UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly Period Ended September 30, 2002
Commission File Number: 000-18668
MAIN STREET AND MAIN INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 11-2948370
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5050 N. 40TH STREET, SUITE 200, PHOENIX, ARIZONA 85018
(Address of principal executive offices)
(602) 852-9000
(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 [ ]
Number of shares of common stock, $.001 par value, of registrant outstanding at
November 8, 2002: 14,141,928
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements - Main Street and Main Incorporated
Condensed Consolidated Balance Sheets - September 30, 2002
(unaudited) and December 31, 2001 3
Condensed Consolidated Statements of Operations -Three
Months and Nine Months Ended September 30, 2002 and
September 24, 2001 (unaudited) 4
Condensed Consolidated Statements of Cash Flows - Nine
Months Ended September 30, 2002 and September 24, 2001
(unaudited) 6
Notes to Condensed Consolidated Financial Statements
(unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosure About Market Risk 15
Item 4. Controls and Procedures 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
CERTIFICATIONS 18
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Par Value and Share Data)
SEPTEMBER 30, DECEMBER 31,
2002 2001
--------- ---------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents ......................................... $ 7,273 $ 9,466
Accounts receivable, net .......................................... 1,526 2,683
Inventories ....................................................... 2,634 2,416
Prepaid expenses .................................................. 1,857 1,255
--------- ---------
Total current assets ......................................... 13,290 15,820
Property and equipment, net ......................................... 71,243 65,222
Other assets, net ................................................... 5,566 3,969
Goodwill, net ....................................................... 24,849 25,149
Franchise fees, net ................................................. 2,221 2,302
--------- ---------
Total assets .............................................. $ 117,169 $ 112,462
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ................................. $ 3,347 $ 3,012
Accounts payable .................................................. 4,629 7,336
Other accrued liabilities ......................................... 13,215 13,459
--------- ---------
Total current liabilities ................................. 21,191 23,807
Long-term debt, net of current portion .............................. 53,059 47,232
Other liabilities and deferred credits .............................. 3,286 1,216
--------- ---------
Total liabilities ......................................... 77,536 72,255
--------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value, 2,000,000 shares authorized; no
shares issued and outstanding in 2002 and 2001 .................... -- --
Common stock, $.001 par value, 25,000,000 shares authorized;
14,141,929 and 14,052,267 shares issued and outstanding in 2002
and 2001, respectively ............................................ 14 14
Additional paid-in capital .......................................... 53,927 53,645
Accumulated deficit ................................................. (12,724) (13,250)
Accumulated other comprehensive loss ................................ (1,584) (202)
--------- ---------
Total stockholders' equity ................................ 39,633 40,207
--------- ---------
Total stockholders' equity and liabilities .......... $ 117,169 $ 112,462
========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements
3
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
THREE MONTHS ENDED
-----------------------------
(UNAUDITED)
SEPTEMBER 30, SEPTEMBER 24,
2002 2001
-------- --------
Revenue ......................................................... $ 54,026 $ 52,222
-------- --------
Restaurant operating expenses
Cost of sales ................................................. 15,145 14,628
Payroll and benefits .......................................... 16,805 15,659
Depreciation and amortization ................................. 2,037 1,928
Other operating expenses ...................................... 16,768 15,444
-------- --------
Total restaurant operating expenses ................... 50,755 47,659
-------- --------
Income from restaurant operations ............................... 3,271 4,563
Depreciation and amortization ................................. 135 449
General and administrative expenses ........................... 2,157 2,010
Preopening expenses ........................................... 256 217
New manager training expenses ................................. 492 417
Impairment charges and other .................................. 1,606 --
Management fee income ......................................... -- (146)
-------- --------
Operating income (loss) ......................................... (1,375) 1,616
Interest expense and other, net ............................... 1,071 893
-------- --------
Net income (loss) before income taxes ........................... (2,446) 723
Income tax expense (benefit) .................................. (440) --
-------- --------
Net income (loss) before extraordinary loss from debt
extinguishment ................................................ (2,006) 723
Extraordinary loss from debt extinguishment ..................... -- --
-------- --------
Net income (loss) ............................................... $ (2,006) $ 723
======== ========
Basic earnings per share
Net income (loss) before extraordinary loss from debt
extinguishment .............................................. $ (0.14) $ 0.05
Extraordinary loss from debt extinguishment ................... -- --
-------- --------
Net income (loss) ..................................... $ (0.14) $ 0.05
======== ========
Diluted earnings per share
