U.S. 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 DECEMBER 30, 1998.
___ Transition report under Section 13 or 15 (d) of the Securities Exchange Act
of 1934 For the transition period from ____________ to ____________.
Commission file number 0-23757
TAM RESTAURANTS, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 13-3905598
(State or other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1163 FOREST AVENUE, STATEN ISLAND, NY 10310
(Address of Principal Executive Offices)
(718) 720-5959
(Issuer's Telephone Number)
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report)
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 ___
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 3,503,000 shares of common stock as
of February 16, 1999.
Transitional Small Business Disclosure Format (check one):
Yes _X_ No ___
TAM RESTAURANTS, INC. AND SUBSIDIARIES
QUARTER ENDED DECEMBER 30, 1998
FORM 10-QSB
INDEX
Part I. FINANCIAL STATEMENTS Page(s)
Item 1. Financial Statements
Condensed Consolidated Balance Sheet as of December 30, 1998 (unaudited). 1
Condensed Consolidated Statements of Operations
For the Thirteen weeks ended December 30, 1998 and
December 28, 1997 (unaudited). 2
Condensed Consolidated Statements of Cash flow For the Thirteen
weeks ended December 30, 1998 and
December 28, 1997 (unaudited). 3
Notes to unaudited Condensed Consolidated
Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition And Results of Operation 6
Part II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 10
Item 6. Exhibits and reports on Form 8-K 10
Signature Page 11
(i)
TAM RESTAURANTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
ASSETS
December 30, 1998
Current Assets
Cash $ 154,458
Accounts receivable (net of allowance for doubtful accounts of $15,000) 375,882
Inventory 405,005
Prepaid and other expenses 438,101
-----------
Total Current Assets 1,373,446
Property and Equipment-Net 5,941,901
Due from Affiliates 298,289
Other Assets 534,849
Loan Receivable - Officer 60,412
-----------
TOTAL ASSETS $ 8,208,897
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 1,267,843
Current portion of loans payable, related parties 1,618
Current portion of capitalized lease obligations 106,972
Accounts payable 1,237,572
Contract deposits payable 206,190
Accrued expenses and other 1,500,594
-----------
Total Current Liabilities 4,320,789
-----------
Long-term Liabilities
Deferred rent expense 272,169
Long-term debt - net of current portion 69,755
Loans payable-related parties - net of current portion 291,180
Capitalized lease obligations-net of current portion 185,903
Barter advances - net of current portion 317,170
-----------
Total Long-term Liabilities 1,136,177
-----------
TOTAL LIABILITIES 5,456,966
-----------
Commitments and Contingencies
STOCKHOLDERS' EQUITY
Stockholders' Equity
Preferred stock; $.0001 par value; 1,000,000 shares authorized,
144,081 shares issued and outstanding 14
Common stock; $.0001 par value, 19,000,000 shares authorized;
3,503,000 shares issued and outstanding 350
Additional paid-in capital 7,947,366
Accumulated deficit (5,195,799)
-----------
TOTAL STOCKHOLDERS' EQUITY 2,751,931
-----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 8,208,897
===========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
1
TAM RESTAURANTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Thirteen Weeks Ended
December 28, December 30,
1997 1998
----------- -----------
Sales $ 2,378,827 $ 3,954,551
Cost of Sales 1,525,996 2,324,826
----------- -----------
Gross Profit 852,831 1,629,725
Operating and Administrative Expenses 1,070,469 1,506,103
----------- -----------
Income (Loss) from Operations (217,638) 123,622
----------- -----------
Other Expense
Interest expense 107,316 157,608
Barter expense 101,474 80,469
----------- -----------
Total Other Expense 208,790 238,077
----------- -----------
Net Loss $ (426,428) $ (114,455)
=========== ===========
Net loss per share:
Basic and Diluted $(.17) $(.03)
=========== ===========
Weighted average number of
common shares outstanding - basic and diluted 2,500,000 3,503,000
=========== ===========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
2
TAM RESTAURANTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Thirteen weeks Ended
December 28, 1997 December 30, 1998
----------------- -----------------
Cash Flows from Operating Activities:
Net loss $ (426,428) $ (114,455)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation and amortization expense 90,086 287,479
Deferred rent expense 12,840 --
Amortization of original issue discount -- 77,085
Deferred income (7,819) (6,000)
(Increase) decrease in:
Accounts receivable (8,716) 284,640
Inventory (2,034) (23,247)
Prepaid and other expenses (17,823) (88,676)
Other assets 3,420 (1,937)
Increase (decrease) in:
Accounts payable 1,157,975 274,869
Contract deposits payable (4,671) (164,102)
