<PAGE> 1
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 29, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT
For the transition period from to
Commission file number 1-12104
BACK YARD BURGERS, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 64-0737163
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2768 COLONY PARK DRIVE, MEMPHIS, TENNESSEE 38118
(Address of principal executive offices)
(901) 367-0888
(Issuer's telephone number)
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.
Yes [ X ] No [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class - Common stock, par value $.01 per share
Outstanding at August 1, 1996 - 4,227,958
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
<PAGE> 2
BACK YARD BURGERS, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
Part I - Financial Information
Item 1 - Unaudited Consolidated Financial Statements:
Balance Sheet as of June 29, 1996 and December 30, 1995 3
Statement of Income for the Thirteen Weeks Ended and
Twenty-Six Weeks Ended June 29, 1996 and July 1, 1995 4
Statement of Cash Flows for the Twenty-Six Weeks Ended
June 29, 1996 and July 1, 1995 5
Notes to Unaudited Financial Statements 6-7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-14
Part II - Other Information
Item 1 - Legal Proceedings 14
Item 2 - Changes in Securities 14
Item 3 - Defaults Upon Senior Securities 15
Item 4 - Submission of Matters to a Vote
of Security Holders 15
Item 5 - Other Information 15
Item 6 - Exhibits and Reports on Form 8-K 15
Signatures 16
</TABLE>
2
<PAGE> 3
BACK YARD BURGERS, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 29, DECEMBER 30,
1996 1995
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 765 $ 528
Receivables, net 323 259
Inventories 160 167
Income taxes refundable 22 22
Prepaid expenses and other current assets 102 174
------- -------
Total current assets 1,372 1,150
Note receivable - 8
Property and equipment, at depreciated cost 7,877 8,128
Intangible assets 1,612 1,664
Other assets 194 199
------- -------
$11,055 $11,149
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 233 $ 327
Accrued expenses 429 511
Current installments of long-term debt 229 232
------- -------
Total current liabilities 891 1,070
Long-term debt, less current installments 1,957 2,066
Other deferred liabilities 97 85
Deferred franchise fees 200 200
------- -------
Total liabilities 3,145 3,421
------- -------
Commitments and contingencies - -
Stockholders' equity
Preferred stock, $.01 par value, 2,000,000 shares authorized;
316,894 shares issued and outstanding at June 29, 1996
(329,415 at December 30, 1995) 3 3
Common stock, $.01 par value, 12,000,000 shares authorized;
4,225,558 outstanding at June 29, 1996
(4,205,551 at December 30, 1995) 42 42
Paid-in capital 9,942 9,931
Retained deficit (2,077) (2,248)
------- -------
Total stockholders' equity 7,910 7,728
------- -------
$11,055 $11,149
======= =======
</TABLE>
See accompanying notes to unaudited financial statements
3
<PAGE> 4
BACK YARD BURGERS, INC.
