As filed with the Securities and Exchange Commission on November 12, 1997
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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TAM RESTAURANTS, INC.*
(Exact name of small business issuer as specified in its charter)
Delaware 5812 133905598
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification No.) Identification No.)
1163 Forest Avenue
Staten Island, New York 10310
(718) 720-5959
(Address, including zip code, and telephone number,
including area code, of registrant's
principal executive offices)
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Frank Cretella
President and Chief Executive Officer
TAM Restaurants, Inc.
1163 Forest Avenue
Staten Island, New York 10310
(718) 720-5959
(Name, address and telephone number of agent for service)
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Copies of all communications to:
ROBERT J. MITTMAN, ESQ. ALAN H. ARONSON, ESQ.
Tenzer Greenblatt LLP Akerman, Senterfitt & Eidson, P.A.
The Chrysler Building One Southeast 3rd Avenue
405 Lexington Avenue Miami, Florida 33131-1704
New York, New York 10174-0208 Telephone: (305) 374-5600
Telephone: (212) 885-5000 Facsimile: (305) 374-5095
Facsimile: (212) 885-5001
Approximate date of proposed sale to the public: As soon as practicable
after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] __________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ] __________
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [X]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
================================================================================================================================
Proposed Proposed
Maximum Offering Maximum Amount of
Title of Each Class of Amount to Price Per Aggregate Offering Registration
Securities to be Registered be Registered Security (1) Price (1) Fee
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Common Stock, par
value $.0001 per share..... 1,150,000(2) $5.00 $5,750,000 $1,742.42
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Warrants, each to
purchase one share of
Common Stock................ 575,000(2) $.10 $57,500 $17.42
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Common Stock, par
value $.0001 per share,
issuable upon exercise
of Warrants (3)............. 575,000 $6.00 $3,450,000 $1,045.45
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Warrants, each to
purchase one share of
Common Stock(4)............. 310,000 $.10 $31,000 $9.39
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Common Stock, par
value $.0001 per share,
issuable upon exercise
of Warrants(3)(4)........... 310,000 $6.00 $1,860,000 $563.65
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Total...................................................................................................... $3,378.33
================================================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Assumes the Underwriter's over-allotment option to purchase up to
150,000 additional shares of Common Stock and/or 75,000 Warrants is
exercised in full.
(3) Pursuant to Rule 416, the Company is also hereby registering such
indeterminable additional shares of Common Stock as may become issuable
upon exercise of the Warrants pursuant to anti-dilution provisions
contained in the Warrants.
(4) Registered on behalf of the Selling Securityholders.
* As disclosed on page 5 of the Prospectus included as part of this
Registration Statement, the Prospectus gives effect to a name change to
be effected on or prior to the effective date of this Registration
Statement.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
TAM RESTAURANTS, INC.
Cross Reference Sheet Pursuant to Rule 404
Registration Statement Item Number and Caption Prospectus Caption
1. Front of the Registration Statement and Outside Front
Cover Page of Prospectus.................................... Forepart of the Registration Statement and Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus.................................................. Inside Front and Outside Back Cover Pages of Prospectus
3. Summary Information and Risk Factors........................ Prospectus Summary; Risk Factors
4. Use of Proceeds............................................. Use of Proceeds
5. Determination of Offering Price............................. Outside Front Cover Page of Prospectus; Risk Factors;
Underwriting
6. Dilution.................................................... Risk Factors; Dilution
7. Selling Securityholders..................................... Selling Securityholders and Plan of Distribution
8. Plan of Distribution........................................ Outside Front Cover Page of Prospectus; Underwriting
9. Legal Proceedings........................................... Not Applicable
10. Directors, Executive Officers, Promoters and Control
Persons..................................................... Management
11. Security Ownership of Certain Beneficial Owners and
Management.................................................. Principal Stockholders
12. Description of Securities................................... Outside and Inside Front Cover Pages of Prospectus;
Prospectus Summary; Capitalization; Description of
Securities
13. Interest of Named Experts and Counsel....................... Legal Matters
14. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities.............................. Exculpatory Provisions and Indemnification Matters
15. Organization Within Last Five Years......................... Prospectus Summary; Management's Discussion and
Analysis of Financial Condition and Results of Operations
16. Description of Business..................................... Prospectus Summary; Risk Factors; Use of Proceeds;
Business
17. Management's Discussion and Analysis
or Plan of Operation........................................ Management's Discussion and Analysis of Financial
Condition and Results of Operations
18. Description of Property .................................... Business
19. Certain Relationships and Related Transactions.............. Certain Transactions
20. Market for Common Equity and Related Stockholder
Matters..................................................... Outside Front Cover Page; Risk Factors; Dividend Policy;
Description of Securities
21. Executive Compensation...................................... Management
22. Financial Statements........................................ Financial Statements
23. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure......................... Not Applicable
PRELIMINARY PROSPECTUS DATED NOVEMBER 12, 1997
SUBJECT TO COMPLETION
TAM RESTAURANTS, INC.
1,000,000 Shares of Common Stock and Redeemable Warrants
to Purchase 500,000 Shares of Common Stock
The Company is offering hereby 1,000,000 shares (the "Shares") of the
common stock of the Company (the "Common Stock") and redeemable warrants to
purchase 500,000 shares of Common Stock (the "Warrants"). The Shares and
Warrants may be purchased separately and will be separately transferrable
immediately upon issuance. Each Warrant entitles the registered holder thereof
to purchase one share of Common Stock at a price of $6.00, subject to adjustment
in certain circumstances, at any time commencing , 1999 (13 months
following the date of this Prospectus) (or on such earlier date as to which the
Underwriter consents) until , 2003. The Warrants are redeemable by the
Company at any time commencing , 1999 (13 months following the date of this
Prospectus) upon notice of not less than 30 days, at a price of $.10 per
Warrant, provided that the closing bid quotation of the Common Stock on all 20
trading days ending on the third trading day prior to the day on which the
Company gives notice (the "Call Date") has been at least 150% (currently $9.00,
subject to adjustment) of the then effective exercise price of the Warrants and
the Company obtains the written consent of the Underwriter to such redemption
prior to the Call Date. See "Description of Securities."
Prior to this offering there has been no public market for the Common Stock
or Warrants and there can be no assurance that any such market will develop. It
is anticipated that the Common Stock and Warrants will be quoted on the Nasdaq
SmallCap Market ("Nasdaq") under the symbols "TAMR" and "TAMRW," respectively.
The offering prices of the Shares and Warrants, and the exercise price of the
Warrants, were determined pursuant to negotiations between the Company and the
Underwriter and do not necessarily relate to the Company's book value or any
other established criteria of value. For a discussion of the factors considered
in determining the offering prices of the Shares and Warrants, see
"Underwriting."
This Prospectus also relates to the offer and sale by certain persons (the
"Selling Securityholders") of up to 310,000 warrants (the "Selling
Securityholders' Warrants"), which are identical to the Warrants and will be
issued to the Selling Securityholders upon the consummation of this offering
upon the conversion of outstanding warrants, and up to 310,000 shares (the
"Selling Securityholders' Shares") of Common Stock issuable upon exercise of the
Selling Securityholders' Warrants. The Selling Securityholders' Warrants are not
part of the underwritten offering, however, and may not be offered or sold prior
to the 15 months following the date of this Prospectus without the prior written
consent of the Underwriter. The Company will not receive any of the proceeds
from the sale of the Selling Securityholders' Warrants and Selling
Securityholders' shares. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" and
"Selling Securityholders and Plan of Distribution."
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THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK AND IMMEDIATE SUBSTANTIAL DILUTION AND SHOULD NOT BE PURCHASED BY
INVESTORS WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT.
SEE "RISK FACTORS" COMMENCING ON PAGE 8
AND "DILUTION" ON PAGE 18.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
===============================================================================
Price Underwriting Proceeds
to Discounts and to
Public Commissions(1) Company(2)
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Per Share ................... $5.00 $.50 $4.50
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Per Warrant.................. $.10 $.01 $.09
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Total (3).................... $5,050,000 $505,000 $4,545,000
===============================================================================
(1) The Company has agreed to pay to the Underwriter a 3% nonaccountable
expense allowance, to sell to the Underwriter warrants (the "Underwriter's
Warrants") to purchase up to 100,000 shares of Common Stock and/or 50,000
warrants and to retain the Underwriter as a financial consultant. The
Company has also agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, including the
Underwriter's nonaccountable expense allowance in the amount of $151,500
($174,225 if the Underwriter's over-allotment option is exercised in full),
estimated at $595,000.
(3) The Company has granted to the Underwriter an option, exercisable within 45
days from the date of this Prospectus, to purchase up to 150,000 additional
shares of Common Stock and/or 75,000 additional Warrants on the same terms
set forth above, solely for the purpose of covering over-allotments, if
any. If the Underwriter's over-allotment option is exercised in full, the
total price to public, underwriting discounts and commissions and proceeds
to Company will be $5,807,500, $580,750 and $5,226,750, respectively. See
"Underwriting."
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The Shares and Warrants are being offered, subject to prior sale, when, as
and if delivered to and accepted by the Underwriter and subject to approval of
certain legal matters by counsel and to certain other conditions. The
Underwriter reserves the right to withdraw, cancel or modify this offering and
to reject any order in whole or in part. It is expected that delivery of
certificates representing the Shares and Warrants will be made against payment
therefor at the offices of the Underwriter, 7 Hanover Square, New York, New York
10004, on or about , 1997.
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Paragon Capital Corporation
The date of this Prospectus is , 1997
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CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS ON NASDAQ, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE, WHICH
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICES OF THE UNITS, COMMON STOCK
AND WARRANTS. SPECIFICALLY, THE UNDERWRITER MAY OVER-ALLOT IN CONNECTION WITH
THE OFFERING AND MAY BID FOR AND PURCHASE SHARES OF COMMON STOCK AND WARRANTS IN
THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Each prospective investor is urged to read this
Prospectus in its entirety. Unless otherwise indicated, all share and per share
data and information in this Prospectus (i) gives retroactive effect to a 1 for
1.8135268 reverse split of the Common Stock to be effected on or prior to the
date of this Prospectus and (ii) assumes no exercise of the Underwriter's
over-allotment option to purchase up to 150,000 additional shares of Common
Stock and/or 75,000 additional Warrants. See "Underwriting" and Note Q to Notes
to Financial Statements.
This Prospectus contains forward-looking statements that involve risks
and uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."
The Company
TAM Restaurants, Inc. (the "Company") operates Lundy Bros. Restaurant
("Lundy's"), a high-volume, casual, upscale seafood restaurant located in
Brooklyn, New York, and The Boathouse in Central Park ("The Boathouse"), a
multi-use facility which features an upscale restaurant and catering pavilion,
located on the lake in New York City's Central Park. Lundy's and The Boathouse
are high-profile locations which host many special events and receive extensive
press coverage. The Company is also constructing American Park at the Battery
("American Park"), which has been designed as a high-volume premium-quality
restaurant to be located at the water's edge in Battery Park, a New York City
landmark visited by approximately 4 million visitors during 1996. In addition,
the Company's restaurants offer high-quality professional, on-premise and
off-premise catering services.
The Lundy's concept is designed to appeal to a broad range of guests by
serving generous portions of premium-quality seafood and other menu items and by
combining a grand dining experience with friendly and efficient service in a
high-energy environment. Lundy's menu features a wide variety of fresh seafood
items, including lobster, crab, shrimp, oysters, clams and daily fish specials,
cooked to order in a variety of ways: steamed, sauteed, boiled, broiled,
grilled, blackened and fried. In addition, Lundy's offers a selection of steaks,
chicken dishes, pasta dishes, pizzas, appetizers, chowders, salads and desserts,
as well as full bar service. Dinner entrees range in price from $7.95 to $28.95
and the average dinner check is approximately $32.00 per person. Lundy's is open
for lunch and dinner seven days a week.
Lundy's interior has been designed with a contemporary decor, rich
polished woods and granite surfaces, accented with copper, pottery and
brushed-stainless steel and earth tones, to impart "Old World" elegance and
comfort. Lundy's commitment to offering its guests a casual, exciting dining
experience is highlighted by its "exhibition" kitchen where all meals are cooked
to order in view of its guests, a lobster pool from which guests can select
their lobsters, an experienced waitstaff uniformed in crisp white linen jackets,
a high waitstaff-to-customer ratio to assure attentive service and tables
covered with multiple layers of colored linens covered with pristine white
butcher paper.
Lundy's offers guests several seating selections in its multi-level
interior, which consists of an expansive, high-ceiling main dining area; a large
upstairs dining room which is also used for special events and to cater private
functions; a mezzanine-level cigar room which overlooks the main dining area;
and a 30 foot long oyster and beverage bar; as well as outdoor seating. Lundy's
also houses a seafood laboratory where seafood is tested to assure premium
quality and freshness, and a gift shop which carries a variety of "Lundy's" and
"Brooklyn" themed merchandise, such as T-shirts and other clothing items, hats,
books, plates and coffee and beer mugs, as well as Lundy's chowders and sauces
and seafood related products, such as lobster bibs, crackers and forks.
-3-
The Boathouse is a multi-use, lakeside facility which features an
upscale restaurant with primarily al fresco (outdoor) seating and offers guests
a comfortable, relaxed and romantic atmosphere. The Boathouse serves eclectic
American cuisine that changes according to season and consumer trends,
emphasizing herbs grown fresh on site. The menu is limited in scope to permit
the greatest attention to quality while offering sufficient breadth to appeal to
a variety of taste preferences. Dinner entrees range in price from $19.00 to
$28.00 and the average dinner check is approximately $44.00 per person. Other
attractions of The Boathouse include a glass-enclosed, tented catering pavilion
for private functions; a cocktail area with a jazz band performing live five
nights a week; The Boathouse Express, a cafeteria-style convenience counter with
indoor and outdoor seating which serves specialty sandwiches, salads, baked
goods, and juices, as well as traditional fast-food, such as hamburgers, hot
dogs, french fries and sodas; carts and kiosks strategically located on the
facility's grounds offering a variety of food and beverage items, such as fresh
fruit drinks, New York-style pretzels, pita sandwiches and espresso and
cappuccino; rowboat and bicycle rentals and Venetian gondola rides; and a
merchandise counter. The restaurant is open for lunch and dinner on a seasonally
adjusted basis, while the catering pavilion and The Boathouse Express are open
year-round.
American Park has been designed with an urban mountain lodge motif,
incorporating natural fabrics, slate, stone, wood and brick with modern-style
furnishings, vibrant colors and designer lighting, and providing panoramic views
of the New York City harbor and downtown Manhattan skyline. American Park will
offer seating selections in its main dining room, second floor dining room and
bi-level outdoor patio. American Park is expected to serve contemporary American
cuisine featuring wood-burning menu selections, such as steaks, whole fish,
chicken and veal dishes. The lower-level outdoor patio will extend to the
water's edge and is expected to incorporate a separate kitchen which serves
selected items from the main restaurant menu and an expanded bar area. In
addition, the Company intends to operate a free-standing kiosk as part of
American Park which is expected to serve appetizers, sandwiches, cold beverages,
beer and wine.
The Company believes that providing friendly, courteous, efficient
service is critical to the long-term success of each location. The Company
maintains a guest service department which, among other things, contacts several
customers from each location's previous night's reservation list to inquire
about their dining experiences. The Company utilizes guest feedback to
continually improve its service, update its menu selections and otherwise
improve its operations. The Company also believes that the selection and
training of its employees result in friendly, courteous, efficient guest service
which contributes to a pleasurable dining experience for the guest.
Lundy's and The Boathouse are approximately 16,500 and 20,000 square
feet in size, respectively, and have a seating capacity of approximately 730 and
790 seats, respectively. American Park is approximately 18,300 square feet in
size and is expected to have a seating capacity of approximately 750 seats.
Sales for Lundy's and The Boathouse were $5,694,382 and $6,152,706,
respectively, during the fiscal year ended September 29, 1996, and $4,709,258
and $4,021,905, respectively, during the nine months ended June 29, 1997. The
Company's food and liquor sales accounted for 76.8% and 15.3% of revenues,
respectively, for the fiscal year ended September 29, 1996, and 76.8% and 15.3%
of revenues, respectively, for the nine months ended June 29, 1997.
The Company's strategy is to initially develop and operate a limited
number of additional Lundy's restaurants in the New York City metropolitan area
and other urban and upscale suburban areas, particularly those with a large
population of transplanted New Yorkers, such as Southern Florida, Los Angeles,
Chicago and Washington D.C. With a substantial portion of the proceeds of this
offering, projected cash flow from operations and anticipated financing,
including equipment and vendor financing and landlord development concessions
and rent allowances, the Company intends to open three additional Lundy's
restaurants during the 12 months following the consummation of this offering. In
addition, in connection with its expansion strategy, the Company may seek to
open additional high-volume landmark-type restaurants, as appropriate
opportunities arise. The Company, however, has no commitments or understandings
with respect to any proposed location or other sources of financing. The Company
has limited experience in expanding its operations and there can be no assurance
that it will be able to successfully do so.
The Company was formed to act as a holding company and was incorporated
under the laws of the State of Delaware in July 1996 under the name TAM
Restaurant Holding Corp. and changed its name to TAM
-4-
Restaurants, Inc. Effective September 29, 1996, the Company acquired (the
"Acquisition") all of the outstanding capital stock of TAM Restaurant Group,
Inc. ("TAM"), Bay Landing Restaurant Corp. ("Bay Landing") and Shellbank
Restaurant Corp. ("Shellbank"). Unless the context requires otherwise, all
references to "the Company" include its wholly-owned subsidiaries, TAM, Bay
Landing and Shellbank, and Plum Third Street Corp., a wholly-owned subsidiary
of Bay Landing. The Company's executive offices are located at 1163 Forest
Avenue, Staten Island, New York 10310 and its telephone number is (718)
720-5959.
Recent Financing
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
commencing December 31, 1997, and are 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 25% 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 commencing 90 days following the
date of this Prospectus. 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 L. Harris is Kayne
Anderson's initial designee.
The Offering
Securities offered ............................... 1,000,000 Shares and Warrants to purchase 500,000 shares of
Common Stock. The Shares and Warrants may be purchased
separately and will be separately transferable immediately upon
issuance. See "Description of Securities."
Common Stock to be outstanding
after this offering(1) ........................ 3,500,000 shares of Common Stock
Warrants(2):
Number to be outstanding
after this offering....................... 500,000 Warrants
Exercise terms .............................. Exercisable at any time commencing , 1999 (13 months
following the date of this Prospectus) (or on such earlier date
as to which the Underwriter consents), each to purchase one
share of Common Stock at a price of $6.00, subject to
adjustment in certain circumstances. See "Description of
Securities - Redeemable Warrants."
Expiration date ............................. , 2003
Redemption .................................. Redeemable by the Company at any time commencing ,
1999 (13 months following the date of this Prospectus), upon
notice of not less than 30 days, at a price of $.10 per Warrant,
provided that the closing bid quotation of the Common Stock
on all 20 trading days ending on the third trading day prior to
the day on which the Company gives notice (the "Call Date")
-5-
has been at least 150% (currently $9.00, subject to
adjustment) of the then effective exercise price of the Warrants
and the Company obtains the written consent of the
Underwriter with respect to such redemption prior to the Call
Date. The Warrants will be exercisable until the close of
business on the date fixed for redemption. See "Description of
Securities - Redeemable Warrants."
Use of Proceeds .................................. The Company intends to use the net proceeds of this offering
for the construction of new restaurants; and for working capital
and general corporate purposes. See "Use of Proceeds."
Risk Factors ..................................... The securities offered hereby are speculative and involve a
high degree of risk and immediate substantial dilution and
should not be purchased by investors who cannot afford the
loss of their entire investment. See "Risk Factors" and
"Dilution."
Proposed Nasdaq symbols .......................... Common Stock -- TAMR
Warrants -- TAMRW
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(1) Does not include: (i) 500,000 shares of Common Stock reserved for issuance
upon exercise of the Warrants; (ii) an aggregate of 150,000 shares of
Common Stock reserved for issuance upon exercise of the Underwriter's
Warrants and the warrants included therein; (iii) an aggregate of 310,000
shares of Common Stock (the "Selling Securityholders' Shares") reserved for
issuance upon exercise of outstanding warrants which will be converted into
warrants (the "Selling Securityholders' Warrants") identical to the
Warrants; (iv) 203,000 shares of Common Stock reserved for issuance upon
exercise of other outstanding warrants; (v) 197,500 shares of Common Stock
reserved for issuance upon exercise of outstanding options granted under
the Company's 1997 Stock Option Plan (the "Option Plan"); and (vi) 327,500
shares of Common Stock reserved for issuance upon exercise of options
available for future grant under the Option Plan. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Management - 1997 Stock Option Plan," "Certain Transactions," "Description
of Securities" and "Underwriting."
(2) Does not include any of the warrants referred to in clauses (ii), (iii) or
(iv) of footnote 1 above.
-6-
Summary Financial Information
The summary financial information set forth below is derived from and
should be read in conjunction with the financial statements, including the notes
thereto, appearing elsewhere in this Prospectus.
Statement of Operations Data:
Nine Months Nine Months
Year Ended Ended June 30, Ended June 29,
September 29, 1996 1996 1997
------------------ -------------- -----------
Net Sales............................... $11,847,088 $7,261,892 $8,902,628
Gross Profit............................ 4,586,648 2,759,519 3,838,421
Income (loss) from operations........... (1,536,222) (994,680) 591,714
Net income (loss) from continuing
operations(1)........................... (2,637,226) (2,001,972) 109,100
Net income (loss) per share from
continuing operations (1)............... (1.22) .05
Weighted average number of shares
outstanding............................. 2,160,676 2,418,294
Balance Sheet Data:
September 29, 1996 June 29, 1997
------------------ -------------------------------------------------------------------
Actual Pro Forma(2) As Adjusted(3)
Working capital (deficit)...... $(2,026,787) $(2,131,423) $(420,798) $ 3,529,202
Total assets................... 4,728,868 6,323,596 7,323,596 11,273,596
Total liabilities.............. 4,620,113 5,670,741 6,670,741 6,670,741
Stockholders' equity........... 108,755 652,855 652,855 4,602,855
- ----------
(1) Effective September 29, 1996, the Company transferred the assets of its
concession business to MAT Operating Corp. ("MAT"), a company
wholly-owned by Frank Cretella, President, Chief Executive Officer, a
director and a principal stockholder of the Company. For each of the
year ended September 29, 1996 and nine months ended June 30, 1996, net
income from such discontinued operations was $30,142 or $.01 per share.
See "Management's Discussion and Analysis of Financial Conditions and
Results of Operations," "Certain Transactions" and Consolidated
Financial Statements.
(2) Gives effect to (i) the reclassification of approximately $720,125 of
short-term indebtedness to long-term indebtedness, and (ii) the
issuance of the $1,000,000 principal amount of promissory notes in
October 1997 to Kayne Anderson and the receipt of the approximately
$990,500 of net proceeds therefrom. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity
and Capital Resources" and "Certain Transactions."
(3) Gives effect to the sale of the Shares and Warrants offered hereby and
the application of the estimated net proceeds therefrom. See "Use of
Proceeds."
-7-
RISK FACTORS
The securities offered hereby are speculative and involve a high degree
of risk. Prospective investors should carefully consider the following risk
factors before making an investment decision.
