fairly evenly distributed throughout the
labor expense categories and was due principally to the effect of
reduced discounts on menu items.
Store operating and occupancy expenses decreased by $8,157 to
$386,906 for the quarter and by $245,014 to $1,070,130 for the nine
months, decreases of 2.1% and 18.6%, respectively. As a percentage
of sales, they increased by 1.2% and 1.0% for the quarterly and
nine-month periods to 25.8% and 26.8% of sales, respectively. The
increase for the year-to-date period, reflects a 1.1% increase in
insurance costs, due to the high premiums incurred to insure only
six locations; higher utility costs of approximately 0.5%; higher
rent and percentage rent costs aggregating 0.6% as the remaining
restaurants pay proportionately higher base and percentage rents;
and savings of 0.7% related to real estate, occupancy and water and
sewer taxes and 0.3% for security costs.
Advertising and royalty expenses were constant at 8.1% of sales for
all periods, reflecting the Company's contractual obligations as
franchisee.
General and administrative expenses decreased by $34,702, or 40.3%,
to $51,442 for the quarter and by $32,334 or 12.1% to $235,144 for
the nine months. Management fees to IFS increased to $4,500
quarterly per store effective January 26, 1996 due to the new
minimum aggregate fee of $108,000. The new management agreement
for the Empire Boulevard location in Brooklyn resulted in increased
management fees of $3,728 and $10,067 for the quarter and nine
months, respectively. As a percentage of sales, general and
administrative expenses decreased by 2.0% to 3.4% for the quarter
but increased by 0.7% to 5.9% for the nine months reflecting
principally dollar increases in management fees and increases as a
percentage of sales in professional fees as these latter fees were
virtually unchanged in dollar amounts.
The Company had no interest expense in 1996.
Rental income decreased by approximately $9,400 for both the
quarterly and year-to-date periods reflecting the assignment of a
lease, effective August 1, 1996, on which the Company had sub-let
the premises to a third party sub-lessor.
Neither gains on the sale of restaurants nor losses on the
termination of certain agreements recurred in 1996.
The Company had pre-tax income for all periods. For the year-to-
date periods, taxes of $1,000 in 1996 and $13,000 in 1995 were
provided.
LIQUIDITY
During the first nine months of 1996, the Company's working capital
improved by $24,069 from a deficit of $11,732 to a surplus of
$12,337. Operations provided $93,465 and security deposit
transactions provided $16,884 while capital expenditures required
$86,280.
The Company's intercompany balance with IFS changed by $167,328
from a receivable of $153,010 to a payable of $14,318. Significant
fluctuations in this balance are not expected in the future.
PART II. OTHER INFORMATION
- ------- -----------------
Item 1-5. Not Applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
None
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
FAST FOOD OPERATORS, INC.
Date: October 31, 1996 By \s\ Lewis E. Topper
-------------------
Lewis E. Topper
Chairman of the Board,
President, Chief
Executive Officer,
Treasurer and Director,
Principal Financial and
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-END> SEP-29-1996
<CASH> 311,124
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 32,839
<CURRENT-ASSETS> 389,900
<PP&E> 480,822
<DEPRECIATION> 0
<TOTAL-ASSETS> 899,238
<CURRENT-LIABILITIES> 377,563
<BONDS> 0
0
0
<COMMON> 2,321,148
<OTHER-SE> (1,820,473)
<TOTAL-LIABILITY-AND-EQUITY> 899,238
<SALES> 3,993,976
<TOTAL-REVENUES> 3,993,976
<CGS> 1,321,412
<TOTAL-COSTS> 1,321,412
<OTHER-EXPENSES> 2,664,064
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,500
<INCOME-TAX> 1,000
<INCOME-CONTINUING> 7,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,500
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
