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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 28, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO _______
COMMISSION FILE NUMBER 0-23243
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CAFE ODYSSEY, INC.
(Name of Small Business Issuer as Specified in Its Charter)
MINNESOTA 31-1487885
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Indentification No.)
4801 W. 81ST STREET, SUITE 112
BLOOMINGTON, MN 55437
(Address of Principal Executive Offices)
612-837-9917
(Issuer's Telephone Number, Including Area Code)
HOTEL DISCOVERY, INC.
4801 W. 81ST STREET, SUITE 112
BLOOMINGTON, MN 55437
(Former Name, Former Address and Former Fiscal Address,
if Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or
for such shorter period that the issuer was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
As of August 10, 1998, the number of shares outstanding of the Issuer's
Common Stock, $0.01 par value was 8,000,089.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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FORWARD-LOOKING STATEMENTS
Certain of the matters discussed in the following pages, particularly
regarding estimates of the number and locations of new restaurants that the
Company intends to open during fiscal 1998 and 1999, constitute
"forward-looking statements" within the meaning of the Securities Act of
1933, as amended and the Securities Exchange Act of 1934, as amended.
Forward-looking statements involve a number of risks and uncertainties, and,
in addition to the factors discussed in this Form 10-QSB, among the other
factors that could cause actual results to differ materially are the
following: the Company's ability to identify and secure suitable locations
on acceptable terms, obtain additional capital necessary for expansion on
acceptable terms, open new restaurants in a timely manner, hire and train
additional restaurant personnel and integrate new restaurants into its
operations; the continued implementation of the Company's strict business
discipline over a growing restaurant base; the economic conditions in the
new markets into which the Company expands and possible uncertainties in the
customer base in these areas; changes in customer dining patterns;
competitive pressures from other national and regional restaurant chains;
business conditions, such as inflation or a recession, and growth in the
restaurant industry and the general economy; changes in monetary and fiscal
policies, laws and regulations; and other risks identified from time to time
in the Company's SEC reports, registration statements and public
announcements.
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CAFE ODYSSEY, INC.
INDEX
PAGE
PART I FINANCIAL INFORMATION 4
ITEM 1. Financial Statements
Balance Sheets as of June 28, 1998 and December 28, 1997 4
Statements of Operations for the thirteen weeks ended June 28, 1998 5
and June 29, 1997 and the twenty-six weeks ended June 28, 1998
and June 29, 1997
Statements of Cash Flows for the twenty-six weeks ended June 28, 1998 6
and June 29, 1997
Condensed Notes to the Financial Statements 7
ITEM 2. Management's Discussion and Analysis of Financial Condition and 9
Plan of Operations
PART II OTHER INFORMATION 12
ITEM 1. Legal Proceedings 12
ITEM 4. Submission of Matters to a Vote of Security Holders 12
ITEM 5. Other Information 12
ITEM 6. Exhibits and Reports on Form 8-K 12
Signatures 14
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CAFE ODYSSEY, INC.
BALANCE SHEETS
June 28, December 28,
1998 1997
---- ----
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 2,552,161 $ 9,222,174
Landlord allowance receivable 1,600,000 --
Inventories 122,381 41,766
Other current assets 444,201 250,043
------------- -------------
Total current assets 4,718,743 9,513,983
PROPERTY AND EQUIPMENT, net 11,280,457 5,270,160
OTHER ASSETS, net 374,204 55,908
------------- -------------
$ 16,373,404 $ 14,840,051
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term notes payable --- 200,000
Accounts payable 2,619,738 669,380
Accrued salaries and wages 310,461 366,674
Other accrued expenses 123,634 115,773
Current portion of long-term debt 999,969 69,420
------------- -------------
Total current liabilities 4,053,802 1,421,247
DEFERRED RENT 1,615,222 ---
LONG-TERM DEBT, less current portion 678,892 852,165
CONVERTIBLE PROMISSORY NOTES PAYABLE 150,000 150,000
------------- -------------
Total liabilities 6,497,916 2,423,412
------------- -------------
COMMITMENTS AND CONTINGENCIES (Note 4)
SHAREHOLDERS' EQUITY:
Common stock, $0.01 par value, 100,000,000 shares
authorized; 8,000,089 and 8,000,189 shares issued
and outstanding 80,001 80,002
Additional paid-in capital 20,152,650 20,152,949
Less: Common stock subscribed (400,000) (400,000)
Accumulated deficit (9,957,163) (7,416,312)
------------- -------------
Total shareholders' equity 9,875,488 12,416,639
------------- -------------
$ 16,373,404 $ 14,840,051
============= =============
The accompanying condensed notes are an integral part of these balance sheets.
