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 29, 1998
Commission File Number: 000-18668
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
August 10, 1998: 9,970,691
<PAGE>
MAIN STREET AND MAIN INCORPORATED
- --------------------------------------------------------------------------------
INDEX
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements - Main Street and Main Incorporated
Consolidated Balance Sheets - June 29, 1998 and
December 29, 1997 3
Consolidated Statements of Operations - Three Months
and Six Months Ended June 29, 1998 and June 30, 1997 4
Consolidated Statements of Cash Flows - Six Months
Ended June 29, 1998 and June 30, 1997 5
Notes to Consolidated Financial Statements -
June 29, 1998 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
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>
June 29, 1998 December 29, 1997
------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 7,694 $ 8,424
Accounts receivable, net 791 3,293
Inventories 1,250 1,043
Prepaid expenses 733 289
Assets held for disposal, net 363 363
-------- --------
Total current assets 10,831 13,412
Property and equipment, net 37,912 30,194
Other assets, net 3,735 3,091
Franchise costs, net 18,036 15,288
Note receivable -- 757
-------- --------
$ 70,514 $ 62,742
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 1,233 $ 1,233
Accounts payable 3,290 3,890
Other accrued liabilities 10,592 9,619
-------- --------
Total current liabilities 15,115 14,742
-------- --------
Long-term debt, net of current portion 29,201 24,308
-------- --------
Other liabilities and deferred credits 1,714 1,489
-------- --------
Commitments and contingencies
Stockholders' Equity:
Common stock, $.001 par value, 25,000,000 shares
authorized; 9,970,691 and 9,970,691 shares
issued and outstanding in 1998 and 1997,
respectively 10 10
Additional paid-in capital 44,145 44,145
Accumulated deficit (19,671) (21,952)
-------- --------
24,484 22,203
-------- --------
$ 70,514 $ 62,742
======== ========
</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 29, 1998 June 30, 1997 June 29, 1998 June 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue $ 29,647 $ 28,981 $ 53,989 $ 55,529
-------- -------- -------- --------
Restaurant Operating Expenses:
Cost of sales 8,312 8,309 15,287 15,749
Payroll and benefits 9,031 8,697 16,347 16,862
Depreciation and amortization 1,010 1,028 1,885 1,908
Other operating expenses 7,784 8,120 14,258 15,671
-------- -------- -------- --------
Total restaurant operating expenses 26,137 26,154 47,777 50,190
-------- -------- -------- --------
Income from restaurant operations 3,510 2,827 6,212 5,339
Other Operating (Income) Expenses:
Depreciation and amortization 215 219 416 428
General and administrative expenses 1,115 1,104 2,289 2,112
Gain on disposal of assets -- -- -- (1,595)
-------- -------- -------- --------
Operating income 2,180 1,504 3,507 4,394
Interest expense, net 649 643 1,226 1,281
-------- -------- -------- --------
Net income before taxes 1,531 861 2,281 3,113
Income tax expense -- -- -- --
-------- -------- -------- --------
Net income before extraordinary item 1,531 861 2,281 3,113
Extraordinary loss from debt extinguishment -- -- -- 1,638
-------- -------- -------- --------
Net income $ 1,531 $ 861 $ 2,281 $ 1,475
======== ======== ======== ========
Diluted Earnings Per Share:
Net income before extraordinary item $ 0.15 $ 0.09 $ 0.22 $ 0.31
Extraordinary loss from debt extinguishment -- -- -- (0.16)
-------- -------- -------- --------
Net income $ 0.15 $ 0.09 $ 0.22 $ 0.15
======== ======== ======== ========
Weighted average shares outstanding-diluted 10,376 9,997 10,396 9,897
======== ======== ======== ========
</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 29, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Cash Flows From Operating Activities
Net Income $ 2,281 $ 1,475
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,301 2,336
Gain on disposal of assets --- (1,595)
Extraordinary loss from debt extinguishment --- 1,638
Changes in assets and liabilities:
Accounts receivable, net 440 (726)
Inventories (207) 34
Prepaid expenses (443) (114)
Other assets, net (644) (388)
Accounts payable (600) (1,691)
Other accrued liabilities 1,197 (1,502)
----------- -----------
Net Cash Flows - Operating Activities 4,325 (533)
----------- -----------
Cash Flows From Investing Activities:
Cash paid to acquire assets through business --- (880)
combination
Net additions to property and equipment (9,609) (1,838)
Cash received from sale-leaseback transaction --- 1,641
Cash received from note receivable 757 ---
Cash paid to acquire franchise rights (3,159) ---
Cash received from sale of assets 2,062 10,788
----------- -----------
Net Cash Flows - Investing Activities (9,949) 9,711
----------- -----------
Cash Flows From Financing Activities:
Proceeds from sale of common stock --- 2,483
Long-term debt borrowings 5,737 21,554
Principal payments on long-term debt (843) (29,381)
----------- -----------
Net Cash Flows - Financing Activities 4,894 (5,344)
----------- -----------
Net change in cash and cash equivalents (730) 3,834
Cash and cash equivalents, beginning 8,424 2,613
----------- -----------
Cash and cash equivalents, end $ 7,694 $ 6,447
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 1,226 $ 2,180
=========== ===========
</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 29, 1998
(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 29, 1997.