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
THIRTEEN WEEKS TWENTY-SIX WEEKS
ENDED ENDED
----------------- ------------------
JUNE 29, JULY 1, JUNE 29, JULY 1,
1996 1995 1996 1995
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Restaurant sales $ 5,879 $ 5,646 $ 10,785 $ 10,381
Franchise fees 57 19 76 84
Royalty fees 257 234 453 434
Advertising fees 67 61 117 112
Other 47 41 134 107
-------- ------- -------- --------
Total revenues 6,307 6,001 11,565 11,118
-------- ------- -------- --------
Expenses:
Cost of restaurant sales 1,957 1,986 3,615 3,662
Restaurant operating expenses 2,811 2,582 5,278 4,791
General and administrative 695 770 1,356 1,466
Advertising 259 185 488 366
Depreciation and amortization 273 345 554 676
-------- ------- -------- --------
Total expenses 5,995 5,868 11,291 10,961
-------- ------- -------- --------
Operating income 312 133 274 157
Interest income 3 4 7 10
Interest expense (58) (74) (115) (126)
Other, net 4 8 5 9
-------- ------- -------- --------
Income before income taxes 261 71 171 50
Income tax provision - 29 - 20
-------- ------- -------- --------
Net Income $261 $42 $171$ 30
======== ======= ======== ========
Net income per share
Primary $.06 $.01 $.04 $ .01
======== ======= ======== ========
Fully diluted $.06 $.01 $.04 $ .01
======== ======= ======== ========
Weighted average number of common shares and
common equivalent shares outstanding
Primary 4,541 4,533 4,539 4,533
======== ======= ======== ========
Fully diluted 4,541 4,533 4,539 4,533
======== ======= ======== ========
</TABLE>
See accompanying notes to unaudited financial statements
4
<PAGE> 5
BACK YARD BURGERS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
---------------------------
JUNE 29, JULY 1,
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income $ 171 $ 30
Adjustments to reconcile net income to net cash
from operating activities
Depreciation and amortization of property and equipment 456 443
Deferred income taxes - (13)
Amortization of intangible assets 52 85
Amortization of preopening costs 46 148
Provision for losses on receivables 53 23
Gain on sale of assets (3) -
(Increase) decrease in assets
Receivables (109) (21)
Inventories 7 (11)
Prepaid expenses and other current assets 26 (100)
Other assets 5 (19)
Increase (decrease) in liabilities
Accounts payable and accrued expenses (176) (309)
Income taxes payable - 50
Other deferred liabilities 12 13
Deferred franchise fees - 33
-------- --------
Net cash provided by operating activities 540 352
-------- --------
Cash flows from investing activities
Additions to property and equipment (247) (1,838)
Investment in joint venture - (50)
Acquisition of business, net of cash acquired - (89)
Proceeds from sale of assets 45 -
-------- --------
Net cash used in investing activities (202) (1,977)
-------- --------
Cash flows from financing activities
Issuance of stock 11 -
Principal payments on long-term debt and capital leases (112) (328)
Proceeds from issuance of long-term debt - 2,046
-------- --------
Net cash provided by (used in) financing activities (101) 1,718
-------- --------
Net increase in cash and cash equivalents 237 93
Cash and cash equivalents
Beginning of period 528 419
-------- --------
End of period $ 765 $ 512
======== ========
Supplemental disclosure of cash flow information
Income taxes paid (received) $ - $ (23)
======== ========
Interest paid $ 115 $ 126
======== ========
</TABLE>
See accompanying notes to unaudited financial statements
5
<PAGE> 6
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
Back Yard Burgers, Inc. (the "Company") owns and operates quick-service
restaurants and is engaged in the sale of franchises and the collection of
royalties based upon related franchise sales. The Company grants franchise
rights for the use of "Back Yard Burgers," "BYB" or "BY Burgers" trade names
and other associated trademarks, signs, emblems, logos, slogans and service
marks which have been or may be developed.
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB and therefore do not include
all information and notes necessary for a fair presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles. The statements do reflect all adjustments
(consisting of only normal recurring accruals) which are, in the opinion of
management, necessary to present fairly the financial position and results of
operations and cash flows in conformity with generally accepted accounting
principles. The statements should be read in conjunction with the Notes to
Financial Statements for the year ended December 30, 1995 included in the
Company's 1995 Annual Report.
The Company assesses at each balance sheet date whether there has been an
impairment in the value of goodwill and other intangible assets by determining
whether projected undiscounted future cash flow from operations for each
restaurant, as defined in Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of," exceeds its net book value as of the assessment date.
The results of operations for the thirteen-week and twenty-six week
periods are not necessarily indicative of the results to be expected for the
full year.
The financial statements include the accounts of Back Yard Burgers, Inc.
and its wholly-owned subsidiaries, Little Rock Back Yard Burgers, Inc. and
Atlanta Burgers BYB Corporation, as well as the Back Yard Burgers National
Advertising Fund. All significant intercompany transactions have been
eliminated.
