UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended September 30, 1996
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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 33-60612
---------------------------------------------
Elephant & Castle Group Inc.
(Exact name of registrant as specified in its charter)
British Columbia, Canada Not Applicable
- ------------------------------- -------------------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
Box 10240, Pacific Centre, Vancouver, B.C. Canada V7YIE7
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code, (604) 684-6451
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NA
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(Former name, address and fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such
shorter period that the registrant wasrequired 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.
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a law confirmed by a court. Yes [ X ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common shares at September 30, 1996 2,675,166
<PAGE>
<TABLE>
<CAPTION>
ELEPHANT & CASTLE GROUP INC.
Consolidated Balance Sheets
September 30, 1996
Canadian Dollars
(unaudited)
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
ASSETS
Current
Cash ...................................... 1,869,763 79,116
Accounts Receivable ....................... 443,378 546,146
Inventory ................................. 521,020 494,125
Deposits & Prepaids ....................... 764,697 697,719
----------- -----------
3,598,858 1,817,106
Fixed Assets ................................. 10,221,367 9,085,664
Other Assets ................................. 813,899 593,480
----------- -----------
14,634,124 11,496,250
----------- -----------
LIABILITIES
Current
Accounts Payable .......................... 2,845,012 3,936,748
Current Portion of Capital Leases ......... 59,382 53,594
Current Portion of Long Term Debt ......... 451,173 330,548
----------- -----------
3,355,567 4,320,890
Obligation Under Capital Leases .............. 0 45,240
Long Term Debt ............................... 4,885,045 844,790
Deferred Income Taxes ........................ 231,000 331,000
----------- -----------
8,471,612 5,541,920
----------- -----------
SHAREHOLDERS' EQUITY
Capital Stock ................................ 8,092,065 6,772,665
Retained Earnings ............................ (1,920,693) (810,939)
Translation adjustment ....................... (8,860) (7,396)
----------- -----------
6,162,512 5,954,330
----------- -----------
14,634,124 11,496,250
----------- -----------
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Elephant & Castle Group Inc.
Consolidated Statements of Income
For the Three and Nine Months Ended September 30, 1996
Canadian Dollars
(unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- ---------------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
SALES ............................................... $ 7,897,518 $ 6,276,521 $ 20,539,983 $ 18,893,608
------------ ------------ ------------ ------------
RESTAURANT EXPENSES
Food and Beverage Costs ........................... 2,344,706 1,802,536 6,184,793 5,508,744
Restaurant operating expenses
Labour .......................................... 2,566,532 2,007,604 6,749,664 6,352,153
Occupancy and other ............................. 2,033,093 1,657,643 5,494,184 5,292,315
Depreciation and Amortization ..................... 411,779 300,093 1,072,180 814,212
------------ ------------ ------------ ------------
7,356,110 5,767,876 19,500,821 17,967,424
------------ ------------ ------------ ------------
INCOME FROM RESTAURANT OPERATIONS ................... 541,408 508,645 1,039,162 926,184
GENERAL AND ADMINISTRATIVE EXPENSES ................. 585,619 471,946 1,756,106 1,376,497
INTEREST ON LONG TERM DEBT .......................... 86,373 22,295 207,682 46,514
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES ................... (130,584) 14,404 (924,626) (496,827)
INCOME TAX (RECOVERY) ............................... 0 0 0 0
------------ ------------ ------------ ------------
NET NCOME (LOSS) BEFORE RESERVE ..................... (130,584) 14,404 (924,626) (496,827)
RESERVE FOR ANTICIPATED DISPUTES AND
COSTS ON CLOSING OF LOCATIONS .................. 0 0 0 900,000
NET INCOME (LOSS) FOR THE PERIOD .................... (130,584) 14,404 (924,626) (1,396,827)
------------ ------------ ------------
Average number of shares outstanding ................ 2,675,166 2,493,500 2,643,808 2,493,500
Earnings per share - before reserve ................. ($0.05) $0.01 ($0.35) ($0.20)
Earnings per share - including reserve .............. ($0.05) $0.01 ($0.35) ($0.56)
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Elephant & Castle Group Inc.
Condensed Consolidated Statements of Shareholders' Equity
For the Nine Months Ended September 30, 1996
Canadian Dollars
(unaudited)
1996 1995
----------- -----------
<S> <C> <C>
Balance at beginning of period ................. $ 7,087,138 $ 7,345,905
Net loss .................................... (924,626) (1,396,827)
Foreign exchange translation adjustment ..... 0 5,252
----------- -----------
Balance at end of period ....................... $ 6,162,512 $ 5,954,330
----------- -----------
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ELEPHANT & CASTLE GROUP INC.
