<PAGE>
US SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
33-76422
(Commission file number)
LINDA'S FLAME ROASTED CHICKEN, INCORPORATED
(Exact name of small business issuer as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
22-3280395
(Incorporation or organization identification number)
11 COMMERCE DRIVE, CRANFORD, NJ 07016
(Address of principal executive offices)
(908) 276-2080
(Issuer's telephone number)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities and 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 ( )
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: May 13, 1996
Class A Common Stock, $.001 par value: 2,065,000 shares
Class B Common Stock, $.001 par value: 800,000 shares
Transitional Small Business Disclosure Format (Check one):Yes ( ) No (X)
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
LINDA'S FLAME ROASTED CHICKEN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------ -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $343,962 $558,013
Short term cash investments 238,000 721,000
Inventories 15,095 19,078
Notes receivable, current portion 367,323 167,313
Prepaid expenses and other current assets 199,307 110,814
------------ -------------
Total Current Assets 1,163,687 1,576,218
------------ -------------
PROPERTY AND EQUIPMENT, NET 991,153 967,217
------------ -------------
OTHER ASSETS:
Notes receivable, less current portion 109,685 113,204
Intangible assets, net 53,681 50,101
Deposits and other assets 50,812 34,439
------------ -------------
214,178 197,744
------------ -------------
$2,369,018 $2,741,179
------------ -------------
------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Long term debt, current portion $49,633 $45,387
Accounts payable and accrued expenses 209,378 191,526
Accrued payroll and payroll taxes 20,207 41,831
Sales tax payable 6,196 7,638
Deferred franchise fees 100,000 75,000
------------ -------------
Total Current Liabilities 385,414 361,382
------------ -------------
LONG TERM LIABILITIES:
Long term debt, less current portion 39,454 54,635
Deferred rent 67,254 63,123
------------ -------------
106,708 117,758
------------ -------------
COMMITMENTS
STOCKHOLDERS' EQUITY:
Preferred stock $.001 par value; 2,500,000
shares authorized; none issued - -
Common stock, Class A, $.001 par value;
15,000,000 shares authorized; 1,265,000
shares issued and outstanding 1,265 1,265
Common stock, Class B, $.001 par value;
800,000 shares authorized; 800,000
shares issued and outstanding 800 800
Capital in excess of par value 5,442,847 5,442,847
Accumulated deficit (3,568,016) (3,182,873)
------------ -------------
Total Stockholders' Equity 1,876,896 2,262,039
------------ -------------
$2,369,018 $2,741,179
------------ -------------
------------ -------------
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
LINDA'S FLAME ROASTED CHICKEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
1996 1995
------------ -----------
<S> <C> <C>
REVENUES:
Restaurant sales, net $ 291,360 $ 589,851
Royalties 4,642 -
------------ -----------
296,002 589,851
------------ -----------
COSTS AND EXPENSES:
Food and paper costs 121,987 262,816
Restaurant labor and related expenses 119,592 197,585
Operating expenses 20,764 42,650
Occupancy expenses 74,336 113,418
General and administrative 322,555 425,594
Depreciation and amortization 31,577 31,250
Preopening costs - 38,138
------------ -----------
690,811 1,111,451
------------ -----------
LOSS FROM OPERATIONS (394,809) (521,600)
OTHER INCOME (EXPENSE):
Interest and other income 13,984 41,354
Interest expense (4,318) (4,949)
------------ -----------
9,666 36,405
------------ -----------
NET LOSS $ (385,143) $ (485,195)
------------ -----------
------------ -----------
NET LOSS PER SHARE $ (0.24) $ (0.30)
------------ -----------
------------ -----------
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 1,615,000 1,615,000
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
LINDA'S FLAME ROASTED CHICKEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1996 1995
--------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (385,143) $ (485,195)
Adjustments to reconcile net loss to net cash
flows from operating activities:
Depreciation and amortization 31,577 31,250
Changes in operating assets and liabilities:
Inventories 3,983 (12,761)
Prepaid expenses and other current assets (88,493) (59,903)
Deposits and other assets (16,373) (146,052)
Accounts payable and accrued expenses 17,852 (19,241)
Accrued payroll and payroll taxes (21,624) (16,351)
Sales tax payable (1,442) 1,766
Deferred franchise fees 25,000 -
Deferred rent 4,131 810
--------- ----------
Net cash flows used in operating activities (430,532) (705,677)
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from redemption of cash investments 571,000 -
Acquisition of cash investments (88,000) (191,894)
Funds advanced under notes receivable (198,228) -
Proceeds from notes receivable 1,737 -
