SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 29, 1997
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.
Exact name of small business issuer as specified in its charter)
New York 13-2974867
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification #)
42-40 Bell Boulevard, Bayside, New York 11361
(Address of principal executive offices) (zip code)
(718) 229-1113
(Issuer's telephone number, including area code)
Indicate by check mark whether the issuer (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 / /
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by court.
Yes / / No / /
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at August 8, 1997
Common Stock, $.01 par value 8,914,300 Shares
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):
YES / / NO /X/
FAST FOOD OPERATORS, INC. AND SUBSIDIARIES
FORM 10-Q SECOND QUARTER 1997
INDEX
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PART I PAGE NO.
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Financial Information:
Condensed Consolidated Balance Sheets-
June 29, 1997 and December 29, 1996 2
Condensed Consolidated Statements of
Operations-for the Three and Six Month
Periods Ended June 29, 1997 and June 30, 1996 3-4
Condensed Consolidated Statements of
Cash Flows-for the Six Month Periods
Ended June 29, 1997 and June 30, 1996 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
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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
June 29, December 29,
1997 1996
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(Unaudited) *
Assets
------
Current assets:
Cash $ 169,281 $ 230,604
Inventory 28,338 35,905
Prepaid expenses and other
current assets 36,172 60,183
---------- ----------
Total current assets 233,791 326,692
Property, plant and equipment, net 491,554 484,775
Other assets:
Franchise fees, net 1,667 2,917
Deferred costs 10,319 11,090
Security deposits 8,500 13,500
---------- ----------
Total assets $ 745,831 $ 838,974
========== ==========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Current maturities of note
payable, bank $ 62,500 -
Due to Integrated Food
Systems, Inc. 22,213 $ 16,683
Accounts payable, accrued expenses
and other current liabilities 222,305 338,887
Taxes payable 54,400 54,526
Litigation settlement payable - 143,500
---------- ----------
Total current liabilities: 361,418 553,596
Note payable bank, less current
maturities 52,083 -
Security deposits payable 6,000 18,758
---------- ----------
Total liabilities: 419,501 572,354
---------- ----------
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 2,142,862 2,142,862
Retained earnings (deficit) (1,905,675) (1,965,385)
---------- ----------
326,330 266,620
---------- ----------
Total liabilities and
shareholders' equity $ 745,831 $ 838,974
========== ==========
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
June 29, June 30,
1997 1996
---------- ----------
Sales $1,328,711 $1,393,073
Cost of sales 427,922 448,320
---------- ----------
Gross profit 900,789 944,753
---------- ----------
Store labor expenses 353,060 345,649
Store operating and occupancy expenses 299,101 346,834
Advertising and royalty expenses 106,402 111,693
General and administrative expenses 89,137 95,114
Interest expense 2,832 -
Rental income ( 2,700) (16,773)
Gain of sale of restaurant (13,908) -
---------- ----------
833,924 882,517
---------- ----------
Income before income taxes 66,865 62,236
Provision for income taxes 3,000 -
---------- ----------
Net income $ 63,865 $ 62,236
========== ==========
Weighted average number of shares
outstanding 8,914,300 8,914,300
========== ==========
Net income per share $ .01 $ .01
========== ==========
See accompanying notes to condensed consolidated financial statements.
FAST FOOD OPERATORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended
June 29, June 30,
1997 1996
---------- ----------
Sales $2,650,737 $2,491,457
Cost of sales 869,460 802,126
---------- ----------
Gross profit 1,781,277 1,689,331
---------- ----------
Store labor expenses 738,452 697,027
Store operating and occupancy expenses 644,503 683,224
Advertising and royalty expenses 212,076 199,972
General and administrative expenses 155,989 183,702
Interest expense 2,832 -
Rental income ( 5,400) ( 33,846)
Gain of sale of restaurant ( 13,908) -
Income and expense reimbursement
arising from management sub-contract ( 15,977) -
---------- ----------
1,718,567 1,730,079
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Income (loss) before income taxes 62,710 ( 40,748)
Provision for income taxes 3,000 -
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Net income (loss) $ 59,710 $ ( 40,748)
========== ==========
Weighted average number of shares
outstanding 8,914,300 8,914,300
========== ==========
Net income (loss) per share $ .01 $ -
========== ==========
See accompanying notes to condensed consolidated financial statements.
