UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q/A
(Amendment No. 1)
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 27, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
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 NOT APPLICABLE
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 500, 856 Homer Street, Vancouver, BC, Canada V6B 2W5
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(Issuer's telephone number) (604) 684-6451
- --------------------------------------------------------------------------------
(Former name, former address and former 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 during the past 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.
[ X ] Yes [ ] 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 plan confirmed by a court.
[ ] Yes [ ] 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 June 27, 1999:
3,544,709
<PAGE>
<TABLE>
<CAPTION>
ELEPHANT & CASTLE GROUP INC.
Consolidated Balance Sheets
June 27, 1999
Canadian Dollars
June 27/99 June 28/98 December 27, 1998
ASSETS
Current
<S> <C> <C> <C>
Cash ............................ 1,345,000 3,709,000 2,468,000
Accounts Receivable ............. 737,000 778,000 557,000
Inventory ....................... 868,000 757,000 808,000
Deposits & Prepaids ............. 486,000 639,000 517,000
Pre-Opening Costs ............... 636,000 405,000 891,000
------------ ------------ ------------
4,072,000 6,288,000 5,241,000
Fixed Assets ....................... 22,596,000 17,129,000 21,291,000
Goodwill ........................... 2,003,000 2,089,000 2,053,000
Other Assets ....................... 2,628,000 1,992,000 2,212,000
------------ ------------ ------------
31,299,000 27,498,000 30,797,000
------------ ------------ ------------
LIABILITIES
Current
Accounts Payable ................ 7,631,000 5,435,000 5,931,000
Current Portion of Long Term Debt 71,000 443,000 105,000
------------ ------------ ------------
7,702,000 5,878,000 6,036,000
Long Term Debt ..................... 18,411,000 12,349,000 16,500,000
------------ ------------ ------------
26,113,000 18,227,000 22,536,000
------------ ------------ ------------
SHAREHOLDERS' EQUITY
Capital Stock ...................... 13,652,000 11,235,000 12,982,000
Other Paid-In Capital .............. 0 2,421,000 844,000
Deferred Exchange Adjustment ....... (939,000) 0 (1,051,000)
Retained Earnings .................. (7,527,000) (4,385,000) (4,514,000)
------------ ------------ ------------
5,186,000 9,271,000 8,261,000
------------ ------------ ------------
$ 31,299,000 $ 27,498,000 $ 30,797,000
------------ ------------ ------------
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
Elephant & Castle Group Inc.
Consolidated Statements of Income
Canadian Dollars
(unaudited)
Thirteen Weeks Ended Twenty Six Weeks Ended
June 27, June 28, June 27, June 28,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
SALES .............................. $ 11,875,000 $ 9,675,000 $ 24,080,000 $ 18,957,000
------------ ------------ ------------ ------------
RESTAURANT EXPENSES
Food and Beverage Costs .......... 3,422,000 2,796,000 6,898,000 5,468,000
Restaurant operating expenses
Labour ......................... 3,894,000 3,187,000 7,827,000 6,279,000
Occupancy and other ............ 3,220,000 2,538,000 6,341,000 4,969,000
Depreciation and Amortization .... 957,000 582,000 1,873,000 1,135,000
------------ ------------ ------------ ------------
11,493,000 9,103,000 22,939,000 17,851,000
------------ ------------ ------------ ------------
INCOME FROM RESTAURANT OPERATIONS .. 382,000 572,000 1,141,000 1,106,000
GENERAL AND ADMINISTRATIVE EXPENSES 1,029,000 877,000 1,985,000 1,648,000
RETIRING ALLOWANCES ................ 887,000 0 887,000 0
INTEREST ON LONG TERM DEBT ......... 550,000 201,000 1,057,000 402,000
------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAXES ........... (2,084,000) (506,000) (2,788,000) (944,000)
INCOME TAX (RECOVERY) .............. 0 0 0 0
NET LOSS FOR THE PERIOD ............ ($ 2,084,000) ($ 506,000) ($ 2,788,000) ($ 944,000)
------------ ------------ ------------ ------------
Average number of shares outstanding 3,467,000 3,114,000 3,406,000 3,079,000
Earnings per share ................. ($ 0.60) ($ 0.16) ($ 0.82) ($ 0.31)
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
ELEPHANT & CASTLE GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Canadian Dollars)
