<PAGE>
U.S SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark one)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 27, 1998.
__ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM _______ TO _______.
Commission file number 0-16348.
PREMIUM RESTAURANT COMPANY
(Exact name of small business issuer as specified in its charter)
Minnesota 41-1564262
--------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation of organization)
(612) 941-0108
--------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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]
The Company had 1,845,939 shares of Common Stock, $.01 par value per share,
outstanding as of October 30, 1998.
<PAGE>
PREMIUM RESTAURANT COMPANY AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements
--------------------
Consolidated Balance Sheets as of September 27, 1998
and June 28, 1998. 3
Consolidated Statements of Operations for the thirteen weeks
ended September 27, 1998 and September 28, 1997. 4
Consolidated Statements of Cash Flows for the thirteen weeks
ended September 27, 1998 and September 28, 1997. 5
Consolidated Notes to Financial Statements 6-7
Item 2. Management's Discussion and Analysis or Plan of Operation 8-12
---------------------------------------------------------
PART II. OTHER INFORMATION 13-18
</TABLE>
2
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PART I - FINANCIAL INFORMATION
PREMIUM RESTAURANT COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPT. 27, JUNE 28,
1998 1998
------------- -------------
(unaudited)
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash $ 437,923 $ 885,087
Receivables 94,932 58,148
Current portion of notes receivable 78,076 82,120
Inventories 56,080 82,294
Prepaid expenses and other current assets 164,385 22,186
Assets held for sale 185,718 469,251
------------- -------------
Total current assets 1,017,114 1,599,086
PROPERTY AND EQUIPMENT
Equipment 2,149,790 2,149,782
Leasehold improvements 1,858,682 1,858,690
Automobiles 15,060 15,060
------------- -------------
4,023,532 4,023,532
Less accumulated depreciation and amortization (2,110,159) (1,978,381)
------------- -------------
Net property and equipment 1,913,373 2,045,151
OTHER ASSETS
Notes receivable, less current portion 233,355 249,620
Deferred financing costs 85,231 89,820
------------- -------------
$ 3,249,073 $ 3,983,677
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Current maturities of long-term obligations
Related party $ 400,000 $ 400,000
Other 614,286 761,927
Accounts payable 932,057 718,435
Accrued salaries and wages 150,922 197,779
Other accrued liabilities 546,651 675,679
------------- -------------
Total current liabilities 2,643,916 2,753,820
LONG-TERM OBLIGATIONS, LESS CURRENT MATURITIES 699,288 1,047,647
OTHER LONG-TERM LIABILITIES 151,384 161,983
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.01 par value; authorized 10,000,000
shares; no shares issued or outstanding - -
Common stock, $.01 par value; authorized 10,000,000
shares; issued and outstanding 1,845,939 shares 18,459 18,330
Additional paid-in capital 5,532,075 5,518,651
Accumulated deficit (5,796,049) (5,516,754)
------------- -------------
(245,515) 20,227
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$ 3,249,073 $ 3,983,677
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
3
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PREMIUM RESTAURANT COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THIRTEEN WEEKS ENDED
----------------------------
SEPT. 27, SEPT. 28,
1998 1997
---- ----
(unaudited) (unaudited)
<S> <C> <C>
Sales
Full-service restaurants $ 1,228,055 $ 3,583,412
Bagel bakeries 671,580 699,678
------------- -------------
Total sales 1,899,635 4,283,090
Cost of food and beverage 641,280 1,301,338
------------- -------------
Gross profit 1,258,355 2,981,752
Operating expenses (income)
Labor and benefits 735,192 1,558,924
Direct and occupancy 878,227 1,789,897
General and administrative expenses 268,999 379,886
Gain on sale of restaurants (51,204) (486,255)
------------- -------------
1,831,214 3,242,452
------------- -------------
Loss from operations 572,859 260,700
Other income (expense)
Interest expense (54,285) (57,053)
Investment income 8,396 735
Other, net 294 2,253
------------- -------------
(45,595) (54,065)
------------- -------------
Loss before income taxes and extraordinary items (618,454) (314,765)
Income taxes 1,300 -
------------- -------------
Loss before extraordinary items (619,754) (314,765)
Extraordinary gain from the early extinguishment of debt 340,248 -
------------- -------------
Net loss $ (279,506) $ (314,765)
------------- -------------
------------- -------------
Net loss per share-basic and diluted ($0.15) ($0.42)
------------- -------------
------------- -------------
Weighted average number of shares
outstanding during the period-basic and diluted 1,845,939 742,819
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
PREMIUM RESTAURANT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THIRTEEN WEEKS ENDED
---------------------------
SEPT. 27, SEPT. 28,
1998 1997
------------ ------------
(unaudited) (unaudited)
Operating activities:
<S> <C> <C>
Net loss $ (279,506) $ (314,765)
Adjustment to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 171,460 259,092
Gain on sale of restaurants (51,204) (486,255)
Extraordinary gain from the early extinguishment of debt (340,248) -
Other (10,599) -
Changes in operating assets and liabilities
net of the effects of the sale of restaurants
Receivables 10,586 2,272
Inventories 26,214 (9,021)
Prepaid expenses and other current assets (142,199) 8,609
Accounts payable 213,621 (352,652)
