SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 July 14,1996
-----------------------------------------------
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 33-95796
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CLUCKCORP INTERNATIONAL, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Texas 76-0406417
------------------------------- -----------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1250 N.E. Loop 410, Suite 335 San Antonio, Texas 78209
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(210) 824-2496
- --------------------------------------------------------------------------------
(Registrant's telephone number)
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 No X
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
2,108,750 shares as of August 15, 1996
<PAGE>
CLUCKCORP INTERNATIONAL, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
--------
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets - 3
July 14, 1996 and December 31, 1995
Statements of Operations - 4
12 Weeks Ended
July 14, 1996 and July 16, 1995
Statements of Operations - 5
28 Weeks Ended
July 14, 1996 and July 16, 1995
Statements of Cash Flows - 6
28 Weeks Ended
July 14, 1996 and July 16, 1995
Notes to Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 9
PART II. OTHER INFORMATION 12
NONE
SIGNATURES 12
2
<PAGE>
CLUCKCORP INTERNATIONAL, INC.
Balance Sheets (Unaudited)
July 14, December 31,
1996 1995
---------- ------------
ASSETS
Current Assets
Cash and cash equivalents $ 354,896 $ 126,447
Inventories 3,027 5,044
Prepaid expenses 329,960 119,364
Deferred loan costs - 24,710
Note receivable from stockholder 30,000 40,000
----------- ----------
Total Current Assets 717,883 315,565
Property and Equipment 269,541 193,980
Less accumulated depreciation ( 67,628) ( 43,112)
----------- -----------
201,913 150,868
Other Assets
Intangible property rights, net
of amortization of $122,154 in
1996 and $99,875 in 1995 277,346 299,625
Deposits 12,266 25,007
Other assets 30,729 34,780
----------- ----------
320,341 359,412
----------- ----------
$1,240,137 $ 825,845
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Bridge notes payable, net of
unamortized discount of $-0- in
1996 and $133,523 in 1995 $1,684,500 $ 940,977
Accounts payable, trade 328,518 161,642
Accrued liabilities 281,592 89,043
Note payable to bank 200,000 -
---------- ----------
Total Current Liabilities 2,494,610 1,191,662
Common stock subject to rescission,
118,750 shares in 1996 and 57,750
shares in 1995 405,702 195,818
Stockholders' Equity (Deficit)
Preferred stock - $1.00 par value,
authorized 5,000,000, none issued - -
Common stock - $.01 par value,
authorized 10,000,000, issued
990,000 in 1996 and 1995 9,900 9,900
Additional paid-in capital 994,007 994,007
Accumulated deficit (2,664,082) (1,565,542)
----------- -----------
Total Stockholders' Equity (Deficit) (1,660,175) ( 561,635)
----------- -----------
$1,240,137 $ 825,845
=========== ==========
See notes to financial statements (unaudited).
3
<PAGE>
CLUCKCORP INTERNATIONAL, INC.
Statements of Operations (Unaudited)
12 Weeks Ended
-----------------------------
July 14, July 16,
1996 1995
---------- ----------
Revenues
Restaurants $ 47,971 $ 59,006
Costs and Expenses
Cost of food and paper 20,719 21,252
Restaurant salaries and benefits 22,013 30,820
Occupancy and related expenses 13,609 13,218
Operating expenses 15,006 14,692
General and administrative expenses 349,527 119,787
Preopening expenses 25,264 9,150
Depreciation and amortization 20,976 14,902
----------- ----------
Total costs and expenses 467,114 223,821
----------- ----------
Loss from operations ( 419,143) ( 164,815)
Interest and debt discount expense 270,377 11,949
----------- ----------
Net loss $( 689,520) $( 176,764)
=========== ===========
Net loss per common share $( .52) $( .15)
=========== ===========
Weighted average number of common
and common equivalent shares
outstanding 1,331,994 1,213,244
=========== ==========
See notes to financial statements (unaudited).
