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 June 30, 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 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
------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code, (604) 684-6451
--------------------
NA
--------------------------------------------------------------------
(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 Stock at June 30, 1996 2,675,166
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Consolidated Balance Sheets
June 30, 1996
Canadian Dollars
(unaudited)
<TABLE>
<CAPTION>
June 30/96 June 30/95
------------ ------------
<S> <C> <C>
ASSETS
Current
Cash .................................... 2,572,242 333,141
Accounts Receivable ..................... 551,913 350,349
Inventory ............................... 496,081 481,088
Deposits & Prepaids ..................... 560,201 288,954
------------ ------------
4,180,437 1,453,532
Fixed Assets ............................... 9,878,514 7,788,721
Other Assets ............................... 674,207 523,496
------------ ------------
14,733,158 9,765,749
------------ ------------
LIABILITIES
Current
Accounts Payable ........................ 2,779,269 3,215,477
Current Portion of Capital Leases ....... 451,173 53,594
Current Portion of Long Term Debt ....... 71,382 54,548
------------ ------------
3,301,824 3,323,619
Obligation Under Capital Leases ............ 0 57,240
Long Term Debt ............................. 4,907,238 118,633
Deferred Income Taxes ...................... 231,000 331,000
------------ ------------
8,440,062 3,830,492
------------ ------------
SHAREHOLDERS' EQUITY
Capital Stock .............................. 8,092,065 6,772,665
Retained Earnings .......................... (1,790,109) (825,343)
Translation adjustment ..................... (8,860) (12,065)
------------ ------------
6,293,096 5,935,257
------------ ------------
$ 14,733,158 $ 9,765,749
------------ ------------
</TABLE>
See notes to financial statements.
<PAGE>
Elephant & Castle Group Inc.
Consolidated Statements of Income
For the Three and Six Months Ended June 30, 1996
Canadian Dollars
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
SALES .............................................. $ 6,514,880 $ 6,419,724 $ 12,642,465 $ 12,617,087
------------ ------------ ------------ ------------
RESTAURANT EXPENSES
Food and Beverage Costs .......................... 1,999,491 1,906,640 3,840,087 3,706,208
Restaurant operating expenses
Labour ......................................... 2,153,815 2,186,118 4,183,132 4,344,549
Occupancy and other ............................ 1,815,645 1,863,509 3,461,091 3,634,672
Depreciation and Amortization .................... 296,717 289,186 660,401 514,119
------------ ------------ ------------ ------------
6,265,668 6,245,453 12,144,711 12,199,548
------------ ------------ ------------ ------------
INCOME FROM RESTAURANT OPERATIONS .................. 249,212 174,271 497,754 417,539
GENERAL AND ADMINISTRATIVE EXPENSES ................ 601,316 489,703 1,170,487 904,551
INTEREST ON LONG TERM DEBT ......................... 60,845 11,977 121,309 24,219
------------ ------------ ------------ ------------
(LOSS) BEFORE INCOME TAXES ......................... (412,949) (327,409) (794,042) (511,231)
INCOME TAX (RECOVERY) .............................. 0 0 0 0
------------ ------------ ------------ ------------
NET (LOSS) BEFORE RESERVE .......................... (412,949) (327,409) (794,042) (511,231)
RESERVE FOR ANTICIPATED DISPUTES AND
COSTS ON CLOSING OF LOCATIONS ................. 0 900,000 0 900,000
NET (LOSS) FOR THE PERIOD .......................... (412,949) (1,227,409) (794,042) (1,411,231)
------------ ------------ ------------
Average number of shares outstanding ............... 2,651,648 2,493,500 2,628,129 2,493,500
Earnings per share - before reserve ................ ($ 0.16) ($ 0.13) ($ 0.30) ($ 0.21)
Earnings per share - including reserve ............. ($ 0.16) ($ 0.49) ($ 0.30) ($ 0.57)
</TABLE>
See notes to financial statements.
