<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 JULY 4, 1998
[ ] 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 5, 1998 - 4,591,382
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 July 4, 1998 and January 3, 1998 3
Statement of Income for the Thirteen and Twenty-Six Weeks Ended
July 4, 1998 and June 28, 1997 4
Statement of Cash Flows for the Twenty-Six Weeks Ended
July 4, 1998 and June 28, 1997 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 14
Item 6 - Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
2
<PAGE> 3
BACK YARD BURGERS, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JULY 4, JANUARY 3,
1998 1998
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 758 $ 1,328
Receivables, net 330 384
Inventories 187 176
Prepaid expenses and other current assets 170 73
-------- --------
Total current assets 1,445 1,961
Note receivable 91 68
Property and equipment, at depreciated cost 11,778 9,451
Intangible assets 1,404 1,457
Other assets 215 218
-------- --------
$ 14,933 $ 13,155
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 168 $ 653
Accrued expenses 826 786
Current installments of long-term debt 334 217
-------- --------
Total current liabilities 1,328 1,656
Long-term debt, less current installments 4,266 2,864
Other deferred liabilities 132 122
Deferred franchise fees 279 215
-------- --------
Total liabilities 6,005 4,857
-------- --------
Commitments and contingencies -- --
Stockholders' equity
Preferred stock, $.01 par value, 2,000,000 shares authorized;
23,123 shares issued and outstanding at July 4, 1998
(289,600 at January 3, 1998) -- 3
Common stock, $.01 par value, 12,000,000 shares authorized;
4,587,851 outstanding at July 4, 1998
(4,276,723 at January 3, 1998) 46 42
Paid-in capital 10,080 9,982
Retained deficit (1,198) (1,729)
-------- --------
Total stockholders' equity 8,928 8,298
-------- --------
$ 14,933 $ 13,155
======== ========
</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 TWENTY-SIX WEEKS ENDED
-------------------- ----------------------
JULY 4, JUNE 28, JULY 4, JUNE 28,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Restaurant sales $ 6,598 $ 6,030 $ 12,406 $ 11,491
Franchise fees 1 -- 50 21
Royalty fees 342 309 645 586
Advertising fees 127 80 237 152
Other 65 118 162 176
------- ------- -------- --------
Total revenues 7,133 6,537 13,500 12,426
------- ------- -------- --------
Expenses:
Cost of restaurant sales 2,127 1,997 3,987 3,823
Restaurant operating expenses 3,010 2,798 5,832 5,592
General and administrative 848 781 1,644 1,521
Advertising 382 343 729 629
Depreciation and amortization 291 266 575 535
------- ------- -------- --------
Total expenses 6,658 6,185 12,767 12,100
------- ------- -------- --------
Operating income 475 352 733 326
Interest income 6 3 14 6
Interest expense (111) (52) (210) (106)
Other, net (4) 2 (6) (7)
------- ------- -------- --------
Income before income taxes 366 305 531 219
Income taxes -- -- -- --
------- ------- -------- --------
Net income $ 366 $ 305 $ 531 $ 219
======= ======= ======== ========
Income per share:
Basic $ .08 $ .07 $ .12 $ .05
======= ======= ======== ========
Diluted $ .08 $ .07 $ .11 $ .05
======= ======= ======== ========
Weighted average number of common shares
and common equivalent shares outstanding
Basic 4,580 4,253 4,475 4,249
======= ======= ======== ========
Diluted 4,695 4,561 4,668 4,563
======= ======= ======== ========
</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
----------------------
JULY 4, JUNE 28,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 531 $ 219
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization of property and equipment 504 475
Amortization of intangible assets 53 52
Amortization of preopening costs 18 8
Provision for losses on receivables 97 73
Increase in assets
Receivables (43) (109)
Inventories (11) (11)
Prepaid expenses and other current assets (115) (56)
Other assets and notes receivable (20) (5)
Increase (decrease) in liabilities
Accounts payable and accrued expenses (445) 32
Other deferred liabilities 10 7
Deferred franchise and area development fees 64 42
------- -------
Net cash provided by operating activities 643 727
------- -------
Cash flows from investing activities:
Additions to property and equipment (2,831) (1,020)
Proceeds on sale of assets -- 13
------- -------
Net cash used in investing activities (2,831) (1,007)
------- -------
Cash flows from financing activities:
Issuance of stock 14 14
Principal payments on long-term debt and capital leases (134) (206)
Proceeds from issuance of long-term debt 1,653 --
Proceeds from exercise of stock options 85 --
------- -------
Net cash provided by (used in) financing activities 1,618 (192)
------- -------
Net decrease in cash and cash equivalents (570) (472)
Cash and cash equivalents
Beginning of period 1,328 1,101
------- -------
End of period $ 758 $ 629
======= =======
Supplemental disclosure of cash flow information
Income taxes paid $ -- $ --
======= =======
Interest paid $ 210 $ 106
======= =======
</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 January 3, 1998 included in the Company's 1997 Annual Report.
