UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
Commission File Number 1-13226
DENAMERICA CORP.
----------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
GEORGIA 58-1861457
- --------------------------------------------- -------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
7373 N. SCOTTSDALE ROAD
SUITE D-120, SCOTTSDALE AZ 85253 85253
- --------------------------------------------- -------------------------
(address of principal executive offices) (zip code)
(602) 483-7055
--------------
(registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
The number of shares of the issuer's class of common stock as of the latest
practicable date, is as follows: 13,485,277 shares of Common Stock, $.10 par
value, as of March 31, 1999.
DENAMERICA CORP.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1999
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
ITEM 1 Unaudited Financial Statements
Condensed Consolidated Balance Sheets -
December 30, 1998 and March 31, 1999.................. 3
Condensed Consolidated Statements of Operations -
13-Week Periods ended April 1, 1998
and March 31, 1999.................................... 4
Condensed Consolidated Statements of Cash Flows -
13-Week Periods ended April 1, 1998 and
March 31, 1999........................................ 5
Notes to Condensed Consolidated Financial Statements...... 6
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 7
PART II. OTHER INFORMATION......................................... 13
SIGNATURES .............................................. 14
2
PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED FINANCIAL STATEMENTS
DENAMERICA CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS) (UNAUDITED)
DECEMBER 30, MARCH 31,
1998 1999
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,330 $ 1,263
Receivables 2,636 2,608
Inventories 2,917 2,966
Other current assets 5,533 5,402
--------- ---------
Total current assets 13,416 12,239
PROPERTY AND EQUIPMENT, net 55,648 56,640
INTANGIBLE ASSETS, net 50,580 50,375
DEFERRED INCOME TAXES 5,578 5,713
OTHER ASSETS 9,285 9,169
--------- ---------
TOTAL $ 134,507 $ 134,136
========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 18,026 $ 17,283
Accrued compensation 5,402 6,176
Accrued taxes 5,089 5,123
Other current liabilities 8,946 8,147
Current portion of long-term debt 20,791 20,713
--------- ---------
Total current liabilities 58,254 57,442
LONG-TERM DEBT, LESS CURRENT PORTION 72,494 73,463
OTHER LONG-TERM LIABILITIES 7,093 6,764
--------- ---------
Total liabilities 137,841 137,669
--------- ---------
SHAREHOLDERS' DEFICIT
Preferred stock, $.01 par value; authorized,
5,000,000 shares; issued and outstanding none
Common stock $.10 par value; authorized,
40,000,000 shares; 13,485,277 shares issued
and outstanding 1,349 1,349
Additional paid-in capital 35,869 35,869
Accumulated deficit (40,552) (40,751)
--------- ---------
TOTAL SHAREHOLDERS' DEFICIT (3,334) (3,533)
--------- ---------
TOTAL $ 134,507 $ 134,136
========= =========
See accompanying notes to condensed consolidated financial statements
3
DENAMERICA CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
13 WEEK PERIODS ENDED
April 1, 1998 March 31, 1999
RESTAURANT SALES $72,880 $60,941
------- -------
RESTAURANT OPERATING EXPENSES:
Food and beverage costs 19,970 16,463
Payroll and payroll related costs 25,102 20,819
Depreciation and amortization 1,786 1,685
Other restaurant operating expenses 19,588 16,871
------- -------
Total operating expenses 66,446 55,838
------- -------
RESTAURANT OPERATING INCOME 6,434 5,103
ADMINISTRATIVE EXPENSES 3,056 2,831
------- -------
OPERATING INCOME 3,378 2,272
INTEREST EXPENSE, net 3,426 2,606
------- -------
LOSS BEFORE INCOME TAXES AND EXTRAORDINARY ITEM (48) (334)
INCOME TAX BENEFIT (17) (135)
------- -------
LOSS BEFORE EXTRAORDINARY ITEM (31) (199)
EXTRAORDINARY ITEM - GAIN ON
EARLY EXTINGUISHMENT OF DEBT-
net of income taxes of $914 1,371 -
------- -------
NET INCOME (LOSS) $1,340 ($199)
======= =======
Basic and diluted income (loss) per share
Before extraordinary item ( $.00) ($.02)
======= =======
Net income (loss) $.10 ($.02)
======= =======
Basic and diluted weighted average shares
outstanding
Basic 13,447 13,485
Diluted 13,447 13,485
See accompanying notes to condensed consolidated financial statements.
