<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
<TABLE>
<C> <S>
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE QUARTERLY PERIOD ENDED MARCH 26, 2000
OR
<TABLE>
<C> <S>
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
</TABLE>
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 33-60612
------------------------
ELEPHANT & CASTLE GROUP INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
BRITISH COLUMBIA NOT APPLICABLE
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
SUITE 500, 856 HOMER STREET, V6B 2W5
VANCOUVER, B.C., CANADA (zip code)
(Address of principal executive
offices)
</TABLE>
(604) 684-6451
(Issuer's telephone number)
(Former name, former address and former fiscal year, if changed since last
report)
------------------------
Check whether the issuer (1) filed all reports 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. 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 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 March 26,
2000: 2,644,605.
- --------------------------------------------------------------------------------
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<PAGE>
INDEPENDENT ACCOUNTANT'S REPORT
We have reviewed the accompanying consolidated balance sheet, statements of
earnings, cash flows and shareholders' equity of Elephant & Castle Group Inc.
and consolidated subsidiaries as of March 26, 2000, and for the thirteen week
period then ended. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying statements for them to be in conformity with
generally accepted accounting principles.
Pannell Kerr Forster
Chartered Accountants
Vancouver, Canada
May 4, 2000
2
<PAGE>
ELEPHANT & CASTLE GROUP INC.
CONSOLIDATED STATEMENTS OF INCOME
CANADIAN DOLLARS
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN THIRTEEN
WEEKS ENDED WEEKS ENDED
MARCH 26, MARCH 28,
2000 1999
------------ ------------
<S> <C> <C>
Sales....................................................... $11,875,000 $12,205,000
----------- -----------
Restaurant Expenses
Food and Beverage Costs................................... 3,461,000 3,476,000
Restaurant Operating Expenses
Labour.................................................. 3,994,000 3,933,000
Occupancy and other..................................... 3,430,000 3,172,000
Depreciation and Amortization............................. 755,000 916,000
----------- -----------
11,640,000 11,497,000
----------- -----------
Income from Restaurant Operations........................... 235,000 708,000
General and Administrative Expenses......................... 645,000 905,000
Interest on Long-Term Debt.................................. 459,000 507,000
----------- -----------
Loss Before Income Taxes.................................... (869,000) (704,000)
Income Tax (Recovery)....................................... (261,000) 0
Net Loss for the Period..................................... $ (608,000) $ (704,000)
=========== ===========
Average number of shares outstanding........................ 2,378,855 1,672,578
Earnings per share.......................................... $ (0.26) $ (0.42)
</TABLE>
See notes to financial statements
3
<PAGE>
ELEPHANT & CASTLE GROUP INC.
CONSOLIDATED BALANCE SHEETS
MARCH 26, 2000
CANADIAN DOLLARS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 26, MARCH 28, DECEMBER 26,
2000 1999 1999
----------- ----------- ------------
<S> <C> <C> <C>
ASSETS
Current
Cash..................................................... $ 912,000 $ 2,129,000 $ 1,014,000
Accounts Receivable...................................... 908,000 724,000 863,000
Inventory................................................ 921,000 855,000 1,062,000
Deposits and Prepaids.................................... 341,000 397,000 419,000
Pre-Opening Costs........................................ 107,000 984,000 167,000
----------- ----------- -----------
3,189,000 5,089,000 3,525,000
Fixed Assets............................................... 22,104,000 22,241,000 22,649,000
Goodwill................................................... 1,933,000 2,028,000 1,949,000
Deferred Income Taxes...................................... 2,306,000 0 0
Other Assets............................................... 1,560,000 2,616,000 1,905,000
----------- ----------- -----------
$31,092,000 $31,974,000 $30,028,000
----------- ----------- -----------
LIABILITIES
Current
Accounts Payable......................................... $ 7,018,000 $ 6,445,000 $ 7,443,000
Current Portion of Long-Term Debt........................ 56,000 273,000 62,000
----------- ----------- -----------
7,074,000 6,718,000 7,505,000
Long-Term Debt............................................. 15,718,000 18,532,000 15,730,000
----------- ----------- -----------
22,792,000 25,250,000 23,235,000
----------- ----------- -----------
SHAREHOLDERS' EQUITY