2. The Company operates on fiscal quarters of 13 weeks.
3. The results of operations for the three months and six months ended June
29, 1998 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 early
extinguishment of the debt resulted in an extraordinary loss of
approximately $1,638,000 before taxes.
6. In May 1998, the Company acquired six T.G.I. Friday's restaurants in
northern California for approximately $6,800,000, funded in part by the
assumption of existing long-term debt and the addition of new long-term
debt for a total increase in debt of $5,737,000.
7. In April 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5 ("SOP 98-5"), "Reporting on the Costs of
Start-Up Activities". This statement is effective for fiscal years
beginning after December 15, 1998. SOP 98-5 provides authoritative guidance
on the financial reporting of start-up and organization costs, including
the costs incurred prior to the opening of a restaurant, or preopening
costs. This statement requires that such costs be expensed as incurred and
not capitalized and amortized. The Company currently capitalizes and
amortizes these costs over a one year period. The Company will adopt SOP
98-5 for its fiscal year beginning on December 29, 1998 and commence
expensing preopening costs as they are incurred. All unamortized costs
outstanding at the end of the fiscal year ending December 28, 1998 will be
reported
6
<PAGE>
as the cumulative effect of a change in accounting principle, as described
in Accounting Principles Board Opinion No. 20, "Accounting Changes", to be
included in the financial statements for the fiscal year ended December 27,
1999.
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 29, 1998 June 30, 1997 June 29, 1998 June 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue 100.0% 100.0% 100.0% 100.0%
Restaurant Operating Expenses:
Cost of sales 28.0 28.7 28.3 28.4
Payroll and benefits 30.5 30.0 30.3 30.4
Depreciation and amortization 3.4 3.5 3.5 3.4
Other operating expenses 26.3 28.0 26.4 28.2
---------- ----------- --------- ---------
Total restaurant operating expenses 88.2 90.2 88.5 90.4
---------- ----------- --------- ---------
Income from restaurant operations 11.8 9.8 11.5 9.6
Other Operating (Income) Expenses:
Depreciation and amortization 0.7 0.8 0.8 0.8
General and administrative expenses 3.7 3.8 4.2 3.8
Gain on disposal of assets --- --- --- (2.9)
---------- ----------- --------- ---------
Operating income 7.4 5.2 6.5 7.9
Interest expense, net 2.2 2.2 2.3 2.3
---------- ----------- --------- ---------
Net income before taxes 5.2% 3.0% 4.2% 5.6%
========== =========== ========= =========
</TABLE>
Revenue for the three months ended June 29, 1998 increased by 2.3% to
$29,647,000 compared to $28,981,000 for the comparable period in 1997. Revenue
for the six months ended June 29, 1998 decreased 2.8% to $53,989,000 compared to
$55,529,000 for the same period of the prior year. This decrease was primarily
due to the sale of eight restaurants in the Northwest and Midwest in the fourth
quarter of 1997. Included in revenue are management fees derived from the
Company's agreements to manage five restaurants in northern California, one
restaurant in El Paso, Texas and three restaurants in Louisiana. Management fee
income was $258,000 and $442,000 for the three months and six months ended June
29, 1998, respectively.
7
<PAGE>
Same store sales for the quarter were up 4.2% as compared to an increase of 0.8%
for the comparable period in 1997. Year-to-date same store sales are up 4.2% as
compared to a decrease in same store sales of 1.6% for the same period of the
prior year.
Cost of sales decreased as a percentage of revenue to 28.0% in the three months
ended June 29, 1998 from 28.7% in the comparable period in 1997 and to 28.3% for
the six months ended June 29, 1998 from 28.4% for the comparable period in 1997.
These decreases are primarily due to management's food cost reduction program
and optimum pricing of all menu items.
Labor costs as a percentage of revenue were 30.5% in the three months ended June
29, 1998, an increase of 50 basis points over the same period in the prior year.
However, labor costs as a percentage of revenue for the six months ended June
29, 1998 were 30.3% as compared to 30.4% for the comparable six months of 1997.
The current quarter's increase is due largely to the addition of six restaurants
acquired in May 1998. Management expects labor costs as a percentage of revenue
to decrease in the near future as these restaurants are fully integrated into
the Company's operating standards.
Decreases in labor costs as a percentage of revenue for the six month period
occurred in spite of a $0.40 per hour increase in minimum wage in September 1997
and an additional $0.60 per hour increase in California in March 1998.
Other operating expenses decreased as a percentage of revenue to 26.3% in the
three months ended June 29, 1998 from 28.0% in the comparable period in 1997 and
to 26.4% for the six months ended June 29, 1998 from 28.2% for the comparable
period in 1997. These decreases are the result of management's programs to lower
supply, insurance and maintenance costs, as well as fluctuations in the
percentage of revenue the Company pays to a national marketing pool administered
by T.G.I. Friday's, Inc.