Accrued expenses (625,615) (291,031)
----------- -----------
Net Cash provided by Operating Activities 171,215 234,625
----------- -----------
Cash Flows from Investing Activities:
Acquisition of property and equipment (726,033) (149,406)
----------- -----------
Cash Flows from Financing Activities:
Net repayments (advances) of officer's loans 10,158 (21,283)
Loans receivable 1,997 --
Proceeds from long-term debt 1,000,000 --
Principal payments on long-term
and capitalized lease obligations (257,166) (49,423)
Advances to affiliates and others (113,155) (81,539)
Deferred stock offering costs (206,474) --
----------- -----------
Net Cash provided by (used in) Financing Activities 435,360 (152,245)
----------- -----------
Net decrease in cash (119,458) (67,026)
Cash, Beginning of year 281,625 221,484
----------- -----------
Cash, End of period $ 162,167 $ 154,458
=========== ===========
The accompanying notes are an integral part of these condensed
consolidated financial statements
3
TAM RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-QSB
and Item 310(b) of Regulation S-B. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of only normal recurring accruals) considered
necessary for a fair presentation have been included. It is suggested that
the financial statements be read in conjunction with the Company's
consolidated audited financial statements and footnotes thereto contained
in the Company's Form 10-KSB for the fiscal year ending September 27, 1998.
Operating results for the thirteen week period ended December 30, 1998 are
not necessarily indicative of the results that may be expected for the full
fiscal year ending September 29, 1999.
2. Accounting Period
The Company reports on a 52/53 year. For fiscal 1999 the Company changed
its period end day from Sunday to Wednesday in order to facilitate better
cost controls and streamline its reporting systems. As a result the first
quarter of fiscal 1999 includes three additional days of revenues and
expenses when compared to fiscal 1998. The net effect of which had no
material effect on the revenues and expenses reported in the period ending
December 30, 1998.
3. Long-Term Debt
In October 1997, the Company obtained $1,000,000 in a secured loan from two
entities. The loan bears interest at 10% per annum, payable quarterly and
matures September 30, 1999. The loan is guaranteed by a principal
stockholder of the Company and the guarantee is secured by a pledge of
200,000 shares of common stock held by such stockholder.
Additionally, as partial consideration for the loan, the Company granted to
the entities warrants to purchase 200,000 shares of common stock at an
exercise price of $5.00 per share expiring in October 2002. The issuance of
these warrants gave rise to an original issue discount which has been
valued at $482,000. As of December 30, 1998 $231,255 of original issue
discount expense remains to be amortized.
In October 1997, the Company issued to Mr. Cretella a promissory note in
the original principal amount of $720,405 which bears interest at the rate
of 10% per annum. Interest is payable in monthly installments of $6,003,
with the outstanding principal balance payable in November 2002 upon
maturity of the note. On December 30, 1998, Mr. Cretella converted the
$720,405 of indebtedness owed to him by the Company into 144,081 shares of
Series A Preferred Stock. As further inducement to Mr. Cretella to convert
the debt to equity the Company also issued to Mr. Cretella 72,040 warrants
to purchase the Company's Common Stock at $6.00 per share. The Company
received a fairness opinion with respect to this transaction.
4. Loss Per Share
For the calculation of the loss per share for the three months ended fiscal
1999 and 1998, all of the Company options and warrants are excluded for
basic and diluted loss per share as they are anti-diluted.
4
5. Preferred Stock
The Company's Board of Directors authorized the designation of 150,000
shares of preferred stock, of the 1,000,000 previously authorized and
unallocated, to be a series of preferred stock ("Series A Preferred Stock")
bearing a 10% cumulative dividend payable quarterly in cash, convertible
into Common Stock at anytime after issuance, at the holder's option, at the
rate of one share of Common Stock for each share of Series A Preferred
Stock, subject to adjustment under certain circumstances. The Series A
Preferred Stock is senior in rights and preferences to any subsequently
designated series and/or class of preferred stock and is entitled to one
vote per share of Common Stock into which the issued and outstanding shares
of Series A Preferred Stock is then convertible, on all matters submitted
to a vote of the Company's stockholders. Outstanding shares of Series A
Preferred Stock are redeemable at any time by the Company, at its option,
at the redemption price of $5.00 per share, upon timely notice of its
intent to redeem.
