<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 December 29, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to __________________
Commission File No. 1-13818
THE RATTLESNAKE HOLDING COMPANY, INC.
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(Exact name of registrant as specified in its charter)
Delaware 06-1369616
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3 Stamford Landing, Suite 130, Stamford, CT 06902
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 975-9455
________________________________________________________________________________
Former name, former address and former fiscal year, if
changed since last report.
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 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 |_|
2,643,734 Common Shares, par value $.001 per share were outstanding as of
December 29, 1996.
<PAGE> 2
FORM 10-QSB
THE RATTLESNAKE HOLDING COMPANY, INC.
December 29, 1996
INDEX
Page No.
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Part I - Financial Information
Consolidated Balance Sheet December 29, 3
1996 (Unaudited) and June 30, 1996
Consolidated Statements of Operations 4
for the three and six months ended
December 29, 1996 and December 31,
1995 (Unaudited)
Consolidated Statements of Cash Flows for 5
the six months ended December 29,1996
and December 31, 1995 (Unaudited)
Notes to Consolidated Financial Statements 6
(Unaudited)
Management's Discussion and Analysis 11
Liquidity 15
Part II - Other Information
Item 5: Other Information 18
Item 6: Exhibits and Reports on Form 8-K 18
Signatures 19
<PAGE> 3
THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
<TABLE>
<CAPTION>
(Unaudited)
December 29, June 30,
ASSETS 1996 1996
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 428,997 $ 684,414
Cash in escrow 0 1,237,625
Accounts receivable, net 32,624 63,659
Inventory 107,052 111,312
Pre-opening costs 39,418 107,289
Prepaid expenses and other current assets 100,280 140,490
------------ ------------
Total current assets 708,371 2,344,789
Property and equipment, net 2,637,101 2,374,848
Intangible assets, net 1,548,157 1,534,227
Other assets, net 310,513 246,288
------------ ------------
$ 5,204,142 $ 6,500,152
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of notes payable $ 782,690 $ 576,852
Accounts payable 726,904 574,889
Accrued expenses 361,011 488,204
Other current liabilities 628,442 283,234
------------ ------------
Total current liabilities 2,499,047 1,923,179
Notes payable, net of current maturities 1,222,730 1,255,723
------------ ------------
Stockholders' equity
Preferred stock, $.10 par value, 5,000,000 shares authorized,
56,500 and 54,500 issued and outstanding at December 29,
1996 and June 30, 1996, respectively 5,650 5,450
Common Stock, $.001 par value - 20,000,000 shares authorized,
2,643,734 issued and outstanding, at December 29, 1996
and June 30, 1996 2,644 2,644
Additional paid-in capital 10,738,877 10,704,315
Accumulated deficit (9,264,806) (7,391,159)
------------ ------------
1,482,365 3,321,250
$ 5,204,142 $ 6,500,152
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE> 4
THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Three months ended Six months ended
------------------------- --------------------------
December 29, December 31, December 29, December 31,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Restaurant sales $ 2,143,801 $ 2,179,969 $ 4,823,340 $ 4,059,874
Less: promotional sales 112,526 134,192 223,536 238,706
----------- ----------- ----------- -----------
Net restaurant sales 2,031,275 2,045,777 4,599,804 3,821,168
Costs and expenses:
Cost of food and beverage sales 651,494 651,804 1,477,201 1,223,327
Restaurant salaries and benefits 745,726 778,014 1,695,166 1,479,401
Occupancy and other 579,971 583,630 1,202,833 1,138,053
Depreciation and amortization expense 195,450 155,709 399,920 278,916
----------- ----------- ----------- -----------
Total restaurant costs and operating expenses 2,172,641 2,169,157 4,775,120 4,119,697
General and administration 648,888 855,305 1,372,387 1,511,368
Restaurant closing costs 243,218 143,948 243,218 143,948
Interest expense, net 41,553 25,770 68,089 58,137
Miscellaneous expenses 9,972 654 14,637 4,615
----------- ----------- ----------- -----------
Net loss before extraordinary item (1,084,997) (1,149,057) (1,873,647) (2,016,597)
Extraordinary item:
Gain on early extinguishment of debt -- -- -- 89,710
----------- ----------- ----------- -----------
Net loss $(1,084,997) $(1,149,057) (1,873,647) $(1,926,887)
=========== =========== =========== ===========
Per share:
Loss before extraordinary item $ (0.41) $ (0.45) (0.71) $ (0.79)
Extraordinary item -- -- -- 0.03
----------- ----------- ----------- -----------
Net loss $ (0.41) $ (0.45) (0.76) $ (0.76)
=========== =========== =========== ===========
Weighted average number of common
and common equivalent shares
outstanding 2,643,734 2,577,718 2,643,734 2,568,088
