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 March 31, 1997
Commission File Number: 33-27611-NY
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
March 31, 1997: 9,968,491
<PAGE>
MAIN STREET AND MAIN INCORPORATED
- --------------------------------------------------------------------------------
INDEX
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements - Main Street and Main Incorporated
Consolidated Balance Sheets - March 31, 1997 and
December 30, 1996 3
Consolidated Statements of Operations - Three Months
Ended March 31, 1997 and April 1, 1996 4
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1997 and April 1, 1996 5
Notes to Consolidated Financial Statements - 6
March 31, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 11
2
<PAGE>
MAIN STREET AND MAIN INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
March 31, 1997 December 30, 1996
-------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 3,500 $ 2,613
Accounts receivable, net 1,444 1,248
Inventories 1,213 1,275
Prepaid expenses 179 173
Assets held for disposal, net 1,736 10,929
-------------- --------------
Total current assets 8,072 16,238
Property and equipment, net 32,156 32,162
Other assets, net 3,463 4,780
Franchise costs, net 16,257 16,418
Notes receivable 1,250 1,250
-------------- --------------
$ 61,198 $ 70,848
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 1,387 $ 2,523
Accounts payable 2,757 3,750
Other accrued liabilities 8,788 11,308
-------------- --------------
Total current liabilities 12,932 17,581
-------------- --------------
Long-term debt, net of current portion 25,664 33,809
-------------- --------------
Other liabilities and deferred credits 2,920 2,873
-------------- --------------
Commitments and contingencies
Stockholders' Equity:
Common stock, $.001 par value, 40,000,000 shares
authorized; 9,968,491 and 7,951,825 shares
issued and outstanding in 1997 and 1996, 10 9
respectively
Additional paid-in capital 44,176 41,694
Accumulated deficit (24,504) (25,118)
--------------- --------------
19,682 16,585
-------------- --------------
$ 61,198 $ 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
------------------
March 31, 1997 April 1, 1996
-------------- -------------
<S> <C> <C>
Revenue $ 26,548 $ 33,251
------------- -----------
Restaurant Operating Expenses:
Cost of sales 7,440 9,459
Payroll and benefits 8,165 10,234
Depreciation and amortization 880 1,175
Other operating expenses 7,551 9,525
------------- -----------
Total restaurant operating expenses 24,036 30,393
------------- -----------
Income from restaurant operations 2,512 2,858
Other Operating (Income) Expenses:
Depreciation and amortization 209 386
General and administrative expenses 1,008 958
Gain on disposal of assets (1,595) ---
------------- -----------
Operating income 2,890 1,514
Interest expense, net 638 815
------------- -----------
Net income before taxes 2,252 699
Income tax expense --- ---
------------- -----------
Net income before extraordinary item 2,252 699
Extraordinary loss from debt extinguishment 1,638 ---
------------- -----------
Net income $ 614 $ 699
============= ===========
Net Income Per Share:
Net income before extraordinary item $ 0.22 $ 0.09
Extraordinary loss from debt extinguishment (0.16) ---
------------- -----------
Net income $ 0.06 $ 0.09
============= ===========
Weighted average shares outstanding 9,968 7,952
============= ===========
</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>
Three Months Ended
------------------
March 31, 1997 April 1, 1996
-------------- -------------
<S> <C> <C>
Cash Flows From Operating Activities
Net Income $ 614 $ 699
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,089 1,561
Gain on disposal of assets (1,595) ---
Extraordinary loss from debt extinguishment 1,638 ---
Changes in assets and liabilities:
Accounts receivable (196) 1,069
Inventories 62 39
Prepaid expenses (6) 53
Other assets (152) (322)
Accounts payable (993) (1,516)
Other liabilities (2,473) (944)
----------- -----------
Net Cash Flows - Operating Activities (2,012) 639
----------- -----------
Cash Flows From Investing Activities:
Investments in affiliates (250) ---
Net additions to property and equipment (841) (2,109)
Sale of assets held for disposition 10,788 ---
----------- -----------
Net Cash Flows - Investing Activities 9,697 (2,109)
----------- -----------
Cash Flows From Financing Activities:
Proceeds from sale of common stock 2,483 ---
Long-term debt borrowing under credit facilities 254 1,250
Principal payments on long-term debt (9,535) (1,587)
----------- -----------
Net Cash Flows - Financing Activities (6,798) (337)
----------- -----------
Net change in cash and cash equivalents 887 (1,807)
Cash and cash equivalents, beginning 2,613 4,741
----------- -----------
Cash and cash equivalents, end $ 3,500 $ 2,934
=========== ===========
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest $ 1,172 $ 1,376
=========== ===========
</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
March 31, 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. The
quarter ended April 1, 1996 was a 14-week period rather than the normal
13-week period.
3. The results of operations for the three months ended March 31, 1997 are
not necessarily indicative of the results to be expected for a full
year.
4. 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.
5. 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 consist of three notes from one lender, total $21,300,000,
bear interest at LIBOR plus 320 basis points (8.9% at March 31, 1997),
and are payable in equal monthly installments of principal and interest
of approximately $222,000 (combined) until the notes are 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.
6
<PAGE>
6. 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.
