<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 28, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT
For the transition period from to
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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, 1997 - 4,266,238
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
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BACK YARD BURGERS, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
Part I - Financial Information
<S> <C> <C>
Item 1 - Unaudited Consolidated Financial Statements:
Balance Sheet as of June 28, 1997 and December 28, 1996 3
Statement of Income for the Thirteen Weeks Ended and
Twenty-Six Weeks Ended June 28, 1997 and June 29, 1996 4
Statement of Cash Flows for the Twenty-Six Weeks Ended
June 28, 1997 and June 29, 1996 5
Notes to Unaudited Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-12
Part II - Other Information
Item 1 - Legal Proceedings 13
Item 2 - Changes in Securities 13
Item 3 - Defaults Upon Senior Securities 13
Item 4 - Submission of Matters to a Vote
of Security Holders 13
Item 5 - Other Information 13
Item 6 - Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
2
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BACK YARD BURGERS, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 28, DECEMBER 28,
1997 1996
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 629 $ 1,101
Receivables, net 472 363
Inventories 161 150
Prepaid expenses and other current assets 87 31
-------- --------
Total current assets 1,349 1,645
Note receivable 75 30
Property and equipment, at depreciated cost 8,537 8,131
Intangible assets 1,509 1,561
Other assets 210 205
-------- --------
$ 11,680 $ 11,572
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 459 $ 564
Accrued expenses 644 507
Current installments of long-term debt 196 328
-------- --------
Total current liabilities 1,299 1,399
Long-term debt, less current installments 1,757 1,831
Other deferred liabilities 117 110
Deferred franchise fees 164 122
-------- --------
Total liabilities 3,337 3,462
-------- --------
Commitments and contingencies -- --
Stockholders' equity
Preferred stock, $.01 par value, 2,000,000 shares authorized; 292,960 shares
issued and outstanding at June 28, 1997
(309,506 at December 28, 1996) 3 3
Common stock, $.01 par value, 12,000,000 shares authorized;
4,266,238 outstanding at June 28, 1997
(4,240,766 at December 28, 1996) 43 42
Paid-in capital 9,969 9,956
Retained deficit (1,672) (1,891)
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Total stockholders' equity 8,343 8,110
-------- --------
$ 11,680 $ 11,572
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</TABLE>
See accompanying notes to unaudited financial statements
3
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BACK YARD BURGERS, INC.
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
-------------------- ----------------------
JUNE 28, JUNE 29, JUNE 28, JUNE 29,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Restaurant sales $ 6,030 $ 5,879 $ 11,491 $ 10,785
Franchise fees -- 57 21 76
Royalty fees 309 257 586 453
Advertising fees 80 67 152 117
Other 118 47 176 134
-------- -------- -------- --------
Total revenues 6,537 6,307 12,426 11,565
-------- -------- -------- --------
Expenses:
Cost of restaurant sales 1,997 1,957 3,823 3,615
Restaurant operating expenses 2,798 2,811 5,592 5,278
General and administrative 781 695 1,521 1,356
Advertising 343 259 629 488
Depreciation and amortization 266 273 535 554
-------- -------- -------- --------
Total expenses 6,185 5,995 12,100 11,291
-------- -------- -------- --------
Operating income 352 312 326 274
Interest income 3 3 6 7
Interest expense (52) (58) (106) (115)
Other, net 2 4 (7) 5
-------- -------- -------- --------
Income before income taxes 305 261 219 171
Income taxes -- -- -- --
-------- -------- -------- --------
Net income $ 305 $ 261 $ 219 $ 171
======== ======== ======== ========
Net income per share $ .07 $ .06 $ .05 $ .04
======== ======== ======== ========
Weighted average number of common shares
and common equivalent shares outstanding 4,557 4,541 4,555 4,539
======== ======== ======== ========
</TABLE>
See accompanying notes to unaudited financial statements
4
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BACK YARD BURGERS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
----------------------
JUNE 28, JUNE 29,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income $ 219 $ 171
Adjustments to reconcile net income to net cash
from operating activities
Depreciation and amortization of property and equipment 475 456
Amortization of intangible assets 52 52
Amortization of preopening costs 8 46