Operating Losses; Future Operating Results; Explanatory Paragraph in
Independent Auditors' Report. Although the Company has recently generated net
income, during the year ended September 29, 1996, the Company incurred a net
loss from continuing operations of $2,637,226 and, at June 29, 1997, had an
accumulated deficit of $2,480,194. The Company's operating expenses have
increased and can be expected to increase significantly in connection with the
Company's proposed expansion (including capital expenditures for construction of
and rental payments for new locations prior to their opening). The Company's
future profitability will depend upon, among other things, the Company's ability
to generate a level of revenues sufficient to offset its cost structure in
addition to reducing its operating costs on a per location basis. The Company
believes that generation of that level of revenues is dependent upon the timely
opening of additional restaurants and future restaurants achieving and
maintaining market acceptance. There can be no assurance that the Company will
achieve significantly increased revenues or maintain profitable operations. The
Company's independent auditors have included an explanatory paragraph in their
report on the Company's financial statements, stating that they have been
prepared assuming that the Company will continue as a going concern and that
significant prior losses from operations raise substantial doubt about the
Company's ability to continue as a going concern. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and Consolidated
Financial Statements.
Significant Capital Requirements; Need for Additional Financing. 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 June
29, 1997, the Company had a working capital deficit of $2,131,423) due to, among
other things, costs associated with development, opening and start-up costs of
Lundy's and American Park and building a corporate infrastructure sufficient to
support the Company's proposed expanded 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. The Company is dependent upon the proceeds of this
offering to finance a portion of its proposed expansion over the 12 months
following the consummation of this offering. Based on the Company's current
proposed plans and assumptions relating to the implementation of its expansion
strategy (including the timetable of opening American Park and new Lundy's
locations and the costs associated therewith), the Company anticipates that the
net proceeds of this offering, together with anticipated cash flow from
operations and equipment, vendor and landlord financing, will be sufficient to
satisfy its contemplated cash requirements for at least 12 months following the
consummation of this offering. In the event that the Company's plans change or
its assumptions prove to be inaccurate (due to unanticipated expenses,
construction delays or other difficulties) or the proceeds of this offering
otherwise prove to be insufficient to fund operations and implement the
Company's proposed expansion strategy, the Company could be required to seek
additional financing sooner than anticipated. 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. Consequently, there can be no assurance
that any additional financing will be available to the Company when needed, on
commercially reasonable terms, or at all. Any inability to obtain additional
financing when needed would have a material adverse effect on the Company,
including requiring it to curtail its expansion efforts. In addition, any
additional equity financing may involve substantial dilution to the interests of
the Company's then existing stockholders. See "Use of Proceeds," "Dilution,"
"Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
Limited Restaurant Base; Dependence Upon Principal Restaurants; High
Restaurant Failure Rate. To date, all of the Company's revenues have been
derived from only two restaurants, one of which has been in operation only since
1995 and both of which are located in New York City. The results achieved to
date by the Company's small restaurant base may not be indicative of the
prospects or market acceptance of a larger number of restaurants or of
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more geographically dispersed restaurants, located in areas with more varied
demographic characteristics. Moreover, the opening of new restaurants is
characterized by a very high failure rate. Although The Boathouse has operated
successfully for many years, there can be no assurance that American Park or any
new Lundy's restaurants will be successful or operate profitably. In addition,
the Company expects that during the first several months of operation of a newly
opened restaurant, such restaurant could operate at a loss. In the event of a
prolonged period of unfavorable operating results for a restaurant, the Company
may be required to close such restaurant, which could have a material adverse
effect on the financial condition and results of operations of the Company. The
Company will remain dependent upon a limited number of high-volume restaurants
for substantially all of its revenues. The lack of success or closing of any of
the Company's existing restaurants, or the unsuccessful operation of a new
restaurant, would have material adverse effect upon the financial condition and
results of operations of the Company. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business."
Risks Relating to Proposed Expansion. The Company is currently
implementing a strategy to expand its operations and will seek to open American
Park and additional Lundy's restaurants. The Company has limited experience in
effectuating rapid expansion and in managing a large number of locations or
locations that are geographically dispersed. The Company intends to open
American Park by January 1998 and three Lundy's restaurants during the 12 months
following the consummation of this offering. The Company's proposed expansion
will be dependent on, among other things, the proceeds of this offering, the
availability of other sources of financing, achieving significant market
acceptance for its Lundy's concept, distinguishing the Lundy's concept from
other seafood restaurants, developing customer recognition and loyalty for the
Lundy's name, identifying a sufficient number of prime locations and entering
into lease arrangements for such locations on favorable terms, timely
development and construction of American Park and new Lundy's locations,
securing required governmental permits and approvals, hiring, training and
retaining skilled management and other personnel, the Company's ability to
integrate new restaurants into its operations and the general ability to
successfully manage growth (including monitoring restaurant operations,
controlling costs and maintaining effective quality controls). In the event that
cash flow from operations is insufficient or that the Company is unable to
obtain adequate equipment, vendor or landlord financing, or other unexpected
events occur, such as delays in identifying suitable locations, negotiating
leases, obtaining permits or design and construction delays, the Company may not
be able to open all of such locations in a timely manner, or at all. Moreover,
the Company believes that consumer recognition and perception of the Lundy's
name has contributed to the success of the existing Lundy's restaurant. Consumer
recognition of the Lundy's name outside of the New York City area is likely to
be significantly less and, therefore, the success of any future Lundy's
restaurant will be dependent upon the Company's ability to distinguish such
location from its competitors on bases, such as price, quality and service.
There can be no assurance that the Company will be successful in opening the
number of restaurants currently anticipated in a timely manner, or at all, or
that, if opened, those restaurants will operate profitably. See "Business --
Expansion Strategy."
Long Start-up Cycles; Fluctuations in Operating Results; Start-up
Expense. The Company's restaurant start-up cycle, which generally commences with
site selection and ends upon the opening of the restaurant to customers, will
vary by location and could extend for periods of six months or more.
Difficulties or delays in site selection or events over which the Company will
have no control, such as delays in construction due to governmental regulatory
approvals, shortage of or the inability to obtain labor and/or materials,
inability of the general contractor or subcontractors to perform under their
contracts, strikes or availability and cost of needed debt or lease financing,
could materially adversely affect the start-up costs and completion times of new
locations. The Company 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 other
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. In addition, the capital resources required to construct each
new location are significant. The Company estimates that the costs of
constructing its future Lundy's locations will be approximately $1.5 million,
net of anticipated landlord contributions. The Company expects that it will
incur approximately $300,000 in additional pre-opening costs in
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connection with the opening of future sites. There can be no assurance that the
costs to construct and open any new location will not be significantly higher
than currently anticipated. See "Management's Discussion and Analysis of Results
of Operations" and "Business -- Site Selection."
Consumer Preferences; Factors Affecting the Restaurant Industry. The
restaurant industry is characterized by introduction of new concepts and is
subject to changing consumer preferences, tastes and eating and purchasing
habits. While the demand for premium quality seafood restaurants has grown
significantly over the past several years, there can be no assurance that such
demand will continue to grow or that these trends will not be reversed.
Moreover, since prices for seafood menu items are typically higher than those
for other menu items, unfavorable national, regional or local economic factors
could adversely affect consumer willingness to pay higher prices for the
Company's menu items. The Company's success will depend on its ability to
anticipate and respond to changing consumer preferences, tastes and eating and
purchasing habits, as well as other factors affecting the food service industry,
including new market entrants, demographic trends and unfavorable national,
regional and local economic conditions, inflation, increasing seafood and other
food and labor costs. Failure to respond to such factors in a timely manner
could have a material adverse effect on the Company. See "Business."
Geographic Concentration. Both of the Company's existing restaurants
are located in New York City and the restaurant currently under construction is
also located in New York City. Given the Company's present geographic
concentration, adverse publicity relating to the Company's restaurants could
have a more pronounced adverse effect on the Company's operating results than
might be the case if the Company's restaurants were more geographically
dispersed. A decline in tourism in New York City, or in general economic
conditions, which would likely affect the New York City economy or tourism
industry, particularly during the time of peak sales, could have a material
adverse effect on the Company's operations and prospects. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business"
Seasonality. The Company's business is seasonal. The restaurant and
bicycle and rowboat rentals at The Boathouse currently are open only March
through November, with dinner served in the restaurant from May 1 through
October 1. All of the seating of The Boathouse restaurant and a portion of the
seating at Lundy's is outdoors. In addition, since Lundy's is a waterside
location, it attracts more guests during the warmer weather months. As a result,
the Company's restaurant sales generally increase from May through September,
and decrease from November through March. See "Management's Discussion and
Analysis of Results of Operations -- Seasonality and Fluctuations in Quarterly
Operating Results" and "Business."
Menu Emphasis on Seafood; Seafood Quality. Lundy's currently has a
limited product offering which specializes in seafood. Sales of seafood
accounted for approximately 58% and 61% of the Company's net sales during the
year ended September 29, 1996 and the nine months ended June 29, 1997,
respectively. The Company anticipates that sales of seafood products will
continue to account for a substantial portion of the Company's revenues for the
foreseeable future, particularly as a result of the planned expansion of the
Lundy's concept. Accordingly, a rise in prices or decline in sales of such menu
items, due to evolving consumer preferences, industry trends, or other reasons,
could have an adverse effect on the Company. Moreover, some types of seafood
have been subject to adverse publicity because of claims of contamination by
lead, mercury or other chemicals disposed of in the oceans, which can adversely
affect both market demand and supply for such food products. Customer demand may
also be negatively impacted by reports of medical or other risks resulting from
the consumption of seafood. The Company maintains a continuous inspection
program for its food purchases and believes that it has not experienced any
adverse effect from contaminated seafood. Nevertheless, there can be no
assurance that food contamination or consumer perception of inadequate food
quality, in the industry in general or as to the Company in particular, will not
have a material adverse effect on the Company's operations and profitability.
See "Business -- Lundy's Concept - - Menu" and "-- Restaurant Operations."
Fluctuations in Food and Other Costs; Supply of Seafood. The Company's
profitability is dependent on its ability to anticipate and react to increases
in food, labor, employee benefits, and similar costs over which the Company has
limited control. Specifically, the Company's dependence on frequent deliveries
of seafood, meat and
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produce subjects it to the risk of possible shortages or interruptions in supply
caused by adverse weather, labor, transportation or other conditions which could
adversely affect the availability and cost of such items. In recent years, the
availability of certain types of seafood has fluctuated, resulting in
corresponding fluctuations in prices. The Company has been able to anticipate
and react to fluctuations in food costs through selected menu price adjustments,
purchasing seafood directly from numerous suppliers and promoting certain
alternative menu selections (in response to price and availability of supply).
However, there can be no assurance that the Company will be able to continue to
anticipate and respond to such supply and price fluctuations in the future or
that the Company will not be subject to significantly increased costs in the
future. Moreover, the Company does not maintain contracts with any of its
suppliers and purchases products pursuant to purchase orders placed from time to
time in the ordinary course of business. Although the Company believes that its
relationships with its suppliers are satisfactory and that alternative sources
are readily available, the loss of certain suppliers, or substantial price
increases, could have a material adverse effect on the Company. See "Business --
Restaurant Operations."
Operating License Requirements; Audit By New York City Comptroller. The
Boathouse and American Park are located in New York City's Central Park and
Battery Park, respectively. In order to operate these restaurants, the Company
obtained licenses from the New York City Department of Parks (the "Parks
Department") through an open bidding process. The license agreements impose
certain requirements and operating restrictions on the Company, such as minimum
hours of operation. Although certain aspects of the Company's operating
practices are not in full conformity with the terms of The Boathouse license,
the Company believes that the Parks Department is aware of its operating
practices and the Parks Department has not objected to the variances from the
terms of such license. The license agreement relating to The Boathouse expires
on June 29, 2000 and each license can be terminated by the Parks Department on
short notice. There can be no assurance that the Company will be able to obtain
an extension or a new license to operate The Boathouse or that either license
will not be terminated. In the event that a license is terminated or not renewed
(due to non-conformity with the terms of the license or otherwise), or a new
license is not obtained upon expiration of The Boathouse license, the Company
would be required to cease operating the location, which would have a material
adverse effect on the Company. In addition, the licenses require the Company to
pay a license fee based on the greater of a minimum annual fee or a percentage
of gross sales. The Company is subject to audit by the New York City Comptroller
to determine the accuracy of license fees paid by the Company. See "Business."
Significant Outstanding Indebtedness. In order to finance its capital
requirements, the Company has incurred significant indebtedness. At June 29,
1997, there was outstanding approximately $3,833,650 of current liabilities and,
in October 1997, the Company borrowed an additional $1,000,000. The Company has
not allocated any portion of the proceeds of this offering to repay a portion of
its outstanding indebtedness. There can be no assurance that cash flow from
operations will be sufficient to repay indebtedness, and the Company could be
required to use a portion of the proceeds of this offering to repay the amounts
then outstanding and would result in less funds available for proposed
expansion. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
Competition. The restaurant industry is intensely competitive with
respect to price, service, location and food quality and variety. There are many
well-established competitors with substantially greater financial and other
resources than the Company, as well as a significant number of new market
entrants. Such competitors include national, regional and local full-service
casual dining chains, many of which specialize in or offer seafood products, as
well as single location restaurants. Some of the Company's competitors have been
in existence for substantially longer periods than the Company, may be better
established in the markets where the Company's restaurants are or may be located
and engage in extensive advertising and promotional campaigns, both generally
and in response to efforts by competitors to open new locations or introduce new
concepts or menu offerings. The Company can also be expected to face competition
from a broad range of other restaurants and food service establishments which
specialize in a variety of cuisines. While the Company believes that it offers a
broad variety of quality menu items, there can be no assurance that consumers
will regard the Company's menu and concepts as sufficiently distinguishable from
competitive menus and restaurant concepts or that substantially equivalent menus
and restaurant concepts will not be introduced by the Company's competitors.
Moreover, the Company believes that the start-up
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costs associated with opening a seafood restaurant are not a significant
impediment to enter the seafood restaurant industry. See "Business --
Competition."
Litigation; Insurance and Potential Liability. The operation of
restaurants and rowboat and bicycle rentals subjects the Company to potential
claims from others, including consumers, employees and other service providers,
for personal injury (resulting from, among other things, contaminated or spoiled
food or beverages or accidents). The Company is a defendant in several lawsuits
arising in ordinary course of its business relating to personal injury claims by
plaintiffs which are seeking damages substantially in excess of the Company's
assets and insurance coverage. Although the Company is vigorously defending each
action, these matters are in the preliminary stages and there can be no
assurance that any such action will be resolved in favor of the Company or that
the outcome of any litigation or settlement will not have a material adverse
effect on the Company. The Company maintains personal injury and products
liability insurance (with coverage in amounts up to $1,000,000 per occurrence
and $5,000,000 of umbrella liability coverage), including insurance relating to
property insurance, in amounts which the Company currently considers adequate.
Nevertheless, a partially or completely uninsured claim against the Company, if
successful, could have a material adverse effect on the Company. See "Business
- -- Insurance" and "-- Legal Proceedings."
Potential Liability for Sale of Alcoholic Beverages. The Company is
subject to "dram-shop" statutes, which generally provide a person injured by an
intoxicated person the right to recover damages from an establishment that
wrongfully served alcoholic beverages to the intoxicated person. New York law
currently provides that a vendor of alcoholic beverages may be held liable in a
civil cause of action for injury or damage caused by or resulting from the
intoxication of a minor (under 21 years of age) if the vendor willfully,
knowingly and unlawfully sells or furnishes alcoholic beverages to the minor and
knows that the minor will soon thereafter be driving a motor vehicle. A vendor
can similarly be held liable if it knowingly provides alcoholic beverages to a
person who is in a noticeable state of intoxication, knows that person will soon
thereafter be driving a motor vehicle and injury or damage is caused by that
person. In addition, significant national attention is focused on the problem of
drunk driving, which could result in the adoption of additional legislation and
increased potential liability of the Company for damage or injury caused by its
customers. See "Business -- Government Regulation."
Government Regulation. The Company is subject to extensive state and
local government regulation by various governmental agencies, including state
and local licensing, zoning, land use, construction and environmental
regulations and various regulations relating to the sale of food and beverages,
sanitation, disposal of refuse and waste products, public health, safety and
fire standards. The Company's restaurants are subject to periodic inspections by
governmental agencies to assure conformity with such regulations. Difficulties
or failure in obtaining required licensing or other regulatory approvals could
delay or prevent the opening of a new restaurant, and the suspension of, or
inability to renew, a license at an existing restaurant would adversely affect
the operations of the Company. Restaurant operating costs are also affected by
other government actions which are beyond the Company's control, including
increases in the minimum hourly wage requirements, workers compensation
insurance rates, health care insurance costs and unemployment and other taxes.
The Federal Americans With Disabilities Act ("ADA") prohibits discrimination on
the basis of disability in public accommodations and employment. The Company's
restaurants are currently designed to be accessible to the disabled, and the
Company believes that it is in compliance with all current applicable
regulations relating to accommodations for the disabled. However, there can be
no assurance that the Company will not be deemed to violate the ADA, and could
be required to expend significant funds to provide service to or make reasonable
accommodations for disabled persons. See "Business -- Government Regulation."
Uncertainty of Protection of Proprietary Information. The Company's
business prospects will depend largely on the Company's ability to capitalize on
favorable consumer recognition of the Lundy's name. Although the Company holds a
trademark registration for use of the Lundy's name by the U.S. Patent and
Trademark Office, there can be no assurance that the Company's marks do not or
will not violate the proprietary rights of others or that the Company's marks
would be upheld, or that the Company would not be prevented from using its
marks, if challenged, any of which could have an adverse effect on the Company.
In addition, the Company relies on trade secrets and proprietary know-how, and
employs various methods, to protect its concepts and recipes. However, such
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methods may not afford complete protection and there can be no assurance that
others will not independently develop similar know-how or obtain access to the
Company's know-how, concepts and recipes. The Company does not maintain
confidentiality and non-competition agreements with all of its executives, key
personnel or suppliers. There can be no assurance that the Company will be able
to adequately protect its trade secrets. In the event competitors independently
develop or otherwise obtain access to the Company's know-how, concepts, recipes
or trade secrets, the Company may be adversely affected. See "Business --
Intellectual Property."
Control by Management. Upon the consummation of this offering, the
Company's current officers and directors will, in the aggregate, beneficially
own approximately 51.5% of the outstanding Common Stock of the Company.
Accordingly, such persons will be able to control the Company and generally
direct the Company's affairs, including electing a majority of the Company's
directors and causing an increase in the Company's authorized capital or the
dissolution, merger, or sale of the Company or substantially all of its assets.
See "Principal Stockholders."
Dependence Upon Key Personnel. The success of the Company will be
largely dependent upon the efforts of Frank Cretella, Chief Executive Officer
and President of the Company. Although the Company has entered into an
employment agreement with Mr. Cretella, Mr. Cretella is not required to devote
his full business time to the Company's business and affairs. The loss of the
services of Mr. Cretella or other key personnel would have a material adverse
effect on the Company's business and prospects. The Company maintains key-man
insurance on the life of Mr. Cretella in the amount of $500,000. The success of
the Company will also be dependent on its ability to attract and retain
experienced management and restaurant industry personnel. The Company faces
considerable competition from other food service businesses for such personnel,
many of which have significantly greater resources than the Company. There can
be no assurance that the Company will be able to attract and retain such
personnel, and the inability to do so could have a material adverse effect on
the Company. See "Management."
Conflicts of Interest. The Company has, from time to time, entered into
transactions with certain of its officers, directors and stockholders and/or
affiliates of such persons, which could result in potential conflicts of
interest. Although in connection with the Acquisition, the assets relating to
TAM's food concession operations were transferred to MAT and MAT assumed the
Company's obligations under its agreement to operate the concession in the
Central Park Zoo, the Company is still a party to such agreement and, in the
event that MAT fails to pay any amounts due under such agreement, the Company
will be responsible for such obligations. There can be no assurance that future
transactions or arrangements between the Company and its affiliates will be
advantageous to the Company, that conflicts of interest will not arise with
respect thereto, or that, if conflicts do arise, they will be resolved in a
manner favorable to the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Certain Transactions."
No Dividends. The Company has never paid any dividends on its Common
Stock and does not anticipate paying cash dividends in the foreseeable future.
The Company currently intends to retain all earnings for use in connection with
the expansion of its business and for general corporate purposes. The
declaration and payment of future dividends, if any, will be at the sole
discretion of the Company's Board of Directors and will depend upon the
Company's profitability, financial condition, cash requirements, future
prospects, and other factors deemed relevant by the Board of Directors. See
"Dividend Policy" and "Description of Securities -- Capital Stock."
Dilution. This offering involves an immediate and substantial dilution
of $3.68 per Share (or 73.6%) between the adjusted net tangible book value per
share of Common Stock after this offering and the initial public offering price
per Share in this offering. See "Dilution."
Shares Eligible for Future Sale. Upon consummation of this offering,
the Company will have 3,500,000 shares of Common Stock outstanding (assuming no
exercise of the Warrants), of which the 1,000,000 shares of Common Stock offered
hereby will be freely tradable without restriction or further registration under
the Securities Act of 1933, as amended (the "Securities Act"). All of the
remaining 2,500,000 shares of Common Stock outstanding are "restricted
securities," as that term is defined under Rule 144 promulgated under the
Securities Act
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and approximately 2,461,076 of such restricted shares will become eligible for
sale, pursuant to Rule 144, 90 days following the date of this Prospectus,
subject to the agreements set forth below. The holders of 267,325 shares of
Common Stock and the holders of the 310,000 Selling Securityholders' Warrants
and 3,000 other outstanding warrants have agreed not to sell such securities for
a period of 15 months from the date of this Prospectus without the Underwriter's
prior written consent; the holders of 253,002 shares of Common Stock and the
holders of 200,000 outstanding warrants have agreed not to sell such securities
for a period of 18 months from the date of this Prospectus without the
Underwriter's prior written consent; and the holders of 1,979,673 shares of
Common Stock have agreed not to sell such shares for a period of 24 months from
the date of this Prospectus without the prior written consent of the
Underwriter. No prediction can be made as to the effect, if any, that sales of
shares of Common Stock or even the availability of such shares for sale will
have on the market prices prevailing from time to time. The possibility that
substantial amounts of Common Stock may be sold in the public market may
adversely affect the prevailing market price for the Common Stock and could
impair the Company's ability to raise capital through the sale of its equity
securities. See "Shares Eligible for Future Sale" and "Underwriting."
Possible Adverse Effect of Outstanding Warrants and Options. Upon the
consummation of this offering, there will be 500,000 shares reserved for
issuance upon exercise of the Warrants, approximately 310,000 shares reserved
for issuance upon the exercise of the Selling Securityholders' Warrants at an
exercise price of $6.00 per share, 3,000 shares reserved for issuance upon the
exercise of other outstanding warrants at an exercise price of $.01 per share,
200,000 shares reserved for issuance upon exercise of other outstanding warrants
at an exercise price of $5.00 per share, an aggregate of 150,000 shares of
Common Stock reserved for issuance upon exercise of the Underwriter's Warrants
and the warrants included therein and 197,500 shares reserved for issuance upon
exercise of options granted under the Option Plan at an exercise price of $5.00
per share. To the extent that any outstanding warrants or options are exercised,
dilution of the interests of the holders of the Company's Common Stock will
occur and any sales in the public market of the shares underlying such warrants
and options may adversely affect prevailing market prices for the Common Stock
and the Warrants. Moreover, the terms upon which the Company will be able to
obtain additional equity may be adversely affected since the holders of the
outstanding warrants and options can be expected to exercise them at a time when
the Company would, in all likelihood, be able to obtain capital on terms more
favorable to the Company than those provided by such securities. See
"Management" and "Description of Securities."
Indemnification and Exculpation of Officers and Directors. The
Company's Certificate of Incorporation provides for indemnification of officers
and directors to the fullest extent permitted by Delaware law. In addition,
under the Company's Certificate of Incorporation, no director shall be liable
personally to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director, provided that the Certificate of Incorporation
does not eliminate the liability of a director for (i) any breach of the
director's duty of loyalty to the Company or its stockholders; (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) acts or omissions in respect of certain unlawful
dividend payments or stock redemptions or repurchases; or (iv) any transaction
from which such director derives improper personal benefit. As a result of such
provisions in the Certificate of Incorporation and the By-Laws of the Company,
stockholders may be unable to recover damages against the directors and officers
of the Company for actions taken by them which constitute negligence, gross
negligence or a violation of their fiduciary duties, which may reduce the
likelihood of stockholders instituting derivative litigation against directors
and officers and may discourage or deter stockholders from suing directors,
officers, employees and agents of the Company for breaches of their duty of
care, even though such an action, if successful, might otherwise benefit the
Company and its stockholders. See "Management -- Indemnification and Exculpation
Provisions."
