<PAGE>
1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITES
EXCHANGE ACT OF 1934
For the Quarter ended June 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-10213
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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 August 9, 1996.
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2
FAST FOOD OPERATORS, INC. AND SUBSIDIARIES
FORM 10-Q SECOND QUARTER 1996
INDEX
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PART I PAGE NO.
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Financial Information:
Condensed Consolidated Balance Sheets-
June 30, 1996 and December 31, 1995 3
Condensed Consolidated Statements of
Operations-for the Three and Six Month
Periods Ended June 30, 1996 and June 25, 1995 4-5
Condensed Consolidated Statements of
Cash Flows-for the Three and Six Month
Periods Ended June 30, 1996 and June 25, 1995 6-7
Notes to Condensed Consolidated Financial
Statements 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-10
PART II
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Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults upon Senior Securities 11
Item 4. Submission of Matters to a Vote
of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 11
Financial Data Schedules 12-13
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3
FAST FOOD OPERATORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
(UNAUDITED) *
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 261,097 $ 106,569
Due from Integrated Food
Systems, Inc. 0 153,010
Inventory 37,420 35,676
Prepaid expenses and other
current assets 81,793 138,576
---------- ----------
Total current assets 380,310 433,831
Property, plant and equipment, net 489,663 477,476
Other assets:
Franchise fees, net 4,167 5,417
Deferred costs 11,859 12,630
Security deposits 20,014 20,014
---------- ----------
Total assets $ 906,013 $ 949,368
========== ==========
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities:
Due to Integrated Food
Systems, Inc. $ 11,632 $ 0
Accounts payable, accrued expenses
and other current liabilities 354,114 396,521
Taxes, other than income taxes 62,210 49,042
---------- ----------
Total current liabilities: 427,956 445,563
Security deposits payable 25,630 10,630
---------- ----------
Total liabilities: 453,586 456,193
---------- ----------
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) (1,868,721) (1,827,973)
---------- ----------
452,427 493,175
---------- ----------
Total liabilities and
shareholders' equity $ 906,013 $ 949,368
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
*Condensed from audited financial statements.
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4
FAST FOOD OPERATORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
June 30, June 25,
1996 1995
---------- ----------
<S> <C> <C>
Sales $1,393,073 $1,805,568
Cost of sales 448,320 605,335
---------- ----------
Gross Profit 944,753 1,200,233
---------- ----------
Store labor expenses 345,649 518,148
Store operating and occupancy expenses 346,834 450,340
Advertising and royalty expenses 111,693 145,001
General and administrative expenses 95,114 86,582
Interest expense 0 1,742
Rental income (16,773) (16,860)
Gain of sale of restaurant 0 (274,875)
---------- ----------
882,517 910,078
---------- ----------
Income before income taxes 62,236 290,155
Provision for income taxes 0 6,500
---------- ----------
Net income $ 62,236 $ 283,655
========== ==========
Weighted average number of shares
outstanding 8,914,300 8,914,300
========== ==========
Net income per share $ .01 $ .03
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
5
FAST FOOD OPERATORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30, June 25,
1996 1995
---------- ----------
<S> <C> <C>
Sales $2,491,457 $3,498,528
Cost of sales 802,126 1,144,343
---------- ----------
Gross Profit 1,689,331 2,354,185
---------- ----------
Store labor expenses 697,027 1,034,602
Store operating and occupancy expenses 683,224 920,081
Advertising and royalty expenses 199,972 281,307
General and administrative expenses 183,702 181,334
Interest expense 5,714
Rental income (33,846) (33,720)
Gain of sale of restaurant (274,875)
Loss on termination of development
agreement 0 40,000
Loss on termination of lease 0 37,319
---------- ----------
1,730,079 2,191,762
---------- ----------
Income (loss) before income taxes (40,748) 162,423
Provision for income taxes 6,500
---------- ----------
Net income (loss) $ (40,748) $ 155,923
========== ==========
Weighted average number of shares
outstanding 8,914,300 8,914,300
========== ==========
Net income (loss) per share $ - $ .02
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
6
FAST FOOD OPERATORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30, June 25,
1996 1995
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (40,748) $ 155,923
--------- ---------
Adjustments to reconcile to net
cash provided (used) by operating
activities
Depreciation and amortization 57,388 81,383
Gain on sale of restaurant (274,875)
Loss on termination of development
agreement 0 40,000
Loss on termination of lease 0 37,319
Change in assets and liabilities:
Inventory (1,744) (5,026)
Prepaid expenses and other
current assets 56,783 100,897
Due from/to Integrated Food
Systems, Inc. 164,642 (378,212)
Accounts payable, accrued
expenses and other current
liabilities (42,407) (102,056)
Taxes, other than income
taxes 13,168 4,102
Security deposits 15,000 1,861
--------- ---------
Total adjustments 262,830 (494,607)
--------- ---------
Net cash provided (used) by
operating activities 222,082 (338,684)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed and other assets (67,554) (64,742)
Proceeds from sale of restaurant 0 (1,500)
Other 0 490,000
--------- ---------
Net cash used by investing
activities (67,554) 423,758
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of indebtedness 0 (133,221)
--------- ---------
Net increase (decrease) in cash 154,528 (48,147)
CASH, beginning of period 106,569 210,392
--------- ---------
CASH, end of period $ 261,097 $ 162,245
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
7
FAST FOOD OPERATORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30, June 25,
1996 1995
---------- ----------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $ $ 5,740
========= =========
Income taxes $ $ 1,500
========= =========
Non-cash investing and financing
activities:
Book value of restaurant assets
sold or written-off $ $ 306,944
========= =========
Credit received from lessor on
lease termination $ $ 51,000
========= =========
Write-off of franchise options $ $ 40,000
========= =========
Discount on debt prepayment $ $ 5,000
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
8
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 June 30, 1996, and the results of operations and cash flows for the
three and six-month periods ended June 30, 1996 and June 25, 1995.