Consolidated Statements of Cash Flow
Nine Months Ended September 30, 1996
Canadian Dollars
(unaudited)
September 30, September 30,
1996 1995
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
NET (LOSS) - before reserve ............................ (924,626) (496,827)
- reserve for anticipated disputes and
costs on closing of locations ...... 0 (900,000)
Add: Items not involving cash
Depreciation and amortization .................... 1,072,180 814,212
----------- -----------
147,554 (582,615)
CHANGES IN NON-CASH WORKING CAPITAL .................... (422,259) 1,287,110
----------- -----------
(274,705) 704,495
----------- -----------
INVESTING ACTIVITIES
Acquisition of fixed assets ......................... (2,240,643) (3,024,966)
Acquisition of other assets ......................... (562,452) (240,036)
Cash surrender value of life insurance .............. 0 0
----------- -----------
(2,803,095) (3,265,002)
----------- -----------
FINANCING ACTIVITIES
Obligation under capital leases ..................... (35,899) (36,000)
(Repayment of) proceeds from long-term debt ......... (48,296) 974,719
----------- -----------
(84,195) 938,719
----------- -----------
EFFECT OF EXCHANGE RATES ON CASH ....................... 0 5,252
----------- -----------
(DECREASE) IN CASH DURING PERIOD ....................... (3,161,995) (1,616,536)
CASH AT BEGINNING OF PERIOD ............................ 5,031,758 1,695,652
----------- -----------
CASH AT END OF PERIOD .................................. $ 1,869,763 $ 79,116
----------- -----------
See notes to financial statements
</TABLE>
<PAGE>
ELEPHANT & CASTLE GROUP INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 and 1995
Canadian Dollars
(Unaudited)
1. The accompanying interim financial statements for the three and nine month
periods ended September 30, 1996 and September 30, 1995, have been prepared
by management and have not been audited. In the opinion of management, the
interim financial statements include all adjustments, consisting only of
normal recurring adjustments, considered necessary for a fair presentation
in Canada. Operating results for the interim periods are not indicative of
the results of any other interim periods or for the full year.
2. Financial statement presentation differs in certain respects between Canada
and the United States. Reconciliation of Canadian earnings and U.S.
earnings is as follows:
<TABLE>
<CAPTION>
Three months ended Sept. 30 Nine months ended Sept. 30
------------------------------ ------------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET INCOME (LOSS) - CANADA ............................. ($ 130,584) $ 14,404 ($ 924,626) ($1,396,827)
ADJUSTMENTS:
Amortization of leasehold improvement costs ............ (11,000) (11,000) (33,000) (33,000)
Income tax effect of adjustments ....................... 0 0 0 0
----------- ----------- ----------- -----------
NET INCOME (LOSS) - UNITED STATES ...................... ($ 141,584) $ 3,404 ($ 957,626) ($1,429,827)
----------- ----------- ----------- -----------
NET LOSS PER COMMON SHARE:
Canada ................................................. ($ 0.05) $ 0.01 ($ 0.35) ($ 0.56)
United States .......................................... ($ 0.05) $ 0.00 ($ 0.36) ($ 0.57)
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING: .................................... 2,675,166 2,493,500 2,643,808 2,493,500
</TABLE>
3. The results for the three and nine months ended September 30, 1995 have
been restated to reflect a change in the accounting estimate for income
taxes.
4. Subsequent to September 30, 1996, the Company acquired 100% of the shares
Alamo Grill, Inc. These statements do not include any results from this
acquisition.
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings:
None
Item 2 - Changes in Securities
None.
Item 3 - Defaults upon Senior Securities
None.
Item 4 - Submission of Matters to a Vote of Security Holders
None.
Item 5 - Other Information
The Company opened a new restaurant at the Holiday Inn on the Bay in San Diego,
CA on July 4, 1996.
Subsequent to September 30, 1996 the Company acquired 100% of the shares of
Alamo Grill, Inc. Alamo Grill, Inc. operates a restaurant in the Mall of America
in Minneapolis, MN.
Subsequent to September 30, 1996 the Company opened a new restaurant in Toronto,
ON, Canada.
Item 6 - Exhibits and Reports on Form 8-K
Exhibits
------------
None.