5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995: The statements which are not historical facts contained in the
Management's Discussion and Analysis of Plan of Operation and elsewhere in this
report on Form 10-KSB are forward-looking statements that involve a number of
known and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of the Company to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such factors include, but are not
limited to, the risks related to the opening of new restaurants, including
capital requirements, continued popularity of existing and new restaurants,
seasonality and other risks detailed in the Company's filings with the
Securities and Exchange Commission. The words "believe". "expect", "anticipate",
"intend" and "plan" and similar expressions identify forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date the statement was made.
Overview
The Company operates Lundy Bros. Restaurant ("Lundy's"), a high-volume,
casual, upscale seafood restaurant located in Brooklyn, New York, The Boathouse
in Central Park ("The Boathouse"), a multi-use facility featuring an upscale
restaurant and catering pavilion, located on the lake in New York City's Central
Park, and American Park at the Battery ("American Park"), a multi-use facility
featuring an upscale restaurant, catering floor, two outside patios and a fast
food kiosk, located at the water's edge in Battery Park, a New York City
landmark.
Results of Operations
Sales for the thirteen weeks ended December 30, 1998 were $3,954,551, an
increase of $1,575,724 or 66.2%, as compared to $2,378,827 for the thirteen
weeks ended December 28, 1997. The increase in sales for the thirteen week
period was primarily due to the addition of American Park , which opened in the
third quarter of fiscal 1998 and increased sales at The Boathouse. American
Park's sales during the thirteen weeks ended December 30, 1998 were $850,107.
Beginning in fiscal 1999, the Company changed its period end from Sunday to
Wednesday the result of which added three additional days of sales into the
thirteen weeks ended December 30, 1998 when compared to the thirteen weeks ended
December 28, 1997. A total of $43,237 in sales were generated by the additional
three days included in the thirteen weeks ended December 30, 1998.
Cost of sales for the thirteen weeks ended December 30, 1998 were
$2,324,826 or 58.8% of sales as compared to $1,525,996 or 64.1% of sales for the
thirteen weeks ended December 28, 1997. The decrease in the cost of sales
relative to overall sales can be attributed to the Company's tightening of
purchasing specifications and the implementation of menu changes and labor cost
controls at all of the units which were initiated in the fourth quarter of
fiscal 1998.
As a result of the foregoing, gross profit for the thirteen weeks ended
December 30, 1998 was $1,629,725 or 41.2% of sales as compared to $852,831 or
35.9% of sales for the thirteen weeks ended December 27, 1997.
Operating and administrative expenses for the thirteen weeks ended December
30, 1998 were $1,506,103, an increase of $435,634 as compared with $1,070,469
for the thirteen weeks ended December 27, 1997. The increase relates primarily
to the addition of $362,568 in expenses for American Park, which opened in the
third quarter of fiscal 1998, and increased rent and depreciation at The
Boathouse. Operating and administrative expenses as a percentage of sales was
38.1% for the thirteen weeks ended December 30, 1998, as compared to 45.0% for
the thirteen weeks ended December 27, 1997, a decrease of 6.9%. The decrease in
operating and administrative
6
expenses relative to overall sales can be attributed to operating efficiencies
accomplished through contract negotiations with significant vendors and a
reduction in corporate overhead.
Other expenses for the thirteen weeks ended December 30, 1998 were
$238,077 an increase of $29,287 or 14.0% as compared to $208,790 for the
thirteen weeks ended December 27, 1997. Other expenses for the thirteen weeks
ended December 30, 1998 consisted of $80,469 of barter expense as compared to
$101,474 in fiscal 1998. However, the decrease in barter expense was offset by
an increase in interest expense related to a $77,085 charge for original issue
discount for the Kayne Anderson warrants.
As a result of the foregoing, the net loss amounted to $114,455 or $.03 per
share for the thirteen weeks ended December 30, 1998 as compared to a net loss
of $426,428 or $.17 per share for the thirteen weeks ending December 27, 1997.
Liquidity and Capital Resources
The Company's capital requirements have been and will continue to be
significant and its cash requirements have been exceeding its cash flow from
operations (at December 30, 1998, the Company had a working capital deficit of
$2,947,343), due to, among other things, costs associated with development,
opening and start-up costs of American Park and Park View at The Boathouse and
building a corporate infrastructure sufficient to support the Company's
operations. As a result, the Company has been substantially dependent upon sales
of its equity securities, loans from financial institutions and the Company's
officers, directors and stockholders and bartering transactions with member
dining clubs to finance a portion of its working capital requirements.
