SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 30, 1997
OR
/ / TRANSITION REPORT PURSUANT TO 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: 0-18917
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FAST FOOD SYSTEMS, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 13-3562193
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification #)
42-40 Bell Boulevard, Bayside, New York 11361
(Address of principal executive offices) (zip code)
(718) 229-1113
(Issuer's telephone number, including area code)
Indicate by check mark whether the issuer (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 / /
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by court.
Yes / / No / /
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at May 8, 1997
Common Stock, $.01 par value 2,214,400 Shares
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):
YES / / NO /X/
FAST FOOD SYSTEMS, INC. AND SUBSIDIARIES
FORM 10-QSB FOR THE SECOND QUARTER ENDED MARCH 30, 1997
INDEX
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PART 1 Page No.
- ------ -------
Financial Information:
Condensed Consolidated Balance Sheets-
March 30, 1997 and September 29, 1996 2
Condensed Consolidated Statements of Operations-
for the Three and Six Months Ended
March 30, 1997 and March 31, 1996 3-4
Condensed Consolidated Statements of Cash Flows-
for the Six Months Ended March 30, 1997
and March 31, 1996 5-6
Notes to Condensed Consolidated Financial
Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-9
PART II
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Other Information
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults upon Senior Securities 10
Item 4. Submission of Matters to a Vote of
Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 10
FAST FOOD SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 30, September 29,
1997 1996
(Unaudited) *
----------- ------------
Assets
------
Current assets:
Cash $ 20,137 $ 59,162
Notes receivable 77,598 149,283
Due from managed entities 19,008 29,589
Other current assets 32,761 29,306
----------- -----------
Total current assets 149,504 267,340
----------- -----------
Property and equipment, net 40,817 46,456
----------- -----------
Other assets:
Notes receivable, less current maturities 650,061 1,273,333
Interests in managed entities 150,279 230,084
Security deposits 1,242 1,242
----------- -----------
Total other assets 801,582 1,504,659
----------- -----------
Total assets $ 991,903 $ 1,818,455
=========== ===========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 31,412 $ 37,548
----------- -----------
Total liabilities 31,412 37,548
----------- -----------
Shareholders' equity:
Common stock and additional paid-in capital 6,553,585 7,328,625
Accumulated deficit (5,593,094) (5,547,718)
----------- -----------
Total shareholders' equity 960,491 1,780,907
----------- -----------
Total liabilities and shareholders' equity $ 991,903 $ 1,818,455
=========== ===========
*Derived from audited financial statements.
See accompanying notes to condensed consolidated financial statements.
FAST FOOD SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 30, 1997 AND MARCH 31, 1996
(UNAUDITED)
1997 1996
---------- ----------
Continuing operations:
Revenues:
Management fees $ 41,115 $ 39,571
Interest income 27,713 56,672
---------- ----------
68,828 96,243
---------- ----------
Expenses:
General and administrative expenses 68,039 210,836
Interest expense - 250
Loss attributable to equity investments 48,395 33,827
---------- ----------
116,434 244,913
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Loss from continuing operations ( 47,606) (148,670)
Loss from discontinued operations,
including loss on sale of assets
of $85,825 - ( 69,327)
---------- ----------
Net loss $ ( 47,606) $ 217,997
========== ==========
Net loss per share $ (.02) $ ( .10)
========== ==========
See accompanying notes to the condensed consolidated financial statements.
FAST FOOD SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED MARCH 30, 1997 AND MARCH 31, 1996
(UNAUDITED)
1997 1996
---------- ----------
Continuing operations:
Revenues:
Management fees $ 85,250 $ 79,408
Interest income 63,107 108,641
Consulting income - 13,575
---------- ----------
148,357 201,624
---------- ----------
Expenses:
General and administrative expenses 144,863 443,100
Interest expense - 2,642
Loss attributable to equity investments 48,870 44,555
---------- ----------
193,733 490,297
---------- ----------
Loss from continuing operations ( 45,376) (288,673)
Loss from discontinued operations,
including loss on sale of assets
of $40,351 - ( 95,146)
---------- ----------
Net loss $ ( 45,376) $ (383,819)
========== ==========
Net loss per share $ (.02) $ ( .17)
========== ==========
See accompanying notes to the condensed consolidated financial statements.
