<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Act of 1934 for the Quarterly Period ended
June 30, 1995.
Commission File Number: 0-14968
-----------------------------------
EATERIES, INC.
-------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Oklahoma 73-1230348
--------------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3240 W. Britton Rd., Ste. 202,
Oklahoma City, Oklahoma 73120
--------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
(405) 755-3607
-------------------------------------------------------------------------------
(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.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date. - 3,732,684 common
shares, $.002 par value, were outstanding as of August 10, 1995.
<PAGE>
EATERIES, INC. AND SUBSIDIARY
FORM 10-Q
INDEX
Page
------
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
December 31, 1994 and
June 30, 1995 (unaudited) . . . . . . . . . . . . 4
Condensed Consolidated Statements of
Income (unaudited)
Three months ended June 30, 1994
and 1995 . . . . . . . . . . . . . . . . . . . . 5
Six months ended June 30, 1994
and 1995 . . . . . . . . . . . . . . . . . . . . 6
Condensed Consolidated Statements of
Cash Flows (unaudited)
Six months ended June 30, 1994
and 1995 . . . . . . . . . . . . . . . . . . . . 7
Notes to Condensed Consolidated Financial Statements
(unaudited). . . . . . . . . . . . . . . . . . . . . . 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations. . . . . . . . . . . . . . . . . . . . 10
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote
of Security Holders . . . . . . . . . . . . . . . 17
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . 17
-2-
<PAGE>
PART I
FINANCIAL INFORMATION
-3-
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
EATERIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1994 1995
------------ -----------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,843,951 $ 1,018,906
Marketable securities 514,737 -
Receivables 650,066 1,311,885
Deferred income taxes 569,000 537,780
Inventories 1,085,308 1,103,634
Other 133,807 243,224
----------- -----------
Total current assets 4,796,869 4,215,429
----------- -----------
PROPERTY AND EQUIPMENT 19,269,888 22,492,970
Less landlord finish-out allowances (8,995,732) (10,372,268)
Less accumulated depreciation and
amortization (2,964,540) (3,366,759)
----------- -----------
Net property and equipment 7,309,616 8,753,943
----------- -----------
DEFERRED INCOME TAXES 651,000 651,000
OTHER ASSETS, net 175,256 487,545
----------- -----------
$12,932,741 $14,107,917
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft $ - $ 1,389,973
Accounts payable 1,681,747 1,281,581
Accrued liabilities 1,791,587 1,726,357
Notes payable to vendor 330,934 155,335
Current portion of long-term
obligations 70,409 26,891
----------- -----------
Total current liabilities 3,874,677 4,580,137
----------- -----------
OTHER NONCURRENT LIABILITIES 358,141 571,295
----------- -----------
LONG-TERM OBLIGATIONS, net of
current portion 74,538 362,130
----------- -----------
COMMITMENTS
STOCKHOLDERS' EQUITY:
Preferred stock, none issued - -
Common stock 7,906 8,013
Additional paid-in capital 9,047,594 9,042,070
Retained earnings 898,752 878,890
----------- -----------
9,954,252 9,928,973
Treasury stock, at cost,
272,122 shares at
December 31, 1994 and
274,039 shares at
June 30, 1995 (1,328,867) ( 1,334,618)
----------- -----------
Total stockholders' equity 8,625,385 8,594,355
----------- -----------
$12,932,741 $14,107,917
----------- -----------
----------- -----------
</TABLE>
See notes to condensed consolidated financial statements.
-4-
<PAGE>
EATERIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
--------------------------------
1994 1995
------------ ------------
<S> <C> <C>
REVENUES:
Food and beverage sales $9,060,291 $10,459,283
Franchise fees and royalties 68,594 90,516
Other income 146,737 132,458
---------- -----------
9,275,622 10,682,257
---------- -----------
COST AND EXPENSES:
Cost of sales 2,764,804 3,282,933
Operating expenses 5,436,803 6,161,185
Pre-opening costs 102,300 198,000
General and administrative 701,107 785,262
Depreciation and amortization 215,997 312,374
Interest expense 8,976 5,770
---------- -----------
9,229,987 10,745,524
---------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 45,635 (63,267)
PROVISION (BENEFIT) FOR INCOME
TAXES 19,000 (18,196)
---------- -----------
NET INCOME (LOSS) $ 26,635 $ (45,071)
---------- -----------
---------- -----------
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES 3,941,062 3,726,684
---------- -----------
---------- -----------
PER SHARE AMOUNTS:
NET INCOME (LOSS) $ 0.01 $ (0.01)
---------- -----------
---------- -----------
</TABLE>
See notes to condensed consolidated financial statements.
