UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly Period Ended September 29, 1997
Commission File Number: 0-18668
MAIN STREET AND MAIN INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 11-294-8370
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5050 N. 40TH STREET, SUITE 200, PHOENIX, ARIZONA 85018
(Address of principal executive offices)
(602) 852-9000
(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.
Yes X No
--- ---
Number of shares of common stock, .001 par value, of registrant outstanding at
September 29, 1997: 9,969,441
<PAGE>
MAIN STREET AND MAIN INCORPORATED
- - --------------------------------------------------------------------------------
INDEX
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements - Main Street and Main Incorporated
Consolidated Balance Sheets - September 29, 1997 and
December 30, 1996 3
Consolidated Statements of Operations - Three Months
and Nine Months Ended September 29, 1997 and September
30, 1996 4
Consolidated Statements of Cash Flows - Nine 5
Months Ended September 29, 1997 and September 30, 1996
Notes to Consolidated Financial Statements - 6
September 29, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
2
<PAGE>
MAIN STREET AND MAIN INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
September 29, 1997 December 30, 1996
------------------ -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 7,822 $ 2,613
Accounts receivable, net 2,060 1,248
Inventories 1,197 1,275
Prepaid expenses 259 173
Assets held for disposal, net 4,822 10,929
-------------- --------------
Total current assets 16,160 16,238
Property and equipment, net 27,249 32,162
Other assets, net 4,204 4,780
Franchise costs, net 15,719 16,418
Notes receivable 250 1,250
-------------- --------------
$ 63,582 $ 70,848
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities:
Current Liabilities:
Current portion of long-term debt $ 1,556 $ 2,523
Accounts payable 2,919 3,750
Other accrued liabilities 9,171 11,308
-------------- --------------
Total current liabilities 13,646 17,581
-------------- --------------
Long-term debt, net of current portion 26,538 33,809
-------------- --------------
Other liabilities and deferred credits 2,296 2,873
-------------- --------------
Commitments and contingencies --- ---
Stockholders' Equity:
Common stock, $.001 par value, 25,000,000 shares
authorized; 9,969,441 and 8,718,491
shares issued and outstanding in 1997
and 1996, respectively 10 9
Additional paid-in capital 44,142 41,694
Accumulated deficit (23,050) (25,118)
--------------- --------------
21,102 16,585
-------------- --------------
$ 63,582 $ 70,848
============== ==============
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
3
<PAGE>
MAIN STREET AND MAIN INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
September 29, September 30, September 29, September 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue $ 29,050 $ 29,638 $ 84,580 $ 93,557
-------- -------- -------- --------
Restaurant Operating Expenses:
Cost of sales 8,441 8,538 24,189 26,744
Payroll and benefits 8,805 9,412 25,654 29,192
Depreciation and amortization 968 1,130 2,876 3,360
Other operating expenses 8,060 9,030 23,729 27,523
-------- -------- -------- --------
Total restaurant operating expenses 26,274 28,110 76,448 86,819
-------- -------- -------- --------
Income from restaurant operations 2,776 1,528 8,132 6,738
Depreciation and amortization 220 351 648 1,087
General and administrative expenses 1,340 913 3,468 2,918
Restructuring and reorganization -- -- (1,595) 7,448
-------- -------- -------- --------
Operating income (loss) 1,216 264 5,611 (4,715)
Interest expense, net 622 771 1,905 2,381
-------- -------- -------- --------
Net income (loss) before taxes 594 (507) 3,706 (7,096)
Income tax expense -- -- -- --
-------- -------- -------- --------
Net income (loss) before
extraordinary item 594 (507) 3,706 (7,096)
Extraordinary loss from debt
extinguishment -- -- 1,638 --
-------- -------- -------- --------
Net income (loss) $ 594 $ (507) $ 2,068 $ (7,096)
======== ======== ======== ========
Net Income (Loss) Per Share:
Net income (loss) before
extraordinary item $ 0.06 $ (0.06) $ 0.37 $ (0.89)
Extraordinary loss from debt
extinguishment -- -- (0.16) --
-------- -------- -------- --------
Net income (loss) $ 0.06 $ (0.06) $ 0.21 $ (0.89)
======== ======== ======== ========
Weighted average shares outstanding 10,266 8,084 10,026 7,995
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