The financial statements include the accounts of Back Yard Burgers, Inc.
and its wholly-owned subsidiaries, Little Rock Back Yard Burgers, Inc., Atlanta
Burgers BYB Corporation and BYB Properties, Inc., 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.
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 in accordance with Statement of
Financial Accounting Standards No. 128, Earnings per Share, which requires the
presentation of basic and diluted earnings per share. Basic earnings per share
excludes dilution and is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity.
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 July 4, 1998, deferred fees include franchise and area
development rights sold during the following years:
<TABLE>
<S> <C>
1998 $ 117
1997 78
Previous Years 84
------------
$ 279
============
</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
FORWARD-LOOKING INFORMATION
Certain information included herein 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. Forward-looking statements made by the Company are based upon
estimates, projections, beliefs and assumptions of management at the time of
such statements and should not be viewed as guarantees of future performance.
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, increased competition within the industry for
customers, qualified labor and desirable locations, increased costs for beef,
chicken or other food products and management decisions related to construction,
financing, franchising, new product development and the impact of Year 2000
issues on the Company, as well as items 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
As of July 4, 1998, the Back Yard Burgers system included 75 restaurants, of
which 31 were Company-operated and 44 were franchised. The Company's revenues
are derived primarily from Company-operated restaurant sales, franchise and area
development 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
----------------------
JULY 4, JUNE 28,
1998 1997
---- ----
<S> <C> <C>
Revenues
Restaurant sales 91.9% 92.5%
Franchise fees .4 .2
Royalty fees 4.8 4.7
Advertising fees 1.8 1.2
Other operating revenue 1.1 1.4
------ ------
Total revenue 100.0% 100.0%
====== ======
</TABLE>
7
<PAGE> 8
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
----------------------
JULY 4, JUNE 28,
1998 1997
---- ----
<S> <C> <C>
Costs and Expenses
Cost of restaurant sales (1) 32.1% 33.3%
Restaurant operating expenses (1) 47.0 48.7
General and administrative 12.2 12.2
Advertising 5.4 5.1
Depreciation and amortization 4.3 4.3
Operating income 5.4 2.6
Interest income .1 --
Interest expense 1.6 .9
Other, net -- (.1)
Income before income taxes 3.9 1.8
Income taxes -- --
Net income 3.9 1.8
</TABLE>
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
----------------------
JULY 4, JUNE 28,
1998 1997
---- ----
($000'S)
<S> <C> <C>
System-wide restaurant sales
Company-operated $12,406 $11,491
Franchised 17,069 15,841
------- -------
Total $29,475 $27,332
======= =======
Average annual sales per restaurant open for a
full year (2)
Company-operated $ 809 $ 723
Franchised $ 755 $ 662
System-wide $ 776 $ 687
Number of restaurants
Company-operated 31 31
Franchised 44 43
------- -------
Total 75 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 eighteen months of operation as sales during the six-month period
immediately after the opening tend to be higher due to promotions and
trial by public.
8
<PAGE> 9
COMPARISON OF THE COMPANY'S RESULTS FOR THE THIRTEEN WEEKS ENDED JULY 4, 1998
AND JUNE 28, 1997.
RESTAURANT SALES increased 9.4% to $6,598,000 during the thirteen weeks
ended July 4, 1998 compared to $6,030,000 for the same 1997 period. This
increase is primarily the result of an increase in same-store sales at
restaurants open for more than one year of 10.7%, which includes menu price
increases of approximately 4.0% and 3.0% effective at the beginning of May and
September, 1997, respectively. The increase in same-store sales, coupled with
new stores not included in the same-store sales calculation, accounted for
approximately $909,000 in additional sales. This increase was partially offset
by the loss of sales from two restaurants which were closed and one restaurant
which was converted to a franchised restaurant. Management of the Company
believes that the increase in same-store sales is the result of (1) improved
customer service; (2) the retrofit of five double drive-thrus to dine-in
facilities with single drive-thrus; and (3) menu price increases noted above.
