<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 SEPTEMBER 27, 1997
[ ] 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 November 1, 1997 - 4,274,171
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
<PAGE> 2
BACK YARD BURGERS, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
Part I - Financial Information
Item 1 - Unaudited Consolidated Financial Statements:
Balance Sheet as of September 27, 1997 and December 28, 1996 3
Statement of Income for the Thirteen Weeks Ended and
Thirty-Nine Weeks Ended September 27, 1997 and
September 28, 1996 4
Statement of Cash Flows for the Thirty-Nine Weeks Ended
September 27, 1997 and September 28, 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 13
Signatures 14
</TABLE>
2
<PAGE> 3
BACK YARD BURGERS, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 27, DECEMBER 28,
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 439 $ 1,101
Receivables, net 351 363
Inventories 180 150
Prepaid expenses and other current assets 73 31
-------- --------
Total current assets 1,043 1,645
Notes receivable 75 30
Property and equipment, at depreciated cost 9,080 8,131
Intangible assets 1,483 1,561
Other assets 206 205
-------- --------
$ 11,887 $ 11,572
------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 175 $ 564
Accrued expenses 602 507
Current installments of long-term debt 188 328
-------- --------
Total current liabilities 965 1,399
Long-term debt, less current installments 2,011 1,831
Other deferred liabilities 121 110
Deferred franchise fees 236 122
-------- --------
Total liabilities 3,333 3,462
-------- --------
Commitments and contingencies -- --
Stockholders' equity
Preferred stock, $.01 par value, 2,000,000 shares authorized; 289,600 shares
issued and outstanding at September 27, 1997
(309,506 at December 28, 1996) 3 3
Common stock, $.01 par value, 12,000,000 shares authorized;
4,274,171 outstanding at September 27, 1997
(4,240,766 at December 28, 1996) 43 42
Paid-in capital 9,976 9,956
Retained deficit (1,468) (1,891)
-------- --------
Total stockholders' equity 8,554 8,110
-------- --------
$ 11,887 $ 11,572
-------- --------
</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>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
---------------------------- ----------------------------
SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 27, SEPTEMBER 28,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Restaurant sales $ 6,218 $ 5,778 $ 17,709 $ 16,563
Franchise fees -- 78 21 154
Royalty fees 286 283 872 736
Advertising fees 75 74 227 191
Other 71 71 247 205
-------- -------- -------- --------
Total revenues 6,650 6,284 19,076 17,849
-------- -------- -------- --------
Expenses:
Cost of restaurant sales 2,031 1,921 5,854 5,536
Restaurant operating expenses 2,968 2,828 8,560 8,106
General and administrative 768 686 2,289 2,042
Advertising 347 275 976 763
Depreciation and amortization 285 282 820 836
-------- -------- -------- --------
Total expenses 6,399 5,992 18,499 17,283
-------- -------- -------- --------
Operating income 251 292 577 566
Interest income 5 5 11 12
Interest expense (54) (57) (160) (172)
Other, net 2 2 (5) 7
-------- -------- -------- --------
Income before income taxes 204 242 423 413
Income taxes -- -- -- --
-------- -------- -------- --------
Net income $ 204 $ 242 $ 423 $ 413
======== ======== ======== ========
Net income per share $ .04 $ .05 $ .09 $ .09
======== ======== ======== ========
Weighted average number of common shares
and common equivalent shares outstanding 4,562 4,546 4,557 4,541
======== ======== ======== ========
</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>
Thirty-Nine Weeks Ended
-----------------------------
SEPTEMBER 27, SEPTEMBER 28,
1997 1996
------- -------
<S> <C> <C>
Cash flows from operating activities
Net income $ 423 $ 413
Adjustments to reconcile net income to net cash
from operating activities
Depreciation and amortization of property and equipment 730 699
Amortization of intangible assets 78 77
Amortization of preopening costs 12 60
Provision for losses on receivables 113 80
Gain on sale of assets -- (3)
(Increase) decrease in assets
Receivables (33) (173)
Inventories (30) 3
Prepaid expenses and other current assets (42) 60
Other assets (1) 4
Increase (decrease) in liabilities
Accounts payable and accrued expenses (294) (129)
Other deferred liabilities 11 19
Deferred franchise fees 114 (57)