FAST FOOD OPERATORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 29, June 30,
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 59,710 $( 40,748)
--------- ---------
Adjustments to reconcile to net
cash provided (used) by operating
activities
Depreciation and amortization 49,647 57,388
Gain on sale of restaurant ( 13,908) -
Change in assets and liabilities:
Inventory 3,836 ( 1,744)
Prepaid expenses and other
current assets 17,361 56,783
Due from/to Integrated Food
Systems, Inc. 5,530 164,642
Accounts payable, accrued
expenses and other current
liabilities (116,582) ( 42,407)
Taxes payable ( 126) 13,168
Litigation settlement payable (143,500) -
Security deposits ( 7,758) 15,000
--------- ---------
Total adjustments (205,500) 262,830
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Net cash provided (used) by
operating activities (145,790) 222,082
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets ( 70,497) ( 67,554)
Proceeds from sale of restaurant 41,331 -
Other ( 950) -
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Net cash used by investing
activities ( 30,116) ( 67,554)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank loan proceeds 125,000 -
Bank loan repayments ( 10,417) -
--------- ---------
Net cash provided by financing
activities 114,583 -
--------- ---------
Net increase (decrease) in cash ( 61,323) 154,528
CASH, beginning of period 230,604 106,569
--------- ---------
CASH, end of period $ 169,281 $ 261,097
========= =========
See accompanying notes to condensed consolidated financial statements.
FAST FOOD OPERATORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 29, June 30,
1997 1996
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $ 2,120 $ -
========= =========
Income taxes $ - $ -
========= =========
Non-cash investing and financing
activities:
Net book value of property and
equipment sold $ 16,092 $ -
========= =========
Other restaurant assets sold:
Inventory $ 3,731 $ -
========= =========
Prepayments $ 6,650 $ -
========= =========
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
June 29, 1997, and the results of operations and cash flows
for the three and six month periods ended June 29, 1997 and
June 30, 1996.
2. The condensed consolidated results of operations for the
three and six month periods ended June 29, 1997, are not
necessarily indicative of the results to be expected for the
full year.
3. On April 15, 1997 the sale of the Hillside Avenue restaurant
in Queens was consummated as of the close of business on the
previous day. Such sale reduced the Company's restaurants
to five. The Company received gross initial proceeds of
$41,331, including closing adjustments of $11,331. The
Company may receive further proceeds in the event the buyer
obtains an extension of the lease. For any extension of the
lease, the Company will receive an additional $50,000. For
extensions of the lease in excess of five years, the Company
will receive an additional $10,000 per year for a maximum of
five additional years. The Company realized a gain on the
sale of $13,908.
4. On April 21, 1997, the Company paid the litigation
settlement to the Host Marriott Corporation in the amount of
$143,500. The Company funded such payment principally from
the proceeds of a $125,000 loan from BSB Bank and Trust
Company. The loan is repayable in 24 equal installments of
$5,208 plus interest at 10% per annum.
5. The Company's Empire Boulevard Restaurant in Brooklyn is
managed by an unrelated party pursuant to a management
agreement. The agreement provides for the manager to
receive the restaurant's net cash flow and for the Company
to receive a monthly fee equal to the greater of $200 per
month or five percent of such cash flow. If monthly cash
flow is negative, the manager must pay the Company the
amount of negative cash flow in addition to the monthly
minimum fee. Negative cash flow occurred for the first
three months of fiscal 1997 in the amount of $15,377. Such
negative cash flow at this managed restaurant gave rise to
an income item totalling $15,977, which included the
Company's minimum fee for the first quarter of $600. For
the second three months of fiscal 1997, the restaurant was
cash flow positive, and the fee retained by the manager, net
of the $600 minimum fee to the Company for such period, was
$3,060. Such amount is reported in general and
administrative expenses as is the management fee paid to
Integrated Food Systems, Inc.