-5-
<PAGE>
EATERIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------------
1994 1995
------------ ------------
<S> <C> <C>
REVENUES:
Food and beverage sales $17,269,766 $20,678,816
Franchise fees and royalties 131,315 146,099
Other income 295,505 332,305
----------- -----------
17,696,586 21,157,220
COSTS AND EXPENSES:
Cost of sales 5,282,817 6,496,446
Operating expenses 10,236,195 12,177,908
Pre-opening costs 279,300 341,000
General and administrative 1,341,452 1,548,116
Depreciation and amortization 393,918 608,039
Interest expense 16,358 13,575
----------- -----------
17,550,040 21,185,084
----------- -----------
INCOME (LOSS) BEFORE INCOME
TAXES 146,546 (27,864)
PROVISION (BENEFIT) FOR INCOME
TAXES 42,000 (8,000)
----------- -----------
NET INCOME (LOSS) $ 104,546 $ (19,864)
----------- -----------
----------- -----------
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES 3,949,649 3,817,638
----------- -----------
----------- -----------
PER SHARE AMOUNTS:
NET INCOME (LOSS) $ 0.03 $ (0.01)
----------- -----------
----------- -----------
</TABLE>
See notes to condensed consolidated financial statements.
-6-
<PAGE>
EATERIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
---------------------
1994 1995
---------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
Cash flows from operating activities:
Net income (loss) $ 104,546 $ (19,864)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation & amortization 393,918 608,039
Gain on sale of assets - (134,909)
Provision (benefit) for deferred income
taxes 42,000 (8,000)
(Increase) decrease in:
Receivables (65,570) (405,819)
Inventories (77,603) (3,425)
Other 23,954 (109,417)
Increase (decrease) in:
Accounts payable 137,395 (400,166)
Accrued liabilities (32,810) (65,230)
Other noncurrent liabilities 17,117 213,154
---------- ----------
Total adjustments 438,401 (305,773)
---------- ----------
Net cash provided by (used in) operating
activities 542,947 (325,637)
---------- ----------
Cash flows from investing activities:
Capital expenditures (2,799,254) (3,372,953)
Landlord allowances 1,751,429 1,120,536
Net cash payments for restaurant acquisitions - (529,083)
Proceeds from sale of property and equipment - 389,717
Sales of marketable securities - 514,737
Collection of notes receivable 30,000 -
(Increase)decrease in other assets (93,989) 3,654
---------- ----------
Net cash used in investing
activities (1,111,814) (1,873,392)
---------- ----------
Cash flows from financing activities:
Payments on notes payable (344,964) (287,895)
Payments on long-term obligations (56,047) (55,926)
Borrowings under revolving credit agreement - 600,000
Payments under revolving credit agreement - (300,000)
Increase in bank overdraft - 1,389,973
Proceeds from exercise of stock options 23,990 27,832
---------- ----------
Net cash provided by (used in) financing
activities (377,021) 1,373,984
---------- ----------
Net decrease in cash & cash equivalents (945,888) (825,045)
Cash and cash equivalents at beginning of period 1,954,318 1,843,951
---------- ----------
Cash and cash equivalents at end of period $1,008,430 $1,018,906
---------- ----------
---------- ----------
</TABLE>
See notes to condensed consolidated financial statements.
-7-
<PAGE>
EATERIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1 - Basis of Preparation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and foot-notes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three and six month periods ended June 30, 1995, are not necessarily
indicative of the results that may be expected for the year ended December
31, 1995. For further information, refer to the financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1994.