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(Unaudited)
Six months ended
--------------------------
December 29, December 31,
1996 1995
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,873,647) $(1,926,887)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 430,802 296,528
Gain on early extinguishment of debt 0 (89,710)
Restaurant closing costs 243,218 143,948
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 31,035 (18,266)
Decrease (increase) in inventory 4,260 (19,152)
Decrease (Increase) in prepaids and other assets 44,559 (85,133)
(Increase) in pre-opening costs 0 (44,794)
Increase in accounts payable and accrued expenses 24,822 66,651
Increase (decrease) in other current liabilities 276,169 (79,095)
----------- -----------
Net cash used in operating activities (818,782) (1,755,910)
----------- -----------
Cash flows from investing activities:
Capital expenditures (250,352) (1,150,908)
Payments for acquisitions of leaseholds (206,515) (176,240)
----------- -----------
Net cash used in investing activities (456,867) (1,327,148)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of preferred stock 1,272,387 14,357
Proceeds from IPO 0 7,260,800
IPO costs 0 (721,020)
Principal repayment of borrowings (252,155) (1,239,040)
----------- -----------
Net cash provided by financing activities 1,020,232 5,315,097
----------- -----------
Net (decrease) increase in cash and cash equivalents (255,417) 2,232,039
Cash and cash equivalents, beginning of period 684,414 28,316
----------- -----------
Cash and cash equivalent , end of period $ 428,997 $ 2,260,355
=========== ===========
Cash paid during the period for:
Interest $ 71,917 $ 81,857
=========== ===========
Income taxes $ 4,736 $ 4,615
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 29, 1996
(Unaudited)
1. Principles of consolidation
The consolidated financial statements include the accounts of The
Rattlesnake Holding Company, Inc. and subsidiaries (the "Company"). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
2. Consolidated financial statements
The accompanying unaudited consolidated financial statements as shown in
the index were prepared in accordance with generally accepted accounting
principles and include all adjustments which, in the opinion of management, are
necessary to present fairly the consolidated financial position of the Company
as of December 29, 1996 and June 30, 1996, and the results of operations and
cash flows for the periods ended December 29, 1996 and December 31, 1995. In the
opinion of management, all necessary adjustments that were made are of a normal
recurring nature.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed, reclassified or omitted. It is suggested that
these consolidated financial statements be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-KSB for fiscal year end June 30, 1996. The results of
operations for the period ended December 29, 1996 are not necessarily indicative
of the operating results which may be achieved for the full year.
3. Basis of presentation
The accompanying consolidated financial statements have been prepared on a
going concern basis which contemplates the realization of assets and the
satisfaction of liabilities and commitments in the normal course of business.
However, due to the matters discussed below, its continuation as a going concern
cannot be reasonably assured.
The Company has incurred aggregate losses since inception of $9,264,806,
inclusive of a net loss for the quarter ended December 29, 1996 of $1,084,997.
Based upon interim financial information prepared by management, the Company has
continued to incur losses in fiscal 1997. Additionally, $303,749 of series C
Subordinated notes payable mature in August 1997 (note 4), $425,000 short-term
note payable associated with the acquisition of restaurant matures
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in fiscal 1997, and $500,000 of convertible notes due on September 4.
Management of the Company is in the process of implementing a cost
reduction plan to address the restaurant operating losses. Such plan includes
the closing or concept conversion of unprofitable sites, a reduction in the
Company's work force and other cost containment measures designed to reduce
operating expenses and improve restaurant operating performance. The Company
anticipates recognizing the financial results of these reductions primarily in
fourth quarter ended June 29, 1997. The Company's plans to pay the $425,000
short term note payable through the sale of building and assets at the
Fairfield, Connecticut facility and anticipates that the Series C subordinated
notes will be refinanced the $500,000 convertible note will be converted to
equity. The Company may need to additional capital to further fund operations
and repay these liabilities until the Company's plan is fully implemented. There
can be no assurance that the Company will be able to obtain sufficient capital
to pay existing liabilities and maintain operations.