(Unaudited)
Twenty Six Weeks Ended
June 27, June 28,
1999 1998
<S> <C> <C>
OPERATING ACTIVITIES
NET INCOME (LOSS) ............................ (2,788,000) (944,000)
Add: Items not involving cash ............. 2,218,000 1,135,000
----------- -----------
(570,000) 191,000
----------- -----------
CHANGES IN NON-CASH WORKING CAPITAL
Accounts receivable .................... (180,000) (107,000)
Inventory .............................. (60,000) (74,000)
Deposits and prepaid expenses .......... 31,000 (47,000)
Accounts payable and accrued liabilities 1,700,000 1,309,000
----------- -----------
1,491,000 1,081,000
----------- -----------
----------- -----------
921,000 1,272,000
----------- -----------
INVESTING ACTIVITIES
Acquisition of fixed assets ............... (2,632,000) (3,634,000)
Acquisition of other assets, including pre-
opening costs ..................... (443,000) (540,000)
----------- -----------
(3,075,000) (4,174,000)
----------- -----------
FINANCING ACTIVITIES
Deferred finance charges .................. (436,000) 0
Proceeds from long-term debt .............. 1,899,000 2,740,000
Repayment of long-term debt ............... (432,000) (226,000)
----------- -----------
1,031,000 2,514,000
----------- -----------
(DECREASE) IN CASH DURING PERIOD ............. (1,123,000) (388,000)
CASH AT BEGINNING OF PERIOD .................. 2,468,000 4,097,000
----------- -----------
CASH AT END OF PERIOD ........................ $ 1,345,000 $ 3,709,000
----------- -----------
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
Elephant & Castle Group Inc.
Condensed Consolidated Statements of Shareholders' Equity
Canadian Dollars
(Unaudited)
Twenty Six Weeks Ended
June 27, June 28,
1999 1998
<S> <C> <C>
Balance at beginning of period ........... $ 8,261,000 $ 10,209,000
Convert other paid-in capital to
convertible debentures ........... (928,000) 0
Issue of shares on
conversion of debentures ......... 518,000 0
Issue of shares for interest .......... 152,000 0
Issue of shares for directors' fees ... 0 6,000
Currency translation adjustment ....... 92,000 0
Redemption premium .................... (121,000) 0
Net loss .............................. (2,788,000) (944,000)
------------ ------------
Balance at end of period ................. $ 5,186,000 $ 9,271,000
------------ ------------
</TABLE>
See notes to financial statements
<PAGE>
ELEPHANT & CASTLE GROUP INC.
NOTES TO FINANCIAL STATEMENTS
TWENTY SIX WEEKS ENDED JUNE 27, 1999 and JUNE 28, 1998
(Canadian Dollars)
(In Thousands of Dollars)
(Unaudited)
1. The accompanying interim financial statements for the twenty six week
periods ended June 27, 1999 and June 28, 1998 have been prepared by
management and have not been audited. In the opinion of management, these
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 (the reader is referred to the Company's Form 10K
for the Year Ended December 27, 1998, as filed with the Securities and
Exchange Commission):
<TABLE>
<CAPTION>
Thirteen weeks ended Twenty six weeks ended
June 27, June 28, June 27, June 28,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
NET LOSS - CANADA ......... ($ 2,084) ($ 506) ($ 2,788) ($ 944)
ADJUSTMENTS:
Amortization of leasehold
improvement costs .... (15) (11) (30) (22)
Pre-opening costs ......... 255 0 160 0
Dividend on paid-in capital (0) (36) (0) (72)
Recognition of non-capital
loss carry forwards .. 553 166 797 311
----------- ----------- ----------- -----------
NET LOSS - United States .. ($ 1,291) ($ 387) ($ 1,861) ($ 727)
----------- ----------- ----------- -----------
NET LOSS PER COMMON SHARE
Canada .................... ($ 0.60) ($ 0.16) ($ 0.82) ($ 0.31)
United States ............. ($ 0.37) ($ 0.12) ($ 0.55) ($ 0.24)
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING: ..... 3,467,000 3,114,000 3,406,000 3,079,000
</TABLE>
<PAGE>
3. On February 1, 1999 the Company completed a US $1,265 (CDN $1,898)
convertible debenture financing with a group of private investors. The
debentures have a five year term, bear interest at 8%, payable in shares at
the Company's option, and are convertible into shares of the Company at US
$2.00 (CDN $3.00) per share. At the same time, the US $2,000 (CDN $3,000)
bridge loan due to General Electric Private Placement Partners II, due in
June 2000 was converted to convertible debentures on identical terms.