ROYALTY FEES increased 10.7% to $342,000 during the thirteen week period
ended July 4, 1998 compared to $309,000 during the same period in 1997. The
increase is due to an increase in franchised restaurant sales upon which the
fees are based. Comparable same-store sales at franchised restaurants open for
more than one year increased 4.1%, representing an increase in royalty fees of
approximately $11,000. Six franchised restaurants were opened, one
Company-operated restaurant was converted to a franchised unit and seven
franchised restaurants were closed since June 28, 1997.
ADVERTISING FEES increased 58.8% to $127,000 for the thirteen weeks ended
July 4, 1998 compared to $80,000 during the comparable period in 1997. The
increase is primarily due to a voluntary increase of 50% in the national
advertising fee by 40 of the 44 franchised restaurants to be used for a direct
mail program. The increase is also related to the increase in franchised
restaurant sales as noted above.
COST OF RESTAURANT SALES, consisting of food and paper costs, totaled
$2,127,000 for the thirteen weeks ended July 4, 1998 and $1,997,000 during the
same period in 1997, decreasing as a percentage of restaurant sales to 32.2%
from 33.1%. This percentage decrease is primarily the result of a decrease of
approximately 7.0% in the cost of beef, the largest single component of cost of
restaurant sales, decreases in certain condiment costs and all paper costs, as
well as price increases noted above.
RESTAURANT OPERATING EXPENSES, consisting of labor, supplies, utilities,
rent and certain other unit level operating expenses, increased to $3,010,000
for the thirteen weeks ended July 4, 1998 from $2,798,000 in the same prior year
period. This represents a decrease as a percentage of restaurant sales to 45.6%
from 46.4% for the same period in 1997. The decrease, as a percentage of sales,
relates primarily to a decrease of approximately 1.4% in promotional activities,
as well as an increase in same-store sales at existing restaurants of 10.7%.
This results 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. These decreases were partially offset by increases in
repairs and maintenance, operating supplies and equipment rental expense.
GENERAL AND ADMINISTRATIVE COSTS which increased to $848,000 for the
thirteen weeks ended July 4, 1998 from $781,000 in the same year earlier period,
remained level at 11.9% as a percentage of total revenue for the both the
thirteen week periods ended July 4, 1998 and June 28, 1997. The increase of
$67,000 is primarily the result of (1) adding two new positions, one in the
training department and one in Company operations management, the goal of both
positions being to facilitate superior customer service; and (2) annual raises
which became effective at the beginning of the second quarter.
ADVERTISING EXPENSE which increased to $382,000 for the thirteen weeks
ended July 4, 1998 from $343,000 in the same period in 1997, increased as a
percentage of total revenues to 5.4% from 5.2%. This is the result of an
increase in advertising fees, as described above, which, in addition to the
direct mail program noted above, are used for the development and production of
marketing campaigns and collateral material.
INTEREST EXPENSE increased 113% to $111,000 for the thirteen weeks ended
July 4, 1998 from $52,000 in the same year earlier period. This is due to a net
increase in long-term debt of $2,647,000, or 136%, since the end of the second
quarter last year.
9
<PAGE> 10
COMPARISON OF THE COMPANY'S RESULTS FOR THE TWENTY-SIX WEEKS ENDED JULY 4, 1998
AND JUNE 28, 1997.
RESTAURANT SALES increased 8.0% to $12,406,000 during the twenty-six weeks
ended July 4, 1998 compared to $11,491,000 for the same 1997 period. This
increase is primarily the result of an increase in same-store sales at
restaurants open for more than one year of 11.0%, which includes menu price
increases of approximately 4.0% and 3.0% effective at the beginning of May and
September, 1997, respectively. The increase in same-store sales, coupled with
new stores not included in the same-store sales calculation, accounted for
approximately $1,558,000 in additional sales. This increase was partially offset
by the loss of sales from three restaurants which were closed and two
restaurants which were converted to franchised restaurants. Management of the
Company believes that the increase in same-store sales is the result of (1)
improved customer service; (2) the retrofit of six double drive-thrus to dine-in
facilities with single drive-thrus; and (3) menu price increases noted above.
ROYALTY FEES increased 10.1% to $645,000 during the twenty-six week period
ended July 4, 1998 compared to $586,000 during the same period in 1997. The
increase is due to an increase in franchised restaurant sales upon which the
fees are based. Comparable same-store sales at franchised restaurants open for
more than one year increased 7.3%, representing an increase in royalty fees of
approximately $35,000. Six franchised restaurants were opened, two
Company-operated restaurants were converted to franchised units and 11
franchised restaurants were closed since the beginning of 1997.