Capital Stock.............................................. 16,347,000 13,197,000 13,955,000
Other Paid-In Capital...................................... 0 0 0
Subscriptions Received..................................... 0 0 2,374,000
Currency Translation Adjustment............................ (566,000) (1,114,000) (618,000)
Retained Earnings.......................................... (7,481,000) (5,359,000) (8,918,000)
----------- ----------- -----------
8,300,000 6,724,000 6,793,000
----------- ----------- -----------
$31,092,000 $31,974,000 $30,028,000
=========== =========== ===========
</TABLE>
See notes to financial statements
4
<PAGE>
ELEPHANT & CASTLE GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CANADIAN DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
------------------------
MARCH 26, MARCH 28,
2000 1999
---------- -----------
<S> <C> <C>
Operating Activities
Net Income (loss)........................................... $ (608,000) $ (704,000)
Add: Items not involving cash............................. 816,000 1,049,000
---------- -----------
208,000 345,000
---------- -----------
Changes in Non-cash Working Capital
Accounts receivable....................................... (45,000) (168,000)
Inventory................................................. 141,000 (47,000)
Deposits and prepaid expenses............................. 78,000 120,000
Accounts payable and accrued liabilities.................. (425,000) 514,000
---------- -----------
(251,000) 419,000
---------- -----------
(43,000) 764,000
---------- -----------
Investing Activities
Acquisition of fixed assets............................... (41,000) (1,620,000)
Acquisition of other assets, including pre-opening
costs................................................... (12,000) (514,000)
---------- -----------
(53,000) (2,134,000)
---------- -----------
Financing Activities
Deferred finance charges.................................. 0 (436,000)
Proceeds from long-term debt.............................. 0 1,899,000
Repayment of long-term debt............................... (6,000) (432,000)
---------- -----------
(6,000) 1,031,000
---------- -----------
(Decrease) in Cash During Period............................ (102,000) (339,000)
Cash at Beginning of Period................................. 1,014,000 2,468,000
---------- -----------
Cash at End of Period....................................... $ 912,000 $ 2,129,000
========== ===========
</TABLE>
See notes to financial statements
5
<PAGE>
ELEPHANT & CASTLE GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
CANADIAN DOLLARS
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
-----------------------
MARCH 26, MARCH 28,
2000 1999
---------- ----------
<S> <C> <C>
Balance at beginning of period, as originally stated........ $6,793,000 $8,261,000
Retroactive application of change in Canadian GAAP
(note 2).................................................. 2,045,000 0
---------- ----------
Balance at beginning of period, as restated................. $8,838,000 $8,261,000
Convert other paid-in capital to convertible debentures... 0 (927,000)
Issue of shares
for services............................................ 18,000 0
on conversion of debentures............................. 0 195,000
Currency translation adjustment........................... 48,000 20,000
Redemption premium........................................ 0 (121,000)
Net loss.................................................. (608,000) (704,000)
---------- ----------
Balance at end of period.................................... $8,296,000 $6,724,000
========== ==========
</TABLE>
See notes to financial statements
6
<PAGE>
ELEPHANT & CASTLE GROUP INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN WEEKS ENDED MARCH 26, 2000 AND MARCH 28, 1999
(CANADIAN DOLLARS)
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
1. BASIS OF PRESENTATION
These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in Canada for interim
financial information. These financial statements are condensed and do not
include all disclosures required for annual financial statements. The
organization and business of the Company, accounting policies followed by
the Company and other information are contained in the notes to the
Company's audited consolidated financial statements filed as part of the
Company's December 26, 1999 Form 10-K.
In the opinion of the Company's management, these interim financial
statements reflect all adjustments necessary to present fairly the Company's
consolidated financial position at March 26, 2000 and March 28, 1999 and the
consolidated results of operations, the consolidated statement of cash flow
and shareholders' equity for the thirteen weeks then ended. The results of
operations for the interim periods are not necessarily indicative of the
results of any other interim periods or for the entire fiscal year.