Reports on Form 8-K
------------------------
None.
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Three Months Ended September 30, 1996 (unaudited) vs. September 30, 1995
(unaudited)
For the three months ended September 30, 1996 the Company's net loss was CDN
($130,584) compared to a net income of CDN $14,404) for the corresponding period
in 1995. The 1995 figure has been restated to reflect a change in the income tax
estimate. Income from store operations increased to CDN $541,408 in the current
period from CDN $508,645 last year. Higher general and administrative costs and
interest on long term debt as the Company continued with its expansion plans,
however, resulted in the net loss. On a per share basis, the net loss per share
for the current period was CDN ($0.05) compared to income of CDN $0.01 in 1995.
There were a weighted average of 2,675,166 shares outstanding in 1996 compared
to 2,493,500 in 1995.
The results for the current period include the results of two locations opened
within the 1995 period (Rosie's on Robson New York style deli, opened in
Vancouver BC on August 8, 1995; and the Elephant on Campus, opened on the campus
of the British Columbia Institute of Technology on September 23, 1995.) The
current period also includes the results for a new restaurant opened on July 4,
1996 at the Holiday Inn on the Bay in San Diego, CA.
Overall, sales increased 25.8% from CDN $6,276,521 a year ago to CDN $7,897,518
this year. For the twelve Canadian locations open throughout both periods, sales
decreased 1.7%. For the two U.S. locations open throughout both periods, sales
increased 23.9%. Four mall-based Canadian locations suffered sales decreases in
excess of 5% and management is looking at all aspects of these operations with
the goal of generating additional sales or otherwise reducing losses. Sales
increases in its two hotel based restaurants that were open in both periods were
particularly significant, with its Winnipeg location showing an increase of
17.1% and Philadelphia increasing 32.0%. These increases are continuations of
sales patterns of the second quarter.
Food and Beverage costs, as a percentage of sales, increased to 29.7% in the
current period from 28.7% a year ago. Continued increases in poultry and certain
meat products make up most of the increase.
Labour costs increased to 32.5% of sales in the current period from 32.0% a year
ago. The stores experiencing sales decreases contributed to the increase as
difficulties were experienced in reducing actual labour costs in the same ratio
as the sales decreases.
Occupancy and other operating costs, as a percentage of sales, decreased to
25.7% in the current period from 26.4% a year ago, reflecting the positive
impact of the Company's expansion away from mall based locations and primarily
into hotel based locations.
Depreciation and amortization expense increased to 5.2% of sales this year
compared to 4.8% in 1995, due to increased amortization of pre-opening expenses
for new locations.
<PAGE>
General and administrative (G&A) expenses increased to CDN $585,619 for the
current period from CDN $471,946 in the comparable period a year ago. As a
percentage of sales G&A decreased from 7.5% last year to 7.4 % this year. The
increase in dollar terms is the annualization of steps taken during 1995 to gear
up for the Company's expansion program. Management expects the growth in general
and administrative costs to slow significantly and to continue to decrease as a
percentage of sales as new stores are opened.
Interest expense increased from CDN $22,295 for the 1995 quarter to CDN $86,383
in the 1996 quarter. The increase is due to additional long term debt incurred
during 1995 in order to fund the Company's expansion plans.
Net loss increased from income of CDN $14,404 in 1995 to a loss of CDN
($130,949) in the current period. The increase was due to increased general and
administrative expenses and higher interest on long term debt. In both cases,
the increases are largely related to the Company's expansion plans. These
expansion plans continued in the current period with the opening of a new
restaurant at the Holiday Inn on the Bay in San Diego, CA (opened July 4, 1996)
and subsequent to the end of the period in the entertainment district of
Toronto, Ontario (October 23. 1996).
Nine Months Ended September 30, 1996 (unaudited) vs. September 30, 1995
(unaudited)
For the nine months ended September 30, 1996 the Company's net loss was CDN
($924,626) compared to a net loss of CDN ($1,396,827) for the corresponding
period in 1995. The 1995 figure included a reserve of CDN $900,000 related to
costs of closing three operations. Excluding the reserve, the 1995 net loss was
CDN ($496,827). The 1995 figure has been restated to reflect a change in the
income tax estimate. Income from store operations increased to CDN $1,039,162 in
the current period from CDN $926,184 last year. Higher general and
administrative costs and interest on long term debt as the Company continued
with its expansion plans, however, resulted in the increased net loss before the
reserve. On a per share basis, the net loss per share for the current period was
CDN ($0.35) compared to CDN ($0.20) in 1995. There were a weighted average of
2,643,808 shares outstanding in 1996 compared to 2,493,500 in 1995.