Management believes that upon the completion of the implementation of its
modified strategic and cost reduction plan, the Company's operating performance
will be improved. However, no assurance can be made regarding the achievement of
the goals outlined in the strategic plan, or if such plans are achieved, that
the Company's operations will be profitable.
4. Financing arrangements
On June 29, 1995, the Company completed an initial public offering (IPO)
of 1,300,000 shares of common stock and 195,000 additional shares pursuant to
the exercise of the over-allotment option by the underwriter at $5.50 per share.
The net proceeds of the offering, after deducting underwriter's commissions and
fees of $986,700 and offering costs of $700,705 were $6,535,095 and were
received on July 7, 1995. The proceeds from this offering were used for working
capital, marketing and advertising, the implementation of the Company's
expansion strategy and to repay subordinated debt as described below.
In July 1995, the Company re-negotiated the terms of the $1,800,000 of 9%
subordinated notes payable (the "Notes"), and redeemed $225,000 of the Notes.
The remaining principal amount outstanding of $1,575,000 was restructured as
follows:
Each $25,000 principal amount of Notes was exchanged for: (i) $8,334 paid
in August and September 1995 (the "First Payment"); and (ii) a 9% $8,333
Series A Note (the "Series A Notes") due August 6, 1996, and (iii) a 9%
$8,333 Series B Note (the "Series B Notes") due July 6, 2000. Each Series
B Note is convertible into common stock 13 months after issuance
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<PAGE> 8
at a conversion price equal to 70% of the IPO price of the common stock
sold, with piggy-back registration rights for the shares underlying each
Series B Note. Each Series B Note is redeemable with 30 days prior written
notice at any time after the closing that the bid price of the common
stock is 150% of the conversion price for the 10 consecutive trading days
ending within 15 days of the date of notice of redemption.
An extraordinary gain of $89,710, net of the write-off of the remaining
debt issuance cost of $72,114, has been recorded in the accompanying
consolidated statement of operations for the six month period ended December 31,
1995 relating to the early extinguishment of debt associated with the above
mentioned restructuring.
In fiscal 1997, the Company offered to convert the Series A Notes to
Series C Notes, which provided for a one year extension of the maturity date, in
exchange for an increase in the interest rate from 9% to 15% and one warrant for
every dollar of indebtedness. The warrants provide for exercise prices ranging
between $2.50 - $3.00 and expire on August 6, 2001. Note holders aggregating
$303,749 accepted the terms of the conversion and the remaining $221,243 of
$524,992 were paid in cash.
In March 1996, the Company entered into an agreement with an investment
banking firm to sell 200,000 shares of Series A preferred stock and 800,000
common stock warrants in a private placement for a total consideration of
$5,000,000. The preferred stock was valued at $24.50 per share and each warrant
at $.125 per warrant. The warrants are exercisable at a price of $7.00 per share
and expire on August 31, 2001. On June 30, 1996, the Company closed on the sale
of 54,500 shares of the aforementioned Series A preferred stock and 218,000
common stock purchase warrants. The underwriter received warrants to purchase
24,760 shares of common stock at $3.75 per share which expire on June 30, 2001.
The net proceeds of the offering were $1,113,844, net of commissions and
expenses of $248,656. The offering period expired on June 30, 1996.
On October 10, 1996, the Company executed a letter of intent with an
investment banking firm to raise additional capital through a private placement
to be sold on a "best efforts" basis. No funds were raised through arrangement.
On March 4, 1997, the Company entered into a private financing arrangement
with two individuals to provide $500,000 of convertible subordinated secured
debt. The Notes are for a term of six months at an interest rate of 18%. The
principal amount of the Notes may be converted into the Company's common stock
at a conversion price of $0.75 per share anytime before the repayment of
principal. The Notes are fully subordinated to all "senior indebtedness" of the
Company and are secured by all the issued and outstanding shares of the
Company's wholly owned subsidiaries: Rattlesnake Ventures,
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Inc., Rattlesnake-Danbury, Inc., Rattlesnake-Flemington, Inc. and
Rattlesnake-Lynbrook, Inc.
