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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
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Commission file number 1-13840
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PUDGIE'S CHICKEN, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 31-1369735
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
333 Earle Ovington Boulevard, Suite 604, Uniondale, New York 11553
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(Address of principal executive offices) (zip code)
(516) 222-8833
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(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
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As of August 13, 1997, the registrant had 4,488,385 shares of its Common Stock,
$.01 par value, issued and outstanding.
Page 1 of 16
The Exhibit Index is on Page 15
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PUDGIE'S CHICKEN, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
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<S> <C> <C>
Item 1 - Financial Statements (unaudited)
Consolidated Balance Sheets as of June 30, 1997
and December 31, 1996.............................................................3
Consolidated Statements of Income for the three and the six months ended
June 30, 1997 and June 30, 1996...................................................4
Consolidated Statements of Cash Flows for the six months
ended June 30, 1997 and June 30, 1996.............................................5
Notes to Consolidated Financial Statements........................................6
Item 2 - Management's Discussion and Analysis or Plan of Operation........................10
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K.................................................14
Signature Page .................................................................................15
Exhibit Index...................................................................................16
</TABLE>
2
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PUDGIE'S CHICKEN, INC. AND SUBSIDIARIES
Debtors-in-Possession
Consolidated Balance Sheets
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<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
Assets (unaudited)
<S> <C> <C>
Current assets
Cash $ 272,180 $ 152,060
Restricted cash 62,365 --
Franchise and advertising royalties receivable,net 129,908 140,410
Inventory 97,060 68,200
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Total current assets 561,513 360,670
Property and equipment, net 1,663,706 1,388,860
Other assets 164,175 171,239
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Total assets $ 2,389,394 $ 1,920,769
============ ============
Liabilities and Stockholders' Deficit
Liabilities not subject to compromise
Accounts payable and accrued expenses 536,106 $ 844,006
Note payable -- 250,000
Deferred franchise fees 297,500 282,500
Accrued Chapter 11 fees 344,971 683,044
Deferred rent 189,440 177,160
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Total current liabilities 1,368,017 2,236,710
Liabilities subject to compromise 8,056,704 8,056,704
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Total liabilities 9,424,721 10,293,414
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Redeemable Preferred Stock; $.01 par value;
10,000 shares authorized, issued and outstanding
(redemption and liquidation value of $1,069,000) 1,069,000 1,069,000
Redeemable Convertible Preferred Stock, Series A $.01 par value;
550 shares authorized, 200 shares issued and outstanding
(redemption value of $2,520,000) 1,978,770 1,978,770
Stockholders' equity:
Preferred stock, 250,000 shares authorized (including
10,000 shares of Redeemable Preferred Stock): $4 Cumulative
Preferred Stock $.01 par value, 50,000 shares issued and outstanding
(liquidation value $500,000) 500 500
Common stock, $.01 par value, 10,000,000 shares authorized;
4,488,385 shares issued and outstanding 44,884 44,884
Additional paid-in capital 15,781,541 15,781,541
Accumulated deficit (25,856,492) (27,203,191)
Deferred compensation (53,530) (44,149)
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Total stockholders' deficit (10,083,097) (11,420,415)
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Total liabilities and stockholders' deficit $ 2,389,394 $ 1,920,769
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
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PUDGIE'S CHICKEN, INC. AND SUBSIDIARIES
Debtors-in-Possession
Consolidated Statements of Operations
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<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
(unaudited) (unaudited)
1996 1997 1996 1997
<S> <C> <C> <C> <C>
Revenue
Restaurant sales $ 2,740,589 $ 1,601,036 $ 5,183,150 $ 3,110,131