Net income (loss) before extraordinary loss from debt
extinguishment .............................................. $ (0.14) $ 0.05
Extraordinary loss from debt extinguishment ................... -- --
-------- --------
Net income (loss) ..................................... $ (0.14) $ 0.05
======== ========
Weighted average number of shares outstanding
-- Basic ...................................................... 14,141 14,046
======== ========
Weighted average number of shares outstanding
-- Diluted .................................................... 14,141 14,860
======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
NINE MONTHS ENDED
----------------------------
(UNAUDITED)
SEPTEMBER 30, SEPTEMBER 24,
2002 2001
--------- ---------
Revenue ............................................ $ 167,253 $ 157,156
--------- ---------
Restaurant operating expenses
Cost of sales .................................... 46,103 44,009
Payroll and benefits ............................. 51,376 47,682
Depreciation and amortization .................... 5,804 5,638
Other operating expenses ......................... 49,452 45,210
--------- ---------
Total restaurant operating expenses ...... 152,735 142,539
--------- ---------
Income from restaurant operations .................. 14,518 14,617
Depreciation and amortization .................... 310 1,342
General and administrative expenses .............. 6,700 5,881
Preopening expenses .............................. 1,138 743
New manager training expenses .................... 1,305 1,142
Impairment charges and other ..................... 1,606 --
Management fee income ............................ -- (431)
--------- ---------
Operating income ................................... 3,459 5,940
Interest expense and other, net .................. 2,761 2,875
--------- ---------
Net income before income taxes ..................... 698 3,065
Income tax expense ............................... 126 --
--------- ---------
Net income before extraordinary loss from debt
extinguishment ................................... 572 3,065
Extraordinary loss from debt extinguishment ........ 46 --
--------- ---------
Net income ............................... $ 526 $ 3,065
========= =========
Basic earnings per share
Net income before extraordinary loss from debt
extinguishment ................................. $ 0.04 $ 0.22
Extraordinary loss from debt extinguishment ...... -- --
--------- ---------
Net income ............................... $ 0.04 $ 0.22
========= =========
Diluted earnings per share
Net income before extraordinary loss from debt
extinguishment ................................. $ 0.04 $ 0.21
Extraordinary loss from debt extinguishment ...... -- --
--------- ---------
Net income ............................... $ 0.04 $ 0.21
========= =========
Weighted average number of shares outstanding
-- Basic ......................................... 14,093 14,046
========= =========
Weighted average number of shares outstanding
-- Diluted ....................................... 14,910 14,424
========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
NINE MONTHS ENDED
----------------------------
(UNAUDITED)
September 30, September 24,
2002 2001
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................. $ 526 $ 3,065
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ........................ 6,114 6,980
Impairment charges ................................... 1,327 --
Changes in assets and liabilities:
Accounts receivable, net ............................. 1,157 1,835
Inventories .......................................... (218) (443)
Prepaid expenses ..................................... (602) (312)
Other assets, net .................................... (1,724) (558)
Accounts payable ..................................... (2,707) (5,802)
Other accrued liabilities and deferred credits ....... 445 1,349
-------- --------
Cash provided by operating activities .......... 4,318 6,114
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net additions to property and equipment ................ (12,925) (9,616)
Cash received from sale-leaseback transactions, net .... -- 2,851
Cash paid to acquire franchise rights and goodwill ..... (30) 85
-------- --------
Cash used in investing activities .............. (12,955) (6,680)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt borrowings .............................. 9,465 4,408
Principal payments on long-term debt ................... (3,303) (2,017)
Proceeds received from the exercise of stock options ... 282 20
-------- --------
Cash provided by financing activities .......... 6,444 2,411
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS .................. (2,193) 1,845
CASH AND CASH EQUIVALENTS, BEGINNING ..................... 9,466 4,565
-------- --------
CASH AND CASH EQUIVALENTS, ENDING ........................ $ 7,273 $ 6,410
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for income taxes ........... $ 148 $ 1,147
Cash paid during the period for interest ............... $ 2,941 $ 3,253
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
MAIN STREET AND MAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(Unaudited)
1. INTERIM FINANCIAL REPORTING
The accompanying condensed consolidated financial statements have been prepared
without an independent audit pursuant to the rules and regulations of the
Securities and Exchange Commission. The information furnished herein reflects
all adjustments (consisting of normal recurring accruals and adjustments), which
are, in the opinion of the Company, necessary to fairly state the operating
results for the respective periods. Certain information and footnote disclosures
normally included in annual financial statements prepared in accordance with
accounting principles generally accepted in the United States have been omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading. For a
complete description of the accounting policies, see the Company's Form 10-K
Annual Report for the fiscal year ended December 31, 2001.