During the thirteen weeks ended December 30, 1998, net cash decreased by
$67,026. Net cash provided by operating activities was $234,625. Net cash used
in investing activities was $149,406, relating primarily to the additional
catering space at Lundy's and the renovation of the indoor dining space at The
Boathouse. The net decrease in cash from financing activities was $152,245.
The Company enters into bartering agreements with member dining clubs
whereby member dining clubs advance cash to the Company in exchange for the
Company's agreement to provide to the clubs' members food and beverages at a
designated Company restaurant. The restaurant must permit the clubs' members to
purchase food and beverages at rates between 160% and 200% of the amount
advanced. Upon entering into the agreement, the Company records its obligation
to provide food and beverages at the amount of the advance it receives. Upon a
guest purchasing food or beverages, the Company records revenue for the amount
of food and beverage purchased by the guest, and the barter discount as a barter
expense.
In October 1997, Kayne Anderson Non-Traditional Investments, L.P. and ARBCO
Associates, L.P., affiliates of Kayne Anderson Investment Management, Inc.
(collectively, "Kayne Anderson"), loaned the Company an aggregate of $1,000,000.
The loans bear interest at the rate of 10% per annum, payable quarterly, and
were originally due May 31, 1999. Upon an event of default under the loans, the
interest rate increases to 15% per annum and the Company would be required to
pay to Kayne Anderson 50% of the operating profits from American Park on a
monthly basis until the loan is fully repaid. The loan is guaranteed by Frank
Cretella, President, Chief Executive Officer, a director and a principal
stockholder of the Company, and the guarantee is secured by a pledge of 200,000
shares of Common Stock owned by Frank Cretella and Jeanne Cretella, Vice
President, a director and principal stockholder of the Company. As partial
consideration for the loans, the Company issued to Kayne Anderson warrants (the
"KA Warrants") to purchase 200,000 shares of Common Stock. The KA Warrants are
exercisable at a price of $5.00 per share (subject to adjustment under certain
circumstances) and are exercisable at any time until October 31, 2002. The
Company
7
will incur a non-cash interest charge of $482,000 representing the original
issue discount relating to the promissory notes issued to Kayne Anderson over
the life of the promissory notes. In connection with the loan, the Company
agreed to use its best efforts to cause a representative designated by Kayne
Anderson to be elected to the Company's Board of Directors. Kenneth Harris has
been elected a director as Kayne Anderson's initial designee. In August 1998,
the Company and Kayne Anderson agreed to amend the loan agreement to extend the
maturity date of the loans to September 30, 1999. Under the terms of the
amendment the Company agreed to pay 50% of The Boathouse operating profits
rather than 50% of American Park operating profits if the Company failed to
repay the loan by September 30, 1999.
In February 1998, the Company consummated an initial public offering ("the
Public Offering") of 1,000,000 shares of Common Stock and 500,000 Warrants for
gross proceeds of $5,050,000. After payment of the underwriters discounts and
commissions and expenses of the Public Offering, net proceeds realized by the
Company were $3,637,249.
The Company will need to raise additional capital to implement its
expansion plans. Other than the ability to enter into bartering transactions
with member dining clubs, the Company has no current arrangements with respect
to, or potential sources of, additional financing, and it is not anticipated
that any officers, directors or stockholders will provide any additional loans
to the Company.
On November 19, 1998 the Company's Board of Directors authorized the
designation of 150,000 shares of a series of preferred stock ("Series A
Preferred Stock") bearing a 10% cumulative dividend payable quarterly in cash,
convertible into Common Stock at anytime after issuance, at the holder's option,
at the rate of one share of Common Stock for each share of Series A Preferred
Stock, subject to adjustment under certain circumstances. The Series A Preferred
Stock is senior in rights and preferences to any subsequently designated series
and/or class of preferred stock and is entitled to one vote per share of Common
Stock into which the issued and outstanding shares of Series A Preferred Stock
is then convertible, on all matters submitted to a vote of the Company's
stockholders. Outstanding shares of Series A Preferred Stock are redeemable at
any time by the Company, at its option, at the redemption price of $5.00 per
share, upon timely notice of its intent to redeem.
