10QSB - Quarterly Report
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 25, 2000
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
Spencer's Restaurants, Inc.
(Name of small business issuer in its charter)
Delaware 06-1369616
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
106 Federal Road
Danbury, CT 06810
(Address of principal executive offices) (Zip Code)
The Rattlesnake Holding Company, Inc.
(former Name)
Registrant's telephone number, including area code: (203) 798-1390
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
57,102,926 Common Shares, par value $.001 per share were outstanding as of
September 25, 2000
<PAGE>
FORM 10-QSB
Spencer's Restaurants, Inc.
September 25, 2000
INDEX
<TABLE>
<CAPTION>
Part I - Financial Information
<S> <C>
Condensed Consolidated Balance Sheets as of September 25, 2000 (unaudited) 3
and June 26, 2000 (audited)
Unaudited Condensed Consolidated Statements of Operations for the thirteen weeks
ended September 25, 2000 and September 27, 1999 4
Unaudited Condensed Consolidated Statement of Cash Flows for the thirteen weeks ended 5
September 25, 2000 and September 27, 1999
Unaudited Consolidated Statement of Stockholders Equity for the thirteen weeks ended 6
September 25, 2000
Notes to Unaudited Condensed Consolidated Financial Statements 7
Management's Discussion and Analysis 9
Liquidity 11
Safe Harbor Statement 12
Part II - Other Information
Item 1: Legal Proceedings
13
Item 2: Changes in Securities and use of Proceeds 13
Item 3: Defaults Upon Senior Securities 13
Item 4: Submission of Matters Stockholders' vote 13
Item 5: Other Information
13
Item 6: Exhibits and Reports on Form 8-K 13
Signatures 14
</TABLE>
<PAGE>
SPENCER'S RESTAURANTS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
As of September 25, 2000 (unaudited ) and June 26, 2000 (audited)
<TABLE>
<CAPTION>
UNAUDITED AUDITED
--------- -------
September 25, 2000 June 26, 2000
ASSETS
<S> <C> <C>
Cash $ 135,461 $ 374,507
Accounts Receivable 27,268 24,500
Inventory 47,709 47,862
Prepaid expenses 34,300 2,159
------- --------
Total current assets 244,738 449,028
Land, building, and equipment, net 2,004,848 2,021,456
Intangable assets, net 11,988 13,744
Other assets 14,276 18,776
--------- ---------
TOTAL ASSETS $ 2,275,850 $ 2,503,004
========= =========
LIABILITIES
Notes Payable, current portion $ 250,011 $ 258,344
Accounts Payable 459,537 486,714
Accrued Expenses 307,798 322,673
Dividends Payable 152,557 347,904
Others Payables 63,149 77,555
--------- ---------
TOTAL CURRENT LIABILITIES 1,233,052 1,493,190
Par Value-Series B Conv. $0.10; 5,000,000 shares 31,679 31,507
authorized; 316,792 shares issued and outstanding
at 9/25/00; 315,076 shares issued and outstanding
at 6/26/2000.
Par Value - Common $0.001; 400,000,000 shares 57,103 51,003
authorized; 57,102,926 shares issued and outstanding
at 9/25/00; 51,002,981 shares issued and outstanding
at 6/26/2000.