4
<PAGE>
CLUCKCORP INTERNATIONAL, INC.
Statements of Operations (Unaudited)
28 Weeks Ended
-----------------------------
July 14, July 16,
1996 1995
----------- ----------
Revenues
Restaurants $ 111,109 $ 142,083
Area development fee, stockholder - 50,000
---------- ---------
111,109 192,083
Costs and Expenses
Cost of food and paper 44,453 51,562
Restaurant salaries and benefits 45,867 67,241
Occupancy and related expenses 30,356 29,284
Operating expenses 35,248 48,313
General and administrative expenses 519,472 228,064
Preopening expenses 34,757 13,863
Depreciation and amortization 51,800 29,805
---------- ---------
Total costs and expenses 761,953 468,132
---------- ---------
Loss from operations ( 650,844) ( 276,049)
Interest and debt discount expense 447,696 15,749
---------- ---------
Net loss $(1,098,540) $ (291,798)
=========== ==========
Net loss per common share $( .84) $( .24)
============ =========
Weighted average number of common
and common equivalent shares
outstanding 1,305,540 1,213,244
============ ==========
See notes to financial statements (unaudited)
5
<PAGE>
<TABLE>
<CAPTION>
CLUCKCORP INTERNATIONAL, INC.
Statements of Cash Flows (Unaudited)
28 Weeks Ended
------------------------------
July 14, July 16,
1996 1995
----------- -----------
<S> <C> <C>
Operating Activities:
Net loss for the period $(1,098,540) $ ( 291,798)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 51,800 29,805
Amortization of bridge note discount 367,153 -
Loss on forfeited deposits
Changes in operating assets and
liabilities:
Inventories 2,017 ( 3,160)
Prepaid expenses ( 210,596) (23,925)
Deferred loan costs 24,710 (21,647)
Other current assets 10,000 (40,000)
Accounts payable and accrued
liabilities 359,425 12,538
---------- ----------
Net cash (used) in
operating activities ( 494,031) ( 338,187)
Investing Activities:
Purchase of property and equipment (75,561) (1,627)
Additions to deposits and other assets (6,555) (29,561)
Reductions of deposits 18,342 ( -)
----------- ----------
Net cash (used) in
investing activities (63,774) (31,188)
Financing Activities:
Net proceeds from issuance of
Common stock subject to rescission 209,884 -
Proceeds from issuance of bridge notes
payable, net of discount 376,370 408,000
Proceeds from bank borrowing 200,000 -
Repayments of stockholder advances - (16,889)
---------- ----------
Net cash provided by
financing activities 786,254 391,111
---------- ----------
Net increase in cash 228,449 21,736
Cash at beginning of period 126,447 42,711
---------- ----------
Cash at end of period $ 354,896 $ 64,447
========== =========
Supplemental disclosure of
cash flow information:
Interest paid $ - $ -
========== =========
Federal income taxes paid $ - $ -
========== =========
See notes to financial statements (unaudited).
6
</TABLE>
<PAGE>
CLUCKCORP INTERNATIONAL, INC.
Notes to Financial Statements (Unaudited)
NOTE A - ORGANIZATION AND BASIS OF PRESENTATION
Organization - CluckCorp International, Inc. (the "Company") intends to
own, operate and franchise quick service restaurants under the name
"Harvest Rotisserie". To date the Company has one restaurant in operation
in San Antonio, Texas under the name "Cluckers" which it utilizes as a both
a training facility and a public restaurant which it intends to convert to
a Harvest Rotisserie restaurant.
Basis of Presentation - The accompanying unaudited financial statements
have been prepared by the Company, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in annual financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations. The information furnished herein
reflects all adjustments (consisting of normal recurring accruals and
adjustments) which are, in the opinion of management, necessary to fairly
state the operating results for the respective periods. The results of
operations for the 28 weeks ended July 14, 1996 may not be indicative of
the results for the full fiscal year.