4
DENAMERICA CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
13 WEEK PERIODS ENDED
APRIL 1, 1998 MARCH 31, 1999
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $1,340 $(199)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,786 1,685
Amortization of deferred financing costs 247 91
Deferred income taxes (17) (135)
Deferred rent - 61
Extraordinary item (1371) -
Other, net (523) (215)
Changes in operating assets and liabilities net of
dispositions:
Receivables 662 29
Inventories 121 (49)
Other current assets 406 166
Accounts payable and accrued liabilities (1,977) (1,093)
------ ------
Net cash provided by operating activities 674 341
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (744) (1,459)
Purchase of intangibles (8) (36)
Proceeds from the sale of assets 25,900 -
------ ------
Net cash provided by (used in) investing activities 25,148 (1,495)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Note receivable collections 77 138
Borrowings (900) 857
Principal reductions on long-term obligations (24,667) (908)
Other - -
------ ------
Net cash used in financing activities (25,490) 87
------ ------
NET CHANGE IN CASH AND CASH
EQUIVALENTS 332 (1,067)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 1,267 2,330
------ ------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $1,599 $1,263
====== ======
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $2,268 $2,255
Income taxes $ 7 $ 2
See accompanying notes to condensed consolidated financial statements.
5
DENAMERICA CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
DenAmerica Corp. and Subsidiaries (the "Company") have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission Form 10-Q and do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of the Company's management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. However, these operating results are not
necessarily indicative of the results expected for the full year. These
statements should be read in conjunction with the consolidated financial
statements and notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 30, 1998. Certain
reclassifications have been made in the 1998 financial statements to conform to
the 1999 presentation.
The Company currently operates 203 family-oriented, full-service restaurants in
26 states, primarily in the southwestern, midwestern, western, and southeastern
United States. The Company owns and operates 103 Black-eyed Pea restaurants,
primarily in Texas, Georgia, Arizona, Oklahoma, and the Washington, D.C. area.
The Company also owns and operates 100 Denny's restaurants, which represents
approximately 5.8% of the Denny's system and makes the Company the largest
Denny's franchisee in terms of revenue and the number of restaurants operated.
(2) 1998 ASSET DIVESTITURES
In March 1998, the Company completed the sale of 63 Denny's and eight
non-branded restaurants, of which six were closed, to a Denny's franchisee for
gross proceeds $28,700. Net cash proceeds of $25,200 were used to (i) repay the
promissory note (the "BEP Note") payable to the seller of Black-eyed Pea U.S.A.,
Inc. ("BEP") at a $2,400 discount from its outstanding principal amount of
approximately $15,285; (ii) cancel outstanding warrants to acquire approximately
1,000,000 shares of Common Stock at an exercise price of $1.90 per share, which
were issued in connection with the BEP Note; (iii) permanently reduce the
Company's outstanding borrowings under the term loan of the Credit Facility; and
(iv) repay certain equipment operating leases associated with the restaurants
sold in this transaction. The Company has included the $2,400 before-tax
discount on the BEP note as an extraordinary item in the accompanying 1998
financial statements.
In a separate transaction completed in March 1998, the Company also sold five
Denny's restaurants located in Wyoming to an unrelated party for cash of $700
plus a note in the principal amount of $400. The Company utilized the proceeds
from this transaction to permanently reduce its outstanding borrowings under the
term loan portion of its Credit Facility. The Company has recorded a gain of
approximately $575 on this transaction, which is included as a partial offset to
other operating expenses.
6
(3) OTHER MATTERS
At March 31, 1999, the Company was not in compliance with certain financial debt
covenants under its senior credit facility. The financial covenants in the
credit facility were established in July 1996 and have not been modified to
reflect the reduction in outstanding obligations or the sale of restaurants. In
April 1999, the Company received commitments from lenders to provide new
borrowings of $20.1 million. The Company believes that the financing transaction
outlined in the commitments will enable it to repay or restructure the remaining
obligations under its senior credit facility and to cure the covenant defaults
under its other agreements. If the Company cannot complete the financing
contemplated under the commitments, it would continue to be in default with the
senior credit facility and other agreements until other acceptable refinancing
or restructuring alternatives are available. There can be no assurance, however,
that additional financing will be available to the Company or available on
satisfactory terms.