FAST FOOD SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED MARCH 30, 1997 AND MARCH 31, 1996
(UNAUDITED)
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ ( 45,376) $ ( 383,819)
----------- ------------
Adjustments to reconcile net loss to
net cash provided (required) by
operating activities:
Depreciation and amortization 9,372 11,366
Deferred credits applied - ( 38,902)
Net loss on asset dispositions - 40,351
Loss attributable to equity investments 48,870 44,555
Change in due to/from managed entities 10,581 ( 68,362)
Decrease in inventory - 31,167
Increase in other current assets ( 3,455) ( 21,725)
Decrease in accounts payable, accrued
expenses and other liabilities ( 6,136) ( 687,665)
----------- -----------
Total adjustments 59,232 ( 689,215)
----------- -----------
Net cash provided (required) by
operating activities 13,856 (1,073,034)
----------- -----------
Cash flows from investing activities:
Proceeds of asset dispositions - 1,626,633
Acquisition of tangible assets ( 3,733) ( 3,910)
Collections on notes receivable 694,957 381,159
Distributions from managed entities 30,935 75,935
Cash paid on lease termination - ( 18,000)
Increase in security deposits and other - ( 23,900)
----------- -----------
Net cash provided by investing activities 722,159 2,037,917
----------- -----------
Cash flows from financing activities:
Return of capital distributions paid ( 775,040) (1,107,200)
----------- -----------
Net decrease in cash ( 39,025) ( 142,317)
Cash, beginning of period 59,162 150,945
----------- -----------
Cash, end of period $ 20,137 $ 8,628
=========== ===========
See accompanying notes to condensed consolidated financial statements.
FAST FOOD SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 30, 1997 AND MARCH 31, 1996
(UNAUDITED)
1997 1996
----------- -----------
Additional Cash Flow Information:
Interest expense paid during the period $ - $ 2,642
=========== ===========
Non-cash investing and financing activities:
Notes and escrow receivables arising
from asset sales $ - $ 1,833,566
=========== ===========
Net book value of property and equipment
sold $ - $ 2,854,929
=========== ===========
Capitalized value of sale/leaseback
debt extinguished $ - $ 395,570
=========== ===========
Security deposits and accrued interest
thereon surrendered to obtain assigned
lease extension $ - $ 21,760
=========== ===========
Other restaurant assets sold:
Inventory $ - $ 68,346
=========== ===========
Prepayments $ - $ 101,954
=========== ===========
Security deposits $ - $ 47,133
=========== ===========
Liabilities/credits assumed by purchasers:
Accrued expenses $ - $ 81,334
=========== ===========
Deferred credits $ - $ 108,559
=========== ===========
See accompanying notes to condensed consolidated financial statements.
FAST FOOD SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. In the opinion of the Company, the accompanying unaudited
condensed consolidated financial statements contain all adjustments
(consisting of only normal recurring accruals) necessary to present
fairly the financial position as of March 30, 1997, and the results
of operations and cash flows for the three and six month periods
ended March 30, 1997 and March 31, 1996, respectively.
2. The condensed consolidated results of operations for the three
and six month periods ended March 30, 1997, are not necessarily
indicative of the results to be expected for the full year.
3. On December 19, 1996, the Company received a return of capital
distribution from its managed investee, Fast Food Operators,
Inc.,(FFO). The distribution, at the rate of $.01 per share,
aggregated $30,000 and was credited to the Company's investment in
FFO.
4. Notes receivable including their current maturities as of
March 30, 1997 consist of the following:
Notes Receivable Arising Total Current
from the Sale of Receivable Maturities
------------------------ ---------- ----------
Wendway $ 401,074 $ 49,525
Wendtrip 326,585 28,073
---------- ----------
Totals: $ 727,659 $ 77,598
Less: Current maturities 77,598 ==========
----------
Long-term maturities $ 650,061
==========
In January of 1997, the Company arranged for the sale of one
of the two 10% notes received in the sale of the Wendway and
Wendwick Restaurants. The Wendwick note was sold to a third party
for a total of $274,845 consisting of its outstanding principal
balance of $272,573 plus accrued interest of $2,272. The Company
realized neither gain nor loss on the sale, the proceeds of which
were received on February 10, 1997.
