<PAGE> 1
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, 1996.
Commission File Number: 0-14968
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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
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(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 practicable date. 3,843,908 common
shares, $.002 par value, were outstanding as of August 9, 1996.
<PAGE> 2
EATERIES, INC. AND SUBSIDIARY
FORM 10-Q
INDEX
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Page
----
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
December 31, 1995 and
June 30, 1996 (unaudited) .................................. 4
Condensed Consolidated Statements of
Income (unaudited)
Three months ended June 30, 1995
and thirteen weeks ended June 30, 1996 .................... 5
Six months ended June 30, 1995
and twenty-six weeks ended June 30, 1996 .................. 6
Condensed Consolidated Statements of
Cash Flows (unaudited)
Six months ended June 30, 1995
and twenty-six weeks ended June 30, 1996 .................. 7
Notes to Condensed Consolidated Financial Statements
(unaudited) .................................................... 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations ................................................. 11
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote
of Security Holders ........................................ 19
Item 6. Exhibits and Reports on Form 8-K ........................... 19
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<PAGE> 3
PART I
FINANCIAL INFORMATION
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<PAGE> 4
Item 1. Financial Statements
EATERIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
------------ ------------
ASSETS (unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,001,954 $ 985,574
Receivables 1,353,099 1,889,025
Deferred income taxes 389,000 374,000
Inventories 1,368,673 1,320,629
Other 179,020 216,444
------------ ------------
Total current assets 4,291,746 4,785,672
------------ ------------
PROPERTY AND EQUIPMENT 26,819,081 30,898,451
Less landlord finish-out allowances (12,409,951) (14,113,986)
Less accumulated depreciation and
amortization (4,047,414) (4,891,952)
------------ ------------
Net property and equipment 10,361,716 11,892,513
------------ ------------
DEFERRED INCOME TAXES 991,000 1,115,000
LANDLORD FINISH-OUT ALLOWANCES
RECEIVABLE 429,000 --
OTHER ASSETS, net 522,493 523,193
------------ ------------
$ 16,595,955 $ 18,316,378
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,967,109 $ 3,579,995
Accrued liabilities 2,963,564 2,301,892
Notes payable to vendor 13,139 --
Current portion of long-term
obligations 25,305 26,764
------------ ------------
Total current liabilities 5,969,117 5,908,651
------------ ------------
OTHER NONCURRENT LIABILITIES 465,382 466,818
------------ ------------
LONG-TERM OBLIGATIONS, net of
current portion 1,249,023 3,035,266
------------ ------------
COMMITMENTS
STOCKHOLDERS' EQUITY:
Preferred stock, none issued -- --
Common stock 8,038 8,236
Additional paid-in capital 9,154,420 9,276,003
Retained earnings 1,084,593 956,022
------------ ------------
10,247,051 10,240,261
Treasury stock, at cost,
274,039 shares at
December 31, 1995 and
June 30, 1996 (1,334,618) (1,334,618)
------------ ------------
Total stockholders' equity 8,912,433 8,905,643
------------ ------------
$ 16,595,955 $ 18,316,378
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 5
EATERIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Three Months Thirteen Weeks
Ended June 30, Ended June 30,
1995 1996
-------------- --------------
<S> <C> <C>
REVENUES:
Food and beverage sales $ 10,459,283 $ 13,267,736
Franchise fees and royalties 90,516 68,337
Other income 132,458 89,586
------------ ------------
10,682,257 13,425,659
------------ ------------
COST AND EXPENSES:
Cost of sales 3,282,933 4,076,377
Operating expenses 6,161,185 7,988,520
Pre-opening costs 198,000 154,000
General and administrative 785,262 962,176
Depreciation and amortization 312,374 439,889
Interest expense 5,770 38,550
------------ ------------
10,745,524 13,659,512
------------ ------------
LOSS BEFORE INCOME TAXES (63,267) (233,853)
BENEFIT FOR INCOME TAXES (18,196) (68,000)