The Company maintains its financial records on a 52-53 week fiscal year
ending on the Saturday closest to December 31.
NOTE 2 - NET INCOME PER SHARE
The Company calculates earnings per share based on the weighted average
number of common shares and common equivalent shares outstanding. Common
equivalent shares represent dilutive stock options and warrants, reduced by the
number of shares which could be repurchased at the average fair market value
during the year with the proceeds of the options and warrants.
NOTE 3 - DEFERRED FRANCHISE FEES
Amounts received for certain franchise and area development rights, net of
commissions paid, have been deferred. Revenues on individual franchise fees
are recognized when
6
<PAGE> 7
substantially all of the initial services required of the Company have been
performed, which generally coincides with the opening of the franchises.
Under the terms of the franchise agreements, these fees are non-refundable, and
may be recognized as income should the franchisee fail to perform as agreed.
Area development fees are recognized on a pro-rata basis as each unit opens.
At June 29, 1996, deferred fees include franchise and area development rights
sold during the following years:
<TABLE>
<S> <C>
1996 $ 57
1995 88
Previous Years 55
--------
$ 200
========
</TABLE>
NOTE 4 - COMMITMENTS AND CONTINGENCIES
Effective May 28, 1994, the Company guaranteed a promissory note in the
amount of $160,000. The Company has guaranteed such note with the assets and
leasehold interest of a Back Yard Burgers restaurant in Little Rock, Arkansas.
The Company is party to several pending legal proceedings and claims.
Although the outcome of the proceedings and claims cannot be determined with
certainty, management of the Company is of the opinion that it is unlikely that
these proceedings and claims will have a material adverse effect on the
financial condition or results of operations of the Company.
7
<PAGE> 8
SAFE HARBOR PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain qualifying forward-looking statements. Certain information
included in this Form 10-QSB may contain statements that are forward-looking,
such as statements related to financial items and results, plans for future
expansion and other business development activities, capital spending or
financing sources, capital structure and the effects of regulation and
competition. Such forward-looking information involves important risks and
uncertainties that could significantly impact anticipated results in the future
and, accordingly, such results may differ materially from those expressed in
any forward-looking statements by or on behalf of the Company. These risks and
uncertainties include, but are not limited to, those described under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" below.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The Company's revenues are derived primarily from Company-operated
restaurant sales, franchise fees and royalty fees. Certain expenses (cost of
restaurant sales, restaurant operating expenses, depreciation and amortization
and advertising) relate directly to Company-operated restaurants, while general
and administrative expenses relate to both Company-operated restaurants and
franchise operations. The Company's revenues and expenses are affected by the
number and timing of the opening of additional restaurants. Sales for new
restaurants in the period immediately following their opening tend to be high
because of trial by public and promotional activities. As a result, the timing
of openings can affect the average volume and other period-to-period
comparisons.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to total
revenue, unless otherwise indicated, of certain items included in the Company's
historical operations and operating data for the periods indicated.
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
------------------------
JUNE 29, JULY 1,
1996 1995
----------- -----------
<S> <C> <C>
Revenues
Restaurant sales 93.2% 93.4%
Franchise fees .7 .8
Royalty fees 3.9 3.9
Advertising fees 1.0 1.0
Other operating revenue 1.2 .9
----- -----
Total revenue 100.0% 100.0%
===== =====
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION> TWENTY-SIX WEEKS ENDED
------------------------
JUNE 29, JULY 1,
1996 1995
----------- -----------
<S> <C> <C>
Costs and Expenses
Cost of restaurant sales (1) 33.5% 35.3%
Restaurant operating expenses (1) 48.9 46.2
General and administrative 11.7 13.2
Advertising 4.2 3.3
Depreciation and amortization 4.8 6.1
Operating income 2.4 1.4
Interest income .1 .1
Interest expense 1.0 1.1
Other, net - .1
Income before income taxes 1.5 .4
Income tax provision - .2
Net income 1.5 .3
</TABLE>
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
------------------------
JUNE 29, JULY 1,
1996 1995
---------- --------
($000'S)
<S> <C> <C>
Operating data
System-wide restaurant sales
Company operated $10,785 $10,381
Franchised 12,191 11,595
------- -------
Total $22,976 $21,976
======= =======
Average annual sales per restaurant
open for a full year (2)
Company-operated $ 658 $ 675
Franchised $ 601 $ 578
System-wide $ 628 $ 617
Number of restaurants
Company-operated 33 32
Franchised 41 39
------- -------
Total 74 71
======= =======
</TABLE>
(1) As a percentage of restaurant sales.