Delaware Anti-Takeover Statute; Possible Adverse Effects of
Authorization of Preferred Stock. As a Delaware corporation, upon the
consummation of this offering, the Company will become subject to prohibitions
imposed by Section 203 of the Delaware General Corporation Law ("DGCL"). In
general, this statute will prohibit the Company from entering into certain
business combinations without the approval of its Board of Directors and/or
stockholders and, as such, could prohibit or delay mergers or other attempted
takeovers or changes in control with respect to the Company. Such provisions may
discourage attempts to acquire the Company. In addition, the Company's
-14-
Certificate of Incorporation authorize the Company's Board of Directors to issue
up to 1,000,000 shares of "blank check" preferred stock (the "Preferred Stock")
without stockholder approval, in one or more series and to fix the dividend
rights, terms, conversion rights, voting rights, redemption rights and terms,
liquidation preferences, and any other rights, preferences, privileges, and
restrictions applicable to each new series of Preferred Stock. The issuance of
shares of Preferred Stock in the future could, among other results, adversely
affect the voting power of the holders of Common Stock and, under certain
circumstances, could make it difficult for a third party to gain control of the
Company, prevent or substantially delay a change in control, discourage bids for
the Common Stock at a premium, or otherwise adversely affect the market price of
the Common Stock. See "Description of Securities."
No Assurance of Public Market; Arbitrary Determination of Offering
Prices; Possible Volatility of Market Price of Common Stock and Warrants;
Underwriter's Potential Influence on the Market. Prior to this offering, there
has been no public trading market for the Common Stock or Warrants. There can be
no assurance that a regular trading market for the Common Stock or Warrants will
develop after this offering or that, if developed, it will be sustained.
Moreover, the initial public offering prices of the Common Stock and the
Warrants and the exercise price of the Warrants have been determined by
negotiations between the Company and the Underwriter and, as such, are arbitrary
in that they do not necessarily bear any relationship to the assets, book value
or potential earnings of the Company or any other recognized criteria of value
and may not be indicative of the prices that may prevail in the public market.
The market prices of the Company's securities following this offering may be
highly volatile as has been the case with the securities of other emerging
companies. Factors such as the Company's operating results, openings of new
locations, announcements by the Company or its competitors and various factors
affecting the restaurant industry generally may have a significant impact on the
market price of the Company's securities. In addition, in recent years, the
stock market has experienced a high level of price and volume volatility and
market prices for the stock of many companies have experienced wide price
fluctuations which have not necessarily been related to the operating
performance of such companies. Although it has no obligation to do so, the
Underwriter intends to make a market in the Common Stock and Warrants and may
otherwise effect transactions in the Common Stock and Warrants. If the
Underwriter makes a market in the Common Stock or Warrants, such activities may
exert a dominating influence on the market and such activity may be discontinued
at any time. The prices and liquidity of the Common Stock and Warrants may be
significantly affected to the extent, if any, that the Underwriter participates
in such market. See "Underwriting."
Possible Delisting of Securities from Nasdaq System; Risks Relating to
Low-Priced Stocks. It is currently anticipated that the Company's Common Stock
and Warrants will be eligible for listing on Nasdaq upon the completion of this
offering. In order to continue to be listed on Nasdaq, however, the Company must
maintain $2,000,000 in net tangible assets (total assets, other than goodwill,
less total liabilities), and a $1,000,000 market value of the public float. In
addition, continued inclusion requires two market-makers, a minimum bid price of
$1.00 per share and adherence to certain corporate governance provisions. The
failure to meet these maintenance criteria in the future may result in the
delisting of the Company's securities from Nasdaq, and trading, if any, in the
Company's securities would thereafter be conducted in the non-Nasdaq
over-the-counter market. As a result of such delisting, an investor could find
it more difficult to dispose of, or to obtain accurate quotations as to the
market value of, the Company's securities.
In addition, if the Common Stock and Warrants were to become delisted
from trading on Nasdaq and the trading price of the Common Stock were to fall
below $5.00 per share, trading in the Common Stock would also be subject to the
requirements of certain rules promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), which require additional disclosure by
broker-dealers in connection with any trades involving a stock defined as a
penny stock (generally, any non-Nasdaq equity security that has a market price
of less than $5.00 per share, subject to certain exceptions). Such rules require
the delivery, prior to any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated therewith and impose
various sales practice requirements on broker-dealers who sell penny stocks to
persons other than established customers and accredited investors (generally
defined as an investor with a net worth in excess of $1,000,000 or annual income
exceeding $200,000 individually or $300,000 together with a spouse). For these
types of transactions, the broker-dealer must make a special suitability
determination for the purchaser and have received the purchaser's
-15-
written consent to the transaction prior to the sale. The broker-dealer also
must disclose the commissions payable to the broker-dealer, current bid and
offer quotations for the penny stock and, if the broker-dealer is the sole
market-maker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market. Such information must be provided to the
customer orally or in writing before or with the written confirmation of trade
sent to the customer. Monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. The additional burdens imposed upon
broker-dealers by such requirements could, in the event the Common Stock were
deemed to be a penny stock, discourage broker-dealers from effecting
transactions in the Common Stock which could severely limit the market liquidity
of the Common Stock and the ability of purchasers in this offering to sell the
Common Stock in the secondary market.
Potential Adverse Effect of Warrant Redemption. The Warrants are
subject to redemption by the Company at any time upon notice of not less than 30
days, at a price of $.10 per Warrant, provided that the closing bid quotation of
the Common Stock on all 20 trading days ending on the third trading day prior to
the day on which the Company gives notice (the "Call Date") has been at least
150% (currently $9.00, subject to adjustment) of the then effective exercise
price of the Warrants and the Company obtains the written consent of the
Underwriter to such redemption prior to the Call Date. Redemption of the
Warrants could force the holders to exercise the Warrants and pay the exercise
price at a time when it may be disadvantageous for the holders to do so, to sell
the Warrants at the then current market price when they might otherwise wish to
hold the Warrants, or to accept the redemption price, which is likely to be
substantially less than the market value of the Warrants at the time of
redemption. See "Description of Securities -- Redeemable Warrants. "
Possible Inability to Exercise Warrants. The Company intends to qualify
the sale of the securities offered hereby in a limited number of states.
Although certain exemptions in the securities laws of certain states might
permit the Warrants to be transferred to purchasers in states other than those
in which the Warrants are initially qualified, the Company will be prevented
from issuing Common Stock in such states upon the exercise of the Warrants
unless an exemption from qualification is available or unless the issuance of
Common Stock upon exercise of the Warrants is qualified. The Company may decide
not to seek or may not be able to obtain qualification of the issuance of such
Common Stock in all of the states in which the ultimate purchasers of the
Warrants reside. In such a case, the Warrants held by purchasers will expire and
have no value if such Warrants cannot be sold. Accordingly, the market for the
Warrants may be limited because of these restrictions. Further, a current
prospectus covering the Common Stock issuable upon exercise of the Warrants must
be in effect before the Company may accept Warrant exercises. There can be no
assurance the Company will be able to have a current prospectus in effect when
this Prospectus is no longer current, notwithstanding the Company's commitment
to use its best efforts to do so. See "Description of Securities -- Redeemable
Warrants."
Possible Restrictions on Market-Making Activities in the Company's
Securities. The Company believes that the Underwriter intends to make a market
in the Company's securities and may be responsible for a substantial portion of
the market making activities in the Company's securities. Regulation M of the
federal securities laws may prohibit the Underwriter from engaging in any
market-making activities with regard to the Company's securities for the period
from five business days (or such other applicable period as Regulation M may
provide) prior to any solicitation by the Underwriter of the exercise of
Warrants until the termination (by waiver or otherwise) of any right that the
Underwriter may have to receive a fee for the exercise of Warrants following
such solicitation; and for any period during which the Underwriter, or any
affiliated parties, participate in a distribution of any securities of the
Company for the account of the Underwriter or any such affiliate. As a result,
the Underwriter may be unable to provide a market for the Company's securities
during certain periods, including while the Warrants are exercisable. Any
temporary cessation of such market-making activities could have an adverse
effect on the liquidity and market price of the Company's securities. See
"Underwriting."
-16-
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,000,000 Shares
and 500,000 Warrants offered hereby are estimated to be $3,950,000 ($4,609,025
if the Underwriter's over-allotment option is exercised in full). The Company
expects to use the net proceeds over the next 12 months approximately as
follows:
Approximate
Approximate Percentage of
Application of Proceeds Dollar Amount Dollar Amount
- ----------------------- ------------- -------------
Construction of new restaurants(1).................................. $3,500,000 88.6%
Working capital and general corporate purposes(2)................... 450,000 11.4
---------- -----
Total...................................................... $3,950,000 100.0%
========== ======
- --------------------
(1) Represents net proceeds allocated to construct three Lundy's restaurants.
The Company estimates that the cost to construct a Lundy's restaurant will
be approximately $1,500,000 per location (net of anticipated landlord
contributions) and that the cost, if any, to open such restaurants in
excess of the net proceeds of this offering allocated for such purpose
will be financed through cash flow from operations, equipment and vendor
financing and landlord development concessions and rent allowances. In
connection with its expansion strategy, to the extent appropriate
opportunities arise, the Company may use a portion of such proceeds to
open high-volume landmark-type restaurants. In the event that cash flow
from operations is insufficient or that the Company is unable to obtain
adequate equipment, vendor or landlord financing, or other unexpected
events occur, such as delays in identifying suitable locations,
negotiating leases, obtaining permits or design and construction delays,
the Company will not be able to open all of such locations in a timely
manner, or at all. See "Business -- Expansion Strategy" and "-- Site
Selection."
(2) Includes costs of general corporate overhead, capital expenditures for
existing restaurants and maintaining inventory.
If the Underwriter exercises its over-allotment option in full, the
Company will realize additional net proceeds of $659,025, which will be added to
the Company's working capital.
The allocation of the net proceeds from this offering set forth above
represents the Company's best estimate based upon its currently proposed plans
and assumptions relating to its operations and certain assumptions regarding
general economic conditions. If any of these factors change, the Company may
find it necessary or advisable to reallocate some of the proceeds within the
above-described categories or to use portions thereof for other purposes.
Based on the Company's current proposed plans and assumptions relating
to the implementation of its expansion strategy (including the timetable of
opening American Park and new Lundy's locations and the costs associated
therewith), the Company anticipates that the net proceeds of this offering,
together with anticipated cash flow from operations and equipment, vendor and
landlord financing, will be sufficient to satisfy its contemplated cash
requirements for at least 12 months following the consummation of this offering.
In the event that the Company's plans change or its assumptions prove to be
inaccurate (due to unanticipated expenses, construction delays or other
difficulties) or the proceeds of this offering otherwise prove to be
insufficient to fund operations and implement the Company's proposed expansion
strategy, the Company could be required to seek additional financing sooner than
anticipated. Because the Company's strategy is to open a limited number of
high-volume restaurants, the costs associated with opening any such restaurant
may vary substantially. 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. Consequently, there can be no assurance that
any additional financing will be available to the Company when needed, on
commercially reasonable terms, or at all. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
Proceeds not immediately required for the purposes described above will
be invested principally in United States government securities, short-term
certificates of deposit, money market funds or other short-term interest bearing
investments.
-17-
DILUTION
The difference between the initial public offering price per Share and
the adjusted net tangible book value per share of Common Stock after this
offering constitutes the dilution to investors in this offering. Net tangible
book value per share of Common Stock on any given date is determined by dividing
the net tangible book value of the Company (total tangible assets less total
liabilities) on that date, by the number of shares of Common Stock outstanding
on that date.
As of June 29, 1997, the net tangible book value of the Company was
$652,855 or $.26 per share of Common Stock. The Pro Forma Adjustments (see
footnote 2 of "Prospectus Summary -Summary Financial Information") had no effect
on the Company's net tangible book value. After giving effect to the sale of the
1,000,000 Shares and 500,000 Warrants being offered hereby (less underwriting
discounts and commissions and estimated expenses of this offering), the adjusted
net tangible book value of the Company as of June 29, 1997 would have been
$4,602,855 or $1.32 per share, representing an immediate increase in net
tangible book value of $1.06 per share of Common Stock to existing stockholders
and an immediate dilution of $3.68 per share (or 73.6%) to new investors. The
following table illustrates this dilution to new investors on a per share basis:
Public offering price........................................... $5.00
Pro forma net tangible book value before this offering....... .26
Increase attributable to this offering....................... 1.06
----
Adjusted net tangible book value after this offering............ 1.32
-----
Dilution to investors in this offering.......................... $ 3.68
=====
The following table sets forth, with respect to existing stockholders
and new investors in this offering, a comparison of the number of shares of
Common Stock issued by the Company, the percentage of ownership of such shares,
the total cash consideration paid, the percentage of total cash consideration
paid and the average price per share.
Total Cash
Shares Purchased Consideration Paid
--------------------------------------- ------------------------------------
Average
Price
Number Percent Amount Percent Per Share
------ ------- ------ ------- ---------
Existing stockholders............ 2,500,000 71.4% $2,420,000 32.6% $ .97
New Investors.................... 1,000,000 28.6 5,000,000 67.4 5.00
--------- ---- --------- ----
Total.................. 3,500,000 100.0% $7,420,000 100.0%
========= ====== ========== ======
The above table assumes no exercise of the Underwriter's over-allotment
option. If such option is exercised in full, the new investors will have paid
$5,750,000 for 1,150,000 shares of Common Stock, representing approximately
70.4% of the total consideration for 31.5% of the total number of shares of
Common Stock outstanding.
In addition, the table assumes no exercise of other outstanding stock
options or warrants. As of the date of this Prospectus, there are also
outstanding Selling Securityholders' Warrants to purchase an aggregate of
310,000 shares of Common Stock at an exercise price of $6.00, warrants to
purchase 3,000 shares of Common Stock at an exercise price of $.01 per share,
warrants to purchase 200,000 shares of Common Stock at an exercise price of
$5.00 per share and outstanding stock options granted under the Option Plan to
purchase an aggregate of 197,500 shares of Common Stock at an exercise price of
$5.00 per share. To the extent that these options and warrants are exercised,
there will be further dilution to new investors. See "Management -- 1997 Stock
Option Plan," "Description of Securities" and "Underwriting."
-18-
DIVIDEND POLICY
The Company has never paid any dividends on its Common Stock, and the
Board does not intend to declare or pay any dividends on its Common Stock in the
foreseeable future. The Board of Directors currently intends to retain all
available earnings (if any) generated by the Company's operations for the
development and growth of its business. The declaration in the future of any
cash or stock dividends on the Common Stock will be at the discretion of the
Board and will depend upon a variety of factors, including the earnings, capital
requirements and financial position of the Company and general economic
conditions at the time in question. Moreover, the payment of cash dividends on
the Common Stock in the future could be limited or prohibited by the terms of
financing agreements that may be entered into by the Company (e.g., a bank line
of credit or an agreement relating to the issuance of other debt securities of
the Company) or by the terms of any Preferred Stock that may be issued and then
outstanding. See "Description of Securities -- Capital Stock."
-19-
CAPITALIZATION
The following table sets forth the short-term debt and capitalization
of the Company as of June 29, 1997, (i) on an actual basis, (ii) on a pro forma
basis, giving effect to the Pro Forma Adjustments (see footnote 2 of "Prospectus
Summary - Summary Financial Information") and (iii) as adjusted to give effect
to the sale of the 1,000,000 Shares and 500,000 Warrants offered hereby and the
anticipated application of the estimated net proceeds therefrom:
June 29, 1997
-----------------------------------------------------------------------------
Actual Pro Forma As Adjusted
------ --------- -----------
Short-term debt (including current portion of
long-term debt and capitalized lease
obligations).................................. $ 838,659 $118,534 $ 118,534
=========== ========= =========
Long term debt and capitalized
lease obligations............................. $ 1,336,701 $3,056,826 $ 3,056,826
----------- --------- ---------
Stockholders' equity:
Common Stock, $.0001 par value,
19,000,000 authorized, 2,500,000
shares issued and outstanding
(actual), 2,500,000 shares issued
and outstanding (pro forma),
3,500,000 shares issued and
outstanding (as adjusted)(1)......... 250 250 350
Preferred Stock, $.0001 par value,
issuable in series: 1,000,000
shares authorized: no shares issued
and outstanding...................... --- --- ---
Additional paid-in-capital............. 3,132,799 3,132,799 7,082,699
Accumulated deficit.................... (2,480,194) (2,480,194) (2,480,194)
----------- ----------- -----------
Total stockholders' equity......... 652,855 652,855 4,602,855
----------- ---------- -----------
Total capitalization......... $ 1,989,556 $3,709,681 $7,659,681
============ ========== ==========
- ----------
(1) Does not include (i) 500,000 shares of Common Stock reserved for
issuance upon exercise of the Warrants; (ii) an aggregate of 150,000
shares of Common Stock reserved for issuance upon exercise of the
Underwriter's Warrants and the warrants included therein; (iii) an
aggregate of 310,000 shares of Common Stock reserved for issuance upon
exercise of the Selling Securityholders' Warrants; (iv) 203,000 shares
of Common Stock reserved for issuance upon exercise of other
outstanding warrants; (v) 197,500 shares of Common stock reserved for
issuance upon exercise of outstanding options under the Option Plan;
and (vi) 327,500 shares of Common Stock reserved for issuance upon
exercise of options available for future grant
-20-
under the Option Plan. See "Management -- 1997 Stock Option Plan,"
"Description of Securities" and "Underwriting."
SELECTED FINANCIAL DATA
The following table sets forth sets forth certain selected historical
and pro forma financial data of the Company as of and for the dates indicated.
The selected financial data as of September 29, 1996 and for the year ended
September 29, 1996 have been derived from the financial statements set forth
elsewhere in this Prospectus that have been audited by Maltese, Potter &
LaMarca, LLP, independent auditors. The selected financial data for the nine
months ended June 30, 1996 and June 29, 1997 are derived from the Company's
unaudited financial statements for such period set forth elsewhere in this
Prospectus, which reflect all adjustments (consisting only of normal recurring
adjustments) necessary for a proper statement of the results for such period.
The financial data set forth below is qualified by reference to and should be
read in conjunction with the Company's financial statements, related notes and
other financial information contained in this Prospectus, as well as
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Statement of Operations:
Year Ended Nine Months Nine Months
September 29, Ended June 30, Ended June 29,
1996 1996 1997
------------- -------------- --------------
Sales............................................... $11,847,088 $7,261,892 $8,902,628
Cost of sales....................................... 7,260,440 4,502,373 5,064,207
Gross profit........................................ 4,586,648 2,759,519 3,838,421
Operating and administrative expenses............... 6,122,870 3,754,199 3,246,707
Income (loss) from operations....................... (1,536,222) (994,680) 591,714
Other expenses...................................... 1,199,592 1,105,880 482,614
Net income (loss) from continuing operations........ (2,637,226) (2,001,972) 109,100
Net income (loss)................................... (2,607,084) (1,971,830) 109,100
Net income (loss) per share from continuing
operations (1).................................... (1.22) .05
Net income (loss)................................... (1.21) .05
Weighted average number of shares
outstanding(1).................................... 2,160,676 2,418,294
Balance Sheet Data:
September 29, 1996 June 29, 1997
------------------ -------------
Working capital (deficit).............................. $(2,026,787) $(2,131,423)
Total assets........................................... 4,728,868 6,323,596
Total liabilities...................................... 4,620,113 5,670,741
Stockholders' equity................................... 108,755 652,855
-21-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company operates Lundy's, a high-volume, casual, upscale seafood
restaurant located in Brooklyn, New York, and The Boathouse, a multi-use
facility featuring an upscale restaurant and catering pavilion, located on the
lake in New York City's Central Park. Lundy's and The Boathouse are high-profile
locations which host many special events and receive extensive press coverage.
The Company is also constructing American Park, which has been designed as a
high-volume premium-quality restaurant to be located at the water's edge in
Battery Park, a New York City landmark visited by approximately 4 million
visitors during 1996.
The Company's independent auditors have included an explanatory
paragraph in their report on the Company's financial statements, stating that
they have been prepared assuming that the Company will continue as a going
concern and that significant prior losses from operations raise substantial
doubt about the Company's ability to continue as a going concern.
Results of Operations
Nine Months Ended June 29, 1997 Compared to Nine Months Ended June 30,
1996
Sales for the nine months ended June 29, 1997 were $8,902,628, an
increase of $1,640,736, or 22.6%, as compared to $7,261,892 for the nine months
ended June 30, 1996. Sales for Lundy's and The Boathouse for the nine months
ended June 29, 1997 were $4,709,258 and $4,021,905, respectively, compared to
$3,758,239 and $3,503,653, respectively, during the nine months ended June 30,
1996. The increase in sales for Lundy's was primarily due to Lundy's being
opened for approximately seven months during the 1996 period, since Lundy's was
opened in December 1995. The increase in sales for The Boathouse were primarily
due to catering an increased number of special events. The Company's food,
liquor and other sales for each of the nine months ended June 30, 1996 and June
29, 1997 accounted for 76.8%, 15.3% and 7.9%, respectively, of sales. During the
nine months ended June 29, 1997, the Company also received $171,465 of income
from MAT. See "Certain Transactions."
Cost of sales for the nine months ended June 29, 1997 were $5,064,207,
an increase of $561,834 or 12.5%, as compared to $4,502,373 for the nine months
ended June 30, 1996. The increase in cost of sales was primarily attributable to
increased sales.
Gross profit for the nine months ended June 29, 1997 was $3,838,421, or
43.1% of sales, as compared to $2,759,519, or 38.0% of sales for the nine months
ended June 30, 1996. The increase in gross profit as a percentage of sales was
primarily attributable to reduced food and labor costs.
Operating and administrative expenses for the nine months ended June
29, 1997 were $3,246,707, a decrease of $507,492, or 13.5%, as compared to
$3,754,199 for the nine months ended June 30, 1996. The decrease in operating
and administrative expenses was primarily attributable to a restructuring of
management responsibilities to focus on controlling costs and economies of scale
and obtaining more favorable terms for supplies and services. During the nine
months ended June 29, 1997, operating and administrative expenses were reduced
by $71,670 of management income fee received under the Company's operating
agreement with MAT. See "Certain Transactions."
Other expenses for the nine months ended June 29, 1997 were $482,614, a
decrease of $623,266, or 56.4%, as compared to $1,105,880 for the nine months
ended June 30, 1996. Other expenses for the nine months ended June 29, 1997
consisted of $277,843 of interest expense and $204,771 of barter expense. Other
expenses for the
-22-
nine months ended June 30, 1996 consisted of a write-off of an advance to an
affiliate of $542,463, $270,282 of interest expense and $293,135 of barter
expense. The write-off of an advance represents cash advances and equipment
transferred to Forest Avenue Corporation ("Forest") and deferred management fees
due from Forest, an affiliate of Mr. Cretella and Jeanne Cretella, Vice
President, a director and a principal stockholder of the Company, upon the sale
of the assets of Forest to an unrelated third party, as the Company determined
that such advances were uncollectible. See "Certain Transactions."
During the nine months ended June 30, 1996, the Company received an
income tax benefit of only 4% due to a deferred tax valuation allowance.
As a result of the foregoing, income from continuing operations for the
nine months ended June 29, 1997 was $109,100, as compared to a loss from
continuing operations of $2,001,972 for the nine months ended June 30, 1996.