5. Restaurant closing costs
On December 31, 1995, the Board of Directors authorized the closing of the
Rattlesnake Southwestern Grill restaurant located in Hamden, Connecticut. The
facility was closed January 7, 1996. A majority of the fixed assets at this
facility have been removed to be utilized at existing or new facilities. All
remaining fixed assets and leasehold improvements have been abandoned. A loss of
$143,948 was recorded at December 31, 1995. An additional loss of $5,485 was
recorded in January 1996 for inventory items which were spoiled or lost after
the actual closing. This additional loss was reflected in Cost of food and
beverage sales on the Consolidated Statements of Operations in January 1996.
On January 4, 1997, the Company ceased operations at the Rattlesnake
Southwestern Grill restaurant located in Fairfield, Connecticut. Contracts are
currently being drawn for the sale of this facility. Under the current terms of
the sale, the Company does not anticipate recovery of $162,662 in fixed assets
and $80,091 of intangible assets. These assets were written off and recorded as
Restaurant closing costs as of December 29, 1996.
6. Accounting for the impairment of long-lived assets and long-
lived assets to be disposed of
The Company is required to adopt in fiscal 1997 Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS No. 121
requires, among other things, that long-lived assets held and used by an entity
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The Company's
management has assessed the impact of the implementation of SFAS No. 121 and has
determined that it has no material impact on the Company's financial statements.
7. Accounting for stock-based compensation
In October 1996, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation," which must be adopted by the
Company in fiscal year 1997. The Company has chosen not to implement the fair
value accounting method for employee stock options, but has elected to disclose,
commencing with the fiscal 1997 Annual report, the pro forma net income and
earnings per share as if such method had been used to account for stock-based
compensation costs as described in Statement No. 123.
8. Restaurant acquisition
9
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On September 5, 1996, the Company acquired a restaurant location on 86th
Street in New York City. Of the $388,000 purchase price, $308,000 was paid in
cash for the acquisition of the lease and certain furniture, fixtures and
equipment. The remaining purchase price represents the assumption of food
credits.
9. Dividends in arrears
The Company's preferred stock bears a dividend rate of 7-1/2% per annum.
These dividends are payable semi-annually in arrears on May 15 and November 15
of each year, commencing November 15, 1996. At December 29, 1996 there are
$51,909 dividends in arrears.
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MANAGEMENT DISCUSSION and ANALYSIS
The following discussion of the results of operations and financial
condition should be read in conjunction with the Company's audited consolidated
financial statements and notes thereto.
The Company has modified its expansion strategy to facilitate a more rapid
return to profitability. This new strategy incorporates a sharpened focus on
existing profitable restaurants, the elimination or conversion of unprofitable
restaurants and the implementation of aggressive cost cutting measures designed
to reduce operating expenses and improve restaurant operating performance.
Management believes that the implementation of its modified strategic expansion
and cost reduction plan will return the Company to profitable operations and
restore liquidity. However, no assurance can be made regarding the achievement
of the goals outlined in the strategic plan, or if such plans are achieved that
the Company's operations will be profitable.
The Company operated seven restaurants for the full six months ended
December 29, 1996 as compared to five for the full six months ended December 31,
1995. This increase in the number of operating restaurants resulted in an
increase in total net sales of 20.4% to $4,599,804 for the 6 month period ended
December 29, 1996 from $3,821,168 for the same period ended December 31, 1995.
This increase is offset by a reduction in same store net sales of 14.5% to
$2,151,271 for the 6 month the period ended December 29, 1996 from $2,516,319
for the 6 month the period ended December 31, 1995. The decrease in same store
sale resulted from a number of factors, including the maturity of restaurants
which were newly opened in the six month period ended December 31, 1995. Newly
opened restaurants generally experience higher than normal sales levels in the
first 90 to 120 days of operations. Despite the decrease in same store sales,
the Company was able to reduce its losses for the three and six months ended
December 29, 1996 as compared to the same periods ended December 31, 1995. Net
losses decreased 5.6% from $1,149,057 for the three months ended December 31,
1995 to $1,084,997 for the same period ended December 29, 1996. For the 6 month
period ended December 29, 1996, losses as a percentage of sales decreased to
40.7% or $1,873,647 from 50.4% or $1,926,887 of for the comparable six month
period ended December 31, 1995. This overall reduction in losses for the three
and six months ended December 29, 1996 is the result of a decrease in general
and administrative expenses, a decrease in restaurant salaries and benefits,
offset by additional costs incurred as a result of the closure of the Fairfield,
Connecticut restaurant and increased
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depreciation and amortization expenses resulting from the opening of an
additional restaurant. These fluctuations of expenses are more fully detailed
below.