Franchise and advertising royalties 242,482 209,584 483,798 415,468
Franchise fees 255,000 15,000 255,000 15,000
Interest income and other revenue 20,597 22,000 43,129 40,969
----------- ----------- ----------- -----------
3,258,668 1,847,620 5,965,077 3,581,568
----------- ----------- ----------- -----------
Costs and Expenses
Restaurant cost of sales 1,027,387 624,293 1,989,049 1,212,942
Restaurant operating expenses 1,365,525 778,369 2,833,634 1,591,689
Franchising costs 31,123 20,377 61,153 45,444
General and administrative 1,076,133 637,150 1,977,510 1,347,436
Advertising expenses 241,191 33,643 447,653 75,742
Depreciation and amortization 231,582 110,534 484,679 223,086
Interest expense 105,661 9,972 211,697 12,478
----------- ----------- ----------- -----------
4,078,602 2,214,338 8,005,375 4,508,817
----------- ----------- ----------- -----------
Loss before reorganization items (819,934) (366,718) (2,040,298) (927,249)
----------- ----------- ----------- -----------
Reorganization items
Loss on closing of restaurants -- -- -- 56,388
Professional fees -- 163,678 -- 363,062
Net loss ($819,934) ($530,396) ($2,040,298) ($1,346,699)
=========== =========== =========== ===========
Net loss per common share ($0.18) ($0.12) ($0.46) ($0.30)
=========== =========== =========== ===========
Weighted average number of common shares outstanding 4,475,421 4,488,385 4,475,421 4,488,385
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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PUDGIE'S CHICKEN, INC. AND SUBSIDIARIES
Debtors-in-Possession
Consolidated Statements of Cash Flows
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<TABLE>
<CAPTION>
Six Months
Ended
June 30,
(unaudited)
1996 1997
<S> <C> <C>
Cash flows used in operating activities
Net loss ($2,040,298) ($1,346,699)
Adjustments to reconcile net income
to net cash provided by operations
Depreciation and amortization 484,679 223,086
Provision for bad debt 53,288 87,376
Loss on closure of restaurant -- 56,388
Deferred compensation expense 2,818 9,381
Changes in operating assets and liabilities
(Increase)decrease in operating assets
Franchise and advertising royalties receivable (55,384) (102,506)
Inventories 8,150 28,860
Other assets (16,795) (7,064)
Increase(decrease)in operating liabilities
Accounts payable and accrued expenses 232,537 633,693
Deferred franchise fees (200,000) (15,000)
Other liabilities (27,409) --
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Net cash used in operating activities (1,558,414) (432,485)
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Cash flows used in investing activities
Purchase of property and equipment (316,915) --
Acquisition of stores (181,634) --
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Net cash used in investing activities (498,549) --
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Cash flows provided by financing activities
Additions to notes payable 211,697 250,000
Repayments of borrowings (178,396) --
Proceeds from issuance of Preferred Stock,
net of issuance costs 1,665,922 --
Net decrease in restricted cash -- 62,365
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Net cash provided by financing activities 1,699,223 312,365
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Net decrease in cash (357,740) (120,120)
Cash at beginning of period 823,440 272,180
Cash at end of period $465,700 $152,060
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
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PUDGIE'S CHICKEN INC. AND SUBSIDIARIES
---------------------------------------
(DEBTORS-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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1. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with instructions to Form 10-QSB and Item 310(b) of Regulation S-B
promulgated under the Securities Act of 1934, as amended, and, therefore, do not
include all information and footnotes normally included in financial statements
prepared in conformity with generally accepted accounting principles.
The accompanying financial statements are unaudited and include all
adjustments (consisting of normal recurring adjustments and accruals) that
management considers necessary for a fair presentation of its financial position
and results of operations of Pudgie's Chicken, Inc. and its subsidiaries (the
"Company") for the interim periods presented. The results of operations for the
interim periods are not necessarily indicative of the results that may be
expected for the entire year.
For financial reporting purposes, the Company has applied the provisions
of the American Institute of Certified Public Accountants Statement of Position
90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code" (SOP 90-7) in the accompanying consolidated financial statements.