------- -------
Net cash provided by operating activities 1,081 1,053
------- -------
Cash flows from investing activities
Additions to property and equipment (1,817) (621)
Proceeds on sale of assets 13 45
------- -------
Net cash used in investing activities (1,804) (576)
------- -------
Cash flows from financing activities
Issuance of stock 21 20
Issuance of long-term debt 310 --
Principal payments on long-term debt and capital leases (270) (169)
------- -------
Net cash provided by (used in) financing activities 61 (149)
------- -------
Net increase (decrease) in cash and cash equivalents (662) 328
Cash and cash equivalents
Beginning of period 1,101 528
------- -------
End of period $ 439 $ 856
======= =======
Supplemental disclosure of cash flow information
Income taxes paid $ -- $ --
======= =======
Interest paid $ 160 $ 172
======= =======
</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 thirty-nine 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 September 27, 1997, deferred fees include franchise and area
development rights sold during the following years:
<TABLE>
<S> <C>
1997 $141
1995 59
Previous Years 36
----
$236
====
</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>
THIRTY-NINE WEEKS ENDED
--------------------------------
SEPTEMBER 27, SEPTEMBER 28,
1997 1996
----- -----
<S> <C> <C>
Revenues
Restaurant sales 92.8% 92.8%
Franchise fees .1 .9
Royalty fees 4.6 4.1
Advertising fees 1.2 1.0
Other operating revenue 1.3 1.2
----- -----
Total revenue 100.0% 100.0%
===== =====
</TABLE>
7
<PAGE> 8
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
---------------------------------
SEPTEMBER 27, SEPTEMBER 28,
1997 1996
--------- ---------
<S> <C> <C>
Costs and Expenses
Cost of restaurant sales (1) 33.1% 33.4%
Restaurant operating expenses (1) 48.3 48.9
General and administrative 12.0 11.4
Advertising 5.1 4.3
Depreciation and amortization 4.3 4.7
Operating income 3.0 3.2
Interest income .1 .1
Interest expense .8 1.0
Other, net -- --
Income before income taxes 2.2 2.3
Income taxes -- --
Net income 2.2 2.3
</TABLE>
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
---------------------------------
SEPTEMBER 27, SEPTEMBER 28,
1997 1996
--------- ---------
($000'S)
<S> <C> <C>
System-wide restaurant sales
Company-operated $ 17,709 $ 16,563
Franchised 23,518 19,896
--------- ---------
Total $ 41,227 $ 36,459
Average annual sales per restaurant open for a
full year (2)
Company-operated $ 735 $ 673
Franchised $ 671 $ 608
System-wide $ 698 $ 638
Number of restaurants
Company-operated 32 34
Franchised 43 46
Total 75 80
</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 SEPTEMBER 27,
1997 AND SEPTEMBER 28, 1996.
RESTAURANT SALES increased 7.6% to $6,218,000 during the thirteen weeks
ended September 27, 1997 compared to $5,778,000 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 8.0%, which includes a menu price
increase of approximately 4.0%, effective August 1, 1997. The increase in
same-store sales, coupled with new stores not included in the same-store sales
calculation, accounted for approximately $685,000 in additional sales. This
increase was partially offset by the loss of sales from two stores which closed
and one which
8
<PAGE> 9
was converted to a franchised unit on October 27, 1996. Management of the
Company believes that the increase in same-store sales is the result of
improvement in service, the impact of converting four double drive-thru units to
dine-in facilities with single drive-thrus and the menu price increase noted
above, as well as a marketing strategy which is focused on increasing customer
awareness and resultant sales.
FRANCHISE FEES were zero for the thirteen weeks ended September 27, 1997
and $78,000 during the same period in 1996. This decrease is due to the fact
that no franchise restaurants opened during the third quarter of 1997 while five
franchise restaurants opened during the same period in 1996.
COST OF RESTAURANT SALES, consisting of food and paper costs, totaled
$2,031,000 for the thirteen weeks ended September 27, 1997 and $1,921,000 during
the same period in 1996, decreasing as a percentage of restaurant sales to 32.7%
from 33.2%. This percentage decrease is primarily the result of the menu price
increases noted above and a continuing focus on improving operating procedures
to reduce waste, as well as decreases in most paper costs.