(2) Includes sales for restaurants open for entire trailing twelve-month
period. Restaurants are included in the calculation after the completion
of six months of operation as sales during the period immediately after
the opening tend to be higher due to promotions and trial by public.
9
<PAGE> 10
COMPARISON OF THE COMPANY'S RESULTS FOR THE THIRTEEN WEEKS ENDED JUNE 29, 1996
AND JULY 1, 1995.
RESTAURANT SALES increased 4.1% to $5,879,000 during the thirteen weeks
ended June 29, 1996 compared to $5,646,000 for the same 1995 period. This
increase is primarily the result of opening one new Company-operated restaurant
subsequent to July 1, 1995, and the acquisition of two franchised restaurants
on June 30, 1995. These three restaurants accounted for approximately $535,000
in sales. These sales were partially offset by a decrease in same-store sales
at restaurants open for more than one year of 4.5%, or approximately $194,000.
ROYALTY FEES increased 9.8% to $257,000 during the thirteen week period
ended June 29, 1996 compared to $234,000 during the same period in 1995. The
increase is due to an increase in franchised restaurant sales upon which the
fees are based. The sales increase resulted partially from a net increase of
two franchised restaurants. Eight franchised restaurants were opened, and six
were closed since July 1, 1995. Additionally, comparable same-store sales at
franchised restaurants open for more than one year increased 4.3%, representing
an increase in royalty fees of approximately $7,000.
ADVERTISING FEES increased 9.8% to $67,000 for the thirteen weeks ended
June 29, 1996 compared to $61,000 during the comparable period in 1995. The
increase is related to the increase in franchised restaurant sales as noted
above.
COST OF RESTAURANT SALES, consisting of food and paper costs, totaled
$1,957,000 for the thirteen weeks ended June 29, 1996 and $1,986,000 during the
same period in 1995, decreasing as a percentage of restaurant sales to 33.3%
from 35.2%. This decrease is primarily the result of a decrease in the cost of
beef and tomatoes of approximately 10.0% and 37.0%, respectively, from the
prior year, partially offset by increases in the costs of bacon, dairy products
and most paper items.
RESTAURANT OPERATING EXPENSES, consisting of labor, supplies, utilities,
rent and certain other unit level operating expenses, increased to $2,811,000
for the thirteen weeks ended June 29, 1996 from $2,582,000 in the same prior
year period. This represents an increase as a percentage of restaurant sales
to 47.8% compared to 45.7% for the same period in 1995. The increase, as a
percentage of sales, relates primarily to a decrease in same-store sales at
existing restaurants of 4.5% which results in expenses of a fixed and
semi-variable nature, such as management payroll, repairs, rent, utilities,
taxes and insurance, representing a greater percentage of sales.
GENERAL AND ADMINISTRATIVE COSTS, which decreased to $695,000 from
$770,000, decreased to 11.0% as a percentage of total revenues for the thirteen
weeks ended June 29, 1996 compared to 12.8% for the same period in 1995. The
decrease, as a percentage of total revenues, is the result of decreases in
legal expenses and public and investor relations of approximately 0.2% and
0.5%, respectively. Additionally, certain efficiencies were realized by the
addition of three Company-operated restaurants without a similar increase in
corporate administrative expense.