Note 2 - Balance Sheet Information
Receivables are comprised of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1994 1995
----------- -----------
<S> <C> <C>
Franchisees $ 70,069 $ 72,767
Insurance refunds 231,169 329,327
Landlord finish-out allowances 255,000 511,000
Other 93,828 398,791
----------- -----------
$ 650,066 $ 1,311,885
----------- -----------
----------- -----------
</TABLE>
Accrued liabilities are comprised of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1994 1995
----------- -----------
<S> <C> <C>
Compensation $ 890,194 $ 1,043,441
Taxes, other than income 333,521 291,796
Other 567,872 391,120
----------- -----------
$ 1,791,587 $ 1,726,357
----------- -----------
----------- -----------
</TABLE>
-8-
<PAGE>
Note 3 - Restaurant Acquisition
In January 1995, the Company acquired substantially all of the assets of the
"Pepperoni Grill" restaurant located in Oklahoma City, Oklahoma, along with
rights to use trademarks associated with the restaurant, for a cash purchase
price (including transaction expenses) of $529,000. Additionally, the
Company assumed real estate and equipment leases for the restaurant. The
acquisition has been accounted for under the purchase method. As a result,
the Company recorded inventory, equipment and leasehold improvements
totalling $199,000, trademarks of $125,000 and goodwill of approximately
$205,000. The Company is amortizing the cost of the trademarks and goodwill
over 20 years. Pro forma results of operations for the three and six months
ended June 30, 1994, assuming that the restaurant acquisition had been made
at the beginning of 1994, would not be materially different than the results
reported.
Note 4 - Supplemental Cash Flow Information
For the six month periods ended June 30, 1994 and 1995, the Company had the
following non-cash investing and financing activities:
<TABLE>
<CAPTION>
Six Months ended
June 30,
--------------------
1994 1995
---- ----
<S> <C> <C>
Net increase (decrease) in receivables
for landlord finish-out allowances....... $(206,561) $256,000
Borrowings for capital expenditures
under notes payable to vendor........... 330,385 112,295
Increase in additional paid-in capital
as a result of tax benefits from the
exercise of non-qualified stock options. 37,000 39,000
</TABLE>
-9-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
INTRODUCTION
As of June 30, 1995, the Company owned and operated 38 and franchised
eight casual theme, dinnerhouse restaurants. Subsequent to that date, the
Company has opened two new restaurants and closed one. The Company currently
has three (3) restaurants in development. As of the date of this report, the
entire system includes 39 Company and eight (8) franchise restaurants.
PERCENTAGE RESULTS OF OPERATIONS AND RESTAURANT DATA
The following table sets forth, for the periods indicated, (i) the
percentages that certain items of income and expense bear to total revenues,
unless otherwise indicated, and (ii) selected operating data:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1994 1995 1994 1995
-------------------------- ------------------------
<S> <C> <C> <C> <C>
Statements of Income Data:
Revenues:
Restaurant sales................ 97.7% 97.9% 97.6% 97.7%
Franchise fees and royalties.... 0.7% 0.9% 0.7% 0.7%
Other income.................... 1.6% 1.2% 1.7% 1.6%
-------------------------- ------------------------
100.0% 100.0% 100.0% 100.0%
Costs and Expenses:
Costs of sales (1).............. 30.5% 31.4% 30.6% 31.4%
Restaurant operating expenses(1) 60.0% 58.9% 59.3% 58.9%
Restaurant pre-opening costs 1.1% 1.9% 1.6% 1.6%
General and administrative expenses 7.6% 7.4% 7.6% 7.3%
Depreciation and amortization
expenses (1)................ 2.4% 2.9% 2.3% 2.9%
Interest expense................ 0.1% 0.1% 0.1% 0.1%
-------------------------- ------------------------
99.5% 100.6% 99.2% 100.1%
-------------------------- ------------------------
Income (loss) before income taxes 0.5% (0.6%) 0.8% (0.1%)
Provision for income taxes............... 0.2% (0.2%) 0.2% (0.0%)
-------------------------- ------------------------
Net income (loss)........................ 0.3% (0.4%) 0.6% (0.1%)
-------------------------- ------------------------
-------------------------- ------------------------
Selected Operating Data:
(Dollars in thousands)
System-wide sales:
Company restaurants............. $ 9,060 $10,459 $17,270 $20,679
Franchise restaurants........... 2,131 1,836 4,278 3,683
-------------------------- ------------------------
Total........................... $11,191 $12,295 $21,548 $24,362
-------------------------- ------------------------
-------------------------- ------------------------
Number of restaurants (at end of period):
Company restaurants............. 30 38
Franchise restaurants........... 8 8
--------------------------
Total...................... 38 46
--------------------------
--------------------------
<FN>
(1) As a percentage of restaurant sales.