Pudgie's Chicken, Inc. and all of its subsidiaries filed voluntary
petitions for relief under Chapter 11 of the United States Bankruptcy Code in
the United States Bankruptcy Court for the Southern District of New York (the
"Bankruptcy Court") on various dates from September 18, 1996 through October 10,
1996. On October 15, 1996, the individual petitions of the Company were
administratively consolidated by the Bankruptcy Court. The Company is currently
operating its business as debtors-in-possession, subject to the approval of the
Bankruptcy Court for certain proposed actions. Additionally, certain creditor
and equity committees have been formed which have the right to review and object
to non-ordinary course business transactions and are expected to participate in
the formulation and approval of any plan or plans of reorganization. The
Company's exclusivity period for filing a plan of reorganization expired on
April 27, 1997. The Company is currently attempting to formulate
and obtain financing for a confirmable plan of reorganization.
The accompanying consolidated financial statements have been prepared on
a going concern basis, which contemplates continuity of operations, realization
of assets and liquidation of liabilities in the ordinary course of business.
However, as a result of the Chapter 11 filings and circumstances relating to
this event, including the Company's recurring losses from operations as
reflected in the consolidated statement of operations, such realization of
assets and liquidation of liabilities is subject to significant uncertainty.
While under the protection of Chapter 11, the Company may sell or otherwise
dispose of assets, and liquidate or settle liabilities, for amounts other than
those reflected in the consolidated financial statements. Further, a plan of
reorganization could materially change the amounts reported in the consolidated
financial statements. The accompanying consolidated financial statements do not
include any adjustments to the carrying value of assets or amounts of
liabilities that might be necessary should the Company be unable to continue as
a going concern or as a consequence of a plan of reorganization. The
appropriateness of using the going concern basis is dependent upon, among other
things, confirmation of a plan of reorganization, future profitable operations,
the ability to comply with debtor-in-possession and other financing agreements
and the ability to generate sufficient cash from operations and financing
sources to meet obligations.
6
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The Company's ability to continue operations is dependent upon, among
other things, confirmation of a plan of reorganization that will enable the
Company to emerge from bankruptcy proceedings, obtain additional capital or
other financing to fund distributions under the plan of reorganization and to
provide working capital. There is no assurance that such reorganization or
financing will occur. These factors, among others, indicate that there is
substantial doubt that the Company can continue as a going concern.
The accompanying financial statements should be read in conjunction with
the Company's December 31, 1996 Form 10-KSB.
2. POST-PETITION FINANCING
On March 13, 1997, the Bankruptcy Court entered an order authorizing the
Company to obtain debtor-in-possession financing up to a maximum of $250,000
pursuant to a loan and security agreement dated February 28, 1997 and granted
the lender a secured claim for loans made up to a maximum of $250,000. The
facility bears interest at 16% payable monthly and is due the earlier of (i)
February 1, 1998, (ii) upon dismissal of the Chapter 11 case or (iii) at
conversion of the Chapter 11 case to a proceeding under Chapter 7 of the
Bankruptcy Code. The Company has borrowed $250,000 under this facility.
In the event of confirmation of a plan of reorganization, the lender
shall receive additional compensation in the form of such number of warrants to
purchase common stock of the Company ("Warrants") with an estimated fair value
of $100,000. The Warrants shall (1) be issued pursuant to a plan of
reorganization, (2) be delivered to Lender within 60 days after confirmation of
a plan of reorganization, (3) be exercisable during a period of seven years,
commencing six months after the date of confirmation of a plan of reorganization
and (4) have an exercise price equal to 115% of fair market value, as defined.
3. CONTINGENCIES
On June 30, 1995, Gallus Investments, L.P. ("Gallus"), an area developer
of the Company's franchised restaurants, commenced an action against the Company
alleging, among other claims, common law fraud and violations of the Franchise
Sales Act of the State of New York regarding its area development agreement with
the Company.
