SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-Q
__X__ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 25, 1998
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____.
Commission File Number: 0-22786
TIMBER LODGE STEAKHOUSE, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Minnesota 41-1810126
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4021 Vernon Avenue South
St. Louis Park, Minnesota 55416
(Address of Principal Executive Offices)
(612) 929-9353
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) has 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.
__X__ Yes _____ No
As of May 1, 1998, there were outstanding 3,636,082 shares of the
issuer's Common Stock, $.01 par value per share.
<PAGE>
TABLE OF CONTENTS
Page
----
PART I
ITEM 1. FINANCIAL STATEMENTS........................................... 1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................. 6
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................... 8
SIGNATURES................................................................. S-1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TIMBER LODGE STEAKHOUSE, INC.
BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
March 25, December 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................ $ 125,279 $ 482,598
Accounts receivable .............................. 169,731 227,473
Inventory ........................................ 295,046 352,289
Pre-opening costs ................................ 394,064 450,510
Pre-paid expenses and other current assets ....... 567,249 541,529
------------ ------------
Total current assets ....................... 1,551,369 2,054,399
Property and equipment, net ............................. 12,652,903 12,463,740
Note receivable, related party .......................... 346,000 346,000
Deferred tax assets ..................................... 132,400 132,400
Other assets ............................................ 218,038 221,639
------------ ------------
Total assets ............................................ $ 14,900,710 $ 15,218,178
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................. $ 1,069,577 $ 1,512,713
Short-term borrowing ............................. 150,000 --
Accrued salaries and wages ....................... 400,885 386,371
Sales tax payable ................................ 150,585 187,153
Gift certificates payable ........................ 504,187 871,360
Deferred tax liabilities ......................... 59,000 59,000
Accrued expenses and other liabilities ........... 86,263 71,847
------------ ------------
Total current liabilities .................. 2,420,497 3,088,444
Deferred rent ........................................... 1,177,220 1,063,429
------------ ------------
Total liabilities ....................................... 3,597,717 4,151,873
Shareholders' equity:
Common stock, $0.01 par value
Authorized shares -- 10,000,000
Issued shares -- 3,634,415 at March 25, 1998
and 3,625,750 at December 31, 1997 .... 36,344 36,257
Additional paid-in capital ....................... 8,909,052 8,883,701
Retained earnings ................................ 2,357,597 2,146,347
------------ ------------
Total shareholders' equity .............................. 11,302,993 11,066,305
------------ ------------
Total liabilities and shareholders' equity .............. $ 14,900,710 $ 15,218,178
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
<PAGE>
TIMBER LODGE STEAKHOUSE, INC.
STATEMENTS OF OPERATIONS
(unaudited)
Twelve Weeks Ended
March 25, March 26,
1998 1997
------------ ------------
Net sales ............................... $ 7,399,440 $ 5,214,308
Costs and expenses:
Food and beverage costs .......... 2,808,566 1,927,169
Labor and benefits costs ......... 2,163,907 1,473,588
Restaurant operating expenses .... 738,272 538,430
Occupancy costs .................. 884,213 584,314
------------ ------------
Restaurant costs and expenses 6,594,958 4,523,501
------------ ------------
Restaurant operating income ............. 804,482 690,807
General and administrative .............. 392,180 339,536
Amortization of pre-opening costs ....... 124,777 76,625
------------ ------------
Operating income ................. 287,525 274,646
Interest expense ........................ 4,597 5,330
Interest and other (income) expense ..... (18,922) (19,568)
------------ ------------
Income before income taxes .............. 301,850 288,884
Income taxes ..................... 90,600 86,700
------------ ------------
Net income .............................. $ 211,250 $ 202,184
============ ============
Basic earnings per share ................ $ 0.06 $ 0.06
============ ============
Diluted earnings per share .............. $ 0.06 $ 0.06
============ ============
Basic weighted average shares ........... 3,632,641 3,584,747
============ ============
Diluted weighted average shares ......... 3,740,334 3,658,804
============ ============
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
<PAGE>
TIMBER LODGE STEAKHOUSE, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Twelve Weeks Ended
