<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
For Quarter Ended May 9, 1999 Commission file number 0-11514
---------------- ----------------
Max & Erma's Restaurants, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware No. 31-1041397
- ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4849 Evanswood Drive, Columbus, Ohio 43229
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (614) 431-5800
----------------
Indicate by checkmark 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, and (2) has been subject to the filing
requirements for at least the past 90 days.
YES X NO
------- -------
As of the close of the period covered by this report, the registrant had
outstanding 3,303,202 common shares.
1
<PAGE> 2
<TABLE>
PART I - FINANCIAL INFORMATION / ITEM 1 - FINANCIAL STATEMENTS
MAX & ERMA'S RESTAURANTS, INC. - CONDENSED BALANCE SHEETS (UNAUDITED)
ASSETS
------
<CAPTION>
May 9, October 25,
1999 1998
----------- -----------
<S> <C> <C>
Current Assets:
Cash $ 1,416,843 $ 2,151,323
Inventories 835,515 855,202
Other Current Assets 1,817,206 1,662,760
----------- -----------
Total Current Assets 4,069,564 4,669,285
Property - At Cost: 65,971,057 60,656,746
Less Accumulated Depreciation and Amortization 24,025,004 22,559,784
----------- -----------
Property - Net 41,946,053 38,096,962
Other Assets 3,374,684 3,191,709
----------- -----------
Total $49,390,301 $45,957,956
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Current Maturities of Long-Term Obligations $ 808,410 $ 772,634
Accounts Payable 3,298,531 2,838,526
Accrued Liabilities 3,905,513 3,689,637
----------- -----------
Total Current Liabilities 8,012,454 7,300,797
Long-Term Obligations - Less Current Maturities 26,352,029 20,009,596
Stockholders' Equity:
Preferred Stock - $.10 Par Value;
Authorized 500,000 Shares - none outstanding
Common Stock - $.10 Par Value;
Authorized 10,000,000 Shares,
Issued and Outstanding 3,303,202 Shares
At 5/9/99 and 3,772,388 Shares at 10/25/98 330,320 377,239
Additional Capital 4,221,147 7,655,299
Retained Earnings 10,474,351 10,615,025
----------- -----------
Total Stockholders' Equity 15,025,818 18,647,563
----------- -----------
Total $49,390,301 $45,957,956
=========== ===========
</TABLE>
(See notes to financial statements)
2
<PAGE> 3
<TABLE>
MAX & ERMA'S RESTAURANTS, INC.
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
<CAPTION>
Twelve Weeks Ended Twenty-eight Weeks Ended
------------------ ------------------------
May 9, May 10, May 9, May 10,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES: $24,027,295 $23,628,234 $55,176,784 $53,173,019
COSTS AND EXPENSES:
Costs of Goods Sold 6,159,396 6,222,992 14,322,269 14,123,961
Payroll and Benefits 7,581,153 7,286,132 17,493,236 16,424,441
Other Operating Expenses 7,161,655 6,837,296 16,762,036 15,402,357
Pre-Opening Expenses 52,929 172,884 87,001 398,597
Loss on Disposition of Assets 700,000 700,000
Administrative Expenses 1,955,952 1,611,972 4,313,635 3,571,923
----------- ----------- ----------- -----------
Total Operating Expenses 23,611,085 22,131,276 53,678,177 49,921,279
----------- ----------- ----------- -----------
Operating Income 416,210 1,496,958 1,498,607 3,251,740
Interest Expense 328,300 384,766 759,007 1,147,084
Minority Interest in Income
of Affiliated Partnerships 25,850 4,882 44,274 42,371
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES,
EXTRAORDINARY ITEM & CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE 62,060 1,107,310 695,326 2,062,285
INCOME TAXES 10,000 347,000 197,000 637,000
----------- ----------- ----------- -----------
INCOME BEFORE EXTRAORDINARY ITEM &
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 52,060 760,310 498,326 1,425,285
EXTRAORDINARY LOSS (net of income tax
benefit of $186,000) (400,000)
CUMULATIVE EFFECT ON PRIOR YEARS OF CHANGE
IN ACCOUNTING PRINCIPLE FOR PRE-OPENING
EXPENSES (net of income tax benefit of $101,000) (239,000)
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 52,060 $ 760,310 $ (140,674) $ 1,425,285
=========== =========== =========== ===========
BASIC EARNINGS (LOSS) PER SHARE:
Income Before Extraordinary Item and
Cumulative Effect of Change in Accounting Principle $ 0.01 $ 0.18 $ 0.14 $ 0.34
Extraordinary Loss (0.11)
Cumulative Effect on Prior Years of Change in
Accounting Principle (0.07)
----------- ----------- ----------- -----------
Net Income (Loss) $ 0.01 $ 0.18 $ (0.04) $ 0.34
=========== =========== =========== ===========
</TABLE>
(See notes to financial statements)
3
<PAGE> 4
<TABLE>
MAX & ERMA'S RESTAURANTS, INC.