On September 12, 1996, a panel of the American Arbitration Association
rendered an award against the Company in favor of Gallus. In rendering the
award, the arbitrators determined that the Company had violated the Franchise
Sales Act of the State of New York. The award was in the amount of $1,375,888 in
damages and $331,516 in attorney fees. On September 18, 1996 the Company filed a
voluntary petition for relief under the provisions of Chapter 11 of the
Bankruptcy Code. A motion to confirm this award in the United States District
Court for the Eastern District of Virginia had initially been stayed as a result
of the Company's bankruptcy filing. The amount of the award has been recorded as
a liability subject to compromise by the Company.
On March 25, 1997, the Bankruptcy Court lifted the automatic stay
imposed upon filing the Chapter 11 petition in order to permit the Company to
petition the federal court in Virginia to vacate the arbitration award while
simultaneously allowing Gallus to petition for confirmation of the award.
On April 18, 1997, the Federal District Court denied a motion to
vacate the arbitration award. The Company has appealed the decision to the
United States Court of Appeals for the Fourth Circuit.
7
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The Company is involved in other court proceedings and claims
incidental to Company business. As a result of the filing of the Chapter 11
Cases, lawsuits in which the Company is named as a defendant are stayed as to
the Company.
The Company is a defendant in eight separate causes of action brought
by a franchisee and its principals which allege that the Company misrepresented
the demographics of the franchisee's franchise territory. The franchisee seeks
$2,500,000 in damages and $1,000,000 in punitive damages under each cause of
action.
The Company is a defendant in litigation alleging infringement on the
plaintiff's franchise area. The plaintiff seeks damages of $1,250,000 and an
injunction prohibiting the Company from doing business within the exclusive
franchise area allegedly granted to the franchisee. The Company intended to file
a motion to dismiss the complaint based upon the fact that a franchise agreement
does not exist between the plaintiff and the Company and that any illicit
transfer of the franchise rights to a party not approved by the Company
constituted a termination of the franchisee's franchise. The motion to dismiss
was not filed due to the Company's voluntary petition under Chapter 11 of the
United States Bankruptcy code.
The Company has brought an action in New York against one of its
franchisees seeking approximately $77,000 in unpaid royalty and advertising
fees. The franchisee counterclaimed and seeks $15,000,000 for the alleged breach
of the franchise agreement.
The Company is the defendant in an action brought by a franchisee which
seeks damages of approximately $668,000 for the alleged breach of franchise
agreement and violations of the Texas Consumer Protection Act. The franchisee
was initially given the right to develop two restaurants in Texas. The
franchisee opened only one restaurant which was closed within one year after
opening. The complaint alleges that the Company is responsible for the
restaurant's failure. The Bankruptcy Court has lifted the automatic stay so that
the case can proceed for the purpose of arriving at a liquidation amount in
damages.
Management believes that the Company has valid and meritorious defenses
against the claims described above. By virtue of the Chapter 11 petition
(note 1), all of the above mentioned actions are stayed pending confirmation
of a reorganization plan to be filed by the Company. At present, the claims are
being treated as unliquidated claims in that they have not yet been reduced to
judgment by a court of competent jurisdiction and no agreement between the
Company, as debtor, and the plaintiffs as creditors has been reached. It is
anticipated that the plan of reorganization will take into account all of the
forestalled claims and that each one of the claims will be resolved based upon a
formula contained within the plan of reorganization. As a consequence, the
amounts sought by the plaintiffs in their lawsuits are being treated as
unliquidated amounts subject to readjustments pursuant to the plan of
reorganization. Therefore, an estimate of the ultimate settlement of these
claims cannot be made and no provision has been recorded for such amounts in the
accompanying consolidated financial statements.
There are 243 claims scheduled and/or filed in the Company's bankruptcy
case. The face amount of the claims are $163,023,600. Many of these claims are
contingent, duplicates and/or disputed. Company management believes that the
claimed amounts are grossly overstated. The final determination of the allowed
claims is expected to invoke litigation of which the outcome is uncertain. The
Company's estimates of the allowed claims are presented in the financial
statements and are subject to change based upon the outcome of the Chapter 11
proceedings. Based on the review of the claims, the Company estimates that the
actual dollar amount of claims that will be allowed is approximately $7.4
million.