</TABLE>
-10-
<PAGE>
RESULTS OF OPERATIONS
For the three months ended June 30, 1995, the Company recorded net loss of
$(45,000) ($(.01) per share) on revenues of $10,682,000. This compares to
net income of $27,000 ($.01 per share) for the three months ended June 30,
1994 on revenues of $9,276,000. For the six months ended June 30, 1995 and
1994, the Company reported net loss of $(20,000) ($(.01) per share) for 1995
compared to net income of $105,000 ($.03 per share) in 1994.
REVENUES
Company revenues for the three and six months ended June 30, 1995 increased
15% and 20%, respectively, over the revenues reported for the same periods in
1994. The revenue increase relates primarily to increased restaurant sales
during the three and six month periods in 1995. The number of Company
restaurants operating at the end of each respective period ended June 30 and
the number of operating months during each period were as follows:
<TABLE>
<CAPTION>
Number of Number of Average Monthly
June 30, Units Open Operating Months Sales Per Unit
-------- ---------- ---------------- ------------------------
Three Six Three months Six months
----- --- ------------ ----------
<S> <C> <C> <C> <C> <C>
1995 38 114 221 $ 91,700 $ 93,600
1994 30 88 168 $103,000 $ 102,800
</TABLE>
Average monthly sales per unit decreased by $11,300 and $9,200, respectively,
for the three and six months ended June 30, 1995 versus the previous year's
results. These decreases are attributable to the following items:
In late 1994, the Company began testing and rolled out to nineteen
stores in January, 1995 a new menu which contained a combination of
several new lower priced and a la carte selections. The stores with
this new menu experienced a reduction in average check amounts and
revenues during the first five months of 1995, rather than the overall
increase the Company expected. Management reacted quickly to reverse
these declines by beginning implementation of a new menu to its stores
in late June, 1995. The new menu contains many new food selections
and incorporates a pricing strategy similar to menus used by the
Company previous to the January, 1995 menu. A new drink menu was also
rolled out to the stores in late June, 1995. The Company is
experiencing increases in average check amounts and revenues as a
result of the new menus and expects to see these trends continue
during the second half of 1995.
The Company's first quarter 1995 three week television advertising
campaign coincided with two consecutive weekends of bad weather in the
Company's Northern and Midwestern stores. Thus, the Company incurred
the advertising expense without the normal sales gains it has achieved
during past advertising campaigns. The Company's next major 1995
television advertising campaign
-11-
<PAGE>
began in early July, 1995 to promote the Company's new food and drink
menus. Advertising was minimal during the second quarter of 1995 as
management believed its advertising would be more effective if it was
done in conjunction with the introduction of the new menus. As a
result of this advertising strategy, sales remained weak during the
second quarter. During the beginning of the 1995 third quarter,
revenues began to increase in response to the new menus and related
advertising.
The effects of the previously noted items, along with the overall
weakness in national retail sales levels contributed to the Company's
same store sales and average monthly sales per unit decreases during
the three and six months ended June 30, 1995.
The Company recently hired a Vice President of Marketing, a new
position at the Company. The new Vice President of Marketing has over
17 years of marketing and related experience with a nationally
recognized chain of dinnerhouse restaurants and will start in August,
1995. The Company's management believes this individual will have a
positive impact on directing its marketing strategy and will
strengthen its management team.
Initial franchise fees and continuing royalties increased to $146,000 from
$131,000 in the six months ended June 30, 1995 and 1994, respectively.
During the second quarter of 1995, one franchise restaurant closed and a new
one opened. At June 30, 1995 and 1994, there were eight franchise
restaurants in service.