RESTAURANT OPERATING EXPENSES, consisting of labor, supplies, utilities,
rent and certain other unit level operating expenses, decreased to $2,968,000
for the thirteen weeks ended September 27, 1997 from $2,828,000 in the same
prior year period. This represents a decrease as a percentage of restaurant
sales to 47.7% from 48.9% for the same period in 1996. The decrease, as a
percentage of sales, relates primarily to an increase of approximately 1.0% in
promotional activities coupled with discounts designed to generate activity at
the store level. This increase was offset by an increase in same-store sales at
existing restaurants of 8.0% 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 $768,000 for the thirteen
weeks ended September 27, 1997 from $686,000 for the year earlier period. As a
percentage of total revenues, this represents an increase to 11.5% from 10.9% in
the same period in 1996. The increase of $82,000 is primarily the result of i)
the addition of operations management personnel in the Little Rock market, ii)
at the corporate level, an individual to reactivate franchise sales which were
suspended during 1996, iii) an MIS specialist to direct point of sale
maintenance and upgrade programs, and iv) personnel costs related to an
increased level of restaurant management training programs to facilitate
improved customer service.
ADVERTISING EXPENSE increased 26.2% to $347,000 for the thirteen weeks
ended September 27, 1997 from $275,000 same period in 1996. This is the result
of an increase in the amount allocated for local marketing and media purposes.
This marketing allocation 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 THIRTY-NINE WEEKS ENDED SEPTEMBER
27, 1997 AND SEPTEMBER 28, 1996.
RESTAURANT SALES increased 6.9% to $17,709,000 during the thirty-nine weeks
ended September 27, 1997 compared to $16,563,000 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 5.9%, which includes menu price
increases of approximately 3.5% and 4.0% effective at the beginning of the 1996
third quarter and August 1, 1997, respectively. The increase in same-store
sales, coupled with new stores not included in the same-store sales
calculation, accounted for approximately $1,535,000 in additional sales. This
increase was partially offset by the loss of sales from two stores which closed
and one which was converted to a franchised unit on October 27, 1996. Management
of the Company believes that the increase in same-store sales is the result of
improvement in service, the impact of converting five double drive-thru units to
dine-in facilities with single drive-thrus and the menu price increases noted
above, as well as a marketing strategy which is focused on increasing customer
awareness and resultant sales.
FRANCHISE FEES were $21,000 for the thirty-nine weeks ended September 27,
1997 and $154,000 during the same period in 1996. This decrease is due to the
fact that one franchise restaurant opened during the first three quarters of
1997 while ten franchise restaurants opened during the same period in 1996.
ROYALTY FEES increased 18.5% to $872,000 during the thirty-nine week period
ended September 27, 1997 compared to $736,000 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, 1995. Comparable same-store sales at
franchised restaurants open for more than one year increased 6.0%. The increase
in same-store sales coupled with new stores not included in the same-store
sales calculation, accounted for an increase in royalty fees of approximately
$180,000. This increase was partially offset by the loss of sales from five
stores which closed, resulting in a decrease in royalty fees of approximately
$44,000.
ADVERTISING FEES increased 18.8% to $227,000 for the thirty-nine weeks
ended September 27, 1997 compared to $191,000 during the comparable period in
1996. The increase is related to the increase in franchised restaurant sales as
noted above.
OTHER INCOME increased 20.5% to $247,000 for the thirty-nine weeks ended
September 27, 1997 compared to $205,000 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
$5,854,000 for the thirty-nine weeks ended September 27, 1997 and $5,536,000
during the same period in 1996, decreasing as a percentage of restaurant sales
to 33.1% from 33.4%. This percentage decrease is primarily the result of the
menu price increases 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 7.9% and
1.6% 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 $8,560,000 for the
thirty-nine weeks ended September 27, 1997 and $8,106,000 in the same prior year
period. This represents a decrease as a percentage of restaurant sales to 48.3%
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 1.2%. This increase was more than offset by an
increase in same-store sales at existing restaurants of 5.9% 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.
10
<PAGE> 11
GENERAL AND ADMINISTRATIVE COSTS increased to $2,289,000 for the
thirty-nine weeks ended September 27, 1997 from $2,042,000 for the year earlier
period. As a percentage of total revenues, this represents an increase to 12.0%
from 11.4% in the same period in 1996. The increase of $247,000 is primarily the
result of i) the addition of operations management personnel in the Little Rock
market, ii) at the corporate level, an individual to reactivate franchise sales
which were suspended during 1996, iii) an MIS specialist to direct point of sale
maintenance and upgrade programs, and iv) personnel costs related to an
increased level of restaurant management training programs to facilitate
improved customer service.
ADVERTISING EXPENSE increased 27.9% to $976,000 for the thirty-nine weeks
ended September 27, 1997 from $763,000 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.
