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 30, 1998
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 30, 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 - March 30, 1998 and
December 29, 1997 3
Consolidated Statements of Operations - Three Months
Ended March 30, 1998 and March 31, 1997 4
Consolidated Statements of Cash Flows - Three Months
Ended March 30, 1998 and March 31, 1997 5
Notes to Consolidated Financial Statements - 6
March 30, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 10
2
<PAGE>
MAIN STREET AND MAIN INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
March 30, 1998 December 29, 1997
-------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 8,584 $ 8,424
Accounts receivable, net 685 3,293
Inventories 994 1,043
Prepaid expenses 517 289
Assets held for disposal, net 363 363
-------- --------
Total current assets 11,143 13,412
Property and equipment, net 33,620 30,194
Other assets, net 3,535 3,091
Franchise costs, net 15,033 15,288
Notes receivable 757 757
-------- --------
$ 64,088 $ 62,742
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 1,233 $ 1,233
Accounts payable 3,332 3,890
Other accrued liabilities 10,911 9,619
-------- --------
Total current liabilities 15,476 14,742
-------- --------
Long-term debt, net of current portion 23,993 24,308
-------- --------
Other liabilities and deferred credits 1,666 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, 10 10
respectively
Additional paid-in capital 44,145 44,145
Accumulated deficit (21,202) (21,952)
-------- --------
22,953 22,203
-------- --------
$ 64,088 $ 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
March 30, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Revenue $ 24,342 $ 26,548
-------- --------
Restaurant Operating Expenses:
Cost of sales 6,975 7,440
Payroll and benefits 7,316 8,165
Depreciation and amortization 875 880
Other operating expenses 6,474 7,551
-------- --------
Total restaurant operating expenses 21,640 24,036
-------- --------
Income from restaurant operations 2,702 2,512
Other Operating (Income) Expenses:
Depreciation and amortization 201 209
General and administrative expenses 1,174 1,008
Gain on disposal of assets -- (1,595)
-------- --------
Operating income 1,327 2,890
Interest expense, net 577 638
-------- --------
Net income before taxes 750 2,252
Income tax expense -- --
-------- --------
Net income before extraordinary item 750 2,252
Extraordinary loss from debt extinguishment -- 1,638
-------- --------
Net income $ 750 $ 614
======== ========
Diluted Earnings Per Share:
Net income before extraordinary item $ 0.07 $ 0.22
Extraordinary loss from debt extinguishment -- (0.16)
-------- --------
Net income $ 0.07 $ 0.06
======== ========
Weighted average shares outstanding-diluted 10,396 9,968
======== ========
</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 30, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Cash Flows From Operating Activities
Net Income $ 750 $ 614
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,076 1,089
Gain on disposal of assets -- (1,595)
Extraordinary loss from debt extinguishment -- 1,638
Changes in assets and liabilities:
Accounts receivable, net 546 (196)
Inventories 49 62
Prepaid expenses (228) (6)
Other assets, net (274) (152)
Accounts payable (558) (993)
Other liabilities 1,468 (2,473)
-------- --------
Net Cash Flows - Operating Activities 2,829 (2,012)
-------- --------
Cash Flows From Investing Activities:
Cash paid to acquire assets through business
combination -- (250)
Net additions to property and equipment (4,416) (841)
Cash received from sale of assets 2,062 10,788
-------- --------
Net Cash Flows - Investing Activities (2,354) 9,697
-------- --------
Cash Flows From Financing Activities:
Proceeds from sale of common stock -- 2,483
Long-term debt borrowings -- 254
Principal payments on long-term debt (315) (9,535)
-------- --------
Net Cash Flows - Financing Activities (315) (6,798)
-------- --------
Net change in cash and cash equivalents 160 887
Cash and cash equivalents, beginning 8,424 2,613
-------- --------
Cash and cash equivalents, end $ 8,584 $ 3,500
======== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 577 $ 1,172
======== ========
</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 30, 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's restaurants operate on a fiscal quarter of 13 weeks.
3. The results of operations for the three months ended March 30, 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 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 as the cumulative effect of a change in accounting principle, as
described in Accounting Principles Board Opinion No. 20, "Accounting
Changes".