March 25, March 26,
1998 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income ................................................. $ 211,250 $ 202,184
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation .................................. 279,667 238,350
Amortization .................................. 124,777 76,625
Deferred rent ................................. 113,791 (114,893)
Changes in operating assets and liabilities:
Receivables ............................. 57,742 5,514
Inventories ............................. 57,243 17,655
Pre-opening costs ....................... (67,431) (130,188)
Prepaid expenses and other current assets (25,720) (49,211)
Accounts payable ........................ (443,136) 135,982
Accrued salaries and wages .............. 14,514 55,829
Sales tax payable ....................... (36,568) (22,290)
Gift certificates payable ............... (367,173) (250,651)
Income taxes payable .................... -- (232,482)
Other accrued expenses .................. 14,416 (62,590)
------------ ------------
Net cash used in operating activities ...................... (66,628) (130,166)
INVESTING ACTIVITIES
Purchases of property and equipment ........................ (468,830) (1,383,614)
Other assets ............................................... 2,701 970
------------ ------------
Net cash used in investing activities ...................... (466,129) (1,382,644)
FINANCING ACTIVITIES
Proceeds from short-term borrowings ........................ 150,000 938,425
Exercise of stock options .................................. 25,438 24,975
Common stock repurchased ................................... -- (7,313)
------------ ------------
Net cash provided by financing activities .................. 175,438 956,087
Net decrease in cash and cash equivalents .................. (357,319) (556,723)
Cash and cash equivalents at the beginning of the year ..... 482,598 1,178,373
------------ ------------
Cash and cash equivalents at end of period ................. $ 125,279 $ 621,650
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
<PAGE>
TIMBER LODGE STEAKHOUSE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 25, 1998
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. These statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Form 10-KSB/A-1 for the
year ended December 31, 1997.
In the opinion of management, all adjustments, consisting of normal recurring
accruals, considered necessary for a fair presentation have been included.
Operating results for the twelve weeks ended March 25, 1998, are not necessarily
indicative of the results that may be expected for the year ended December 30,
1998.
2. EARNINGS PER SHARE
Earnings per share have been calculated based on the guidelines established by
the Financial Accounting Stands Board (FASB) Statement of Financial Accounting
Standards No. 128, EARNINGS PER SHARE. Basic earnings per share were calculated
by dividing income available to common stockholders by the weighted average
common shares outstanding. Diluted earnings per share were calculated using the
dilutive effect of stock options and warrants using the treasury stock method.
All earnings per share amounts for all periods have been presented, and where
appropriate, restated to conform to Statement 128 requirements.
The following table illustrates the required disclosure of the reconciliation of
the numerators and denominators of the basic and diluted earnings per share
computations.
<TABLE>
<CAPTION>
Twelve weeks ended
March 25, March 26,
1998 1997
----------- -----------
<S> <C> <C>
BASIC EARNINGS PER SHARE:
Numerator
Net income ................................... $ 211,250 $ 202,184
=========== ===========
Denominator
Basic weighted average number of common shares
outstanding for the period ................... 3,632,641 3,584,747
=========== ===========
Basic earnings per share ............................ $ 0.06 $ 0.06
=========== ===========
</TABLE>
<PAGE>
2. EARNINGS PER SHARE - CONTINUED
<TABLE>
<CAPTION>
Twelve weeks ended
March 25, March 26,
1998 1997
---------- ----------
<S> <C> <C>
DILUTED EARNINGS PER SHARE:
Numerator
Net income ..................................... $ 211,250 $ 202,184
========== ==========
Denominator
Basic weighted average number of common shares
outstanding for the period ..................... 3,632,641 3,584,747
Incremental common shares attributable to
exercise of: outstanding options ............... 107,693 74,057
outstanding warrants .............. -- --
---------- ----------
Diluted weighted average number of common shares
outstanding for the period ..................... 3,740,334 3,658,804
========== ==========
Diluted earnings per share ............................ $ 0.06 $ 0.06
========== ==========
</TABLE>
3. RECLASSIFICATION
Certain prior year items have been reclassified to conform with the current year
presentation.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following table sets forth the percentage relationship to net sales of
certain items included in the Company's statements of operations.
