SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended MARCH 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________to __________________
Commission file number 0-18917
FAST FOOD SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3562193
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification #)
42-40 BELL BOULEVARD, BAYSIDE, NEW YORK 11361
(Address of principal executive offices) (zip code)
(718) 229-1113
(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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by court.
Yes No_____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 10, 1996
Common Stock, $.01 par value 2,178,400 Shares
<PAGE>
FAST FOOD SYSTEMS, INC. AND SUBSIDIARIES
FORM 10-Q FOR THE SECOND QUARTER ENDED MARCH 31, 1996
INDEX
PART 1 Page No.
- - ------ --------
Financial Information:
Condensed Consolidated Balance Sheets-
March 31, 1996 and September 24, 1995 2
Condensed Consolidated Statements of Operations-
for the Three and Six Months Ended March 31, 1996
and March 26, 1995 3-4
Condensed Consolidated Statements of Cash Flows-
for the Six Months Ended March 31, 1996 and
March 26, 1995 5-6
Notes to Condensed Consolidated Financial
Statements 7-9
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-11
PART II
- - -------
Other Information
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults upon Senior Securities 12
Item 4. Submission of Matters to a Vote of
Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 12
1.
<PAGE>
FAST FOOD SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, SEPTEMBER 24,
1996 1995
------------ --------
(Unaudited) *
Assets
Current assets:
Cash $ 8,628 $ 150,945
Notes receivable, current maturities 146,771 95,266
Inventories - 99,513
Other current assets 49,275 141,264
--------- ---------
Total current assets 204,674 486,988
--------- ---------
Property and equipment, net 60,088 2,806,735
--------- ---------
Other assets:
Notes receivable, less current maturities 1,493,254 1,046,353
Interests in managed entities 193,834 314,324
Security deposits 1,242 58,375
Intangible assets - 115,738
--------- ---------
Total other assets 1,688,330 1,534,790
--------- ---------
Total assets $1,953,092 $4,828,513
========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of capital lease
obligations $ - $ 21,451
Accounts payable and accrued expenses 59,710 731,668
Taxes payable, other than on income 7,390 104,441
Due to managed entities 79,096 147,458
--------- ---------
Total current liabilities 146,196 1,005,018
Capital lease obligations, non-current - 378,119
Deferred credits 67,910 215,371
--------- ---------
Total liabilities 214,106 1,598,508
--------- ---------
Shareholders' equity:
Common stock and additional paid-in capital 7,328,625 8,435,825
Accumulated deficit (5,589,639) (5,205,820)
Total shareholders' equity 1,738,986 3,230,005
--------- ---------
Total liabilities and shareholders' equity $1,953,092 $4,828,513
========== ==========
*Derived from audited financial statements.
See accompanying notes to condensed consolidated financial statements.
2.
<PAGE>
FAST FOOD SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31, March 26,
1996 1995
-------------- ------------
Sales $ 139,903 $ 4,889,135
Cost of sales 57,024 1,624,113
----------- -----------
Gross Profit 82,879 3,265,022
----------- -----------
Store labor expenses 55,148 1,505,513
Store operating and occupancy expenses 67,481 1,271,425
Advertising and royalty expenses 11,708 422,874
General and administrative expenses 147,305 427,487
Interest expense 250 40,569
Management fee income ( 39,571) ( 69,530)
Interest income ( 56,672) ( 718)
Loss (gain) on sale of assets, net 85,825 (251,048)
Other expense 29,402 3,598
----------- -----------
300,876 3,350,170
----------- -----------
Net loss $ (217,997) $ ( 85,148)
=========== ===========
Weighted average number of shares
outstanding 2,214,400 2,178,400
=========== ===========
Net loss per share $ (.10) $ (.04)
=========== ===========
See accompanying notes to condensed consolidated financial statements.
3.
<PAGE>
FAST FOOD SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended
--------------------------
March 31, March 26,
1996 1995
-------------- ------------
Sales $ 1,103,236 $10,247,745
Cost of sales 387,156 3,367,224
----------- -----------
Gross Profit 716,080 6,880,521
----------- -----------
Store labor expenses 423,993 3,051,351
Store operating and occupancy expenses 321,852 2,539,035
Advertising and royalty expenses 89,518 898,488
General and administrative expenses 401,883 861,160
Interest expense 2,642 92,789
Management fee income ( 79,408) (146,618)
Interest income (108,641) ( 973)
Loss (gain) on sale of assets, net 40,351 (251,048)
Other expense (income) 7,709 ( 42,869)
----------- -----------
1,099,899 7,001,315
Net loss $ (383,819) $ (120,794)
=========== ===========
Weighted average number of shares
outstanding 2,214,400 2,178,400
=========== ===========
Net loss per share $ (.17) $ (.06)
=========== ===========
See accompanying notes to condensed consolidated financial statements.