(4) BUSINESS SEGMENTS
The Company operates family-oriented, full-service restaurants under two
separate concepts, Denny's and Black-eyed Pea. The Company owns the Black-eyed
Pea brand and operates the Denny's restaurants under the terms of franchise
agreements. The two concepts have separate management teams and reporting
infrastructures. During the 1998 fiscal period the Company also operated several
non-branded restaurants. As of December 31, 1998, all of the non-branded
restaurants were closed or sold. The concept distribution of the Company's
revenues and restaurant operating income for the thirteen-week periods ended
March 31, 1999 and April 1, 1998 are as follows:
REVENUES 1999 1998
-------- ------- -------
Black-eyed Pea $35,612 $35,846
Denny's 25,329 36,681
Non-branded -- 353
------- -------
Total revenues $60,941 $72,880
======= =======
RESTAURANT OPERATING INCOME 1999 1998
--------------------------- ------- -------
Black-eyed Pea $ 3,441 $ 3,598
Denny's 1,662 2,882
Non-branded - (46)
------- -------
Total restaurant operating income 5,103 6,434
Administrative expenses 2,831 3,056
------- -------
Total operating income $ 2,272 $ 3,378
======= =======
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
In two separate transactions in March 1998, the Company sold 68 Denny's
restaurants and eight non-branded restaurants to unrelated parties. These
transactions generated cash proceeds of approximately $25.9 million, which was
used to permanently reduce outstanding borrowings under the Company's credit
facility and to repay an outstanding promissory note at a $2.4 million discount.
As a result, the operating results in the first quarter of 1999 are not
comparable with the 1998 results. The Company intends to develop a total of
eight new Black-eyed Pea restaurants during 1999 including two new Black-eyed
Pea restaurants opened during the first quarter of fiscal 1999. These
transactions follow the Company's strategy of focusing on the Black-eyed Pea
concept as well as those Denny's restaurants that achieve certain operational
and geographic efficiencies.
The Company currently operates 103 Black-eyed Pea restaurants in 13 states,
including 76 restaurants in Texas, Oklahoma, and Arizona. Through March 31,
1999, comparable same-store sales increased 0.6%, and average weekly sales
increased 2.1% as compared with the first quarter of fiscal 1998. Carry-out
sales accounted for approximately 11.6% and 11.2% of restaurant sales for the
first quarters of 1999 and 1998, respectively.
As of March 31, 1999, the Company operated 100 Denny's restaurants in 19 states,
including 55 restaurants in Texas, Florida, and Arizona. Through March 31, 1999,
comparable same-store sales increased 3.2%, and average weekly sales increased
14% as compared with the first quarter of fiscal 1998. The increase is the
result of the disposal of certain underperforming restaurants and the
improvement in the overall asset base.
COMPARISON OF RESULTS OF OPERATIONS
The following table presents, for the periods indicated, certain items
in the condensed consolidated statements of operations expressed as a percentage
of total restaurant sales.
APRIL 1, MARCH 31,
1998 1999
---- ----
(13 weeks) (13 weeks)
Restaurant sales 100% 100%
---- ----
Restaurant operating expenses:
Food and beverage costs 27.4 27.0
Payroll and payroll related costs 34.4 34.2
Depreciation and amortization 2.5 2.8
Other restaurant operating expenses 26.9 27.7
---- ----
Total operating expenses 91.2 91.7
---- ----
Restaurant operating income 8.8 8.3
Administrative expenses 4.2 4.6
---- ----
Operating income 4.6 3.7
Interest expense 4.7 4.3
---- ----
Loss before income taxes and
extraordinary item (.1) (.6)
Income tax (benefit) provision (.1) (.3)
---- ----
Loss before extraordinary item (.0) (.3)
Extraordinary item 1.9 -
---- ----
Net income (loss) 1.9% (.3%)
==== =====
8
THIRTEEN-WEEK PERIOD ENDED MARCH 31, 1999 COMPARED WITH THIRTEEN-WEEK PERIOD
ENDED APRIL 1, 1998
RESTAURANT SALES. Restaurant sales decreased $11.9 million, or 16.4%,
to $60.9 million for the thirteen-week period ended March 31, 1999 as compared
with restaurant sales of $72.9 million for the thirteen-week period ended April
1, 1998. This decrease was primarily attributable to the sale of 76 restaurants
in the first quarter of 1998. Restaurant sales attributable to the Black-eyed
Pea restaurants for the fiscal 1999 and 1998 periods totaled 58% and 49%,
respectively.