Accrued salaries and wages (46,857) (59,270)
Other accrued liabilities (129,028) 47,902
------------ ------------
Net cash used in operating activities (577,760) (904,088)
Investing activities:
Purchases of leasehold improvements and equipment (7,514) (62,652)
Proceeds from sale of restaurants 260,000 825,000
Collections on notes receivable 20,309 -
------------ ------------
Net cash provided by investing activities 272,795 762,348
Financing activities:
Proceeds from long-term obligations - 451,390
Payments on long-term obligations (155,752) (36,743)
Proceeds from issuance of common stock, net 13,553 -
------------ ------------
Net cash provided by (used in) financing activities (142,199) 414,647
------------ ------------
Net increase (decrease) in cash (447,164) 272,907
Cash at beginning of period 885,087 454,157
------------ ------------
Cash at end of period $ 437,923 $ 727,064
------------ ------------
------------ ------------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 57,922 $ 14,101
Income taxes 1,300 -
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
PREMIUM RESTAURANT COMPANY AND SUBSIDIARY
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - FINANCIAL STATEMENTS
The unaudited consolidated balance sheet as of September 27, 1998 and the
unaudited consolidated statements of operations and cash flows for the thirteen
weeks ended September 27, 1998 and September 28, 1997 have been prepared by the
Company. In the opinion of management, all adjustments (all of which are normal
and recurring in nature) necessary to present fairly the financial position at
September 27, 1998 and the results of operations and cash flow activity for the
periods ended September 27, 1998 and September 28, 1997 have been made. The
consolidated balance sheet as of June 28, 1998 has been taken from the audited
financial statements as of that date. Results of operations for interim periods
are not necessarily indicative of the full fiscal year.
NOTE B - GOING CONCERN
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements during the first quarter of fiscal 1999, the Company incurred a loss
of $279,506 and as of September 27, 1998, the Company has a working capital
deficit of $1,626,802. In addition to funding the working capital deficit, the
Company is obligated to develop bagel bakeries pursuant to its development
agreement with Bruegger's. These factors raise a substantial doubt about the
Company's ability to continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
NOTE C - NET LOSS PER SHARE
The Company's basic net loss per share amounts have been computed by dividing
net loss by the weighted average number of outstanding common shares. The
Company's diluted net loss per share amounts are computed by dividing net loss
by the weighted average number of outstanding common shares and common share
equivalents relating to stock options, when dilutive. Options to purchase
32,985 and 57,940 shares of common stock with a weighted average exercise price
of $2.73 and $2.55 were outstanding during the thirteen weeks ended September
27, 1998 and September 28, 1997, but were excluded from the computation of
common share equivalents because they were anti-dilutive. Warrants to purchase
1,103,120 shares of common stock with a weighted average exercise price of
$1.875 were outstanding as of September 27, 1998, but were excluded from the
computation of common share equivalents because they were anti-dilutive.
NOTE D - RECENTLY ISSUED ACCOUNTING STANDARDS
During 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," which was required to be adopted in the first quarter of
1999. SFAS No. 130 established standards for the reporting and display an
amount representing comprehensive income and its components as part of the
Company's basic financial statements. Comprehensive income includes certain
non-owner changes in equity that currently are excluded from net income.
Because the Company historically has not experienced transactions that would be
included in comprehensive income, the adoption of SFAS No. 130 did not have a
material effect on the consolidated financial position, results of operations,
or cash flows of the Company.
6
<PAGE>
Additionally, the Company adopted SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," effective June 29, 1998. SFAS No.
131 requires the Company to disclose financial and other information about its
business segments, their products and services, geographic areas, sales,
profits, assets and other information. SFAS No. 131 is effective for financial
statements for periods beginning after December 15, 1997, however the statement
does not need to be applied to interim financial statements in the initial year
of application. Comparative information for the interim periods in the initial
year of application will be reported in the Company's financial statements for
the interim periods in fiscal 2000.
NOTE E - GAIN ON SALE OF RESTAURANTS
During September 1998, the Company sold one of its full-service restaurants.
The sale of this restaurant generated cash proceeds of $260,000. The gain
recognized on the sale of this restaurant was $51,204. During fiscal 1998, this
restaurant generated approximately $1,524,000 of sales, $114,000 of net losses
and $15,000 of cash deficits from operations.
During September 1997, the Company sold three of its full-service
restaurants. The sale of these restaurants generated proceeds of approximately
$975,000. The gain recognized on the sale of the three restaurants was
$486,255. During fiscal 1997, these restaurants generated approximately
$5,025,000 of sales, $205,000 of net earnings and $426,000 of cash flows from
operations.