The Company operates on fiscal quarters of 13 weeks. The results of operations
for the three and nine months ended September 30, 2002, are not necessarily
indicative of the results to be expected for a full year.
2. PROPERTY AND EQUIPMENT
Property and equipment includes $1,203,000 that represents the land and building
of the El Paso restaurant location that was purchased after this location was
closed on October 16, 2001. During the period ended September 30, 2002, the
Company recorded a $400,000 write-down in connection with this property as a
result of a decline in its estimated fair value. The Company is currently
marketing this property for sale.
3. INCOME TAXES
The Company recorded an income tax provision on earnings for the quarters ended
April 1, 2002, and July 1, 2002. As a result of asset impairments and losses
during the quarter ended September 30, 2002, the Company reduced its provision
by $440,000, reflecting an estimated effective tax rate of 18% applied to the
loss recorded during this quarter. In prior years, the Company did not have an
income tax provision due to the utilization of tax loss and tax credit
carryforwards. Although the Company still has tax loss and tax credit
carryforwards available, the law limits the estimated amount that can be
realized in 2002. Based on these circumstances, the Company has estimated its
effective tax rate during 2002 to be 18%.
4. ACCOUNTING PRONOUNCEMENTS
In July 2001, the FASB issued Statement No. 141, BUSINESS COMBINATIONS, and
Statement No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS. Statement 141 requires
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001 as well as all purchase method business
combinations completed after June 30, 2001. Statement 141 also specifies
criteria that intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill, noting
that any purchase price allocable to an assembled workforce may not be accounted
for separately. Upon its initial adoption, Statement 142 eliminates the
amortization of all existing and newly acquired goodwill on a prospective basis
and requires companies to assess goodwill impairment, at least annually, based
on the fair value of the reporting unit.
The Company adopted FASB Statement No.'s 141 and 142 effective January 1, 2002.
Upon adoption, the Company had net unamortized goodwill in the amount of
$25,149,225 that is subject to the transition provisions of Statements 141 and
142.
The following table presents reported net loss and loss per share exclusive of
goodwill amortization expense for the three and nine months ended September 24,
2001:
7
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 24, 2001 SEPTEMBER 24, 2001
------------------ ------------------
Reported net income $ 723 $ 3,065
Add back goodwill amortization 354 1,068
--------- ---------
Adjusted net income $ 1,077 $ 4,133
========= =========
Basic Income Per Share:
Reported net income per common share $ 0.05 $ 0.22
Add back goodwill amortization 0.03 0.08
--------- ---------
Adjusted net income $ 0.08 $ 0.29
========= =========
Diluted Income Per Share:
Reported net income per common share $ 0.05 $ 0.21
Add back goodwill amortization 0.02 0.07
--------- ---------
Adjusted net income $ 0.07 $ 0.29
========= =========
In connection with SFAS No.142's transitional goodwill impairment evaluation,
the Statement required the Company to perform an assessment of whether there is
an indication that goodwill is impaired as of the date of adoption. To
accomplish this, the Company was required to identify its reporting units and
determine the carrying value of each reporting unit by assigning the assets and
liabilities, including the existing goodwill and intangible assets, to those
reporting units as of January 1, 2002. The Company was required to determine the
fair value of each reporting unit and compare it to the carrying amount of the
reporting unit within six months of January 1, 2002. To the extent the carrying
amount of a reporting unit exceeded the fair value of the reporting unit, an
indication would exist that the reporting unit goodwill may be impaired and the
Company would be required to perform the second step of the transitional
impairment test.