FOOD AND BEVERAGE COSTS. Food and beverage costs decreased to 27.0% of
restaurant sales for the thirteen-week period ended March 31, 1999 as compared
with 27.4% of restaurant sales for the thirteen-week period ended April 1, 1998.
This decrease is primarily a result of the sale of lower- volume restaurants in
1998 and same-store sales increases in 1999.
PAYROLL AND PAYROLL RELATED COSTS. Payroll and payroll related costs
were 34.2% of restaurant sales for the thirteen-week period ended March 31, 1999
as compared with 34.4% of restaurant sales for the thirteen-week period ended
April 1, 1998. This decrease was primarily attributable to the sale of
lower-volume restaurants in fiscal 1998 and same-store sales increases in fiscal
1999.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization of
restaurant equipment, leasehold improvements, intangible assets, pre-opening
costs, and other items was $1.7 million for the thirteen-week period ended March
31, 1999, as compared with $1.8 million for the thirteen-week period ended April
1, 1998. This decrease is attributable to a change in accounting principle,
related to store opening costs.
OTHER RESTAURANT OPERATING EXPENSES. Other restaurant operating
expenses were 27.7% of restaurant sales for the thirteen-week period ended March
31, 1999 as compared with 26.9% of restaurant sales for the thirteen-week period
ended April 1, 1998. Included in the 1998 results is a gain of $575,000 related
to the sale of restaurants. As a result of a change in accounting principles,
new store opening costs of approximately $216,000, were expensed when incurred
beginning in fiscal 1999. Excluding these items, other restaurant operating
expenses, expressed as a percentage of revenue, would have been 27.3% and 27.7%
in fiscal 1999 and 1998, respectively.
RESTAURANT OPERATING INCOME. Restaurant operating income decreased to
$5.1 million, or 8.3% of restaurant sales, for the thirteen-week period ended
March 31, 1999, as compared with $6.4 million, or 8.8% of restaurant sales, for
the thirteen-week period ended April 1, 1998. This decrease was principally the
result of the factors described above.
ADMINISTRATIVE EXPENSES. Administrative expenses were $2.8 million, or
4.6% of restaurant sales, for the thirteen-week period ended March 31, 1999, as
compared with $3.1 million, or 4.2% of restaurant sales, for the thirteen-week
period ended April 1, 1998. This decrease of $225,000 is primarily attributable
to the reduction in administrative costs associated with the restaurants sold in
March 1998. Administrative expenses expressed as a percentage of restaurant
sales, however, increased due primarily to decreased sales following the sale of
76 restaurants in the first quarter of 1998.
INTEREST EXPENSE. Interest expense was $2.8 million, or 4.3% of
restaurant sales, for the thirteen-week period ended March 31, 1999 as compared
with $3.4 million, or 4.7% of restaurant sales, for the thirteen-week period
ended April 1, 1998. The change is the result of the decrease in outstanding
debt attributable to the sale of certain restaurants in 1998.
9
INCOME TAX EXPENSE (BENEFIT). The Company recorded an income tax
benefit of approximately $17,000, or an effective rate of 35%, for the
thirteen-week period ended April 1, 1998 and $135,000, or an effective rate of
40%, for the thirteen-week period ended March 31, 1999.
NET INCOME (LOSS). The Company recorded a net loss of approximately
$199,000 for the thirteen-week period ended March 31, 1999, as a result of the
factors described above. The Company recorded net income of $1.3 million for the
thirteen-week period ended April 1, 1998, as a result of the factors described
above and the extraordinary gain of approximately $1.4 million in fiscal 1998
associated with the early extinguishment of debt.