2. INCOME TAX
Effective January 1, 2000, Generally Accepted Accounting Principles in
Canada (CDN GAAP) were changed to require recognition of future income tax
assets for all deductible temporary differences, unused tax losses and
income tax reductions, limited to the amount that is more likely than not to
be realized. The Company has applied this change retroactively. The result
is that opening retained earnings has been increased by CDN $2,045 from that
previously reported.
3. NEW LOCATIONS
These financial statements include the results of operations for new
locations in Toronto ON (Elephant & Castle, opened December 10, 1999);
Scarborough (Toronto) ON (joint venture Canadian Rainforest Cafe, opened
February 4, 1999); and Yorkdale (Toronto) ON (joint venture Canadian
Rainforest Cafe, opened July 1, 1999).
4. COMPARATIVE FIGURES
Certain comparative figures have been reclassified to conform to the current
period's presentation.
5. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
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
7
<PAGE>
ELEPHANT & CASTLE GROUP INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
THIRTEEN WEEKS ENDED MARCH 26, 2000 AND MARCH 28, 1999
(CANADIAN DOLLARS)
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
5. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (CONTINUED)
Company's Form 10K for the Year Ended December 26, 1999, as filed with the
Securities and Exchange Commission):
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
-----------------------
MARCH 26, MARCH 28,
2000 1999
---------- ----------
<S> <C> <C>
Net Loss -- Canada.......................................... $ (608) $ (704)
Adjustments
Amortization of leasehold improvement costs............... (15) (15)
Pre-opening costs......................................... 60 (95)
Dividend on paid-in capital............................... 0 (7)
Recognition of non-capital loss carry-forwards............ 0 242
--------- ---------
Net Loss -- United States................................... $ (563) $ (579)
--------- ---------
Net Loss per Common Share
Canada...................................................... $ (0.26) $ (0.42)
United States............................................... $ (0.24) $ (0.34)
Average Number of Common Shares Outstanding................. 2,378,855 1,672,578
</TABLE>
6. FRANCHISES
Two franchised locations were opened in January, 2000. Royalties receivable
from these franchised locations are included in sales.
7. SHARE CONSOLIDATION
On March 23, 2000, shareholders approved a "one for two" share
consolidation. Loss per share figures have been adjusted to reflect this
share consolidation.
8. SUBSEQUENT EVENT
On March 31, 2000, the Company closed its location in Regina SK on the
expiration of its lease.
8
<PAGE>
ELEPHANT & CASTLE GROUP INC.
QUARTERLY REPORT
THIRTEEN WEEKS ENDED MARCH 26, 2000
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RECENT DEVELOPMENTS
There have been several recent changes to the business that should be
considered when reading the following discussion and analysis:
FRANCHISE DEVELOPMENTS
- Two franchised operations opened in January. The first was an Elephant &
Castle brand, which opened in Pittsburgh PA. The second was an Alamo brand
that opened in a Holiday Inn in Atlanta Ga. Discussions for additional
franchise locations are continuing.
BRAND MANAGEMENT
- In order to better manage the Company's brands, and to support franchised
operations, the following senior management changes were made: Mark
Potter, formerly Director of U.S. Operations was appointed Director of
Operations -- Alamo brand. John Luvison, formerly Director of Operations,
Scarborough Rainforest, was appointed Director of Operations, Eastern
North America. Moez Premji, formerly Director of Operations, Canadian
Elephant & Castles, was appointed Director of Operations, Western
North America.
CORPORATE OFFICES
- In January 2000 the Company closed its corporate office located in
Minneapolis, MN. Savings from this closure had a immediate positive impact
on General and Administrative costs in the quarter.
SITE DEVELOPMENTS
- Although no new corporate stores were opened during the quarter, the
Company continues to focus on hotel and downtown locations for future
growth. Its most recent corporately owned location (Toronto -- Yonge
Street, opened in December, 1999) was profitable for the quarter and is
enjoying a strong sales trend.
- The Franklin Mills location continues to experience unsatisfactory sales
and is a significant drag against earnings. The landlord has been
approached in an effort to find a satisfactory solution to the situation,
but thus far without success.