The report of the Company's independent accountants related to the fiscal
year ended December 31, 1995 financial statements contains an explanatory
paragraph referring to an uncertainty concerning the Company's ability to
continue as a going concern. The December 31, 1995 financial statements
have been prepared assuming the Company will be able to continue as a going
concern. The Company incurred net losses of $924,483 during the year ended
December 31, 1995 and $1,098,540 during the 28 weeks ended July 14, 1996.
The Company's continuation as a going concern is dependent upon its ability
to successfully expand its base of operations and generate sufficient cash
flow to meet its obligations on a timely basis.
The Company consummated an initial public offering of its common stock on
July 15, 1996. See Note C.
NOTE B - FISCAL YEAR
In 1996, the Company adopted a 52/53-week fiscal year ending on the last
Sunday in December. The fiscal year is divided into thirteen four-week
periods. The first quarter consists of four periods and each of the
remaining three quarters consists of three periods, with the first, second
and third quarters ending 16 weeks, 28 weeks and 40 weeks respectively,
into the fiscal year.
7
<PAGE>
NOTE C - INITIAL PUBLIC OFFERING
On July 9, 1996, the Company's Registration Statement on Form SB-2 was
declared effective by the Securities and Exchange Commission. On July 15,
1996, the Company consummated an initial public offering of 1,000,000
shares of its common stock at $5.50 per share and 2,000,000 redeemable
common stock purchase warrants at $.125 per warrant and received
approximately $4.7 million in proceeds from the offering, net of
underwriting discount and other expenses of the offering of approximately
$1 million. The Company applied $1,684,500 of the proceeds along with
accrued interest of $130,243 to retire outstanding bridge notes payable to
unaffiliated individuals.
The balance sheet of the Company at July 14, 1996, and on a pro-forma basis
to give effect to the sale of 1,000,000 shares of common stock and
2,000,000 redeemable common stock purchase warrants, the retirement of the
bridge notes payable, and the related transactions is as follows:
July 14, 1996
Actual As Adjusted
------ -----------
ASSETS
Current Assets
Cash and cash equivalents $ 354,896 $3,451,407
Inventories 3,027 3,027
Prepaid expenses 329,960 -
Note receivable from stockholder 30,000 30,000
--------- ----------
Total Current Assets 717,883 3,484,434
Property and Equipment, net of depreciation 201,913 201,913
Other Assets, net of amortization 320,341 320,341
---------- ----------
$1,240,137 $4,006,688
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Bridge notes payable, net of discount $1,684,500 $ -
Accounts payable, trade 328,518 203,272
Accrued liabilities 281,592 151,349
Note payable to bank 200,000 200,000
---------- ----------
Total Current Liabilities 2,494,610 554,621
Common stock subject to rescission 405,702 405,702
Stockholders' Equity (Deficit)
Preferred stock - -
Common stock 9,900 19,900
Additional paid-in capital 994,007 5,690,547
Accumulated deficit (2,664,082) (2,664,082)
---------- ---------
Total Stockholders' Equity (Deficit) (1,660,175) 3,046,365
---------- ----------
$1,240,137 $4,006,688
========== ==========
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Results of Operations - For the 12 and 28 week periods ended June 14, 1996
compared to the 12 and 28 week periods ended July 16, 1995.
Revenues. Restaurant revenues for each period were derived entirely from
the Company's one restaurant located in San Antonio, Texas. Restaurant revenues
for the 12 and 28 week periods ended July 14, 1996 were $47,971 and $111,109,
respectively, a decrease of 18.7% and 21.8% as compared to the same periods in
1995. The decrease in revenues was due in part to a reduction in the restaurant
operating hours which was implemented during the third quarter of 1995. The
restaurant is currently open five days each week from 11 a.m. to 7 p.m. and is
being used as a training facility. Restaurant revenues during the first 28 weeks
of 1996 were approximately 30% of capacity for the restaurant and below the
restaurant's operating costs. Management attributes the low sales volumes to the
lack of a drive- through window at the restaurant, which is located in a
shopping center. It is the Company's plan that most new Restaurants will be
free-standing with drive-through windows.