4.
<PAGE>
FAST FOOD SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
----------------------
March 31, March 26,
1996 1995
------------ --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (383,819) $ (120,794)
----------- -----------
Adjustments to reconcile net loss to net cash
provided (required) by operating
activities:
Depreciation and amortization 11,366 432,478
Deferred credits applied (38,902) (59,700)
Imputed interest expense -- 16,479
Net loss (gain) on asset dispositions 40,351 (251,048)
Loss attributable to equity investments 44,555 84,700
Change in due/to from managed entities (68,362) (71,151)
Decrease in inventory 31,167 28,457
Decrease (increase) in current assets (21,725) 166,510
Decrease in accounts payable, accrued
expenses and other liabilities (687,665) (106,482)
----------- -----------
Total adjustments (689,215) 240,243
Net cash provided (required) by operating
activities (1,073,034) 119,449
----------- -----------
Cash flows from investing activities:
Proceeds of asset dispositions 1,626,633 375,000
Acquisition of tangible and intangible assets (3,910) (125,462)
Collections on notes receivable 381,159 --
Distributions from managed entities 75,935 935
Cash paid on lease termination (18,000) --
Increase in security deposits and other (23,900) (12,831)
----------- -----------
Net cash provided by investing activities 2,037,917 237,642
----------- -----------
Cash flows from financing activities:
Repayments to shareholder -- (425,000)
Principal payments on capital leases -- (31,159)
Return of capital distributions paid (1,107,200) --
----------- -----------
Net cash required by financing activities (1,107,200) (456,159)
----------- -----------
Net decrease in cash (142,317) (99,068)
Cash, beginning of period 150,945 155,181
----------- -----------
Cash, end of period $ 8,628 $ 56,113
=========== ===========
See accompanying notes to condensed consolidated financial statements.
5.
<PAGE>
FAST FOOD SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
-----------------------
March 31, March 26,
1996 1995
------------ --------
Additional Cash Flow Information:
Interest expense paid during the period $ -- $ 81,172
=========== ========
Non-cash investing and financing activities:
Imputed contribution to paid-in capital $ -- $ 16,479
=========== ========
Notes and escrow receivables arising
from asset sales $ 1,833,566 $375,000
=========== ========
Net book value of property and equipment
sold or abandoned $ 2,854,929 $932,335
=========== ========
Capitalized value of sale-leaseback
debt extinguished $ 395,570 $819,972
=========== ========
Security deposits and accrued interest
thereon surrendered to obtain assigned
lease extension $ 21,760 $ --
=========== ========
Other restaurant asset dispositions:
Inventory $ 68,346 $ --
=========== ========
Prepayments $ 101,954 $ --
=========== ========
Security deposits $ 47,133 $ --
=========== ========
Intangibles $ -- $426,716
=========== ========
Liabilities and credits assumed by
purchasers:
Accrued expenses $ 81,344 $ --
=========== ========
Deferred credits $ 108,559 $ --
=========== ========
See accompanying notes to condensed consolidated financial statements.
6.
<PAGE>
FAST FOOD SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting
of only normal recurring accruals) necessary to present fairly the
financial position as of March 31, 1996, and the results of
operations and cash flows for the three and six-month periods ended
March 31, 1996 and March 26, 1995, respectively.
2. The condensed consolidated results of operations for the three and
six-month periods ended March 31, 1996, are not necessarily
indicative of the results to be expected for the full year.
3. On October 9, 1995, the sale of eight New York City restaurants to
Wendnew, L.L.C. was closed in escrow and Wendnew took provisional
operational and financial control of the restaurants pending approval by
the Company's shareholders. The Company realized neither gain nor loss on
such transaction as the carrying value of the property, equipment and
intangibles sold less the book value of liabilities and deferred credits
assumed by the purchaser had been reduced to equal the consideration for
the sale.
On December 20, 1995, the Company, Wendnew and the lessor of the
Fulton Street, Brooklyn (Wendton) restaurant agreed to terms for a
ten-year extension of such restaurant's lease. The Company was
required to surrender its security deposit of $10,000 and the accrued
interest thereon in the amount of $11,760. The Company was also
required to pay $9,000 for a retroactive rent increase of which
$2,710 was charged to Wendnew for the period they were operating the
restaurant. The aggregate $28,050 cost to the Company of obtaining
the lease extension has been charged as a loss on the sale of the
restaurants to Wendnew. However, securing the lease extension removes
a contingency loss to the Company of approximately $430,913
representing the estimated forgiveness of debt that would have been
required if the lease were not extended for at least three years
beyond its scheduled April 30, 1997 expiration.