ADVERTISING FEES increased 55.9% to $237,000 for the twenty-six weeks ended
July 4, 1998 compared to $152,000 during the comparable period in 1997. The
increase is primarily due to a voluntary increase of 50% in the national
advertising fee by 40 of the 44 franchised restaurants to be used for a direct
mail program. The increase is also related to the increase in franchised
restaurant sales as noted above.
COST OF RESTAURANT SALES, consisting of food and paper costs, totaled
$3,987,000 for the twenty-six weeks ended July 4, 1998 and $3,823,000 during the
same period in 1997, decreasing as a percentage of restaurant sales to 32.1%
from 33.3%. This percentage decrease is primarily the result of a decrease of
approximately 3.2% in the cost of beef, the largest single component of cost of
restaurant sales, decreases in certain condiment costs and all paper costs, as
well as price increases noted above.
RESTAURANT OPERATING EXPENSES, consisting of labor, supplies, utilities,
rent and certain other unit level operating expenses, increased to $5,832,000
for the twenty-six weeks ended July 4, 1998 from $5,592,000 in the same prior
year period. This represents a decrease as a percentage of restaurant sales to
47.0% from 48.7% for the same period in 1997. The decrease, as a percentage of
sales, relates primarily to a decrease of approximately 1.9% in promotional
activities, as well as an increase in same-store sales at existing restaurants
of 11.0%. This results 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. These decreases were partially offset by
increases in repairs and maintenance, operating supplies and equipment rental
expense.
GENERAL AND ADMINISTRATIVE COSTS which increased to $1,644,000 for the
twenty-six weeks ended July 4, 1998 from $1,521,000 in the same year earlier
period, remained level at 12.2% as a percentage of total revenue for the both
the twenty-six week periods ended July 4, 1998 and June 28, 1997. The increase
of $123,000 is primarily the result of (1) adding two new positions, one in the
training department and one in Company operations management, the goal of both
positions being to facilitate superior customer service; and (2) annual raises
which became effective at the beginning of the second quarter. Additionally, the
Company employed an MIS specialist to direct point of sale maintenance during a
portion of the first half of 1998. This position is currently unoccupied, but
the Company anticipates filling this position during the last half of 1998.
ADVERTISING EXPENSE which increased to $729,000 for the twenty-six weeks
ended July 4, 1998 from $629,000 in the same period in 1997, increased as a
percentage of total revenues to 5.4% from 5.1%. This is the result of an
increase in advertising fees, as described above, which, in addition to the
direct mail program noted above, are used for the development and production of
marketing campaigns and collateral material.
10
<PAGE> 11
INTEREST EXPENSE increased 98% to $210,000 for the twenty-six weeks ended
July 4, 1998 from $106,000 in the same year earlier period. This is due to a net
increase in long-term debt of $2,441,000, or 113%, since 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 $2,831,000 for the twenty-six weeks ended July 4,
1998 and $1,020,000 for the same period of 1997. Generally, the Company
purchases its restaurant buildings and leases the properties for its
Company-operated restaurants. The average monthly lease cost for the 18 Company-
operated restaurants on leased sites at July 4, 1998 is approximately $3,000 per
month. For the eight restaurants where the Company leases the building as well
as the site, the average monthly lease cost is approximately $4,800.
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 $575,000 for the twenty-six weeks ended July 4, 1998 and $535,000 for
the same 1997 period. This increase is primarily the result of the addition of
dine-in facilities and the related furniture and equipment at certain
Company-operated restaurants since June 28, 1997. Receivables, net, decreased
$54,000 during the twenty-six weeks ended July 4, 1998, primarily due to an
increase in the provision for uncollectible accounts.
Cash provided by operations for the twenty-six week period ended July 4,
1998 and June 28, 1997 totaled $643,000 and $727,000, respectively. Since
December 29, 1996, the addition of restaurants and equipment has been financed
primarily through cash from operations and debt.
The Company maintains a commitment with a leasing company that provides the
Company with up to $2,000,000 and bears interest of approximately 14.1%.
Borrowings in the amount of $800,000 have been drawn under the above commitment
as of July 4, 1998.
During the first half of 1998, the Company entered into loan agreements
with various financial institutions for an aggregate amount of $1,653,000 at
interest rates from 9.0% to 9.5%. These loans are secured by real and personal
property to be constructed and/or purchased with the proceeds, certain accounts
receivable and a certificate of deposit in the amount of $50,000.