TWELVE WEEKS ENDED
-----------------------
MARCH 25, MARCH 26,
1998 1997
--------- ---------
Net sales ................................. 100.0% 100.0%
Costs and expenses:
Food and beverage costs .............. 38.0 37.0
Labor and benefits costs ............. 29.2 28.3
Restaurant operating expenses ........ 10.0 10.3
Occupancy costs ...................... 11.9 11.1
-------- --------
Restaurant costs and expenses ... 89.1 86.7
-------- --------
Restaurant operating income ............... 10.9 13.3
General and administrative ................ 5.3 6.5
Amortization of pre-opening costs ......... 1.7 1.5
-------- --------
Operating income ...................... 3.9 5.3
Interest expense .......................... 0.1 0.1
Interest and other (income)/expense ....... (0.3) (0.4)
-------- --------
Income before income taxes ................ 4.1 5.6
Income taxes ......................... 1.2 1.7
-------- --------
Net income ................................ 2.9% 3.9%
======== ========
Number of restaurants open at end of period 17 12
TWELVE WEEKS ENDED MARCH 25, 1998, COMPARED TO TWELVE WEEKS ENDED MARCH 26,
1997.
NET SALES. The Company's net sales increased 41.9% to $7,399,440 compared to
$5,214,308 for the first quarter last year. The increase is attributable to the
five new restaurants opened since the beginning of the first quarter of fiscal
1997. Same store sales for stores open at least 18 months were up 1.3%. The
Company continues to use television as its primary media vehicle in its core
market of Minneapolis/St. Paul and has expanded television advertising to Sioux
Fall, SD and Duluth, MN. The Company uses radio advertising in the Wisconsin
market and print advertising in the Illinois and New York markets. The Company's
management feels confident, that despite increased direct competition in its
markets, same store sales will continue to be positive.
<PAGE>
COSTS AND EXPENSES. Cost of restaurant sales, consisting of food and beverage
costs, increased 1.0% to 38.0% compared to 37.0% for the same period last year.
This increase is due in part to the Company experiencing higher costs of meat,
produce, and dairy in the early part of the current year quarter.
Labor and related benefit costs increased 0.9% to 29.2% compared to 28.3% for
the same period last year. The increase is attributable to the higher minimum
wage paid to Minnesota servers. Minnesota is one of a few states that does not
permit "tip credit" (the practice of employers paying tipped employees below the
federal minimum wage, with tips from customers making up the balance of the
minimum wage). These increases were offset somewhat by the Company implementing
a partially self-insured health and dental insurance program for all eligible
and participating employees.
Restaurant operating expenses and occupancy costs include all other unit-level
costs, the major components of which are rents, real estate taxes, utilities,
store supplies, repairs and maintenance and other related occupancy costs.
Restaurant operating costs are semi-variable while most of the occupancy
expenses are fixed. In the aggregate for the first quarter, restaurant operating
expenses and occupancy costs increased 0.5% to 21.9% of net sales compared to
21.4% for the same period last year. The increase is attributable to occupancy
costs, mainly equipment leases, being higher for new stores added in the past
year compared to the mature existing stores operating during the same period.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased 1.2% to 5.3% of net sales compared to 6.5% for the same period last
year. This decrease is due to the first time cost of television in the
Minneapolis/St. Paul market in the first quarter of 1997. Also, the Company has
experienced increased efficiencies while adding new stores without adding
corporate personnel and overhead.
AMORTIZATION OF PRE-OPENING COSTS. Amortization of pre-opening costs increased
to 1.7% of net sales compared to 1.5% for the same period last year. The
increase is attributable to the pre-opening costs for the latest five new stores
(three were outstate locations) being higher than the three new restaurants
being amortized for the same period last year. The Company amortizes pre-opening
costs for new restaurants over a twelve month period commencing with the first
full period after the restaurant's opening.
INTEREST AND OTHER INCOME. Interest was paid on short term borrowings via a line
of credit the Company has with a local bank. The increase in short term
borrowings was used to meet the Company's needs in funding new restaurant
construction and to pay income taxes. Income was earned on marketable securities
and a promissory note related to the 1995 Q. Cumbers sale. Interest income
combined with other miscellaneous income was $18,922 for the first quarter
compared to $19,568 for the same period last year. The decrease is due to a
reduction of marketable securities used to finance new restaurant construction.
