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: June 29, 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 August 6, 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 THIRD QUARTER ENDED JUNE 29, 1997
INDEX
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PART 1 Page No.
- ------ -------
Financial Information:
Condensed Consolidated Balance Sheets-
June 29, 1997 and September 29, 1996 2
Condensed Consolidated Statements of Operations-
for the Three and Nine Months Ended
June 29, 1997 and June 30, 1996 3-4
Condensed Consolidated Statements of Cash Flows-
for the Nine Months Ended June 29, 1997
and June 30, 1996 5-6
Notes to Condensed Consolidated Financial
Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
PART II
- -------
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
June 29, September 29,
1997 1996
(Unaudited) *
----------- ------------
Assets
------
Current assets:
Cash $ 39,776 $ 59,162
Notes receivable 79,554 149,283
Due from managed entities 28,606 29,589
Other current assets 27,432 29,306
----------- -----------
Total current assets 175,368 267,340
----------- -----------
Property and equipment, net 37,889 46,456
----------- -----------
Other assets:
Notes receivable, less current maturities 629,424 1,273,333
Interests in managed entities 171,304 230,084
Security deposits 1,242 1,242
----------- -----------
Total other assets 801,970 1,504,659
----------- -----------
Total assets $ 1,015,227 $ 1,818,455
=========== ===========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 26,665 $ 37,548
----------- -----------
Total liabilities 26,665 37,548
----------- -----------
Shareholders' equity:
Common stock and additional paid-in capital 6,553,585 7,328,625
Accumulated deficit (5,565,023) (5,547,718)
----------- -----------
Total shareholders' equity 988,562 1,780,907
----------- -----------
Total liabilities and shareholders' equity $ 1,015,227 $ 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 JUNE 29, 1997 AND JUNE 30, 1996
(UNAUDITED)
1997 1996
---------- ----------
Continuing operations:
Revenues:
Management fees $ 41,432 $ 43,832
Interest income 17,881 37,635
Income attributable to equity
investments 21,493 20,945
---------- ----------
80,806 102,412
Expenses:
General and administrative 52,735 72,731
---------- ----------
Net income $ 28,071 $ 29,681
========== ==========
Net income per share $ .01 $ .01
========== ==========
See accompanying notes to the condensed consolidated financial statements.
FAST FOOD SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
(UNAUDITED)
1997 1996
---------- ----------
Continuing operations:
Revenues:
Management fees $ 126,682 $ 123,240
Interest income 80,988 146,276
Consulting income - 13,575
---------- ----------
207,670 283,091
---------- ----------
Expenses:
General and administrative expenses 197,598 515,831
Interest expense - 2,642
Loss attributable to equity investments 27,377 23,610
---------- ----------
224,975 542,083
---------- ----------
Loss from continuing operations ( 17,305) (258,992)
Loss from discontinued operations,
including loss on sale of assets
of $40,351 - ( 95,146)
---------- ----------
Net loss $ ( 17,305) $ (354,138)
========== ==========
Per share data:
Loss from continuing operations $ (.01) $ (.12)
Loss from discontinued operations
including loss on sale of assets
of $(.02) - (.04)
---------- ----------
Net loss $ (.01) $ ( .16)
========== ==========
See accompanying notes to the condensed consolidated financial statements.
FAST FOOD SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JUNE 29, 1997 AND JUNE 30, 1996
(UNAUDITED)
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ ( 17,305) $ ( 354,138)
----------- ------------
Adjustments to reconcile net loss to
net cash provided (required) by
operating activities:
Depreciation and amortization 14,058 16,814
Deferred credits applied - ( 76,812)
Net loss on asset dispositions - 40,351
Loss attributable to equity investments 27,377 23,610
Change in due to/from managed entities 983 ( 147,458)
Decrease in inventory - 31,167
Increase (decrease) in other current
assets 1,874 ( 12,045)
Decrease in accounts payable, accrued
expenses and other liabilities ( 10,883) ( 729,975)
----------- -----------
Total adjustments 33,409 ( 854,348)
----------- -----------
Net cash provided (required) by
operating activities 16,104 (1,208,486)
----------- -----------
Cash flows from investing activities:
Proceeds of asset dispositions - 1,626,633
Acquisition of tangible assets ( 5,491) ( 3,910)
Collections on notes receivable 713,638 563,513
Distributions from managed entities 31,403 76,403
Cash paid on lease termination - ( 18,000)
Increase in security deposits and other - ( 23,900)
----------- -----------
Net cash provided by investing activities 739,550 2,220,739
----------- -----------
Cash flows from financing activities:
Return of capital distributions paid ( 775,040) (1,107,200)
----------- -----------
Net decrease in cash ( 19,386) ( 94,947)
Cash, beginning of period 59,162 150,945
----------- -----------
Cash, end of period $ 39,776 $ 55,998
=========== ===========
See accompanying notes to condensed consolidated financial statements.