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures totaled $1,817,000 for the thirty-nine weeks ended
September 27, 1997 and $621,000 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 September 27, 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. The Company has a lease obligation of approximately $2,500 per month on
the site of a restaurant which closed on July 3, 1997. The lease term on this
site expires in February, 2005. The Company is in the process of locating a
suitable tenant to sublease the property.
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 $820,000 for the thirty-nine weeks ended September 27, 1997 and $836,000
for the same period in 1996. This decrease is primarily the result of equipment
at certain Company-operated stores becoming fully depreciated. Notes receivable
increased $45,000 during the thirty-nine weeks ended September 27, 1997,
primarily due to a note received in connection with the sale of certain assets
of a Company-operated restaurant which closed on January 31, 1997.
Cash provided by operations for the thirty-nine week period ended September
27, 1997 and September 28, 1996 totaled $1,081,000 and $1,053,000, 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%. Borrowings in the amount
of $309,000 were outstanding under the above commitment at September 27, 1997.
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 this commitment at September 27, 1997.
The Company believes that it currently has sufficient resources to fund
anticipated capital expenditures of approximately $4,000,000 during the
remainder of 1997 and 1998. 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.
11
<PAGE> 12
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 thirty-nine weeks ended September 27, 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 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 in the foreseeable future. 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 increased 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
thirty-nine weeks ended September 27, 1997, the cost of beef and chicken rose
7.9% and 1.6%, 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 September 27, 1997,
910,379 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 third 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.
12
<PAGE> 13
LEGAL PROCEEDINGS
The Company is involved in certain legal proceedings. See "Legal
Proceedings" below.
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
None
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
<TABLE>
<CAPTION>
Date Description
---- -----------
<S> <C>
August 15, 1997 On August 15, 1997, the Company filed a press
release announcing the Company's election to
delist its shares from the Chicago Stock Exchange,
such that its common stock will trade solely on The
Nasdaq SmallCap Market tier of The Nasdaq Stock
Market.
</TABLE>
13
<PAGE> 14
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: November 10, 1997 By:/s/Lattimore M. Michael
- ----------------------- -----------------------
Lattimore M. Michael
Chairman and Chief Executive
Officer
Date: November 10, 1997 By:/s/Stephen J. King
- ----------------------- ------------------
Stephen J. King
Chief Financial Officer
14
<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 THIRTY-NINE WEEKS ENDED
------------------------------ -------------------------------
SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 27, SEPTEMBER 28,
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net Income $ 204 $ 242 $ 423 $ 413
------ ------ ------ ------
Primary:
Weighted average number
of common shares outstanding
during the period 4,270 4,229 4,284 4,217
Preferred shares convertible
to common shares 292 317 273 324
------ ------ ------ ------
4,562 4,546 4,557 4,541
====== ====== ====== ======
Primary income per share $ .04 $ .05 $ .09 $ .09
====== ====== ====== ======
Fully Diluted:
Weighted average number
of common shares outstanding
during the period 4,270 4,229 4,284 4,217
Preferred shares convertible
to common shares 292 317 273 324
------ ------ ------ ------
4,562 4,546 4,557 4,541
====== ====== ====== ======
Fully diluted income per share $ .04 $ .05 $ .09 $ .09
====== ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
(A) THE CONSOLIDATED BALANCE SHEET AT SEPTEMBER 27, 1997 AND THE
CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED
SEPTEMBER 27, 1997. AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-3-1998
<PERIOD-START> DEC-29-1996
<PERIOD-END> SEP-27-1997
<CASH> 439
<SECURITIES> 0
<RECEIVABLES> 351<F1>
<ALLOWANCES> 0
<INVENTORY> 180
<CURRENT-ASSETS> 1,043
<PP&E> 9,080<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,887
<CURRENT-LIABILITIES> 965
<BONDS> 0
0
3
<COMMON> 43
<OTHER-SE> 8,508
<TOTAL-LIABILITY-AND-EQUITY> 11,887
<SALES> 17,709
<TOTAL-REVENUES> 19,076
<CGS> 5,854
<TOTAL-COSTS> 14,414
<OTHER-EXPENSES> 4,079
<LOSS-PROVISION> 113
<INTEREST-EXPENSE> 160
<INCOME-PRETAX> 423
<INCOME-TAX> 0
<INCOME-CONTINUING> 423
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 423
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
<FN>
<F1>Asset values represent net amounts
</FN>
</TABLE>