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(continued)
<CAPTION>
Twelve Weeks Ended Twenty-eight Weeks Ended
------------------ ------------------------
May 9, May 10, May 9, May 10,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
DILUTED EARNINGS (LOSS) PER SHARE:
Income Before Extraordinary Item and Cumulative Effect
of Change in Accounting Principle $ 0.01 $ 0.18 $ 0.14 $ 0.33
Extraordinary Loss (0.11)
Cumulative Effect of Change in Accounting Principle (0.07)
---------- ---------- ---------- ----------
Net Income (Loss) $ 0.01 $ 0.18 $ (0.04) $ 0.33
========== ========== ========== ==========
SHARES OUTSTANDING:
Basic 3,552,416 4,255,535 3,625,033 4,252,653
========== ========== ========== ==========
Diluted 3,564,079 4,262,433 3,679,106 4,256,659
========== ========== ========== ==========
PROFORMA AMOUNTS ASSUMING
RETROACTIVE APPLICATION OF
CHANGE IN ACCOUNTING PRINCIPLE:
Income Before Extraordinary item $ 52,062 $ 775,043 $ 498,326 $1,422,470
========== ========== ========== ==========
Basic Earnings Per Share $ 0.01 $ 0.18 $ 0.14 $ 0.33
========== ========== ========== ==========
Diluted Earnings Per Share $ 0.01 $ 0.18 $ 0.14 $ 0.33
========== ========== ========== ==========
Net Income (Loss) $ 52,062 $ 775,043 $ (140,674) $1,422,470
========== ========== ========== ==========
Basic Earnings (Loss) Per Share $ 0.01 $ 0.18 $ (0.04) $ 0.33
========== ========== ========== ==========
Diluted Earnings (Loss) Per Share $ 0.01 $ 0.18 $ (0.04) $ 0.33
========== ========== ========== ==========
</TABLE>
(See notes to financial statements)
4
<PAGE> 5
<TABLE>
MAX & ERMA'S RESTAURANTS, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
Twenty-Eight Weeks Ended
------------------------
May 9, May 10,
1999 1998
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (140,674) $ 1,425,285
Depreciation and amortization 2,568,392 3,152,951
Loss on Disposition of Assets 700,000
Extraordinary loss 400,000
Cumulative Effect of Change in Accounting Principle 239,000
Minority interest in income of Affiliated Partnerships 44,274 42,371
Changes in other assets and liabilities (378,755) 221,668
------------ ------------
Net cash provided by operating activities 3,432,237 4,842,275
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (6,708,954) (6,185,229)
Proceeds from sale of assets 16,991,024
Decrease in other assets (192,341) (66,917)
------------ ------------
Net cash provided (used) by investing activities (6,901,295) 10,738,878
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under long-term obligations (23,366,483) (33,102,063)
Proceeds from long-term obligations 29,732,939 18,031,368
Proceeds from sale of stock 24,150 73,113
Purchase of common stock (3,592,525)
Debt issue costs (25,000)
Distributions to minority interests in Affiliated Partnership (38,503) (57,755)
------------ ------------
Net cash provided (used) by financing activities 2,734,578 (15,055,337)
------------ ------------
NET INCREASE (DECREASE) IN
CASH AND EQUIVALENTS (734,480) 525,816
CASH AND EQUIVALENTS AT
BEGINNING OF PERIOD 2,151,323 1,149,482
------------ ------------
CASH AND EQUIVALENTS AT END OF PERIOD $ 1,416,843 $ 1,675,298
============ ============
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest $ 805,141 $ 1,126,890
Income taxes $ 295,155 $ 852,977
Non-cash activities:
Property additions financed by accounts payable $ 1,073,621 $ 257,134
Deferred gain from sales of assets $ 1,554,022
</TABLE>
(See notes to financial statements)
5
<PAGE> 6
MAX & ERMA'S RESTAURANTS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. Presentation
------------
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and include
all of the information and disclosures required by generally accepted
accounting principles for interim reporting, which are less than those
required for annual reporting. In the opinion of management, all
adjustments, consisting of only normal recurring accruals, considered
necessary for a fair presentation have been included.