In February of 1997, Wendnew prepaid the balance of its 10%
note at par. The payment totalled $359,426 including accrued
interest of $982. The prepayment resulted in neither gain nor loss
to the Company.
5. On January 31, 1997, the Company declared a return of capital
distribution at the rate of $.35 per share. Such distribution
aggregated $775,040 and was paid on February 20, 1997 to
shareholders of record as of February 13, 1997.
6. Per share data is based upon the loss for the period divided
by the weighted average number of common shares outstanding during
the period. The Company has no potentially dilutive securities
outstanding. Accordingly, the Company's per share data will not be
affected by application of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share," issued in February, 1997
and effective for annual and interim periods ending after December
15, 1997.
Item 2
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Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Results of Operations
- ---------------------
During the fiscal year ended September 29, 1996 the Company
disposed of all of its remaining restaurant operations. The
Company's current activities consist of managing five Popeye's
Famous Fried Chicken and Biscuit Restaurants for FFO and two
Wendy's Old Fashioned Hamburgers Restaurants for Wendtwo Limited
Partnership. The day-to-day management of the Wendtwo Restaurants
has been sub-contracted to a third party at approximately five-
sixths of the regular management fee, subject to a monthly credit
of $2,004. The Company is also collecting on its notes receivable.
In February of 1997, one of such notes was sold and another was
prepaid, leaving two notes outstanding at March 30, 1997. (See
Liquidity and Note 4 to the Condensed Consolidated Financial
Statements).
Management fees for the quarter and year-to-date periods were as
follows:
Three Months Ended Six Months Ended
-------------------- --------------------
March 30, March 31, March 30, March 31,
1997 1996 1997 1996
-------- -------- --------- ---------
FFO $ 25,000 $ 24,000 $ 52,000 $ 42,000
-------- -------- -------- --------
Wendtwo:
Gross subordinated fee 35,778 32,514 77,676 85,008
-------- -------- -------- --------
Subcontracting fee 29,815 27,095 64,730 65,900
Less: Subcontracting credit 6,012 6,012 12,024 10,020
-------- -------- -------- --------
Net subcontracting fee 23,803 21,083 52,706 55,880
-------- -------- -------- --------
Net subordinated fee 11,975 11,431 24,970 29,128
Supervisory fee 4,140 4,140 8,280 8,280
-------- -------- -------- --------
Total Wendtwo 16,115 15,571 33,250 37,408
-------- -------- -------- --------
Total management fees $ 41,115 $ 39,571 $ 85,250 $ 79,408
======== ======== ======== ========
Effective January 26, 1997, the minimum annual FFO fee was reduced
from $108,000 to $96,000.
The Company, in the future, may seek to assign the management
agreements for FFO and Wendtwo.
Interest income decreased by $28,959, or 51%, to $27,713 for the
quarter and by $45,534 or 42% to $63,107 for the six months due to
the lower average outstanding balance of interest-bearing notes
receivable. In January of 1997, the Company arranged for the sale
of one note at par and received proceeds therefrom on February 10,
1997. In February of 1997, the Wendnew note was prepaid. The
principal proceeds from these transactions, which reduced the
number of outstanding notes from four to two, were $631,017 in
total. (See Liquidity and Note 4 to the Condensed Consolidated
Financial Statements).
Other income in 1995 consisted of consulting income of $13,575
assigned to the Company by its principal officer. Such assignment
terminated on November 1, 1995.
General and administrative expenses decreased by $142,797, or 68%,
to $68,039 for the quarter and by $298,237, or 67% to $144,863 for
the six months. The Company's administrative office was closed
January 31, 1996. Most accounting and administrative activities
previously supervised by the Company's controller are now provided
at an annual fixed fee of $48,000 for calendar 1997 (reduced from
$60,000 for calendar 1996) by a service company owned by such
individual. Effective January 1, 1997 the annual salary of the
Company's President was reduced from $50,000 to $40,000.