6. Per share data is based upon the income (loss) for the
period divided by the weighted average number of common
shares outstanding during the period. The Company has no
potentially dilutive securities outstanding. Accordingly,
the Company's per share data will not be affected by
application of Statement of Financial Accounting Standards
No. 128, "Earnings Per Share," issued in February 1997 and
effective for annual and interim periods ending after
December 15, 1997.
Item 2
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Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Results of Operations
- ---------------------
Net sales for the quarter ended June 29, 1997 decreased by
$64,362 to $1,328,711 from $1,393,073 in 1996, a decrease of
4.6%, attributable to the sale on April 15, 1997 of the Hillside
Avenue, Queens restaurant. Sales for the five restaurants which
were operated throughout both the 1997 and 1996 quarters
increased by $69,934, or 5.7%, to $1,303,161 in 1997 from
$1,233,227 in 1996. The increase in same-store sales was due
principally to a double-digit sales gain of 15.8% at the
Manhattan location, the Company's sales leader, which continues
to benefit from improvements being made to the Times Square area
and the related increased traffic and activity. The largest
Brooklyn location also posted a respectable sales gain of 6.9%,
due largely to increased customer counts following its recent
remodelling. The three Brooklyn locations had an aggregate sales
gain of 2.5% which includes the effect of a 7.4% sales decrease
at the managed Empire Boulevard location. The continuing Queens
location had a slight sales decrease of 1.3% for the quarter.
This location should benefit from a remodelling scheduled for the
first quarter of 1998. For the six-month, year-to-date period,
total sales increased by $159,280, or 6.4%, to $2,650,737 in 1997
from $2,491,457 in 1996, while same-store sales increased by
$276,153, or 12.5%, to $2,480,676 in 1997 from $2,204,523 in
1996.
Cost of sales decreased by $20,398, or 4.5%, to $427,922 for the
quarter but increased by $67,334, or 8.4%, to $869,460 for the
six months, consistent with the changes in total sales. As a
percentage of sales, cost of sales was constant at 32.2% for both
quarterly periods. For the six months, cost of sales increased
as a percentage of sales by 0.6% to 32.8%, reflecting principally
the effect of higher raw food costs in the first quarter. The
higher cost of chicken was partially offset by savings made in
paper costs, due to a change in product mix related to the menu
prices charged.
Store labor expenses increased by $7,411 to $353,060 for the
quarter and by $41,425 to $738,452 for the six months, increases
of 2.1% and 5.9%, respectively. As a percentage of sales, labor
increased by 1.8% to 26.6% for the quarter while remaining
virtually unchanged at approximately 27.9% for the six months.
The increase for the quarter had two causes; one, increased
manager bonus due to increased profits at certain stores; and
two, a $.50 increase in the minimum wage to $4.75, which
increased the cost of crew labor.
Store operating and occupancy expenses decreased by $47,733 to
$299,101 for the quarter and by $38,721 to $644,503 for the six
months, decreases of 13.8% and 5.7%, respectively. As a
percentage of sales, they decreased by 2.4% to 22.5% for the
quarter, and by 3.1% to 24.3% for the six month period. The
decrease is principally attributable to reduced insurance and
utility costs.
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, including management fees,
decreased by $5,997, or 6.3%, to $89,137 for the quarter and by
$27,713, or 15.1%, to $155,989 for the six months. Management
fees for the managed Empire Boulevard location in Brooklyn
decreased by $3,279 for both the quarter and the six months. The
agreement commenced on April 1, 1996. No management fees were
earned during the first quarter of 1997. For the six months, an
income item arose as a result of a reimbursement from the manager
required under the agreement in the amount of $15,377, credited
during the first quarter. (See Note 5 to the Condensed
Consolidated Financial Statements). Management fees to IFS
decreased by $3,000 for the quarter and by $2,000 for the six
months, reflecting changes made to the minimum annual fee over
the last two years. As of January 26, 1997, such minimum annual
fee is $96,000.
