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: March 30, 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 May 15,1997
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-QSB FIRST QUARTER 1997
INDEX
Part I Page No.
- ------ -------
Financial Information:
Condensed Consolidated Balance Sheets-
March 30, 1997 and December 29, 1996 2
Condensed Consolidated Statements of Operations-
for the Three Months Ended March 30, 1997
and March 31, 1996 3
Condensed Consolidated Statements of Cash Flows-
for the Three Months Ended March 30, 1997
and March 31, 1996 4
Notes to Condensed Consolidated Financial
Statements 5
Management's Discussion and Analysis of
Financial Condition and Results of Operations 6-7
Part II
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Item 1. Legal Proceedings 8
Item 2. Changes in Securities 8
Item 3. Defaults upon Senior Securities 8
Item 4. Submission of Matters to a Vote
of Security Holders 8
Item 5. Other Information 8
Item 6. Exhibits and Reports on Form 8-K 8
Signatures 8
1
FAST FOOD OPERATORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 30, December 29,
1997 1996
---------- ------------
(Unaudited) *
Assets
------
Current assets:
Cash $ 125,034 $ 230,604
Inventory 34,677 35,905
Prepaid expenses and other
current assets 65,498 60,183
---------- ----------
Total current assets 225,209 326,692
Property, plant and equipment, net 503,342 484,775
Other assets:
Franchise fees, net 2,292 2,917
Deferred costs 10,704 11,090
Security deposits 8,500 13,500
---------- ----------
Total assets $ 750,047 $ 838,974
========== ==========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Due to Integrated Food
Systems, Inc. $ 13,425 $ 16,683
Accounts payable, accrued expenses
and other current liabilities 263,066 338,887
Taxes, other than income taxes 61,591 54,526
Litigation settlement payable 143,500 143,500
---------- ----------
Total current liabilities: 481,582 553,596
Security deposits payable 6,000 18,758
---------- ----------
Total liabilities: 487,582 572,354
---------- ----------
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) (1,969,540) (1,965,385)
---------- ----------
262,465 266,620
---------- ----------
Total liabilities and
shareholders' equity $ 750,047 $ 838,974
========== ==========
See accompanying notes to condensed consolidated financial statements.
*Condensed from audited financial statements.
2
FAST FOOD OPERATORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
-------------------------
March 30, March 31,
1997 1996
---------- ----------
Sales $1,322,026 $1,098,384
Cost of sales 441,538 353,806
---------- ----------
Gross profit 880,488 744,578
---------- ----------
Store labor expenses 385,392 351,378
Store operating and occupancy expenses 345,402 336,390
Advertising and royalty expenses 105,674 88,279
General and administrative expenses 66,852 88,588
Rental income ( 2,700) ( 17,073)
Income and expense reimbursement arising
from management sub-contract ( 15,977) -
---------- ----------
884,643 847,562
---------- ----------
Net loss $( 4,155) $( 102,984)
========== ==========
Weighted average number of shares
outstanding 8,914,300 8,914,300
========== ==========
Net loss per share $ ( - ) $ ( .01)
========== ==========
See accompanying notes to condensed consolidated financial statements.
3
FAST FOOD OPERATORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
-------------------------
March 30, March 31,
1997 1996
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $( 4,155) $(102,984)
--------- ---------
Adjustments to reconcile to net
cash provided (required) by
operating activities
Depreciation and amortization 26,302 27,845
Change in assets and liabilities:
Inventory 1,228 5,934
Prepaid expenses and other
current assets ( 5,315) 31,282
Due from/to Integrated Food
Systems, Inc. ( 3,258) 157,714
Accounts payable, accrued
expenses and other current
liabilities ( 75,821) ( 18,022)
Taxes, other than income
taxes 7,065 8,790
--------- ---------
Total adjustments ( 49,799) 213,543
--------- ---------
Net cash provided (required)
by operating activities ( 53,954) 110,559
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets ( 43,858) ( 53,339)
Other ( 7,758) -
--------- ---------
Net cash used by investing
activities ( 51,616) ( 53,339)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
None - -
--------- ---------
Net increase (decrease) in cash (105,570) 57,220
CASH, beginning of period 230,604 106,569
--------- ---------
CASH, end of period $ 125,034 $ 163,789
========= ==========
SUPPLEMENTAL DISCLOSURES:
None applicable
See accompanying notes to condensed consolidated financial statements.
4
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 March 30, 1997, and the results
of operations and cash flows for the three months ended March 30,
1997 and March 31, 1996.
2. The condensed consolidated results of operations for the
three-month period ended March 30, 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 approximately $13,400.
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 for the three months ended March 30, 1997
was $15,377. The net fee for such period was accordingly $15,977.