Miscellaneous interest expense of $250 for the 1996 quarter and
$2,642 for the 1996 six months did not recur. The Company
presently has no interest-bearing debt.
Loss attributable to equity investments increased by $14,568, or
43%, to $48,395 for the quarter and by $4,315, or 10%, to $48,870
for the six months, principally attributable to a non-recurring and
unexpected litigation settlement loss for Fast Food Operators
(FFO). FFO had declared and paid a $.01 per share return of
capital distribution in December 1996. At March 30, 1997 the
carrying value of the Company's investment in FFO was $145,103.
Continuing operations incurred a loss of $47,606 for the 1997
quarter, compared to a loss of $148,670 for the 1996 quarter, a
decrease of $101,064 or 68%. For the six months, continuing
operations lost $45,376 in 1997 compared to $288,673 in 1996, a
decrease of $243,297 or 84%.
Discontinued operations lost $69,327 for the 1996 quarter and
$95,146 for the 1996 six months, including losses on the sale of
assets of $85,825 and $40,351, respectively.
Liquidity and Capital Resources
- -------------------------------
The Company's working capital decreased by $111,700 to $118,092 at
March 30, 1997 from $229,792 at September 29, 1996, due principally
to the payment of the $775,040 return of capital distribution; less
the proceeds of the sold and prepaid notes receivable as well as
regular collections thereon and the $30,000 dividend from FFO.
Cash decreased by $39,025 to $20,137.
Operating activities provided $13,856. Operations provided $12,866
adjusted for non-cash items and changes in applicable asset and
liability accounts related to operations required $990.
Investing activities provided $722,159 consisting of note
receivable sale proceeds, prepayments and regular collections
aggregating $694,957 and distributions from managed entities of
$30,935, less capital expenditures of $3,733.
Financing activities required $775,040 for a $.35 per share return
of capital distribution paid on February 20, 1997 to shareholders
of record as of February 13, 1997. The distribution was funded in
substantial part from the proceeds of the sale of the Wendwick note
and the prepayment of the Wendnew note. Such proceeds were
received in February, 1997 and totalled $634,271, including accrued
interest.
Following the two note transactions, the Company has two notes
outstanding, Wendway and Wendtrip, aggregating $727,659 at March
30, 1997.
Since commencing its strategic downsizing in fiscal 1995 and its
subsequent decision, approved by shareholders in fiscal 1996, to
sell substantially all of its assets, the Company has returned to
shareholders $1.35 per share, or $2,989,440 in the aggregate. The
Company's remaining activities are the collection of its notes
receivable and the management of FFO and Wendtwo. The Company has
also substantially reduced its overhead costs. One expense area the
Company has not been able to reduce is the cost of complying with
the quarterly and annual reporting required of a public company
pursuant to the Securities Exchange Act of 1934.
Such cost is now disproportionately high for the Company's current
scope of operations. In order to remedy this, the Company may look
to the following options: (i) merger with an active operating
company, which seeks a public market for its shares; (ii) electing
to cease reporting under Exchange Act regulations (at the Company's
present asset level and number of shareholders, the Company could
terminate its periodic reporting obligations after the filing of
its Form 10-QSB for the third fiscal quarter ending June 29, 1997);
or (iii) undertaking a going-private transaction, with the related
proxy solicitation of shareholders. The Company's management is
currently evaluating the above options. Alternately, the Company
could continue its management activities or seek to assign the
management agreements. Further return of capital distributions
would be made when available cash and other factors so warrant.
PART II OTHER INFORMATION
- ------- -----------------
Item 1-5. Not applicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
None.
Signatures
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In accordance with the requirements of the Securities Exchange
Act of 1934, the Registrant has caused this report to be
signed on its behalf by the undersigned, thereunto duly
authorized.
FAST FOOD SYSTEMS, INC.
Date: May 9, 1997 By /s/ Lewis E. Topper
-------------------
Lewis E. Topper
Chairman of the Board
President, Chief Executive
Officer, Treasurer and
Director,
Principal Financial and
Accounting Officer