LIQUIDITY AND CAPITAL RESOURCES
The Company's strategy has been to (i) focus on restaurants that achieve certain
operational and geographic efficiencies; (ii) refinance certain debt obligations
to better match operating cash flows with debt amortization; and (iii) position
itself for growth. During the first quarter of 1998, the Company sold 76
underperforming restaurants and used the proceeds form these transactions to
repay certain debt obligations. The Company believes that these transactions
improved its overall portfolio of operating restaurants and has positioned it
for improved operating results in 1999. Excluding the effect of a gain of
$575,000 from an asset sale in the first quarter of 1998, net cash provided from
operating activities increased from approximately $100,000 in fiscal 1998 to
$341,000 in fiscal 1999. In addition, in the first quarter of 1999 the Company
made principal reductions on its long-term obligations of approximately
$900,000. In an effort to continue to improve its operating asset base, the
Company is currently negotiating letters of intent with unrelated parties to
purchase 13 underperforming or closed restaurants. The Company believes that
these transactions will be completed over the next several quarters. The Company
cannot provide assurance, however, regarding whether it will complete all or any
of these transactions or the timing of any transactions that are completed.
The Company, and the restaurant industry generally, receives substantially all
of its revenue in cash with a relatively small amount of receivables. Therefore,
like many other companies in the restaurant industry, the Company operates with
a working capital deficit. The Company's working capital deficit was $45.2
million at March 31, 1999 and $44.8 million at December 30, 1998. The Company
anticipates that it will continue to operate with a working capital deficit.
The Company historically has satisfied its capital requirements through credit
facilities and sale-leaseback financings. The Company requires capital
principally for the development of new restaurants and maintenance expenditures
on its existing restaurants. Currently, the Company is in various stages of
development of six Black-eyed Pea restaurants, which it expects to open over the
next several quarters. The Company estimates that its costs to develop and open
new Black-eyed Pea restaurants, excluding real estate and building costs, will
be approximately $350,000 to $450,000 per restaurant. The Company believes that
its financing commitments will be adequate to meet its financing needs during
the remainder of 1999. During the first quarter of 1999, the Company borrowed
approximately $850,000 to finance its development activities associated with new
Black-eyed Pea restaurants.
In April 1999, the Company executed commitment letters (the "Commitments") that
provide for borrowings totaling $20.1 million. Under the terms of the
Commitments, the Company will enter into (a) $3.0 million of new equipment
financing, and (b) a loan not to exceed $17.1 million. The $3.0 million new
equipment financing will be made in conjunction with the modification and
consolidation of existing equipment loans totaling approximately $15.4 million
to create a total term loan of $18.4 million, which will amortize monthly over a
seven-year period.
10
To facilitate the $17.1 million loan, the Company formed a special-purpose
subsidiary and will contribute to that subsidiary the assets and liabilities
associated with approximately 34 Denny's restaurants. The newly formed
subsidiary will be the borrower under the loan, which will be evidenced by 34
individual promissory notes secured by the leasehold properties. The terms of
the notes will vary based upon the term of the leaseholds, which approximate 15
years. The notes will amortize monthly at a fixed rate.
The Company will use the proceeds from the new loans (1) to permanently retire
the Credit Facility; (2) to purchase certain restaurant equipment currently
encumbered by equipment leases; (3) to pay various fees and expenses; and (4) to
provide working capital. The Company believes that it will complete the
financing transactions contemplated by the Commitments in the second quarter of
1999 and that the funds provided by these financings will be sufficient for its
ongoing operations and anticipated restaurant development activities during
1999.
At March 31, 1999, the Company was not in compliance with certain financial
covenants and payment terms in various debt and other agreements, including the
Credit Facility and Series B Notes. The Company believes that the financing
transaction provided for in the Commitments will enable it to repay the
remaining obligations under its Credit Facility and to cure the covenant
defaults under its other agreements. In addition, the Company intends to pursue
various alternatives to refinance existing debt by financing other assets during
1999. If the Company cannot complete the financing contemplated under the
Commitments, it would continue to be in default under the Credit Facility until
other acceptable refinancing or restructuring alternatives become available. The
Company cannot provide assurance, however, that additional financing will be
available to the Company or available on satisfactory terms.
SEASONALITY
The Company's operating results fluctuate from quarter to quarter as a result of
the seasonal nature of the restaurant industry and other factors. The Company's
restaurant sales are generally greater in the second and third fiscal quarters
(April through September) than in the first and fourth fiscal quarters (October
through March). Occupancy and other operating costs, which remain relatively
constant, have a disproportionately negative effect on operating results during
quarters with lower restaurant sales. The Company's working capital requirements
also fluctuate seasonally.