Provision for losses on receivables 73 53
Gain on sale of assets -- (3)
(Increase) decrease in assets
Receivables (109) (109)
Inventories (11) 7
Prepaid expenses and other current assets (56) 26
Other assets (5) 5
Increase (decrease) in liabilities
Accounts payable and accrued expenses 32 (176)
Other deferred liabilities 7 12
Deferred franchise fees 42 --
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Net cash provided by operating activities 727 540
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Cash flows from investing activities
Additions to property and equipment (1,020) (247)
Proceeds on sale of assets 13 45
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Net cash used in investing activities (1,007) (202)
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Cash flows from financing activities
Issuance of stock 14 11
Principal payments on long-term debt and capital leases (206) (112)
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Net cash used in financing activities (192) (101)
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Net increase (decrease) in cash and cash equivalents (472) 237
Cash and cash equivalents
Beginning of period 1,101 528
------- -------
End of period $ 629 $ 765
======= =======
Supplemental disclosure of cash flow information
Income taxes paid $ -- $ --
======= =======
Interest paid $ 106 $ 115
======= =======
</TABLE>
See accompanying notes to unaudited financial statements
5
<PAGE> 6
BACK YARD BURGERS, INC.
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 28, 1996 included in the Company's 1996 Annual
Report.
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 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.
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 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 28, 1997, deferred fees include franchise and area
development rights sold during the following years:
<TABLE>
<S> <C>
1997 $ 63
1995 59
Previous Years 42
----
$164
</TABLE>
NOTE 4 - COMMITMENTS AND CONTINGENCIES
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.
6
<PAGE> 7
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 28, JUNE 29,
1997 1996
---- ----
<S> <C> <C>
Revenues
Restaurant sales 92.5% 93.2%
Franchise fees .2 .7
Royalty fees 4.7 3.9
Advertising fees 1.2 1.0
Other operating revenue 1.4 1.2
----- -----
Total revenue 100.0% 100.0%
----- -----
</TABLE>
7
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<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
----------------------
JUNE 28, JUNE 29,
1997 1996
---- ----
<S> <C> <C>
Costs and Expenses
Cost of restaurant sales (1) 33.3% 33.5%
Restaurant operating expenses (1) 48.7 48.9
General and administrative 12.2 11.7
Advertising 5.1 4.2
Depreciation and amortization 4.3 4.8
Operating income 2.6 2.4
Interest income -- .1
Interest expense .9 1.0
Other, net (.1) --
Income before income taxes 1.8 1.5
Income taxes -- --
Net income 1.8 1.5
</TABLE>
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
----------------------
JUNE 28, JUNE 29,
1997 1996
---- ----
($000'S)
<S> <C> <C>
System-wide restaurant sales
Company-operated $11,491 $10,785
Franchised 15,841 12,191
------- -------
Total $27,332 $22,976
------- -------
Average annual sales per restaurant open for a
full year (2)
Company-operated $ 723 $ 658
Franchised $ 662 $ 601
System-wide $ 687 $ 628
Number of restaurants
Company-operated 31 33
Franchised 43 41
------- -------
Total 74 74
------- -------
</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.
COMPARISON OF THE COMPANY'S RESULTS FOR THE THIRTEEN WEEKS ENDED JUNE 28, 1997
AND JUNE 29, 1997.
RESTAURANT SALES increased 2.6% to $6,030,000 during the thirteen weeks
ended June 28, 1997 compared to $5,879,000 for the same period in 1996. This
increase is primarily the result of an increase in same-store sales at
restaurants open for more than one year of 2.8%, as well as a menu price
increase of approximately 3.5% effective at the beginning of the 1996 third
quarter. The increase in same-store sales, coupled with new stores not included
in the same-store sales calculation, accounted for approximately $311,000 in
additional sales while the price increases improved sales by approximately
$180,000. These
8
<PAGE> 9
$311,000 in additional sales while the price increases improved sales by
approximately $180,000. These increases were partially offset by stores which
closed since June 29, 1996. Management of the Company believes that the increase
in same-store sales is the result of improvement in service and the impact of
adding dine-in facilities to two double drive-thru units, as well as a marketing
strategy which is focused on increasing customer awareness and resultant sales.