MAIN STREET AND MAIN INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
September 29, 1997 September 30, 1996
------------------ ------------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $ 2,068 $ (7,096)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 3,524 4,447
Extraordinary loss from debt extinguishment 1,638 ---
Restructuring and reorganization (1,595) 7,448
Changes in assets and liabilities excluding
effects of business combination:
Accounts receivable (707) 1,116
Inventories 147 22
Prepaid expenses (86) 105
Other assets (462) (1,041)
Accounts payable (914) (639)
Other liabilities (2,103) (805)
----------- -----------
Net Cash Flows - Operating Activities 1,510 3,557
----------- -----------
Cash Flows From Investing Activities:
Cash paid to acquire assets through business
combination (880) ---
Net additions to property and equipment (2,913) (6,440)
Cash received from sale-leaseback transaction 1,641 ---
Sale of assets held for disposition, net 11,588 ---
----------- -----------
Net Cash Flows - Investing Activities 9,436 (6,440)
----------- -----------
Cash Flows From Financing Activities:
Proceeds from sale of common stock 2,449 1,000
Long-term debt borrowing under credit facilities 21,554 3,468
Principal payments on long-term debt (29,740) (2,631)
------------ -----------
Net Cash Flows - Financing Activities (5,737) 1,837
------------ -----------
Net change in cash and cash equivalents 5,209 (1,046)
Cash and cash equivalents, beginning 2,613 4,741
----------- -----------
Cash and cash equivalents, end $ 7,822 $ 3,695
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 2,803 $ 2,310
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
5
<PAGE>
MAIN STREET AND MAIN INCORPORATED
Notes to Consolidated Financial Statements
September 29, 1997
(Unaudited)
1. The financial statements have been prepared by the Company without audit
pursuant to the rules and regulations of the Securities and Exchange
Commission. The information furnished herein reflects all adjustments
(consisting of normal recurring accruals and adjustments) which are, in the
opinion of management, necessary to fairly state the operating results for
the respective periods. Certain information and footnote disclosures
normally included in annual financial statements prepared in accordance
with generally accepted accounting principles have been omitted pursuant to
such rules and regulations, although management of the Company believes
that the disclosures are adequate to make the information presented not
misleading. For a complete description of the accounting policies, see the
Company's Form 10-K Report for the year ended December 30, 1996.
2. The Company's restaurants operate on a fiscal quarter of 13 weeks.
3. The results of operations for the nine months ended September 29, 1997 are
not necessarily indicative of the results to be expected for a full year.
4. The Company has entered into agreements for the sale of eight of the
Company's T.G.I. Friday's restaurants in Washington, Oregon, Colorado and
Nebraska which are scheduled to be completed in the fourth quarter. The
sale price of these restaurants totals $8,877,000 and will result in net
cash proceeds to the Company of $7,823,000, after repayment of related debt
and transaction costs. The net carrying value of these restaurants is
included in assets held for disposal.
5. During the quarter ended September 29, 1997, gains totaling approximately
$1,000,000 were recognized on the reversal of a portion of asset
impairments and restructuring reserves related to favorable developments in
connection with estimated losses related to a restaurant held for sale and
restructuring a development commitment. Also, during the third quarter, the
Company wrote off its remaining carrying value of $1,000,000 related to an
interest in a dairy and food distribution business it sold in December
1993. These transactions were recorded as restructuring and reorganization
on the Consolidated Statements of Operations.
6. On January 16, 1997, the Company sold five restaurants in Northern
California (the "Northern California Sale") for $10,575,000 in cash and
entered into a Management Agreement with the buyer to manage the
restaurants. This transaction resulted in a gain before taxes of
approximately $1,595,000. Of the total proceeds, $8,000,000 was used to
reduce the Company's Term Loan with the balance used for working capital
purposes.