NOTE F - EXTRAORDINARY GAIN FROM THE EARLY EXTINGUISHMENT OF DEBT
On July 13, 1998, the Company entered into an agreement whereby it was
released from its obligations under the capital lease at its Madison, Wisconsin,
location and the Company ceased operating this restaurant. The long-lived
assets at this location had been written-off in fiscal 1997. The remaining
capital lease obligation of $340,248 has been recorded as an extraordinary gain
from the early extinguishment of debt.
NOTE G - SUBSEQUENT EVENT
In November 1998, the Company sold one of its remaining full-service
restaurants. This restaurant is located in Edina, Minnesota. The sale of this
restaurant will generate proceeds of approximately $650,000. The net book value
of the leasehold improvements and equipment as of September 27, 1998 at this
location was $185,718. During fiscal 1998 this restaurant generated
approximately $1,951,000 of sales, $86,000 of net earnings and $161,000 of cash
flows from operations. The Company remains contingently liable for future lease
payments for this restaurant. The lease has a termination date through January
2003. The aggregate amount of the contingent lease payments was approximately
$517,000 as of September 27, 1998.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
SALES
Consolidated sales for the first quarter of fiscal 1999 decreased $2,383,455,
or 55.6%, to $1,899,635 from the first quarter of fiscal 1998 sales of
$4,283,090. The decrease in consolidated sales during the first quarter of
fiscal 1999 was due to a decline in sales at the Company's full-service
restaurants offset by an increase in sales at the Company's bagel bakeries.
Full-service restaurant sales of $1,228,055 for the first quarter of fiscal
1999 decreased 65.7% from sales of $3,583,412 for the same period of fiscal
1998. This decrease in sales was primarily a function of the Company having
three full-service restaurants open as of September 27, 1998, while having seven
full-service restaurants open as of September 28, 1997. The Company sold two of
its three remaining full-service restaurants in October 1998 and November 1998.
In addition, this decrease in sales was due to the increased competition of
national chain restaurants in the markets in which the Company's remaining
Italian restaurants operate. The Company expects competition to intensify and,
therefore, the Company's remaining restaurant will continue to face significant
pressure to maintain sales levels.
Bagel bakery sales of $671,580 for the first quarter of fiscal 1999
decreased 4% from bagel bakery sales of $699,678 for the same period in fiscal
1998. This decrease in sales was primarily a function of the Company having
seven bagel bakeries open as of September 27, 1998, while having eight bagel
bakeries open as of September 28, 1997. The Company closed one of its bagel
bakeries in November 1997, and opened a new bagel bakery in October 1998.
Additionally, the market in which the Company's bagel bakeries operate
experienced a severe heat wave in the first two months of the first quarter of
fiscal 1999, causing a decrease in customer traffic. The Company, while
required by its development agreement to have nine stores open by October 1,
1998 and thirty stores open by July 1, 2002, is currently negotiating an
extension with Bruegger's Corporation. The Company expects an extension will be
granted in November 1998.
Management intends to focus the Company's expansion resources entirely on the
bagel bakery concept. The Company does not expect to open any more full-service
restaurants in the future. Although the Company has not contracted to sell its
remaining full-service restaurant, it will consider any offers it receives.
COST OF FOOD AND BEVERAGE
Food and beverage cost was 33.8% of sales for the first quarter of fiscal
1999. These costs were up from the 30.3% of sales reported in the same quarter
of fiscal 1998 due to the mix of the Company's business including a larger
percentage of bagel bakery sales, which have a slightly higher cost of food and
beverage associated with them. The Company does not expect the cost of food and
beverage to increase significantly in the future. The Company expects to
construct a commissary in the second or third quarter of fiscal 1999 to lower
the food and beverage costs associated with its bagel bakeries and expects no
change to the food and beverage costs at its remaining full-service restaurant.
LABOR AND BENEFITS
Labor and benefits costs were 38.7% of sales for the first quarter of fiscal
1999, an increase from the 37.5% reported in the first quarter of fiscal 1998.
This increase was primarily due to the Company's bagel bakeries not having a
high enough sales level to support minimum labor requirements. As sales at the
Company's bagel bakeries increase in the future, labor and benefits costs as a
percent of sales will decrease.
8
<PAGE>
DIRECT AND OCCUPANCY
Direct and occupancy costs primarily include individual restaurant
advertising, promotion, supplies, utilities, occupancy and depreciation
expenses. These costs were 46.2% of sales in the first quarter of fiscal 1999,
up from 41.8% of sales reported in the same quarter of fiscal 1998. This
increase was primarily due to the fact that the Company was paying rent on four
bagel bakery leases that were not yet constructed. The Company opened a new
bagel bakery in October 1998. Bagel bakeries will not be constructed at the
remaining three locations until financing can be acquired. The Company is
obligated by its development agreement with Bruegger's to spend a minimum of 4%
of sales on advertising and, following its current practice, expects to spend
between 4% and 5% of bakery sales in the near future. The Company expects
advertising and promotional expenses at its remaining full-service restaurant to
approximate 3% for the remainder of fiscal 1999. Lastly, direct and occupancy
costs at the Company's bagel bakery restaurants were affected by fixed costs
such as rent and depreciation being spread across a lower sales base than at its
full-service restaurants. As sales at the Company's bagel bakeries increase in
the future, these fixed costs will decrease as a percent of sales.