2. The condensed consolidated results of operations for the three and six-
month periods ended June 30, 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 $600 amount for the
three months ended June 30, 1996. The net amount retained by the Manager for
the three months ended June 30, 1996 was $6,339. This amount is included
with the management fee paid by the Company to Integrated Food Systems, Inc.
4. Income (loss) per share is based upon the income (loss) for the period
divided by the weighted average number of common shares outstanding during
the period.
<PAGE>
9
Item 2
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Net sales for the quarter ended June 30, 1996 decreased by $412,495 to
$1,393,073 from $1,805,568 in 1995, a decrease of 22.8%, attributable to the
Company operating up to three 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
$165,784 or 13.5% to $1,393,073 in 1996 from $1,227,289 in 1995. The
increase in same-store sales was due to the Company not offering discounted
menu prices during April and May while retaining increased customer counts
gained during prior periods of various discounting. Certain promotional
discounts were again offered in June. Except for an anomalous 4.0% sales los
at the Brooklyn location sub-leased from and shared with a fast food
restaurant previously owned and operated by Integrated Food Systems, Inc.
(IFS), all continuing stores had sales gains ranging from 7.2% to 31.6% for
the quarter. By borough, Brooklyn and Queens increased by 16.8% and 12.2% in
the aggregate, respectively, and the sole Manhattan location, believed by the
Company to be the franchisor's volume leader, increased by 9.6%. For the
six-month, year-to-date period, total sales decreased by $1,007,071 or 28.8%
to $2,491,457 in 1996 from $3,498,528 in 1995, while same-store sales
increased by $242,909 or 10.8% to $2,491,457 in 1996 from $2,248,548 in 1995.
Cost of sales decreased by $157,015 or 25.9% to $448,320 for the quarter and
by $342,217 or 29.9% to $802,126 for the six months, consistent with the
sales declines. As a percentage of sales, cost of sales decreased by 1.3%
and 0.5%, respectively to 32.2% for both the quarter and six month periods.
The improvement in the gross profit percentage derives from the charging of
regular prices during April and May of 1996, compared to heavy discounting in
prior periods. The current cost of chicken is averaging approximately 7.5%
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 $172,499 to $345,649 for the quarter and by
$337,575 to $697,027 for the six months decreases of 33.3% and 32.6%,
respectively. As a percentage of sales, labor decreased by 3.9% to 24.8% for
the quarter and by 1.6% to 28.0% for the six months. The large savings for
the quarter was fairly evenly distributed throughout the labor expenses and
was due principally to the effect of increased prices in April and May.
Savings for the six month period were less pronounced but also evenly
distributed throughout the manager, crew and benefit categories.
Store operating and occupancy expenses decreased by $103,506 to $346,834 for
the quarter and by $236,857 to $683,224 for the six months, decreases of
23.0% and 25.7%, respectively. As a percentage of sales they were constant
at 24.9% for the quarter, while increasing by 1.1% for the six month period.
The increase for the year-to-date period,while obviously attributable to the
first quarter, 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%; and generalized savings of approximately 0.5% principally
related to the sales increases.
<PAGE>
10
Advertising and royalty expenses were constant at 8.0% of sales for all
periods, reflecting the Company's contractual obligations as franchisee.
General and administrative expenses increased by $8,532, or 9.9%, to $95,114
for the quarter and by $2,368, or 1.3% to $183,702 for the six months. The
dollar cost increases occurred in management and professional fees and theft
losses. 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 $6,339 for the quarter. As a
percentage of sales, general and administrative expenses increased by 2.0% to
6.8% for the quarter and by 2.2% to 7.4% for the six months reflecting
principally the cost increases in management and professional fees and theft
losses.
The Company had no interest expense in 1996.
Rental income was virtually unchanged for both the quarterly and year-to-date
periods.
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 except the year-to-date 1996
six months. A tax provision of $6,500 was made in the second quarter of 1995.
Due to the year-to-date 1996 loss, a tax provision for the current year has
not been made.
LIQUIDITY
During the first six months of 1996, the Company's working capital deficit
increased by $35,914 to $47,646 from $11,732 at December 31, 1995. Capital
expenditures required $67,554 while operations provided $16,640 and the
security deposit on the new management agreement provided $15,000.
The Company's intercompany balance with IFS changed by $164,642 from a
receivable of $153,010 to a payable of $11,632. Significant fluctuations in
this balance are not expected in the future.
<PAGE>
11
PART II. OTHER INFORMATION
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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: August 9, 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> 6-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-END> JUN-30-1996
<CASH> 261,097
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 37,420
<CURRENT-ASSETS> 380,310
<PP&E> 489,663
<DEPRECIATION> 0
<TOTAL-ASSETS> 906,013
<CURRENT-LIABILITIES> 427,956
<BONDS> 0
0
0
<COMMON> 2,321,148
<OTHER-SE> (1,868,721)
<TOTAL-LIABILITY-AND-EQUITY> 906,013
<SALES> 2,491,457
<TOTAL-REVENUES> 2,491,457
<CGS> 802,126
<TOTAL-COSTS> 802,126
<OTHER-EXPENSES> 1,730,079
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (40,748)
<INCOME-TAX> 0
<INCOME-CONTINUING> (40,748)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (40,748)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