The Company has determined that all of its restaurants meet the criteria
supporting a single reporting unit consistent with the aggregation of all
restaurants into a single reportable operating segment under SFAS No. 131. The
Company has performed the requisite testing related to the carrying value of
goodwill in accordance with SFAS No. 142. The fair value of the reporting unit
was analyzed using two fair value approaches to determine enterprise value: (1)
EBITDA multiples and (2) stock market price data. Under both approaches, the
implied fair value of the reporting unit exceeded its carrying amount, including
goodwill and intangibles. The Company determined there was no indication of
impairment to goodwill and it was not necessary to perform any additional
testing at the reporting unit level.
As of September 30, 2002, the Company had unamortized goodwill of $24,849,225 as
a result of a write-down described below.
During the period ended September 30, 2002, the Company closed down an
under-performing T.G.I. Friday's location in Kansas City, Missouri. In
connection with this closure, the Company wrote off goodwill allocated to this
restaurant of approximately $300,000, in addition to the unrecovered net book
value of other assets.
On October 3, 2001, the FASB issued Statement No. 144, ACCOUNTING FOR THE
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS, which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
While Statement No. 144 supersedes Statement No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, it
retains many of the fundamental provisions of that Statement. The Company
adopted SFAS No. 144 on January 1, 2002. The adoption of SFAS No. 144 did not
affect the Company's financial statements.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections".
This Statement rescinds the requirement to report gains and losses from
extinguishment of debt as an extraordinary item. Additionally, this statement
amends Statement 13 to require sale-leaseback accounting for certain lease
modifications that have economic effects similar to sale-leaseback transactions.
The provisions of this statement relating to Statement 4 are applicable in
fiscal years beginning after May 15, 2002. The provisions of this Statement
related to Statement 13 are effective for transactions occurring after May 15,
2002. All other provisions of this Statement are effective for financial
8
statements issued on or after May 15, 2002. The adoption of SFAS No. 145 related
to Statement No. 4 is not expected to have a material effect on the Company's
financial statements. The adoption of SFAS No. 145 related to Statement No. 13
has not had a material effect on the Company's financial statements.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". SFAS 146 nullifies Emerging Issues Task Force
(EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity". For purposes of this Statement,
an exit activity includes, but is not limited to a restructuring as that term is
defined in IAS 37, "Provisions, Contingent Liabilities, and Contingent Assets".
The Statement is effective for exit or disposal activities initiated after
December 31, 2002. The Company is evaluating the impact of adopting SFAS No. 146
on its financial statements, but does not believe it will have a material
impact.
5. DERIVATIVE INSTRUMENTS AND HEDGE ACTIVITY
The Company follows the accounting guidelines of SFAS No. 133, as amended.
In conjunction with the Bank of America development facility, on January 31,
2001, the Company entered into an interest rate swap agreement with Bank of
America which fixes the Company's base interest rate at 6.26% per annum on a
notional amount of $12,500,000 from July 2002 through June 2014. The swap
qualifies as a cash flow hedge in accordance with SFAS No. 133. On a periodic
basis, the Company will adjust the fair market value of the swap on the balance
sheet and offset the amount of the change to other comprehensive income. As of
September 30, 2002, the fair value of the hedge resulted in a liability of
$1,888,078. The net-of-tax effect was ($1,132,847) in accumulated other
comprehensive loss with a deferred tax asset of $755,231.
On March 26, 2002, the Company entered into an interest rate swap agreement with
Bank of America on a note held by CNL Funding with a remaining unpaid balance of
$5,516,000. The interest rate on the note, 9.457%, is the same as the interest
rate to be received under the interest rate swap agreement. The swap effectively
floats the 9.457% note to a 30-day LIBOR base plus a spread of 4.34% on a
notional amount of $5,516,000. On a quarterly basis, the Company adjusts the
fair value of the swap on the balance sheet (and charges/credits the amount of
the change to other comprehensive income). As of September 30, 2002 the fair
value of the hedge resulted in an asset of $440,758. The net-of-tax effect was
$264,455 in accumulated other comprehensive income with a deferred tax liability
of $176,303.
On April 18, 2002, the Company entered into an additional interest rate swap
agreement with Bank of America. This swap agreement effectively fixes the
Company's interest rate to 5.65% per annum (plus credit spread) on a notional
amount of $10,700,000 from May 2002 through May 2012. The swap qualifies as a
cash flow hedge in accordance with SFAS No. 133. On a periodic basis, the
Company will adjust the fair market value of the swap on the balance sheet and
offset the amount of the change to other comprehensive income. As of September
30, 2002, the fair value of the hedge resulted in a liability of $1,193,460. The
net-of-tax effect was ($716,076) in accumulated other comprehensive loss with a
deferred tax asset of $477,384.
