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 June 30, 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
June 30, 1997: 9,969,441
1
<PAGE>
MAIN STREET AND MAIN INCORPORATED
================================================================================
INDEX
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements - Main Street and Main Incorporated
Consolidated Balance Sheets - June 30, 1997 and
December 30, 1996 3
Consolidated Statements of Operations - Three Months
and Six Months Ended June 30, 1997 and July 1, 1996 4
Consolidated Statements of Cash Flows - Six 5
Months Ended June 30, 1997 and July 1, 1996
Notes to Consolidated Financial Statements - 6
June 30, 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>
June 30, 1997 December 30, 1996
------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 6,447 $ 2,613
Accounts receivable, net 2,002 1,248
Inventories 1,310 1,275
Prepaid expenses 287 173
Assets held for disposal, net 906 10,929
-------------- --------------
Total current assets 10,952 16,238
Property and equipment, net 31,044 32,162
Other assets, net 4,804 4,780
Franchise costs, net 15,878 16,418
Notes receivable 1,250 1,250
-------------- --------------
$ 63,928 $ 70,848
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 1,556 $ 2,523
Accounts payable 2,143 3,750
Other accrued liabilities 9,784 11,308
-------------- --------------
Total current liabilities 13,483 17,581
-------------- --------------
Long-term debt, net of current portion 26,897 33,809
-------------- --------------
Other liabilities and deferred credits 3,005 2,873
-------------- --------------
Commitments and contingencies --- ---
Stockholders' Equity:
Common stock, $.001 par value, 40,000,000 shares
authorized; 9,969,441 and 8,718,491 shares 10 9
Additional paid-in capital 44,176 41,694
Accumulated deficit (23,643) (25,118)
--------------- --------------
20,543 16,585
-------------- --------------
$ 63,928 $ 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 Six Months Ended
------------------ ----------------
June 30, 1997 July 1, 1996 June 30, 1997 July 1, 1996
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Revenue $ 28,981 $ 30,668 $ 55,529 $ 63,919
-------- -------- -------- --------
Restaurant Operating Expenses:
Cost of sales 8,309 8,747 15,749 18,206
Payroll and benefits 8,697 9,546 16,862 19,780
Depreciation and amortization 1,028 1,055 1,908 2,230
Other operating expenses 8,120 8,968 15,671 18,493
-------- -------- -------- --------
Total restaurant operating expenses 26,154 28,316 50,190 58,709
-------- -------- -------- --------
Income from restaurant operations 2,827 2,352 5,339 5,210
Depreciation and amortization 219 350 428 736
General and administrative expenses 1,104 1,047 2,112 2,005
Gain on disposal of assets -- -- (1,595) --
Restructuring charge -- 7,448 -- 7,448
-------- -------- -------- --------
Operating income (loss) 1,504 (6,493) 4,394 (4,979)
Interest expense, net 643 795 1,281 1,610
-------- -------- -------- --------
Net income (loss) before taxes 861 (7,288) 3,113 (6,589)
Income tax expense -- -- -- --
-------- -------- -------- --------
Net income (loss) before
extraordinary item 861 (7,288) 3,113 (6,589)
Extraordinary loss from debt
extinguishment -- -- 1,638 --
-------- -------- -------- --------
Net income (loss) $ 861 $ (7,288) $ 1,475 $ (6,589)
======== ======== ======== ========
Net Income (Loss) Per Share:
Net income (loss) before
extraordinary item $ 0.09 $ (0.92) $ 0.31 $ (0.83)
Extraordinary loss from debt
extinguishment -- -- (0.16) --
-------- -------- -------- --------
Net income (loss) $ 0.09 $ (0.92) $ 0.15 $ (0.83)
======== ======== ======== ========
Weighted average shares outstanding 9,997 7,952 9,897 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>
Six Months Ended
----------------
June 30, 1997 July 1, 1996
------------- ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 1,475 $ (6,589)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 2,336 2,966
Gain on disposal of assets (1,595) --
Extraordinary loss from debt extinguishment 1,638 --
Restructuring charge -- 7,448
Changes in assets and liabilities excluding effects
of business combination:
Accounts receivable (726) 1,192
Inventories 34 (45)
Prepaid expenses (114) (98)
Other assets (388) (597)
Accounts payable (1,691) (1,282)
Other liabilities (1,502) (104)
-------- --------
Net Cash Flows - Operating Activities (533) 2,891
-------- --------
Cash Flows From Investing Activities:
Cash paid to acquire assets through business
combination (880) --
Net additions to property and equipment (1,838) (4,485)
Cash received from sale-leaseback transaction 1,641 --
Sale of assets held for disposition, net 10,788 --
-------- --------
Net Cash Flows - Investing Activities 9,711 (4,485)
-------- --------
Cash Flows From Financing Activities:
Proceeds from sale of common stock 2,483 --
Long-term debt borrowing under credit facilities 21,554 2,100
Principal payments on long-term debt (29,381) (1,758)
-------- --------
Net Cash Flows - Financing Activities (5,344) 342
-------- --------
Net change in cash and cash equivalents 3,834 (1,252)
Cash and cash equivalents, beginning 2,613 4,741
-------- --------
Cash and cash equivalents, end $ 6,447 $ 3,489
======== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 2,180 $ 1,625
======== ========
</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
June 30, 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 six months ended June 30, 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 June 30, 1997), and are payable in
equal monthly installments of principal and interest of approximately
$217,500 (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. 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.