In December 1998, Frank Cretella converted $720,405 of indebtedness owed by
the Company to him into shares of Series A Preferred Stock at the ratio of one
share of Series A Preferred Stock for each $5.00 of indebtedness outstanding. As
an inducement to Mr. Cretella to convert the debt to equity, the Company also
issued Mr. Cretella 72,040 warrants to purchase the Company's Common Stock at
$6.00 per share.
Seasonality and Fluctuations in Quarterly Operating Results.
The Company's business is seasonal. The bicycle, rowboat rentals and
outdoor dining at The Boathouse are open only March through November. The
catering facilities, indoor section of the Park View restaurant and the fast
food operation are opened year round, but at a substantially reduced sales
volume during the winter due to the Boathouse's location in the middle of
Central Park.
The two outdoor patios at American Park and the fast food kiosk are only
open March through November and its location in Battery Park also restricts
winter sales potential. The indoor restaurant and catering level are open year
round.
Lundy's is a waterside location and attracts more guests during warmer
months. As a result, the Company's average weekly restaurant sales and operating
cash flow generally increases from April through October and decreases from
November through March.
8
The Company also expects that future quarterly operating results will
fluctuate as a result of the timing of and expenses related to the openings of
new restaurants (as the Company will incur significant expenses during the
months preceding the opening of a restaurant), as well as due to various
factors, including the seasonal nature of its business, weather conditions in
New York City, the health of New York City's economy in general and its tourism
industry in particular. Accordingly, the Company's sales and earnings may
fluctuate significantly from quarter to quarter and operating results for any
quarter will not necessarily be indicative of the results that may be achieved
for a full year.
Year 2000
The Company has evaluated and is in the process of updating its internal
Management Information Systems to ensure that it will have the capability to
manage and manipulate data in the year 200 and beyond. As the Company takes
measures to be in compliance, new programs are currently being tested. It is
anticipated that the Company's information technology ("IT") systems will be
substantially compliant by the end of the third quarter of the fiscal year
ending September 29, 1999. Costs incurred by the Company to date to implement
its plan have not been material and are not expected to have a material effect
on the Company's financial condition or results of operations.
The Company has begun to assess the compliance of its non-IT systems. It is
anticipated that these systems will be compliant by December 31, 1999.
The Company has addressed year 2000 compliance with its major vendors and
service providers and anticipates that those key vendors and service providers
who are not yet compliant will be prior to year end.
Inflation
The effect of inflation on the Company has not been significant during the
last two fiscal years.
9
PART II
OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
(a) On November 19, 1998 the Company's Board of Directors authorized the
designation of 150,000 shares of a series of preferred stock ("Series A
Preferred Stock") bearing a 10% cumulative dividend payable quarterly in
cash, convertible into Common Stock at anytime after issuance, at the
holder's option, at the rate of one share of Common Stock for each share of
Series A Preferred Stock, subject to adjustment under certain
circumstances. The Series A Preferred Stock is senior in rights and
preferences to any subsequently designated series and/or class of preferred
stock and is entitled to one vote per share of Common Stock into which the
issued and outstanding shares of Series A Preferred Stock is then
convertible, on all matters submitted to a vote of the Company's
stockholders. Outstanding shares of Series A Preferred Stock are redeemable
at any time by the Company, at its option, at the redemption price of $5.00
per share, upon timely notice of its intent to redeem.
(b) In December 1998, Frank Cretella converted $720,405 of indebtedness owed by
the Company to him into shares of Series A Preferred Stock at the ratio of
one share of Series A Preferred Stock for each $5.00 of indebtedness
outstanding. As an inducement to Mr. Cretella to convert the debt to
equity, the Company also issued Mr. Cretella 72,040 warrants to purchase
the Company's Common Stock at $6.00 per share.
Item 6. Changes in Securities and Use of Proceeds.
(a) Exhibits.
3.1 Certificate of Designation, Powers, Preferences, and Rights of the 10%
Cumlative Convertible Redeemable Preferred Stock, Series A.
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the thirteen weeks
ended December 30, 1998.
10
TAM RESTAURANTS, INC. AND SUBSIDIARIES
Signature Page
In accordance with the requirements of the Exchange Act , the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized on the 16th day of February, 1999.
TAM RESTAURANTS, INC.
(Registrant)
Dated: February 16, 1999 /s/ Frank Cretella
--------------------------------------
Frank Cretella
President and Chief Executive officer
Dated: February 16, 1999 /s/ Anthony B. Golio
--------------------------------------
Anthony B. Golio
Vice President
11