The Company, its subsidiary and Affiliated Partnership each have a
52-53 week fiscal year which ends on the last Sunday in October. Fiscal
1999 consists of 53 weeks and includes one sixteen-week, two
twelve-week and one thirteen-week quarters.
2. Extraordinary Item
------------------
In August 1994, the Company issued $10,384,000 of unsecured
convertible subordinated debentures which bore interest at 8% and were
due in 2004. In November 1998 the Company redeemed the $8,842,000
outstanding debentures by utilizing borrowings under its bank credit
agreement. The Company recognized an extraordinary charge against
income of $400,000, net of tax ($0.11 per diluted share) related to
the write-off of unamortized debt issuance costs.
3. Change in Accounting Principle
------------------------------
On October 26, 1998, the first day of fiscal 1999, the Company adopted
AICPA Statement of Position 98-5, "Reporting the Costs of Start-Up
Activities", which requires that pre-opening expenses be expensed as
incurred rather than capitalized. The cumulative effect on prior years
of change in accounting principle for pre-opening expenses resulted in
a charge of $239,000, net of tax, or $0.07 per diluted share.
6
<PAGE> 7
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
REVENUES
- --------
Revenues for the second quarter of 1999 rose $399,000 or 2% from the
second quarter of 1998. The increase was a result of the opening of two Max &
Erma's restaurants during the second half of 1998 and the opening of one
Ironwood Cafe during the second quarter of 1998 and the opening of one Ironwood
Cafe during the second quarter of 1999. The increase in revenues from new
restaurants was essentially offset by the closing of two Max & Erma's
restaurants, one during the fourth quarter of 1998 and one during the first
quarter of 1999. Additionally, the original Ironwood Cafe, which opened during
the second quarter of 1998, was closed late in the second quarter of 1999 due to
poor sales. Same-store sales for the second quarter of 1999 for restaurants
opened at least 18 months were even with the second quarter of 1998.
Year-to-date revenues increased $2,003,000 or 4% from 1998 to 1999. The
increase was a result of the opening of five Max & Erma's restaurants during
1998 and the two Ironwood Cafe openings discussed above. As also discussed
above, the increase in revenues from new restaurants was partially offset by
restaurant closings and a year-to-date decline of $326,000 or 0.7% in same-store
sales.
The year-to-date decline in same-store sales was to a great extent the
result of extremely harsh winter weather during the first two weeks of January.
From January 2, 1999 through January 15, 1999 same-store sales declined $650,000
or 20%. Exclusive of that two week period, year-to-date same-store sales
increased $324,000 or 0.7%. Year-to-date customer counts declined approximately
3% while average guest check rose 3%, primarily as a result of menu price
increases.
The Company expects to increase the pace of new restaurant openings
beginning in the third quarter of 1999 with the opening of four Max & Erma's
restaurants during the second half of 1999. Additionally the Company will open
one Ironwood Cafe during the third quarter of 1999. In addition to opening eight
to nine Max & Erma's during fiscal 2000, the Company expects increased franchise
fees and royalties. The Company's first multi-unit franchise agreement requires
the opening of the first of four restaurants in Richmond and Charlottesville,
Virginia by August, 2000.