4. In March, 1999 the Company reached an agreement with the holders of its 6%
convertible subordinated debentures (recorded as "other paid-in capital) to
settle the balance not already converted into Common Shares. The terms of
repayment are US $240 (CDN $360) repayable in 1999, US $320 (CDN $480)
repayable in 2000 and the balance in 2001, subject to earlier conversion at
US $2.00 (CDN $3.00) per share. As of June 27, 1999, US $240 (CDN $360) had
been repaid and US $345 (CDN $518) had been converted into Common Shares.
5. The financial statements include the results of operations for new
locations in Vancouver BC (joint venture Canadian Rainforest Cafe, opened
June 12, 1998); Philadelphia PA (twin Elephant & Castle/Alamo Grill, opened
November 13, 1998); and Scarborough (Toronto) ON (joint venture Canadian
Rainforest Cafe, opened February 4, 1999). The comparative figures include
results of operations for London ON (franchised to existing location
managers on September 28, 1998).
6. Certain comparative figures have been reclassified to conform to the
current period's presentation.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Thirteen Weeks Ended June 27, 1999 (unaudited) vs. Thirteen Weeks Ended
June 28, 1998 (unaudited)
Net Income
For the thirteen weeks ended June 27, 1999, the Company's net loss was CDN
($2,084,000) compared to CDN ($506,000) for the corresponding period in 1998.
Loss per share for the current period was CDN ($0.60), compared to CDN ($0.16)
in 1998. Included in the loss for the current period is a provision of CDN
$887,000 for retiring allowances for two former executives. The average number
of shares outstanding increased from 3,114,000 in 1998 to 3,467,000 for the
current period.
Sales
Sales increased 22.7% during the thirteen weeks ended June 27, 1999 to CDN
$11,875,000 from CDN $9,675,000 for the comparable period in 1998. The 1999
figure includes sales for three new locations: Rainforest - Vancouver BC (opened
June 12, 1998); Philadelphia PA (opened November 13, 1998); and Rainforest -
Toronto (Scarborough) ON (opened February 4, 1999). The company disposed of its
London, Ontario location, by way of a franchise agreement with two of its
location managers, on September 28, 1998.
For the thirteen Canadian locations open throughout both periods, sales for the
thirteen weeks ended June 27, 1999 totaled CDN $4,828,000 and were down 2.2%
compared to the thirteen weeks ended June 28, 1998. Small same store sales
increases that were recorded over the first nine weeks of the period were more
than offset by large decreases in several large stores over the last four weeks
of the period. The decreases in June/99 versus June/98 were not entirely
unexpected as June /98 had seen an 11% increase over the prior year; an increase
largely attributed to the Company's successful World Cup Soccer promotions last
year. The same sales pattern is expected to continue through the month of
July/99. Management also cautions that a labour dispute at its only unionized
location in Canada may negatively impact sales at that location in the third
quarter.
For the six US locations open throughout both periods, sales for the 1999 period
were US $2,962,000 and were 2.6% down from the 1998 period. U.S. same store
sales followed the same trend as in Canada: small increases achieved over the
first nine weeks of the period were negated by sales declines compared to
June/98.
Sales at the Vancouver Rainforest Cafe have come down from the levels achieved
in the initial months of operation and have stabilized at an acceptable level.
Sales at the recently opened Toronto location have been in line with
expectations. A third location, also in the Metro Toronto area, has opened after
the end of the current period, and initial sales have met expectations.
Sales performance at the new Philadelphia `twin' Elephant & Castle / Alamo Grill
location has been disappointing. Management has implemented some targeted
marketing programs within the trading area in order to generate more acceptable
sales levels at the location.
<PAGE>
Food and Beverage Costs
Overall, food and beverage costs, as a percentage of sales, improved slightly to
28.8% for the thirteen weeks ended June 27, 1999 compared to 28.9% for the
thirteen weeks ended June 28, 1998. The improvement is a continuation of a trend
the Company has been experiencing for the past ten quarters.
Labour and Benefits Costs
Labour and benefits decreased marginally from 32.9% of sales in 1998 to 32.8%
for the current period. For stores open throughout both the current period and
the comparable period in 1998, labour decreased from 32.6% of sales to 31.4%.