ROYALTY FEES increased 20.2% to $309,000 during the thirteen week period
ended June 28, 1997 compared to $257,000 during the same period in 1996. 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. Seven franchised restaurants were opened, and five were
closed since June 29, 1996. Additionally, comparable same-store sales at
franchised restaurants open for more than one year increased 2.5%, representing
an increase in royalty fees of approximately $5,000.
ADVERTISING FEES increased 19.4% to $80,000 for the thirteen weeks ended
June 28, 1997 compared to $67,000 during the comparable period in 1996. The
increase is related to the increase in franchised restaurant sales as noted
above.
OTHER INCOME increased 151% to $118,000 for the thirteen weeks ended June
28, 1997 compared to $47,000 during the year earlier period. This increase is
primarily due to marketing and promotional assistance from certain vendors, as
well as volume based allowances for Company-operated stores from certain
vendors.
COST OF RESTAURANT SALES, consisting of food and paper costs, totaled
$1,997,000 for the thirteen weeks ended June 28, 1997 and $1,957,000 during the
same period in 1996, decreasing as a percentage of restaurant sales to 33.1%
from 33.3%. This percentage decrease is primarily the result of the menu price
increase noted above and a continuing focus on improving operating procedures to
reduce waste, as well as decreases in all paper costs. These decreases were
offset to a great extent by increases of approximately 14.1% and 4.4% in the
costs of beef and chicken, respectively.
RESTAURANT OPERATING EXPENSES, consisting of labor, supplies, utilities,
rent and certain other unit level operating expenses, decreased to $2,798,000
for the thirteen weeks ended June 28, 1997 from $2,811,000 in the same prior
year period. This represents a decrease as a percentage of restaurant sales to
46.4% from 47.8% for the same period in 1996. The decrease, as a percentage of
sales, relates primarily to an increase of approximately 0.7% in promotional
activities coupled with discounts designed to generate activity at the store
level. This increase was partially offset by an increase in same-store sales at
existing restaurants of 2.5% which resulted in expenses of a fixed and
semi-variable nature, such as management payroll, repairs, rent, utilities,
taxes and insurance, representing a smaller percentage of sales.
GENERAL AND ADMINISTRATIVE COSTS increased to $781,000 for the thirteen
weeks ended June 28, 1997 from $695,000 for the year earlier period. As a
percentage of total revenues, this represents an increase to 11.9% from 11.0% in
the same period in 1996. The increase of $86,000 is primarily the result of i)
the addition of operations management personnel in the Little Rock market, and
ii) at the corporate level, an individual to reactivate franchise sales which
were suspended during 1996, and iii) an MIS specialist to direct point of sale
maintenance and upgrade programs, as well as iv) personnel costs related to an
increased level of restaurant management training programs to facilitate
improved customer service.
ADVERTISING EXPENSE increased 32.4% to $343,000 for the thirteen weeks
ended June 28, 1997 from $259,000 same period in 1996. This is the result of an
increase in advertising fees, as described above, which are used for the
development and production of marketing campaigns and collateral material.
Additionally, the amount allocated for local marketing and media purposes was
increased by 0.6%, as a percentage of Company-operated restaurant sales,
effective at the beginning of 1997.
9
<PAGE> 10
COMPARISON OF THE COMPANY'S RESULTS FOR THE TWENTY-SIX WEEKS ENDED JUNE 28, 1997
AND JUNE 29, 1997.