- A Rainforest Cafe is scheduled for development in Montreal in the second
half of the year. This expansion of the Rainforest joint venture will
require additional funding. The Company is currently in discussions with
its joint venture partner to determine the growth strategy for the
joint venture.
COMMON SHARE CONSOLIDATION
- On March 23, 2000, an Extraordinary General Meeting of shareholders was
held and a "one for two" share consolidation was approved. This was in
response to a concern from NASDAQ that the Company's share price was, from
time to time, not meeting the minimum listing requirement of $1.00. The
Company is now in compliance with NASDAQ's requirements.
9
<PAGE>
THIRTEEN WEEKS ENDED MARCH 26, 2000 (UNAUDITED) VS. THIRTEEN WEEKS ENDED
MARCH 28, 1999 (UNAUDITED)
NET INCOME
For the thirteen weeks ended March 26, 2000, the Company's net loss before
income taxes was CDN $869,000 compared to CDN $704,000 for the corresponding
period in 1999. Loss per share, before income tax recovery, for the current
period was CDN ($0.37), compared to CDN ($0.42) in 1999. A change in Generally
Accepted Accounting Principles in Canada (see Income Taxes, below, and Note 5 to
the financial statements) reduced the Net Loss for the current period to
CDN $608,000 (CDN ($0.26) per share). There was no recovery in the 1999 period.
The average number of shares outstanding, after giving effect to the one for two
share consolidation, increased from 1,672,577 in 1999 to 2,378,855 for the
current period.
SALES
Sales decreased 2.7% during the thirteen weeks ended March 26, 2000 to
CDN $11,875,000 from CDN $12,205,000 for the comparable period in 1999. The 2000
figure includes sales for three new locations: Rainforest -- Toronto
(Scarborough) ON (opened February 4, 1999); Rainforest (Yorkdale) ON (opened
July 1, 1999); and Elephant & Castle (Toronto -- Yonge Street) ON (opened
December 10, 1999).
For the thirteen Canadian Elephant & Castle locations open throughout both
periods, sales for the thirteen weeks ended March 26, 2000 totaled CDN
$4,642,000 and were down 3.0% compared to the thirteen weeks ended March 28,
1999. Seven of these locations are in malls that have been impacted by the
closure of Eaton's Limited, one of the anchor tenants. Some of this vacated
space is scheduled to re-open in the second quarter and the balance in quarters
three and four. Mall traffic is expected to improve as these openings occur.
For the seven U.S. locations open throughout both periods, sales for the
2000 period were US $3,249,000 and were 12.0% down from the 1999 period, driven
by a 47% decline at the troubled Franklin Mills, PA location. The Company has
thus far been unsuccessful in its attempts to remedy the situation in
Franklin Mills.
Sales at the one Rainforest Cafe location open more than 18 months were down
25.5%, indicative of the continuing challenges facing the "eatertainment"
segment of the restaurant industry. The trend of significant year on year sales
decreases is expected to continue at the Rainforest locations.
FOOD AND BEVERAGE COSTS
Overall, food and beverage costs, as a percentage of sales, increased to
29.2% for the thirteen weeks ended March 26, 2000 compared to 28.5% for the
thirteen weeks ended March 28, 1999, but is stable with the 29.2% rate for the
fourth quarter of 1999.
LABOUR AND BENEFITS COSTS
Labour and benefits increased from 32.2% of sales in 1999 to 33.6% for the
current period. Much of the increase occurred in stores with sales declines as
these stores attempted to maintain acceptable levels of customer service and not
exacerbate the sales situation.
OCCUPANCY AND OTHER OPERATING COSTS
Occupancy and other operating expenses increased as a percentage of sales
from 26.0% in 1999 to 28.9% for the current period. Management's plan for 2000
included higher expenditures in advertising and promotion, particularly in the
Rainforest locations. Approximately one half of the increase is related to these
expenditures. Much of the balance is due to stable costs on declining revenues
at several locations, particularly stores with fixed rental costs.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization costs decreased to 6.4% of sales for the
current period from 7.5% last year. Amortization of pre-operating costs for new
restaurants, which is effected over the twelve months following opening, was
lower in the current period than in the comparable period in 1999. In dollar
terms, depreciation and amortization decreased to CDN $755,000 in 2000 from CDN
$916,000 in 1999.