This decrease was driven by continued emphasis on cost management techniques at
all locations. The disappointing sales at the new Philadelphia "twin" location
led to unacceptably high labour rates at that location and brought the overall
rate closer to the 1998 level.
Occupancy and Other Operating Costs
Occupancy and other operating expenses increased as a percentage of sales from
26.2% in 1998 to 27.1% for the current period. The combination of low sales and
high fixed occupancy costs at the new Philadelphia "twin" location have resulted
in the increase in the overall rate.
Depreciation and Amortization Expense
Depreciation and amortization costs increased to 8.1% of sales for the current
period from 6.0% last year. Amortization of pre-operating costs for new
restaurants, which is effected over the twelve months following opening, is the
major driver of the cost increase. In dollar terms, depreciation and
amortization increased to CDN $957,000 in 1999 from CDN $582,000 in 1998 as the
company continues to opens new locations.
General and Administrative Costs
General and administrative costs decreased from 9.1% of sales in 1998 to 8.7% in
the current period. Scale economies are now being achieved as new restaurants
are opened without commensurate increases in general and administrative costs.
The Company believes this trend will continue and its long term general and
administrative expense percentage will be brought down to under 7.0%.
Retiring Allowances
As part of a restructuring of corporate office operations in the current period,
employment contracts with two executive officers of the Company were not
renewed, and other corporate staff were terminated. CDN $887,000 has been
provided for retiring allowances and other costs related to the restructuring.
<PAGE>
Interest on Long Term Debt
During 1998 the Company completed two US $2,000,000 (CDN $3,000,000 each, for a
total of CDN $6,000,000 at current conversion rates) financings with General
Electric Investment Private Placement Partners, II, a U.S. based limited
partnership with which it had previously arranged US $7,000,000 (CDN
$10,500,000, also at current conversion rates) financing. The former US
$2,000,000 (CDN $3,000,000) was drawn down against a previously negotiated US
$9,000,000 (CDN $13,500,000) facility. The latter US $2,000,000 (CDN $3,000,000)
was a bridge loan, which was converted into a convertible debenture as part of a
new financing (see below).
In February, 1999, the Company completed a US $1,265,000 (CDN $1,898,000)
convertible debenture financing with a group of private investors. The US $
2,000,000 (CDN $3,000,000) bridge loan from GEIPPP II was rolled into
convertible debentures on identical terms, to give a total of US $ 3,265,000
(CDN $4,898,000) new debentures.
The funds raised were used primarily to construct the new Canadian Rainforest
Cafe operations, plus the new Elephant & Castle/Alamo twin operation in
Philadelphia, PA.
As a result of this additional long term debt, interest expense in the 1999
period was substantially higher than 1998, and will continue to be higher than
the comparable quarters for the rest of 1999.
(Loss) before Taxes
The Company incurred a loss before income taxes of CDN ($2,084,000) for the 1999
period compared to a loss of CDN ($506,000) for the 1998 period. As discussed
above, the Company realized positive impacts from higher sales and its key
operating cost ratios, but these were offset by poor performance at the new
Philadelphia "twin" location and by higher pre-operating costs, contributing to
a decrease in Income from Restaurant Operations to CDN $382,000 for the 1999
period from CDN $572,000 in 1998. This was further impacted by higher general
and administrative costs, retiring allowances and interest expense, resulting in
the overall increase in the net loss for the period.
Income Taxes
The Company incurred a loss in the thirteen week period ended June 27, 1999 and
therefore has no tax liability. The Company also has loss carry-forwards that
will reduce its effective tax rate in future periods.
<PAGE>
Thirteen Weeks Ended June 28, 1998 (unaudited) vs.
Three Months Ended June 30, 1997 (unaudited)
Net Income
For the thirteen weeks ended June 28, 1998, the Company's net loss was CDN
($506,000) compared to CDN ($373,000) for the corresponding period in 1997. Loss
per share for the current period was CDN ($0.16), compared to CDN ($0.13) in
1997. The average number of shares outstanding increased from 2,968,000 in 1997
to 3,114,000 for the 1998 period.
Sales
Sales increased 23.7% during the thirteen weeks ended June 28, 1998 to CDN
$9,675,000 from CDN $7,822,000 for the comparable period in 1997. The 1998
figure includes sales for three new locations: Seattle, WA (opened August 29,
1997); Boston MA (opened November 4, 1997); and Edmonton, AB (opened November
20, 1997). The 1998 figure also includes two weeks' sales for Canada's first
Rainforest Cafe (operated under a joint venture agreement with Rainforest Cafe
Inc.) which opened on June 12, 1998.