Approval of the sale by the Company's shareholders was obtained on
January 26, 1996. On such date the Company received the escrowed
proceeds and three installment payments on the $150,000 mortgage
note. The Company agreed to defer principal payments on the $750,000
term note until March 1, 1996. The Company did receive payment of
accrued interest on such note of approximately $18,000. The Company
also offered Wendnew a 5% (or $17,500) discount on a $350,000
prepayment subject to Wendnew's obtaining financing therefor. (See
Notes 9 and 11).
7.
<PAGE>
FAST FOOD SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. On November 10, 1995, the Company consummated the sale of its Wendbridge
(New Jersey) restaurant. The Company received proceeds of $562,500 plus
certain closing adjustments. The Company realized neither gain nor loss
on such sale as the restaurants Intangible Franchise Affiliation Value
(IFAV) had been written down to equate the carrying value of the property,
equipment and intangibles with the consideration therefor. From the sale
proceeds the Company paid a $.20 per share return of capital distribution
aggregating $442,880 on November 28, 1995.
5. On December 22, 1995, the Company consummated the sale of the
Sayreville restaurant, agreed to on December 12, 1995. The Company
received gross proceeds of $100,000 less certain minor closing
adjustments and recorded a gain of $73,524.
6. In January 1996, The Company obtained a lease termination agreement for
its Wendchester restaurant in the Bronx. Such termination agreement
provided for the Company to surrender possession of the premises no later
than June 30, 1996, subject to acceleration of such date upon five days
written notice from the landlord. In addition, the monthly rent effective
January 1, 1996 was reduced from $7,833 to $6,000. The Company must also
forfeit its $21,250 security deposit. The Company had previously written
down this store's property and equipment to $50,000. (See Note 8).
7. On January 26, 1996, the Company declared a $.30 per share return of
capital distribution aggregating $664,320 payable from the Wendnew
proceeds to shareholders of record as of February 12, 1996. The
distribution was paid on February 16, 1996.
8. On March 18, 1996, the Company closed the consistently unprofitable
Wendchester restaurant, its last owned operating location. The
Company sustained a loss of $85,825 thereon, consisting of the
write-off of the undepreciated improvements and non-salvageable
equipment thereat in the amount of $50,225, less salvage proceeds of
$3,650; the forfeited security deposit therefor of $21,250 and a
newly agreed termination penalty of $18,000.
9. On February 21, 1996, Wendnew prepaid $350,000 of the note receivable
due the Company, less a $17,500 offered discount (See Notes 3, 10 and
11).
8.
<PAGE>
FAST FOOD SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
10. Notes receivable including their current maturities as of March 31, 1996
consist of the following:
Notes Receivable Arising Total Current
from the Sale of (to) Receivable Maturities
------------------------ ---------- ----------
Wendway/Wendwick $ 743,175 $ 74,717
Wendtrip 351,997 25,412
Wendnew (term note) (1) 396,693 4,740
Wendnew (mortgage) (2) 148,160 41,902
---------- ----------
Totals: 1,640,025 $ 146,771
==========
Less: Current maturities 146,771
----------
Long-term maturities $1,493,254
==========
(1) A $332,500 prepayment, net of a $17,500 discount, was received on
February 21, 1996.
(2) The Company has also offered the purchaser a 5% discount on the
prepayment of the mortgage note. (See Note 11).
11. On April 8, 1996, Wendnew prepaid the balance of the mortgage note,
less a 5% prepayment discount of $7,408. The proceeds were $141,657,
including interest of $905.
12. Loss per share is based upon the loss for the period divided by the
weighted average number of common shares outstanding during the period.
9.
<PAGE>
Item 2
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
On January 26, 1996, the Company's shareholders approved the sale to
Wendnew, L.L.C. of eight New York City restaurants. (See Note 3 to
the Condensed Consolidated Financial Statements. Provisional
operational and financial control of such restaurants had been
transferred on October 9, 1995 when the sale was closed in escrow
pending the stockholder vote.
On November 10 and December 22, 1995, the Company sold its Wendbridge
and Sayreville, New Jersey restaurants. (See Notes 4 and 5 to the
Condensed Consolidated Financial Statements.)
The above transactions left the Company with one operating
restaurant, the Wendchester location in the Bronx. In January 1996,
the Company signed a lease termination agreement, which provided for
the surrender of the premises on the earlier of June 30, 1996 or five
days after written notice from the landlord requesting such earlier
surrender is received. The Company also agreed to forfeit its $21,250
security deposit. On March 15, 1996, the termination agreement was
modified. Pursuant thereto on March 18, 1996, the Company paid the
landlord an additional $18,000, terminated the lease and vacated the
premises. (See Notes 6 and 8 to the Condensed Consolidated Financial
Statements.)
The Company had also agreed to defer principal payments on the
$750,000 note due from Wendnew until March 1, 1996. The Company had
also offered Wendnew a 5% discount on the prepayment of $350,000 of
such note principal. Wendnew sought and obtained financing to fund
such prepayment and on February 21, 1996, paid the Company $332,500
of principal, net of the $17,500 discount.