The 1995 results include partial results for three locations closed during the
period. The results for the current period include the results of four new
locations (Philadelphia, PA, opened February 28, 1995; Rosie's on Robson New
York style deli, opened in Vancouver BC on August 8, 1995; and the Elephant on
Campus, opened on the campus of the British Columbia Institute of Technology on
September 23, 1995; and San Diego, CA, opened July 4, 1996.)
Overall, sales increased 8.7% from CDN $18,893,608 a year ago to CDN $20,539,983
this year. For the twelve Canadian locations open throughout both periods, sales
decreased 0.1%. For the one U.S. location open throughout both periods, sales
increased 11.6%. Sales increases in two hotel based restaurants that have been
open for more than one year are deemed to be particularly significant. The
Winnipeg location achieved an increase of 14.5% for the nine month period and
Philadelphia Holiday location increased 32.0% in the third quarter.
Food and Beverage costs, as a percentage of sales, increased to 30.1% in the
current period from 29.2% a year ago. Increases in poultry and certain meat
products make up most of the increase.
<PAGE>
Labour costs decreased to 32.9% of sales in the current period from 33.6% a year
ago. The closure of two high labour locations accounted for the majority of the
decrease.
Occupancy and other operating costs, as a percentage of sales, decreased to
26.8% in the current period from 28.0% a year ago, reflecting the positive
impact of the Company's expansion away from mall based locations and primarily
into hotel based locations.
Depreciation and amortization expense increased to CDN $1,072,180 (5.2% of
sales) this year compared to CDN $814,212 (4.3% of sales) in 1995. The increase
is attributable to the new locations and includes amortization of pre-opening
costs of CDN $254,166 in the current period compared to CDN $182,246 in 1995.
General and administrative expenses increased to CDN $1,756,106 for the current
period from CDN $1,376,497 in the comparable period a year ago. As a percentage
of sales the increase was from 7.3% last year to 8.6 % this year. The increase
is the annualization of steps taken during 1995 to gear up for the Company's
expansion program. Management expects the growth in general and administrative
costs to slow significantly and to decrease as a percentage of sales as new
stores are opened.
Interest expense increased from CDN $46,514 for the 1995 period to CDN $207,682
in the 1996 period. The increase is due to additional long term debt incurred
during 1995 in order to fund the Company's expansion plans.
Net loss, before the one time reserve recorded in 1995, increased from CDN
($496,827) in 1995 to CDN ($924,626) in the current period. The increase was due
to increased general and administrative expenses and higher interest on long
term debt. In both cases, the increases are largely related to the Company's
expansion plans. These expansion plans have continued with the opening of a new
restaurant at the Holiday Inn on the Bay in San Diego, CA (opened July 4, 1996)
and a new restaurant in the entertainment district of Toronto, Ontario (opened
October 23, 1996).
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunot duly
authorized.
Elephant & Castle Inc.
Registrant
Date: November 12, 1996 s/s J.M. Barnett
----------------
J.M. Barnett
President & CEO
Date: November 12, 1996 s/s D. Debou
------------
D. Debou
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,869,783
<SECURITIES> 0
<RECEIVABLES> 458,378
<ALLOWANCES> (15,000)
<INVENTORY> 521,020
<CURRENT-ASSETS> 3,598,858
<PP&E> 16,583,255
<DEPRECIATION> (6,361,888)
<TOTAL-ASSETS> 14,634,124
<CURRENT-LIABILITIES> 3,355,567
<BONDS> 4,885,045
0
0
<COMMON> 8,092,065
<OTHER-SE> (1,929,553)
<TOTAL-LIABILITY-AND-EQUITY> 14,634,124
<SALES> 20,539,983
<TOTAL-REVENUES> 20,539,983
<CGS> 6,184,793
<TOTAL-COSTS> 19,500,821
<OTHER-EXPENSES> 1,756,106
<LOSS-PROVISION> 9,000
<INTEREST-EXPENSE> 207,682
<INCOME-PRETAX> (924,626)
<INCOME-TAX> 0
<INCOME-CONTINUING> (924,626)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (924,626)
<EPS-PRIMARY> (0.35)
<EPS-DILUTED> (0.35)
</TABLE>
