SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: December 29, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 0-18917
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FAST FOOD SYSTEMS, INC.
(Exact name of small business issuer 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
(Issuer's telephone number, including area code)
Indicate by check mark whether the issuer (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 February 10, 1997
Common Stock, $.01 par value 2,214,400 Shares
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):
YES / / NO /X/
FAST FOOD SYSTEMS, INC. AND SUBSIDIARIES
FORM 10-QSB FOR THE FIRST QUARTER ENDED DECEMBER 29, 1996
INDEX
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PART 1 Page No.
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Financial Information:
Condensed Consolidated Balance Sheets-
December 29, 1996 and September 29, 1996 2
Condensed Consolidated Statements of Operations-
for the Three Months Ended December 29, 1996
and December 31, 1995 3
Condensed Consolidated Statements of Cash Flows-
for the Three Months Ended December 29, 1996
and December 31, 1995 4-5
Notes to Condensed Consolidated Financial
Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-8
PART II
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Other Information
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults upon Senior Securities 9
Item 4. Submission of Matters to a Vote of
Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 9
FAST FOOD SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 29, September 29,
1996 1996
(Unaudited) *
------------ ------------
Assets
------
Current assets:
Cash $ 115,966 $ 59,162
Notes receivable 153,047 149,283
Due from managed entities 22,996 29,589
Other current assets 50,260 29,306
----------- -----------
Total current assets 342,269 267,340
----------- -----------
Property and equipment, net 43,926 46,456
----------- -----------
Other assets:
Notes receivable, less current maturities 1,233,631 1,273,333
Interests in managed entities 199,141 230,084
Security deposits 1,242 1,242
----------- -----------
Total other assets 1,434,014 1,504,659
----------- -----------
Total assets $ 1,820,209 $ 1,818,455
=========== ===========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 37,072 $ 37,548
----------- -----------
Total liabilities 37,072 37,548
----------- -----------
Shareholders' equity:
Common stock and additional paid-in capital 7,328,625 7,328,625
Accumulated deficit (5,545,488) (5,547,718)
----------- -----------
Total shareholders' equity 1,783,137 1,780,907
----------- -----------
Total liabilities and shareholders' equity $ 1,820,209 $ 1,818,455
=========== ===========
*Derived from audited financial statements.
See accompanying notes to condensed consolidated financial statements.
FAST FOOD SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 29, 1996 AND DECEMBER 31, 1995
(UNAUDITED)
1996 1995
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Continuing operations:
Revenues:
Management fees $ 44,135 $ 39,837
Interest income 35,394 51,969
Consulting income - 13,575
---------- ----------
79,529 105,381
---------- ----------
Expenses:
General and administrative expenses 76,824 232,264
Interest expense - 2,392
Loss attributable to equity investments 475 10,728
---------- ----------
77,299 245,384
---------- ----------
Income (loss) from continuing operations 2,230 (140,003)
Loss from discontinued operations, net
of gain on sale of assets of $45,474 - ( 25,819)
========== ==========
Net income (loss) $ 2,230 $ (165,822)
========== ==========
Net income (loss) per share $ - $ ( .07)
========== ==========
See accompanying notes to the condensed consolidated financial statements.
FAST FOOD SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 29, 1996 AND DECEMBER 31, 1995
(UNAUDITED)
1996 1995
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,230 $ ( 165,822)
----------- ------------
Adjustments to reconcile net income (loss) to
net cash required by operating activities:
Depreciation and amortization 4,686 5,918
Deferred credits applied - ( 5,618)
Interest income accrued - ( 20,435)
Net gain on asset dispositions - ( 45,474)
Loss attributable to equity investments 475 10,728
Repayments from managed entities 6,593 247,050
Decrease in inventory - 5,953
Increase in other current assets ( 20,954) ( 21,544)
Decrease in accounts payable, accrued
expenses and other liabilities ( 476) ( 453,570)
----------- -----------
Total adjustments 9,676 ( 276,992)
----------- -----------
Net cash required by operating activities ( 7,446) ( 442,814)
----------- -----------
Cash flows from investing activities:
Proceeds of asset dispositions - 668,982
Acquisition of tangible assets ( 2,156) ( 1,087)
Collections on notes receivable 35,938 22,935
Distributions from managed entities 30,468 75,468
Increase in security deposits and other - ( 23,900)
----------- -----------
Net cash provided by investing activities 64,250 742,398
----------- -----------
Cash flows from financing activities:
Return of capital distributions paid - ( 442,880)
----------- -----------
Net cash required by financing activities - ( 442,880)
----------- -----------
Net (increase) decrease in cash 56,804 ( 143,296)
Cash, beginning of period 59,162 150,945
----------- -----------
Cash, end of period $ 115,966 $ 7,649
=========== ===========
See accompanying notes to condensed consolidated financial statements.