RESTAURANT SALES increased 6.5% to $11,491,000 during the twenty-six weeks
ended June 28, 1997 compared to $10,785,000 for the same period in 1996. This
increase is primarily the result of an increase in same-store sales at
restaurants open for more than one year of 4.2%, as well as a menu price
increase of approximately 3.5% effective at the beginning of the third quarter
of 1996. The increase in same-store sales, coupled with new stores not included
in the same-store sales calculation, accounted for approximately $573,000 in
additional sales while the price increases improved sales by approximately
$400,000. These increases were partially offset by revenue lost due to stores
which closed since December 29, 1996. Management of the Company believes that
the increase in same-store sales is the result of improvement in service and the
impact of adding dine-in facilities to two double drive-thru units, as well as a
marketing strategy which is focused on increasing customer awareness and
improving store-level margins.
ROYALTY FEES increased 29.4% to $586,000 during the twenty-six week period
ended June 28, 1997 compared to $453,000 during the same period in 1996. 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
seven franchised restaurants. Twelve franchised restaurants were opened, and
five were closed since December 29, 1996. Additionally, comparable same-store
sales at franchised restaurants open for more than one year increased 5.9%,
representing an increase in royalty fees of approximately $21,000.
ADVERTISING FEES increased 29.9% to $152,000 for the twenty-six weeks ended
June 28, 1997 compared to $117,000 during the comparable period in 1996. The
increase is related to the increase in franchised restaurant sales as noted
above.
OTHER INCOME increased 31.3% to $176,000 for the twenty-six weeks ended
June 28, 1997 compared to $134,000 during the year earlier period. This increase
is primarily due to marketing and promotional assistance from certain vendors,
as well as volume based allowances for Company-operated stores from certain
vendors.
COST OF RESTAURANT SALES, consisting of food and paper costs, totaled
$3,823,000 for the twenty-six weeks ended June 28, 1997 and $3,615,000 during
the same period in 1996, decreasing as a percentage of restaurant sales to 33.3%
from 33.5%. This percentage decrease is primarily the result of the menu price
increase noted above and a continuing focus on improving operating procedures to
reduce waste, as well as decreases in all paper costs. These decreases were
offset to a great extent by increases of approximately 11.5% and 4.1% in the
costs of beef and chicken, respectively.
RESTAURANT OPERATING EXPENSES, consisting of labor, supplies, utilities,
rent and certain other unit level operating expenses, totaled $5,592,000 for the
twenty-six weeks ended June 28, 1997 and $5,278,000 in the same prior year
period. This represents a decrease as a percentage of restaurant sales to 48.7%
from 48.9% for the same period in 1996. As a percentage of sales, promotional
activities coupled with discounts designed to generate activity at the store
level increased approximately 0.7%. This increase was more than offset by an
increase in same-store sales at existing restaurants of 4.2% which resulted in
expenses of a fixed and semi-variable nature, such as management payroll,
repairs, rent, utilities, taxes and insurance, representing a smaller percentage
of sales.
GENERAL AND ADMINISTRATIVE COSTS increased to $1,521,000 for the twenty-six
weeks ended June 28, 1997 from $1,356,000 for the year earlier period. As a
percentage of total revenues, this represents an increase to 12.2% from 11.7% in
the same period in 1996. The increase of $165,000 is primarily the result of i)
the addition of operations management personnel in the Little Rock market, and
ii) at the corporate level, an individual to reactivate franchise sales which
were suspended during 1996, and iii) an MIS specialist to direct point of sale
maintenance and upgrade programs, as well as iv) personnel costs related to an
increased level of restaurant management training programs to facilitate
improved customer service.
10
<PAGE> 11
ADVERTISING EXPENSE increased 28.9% to $629,000 for the twenty-six weeks
ended June 28, 1997 from $488,000 same period in 1996. This is the result of an
increase in advertising fees, as described above, which are used for the
development and production of marketing campaigns and collateral material.
Additionally, the amount allocated for local marketing and media purposes was
increased by 0.6%, as a percentage of Company-operated restaurant sales,
effective at the beginning of 1997.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews the carrying value 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. A new cost basis is
established for impaired assets based on the fair value of these assets as of
the date the assets are determined to be impaired.