6. COMPREHENSIVE INCOME
The Company's comprehensive income consists of net income and adjustments to
derivative statements. The components of comprehensive income are as follows (in
thousands):
NINE MONTHS ENDED
--------------------------------------
SEPTEMBER 30, 2002 SEPTEMBER 24, 2001
------------------ ------------------
Net income $ 526 $ 3,065
Other comprehensive income (loss),
net of taxes;
derivative income (loss),
net of taxes of $922 and $224
for the period ended September 30,
2002 and September 24, 2001,
respectively (1,383) (336)
------- -------
Comprehensive income (loss) $ (857) $ 2,729
======= =======
9
7. EARNINGS PER SHARE
The following table sets forth basic and diluted earnings (loss) per share, or
"EPS", computations for the three and nine months ended September 30, 2002, and
September 24, 2001 (in thousands, except per share amounts):
THREE MONTHS ENDED
------------------------------------------------------------
SEPTEMBER 30, 2002 SEPTEMBER 24, 2001
----------------------------- ---------------------------
NET PER SHARE NET PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------- ------- ------- ------- ------- -------
Basic $(2,006) 14,141 $ (0.14) $ 723 14,046 $ 0.05
Effect of stock options
and warrants -- 257 -- -- 814 --
Anti-dilutive stock options
and warrants -- (257) -- -- -- --
------- ------- ------- ------- ------- -------
Diluted $(2,006) 14,141 $ (0.14) $ 723 14,860 $ 0.05
======= ======= ======= ======= ======= =======
NINE MONTHS ENDED
------------------------------------------------------------
SEPTEMBER 30, 2002 SEPTEMBER 24, 2001
----------------------------- ---------------------------
NET PER SHARE NET PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------- ------- ------- ------- ------- -------
Basic $ 526 14,093 $ 0.04 $ 3,065 14,046 $ 0.22
Effect of stock options
and warrants -- 817 -- -- 378 (0.01)
------- ------- ------- ------- ------- -------
Diluted $ 526 14,910 $ 0.04 $ 3,065 14,424 $ 0.21
======= ======= ======= ======= ======= =======
8. STOCK OPTION PLAN
On April 30, 2002, the Company's Board of Directors adopted, and on June 24,
2002, its stockholders approved, the 2002 Incentive Stock Option Plan (the "2002
Plan"). The 2002 Plan provides for the issuance of options to acquire up to
1,000,000 shares of the Company's Common Stock. The options are intended to
qualify as incentive stock options within the meaning of Section 422A of the
Internal Revenue Code or as options which are not intended to meet the
requirements of such section ("non-qualified stock options"). Awards granted
under the 2002 Plan also may include stock appreciation rights and restricted
stock awards.
The exercise price of all incentive stock options granted under the 2002 Plan
must be at least equal to the fair market value of such shares as of the date of
grant or, in the case of incentive stock options granted to the holder of 10% or
more of the Company's Common Stock, at least 110% of the fair market value of
such shares on the date of grant. The plan administrator (currently the Board of
Directors) shall set the term of each stock option, but no incentive stock
option shall be exercisable more than 10 years after the date such option is
granted.
On July 22, 2002, the Company's Board of Directors approved the issuance of an
additional 262,000 options to acquire the Company's Common Stock. The record
date of the awards was set to the close of business on July 23, 2002. The market
price of the Company's Common Stock on July 23, 2002 was $4.16.
9. LONG-TERM DEBT AND FINANCING COMMITMENT
The Company has a number of long-term debt agreements with its various lenders.
The agreements contain financial covenants, such as debt coverage and maximum
allowable debt, with which the Company must comply on a quarterly or annual
basis. At September 30, 2002, the Company was in compliance with all of its
financial covenants.
All of our loan agreements contain various financial covenants. At September 30,
2002, we met all of the financial covenants. Some of our financial covenants are
dependant upon profitable operations. As discussed earlier in this Form 10-Q,
our recent operations have been negatively impacted by an economic slow down and
resulting same-store sales declines. If this trend continues, and coupled with
the new restaurant development planned in the first half of 2003 and resulting
borrowings to finance the cost of building these restaurants, we may violate one
10
or more of these covenants with any one of our lenders in the fourth quarter of
2002 or in the first or second quarter of 2003. We currently are in discussions
with all of our lenders seeking modifications of the affected covenants. If we
are unsuccessful in completing these modifications and economic conditions
remain depressed, this could have a material adverse effect on our business and
prevent us from having the cash availability to fund our obligations and new
restaurant development.