The Company closed the first Ironwood Cafe during the second quarter of
1999, resulting in a $700,000 pre-tax loss on disposition of assets. After a
brief "honeymoon" period the restaurant reported average weekly sales of less
than $10,000. With no positive sales trends and operating well below break even
sales, management elected to close the restaurant. The second Ironwood Cafe in
Mentor, Ohio has reported average weekly sales of almost $16,000 since opening.
A third Ironwood Cafe will open in the Cincinnati, Ohio area during the third
quarter. The Company will evaluate the results of the two remaining Ironwood
Cafes before expanding the concept further.
7
<PAGE> 8
COSTS AND EXPENSES
- ------------------
Cost of goods sold, as a percentage of revenues, decreased from 26.4%
for the second quarter of 1998 to 25.6% for the second quarter of 1999.
Year-to-date cost of goods sold, as a percentage of revenues, declined from
26.6% for 1998 to 26.0% for 1999. The declines for both the quarter and
year-to-date periods were a result of sharply higher produce and dairy prices
during the first half of 1998 and menu price increases of approximately 2 to 3%,
while other inventory costs remained relatively stable.
Payroll and benefits, as a percentage of revenues, increased from 30.8%
for the second quarter of 1998 to 31.6% for the second quarter of 1999.
Year-to-date payroll and benefits, as a percentage of revenues, experienced a
similar increase from 30.9% for 1998 to 31.7% for 1999. The increase was a
result of higher wage rates brought on by extremely low unemployment levels and
continued high demand for restaurant workers. The loss of revenue related to
harsh weather during January 1999 also had the effect of increasing payroll and
benefits, as a percentage of revenues, for the 1999 year-to-date period.
Other operating expenses, as a percentage of revenues, increased from
28.9% for the second quarter of 1998 to 29.8% for the second quarter of 1999.
Year-to-date other operating expenses, as a percentage of revenues, increased
from 29.0% for 1998 to 30.4% for 1999. The increases are primarily a result of
the increased rental expense, net of reduced depreciation, associated with the
two sale-leaseback transactions completed during 1998.
Pre-opening expenses, as a percentage of revenues, decreased from 0.7%
for the second quarter of 1998 to 0.2% for the second quarter of 1999.
Year-to-date pre-opening expenses, as a percentage of revenues, also decreased
from 0.7% in 1998 to 0.2% in 1999. The decreases were a result of opening only
one restaurant during the first half of 1999 coupled with the Company's adoption
of AICPA Statement of Position 98-5, "Reporting the Costs of Start-Up
Activities", which requires that pre-opening expenses be expensed as incurred
rather than capitalized. Prior to adoption of the new standard on October 26,
1998, the first day of fiscal 1999, the Company amortized pre-opening expenses
over a 12-month period. The cumulative effect on prior years of the accounting
change resulted in a first quarter 1999 charge of $239,000, net of tax, or $0.07
per diluted share. Management believes that this expense will increase during
the second half of 1999 as the Company accelerates the rate of opening new
restaurants.
LOSS ON DISPOSITION OF ASSETS
- -----------------------------
During the second quarter of 1999 the Company recorded a $700,000 loss
on disposition of assets related to the closing of the original Ironwood Cafe in
Columbus, Ohio. The restaurant never achieved a profitable sales level.
Management believes the lack of sales was a site-related problem and remains
optimistic on the success of the concept based upon sales at the second location
in Mentor, Ohio. A third Ironwood Cafe location will open during the third
quarter of 1999 in Cincinnati, Ohio.
8
<PAGE> 9
ADMINISTRATIVE EXPENSES
- -----------------------
Administrative expenses increased 21% from the second quarter of 1998
to the second quarter of 1999 and for the year-to-date periods. The increase was
a result of raises for corporate personnel, expansion of the Company's corporate
headquarters and administrative expenses associated with Ironwood Cafe and the
franchising program for Max & Erma's. The increase was generally in line with
Management's expectations. Administrative expenses, as a percentage of revenues,
increased from 6.8% for the second quarter of 1998 to 8.1% for the second
quarter of 1999. Year-to-date administrative expenses, as a percentage of
revenues, increased from 6.7% for 1998 to 7.8% for 1999. The increase was a
result of increased overhead in anticipation of an accelerated growth rate,
which should begin during the second half of 1999. The closing of restaurants
and the revenue loss due to weather during the first quarter of 1999 also had
the effect of increasing administrative expenses, as a percentage of revenues.