Additional Paid in Capital-Series B Preferred Stock 6,291,410 6,535,088
Additional Paid in Capital-Common Stock 14,713,989 14,476,583
Accrued Dividends (152,557) (347,904)
Retained Earnings (19,898,826) (19,736,463)
------------ ------------
TOTAL STOCKHOLDERS EQUITY 1,042,798 1,009,814
--------- ---------
TOTAL LIABILITIES & STOCKHOLDERS EQUITY $ 2,275,850 $ 2,503,004
--------- ---------
<FN>
See accompanying notes to the unaudited condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
SPENCER'S RESTAURANTS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of
Operations Thirteen weeks ended September 25, 2000 and
September 27, 1999
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED
September 25, 2000 September 27, 1999
<S> <C> <C>
Restaurant Sales $ 1,048,528 $ 323,697
Less: Promotional Sales 17,838 7,452
--------- -------
Net Restaurant Sales 1,030,690 316,245
Costs & Expenses
Food & Beverage Cost 376,776 79,689
Salaries, Wages & Employee Benefits 384,671 168,757
Operating Expense 183,269 59,227
Occupancy 25,642 27,785
Depreciation And Amortization on Restaurants 24,437 9,731
------- -------
Total Restaurant Cost And Expense 994,795 345,189
Income (Loss) From Restaurant Operations 35,895 (28,944)
General And Administrative 236,823 173,766
Loss On Restaurant Closure 0 42,800
Total G&A Expense 236,823 216,566
--------- ---------
Total Loss From Operations (200,928) (245,510)
Other Income
Other Expense (Income) Net (2,668) 0
Interest Expense (Income) Net 2,083 0
----- -
Total Other Expense (Income) (585) 0
--------- ---------
Net Loss Before Extraordinary Item (200,343) (245,510)
Extraordinary Item
Gain On Extinguishment Of Debt 37,982 0
--------- ---------
Net Loss Available To Shareholders (162,361) (245,510)
Dividends On Preferred Shares 152,557 171,659
------- -------
Net Loss Available To Common Shareholders $ (314,918) $ (417,169)
========= =========
Net Loss Per Share:
Before Extraordinary Item $ (0.01) $ (0.01)
Extraordinary item - -
------ ------
Net Loss Basic And Diluted $ (0.01) $ (0.01)
====== ======
Weighted Average Number Of Common
Shares Outstanding 55,916,581 29,979,013
========== ==========
<FN>
See accompanying notes to the unaudited condensed consolidated financial
statements
</FN>
</TABLE>
<PAGE>
SPENCER'S RESTAURANTS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
Thirteen weeks ended September 25, 2000 and September 27, 1999
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED
------------------ ------------------
September 25, 2000 September 27, 1999
CASH FLOW FROM OPERATING ACTIVITY
Adjustments to reconcile net loss to net cash used in
operating activities:
<S> <C> <C>
Net Income (Loss) $ (162,361) $ (245,510)
Depreciation and Amortization 28,106 9,731
Forgivness Of Debt (37,982)
Loss on conversion of asset 0 42,800
Stock issued for services preformed 0 72,909
Changes in assets and liabilities:
Decrease (Increase) In Inventory 153 7,931
Decrease (Increase) In Accts. Rec. (2,768) 3,031
Decrease (Increase) In Prepaid and Other Current Assets (32,141) (8,395)
Decrease (Increase) In Other Assets 4,500
Increase (Decrease) In Accounts Payable 9,407 (40,848)
Increase (Decrease) In accrued expenses (13,478)
Increase (Decrease) In other payables (14,406) (16,413)
--------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (220,970) (174,764)
CASH FLOW FROM INVESTING ACTIVITY
Capital expenditures (9,743) (294,942)
------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (9,743) (294,942)
CASH FLOW FROM FINANCINIG ACTIVITY
Principal repayments of Borrowings (8,333) 0
Proceeds from Issuance of Preferred Stock 0 50,000
------- ------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (8,333) 50,000
Increase (Decrease) In Cash (239,046) (419,706)
Cash Beginning 374,507 2,337,675
------- ---------
Cash Ending 135,461 1,917,969
------- ---------
Cash paid during period for interest 2,353 -
<FN>
See accompanying notes to the unaudited condensed consolidated financial
statements
</FN>
</TABLE>
<PAGE>
SPENCER'S RESTAURANTS, INC. AND SUBSIDIARIES
Unaudited Consolidated Statement of Stockholders Equity
Thirteen weeks ended September 25, 2000
<TABLE>
<CAPTION>
Preferred Stock Preferred Stock
Common Common
Shares Stock Series A Series B Series A Series B
------ ----- -------- -------- -----------------
<S> <C> <C> <C> <C>
BALANCE, JUNE 26, 2000 51,002,981 $ 51,003 315,076 $ 31,507
Conversion of Series B preferred
to common stock 6,099,945 6,100 - (12,200) - (1,220)