GENERAL AND ADMINISTRATIVE
General and administrative costs decreased $110,887 to $268,999 in the first
quarter of fiscal 1999 from $379,886 for the same quarter of fiscal 1998. This
decrease in general and administrative costs was primarily a function of the
Company having three full-service restaurants open as of September 27, 1998,
while having seven full-service restaurants open as of September 28, 1997.
Also, the Company had more professional fees that were expensed during the first
quarter of fiscal 1998 than the same quarter of fiscal 1999 pertaining to its
attempts to acquire financing for its bagel bakery concept.
GAIN ON SALE OF RESTAURANT
The Company sold one of its full-service restaurants in September 1998. This
restaurant is located in Eden Prairie, Minnesota. The sale of this restaurant
generated cash proceeds of $260,000 and an account receivable of $47,370, which
was collected in October 1998. The gain recognized on the sale of the
restaurant sold was $51,204. This restaurant was closed by the new owner and is
being converted into a new restaurant concept. During fiscal 1998 this
restaurant generated approximately $1,524,000 of sales, $114,000 of net losses
and $15,000 of cash deficits from operations.
OTHER INCOME (EXPENSE), NET
Other income (expense) decreased to a net expense of $45,595 for the first
quarter of fiscal 1999, a decrease from a net expense of $54,065 reported in the
same quarter of last year. This decrease in other income (expense) was
primarily due to increased interest income from the Company carrying a note
receivable as a result of the sale of some of the Company's full-service
restaurants.
INCOME TAXES
The Company's income tax expense for the first quarter of fiscal 1999 was
$1,300. This was for state taxes paid during the first quarter of fiscal 1999.
The Company did not have any taxes for the first quarter of fiscal 1998. There
were no tax benefits recorded for the losses generated during the first quarters
of fiscal 1999 and fiscal 1998.
As of September 27, 1998, the Company has approximately $165,000 of
alternative minimum tax credit carryforwards and $4,956,000 in net operating
loss carryforwards. These tax carryforwards may only be utilized against future
earnings and there is no assurance that the Company will realize these benefits.
The utilization of these carryforwards may be limited if there are significant
changes in the ownership of the Company.
9
<PAGE>
EXTRAORDINARY GAIN FROM THE EARLY EXTINGUISHMENT OF DEBT
On July 13, 1998, the Company entered into an agreement whereby it was
released from its obligations under the capital lease at its Madison, Wisconsin,
location and the Company ceased operating this restaurant. The remaining
capital lease obligation of $340,248 has been recorded as an extraordinary gain
from the early extinguishment of debt. The long-lived assets at this location
had been written-off in fiscal 1997. During fiscal 1998, this restaurant
generated approximately $939,000 of sales and $61,000 of net losses and cash
deficits from operations.
SEASONALITY
The Company's highest sales from its Italian restaurants have historically
occurred during the months of July through December. The Company's bagel
bakeries' highest sales have occurred during the period from September through
May.
EFFECTS OF INFLATION
Inflationary factors such as increases in food and labor costs directly
affect the Company's operations. Because most of the Company's employees are
paid hourly rates related to federal and state minimum wage and tip credit laws,
changes in these laws may result in an increase in the Company's labor costs.
The Company cannot always effect immediate price increases to offset higher
costs, and no assurance can be given that the Company will be able to do so in
the future.
LIQUIDITY AND CAPITAL RESOURCES
At September 27, 1998, the Company had cash on hand of $437,923, which
represents a decrease of $447,164 from the $885,087 in cash as of June 28, 1998.
At September 27, 1998, the Company had a deficit in working capital of
$1,626,802 compared to a deficit in working capital of $1,154,734 at June 28,
1998.
Net cash used in operating activities was $577,760 for the first quarter of
fiscal 1999. In the first quarter of fiscal 1999, the Company incurred a net
loss of $279,506 which was net of a gain of $51,204 from the sale of one of the
Company's full-service restaurants and an extraordinary gain from the early
extinguishment of debt of $340,248 from the closure of one of the Company's
full-service restaurants. These uses of cash were partially offset by non-cash
depreciation and amortization expense of $171,460.
Net cash provided by investing activities was $272,795 during the first
quarter of fiscal 1999, which is the net of cash proceeds of $260,000 generated
from the sale of one of the Company's full-service restaurants, $20,309 from
collections on notes receivable, and $7,514 for the purchase of leasehold
improvements and equipment.
Net cash used in financing activities was $142,199 during the first quarter
of fiscal 1999. The net cash used in financing activities is the net of
$155,752 due under debt financing and net proceeds of $13,553 generated from the
Company's unit offering.