Interest expense was $649,000 for the three months ended June 29, 1998 compared
to $643,000 in the same period of 1997. This increase is the result of
additional debt incurred in the acquisition of six T.G.I. Friday's restaurants
in May 1998.
No income tax provision was recorded in 1998 or 1997 due to the availability of
net loss carryforwards. At December 29, 1997, the Company had approximately
$14,700,000 of net operating and capital 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 June 29, 1998, the Company had
8
<PAGE>
a cash balance of $7,694,000 and monthly cash receipts have been sufficient to
pay all obligations as they become due.
The Company plans to develop approximately five additional restaurants by the
end of 1998 funded partially from corporate funds and partially from debt and
sale/leasebacks.
The Company has received debt and sale/leaseback financing commitments totaling
$30,000,000 which will be utilized to help fund development activity through
1999.
The Company believes that its current cash resources, its lines of credit and
expected cash flows from operations will be sufficient to fund the Company's
capital needs during the next 12 months at its current level of operations,
apart from capital needs resulting from additional developed restaurants or
acquisitions. The Company may be required to obtain additional capital to fund
its planned growth during the next 12-18 months and beyond. Potential sources of
any such capital may include bank financing, strategic alliances and additional
offerings of the Company's equity or debt securities. There can be no assurance
that such capital will be available from these or other potential sources, and
the lack of capital could have a material adverse effect on the Company's
business.
The Company leases its restaurants with terms ranging from 10 to 20 years.
Minimum payments on the Company's existing lease obligations are approximately
$4,800,000 per year through 2002.
Year 2000
The Company continues to assess the impact the Year 2000 issue will have on its
information systems and operations. The Company's corporate information system,
which consolidates operating results from all the restaurants and processes
accounts payable and payroll, will be Year 2000 compliant through updated
software versions that are being released by the software vendor. These updates
are part of the software vendor's regular maintenance program and will be
provided at no additional cost to the Company. The Company is currently
evaluating new point-of-sale equipment along with new back-office software for
each of its restaurants. These systems and related equipment which process guest
orders, schedule labor, and provide store level operating data, need to be
upgraded periodically to incorporate the latest technology.
To insure that these systems are Year 2000 compliant, the Company expects to
invest approximately $600,000 over the next 12-18 months to upgrade the
back-office hardware and software.
These enhancements will be made in the normal course of business to keep the
Company current in its technology and information systems, to keep it
competitive with other restaurant companies and to insure the Company is Year
2000 compliant.
9
<PAGE>
Forward-Looking Statements
This report contains forward-looking statements, including statements regarding
the Company's business strategies, the Company's business, and the industry in
which the Company operates. These forward looking statements are based primarily
on the Company's expectations and are subject to a number of risks and
uncertainties, some of which are beyond the Company's control. Actual results
could differ materially from the forward-looking statements as a result of
numerous factors, including those set forth in the Company's Form 10-K for the
year ended December 29, 1997, as filed with the Securities and Exchange
Commission.
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 June 15, 1998.
The matters voted on at the meeting were as follows:
(a) The election of directors, and
(b) The appointment of Arthur Andersen LLP as independent auditors for
the Company.
Messrs. Antioco, Bisceglia, Brown, Metz and Sherman and Ms. Evans were
elected to the Board of Directors 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 7,900,810 102,729
Gerard T. Bisceglia 7,900,320 103,219
Bart A. Brown 7,900,380 103,159
Jane Evans 7,898,355 105,184
John C. Metz 7,900,630 102,909
Steven A. Sherman 7,885,621 117,918
Ratify Appointment of Arthur Andersen LLP
- -----------------------------------------
For Against Abstain
--- ------- -------
7,954,542 22,582 26,415
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - 27.1 Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during the three
months ended June 29, 1998
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: August 10, 1998 /s/ Bart A. Brown Jr.
---------------------
Bart A. Brown Jr., President and
Chief Executive Officer
Dated: August 10, 1998 /s/ James Yeager
--------------------------------------
James Yeager, Corporate Controller and
Secretary
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This exhibit contains summary financial information from the Registrant's
unaudited consolidated financial statements for the period ended June 29,
1998 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1998
<PERIOD-END> JUN-29-1998
<EXCHANGE-RATE> 1
<CASH> 7,694
<SECURITIES> 0
<RECEIVABLES> 791
<ALLOWANCES> 0
<INVENTORY> 1,250
<CURRENT-ASSETS> 10,831
<PP&E> 51,048
<DEPRECIATION> (13,136)
<TOTAL-ASSETS> 70,514
<CURRENT-LIABILITIES> 15,115
<BONDS> 29,201
0
0
<COMMON> 10
<OTHER-SE> 24,474
<TOTAL-LIABILITY-AND-EQUITY> 70,514
<SALES> 53,989
<TOTAL-REVENUES> 53,989
<CGS> 15,287
<TOTAL-COSTS> 47,777
<OTHER-EXPENSES> 2,705
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,226
<INCOME-PRETAX> 2,281
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,281
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,281
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
</TABLE>