Issuance of series B preferred stock
as dividend - - - 13,916 - 1,392
Accrued dividends - Series B - - - - - -
Net loss for the thirteen weeks
ended September 25, 2000
BALANCE, September 25, 2000
(unaudited) 57,102,926 $ 57,103 316,792 $ 31,679
</TABLE>
<TABLE>
<CAPTION>
Additional Additional
Paid-in Capital Accrued Accumulated Paid-in Capital
Preferred Stk Dividends Deficit Common Stock
-------------- --------- ------- ------------
<S> <C> <C> <C> <C>
BALANCE, JUNE 26, 2000 $ 6,535,088 $ (347,904) $(19,736,463) $ 14,476,583
Conversion of Series B preferred
to common stock (242,286) - - 237,406
Issuance of series B preferred stock
as dividend (1,392) 347,904 - -
Accrued dividends - Series B - (152,557) - -
Net loss for the thirteen weeks
ended September 25, 2000 - - (162,361) -
BALANCE, September 25, 2000
(unaudited) $ 6,291,410 $ (152,557) $(19,898,825) $ 14,713,989
</TABLE>
<PAGE>
SPENCER'S RESTAURANTS, INC. AND SUBSIDIARIES: NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
1. Consolidated Financial Statements.
The accompanying unaudited condensed consolidated financial statements 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 September 25,
2000, the results of operations and cash flows for the thirteen weeks ended on
September 25, 2000 and September 27, 1999. In the opinion of management, all
necessary adjustments that were made are of a normal recurring nature. The
balance sheet at June 26, 2000 was derived from audited financial statements
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed 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 the year-end June 26, 2000. The results of operations for the period
ended September 25, 2000 are not necessarily indicative of the operating
results, which may be achieved for the full year.
2. Basis of Presentation
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. All material
intercompany balances and intercompany transactions have been eliminated. Actual
results could differ from those estimates.
The accompanying unaudited condensed 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, the Company's
continuation as a going concern cannot be reasonably assured.
3. Description of Business
Spencer's Restaurants, Inc. (formerly known as The Rattlesnake Holding
Company, Inc.), a Delaware corporation (unless the context otherwise indicates,
with its subsidiaries, the "Company"), was formed and commenced operations in
1993, and effected an initial public offering of its stock in 1995 to develop,
build and operate a chain of casual dining southwestern restaurants under the
name Rattlesnake(R) Southwestern Grill. At one time, the Company operated a
total of 8 restaurants in the New York metropolitan area. Management was unable
to operate the restaurants profitably, failed to control general and
administrative expenses and did not develop a workable growth strategy. As a
consequence, the Company experienced substantial losses and incurred a
significant amount of debt. In 1997, the Board of Directors elected certain of
its members as officers to take control of operations and replace the existing
management pursuant to its cost reduction plan. The Company then disposed of
development projects and non-performing restaurants, negotiated severance
agreements with the former management, and sharply reduced general and
administrative expenses.
In fiscal 1999, 106 Federal Road Restaurant Corp., our wholly-owned
subsidiary, purchased the Danbury, Connecticut facility previously closed. The
restaurant has been remodeled and reconfigured to serve as the first location
for our new 200 seat Spencer's Steak and Shrimp restaurant concept.
In fiscal 2000, we opened the new Spencer's Steak and Shrimp restaurant and
its operations have been satisfactory.
We continue to operate a self-sustaining Rattlesnake(R) Southwestern Grill
in South Norwalk, Connecticut
4. Management Plans
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
can not be reasonably assured.
The Company has incurred aggregate losses since inception of $19,898,826,
inclusive of a net loss for the thirteen weeks ended September 25, 2000 of
$162,361 and at September 25, 2000 had a working capital deficit of $988,314.
Additionally, $229,173 of Series B convertible subordinated notes payable
matured on July 7, 2000, $18,749 of Series C subordinated notes payable matured
on August 6, 1997, and a $2,089 Series A subordinated note payable matured on
August 6, 1996, are in default as of September 25, 2000.