INTEREST EXPENSE decreased to 0.9% ($58,000) of revenues for the second
quarter of 1996 compared to 1.2% ($74,000) for the same period in 1995. This
is the result of a net decrease of approximately $1,135,000 of debt subsequent
to July 1, 1995.
10
<PAGE> 11
DEPRECIATION AND AMORTIZATION EXPENSE decreased to 4.3% ($273,000) as a
percentage of total revenues for the thirteen weeks ended June 29, 1996
compared to 5.7% ($345,000) for the same period in 1995. This decrease is
primarily the result of the adoption of a new accounting standard by the
Company during the fourth quarter of 1995, partially offset by depreciation
from the addition of three Company-operated restaurants noted above. See
"Impairment of Long-Lived Assets" below.
COMPARISON OF THE COMPANY'S RESULTS FOR THE TWENTY-SIX WEEKS ENDED JUNE 29,
1996 AND JULY 1, 1995.
RESTAURANT SALES increased 3.9% to $10,785,000 during the twenty-six weeks
ended June 29, 1996 compared to $10,381,000 for the same 1995 period. This
increase is primarily the result of opening five new Company-operated
restaurants subsequent to January 1, 1995, and the acquisition of two
franchised restaurants on June 30, 1995. These restaurants accounted for
approximately $1,004,000 in sales. These sales were partially offset by a
decrease in same-store sales at restaurants open for more than one year of
5.8%, or approximately $407,000.
ROYALTY FEES increased 4.4% to $453,000 during the twenty-six week period
ended June 29, 1996 compared to $434,000 during the same period in 1995. The
increase is due to an increase in franchised restaurant sales upon which the
fees are based. The sales increase resulted partially from a net increase of
two franchised restaurants. Twelve franchised restaurants were opened, eight
were closed and two franchised restaurants were converted to Company-operated
since January 1, 1995. Comparable same-store sales at franchised restaurants
open for more than one year increased 1.0%, representing an increase in royalty
fees of approximately $3,000.
ADVERTISING FEES increased 4.5% to $117,000 for the twenty-six weeks ended
June 29, 1996 compared to $112,000 during the comparable period in 1995. The
increase is related to the increase in franchised restaurant sales as noted
above.
COST OF RESTAURANT SALES, consisting of food and paper costs, totaled
$3,615,000 for the twenty-six weeks ended June 29, 1996 and $3,662,000 during
the same period in 1995, decreasing as a percentage of restaurant sales to
33.5% from 35.3%. This decrease is due primarily to decreases in the cost of
beef, chicken and tomatoes of approximately 12.0%, 2.0% and 4.0%, respectively,
from the prior year. These decreases were partially offset by increases in the
costs of bacon, certain produce, dairy products and most paper items.
RESTAURANT OPERATING EXPENSES, consisting of labor, supplies, utilities,
rent and certain other unit level operating expenses, increased to $5,278,000
for the twenty-six weeks ended June 29, 1996 from $4,791,000 in the same prior
year period. This represents an increase as a percentage of restaurant sales
to 48.9% compared to 46.2% for the same period in 1995. The increase, as a
percentage of sales, relates primarily to a decrease in same-store sales at
existing restaurants of 5.8% which results in expenses of a fixed and
semi-variable nature, such as management payroll, repairs, rent, utilities,
taxes and insurance, representing a greater percentage of sales.
GENERAL AND ADMINISTRATIVE COSTS, which decreased to $1,356,000 from
$1,466,000, decreased to 11.7% as a percentage of total revenues for the
twenty-six weeks ended June 29, 1996 compared to 13.2% for the same period in
1995. The decrease, as a percentage of total revenues, is the result of
decreases in legal expenses and public and investor relations of approximately
0.2% and 0.3%, respectively. Additionally, efficiencies were realized by the
addition of seven Company-operated restaurants without a similar increase in
corporate administrative expense.