------------ ------------
NET LOSS $ (45,071) $ (165,853)
============ ============
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES 3,726,684 3,843,404
============ ============
NET LOSS PER SHARE $ (0.01) $ (0.04)
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 6
EATERIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Six Months Twenty-Six Weeks
Ended June 30, Ended June 30,
1995 1996
-------------- ----------------
<S> <C> <C>
REVENUES:
Food and beverage sales $ 20,678,816 $ 25,878,858
Franchise fees and royalties 146,099 133,475
Other income 332,305 185,042
------------ ------------
21,157,220 26,197,375
COSTS AND EXPENSES:
Cost of sales 6,496,446 7,917,305
Operating expenses 12,177,908 15,451,281
Pre-opening costs 341,000 274,000
General and administrative 1,548,116 1,796,013
Depreciation and amortization 608,039 872,828
Interest expense 13,575 67,522
------------ ------------
21,185,084 26,378,949
------------ ------------
LOSS BEFORE INCOME TAXES (27,864) (181,574)
BENEFIT FOR INCOME TAXES (8,000) (53,000)
------------ ------------
NET LOSS $ (19,864) $ (128,574)
============ ============
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES 3,817,638 3,887,759
============ ============
NET LOSS PER SHARE $ (0.01) $ (0.03)
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 7
EATERIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months Twenty-Six Weeks
Ended June 30, Ended June 30,
1995 1996
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
Cash flows from operating activities:
Net loss $ (19,864) $ (128,574)
Adjustments to reconcile net loss to
net cash provided by (used in) operating
activities:
Depreciation & amortization 608,039 872,828
Gain on sale of assets (134,909) (3,153)
Common stock bonus -- 4,366
Deferred income taxes (8,000) (53,000)
(Increase) decrease in:
Receivables (405,819) (244,454)
Inventories (3,425) 48,044
Other (109,417) (37,424)
Increase (decrease) in:
Accounts payable (400,166) 612,886
Accrued liabilities (65,230) (661,672)
Other noncurrent liabilities 213,154 1,436
----------- -----------
Total adjustments (305,773) 539,857
----------- -----------
Net cash provided by (used in) operating
activities (325,637) 411,283
----------- -----------
Cash flows from investing activities:
Capital expenditures (3,372,953) (4,129,817)
Landlord allowances 1,120,536 1,841,563
Net cash payments for restaurant acquisitions (529,083) --
Proceeds from sale of property and equipment 389,717 33,816
Sales of marketable securities 514,737 --
(Increase) decrease in other assets 3,654 (9,203)
----------- -----------
Net cash used in investing
activities (1,873,392) (2,263,641)
----------- -----------
Cash flows from financing activities:
Payments on notes payable (287,895) (13,139)
Payments on long-term obligations (55,926) (12,298)
Net borrowings under revolving credit agreement 300,000 1,800,000
Increase in bank overdraft 1,389,973 --
Proceeds from sale of common stock -- 688
Proceeds from exercise of stock options 27,832 60,727
----------- -----------
Net cash provided by financing activities 1,373,984 1,835,978
----------- -----------
Net decrease in cash & cash equivalents (825,045) (16,380)
Cash and cash equivalents at beginning of period 1,843,951 1,001,954
----------- -----------
Cash and cash equivalents at end of period $ 1,018,906 $ 985,574
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 8
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 footnotes 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. The Company changed its fiscal
year-end in the first quarter of 1996 to a 52/53 week year ending on the last
Sunday in December. As a result of this change, each of the Company's quarters
will consist of thirteen weeks. In a 53 week fiscal year, the fourth quarter
will include fourteen weeks. The first two quarters of 1996 include 182 days
(combined) versus 181 days in the six months ended June 30, 1995. The second
quarters of 1995 and 1996, each include 91 days. Operating results for
thirteen and twenty-six week periods ended June 30, 1996, are not necessarily
indicative of the results that may be expected for the year ending December 31,
1996. 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, 1995.