The Company believes that it currently has sufficient resources to fund
anticipated capital expenditures of approximately $1,000,000 during the
remainder of 1998. These resources include the borrowing commitments described
above in addition to the Company's internally generated cash flow. Additional
growth in 1999 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 are generally 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 July 4, 1998. Increases in food, labor or
other operating costs could adversely affect the Company's operations.
11
<PAGE> 12
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
eventually be converted. Such conversion began on April 5, 1995, at which time
there were 1,199,979 shares of preferred stock outstanding. As of July 4, 1998,
1,176,856 shares had been converted.
YEAR 2000
The Company recognizes the potential impact the Year 2000 issue may have
relative to its vendors, creditors and other service providers. The Company has
reviewed its exposure to business interruption or substantial loss in these
areas and presently believes that no risk of material adverse consequences
exists. Nonetheless, the Company intends to further monitor the Year 2000
readiness of such entities and the potential impact thereof on the Company's
operations as it deems appropriate.
KNOWN TRENDS AND UNCERTAINTIES
Labor supply will continue to be a critical factor for the Company 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. The Clinton Administration is advocating an additional
increase of $1.00 per hour in the minimum wage in two phases over a set period
of time. This increase could have a negative impact on operating margins.
During the twenty-six weeks ended July 4, 1998, the cost of beef declined a
nominal 3.2% and chicken was relatively stable; however, management of the
Company anticipates increases in these costs in the future and believes 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
potential 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 increased 11.0% during the first half of 1998. Management
believes that this increase is an indication that the Company's improved
customer service, marketing efforts and the addition of dine-in facilities have
been effective. The Company will continue this strategy throughout 1998,
however, there are no assurances the increases in same-store sales will
continue.
The future success of the Company will be determined, to a great extent, by
its ability to positively address these issues.
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 21, 1998, the Company held its Annual Meeting of
Stockholders in Memphis, Tennessee, for the purpose of: i)
electing two Class I members to the Board of Directors; ii)
ratifying the appointment of Price Waterhouse LLP as
independent public accountants for 1998; iii) amending the
Company's 1995 Incentive Award Plan to reserve an additional
225,000 shares of common stock for issuance pursuant to the
plan and to increase the annual grant of stock options to
non-employee Directors from 1,000 shares to 2,500 shares, 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 I directors elected at
such meeting and the number of votes cast by the Company's
stockholders for and withheld for each director:
Directors For Withheld
--------- --- --------
William B. Raiford III 4,237,389 19,116
Stephen J. King 4,233,335 23,170
The appointment of Price Waterhouse LLP as independent public
accountants was ratified at the meeting as follows:
For 4,245,555
Against 8,340
Abstentions 2,610
Amendments of the Company's 1995 Incentive Award Plan were
approved as follows:
To reserve an additional 225,000 shares of common stock
for issuance pursuant to the plan:
For 3,894,842
Against 342,563
Abstain 19,100
Non-Vote 344,155
To increase the annual grant of stock options to
non-employee Directors from 1,000 shares to 2,500 shares:
For 3,854,469
Against 350,961
Abstain 7,125
Non-Vote 388,105
13
<PAGE> 14
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
Exhibits
10.28 - Promissory Note by and between Bank of
Mississippi and Back Yard Burgers, Inc.,
dated April 20, 1998.
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 12, 1998 By: /s/ Lattimore M. Michael
- --------------------- ----------------------------
Lattimore M. Michael
Chairman and Chief Executive
Officer
Date: August 12, 1998 By: /s/ Stephen J. King
- --------------------- ----------------------------
Stephen J. King
Chief Financial Officer
15
<PAGE> 1
EXHIBIT 10.28
BANK OF MISSISSIPPI PROMISSORY NOTE
MAKER(S): Back Yard Burgers, Inc. CUSTOMER NO.