Subsequent to September 30, 2002, the Company secured a $15 million financing
commitment through GE Franchise Finance. The terms include $6 million for
financing of equipment and leasehold improvements for the seven existing Bamboo
Club restaurants and approximately $9 million for new Bamboo Club expansion. In
addition, subsequent to September 30, 2002, the Company came to terms with Bank
of America to finance a new T.G.I. Friday's location and came to terms with
Comerica Bank on the renewal of its $5 million revolving line of credit. Both of
these financing arrangements are in the process of being documented.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS, INCLUDING STATEMENTS REGARDING
OUR BUSINESS STRATEGIES, OUR BUSINESS, AND THE INDUSTRY IN WHICH WE OPERATE.
THESE FORWARD-LOOKING STATEMENTS ARE BASED PRIMARILY ON OUR EXPECTATIONS AND ARE
SUBJECT TO A NUMBER OF RISKS AND UNCERTAINTIES, SOME OF WHICH ARE BEYOND OUR
CONTROL. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE FORWARD-LOOKING
STATEMENTS AS A RESULT OF NUMEROUS FACTORS, INCLUDING THOSE SET FORTH IN OUR
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2001, AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION.
CRITICAL ACCOUNTING POLICIES
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make a number of 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. Such estimates
and assumptions affect the reported amounts of revenues and expenses during the
reporting period. On an ongoing basis, we evaluate our estimates and assumptions
based upon historical experience and various other factors and circumstances. We
believe our estimates and assumptions are reasonable in the circumstances;
however, actual results may differ from these estimates under different future
conditions.
We believe that the estimates and assumptions that are most important to the
portrayal of the our financial condition and results of operations, in that they
require management's most difficult, subjective or complex judgments, form the
basis for the accounting policies deemed to be most critical to our operations.
These critical accounting policies relate to the valuation and amortizable lives
of long-lived assets, goodwill and other identifiable intangible assets,
valuation of deferred tax assets and reserves related to self-insurance. We
periodically perform asset impairment analysis of long-lived assets related to
our restaurant locations, goodwill and other identifiable intangible assets.
We record a valuation allowance to reduce our deferred tax assets to the amount
that is more likely than not to be realized. We use an actuarial based
methodology utilizing historical experience factors to periodically adjust
self-insurance reserves. We believe estimates and assumptions related to these
critical accounting policies are appropriate under the circumstances; however,
should future events or occurrences result in unanticipated consequences, there
could be a material impact on our future financial condition or results of
operations.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentages that
certain items of income and expense bear to total revenue:
11
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------- ----------------------------
SEPTEMBER 30, SEPTEMBER 24, SEPTEMBER 30, SEPTEMBER 24,
2002 2001 2002 2001
----- ----- ----- -----
Revenue 100% 100% 100% 100%
RESTAURANT OPERATING EXPENSES:
Cost of sales 28.0 28.0 27.6 28.0
Payroll and benefits 31.1 30.0 30.7 30.3
Depreciation and amortization 3.8 3.7 3.5 3.6
Other operating expenses 31.0 29.5 29.6 28.9
----- ----- ----- -----
Total restaurant operating expenses 93.9 91.2 91.3 90.7
----- ----- ----- -----
Income from restaurant operations 6.1 8.8 8.7 9.3
OTHER OPERATING (INCOME) EXPENSES:
Depreciation and amortization 0.2 0.9 0.2 0.9
General and administrative expenses 4.0 3.9 4.0 3.7
Preopening expenses 0.5 0.4 0.7 0.5
New manager training expenses 0.9 0.8 0.8 0.7
Impairment charges and other 3.0 -- 0.9 --
Management fee income -- (0.3) -- (0.3)
----- ----- ----- -----
Operating income (loss) (2.5) 3.1 2.1 3.8
Interest expense and other, net 2.0 1.7 1.7 1.8
----- ----- ----- -----
Net income (loss) before income tax (4.5) 1.4 0.4 2.0
Income Tax (0.8) -- 0.1 --
----- ----- ----- -----
Net Income (loss) (3.7)% 1.4% 0.3% 2.0%
===== ===== ===== =====
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002, COMPARED WITH THREE AND NINE
MONTHS ENDED SEPTEMBER 24, 2001
Revenue for the three months ended September 30, 2002, increased by 3.5% to
$54,026,000 compared with $52,222,000 for the comparable period in 2001. Revenue