Management expects that administrative expenses, as a percentage of revenues,
will begin to decline in the second half of 1999.
INTEREST EXPENSE
- ----------------
Interest expense decreased 15% from the second quarter of 1998 to the
second quarter of 1999. Year-to-date interest expense decreased 34% from 1998 to
1999. The decreases were a result of the two sale-leaseback transactions
previously referred to, which resulted in interest savings of approximately
$515,000 and $1,200,000 for the quarter and year-to-date periods, respectively,
over what would have been incurred had the sale-leaseback not occurred, and
reduced interest rates. The interest rate on the first $9.0 million of
borrowings under the Company's revolving credit line is 7.38%, with excess
borrowings at prime + 1/4% (total of 8% at May 9, 1999) as compared to an
effective rate of approximately 9% under the Company's convertible debentures.
The initial $9.0 million of the Company's revolving credit line was used to
redeem the convertible debentures during the first quarter of 1999. The Company
incurred additional interest expense resulting from the repurchase of
approximately 959,000 shares of its common stock from the fourth quarter of 1998
through the end of the second quarter of 1999. The Company capitalized $103,000
and $98,000 in construction period interest during the first 28 weeks of 1999
and 1998, respectively.
INCOME TAXES
- ------------
The Company's effective tax rate declined from 30.9% for the 28 weeks
of 1998 to 28.3% for the comparable 1999 period. The decrease was due to the
fact that certain tax credits available to the Company are unrelated to pre-tax
income and have a proportionately greater effect on the effective tax rate as
pre-tax income declines.
9
<PAGE> 10
EXTRAORDINARY LOSS AND CUMULATIVE EFFECT ON
- -------------------------------------------
PRIOR YEARS OF CHANGE IN ACCOUNTING PRINCIPLE
- ---------------------------------------------
During the first quarter of 1999 the Company redeemed $8,842,000 of
convertible debentures. As a result, the Company recognized an extraordinary
charge of $400,000 ($0.11 per diluted share) net of approximately $186,000 of
income tax savings related to the write-off of unamortized debt issuance costs.
On October 28, 1998, the first day of fiscal 1999, the Company adopted
AICPA Statement of Position 98-5, "Reporting the Costs of Start-Up Activities".
The cumulative effect on prior years' financial statements resulted in a charge
of $239,000 ($0.07 per diluted share) net of approximately $101,000 of tax
savings related to the write-off of unamortized pre-opening expenses.
YEAR 2000
- ---------
The Company has reviewed its computer systems and software with respect
to the Year 2000 issue. The Company has identified three critical areas of
information technology: register systems, network and accounting software and
payroll processing. Register systems currently being installed are Year 2000
compliant. Older register systems function and accumulate data without regard to
date and therefore Year 2000 is not an issue. The Company's main accounting
software is supplied by an outside vendor and has been represented to be Year
2000 compliant in the course of normal system upgrades. Certain database and
spreadsheet software are being upgraded during fiscal 1999 at an expected cost
not to exceed $50,000 which will be expensed as incurred. During 1998 the
Company expended approximately $25,000 for computer equipment used exclusively
to process payroll. The related software was provided by the Company's outside
payroll service and has been represented to be Year 2000 compliant.
The Company believes that little, if any, of its non-information
technology equipment and systems are date dependent.
The Company presently has one major outside food products supplier to
its restaurants. It has inquired of that supplier as to its Year 2000 compliance
efforts and been assured that all operational areas are Year 2000 compliant.
Failure of that supplier to deliver food products to the Company's restaurants
could lead to a cessation of operations. While the Company has no contingency
plan regarding replacement of that vendor, it believes it could be replaced and
operations resumed within a 30 day period.