Operating Results for the Three and Six Months Ended December 29, 1996 as
Compared with December 31, 1995
Gross restaurant sales increased 18.8% to $4,823,340 for the six month
period ended December 29, 1996 from $4,059,874 for the six month period ended
December 31, 1995 and decreased 1.7% to $2,143,801 from $2,179,969 for the three
months ended December 29, 1996 as compared to the three months ended December
31, 1995. Likewise net sales increased 20.4% to $4,599,804 for the six month
period ended December 29, 1996 from $3,821,168 for the six month period ended
December 31, 1995 and decreased .7% to $2,031,275 from $2,045,777 for the three
month ended December 29, 1996 as compared to the three months ended December 31,
1995. The increase in sales for the six month period resulted from an increase
in the number of restaurants operating during the period. The nominal decrease
in sales for the comparable three month period is attributed primarily to the
maturity of the Danbury and White Plains restaurants. New units typically
generate higher sales volumes during the first few months of operation. As new
units attain maturity, sales volume tends to level off at a more sustainable
level.
Promotional sales declined as a percentage of gross sales from 6.2% for
the quarter ended December 31, 1995 to 5.2% for the same quarter ended December
29, 1996. This decline is attributed to the unusually high costs experienced in
the first two quarters of fiscal year 1996, resulting from the opening of the
Danbury and Flemington locations, offset by the higher costs associated with the
June 1996 opening of the Lynbrook location. This decrease is also evident in the
comparable six month periods ended December 29, 1996 and December 31, 1995.
Promotional sales decreased from 5.9% of gross sales for the six months ended
December 31, 1995 to 4.6% for the same period ended December 29, 1996.
Food and beverage costs increased slightly as a percentage of net
restaurant sales to 32.1% for the six months ended December 29, 1996 as compared
to 32.0% for the six months ended December 31, 1995. For the three months ended
December 29, 1996, food and beverage costs increased as a percentage of
restaurant sales to 32.1% from 31.9% for the same three months ended December
31, 1995. The increase in the three and six months ended December 29, 1996 is
the result of higher food costs, offset by menu changes and specials to offset
these higher food costs.
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Restaurant salaries and fringe benefits, which consist of direct salaries
of restaurant managers, hourly employee wages and related fringe benefits,
decreased as a percentage of sales to 36.7% for the three months and 36.9% for
the six months ended December 29, 1996 as compared to 38.0% and 38.7% for the
three and six months ended December 31, 1995, respectively. This decrease
reflects more normal operating levels of mature stores. As is traditional with
the opening of new restaurant sites, the start up period of 90 to 120 days
reflects salary ratios at higher than normal operating levels. The Company
believes that restaurant salaries and fringe benefit costs will moderate further
as a result of management efforts to control costs.
Occupancy and other related expenses, which include linen, repairs,
maintenance, utilities, rent, insurance and other occupancy related expenses, as
a percentage of sales increased slightly to 28.6% for the three months ended
December 29, 1996 from 28.5% for the three months ended December 31, 1995. These
expenses decreased to 26.1% for the six months ended December 29, 1996 from
29.8% for the six months ended December 31, 1995. This decrease reflects the
reduction in these expenses as these restaurants achieve maturity and
management's continued effort to reduce these costs. Occupancy and related
expenses generally fluctuate as a result of needed maintenance which may occur
in any period.
Depreciation and amortization expenses, including the amortization of
pre-opening store expenses, increased as a percentage of restaurant sales to
9.6% and 8.7% for the three and six months ended December 29, 1996 from 7.6% and
7.3% for the three and six months ended December 31, 1995. These expenses
increased to $195,450 and $399,922 in the three and six months ended December
29, 1996 from $155,709 and $278,916 for the three and six months ended December
31, 1995. This increase continues to be primarily attributable to the opening of
a new restaurant (Lynbrook), the expansion of the point-of-sale computer system
and other capital expenditures.
General and administrative expenses decreased to $648,887 for the three
months ended December 29, 1996 from $885,305 for the three months ended December
31, 1995, this represents a 24.1% decrease in general and administrative
expenses for the comparable three month periods. As a percentage of net sales,
general and administrative expenses decreased to 31.9% for the three months
ended December 29, 1996 from 41.8% for the three months ended December 31, 1995.