PROVISION FOR INCOME TAXES. The Company's effective tax rate is estimated at 30%
for the first quarter, which is the same as first quarter 1997. The company's
tax rate is impacted by tax credits for FICA taxes paid on tips received by
restaurant employees.
NET INCOME. The Company's net income was $211,250 in the first fiscal quarter of
1998 compared to $202,184 for the same period last year. Basic and diluted
earnings per share were $.06 in the first quarter 1998 compared to $.06,
respectively, for the same quarter last year.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has leased its restaurant sites under non-cancelable
leases for periods of six to twenty years, with renewal options of between three
and ten years. The Company plans to continue leasing sites for expansion in the
foreseeable future.
Cash used in operating activities was $66,628 compared to cash used of $130,166
for the same period last year. The Company had a net working capital deficit of
($869,128) at March 25, 1998, compared to a deficit of ($1,034,045) at December
31, 1997. The increase in working capital is a result of the Company paying down
its accounts payable and customers redeeming gift certificates. The Company has
a $500,000 bank line of credit that it has used to fund short-term cash needs.
At the end of first quarter 1998 this line had an outstanding balance of
$150,000. This balance is planned to be paid down in subsequent quarters. Most
of the Company's sales are paid by cash or credit card and the Company generally
receives 30 days credit from trade suppliers.
Sale leaseback financing with AEI Fund Management, Inc. of St. Paul, Minnesota
provided $1,575,000 for the November 1997 purchase of the St. Cloud, Minnesota
restaurant. The financing agreement between the Company and AEI Fund Management,
Inc. executed on September 23, 1997, provided for the funding of up to four
restaurants/parcels. The Rochester, Minnesota site that is under construction is
being financed pursuant to that agreement between the Company and AEI. This
financing facility could fund two more restaurants beyond the St. Cloud and
Rochester sites.
The Company currently intends to focus its expansion on steakhouse restaurants
and estimates that the average costs of developing a new steakhouse restaurant
to be approximately $1,200,000. The actual cost will vary depending on the size
of the restaurant, the amount of landlord contributions, if any, and whether
extensive renovation or remodeling is required. Pre-opening costs, primarily
labor, advertising, travel and other costs related to the four new steakhouses
opened in 1997 were approximately $130,000 per restaurant. Expenses for new
restaurants opening in the future are expected to be lower as training and
general start-up efficiencies are achieved from the Company opening additional
restaurants in markets away from Minnesota.
The Company believes that cash generated from operations and funds available
under its line of credit will be sufficient to finance current and forecasted
operations and obligations.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
None
(b) No reports on Form 8-K have been filed during the quarter for
which this report was filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TIMBER LODGE STEAKHOUSE, INC.
Date: May 8, 1998 By: /s/ Dermot F. Rowland
-----------------------------------
Dermot F. Rowland
Its: Chief Executive Officer
Date: May 8, 1998 By: /s/ Peter S. Bedzyk
-----------------------------------
Peter S. Bedzyk
Its: President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TIMBER LODGE
STEAKHOUSE'S BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0000912287
<NAME> TIMBER LODGE STEAKHOUSE INC
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-25-1998
<CASH> 125,279
<SECURITIES> 0
<RECEIVABLES> 169,731
<ALLOWANCES> 0
<INVENTORY> 295,046
<CURRENT-ASSETS> 1,551,369
<PP&E> 12,652,903
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,900,710
<CURRENT-LIABILITIES> 2,420,497
<BONDS> 0
0
0
<COMMON> 36,344
<OTHER-SE> 11,266,649
<TOTAL-LIABILITY-AND-EQUITY> 14,900,710
<SALES> 7,399,440
<TOTAL-REVENUES> 7,399,440
<CGS> 2,808,566
<TOTAL-COSTS> 6,594,958
<OTHER-EXPENSES> 498,035
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,597
<INCOME-PRETAX> 301,850
<INCOME-TAX> 90,600
<INCOME-CONTINUING> 211,250
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 211,250
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