The Company closed its Thunder Bay, ON location on August 31, 1997.
For the thirteen Canadian locations open throughout both periods, sales for the
thirteen weeks ended June 28, 1998 totaled CDN $5,018,000 and were up 2.5%
compared to the three month period ended June 30, 1997. For the four U.S.
locations open throughout both periods, sales for the 1998 were CDN $2,599,000
(US $1,897,000) and were down 4.0% from the 1997 period.
For the new Seattle location, sales continue to be at the lower end of the
expected range. The new Boston location continues to exceed sales expectations.
Sales at the new Edmonton location continue to be very close to expectations.
The new Rainforest location exceeded its initial sales targets.
Food and Beverage Costs
Overall, food and beverage costs, as a percentage of sales, improved to 28.9%
for the thirteen weeks ended June 28, 1998 compared to 29.6% for the three
months ended June 30, 1997. The improvement is a continuation of a trend the
Company has been experiencing for the past six quarters. The Company believes
the improvements will continue for the balance of the year as its purchasing
procedures review takes full effect.
Labour and Benefits Costs
Labour and benefits decreased marginally from 33.0% of sales in 1997 to 32.9%
for the 1998 period.
Occupancy and Other Operating Costs
Occupancy and other operating expenses decreased as a percentage of sales from
27.3% in 1997 to 26.2% for the 1998 period. The decrease is primarily the result
of lower occupancy rates at the Company's new locations. The Company's strategy
continues to be to drive occupancy percentages down by opening new facilities at
locations with controlled and favourable occupancy rates.
<PAGE>
Depreciation and Amortization Expense
Depreciation and amortization costs decreased to 6.0% of sales for the 1998
period from 6.3% in 1997. In dollar terms, depreciation and amortization
increased to CDN $582,000 in 1998 from CDN $494,000 in 1997 as the Company
continues to open new locations.
General and Administrative Costs
General and administrative costs increased from 7.2% of sales in 1997 to 9.1% in
the 1998 period. During the second half of 1997 the Company hired three new
executives as it developed the infrastructure necessary to allow the Company to
expand and return to profitability. The Company also embarked on a franchise
development program in 1997. The reader is referred to the Company's annual
report for the year ended December 31, 1997 for additional details. These
initiatives have resulted in higher general and administrative costs. The
Company believes its long term general and administrative expense percentage
will be brought down to under 7% as new stores are added without incurring
proportionate additional costs.
Interest on Long Term Debt
During 1997 the Company completed two US $2,000,000 (CDN $2,740,000 each, for a
total of CDN $5,480,000) convertible subordinated debenture financings with
General Electric Investment Private Placement Partners, II (GEIPPP,II), a U.S.
based limited partnership with which it had previously arranged a similar US
$3,000,000 (CDN $4,110,000) financing. As a result, interest on long term debt
in the 1998 period was substantially higher than 1997. The Company completed an
additional US $2,000,000 (CDN $2,740,000) financing with GEIPPP,II near the end
of the 1998 period. As a result, interest on long term debt is expected to
increase in future periods.
(Loss) before Taxes
The Company incurred a loss before income taxes of CDN ($506,000) for the 1998
period compared to a loss of CDN ($373,000) for the 1997 period. As discussed
above, the Company realized positive impacts from higher sales, improved food
and beverage margins, lower labour percentages and reduced occupancy costs as a
percentage of sales, all of which contributed to an increase in Income from
Restaurant Operations to CDN $572,000 for the 1998 period from CDN $300,000 in
1997. This was offset by higher general and administrative costs and higher
interest expense, resulting in the overall increase in the net loss for the
period.
<PAGE>
Income Taxes
The Company incurred a loss in the thirteen week period ended June 28, 1998 and
therefore has no tax liability. The Company also has loss carry-forwards which
will reduce its effective tax rate in future periods.