The Company anticipates that it will require additional working capital to
fund operations. The Company believes that it will have sufficient capital to
meet these obligations and implement an expansion strategy through a second
stock offering. In addition, in October 2000, the Company obtained financing on
its real estate holdings at 106 Danbury Road (Note 8). However there can be no
assurance that the Company will have sufficient capital to support operations
and implement its business plan.
5. Stockholder's Equity
Preferred Stock
As of the quarter ended September 25, 2000, 12,200 shares of Series B
preferred stock was converted to 6,099,945 shares of common stock.
In September 2000, the Company issued 13,916 shares of Series B preferred
stock as payment of dividends declared for the $347,904 of accrued dividends as
of June 26, 2000.
6. Reclassification
Reclassification of certain expense captions have been made to the
statement of operations for fiscal quarter ending September 27, 1999 to conform
to the September 25, 2000 presentation. In addition $59,227 was reclassified
from general and administrative to operating expense for the quarter ending
November 27, 1999
The impact of the reclassification did not result in changes to the balance
sheet and consolidated statement of cash flows for the fiscal quarter ending
September 27, 1999.
7. Litigation
The Company is defending an action brought by Jack Cioffi Trust, the
landlord of a former Rattlesnake restaurant in Lynbrook New York leased by a
subsidiary of the Company. The action against the Company is based on an alleged
guaranty of the lease payments due from the subsidiary of the Company. The
Company is of the position that the landlord waived the guarantee at the time of
the surrender of the premises in September 1997. The action seeks the sum of
approximately $190,000. A Compliance Conference was adjourned until June 21,
2000. The Company intends to vigorously defend this action.
As of October 2, 2000 the Company received notification from its attorneys
regarding the Cioffi Trust case indicating the case is Certified, ready for
trial. Plaintiff has until October 30, 2000 to file a note of issue requesting a
trial date. On November 2, 2000 plaintiff filed the Note of Issue and
Certificate of Readiness.
8. Subsequent Events
On October 19, 2000 the Company closed on an $800,000 sale, leaseback and
purchase option (the "Transaction") for its 106 Federal Road property (the
"Property") owned by 106 Federal Road, Inc., a wholly owned subsidiary of the
Company. The Transaction consisted of a sale of the Property to Mercury Capital
Corporation, which in turn leased back the Property to 106 Federal Road, Inc.
The Company has the right to purchase back the Property for $800,000 at a date
no earlier than May 1, 2001 and no later than November 9, 2002. For accounting
purposes the Transaction will be recorded as a financing of the property
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
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 issued in its 10-KSB report for the
fiscal period June 26, 2000.
This analysis by management contains some forward-looking statements. When
we use the words" "anticipate," "believe," "estimate," "expect," and similar
expressions that relate to the Company and its management, they are intended to
identify such forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Our actual results performance and
achievements could differ materially from the results expressed or implied by
these forward-looking statements.
In connection with its February 1999 Offering the Company was required to
file a registration statement with the Securities and Exchange Commission. The
Company filed a registration statement on August 16, 1999 and July 2000, filed a
first amendment to the registration statement.
The Company presently operates a Rattlesnake Southwestern Grill in South
Norwalk, Connecticut and the Spencer's Restaurant in Danbury, CT. The Company
has closed all other restaurants previously owned as of June 30, 1999.
Operating results for the thirteen weeks ended September 25, 2000 as compared
with the thirteen weeks ended September 27, 1999 are as follows:
Gross restaurant sales increased $724,831 or 223.9% to $1,048,528 for the
thirteen weeks ended September 25, 2000 from $323,697 for the thirteen weeks
ended September 27, 1999. Net restaurant sales increased $714,445 or 225.9% to
$1,030,690 for the thirteen weeks ended September 25, 2000 from $316,245 the
thirteen weeks ended September 27, 1999. These increases in restaurant sales are
primarily due to the new Spencer's Danbury restaurant which opened in November
of 1999.
Promotional sales increased $10,386 or 139.4% to $17,838 for the thirteen
weeks ended September 25, 2000 from $7,452 for the thirteen weeks ended
September 27, 1999. The increase is attributable to the commencement of
operations of the new Spencer's restaurant that opened November 3, 1999.