In the prior year, during the 28 week period ended July 16, 1995 the
Company sold an area development license for $50,000 to a stockholder of the
Company.
Costs and Expenses. Cost of food and paper were 43.2% and 40.0% of
restaurant revenues for the 12 and 28 week periods ended July 14, 1996, as
compared to 36.0% and 36.2% for the same periods in 1995. The increase in food
and paper costs resulted primarily from food usage for recipe development for
the Company's expanded Harvest Rotisserie menu.
Restaurant salaries, benefits, occupancy and related expenses, and
operating expenses include all other restaurant level operating expenses, the
major components of which are direct and indirect labor, payroll taxes and
benefits, operating supplies, rent, advertising, repairs and maintenance,
utilities, and other occupancy costs. The combined total of these expenses was
106% and 100% of restaurant revenues for the 12 and 28 week periods ended July
14, 1996, as compared to 99% and 102% for the same comparable periods in 1995. A
substantial portion of these costs are fixed or indirectly variable and
therefore were disproportionate to revenues for both periods. The increase in
these costs as a percentage of restaurant revenues in 1996 was primarily due to
lower sales volumes.
General and administrative expenses increased 191% and 128% for the 12 and
28 week periods ended July 14, 1996 as compared to the same periods in 1995. The
increase resulted from the establishment of the Company's corporate offices and
expenses associated with company's financing, franchising, and expansion
activities.
Preopening expenses increased by $16,114 and $20,894 for the 12 and 28 week
periods ended July 14, 1996 as compared to the same periods in 1995. The
increase relates to initial costs associated with the development of a new
Harvest Rotisserie restaurant which is anticipated to open in the fourth quarter
of 1996.
9
<PAGE>
Interest and debt discount expense. Interest and debt discount expense
increased $258,428 and $431,947 for the 12 and 28 weeks ended July 14, 1996 as
compared to the same periods in 1995. The significant increase relates to the
issuance of $1,187,500 face amount of 10% bridge notes from August 1995 to March
1996. The total amount of amortized debt issue discount in 1996 was $367,153.
Net Loss. The Company incurred net losses of $689,520 and $1,098,540 for
the 12 and 28 week periods ended July 14, 1996 as compared to $176,764 and
$291,798 for the same periods in 1995. The increase in net loss for both periods
in 1996 was primarily the result of significantly higher interest and debt
discount expense and general and administrative expenses. The prior year period
ending July 16, 1995 also included a $50,000 sale of an area development
license. The Company expects to incur losses in future periods until it
generates sufficient revenues from expanded restaurant operations or its
franchising activities to offset ongoing operating and expansion costs.
Liquidity and Capital Resources
The Company has incurred losses from operations since inception and as of
July 14, 1996 has an accumulated deficit of $2,664,082. The Company is not
presently generating sufficient revenues to meet its operating needs. Management
anticipates that it will need to open five additional restaurants to generate a
positive cash flow and achieve profitability, although there can be no such
assurance.
Between December 1994 and March 1996, the Company issued a total of
$1,684,500 of 10% unsecured promissory notes ("Bridge Notes"). The notes were
issued to individuals in four separate private offerings as follows; (i)
$497,000 completed May 1995, (ii) $225,000 in August 1995, (iii) $352,500 in
November 1995, and (iv) $610,000 in March 1996. Proceeds from the bridge
financing were used for working capital purposes, development of a franchising
program and to pay certain costs associated with the public offering of the
Company's common stock.