7. During 1997, $26,500,000 of debt was repaid with proceeds from the Northern
California Sale and with proceeds from new borrowings. The new borrowings
total $21,300,000, bear interest at a fixed rate of 9.46%, and are payable
in equal monthly installments of principal
6
<PAGE>
and interest of approximately $217,500 (combined) until paid in full on May
1, 2012. Proceeds from the new borrowings were also used to repay the TGI
Friday's Inc. note (including accrued interest) of $1,876,000 with the
remaining proceeds used for general corporate purposes. The early
extinguishment of the debt resulted in an extraordinary loss of
approximately $1,638,000 before taxes.
8. In January 1997, the Company sold 1,250,000 shares of its Common Stock to
various investors, including 500,000 shares purchased by two officers of
the Company, for total proceeds of $2,500,000.
9. In April 1997, the Company entered into a joint venture with Restaurant
Development Group, Inc. ("RDG") for the development and operation of
Redfish restaurants ("Redfish Restaurants"), a Cajun seafood restaurant and
bar concept developed by RDG. The Company and RDG formed Redfish America, a
jointly owned limited liability company, and entered into an agreement
pursuant to which RDG contributed to Redfish America its ownership of the
Chicago Redfish Restaurant, its leasehold rights to the Wheaton, Illinois
premises and the Cincinnati, Ohio premises that were developed into a
Redfish Restaurant, and the rights to the Redfish name and concept. The
Company contributed $500,000 and its leasehold rights to the Denver
premises that were developed into a Redfish Restaurant for a 52% ownership
interest in the venture. In addition, the Company has advanced Redfish
America approximately $1,061,000 to complete the development of the
Wheaton, Cincinnati and Denver Redfish Restaurants. The Company will manage
the Redfish Restaurants.
10. In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("SFAS 128"), Earnings Per Share
("EPS"), which supersedes Accounting Principal Board Opinion No. 15, the
existing authoritative guidance. SFAS 128 is effective for financial
statements for both interim and annual periods ending after December 15,
1997 and requires restatement of all prior-period EPS data presented. The
new statement modifies the calculations of primary and fully diluted EPS
and replaces them with basic and diluted EPS. The Company has determined
that adoption of SFAS 128 will not have a material impact on its previous
or current reported EPS data.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
The following table sets forth, for the periods indicated, the percentages which
certain items of income and expense bear to total revenue:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
September 29, September 30, September 29, September 30,
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenue 100.0% 100.0% 100.0% 100.0%
Restaurant Operating Expenses
Cost of sales 29.1 28.8 28.6 28.6
Payroll and benefits 30.3 31.7 30.3 31.2
Depreciation and amortization 3.3 3.8 3.4 3.6
Other operating expenses 27.7 30.5 28.1 29.4
------ ------ ------ ------
Total restaurant operating expenses 90.4 94.8 90.4 92.8
------ ------ ------ ------
Income from restaurant operations 9.6 5.2 9.6 7.2
Depreciation and amortization 0.8 1.2 0.8 1.2
General and administrative expenses 4.6 3.1 4.1 3.1
Non-recurring items -- -- (1.9) 8.0
------ ------ ------ ------
Operating income (loss) 4.2 0.9 6.6 (5.1)
Interest expense, net 2.1 2.6 2.2 2.5
------ ------ ------ ------
Net income (loss) before taxes and
extraordinary item 2.1% (1.7)% 4.4% (7.6)%
====== ====== ====== ======
</TABLE>
Revenue for the three months ended September 29, 1997 decreased by 2.0% to
$29,050,000 compared to $29,638,000 in the comparable period in 1996. Revenue
for the nine months ended September 29, 1997 decreased to $84,580,000 compared
to $93,557,000 in the same period in 1996. These decreases were due primarily to
the sale of five restaurants in northern California in January 1997. The Company
currently manages these restaurants, along with three other T.G.I. Friday's
restaurants in Louisiana, generating management fee revenue of $203,000 and
$521,000 for the quarter and nine months ended September 29, 1997, respectively.
Same store sales increased 7.0% for the quarter and 1.3% for the nine months
ended September 29, 1997. Revenue from the Redfish restaurants totaled
$1,471,000 and $2,689,000 for the quarter and nine months ended September 29,
1997, respectively.