Certain of the Company's restaurants have been identified as
underperforming and have initiated action plans to improve their underperforming
status. Should these plans prove unsuccessful, some or all of these stores'
assets may become impaired.
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures totaled $1,016,000 for the twenty-six weeks ended June 28,
1997 and $247,000 for the same period of 1996. Generally, the Company purchases
its restaurant buildings and leases the properties for its Company-operated
restaurants. The average monthly lease cost for the 22 Company-operated
restaurants on leased sites at June 28, 1997 is approximately $2,900 per month.
For the eight restaurants where the Company leases the building as well as the
site, the average monthly lease cost is approximately $4,600.
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 $535,000 for the twenty-six weeks ended June 28, 1997 and $554,000 for
the same period in 1996. This decrease is primarily the result of equipment at
certain Company-operated stores becoming fully depreciated. Receivables, net,
increased $109,000 during the twenty-six weeks ended June 28, 1997, primarily
due to the timing of a reimbursement for point of sale equipment purchased under
a lease agreement in the amount of $130,000. This was offset by the timing of
collections from franchisees.
Cash provided by operations for the twenty-six week period ended June 28,
1997 and June 29, 1996 totaled $726,000 and $540,000, respectively. Since
January 1, 1995, the addition of restaurants and equipment has been financed
primarily through cash from operations and debt.
On October 4, 1996, the Company received a commitment from a leasing
company for a loan transaction . This commitment provides the Company with up to
$2,000,000 and bears interest at approximately 13.0%. Additionally, on January
23, 1997, the Company entered into a loan agreement with a financial institution
which provides the Company with a loan commitment of up to $765,000 and bears
interest at the prime rate plus 1%. Both of the above commitments are secured by
real and personal property to be acquired and/or constructed with the commitment
proceeds. There were no borrowings outstanding under either of the above
commitments at June 28, 1997.
The Company believes that it currently has sufficient resources to fund
anticipated capital expenditures of approximately $1,500,000 during the
remainder of 1997. These resources include the borrowing commitments described
above in addition to the Company's internally generated cash flow. Additional
growth in 1998 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
material 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
effect on income during the twenty-six weeks ended June 28, 1997. Increases in
food, labor or other operating costs could adversely affect the Company's
operations. In the past, however, the Company generally has been able to
increase menu prices or modify its operating procedures to substantially offset
increases in
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<PAGE> 12
operating costs. However, because of the intense competition in the
quick-service restaurant industry, there can be no certainty that the Company
will be able to successfully continue this practice.
KNOWN TRENDS AND UNCERTAINTIES
Labor will continue to be a critical factor during the remainder of 1997. In
most areas where the Company operates restaurants, there is a shortage of
suitable 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. Effective
September 1, 1997, the minimum wage will increase to $5.15 per hour from $4.75
per hour. This increase could have a negative impact on operating margins.
During 1996, the cost of beef and chicken, the largest single component of
the cost of restaurant sales, was below prices of recent years. During the
twenty-six weeks ended June 28, 1997, the cost of beef and chicken rose 11.5%
and 4.1%, respectively. Management of the Company expects additional increases
in these costs in the future and that 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.
The future success of the Company will be determined, to a great extent, by
its ability to positively address these issues.
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 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 28, 1997, 907,019
shares had been converted.
IMPACT OF PROPOSED ACCOUNTING STANDARDS
In February, 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share "
("SFAS 128") to be effective for financial statements issued after December 15,
1997. Implementation of SFAS 128 may cause the total earnings per share ("EPS")
for the year to be different than the sum of earlier reporting periods, however,
in the second quarter of 1997, the results of the computation of EPS under both
methods were the same.
In June, 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." These statements are effective for fiscal years beginning
after December 15, 1997 and are not expected to have a material impact on the
Company.
LEGAL PROCEEDINGS
The Company is involved in certain legal proceedings. See "Legal Proceedings"
below.