Note 2 - Balance Sheet Information
Receivables are comprised of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
---------- ----------
<S> <C> <C>
Franchisees $ 88,448 $ 41,805
Insurance refunds 283,883 442,464
Landlord finish-out allowances 748,288 1,039,760
Other 232,480 364,996
---------- ----------
$1,353,099 $1,889,025
========== ==========
</TABLE>
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<PAGE> 9
Accrued liabilities are comprised of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
---------- ----------
<S> <C> <C>
Compensation $1,259,896 $1,203,840
Taxes, other than income 395,930 416,937
Other 1,307,738 681,115
---------- ----------
$2,963,564 $2,301,892
========== ==========
</TABLE>
Note 3 - Supplemental Cash Flow Information
For the six month periods ended June 30, 1995 and 1996, the Company had the
following non-cash investing and financing activities:
<TABLE>
<CAPTION>
Six Months Twenty-six Weeks
Ended June 30, Ended June 30,
1995 1996
---------- ----------
<S> <C> <C>
Net increase (decrease) in
receivables for landlord
finish-out allowances ......................... $ 256,000 $(137,528)
Borrowings for capital expendi-
tures under notes payable to
vendor ........................................ 112,295 --
Increase in additional paid-in
capital as a result of tax
benefits from the exercise
of non-qualified stock
options ....................................... 39,000 56,000
</TABLE>
Note 4 - Impairment of Long-Lived Assets
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ("SFAS 121") "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted
future cash flows estimated to be generated by those assets are less than the
assets' carrying amount. SFAS 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company adopted SFAS 121 in the
first quarter of 1996, and based upon management's review of the Company's
long-lived assets, no impairment losses were recorded. (See following Note 5
for discussion of the Company's provision for restaurant closures and other
disposals).
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<PAGE> 10
Note 5 - Provision for Restaurant Closures and Other Disposals.
During the third quarter of 1995, the Company approved and began the
implementation of a plan to close certain underperforming restaurants. As of
August 9, 1996, the Company had closed three of the four restaurants planned
for closure. Management anticipates that the remaining restaurant closure and
negotiation and execution of lease termination agreements will be completed
during the remainder of 1996. As a result of the completed and planned
restaurant closures, the Company recorded a pre-tax charge of $842,000 in the
third quarter of 1995, of which approximately $585,000 of lease termination
costs, litigation settlement costs and other exit costs had been incurred by
June 30, 1996. Management expects the effect of closing these underperforming
stores to result in improved margins and increased profitability for the
Company in future periods. In the normal course of business, management
performs a regular review of the strength of its operating assets. It is
management's plan to continue to make such decisions to close underperforming
restaurants and/or dispose of other assets it considers in the best long-term
interest of the Company's shareholders.
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<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
INTRODUCTION
As of June 30, 1996, the Company owns and operates 42 casual theme
dinnerhouse restaurants (40 Garfield's and two Pepperoni Grills). The
Garfield's Division totals 50 restaurants comprised of a combination of the 42
Company and eight franchised locations. These numbers reflect the closing of
one Company Garfield's subsequent to the quarter's end. The Company currently
has three additional Garfield's under development and scheduled to open in the
third and fourth quarter of 1996.
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,
1995 1996 1995 1996
-------------------------- ------------------------
<S> <C> <C> <C> <C>
Statements of Income Data:
Revenues:
Restaurant sales................ 97.9% 98.8% 97.7% 98.8%
Franchise fees and royalties.... 0.9% 0.5% 0.7% 0.5%
Other income.................... 1.2% 0.7% 1.6% 0.7%
------------------------- -------------------------
100.0% 100.0% 100.0% 100.0%
Costs and Expenses:
Costs of sales (1).............. 31.4% 30.7% 31.4% 30.6%
Restaurant operating expenses(1) 58.9% 60.2% 58.9% 59.7%
Restaurant pre-opening costs 1.9% 1.1% 1.6% 1.0%
General and administrative
expenses 7.4% 7.2% 7.3% 6.9%
Depreciation and amortization
expenses (1)................ 2.9% 3.3% 2.9% 3.4%
Interest expense................ 0.1% 0.3% 0.1% 0.3%
------------------------- ------------------------
100.6% 101.7% 100.1% 100.7%
------------------------- ------------------------
Loss before income taxes (0.6%) (1.7%) (0.1%) (0.7%)
Provision for income taxes............... (0.2%) (0.5%) (0.0%) (0.2%)
------------------------- -------------------------
Net loss................................. (0.4%) (1.2%) (0.1%) (0.5%)
========================= =========================
Selected Operating Data:
(Dollars in thousands)
System-wide sales:
Company restaurants............. $10,459 $13,268 $20,679 $25,879
Franchise restaurants........... 1,836 2,037 3,683 4,070
------------------------- -----------------------
Total........................... $12,295 $15,305 $24,362 $29,949
========================= =======================
Number of restaurants (at end of period):
Company restaurants............. 38 43
Franchise restaurants........... 8 8
--------------------------
Total...................... 46 51
==========================
</TABLE>
(1) As a percentage of restaurant sales.