Acquisition of property and equipment (55,513) (163,240)
Acquisition of intangible assets (3,580) -
--------- ----------
Net cash flows from (used in) investing activities 227,416 (355,134)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES -
Payments of long-term debt (10,935) (6,594)
--------- ----------
NET CHANGE IN CASH AND EQUIVALENTS (214,051) (1,067,405)
CASH AND EQUIVALENTS, Beginning of period 558,013 2,126,646
--------- ----------
CASH AND EQUIVALENTS, End of period $ 343,962 $1,059,241
--------- ----------
--------- ----------
SUPPLEMENTAL INFORMATION:
Interest paid $ 4,318 $ 4,949
--------- ----------
--------- ----------
Income taxes paid $ - $ -
--------- ----------
--------- ----------
Noncash financing activity:
Equipment obtained under capitalized leases payable $ - $ 19,451
--------- ----------
--------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
LINDA'S FLAME ROASTED CHICKEN, INC. AND SUBSIDIARIES
Notes to consolidated financial statements
(Unaudited)
(1) The consolidated balance sheet at the end of the preceeding fiscal year has
been derived from the audited consolidated balance sheet contained in the
Company's Form 10-KSB and is presented for comparative purposes. All other
financial statements are unaudited. All adjustments which are of a normal
and recurring nature and in the opinion of management necessary for a fair
presentation, have been included. The results of operations for interim
periods are not necessarily indicative of the operating results for the
full year. Footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have
been omitted in accordance with the published rules and regulations of the
Securities and Exchange Commission. These consolidated financial
statements should be read in conjunction with the financial statements and
notes thereto included in the Company's Form 10-KSB for the most recent
fiscal year.
(2) In February 1996, the Company agreed to return $15,000 of a $25,000
franchise fee received in June 1995 to a potential franchisee, and
rescinded the franchise agreement.
(3) In February 1996, the Company signed an agreement with another franchisee
and received a $25,000 initial franchise fee. Under this agreement, the
franchisee has agreed to open and operate a Linda's Flame Roasted Chicken
restaurant in Oakland, New Jersey under the proprietary trademark, trade
names and standard operating procedures of the Company.
(4) In March 1996, the Company signed a multi-unit franchise development
agreement with a franchisee for up to 18 Linda's Flame Roasted Chicken
restaurants, the first of which is expected to open in Flemington, New
Jersey later in 1996.
(5) In May 1996, the Company completed a private placement for the sale of 40
units at $50,000 per unit. The net proceeds to the Company were
approximately $1,700,000. Each unit consists of 20,000 shares of Class A
common stock and 20,000 redeemable Class C warrants. Each Class C warrant
entitles the holder to purchase one share of Class A common stock at an
exercise price of $5.25. The Company will use these proceeds in connection
with the commencement of its wholly-owned subsidiary, National Home
Guaranty, Inc.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of Linda's Flame Roasted Chicken, Inc. and its
wholly-owned subsidiaries. All intercompany transactions and balances have
been eliminated in consolidation.
CASH EQUIVALENTS - The Company considers highly liquid debt instruments
with maturities of three months or less to be cash equivalents.
FRANCHISE RELATED INCOME AND DEFERRED FRANCHISE FEES - In connection with
its franchising operations, the Company receives initial franchise fees,
royalties and advertising fees from its franchisees. Initial fees are
recognized when the franchisee commences operations. Royalties and
advertising fees, as defined in the underlying franchise agreements, are
recognized in the period that the related franchise store revenue is
generated.
- 5 -
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
The Company currently has five restaurants, three of which are Company-owned and
operated, and two of which are franchised. Additionally, the Company has sold
an additional four franchises, three in New Jersey and one in New York, which
are expected to open later in 1996. The Company, as part of a diversification
strategy, formed National Home Guaranty, Inc. ("NHG"), a wholly-owned subsidiary
that plans to provide federally-guaranteed financing for homeowners and lead-
generation services for contractors with respect to home-improvement services in
the low-to-moderate income housing markets. In April 1996, NHG was approved by
the US Department of Housing and Urban Development to originate federally-
guaranteed Title I loans. NHG recently commenced operations in the southern New
Jersey and eastern Pennsylvania markets, and generated no revenues during the
quarter ended March 31, 1996.