Income from discontinued operations for the nine months ended June 30,
1996 were $30,142 (net of income taxes of $20,093). Discontinued operations were
TAM's concession business which were spun-off into MAT. See "Certain
Transactions."
Net income for the nine months ended June 29, 1997 was $109,100, as
compared to a net loss of $1,971,830 for the nine months ended June 30, 1996.
Year Ended September 29, 1996
Sales for the year ended September 29, 1996 were $11,847,088. Sales for
Lundy's and The Boathouse were $5,694,382 and $6,152,706, respectively. Food,
liquor and other sales accounted for 76.8%, 15.3% and 6.9%, respectively of the
Company's sales.
Cost of sales for the year ended September 29, 1996 were $7,260,440,
consisting of direct labor and food costs. As a result, gross profit for the
year ended September 29, 1996 was $4,586,648, or 38.7% of sales.
Operating and administrative expenses were $6,122,870 for the year
ended September 29, 1996.
Other expenses for the year ended September 29, 1996 were $1,199,592,
consisting of a write-off of an advance to an affiliate of $542,463, $363,994 of
interest expense and $293,135 of barter expense. See "Certain Transactions."
Net loss for the year ended September 29, 1996 was $2,607,084,
consisting of a loss from continuing operations of $2,637,226 which was
partially offset by income from discontinued operations of $30,142.
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 June 29, 1997, the Company had a working capital deficit of
$2,131,423), due to, among other things, costs associated with development,
opening and start-up costs of Lundy's and American Park and building a corporate
infrastructure sufficient to support the Company's proposed expanded 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.
-23-
During the nine months ended June 29, 1997, net cash increased by
$39,828. Net cash provided by operating activities was $394,727, net cash used
in investing activities was $984,450, relating to the acquisition of property
and equipment primarily for American Park, and net cash provided from financing
activities was $629,551, consisting primarily of long-term borrowings of
$435,000 and proceeds of $200,000 from sales of equity securities.
During the year ended September 29, 1996, net cash decreased by
$81,138. Net cash used in operating activities was $367,823, net cash used in
investing activities was $2,458,971, consisting primarily of the acquisition of
property and equipment for Lundy's in connection with its opening in December
1995, and net cash provided by financing activities was $2,745,656, consisting
primarily of proceeds of $1,638,936 from the sale of equity securities and
$1,215,470 of long-term borrowings.
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.
During 1995 and 1996, the Company borrowed an aggregate of $840,000
from Fleet Bank, N.A. Such loans were collateralized by the Company's principal
executive offices, which are owned by Mr. Cretella, the warehouse leased by the
Company and owned by Leisure Time Services, Inc. ("Leisure Time"), a company
owned by Jeanne Cretella, and Mr. and Ms. Cretella's personal residence, and
guaranteed by Mr. and Mrs. Cretella and Leisure Time. In June 1997, Mr. Cretella
agreed to pay to Fleet $640,000 as payment for the amount owed by the Company
($720,125 as of June 30, 1997). In August 1997, Mr. Cretella paid to Fleet
$140,000 as part of the settlement. Mr. Cretella paid the balance to Fleet in
October 1997. As consideration for entering into the settlement, the Company
issued to Mr. Cretella a promissory note in the principal amount of $720,125
which bears interest at the rate of 10% per annum, payable in monthly
installments of $6,102, with the outstanding principal payable in October 2001
upon maturity of the note.
During the year ended September 30, 1996, the Company issued and sold
an aggregate of 510,084 shares of Common Stock and warrants to purchase 181,600
shares of Common Stock to 31 investors for which it received gross proceeds of
approximately $1,980,000. Ernest and Madelina Cretella, the parents of Frank
Cretella, purchased 13,785 shares of Common Stock and warrants to purchase 1,379
shares of Common Stock for an aggregate purchase price of $50,000. The holders
of such warrants have agreed to convert such warrants into Selling
Securityholders' Warrants upon the consummation of this offering.
During the nine months ended June 29, 1997, the Company issued and sold
55,141 shares of Common Stock and warrants to purchase 27,571 shares of Common
Stock to one investor at a purchase price of $200,000 and issued 59,602 shares
of Common Stock and warrants to purchase 21,530 shares of Common Stock upon
conversion of $235,000 of indebtedness owed to three individuals. The holders of
such warrants have agreed to convert such warrants into Selling Securityholders'
Warrants upon the consummation of this offering.
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
commencing December 31, 1997, and are 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 25% 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
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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 commencing 90 days
following the date of this Prospectus. 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 is
Kayne Anderson's initial designee. See "Management."
Based on the Company's current proposed plans and assumptions relating
to the implementation of its expansion strategy (including the timetable of
opening American Park and new Lundy's locations and the costs associated
therewith), the Company anticipates that the net proceeds of this offering,
together with anticipated cash flow from operations and equipment, vendor and
landlord financing, will be sufficient to satisfy its contemplated cash
requirements for at least 12 months following the consummation of this offering.
In the event that the Company's plans change or its assumptions prove to be
inaccurate (due to unanticipated expenses, construction delays or other
difficulties) or the proceeds of this offering otherwise prove to be
insufficient to fund operations and implement the Company's proposed expansion
strategy, the Company could be required to seek additional financing sooner than
anticipated. 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. Consequently, there can be no assurance that any additional financing
will be available to the Company when needed, on commercially reasonable terms,
or at all.
Seasonality and Fluctuations in Quarterly Operating Results.
The Company's business is seasonal. The restaurant and bicycle and
rowboat rentals at The Boathouse currently are open only March through November,
with dinner served in the restaurant May 1 through October 1. All of the seating
of The Boathouse restaurant and a portion of the seating at Lundy's is outdoors.
In addition, since Lundy's is a waterside location, it attracts more guests
during the warmer weather months. As a result, the Company's restaurant sales
generally increase from May through September, and decrease from November
through March. See "Business."
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.
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BUSINESS
The Company operates Lundy's, a high-volume, casual, upscale seafood
restaurant located in Brooklyn, New York, and The Boathouse, a multi-use
facility featuring an upscale restaurant and catering pavilion, located on the
lake in New York City's Central Park. Lundy's and The Boathouse are high-profile
locations which host many special events and receive extensive press coverage.
The Company is also constructing American Park, which has been designed as a
high-volume premium-quality restaurant to be located at the water's edge in
Battery Park, a New York City landmark visited by approximately 4 million
visitors during 1996.
Lundy's
Lundy's is a high-volume, casual, upscale seafood restaurant located in
Brooklyn, New York. The Company opened Lundy's in December 1995, approximately
16 years after the original Lundy's restaurant closed. The original Lundy's, a
storied Brooklyn landmark, originally opened in 1934 and is believed to have
been the largest restaurant in the United States during the time it was open,
with seating capacity for approximately 2,400 guests. The building which Lundy's
occupies was declared a historic landmark building by the New York City
Landmarks Preservation Commission in 1992.
The Lundy' Concept
The Lundy's concept is designed to appeal to a broad range of guests by
serving generous portions of premium-quality seafood and other menu items and by
combining a grand dining experience with friendly and efficient service in a
high-energy environment. Lundy's commitment to offering its guests a casual,
exciting dining experience is highlighted by its "exhibition" kitchen where all
meals are cooked to order in view of its guests, a lobster pool from which
guests can select their lobsters, an experienced waitstaff uniformed in crisp
white linen jackets which are knowledgeable about the preparation of seafood and
the history of Lundy's, a high waitstaff-to-customer ratio to assure attentive
service and tables covered with multiple layers of colored linens covered with
pristine white butcher paper.
Menu
Lundy's menu features a wide variety of fresh seafood items, including
lobster, crab, shrimp, oysters, clams and daily fish specials, cooked to order
in a variety of ways: steamed, sauteed, broiled, grilled, blackened and fried.
In addition, Lundy's offers a selection of steaks, chicken dishes, pasta dishes,
pizzas, appetizers, chowders, salads and desserts. Lundy's also offers full bar
service, from which a variety of brand name alcohols, mixed drinks, wines and
beers, including selected micro-brewed beers, can be ordered, at the bar or with
table service. Lundy's feature menu selection is its "Shore Dinner," which
consists of a chowder or salad; steamed or baked clams, lobster and chicken;
fruit pie; and a beverage, for $21.95. The Company believes that Lundy's is
widely recognized for its "signature" biscuits, chowders and apple and blueberry
pies.
The menu mix has been carefully developed to balance the higher priced
items, such as lobster and fresh fish, with lower cost items, such as pizza and
pasta dishes. Dinner entrees range in price from $7.95 to $28.95 and the average
dinner check is approximately $32.00 per person.
Design, Decor and Atmosphere
Lundy's interior has been designed with a contemporary decor, rich
polished woods and granite surfaces, accented with copper, pottery,
brushed-stainless steel and earth tones, to impart "Old World" elegance and
comfort. Lundy's offers guests several seating selections in its multi-level
interior, which consists of an expansive, high-ceiling main dining area; a large
upstairs dining room which is also used for special events and to cater private
functions;
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a mezzanine level cigar room which overlooks the main dining area; and a 30-foot
long oyster and beverage bar; as well as outdoor seating.
Facility Operations
Lundy's occupies approximately 17,000 square feet and has a seating
capacity of approximately 730 seats. Lundy's is open for dinner from 5:00 P.M.
to 11:00 P.M. on weekdays (10:00 P.M. on Mondays) and for dining from 1:00 P.M.
to 12:00 midnight on Sunday. Lundy's oyster and beverage bar and outside bar are
also open during such hours and also from 12:00 noon to 5:00 P.M. on weekdays.
In addition to the restaurant operations, Lundy's also houses a seafood
laboratory where seafood is tested to assure quality and freshness, and a gift
shop which carries a variety of "Lundy's" and "Brooklyn" themed merchandise,
such as T-shirts and other clothing, hats, plates and coffee and beer mugs, as
well as Lundy's chowders and sauces and seafood related products, such as
lobster bibs, crackers and forks.
During the year ended September 30, 1996 and nine months ended June 30,
1997, Lundy's sales were $5,694,382 and $4,709,258, respectively.
The Boathouse
The Boathouse is a multi-use, lakeside facility which features an
upscale restaurant and catering pavilion, located on the lake in New York City's
Central Park.
Restaurant
The Boathouse restaurant provides customers a pleasurable dining
experience in a comfortable, relaxed and romantic atmosphere and primarily al
fresco seating. The restaurant serves eclectic American cuisine that changes
according to season and consumer trends, emphasizing herbs grown fresh on site.
The menu is limited in scope to permit the greatest attention to quality while
offering sufficient breadth to appeal to a variety of taste preferences. The
restaurant also offers full bar service. Dinner entrees range in price from
$19.00 to $28.00 and the average dinner check is approximately $44.00 per
person.
The dining area occupies approximately 6,000 square feet of space and
has a seating capacity of approximately 225 seats, most of which are covered,
expanding approximately 150 feet alongside the Central Park lake. The restaurant
is open from early March until the Sunday in early November on which the New
York City Marathon is held.
Catering Pavilion
The catering pavilion is glass-enclosed, tented and heated. The
catering pavilion occupies approximately 4,600 square feet of space, is
surrounded by an english garden on two sides and resides a few feet from the
Central Park lake. The catering pavilion hosts private functions for up to 500
persons year round.
Other Attractions
The Boathouse incorporates the following additional attractions:
o Cocktail Area. The cocktail area offers full bar service at an
approximately 21-foot long bar with waitress service and
features a jazz band performing five nights a week. The
cocktail area has a capacity of 150 persons, including 100
seats, and is open from March through early November.
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o The Boathouse Express. The Boathouse Express is a
cafeteria-style convenience counter which serves specialty
sandwiches, salads, baked goods and juices, as well as
standard fast-food, such as hamburgers, hotdogs, french fries
and sodas. The Boathouse Express has indoor and outdoor
seating available for approximately 75 persons year round.
o Carts and Kiosks. Approximately six to eight free standing
carts and kiosks are strategically located on the facility's
grounds offering a variety of food and beverage items, such as
fresh fruit drinks, New York-style pretzels, pita sandwiches
and espresso and cappuccino, from early March to early
November.
o Rowboat and Bicycle Rentals and Venetian Gondola Rides.
Approximately 110 rowboats are available for rental by the
hour on the Central Park lake and approximately 120 bicycles
are available for rental by the hour or day from early March
to early November. Additionally, Venetian gondola rides on the
lake are available from early March to early November.
o Merchandise Counter. The merchandise counter carries a variety
of The Boathouse and other Central Park and New York City
themed merchandised, including T-shirts, sweatshirts, hats and
coffee mugs, as well as sundry items.
o Shuttle Bus. The Boathouse operates a shuttle bus which
transports guests between the facility and the Fifth Avenue
and 72nd Street entrance to Central Park. The shuttle bus runs
when the restaurant is opened for dinner and during special
events at the catering pavilion.
The Company operates The Boathouse pursuant to a 15-year license
agreement with the City of New York Department of Parks and Recreation (the
"Parks Department"). Pursuant to the license agreement, the Company is required
to pay a fee to the Parks Department each license year (June 30 through the
following June 29) equal to the greater of (i) $85,000 (increasing to $90,000
per year on June 30, 1998) or (ii) the sum of 13% of gross revenue from food and
merchandise sales and 16% of gross revenues (increasing to 17% on June 30, 1999)
from rowboat and bicycle rentals. The Company is required to maintain certain
minimum levels of insurance with respect to the facility. The license agreement
expires on June 29, 2000, provided that the Parks Department may terminate the
license upon ten days written notice so long as the termination is not arbitrary
or capricious.
During the year ended September 29, 1996 and nine months ended June 29,
1997, The Boathouse's sales were $6,152,706 and $4,021,905, respectively.
American Park
American Park has been designed as a high-volume premium-quality
restaurant and is currently under construction in Battery Park, a New York City
landmark visited by approximately 4 million visitors in 1996. The Company
anticipates that American Park will open in January 1998.
American Park has been designed with an urban mountain lodge motif,
incorporating natural fabrics, slate, stone, wood and brick with modern-style
furnishings, vibrant colors and designer lighting. Guests will have panoramic
views of the New York City harbor and landmarks such as the Statute of Liberty,
Ellis Island, Governor's Island and the downtown Manhattan skyline. American
Park will offer seating selections in its main dining room, second floor dining
room and bi-level outdoor patios.
American Park is expected to serve contemporary American cuisine
featuring wood-burning menu selections, such as steaks, whole fish, chicken and
veal dishes. The lower-level outdoor patio will extend to the water's edge and
is expected to incorporate a separate kitchen which serves selected items from
the main restaurant menu and an
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expanded bar area. American Park will also feature a cigar lounge which will
offer waitress service, and personal humidors which can be leased on an annual
basis. The Company also intends to sell cigars and related paraphernalia in the
cigar lounge.
The Company intends to operate a free-standing kiosk as part of
American Park which is expected to serve appetizers, sandwiches, cold beverages,
beer and wine.
In December 1994, the Company entered into a license agreement with the
Parks Department to construct and operate a restaurant, American Park, in
Battery Park. The Company is required to pay to the Parks Department a fee each
license year (November 1 through the following October 31) equal to the greater
of (i) $50,000 and (ii) 8% of gross receipts from the restaurant and 10% of
gross receipts from merchandise sales (increasing to 12% on November 1, 1999).
For the license year ended October 31, 1996, the license fee was $50,000. The
Company anticipates that the license fee will increase substantially upon the
opening of American Park. The Company is required to maintain certain level of
insurance. The license agreement expires on October 31, 2015, provided, however,
that the Parks Department may terminate the license upon 30 days written notice.
American Park is approximately 18,300 square feet in size and is
expected to have a seating capacity of approximately 750 seats, as well as
capacity for approximately 75 persons standing in the bar area located on the
lower-level outdoor patio.
Expansion Strategy
The Company's strategy is to initially develop and operate a limited
number of additional Lundy's restaurants. The Company intends to focus its
expansion efforts in the New York City metropolitan area and other urban and
upscale suburban areas, particularly those with a large population of
transplanted New Yorkers, such as Southern Florida, Los Angeles, Chicago and
Washington D.C. With a substantial portion of the proceeds of this offering
(approximately $3,500,000), projected cash flow from operations and anticipated
financing, including equipment and vendor financing and landlord development
concessions and rent allowances, the Company intends to open three additional
Lundy's restaurants during the 12 months following the consummation of this
offering. The Company has limited experience in expanding its operations and
there can be no assurance that it will be able to successfully do so.
The Company's strategy is to capitalize on what it perceives to be a
high consumer recognition of the Lundy's name in markets where there is a
significant percentage of the population which remembers and had visited the old
Lundy's restaurant. The Company anticipates that future Lundy's restaurants will
incorporate the Lundy's concept into the existing building architecture to give
each location the atmosphere of a long-standing restaurant.
The Company's long-term plans include seeking to capitalize upon the
Lundy's name by marketing food and related products by mail, such as chowders
sauces, pies, cookbooks, lobster bibs, crackers and forks and "Lundy's" and
"Brooklyn" themed T-shirts and other clothing items, hats, plates and coffee and
beer mugs. In addition, in connection with its expansion strategy, the Company
may seek to open additional, high-volume landmark type restaurants as
appropriate opportunities arise.
Site Selection
The choice of site selection is critical to the potential success of a
particular restaurant. As a result, the Company devotes a significant amount of
time and resources to identifying and analyzing potential sites. The Company
seeks to identify locations in close proximity to upscale high-traffic, suburban
residential neighborhoods, hotel complexes and/or urban business or
entertainment centers. The Company also seeks to identify large spaces in
tourist centers, such as government buildings, concession stands and offices in
municipal parks which are not
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utilized to their potential. Additionally, to the extent opportunities arise,
the Company seeks to identify waterfront locations, which type of location the
Company believes has a synergy with the Lundy's concept and primarily seafood
menu. The Company, however, has no commitments or understandings with respect to
any proposed location.
The Company generally seeks to lease properties with 12,000 to 20,000
square feet of total space and seating capacity for 400 to 750 persons. The
Company anticipates that three to six months will typically be required to open
a new Lundy's restaurant from the time a location is identified and a lease is
negotiated.
The Company believes that future Lundy's restaurants, will be
destination restaurants, similar to its existing restaurants, and that customers
will travel by automobile up to 15 to 30 minutes to the location.
The Company anticipates that the cost of opening additional Lundy's
restaurants, other than lease expenses, will average approximately $1,500,000
(net of anticipated equipment and vendor financing and landlord contributions),
consisting of construction ($800,000), equipment ($350,000), smallwares
($100,000), furniture ($100,000), point-of-sales account and cash management
system ($75,000), inventory ($60,000), cash and deposits ($15,000). The Company
also anticipates that it will incur pre-opening expenses of approximately
$300,000 for each new Lundy's restaurant it opens, which it intends to finance
from working capital. Annual rental costs will vary significantly depending upon
the geographic market and square footage. The Company will seek to negotiate
landlord development concessions and rent allowances with respect to future
locations. The Company anticipates that leases relating to future locations will
be long-term (20 to 30 years) in duration.
Restaurant Operations
Management and Employees
Each location's operations is managed by a general manager and managers
for certain operations of the location, such as kitchen, dining room (waiters
and busboys), office (administration) and catering. Each location's staff
consists of approximately 160 employees. Because the restaurant and certain
other operations at The Boathouse are not open year round, the Company is
required to hire new personnel annually for The Boathouse. The Company is
currently refining its management bonus plan which will provide for bonuses
based on the financial results of the manager's particular location.
Service and Guest Satisfaction
The Company believes that providing friendly, courteous, efficient
service is critical to the long-term success of each location. The Company will
attempt to recruit managers for future locations with significant experience in
the restaurant industry. The Company is currently refining its training program
in anticipation of opening additional Lundy's restaurants to teach restaurant
managers to promote the Company's team-oriented atmosphere among restaurant
employees, with emphasis on preparing and serving food in accordance with strict
standards and providing friendly, courteous and attentive service. Each
location's staff is trained on site by location managers and other designated
employees. The Company believes that the selection and training of its location
managers and staff result in friendly, courteous, efficient guest service which
contributes to a pleasurable dining experience for the guest.
The Company monitors each location's service and guest satisfaction.
The Company maintains a guest service department which contacts several guests
from each location's previous night's reservation list to inquire about their
dining experiences. The guest service department also contacts each party which
utilizes the Company's catering services to obtain feedback about their
experiences. The Company also maintains a toll-free telephone line for guests to
call with complaints or suggestions about the Company's locations. All calls are
personally responded to by an executive officer of the Company. The Company
utilizes guest feedback to continually improve its service, update its menu
selections and otherwise improve its operations.
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Purchasing
Obtaining a reliable supply of quality seafood and other food and
beverage items at competitive prices is critical to the Company's success. The
Company has formed long-term relationships with several seafood suppliers, fish
markets and operators of fishing boats. Each restaurant purchases its own supply
of food and beverage items through a central purchasing department which
maintains a list of approved suppliers. The Company regularly sends buyers to
local seafood markets to purchase fresh seafood. In addition, the Company
regularly arranges to purchase a fishing boat's day catch of lobsters and select
fish, reducing its price per pound and ensuring superior quality. The Company
maintains a current database of suppliers and continuously updates supplier's
pricing to enable its restaurants to obtain the lowest prices available from
Company-approved suppliers.
The Company believes its diverse menu selection reduces the risk and
minimizes the effect of the shortage of any seafood products. The Company has
been able to anticipate and react to fluctuations in food costs through selected
menu price adjustments, purchasing seafood directly from numerous suppliers,
fish markets and fishing boats and promoting certain alternative menu selections
(in response to availability and price of supply). To date, the Company
generally has not experienced any significant delays in receiving its food and
beverage inventories, restaurant supplies or equipment.
Quality Control
The Company maintains a continuous inspection program for all of its
seafood purchases. Each shipment of seafood and other food items is inspected
for quality and weight by the restaurant steward. All food items must be
purchased from Company-approved suppliers. In addition, Lundy's houses a seafood
laboratory where shipments of seafood are randomly tested to assure quality.
The restaurants' management are responsible for properly training
employees and ensuring that the Company's restaurants are operated in accordance
with strict health and quality standards. Each restaurant employee is educated
as to the correct handling and proper characteristics of each product.
Compliance with the Company's quality standards are monitored by periodic
on-site visits and formal periodic inspections by management and third-party
food sanitation consultants. The Company believes that its inspection procedure
and its employee training practices assist the Company in maintaining high
standards of quality for the food and services it provides.
Restaurant Reporting
The Company maintains financial and accounting controls for each
restaurant through a central point-of-sale, accounting and cash management
systems. Sales data is collected daily, and store managers are provided with
daily sales, cash and inventory information for their respective restaurants.
The point-of-sale, accounting and cash management systems enables both
store-level management and senior management to quickly react to changing sales
trends, better manage food, beverage and labor costs, minimize theft and improve
the quality and efficiency of accounting and audit procedures.
Catering Operations
The Company's restaurants offer high-quality professional, on-premise
and off-premise catering services. Each restaurant provides its own catering
services and specially designs menus to the guests requirements. Lundy's
upstairs dinning room is used to cater private functions and has a capacity of
200 persons. In addition to catering private functions in the banquet area, The
Boathouse caters larger functions of up to 1,000 persons in the combined space
of the catering pavilion and restaurant. The Company anticipates offering
catering services at American Park in its upstairs dining room, as well as at
other restaurants opened in the future.
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In April 1997, the Company entered into a five-year agreement with Bay
Cruises LLC ("Bay Cruises") to act as exclusive caterer for all entertainment
cruises conducted by Bay Cruises from any location in the New York metropolitan
area. Bay Cruises conducts entertainment cruises aboard the Liberty I yacht. The
Company provides several breakfast, lunch and dinner menu selections and is paid
an amount based on the number of guests for catered cruises and based on the
number of meals served for non-catered cruises. The Company may terminate the
agreement upon sixty days notice.