11
<PAGE> 12
INTEREST EXPENSE decreased to 1.0% ($115,000) of revenues for the first
half of 1996 compared to 1.1% ($126,000) for the same period in 1995. This is
the result of a decrease of approximately $731,000 of debt subsequent to April
1, 1995.
DEPRECIATION AND AMORTIZATION EXPENSE decreased to 4.8% ($554,000) as a
percentage of total revenues for the twenty-six weeks ended June 29, 1996
compared to 6.1% ($676,000) for the same period in 1995. This decrease is
primarily the result of the adoption of a new accounting standard by the
Company during the fourth quarter of 1995, partially offset by depreciation
from the addition of seven Company-operated restaurants noted above. See
"Impairment of Long-Lived Assets" below.
IMPAIRMENT OF LONG-LIVED ASSETS
The Financial Accounting Standards Board ("FAST") issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets to Be Disposed Of," ("SAS 121") in March 1995. The Company
adopted the provisions of SAS 121 during the fourth quarter of 1995. SAS 121
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to those assets to be
held and used and for long-lived assets and certain identifiable intangibles to
be disposed of. The Company reviews the carrying values of its long-lived and
intangible assets for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of assets may not be
recoverable. SAS 121 requires that a new cost basis be established for
impaired assets based on the fair value of these assets as of the date the
assets are determined to be impaired, and that previously recorded accumulated
depreciation or amortization related to the impaired assets be eliminated.
During the fourth quarter of 1995, the Company determined that the
carrying amount of certain long-lived assets of the Company's restaurants in
the central Arkansas area might not be recoverable. The resultant calculated
impairment of long-lived assets necessitated a write-down in 1995 of
$2,564,000.
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures totaled $91,000 for the thirteen weeks ended June 29,
1996 and $1,338,000 for the same period of 1995. Generally, the Company
purchases its restaurant buildings and leases the properties for its
Company-operated restaurants. The average monthly lease cost for the 21
Company-operated restaurants on leased sites at June 29, 1996 is approximately
$2,800 per month. For the nine restaurants where the Company leases the
building as well as the site, the average monthly lease cost is approximately
$3,900.
Cash from operations for the Company is primarily affected by net earnings
adjusted for deferred franchise fees and non-cash expenses which consist
primarily of depreciation and amortization. Depreciation and amortization
totaled $273,000 for the thirteen weeks ended June 29, 1996 and $345,000 for
the same 1995 period. The decrease relates primarily to the Company's adoption
of SAS 121 during the fourth quarter of 1995. Receivables, net, increased
$64,000 during the twenty-six weeks ended June 29, 1996, primarily due to the
timing of collections from franchisees.
Cash provided by operations for the twenty-six week period ended June 29,
1996 and July 1, 1995 totaled $540,000 and $352,000, respectively. Since
January 1, 1995, the addition of restaurants and equipment has been financed
primarily through cash from operations and debt.
12
<PAGE> 13
The Company believes that it currently has sufficient resources to fund
anticipated capital expenditures of approximately $500,000 during the remainder
of 1996. Additional future growth in 1997 may require the Company to obtain
additional debt or equity financing.
SEASONALITY AND INFLATION
While the Company does not believe that seasonality affects its operations
in a materially adverse manner, first quarter results will generally be lower
than other quarters due to seasonal climate conditions in the locations of many
of its restaurants. Management does not believe that inflation has had a
material affect on income during the thirteen or twenty-six weeks ended June
29, 1996. Increases in food, labor or other operating costs could adversely
affect the Company's operations. In the past, the Company generally has been
able to increase menu prices or modify its operating procedures to
substantially offset increases in operating costs. There can be no certainty
that the Company will be able to successfully continue this practice as it has
in the past.