The maximum liability on all claims is subject to resolution under the
federal bankruptcy laws.
8
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PUDGIE'S CHICKEN INC. AND SUBSIDIARIES
--------------------------------------
(DEBTORS-IN-POSSESSION)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
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THREE MONTHS ENDED JUNE 30, 1997 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1996
- --------------------------------------------------------------------------------
Total revenue was approximately $1.8 million for the three months ended
June 30, 1997, a decrease of approximately $1.4 million or 43%, from revenue of
approximately $3.3 million for the three months ended June 30, 1996. This
decrease was primarily due to the decrease in the number of Company-owned
restaurants from 30 at June 30, 1996 to 17 at June 30, 1997.
System-wide sales at all Company-owned and franchised restaurants were
approximately $4.1 million for the three months ended June 30, 1997 and
approximately $5.7 million for the comparable prior year period. The effect of
the lower average number of Pudgie's restaurants in operation for the three
months ended June 30, 1997 was the primary cause of the decrease in sales.
Revenue from sales at Company-owned restaurants was approximately $1.6
million for the three months ended June 30, 1997, a decrease of approximately
$1.1 million or 42%, from sales at Company-owned restaurants of approximately
$2.7 million for the three months ended June 30, 1996. This decrease was
primarily due to the decrease in the number of Company-owned restaurants
operating during the three months ended June 30, 1997 as compared to the prior
year period. Franchise royalty and advertising fees earned from franchisees were
approximately $210,000 for the three months ended June 30, 1997, a decrease of
approximately $32,000 or 14%, from approximately $242,000 for the comparable
prior year period. The decrease resulted from the lower number of franchised
restaurants in operation during the three months ended June 30, 1997, from 32
open at June 30, 1996, as compared to 28 open at June 30, 1997.
With respect to Company-owned restaurants, costs of products sold and
restaurant operating expenses were approximately $1.4 million for the three
months ended June 30, 1997, a decrease of approximately $1.0 million or 42%,
from approximately $2.4 million for the three months ended June 30, 1996. This
decrease was due primarily to the closing of 12 unprofitable Company-owned
restaurants in 1996. General and administrative expenses were approximately
$637,000 for the three months ended June 30, 1997, a decrease of approximately
$463,000 or 41%, from approximately $1.1 million for the comparable period in
1996, primarily due to the reduction in corporate overhead expenses due to the
Company reducing and carefully monitoring spending.
Advertising expenses decreased approximately $207,000, or 86%, to
approximately $34,000 for the three months ended June 30, 1997 from
approximately $241,000 for the comparable prior year period. This was due to the
reduction of spending under the cash constraints of the Chapter 11 Cases.
Depreciation and amortization was approximately $111,000 for the three
months ended June 30, 1997, a decrease of approximately $121,000, or 52%, from
approximately $232,000 for the three months ended June 30, 1996. The decrease is
attributable to the closing of 12 Company-owned restaurants during 1996 and the
writing off of the net value of the related assets and the write down of long
lived assets in 1996.
9
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Interest expense was approximately $10,000 for the three months ended
June 30, 1997, a decrease of approximately $96,000, or 91%, from approximately
$106,000 for the comparable period in 1996. This decrease resulted from the
Company stopping interest accruals on an outstanding promissory note of $3.6
million as of the filing of the Chapter 11 Cases. This promissory note is
included in liabilities subject to compromise.
The reorganization professional fees of approximately $164,000 for the
three months ended June 30, 1997 were incurred in connection with the Company's
Chapter 11 Cases and related U.S. Trustee fees.
The Company incurred a net loss of approximately $530,000 during the
three months ended June 30, 1996, a decrease of approximately $290,000, or 35%,
from the net loss of approximately $820,000 in the comparable 1996 period. The
decrease in the loss was attributable principally to decreased restaurant
operating expenses, as a result of the closing of unprofitable stores during
1996, the decrease in corporate overhead expenses, offset by approximately
$164,000 in bankruptcy related professional fees.