Twenty Six Weeks Ended June 27, 1999 (unaudited) vs. June 28, 1998
(unaudited)Net IncomeFor the twenty six weeks ended June 27, 1999 the Company's
net loss was CDN ($2,788,000) compared to a net loss of CDN ($944,000) for the
corresponding period in 1998. Included in the loss for the current period is a
provision of CDN $887,000 for retiring allowances for two former executives. On
a per share basis, the net loss for the 1999 period was CDN ($0.82) compared to
CDN ($0.31) in 1998. There were a weighted average of 3,406,000 shares
outstanding in 1999 compared to 3,079,00 in 1998.SalesSales increased 27.0%
during the twenty six weeks ended June 27, 1999 to CDN $24,080,000 from CDN
$18,957,000 for the comparable period in 1998. The 1999 figure included sales
for three new locations: Rainforest - Vancouver BC (opened June 12, 1998);
Philadelphia PA (opened November 13, 1998); and Rainforest - Toronto
(Scarborough) ON (opened February 4, 1999). The company disposed of its London,
Ontario location, by way of a franchise agreement with two of its location
managers, on September 28, 1998. For the thirteen Canadian locations open
throughout both periods, sales for the six months ended June 27, 1999 totaled
CDN $9,613,000 and were down 0.1% compared to the corresponding period for 1998.
As discussed in the Sales section of the thirteen week analysis, a decrease in
June/99 sales compared to an exceptional June/98 offset what would have
otherwise been a small same store sales increase. For the six U.S. locations
open throughout both periods, sales for the twenty six weeks ended June 27, 1999
totaled US $6,077,000 (CDN $9,116,000) and were down 1.8% compared to the
corresponding period for 1998. Sales at the Vancouver Rainforest Cafe were at
the low end of management's expectations. Sales at the Toronto location met
expectations for its first five months of operation.
Sales performance at the new Philadelphia `twin' location has been
disappointing.Food and Beverage CostsOverall, food and beverage costs, as a
percentage of sales, improved slightly to 28.7% for the twenty six weeks ended
June 27, 1999 compared to 28.8% for the corresponding period in 1998. Labour and
Benefits CostsLabour and benefits costs decreased from 33.1% of sales in 1998 to
32.5% for the twenty six weeks ended June 27, 1999. Occupancy and Other
Operating Costs
Occupancy and other operating expenses increased slightly as a percentage of
sales from 26.2% in 1998 to 26.3% for the 1999 period.
Depreciation and Amortization Expense
Depreciation and amortization costs increased to 7.8% of sales for the twenty
six weeks ended June 27, 1999 from 6.0% for the corresponding period in 1998.
The increase was attributable to depreciation on the new locations plus the
amortization of pre-opening costs of new locations. Amortization of pre-opening
costs was CDN $583,000 for the twenty six weeks ended June 27, 1999 compared to
CDN $215,000 in 1998.
<PAGE>
General and Administrative Costs
General and administrative costs decreased from 8.7% of sales for the twenty six
weeks ended June 28, 1998 to 8.2% in the 1999 period. Scale economies are now
being achieved as new restaurants are opened without commensurate increases in
general and administrative costs. The Company believes this trend will continue
and its long term general and administrative expense percentage will be brought
down to under 7.0%.
Interest on Long Term Debt
During 1998 the Company completed two US $2,000,000 (CDN $3,000,000 each, for a
total of CDN $6,000,000 at current conversion rates) financings with General
Electric Investment Private Placement Partners, II, a U.S. based limited
partnership with which it had previously arranged US $7,000,000 (CDN
$10,500,000, also at current conversion rates) financing. The former US
$2,000,000 (CDN $3,000,000) was drawn down against a previously negotiated US
$9,000,000 (CDN $13,500,000) facility. The latter US $2,000,000 (CDN $3,000,000)
was a bridge loan, which was converted into a convertible debenture as part of a
new financing (see below).
In February, 1999, the Company completed a US $1,265,000 (CDN $1,898,000)
convertible debenture financing with a group of private investors. The US $
2,000,000 (CDN $3,000,000) bridge loan from GEIPPP II was rolled into
convertible debentures on identical terms, to give a total of US $ 3,265,000
(CDN $4,898,000) new debentures.
The funds raised were used primarily to construct the new Canadian Rainforest
Cafe operations, plus the new Elephant & Castle/Alamo twin operation in
Philadelphia, PA.
As a result of this additional long term debt, interest expense in the 1999
period was substantially higher than 1998, and will continue to be higher than
the comparable quarters for the rest of 1999.
(Loss) before Taxes
The Company incurred a loss before income taxes of CDN ($2,788,000) for the
twenty six weeks ended June 27, 1999 compared to a loss of CDN ($944,000) for
the 1998 period. As discussed above, the positive impact of higher sales,
improved food and beverage margins and reduced labour percentages were largely
offset by increases in occupancy and other operating cost percentages; and by
increased depreciation and amortization expense, resulting in a slight
improvement in Income from Restaurant Operations. Higher general and
administration costs, retiring allowances of CDN $887,000 related to a corporate
restructuring, and higher interest expenses resulted in the increased Loss
before Income Taxes.