DFW Bagels, Inc. ("DFW Bagels"), a wholly-owned subsidiary of Premium
Restaurant Company, has entered into an exclusive development agreement with
Bruegger's Franchise Corporation ("Bruegger's"). The development agreement
requires DFW Bagels to have nine stores open by October 1, 1998 and 30 stores
open by July 1, 2002. As of October 30, 1998, DFW Bagels has eight bagel
bakeries open. The Company, while required by its development agreement to have
nine stores open by October 1, 1998 and thirty stores open by July 1, 2002, is
currently negotiating an extension with Bruegger's Corporation. The Company
expects an extension will be granted in November 1998. The Company believes
each new site will require approximately $350,000 for capital expenditures,
including pre-opening expenses and the initial franchise fee.
10
<PAGE>
The Company is working with the owners of Bruegger's to provide the Company
with additional working capital and to increase sales at the Company's bagel
bakeries. The owners of Bruegger's have agreed to waive the initial franchise
fee and reduce franchise royalties for all Bruegger's Bagel Bakery restaurants
through calendar 1998. The Company is currently negotiating with the owners of
Bruegger's for an extension of the waiver of initial franchise fees and
franchise royalties for its bagel bakeries.
The Company believes that the profitability of any individual bagel bakery
often depends to a high degree on the penetration of a particular market by the
bagel bakery operator. The Company believes that individual bagel bakeries will
generally become profitable only after the Company has opened a number of bagel
bakeries sufficient to make the franchise name well-known in that market. The
Company estimates that in the Dallas-Fort Worth area the minimal number of bagel
bakeries needed for such penetration is between twelve and twenty. If the
Company is unable to achieve this level of penetration, its ability to achieve
profitability may be affected. In addition, if the Company is unable to obtain
adequate financing to open the bagel bakeries, it could have a material adverse
effect on the Company's consolidated financial position or results of
operations.
The Company sold one of its full-service restaurants in September 1998. This
restaurant is located in Eden Prairie, Minnesota. The sale of this restaurant
generated cash proceeds of $260,000 and an account receivable of $47,370, which
was collected in October 1998. The gain recognized on the sale of the
restaurant sold was $51,204. This restaurant was closed by the new owner and is
being converted into a new restaurant concept. During fiscal 1998 this
restaurant generated approximately $1,524,000 of sales, $114,000 of net losses
and $15,000 of cash deficits from operations.
On July 13, 1998, the Company entered into an agreement whereby it was
released from its obligations under the capital lease at its Madison, Wisconsin,
location and the Company ceased operating this restaurant. The remaining
capital lease obligation of $340,248 has been recorded as an extraordinary gain
from the early extinguishment of debt. The long-lived assets at this location
had been written-off in fiscal 1997. During fiscal 1998, this restaurant
generated approximately $939,000 of sales and $61,000 of net losses and cash
deficits from operations.
In November 1998, the Company sold one of its remaining full-service
restaurants. This restaurant is located in Edina, Minnesota. The sale of this
restaurant will generate proceeds of approximately $650,000. The net book value
of the leasehold improvements and equipment as of September 27, 1998 at this
location was $185,718. During fiscal 1998 this restaurant generated
approximately $1,951,000 of sales, $86,000 of net earnings and $161,000 of cash
flows from operations. The Company remains contingently liable for future lease
payments for this restaurant. The lease has a termination date through January
2003. The aggregate amount of the contingent lease payments was approximately
$517,000 as of September 27, 1998.
The Company filed a registration statement with the Securities and Exchange
Commission for a unit offering of common stock and warrants with a minimum
requirement of $600,000 (480,000 units) and a maximum of $2,500,000 (2,000,000
units) effective February 23, 1998. Each unit ("Unit") consists of one share of
the Company's common stock and one Redeemable Common Stock Purchase Warrant
("Warrant"). One Warrant entitles the holder to purchase, at any time until
March 31, 2000, one share of common stock at a price of $1.875. Beginning
January 1, 1999, the Warrants are redeemable, in whole, by the Company at a
redemption price of $.05 per Warrant on not less than 30 days written notice,
provided that the market price of the common stock exceeds $3.50 per share
(subject to adjustment) for any 20 consecutive trading days within 15 days prior
to such notice.
As of September 27, 1998, the Company has issued 1,103,120 Units, of which
400,000 were purchased by a director of the Company. None of the Warrants have
been exercised as of September 27, 1998. Subsequent to September 27, 1998 and
through October 30, 1998, the Company has not issued any additional Units.
11
<PAGE>
The Company plans to finance its working capital and capital resource needs
with its current cash, proceeds from the sale of its full-service restaurants
and proceeds from its current and future debt and equity financing. The Company
has and is continuing to explore several alternatives for lease financing and
equipment financing for its bagel bakeries.
The Company has continued to recognize losses from its bagel bakeries and has
funded those losses from cash flows generated from its full-service restaurants
and proceeds generated from the sale of certain of its full-service restaurants.