The outstanding amount of such note principal is no longer subject to
partial forgiveness as the Company, Wendnew and the landlord of the
Wendton restaurant sold to Wendnew have agreed to a lease extension.
(See Notes 3, 9 and 10 to the Condensed Consolidated Financial
Statements.)
The Company's remaining operations now consist of (i) managing Fast
Food Operators, Inc. ("FFO") in which it has a 33.65% equity
interest; (ii) overseeing the operations of Wendtwo Limited
Partnership ("Wendtwo") in which it has a 1% equity interest and
(iii) collecting on its outstanding notes receivable. The Company is
not presently operating any restaurants for its own account and has
no plans to do so in the future.
As amended effective January 26, 1996, the management agreement with
FFO provides for an annual fee of $12,000 per managed restaurant
subject to an annual minimum of $108,000. As FFO presently owns and
operates six restaurants, the Company's future management fee income
therefrom is expected to remain constant at $27,000 per quarter. For
the three and six-month periods ended March 31, 1996, the Company's
share of FFO's losses was $35,331 and $10,728, respectively.
10.
<PAGE>
Item 2 (continued)
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
During the quarter ended December 31, 1995, FFO paid a return of
capital distribution of $.025 per share; the Company accordingly
received $75,000 of such distribution, which was recorded as a
reduction of the Company's equity investment therein.
The Company has subcontracted the day-to-day management of Wendtwo.
Such arrangement effectively reduces the Company's management fee
therefrom to 1% of Wendtwo's sales.
The Company no longer receives consulting income assigned by its
President. Such agreement terminated November 1, 1995.
The Company incurred no income tax expense for any of the periods
reported herein.
Liquidity and Capital Resources
The Company's working capital improved by $576,508 from a deficit of
$518,030 at September 24, 1995 to a surplus of $58,478 at March 31,
1996 due principally to the sale of ten restaurants for cash and
receivables less the payments on November 28, 1995 and February 16,
1996 of return of capital distributions in the respective amounts of
$442,880 and $664,320. The latter distribution was facilitated by the
receipt of escrowed receivables and related monies of approximately
$954,000 on January 26, 1996. The February 1996 distribution brought
the total of such distributions paid during the previous nine months
to $1.00 per share or $2,214,400.
During the six months ended March 31, 1996, the Company's cash
balance decreased by $142,317 from $150,945 to $8,628. Operating
activities required $1,073,034 of which $295,282 was attributable to
restaurant and related operations and $777,752 to net reductions in
current payables. At March 31, 1996, current payables totaled
$146,196. These include a payable to Wendtwo of $79,096, paid in
April, 1996.
Investing activities produced $2,037,917 principally from $2,007,792
of cash proceeds from the restaurant sales and the collections of
notes and escrow receivables related thereto. Included in such
collections was a $332,500 prepayment received on the Wendnew note,
net of a $17,500 discount. On April 8, 1996, the Wendnew mortgage
note was also prepaid, again net of a 5% discount. From the latter
prepayment, the Company received proceeds of $141,657 including
interest of $905. From such proceeds, the Company retired its current
payable to Wendtwo. Distributions from managed entities provided
$75,935 including $75,000 received from FFO. Investing outflows
included $18,000 to terminate the Wendchester lease and $27,810 for
other individually insignificant items.
Financing activities consisted of the two return of capital
distributions aggregating $1,107,200 as described in the third
preceding paragraph.
11.
<PAGE>
PART II. OTHER INFORMATION
- - -------- -----------------
Item 1-5. Not Applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
None
************
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.
FAST FOOD SYSTEMS, INC.
Date: May 13, 1996 By /s/ Lewis E. Topper
----------------------
Lewis E. Topper
Chairman of the Board
President, Chief Executive
Officer, Treasurer and
Director,
Principal Financial and
Accounting Officer
12.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-29-1996
<PERIOD-END> MAR-31-1996
<CASH> 8,628
<SECURITIES> 0
<RECEIVABLES> 146,771
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 204,674
<PP&E> 60,088
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,953,092
<CURRENT-LIABILITIES> 146,196
<BONDS> 0
0
0
<COMMON> 7,328,625
<OTHER-SE> (5,589,639)
<TOTAL-LIABILITY-AND-EQUITY> 1,738,986
<SALES> 1,103,236
<TOTAL-REVENUES> 1,103,236
<CGS> 387,156
<TOTAL-COSTS> 387,156
<OTHER-EXPENSES> 1,097,257
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,642
<INCOME-PRETAX> (383,819)
<INCOME-TAX> 0
<INCOME-CONTINUING> (383,819)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (383,819)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
</TABLE>