---------------------------------- -------------
LOAN NO. 25098
---------------------------------- ----------------
AMOUNT: $290,000.00 DATE: April 20, 1998
---------------------------------- --------------------------
FOR VALUE RECEIVED, the obligor(s) [which term is used throughout this note and
which shall include the undersigned maker(s) together with all endorser(s),
surety (sureties), co-maker(s), and guarantors(s) of this note], jointly and
severally, promise to pay to the order of BANK OF MISSISSIPPI, Tupelo,
Mississippi, negotiable and payable at Bank's office in Olive Branch,
Mississippi (herein called "Bank"), its successors and assigns, in current funds
of the principal sum of: Two Hundred Ninety Thousand and No/100 ($290,000.00)
Dollars, together with interest, calculated on the basis of a (check appropriate
provision)[ ] 360 day year, [ X ] 365 day years, on the principal debt
evidenced hereby from (check appropriate provision) [ X ] _______ to maturity,
[ ] date to maturity, [ ] date(s) of the disbursement of the proceeds hereof to
maturity, and payable as hereinafter set forth. This note shall mature, and said
principal debt, and interest thereon, shall be due and payable as provided in
the sub-paragraph(s) as follows (check appropriate provisions):
As To PRINCIPAL Only:
[ ] On _______________________________________, _________________; or
[ ] In _______________ installments of $____________ each, commencing on
____________________________, ________________, and on the same day of
each and every [ ] month, [ ]quarter, [ ]six (6) months, or
[ ] year thereafter, plus a final installment of the balance of the
principal and interest thereon_________________________________________.
[ ] Other (Specify)________________________________________________________.
As to INTEREST Only:
[ ] On __________________________________, _____________, and on the same day
of each and every [ ] month, [ ]quarter, [ ]six (6) months,
or [ ] year thereafter; or
[ ] Paid in advance to maturity by discount of the principal; or
[ ] At maturity.
[ ] Other (Specify)_________________________________________________________.
As to JOINT Principal and Interest:
[ X ] In 59 installments of $3.673.60 each, commencing on May 20, 1998, and on
the same day of each and every [ X ] month, [ ]quarter, [ ]six
(6) months, or [ ] year thereafter; plus a final installment of the
balance of the principal and interest thereon on April 20, 2003;
[ ] On _________________________________________, __________________.
Said payment(s) shall be applied first to the payment of interest at
the per annum rate provided hereinbelow and any amount remaining after
payment of said interest shall be applied in reduction of the unpaid
principal of the note.
[ ] Other (Specify)_________________________________________________________.
The RATE of Interest:
[ X ] 9.0% per annum.
[ ] A floating rate of interest per annum equal to [ ] Bank of Mississippi
Prime Rate, [ ] national Prime Rate; [ ]A floating rate of interest per
annum equal to ______% above [ ] Bank of Mississippi Prime Rate,
[ ] national Prime Rate;
Said Bank of Mississippi Prime Rate being that rate of interest as
periodically determined by Bank of Mississippi, One Mississippi Plaza,
Tupelo, Mississippi, and said national Prime Rate being the base rate
on corporate loans at large United States money center commercial banks
as published in The Wall Street Journal. In the event that more than
one national Prime Rate is published, the higher of the published rates
will apply. The said interest rate is not necessarily the best interest
rate which the Bank may, from time-to-time, offer or contract or
charge.
[ ] Other (Specify)__________________________________________________________
Said rate of interest is to be adjusted if and as provided herein below.
Effective Date of Rate ADJUSTMENT:
[ ] The same day that the rate of interest as set out above changes during
the term of this note.
[ ] On the first day of the month following a change in the rate of interest
as set out above during the term of this note.
[ ] On the first day of the next calendar quarter (January, April, July,
October) following a change in the rate of interest as set above during
the term of this note.
[ ] Other (Specify)
<PAGE> 2
Provided, however, that the rate of interest under this note shall be not
be adjusted below a minimum of N/A % nor above a maximum of N/A % except that in
no event shall the rate of interest under this note exceed the maximum amount
permitted by applicable law for a bank chartered under the laws of the State of
Mississippi. In the event that the interest rate is indicated herein and/or the
interest payments made hereunder shall be or shall become usurious, said
interest rate and/or interest payments shall be considered to be an error, and
immediately upon discovery thereof, such rate shall be renegotiated between Bank
and Maker(s) and/or that portion of such interest payments that is usurious
shall be refunded. From the date of default, or at any time during the
continuance of any event of default, or at any time from and after maturity, at
Bank's option, and notwithstanding the provisions concerning minimum and maximum
interest rates provided in the first sentence of this paragraph, interest is
payable per annum at (check appropriate provision) [ ] the maximum interest rate
of interest which the Bank as a bank chartered under the laws of the State of
Mississippi is permitted by law to contract and charge: [ X ] 2.0% in excess of
the rate of interest per annum provided hereinabove in the section of this note
entitled "The RATE of interest;" said rate to remain in effect until such
default is cured to the Bank's satisfaction, is waived in writing by the Bank,
in whole or in part, or the obligation is paid in full. Changes in the rate to
be charged hereunder are to become effective without notice to the Obligor(s)
hereto as stated hereinabove. Obligor(s) waive(s) notice of any rate
adjustments.