Gross restaurant sales for the quarter ended March 31, 1996 decreased $317,000
(51%) as compared to the same period in 1995. Comparable store gross sales (for
locations opened at least one year) decreased $133,000 (35%). The total sales
decreases were due to the Company having five Company-owned locations in 1995
compared with three such locations in 1996. The Company closed one location in
October 1995, and franchised the other location in December 1995. The same
store sales decreases were due specifically to the significantly adverse weather
conditions in the Northeast during the first quarter of 1996. Additionally,
during the first quarter of 1995, the Company had grand opening advertising and
promotions pertaining to its Livingston, New Jersey location which led to
increased initial sales at that restaurant, as well as positively affecting the
Company's surrounding stores.
Food and paper costs collectively decreased, for the quarter ended March 31,
1996 compared to the same period in 1995, to $122,000 (40% of gross sales) from
$263,000 (42% of gross sales), respectively.
Food cost decreases were attributable to several factors including, the
increased sales from the introduction of a new menu of oversized gourmet
sandwiches which have lower food costs than other meal items, the
discontinuation of selling bottled juices, and the replacement of home-baked
goods. Additionally, the Company continually puts to competitive bid, all of
its high usage food items in an attempt to additionally reduce costs on all of
the major items which it purchases.
Paper cost decreases were attributable to the Company's phase-out of some of its
higher-priced branded paper products. The Company has retained certain high
exposure branded components such as take-out container lids and carry-out bags
since these items carry high visibility within the take-out segment of the
business. The non-branded paper products retain the same quality level as the
branded products.
Restaurant labor and related expenses increased as a percentage of sales to
$120,000 (39% of gross sales) for the quarter ended March 31, 1996 as compared
to $198,000 (32% of gross sales) for the first quarter of 1995. The increase
as a percentage of gross sales is due to the Company's need to provide a certain
minimum level of labor irrespective of sales. As previously discussed, severe
winter weather negatively impacted the Company's restaurant sales. Since these
restaurants had to be staffed for potential rather than actual sales, the
percentage of labor to the declining sales in the first quarter of 1996 was
comparatively greater than the prior year. Additionally, the Company operates
in a highly competitive labor market which has a limited number of candidates
for restaurant labor, and similar to the rest of the restaurant industry
experiences a high turnover rate of its existing hourly labor, leading to higher
labor costs due to hiring and training costs.
- 6 -
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
RESULTS OF OPERATIONS
In response to this turnover, the Company has a low-cost incentive program for
both hourly labor and store management paying a small referral bonus to existing
employees for the referral of new hires who remain at least three months.
Operating expenses, including such items as local promotion, repairs and
maintenance and store supplies, amounted to $21,000 (7% of gross sales) for the
first quarter of 1996 compared to $43,000 (7% of gross sales) for the comparable
quarter of 1995.
Occupancy costs, including such fixed and recurring items such as rent, common
area maintenance charges and utilities, amounted to $74,000 (24% of gross sales)
and $113,000 (18% of gross sales) for the three months ended March 31,1996 and
March 31, 1995, respectively. This increase as a percentage of sales results
from the fixed nature of such expenses which will increase as a percentage of
sales as sales decrease.
General and administrative expenses decreased to $323,000 (105% of gross sales)
for the first three months of 1996 from $426,000 (68% of gross sales) for the
comparable period in 1995. This decrease is due to several factors, including,
the elimination of the Company's cable television advertising campaign effective
November 1995. The Company has replaced this advertising with more community-
based, local marketing and promotions tailored to each individual store.
Additionally, the Company continues to expand its high-frequency "VIP" card
program, whereby the Company rewards the customers who repeatedly frequent its
restaurants. The Company has also eliminated several corporate positions to
reduce overhead. Furthermore, NHG incurred approximately $75,000 of overhead
pertaining to payroll and office related expenses which is included in the
$323,000 total for the quarter ended March 31, 1996. While cost containment
will continue to take place in this expense category, general and administrative
expenses will continue to represent a large percentage of sales until the
Company develops enough restaurants which can collectively generate sales volume
and royalty income sufficient to absorb these costs.
Depreciation and amortization increased to $32,000 (10% of gross sales) for the
quarter ended March 31, 1996 from $31,000 (5% of gross sales) for the quarter
ended March 31, 1995. This is attributable to the increase of property and
equipment related to the opening of the Company's restaurant in Summit, New
Jersey in June 1995.
Preopening costs for the first quarter of 1995 of $38,000 represented expenses
related to the grand opening of the Company's restaurant in Livingston, New
Jersey in January 1995, including various training, payroll, promotion and
start-up costs. No preopening expenses were incurred by the Company during the
first quarter of 1996.
Interest income decreased to $14,000 from $41,000 for the three months ended
March 31, 1996 and March 31, 1995, respectively. Investment earnings are
principally from the Company's investments in United States Treasury obligations
and bank certificates of deposit. This source of income has decreased as the
Company has expended funds which were invested in 1995 on the expansion of its
operations.