No provision for income taxes was required in either the three months
ended June 30, 1997 or 1996 because of the net losses incurred by the Company
for federal and state income tax purposes.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1996
- ----------------------------------------------------------------------------
Total revenue was approximately $3.6 million for the six months ended
June 30, 1997, a decrease of approximately $2.4 million or 40%, from revenue of
approximately $6.0 million for the six months ended June 30, 1996. This decrease
was primarily due to the decrease in the number of Company-owned restaurants
from 30 at June 30, 1996 to 17 at June 30, 1997.
System-wide sales at all Company-owned and franchised restaurants were
approximately $8.1 million for the six months ended June 30, 1997 and
approximately $11.1 million for the comparable prior year period. The effect of
the lower average number of Pudgie's restaurants in operation for the six months
ended June 30, 1997 was the primary cause of the decrease in sales.
Revenue from sales at Company-owned restaurants was approximately $3.1
million for the six months ended June 30, 1997, a decrease of approximately $2.1
million or 40%, from sales at Company-owned restaurants of approximately $5.2
million for the six months ended June 30, 1996. This decrease was primarily due
to the decrease in the number of Company-owned restaurants operating during the
six months ended June 30, 1997 as compared to the prior year period. Franchise
royalty and advertising fees earned from franchisees were approximately $415,000
for the six months ended June 30, 1997, a decrease of approximately $69,000 or
14%, from approximately $484,000 for the comparable prior year period. The
decrease resulted from the lower number of franchised restaurants in operation
during the six months ended June 30, 1997, from 32 open at June 30, 1996, as
compared to 28 open at June 30, 1997.
With respect to Company-owned restaurants, costs of products sold and
restaurant operating expenses were approximately $2.8 million for the six months
ended June 30, 1997, a decrease of approximately $2.0 million or 42%, from
approximately $4.8 million for the six months ended June 30, 1996. This decrease
was due primarily to the closing of 12 unprofitable Company-owned restaurants in
1996 and one unprofitable Company-owned restaurant in January 1997. General and
administrative expenses were approximately $1.3 million for the six months ended
June 30, 1997, a decrease of approximately $630,000 or 32%, from approximately
$2.0 million for the comparable period in 1996, primarily due to the reduction
in corporate overhead expenses due to the Company reducing and carefully
monitoring spending.
10
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Advertising expenses decreased approximately $372,000, or 83%, to
approximately $76,000 for the six months ended June 30, 1997 from approximately
$448,000 for the comparable prior year period. This was due to the reduction of
spending under the cash constraints of the Chapter 11 Cases.
Depreciation and amortization was approximately $223,000 for the six
months ended June 30, 1997, a decrease of approximately $262,000, or 54%, from
approximately $485,000 for the six months ended June 30, 1996 and one restaurant
in January 1997. The decrease is attributable to the closing of 12 Company-owned
restaurants during 1996 and the writing off of the net value of the related
assets and the write down of long lived assets in 1996.
Interest expense was approximately $12,000 for the six months ended June
30, 1997, a decrease of approximately $200,000, or 94%, from approximately
$212,000 for the comparable period in 1996. This decrease resulted from the
Company stopping interest accruals on an outstanding promissory note of $3.6
million as of the filing of the Chapter 11 Cases. This promissory note is
included in liabilities subject to compromise.
As a result of the Company's filing of the Chapter 11 Cases, one
Company-owned unprofitable restaurant was closed resulting in approximately
$56,000 of expenses. This restaurant was closed to further reduce cash outflow
and operating expenses. The reorganization professional fees of approximately
$363,000 for the six months ended June 30, 1997 were incurred in connection with
the Company's Chapter 11 Cases and related U.S. Trustee fees.
The Company incurred a net loss of approximately $1.3 million during the
six months ended June 30, 1996, a decrease of approximately $694,000, or 34%,
from the net loss of approximately $2.0 million in the comparable 1996 period.