During the year ended September 29, 1996 and nine months ended June 29,
1997, Lundy's catered 59 and 111 private functions, respectively, and The
Boathouse catered 284 and 208 private functions, respectively.
Advertising and Marketing
The Company employs a marketing strategy that seeks continuous
visibility and name recognition through the use of local radio, print and
billboard advertisements, as well as community events, for each restaurant. The
Company contracts with public relations and advertising agencies to more
effectively coordinate its advertising efforts. The Company also publishes and
distributes a quarterly newsletter which apprises readers of upcoming events at
the Company's restaurants and recent celebrity guests, answers guests' food,
wine and restaurant etiquette questions and provides recipes.
Each restaurant engages in community-based promotions designed to
promote the restaurant and foster goodwill within the community. Each restaurant
participates in the Company's "make a dent with 10%" program whereby 10% of the
proceeds from three designated tables from the restaurant are donated to local
charities.
Lundy's and The Boathouse are high-profile locations which host many
special events and receive extensive press coverage. Lundy's and The Boathouse
have been featured in several magazines, including Gourmet, Travel & Leisure and
The New York Times Magazine, and have been the subject of several television
news stories. As a result, these restaurants receive a great deal of publicity
in addition to the publicity obtained from the Company's advertising efforts.
Competition
The restaurant industry is intensely competitive with respect to price,
service, location and food quality and variety. There are many well-established
competitors with substantially greater financial and other resources than the
Company, as well as a significant number of new market entrants. Such
competitors include national, regional and local full-service casual dining
chains, many of which specialize in or offer seafood products, as well as single
location restaurants. Some of the Company's competitors have been in existence
for substantially longer periods than the Company, may be better established in
the markets where the Company's restaurants are or may be located and engage in
extensive advertising and promotional campaigns, both generally and in response
to efforts by competitors to open new locations or introduce new concepts or
menu offerings. The Company can also be expected to face competition from a
broad range of other restaurants and food service establishments which
specialize in a variety of cuisines.
Intellectual Property
The Company's business prospects will depend largely upon the Company's
ability to capitalize on favorable consumer recognition of the Lundy's name.
Although the Company holds a trademark registration for use of the Lundy's name
by the U.S. Patent and Trademark Office, there can be no assurance that the
Company's marks do not or will not violate the proprietary rights of others or
that the Company's marks would be upheld, or that the Company would not be
prevented from using its marks, if challenged, any of which could have an
adverse effect on the Company.
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The Company also relies on trade secrets and proprietary know-how, and
employs various methods, to protect its concepts and recipes. However, such
methods may not afford complete protection and there can be no assurance that
others will not independently develop similar know-how or obtain access to the
Company's know-how, concepts and recipes. The Company does not maintain
confidentiality and non-competition agreements with all of its executives, key
personnel or suppliers. There can be no assurance that the Company will be able
to adequately protect its trade secrets.
Government Regulation
The Company is subject to extensive state and local government
regulation by various governmental agencies, including state and local
licensing, zoning, land use, construction and environmental regulations and
various regulations relating to the sale of food and beverages, sanitation,
disposal of refuse and waste products, public health, safety and fire standards.
The Company's restaurants are subject to periodic inspections by governmental
agencies to assure conformity with such regulations. Difficulties or failure in
obtaining required licensing or other regulatory approvals could delay or
prevent the opening of a new restaurant, and the suspension of, or inability to
renew, a license at an existing restaurant would adversely affect the operations
of the Company. Restaurant operating costs are also affected by other government
actions which are beyond the Company's control, including increases in the
minimum hourly wage requirements, workers compensation insurance rates, health
care insurance costs and unemployment and other taxes.
The Federal Americans With Disabilities Act prohibits discrimination on
the basis of disability in public accommodations and employment. The Company's
restaurants are currently designed to be accessible to the disabled, and the
Company believes that it is in compliance with all current applicable
regulations relating to accommodations for the disabled.
The Company is subject to "dram-shop" statutes, which generally provide
a person injured by an intoxicated person the right to recover damages from an
establishment that wrongfully served alcoholic beverages to the intoxicated
person. New York law currently provides that a vendor of alcoholic beverages may
be held liable in a civil cause of action for injury or damage caused by or
resulting from the intoxication of a minor (under 21 years of age) if the vendor
willfully, knowingly and unlawfully sells or furnishes alcoholic beverages to
the minor and knows that the minor will soon thereafter be driving a motor
vehicle. A vendor can similarly be held liable if it knowingly provides
alcoholic beverages to a person who is in a noticeable state of intoxication,
knows that person will soon thereafter be driving a motor vehicle and injury or
damage is caused by that person.
Insurance
The operation of restaurants subjects the Company to possible liability
claims from others, including customers, employees and other service providers
for personal injury (resulting from, among other things, contaminated or spoiled
food or beverages, accidents or injuries caused by intoxicated persons served
alcoholic beverages by a restaurant). The Company maintains insurance (with
coverage in amounts up to $1,000,000 per occurrence and $5,000,000 of umbrella
liability coverage), including insurance relating to personal injury, in amounts
which the Company believes to be adequate. The Company also maintains property
insurance for each location it operates in amounts it believes to be adequate.
Nevertheless, a partially or completely uninsured claim against the Company, if
successful, could have a material adverse effect on the Company.
Properties
The Company leases approximately 2,500 square feet of space in Staten
Island, New York for its executive offices from Frank Cretella, Chief Executive
Officer, President, a director and a principal stockholder of the Company. The
current annual rent payable under the lease is currently $37,500 and increases
by 1.5% per annum
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commencing January 1998. The lease expires December 31, 2001. The Company
believes that this lease is on commercially reasonable terms. See "Certain
Transactions."
The Company leases 16,505 square feet of space in Sheepshead Bay,
Brooklyn, New York, where Lundy's is located pursuant to a lease which expires
in 2014. The current annual rent payable under the lease is $300,000 during
1997. Upon the expiration of the lease, the Company has two 10-year renewal
options.
The Company leases an approximately 6,000 square feet warehouse in
Bayonne, New Jersey, from Leisure Time Services, Inc., a company wholly-owned by
Jeanne Cretella, Vice President, a director and a principal stockholder of the
Company. The annual rent payable under the lease is currently $30,000 and
increases by 1.5% per annum commencing January 1998. The Company believes that
this lease is on commercially reasonable terms. See "Certain Transactions."
The Company operates The Boathouse in Central Park, New York City
pursuant to a license from the Parks Department which expires in June 2000.
The Company has a license from the Parks Department to operate American
Park in Battery Park, New York City. The license expires in 2015.
Employees
As of September 1, 1997, the Company employed 554 persons, of whom 26
were in management and 528 were in non-management restaurant operations.
Approximately 34 of those individuals were employed on a salary basis. The
Company believes its employee relations to be good. None of the Company's
employees is covered by a collective bargaining agreement.
Legal Proceedings
The operation of restaurants and rowboat and bicycle rentals subjects
the Company to potential claims from others, including customers, employees and
other service providers for personal injury (resulting from, among other things,
contaminated or spoiled food or beverages and accidents). The Company is a
defendant in several lawsuits arising in the ordinary course of its business
relating to personal injury claims by plaintiffs which are seeking damages
substantially in excess of the Company's assets and insurance coverage. The
lawsuits are being handled by the Company's insurance carriers. Although the
Company is vigorously defend each lawsuit, since each lawsuit is in an early
stage, the Company is unable at this time to evaluate the likelihood of an
unfavorable outcome or to estimate the range of potential loss with respect to
any of such lawsuits. There can be no assurance that any of such actions will be
resolved in favor of the Company or that the outcome of any litigation or
settlement will not have a material adverse effect on the Company.
In the ordinary course of business, the Company is a party to other
legal proceedings, the outcome of which, either singly, or in the aggregate, is
not expected to be material.
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MANAGEMENT
Directors and Executive Officers
The following are the directors and executive officers of the Company:
Name Age Position
---- --- --------
Frank Cretella 39 President, Chief Executive Officer and Director
Jeanne Cretella 39 Vice President and Director
Anthony B. Golio 37 Vice President
Kenneth L. Harris 55 Chairman of the Board
Frank Cretella co-founded the Company's predecessor in 1981 and has
been President, Chief Executive Officer and a director of the Company since
inception.
Jeanne Cretella co-founded the Company's predecessor in 1981, and has
been Vice President, Secretary and a director of the Company since inception.
Ms. Cretella is the wife of Frank Cretella.
Anthony B. Golio has been Vice President of the Company since October
1997. In June 1996, Mr. Golio founded The Pineapple Group Inc., a consulting
company to the restaurant industry. From February 1994 until October 1996, Mr.
Golio was director of operations of Whiskey River Restaurant Group, a restaurant
holding company. From January 1991 through February 1994, Mr. Golio was Vice
President - Operations and Marketing of HMG, Inc., a restaurant holding company.
From 1988 to 1991, Mr. Golio was manager of guest services in the food service
division of the New York Zoological Society. From 1984 to 1988, Mr. Golio was
area manager of Chi-Chi's Restaurants, Inc.
Kenneth L. Harris has been Chairman of the Board since June 1997. Since
January 1995, Mr. Harris has been President and Chief Executive Officer of
Platinum Restaurant Group, a management consulting firm. From February 1994
through January 1995, Mr. Harris was Chief Operating Officer of HOB
Entertainment, Inc., a theme restaurant company. From January 1975 through
January 1994, Mr. Harris was employed by W.R. Grace & Co. ("Grace") and its
subsidiary, Restaurant Enterprises Group, Inc. ("REGI"), most recently as
President and Chief Executive Officer of REGI's Dinnerhouse division. In 1994,
REGI filed for bankruptcy under Chapter 11 in the United States Bankruptcy
Court, as part of a pre-packaged plan in connection with Grace's sale of such
subsidiary. Mr. Harris is the designee of Kayne Anderson.
The Company intends to appoint two independent directors prior to the
date of this Prospectus.
All directors currently hold office until the next annual meeting of
stockholders and until their successors are duly elected and qualified.
Executive officers of the Company serve at the direction of the Board and until
their successors are duly elected and qualified. The Company reimburses
directors for reasonable travel expenses incurred in connection with their
activities on behalf of the Company but does not pay its directors any fees for
Board participation.
In connection with this offering, the Company has agreed that it will,
for a period of three years following the date of this Prospectus, upon the
request of the Underwriter, nominate and use its best efforts to elect a
designee of the Underwriter (which designee may change from time to time) as a
director of the Company or, at the Underwriter's option, appoint such designee
as a non-voting advisor to the Company's Board of Directors. The Underwriter has
not yet exercised its rights to designate such a person. See "Underwriting."
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Executive Compensation
The following table sets forth certain compensation paid by the Company
during the fiscal year ended September 29, 1996 to Frank Cretella, its President
and Chief Executive Officer. No other officer of the Company received
compensation in excess of $100,000 for the fiscal year ended September 29, 1996.
Summary Compensation Table
Annual Compensation
----------------------------------------------
Other Annual
Name and Principal Position Year Salary Bonus Compensation
- --------------------------- ---- ------ ----- ------------
Frank Cretella
President and Chief Executive Officer.............. 1996 $168,000 $ 0 $2,000
During the fiscal year ended September 28, 1997, Frank Cretella received
compensation of $150,000. The Company did not grant any options to its executive
officers during the years ended September 29, 1996 and September 28, 1997.
Employment Agreements
The Company has entered into three-year employment agreements with
Frank Cretella and Jeanne Cretella, effective as of the date of this Prospectus,
which is automatically renewable and provides for an annual base compensation of
$175,000 and $75,000, respectively, and such bonuses as the Board of Directors
may from time to time determine. Each of the employment agreements requires the
officer to devote a majority of such officer's business time to the Company's
business and affairs and contains a provision that such officer will not compete
or engage in a business competitive with the current or anticipated business of
the Company during the term of the employment agreement and for a period of one
year thereafter. Each of the agreements also provides that if the officer is
terminated without cause (including as a result of a change in control), such
officer will be entitled to receive severance pay equal to the base compensation
through the term of the agreement, provided that if such officer is terminated
during the third year or the last year of any renewal term, such officer will be
entitled to receive additional compensation equal to the base compensation
received from the Company during the one-year period prior to the date of
termination.
Consulting Agreement
In July 1996, the Company entered into a two-year consulting agreement
with Kenneth L. Harris, Chairman of the Board of the Company, pursuant to which
Mr. Harris (through Platinum Restaurant Group, a company wholly owned by Mr.
Harris) has provided strategic planning, restaurant operations, marketing and
site evaluation consulting services for a fee equal to $2,500 per month through
December 1997 and $5,000 per month thereafter. The agreement is automatically
renewable for successive one-year periods, unless either party gives written
notice of its intention not to renew the agreement at least 30 days prior to the
end of the term or renewal term. In addition, pursuant to the consulting
agreement, the Company agreed to pay to Mr. Harris $50,000 as payment for
consulting services rendered to the Company prior to entering into the
consulting agreement. Such payment is due July 1998.
1997 Stock Option Plan
In October 1997, the Company's stockholders approved a stock option
plan (the "Option Plan") pursuant to which 525,000 shares of Common Stock have
been reserved for issuance upon the exercise of options designated
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as either (i) incentive stock options ("ISOs") under the Internal Revenue Code
of 1986, as amended (the "Code") or (ii) nonqualified options. ISOs may be
granted under the Option Plan to officers and employees of the Company.
Non-qualified options may be granted to consultants, directors (whether or not
they are employees), employees or officers of the Company.
The purpose of the Option Plan is to encourage stock ownership by
certain directors, officers and employees of the Company and other persons
instrumental to the success of the Company. The Option Plan is intended to
qualify under Rule 16b-3 under the Exchange Act, and is administered by the
Board of Directors. The Board, within the limitations of the Option Plan,
determines the persons to whom options will be granted, the number of shares to
be covered by each option, whether the options granted are intended to be ISOs,
the duration and rate of exercise of each option, the option purchase price per
share and the manner of exercise, and the time, manner and form of payment upon
exercise of an option.
ISOs granted under the Option Plan may not be granted at a price less
than the fair market value of the Common Stock on the date of grant (or 110% of
fair market value in the case of persons holding 10% or more of the voting stock
of the Company). The aggregate fair market value of shares for which ISOs
granted to any employee are exercisable for the first time by such employee
during any calendar year (under all stock option plans of the Company and any
related corporation) may not exceed $100,000. Non-qualified options granted
under the Option Plan may not be granted at a price less than the fair market
value of the Common Stock on the date of grant. Options granted under the Option
Plan will expire not more than ten years from the date of grant (five years in
the case of ISOs granted to persons holding 10% or more of the voting stock of
the Company). All options granted under the Option Plan are not transferable
during an optionee's lifetime but are transferable at death by will or by the
laws of descent and distribution. In general, upon termination of employment of
an optionee, all options granted to such person which are not exercisable on the
date of such termination immediately terminate, and any options that are
exercisable terminate 90 days following termination of employment.
The Company has granted options under the Option Plan, effective as of
the date of this Prospectus, to purchase an aggregate of 197,500 shares. Of such
options, options to purchase 50,000, 50,000, 35,000 and 15,000 shares were
granted to Mr. Cretella, Ms. Cretella, Mr. Harris and Mr. Golio, respectively,
at an exercise price of $5.00 per share. All of such options vest as to 50%, 25%
and 25% of the shares covered thereby on the first, second and third anniversary
of the date of this Prospectus, respectively, are exercisable upon vesting and
expire ten years from the date of grant, subject to earlier expiration upon
termination.
The Company also intends to grant options under the Option Plan to
purchase 5,000 shares of Common Stock to each non-employee director of the
Company upon their re-election by the Company's stockholders at each annual
meeting of the Company's stockholders. All of such options will be exercisable
at the market value of the Common Stock on the date of grant.
Indemnification and Exculpation Provisions
The Company's Certificate of Incorporation provides for indemnification
of officers and directors to the fullest extent permitted by Delaware law. In
addition, under the Company's Certificate of Incorporation, no director shall be
liable personally to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director; provided that the Certificate of
Incorporation does not eliminate the liability of a director for (i) any breach
of the director's duty of loyalty to the Company or its stockholders; (ii) acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) acts or omissions in respect of certain unlawful
dividend payments or stock redemptions or repurchases; or (iv) any transaction
from which such director derives improper personal benefit. The Company has also
obtained directors and officers insurance.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information, immediately prior
to the consummation of this offering and as adjusted to reflect the sale by the
Company of the 1,000,000 Shares offered hereby (based on information obtained
from the persons named below), relating to the beneficial ownership of shares of
Common Stock by: (i) each person or entity who is known by the Company to own
beneficially five percent or more of the outstanding Common Stock, (ii) each of
the Company's directors and (iii) all directors and executive officers of the
Company as a group.
Percentage of Shares
Beneficially Owned(2)
------------------------------
Number of Shares
Name and Address of Beneficial Beneficially Before After
Owners(1) Owned Offering Offering
- --------- ----- -------- --------
Frank Cretella................................. 1,679,235(3) 67.2% 48.0%
Jeanne Cretella................................ 1,679,235(3) 67.2 48.0
Peter J. Salvatore(4).......................... 176,371(5) 7.0 5.0
Kenneth L. Harris.............................. 110,282(6) 4.4 3.2
All directors and executive officers as a
group (four persons)........................... 1,803,302(7) 72.1% 51.5%
- ----------
(1) Unless otherwise indicated, the address for each named individual or
group is in care of TAM Restaurants, Inc., 1163 Forest Avenue, Staten
Island, New York 10310.
(2) Unless otherwise indicated, the Company believes that all persons named
in the table have sole voting and investment power with respect to all
shares of Common Stock beneficially owned by them. A person is deemed
to be the beneficial owner of securities that can be acquired by such
person within 60 days from the date of this Prospectus upon the
exercise of options, warrants or convertible securities. Each
beneficial owner's percentage ownership is determined by assuming that
options, warrants or convertible securities that are held by such
person (but not those held by any other person) and which are
exercisable within 60 days of the date of this Prospectus have been
exercised and converted. Assumes a base of 2,500,000 shares of Common
Stock outstanding prior to this offering and a base of approximately
3,500,000 shares of Common Stock outstanding immediately after this
offering, before any consideration is given to other outstanding
options or warrants. See "Description of Securities."
(3) Represents shares held jointly by Frank Cretella and Jeanne Cretella.
Does not include (i) options to purchase 50,000 shares of Common Stock
held by Frank Cretella, (ii) options to purchase 50,000 shares of
Common Stock held by Jeanne Cretella and (iii) 4,724 Selling
Securityholders' Warrants held by Jeanne Cretella.
(4) The address for Mr. Salvatore is 35 Seagate Road, Staten Island, New
York 10310.
(5) Includes 6,082 shares of Common Stock held by Peter and Gail Salvatore
Foundation, Inc., a trust of which by Mr. and Mrs. Salvatore are the
beneficiaries. Does not include Selling Securityholders' Warrants to
purchase 88,191 shares of Common Stock.
(6) Does not include options to purchase 25,000 shares of Common Stock.
(7) Does not include options to purchase an aggregate of 135,000 shares of
Common Stock.
-38-
CERTAIN TRANSACTIONS
Prior to January 1994, Ernest Cretella, father of Frank Cretella,
President, Chief Executive Officer, a director and a principal stockholder of
the Company, loaned the Company $100,000. In January 1994, Ernest Cretella
borrowed $125,000 from a bank and secured the loan by mortgaging his personal
residence. Ernest Cretella loaned the Company the proceeds of the bank loan,
from which the Company repaid $50,000 of the outstanding indebtedness owed to
Ernest Cretella, and the Company agreed to make Ernest Cretella's mortgage
payments to the bank. In September 1995, Ernest Cretella converted the
additional $50,000 principal amount of indebtedness owed to him into 25,000
shares of Common Stock and 2,500 warrants. Upon consummation of this offering,
the warrants will convert into New Warrants. In July 1996, Ernest Cretella,
loaned the Company an additional $55,000. Such loan bears interest at the rate
of 10% per annum, payable quarterly, and is due June 30, 1998.
In March 1994, the Company entered into a lease agreement to sublease
the space where Lundy's is located. Frank Cretella personally guaranteed the
Company's obligations to pay rent during the time which it occupies the leased
premises.
During 1994, Frank Cretella loaned the Company $12,500. In September
1996, Mr. Cretella borrowed $65,000 from the Company. During the nine months
June 29, 1997, Mr. Cretella repaid the $52,500 owed to the Company.
During 1995 and 1996, the Company borrowed an aggregate of $840,000
from Fleet Bank, N.A. Such loans were collateralized by the Company's principal
executive offices, which are owned by Mr. Cretella, the warehouse leased by the
Company and owned by Leisure Time Services, Inc. ("Leisure Time"), a company
owned by Jeanne Cretella, Vice President, director and a principal stockholder
of the Company, and Mr. and Ms. Cretella's personal residence, and guaranteed by
Mr. and Mrs. Cretella and Leisure Time. In June 1997, Mr. Cretella agreed to pay
to Fleet $640,000 as payment for the amount owed by the Company ($720,125 as of
June 30, 1997). In August 1997, Mr. Cretella paid to Fleet $140,000 as part of
the settlement. Mr. Cretella paid the balance to Fleet in October 1997. As
consideration for entering into the settlement, the Company issued to Mr.
Cretella a promissory note in the outstanding principal amount of $720,125 which
bears interest at the rate of 10% per annum, payable in monthly installments of
$6,102, with the outstanding principal payable in October 2001 upon maturity of
the note.
Prior to his employment by the Company, from October 1996 through
September 1997, Anthony Golio, Vice President of the Company, provided
consulting services to the Company through The Pineapple Group, Inc., a
restaurant consulting firm, wholly-owned by Mr. Golio, for which he was paid an
aggregate of $88,000. Such consulting services included organizational and
managerial training, labor and cost management, negotiating with vendors and
creating and refinancing management programs.
In June 1996, the Company borrowed $88,000 from Joseph De Giulio,
father of Jeanne Cretella. Interest is payable in monthly installments of $733
and the principal is due on June 22, 2001.
As of September 1996, the Company had made advances and transferred
equipment to Forest Avenue Corporation ("Forest") and deferred management fees
due from Forest in the aggregate of $542,463. In September 1996, the assets of
Forest were sold to an unrelated third party, and since the proceeds from the
sale of such assets were insufficient to repay the amounts due to the Company,
the Company deemed such amount to be uncollectible and wrote off such amount.
Effective September 29, 1996, the Company acquired all of the
outstanding capital stock of TAM, Bay Landing and Shellbank (the "Acquisition").
Frank and Jeanne Cretella were officers, directors and sole stockholders
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of TAM, Bay Landing and Shellbank prior to the Acquisition. In connection with
the Acquisition, Mr. and Mrs. Cretella received 1,679,235 shares of Common
Stock. Immediately prior to the Acquisition, Frank Cretella formed MAT Operating
Corp. ("MAT") and, in connection with the Acquisition, the assets relating to
TAM's food concession operations were transferred to MAT.
In October 1996, the Company entered into a 10-year operating agreement
with MAT, a company wholly-owned by Frank Cretella, to manage the food
concessions at the Central Park Zoo and the Staten Island Zoo in New York City
for which the Company receives a management fee equal to 5% of gross sales.
During the nine months ended June 29, 1997, the Company received $171,465 in
fees from MAT, consisting of an initial fee of $125,000 relating to the
formation of MAT and establishment of operations relating to the operating
agreement, $35,862 of management fees and $10,603 of interest and other income.
Since October 1, 1996, MAT has advanced to the Company an aggregate of $117,922
which is being offset against future management fees.
In October 1996, the Company loaned to Leisure Time $153,863, pursuant
to a note which is payable in monthly installments of $1,996.01, that bears
interest at a rate of 9.56% per annum and expires on October 1, 2006. The
Company loaned to Leisure Time an additional $20,670, which was repaid during
the nine months ended June 29, 1997.