Upon demand Obligor(s) agree(s) to pay all expenses directly related to
the loan evidenced hereby incurred or to be incurred in its making, servicing or
collection including, but not limited to, reasonable attorney's fees, filing and
recording fees, insurance premiums and taxes. The Obligor(s) further agree(s) to
pay to Bank, upon demand, all charges for services rendered or to be rendered by
its officers and employees or others with whom the Bank shall contract or
otherwise engage for such services directly for inspecting, verifying and
servicing the collaterals securing the obligation set forth herein and of the
collection of said loan.
The Obligor(s) has/have granted to Bank a lien or security interest in,
has/have deposited with Bank or has/have pledged as collateral security for the
payment of this and any other present or future indebtedness or liability of the
Obligor(s) to Bank, whether now due or hereafter to become due, directly or
indirectly (as principal, endorser, surety, guarantor or otherwise), the
property described as follows:
(DESCRIPTION OF COLLATERAL TO FOLLOW ON REVERSE SIDE.)
(DESCRIPTION OF COLLATERAL BEGINS HERE!.)
First Deed of trust on 2,380 Sq. Ft. Bank Yard Burger Restaurant and
.817 acres located on Lot 7, The village at Hedgerow Commercial
Subdivision, Section C, Shelby County, TN; 6769 E. Shelby Drive,
Memphis, TN.
S/A and F/S on all furniture, fixtures and equipment now owned or
hereafter acquired by Back Yard Burgers, Inc., to be located at their
place of business at 6769 E. Shelby Drive, Memphis, TN.
(check appropriate provision[s]):
[ X ] If a payment is more than 15 days past due, a late payment charge
of the lesser of $50.00 or 4% of the delinquency will be charged. This
charge will be collected only one time on a specific installment and
will not be collected on a partial payment resulting from the deduction
of a late payment charge from a regular scheduled payment.
In the event of the prepayment in whole or in part of the indebtedness
evidenced hereby, (check appropriate provision[s]):
[ X ] No prepayment penalty will apply.
[ ] The following prepayment penalty will apply: _______% of the principal
amount(s) paid prior to maturity and during the first year of
the term hereof; _______% of the principal amount(s) paid prior to
maturity and during the second year of the term hereof; _______% of the
principal amount(s) paid prior to maturity and during the third year of
the term hereof
Upon the happening of any of the following events, all of the aforesaid
liabilities shall, without notice, at the option of the Bank, become immediately
due without demand for payment thereof: (a) The failure of any Obligor to
perform any agreement hereunder or related to loan evidenced hereby, including
but not limited to the non-payment at maturity of this note, any interest
accrued thereon, or any other liability to said Bank or holder; (b) the death of
any Obligor; (c) the filing of any petition under any Bankruptcy Act, Federal or
State, by or against any Obligor; (d) the filing of any application for the
appointment of a receiver or the making a general assignment for the benefit of
creditors by, or any other act of insolvency of any Obligor, however expressed
or indicated; (e) the entry of any judgement against any Obligor; (f) the
issuing of any attachment or garnishment or the filing of any lien against any
property of any obligor; (g) the determination by Bank that a material adverse
change has occurred in the financial condition of any Obligor; (h) the
dissolution, merger, consolidation or reorganization of any Obligor; (i) the
sale or assignment by any Obligor of any equity or other right in any of the
collateral without the written consent of Bank; (j) the taking of possession of
any substantial part of the property of any Obligor at the instance of any
governmental authority; (k) the failure to pay when due all expenses and taxes
as required hereinabove and the premium on any life insurance policy assigned as
collateral to the Bank; and/or the failure to pay the premium when due on any
other type of insurance policy required by the Bank concerning this note and/or
said collateral security; (l) the Bank deeming itself to be insecure; (m) the
failure to promptly furnish sufficient additional security, when in the opinion
of the Bank or holder hereof such is needed, upon twenty-four hours notice,
verbal or written at the option of said Bank or holder; (n) the adjudication of
any Obligor a bankrupt; (o) the transfer, without the written consent of Bank,
of any collateral securing the note to any state other than the state in which
said Bank's lien(s) on said collateral security is (are) and/or shall be
perfected.