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CAFE ODYSSEY, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Thirteen weeks ended Twenty-six weeks ended
-------------------- -----------------------
June 28, June 29, June 28, June 29,
1998 1997 1998 1997
-------- -------- -------- --------
NET SALES $ 1,195,676 $ 816,799 $ 1,999,995 $ 1,864,564
----------- ---------- ----------- -----------
COSTS AND EXPENSES:
Food, beverage and retail costs 343,587 254,172 562,003 612,115
Labor and benefits 532,787 443,684 850,944 1,036,302
Restaurant operating expenses 345,117 311,262 708,562 602,055
Depreciation and amortization 185,299 138,000 311,139 275,000
Selling, general and administrative
expenses 676,394 367,280 1,418,529 765,573
Pre-opening and development costs 663,875 189,423 791,193 189,423
----------- ---------- ----------- -----------
Total costs and expenses 2,747,059 1,703,821 4,642,370 3,480,468
----------- ---------- ----------- -----------
LOSS FROM OPERATIONS (1,551,383) (887,022) (2,642,375) (1,615,904)
INTEREST INCOME/(EXPENSE), net 10,669 (46,149) 101,524 (65,787)
----------- ---------- ----------- -----------
NET LOSS $(1,540,714) $ (933,171) $(2,540,851) $(1,681,691)
=========== ========== =========== ===========
BASIC AND DILUTED NET LOSS PER SHARE $(0.19) $(0.21) $(0.32) $(0.39)
====== ====== ====== ======
BASIC AND DILUTED WEIGHTED AVERAGE
OUTSTANDING SHARES 8,000,158 4,503,698 8,000,174 4,298,048
=========== ========== =========== ===========
The accompanying condensed notes are an integral part of these financial
statements.
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CAFE ODYSSEY, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Twenty-six weeks ended
----------------------
June 28, June 29,
1998 1997
------ ------
OPERATING ACTIVITIES:
Net loss $(2,540,851) $(1,681,691)
Adjustments to reconcile net loss to cash flows from operating
activities:
Depreciation and amortization 311,139 275,000
Shares issued for services --- 19,200
Changes in operating assets and liabilities:
Inventories (80,615) 6,770
Other current assets (194,158) (114,361)
Other assets (318,296) (181,183)
Accounts payable 1,950,358 (52,688)
Accrued salaries and wages (56,213) (138,299)
Other accrued expenses 7,861 (524,171)
Deferred rent 15,222 ---
----------- -----------
Net cash used in operating activities (905,553) (2,391,423)
----------- -----------
INVESTING ACTIVITIES:
Purchases of property and equipment (6,321,436) (448,246)
----------- -----------
FINANCING ACTIVITIES:
Net borrowings/(payments) on short-term notes payable (200,000) 300,000
Payments to shareholder --- (99,357)
Proceeds from issuance of long-term debt 791,986 ---
Principal repayments on long-term debt (34,710) (28,925)
Proceeds from issuance of stock --- 1,868,446
Repurchase of common stock (300) ---
Payments received on stock subscriptions --- 90,000
----------- -----------
Net cash from financing activities 556,976 2,130,164
----------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS (6,670,013) (709,505)
CASH AND CASH EQUIVALENTS, beginning of period 9,222,174 2,707,561
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 2,552,161 $ 1,998,056
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 34,342 $ 65,787
Cash paid for income taxes --- ---
Non-cash items - landlord allowance receivable 1,600,000 ---
The accompanying condensed notes are an integral part of these financial
statements.
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CAFE ODYSSEY, INC.
CONDENSED NOTES TO THE FINANCIAL STATEMENTS
JUNE 28, 1998 AND JUNE 29, 1997
1. DESCRIPTION OF THE BUSINESS
Cafe Odyssey, Inc. (the Company) owns and operates two restaurants, one in
Cincinnati, Ohio (the Kenwood Restaurant), which operates under the trade name
"Hotel Discovery", and one in the Mall of America in a suburb of Minneapolis,
Minnesota (the Mall of America Restaurant), which operates under the trade name
"Cafe Odyssey." The Kenwood Restaurant opened under the name "Hotel Mexico" on
December 19, 1996. The Mall of America Restaurant opened on June 8, 1998. Prior
to the opening of the Kenwood Restaurant, the Company was in the development
stage.