The decrease in the loss was attributable principally to decreased restaurant
operating expenses, as a result of the closing of unprofitable stores during
1996, the decrease in corporate overhead expenses, offset by approximately
$363,000 in bankruptcy related professional fees.
No provision for income taxes was required in either the six months
ended June 30, 1997 or 1996 because of the net losses incurred by the Company
for federal and state income tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's primary capital requirements are for restaurant operations
and franchise development and for bankruptcy proceedings. As of June 30, 1997
the Company had a working capital deficit of $1,876,040 as compared to a working
capital deficit of $287,989 at June 30, 1996.
Cash used in operating activities of $432,485 for the six months ended
June 30, 1997 is primarily the result of the funding of the Company's operating
loss for the six months ended June 30, 1997.
Cash provided by financing activities of $312,365 for the six months
ended June 30, 1997 was primarily due to proceeds received from
debtor-in-possession financing.
At June 30, 1997, the Company had $152,060 in cash and a working
capital deficit of $1,876,040. Unless additional financing can be obtained,
the Company will not be able to meet its current obligations.
RECENT ACCOUNTING PRONOUNCEMENTS
- --------------------------------
The Financial Accounting Standards Board has issued Statement 128,
"Earnings Per Share" (Statement 128). Statement 128 establishes standards for
computing and presenting earnings per share (EPS). The Statement simplifies the
standards for computing EPS and makes them comparable to international EPS
standards. The provisions of Statement 128 are effective for financial
statements
11
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issued for periods ending after December 15, 1997, including interim periods.
The Statement does not permit early application and requires restatement of all
prior EPS data presented. In the opinion of management, adoption of Statement
128 will not have a material effect on the Company's financial position, results
of operation, or previously reported EPS.
The information set forth in this Report and in all publicly
disseminated information about the Company, including the narrative contained in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" above, includes "forward-looking statements" within the meaning of
Section 21E of the Securities and Exchange Act of 1934, as amended, and is
subject to the safe harbor created by that section. Readers are cautioned not to
place undue reliance on these forward-looking statements as they speak only as
of the date hereof and are not guaranteed.
12
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PART II
-------
OTHER INFORMATION
ITEM 5. OTHER INFORMATION
In early July 1997, the Company's shares of common stock and
warrants were delisted from the Nasdaq SmallCap Market. Previously,
the Company's shares of common stock and warrants were delisted from
the Boston Stock Exchange. The Company's shares of common stock and
warrants continue to trade in the over-the-counter market.
As of June 6, 1996, Helen Papa, the Company's Chief Financial Officer
resigned from the Company. As of such date the Company has been operating
without an acting Chief Financial Officer.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) No reports on Form 8-K were filed the three months ended June 30,
1997.
13
<PAGE>
<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.
PUDGIE'S CHICKEN, INC.
August 14, 1997 /s/ Steven Wasserman
- ------------------------ ----------------------------------
Date Steven Wasserman
President and Chief Executive Officer
(and Principal Accounting Officer)
14
<PAGE>
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Number Page Number
- -------------- -----------
27 Financial Data Schedule 16
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 152,060
<SECURITIES> 0
<RECEIVABLES> 140,410
<ALLOWANCES> 956,798
<INVENTORY> 68,200
<CURRENT-ASSETS> 360,670
<PP&E> 1,388,860
<DEPRECIATION> 1,119,762
<TOTAL-ASSETS> 1,920,769
<CURRENT-LIABILITIES> 2,236,710
<BONDS> 0
3,047,770
500
<COMMON> 44,884
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,920,769
<SALES> 3,110,131
<TOTAL-REVENUES> 3,581,568
<CGS> 2,804,631
<TOTAL-COSTS> 4,508,817
<OTHER-EXPENSES> 419,450
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,478
<INCOME-PRETAX> (1,346,699)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,346,699)
<EPS-PRIMARY> (.30)
<EPS-DILUTED> 0
</TABLE>