The Company needs to acquire additional financing to continue to fund its
operations of the bagel bakeries and enable it to build additional bagel
bakeries. If the Company is unable to successfully raise funds from the unit
offering in a timely manner, it will be necessary for it to raise additional
capital through other means of financing. There can be no assurance that the
Company can raise additional funds. If the Company is unable to complete the
Unit Offering in a timely manner or is unable to obtain adequate funds from
other sources, it will have a material adverse effect on the Company.
The Company does not expect Year 2000 computer issues to significantly affect
its operations. The Company is reviewing internally developed programs for
compliance and is contacting external software vendors and other suppliers
regarding compliance. The Company has not yet made an estimate of the costs
involved, but does not expect such costs to be material.
FORWARD LOOKING STATEMENTS
Statements included in this 10-QSB that are not historical or current facts
are "forward-looking statements" made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995 and are subject to certain
risks and uncertainties that could cause actual results to differ materially.
The Company's ability to succeed in the future is dependent upon the Company's
ability to achieve and maintain profitability in its existing restaurants and,
together with its subsidiary, DFW Bagels, Inc., to open additional Bruegger's
Bagel Bakery restaurants and to operate those restaurants in a profitable
manner. The Company's ability to achieve these goals will be affected by
factors such as (i) the ability of the Company to generate funds from
operations, obtain adequate restaurant financing on favorable terms and raise a
significant amount of additional working capital, (ii) the strength of the
Bruegger's name, including in the areas in which the Company is the franchisee,
(iii) the ability of the Company to locate and negotiate favorable leases for
additional locations, (iv) the ability of the Company to hire, train and retain
skilled restaurant management and personnel, and (v) the competitive environment
within the restaurant industry.
12
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission Of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
99.1 - Pro Forma Unaudited Condensed Consolidated Financial Statements
of Premium Restaurant Company
(b) Reports of Form 8-K
None.
13
<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.
PREMIUM RESTAURANT COMPANY AND SUBSIDIARY
(REGISTRANT)
/s/ Phillip R. Danford
----------------------
Phillip R. Danford
President
/s/ Scott P. McGuire
----------------------
Scott P. McGuire
Controller
Dated November 5, 1998
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-27-1998
<PERIOD-START> JUN-29-1998
<PERIOD-END> SEP-27-1998
<CASH> 437,923
<SECURITIES> 0
<RECEIVABLES> 173,008
<ALLOWANCES> 0
<INVENTORY> 56,080
<CURRENT-ASSETS> 1,017,114
<PP&E> 4,023,532
<DEPRECIATION> 2,110,159
<TOTAL-ASSETS> 3,249,073
<CURRENT-LIABILITIES> 2,643,916
<BONDS> 0
0
0
<COMMON> 18,459
<OTHER-SE> (263,974)
<TOTAL-LIABILITY-AND-EQUITY> 3,249,073
<SALES> 1,899,635
<TOTAL-REVENUES> 1,899,635
<CGS> 641,280
<TOTAL-COSTS> 2,472,494
<OTHER-EXPENSES> (8,690)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54,285
<INCOME-PRETAX> (618,454)
<INCOME-TAX> 1,300
<INCOME-CONTINUING> (619,754)
<DISCONTINUED> 0
<EXTRAORDINARY> 340,248
<CHANGES> 0
<NET-INCOME> (279,506)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
<PAGE>
Exhibit 99.1
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS OF PREMIUM RESTAURANT COMPANY
In July 1998, the Company closed one of its full-service restaurants, and in
September 1998, the Company sold one of its full-service restaurants. In
November, subsequent to the end of the first quarter, the Company sold an
additional full-service restaurant. The restaurant that was closed in July is
located in Madison, Wisconsin, the restaurant sold in September 1998 is located
in Eden Prairie, Minnesota and the restaurant sold in November 1998 is located
in Edina, Minnesota. The historical consolidated financial statements reflect
the completed transaction for the closure of the restaurant in July and the sale
of the restaurant sold in September. The unaudited pro forma condensed
consolidated financial statements reflect the completed transaction for the sale
of the restaurant sold in November. On a pro forma basis, the sale of the
restaurant sold in November generated cash proceeds of $650,000.
The following unaudited pro forma condensed consolidated financial statements
set forth, for the periods and at the dates indicated, summarized unaudited pro
forma condensed consolidated financial information for Premium Restaurant
Company. This information is derived from the historical consolidated financial
statements and notes thereto and reflects (a) the condensed consolidated balance
sheet as of September 27, 1998 as if the sale had occurred on September 27,
1998, (b) the condensed consolidated results of operations for the fifty-two
weeks ended June 28, 1998 as if the sale had occurred on June 29, 1997 and (c)
the condensed consolidated results of operations for the thirteen weeks ended
September 27, 1998 as if the sale had occurred on June 28, 1998.