In October 1996, the Company entered into a lease agreement with Mr.
Cretella, pursuant to which the Company leases its executive offices in Staten
Island, New York. Annual rent under the lease is $37,500 per year, increasing by
1.5% each year commencing January 1, 1998. The lease expires on December 31,
2001. The Company believes that this lease is on commercially reasonable terms.
In October 1996, the Company entered into a lease agreement with
Leisure Time, pursuant to which the Company leases a warehouse in Bayonne, New
Jersey. Annual rent under the lease is $30,000 per year, increasing by 1.5% each
year commencing January 1, 1998. The lease expires on December 31, 2001. The
Company believes that this lease is on commercially reasonable terms.
From time to time the Company has entered into equipment financing
leases which have been guaranteed by Mr. Cretella and/or Leisure Time.
Any future transactions with affiliates will be on terms no less
favorable to the Company than could be obtained from unaffiliated parties and
will be approved by a majority of the independent and disinterested members of
the Board of Directors, outside the presence of any interested directors and, to
the extent deemed appropriate by the Board of Directors, the Company will obtain
stockholder approval or fairness opinions in connection with any such
transaction.
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DESCRIPTION OF SECURITIES
Capital Stock
General
The Company is authorized to issue 19,000,000 shares of Common Stock,
par value $.0001 per share, and 1,000,000 shares of Preferred Stock, par value
$.0001 per share. As of the date of this Prospectus, there are 2,500,000 shares
of Common Stock outstanding, held by approximately 51 stockholders of record,
and no shares of Preferred Stock outstanding.
Common Stock
The holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of the stockholders. There is no cumulative vote
with respect to the election of directors, with the result that the holders of
50% or more of the shares vote for the election of directors can elect all of
the directors then up for election. The holders of Common Stock, subject to
preferences that may be applicable to any Preferred Stock outstanding at the
time, are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the Board of Directors out of funds legally available
therefor. In the event of liquidation or dissolution of the Company, the holders
of Common Stock are entitled to receive all assets available for distribution to
the stockholders, subject to any preferential rights of any Preferred Stock then
outstanding. The holders of Common Stock have no preemptive or other
subscription rights, and there are no conversion rights or redemption or sinking
fund provisions with respect to the Common Stock. All outstanding shares of
Common Stock are, and the shares of Common Stock offered hereby upon issuance
and sale will be, fully paid and non-assessable. The rights, preferences and
privileges of the holders of Common Stock are subject to, and may be adversely
affected by, the right of the holders of any shares of Preferred Stock which the
Company may designate in the future.
Preferred Stock
The Company is authorized to issue 1,000,000 shares of Preferred Stock
from time to time in one or more series upon authorization by the Company's
Board of Directors. The Board of Directors, without further approval of the
stockholders, is authorized to fix the dividend rights and terms, conversion
rights, voting rights, redemption rights and terms, liquidation preferences, and
other rights, preferences, privileges and restrictions applicable to each series
of Preferred Stock. The issuance of Preferred Stock, while providing flexibility
in connection with possible acquisitions and other corporate purposes could,
among other things, adversely affect the voting power of the holders of Common
Stock and, under certain circumstances, make it more difficult for a third party
to gain control of the Company, prevent or substantially delay a change of
control, discourage bids for the Company's Common Stock at a premium or
otherwise adversely affect the market price of the Common Stock.
Redeemable Warrants
Each Warrant offered hereby entitles the registered holder thereof (the
"Warrant Holders") to purchase one share of Common Stock at a price of $6.00,
subject to adjustment in certain circumstances, at any time commencing
_________, 1999 (13 months following the date of this Prospectus) (or on such
earlier date as to which the Underwriter consents) until 5:00 p.m., Eastern Time
on_______, 2003. The Warrants will be separately transferable immediately upon
issuance.
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The Warrants are redeemable by the Company at any time commencing
______________, 1999 (13 months following the date of this Prospectus) upon
notice of not less than 30 days, at a price of $.10 per Warrant, provided that
the closing bid quotation of the Common Stock on all 20 trading days ending on
the third trading day prior to the day on which the Company gives notice (the
"Call Date") has been at least 150% (currently $9.00 subject to adjustment) of
the then effective exercise price of the Warrants and the Company obtains the
consent of the Underwriter to such redemption prior to the Call Date. The
Warrant Holders shall have the right to exercise their Warrants until the close
of business on the date fixed for redemption. The Warrants will be issued in
registered form under a warrant agreement by and among the Company, Continental
Stock Transfer & Trust Company, as warrant agent, and the Underwriter (the
"Warrant Agreement"). The exercise price and number of shares of Common Stock or
other securities issuable on exercise of the Warrants are subject to adjustment
in certain circumstances, including in the event of a stock dividend,
recapitalization, reorganization, merger or consolidation of the Company.
However, the Warrants are not subject to adjustment for issuances of Common
Stock at prices below the exercise price of the Warrants. Reference is made to
the Warrant Agreement (which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part) for a complete description of the
terms and conditions therein (the description herein contained being qualified
in its entirety by reference thereto).
The Warrants may be exercised upon surrender of the Warrant certificate
during the exercise period at the offices of the warrant agent, with the
exercise form on the reverse side of the Warrant certificate completed and
executed as indicated, accompanied by full payment of the exercise price (by
certified check or bank draft payable to the Company) to the warrant agent for
the number of Warrants being exercised. The Warrant Holders do not have the
rights or privileges of holders of Common Stock.
No Warrant will be exercisable unless at the time of exercise the
Company has declared effective a current registration statement with the
Commission covering the shares of Common Stock issuable upon exercise of such
Warrant and such shares have been registered or qualified or deemed to be exempt
from registration or qualification under the securities laws of the state of
residence of the holder of such Warrant. The Company will use its best efforts
to have all such shares so registered or qualified on or before the exercise
date and to maintain a current prospectus relating thereto until the expiration
of the Warrants, subject to the terms of the Warrant Agreement. While it is the
Company's intention to do so, there can be no assurance that it will be able to
do so.
No fractional shares will be issued upon exercise of the Warrants.
However, if a Warrant Holder exercises all Warrants then owned of record by him,
the Company will pay to such Warrant Holder, in lieu of the issuance of any
fractional share which is otherwise issuable, an amount in cash based on the
market value of the Common Stock on the last trading day prior to the exercise
date.
Other Existing Warrants
There are currently outstanding warrants to purchase an aggregate of
310,000 shares of Common Stock all of which are being converted into Selling
Securityholders' Warrants. The Selling Securityholders' Warrants will be
identical to the Warrants. There are other outstanding warrants to purchase (i)
3,000 shares at an exercise price of $.01 which are exercisable until October
23, 2002 and (ii) 200,000 shares at an exercise price of $5.00 per share which
are exercisable commencing 90 days from the date of this Prospectus until
October 31, 2002. The Company granted certain registration right to the holder
of the warrants to purchase 200,000 shares of Common Stock.
Delaware Anti-Takeover Law
The Company is subject to certain anti-takeover provisions under
Section 203 of the Delaware General Corporation Law. In general, under Section
203, a Delaware corporation may not engage in any business
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combination with any "interested stockholder" (a person that owns, directly or
indirectly, 15% or more of the outstanding voting stock of a corporation or is
an affiliate of a corporation and was the owner of 15% or more of the
outstanding voting stock), for a period of three years following the date such
stockholder became an interested stockholder, unless (i) prior to such date the
board of directors of the corporation approved either the business combination
or the transaction which resulted in the stockholder becoming an interested
stockholder, or (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced, or (iii) on or subsequent to such date, the business
combination is approved by the board of directors and authorized at an annual or
special meeting of stockholders by at least 66 2/3% of the outstanding voting
stock which is not owned by the interested stockholder. The restrictions imposed
by Section 203 will not apply to a corporation if the corporation's initial
certificate of incorporation contains a provision expressly electing not to be
governed by this section or the corporation by action of its stockholders
holding a majority of outstanding stock adopts an amendment to its certificate
of incorporation or by-laws expressly electing not to be governed by Section
203.
The Company has not elected out of Section 203, and upon consummation
of this offering and the listing of Common Stock on Nasdaq. Such provision could
have the effect of discouraging, delaying or preventing a takeover of the
Company, which could otherwise be in the best interest of the Company's
stockholders, and have an adverse effect on the market price for the Company's
Common Stock.
Transfer Agent and Warrant Agent
The transfer agent for the Common Stock and the warrant agent for the
Warrants is Continental Stock Transfer & Trust Company, Two Broadway, New York,
New York 10004.
Reports to Stockholders
The Company intends to file a registration statement with the
Securities and Exchange Commission to register its Common Stock and Warrants
under the provisions of Section 12(g) of the Exchange Act prior to the date of
this Prospectus and has agreed with the Underwriter that it will use its best
efforts to continue to maintain such registration. Such registration will
require the Company to comply with periodic reporting, proxy solicitation and
certain other requirements of the Exchange Act.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this offering, the Company will have 3,500,000
shares of Common Stock outstanding (assuming no exercise of the Warrants). All
1,000,000 of the Shares being offered hereby will be immediately tradable
without restriction or further registration under the Securities Act. The
remaining 2,500,000 shares of Common Stock outstanding are deemed to be
"restricted securities," as that term is defined under Rule 144 promulgated
under the Securities Act, in that such shares were acquired by the stockholders
of the Company in transactions not involving a public offering, and, as such,
may only be sold pursuant to a registration statement under the Securities Act,
in compliance with the exemption provisions of Rule 144, or pursuant to another
exemption under the Securities Act. Approximately 2,461,076 of the restricted
shares will become eligible for sale under Rule 144, subject to the volume
limitations prescribed by the Rule, 90 days following the date of this
Prospectus and the balance of such restricted shares will become eligible for
sale under Rule 144, subject to the volume limitations presented by the Rule, in
May 1998.
-43-
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company (or persons whose shares are aggregated with an affiliate), who has
owned restricted shares of Common Stock beneficially for at least one year is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of 1% of the total number of outstanding shares of the
same class or, if the common stock is quoted on Nasdaq, the average weekly
trading volume during the four calendar weeks preceding the sale. A person who
has not been an affiliate of the Company for at least three months immediately
preceding the sale and who has beneficially owned shares of Common Stock for at
least two years is entitled to sell such shares under Rule 144 without regard to
any of the limitations described above.
The holders of 267,325 shares of Common Stock and the holders of the
310,000 Selling Securityholders' Warrants and 3,000 other outstanding warrants
have agreed not to sell, assign, transfer, pledge, hypothecate or otherwise
dispose of any of such securities for a period of 15 months from the date of
this Prospectus without the Underwriter's prior written consent. The holders of
253,002 shares of Common Stock and the holders of 200,000 outstanding warrants
have agreed not to sell, assign, transfer, pledge, hypothecate or otherwise
dispose of any of such shares for a period of 18 months from the date of this
Prospectus without the Underwriter's prior written consent. The holders of
1,979,673 shares of Common Stock (including the officers and directors of the
Company) have agreed not to sell, assign, transfer, pledge, hypothecate or
otherwise dispose of any of such shares for a period of 24 months from the date
of this Prospectus without the Underwriter's prior written consent.
Prior to this offering, there has been no market for the Common Stock
or Warrants and no prediction can be made as to the effect, if any, that public
sales of shares of Common Stock or the availability of such shares for sale will
have on the market prices of the Common Stock and the Warrants prevailing from
time to time. Nevertheless, the possibility that substantial amounts of Common
Stock may be sold in the public market may adversely affect prevailing market
prices for the Common Stock and the Warrants and could impair the Company's
ability in the future to raise additional capital through the sale of its equity
securities.
UNDERWRITING
Paragon Capital Corporation (the "Underwriter") has agreed, subject to
the terms and conditions contained in the Underwriting Agreement, to purchase
the 1,000,000 Shares and 500,000 Warrants offered hereby from the Company. The
Underwriter is committed to purchase and pay for all of the Shares and Warrants
offered hereby if any of such securities are purchased. The Shares and Warrants
are being offered by the Underwriter, subject to prior sale, when, as and if
delivered to and accepted by the Underwriter and subject to approval of certain
legal matters by counsel and to certain other conditions.
The Underwriter has advised the Company that it proposes to offer the
Shares and Warrants to the public at the public offering prices set forth on the
cover page of this Prospectus. The Underwriter may allow to certain dealers who
are members of the National Association of Securities Dealers, Inc. (the "NASD")
concessions, not in excess of $ per Share and $ per Warrant, of which not in
excess of $ per Share and $ per Warrant may be reallowed to other dealers
who are members of the NASD.
The Company has granted to the Underwriter an option, exercisable for
45 days from the date of this Prospectus, to purchase up to 150,000 additional
shares of Common Stock and/or 75,000 additional Warrants at the public offering
prices set forth on the cover page of this Prospectus, less the underwriting
discounts and commissions. The Underwriter may exercise this option in whole or,
from time to time, in part, solely for the purpose of covering over-allotments,
if any, made in connection with the sale of the Shares and/or Warrants offered
hereby.
-44-
The Company has agreed to pay the Underwriter a nonaccountable expense
allowance of 3% of the gross proceeds of this offering, of which $50,000 has
been paid as of the date of this Prospectus. The Company has also agreed to pay
all expenses in connection with qualifying the Shares and Warrants offered
hereby for sale under the laws of such states as the Underwriter may designate,
including expenses of counsel retained for such purpose by the Underwriter.
The Company has agreed to sell to the Underwriter and its designees for
an aggregate of $105, warrants (the "Underwriter's Warrants") to purchase up to
100,000 shares of Common Stock at an exercise price of $6.00 per share (120% of
the public offering price per share) and up to 50,000 Warrants (each exercisable
to purchase one share of Common Stock at a price of $7.25 per share) at an
exercise price of $.12 per Warrant (120% of the public offering price per
Warrant). The Underwriter's Warrants may not be sold, transferred, assigned or
hypothecated for one year from the date of this Prospectus, except to the
officers and partners of the Underwriter and members of the selling group and
are exercisable at any time and from time to time, in whole or in part, during
the four-year period commencing one-year from the date of this Prospectus (the
"Warrant Exercise Term"). During the Warrant Exercise Term, the holders of the
Underwriter's Warrants are given, at nominal cost, the opportunity to profit
from a rise in the market price of the Common Stock. To the extent that the
Underwriter's Warrants are exercised, dilution to the interests of the Company's
stockholders will occur. Further, the terms upon which the Company will be able
to obtain additional equity capital may be adversely affected since the holders
of the Underwriter's Warrants can be expected to exercise them at a time when
the Company would, in all likelihood, be able to obtain any needed capital on
terms more favorable to the Company than those provided in the Underwriter's
Warrants. Any profit realized by the Underwriter on the sale of the
Underwriter's Warrants, the underlying shares of Common Stock or the underlying
warrants, or the shares of Common Stock issuable upon exercise of such
underlying warrants may be deemed additional underwriting compensation. The
Company has agreed, at the request of the holders of a majority of the
Underwriter's Warrants, at the Company's expense, to register the Underwriter's
Warrants, the shares of Common Stock and warrants underlying the Underwriter's
Warrants, and the shares of Common Stock issuable upon exercise of the
underlying warrants under the Securities Act on one occasion during the Warrant
Exercise Term and to include the Underwriter's Warrants and all such underlying
securities in any appropriate registration statement which is filed by the
Company during the seven years following the date of this Prospectus.
The Company has also agreed, for a period of three years from the date
of this Prospectus, if so requested by the Underwriter, to nominate and use its
best efforts to elect a designee of the Underwriter as a director of the
Company, or, at the Underwriter's option, as a non-voting advisor to the
Company's Board of Directors. The Company's officers, directors and stockholders
have agreed to vote their shares of Common Stock in favor of such designee. The
Underwriter has not yet exercised its right to designate such a person.
In addition, the Company has agreed to enter into a consulting
agreement to retain the Underwriter as a financial consultant for a period of
two years from the consummation of this offering at an annual fee of $30,000,
the entire $60,000 payable in full, in advance. The consulting agreement will
not require the consultant to devote a specific amount of time to the
performance of its duties thereunder. In the event that the Underwriter
originates a financing or a merger, acquisition, joint venture or other
transaction to which the Company is a party, the Underwriter will be entitled to
receive a finder's fee in consideration for origination of such transaction.
The Company has agreed, in connection with the exercise of the Warrants
pursuant to solicitation (commencing one year from the date of this Prospectus),
to pay to the Underwriter a fee of 5% of the exercise price for each Warrant
exercised; provided, however, that the Underwriter will not be entitled to
receive such compensation in Warrant exercise transactions in which (i) the
market price of Common Stock at the time of exercise is lower than the exercise
price of the Warrants; (ii) the Warrants are held in any discretionary account;
(iii) disclosure of compensation arrangements is not made, in addition to the
disclosure provided in this Prospectus, in
-45-
documents provided to holders of Warrants at the time of exercise; (iv) the
exercise of the Warrants is unsolicited by the Underwriter; or (v) the
solicitation of exercise of the Warrants was in violation of Regulation M
promulgated under the Exchange Act.
Regulation M may prohibit the Underwriter from engaging in any market
making activities with regard to the Company's securities for the period from
nine business days (or such other applicable period as Regulation M may provide)
prior to any solicitation by the Underwriter of the exercise of Warrants until
the later of the termination of such solicitation activity or the termination
(by waiver or otherwise) of any right that the Underwriter may have to receive a
fee for the exercise of Warrants following such solicitation. As a result, the
Underwriter may be unable to continue to provide a market for the Company's
securities during certain periods while the Warrants are exercisable.
The holders of 267,325 shares of Common Stock and the holders of the
310,000 Selling Securityholders' Warrants and 3,000 other warrants have agreed
not to sell, assign, transfer, pledge, hypothecate or otherwise dispose of any
of such securities for a period of 15 months from the date of this Prospectus,
without the Underwriter's prior written consent. The holders of 253,002 shares
of Common Stock and the holders of 200,000 outstanding warrants have agreed not
to sell, assign, transfer, pledge, hypothecate or otherwise dispose of any of
such securities for a period of 18 months, without the prior written consent of
the Underwriter. The holders of 1,979,673 shares of Common Stock (including the
officers and directors of the Company), have agreed not to sell, assign,
transfer, pledge, hypothecate or otherwise dispose of any of such securities of
the Company for a period of 24 months from the date of this Prospectus, without
the prior written consent of the Underwriter.
The Underwriter has advised the Company that it does not expect sales
made to discretionary accounts to exceed 1% of the securities offered hereby.
The Company has agreed to indemnify the Underwriter against certain
civil liabilities, including liabilities under the Securities Act.
Prior to this offering, there has been no public trading market for the
Common Stock or Warrants. Consequently, the initial public offering price of the
Common Stock and Warrants and the exercise price of the Warrants have been
determined by negotiations between the Company and the Underwriter. Among the
factors considered in determining these prices were the Company's financial
condition and prospects, market prices of similar securities of comparable
publicly-traded companies and the general condition of the securities market.
In order to facilitate the offering, the Underwriter may engage in
transactions that stabilize, maintain or otherwise affect the prices of the
Common Stock and Warrants. Specifically, the Underwriter may over-allot in
connection with the offering, creating a short position in the Common Stock
and/or Warrants for its own account. In addition, to cover over-allotments or to
stabilize the price of the Common Stock and Warrants, the Underwriter may bid
for, and purchase, shares of Common Stock and Warrants in the open market. The
Underwriter may also reclaim selling concessions allowed to a dealer for
distributing the Common Stock and Warrants in the offering, if the Underwriter
repurchases previously distributed Common Stock and Warrants in transactions to
cover short positions, in stabilization transactions or otherwise. Any of these
activities may stabilize or maintain the market price of the Common stock and
Warrants above independent market levels. The Underwriter is not required to
engage in these activities, and may end any of these activities at any time.
-46-
SELLING SECURITYHOLDERS AND PLAN OF DISTRIBUTION
The Company has agreed to register the public offering of the Selling
Securityholders' Warrants and Selling Securityholders' Shares under the
Securities Act concurrently with this offering and to pay all expenses in
connection therewith. An aggregate of 310,000 Selling Securityholders' Warrants
and/or Selling Securityholders' Shares may be offered and sold pursuant to this
Prospectus by the Selling Securityholders. None of the Selling Securityholders'
Warrants nor Selling Securityholders' Shares may be sold by the Selling
Securityholders prior to 15 months after the date of this Prospectus, without
the prior written consent of the Underwriter. None of the Selling
Securityholders has ever held any position or office with the Company or had any
other material relationship with the company. The Company will not receive any
of the proceeds from the sale of the Selling Securityholders' Warrants and/or
Selling Securityholders' Shares by the Selling Securityholders. The following
table sets forth certain information with respect to the Selling
Securityholders:
Percentage
Beneficial Comon Beneficial Beneficial
Beneficial Warrants Beneficial Ownership Stock Ownership Ownership
Ownership Being Ownership of Common Being of Common After Sale
of Warrants Registered of Warrants Stock Prior Registered Stock After (Common
Selling Securityholder Prior to Sale For Sale After Sale(1) to Sale (2) For Sale Sale(2) Stock)
---------------------- ------------- -------- ------------- ----------- -------- ------- ------
[To be supplied]
The Selling Securityholders' Warrants and Selling Securityholders'
Shares may be offered and sold from time to time as market conditions permit in
the over-the-counter market, or otherwise, at prices and terms then prevailing
or at prices related to the then-current market price, or in negotiated
transactions. The Selling Securityholders' Warrants and Selling Securityholders'
Shares may be sold by one or more of the following methods, without limitation:
(i) a block trade in which a broker or dealer so engaged will attempt to sell
the shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction; (ii) purchases by a broker or dealer as
principal and resale by such broker or dealer for its account pursuant to this
Prospectus; (iii) ordinary brokerage transactions and transactions in which
broker solicits purchases; and (iv) transactions between sellers and purchasers
without a broker/dealer. In effecting sales, brokers or dealers engaged by the
Selling Securityholders may arrange for other brokers or dealers to participate.
Such brokers or dealers may receive commissions or discounts from selling
Securityholders in amounts to be negotiated. Such brokers and dealers and any
other participating brokers and dealers may be deemed to be "underwriters"
within the meaning of the Securities Act, in connection with such sales.
LEGAL MATTERS
The legality of the securities offered by this Prospectus will be
passed upon for the Company by Tenzer Greenblatt LLP, New York, New York.
Akerman, Senterfitt and Eidson, P.A., Miami, Florida, has acted as counsel to
the Underwriter in connection with this offering.
EXPERTS
The financial statements of the Company included in this Prospectus
have been audited by Maltese, Potter & LaMarca, LLP, independent auditors as
stated in their report appearing herein and have been included herein in
reliance upon the report of said firm given upon their authority as experts in
accounting and auditing. Our report contains an explanatory paragraph regarding
uncertainties as to the Company's ability to continue as a going concern.
-47-
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form SB-2 (the "Registration
Statement") under the Securities Act with respect to the securities offered by
this Prospectus. This Prospectus, filed as a part of such Registration
Statement, does not contain all of the information set forth in, or annexed as
exhibits to, the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulation of the Commission. For further
information with respect to the Company and this offering, reference is made to
the Registration Statement, including the exhibits filed therewith, which may be
inspected without charge at the Office of the Commission, 450 Fifth Street,
N.W., Washington D.C. 20549; and at the following regional offices: Midwest
Regional Office, Northwestern Atrium Center, 500 West Madison, Suite 1400,
Chicago, Illinois 60661-2511, and the Northeast Regional Office, 7 World Trade
Center, 13th Floor, New York, New York 10048. Copies of the Registration
Statement may be obtained from the Commission at its principal office upon
payment of prescribed fees. Statements contained in this Prospectus as to the
contents of any contract or other document are not necessarily complete and,
where the contract or other document has been filed as an exhibit to the
Registration Statement, each statement is qualified in all respects by reference
to the applicable document filed with the Commission. The Commission maintains
an Internet web site that contains reports, proxy and information statements and
other information regarding issuers that file electronically with the
Commission. The address of that site is http://www.sec.gov.