The Company's predecessor, Hotel Mexico (HMI), was originally incorporated in
January 1994 as an Ohio corporation. The Kenwood Restaurant Limited Partnership,
an Ohio limited partnership (the Kenwood Partnership), was formed in June 1995
for the purpose of owning and operating the Kenwood Restaurant. HMI's operations
and the net assets of the Kenwood Partnership were combined on November 14,
1996. On that date, the Kenwood Partnership contributed all of its net assets
totalling $1,567,197 to a newly formed corporation in exchange for shares of
such corporation. HMI, with total net assets of $631,966, then merged with and
into the newly formed corporation, the name of which remained Hotel Mexico, Inc.
(hereafter, Hotel Mexico). Upon consummation of the merger, all outstanding
shares of Hotel Mexico were converted into an aggregate of 1,350,000 shares of
Common Stock of the newly formed corporation.
The shares of Hotel Mexico Common Stock received by the Kenwood Partnership in
the reorganization were retained by the Kenwood Partnership until the effective
date of the Company's initial public offering, at which time the shares of
Common Stock and all other partnership assets were distributed to the general
and limited partners in accordance with the partnership agreement and the
Kenwood Partnership was dissolved.
On August 22, 1997, Hotel Mexico merged with and into Hotel Discovery, Inc., a
newly formed Minnesota corporation. The Company has an authorized capital stock
of 100,000,000 undesignated shares, and each share of Common Stock of Hotel
Mexico was converted into one share of the Company's Common Stock.
On February 25, 1998, the Company changed the name of its restaurant concept
from Hotel Discovery to Cafe Odyssey. The Company believes that the new name
better reflects the concept's primary focus on award-winning food, served in a
unique environment of adventure, imagination, exploration and innovation. The
Cafe Odyssey name is being used for the Mall of America Restaurant and will be
used for all subsequent restaurants. At the present time, the Company intends
to retain the name "Hotel Discovery" for the Kenwood Restaurant because of its
already established name.
On May 21, 1998, the Company changed its corporate name from Hotel Discovery,
Inc. to Cafe Odyssey, Inc. to reflect the change in the name of its restaurant
concept to Cafe Odyssey. In conjunction with this change, the Company's symbols
for its Units, Common Stock and Class A Warrants on the Nasdaq SmallCap market
were changed from HOTDU, HOTD and HOTDW to CODYU, CODY and CODYW, respectively,
effective May 26, 1998.
2. BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited financial statements have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. Although management believes that the
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disclosures are adequate to make the information presented not misleading, it is
suggested that these interim financial statements be read in conjunction with
the Company's most recent 10-KSB dated December 28, 1997. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary for a fair presentation of the financial position, results of
operations and cash flows for the interim periods presented have been made.
Operating results for the thirteen and twenty-six week periods ended June 28,
1998 are not necessarily indicative of the results that may be expected for the
fiscal year ended December 27, 1998.
The Company has adopted a 52-53-week accounting period ending on the last Sunday
in December of each year.
3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standard (SFAS) No. 130, "Reporting
Comprehensive Income," effective beginning in fiscal 1998, establishes standards
of disclosure and financial statement display for reporting total comprehensive
income and the individual components thereof. The adoption of SFAS No. 130 did
not have an impact on the Company's financial position or results of operations
as comprehensive income and net income were the same for all periods presented.
In fiscal 1997, the Company adopted SFAS No. 128, "Earnings per Share", which
requires disclosure of basic earnings per share (EPS) and diluted EPS, which
replace the existing primary EPS and fully diluted EPS, as defined by Accounting
Principles Board (APB) No.15. Basic EPS is computed by dividing net income by
the weighted average number of shares of Common Stock outstanding during the
year. Diluted EPS is computed similarly to primary EPS as previously reported
provided that, when applying the treasury stock method to common equivalent
shares, the Company must use its average share price for the period rather than
the more dilutive greater of the average share price or end-of-period share
price required by APB No.15. The adoption of SFAS No. 128 had no effect on the
Company's June 29, 1997 EPS data.
During April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants (AICPA) issued Statement of Position
(SOP) 98-5, "Reporting of the Costs of Start-up Activities." SOP 98-5 requires
companies to expense as incurred all start-up and pre-opening costs that are not
otherwise capitalizable as long-lived assets. The adoption of the new accounting
standard had no effect on the Company, as all pre-opening costs have been
expensed as incurred since inception.