The pro forma condensed consolidated financial statements reflect the
recognition of the estimated effect of the closure of the full-service
restaurant in July and the sale of the full-service restaurant sold in September
and the sale of the full-service restaurant sold in November. The net gain on
the sale of certain assets related to these restaurants is not reflected in the
unaudited pro forma condensed consolidated statement of operations for the
thirteen weeks ended September 27, 1998 and for the fifty-two weeks ended June
28, 1998. In addition, in accordance with the rules and regulations of the
Securities and Exchange Commission, interest income on the cash proceeds from
the sale of the full-service restaurants has not been reflected in the unaudited
pro forma condensed consolidated statement of operations for the thirteen weeks
ended September 27, 1998 and for the fifty-two weeks ended June 28, 1998.
Assumptions underlying the pro forma adjustments are described in the
accompanying notes which should be read in conjunction with the unaudited pro
forma condensed consolidated financial statements. These financial statements
should also be read in conjunction with the historical financial statements of
Premium Restaurant Company and notes thereto. Actual adjustments may differ
from the pro forma adjustments presented herein. The pro forma financial
statements do not purport to be indicative of the actual results of operations
which would have occurred had the three full-service restaurants been closed or
sold as of June 28, 1998 or as of June 29, 1997 or the future results of
operations which may be obtained.
1
<PAGE>
PREMIUM RESTAURANT COMPANY AND SUBSIDIARY
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
SEPTEMBER 27, 1998
<TABLE>
<CAPTION>
Pro Forma Adjustments
---------------------
Sale of One
Full-Service
ASSETS Historical Restaurant (a) Other (b) Pro Forma
---------- -------------- --------- ---------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash $ 437,923 $ - $ 650,000 $ 1,087,923
Receivables 94,932 - - 94,932
Current portion of notes receivable 78,076 - - 78,076
Inventories 56,080 14,562 - 41,518
Prepaid expenses and other current assets 164,385 16,700 - 147,685
Assets held for sale 185,718 185,718 - -
----------- ---------- ---------- ------------
Total current assets 1,017,114 216,980 650,000 1,450,134
PROPERTY AND EQUIPMENT, net 1,913,373 - - 1,913,373
NOTES RECEIVABLE, less current portion 233,355 - - 233,355
DEFERRED FINANCING COSTS 85,231 - - 85,231
----------- ---------- ---------- ------------
$ 3,249,073 $ 216,980 $ 650,000 $ 3,682,093
----------- ---------- ---------- ------------
----------- ---------- ---------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term obligations $ 1,014,286 $ - $ - $ 1,014,286
Accounts payable 932,057 - - 932,057
Accrued liabilities 697,573 - - 697,573
----------- ---------- ---------- ------------
Total current liabilities 2,643,916 - - 2,643,916
LONG-TERM OBLIGATIONS, less current maturities 699,288 - - 699,288
OTHER LONG-TERM LIABILITIES 151,384 - - 151,384
SHAREHOLDERS' EQUITY
Common stock 18,459 - - 18,459
Additional paid-in capital 5,532,075 - - 5,532,075
Accumulated deficit (5,796,049) 216,980 650,000 (5,363,029)
----------- ---------- ---------- ------------
(245,515) 216,980 650,000 187,505
----------- ---------- ---------- ------------
$ 3,249,073 $ 216,980 $ 650,000 $ 3,682,093
----------- ---------- ---------- ------------
----------- ---------- ---------- ------------
</TABLE>
Notes:
(a) To eliminate certain assets related to the full-service restaurant sold
in November 1998 and included in the consolidated balance sheet of
Premium Restaurant Company as of September 27, 1998.
(b) To reflect the cash proceeds received from the sale of the full-
service restaurant sold in November 1998.
2
<PAGE>
PREMIUM RESTAURANT COMPANY AND SUBSIDIARY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE FIFTY-TWO WEEKS ENDED JUNE 28, 1998
<TABLE>
<CAPTION>
Pro Forma Adjustments
---------------------
Sale/Closure of Sale of One
Two Full-Service Full-Service
Historical Restaurants (a) Restaurant (b) Pro Forma
---------- --------------- -------------- ---------
<S> <C> <C> <C> <C>
Sales
Full-service restaurants $ 9,677,065 $ 2,462,999 $ 1,951,015 $ 5,263,051
Bagel bakeries 2,780,917 - - 2,780,917
------------- ------------ ----------- -------------
Total sales 12,457,982 2,462,999 1,951,015 8,043,968
Cost of food and beverage 3,971,327 780,750 614,587 2,575,990
------------- ------------ ----------- -------------
Gross profit 8,486,655 1,682,249 1,336,428 5,467,978
Operating expenses
Labor and benefits 4,553,493 922,053 639,798 2,991,642
Direct and occupancy 5,226,403 834,721 603,660 3,788,022
General and administrative 1,190,857 45,560 8,950 1,136,347
Write-down of impaired assets 90,732 - - 90,732
Gain on sale of restaurants (1,076,342) - - (1,076,342)
Loss on closure of bagel bakery 63,039 - - 63,039
------------- ------------ ----------- -------------
10,048,182 1,802,334 1,252,408 6,993,440
------------- ------------ ----------- -------------
Earnings (loss) from operations (1,561,527) (120,085) 84,020 (1,525,462)
Other income (expense)
Interest expense (241,759) (55,662) - (186,097)
Investment income 23,880 - - 23,880
Other, net 6,534 - 1,721 4,813
------------- ------------ ----------- -------------
(211,345) (55,662) 1,721 (157,404)
------------- ------------ ----------- -------------
Earnings (loss) before income taxes (1,772,872) (175,747) 85,741 (1,682,866)
Income taxes (7,349) - - (7,349)
------------- ------------ ----------- -------------
Net earnings (loss) $ (1,780,221) $ (175,747) $ 85,741 $ (1,690,215)
------------- ------------ ----------- -------------
------------- ------------ ----------- -------------
Net earnings (loss) per share-basic and diluted $ (1.81) $ (0.18) $ 0.09 $ (1.72)
------------- ------------ ----------- -------------
------------- ------------ ----------- -------------
Weighted average number of shares outstanding
during the period-basic and diluted 985,771 985,771 985,771 985,771
------------- ------------ ----------- -------------
------------- ------------ ----------- -------------
</TABLE>
Notes:
(a) To reflect the decrease in sales and costs and expenses for the
fifty-two weeks ended June 28, 1998 related to the operations of the
full-service restaurant closed in July 1998 and the full-service
restaurant sold in September 1998.