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<PAGE> 12
RESULTS OF OPERATIONS
For the quarter ended June 30, 1996, the Company recorded net loss of
$(152,000) ($(.04) per share) on revenues of $13,426,000. This compares to net
loss of $(45,000) ($(.01) per share) for the quarter ended June 30, 1995 on
revenues of $10,682,000. For the six months ended June 30, 1996 and 1995, the
Company reported net loss of $(129,000) ($(.03) per share) for 1996 compared to
net loss of $(20,000) ($(.01) per share) in 1995.
REVENUES
Company revenues for the three and six months ended June 30, 1996 increased 26%
and 24%, respectively, over the revenues reported for the same periods in 1995.
The revenue increase relates primarily to increased restaurant sales during the
three and six month periods in 1996. 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>
1996 43 127 251 $104,500 $103,100
1995 38 114 221 $ 91,700 $ 93,600
</TABLE>
Average monthly sales per unit increased by $12,800 and $9,500, respectively,
for the three and six months ended June 30, 1996 versus the previous year's
results. These increases are notable in that they are reversing a sales
decline the company was experiencing through 1995. Management believes the
increases are attributable to the following items:
A stronger, more experienced management team in place at the beginning
of 1996. (Several key examples follow).
In November, 1995, the Company created and filled the position of
Divisional Vice President of Operations/Garfield's. The individual
responsible for this position brings 17 years of senior operations'
management experience with two nationally recognized restaurant
chains. The Divisional Vice President is responsible for improving
service and sales of the Garfield's stores as well as recruiting and
hiring experienced store management.
In August, 1995 the Company hired a Vice President of Marketing, a new
position at the Company. The new Vice President of Marketing has over
17 years of marketing experience with a nationally recognized chain of
dinnerhouse restaurants. During the fourth quarter of 1995, a
detailed marketing plan was developed for 1996,
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<PAGE> 13
with the primary objectives being to improve same store sales and
guest satisfaction. The implementation of the marketing plan began
during the first quarter of 1996 positively impacted the Company's
same store sales results during the first six months of 1996.
Following the November, 1995 successful introduction of regional
newspaper advertising, the Company ran its second regional newspaper
print program for Garfield's restaurants in February, 1996. A third
regional program continued to drive sales during May and June, 1996.
These programs were used in the majority of the Company's restaurant
markets and have all been successful in increasing revenues and
customer visits.
During the first six months of 1996, the Company began testing radio
and direct mail advertising campaigns in selective restaurant markets.
Initial results have been favorable and the Company plans to further
utilize these campaigns in additional restaurant markets during the
remainder of the year.
While these marketing programs resulted in increased short-term costs,
management believes their effects, along with the local efforts of our
restaurant management, contributed to the Company's significant
average monthly sales per unit increases. (The Company experienced a
10% increase in average unit volumes during the first six months of
1996 versus the comparable 1995 period). Management believes it will
continue to experience improving sales trends for the balance of the
year with lower marketing and promotional costs.
Initial franchise fees and continuing royalties were $133,000 and $146,000 in
the six months ended June 30, 1996 and 1995, respectively. During the second
quarter of 1995, one franchise restaurant closed and a new one opened. At June
30, 1996 and 1995, there were eight franchise restaurants in service.
Other income for the six months ended June 30, 1996 was $185,000 as compared to
the previous year's amount of $332,000. The 1995 six month period's other
income included a $135,000 gain on the sale of a building and related
equipment.