FAST FOOD SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 29, 1997 AND JUNE 30, 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
June 29, 1997, and the results of operations and cash flows
for the three and nine-month periods ended June 29, 1997 and
June 30, 1996, respectively.
2. The condensed consolidated results of operations for the
three and nine- month periods ended June 29, 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
June 29, 1997 consist of the following:
Total Current
Arising from the Sale of Receivable Maturities
------------------------ ---------- ----------
Wendway $ 389,151 $ 50,774
Wendtrip 319,827 28,780
---------- ----------
Totals: $ 708,978 $ 79,554
Less: Current maturities 79,554 ==========
----------
Long-term maturities $ 629,424
==========
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. The Company has determined to undertake a going-private
transaction and related proxy solicitation of shareholders.
See Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital
Resources.
7. Per share data is based upon the income (loss) for the
period divided by the weighted average number of common
shares outstanding during the period. The Company has no
significant potentially dilutive securities outstanding.
Accordingly, it is not anticipated that the Company's per
share data will 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 five-
sixths of the regular management fee, subject to the requirement
that no sub-contracting fee is due until the Company first
receives its one-sixth share of such regular fee and also 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.
(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 Nine Months Ended
-------------------- --------------------
June 29, June 30, June 29, June 30,
1997 1996 1997 1996
-------- -------- --------- ---------
FFO $ 24,000 $ 27,000 $ 76,000 $ 69,000
-------- -------- -------- --------
Wendtwo:
Gross subordinated fee 43,680 40,080 121,356 125,088
-------- -------- -------- --------
Subcontracting fee 36,400 33,400 101,130 99,300
Less: Subcontracting credit 6,012 6,012 18,036 16,032
-------- -------- -------- --------
Net subcontracting fee 30,388 27,388 83,094 83,268
-------- -------- -------- --------
Net subordinated fee 13,292 12,692 38,262 41,820
Supervisory fee 4,140 4,140 12,420 12,420
-------- -------- -------- --------
Total Wendtwo 17,432 16,832 50,682 54,240
-------- -------- -------- --------
Total management fees $ 41,432 $ 43,832 $126,682 $123,240
======== ======== ======== ========
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 $19,754, or 52%, to $17,881 for the
quarter and by $65,288 or 45% to $80,988 for the nine 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.
Item 2
- ------
Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Results of Operations (continued)
- ---------------------
General and administrative expenses decreased by $19,996, or 27%,
to $52,735 for the quarter and by $318,233, or 62% to $197,598
for the nine months. The much larger year to year decrease
occurring over the first six months of 1997 is attributable to
the costs incurred in preparing and mailing the Company's 1996
proxy solicitation. 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 $2,642 for the 1996 nine months
did not recur. The Company presently has no interest-bearing
debt.
For both the current and prior year quarter, the Company realized
income from its equity investments in the amounts of $21,493 and
$20,945, respectively, constituting a 3% improvement in the
current year. However, for the nine months, loss attributable to
equity investments increased by 16%, to $27,377 from $23,610,
principally attributable to a non-recurring and unexpected
litigation settlement loss for Fast Food Operators (FFO)incurred
in the March, 1997 quarter. FFO had declared and paid a $.01 per
share return of capital distribution in December 1996. At June
29, 1997 the carrying value of the Company's investment in FFO
was $166,596.
Continuing operations were profitable for both the 1997 and 1996
quarters with net income of $28,071 and $29,681, respectively.
No provision for income taxes was required, due to the year-to-
date loss. For the nine months, continuing operations lost
$17,305 in 1997 compared to $258,992 in 1996, a decrease of
$241,687, or 93%.
Discontinued operations lost $95,146 for the 1996 nine months,
including a loss on the sale of assets of $40,351. There were no
discontinued operations in 1997 or in the 1996 quarter.
Liquidity and Capital Resources
- -------------------------------
The Company's working capital decreased by $81,089 to $148,703 at
June 29, 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 $19,386 to $39,776.
Operating activities provided $16,104. Operations provided
$24,130 adjusted for non-cash items and changes in applicable
asset and liability accounts related to operations required
$8,026.
Investing activities provided $739,550 consisting of note
receivable sale proceeds, prepayments and regular collections
aggregating $713,638 and distributions from managed entities of
$31,403, less capital expenditures of $5,491.
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.
Item 2
- ------
Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Liquidity and Capital Resources (continued)
- -------------------------------
Following the two note transactions, the Company has two notes
outstanding, Wendway and Wendtrip, aggregating $708,978 at June
29, 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 has determined to undertake a going-private
transaction, with the related proxy solicitation of shareholders.
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: August 7, 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