Promotional sales as a percentage of net sales decreased .6% to 1.7% from 2.3%
in the respective periods
Cost of food and beverage sales increased $297,087 or 372.8% to $376,776
for the thirteen weeks ended September 25, 2000 from $79,689 for the thirteen
weeks ended September 27, 1999. Cost of food and beverage as a percentage of net
sales increased 11.4% to 36.6% from 25.2% in the respective periods. The
percentage increase is attributable to the Spencer's restaurant that features a
high quality, high value menu.
Restaurant salaries and fringe benefits, which consist of direct salaries
of restaurant managers, hourly employee wages and related fringe benefits,
increased $215,914 or 127.9% to $384,671 for the thirteen weeks ended September
25, 2000 from $168,757 for the thirteen weeks ended September 27, 1999.
Restaurant salaries and fringe benefits as a percentage of net sales decreased
16.1% to 37.3% from 53.4% in the respective periods. The decrease, as a
percentage, is primarily attributable the prior year reporting of corporate
salaries in this line item and greater sales in the thirteen weeks ended
September 25, 2000.
Operating expense increased $124,042 or 209.4% to $183,269 for the thirteen
weeks ended September 25, 2000 from $59,227 for the thirteen weeks ended
September 27, 1999. Operating expense as a percentage of net sales decreased
1.0% to 17.7% from 18.7% in the respective periods, due to the addition of the
Danbury location.
Occupancy and other related expenses, which include rent and common area
maintenance, decreased $2,143 or 7.7% to $25,642 for the thirteen weeks ended
September 25, 2000 from $27,785 for the thirteen weeks ended September 27, 1999.
Occupancy as a percentage of net sales decreased 6.3% to 2.5% from 8.8% in the
respective periods. The percentage decrease is due to the additional restaurant
sales and the fact that the Company did not incur rent at its Danbury location
as the Company owned the property during such period.
Depreciation and amortization expense increased $14,706 or 151.1% to
$24,437 for the thirteen weeks ended September 25, 2000 from $9,731 for the
thirteen weeks ended September 27, 1999. The increase is attributable to assets
at the new restaurant. The increase is attributable to the Danbury location.
General and administrative expenses which includes, among other things,
legal accounting and professional fees, corporate and training salaries
increased $63,057 or 36.3% to $236,823 for the thirteen weeks ended September
25, 2000 from $173,766 for the thirteen weeks ended September 27, 1999. The
increase is attributable to administrative costs associated with the new
restaurant as well as costs associated with the various legal matters. General
and administrative expense as a percentage of net sales decreased 32.0% to 23.0%
from 55.0% in the respective periods. The percentage reduction from prior year
is the result of added sales from the new restaurant.
Loss on restaurant closure decreased $42,800 or 100% to $0 for the thirteen
weeks ended September 25, 2000 from $42,800 for the thirteen weeks ended
September 27, 1999. Loss on restaurant closure as a percent of net restaurant
sales decreased 13.5% to 0% from 13.5% in the respective periods. This is
attributable to the 1999 closing of the Flemington location.
Other expense (income) net increased $2,668 or 100% to $2,668 for the
thirteen weeks ended September 25, 2000 from $0 for the thirteen weeks ended
September 27, 1999. Other expense (income) as a percent of net restaurant sales
increased .3% to .3% from 0% in the prior period.
Interest expense (income) net, increased $2,083 or 100% to $2,083 for the
thirteen weeks ended September 25, 2000 compared to $0 for the thirteen weeks
ended September 27, 1999. Interest expense is for Series B notes payable, due
July 2000 that carry interest of 9% per annum less interest earned on available
cash balances.
Gain on extinguishment of debt increased $37,982 or 100% to $37,982 for the
thirteen weeks ended September 25, 2000 from $0 for the thirteen weeks ended
September 27, 1999. Gain on extinguishment of debt as a percent of net
restaurant sales increased 3.7% to 3.7% from 0.0% in the respective periods.
This is attributable to the write off of certain payables from closed location.