4. COMMITMENTS & CONTINGENCIES
In May 1998, the Company entered into an operating lease for a future restaurant
located in downtown Denver, Colorado. The lease is for a term of 15 years and
contains provisions for contingent rentals based on a percentage of gross
revenues, as defined, and contains provisions for payments of real estate
taxes, insurance and common area costs. In addition, the Company will receive
various tenant inducements and rent abatement.
5. STOCK OPTIONS
In May 1998, the Company adopted the 1998 Directors' Stock Option Plan, whereby
stock options to acquire an aggregate of 250,000 shares of the Company's common
stock can be granted to the Company's outside directors. The Company has
granted options on 20,000 shares through June 28, 1998.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in connection with the Company's
financial statements and related notes thereto included elsewhere in this
report.
OVERVIEW
The Company was formed in January 1994 as an Ohio corporation to develop, own
and operate upscale, casual themed restaurants under the name "Hotel Mexico".
The Company opened its first restaurant in the Kenwood Shopping Center in
Cincinnati, Ohio (the "Kenwood Restaurant") in December 1996 under the trade
name "Hotel Mexico." The Company subsequently renamed its Kenwood Restaurant
"Hotel Discovery", under which name this restaurant continues to operate. Prior
to opening the Kenwood Restaurant, the Company had no revenues and its
activities were devoted solely to development. The Company opened its second
restaurant under the trade name "Cafe Odyssey" in the Mall of America (the "Mall
of America Restaurant") in Bloomington, Minnesota, a suburb of Minneapolis, on
June 8, 1998. During the second quarter of 1998, the Company entered into a
lease agreement for approximately 18,000 square feet of space in the Denver
Pavilions, an urban retail/entertainment complex currently under construction in
downtown Denver, Colorado. The Company expects to open a Cafe Odyssey restaurant
in the Denver Pavilions leased space in the first quarter of 1999.
Future revenue and profits, if any, will depend upon various factors, including
market acceptance of the Hotel Discovery/Cafe Odyssey concept, the quality of
the restaurant operations, the ability to expand to multi-unit locations and
general economic conditions. The Company's present source of revenue is limited
to its existing restaurants. There can be no assurance the Company will
successfully implement its expansion plans, in which case it will continue to be
dependent on the revenues from the existing restaurants. The Company also faces
all of the risks, expenses and difficulties frequently encountered in connection
with the expansion and development of a new and expanding business. Furthermore,
to the extent the Company's expansion strategy is successful, it must manage the
transition to multiple-site operations, higher volume operations, the control of
overhead expenses and the addition of necessary personnel.
The Company uses a 52- or 53-week fiscal year ending on the last Sunday in
December of each year.
RESULTS OF OPERATIONS FOR THE THIRTEEN WEEKS ENDED JUNE 28, 1998 AND JUNE 29,
1997
For the thirteen weeks ended June 28, 1998 (hereinafter, "second quarter of
1998"), the Company had net sales of $1,195,676 compared to $816,799 for the
thirteen weeks ended June 29, 1997 (hereinafter, "second quarter of 1997"). The
increase in sales is attributable to the opening of the Mall of America
Restaurant in the second quarter of 1998, offset by a continued decline in sales
at the Kenwood Restaurant for the second quarter of 1998 as compared to the
second quarter of 1997.
For the second quarter of 1998, food, beverage and retail costs were $343,587 or
28.7% of sales compared to $254,172 or 31.1% of sales for the second quarter of
1997. The improvement in food, beverage and retail costs as a percentage of
sales is due primarily to improved operating efficiencies at the Kenwood
Restaurant.
For the second quarter of 1998, labor, benefits and other direct restaurant
operating expenses were $877,904 or 73.4% of sales compared to $754,946 or 92.4%
of sales for the second quarter of 1997. This improvement in labor, benefits and
other direct restaurant operating expenses as a percentage of sales is due
primarily as a result of improved operating efficiencies at the Kenwood
Restaurant and the higher sales levels experienced at the Mall of America
Restaurant.
For the second quarter of 1998, the Company had a net loss of $1,540,714
compared to a net loss of $933,171 for the second quarter of 1997. The net loss
for the second quarter of 1998 is primarily attributable to operating losses at
the Kenwood Restaurant, start-up operations at the Mall of America Restaurant,
general and administrative expenses associated with building a senior management
team to execute the Company's growth plans and the remaining pre-opening costs
for the Mall of America Restaurant. The net loss for the second quarter
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of 1997 was largely attributable to the continued start-up operations at the
Kenwood Restaurant, as well as its repositioning to the trade name Hotel
Discovery from Hotel Mexico. Continued development of the Company's concept will
impact pre-opening and general and administrative expenses on an ongoing basis.