(b) To reflect the decrease in sales and costs and expenses for the
fifty-two weeks ended June 28, 1998 related to the operations of the
full-service restaurant sold in November 1998.
3
<PAGE>
PREMIUM RESTAURANT COMPANY AND SUBSIDIARY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE THIRTEEN WEEKS ENDED SEPTEMBER 27, 1998
<TABLE>
<CAPTION>
Pro Forma Adjustments
---------------------
Sale/Closure Sale of
Of Two Full One Full-
Service Service Other (c) Pro Forma
Historical Restaurants (a) Restaurant(b) --------- ---------
---------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Sales
Full-service restaurants $ 1,228,055 $ 281,683 $ 478,815 $ - $ 467,557
Bagel bakeries 671,580 - - - 671,580
----------- ---------- ----------- ----------- ------------
Total sales 1,899,635 281,683 478,815 - 1,139,137
Cost of food and beverage 641,280 101,562 143,022 - 396,696
----------- ---------- ----------- ----------- ------------
Gross profit 1,258,355 180,121 335,793 - 742,441
Operating expenses
Labor and benefits 735,192 130,358 162,105 - 442,729
Direct and occupancy 878,227 122,193 136,267 - 619,767
General and administrative 268,999 4,800 2,500 - 261,699
Gain on sale of full-service restaurants (51,204) - - 51,204 -
----------- ---------- ----------- ----------- ------------
1,831,214 257,351 300,872 51,204 1,324,195
----------- ---------- ----------- ----------- ------------
Earnings (loss) from operations (572,859) (77,230) 34,921 (51,204) (581,754)
Other income (expense)
Interest expense (54,285) (5,681) - - (48,604)
Investment income 8,396 - - - 8,396
Other, net 294 114 140 - 40
----------- ---------- ----------- ----------- ------------
(45,595) (5,567) 140 - (40,168)
----------- ---------- ----------- ----------- ------------
Earnings (loss) before inc. taxes and extra. items (618,454) (82,797) 35,061 (51,204) (621,922)
Income taxes 1,300 - - - 1,300
----------- ---------- ----------- ----------- ------------
Loss before extraordinary items (619,754) (82,797) 35,061 (51,204) (623,222)
Extra. gain from the early extinguishment of debt (340,248) - - 340,248 -
----------- ---------- ----------- ----------- ------------
Net earnings (loss) $ (279,506) $ (82,797) $ 35,061 $ (391,452) $ (623,222)
----------- ---------- ----------- ----------- ------------
----------- ---------- ----------- ----------- ------------
Net earnings (loss) per share-basic and diluted $ (0.15) $ (0.05) $ 0.02 $ (0.21) $ (0.34)
----------- ---------- ----------- ----------- ------------
----------- ---------- ----------- ----------- ------------
Weighted average number of shares outstanding
during the period-basic and diluted 1,845,939 1,845,939 1,845,939 1,845,939 1,845,939
----------- ---------- ----------- ----------- ------------
----------- ---------- ----------- ----------- ------------
</TABLE>
Notes:
(a) To reflect the decrease in sales and costs and expenses for the
thirteen weeks ended September 27, 1998 related to the operations
of the full-service restaurant closed in July 1998 and the
full-service restaurant sold in September 1998.
(b) To reflect the decrease in sales and costs and expenses for the
thirteen weeks ended September 27, 1998 related to the
operations of the full-service restaurant sold in November 1998.
(c) To reflect the elimination of the extraordinary gain from the
early extinguishment of debt on the full-service restaurant
closed in July 1998 and to reflect the elimination of the gain on
sale of the full-service restaurant sold in September.
4