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Consolidated Statements of Cash Flow
Six Months Ended June 30, 1996
Canadian Dollars
(unaudited)
<TABLE>
<CAPTION>
June 30/96 June 30/95
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
NET (LOSS) - before reserve ...................... (794,042) (511,231)
- reserve for anticipated disputes
and costs on closing of locations ... 0 (900,000)
Add: Items not involving cash
Depreciation and amortization .............. 660,401 514,119
----------- -----------
(133,641) (897,112)
CHANGES IN NON-CASH WORKING CAPITAL .............. (367,102) 1,261,733
----------- -----------
(500,743) 364,621
----------- -----------
INVESTING ACTIVITIES
Acquisition of fixed assets ................... (1,597,124) (1,485,454)
Acquisition of other assets ................... (311,647) (190,823)
Cash surrender value of life insurance ........ 0 0
----------- -----------
(1,908,771) (1,676,277)
----------- -----------
FINANCING ACTIVITIES
Obligation under capital leases ............... (23,899) (24,000)
(Repayment of) proceeds from long-term debt ... (26,103) (27,438)
----------- -----------
(50,002) (51,438)
----------- -----------
EFFECT OF EXCHANGE RATES ON CASH ................. 0 583
----------- -----------
(DECREASE) IN CASH DURING PERIOD ................. (2,459,516) (1,362,511)
CASH AT BEGINNING OF PERIOD ...................... 5,031,758 1,695,652
----------- -----------
CASH AT END OF PERIOD ............................ $ 2,572,242 $ 333,141
----------- -----------
</TABLE>
See notes to financial statements.
<PAGE>
Elephant & Castle
Group Inc.
Condensed Consolidated Statements of Shareholders' Equity
For the Six Months Ended June 30, 1996
Canadian Dollars
(unaudited)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Balance at beginning of period ................. $ 7,087,138 $ 7,345,905
Net loss .................................... (794,042) (1,411,231)
Foreign exchange translation adjustment ..... 0 583
----------- -----------
Balance at end of period ....................... $ 6,293,096 $ 5,935,257
----------- -----------
</TABLE>
See notes to financial statements.
<PAGE>
ELEPHANT & CASTLE GROUP INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 1996 and 1995
Canadian Dollars
(Unaudited)
1. The accompanying interim financial statements for the three and six month
periods ended June 30, 1996 and June 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.
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 June 30 Six months ended June 30
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET LOSS - CANADA ...................................... ($ 412,949) ($1,227,409) ($ 794,042) ($1,411,231)
ADJUSTMENTS:
Amortization of leasehold improvement costs ............ (11,000) (11,000) (22,000) (22,000)
Income tax effect of adjustments ....................... 3,410 3,410 6,820 6,820
----------- ----------- ----------- -----------
NET LOSS - UNITED STATES ............................... ($ 420,539) ($1,234,999) ($ 809,222) ($1,426,411)
----------- ----------- ----------- -----------
NET LOSS PER COMMON SHARE:
Canada ................................................. ($ 0.16) ($ 0.49) ($ 0.30) ($ 0.57)
United States .......................................... ($ 0.16) ($ 0.50) ($ 0.31) ($ 0.57)
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING: .................................... 2,651,648 2,493,500 2,628,129 2,493,500
</TABLE>
3. The results for the three and six months ended June 30, 1995 have been
restated to reflect a change in the accounting estimate for income taxes.
<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
None
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 June 30, 1996 (unaudited) vs. June 30, 1995 (unaudited)
For the three months ended June 30, 1996 the Company's net loss was CDN
($412,949) compared to a net loss of CDN ($1,227,409) 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 ($327,409). The 1995 figure has been restated to reflect a change in the
income tax estimate. Income from store operations increased to CDN $249,212 in
the current period from CDN $174,271 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 ($0.16) compared to CDN ($0.49) (CDN ($0.13) before the reserve) in 1995.
There were a weighted average of 2,651,648 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 two new
locations (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.)
Overall, sales increased 1.48% from CDN $6,419,724 a year ago to CDN $6,514,880
this year. For the twelve Canadian locations open throughout both periods, sales
increased 0.6%. For the two U.S. locations open throughout both periods, sales
increased 21.7%. In both cases, this continues a trend that commenced in the
first quarter of 1996. Management is encouraged that consumer optimism is
increasing, and looks for the trend to continue. Management is particularly
encouraged by the sales increases in its two hotel based restaurants that were
open in both periods, with its Winnipeg location showing an increase of 16.5%
and Philadelphia increasing 21.9%.
Food and Beverage costs, as a percentage of sales, increased to 30.7% in the
current period from 29.7% a year ago. Increases in poultry and certain meat
products make up most of the increase. The Company continues to look for ways to
bring these percentages down and still give its customers good value.
Labour costs decreased to 33.1% of sales in the current period from 34.1% 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
27.9% in the current period from 29.0% 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 remained basically unchanged at 4.6% of
sales this year compared to 4.5% in 1995.