RESULTS OF OPERATIONS FOR THE TWENTY-SIX WEEKS ENDED JUNE 28, 1998 AND JUNE 29,
1997
For the twenty-six weeks ended June 28, 1998 (hereinafter, "first half of
1998"), the Company had net sales of $1,999,995 compared to $1,864,564 for the
twenty-six weeks ended June 29, 1997 (hereinafter, "first half of 1997"). The
increase in sales is attributable to the opening of the Mall of America
Restaurant in the second quarter of 1998, offset by a decline in sales at the
Kenwood Restaurant for the first half of 1998 as compared to its post-grand
opening period during the first half of 1997.
For the first half of 1998, food, beverage and retail costs were $562,003 or
28.1% of sales compared to $612,115 or 32.8% of sales for the first half of
1997. The improvement in food, beverage and retail costs as a percentage of
sales is due primarily to improved operating efficiencies at the Kenwood
Restaurant in the first half of 1998 as compared to its start-up operations in
the first half of 1997.
For the first half of 1998, labor, benefits and other direct restaurant
operating expenses were $1,559,506 or 78.0% of sales compared to $1,638,357 or
87.9% of sales for the first half of 1997. This improvement in labor, benefits
and other direct restaurant operating expenses as a percentage of sales is due
primarily as a result of improved operating efficiencies at the Kenwood
Restaurant in the first half of 1998 as compared to its start-up operations in
the first half of 1997, as well as the higher sales levels experienced at the
Mall of America Restaurant.
For the first half of 1998, the Company had a net loss of $2,540,851 compared to
a net loss of $1,681,691 for the first half of 1997. The net loss for the first
half of 1998 is primarily attributable to operating losses at the Kenwood
Restaurant, start-up operations at the Mall of America Restaurant, general and
administrative expenses associated with building a senior management team to
execute the Company's growth plans and the remaining pre-opening costs for the
Mall of America. The net loss for the first half of 1997 was largely
attributable to the start-up operations at the Kenwood Restaurant, as well as
its repositioning to the trade name Hotel Discovery from Hotel Mexico. Continued
development of the Company's concept will impact pre-opening and general and
administrative expenses on an ongoing basis.
LIQUIDITY AND CAPITAL RESOURCES
Since Inception, the Company's principal capital requirements have been (i) the
development of the Company and the Hotel Discovery/Cafe Odyssey concept, (ii)
the construction of the Kenwood Restaurant and the acquisition of furniture,
fixtures and equipment therein and (iii) the development and construction of the
Mall of America Restaurant. Total capital expenditures for the Kenwood
Restaurant were approximately $5.1 million, net of landlord contributions. Total
capital expenditures for the Mall of America Restaurant were approximately $5.1
million, net of landlord contributions of approximately $1.6 million and minimum
rent abatement of approximately $405,000.
The Company's primary sources of working capital have been proceeds from the
sale of Common Stock to and borrowings from its principal shareholder, chairman
and founder, Stephen D. King, the private placement of Common Stock and debt,
equipment lease financing, as well as the proceeds from the Company's initial
public offering of Units in November 1997. For the first halves of 1998 and
1997, the Company used $905,553 and $2,391,423, respectively, in cash flow for
operating activities. As of June 28, 1998 and June 29, 1997, the Company had
working capital of $664,941 and a working capital deficit of $1,684,117,
respectively.
In November 1997, the Company completed an initial public offering of 2,500,000
Units, each Unit consisting of one share of Common Stock and one redeemable
Class A Warrant at an initial public offering price of $5.00 per Unit. In
December 1997, the Company issued an additional 100,000 Units to its principal
underwriter, R.J. Steichen & Company, pursuant to the underwriter's decision to
exercise a portion of its over-allotment. The Company received net proceeds of
approximately $11.2 million in conjunction with the initial public offering and
the partial exercise of the underwriter's over-allotment.
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The Class A Warrants are subject to redemption by the Company at any time, on
not less than 30 days' written notice, at a price of $0.01 per Warrant at any
time following a period of 14 consecutive trading days where the per share
average closing bid price of the Company's Common Stock exceeds $7.00 (subject
to adjustment), provided that a current prospectus covering the shares issuable
upon the exercise of the Class A Warrants is then effective under federal
securities laws. For these purposes, the closing bid price of the Common Stock
shall be determined by the last reported sale price on the primary exchange on
which the Common Stock is traded.