Cost of sales as a percentage of revenue increased to 29.1% in the three months
ended September 29, 1997 from 28.8% in the comparable period in 1996. Cost of
sales as a percentage of revenue was 28.6% in the first nine months of 1997,
which was unchanged from the same period in 1996. The increase in the three
months ended September 29, 1997 resulted from a recently introduced lunch menu
as well as the introduction of Jack Daniels Grill menu items, which have higher
food costs, and the consolidation of the Redfish restaurants, which have higher
food costs than T.G.I. Friday's restaurants.
8
<PAGE>
Labor costs decreased as a percentage of revenue to 30.3% in the three months
ended September 29, 1997 from the 31.7% in the same period of 1996. Labor costs
decreased as a percentage of revenue to 30.3% in the first nine months of 1997
from 31.2% in the same period of 1996. A $.50 per hour increase in minimum wage
in October 1996 was more than offset by a menu price increase and better
controls on managing labor costs.
Other operating expenses decreased as a percentage of revenue to 27.7% in the
three months ended September 29, 1997 from 30.5% in the comparable period in
1996. Other operating expenses decreased as a percentage of revenue to 28.1% in
the first nine months of 1997 from 29.4% in the same period of 1996. The
decreases were the result of lower advertising costs, specifically related to
the Company's frequency program, and lower supplies and insurance costs, which
was partially offset by an increase in contributions to a national marketing
pool administered by TGI Friday's Inc.
In total, depreciation and amortization decreased as a percentage of revenue to
4.1% in the three months ended September 29, 1997 from 5.0% in the same period
in 1996. The similar decrease for the nine month period was due primarily to the
write-offs in the fourth quarter of 1996 related to asset impairments.
General and administrative expenses as a percentage of revenue increased to 4.6%
in the three months ended September 29, 1997 from 3.1% in the same period in
1996. General and administrative expenses as a percentage of revenue increased
to 4.1% in the first nine months of 1997 from 3.1% in the same period of 1996.
These increases relate primarily to the relative fixed nature of these expenses
in comparison to the overall decline in revenue and annual performance bonuses
accrued during the periods.
Interest expense was $622,000 in the three months ended September 29, 1997
compared to $771,000 in the same period of 1996. Interest expense was
$1,905,000, in the first nine months of 1997 compared to $2,381,000 in the same
period in 1996. These decreases were the result of the retirement of $8.0
million of indebtedness with the proceeds from the sale of five restaurants in
northern California in January 1997.
No income tax provision was recorded in 1997 or 1996 due to the availability of
net operating loss carryforwards.
Liquidity and Capital Resources
From time to time, the Company's current liabilities exceed its current assets
due in part to cash expended on the Company's development requirements and
because the restaurant business receives substantially immediate payment for
sales, while payables related to inventories and other current liabilities
normally carry longer payment terms, usually 15 to 30 days. At September 29,
1997, the Company had a cash balance of $7,822,000. Monthly cash receipts during
1997 have been sufficient to pay all obligations as they become due.
9
<PAGE>
The Company has entered into agreements for the sale of eight of the Company's
T.G.I. Friday's restaurants in Washington, Oregon, Colorado and Nebraska which
are scheduled to be completed in the fourth quarter. The sale price of these
restaurants totals $8,877,000 and will result in net cash proceeds to the
Company of $7,823,000, after repayment of related debt and transaction costs.
The Company has entered into a Letter of Intent to acquire seven T.G.I. Friday's
restaurants in northern California and two T.G.I. Friday's restaurants in
Hawaii, plus related T.G.I. Friday's Development Agreements. This purchase is
expected to close in December 1997, but is subject to usual contingencies, such
as necessary landlord approvals, consents from TGI Friday's Inc., transfer of
liquor licenses and compliance with applicable state bulk sales laws. This
acquisition will be financed through assumption of existing indebtedness of the
seller plus a portion of the proceeds from the sale of the Washington, Oregon,
Colorado and Nebraska restaurants.
During 1997, $26,500,000 of debt was repaid with proceeds from the sale of five
restaurants in northern California and with proceeds from new borrowings. The
new borrowings total $21,300,000, and are payable in equal monthly installments
of principal and interest of approximately $217,500 (combined) until paid in
full on May 1, 2012. In October 1997, the Company converted its interest rate on
this debt from a variable interest rate (LIBOR plus 320 basis points) to a fixed
rate of 9.46%. Proceeds from the new borrowings were also used to repay the TGI
Friday's Inc. note (including accrued interest) of $1,876,000, with the
remaining proceeds used for general corporate purposes.