INFLATION
The Company does not believe that inflation has had a material effect on
operating results in past years. Although increases in labor, food or other
operating costs could adversely affect the Company's operations, the Company
generally has been able to modify its operating procedures or to increase prices
to offset increases in its operating costs.
11
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products may not function
properly when processing dates that begin on or after January 1, 2000. The
Company currently is upgrading its internal computer network to improve its
management information systems in general, as well as to ensure that its systems
will not malfunction as a result of "Year 2000" issues. The Company currently
does not anticipate any material adverse effects related to the Year 2000
issues. The Company has identified four primary systems that could be adversely
impacted by the Year 2000 issue. These systems are (1) point-of-sale and
restaurant back-office accounting systems in each of its Black-eyed Pea
restaurants; (2) point-of-sale and restaurant back-office accounting systems in
each of its Denny's restaurants; (3) the Company's internal accounting systems
and software; and (4) third-party systems, including computer systems used by
the Company's food suppliers, financial institutions, credit card processors,
and utility companies. The Company is in the process of converting the
point-of-sale and back-office accounting systems at its Black-eyed Pea and
Denny's restaurants. The Company currently anticipates that this conversion,
which includes upgrading existing software, will be completed by September 30,
1999. The vendor for the Company's internal corporate accounting systems has
advised the Company that it will be able to modify those systems to be Year 2000
compliant during 1999. The vendor currently is modifying the line code for those
software products. The Company previously engaged a third-party consultant to
evaluate those systems and has retained another third-party consultant to assess
and test the vendor's modifications to the systems by June 30, 1999. The Company
currently anticipates that its costs to bring its computer systems into Year
2000 compliance will not exceed $250,000. The Company has obtained Year 2000
compliance certification from all significant third-parties that the Company
depends upon, including food suppliers, financial institutions, and credit card
transaction processors. All significant third-parties have advised the Company
that their systems are or will be Year 2000 compliant during 1999. The Company
intends to continue to identify technology systems that may be subject to Year
2000 risks and to monitor and test those systems throughout 1999. The Company
currently does not anticipate any material adverse effects related to Year 2000
issues. As of the filing date of this Report, the Company has not developed a
contingency plan to address Year 2000 issues. Following completion of the
third-party assessment and testing of modifications to its internal accounting
systems, the Company will develop contingency plans to address those potential
adverse consequences, if any, identified as remaining with respect to Year 2000
issues.
NEW ACCOUNTING STANDARDS
In April 1998, the AICPA issued Statement of Position 98-5 "Reporting the Cost
of Start-up Activities". This statement requires companies to expense the cost
of start-up activities as incurred. The Company adopted this statement in fiscal
1998.
FORWARD LOOKING STATEMENTS
This Report on Form 10-Q contains forward-looking statements, including
statements regarding the Company's business strategies, the Company's business,
and the industry in which the Company operates. These forward-looking statements
are based primarily on the Company's expectations and are subject to a number of
risks and uncertainties, some of which are beyond the Company's control. Actual
results could differ materially from the forward-looking statements as a result
of numerous factors, including those set forth in Item 1 - "Special
Considerations" in the Company's Annual Report on Form 10-K for the fiscal year
ended December 30, 1998.
12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
10.121 Commitment letter dated April 13, 1999, from CNL Fund
Advisors, Inc. to DenAmerica Corp. regarding $3,000,000 of new
equipment financing and modification and consolidation with
$15,000,000 existing equipment financing. (1)
10.122 Commitment letter dated April 13, 1999 from CNL Financial
Services, Inc. to DenAmerica Corp. regarding total cumulative
loan not to exceed $17,100,000.
27.1 Financial Data Schedule.
------------------------
(1)Incorporated by reference to the Exhibits to the Registrant's
Annual Report on Form 10-K for the year ended December 30, 1998,
as filed on April 14, 1999.
(B) REPORTS ON FROM 8-K.
Not applicable.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DENAMERICA CORP.
Dated: May 12, 1999 By: /S/ TODD S. BROWN
----------------------------------------------------
Todd S. Brown
Senior Vice President, Chief Financial Officer,
and Treasurer
(Duly authorized officer of the
registrant, principal financial
and accounting officer)
14