6
<PAGE>
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 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 will be developed into a Redfish Restaurant for a 52%
ownership interest in the venture. In addition, the Company agreed to lend
Redfish America up to $575,000 (of which $380,000 has been funded through
June 30, 1997) to complete the development of the Wheaton, Cincinnati and
Denver Redfish Restaurants. The Company 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:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30, 1997 July 1, 1996 June 30, 1997 July 1, 1996
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Revenue 100.0% 100.0% 100.0% 100.0%
Restaurant Operating Expenses
Cost of sales 28.7 28.5 28.4 28.5
Payroll and benefits 30.0 31.1 30.4 30.9
Depreciation and amortization 3.5 3.4 3.4 3.5
Other operating expenses 28.0 29.3 28.2 28.9
--------- --------- --------- ---------
Total restaurant operating expenses 90.2 92.3 90.4 91.8
--------- --------- --------- ---------
Income from restaurant operations 9.8 7.7 9.6 8.2
Depreciation and amortization 0.8 1.2 0.8 1.2
General and administrative expenses 3.8 3.4 3.8 3.1
Gain on disposal of assets --- --- (2.9) ---
Restructuring charge --- 24.3 --- 11.7
--------- --------- --------- ---------
Operating income (loss) 5.2 (21.2) 7.9 (7.8)
Interest expense, net 2.2 2.6 2.3 2.5
--------- --------- --------- ---------
Net income (loss) before taxes and
extraordinary item 3.0% (23.8)% 5.6% (10.3)%
========= ========= ========= =========
</TABLE>
Revenue for the three months ended June 30, 1997 decreased by 5.5% to
$28,981,000 compared to $30,668,000 in the comparable period in 1996. Revenue
for the six months ended June 30, 1997 decreased to $55,529,000 compared to
$63,919,000 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 $175,000 and
$318,000 for the quarter and six months ended June 30, 1997, respectively. Same
store sales for the quarter increased 0.8% from the same year ago period while
same store sales for the six months ended June 30, 1997 were down 1.5% from the
same year ago period. Revenue from the two Redfish restaurants opened for the
quarter totaled $1,218,000.
Cost of sales increased as a percentage of revenue to 28.7% in the three months
ended June 30, 1997 from 28.5% in the comparable period in 1996. Cost of sales
decreased as a percentage of revenue to 28.4% in the first six months of 1997
from 28.5% for the same period in 1996. The increase resulted from a recently
introduced lunch menu, as well as the introduction of Jack
8
<PAGE>
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.
Labor costs decreased as a percentage of revenue to 30.0% in the three months
ended June 30, 1997, from the 31.1% in the same period of 1996. Labor costs
decreased as a percentage of revenue to 30.4% in the first six months of 1997
from 30.9% in the same period of 1996. A $.50 per hour increase in minimum wage
and the decline in same store sales in relation to the fixed component of labor
costs were 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 28.0% in the
three months ended June 30, 1997 from 29.3% in the comparable period in 1996.
Other operating expenses decreased as a percentage of revenue in the first six
months of 1997 from 28.9% to 28.2%. This decrease was a 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
4.3% in the three months ended June 30, 1997 from 4.6% in the same period in
1996. The similar decrease for the six month period was due primarily to the
write-offs in the fourth quarter of 1996 related to asset impairments.
General and administrative expenses increased as a percentage of revenue to 3.8%
in the three months ended June 30, 1997 from 3.4% in the same period in 1996.
General and administrative expenses increased as a percentage of revenue to 3.8%
in the first six months of 1997 from 3.1% in the same period of 1996. This
increase relates primarily to the relative fixed nature of these expenses in
comparison to the overall decline in revenue.
Interest expense was $643,000 in the three months ended June 30, 1997 compared
to $795,000 in the same period of 1996. Interest expense was $1,281,000, in the
first six months of 1997 compared to $1,610,000 in the same period in 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.
9
<PAGE>
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 June 30, 1997, the Company had a cash
balance of $6,447,000 and monthly cash receipts have been sufficient to pay all
obligations as they become due.
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 June 30, 1997), and are
payable in equal monthly installments of principal and interest of approximately
$217,500 (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. CNL Financial has committed to finance Main Street's development of
these new restaurants and has given Main Street different alternatives under
which this financing would be provided for each new restaurant. As yet, Main
Street 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 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 June 30, 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: August 1, 1997 /s/ Bart A. Brown, Jr.
----------------------------------------
Bart A. Brown Jr., President and
Chief Executive Officer
Dated: August 1, 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. Dollar
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-29-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 6,447
<SECURITIES> 0
<RECEIVABLES> 2,002
<ALLOWANCES> 0
<INVENTORY> 1,310
<CURRENT-ASSETS> 10,952
<PP&E> 43,143
<DEPRECIATION> (12,099)
<TOTAL-ASSETS> 63,928
<CURRENT-LIABILITIES> 13,483
<BONDS> 26,897
0
0
<COMMON> 10
<OTHER-SE> 20,533
<TOTAL-LIABILITY-AND-EQUITY> 63,928
<SALES> 55,529
<TOTAL-REVENUES> 55,529
<CGS> 15,749
<TOTAL-COSTS> 15,749
<OTHER-EXPENSES> 34,441
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,281
<INCOME-PRETAX> 3,113
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,113
<DISCONTINUED> 0
<EXTRAORDINARY> (1,638)
<CHANGES> 0
<NET-INCOME> 1,475
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