Net Loss available to Shareholders decreased $86,149 or 33.9% to $162,361
for the thirteen weeks ended September 25, 2000 compared to $245,510 for the
thirteen weeks ended September 27, 1999. Net Loss available to Shareholders
decreased as a percent of net restaurant sales decreased 61.9% to -15.8% from
-77.7% in the respective periods.
ACCOUNTING STANDARDS TO BE ADOPTED
In April 1998, Statement of Position 98-5 ("SOP 98-5"), "Reporting the Cost
of Start-up Activities," was issued. SOP 98-5 requires that costs incurred
during start-up activities, including pre-opening costs, be expensed as
incurred. The Company adopted SOP 98-5 in the first quarter of fiscal 2000 and
did not result in any cumulative effect of a change in accounting principle.
In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("Statement
133"), was issued and amended by Statement 138 in June, 2000 which is effective
for fiscal years beginning after June 15, 2000. Statement 133 standardizes the
accounting for derivative instruments and requires that all derivative
instruments be carried at fair value. The Company adopted Statement 133 in the
first quarter of fiscal 2001 and did not result in any cumulative effect of a
change in accounting principle.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is not subject to interest rate risk, as substantially all
borrowings are fixed rate obligations. However, the Company has exposure to
commodity risk, including the dependence on the rapid availability of food,
principally steak and shrimp, and fluctuations in price of these commodities.
Although the Company believes that its relationships with suppliers are
satisfactory and that alternative sources are available, the loss of certain
suppliers, or substantial price increases, could have a material adverse effect
on the Company.
YEAR 2000 MODIFICATIONS:
The Year 2000 Issue was the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may have recognized a date
using "00" as the year 1900 rather than the year 2000, resulting in possible
system failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process certain transactions, send
invoices, or engage in similar normal business activities.
The Company did not experience any year 2000 issues.
LIQUIDITY
The Company has a long history of losses, which has depleted its capital
resources. Without additional funds, the Company will have to abandon its
long-term plans for the Spencer's concept development and the opening of
additional restaurants, and drastically reduce its corporate overhead. The
Company estimates, that with financing, the Company will be able to affect some
expansion and to operate through fiscal 2001. There can be no assurance that the
Company will have adequate resources after such time unless it conducts
profitable operations and/or obtains additional financing of which there can be
no assurance. The Company continues to explore equity investments but there is
no assurance the Company will be successful. In October 2000 the Company
obtained a sale leaseback financing. See Note 8. above.
The Company has incurred aggregate losses since inception of $19,898,826
inclusive of a net loss for the thirteen weeks ended September 25, 2000 of
$162,361 and at September 25, 2000 had a working capital deficit of $988,314.
Additionally, $229,173 of Series B convertible subordinated notes payable
matured on July 7, 2000, $18,749 of Series C subordinated notes payable matured
on August 6, 1997, and a $2,089 Series A subordinated note payable matured on
August 6, 1996, are in default as of September 25, 2000.
On July 2, 1999 the Company sold an additional 2,000 shares of its Series B
Preferred Stock for a value of $50,000 as part of its Offering.
The preferred shares will be convertible, at the option of the holder at
any time after November 1999, at a conversion price initially equal to $0.05 per
share of common stock. The conversion rate will be reduced by 10% per month for
each month the Company fails to comply with its obligations to file, and in good
faith process, a registration statement.
Dividends for the first quarter were accrued at 8% per annum.
Dividends were paid in September 1999 and September 2000 in the form of
7,954 and 13,916 additional shares of Series B Preferred Stock respectively.
Cash flows used in operating activities for the nine months ended September
25, 2000 were ($220,970) as opposed to ($174,764) for the same period in the
previous year.
Cash flows used in investing activities were ($9,743) for the thirteen
weeks ended September 25, 2000 whereas in 1999, for the thirteen weeks,
($294,942) accounted for the cash flows used in investing activities. This
difference can be attributed to the preparations of the new restaurant,
Spencer's. The Company does not have further commitments for capital
expenditures beyond the completion of the Danbury location except those normally
associated with day-to-day operations. However, the Company does plan to expand
the Spencer's concept and should that occur, further capital expenditures would
be required.