COSTS AND EXPENSES
A comparison of food, beverage and labor costs (excluding payroll taxes and
fringe benefits) as a percentage of restaurant sales at Company-owned
restaurants is as follows for the periods ended June 30:
<TABLE>
<CAPTION>
Three months Six months
------------ ------------
1994 1995 1994 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cost of sales 30.5% 31.4% 30.6% 31.4%
Labor costs 28.1% 29.1% 27.8% 28.7%
---- ---- ---- ----
Total 58.6% 60.5% 58.4% 60.1%
---- ---- ---- ----
---- ---- ---- ----
</TABLE>
The increase in cost of sales percentages during the three and six months
ended June 30, 1995 versus the 1994 comparable periods was the result of
certain product cost increases, primarily selected meats and produce, and
higher delivery fees. Labor costs as a percentage of sales increased in 1995
versus 1994 primarily as a result of restructuring the Company's restaurant
kitchen personnel. This involved increasing kitchen staff labor rates to
reduce turnover and attract experienced kitchen employees. Given the
Company's historically strong fourth quarter revenues, management expects
cost of sales and labor costs, as a percent of revenues, will decline by
year-end from the levels experienced during the first six months of 1995.
-12-
<PAGE>
For the three months ended June 30, 1995, restaurant operating expenses as a
percentage of revenues decreased to 58.9% from 60.0% in the 1994 three month
period. A similar decrease was experienced during the six months ended June
30, 1995, during which operating expenses were 58.9%, as compared to the 1994
period level of 59.3%. Both 1995 period decreases in operating expenses as a
percent to sales are attributable to lower advertising and promotional
expenses, reduced workers' compensation costs and equipment rental expenses
partially offset by higher occupancy costs.
Restaurant pre-opening costs, which are expensed as incurred, were $198,000
and $102,000 for the three months ended June 30, 1995 and 1994, respectively,
and $341,000 and $279,000 for the six month periods ended June 30, 1995 and
1994, respectively. Five restaurants were developed in the first six months
of 1995 while four restaurants were developed in the 1994 period. There was
no pre-opening costs associated with the Company's purchase of the Pepperoni
Grill restaurant in January, 1995. The Company plans to open five additional
restaurants (for a total of ten) in 1995 with anticipated average pre-opening
costs of $65,000 to $75,000 per restaurant location.
Under the Company's policy of expensing pre-opening costs as incurred, income
from operations, on an annual and quarterly basis, could be adversely
affected during periods of restaurant development; however, the Company
believes that its initial investment in the restaurant pre-opening costs
yields a long-term benefit of increased operating income in subsequent
periods.
During the three and six months ended June 30, 1995 and 1994, general and
administrative costs as a percentage of revenues decreased to 7.4% and 7.3%,
respectively, from 7.6% and 7.6%, respectively. These costs have remained
relatively constant as a percentage of revenues as a result of efficiencies
realized over this particular phase of the Company's expansion, especially at
the corporate management level. The first half 1995 decrease as a percentage
of revenues reflects the Company's revenue growth over the last year. The
higher absolute levels of general and administrative costs from 1995 to 1994
are related primarily to additional personnel costs and related costs of
operating the expanding restaurant system. The Company anticipates that its
costs of supervision and administration of Company and franchise stores will
increase at a slower rate than revenue increases during the next few years.
Depreciation and amortization expense increased for the first half of 1995 to
$608,000 compared to $394,000 in 1994. The increase principally relates to
the increase in net assets subject to depreciation and amortization in 1995
versus 1994 because of additional GARFIELD'S, the purchase of the Pepperoni
Grill restaurant and the remodeling of existing restaurants.
In the normal course of business, the Company performs a regular review of the
strength of its assets. To that end, as previously stated, the Company discon-
tinued operations in one profitable store in the second quarter and one
unprofitable store in the beginning of the third quarter. It is management's
plan to continue to make such decisions to close under-performing restaurants
and/or dispose of other assets it deems in the best long-term interest of its
shareholders.
-13-
<PAGE>
INCOME TAXES
The Company's tax benefit for income taxes was $(8,000) during the first six
months of 1995 versus a tax provision for income taxes of $42,000 for the 1994
comparable period. The effective tax rates for the periods ended June 30, are
as follows:
Three Months Six Months
------------ ------------
1994 1995 1994 1995
---- ---- ---- ----
Effective income tax rates 41.6% 28.8% 28.7% 28.7%
The 41.6% effective tax rate for the three months ended June 30, 1994 was caused
by an adjustment made in the tax provision to properly reflect the estimated tax
provision for the six months ended June 30, 1994. The effective tax rate was
27.8% for the Company's fiscal year ended December 31, 1994.