Item 2
- ------
Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Results of Operations (continued)
- ---------------------
As a percentage of sales, general and administrative expenses
were virtually unchanged at approximately 6.8% for the quarter,
while decreasing by 1.5% to 5.9% for the six months. In addition
to the decrease in management fees of 0.9% of sales for the year-
to-date period, savings of 0.3% and 0.2%, respectively, were
realized in management accounting services and corporate
franchise taxes, the former as a consequence of operating fewer
stores and the latter resulting from the recharacterization of
minimum and alternate base taxes to income taxes in periods when
taxable income is earned.
The Company had interest expense of $2,832 for both the 1997
quarter and six months, incurred on its new bank loan. Such loan
was used to fund most of the Marriott litigation settlement.
(See Liquidity and Note 4 to the Condensed Consolidated Financial
Statements). The Company had no interest expense in 1996.
Rental income decreased substantially for both the quarterly and
year-to-date periods due to the termination of a sub-lease on
August 1, 1996. The Company presently has one sub-lease,
yielding $900 per month.
The Company gained $13,908 on the sale of the Hillside Avenue,
Queens restaurant, consummated on April 15, 1997. There were no
restaurants sold in 1996. (See Note 3 to the Condensed
Consolidated Financial Statements).
The Company had pre-tax income for all periods except the year-
to-date 1996 six months. A tax provision of $3,000 was made in
the second quarter of 1997. Due to the 1996 six months loss, no
tax provision for either 1996 period was required.
LIQUIDITY
During the first six months of 1997, the Company's working
capital deficit decreased by $99,277 to $127,627. The decrease
in the deficit arose from working capital provided by operations
of $95,449, net long-term bank proceeds of $52,083 and proceeds
from the sale of the Hillside Avenue, Queens restaurant of
$30,000, excluding closing adjustments, less property acquisition
of $70,497 and security deposit repayments of $7,758.
The Company's intercompany balance with IFS increased by $5,530
from $16,683 to $22,213. Significant fluctuations in this
balance are not expected in the future.
The Company's cash balance decreased by $61,323 to $169,281.
Operations required $145,790 after changes in current assets and
liabilities required $241,239.
The Company received initial gross proceeds from the sale of the
Hillside Avenue, Queens Restaurant of $41,331 on April 15, 1997.
Conditioned upon the signing of a lease extension which is sought
by the purchaser, the Company will receive an additional $50,000
to $100,000. (See Note 3 to the Condensed Consolidated Financial
Statements). After investing out-flows of $71,447, principally
for property acquisitions, investing activities required net out-
flows of $30,116.
The Company settled the Host Marriott litigation on April 21,
1997 by the payment of $143,500 in cash. The Company borrowed
$125,000 from the BSB Bank and Trust Company to fund most of such
payment. The loan, which is repayable in monthly installments
over two years with interest at 10%, may be prepaid without
penalty. Bank loan repayments of $10,417 reduced net financing
in-flows to $114,583.
In the event the Company receives additional proceeds from the
Hillside Restaurant sale, the Company may apply such proceeds to
a loan prepayment. As the Company's restaurant operations are
now cash flow positive, the Company anticipates being able to
satisfy its cash flow requirements. Future return of capital
distributions are also a possibility.
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 11, 1997 By \s\ Lewis E. Topper
-------------------
Lewis E. Topper
Chairman of the Board,
President, Chief
Executive Officer,
Treasurer and Director,
Principal Financial and
Accounting Officer
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-END> JUN-29-1997
<CASH> 169,281
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 28,338
<CURRENT-ASSETS> 233,791
<PP&E> 491,554
<DEPRECIATION> 0
<TOTAL-ASSETS> 745,831
<CURRENT-LIABILITIES> 361,418
<BONDS> 0
0
0
<COMMON> 2,232,005
<OTHER-SE> (1,905,675)
<TOTAL-LIABILITY-AND-EQUITY> 745,831
<SALES> 2,650,737
<TOTAL-REVENUES> 2,650,737
<CGS> 869,460
<TOTAL-COSTS> 869,460
<OTHER-EXPENSES> 1,715,735
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,832
<INCOME-PRETAX> 62,710
<INCOME-TAX> 3,000
<INCOME-CONTINUING> 59,710
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 59,710
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
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