Upon consummation of this offering, the Company will become subject to
the reporting requirements of the Securities Exchange Act of 1934 and in
accordance therewith will file reports, proxy statements and other information
with the Commission. The Company intends to furnish to its stockholders with
annual reports containing audited financial statements and such other reports as
the Company deems appropriate or as may be required by law.
-48-
TAM RESTAURANT HOLDING CORP.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page(s)
Report of Independent Certified Public Accountants F-2
Financial Statements
Consolidated Balance Sheets F-3 to F-5
Consolidated Statements of Income F-6
Consolidated Statements of Changes in Stockholders' Equity F-7
Consolidated Statements of Cash Flows F-8 to F-9
Notes to Consolidated Financial Statements F-10 to F-26
F-1
Report of Independent Certified Public Accountants
(This is the form of opinion we will be able to render upon
completion of the stock split as described in Note Q)
To the Board of Directors and Stockholders
of TAM Restaurant Holding Corp. and Subsidaries
Staten Island, New York
We have audited the accompanying consolidated balance sheet of TAM Restaurant
Holding Corp., as of September 29, 1996, and the related consolidated statements
of income, consolidated statements of changes in stockholders' equity, and
consolidated statements of cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of TAM
Restaurant Holding Corp., as of September 29, 1996, and the results of its
operations and cash flows for the year then ended, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note N to the
financial statements, the Company's significant operating losses and negative
working capital raise substantial doubt about its ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Maltese, Potter & LaMarca LLP
July 31, 1997
F-2
TAM RESTAURANT HOLDING CORP.
CONSOLIDATED BALANCE SHEETS
ASSETS
September 29, June 29,
1996 1997
------------- -----------
(Unaudited)
Current Assets
Cash $ 66,616 $ 106,444
Accounts receivable (net of allowance
for doubtful accounts of $15,546) 264,948 987,242
Inventory 207,978 228,819
Prepaid and other expenses 270,216 356,206
Loan receivable-officer 53,602 23,516
---------- ----------
Total Current Assets 863,360 1,702,227
Property and Equipment-Net 3,551,303 4,327,920
Loans Receivable-Affiliate 177,438 156,682
Other Assets 136,767 136,767
---------- ----------
TOTAL ASSETS $4,728,868 $6,323,596
========== ==========
The accompanying notes are an integral part of these financial statements
F-3
TAM RESTAURANT HOLDING CORP.
CONSOLIDATED BALANCE SHEETS
LIABILITIES
September 29, June 29,
1996 1997
------------- -----------
(Unaudited)
Current Liabilities
Revolving credit line payable $ 130,000 $ 130,000
Current portion of long-term debt 518,938 630,063
Current portion of capitalized lease obligations 81,081 78,596
Accounts payable 934,995 754,750
Contract deposits payable 238,329 485,992
Accrued expenses 986,804 1,754,249
---------- ----------
Total Current Liabilities 2,890,147 3,833,650
---------- ----------
Long-term Liabilities
Deferred rent expense 148,084 220,140
Deferred expenses 237,250 237,250
Deferred income 43,000 43,000
Loans payable-related parties 236,000 178,000
Long-term debt-net of current portion 816,592 851,753
Capitalized lease obligations-net of current
portion 249,040 189,026
Loan payable-MAT Operating Corp. 0 117,922
---------- ----------
Total Long-term Liabilities 1,729,966 1,837,091
---------- ----------
TOTAL LIABILITIES 4,620,113 5,670,741
---------- ----------
Commitments and Contingencies
The accompanying notes are an integral part of these financial statements
F-4
TAM RESTAURANT HOLDING CORP.
CONSOLIDATED BALANCE SHEETS
September 29, June 29,
1996 1997
---- ----
(Unaudited)
STOCKHOLDERS' EQUITY
Stockholders' Equity
Preferred stock; .0001 per value; 1,000,000
shares authorized, 0 shares issued and
outstanding 0 0
Common stock; .0001 par value;
19,000,000 shares authorized; 2,385,257
and 2,500,000 shares issued and
outstanding as of September 29, 1996
and June 29, 1997, respectively, 238 250
Additional paid-in capital 2,697,811 3,132,799
Accumulated deficit (2,589,294) (2,480,194)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 108,755 652,855
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 4,728,868 $ 6,323,596
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-5
TAM RESTAURANT HOLDING CORP.
CONSOLIDATED STATEMENTS OF INCOME
Year Ended Nine Months Ended
September 29, 1996 June 30, 1996 June 29, 1997
------------------ ------------- -------------
(Unaudited)
Sales $ 11,847,088 $ 7,261,892 $ 8,902,628
Cost of Sales 7,260,440 4,502,373 5,064,207
------------ ------------ ------------
Gross Profit 4,586,648 2,759,519 3,838,421
Operating and Administrative Expenses 6,122,870 3,754,199 3,246,707
------------ ------------ ------------
Income (loss) from Operations (1,536,222) (994,680) 591,714
------------ ------------ ------------
Other Expense
Write-off of advance to affiliate (542,463) (542,463) 0
Interest expense (363,994) (270,282) (277,843)
Barter expense (293,135) (293,135) (204,771)
------------ ------------ ------------
Total Other Expense (1,199,592) (1,105,880) (482,614)
------------ ------------ ------------
Income (loss) from Continuing Operations
Before Income Tax Benefit (2,735,814) (2,100,560) 109,100
Income Tax Benefit 98,588 98,588 0
------------ ------------ ------------
Income (loss) from Continuing Operations (2,637,226) (2,001,972) 109,100
Income from Discontinued Operations (Net
of Income Taxes of $20,093) 30,142 30,142 0
------------ ------------ ------------
Net Income (loss) $ (2,607,084) $ (1,971,830) $ 109,100
============ ============ ============
Income (loss) per common share:
Income(loss) from continuing operations (1.22) (1.01) .05
Income from discontinued operations .01 .02 .00
------------ ------------ ------------
Net Income(loss) Per Common Share (1.21) (.99) .05
============ ============ ============
Weighted average number of
common shares outstanding 2,160,676 1,991,063 2,418,294
============ ============ ============
The accompanying notes are an integral part of these financial statements.
F-6
TAM RESTAURANT HOLDING CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Common Stock Additional
Paid In Accumulated
Shares Amount Capital Deficit
------ ------ ------- -------
Balance October 1, 1995 1,679,236 $ 168 $ 187,988 $ 17,790
Issuance of Common Stock 510,084 51 1,950,595
Issuance of Common Stock for Settlement 22,056 2 79,998
Common Stock Issued for Services 173,881 17 472,833
Transfer of Assets in Connection
with Reorganization (1,710)
Warrants Issued for Services 8,107
Net Loss for the Year (2,607,084)
----------- ----------- ----------- -----------
Balance at September 29, 1996 2,385,257 238 2,697,811 (2,589,294)
Issuance of Common Stock
(Unaudited) 55,141 6 199,994
Stock Issued for Debt (Unaudited) 59,602 6 234,994
Net Income (Unaudited) 109,100
----------- ----------- ----------- -----------
Balances at June 29, 1997 (Unaudited) 2,500,000 $ 250 $ 3,132,799 $(2,480,194)
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-7
TAM RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended Nine Months Ended
September 29, 1996 June 30, 1996 June 29, 1997
------------------ ------------- -------------
(Unaudited)
Cash Flows from Operating Activities
Net income (loss) $ (2,607,084) $(1,971,830) $ 109,100
Adjustments to reconcile net income
(loss) to net cash used by operating
activities:
Depreciation and amortization
expense 359,969 142,650 207,833
Deferred rent expense 148,083 111,062 72,056
Deferred expenses 237,250 237,250 0
Deferred income (7,184) (7,184) 0
Special compensation expense 561,114 0 0
Write-off of advance to affiliate 542,643 542,643 0
(Increase) decrease in:
Accounts receivable (22,072) (459,418) (722,296)
Inventory (77,238) (135,060) (20,841)
Prepaid and other expenses (125,343) (125,343) (85,990)
Other assets (90,986) (90,986) 0
Increase (decrease) in:
Accounts payable 279,920 273,549 (180,243)
Contract deposits payable 62,476 209,764 247,663
Accrued expenses 370,629 526,258 767,445
-------------- -------------- -------------
Net Cash provided by (used in) Operating
Activities (367,823) (746,645) 394,727
-------------- -------------- -------------
Cash Flows from Investing Activities
Acquisition of property and equipment (2,458,971) (2,138,888) (984,450)
-------------- ------------- -------------
Net Cash used in Investing Activities (2,458,971) (2,138,888) (984,450)
------------ ------------- -------------
The accompanying notes are an integral part of these financial statements.
F-8
TAM RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended Nine Months Ended
September 29, 1996 June 30, 1996 June 29, 1997
------------------ ------------- -------------
(Unaudited)
Cash Flows from Financing Activities
Net repayments of officers loans 60,545 114,147 30,086
Loans receivable 33,403 (20,199) 20,756
Proceeds from long-term debt 1,215,470 1,126,317 435,000
Principal payments on long-term debt (203,840) (72,040) (174,213)
Advances to affiliates and others 1,142 1,142 117,922
Proceeds from capital stock issue 1,638,936 1,674,336 200,000
------------ ------------- -------------
Net Cash provided by Financing Activities 2,745,656 2,823,703 629,551
------------ ------------- -------------
Net Increase (Decrease) in Cash (81,138) (61,830) 39,828
Cash, Beginning of Period 147,754 147,754 66,616
------------- -------------- --------------
Cash, End of Period $ 66,616 $ 85,924 $ 106,444
============= ============== =============
The accompanying notes are an integral part of these financial statements.
F-9
TAM RESTAURANT HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All information relating to June 29, 1997
and June 30, 1996 is unaudited.)
Note A-Summary of Significant Accounting Policies
Nature of business
TAM Restaurant Holding Corp. ("The Company") was incorporated under the laws of
the State of Delaware in July 1996 under the name TAM Restaurant Holding Corp.
and changed its name to TAM Restaurants, Inc. Effective September 29, 1996, the
Company acquired all of the outstanding capital stock of TAM Restaurant Group,
Inc., Bay Landing Restaurant Corp. and Shellbank Restaurant Corp. The Company
operates Lundy Bros. Restaurant, a high-volume, casual, upscale seafood
restaurant located in Brooklyn, New York, and The Boathouse in Central Park, a
multi-use facility which features an upscale restaurant and catering pavilion,
located on the lake in New York City's Central Park. The Company is also
constructing American Park at the Battery, which has been designed as a
high-volume premium-quality restaurant to be located at the water's edge in
Battery Park. In addition, the Company's restaurants offer high-quality
professional, on-premise and off-premise catering services.
Corporate restructuring
Effective September 29, 1996, the Companies completed a corporate restructuring,
whereby, the concession business previously operated by TAM Restaurant Group
Inc., was spun-off to a new corporation, MAT Operating Corp. (MAT). These
concessions included the Central Park Zoo, the Staten Island Zoo, and the
Wollman Ice Rink at Central Park. MAT is owned by a principal shareholder, who
prior to the reorganization, was a principal shareholder of TAM Restaurant
Group, Inc. In addition, the stockholders of TAM Restaurant Group, Inc., Bay
Landing Restaurant Corp. and Shellbank Restaurant Corp., transferred all of the
stock owned by them in return for stock in the Company. This transaction has
been treated in a manner similar to a pooling of interest.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-10
TAM RESTAURANT HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All information relating to June 29, 1997
and June 30, 1996 is unaudited.)
Accounting period
The Company reports their information using a 4-4-5 week quarter which ends on
the last Sunday of the month.
Revenue recognition
Revenues are recognized at the point of sale.
Inventory
Inventory is stated at the lower of cost, first-in, first-out, or market.
Inventory consists of items used in operations and items held for resale.
Property and equipment
Property and equipment are carried at cost. Depreciation of equipment, furniture
and fixtures, and amortization of leasehold improvements is provided using the
straight-line and double declining balance methods for financial reporting
purposes at rates based on the following estimated useful lives:
Years
-----
Transportation equipment 5
Furniture and fixtures 5-7
Equipment 5-7
Leasehold improvements Remaining life of lease
Expenditures for major renewals and betterments that extend the useful lives of
property and equipment are capitalized. Expenditures for maintenance and repairs
are charged to expense as incurred.
Trademarks
The name Lundy Bros. (registered July 9, 1996) and the logo F.W.I.L. (registered
December 17, 1996) are registered with the United States Patent and Technical
Office. Each registration will remain in force for 10 years, subject to the
filing of a Declaration of Continuing Use between the fifth and sixth
anniversaries of the registration date.
F-11
TAM RESTAURANT HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All information relating to June 29, 1997
and June 30, 1996 is unaudited.)
Barter advances
The Company has entered into various barter agreements which they use as a
source of financing. Under the agreements, the Company is advanced cash in
exchange to provide food and beverage to the barter companies. For every dollar
advanced, the Company must return $1.60 to $2.00 in food and beverage sales.
Income taxes
The Company accounts for its income taxes using the Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" (SFAS No. 109), which requires the establishment of a deferred
tax asset or liability for the recognition of future deductible or taxable
amounts and operating loss carryforwards. Deferred tax expense or benefit is
recognized as a result of the changes in the assets and liabilities during the
year. Valuation allowances are established when necessary to reduce deferred tax
assets to amounts expected to be realized.
Deferred stock offering costs
Costs incurred in connection with the Company's proposed public offering of
common stock will be charged to capital in the period that the offering was
completed, or charged to operations if the offering is not successful.
Rent expense
The Company amortizes its rental space at Lundy's using the straight-line method
over the life of the lease.
Advertising expense
Advertising expenditures are charged to earnings when incurred.
Concentrations of credit risk
The Company extends credit based on an evaluation of the customer's financial
condition, generally without requiring collateral. Exposure to losses on
receivables is principally dependent on each customer's financial condition. The
Company monitors its exposure for credit losses and maintains allowances for
anticipated losses. No individual customer is considered to be significant.
F-12
TAM RESTAURANT HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All information relating to June 29, 1997
and June 30, 1996 is unaudited.)
Net loss per share
Net loss per share of common stock is computed based on the weighted average
number of common stock and common stock equivalent shares outstanding during the
period. Common stock and warrants issued within twelve months of the IPO filing
for consideration below the proposed public offering price have been included as
if they had been outstanding for all periods presented.
Disclosure of fair value of financial instruments
The carrying amount of financial instruments including cash, accounts
receivable, accounts payable, accrued expenses and short-term debt approximated
fair value as of September 29, 1996 because of the relatively short maturity of
these instruments. Due to the unspecified payment terms, it was not practicable
to estimate the fair value of the loan to officer.
Interim financial information
The financial information presented as of June 29, 1997 and for the nine months
ended June 29, 1997 and June 30, 1996 is unaudited but, in the opinion of
management, reflects all adjustments (consisting of normal accruals) which the
Company considers necessary for a fair presentation of financial position at
such date and the operating results and cash flows for those periods. Results
for the nine month period ended June 29, 1997 are not necessarily indicative of
results that may be expected for the year ending September 29, 1997.
Recent accounting standards
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123). SFAS No. 123 is effective for financial statements
issued for periods beginning after December 15, 1995 and encourages entities to
adopt the fair value method in place of the provisions for Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB No. 25),
for all arrangements under which employees receive shares of stock or other
equity instruments of the employer or the employer incurs liabilities to
employees in amounts based on the price of its stock. The Company does not
anticipate adopting the fair value method encouraged by SFAS No. 123 and will
account for such transactions in accordance with APB No. 25.
F-13
TAM RESTAURANT HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All information relating to June 29, 1997
and June 30, 1996 is unaudited.)
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 (Statement 121), "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
Statement No. 121 requires, among other things, an impairment loss on assets to
be held and gains or losses from assets that are expected to be disposed of to
be included as a component of income from continuing operations before taxes on
income. The Company has adopted Statement No. 121 in fiscal 1997, and its
implementation has not had a material effect on the consolidated financial
statements.
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share" SFAS No. 128
is effective for financial statements issued for periods ending after December
15, 1997. SFAS No. 128 simplifies the computation of earnings per share by
replacing the presentation of primary earnings per share with a presentation of
basic earnings per share, as defined. The statement requires dual presentation
of basic and diluted earnings per share by entities with complex capital
structures. Basic earnings per share includes no dilution and is computed by
dividing income available to common stockholders by the weighted average number
of shares outstanding for the period. Diluted earnings per share reflects the
potential dilution of securities that could share in the earnings of an entity
similar to fully diluted earnings per share. SFAS No. 128 is not expected to
have a significant impact on the Company's financial statements.
In June 1997, SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information," were
issued. SFAS No. 130 addresses standards for reporting and display of
comprehensive income and its components and SFAS No. 131 requires disclosure of
reportable operating segments. Both statements are effective for the Company's
1998 fiscal year. The Company will be reviewing these pronouncements to
determined their applicability, if any.
Note B-Inventory
Inventory is comprised of the following:
9/29/96 6/29/97
--------- ---------
(Unaudited)
Food and beverage $ 63,480 $ 72,673
Liquor 61,645 71,782
Paper 4,353 2,869
Small wares, utensils, and supplies 78,500 81,495
----------- -----------
$ 207,978 $ 228,819
=========== ===========
F-14
TAM RESTAURANT HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All information relating to June 29, 1997
and June 30, 1996 is unaudited.)
Note C-Prepaid and Other Expenses
Prepaid and other expenses include the following:
9/29/96 6/29/97
------- -------
(Unaudited)
Refundable rent deposit $ 50,000 $ 50,000
Income taxes receivable 108,723 143,782
Prepaid expenses 60,028 162,424
Other receivables 51,465 0
----------- -----------
$ 270,216 $ 356,206
=========== ===========
Note D-Property and Equipment
Property and equipment is summarized as follows:
9/29/96 6/29/97
------- -------
(Unaudited)
Transportation equipment and trailers $ 158,406 $ 182,396
Furniture and fixtures 229,075 294,194
Equipment 1,308,098 1,479,624
Leasehold improvements 3,181,543 3,905,358
Assets acquired under capital leases 355,974 355,974
Computer software 35,469 35,469
----------- -----------
5,268,565 6,253,015
Less accumulated depreciation and amortization 1,717,262 1,925,095
----------- -----------
$ 3,551,303 $ 4,327,920
=========== ===========
Depreciation and amortization expense totaled $359,969 and $207,833 for the year
ended September 29, 1996 and the nine months ended June 29, 1997, respectively.
Note E-Other Assets
Included in other assets are treasury bonds which were purchased on February 15,
1985 at a cost of $9,704, with a face value of $10,000. The bonds are held in
escrow by Chemical Bank in lieu of a security deposit for the Boathouse
concession.
F-15
TAM RESTAURANT HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All information relating to June 29, 1997
and June 30, 1996 is unaudited.)
Note F-Accrued Expenses
Accrued expenses consisted of the following:
9/29/96 6/29/97
------- -------
(Unaudited)
Sales tax payable $ 477,140 $ 556,471
Accrued rent expense and related taxes 353,498 370,037
Barter advances 0 449,227
Accrued payroll and payroll taxes 148,651 338,475
Accrued other expenses 7,515 40,039
------------ ----------
$ 986,804 $1,754,249
============ ==========
Note G-Borrowings
The Company's loans outstanding are as follows:
9/29/96 6/29/97
------- -------
(Unaudited)
Installment loan payable to Fleet Bank in 59 monthly
installments of $1,108 plus interest at a rate of 9.56%
with a balloon payment of $67,609 due in July 1999.
The loan is collateralized by New Jersey property
which is owned by an affiliated company. $ 105,291 $ 99,751
Installment loan payable to Fleet Bank in 83 monthly
installments of $2,372, plus interest of 9.76% with a
balloon payment of $230,124 due in 2001. The loan
is collateralized by the Companies' offices
which are located in Staten Island, New York. 362,956 351,096
Mortgage loan payable to Fleet Bank, bearing interest
at the bank's prime rate plus 2% which expired in
1996. Monthly installments of interest only are due on
this mortgage. The loan is secured by a collateral
mortgage held by two primary stockholders. 150,000 150,000
F-16
TAM RESTAURANT HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All information relating to June 29, 1997
and June 30, 1996 is unaudited.)
Installment loan payable in 18 equal monthly
installments of $2,952 to Central Laundry Services
Corp. including interest at a rate of 6% beginning
January 10, 1996. The loan is collateralized by a
security interest in equipment with a net book
value of $21,868. 25,728 0
Installment loan payable in 60 monthly payments of
$3,187 to Brooklyn Union Gas Company, including
interest at a rate of 10% beginning December 1, 1995.
The loan is collateralized by equipment with a net
book value of $127,500. 129,887 110,301
Unsecured loan payable to a private investor bearing
interest at 21%. During 1997, $40,000 was paid on
this note and the remaining balance $160,000 was
converted to capital. 200,000 0
Unsecured loans from private investors bearing
interest at from rates 12% to 15% per annum.
In fiscal 1997, $75,000 of these loans were
converted to capital. 361,668 770,668
------------ ------------
1,335,530 1,481,816
Less portion due within one year 518,938 630,063
------------ ------------
Long-term debt $ 816,592 $ 851,753
============ ============
Maturities of long-term debt are as follows:
For the year ending September, 1997 $ 518,938
For the year ending September, 1998 357,648
For the year ending September, 1999 139,430
For the year ending September, 2000 63,824
For the year ending September, 2001 255,690
------------
$ 1,335,530
F-17
TAM RESTAURANT HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All information relating to June 29, 1997
and June 30, 1996 is unaudited.)
The Company has a credit line payable to Fleet Bank, bearing interest at the
bank's prime rate plus 2% which expired in December 1996. The loan is
collateralized by a security interest in all Company assets. (See Note Q also.)
Note H-Capital Lease Obligations
The Company leases equipment and various leasehold improvements under capital
leases. The assets acquired under capital leases have a cost of $355,974,
accumulated amortization of $51,168 and a net book value of $304,806.
Amortization of the leased assets is included in depreciation expense.
The following is a schedule by year of future minimum lease payments under
capitalized leases together with the present value of the net minimum lease
payments at September 29, 1996.
Payments for the year ending:
September, 1997 $ 126,058
September, 1998 126,058
September, 1999 101,840
September, 2000 59,096
September, 2001 9,329
------------
Total minimum lease payments 422,381
Less amount representing interest (92,260)
Present value of net minimum lease payments 330,121
Less current portion (81,081)
------------
Long-term lease obligation $ 249,040
============
F-18
TAM RESTAURANT HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All information relating to June 29, 1997
and June 30, 1996 is unaudited.)
Note I-Commitments and Contingencies
The Companies have entered into various lease and licensing agreements which
expire through 2015.
All of the Companies license agreements require the payment of rent based on a
percentage of gross receipts. Future minimum rental payments are as follows:
Year Ending September 30,
1997 $ 415,338
1998 444,389
1999 455,842
2000 441,238
2001 381,831
Thereafter 6,440,649
-----------
$ 8,579,287
===========
Rent expense, real estate taxes and common area charges for the year ended
September 29, 1996 totaled $944,828, $46,914 and $7,200 respectively. TAM
Restaurant Group, Inc. has a license agreement with the Central Park Zoo. MAT
has assumed the operation of the concession granted by such license agreement as
a result of a restructuring (See Note A also). However, TAM Restaurant Group,
Inc. is still responsible as a primary concessionaire until October 1998 when
the license expires. The lease requires payment of 39% of total sales as a
licensing fee. Sales for the nine months ended June 29, 1997 relating to this
license amounted to $532,603.