Because the Company's Year 2000 compliance is, like most businesses,
dependent in many ways upon the Year 2000 compliance of key third party vendors,
including gas and electric utility service providers, food suppliers, payroll
processors, credit card processors, and others, there can be no assurance that
the compliance of the Company's information technology and non-information
technology equipment with Year 2000 will prevent a material adverse impact on
the Company's results of operations, financial condition and cash flows. The
Company believes that the most reasonably likely worst case scenario resulting
from noncompliance with Year 2000 by
10
<PAGE> 11
the Company or its key third party suppliers would be the temporary shutdown of
some or all of its restaurants due the unavailability of gas and electricity
service or food products to some or all of its restaurants. The shutdown of some
or all of the Company's restaurants for any substantial period of time would
cause the Company to lose revenues from sales, but the Company would not be able
to reduce all costs of operations associated with such shutdown restaurants,
such as rent and other fixed costs, interest, and certain employee and
administrative costs. Accordingly, if a substantial number of the Company's
restaurants were shutdown for any substantial period of time, such shutdowns
could have a material adverse effect on the Company's results of operations,
financial condition and cash flows.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's working capital ratio decreased from .6 to 1 at October
25, 1998 to .5 to 1 at May 9, 1999. Historically, the Company has been able to
operate with a working capital deficiency because 1) restaurant operations are
primarily conducted on a cash basis, 2) high turnover (about once every 10 days)
permits a limited investment in inventory, and 3) trade payables for food
purchases usually become due after receipt of cash from the related sales.
During the first 28 weeks of 1999, the Company expended approximately
$6,709,000 for property additions, $23,366,000 to reduce long-term obligations
and $3,593,000 to repurchase approximately 482,000 shares of its common stock.
Funds for such expenditures were provided primarily by $29,733,000 from proceeds
of long-term obligations, $3,432,000 from operations, and $734,000 from cash
on hand. The Company routinely draws down and repays balances under its
revolving credit agreement, the gross amounts of which are included in the above
numbers.
At May 9, 1999 the Company was committed to the opening of five Max &
Erma's restaurants during the third and fourth quarters of 1999 and at least
eight Max & Erma's restaurants during fiscal 2000. At May 9, 1999 eleven sites
were under contract to purchase or lease, four of which were under construction.
Nine additional sites had been approved and were in some stage of negotiations.
At May 9, 1999 the Company had one Ironwood Cafe under construction in
Cincinnati, Ohio, which it expects to open during the third quarter of 1999. The
Company will monitor and evaluate the Ironwood Cafe concept through the
remainder of 1999 at which time it will determine its future development
potential.
Funding for new restaurants is expected to be provided by cash flow
from operations, the sale-leaseback of real estate, equipment leasing and the
Company's revolving credit line. At May 9, 1999, the Company had $4.3 million
available under its $20.0 million revolving credit line and approximately $2.3
million available under equipment lease commitments. Although the Company had no
commitments for sale-leaseback financing of real estate at May 9, 1999, it
believes it will be able to obtain such commitments during 1999 under terms
similar to the two transactions completed during 1998.
11
<PAGE> 12
On March 11, 1999 the Company's Board of Directors increased the number
of shares authorized for repurchase from 750,000 shares to 1,250,000 shares. At
May 9, 1999 approximately 290,000 shares remain available for repurchase under
the authorization. Funding for the share repurchase program is expected to be
provided by cash flow from operations and the Company's revolving credit line.
SAFE HARBOR STATEMENT UNDER THE PRIVATE
- ---------------------------------------
SECURITIES LITIGATION REFORM ACT OF 1995
- ----------------------------------------
This Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and
Section 27A of the Securities Act of 1933, as amended. The words "plan,"
"anticipate," "believe," "expect," "estimate," and "project" and similar words
and expressions identify forward-looking statements which speak only as of the
date hereof. Forward-looking statements in this MD&A include statements
regarding revenue growth from the opening of new Company-owned and franchised
restaurants (paragraph 4), anticipated increases in pre-opening expenses during
the second half of 1999 (paragraph 9), optimism on the success of Ironwood Cafe
(paragraph 10), anticipated declines in administrative expenses (paragraph 11),
Year 2000 preparedness and contingency plans (paragraphs 16, 17, 18 and 19), the
opening of additional Max & Erma's and Ironwood Cafe restaurants (paragraphs 22
and 23), future sources of capital and the availability and terms of
sale-leaseback financing (paragraph 24), and the repurchase of shares
(paragraph 26).