FAST FOOD SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
DECEMBER 29, 1996 AND DECEMBER 31, 1995
(UNAUDITED)
1996 1995
----------- -----------
Additional Cash Flow Information:
Interest expense paid during the period $ - $ -
=========== ===========
Non-cash investing and financing activities:
Notes and escrow receivables arising
from asset sales $ - $ 1,833,566
=========== ===========
Net book value of property and equipment
sold $ - $ 2,804,704
=========== ===========
Security deposits and accrued interest
thereon surrendered to obtain assigned
lease extension $ - $ 21,760
=========== ===========
Other restaurant assets sold:
Inventory $ - $ 68,346
=========== ===========
Prepayments $ - $ 101,954
=========== ===========
Security deposits $ - $ 25,883
=========== ===========
Liabilities/credits assumed by purchasers:
Accrued expenses $ - $ 81,334
=========== ===========
Deferred credits $ - $ 108,559
=========== ===========
See accompanying notes to condensed consolidated financial statements.
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
December 29, 1996, and the results of operations and cash
flows for the three months ended December 29, 1996 and
December 31, 1995, respectively.
2. The condensed consolidated results of operations for the three
months ended December 29, 1996, are not necessarily indicative
of the results to be expected for the full year.
3. On December 19, 1996, the Company received a return of capital
distribution from its managed investee, Fast Food Operators,
Inc.,(FFO). The distribution, at the rate of $.01 per share,
aggregated $30,000 and was credited to the Company's
investment in FFO.
4. Notes receivable including their current maturities as of
December 29, 1996 consist of the following:
Notes Receivable Arising Total Current
from the Sale of (to) Receivable Maturities
------------------------ ---------- ----------
Wendway/Wendwick (1) $ 687,840 $ 80,512
Wendtrip 333,177 27,383
Wendnew (2) 365,661 45,152
---------- ----------
Totals: 1,386,678 $ 153,047
Less: Current maturities 153,047 ==========
----------
Long-term maturities $1,233,631
==========
(1) See Note 5.
(2) See Note 6.
5. In January of 1997, the Company arranged for the sale of one
of the two 10% notes received in the sale of the Wendway and
Wendwick Restaurants. The Wendwick note was sold to a third
party for a total of $274,845 consisting of its outstanding
principal balance of $272,573 plus accrued interest of $2,272.
The Company realized neither gain nor loss on the sale, the
proceeds of which were received on February 10, 1997.
6. In February of 1997, Wendnew prepaid the balance of its 10%
note at par. The payment totalled $359,426 including accrued
interest of $982. The prepayment resulted in neither gain nor
loss to the Company.
7. On January 31, 1997, the Company declared a return of capital
distribution at the rate of $.35 per share. Such distribution
aggregates $775,040 and is payable on February 20, 1997 to
shareholders of record as of February 13, 1997.
8. Per share data is based upon the income (loss) for the period
divided by the weighted average number of common shares
outstanding during the period.
Item 2
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Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Results of Operations
- ---------------------
During the fiscal year ended September 29, 1996 the Company
disposed of all of its remaining restaurant operations. The
Company's current activities consist of managing six Popeye's
Famous Fried Chicken and Biscuit Restaurants for FFO and two
Wendy's Old Fashioned Hamburgers Restaurants for Wendtwo Limited
Partnership. The day-to-day management of the Wendtwo Restaurants
has been sub-contracted to a third party at approximately five-
sixths of the regular management fee, subject to a monthly credit
of $2,004. The Company is also collecting on its notes receivable.
Of the four notes outstanding at December 29, 1996, one was sold
and one was prepaid in February of 1997. (See Liquidity).
Management fees for the quarter were as follows:
1996 1995
---- ----
FFO $ 27,000 $ 18,000
-------- --------
Wendtwo:
Gross subordinated fee 41,898 52,494
-------- --------
Subcontracting fee 34,915 38,805
Less: Subcontracting credit 6,012 4,008
-------- --------
Net subcontracting fee 28,903 34,797
-------- --------
Net subordinated fee 12,995 17,697
Supervisory fee 4,140 4,140
-------- --------
Total Wendtwo 17,135 21,837
-------- --------
Total management fees $ 44,135 $ 39,837
======== ========
Effective January 26, 1997, the minimum annual FFO fee was reduced
from $108,000 to $96,000.
The Company, in the future, may seek to sell or assign the
management agreements for FFO and Wendtwo.