Cash flows from financing activities were $8,333 for the thirteen weeks
ended September 25, 2000, whereas for the thirteen weeks ended September 27,
1999 cash flows from financing activities were $50,000 due to the sale of Series
B Preferred Stock in July 1999.
Given the above, cash during the thirteen weeks ended September 25, 2000
decreased by $239,046 as compared to a decrease of $419,706 during the thirteen
weeks ended September 27 1999. The decrease during the year is attributable to
the opening of the Danbury location in fiscal 2000.
At September 25, 2000, the following obligations are past due and in
default; (i) $237,506 of Series B convertible subordinated notes payable matured
on July 7, 2000; and (ii) $18,750 of Series C subordinated notes payable,
matured in August 1997 and a $2,089 subordinated note payable matured in August
1996 (the Company has been unable to locate either noteholder). The Company is
currently seeking to restructure the Series B Preferred notes and/or to exchange
the same for equity, although there can be no assurance of the same.
SAFE HARBOR STATEMENT
Certain statements in this Form 10-QSB, including information set forth
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations" constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 (the "Act"). The Company
desires to avail itself of certain "safe harbor" provisions of the Act and is
therefore including this special note to enable the Company to do so.
Forward-looking statements included in this Form 10-QSB or hereafter included in
other publicly available documents filed with the Securities and Exchange
Commission, reports to the Company`s stockholders and other publicly available
statements issued or released by the Company involve known and unknown risks,
uncertainties, and other factors which could cause the Company's actual results,
performance (financial or operating) or achievements to differ from the future
results, performance (financial or operating) or achievements expressed or
implied by such forward looking statements. Such future results are based upon
management's best estimates based upon current conditions and the most recent
results of operations. These risks include, but are not limited to, risks
associated with potential acquisitions, successful implementation of the
Company`s cost containment plan and new operating strategy, immediate need for
additional capital, competition, and other risks detailed in the Company`s
Securities and Exchange Commission filings, including its Annual Report on Form
10-KSB for the fiscal year 1999, each of which could adversely affect the
Company's business and the accuracy of the forward looking statements contained
herein.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Lynbrook, New York
The Company is defending an action brought by Jack Cioffi Trust, the
landlord of a former Rattlesnake restaurant in Lynbrook New York leased by a
subsidiary of the Company. The action against the Company is based on an alleged
guaranty of the lease payments due from the subsidiary of the Company. The
Company is of the position that the landlord waived the guarantee at the time of
the surrender of the premises in September 1997. The action seeks the sum of
approximately $190,000. A Compliance Conference was adjourned until June 21,
2000. The Company intends to vigorously defend this action.
As of October 2, 2000 the Company received notification from its
attorneys regarding the Cioffi Trust case indicating the case is Certified,
ready for trial. Plaintiff has until October 30, 2000 to file a note of issue
requesting a trial date. On November 2, 2000 plaintiff filed the Note of Issue
and Certificate of Readiness.
Item 2 - Changes in Securities and Use of Proceeds
None.
Item 3 - Defaults Upon Senior Securities
None in this quarter.
Item 4 - Submission of Matters to a Vote of Stockholders during the quarter
ending September 25, 2000:
None.
Item 5. - Other Information.
The Company securities are traded on the NASDAQ Bulletin Board. Due to the
nature of such markets and the "penny stock' rules to which the common stock
trades (Rule 15g-9 promulgated under the SEC Act) there may not be a liquid
trading market in the common stock.
Item 6. - Exhibits and Reports on Forms 8-K.
During the thirteen weeks ended September 25, 2000, the Company
filed for a change in Certifying Accountants on Form 8-K.
<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.
Spencer's Restaurants, Inc.
(Registrant)
November 13, 2000 By:/s/ Kenneth Berry
-----------------
Kenneth Berry
President CEO
November 13, 2000 By:/s/ John S. Reuther, Jr.
------------------------
John S. Reuther, Jr.
Chief Financial Officer