Income Taxes
The Company incurred a loss in the twenty six week period ended June 27, 1999
and therefore had no tax liability. The Company also has loss carry-forwards
which would reduce its effective tax rate in future periods.
<PAGE>
Twenty-six Weeks Ended June 28, 1998 (unaudited) vs.
Six Months Ended June 30, 1997 (unaudited)
Net Income
For the twenty-six weeks ended June 28, 1998 the Company's net loss was CDN
($944,000) compared to CDN ($749,000) for the corresponding period in 1997. On a
per share basis, the net loss for the 1998 period was CDN ($0.31) compared to
CDN ($0.26) in 1997. There were a weighted average of 3,079,000 shares
outstanding in 1998 compared to 2,906,000 in 1997.
Sales
Sales increased 21.1% during the twenty-six weeks ended June 28, 1998 to CDN
$18,957,000 from CDN $15,656,000 for the comparable period in 1997. The 1998
figure includes sales for three new locations. (See Sales in the Discussion and
Analysis of the results for the thirteen weeks ended June 28, 1998, above.)
For the thirteen Canadian locations open throughout both periods, sales for the
twenty-six weeks ended June 28, 1998 totaled CDN $9,828,000 and were up 2.3%
compared to the six month period ended June 30, 1997. For the four U.S. stores
open throughout both periods, sales for the 1998 period were CDN $5,255,000 (US
$3,835,000) and were down 3.1% from the 1997 period.
For the new Seattle and Edmonton locations, sales were at the lower end of the
expected range. The new Boston location continues to exceed sales expectations.
The new Rainforest location exceeded its initial sales targets.
Food and Beverage Costs
Overall, food and beverage costs, as a percentage of sales, improved to 28.8%
for the twenty-six weeks ended June 28, 1998 compared to 29.4% for the six
months ended June 30, 1997. Continued improvements are expected in future
periods as the results of the Company's purchasing procedures review take full
effect.
Labour and Benefits Costs
Labour and benefits decreased from 33.4% of sales in 1997 to 33.1% for the 1998
period.
Occupancy and Other Operating Costs
Occupancy and other operating costs decreased as a percentage of sales from
27.1% in 1997 to 26.2% for the 1998 period. The decrease is primarily the result
of lower occupancy rates at the Company's new locations. One of the Company's
goals continues to be to reduce occupancy and other operating costs as a
percentage of sales by opening new locations with more favourable and
controllable occupancy costs and by closing or modifying existing units in high
occupancy cost locations.
Depreciation and Amortization Expense
Depreciation and amortization costs decreased to 6.0% of sales for the 1998
period from 6.3% in 1997. In dollar terms, depreciation increased by CDN
$145,000 as the Company continues to open new locations.
<PAGE>
General and Administrative Costs
General and administrative costs increased from 7.4% of sales in 1997 to 8.7% in
1998. (See General and Administrative Costs in the Discussion and Analysis of
the results for the thirteen weeks ended June 28, 1998, above, and the Company's
annual report for the year ended December 31, 1997 for further information.)
Interest on Long Term Debt
Interest on long term debt was higher in the twenty-six weeks ended June 28,
1998 than in the comparable period in 1997 by CDN $210,000 due to additional
subordinated debenture financings completed in 1997. (See Interest on Long Term
Debt in the Discussion and Analysis of the results for the thirteen weeks ended
June 28, 1998, above.) The Company completed an additional US $2,000,000 (CDN
$2,740,000) financing with GEIPPP,II near the end of the current period. As a
result, interest on long term debt is expected to increase in future periods.
(Loss) before Taxes
The Company incurred a loss before taxes of CDN ($944,000) for the twenty-six
weeks ended June 28, 1998 compared to a loss of CDN ($749,000) for the 1997
period. As discussed above, the Company realized positive impacts from higher
sales, improved food and beverage margins, lower labour percentages and reduced
occupancy costs as a percentage of sales, all of which contributed to an
increase in Income from Restaurant Operations to CDN $1,106,000 for the 1998
period from CDN $593,000 in 1997. This was offset by higher general and
administrative costs and higher interest expense, resulting in the overall
increase in the net loss for the period.