For the six month period ended December 29, 1996, general and administrative
expenses decreased to $1,372,384 from $1,511,368 for the same period ended
December 31, 1995. As a percentage of net restaurant sales, general and
administrative expenses decreased for this six month period to 29.8% in 1996, as
compared to 39.6% in 1995. These reductions in general and administrative
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expenses reflect directly the revised corporate strategy to focus on restaurants
with profitable operations and to cut costs in an attempt to achieve
profitability. These decreases are offset by the costs incurred for the
maintenance of the newly acquired 86th Street location which has not been
opened.
Interest expense increased to $41,553 for the three months ended December
29, 1996 from $25,770 for the three months ended December 31, 1995 and to
$68,089 from $58,137 for the six months ended December 29, 1996 and December 31,
1995, respectively. The increase in interest expense is attributable to the
exchange of Series A Notes which earned interest at a rate of 9% for Series C
Notes which earned interest at 15%. Also contributing to this increase in
interest expense is the addition of a $425,000 short-term note incurred for the
purchase of the Fairfield building.
Despite the restaurant closing costs recorded as of December 29, 1996 for
the anticipated loss on the sale of the Company's Fairfield, Connecticut
facility, the Company was still able to reduce its total losses during the
period ended December 29, 1996 as compared to December 31, 1995. The net loss
decreased from $1,149,057 in the three months ended December 31, 1995 to
$1,084,997 for the three months ended December 29, 1996. The net loss, before an
extraordinary item relating to the gain on early extinguishment of debt, for the
six months ended December 31, 1995 as compared to the same period for 1996
decreased from $2,016,597 to $1,873,647, respectively. The decreased net loss is
attributable to a variety of factors including decreased restaurant operating
losses and lower general and administrative expenses.
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LIQUIDITY
The Company's cash position decreased by $255,417 during the six months
ended December 29, 1996, principally as a result of cash used in operating
activities of $818,782 and cash used in investing activities of $456,867, offset
by cash generated from financing activities of $1,020,232.
Net cash used in operating activities consisted primarily of the
$1,873,647 net loss for the six months ended December 29, 1996 offset by
depreciation and amortization of $430,802, an increase in other current
liabilities of $276,169, restaurant closing costs of $243,218, a decrease in
prepaids of $44,559 and an increase in accounts payable of $24,822.
The Company utilized $456,867 for investing activities, principally for
capital expenditures and lease acquisition costs for the purchase of the New
York City location.
The Company generated $1,020,232 in cash from financing activities during
the six months ended December 29, 1996, principally through the proceeds from
the issuance of preferred stock, offset by $252,155 repayment of borrowings.
On June 29, 1995, the Company completed an initial public offering of
1,300,000 shares of its common stock and 195,000 additional shares pursuant to
the exercise of the over-allotment option by the Underwriter at $5.50 per share.
The net proceeds of the offering, after deducting underwriters' commissions and
fees of $986,700 and offering costs of $700,705 was $6,535,095. The proceeds of
the offering were received on July 7, 1995.
The Company utilized the proceeds from its June 1995 initial public
offering of common stock to pay approximately $750,000 of the restricted 9%
subordinated notes, $650,000 other notes outstanding principally payable to
related parties, $200,000 relating to the acquisition of the White Plains, New
York facility, $600,000 relating to the acquisition of the Danbury, Connecticut
facility, $750,000 relating to the acquisition of the Flemington, New Jersey
facility, $150,000 relating to the liquor license acquired for the Flemington
location, $400,000 in other capital expenditures for existing facilities,
$2,000,000 in Corporate Overhead and $500,000 in operating losses.
In July 1995, the Company redeemed $225,000 of the $1,800,000 subordinated
notes and restructured the remaining principle amount outstanding of $1,575,000.
This redemption was partially funded by a $50,000 note payable issued in June
1995 by the Company, with
15
<PAGE> 16
interest at 9%, and repaid in July 1995, together with 10,000 shares of common
stock. Each $25,000 principal amount of Notes was exchanged as follows: (i)
$8,334 paid in August and September 1995 (the "First Payment"); and (ii) a 9%
$8,333 Series A Note (the Series A Notes) due 13 months after the first payment,
and (iii) a 9% $8,333 Series B Note (the Series B Notes) due five years after
the first payment were issued to each Noteholder with the First Payment. Each
Series B Note is convertible into common stock thirteen months after issuance at
a conversion price equal to $3.85 per share, with piggy-back registration rights
for the shares underlying the Series B Notes. Each Series B Note is redeemable
with 30 days prior written notice at any time after the closing bid price of the
common stock is 150% of the conversion price for the ten consecutive trading
days ending within 15 days of the date of notice of redemption.