6
<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 30, 1998 March 31, 1997
-------------- --------------
Revenue 100.0% 100.0%
Restaurant Operating Expenses:
Cost of sales 28.7 28.0
Payroll and benefits 30.0 30.8
Depreciation and amortization 3.6 3.3
Other operating expenses 26.6 28.4
----- -----
Total restaurant operating expenses 88.9 90.5
----- -----
Income from restaurant operations 11.1 9.5
Other Operating (Income)Expenses:
Depreciation and amortization 0.8 0.8
General and administrative expenses 4.8 3.8
Gain on disposal of assets -- (6.0)
----- -----
Operating income 5.5 10.9
Interest expense, net 2.4 2.4
----- -----
Net income before taxes 3.1% 8.5%
===== =====
Revenue for the three months ended March 30, 1998 decreased by 8.3% to
$24,342,000 compared to $26,548,000 in the comparable period in 1997. 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) and 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 the five restaurants sold in northern
California, one restaurant in El Paso, Texas and three restaurants in Louisiana.
Management fee income was $183,000 and $142,000 for the three months ended March
30, 1998 and March 31, 1997, respectively. Same store sales increased 4.2% for
the quarter over the comparable period in 1997.
Cost of sales increased as a percentage of revenue to 28.7% in the three months
ended March 30, 1998 from 28.0% in the comparable period in 1997. The increase
resulted from a recently introduced lunch menu, the introduction of Jack Daniels
Grill menu items and the consolidation of the Redfish restaurants, all of which
have higher food costs.
7
<PAGE>
Labor costs as a percentage of revenue were 30.0% in the three months ended
March 30, 1998, a significant reduction from the 30.8% for the three months
ended March 31, 1997. Decreases in labor costs as a percentage of revenue
occurred in spite of the $0.40 per hour increase in minimum wage in September
1997 and an additional $0.60 per hour increase in California in March 1998. The
decrease is attributable to management's concentrated efforts to streamline and
control staffing requirements.
Other operating expenses decreased as a percentage of revenue to 26.6% in the
three months ended March 30, 1998 from 28.4% in the comparable period in 1997.
This decrease was a result of management's cost reduction programs to lower
supply, insurance and maintenance costs. These cost reductions were partially
offset by an increase in contributions to a national marketing pool administered
by TGI Friday's Inc.
General and administrative expenses increased as a percentage of revenue to 4.8%
in the three months ended March 30, 1998 from 3.8% in the comparable period in
1997. This increase relates primarily to the relative fixed nature of these
expenses in comparison to the overall decline in sales revenue, as well as the
costs associated with managing the nine stores in California, Louisiana and
Texas where sales revenues are not included in gross revenue.
Interest expense was $577,000 in the three months ended March 30, 1998 compared
to $638,000 in the same period of 1997. This decrease was a result of the
repayment of debt in the first quarter of 1997.
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 March 30, 1998, the Company had a cash
balance of $8,584,000 and monthly cash receipts have been sufficient to pay all
obligations as they become due.
The Company plans to develop approximately five to eight 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 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.
8
<PAGE>
Year 2000
The Company continues to assess the impact that 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. 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, which is estimated to cost up to $2,500,000 over the next two years.
These new systems will ensure that the Company is Year 2000 compliant.
9
<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 30, 1998
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 6, 1998 /s/ Bart A. Brown Jr.
----------------------------------------
Bart A. Brown Jr., President and
Chief Executive Officer
Dated: May 6, 1998 /s/ James Yeager
----------------------------------------
James Yeager, Corporate Controller
and Secretary
10
<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-28-1998
<PERIOD-END> MAR-30-1998
<EXCHANGE-RATE> 1
<CASH> 8,584
<SECURITIES> 0
<RECEIVABLES> 685
<ALLOWANCES> 0
<INVENTORY> 994
<CURRENT-ASSETS> 11,143
<PP&E> 45,783
<DEPRECIATION> (12,163)
<TOTAL-ASSETS> 64,088
<CURRENT-LIABILITIES> 15,476
<BONDS> 23,993
0
0
<COMMON> 10
<OTHER-SE> 22,943
<TOTAL-LIABILITY-AND-EQUITY> 64,088
<SALES> 24,342
<TOTAL-REVENUES> 24,342
<CGS> 6,975
<TOTAL-COSTS> 6,975
<OTHER-EXPENSES> 16,040
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 577
<INCOME-PRETAX> 750
<INCOME-TAX> 0
<INCOME-CONTINUING> 750
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 750
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