12
<PAGE> 13
PART II OTHER INFORMATION
Item 1 Legal Proceedings
The Company is involved in 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 or results of operations of the Company.
Item 2 Changes in Securities
None
Item 3 Defaults Upon Senior Securities
Not Applicable
Item 4 Submission of Matters to a Vote of Security Holders
On May 22, 1997, the Company held its Annual Meeting of Stockholders in Memphis,
Tennessee, for the purpose of: i) electing three Class III members to the Board
of Directors; ii) ratifying the appointment of Price Waterhouse LLP as
independent public accountants for 1997; iii) approving the Company's delisting
its Common Stock from the Chicago Stock Exchange, and iv) to transact such other
business as may have properly come before the meeting or an adjournment thereof.
The following table sets forth the Class III 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:
<TABLE>
<CAPTION>
Directors For Withheld
--------- --- --------
<S> <S> <C>
Lattimore M. Michael 3,966,312 41,153
Joseph L. Weiss 3,972,285 35,180
William N. Griffith 3,978,402 29,063
</TABLE>
The appointment of Price Waterhouse LLP as independent public
accountants was ratified at the meeting as follows:
For 3,999,358
Against 3,185
Abstentions 4,922
The delisting of the Company's Common Stock from the Chicago
Stock Exchange was approved as follows:
For 3,809,182
Against 21,203
Abstain 11,019
Non-Vote 166,061
Item 5 Other Information
None
13
<PAGE> 14
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
14
<PAGE> 15
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 11, 1997 By:/s/Lattimore M. Michael
- --------------------- -----------------------------
Lattimore M. Michael
Chairman and Chief Executive
Officer
Date: August 11, 1997 By:/s/Stephen J. King
- --------------------- -----------------------------
Stephen J. King
Chief Financial Officer
15
<PAGE> 1
EXHIBIT 11
BACK YARD BURGERS, INC.
COMPUTATION OF INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
-------------------- ----------------------
JUNE 28, JUNE 29, JUNE 28, JUNE 29,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income $ 305 $ 261 $ 219 $ 171
====== ====== ====== ======
Primary:
Weighted average number
of common shares outstanding
during the period 4,253 4,216 4,249 4,212
Preferred shares convertible
to common shares 304 325 306 327
------ ------ ------ ------
4,557 4,541 4,555 4,539
====== ====== ====== ======
Primary income per share $ .07 $ .06 $ .05 $ .04
====== ====== ====== ======
Fully Diluted:
Weighted average number
of common shares outstanding
during the period 4,253 4,216 4,249 4,212
Preferred shares convertible
to common shares 304 325 306 327
------ ------ ------ ------
4,557 4,541 4,555 4,539
====== ====== ====== ======
Fully diluted income per share $ .07 $ .06 $ .05 $ .04
====== ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT JUNE 28, 1997 AND THE CONSOLIDATED STATEMENT OF
INCOME FOR THE SIX MONTHS ENDED JUNE 28, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-START> DEC-29-1996
<PERIOD-END> JUN-28-1997
<CASH> 629
<SECURITIES> 0
<RECEIVABLES> 472<F1>
<ALLOWANCES> 0
<INVENTORY> 161
<CURRENT-ASSETS> 1,349
<PP&E> 8,537<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,680
<CURRENT-LIABILITIES> 1,299
<BONDS> 0
0
3
<COMMON> 43
<OTHER-SE> 8,297
<TOTAL-LIABILITY-AND-EQUITY> 11,680
<SALES> 11,491
<TOTAL-REVENUES> 12,426
<CGS> 3,823
<TOTAL-COSTS> 9,415
<OTHER-EXPENSES> 2,686
<LOSS-PROVISION> 86
<INTEREST-EXPENSE> 106
<INCOME-PRETAX> 219
<INCOME-TAX> 0
<INCOME-CONTINUING> 219
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 219
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
<FN>
<F1>ASSET VALUES REPRESENT NET AMOUNTS
<F2>ASSET VALUES REPRESENT NET AMOUNTS
</FN>
</TABLE>