In fiscal 1997, the Company offered to convert the Series A Note to a
Series C Note, which provided for a one year extension of the maturity date, in
exchange for an increase in the interest rate from 9% to 15% and one warrant for
every dollar of indebtedness. The warrants provide for exercise prices ranging
between $2.50 - $3.00 and expire on August 6, 2001. Note holders aggregating
$303,749 accepted the terms of the extension and the remaining $221,243 of
$524,992 were paid in cash.
On June 24, 1996, the Company entered into an agreement to continue its
participation in a discounted meal program in exchange for $230,000 in temporary
financing, of which $115,000 was received in June 1996 and the remainder was
received in July 1996. On October 3, 1996 the Company received $150,000 from
another dining services company in exchange for meal credits at the Company's
restaurants.
In March 1996, the Company entered into an agreement with an investment
banking firm to sell 200,000 shares of Series A preferred stock and 800,000
common stock warrants in a private placement for total consideration of
$5,000,000. The preferred stock was valued at $24.50 per share and each warrant
at $0.125 per warrant. On June 30, 1996, the Company closed on the sale of
54,500 shares of the aforementioned Series A preferred stock and 218,000 common
stock purchase warrants. The net proceeds of the offering were $1,113,844, net
of commissions and expenses of $248,656. The dividend rate for the preferred
shares is 7-1/2% per annum payable semi-annually in arrears on May 15 and
November 15 of each year commencing November 15, 1996. The shares are
convertible at any time, one year after issuance into common stock at a
conversion price equal to the lesser of (i) 120% of the average of the last
reported sale price of the common stock for the 10 trading
16
<PAGE> 17
days immediately preceding the first closing of the offering, or $4.50,
whichever is lower; or (ii) 85% of the average of the last reported sales price
of the common stock for the 10 trading days immediately preceding the first
anniversary of the first closing subject to certain anti-dilution adjustments.
The warrants are exercisable between September 1, 1996 and August 31, 2001 at an
exercise price of $7.00 per share, with piggy-back and demand rights on the
common stock underlying the preferred stock and the warrants.
On March 31, 1996, the Company exercised its option to purchase the
building housing the Fairfield facility for $425,000. This transaction was
closed on August 31, 1996 and was financed by an outside investor through a 15%
short term note agreement. In addition the investor received 50,000 warrants at
an exercise price equal to the market price at the date of the grant.
On September 5, 1996, the Company acquired a restaurant location on 86th
Street in New York City for a purchase price of $308,000 cash and $80,000 in
store food credits. Included in the purchase price was the lease and certain
furniture, fixtures and equipment.
On October 10, 1996, the Company executed a letter of intent with an
investment banking firm to raise additional capital through a private placement
to be sold on a "best efforts" basis. No funds were raised through this
arrangement.
On March 4, 1997 the Company entered into a private financing arrangement
with two individuals to provide $500,000 of convertible subordinated secured
debt. The Note is for a term of six months at an interest rate of 18%. The
principal amount of the Note may be converted into the Company's common stock at
a conversion price of $.75 per share any time before repayment of principal. The
Notes are secured by all of the issued and outstanding shares of the Company's
wholly owned subsidiaries Rattlesnake Ventures, Inc., Rattlesnake-Danbury, Inc.,
Rattlesnake-Lynbrook, Inc., and Rattlesnake-Flemington, Inc.
The Company has incurred aggregate losses since inception of $9,264,806,
inclusive of a net loss for the quarter ended December 29, 1996 of $1,084,997.
Based upon interim financial information prepared by management, the Company has
continued to incur losses in fiscal 1997. Additionally, $303,749 of series C
Subordinated notes payable mature in August 1997 (note 4), $425,000 short-term
note payable associated with the acquisition of restaurant matures in fiscal
1997, and $500,000 of convertible notes due on September 4.