KNOWN TRENDS AND UNCERTAINTIES
Labor will continue to be a critical factor for the remainder of 1996 and
into 1997. In most areas where the Company operates restaurants, there is a
shortage of labor. This, in itself, could result in higher wages as the
competition for employees intensifies, not only in the quick-service restaurant
industry, but in practically all retail and service industries. It will be
crucial for the Company to develop programs to attract and retain quality
employees. Subsequent to the second quarter, both the House of Representatives
and the Congress passed bills to raise the minimum wage. It is expected to be
signed into law in the near future and will become effective on October 1,
1996. Although the Company currently pays most employees above the minimum
wage, any increase could have a negative impact on operating margins.
During 1995, and continuing through the first half of 1996, the cost of
beef, the largest single component of the cost of restaurant sales, was below
prices of recent years. Management of the Company expects beef prices to rise
at some time in the future. Additionally, the Company believes that the prices
of chicken and dairy products will increase during the remainder of 1996. It
will be difficult to raise menu prices to fully cover these anticipated
increases due to the competitive state of the quick-service restaurant
industry. Additional margin improvements would have to be made through
operational improvements, equipment advances and increased volumes to help
offset these increases.
Due to the competitive nature of the restaurant industry, site selection
will become more difficult as an increasing number of businesses will be vying
for locations with similar characteristics. This could result in higher
occupancy costs for prime locations.
Same-store sales declined 4.5% during the second quarter of 1996 compared
to the same period in 1995 however, the decline was not as great as in the
first quarter of 1996 which was 7.8%. The Company implemented a new marketing
strategy which is focused on increasing customer awareness and improving
store-level margins. Should same-store sales continue to decline, the Company
is prepared to become more aggressive in marketing activities to reverse this
trend.
The future success of the Company will be determined, to a great extent,
by its ability to positively address these issues.
13
<PAGE> 14
CONVERSION OF PREFERRED STOCK
In accordance with the provisions of the Company's Certificate of
Incorporation regarding preferred stock, as a result of the Company's having
attained after tax net income in excess of $600,000 during 1994, each share of
preferred stock is convertible into one share of common stock, at the option of
the holder. The Company has notified preferred stockholders of their right to
convert preferred stock to common stock, and anticipates that all shares of
preferred stock will be converted. Such conversion began on April 5, 1995, at
which time there were 1,199,979 shares of preferred stock outstanding. As of
June 29, 1996, 883,085 shares had been converted.
ACCOUNTING FOR STOCK-BASED COMPENSATION
In October, 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," ("SAS 123") which is effective for fiscal years
beginning after December 15, 1995. This statement defines a fair-value based
method of accounting for employee stock options or similar equity instruments
and encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans. However, it also allows an entity to
continue to measure compensation for those plans using the intrinsic-value
based method currently prescribed by Accounting Principles Board Opinion No. 25
("APB 25"), provided certain pro forma disclosures are made that disclose what
the impact on net earnings would have been had the Company adopted the
accounting provisions of SAS 123. The Company plans to continue to use the
intrinsic-value method currently prescribed by APB 25 therefore, there will be
no impact on the Company's financial position or results of operations from
adopting this standard.
LEGAL PROCEEDINGS
The Company is involved in certain legal proceedings. See "Legal
Proceedings" below.
PART II OTHER INFORMATION
Item 1 Legal Proceedings
Reference is made to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 30, 1995. There were no material changes during the
quarterly period ended June 29, 1996 with respect to the litigation so
referenced, except as noted below.
With respect to the case of Pezzecca Enterprises, Inc. v. Back Yard
Burgers, Inc. as previously disclosed by the Company, the United States
District Court has rendered a decision in favor of the Company, granting the
Company's motion for summary judgement.
The Company is also involved in appeals of previously determined matters
and other litigation incidental to its business, including, but not necessarily
limited to, claims alleging violations of the Civil Rights Act of 1964 and/or
discrimination. Aside from the cost of defense, such litigation is not
presently considered by management to be material to the financial condition of
the Company.