10
<PAGE>
GENERAL AND ADMINISTRATIVE COSTS
General and administrative costs decreased from 7.4% of sales in 1999 to
5.4% in the current period. Reductions to these costs made in late 1999 and
early in the current quarter are having a positive impact and are expected to
continue to do so.
INTEREST ON LONG-TERM DEBT
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. In December 1999, agreement was reached with
the debenture holders to convert US $1,582,500 (CDN $2,440,000) of these
debentures to common shares. As a result, interest expense for the current
period decreased to CDN $459,000 from CDN $507,000 for the comparable period
in 1999.
(LOSS) BEFORE TAXES
The Company incurred a loss before income taxes of CDN ($869,000) for the
2000 period compared to a loss of CDN ($704,000) for the 1999 period. As
discussed above, the Company realized positive impacts from lower general and
administrative expenses and decreased interest costs, offset by lower sales and
higher cost percentages for product, labour and other operating costs,
contributing to an increase in Loss before Income Taxes.
INCOME TAXES
Effective January 1, 2000, Generally Accepted Accounting Principles in
Canada (CDN GAAP) require recognition of a future tax asset for all deductible
temporary differences, unused tax losses and income tax reductions, limited to
the amount that is more likely than not to be realized. The Company recognized a
future tax asset of CDN $261,000 in the thirteen weeks ended March 26, 2000.
This had the effect of reducing the net loss to CDN $608,000. A future tax asset
was not recognized in the comparable period of 1999. The Company still has loss
carry-forwards from prior years that will reduce its effective tax rate in
future periods.
LIQUIDITY AND CAPITAL RESOURCES
Operating cash flow for the thirteen week period ended March 26, 2000 was
CDN $208,000 compared to CDN $345,000 for the thirteen week period ended
March 28, 1999. Changes in non-cash working capital items, principally a
reduction of accounts payable, resulted in a net use of funds of CDN $251,000 in
the current period, compared to a net source of funds of CDN $419,000 a
year ago.
The Company's cash balance as of March 26, 2000 was CDN $912,000 compared to
CDN $2,129,000 on March 28, 1999. The Company's current strategy for growth is
to develop new corporately owned stores as internally generated funds allow, as
well as adding franchised units, the first two of which opened during the
current quarter. The Company's current cash position, together with the cash
generated from its restaurant operations, will be sufficient to fund its 2000
capital expansion program. Further expansion of the Rainforest joint venture
will require additional funding. The Company is currently in discussions with
its joint venture partner to determine the growth strategy for the
joint venture.
THIRTEEN WEEKS ENDED MARCH 28, 1999 (UNAUDITED) VS. THIRTEEN WEEKS ENDED
MARCH 29, 1998 (UNAUDITED)
NET INCOME
For the thirteen weeks ended March 28, 1999, the Company's net loss was
CDN $704,000 compared to CDN $438,000 for the corresponding period in 1998. Loss
per share for the 1999 period was CDN ($0.21), compared to CDN ($0.14) in 1998.
The average number of shares outstanding increased from 3,044,630 in 1998 to
3,345,155 for the 1999 period.
11
<PAGE>
SALES
Sales increased 31.5% during the thirteen weeks ended March 28, 1999 to
CDN $12,205,000 from CDN $9,282,000 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 March 28, 1999 totaled CDN $4,785,000 and were up 2.1%
compared to the thirteen weeks ended March 29, 1998. This was the fifth
consecutive quarter of same store sales growth in Canada. For the six
U.S. locations open throughout both periods, sales for the 1999 period were
US $3,137,000 and were 1.0% down from the 1998 period.
Sales at the two Rainforest Cafe locations -- Vancouver and Toronto -- have
met or exceeded expectations. Early sales performance at the new Philadelphia
'twin' location has been disappointing.