17
<PAGE> 18
Management of the Company is in the process of implementing a cost
reduction plan to address the restaurant operating losses. Such plan includes
the closing or concept conversion of unprofitable sites, a reduction in the
Company's work force and other cost containment measures designed to reduce
operating expenses and improve restaurant operating performance. The Company
anticipates recognizing the financial results of these reductions primarily in
fourth quarter ended June 29, 1997. The Company's plans to pay the $425,000
short term note payable through the sale of building and assets at the
Fairfield, Connecticut facility and anticipates that the Series C subordinated
notes will be refinanced the $500,000 convertible note will be converted to
equity. The Company may need to additional capital to further fund operations
and repay these liabilities until the Company's plan is fully implemented. There
can be no assurance that the Company will be able to obtain sufficient capital
to pay existing liabilities and maintain operations.
Management believes that upon the completion of the implementation of its
modified strategic and cost reduction plan, the Company's operating performance
will be improved. However, no assurance can be made regarding the achievement of
the goals outlined in the strategic plan, or if such plans are achieved, that
the Company's operations will be profitable.
18
<PAGE> 19
PART II
OTHER INFORMATION
Item 5. Other Information
In connection with the implementation of the Company's modified expansion
and cost reduction plan, the Company closed two of its restaurant facilities.
The Fairfield, Connecticut facility was closed on January 4, 1997 and the White
Plains, New York facility was closed March 1, 1997. The Company is currently
negotiating the sale of the assets and ground lease of the Fairfield,
Connecticut facility. The Company is investigating the conversion of the White
Plains, New York location to another concept which would better fit the
demographics of the area. While considering offers for the sale of the existing
lease of the White Plains facility, the Company is exploring the feasibility of
financing the conversion through a joint venture. The Company is also
considering the closure and conversion or sale of another restaurant facility in
an attempt to increase the Company's overall operating performance. On September
5, 1996, the Company acquired the assets and leasehold interest of a restaurant
facility located in New York City. The Company is investigating what concept
would generate the highest profitability at this location while considering
outside offers to purchase the lease and assets at this location. The Company is
investigating the possibility of financing the build-out of this location
through a joint venture interest.
In March 1997, the Company sold $500,000 in principal amount of 18%
promissory notes convertible into shares of the Company's common stock at $0.75
per share. The notes are secured by all of the issued and outstanding shares of
the Company's wholly owned operating subsidiaries: Rattlesnake Ventures, Inc.,
Rattlesnake Danbury, Inc., Rattlesnake Lynbrook, Inc. and Rattlesnake
Flemington, Inc. In connection with the loan, the principal of one of the
purchasers of the notes, Jay Botchman, became a member of the Company's Board of
Directors. The Company is obligated to nominate and use its best efforts to
cause to be elected to the company's Board of Directors for a period of three
years a designee of one of the purchasers of the notes.
Item 6. Exhibits and Reports on Forms 8-K.
(b) Reports on Form 8-K
During the quarter ended December 31, 1995, the Company filed no reports on Form
8-K.
19
<PAGE> 20
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.
THE RATTLESNAKE HOLDING COMPANY, INC.
(Registrant)
By: /s/William J. Opper
------------------------------------
William J. Opper
Chairman of the Board
By: /s/David C. Sederholt
------------------------------------
David C. Sederholt
Chief Financial Officer
Date: March 27, 1997
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
There are no accounting changes for the year ended December 31, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 8,662,000
<SECURITIES> 4,487,000
<RECEIVABLES> 38,118,000
<ALLOWANCES> 476,000
<INVENTORY> 91,034,000
<CURRENT-ASSETS> 129,672,000
<PP&E> 12,649,000
<DEPRECIATION> 8,724,000
<TOTAL-ASSETS> 166,972,000
<CURRENT-LIABILITIES> 46,407,000
<BONDS> 53,030
0
0
<COMMON> 6,566,000
<OTHER-SE> 48,628,000
<TOTAL-LIABILITY-AND-EQUITY> 166,972,000
<SALES> 164,168,000
<TOTAL-REVENUES> 167,282,000
<CGS> 0
<TOTAL-COSTS> 100,285,000
<OTHER-EXPENSES> 56,381,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 415,000
<INCOME-PRETAX> 10,201,000
<INCOME-TAX> 5,846,000
<INCOME-CONTINUING> 4,355,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,355,000
<EPS-PRIMARY> .70
<EPS-DILUTED> .70
</TABLE>