- 7 -
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
LIQUIDITY AND CAPITAL RESOURCES
Current assets at March 31, 1996 were $1,164,000 compared to $1,576,000 at
December 31, 1995 and current liabilities were $385,000 at March 31, 1996
compared to $361,000 at December 31, 1995. The Company sells to consumers in
what are substantially all cash transactions. Any credit and debit card
business transacted is electronically credited to the Company's accounts within
48 hours. The Company's debt at March 31, 1996 consisted of obligations owed
under capitalized leases for point-of-sale terminals at each of the restaurants
totalling $57,000. Additionally, the Company issued a note payable, with a
remaining balance of $32,000 at March 31, 1996, in conjunction with its
acquisition of the restaurant in Summit, NJ. The Company currently has no bank
borrowings.
The Company requires capital principally to develop and open new restaurants.
Estimated costs for the opening of a new Company-owned site are between $250,000
and $450,000. The capital required for a new site which is to be franchised is
considerably less since the potential franchisee is required to supply the
capital necessary to build-out a site. Accordingly, given current limited cash
resources, the Company is aggressively pursuing franchisees to provide for
future expansion of the Company's operations and the increasing of market share,
and does not currently intend to open additional company-owned restaurants. In
addition to allowing for expansion with minimal Company capital, franchising
also provides a weekly flow of income into the Company via management royalties,
as well as allowing for the offsetting of regional advertising expenses, through
required franchisee contributions to a regional advertising fund.
The Company currently has six franchisees, two of which have stores which are
currently open, and four of which are expected to open later in 1996. Because of
the increased emphasis on the Company's franchising program, the Company's
future results will be more significantly affected by the success or failure of
its franchising program.
The Company provided temporary construction financing to a franchisee for the
construction of a free-standing building in Westwood, NJ under a promissory note
dated August 29, 1995, and advanced $366,000 in funds as of March 31, 1996 at a
variable rate equal to a 90 day certificate of deposit rate plus 1%. The
franchisee has received a commitment letter from a third party lender providing
for funds equal to the amount that the Company lent the franchisee. This
third party financing is expected to close in May 1996. Accordingly, the
Company expects repayment of these funds in May 1996.
The Company anticipates that the current trend of losses will continue for the
forseeable future, and will attempt to continue to reduce expenses, both
operationally, and through reductions in overhead relating to the Company's
corporate office. Additionally, the Company has diversified its operations to
outside of the restaurant industry with the creation of its wholly-owned
subsidiary, National Home Guaranty, Inc. On May 7, 1996, the Company completed
a private placement for the sale of 40 units at $50,000 per unit. The net
proceeds to the Company were approximately $1,700,000. Each unit consists of
20,000 shares of Class A common stock and 20,000 redeemable Class C warrants.
Each Class C warrant entitles the holder to purchase one share of Class A common
stock at an exercise price of $5.25. The Company will use these proceeds in
connection with the commencement of National Home Guaranty, Inc.
In the event the Company's restaurant operations continue to generate losses at
approximately the current rate, the Company believes that its existing cash and
investments, inclusive of the proceeds received from the private offering, will
be sufficient to satisfy its cash requirements for the next 12 months.
- 8 -
<PAGE>
LINDA'S FLAME ROASTED CHICKEN, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
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
a) Exhibits: Exhibit 27 (Financial Data Schedule for First Quarter of
1996)
b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for which
this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Linda's Flame Roasted Chicken, Inc.
(Registrant)
May 13, 1996 /s/ Peter Weissbrod
-------------------
Peter Weissbrod, President
(Principal Executive Officer)
May 13, 1996 /s/ Gregory Finkelstein
-----------------------
Gregory Finkelstein, Treasurer
(Principal Financial and Accounting Officer)
- 9 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 343,962
<SECURITIES> 238,000
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 15,095
<CURRENT-ASSETS> 1,163,687
<PP&E> 1,171,894
<DEPRECIATION> 180,741
<TOTAL-ASSETS> 2,369,018
<CURRENT-LIABILITIES> 385,414
<BONDS> 0
0
0
<COMMON> 2,065
<OTHER-SE> 5,442,847
<TOTAL-LIABILITY-AND-EQUITY> 2,369,018
<SALES> 291,360
<TOTAL-REVENUES> 296,002
<CGS> 121,987
<TOTAL-COSTS> 690,811
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,318
<INCOME-PRETAX> (385,143)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (385,143)
<EPS-PRIMARY> (0.24)
<EPS-DILUTED> (0.24)
</TABLE>