NET INCOME PER SHARE AMOUNTS
Net income per share amounts are computed by dividing net income by the weighted
average number of common and dilutive common equivalent shares outstanding
during the period. Per share amounts are based on total outstanding shares plus
the assumed exercise of all dilutive stock options and warrants. Common and
common equivalent share amounts were 3,941,062 and 3,726,684 in the three months
ended June 30, 1994 and 1995, respectively, and 3,949,649 and 3,817,638 in the
six months ended June 30, 1994 and 1995, respectively. Under the treasury stock
method of computation, outstanding stock options and warrants represented
313,870 dilutive common equivalent shares for the quarter ended June 30, 1994.
There were no dilutive common equivalent shares for the quarter ended June 30,
1995, as the Company incurred a net loss for the period.
IMPACT OF INFLATION
The impact of inflation on the costs of food and beverage products, labor and
real estate can affect the Company's operations. Over the past few years,
inflation has had a lesser impact on the Company's operations due to the lower
rates of inflation in the nation's economy and economic conditions in the
Company's market area.
Management believes the Company has historically been able to pass on increased
costs through certain selected menu price increases and has offset increased
costs by increased productivity and purchasing efficiencies, but there can be no
assurance that the Company will be able to do so in the future. Management
anticipates that the average cost of restaurant real estate leases and
construction cost could increase in the future which could affect the Company's
ability to expand. In addition, mandated health care and an increase in the
Federal or state minimum wages could significantly increase the Company's costs
of doing business.
-14-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1995, the Company's working capital ratio was .92 to 1 compared to
1.24 to 1 at December 31, 1994. Working capital decreased to $(365,000) at June
30, 1995 versus $922,000 at December 31, 1994. As is customary in the
restaurant industry, the Company has operated with negative working capital and
has not required large amounts of working capital. Historically, the Company
has leased the majority of its restaurant locations and through a strategy of
controlled growth, financed its expansion principally from operating cash flow
and, to a lesser extent, short-term vendor financing.
During the six months ended June 30, 1995, the Company had net cash used by
operating activities of $326,000 as compared to net cash provided by operating
activities of $543,000 during the comparable 1994 period.
The Company plans to expand its Company-owned restaurants at the rate of 10 to
15 units per year in the 1995 - 1996 period. In addition to the Pepperoni Grill
restaurant purchased in January, 1995 for approximately $529,000, the Company
expects to construct and open nine new restaurants during 1995 in restaurant
locations leased in regional malls. The Company believes the cash generated
from its operations and borrowing availability under its credit facilities
(described below), will be sufficient to satisfy the Company's net capital
expenditures and working capital requirements through 1996.
The Company has available a credit arrangement, which can be utilized at the
Company's discretion, with a vendor who will provide financing for equipment
purchases during 1995. Additionally, the Company has revolving lines of credit
with banks totaling $1,200,000 which expire in August, 1995.
Also, the Company will be closing on a revolving line of credit for $3,000,000,
(which has been approved by a bank) on August 15, 1995. This revolver is
unsecured, has a three year term and contains customary financial covenants.
This new credit facility will replace the existing revolving lines of credit and
provide additional borrowing capacity to be utilized by the Company to continue
its expansion plans over the next several years.
-15-
<PAGE>
PART II
OTHER INFORMATION
-16-
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The Company's Annual Meeting was held on June 15, 1995.
(b) Proxies were solicited by the Company's management pursuant to
Regulation 14 under the Securities Exchange Act of 1934. There was no
solicitation in opposition, and all of management's nominees were
elected pursuant to the vote of the stockholders as follows:
Nominee For Against
------- --- -------
James M. Burke 3,069,297 32,080
Philip Friedman 3,069,297 32,080
Thomas F. Golden 3,069,297 32,080
Edward D. Orza 3,069,297 32,080
Patricia L. Orza 3,069,297 32,080
Vincent F. Orza, Jr. 3,069,297 32,080
(c) The total number of shares of the Company's common stock, $.002 par
value, outstanding at April 28, 1995, the record date for the Annual
Meeting, was 3,723,684.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit 11.1 - Computation of net income per share.