6. Loss per share is based upon the 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.
5
Item 2
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Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Results of Operations
- ---------------------
Net sales in the first quarter of 1997 increased by $223,642 to
$1,322,026 from $1,098,384 in the first quarter of 1996, an
increase of 20.4%. The Company operated six restaurants throughout
both periods. However on April 15, 1997, the Company sold its
Hillside Avenue Queens restaurant. (See Note 3 to the Condensed
Consolidated Financial Statements). Sales, which benefitted from
much milder weather this winter, increased at all restaurants. The
Company's sole Manhattan location, the Company's leader in sales,
had a sales increase of 31.3%, benefitting from the improvements
being made to the Times Square area and the related increased
traffic and activity. The three Brooklyn stores had sales
increases averaging 20.0%, led by a 22.8% sales gain at the
recently remodelled Pennsylvania Avenue location. The two Queens
stores had an average gain of 10.9%, led by the Hillside Avenue
Restaurant's gain of 13.7%.
The Company continues to face significant direct local competition.
The Company's first fiscal quarter has historically been its
poorest in terms of sales performance.
Cost of sales increased by $87,732 or 24.8% to $441,358 from
$353,806 one year ago. As a percentage of sales, cost of sales
increased by 1.2% to 33.4% in 1997 from 32.2% in 1996. Such
increase principally reflects an increase in the cost of chicken.
The increase in raw food cost was partially offset by a reduction
in paper cost resulting from a shift in product mix.
Store labor expenses increased by $34,014 to $385,392 in 1997 from
$351,378 in 1996, a percentage increase of 9.7%. As a percentage
of sales, these costs decreased by 2.8% to 29.2% in 1997 from 32.0%
in 1996. The savings is due to the sales increase as well as a
significantly improved utilization of crew labor which more than
offset the effect of a minimum wage increase.
Store operating and occupancy expenses increased by $9,012 to
$345,402 in 1997 from $336,390 in 1996 an increase of 2.7%. As a
percentage of sales these costs decreased by 4.5% to 26.1% in 1997
from 30.6% in 1996. Utilities decreased by 1.4% reflecting the
much milder winter this year. Insurance decreased by 1.3% due to
better rates from a new policy. Maintenance and related services
decreased by 1.1%, principally as a result of high snow plowing
costs last year. The balance of the savings occurred in rent and
depreciation charges occasioned by the sales gains.
Advertising and royalty expenses increased by $17,395 to $105,674
in 1997 from $88,279 in 1996. As a percentage of sales, these
expenses were constant at 8.0%.
General and administrative expenses decreased by $21,736 or 24.5%
to $66,852 in 1997 from $88,588 in 1996. As a percentage of sales,
they decreased by 3.0% to 5.1% in 1997 from 8.1% in 1996. Savings
as a percentage of sales were distributed over the following
categories - Administrative office corporate expenses, principally
occupancy related - 1.1%; professional fees - 0.7%; management
accounting services - 0.4%; fines - 0.4% (reflecting the non-
recurrence of certain minor building code violations, corrected in
1996); management fees - 0.3% (due to a reduction of $1,000 per
month in the minimum fee effective in February, 1997) and corporate
franchise taxes and miscellaneous items - 0.1%.
There was no interest expense incurred in either quarter. At March
30, 1997 the Company had no interest-bearing indebtedness.
However, in April 1997, the Company borrowed $125,000 from a bank,
repayable over two years with interest at 10%. (See Liquidity and
Note 4 to the Condensed Consolidated Financial Statements).
Sub-lease income fell by $14,373, or 84%, to $2,700 from $17,073.
The Company has one remaining sublease, having terminated a second
sublease in August, 1996.
Effective April 1, 1996 the Company contracted for the management
of its Empire Boulevard Restaurant in Brooklyn. The agreement
transfers the net cash flow of the restaurant to the manager in
exchange for a monthly fee equal to five percent of such cash flow,
subject to a monthly minimum of $200. For any month in which cash
flow is negative, the manager must pay an amount equal to such
deficit to the Company in addition to the $200 minimum. Cash flow
from April thru December of 1996 was positive. However for the
first quarter of 1997, cash flow was a negative $15,377. The net
fee for such period was accordingly $15,977.
Liquidity and Capital Resources
- -------------------------------
During the first quarter of 1997, the Company's working capital
deficit increased by $29,469 to $256,373. The increase in the
deficit arose from net expenditures for fixed assets of $43,858 and
net security deposit payments of $7,758 less working capital
provided by operations of $22,147.
The Company's intercompany balance with IFS decreased by $3,258
from $16,683 to $13,425. Significant fluctuations in this balance
are not expected in the future.
The Company's cash balance decreased by $105,570 to $125,034.
Operations required $53,954 after changes in current assets and
liabilities required $76,101.
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 will be
sought by the purchaser, the Company will receive an additional
$50,000 to $100,000. (See Note 3 to the Condensed Consolidated
Financial Statements).
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.
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.
7
PART II. OTHER INFORMATION
- -------- -----------------
Item 1-5. Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
None
FAST FOOD OPERATORS, INC.
Date: May 15, 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
8
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-END> MAR-30-1997
<CASH> 125,034
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 34,677
<CURRENT-ASSETS> 225,209
<PP&E> 503,342
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<CURRENT-LIABILITIES> 481,582
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<COMMON> 2,232,005
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<SALES> 1,322,026
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<CGS> 441,538
<TOTAL-COSTS> 441,538
<OTHER-EXPENSES> 884,643
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<INCOME-PRETAX> (4,155)
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<INCOME-CONTINUING> (4,155)
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