TAM Restaurant Group, Inc. is currently being audited by New York State for
sales and use taxes for the period December 1, 1989 to June 28, 1993. Management
believes and the company has accrued $50,000 for additional taxes that may be
due, exclusive of interest and penalties, if any. As of July, 1997 this audit
has not been completed.
F-19
TAM RESTAURANT HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All information relating to June 29, 1997
and June 30, 1996 is unaudited.)
Note J-Related Party Transactions
In April 1988, Perfect Parties, the catering division of TAM Restaurant Group,
Inc. was transferred to Forest Avenue Corporation which is owned by stockholders
of the Company. Forest Avenue Corporation utilized equipment of the Company at
no charge. Forest Avenue Corporation also received management services from the
Company. On September 3, 1996, the assets of Forest Avenue Corporation were sold
to an unrelated third party. As a result, the Company wrote-off $542,463
representing monies advanced as well as unpaid management fees and equipment
notes to Forest Avenue Corporation which are uncollectible.
In March 1994, Leisure Time Services, Inc. which is owned by a stockholder of
the Company was formed to purchase, repair and store equipment and supplies for
the company as well as to assist the company in the performance of special
catering events. Rent paid by the Company for the year ended September 29, 1996
for utilization of the warehouse was $28,300. All the income and expenses for
other operations of Leisure Time Services are absorbed by the Company and
reflected in the accompanying financial statements. In late 1994, the Companies
obtained long-term financing from Fleet Bank (see Note G also). The borrowings
are collateralized by a warehouse located in New Jersey and owned by Leisure
Time Services, Inc. In order to provide the bank with the proper title, some of
the funds borrowed were used to pay off the mortgages and other related costs on
the collateralized property. As of September 29, 1996, included in the
accompanying consolidated balance sheet under the caption loans
receivable-affiliate is $177,438 which was used to secure the title on the New
Jersey warehouse. This loan is being repaid in equal monthly installments of
$1,996 including interest at 9.6% through December, 2006.
Similarly, in obtaining long-term financing from Fleet Bank, the Company's
headquarters facility located in Staten Island, NY (owned by the Company's
stockholder) was used to collateralize the debt and to provide the bank with
proper title.
Additionally, the Company occasionally advanced monies to officers of the
Company. No terms of repayment or interest rate have been determined on these
advances. As of September 29, 1996 the balance in this account was $53,602. In
1997, repayments of $30,086 were made against this loan by the officer.
The Company is indebted to relatives of the principal stockholder in the amounts
of $236,000 and $178,000 for the periods ending September 29, 1996 and June 29,
1997, respectively. The notes are unsecured and bear interest from 12% to 15%
per annum.
F-20
TAM RESTAURANT HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All information relating to June 29, 1997
and June 30, 1996 is unaudited.)
For the year ending September 29, 1996, the Company has reduced operating
expenses by $71,670 representing management fee income from MAT. (See Note M)
Note K-Capital Stock and Warrants
During fiscal 1996, the Company issued 173,881 shares and granted 55,141
warrants with an original exercise price of $5.44 per share and 3,000 warrants
with an original exercise price of $.01 per share for services received. In
addition, the Company issued 4,724 of warrants with original exercise price of
$4.53 per share to an officer of the Company for prior compensation.
Additionally, during fiscal 1996, the Company sold units consisting of .5514
share of common stock and .05514 warrants for $2.00 per unit and .5514 share of
common stock, and .11028 warrants for $2.27 per unit. The warrants had an
original exercise price of $4.53 per share. The Company sold 925,050 units.
During the nine months ended June 29, 1997, the Company sold an additional
100,000 units at $2.27 per unit, and converted $240,000 of debt into 108,090
additional units.
At June 29, 1997, there were an aggregate of 307,486 warrants outstanding.
The Company has agreed with certain stockholders to repurchase 158,531 shares of
common stock at a original cost of $575,000 if the Company was not in process of
going public by certain specified dates or if the Initial Public Offering is not
successful. Such repurchase would be executed by utilizing interest bearing
notes. There have not been any requests by any shareholders to have their stock
repurchased. The Company is currently negotiating with these stockholders to
eliminate their right to require the Company to repurchase such shares.
For the year ended September 29, 1997, the Company issued 22,056 shares of
Common Stock and .5514 warrants as part of a settlement, resulting in a
non-recurring charge of $80,000.
The Board of Directors is authorized to fix the rights, preferences, privileges
and restrictions of any series of preferred stock, including the dividend
rights, original issue price, conversion rights, voting rights, terms of
redemption, liquidation preferences and sinking fund terms thereof, and the
number of shares constituting any such series and the designation thereof and to
increase or decrease the number of shares subsequent to the issuance of shares
of such series (but not below the number of shares of such series then
outstanding.)
F-21
TAM RESTAURANT HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All information relating to June 29, 1997
and June 30, 1996 is unaudited.)
Note L-Income Taxes
Income tax benefit has been calculated as follows:
9/29/96 6/30/96 6/29/97
------- ------- -------
(Unaudited)
Federal taxes $ 49,390 $ 49,390 $ 0
State and local taxes 49,198 49,198 0
---------- ---------- -------------
$ 98,588 $ 98,588 $ 0
========= ========= ============
The Company's deferred tax assets, deferred tax liabilities and deferred tax
asset valuation allowance at September 29, 1996 are as follows:
Deferred rent expense $ 50,593
Deferred expenses 80,665
Net operating loss carryforward 466,779
Depreciation 19,386
Vacation pay and officers' payroll accrual 13,017
----------
Total deferred tax assets 630,440
Less valuation allowance (630,440)
0
Total deferred tax liabilities 0
----------
Net deferred tax asset $ 0
==========
The tax benefit from a net operating loss carryback resulted in a income tax
receivable of $108,723 at September 29, 1996.
A valuation allowance of 100% is being recorded due to the uncertainty as to the
Company's ability to continue as a going concern.
For tax purposes, the Companies have approximately $1,845,114 of net operating
loss carryforwards as of September 29, 1996 which expire through 2011.
F-22
TAM RESTAURANT HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All information relating to June 29, 1997
and June 30, 1996 is unaudited.)
The difference between the amount of income tax expense that would result from
applying the federal statutory rate of 34% to pre-tax income and the provision
for federal income taxes are as follows:
9/29/96 6/30/96 6/29/97
------- ------- -------
(Unaudited)
Income tax (benefit) at statutory rate $(886,409) $(670,422) $ 37,094
Reduction in valuation allowance
relating to tax benefit due to net
operating loss limitation 787,821 571,834 0
Reduction of valuation allowance
due to utilization of net operating loss 0 0 (37,094)
---------- ----------- ----------
Net Tax (Benefit) $ (98,588) $ (98,588) $ 0
========== =========== ==========
Note M-Discontinued Operations
As a result of a corporate restructuring (see Note A also), the concession
business previously operated by TAM Restaurant Group, Inc. was spun off to a new
corporation. The following is a summary of the financial information of the
concessions as of September 29, 1996:
Assets $ 90,239
Liabilities (88,529)
------------
Difference $ 1,710
============
Sales $1,433,409
Purchases 309,289
Gross Profit 1,124,120
Operating Expenses (1,073,885)
------------
Operating Income 50,235
Income Taxes (20,093)
------------
Net Income $ 30,142
============
The operations at Wollman Rink terminated in February 1996. The operations at
the Central Park Zoo and Staten Island Zoo are still being operated by MAT.
Operating expense included above reflect a 5% (of sales) management fee charged
to each location from TAM Restaurant Holding Corp.
F-23
TAM RESTAURANT HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All information relating to June 29, 1997
and June 30, 1996 is unaudited.)
As a result of the transfer of assets and liabilities, additional paid in
capital of the companies was reduced by $1,710.
Note N-Going Concern
As shown in the accompanying financial statements, the Company incurred a net
loss of $2,607,084 during the year ended September 29, 1996 and as of that date,
the Company's current liabilities exceeded its current assets by $2,026,787.
These factors raise substantial doubt as to the Company's ability to continue as
a going concern. The ability of the Company to continue as a going concern is
dependent upon the success of an initial public offering, or the ability of the
company to obtain debt financing from a bank or private lenders or, raising
additional capital through a private placement offering. The financial
statements do not include any adjustments that might be necessary should the
Company be unable to continue as a going concern.
Note O-Pending Litigation
TAM Restaurant Group Inc. and Bay Landing Restaurant Corp. have been named as
defendants and/or co-defendants in four separate personal injury lawsuits
arising in the ordinary course of business. These cases are in the preliminary
stages and, as such, the ultimate outcome of the litigation cannot presently be
determined. All the suits are being handled by the Company's insurance carriers.
Management believes the suits against the Company to be entirely without merit
and anticipates that the suits will have no material impact on the Company.
Accordingly, no provision for any liability that may result upon adjudication
has been made in the accompanying financial statements by the companies.
Note P-Cash Flow Disclosure
Cash paid for interest and income taxes is as follows:
9/29/96 6/30/96 6/29/97
------- ------- -------
(Unaudited)
Interest $ 312,366 $ 218,656 $ 277,843
============ ============= ============
Income taxes $ 0 $ 0 $ 2,800
============ ============= ============
F-24
TAM RESTAURANT HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All information relating to June 29, 1997
and June 30, 1996 is unaudited.)
Non-Cash Transactions included the following:
For the period ended June 29, 1997, the Company exchanged debt in the amount of
$235,000 and converted it to capital.
Note Q-Subsequent Events
In connection with a proposed initial public offering of its common stock, the
Company will effect a 1-for-1.8135268 reverse stock split. All shares and per
share data in the consolidated financial statements have been adjusted to give
retroactive effect to the reverse stock split.
In addition, effective as of the date of the IPO, the Company will enter into
three year employment agreements with Frank Cretella and Jeanne Cretella, which
is contractually renewable and provides for an annual base compensation of
$175,000 and $75,000, respectively, and such bonuses as the Board of Directors
may from time to time determine.
Also, effective as of the date of the IPO, the Company will initiate a stock
option plan (the "Option Plan") pursuant to which 525,000 shares of Common Stock
have been reserved for issuance upon the exercise of options designated as
either (i) options intended to constitute incentive stock options ("ISOs") under
the Internal Revenue Code of 1986, as amended (the "Code") or (ii) non-qualified
options. ISOs may be granted under the Option Plan to officers and employees of
the Company. Non-qualified options may be granted to consultants, directors
(whether or not they are employees), employees or officers of the Company.
F-25
TAM RESTAURANT HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All information relating to June 29, 1997
and June 30, 1996 is unaudited.)
During 1995 and 1996, the Company borrowed an aggregate of $840,000 from Fleet.
Such loans were collateralized by the Company's principal executive offices,
which are owned by Mr. Cretella, and the warehouse leased by the Company and
owned by Leisure Time Services, Inc., a company owned by Jeanne Cretella, Vice
President, Director and a principal stockholder of the Company, and Mr. and Mrs.
Cretella's personal residence. In June 1997, Mr. Cretella agreed to settle the
amounts owed to Fleet of $720,125 for $640,000 plus accrued interest through the
date of payment. In August 1997, Mr. Cretella paid to Fleet $140,000 as part of
the settlement, and the balance was paid in October, 1997. As consideration for
entering into the settlement, the Company has issued to Mr. Cretella a
promissory note in the principal amount of $720,125, which bears interest at a
rate of 10% per annum, payable in monthly installments of $6,102, with the
principal payable in October, 2001 upon the maturities of the note.
In October, 1997, the Company obtained $1,000,000 in a secured loan from an
outside investment firm. The loan bears interest at 10% per annum, payable
quarterly and matures nineteen months after the funding date, if the Company's
initial public offering becomes effective prior to April 15, 1998; otherwise,
the loan is due July 15, 1998. 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 shareholder.
F-26
================================================================================
No dealer, salesperson or other person has been authorized to give any
information or to make any representations not contained in this Prospectus,
and, if given or made, such information or representation must not be relied
upon as having been authorized by the Company or the Underwriter. This
Prospectus does not constitute an offer to sell, or a solicitation of an offer
to buy, any security other than the securities offered by this Prospectus, or an
offer to sell or a solicitation of an offer to buy any securities by anyone in
any jurisdiction in which such offer or solicitation is not authorized or is
unlawful. The delivery of this Prospectus shall not, under any circumstances,
create any implication that the information contained herein is correct as of
any time subsequent to the date hereof.
----------
TABLE OF CONTENTS
Page
----
Prospectus Summary...........................................................3
Risk Factors.................................................................8
Use of Proceeds.............................................................17
Dilution....................................................................18
Dividend Policy.............................................................19
Capitalization..............................................................20
Selected Financial Data.....................................................21
Management's Discussion and Analysis of
Financial Condition and Results of Operations..............................22
Business....................................................................26
Management..................................................................35
Principal Stockholders......................................................38
Certain Transactions........................................................39
Description of Securities...................................................41
Shares Eligible for Future Sale.............................................43
Underwriting................................................................44
Selling Securityholders and Plan of Distribution............................47
Legal Matters...............................................................47
Experts.....................................................................47
Additional Information......................................................48
Index to Financial Statements..............................................F-1
----------
Until , 1997, (25 days after the date of this Prospectus), all
dealers effecting transactions in the shares of Common Stock or Warrants offered
hereby, whether or not participating in this distribution may be required to
deliver a Prospectus. This is in addition to the obligation of dealers to
deliver a Prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
================================================================================
================================================================================
TAM RESTAURANTS, INC.
1,000,000 Shares of Common Stock
and
Redeemable Warrants to Purchase
500,000 Shares of Common Stock
----------
PROSPECTUS
----------
Paragon Capital Corporation
, 1997
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Section 145 of the General Corporation Law of the State of Delaware
provides for the indemnification of officers and directors under certain
circumstances against expenses incurred in successfully defending against a
claim and authorizes Delaware corporations to indemnify their officers and
directors under certain circumstances against expenses and liabilities incurred
in legal proceedings involving such persons because of their being or having
been an officer or director.
Section 102(b) of the Delaware General Corporation Law permits a
corporation, by so providing in is certificate of incorporation, to eliminate or
limit director's liability to the corporation and its stockholders for monetary
damages arising out of certain alleged breaches of their fiduciary duty. Section
102(b)(7) provides that no such limitation of liability may affect a director's
liability with respect to any of the following: (i) breaches of the director's
duty of loyalty to the corporation or its stockholders; (ii) acts or omissions
not made in good faith or which involve intentional misconduct of knowing
violations of law; (iii) liability for dividends paid or stock repurchased or
redeemed in violation of the Delaware General Corporation law; or (iv) any
transaction from which the director derived an improper personal benefit.
Section 102(b)(7) does not authorize any limitation on the ability of the
corporation or its stockholders to obtain injunction relief, specific
performance or other equitable relief against directors.
Article Eighth of the Registrant's Certificate of Incorporation and the
Registrant's By-laws provide that all persons who the Registrant is empowered to
indemnify pursuant to the provisions of Section 145 of the General Corporation
Law of the State of Delaware (or any similar provision or provisions of
applicable law at the time in effect), shall be indemnified by the Registrant to
the full extent permitted thereby. The foregoing right of indemnification shall
not be deemed to be exclusive of any other rights to which those seeking
indemnification may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors, or otherwise.
Article Ninth of the Registrant's Certificate of Incorporation provides
that no director of the Registrant shall be personally liable to the Registrant
or its stockholders for any monetary damages for breaches of fiduciary duty of
loyalty to the Registrant or its stockholders' (ii) for acts or omission not in
good faith or which involve intentional misconduct or knowing-violation of law;
(iii) under Section 174 of the General Corporation Law of the State of Delaware;
or (iv) for any transaction from which the director derived an improper personal
benefit.
Insofar as indemnification for liabilities under the Securities Act of
1933, as amended (the "Securities Act") may be permitted to directors, officers
or persons controlling the Registrant pursuant to the foregoing provisions, the
Registrant has been informed that in the opinion of the Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
Reference is made to the Underwriting Agreement, the proposed form of
which is filed as Exhibit 1.1, pursuant to which the Underwriter agree to
indemnify the directors and certain officers of the Registrant and certain other
persons against certain civil liabilities.
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Item 25. Other Expenses of Issuance and Distribution.
The estimated expenses payable by the Registrant in connection with the
issuance and distribution of the securities being registered (other than
underwriting discounts and commissions and the Underwriter's nonaccountable
expense allowance) are as follows:
Securities and Exchange Commission registration fee............... $3,378.33
NASD filing fee................................................... 1,614.85
Nasdaq listing fee................................................ 10,000.00
Underwriter's consulting fee...................................... 60,000.00
Printing and engraving expenses................................... *
Legal fees and expenses........................................... *
Accounting fees and expenses...................................... *
Blue sky fees and expenses (including legal fees)................. *
Transfer agent, warrant agent and registrar fees and expenses..... *
Miscellaneous..................................................... *
----------
Total.................................................... $443,500.00
===========
- -------------------
* To be filed by amendment.
Item 26. Recent Sales of Unregistered Securities
Since October 1995, the Registrant has issued securities without
registration under the Securities Act in the following transactions (in each
case giving retroactive effect to the subsequent stock splits):
1. From October 1995 to September 1996, the Registrant issued an
aggregate of 510,084 shares of Common Stock and warrants to purchase 181,600
shares of Common Stock to 31 investors for aggregate proceeds of $1,980,000.
2. In July 1996, the Registrant issued an aggregate of 173,881 shares
of Common Stock and warrants to purchase 3,000 shares of Common Stock to 7
persons and entities as consideration for services rendered to the Registrant.
3. In September 1996, the Registrant issued 22,056 shares of Common
Stock and warrants to purchase 5,514 shares of Common Stock to four persons as
settlement of a dispute.
4. In February 1997, the Registrant issued 55,141 shares of Common
Stock and warrants to purchase 27,571 shares of Common Stock to one investor for
$200,000.
5. During 1997, the Registrant issued 59,602 shares of Common Stock and
warrants to purchase 21,530 shares of Common Stock to three persons upon the
conversion of $235,000 of indebtedness.
6. In October 1997, the Registrant issued warrants to purchase 4,724
shares of Common stock to an officer and director as compensation.
7. In October 1997, the Registrant issued warrants to purchase 200,000
shares of Common Stock to three entities as partial consideration for making
loans to the Registrant.
The sales and issuances of the Common Stock and warrants described
above were deemed to be exempt from registration under the Securities Act in
reliance upon Section 4(2) thereof as transactions not involving a public
offering. The purchasers in such private offerings represented their intention
to acquire the securities for investment only and not with a view to the
distribution thereof and appropriate legends were affixed to the stock
certificates issued in such
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transactions. All purchasers had adequate access, through their employment or
other relationships, to sufficient information about the Registrant to make an
informed investment decision.
Item 27. Exhibits.
Exhibit Number Description
1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation, as amended, of the Registrant.
3.2 Bylaws, as amended, of the Registrant.
*4.1 Form of Registrant's Common Stock Certificate.
4.2 Form of Underwriter's Warrant Agreement, including Form of Warrant Certificate.
4.3 Form of Public Warrant Agreement among the Registrant, Paragon Capital Corporation, as
Underwriter and Continental Stock Transfer & Trust Company, as Warrant Agent.
*4.4 Form of Registrant's Public Warrant Certificate.
*5.1 Opinion of Tenzer Greenblatt LLP.
10.1 License Agreement between TAM Restaurant Group, Inc. (formerly TAM Concessions, Inc.) and
City of New York Department of Parks and Recreation, dated February 8, 1995, as modified.
10.2 License Agreement between Shellbank Restaurant Corp. and City of New York Parks and Recreation
dated December 14, 1994.
10.3 Lease by and between Lundy's Management Corp. and Bay Landing Restaurant Corp. dated July 24,
1994, as amended.
10.4 Lease by and between Mr. Frank Cretella and the Registrant dated October 1, 1996.
10.5 Lease by and between Leasing Time Services and the Registrant dated October 1, 1996.
10.6 Management Agreement by and between the Registrant and MAT Operating Corp. dated October 1,
1996.
10.7 Loan Agreement by and between the Registrant and each of ARBCO Associates, L.P. and Kayne,
Anderson Non-Traditional Investments, L.P. dated as of October 31, 1997.
*10.8 Form of Employment Agreement between Registrant and Frank Cretella.
*10.9 Form of Employment Agreement between Registrant and Jeanne Cretella.
*10.10 1997 Stock Option Plan.
23.1 Consent of Maltese, Potter & LaMarca, LLP, Independent Certified Public Accountants.
*23.2 Consent of Tenzer Greenblatt LLP (will be contained in such firm's opinion filed as Exhibit).
24.1 A power of attorney relating to the signing of amendments hereto is incorporated in the signature
pages of this Registration Statement.
27.1 Financial Data Schedule.
- ---------------------
* To be filed by amendment.
Item 28. Undertakings.
The undersigned registrant hereby undertakes to:
(1) file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) include any prospectus required by section 10(a)(3) of the
Securities Act.
(ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information set forth in the Registration Statement;
(iii) include any additional or changed material information
on the plan of distribution;
II-3
(2) for determining liability under the Securities Act, treat each such
post-effective amendment as a new registration of the securities offered, and
the offering of such securities at that time to be initial bona fide offering;
and
(3) file a post-effective amendment to remove from registration any of
the securities that remain unsold at the termination of the offering.
lnsofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes (1) to provide to the
underwriters at the closing specified in the standby under writing agreement
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser; (2) that for the
purpose of determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act as part of this Registration Statement as of the time
the Securities and Exchange Commission declares it effective; and (3) that for
the purpose of determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of Prospectus as a new
Registration Statement for the securities offered in the Registration Statement
therein, and treat the offering of the securities at that time as the initial
bona fide offering of those securities.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the city of New
York, State of New York on November 11, 1997.
TAM RESTAURANTS, INC.
By: /s/ Frank Cretella
------------------------
President and
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below on this Registration
Statement hereby constitutes and appoints Frank Cretella and Jeanne Cretella,
and each of them, as his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacities (until revoked in writing) to sign any and all
amendments (including pre-effective amendments and post-effective amendments and
amendments thereto) to this Registration Statement on Form SB-2 of TAM
Restaurants, Inc. and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, each acting alone or his substitute, may lawfully do or cause to be done
by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
Signatures Title(s) Date
---------- -------- -----
/s/ Frank Cretella President, Chief Executive Officer November 11, 1997
- ------------------------------------- October and Director (Principal
Frank Cretella Financial Officer)
/s/ Jeanne Cretella Vice President and Director November 11, 1997
- -------------------------------------
Jeanne Cretella
/s/ Kenneth L. Harris Chairman of the Board November 11, 1997
- -------------------------------------
Kenneth L. Harris
EXHIBIT INDEX
Exhibit Number Description
1.1 Form of Underwriting Agreement.
4.2 Form of Underwriter's Warrant Agreement, including Form of Warrant Certificate.
4.3 Form of Public Warrant Agreement among the Registrant, Paragon Capital Corporation, as
Underwriter and Continental Stock Transfer & Trust Company, as Warrant Agent.
10.1 License Agreement between TAM Restaurant Group, Inc. (formerly TAM Concessions, Inc.) and
City of New York Department of Parks and Recreation, dated February 8, 1995, as modified.
10.2 License Agreement between Shellbank Restaurant Corp. and City of New York Parks and Recreation
dated December 14, 1994.
10.3 Lease by and between Lundy's Management Corp. and Bay Landing Restaurant Corp. dated July 24,
1994, as amended.
10.4 Lease by and between Mr. Frank Cretella and the Registrant dated October 1, 1996.
10.5 Lease by and between Leasing Time Services and the Registrant dated October 1, 1996.
10.6 Management Agreement by and between the Registrant and MAT Operating Corp. dated October 1,
1996.
10.7 Loan Agreement by and between the Registrant and each of ARBCO Associates, L.P. and Kayne,
Anderson Non-Traditional Investments, L.P. dated as of October 31, 1997.
23.1 Consent of Maltese, Potter & LaMarca, LLP, Independent Certified Public Accountants.