Interest income for the quarter decreased by $16,575, or 32%, to
$35,394 in 1996 from $51,969 in 1995, due to the lower average
outstanding balance of interest-bearing notes receivable. In
January of 1997, the Company arranged for the sale of one note at
par, the proceeds of which were received on February 10, 1997. In
February of 1997, the Wendnew note was prepaid. These transactions
reduced the number of outstanding notes from four to two. (See
Liquidity).
Other income in 1995 consisted of consulting income of $13,575
assigned by the Company's principal officer. Such assignment
terminated on November 1, 1995.
General and administrative expenses decreased by $155,440, or 67%,
to $76,824 in 1996 from $232,264 in 1995. The Company's
administrative office was closed January 31, 1996. Most accounting
and administrative activities previously supervised by the
Company's controller are now provided at an annual fixed fee of
$60,000 by a service company owned by such individual. Effective
January 1, 1997 the annual salary of the Company's President was
reduced from $50,000 to $40,000.
Miscellaneous interest expense of $2,392 in 1995 did not recur.
The Company presently has no interest-bearing debt.
Loss attributable to equity investments decreased by $10,253, or
95%, to $475 in 1996 from $10,728 in 1995, principally attributable
to Fast Food Operators (FFO). FFO declared and paid a $.01 per
share return of capital distribution in December 1996. After
recording the $30,000 distribution and the loss for the quarter,
the carrying value of the Company's investment in FFO was $193,498.
Continuing operations in 1996 produced income of $2,230 compared to
a loss of $140,003 in 1995. Due to operating tax loss
carryforwards, an income tax provision was not necessary in 1996.
Discontinued operations lost $25,819 in 1995, net of a gain of
$45,474 on assets sold.
Liquidity and Capital Resources
- -------------------------------
The Company's working capital improved by $75,405 to $305,197 at
December 29, 1996 from $229,792 at September 29, 1996, due
principally to the receipt of the $30,000 dividend from FFO and
continued collections on notes receivable. Cash increased by
$56,804 to $115,966.
Operating activities required $7,446. Operations provided $7,391
adjusted for non-cash items and changes in applicable asset and
liability accounts related to operations required $14,837.
Investing activities provided $64,250 consisting of note receivable
collections of $35,938 and distributions from managed entities of
$30,468 less capital expenditures of $2,156.
There were no financing activities during the quarter. However on
January 31, 1997, the Company declared a $.35 per share return of
capital distribution totalling $775,040 payable on February 20,
1997 to shareholders of record as of February 13, 1997. (See Part
II). The distribution will be funded principally from the proceeds
of the sale of the Wendwick note and the prepayment of the Wendnew
note. Such proceeds, received in February, 1997, totalled
$634,271. The balance of the distribution will be funded from
available cash as augmented by continuing note collections and
management fee payments.
Following the two note transactions, the Company has two notes
outstanding, Wendway and Wendtrip, aggregating approximately
$740,000. In the event that one or both of these notes are sold or
prepaid in the future, available proceeds thereof will again be
applied to return of capital distributions.
PART II OTHER INFORMATION
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Item 1-4. Not applicable.
Item 5. Other Information
-----------------
The following information is being furnished in lieu of a current
report on Form 8-K. The Sub-item number indicated parenthetically
below corresponds to the item number that would be reported on such
form.
(Sub-Item 5) - Other Events
- ---------------------------
On January 30, 1997, the Board of Directors of the Company declared
a return of capital distribution in the amount of $.35 per share,
or $775,040 in the aggregate, to be paid on February 20, 1997 to
all of its stockholders of record on February 13, 1997. The
principal source of funds for the distribution is the proceeds of
the sale of the Wendwick note and the prepayment of the Wendnew
note.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
No reports on Form 8-K were filed during the quarter ended December
29, 1996.
See Item 5 of this Part II for current information on a return of
capital distribution in lieu of a separately filed Current Report
thereon on Form 8-K.
Signatures
----------
In accordance with the requirements of the Securities Exchange Act
of 1934, the Registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FAST FOOD SYSTEMS, INC.
Date: February 11, 1997 /s/ Lewis E. Topper
------------------
Lewis E. Topper
Chairman of the Board
President, Chief Executive
Officer, Treasurer and
Director,
Principal Financial and
Accounting Officer
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-28-1997
<PERIOD-END> DEC-29-1996
<CASH> 115,966
<SECURITIES> 0
<RECEIVABLES> 176,043
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 342,269
<PP&E> 43,926
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,820,209
<CURRENT-LIABILITIES> 37,072
<BONDS> 0
0
0
<COMMON> 7,328,625
<OTHER-SE> (5,545,488)
<TOTAL-LIABILITY-AND-EQUITY> 1,820,209
<SALES> 44,135
<TOTAL-REVENUES> 79,529
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 76,824
<LOSS-PROVISION> 475
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,230
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,230
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,230
<EPS-PRIMARY> 0
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