FOOD AND BEVERAGE COSTS
Overall, food and beverage costs, as a percentage of sales, improved to
28.5% for the thirteen weeks ended March 28, 1999 compared to 28.8% for the
thirteen weeks ended March 29, 1998. The improvement is a continuation of a
trend the Company has been experiencing for the past nine quarters.
LABOUR AND BENEFITS COSTS
Labour and benefits decreased from 33.3% of sales in 1998 to 32.2% for the
1999 period. Again, this is the continuation of a downward cost trend, driven by
improved cost management techniques as well as the opening of higher
volume stores.
OCCUPANCY AND OTHER OPERATING COSTS
Occupancy and other operating expenses decreased as a percentage of sales
from 26.2% in 1998 to 25.6% for the 1999 period. Per store occupancy costs have
risen as a result of opening larger Rainforest facilities in high traffic, high
profile sites.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization costs increased to 7.5% of sales for the 1999
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 $916,000 in
1999 from CDN $553,000 in 1998 as the company continues to opens new locations.
GENERAL AND ADMINISTRATIVE COSTS
General and administrative costs decreased from 8.3% of sales in 1998 to
7.8% 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
12
<PAGE>
(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 ($704,000) for the
1999 period compared to a loss of CDN ($438,000) for the 1998 period. As
discussed above, the Company realized positive impacts from higher sales and its
key operating cost ratios, partially offset by higher pre-operating costs,
contributing to an increase in Income from Restaurant Operations to
CDN $759,000 for the 1999 period from CDN $534,000 in 1998. This was offset by
higher general and administrative costs 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 March 28, 1999
and therefore has no tax liability. The Company also has loss carry-forwards
that will reduce its effective tax rate in future periods.
LIQUIDITY AND CAPITAL RESOURCES (1999)
Changes in non-cash working capital items resulted in a net source of funds
of CDN $419,000 in the thirteen week period ended March 28, 1999, compared to a
net use of funds of CDN $53,000 in the thirteen week period ended March 29,
1998. The principal source in 1999 was an increase in accounts payable related
to the two newest locations.
The Company's cash balance as of March 28, 1999 was CDN $2,129,000 compared
to CDN $3,449,000 on March 29, 1998. The Company invested CDN $1,620,000 in
fixed assets during the 1999 period, principally in the Rainforest Joint
Venture. New financing, net of financing costs and repayments of debt, generated
CDN $1,031,000 of funds. The Company's current cash position, together with the
cash being generated from its restaurant operations, will be sufficient to fund
its 1999 capital expansion program.
13
<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)
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ RICHARD BRYANT
------------------------------------------- President & C.E.O. May 8, 2000
Richard Bryant
/s/ DANIEL DEBOU
------------------------------------------- Chief Accounting Officer May 8, 2000
Daniel DeBou
</TABLE>
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS OF ELEPHANT & CASTLE GROUP INC. FOR THE THIRTEEN
WEEK PERIOD ENDED MARCH 26, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CURRENCY> $CDN
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> DEC-27-1999
<PERIOD-END> MAR-26-2000
<EXCHANGE-RATE> 0.67567
<CASH> 912,000
<SECURITIES> 0
<RECEIVABLES> 908,000
<ALLOWANCES> 0
<INVENTORY> 921,000
<CURRENT-ASSETS> 3,189,000
<PP&E> 34,474,000
<DEPRECIATION> 12,370,000
<TOTAL-ASSETS> 31,092,000
<CURRENT-LIABILITIES> 7,074,000
<BONDS> 15,718,000
0
0
<COMMON> 16,347,000
<OTHER-SE> (8,047,000)
<TOTAL-LIABILITY-AND-EQUITY> 31,092,000
<SALES> 11,831,000
<TOTAL-REVENUES> 11,875,000
<CGS> 3,461,000
<TOTAL-COSTS> 8,179,000
<OTHER-EXPENSES> 645,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 459,000
<INCOME-PRETAX> (869,000)
<INCOME-TAX> (261,000)
<INCOME-CONTINUING> (608,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (608,000)
<EPS-BASIC> ($0.26)
<EPS-DILUTED> ($0.26)
</TABLE>