Income Taxes
The Company incurred a loss in the twenty-six week period ended June 28, 1998
and therefore has no tax liability. The Company also has loss carry-forwards
which will reduce its effective tax rate in future periods.
Liquidity and Capital Resources
The Company's cash position as of June 27, 1999 was CDN $1,345,000 compared to
CDN $2,468,000 at December 27, 1998. During the twenty six weeks ended June 27,
1999 the Company raised CDN $1,899,000 (US $1,265,000) through the issuance of
convertible debentures to a group of investors. During the same period the
Company spent CDN $2,632,000 on fixed assets and CDN $443,000 on other assets,
in both cases primarily for its portion of the construction and opening of the
second and third Canadian Rainforest Cafes (opened February 4th, 1999 in
Scarborough, Ontario and June 30, 1999 in Yorkdale, Ontario). Under the terms of
the construction and other contracts related to the projects, a significant
portion of the commitments for the Yorkdale location were not due as at June 27,
1999, resulting in an increase in accounts payable at June 27, 1999 of CDN
$800,000 related to such construction.
<PAGE>
The Company is planning to open at least two more Rainforest Cafes in Canada
over the next three years as well as additional Elephant & Castle and Alamo
units in Canada and the United States, some of which will be franchised units.
It is expected that these projects will be funded from operating cash flows.
Year 2000 (Y2K)
The Company continues to address its state of readiness with regards to any
potential Y2K problems. It does not foresee any material negative impacts. The
Company is taking the following steps to ensure a smooth, disruption free
transition into the year 2000:
- All new computer hardware and software being purchased is certified as
Y2K compliant.
- Point of Sale equipment has been tested and is being upgraded or
replaced as necessary.
- Banks and other service providers have given assurances of Y2K
readiness.
- Payroll service providers have certified Y2K compliance.
- Key suppliers have given assurances of readiness.
All stores are equipped with manual procedures and emergency supplies that will
allow them to continue to serve customers, even in the event that there is a
problem with a computer based system, provided it is deemed safe to do so.
<PAGE>
ELEPHANT & CASTLE GROUP INC.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities
On February 1, 1999 the Company completed a US $1,265,000 (CDN
$1,897,500) convertible debenture financing with a group of private
investors. The debentures have a five year term, bear interest at 8%,
payable in shares at the Company's option, and are convertible into
shares of the Company at US $2.00 (CDN $3.00) per share. At the same
time, the US $2,000,000 (CDN $3,000,000) bridge loan due to General
Electric Private Placement Partners II, due in June 2000 was converted
to convertible debentures on identical terms.
In March, 1999 the Company reached an agreement with the holders of its
6% convertible subordinated debentures (recorded as "other paid-in
capital) to settle the balance not already converted into Common
Shares. The terms of repayment are US $240,000 (CDN $360,000) repayable
in 1999, US $320,000 (CDN $480,000) repayable in 2000 and the balance
in 2001, subject to earlier conversion at US $2.00 (CDN $3.00) per
share. As of June 27, 1999, US $240,000 (CDN $360,000) had been repaid
and US $345,000 (CDN $518,000) had been converted into Common Shares.
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>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ELEPHANT & CASTLE GROUP INC.
----------------------------
(Registrant)
Date August 10, 1999 /s/ Martin O'Dowd
--------------- -----------------
Martin O'Dowd, President
Date August 10, 1999 /s/ Richard Bryant
--------------- ------------------
Richard H. Bryant, Chief Executive Officer
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-27-1999
<CASH> 1,345,000
<SECURITIES> 0
<RECEIVABLES> 737,000
<ALLOWANCES> 0
<INVENTORY> 868,000
<CURRENT-ASSETS> 4,072,000
<PP&E> 33,219,000
<DEPRECIATION> 10,623,000
<TOTAL-ASSETS> 31,299,000
<CURRENT-LIABILITIES> 7,702,000
<BONDS> 18,411,000
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<COMMON> 13,652,000
<OTHER-SE> (8,466,000)
<TOTAL-LIABILITY-AND-EQUITY> 31,299,000
<SALES> 24,080,000
<TOTAL-REVENUES> 24,080,000
<CGS> 6,898,000
<TOTAL-COSTS> 16,041,000
<OTHER-EXPENSES> 2,872,000
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<INTEREST-EXPENSE> 1,057,000
<INCOME-PRETAX> (2,788,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,788,000)
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