(b) No reports on Form 8-K were filed during the three months ended June
30, 1995.
(c) Exhibit 27 - Financial Data Schedule
-17-
<PAGE>
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.
EATERIES, INC.
Registrant
Date: August 10, 1995 By: /s/ AUGUST A. HEHEMANN
------------------------
August A. Hehemann
Vice President/Treasurer
Principal Financial and
Accounting Officer
-18-
<PAGE>
EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF NET INCOME PER SHARE.
<PAGE>
Exhibit 11.1
EATERIES, INC. AND SUBSIDIARY
COMPUTATION OF NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
1995 Quarter Ended
---------------------
March 31 June 30
-------- -------
<S> <C> <C>
Shares for net income (loss) per share computation:
Weighted average shares:
Common shares outstanding from beginning of period.... 3,680,768 3,723,684
Common shares issued upon exercise of stock options... 14,830 3,000
Treasury shares acquired (682) -
--------- ---------
3,694,916 3,726,684
Common stock equivalents (unless anti-dilutive):
Shares issuable upon exercise of options (dilutive)... 394,813 -
Assumed repurchase of outstanding shares up to 20%
limitation (based on average market price for
the quarter)......................................... (181,138) -
--------- ---------
213,675 -
--------- ---------
Total shares................ 3,908,591 3,726,684
--------- ---------
--------- ---------
Net income (loss).......................................... $ 25,207 $ (45,071)
--------- ---------
--------- ---------
Net income (loss) per share................................ $0.01 $(0.01)
----- ------
----- ------
<CAPTION>
Six months ended
June 30, 1995
----------------
<S> <C>
Net loss (sum of two quarters above)....................... $ (19,864)
----------
----------
Weighted average number of common and common equivalent
shares (average of two quarters above).................. 3,817,638
----------
----------
Net loss per share......................................... $(0.01)
------
------
</TABLE>
-1-
<PAGE>
Exhibit 11.1
EATERIES, INC.
COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
1994 Quarter Ended
---------------------
March 31 June 30
-------- -------
<S> <C> <C>
Shares for net income per share computation:
Weighted average shares:
Common shares outstanding from beginning of period.... 3,608,001 3,627,192
Common shares issued upon exercise of stock options... 11,301 ---
--------- ---------
3,619,302 3,627,192
Common stock equivalents:
Shares issuable upon exercise of options (dilutive)... 380,239 418,528
Assumed repurchase of outstanding shares up to 20%
limitation (based on average market price for
the quarter)......................................... (41,305) (104,658)
--------- ---------
338,934 313,870
--------- ---------
Total shares................ 3,958,236 3,941,062
--------- ---------
--------- ---------
Net income................................................. $ 77,911 $ 26,635
--------- ---------
--------- ---------
Net income per share....................................... $0.02 $0.01
----- -----
----- -----
<CAPTION>
Six months ended
June 30, 1994
----------------
<S> <C>
Net income (sum of two quarters above)..................... $ 104,546
----------
----------
Weighted average number of common and common equivalent
shares (average of two quarters above).................. 3,949,649
---------
---------
Net income per share....................................... $0.03
-----
-----
</TABLE>
-2-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1995 AND THE CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1995
INCLUDED IN THE COMPANY'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30,
1995.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 1,019
<SECURITIES> 0
<RECEIVABLES> 1,312
<ALLOWANCES> 0
<INVENTORY> 1,104
<CURRENT-ASSETS> 4,215
<PP&E> 12,121
<DEPRECIATION> 3,367
<TOTAL-ASSETS> 8,754
<CURRENT-LIABILITIES> 4,580
<BONDS> 362
<COMMON> 8
0
0
<OTHER-SE> 8,586
<TOTAL-LIABILITY-AND-EQUITY> 8,594
<SALES> 20,679
<TOTAL-REVENUES> 21,157
<CGS> 6,496
<TOTAL-COSTS> 19,282
<OTHER-EXPENSES> 1,903
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14
<INCOME-PRETAX> (28)
<INCOME-TAX> (8)
<INCOME-CONTINUING> (20)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