Investors are cautioned that forward-looking statements involve risks
and uncertainties that could cause actual results to differ materially from
historical or anticipated results due to many factors, including, but not
limited to, the Company's ability to open or franchise new restaurants as
planned, changes in competition in markets where the Company operates
restaurants, the level of market acceptance of the Company's new restaurant
concept (Ironwood Cafe), the Company's ability to control administrative
expenses, changes in interest rates, changes in cash flows from operations, the
availability of real estate for purchase or lease, and other risks,
uncertainties and factors described in the Company's most recent Annual Report
on Form 10-K and other filings from time to time with the Securities and
Exchange Commission. The Company undertakes no obligation to publicly update or
revise any forward-looking statements.
12
<PAGE> 13
PART II
Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
The Company held its Annual Meeting of Stockholders on April 8, 1999
for the purpose of electing two Class I directors for three-year terms expiring
in 2002 and ratifying Deloitte & Touche LLP as the Company's independent
auditors for the 1999 fiscal year.
Each nominee to the Company's Board of Directors was elected by the
following vote:
<TABLE>
<CAPTION>
Votes For Votes Withheld
--------- --------------
<S> <C> <C>
Mark F. Emerson 3,293,199 3,713
Michael D. Murphy 3,287,956 8,956
</TABLE>
Additionally, Deloitte & Touche LLP was ratified as the Company's
independent auditors for the 1999 fiscal year by a vote of 3,276,656 shares for,
13,666 against, and 3,590 shares abstained.
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
The exhibits listed in the accompanying index to exhibits on page 15
are filed as part of this report.
(b) Reports on Form 8-K
None
13
<PAGE> 14
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.
MAX & ERMA'S RESTAURANTS, INC.
------------------------------
Registrant
Todd B. Barnum
-----------------------------------
Todd. B. Barnum
Chairman of the Board
(Chief Executive Officer)
William C. Niegsch, Jr.
-----------------------------------
William C. Niegsch, Jr.
Executive Vice President &
Chief Financial Officer
June 15, 1999
- ---------------------------
Date
14
<PAGE> 15
MAX & ERMA'S RESTAURANTS INC.
EXHIBIT INDEX
Exhibit No. Exhibit Page No.
- ----------- ------- --------
2 Not applicable
3 Not applicable
4 Not applicable
11 Not applicable
15 Not applicable
18 Not applicable
19 Not applicable
22 Not applicable
23 Not applicable
24 Not applicable
27 Financial Data Schedule
15
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> OCT-26-1998
<PERIOD-END> MAY-09-1999
<EXCHANGE-RATE> 1
<CASH> 1,416,843
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 835,515
<CURRENT-ASSETS> 4,069,564
<PP&E> 65,971,057
<DEPRECIATION> 24,025,004
<TOTAL-ASSETS> 49,390,301
<CURRENT-LIABILITIES> 8,012,454
<BONDS> 26,352,029
0
0
<COMMON> 330,320
<OTHER-SE> 14,695,498
<TOTAL-LIABILITY-AND-EQUITY> 49,390,301
<SALES> 0
<TOTAL-REVENUES> 55,176,784
<CGS> 14,322,269
<TOTAL-COSTS> 49,364,542
<OTHER-EXPENSES> 4,313,635
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 759,007
<INCOME-PRETAX> 695,326
<INCOME-TAX> 197,000
<INCOME-CONTINUING> 498,326
<DISCONTINUED> 0
<EXTRAORDINARY> (400,000)
<CHANGES> (239,000)
<NET-INCOME> (140,674)
<EPS-BASIC> (.04)
<EPS-DILUTED> (.04)
</TABLE>