The Company plans to develop ten additional T.G.I. Friday's restaurants by the
end of 1998. CNL Financial has committed to finance the Company's development of
these new restaurants and has given the Company different alternatives under
which this financing would be provided for each new restaurant. The Company has
not decided which of these financing alternatives it will utilize for each of
these new restaurants.
The Company leases its restaurants with terms ranging from 10 to 20 years.
Minimum payments on the Company's existing lease obligations are approximately
$6,400,000 per year through 2001.
10
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on July
14, 1997. The matters voted on at the Annual Meeting were as
follows:
(a) The election of directors;
(b) Approval to amend the Company's Restated Certificate of
Incorporation to reduce the amount of authorized Common
Stock from 40,000,000 to 25,000,000 and Serial Preferred
Stock from 5,000,000 to 2,000,000, and
(c) The appointment of Arthur Andersen LLP as independent
auditors for the Company.
Messrs. Antioco, Bisceglia, Brown, Metz, Panter, and Sherman, and Ms.
Evans were elected ; the amendment to the Company's Restated
Certificate of Incorporation to reduce authorized stock was approved;
and the appointment of Arthur Andersen LLP as independent auditors was
approved by the stockholders as follows:
Election of Directors For Votes Withheld
- - --------------------- --- --------------
John F. Antioco 7,981,672 88,048
Gerard T. Bisceglia 7,982,839 86,881
Bart A. Brown 7,981,932 87,788
Jane Evans 7,965,783 103,937
John C. Metz 7,984,157 85,563
Joe W. Panter* 7,603,228 466,492
Steven A. Sherman 7,866,707 203,013
* Mr. Panter resigned as an officer and director of the Company effective July
31, 1997.
Amend Restated Certificate of Incorporation to Reduce Authorized Stock
- - ----------------------------------------------------------------------
For Against Abstain Not Voted
--- ------- ------- ----------
3,044,772 93,314 40,578 4,891,056
Ratify Appointment of Arthur Andersen LLP
- - -----------------------------------------
For Against Abstain
--- ------- -------
7,906,467 109,727 53,526
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. None.
(b) The Registrant did not file any reports on Form 8-K
during the three months ended September 29, 1997.
11
<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.
Main Street and Main Incorporated
Dated: November 10, 1997 /s/ Bart A. Brown, Jr.
--------------------------------
Bart A. Brown Jr., President and
Chief Executive Officer
Dated: November 10, 1997 /s/ Mark C. Walker
--------------------------------
Mark C. Walker, Chief Financial
Officer, Vice President Finance,
Secretary and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This exhibit shall not be deemed filed for purposes of Section 11 of the
Securities Act of 1933 and Section 18 of the Securities Exchange Act of
1934, or otherwise subject to the liability of such sections, nor shall it
be deemed a part of any other filing which incorporates this report by
reference, unless such other filing expressly incorporates this Exhibit by
reference.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-29-1997
<PERIOD-END> SEP-29-1997
<EXCHANGE-RATE> 1
<CASH> 7,822
<SECURITIES> 0
<RECEIVABLES> 2,060
<ALLOWANCES> 0
<INVENTORY> 1,197
<CURRENT-ASSETS> 16,160
<PP&E> 37,959
<DEPRECIATION> (10,710)
<TOTAL-ASSETS> 63,582
<CURRENT-LIABILITIES> 13,646
<BONDS> 26,538
0
0
<COMMON> 10
<OTHER-SE> 21,092
<TOTAL-LIABILITY-AND-EQUITY> 63,582
<SALES> 84,580
<TOTAL-REVENUES> 84,580
<CGS> 24,189
<TOTAL-COSTS> 24,189
<OTHER-EXPENSES> 52,259
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,905
<INCOME-PRETAX> 3,706
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,706
<DISCONTINUED> 0
<EXTRAORDINARY> (1,638)
<CHANGES> 0
<NET-INCOME> 2,068
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