The Company intends to open one to three restaurants in 1999. The Company
estimates that its capital expenditures (excluding any landlord contributions)
will be approximately $10 to $15 million in fiscal 1998 and $10 to $20 million
in fiscal 1999. The Company expects to finance its concept development and
expansion through cash flow from operations, the exercise of its Class A
Warrants and other forms of financing such as the sale of additional equity and
debt securities, capital leases and other credit facilities. There are no
assurances that such financing will be available on terms acceptable or
favorable to the Company.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in routine legal actions in the ordinary course of its
business. Although outcomes of any such legal actions cannot be predicted, in
the opinion of management there is no legal proceeding pending against or
involving the Company for which the outcome is likely to have a material adverse
effect upon the financial position or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(A) On May 21, 1998, the Annual Meeting of Shareholders of the
Company (the "Annual Meeting") was held.
(B) At the Annual Meeting, all of management's nominees for directors
as listed in the proxy statement were elected with the following
votes:
Shares Voted "For" Shares "Withheld"
------------------ -----------------
Ronald K. Fuller 5,950,631 12,700
Stephen D. King 5,950,731 12,600
Michael L. Krienik 5,950,731 12,600
Martin J. O'Dowd 5,947,665 15,666
Thomas W. Orr 5,950,631 12,700
(C) At the Annual Meeting, the Shareholders also approved an
amendment to the Company's Articles of Incorporation to change
the name of the Company from Hotel Discovery, Inc. to Cafe
Odyssey, Inc. 5,919,631 votes were cast in favor of the
amendment; 23,550 votes opposed; and 20,150 votes abstained.
(D) At the Annual Meeting, the Shareholders also approved an
amendment to the Company's 1997 Stock Option and Compensation
Plan to increase the number of shares of Common Stock reserved
for issuance thereunder from 750,000 shares to 1,250,000
shares. 4,336,168 votes were cast in favor of the amendment;
327,162 votes opposed; and 46,750 votes abstained.
(E) At the Annual Meeting, the Shareholders also approved adoption
of the 1998 Director Stock Option Plan. 4,208,236 votes were
cast in favor of the adoption; 359,567 votes opposed; and
182,571 votes abstained.
ITEM 5. OTHER INFORMATION
On May 21, 1998, the Securities and Exchange Commission adopted
an amendment to Rule 14a-4, as promulgated under the Securities
and Exchange Act of 1934. The amendment to 14a-4(c)(1) governs
the Company's use of its discretionary proxy voting authority
with respect to a shareholder proposal which the shareholder has
not sought to include in the Company's proxy statement. The new
amendment provides that if a proponent of a proposal fails to
notify the Company at least 45 days prior to the month and day
of mailing of the prior year's proxy statement, then the
management proxies will be allowed to use their discretionary
voting authority when the proposal is raised at the meeting,
without any discussion of the matter in the proxy statement.
With respect to the Company's 1999 Annual Meeting of
Shareholders, if the Company is not provided notice of a
shareholder proposal which the shareholder has not previously
sought to include in the Company's proxy statement by April 7,
1999, the management proxies will be allowed to use their
discretionary authority as outlined above.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
3 Articles of Incorporation, as amended
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10.1 Third Amendment dated February 25, 1998 to the 1997 Stock
Option and Compensation Plan
10.2 1998 Director Stock Option Plan
10.3 Amendment to Loan Documents dated as of June 28, 1998 by and
among PNC Bank, National Association, Stephen D. King and
Cafe Odyssey, Inc.
27 Financial Data Schedule
(B) REPORTS ON FORM 8-K
On May 27, 1998, the Company filed a report on Form 8-K
relating to its execution on May 12, 1998 of a lease agreement
with Denver Pavilions L.P. to lease approximately 18,000
square feet of space for a Cafe Odyssey restaurant in the
Denver Pavilions, an urban retail/entertainment complex
currently under construction in downtown Denver, Colorado.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CAFE ODYSSEY, INC.
By: /s/ Anne D. Huemme
----------------------------------
Anne D. Huemme
Vice President-Finance and Chief
Financial Officer (Principal Financial
and Accounting Officer)
Date: August 12, 1998
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EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
3 Articles of Incorporation, as amended
10.1 Third Amendment dated February 25, 1998 to
the 1997 Stock Option and Compensation Plan
10.2 1998 Director Stock Option Plan
10.3 Amendment to Loan Documents dated as of June
28, 1998 by and among PNC Bank, National
Association, Stephen D. King and Cafe
Odyssey, Inc.
27 Financial Data Schedule
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