Item 2 Changes in Securities
None
14
<PAGE> 15
Item 3 Defaults Upon Senior Securities
Not Applicable
Item 4 Submission of Matters to a Vote of Security Holders
On May 16, 1996, The Company held its Annual Meeting of Stockholders in
Memphis, Tennessee, for the purpose of: I) electing two members to the Board of
Directors and; ii) ratifying the appointment of Price Waterhouse LLP as
independent public accountants for 1996 and to transact such other business as
may have properly come before the meeting or an adjournment thereof.
The following table sets forth the directors elected at such meeting and
the number of votes cast by the Company's common and preferred stockholders for
and withheld for each director:
Directors For Withheld
--------- --- --------
W. Kurt Henke 3,983,818 39,304
Joe Colonnetta 3,947,825 75,297
The appointment of Price Waterhouse LLP as independent public accountants
was ratified at the meeting.
For 4,009,345
Against 12,577
Abstentions 1,200
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
Exhibits
11 - Calculation of Income Per Share
27 - Financial Data Schedule, which is submitted
electronically to the Securities and
Exchange Commission for information only and
not filed.
Reports on Form 8-K
None
15
<PAGE> 16
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereto duly
authorized.
BACK YARD BURGERS, INC.
Date: August 8, 1996 By:/s/ Lattimore M. Michael
------------------------
Lattimore M. Michael
Chairman and Chief Executive
Officer
Date: August 8, 1996 By:/s/ Stephen J. King
------------------------
Stephen J. King
Chief Financial Officer
16
<PAGE> 1
EXHIBIT 11
BACK YARD BURGERS, INC.
COMPUTATION OF LOSS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS TWENTY-SIX WEEKS
ENDED ENDED
----- -----
JUNE 29, JULY 1, JUNE 29, JULY 1,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income $ 261 $ 42 $ 171 $ 30
======= ====== ======= =======
Weighted average number
of common shares outstanding
during the period 4,216 3,681 4,212 3,507
Preferred shares convertible
to common shares 325 852 327 1,026
------- ------ ------- -------
4,541 4,533 4,539 4,533
======= ====== ======= =======
Primary income per share $ .06 $ .01 $ .04 $ .01
======= ====== ======= =======
Primary weighted average number
of common shares outstanding
during the period 4,216 3,681 4,212 3,507
Preferred shares convertible
to common shares 325 852 327 1,026
------- ------ ------- -------
4,541 4,533 4,539 4,533
======= ====== ======= =======
Fully diluted income per share $ .06 $.01 $.04 $.01
======= ====== ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT JUNE 29, 1996 AND THE CONSOLIDATED STATEMENT OF
INCOME FOR THE SIX MONTHS ENDED JUNE 29, 1996, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> JUN-29-1996
<EXCHANGE-RATE> 1
<CASH> 765
<SECURITIES> 0
<RECEIVABLES> 323<F1>
<ALLOWANCES> 0
<INVENTORY> 160
<CURRENT-ASSETS> 1,372
<PP&E> 7,877<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,055
<CURRENT-LIABILITIES> 891
<BONDS> 0
0
3
<COMMON> 42
<OTHER-SE> 7,865
<TOTAL-LIABILITY-AND-EQUITY> 11,055
<SALES> 10,785
<TOTAL-REVENUES> 11,565
<CGS> 3,615
<TOTAL-COSTS> 8,893
<OTHER-EXPENSES> 2,333
<LOSS-PROVISION> 53
<INTEREST-EXPENSE> 115
<INCOME-PRETAX> 171
<INCOME-TAX> 0
<INCOME-CONTINUING> 171
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 171
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
<FN>
<F1>ASSET VALUE REPRESENTS NET AMOUNT
</FN>
</TABLE>