General and administrative expenses increased to CDN $ 601,316 for the current
period from CDN $489,703 in the comparable period a year ago. As a percentage of
sales the increase was from 7.6% last year to 9.2 % 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.
<PAGE>
Interest expense increased from CDN $11,977 for the 1995 quarter to CDN $60,845
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. At June 30, 1996 the
Company had over CDN $2,000,000 invested in interest bearing securities and has
sufficient funds to meet its current expansion obligations.
Net loss, before the one time reserve recorded in 1995, increased from CDN
($327,409) in 1995 to CDN ($412,949) 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. The next step in these expansion plans is 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
(scheduled to open in the fall of 1996).
Six Months Ended June 30, 1996 (unaudited) vs. June 30, 1995 (unaudited)
For the six months ended June 30, 1996 the Company's net loss was CDN ($794,042)
compared to a net loss of CDN ($1,411,231) 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 ($511,231).
The 1995 figure has been restated to reflect a change in the income tax
estimate. Income from store operations increased to CDN $497,754 in the current
period from CDN $417,539 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 ($0.30) compared to
CDN ($0.57) (CDN ($0.21) before the reserve) in 1995. There were a weighted
average of 2,628,129 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 three 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.)
Overall, sales increased 0.20% from CDN $12,617,087 a year ago to CDN
$12,642,465 this year. For the twelve Canadian locations open throughout both
periods, sales increased 0.8%. For the one U.S. location open throughout both
periods, sales increased 16.7%. In both cases, this reverses a trend that had
prevailed throughout 1995. Management is encouraged that consumer optimism is
increasing, and looks for the trend to continue. Management is particularly
encouraged by the sales increases in its two hotel based restaurants that have
been open for more than one year. The Winnipeg location achieved an increase of
13.3% for the six month period and Philadelphia increased 21.9% in the second
quarter.
Food and Beverage costs, as a percentage of sales, increased to 30.4% in the
current period from 29.4% a year ago. Increases in poultry and certain meat
products make up most of the increase. The Company continues to look for ways to
bring these percentages down and still give its customers good value.
Labour costs decreased to 33.1% of sales in the current period from 34.4% 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
27.4% in the current period from 28.8% a year ago, reflecting the positive
<PAGE>
impact of the Company's expansion away from mall based locations and primarily
into hotel based locations.
Depreciation and amortization expense increased to CDN $660,401 (5.2% of sales)
this year compared to CDN $514,119 (4.1% of sales) in 1995. The increase is
attributable to the new locations and includes amortization of pre-opening costs
of CDN $143,053 in the current period compared to CDN $110,291 in 1995.
General and administrative expenses increased to CDN $1,170,487 for the current
period from CDN $904,551 in the comparable period a year ago. As a percentage of
sales the increase was from 4.1% last year to 9.3 % 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 $24,219 for the 1995 period to CDN $121,309
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. At June 30, 1996 the
Company had over CDN $2,000,000 invested in interest bearing securities and has
sufficient funds to meet its current expansion obligations.
Net loss, before the one time reserve recorded in 1995, increased from CDN
($511,231) in 1995 to CDN ($794,042) 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. The next step in these expansion plans is 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
(scheduled to open in the fall of 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: August 13, 1996 s/s J.M. Barnett
- - --------------------- ----------------
J.M. Barnett
President & CEO
Date: August 13, 1996 s/s D. Debou
- - --------------------- ------------
D. Debou
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,572,242
<SECURITIES> 0
<RECEIVABLES> 551,913
<ALLOWANCES> 0
<INVENTORY> 496,081
<CURRENT-ASSETS> 4,180,437
<PP&E> 15,939,736
<DEPRECIATION> 6,061,222
<TOTAL-ASSETS> 14,733,158
<CURRENT-LIABILITIES> 3,301,824
<BONDS> 4,907,238
0
0
<COMMON> 8,092,065
<OTHER-SE> (1,798,969)
<TOTAL-LIABILITY-AND-EQUITY> 14,733,158
<SALES> 12,642,465
<TOTAL-REVENUES> 12,642,465
<CGS> 3,840,087
<TOTAL-COSTS> 12,144,711
<OTHER-EXPENSES> 1,170,487
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 121,309
<INCOME-PRETAX> (794,042)
<INCOME-TAX> 0
<INCOME-CONTINUING> (794,042)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (794,042)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