The Company requires capital principally for the expansion of its
restaurant operations and to fund the costs associated with the promotion of its
franchise program. To date, the Company has funded its operations and capital
needs largely with funds provided from bridge financing. The Company does not
have a working line of credit, but intends to apply for such a line with a
financial institution. On July 9, 1996, the Company's registration statement on
Form SB-2 was declared effective by the Securities and Exchange Commission. On
July 15, 1996, the Company consummated an initial public offering of 1,000,000
shares of its common stock at $5.50 per share and 2,000,000 redeemable common
stock purchase warrants at $.125 per warrant. Net proceeds of the offering were
approximately $4.7 million after deducting commissions and other expenses of the
offering of approximately $1.0 million.
10
<PAGE>
The Company intents to utilize the proceeds of the offering to open up to
six Company-owned restaurants and up to five joint ventured restaurants during
the next 12 months. The Company estimates the total development costs, which
includes leasehold improvements, furniture, fixtures, equipment and preopening
costs of opening a typical restaurant will average approximately $325,000 and
that its investment in joint ventured restaurants will average $150,000 for each
restaurant. In May 1996, the Company began development of a new Harvest
Rotisserie restaurant in San Antonio, Texas, which is anticipated to open in the
fourth quarter of 1996.
The Company anticipates that approximately $100,000 will be required to
promote its franchise program. In March 1995, the Company executed an area
development agreement with an affiliate to develop up to ten restaurants in
Singapore and has executed a nonbinding letter of intent to sell area
development rights to a third party pursuant to which the third party would have
the right but not the obligation to develop at its expense up to 50 Harvest
Rotisserie restaurants in the Baltimore, Maryland area. The Company has not yet
operated any nor opened any Harvest Rotisserie franchised Restaurants.
In connection with the sale of $1,187,500 of Bridge Notes and the issuance
of 118,750 shares of common stock to the bridge lenders between August 1995 and
March 1996, the Company may not have established an adequate basis to claim the
private placement exemption by virtue of the fact that the sales of these
securities were made after the filing of the Company's registration statement
for its initial public offering. If the Company is unable to establish such a
basis, these transactions could be considered integrated with the offering,
subjecting the Company to potential liability for sales of unregistered
securities. Although the Company has repaid all the bridge notes out of the
proceeds from its public offering, nevertheless, the Company could otherwise
still be liable to the bridge investors in connection with the issuance of the
118,750 shares of common stock at a rate of $3.83 per share (or aggregate
$454,812). No bridge lender has asserted any claim for rescission or damages,
nor is the Company aware of any bridge lender who intends to do so.
The Company anticipates that the proceeds of the recently completed public
offering will enable it to complete its expansion plans and maintain its current
and planned operations for at least the next 12 months without the need for
additional capital.
11
<PAGE>
PART II - OTHER INFORMATION
NONE
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.
CLUCKCORP INTERNATIONAL, INC.
Date: August 15, 1996 By: s/ William J.Gallagher
------------------------------------
William J. Gallagher,
Chairman of the Board
(Duly Authorized Signatory)
Date: August 15, 1996 By: s/ D.W. Gibbs
------------------------------------
D.W. Gibbs,
Chief Executive Officer and
President
(Duly Authorized Signatory)
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Form 10-QSB for the 28 weeks ended July 14, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-END> JUL-14-1996
<CASH> 354,896
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 3,027
<CURRENT-ASSETS> 717,883
<PP&E> 269,541
<DEPRECIATION> (67,628)
<TOTAL-ASSETS> 1,240,137
<CURRENT-LIABILITIES> 2,494,610
<BONDS> 1,684,500
0
0
<COMMON> 9,900
<OTHER-SE> (1,670,075)
<TOTAL-LIABILITY-AND-EQUITY> 1,240,137
<SALES> 111,109
<TOTAL-REVENUES> 111,109
<CGS> 44,453
<TOTAL-COSTS> 120,676
<OTHER-EXPENSES> 35,248
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 447,696
<INCOME-PRETAX> (1,098,540)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,098,540)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,098,540)
<EPS-PRIMARY> (.84)
<EPS-DILUTED> (.84)
</TABLE>