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<PAGE> 14
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
------------ -----------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cost of sales 31.4% 30.7% 31.4% 30.6%
Labor costs 29.1% 29.2% 28.7% 28.5%
----- ----- ----- -----
Total 60.5% 59.9% 60.1% 59.1%
===== ===== ===== =====
</TABLE>
The decrease in cost of sales percentages during the three and six months ended
June 30, 1996 versus the 1995 comparable periods primarily reflects the
Company's improving purchasing techniques, which has allowed the Company to fix
purchase prices for certain high volume food products, and other purchasing
efficiencies. Where practical, such techniques will continue to be used in the
Company's purchasing methods. Also, 1996 cost of sales percentages improved
over the previous year's as a result of the addition to the menu of several new
entree selections that have a lower percentage of product cost to price than
the average menu mix. Labor costs experienced during the first six months of
1996 modestly improved over the comparable 1995 period.
For the three months ended June 30, 1996, restaurant operating expenses as a
percentage of revenues increased to 60.2% from 58.9% in the 1995 period. A
similar increase was experienced during the six months ended June 30, 1996,
during which operating expenses were 59.7%, as compared to the 1995 period
level of 58.9%. Both 1996 period increases in operating expenses as a percent
to sales are attributable to higher advertising and promotional expenses
partially offset by lower occupancy costs. The Company has incurred higher
promotional costs during the first half of 1996 (through its regional newspaper
and direct mail advertising programs) to increase revenues and build its
customer base. In the short-term this strategy has negatively impacted the
Company's operating results, but management believes in the long-term it will
increase its customer base and future revenues.
Restaurant pre-opening costs, which are expensed as incurred, were $154,000 and
$198,000 for the quarters ended June 30, 1996 and 1995, respectively, and
$274,000 and $341,000 for the six month periods ended June 30, 1996 and 1995,
respectively. Three restaurants were developed in the first six months of 1996
while four restaurants were developed in the 1995 period. The Company plans to
open three additional restaurants during the second half of 1996 (for a total
of six new restaurants for 1996).
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<PAGE> 15
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, 1996 and 1995, general and
administrative costs as a percentage of revenues decreased to 7.2% and 6.9%,
respectively, from 7.4% and 7.3%, respectively. The first half 1996 decrease
as a percentage of revenues reflects the Company's revenue growth over the
previous year. The higher absolute levels of general and administrative costs
from 1996 to 1995 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 1996 to
$873,000 compared to $608,000 in 1995. The increase principally relates to the
increase in net assets subject to depreciation and amortization in 1996 versus
1995 because of additional Garfield's and Pepperoni Grill Restaurants opened
since July 1, 1995 and the remodeling of existing restaurants.
INCOME TAXES
The Company's income tax benefit was $(53,000) during the first six months of
1996 versus an income tax benefit of $(8,000) for the 1995 comparable period.
The effective tax rates for the periods ended June 30, are as follows:
<TABLE>
<CAPTION>
Three Months Six Months
------------ ------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Effective income tax rates 28.8% 29.1% 28.7% 29.2%
</TABLE>
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 3,726,684 and
3,843,404 in the three months ended June 30, 1995 and 1996, respectively, and
3,817,638 and 3,887,759 in the six months ended June 30, 1995 and 1996,
respectively. Under the treasury stock method of computation, there were no
dilutive common equivalent shares for the quarters ended June 30, 1995 and
1996, as the Company incurred net losses for those periods.
-15-
<PAGE> 16
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 could significantly
increase the Company's costs of doing business.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company's working capital ratio was .81 to 1 compared to
.72 to 1 at December 31, 1995. The Company's working capital was $(1,123,000)
at June 30, 1996 versus $(1,677,000) at December 31, 1995. 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, proceeds from the sale of common stock and utilizing the
Company's revolving line of credit.
During the six months ended June 30, 1996, the Company had net cash provided by
operating activities of $411,000 as compared to net cash used by operating
activities of $326,000 during the comparable 1995 period.
The Company plans to open six units during 1996 in restaurant locations leased
in regional malls. The Company believes the cash generated from its operations
and borrowing availability under its credit facility (described below), will be
sufficient to satisfy the Company's net capital expenditures and working
capital requirements during 1996.