No delay or omission on the part of the Bank, or the holder, in
exercising any right hereunder or related to the obligations evidenced hereby
shall operate as a waiver of such right or of any other right. A waiver on any
one occasion shall not be construed as a bar to or waiver of any such right
and/or remedy on any future occasion.
<PAGE> 3
Every maker surety, endorser, guarantor, or other party, whether
primarily or secondarily liable on this note or the indebtedness evidenced
hereby, agrees that any monies or other property at any time in the possession
of Bank belonging to any of said parties and any deposits, balance of deposits
or other sums at any time credited by or due from bank to any of said parties,
may at all times, at the option of Bank, be held and treated as collateral
security of the payment of any liability of Obligor(s) to Bank, whether due or
not due, and Bank may at it s sole option and any anytime before or after
default, set off the amount due or to become due hereon against any claim of any
of said parties against Bank.
Every make, surety, endorser and guarantor of this note or the obligation
set forth herein waives presentment, demand, notice, protest and all other
demands and notices in connection with the delivery, accpetance, performance,
default of endorsement of the Note or their respective obligations hereon;
consents to any extensions or postponements of the due date or time of payment
hereof, or of any other indebtedness [with or without concurrence of the
Obligor(s)] in whole or in part without notice to the Obligor(s) and without
limitation as to the number of such extensions or the period or periods thereof;
and consents to any substitution, exchange or release of collateral and/or to
the addition or release of any other party or person whether primarily or
secondarily liable. Each extension granted shall be noted herein by the Bank or
holder with a new date of maturity clearly indicated.
OBLIGOR(S) WAIVES(S) RIGHT OF TRIAL BY JURY. Any provision(s) herein that
is (are) or that shall become void or unenforceable shall not render any other
provisions(s) hereof void or unenforceable.
All rights and powers of Bank hereunder shall inure to the benefit of any
subsequent holder or assignee of this Note and the owner of any part of the debt
evidenced thereby.
This instrument shall be governed by and construed in accordance with the
laws of the State of Mississippi and applicable Federal law.
It is agreed by all parties hereto that the proceeds of this loan (check
appropriate provision) [ X ] will not [ ] will be used primarily for personal,
family, or household purposes.
ADDRESS(ES): SIGNATURE(S) OF MAKER(S):
2768 Colony Park Drive BACK YARD BURGERS, INC.
- ------------------------------------- ----------------------------------
Memphis, TN 38118
- -------------------------------------
- ------------------------------------- ----------------------------------
Lattimore M. Michael
- ------------------------------------- Founder, Chairman, and CEO
<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
-------------------- ----------------------
JULY 4, JUNE 28, JULY 4, JUNE 28,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income $ 366 $ 305 $ 531 $ 219
====== ====== ====== ======
Weighted average number
of common shares outstanding
during the period 4,580 4,253 4,475 4,249
====== ====== ====== ======
Basic income per share $ .08 $ .07 $ .12 $ .05
====== ====== ====== ======
Weighted average number
of common shares outstanding
during the period 4,580 4,253 4,475 4,249
Preferred shares convertible
to common shares 27 297 116 302
Stock options 88 11 77 12
------ ------ ------ ------
4,695 4,561 4,668 4,563
====== ====== ====== ======
Diluted income per share $ .08 $ .07 $ .11 $ .05
====== ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT JULY 4, 1998 AND THE CONSOLIDATED STATEMENT OF
INCOME FOR THE TWENTY-SIX WEEKS ENDED JULY 4, 1998, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> JAN-04-1998
<PERIOD-END> JUL-04-1998
<EXCHANGE-RATE> 1
<CASH> 758
<SECURITIES> 0
<RECEIVABLES> 330<F1>
<ALLOWANCES> 0
<INVENTORY> 187
<CURRENT-ASSETS> 1,445
<PP&E> 11,778<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,933
<CURRENT-LIABILITIES> 1,328
<BONDS> 0
0
0
<COMMON> 46
<OTHER-SE> 8,882
<TOTAL-LIABILITY-AND-EQUITY> 14,933
<SALES> 12,406
<TOTAL-REVENUES> 13,500
<CGS> 3,987
<TOTAL-COSTS> 9,819
<OTHER-EXPENSES> 2,843
<LOSS-PROVISION> 97
<INTEREST-EXPENSE> 210
<INCOME-PRETAX> 531
<INCOME-TAX> 0
<INCOME-CONTINUING> 531
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 531
<EPS-PRIMARY> .12
<EPS-DILUTED> .11
<FN>
<F1>ASSET VALUE REPRESENTS NET AMOUNT
</FN>
</TABLE>