7. 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 their ownership of
the Chicago Redfish Restaurant, their leasehold rights to the Wheaton,
Illinois premises and the Cincinnati, Ohio premises that will be
developed into Redfish Restaurants, and the rights to the Redfish name
and concept and the Company contributed $500,000 ($250,000 of which was
funded during the quarter ended March 31, 1997) and its leasehold
rights to the Denver premises that will be developed into a Redfish
Restaurant. In addition, the Company agreed to lend Redfish America up
to $575,000 to complete the development of the Wheaton, Cincinnati and
Denver Redfish Restaurants. RDG will manage the Redfish Restaurants.
8. 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:
March 31, 1997 April 1, 1996
-------------- -------------
Revenue 100.0% 100.0%
Restaurant Operating Expenses:
Cost of sales 28.0 28.4
Payroll and benefits 30.8 30.8
Depreciation and amortization 3.3 3.5
Other operating expenses 28.4 28.7
-------- ---------
Total restaurant operating expenses 90.5 91.4
-------- ---------
Income from restaurant operations 9.5 8.6
Other Operating (Income)Expenses:
Depreciation and amortization 0.8 1.2
General and administrative expenses 3.8 2.9
Gain on disposal of assets (6.0) ---
-------- ---------
Operating income 10.9 4.5
Interest expense, net 2.4 2.4
-------- ---------
Net income before taxes 8.5% 2.1%
======== =========
Revenue for the three months ended March 31, 1997 decreased by 20.2% to
$26,548,000 compared to $33,251,000 in the comparable period in 1996. This
decrease was due primarily to the sale of five restaurants in northern
California in January 1997 (See Note 4 of Notes to Consolidated Financial
Statements). In addition, a 3.9% decline in same store sales during the
three-month period ended March 31, 1997 and an additional week in the comparable
year-ago period contributed to the overall decline in sales. Included in revenue
for the three months ended March 31, 1997 is $142,000 in management fees derived
from the Company's agreements to manage the five restaurants sold in northern
California along with three restaurants the Company manages in Louisiana.
Cost of sales decreased as a percentage of revenue to 28.0% in the three months
ended March 31, 1997 from 28.4% in the comparable period in 1996. The decrease
resulted from a menu price increase, a continued focus on reducing cost of
sales, and management fee income included in revenue which has no corresponding
direct cost.
8
<PAGE>
Labor costs as a percentage of revenue were 30.8% in the three months ended
March 31, 1997, unchanged from the comparable period in 1996. Increases in labor
costs as a percentage of revenue resulting from an increase in minimum wage of
$0.50 per hour and the decline in same store sales in relation to the fixed
component of labor costs were offset by a menu price increase and better
controls on managing labor costs.
Other operating expenses decreased as a percentage of revenue to 28.4% in the
three months ended March 31, 1997 from 28.7% in the comparable period in 1996.
This decrease was a result of 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 March 31, 1997 from 4.7% in the same period in
1996 due primarily to the write-offs in the fourth quarter of 1996 related to
asset impairments.
General and administration expenses increased as a percentage of revenue to 3.8%
in the three months ended March 31, 1997 from 2.9% in the same period in 1996.
This increase relates primarily to the relative fixed nature of these expenses
in comparison to the overall decline in revenue.
Interest expense was $638,000 in the three months ended March 31, 1997 compared
to $815,000 in the same period of 1996. This decrease was a 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. At December 30, 1996, the Company had
approximately $11,150,000 of net operating loss carryforwards to be used to
offset future income for income tax purposes.
Liquidity and Capital Resources
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 March 31, 1997, the Company had a cash
balance of $3,500,000 and monthly cash receipts have been sufficient to pay all
obligations as they become due.
9
<PAGE>
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, consisting of three notes from one lender, total $21,300,000,
bear interest at LIBOR plus 320 basis points (8.9% at March 31, 1997), and are
payable in equal monthly installments of principal and interest of approximately
$222,000 (combined) until the notes are 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 Company plans to develop eight additional T.G.I. Friday's restaurants by the
end of 1998. These restaurants will be owned by a third party that will fund all
development costs. The Company will operate the restaurants, receive a
management fee, and participate in excess cash flows.
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 6. Exhibits and Reports on Form 8-K
(a) Exhibits. None
(b) The Company did not file any reports on Form 8-K during the
three months ended March 31, 1997
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: May 9, 1997 /s/ Bart A. Brown Jr.
----------------------------------------
Bart A. Brown Jr., President and
Chief Executive Officer
Dated: May 9, 1997 /s/ Mark C. Walker
----------------------------------------
Mark C. Walker, Chief Financial Officer,
Vice President Finance, Secretary and
Treasurer
11
<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> 3-MOS
<FISCAL-YEAR-END> DEC-29-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 3,500
<SECURITIES> 0
<RECEIVABLES> 1,444
<ALLOWANCES> 0
<INVENTORY> 1,213
<CURRENT-ASSETS> 8,072
<PP&E> 43,560
<DEPRECIATION> (11,404)
<TOTAL-ASSETS> 61,198
<CURRENT-LIABILITIES> 12,932
<BONDS> 25,664
0
0
<COMMON> 10
<OTHER-SE> 19,672
<TOTAL-LIABILITY-AND-EQUITY> 61,198
<SALES> 26,548
<TOTAL-REVENUES> 26,548
<CGS> 7,440
<TOTAL-COSTS> 7,440
<OTHER-EXPENSES> 16,596
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 638
<INCOME-PRETAX> 2,252
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,252
<DISCONTINUED> 0
<EXTRAORDINARY> (1,638)
<CHANGES> 0
<NET-INCOME> 614
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