In August, 1995, the Company entered into an agreement with a bank for a
revolving line of credit for $3,000,000. This revolver is unsecured, has a
three year term and contains customary financial covenants. This credit
facility provides the Company additional borrowing capacity to continue its
expansion plans over the next several years.
-16-
<PAGE> 17
In July, 1996, the Company's $3,000,000 revolving line of credit was increased
to $5,000,000 and the term was extended by one year to August, 1999.
-17-
<PAGE> 18
PART II
OTHER INFORMATION
-18-
<PAGE> 19
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Company's Annual Meeting was held on June 26, 1996.
(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:
<TABLE>
<CAPTION>
Nominee For Against
------- --- -------
<S> <C> <C>
James M. Burke 3,099,222 26,183
Philip Friedman 3,099,222 26,183
Thomas F. Golden 3,099,222 26,183
Edward D. Orza 3,099,122 26,283
Patricia L. Orza 3,098,422 26,983
Vincent F. Orza, Jr. 3,099,222 26,183
</TABLE>
(c) The total number of shares of the Company's common stock,
$.002 par value, outstanding at April 29, 1996, the record
date for the Annual Meeting, was 3,843,158.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 11.1 - Computation of net income per share.
Exhibit 27 - Financial Data Schedule.
(b) No reports on Form 8-K were filed during the three months
ended June 30, 1996.
-19-
<PAGE> 20
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 9, 1996 By: /s/ AUGUST A. HEHEMANN
------------------------------------
August A. Hehemann
Vice President/Treasurer
Principal Financial and
Accounting Officer
-20-
<PAGE> 21
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
11.1 Statement RE computation of Net Income per share
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF NET INCOME PER SHARE.
<PAGE> 2
Exhibit 11.1
EATERIES, INC. AND SUBSIDIARY
COMPUTATION OF NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
1996 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..... 3,745,095 3,842,258
Common shares issued upon:
Exercise of stock options............................ 62,996 --
Sale of common stock................................. -- 198
Common stock bonuses................................. -- 948
----------- -----------
3,808,091 3,843,404
Common stock equivalents (unless anti- dilutive):
Shares issuable upon exercise of options ( dilutive) 761,983 --
Assumed repurchase of outstanding shares up to 20%
limitation (based on average market price for
the quarter)......................................... (637,961) --
----------- -----------
124,022 --
----------- -----------
Total shares................ 3,932,113 3,843,404
=========== ===========
Net income (loss) ......................................... $ 37,279 $ (165,853)
=========== ===========
Net income (loss) per share................................ $ 0.01 $ (0.04)
=========== ===========
Twenty-Six Weeks
June 30, 1996
---------------
Net loss (sum of two quarters above)....................... $ (128,574)
==========
Weighted average number of common and common equivalent
shares (average of two quarters above).................. 3,887,759
==========
Net loss per share......................................... $ (0.03)
==========
</TABLE>
-1-
<PAGE> 3
Exhibit 11.1
EATERIES, INC.
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)
=========== ===========
Six months ended
June 30, 1995
----------------
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>
-2-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1996 AND THE CONDENSED
CONSOLIDATED STATEMENT OF INCOME FOR THE TWENTY-SIX WEEKS ENDED JUNE 30, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 986
<SECURITIES> 0
<RECEIVABLES> 1,664
<ALLOWANCES> 0
<INVENTORY> 1,321
<CURRENT-ASSETS> 4,786
<PP&E> 16,784
<DEPRECIATION> 4,892
<TOTAL-ASSETS> 18,316
<CURRENT-LIABILITIES> 5,909
<BONDS> 3,035
<COMMON> 8
0
0
<OTHER-SE> 8,897
<TOTAL-LIABILITY-AND-EQUITY> 18,316
<SALES> 25,879
<TOTAL-REVENUES> 26,197
<CGS> 7,917
<TOTAL-COSTS> 24,241
<OTHER-EXPENSES> 2,138
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68
<INCOME-PRETAX> (182)
<INCOME-TAX> (53)
<INCOME-CONTINUING> (129)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (129)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