for the nine months ended September 30, 2002, increased by 6.4% to $167,253,000
compared with $157,156,000 for the comparable period in 2001. The increases
resulted from the opening of seven new restaurants since the second quarter of
2001 (four restaurants during the fourth quarter of 2001 and three restaurants
during the second quarter of 2002). Revenue increases were partially offset by
the closure of one Redfish restaurant in San Diego, CA, which was closed on July
29, 2002, and one T.G.I. Friday's restaurant in Kansas City, MO, which was
closed on September 23, 2002. Additionally, we had a same-store sales decrease
of 3.6% for the quarter compared to an increase in same-store sales of 0.9% for
the comparable quarter in 2001. For the nine months ended September 30, 2002, we
had a same-store sales increase of 0.3% compared to 2.4% for the same period in
2001. We attribute the decline in same-store sales to softer economic conditions
that have affected our primary markets of Arizona and California, and the
ineffectiveness of the national advertising campaign of our T.G.I. Friday's
brand.
Our two original Bamboo Club restaurants have experienced lower sales this year
as compared to last year. Sales levels for all Bamboo Club restaurants were
negatively impacted by the higher than usual seasonal slowdown during the summer
in Arizona and Florida (where all of the our restaurants are located), and the
further impact of a soft national economy and poor consumer confidence. Average
weekly sales for all restaurants were $44,600 for the three months ended
September 30, 2002 and $51,800 for the full nine months.
We rely on T.G.I. Friday's, corporate for national advertising and promotion. We
are currently discussing with T.G.I. Friday's a new national advertising
campaign for 2003, that includes an increase in spending and new creative
material. We believe same-store sales decreased for the Friday's system during
the third quarter, and that such same-store sales performance was unfavorable in
relation to its major casual dining competitors.
Cost of sales as a percentage of revenue remained constant at 28.0% for both the
three months ended September 30, 2002, and the comparable quarter in 2001. For
the nine months ended September 30, 2002, cost of sales as a percentage of
revenue decreased to 27.6% from 28.0% for the comparable period in 2001. We
experienced food cost decreases during the nine months ended September 30, 2002
as result of favorable arrangements with our principal food suppliers that
provided for better pricing on meat and dairy products. During the quarter ended
September 30, 2002, we introduced a new trial happy hour menu in some areas. The
changes in pricing and product mix as a result of this trial caused an increase
in beverage costs that offset the trends in food cost improvements during this
quarter.
Payroll and benefit costs increased as a percentage of revenue to 31.1% for the
three months ended September 30, 2002, compared to 30.0% for the comparable
quarter in 2001. For the nine months ended September 30, 2002, payroll and
benefit costs increased to 30.7% of revenue compared to 30.3% during the
comparable period in 2001. These increases reflect the continuing impact of
minimum wage increases in California, higher health insurance costs and
increased labor costs due to the stabilization period of the seven new
restaurants opened since September 24, 2001. New restaurants typically
experience a period of six to twelve months where staffing levels are inflated.
12
Depreciation and amortization expense before income from restaurant operations
includes depreciation of restaurant property and equipment and amortization of
franchise fees and liquor licenses. Depreciation and amortization expense
increased as a percentage of revenue to 3.8% for the three months ended
September 30, 2002 from 3.7% for the comparable period in 2001. For the nine
months ended September 30, 2002, depreciation and amortization decreased to 3.5%
from 3.6% for the comparable period in 2001. Although depreciation expense
increased over the nine months as a result of asset purchases for new
restaurants, the increases were offset by a reduction in depreciation expense
due to the impairment of assets for several under-performing locations recorded
in December 2001. In addition, depreciation and amortization increases were
attributable to this fixed expense being spread over a lower revenue base during
the three- month period ended September 30, 2002.
Other operating expenses consist primarily of rent, operating supplies,
advertising and marketing costs and insurance. Other operating expenses
increased as a percentage of revenue to 31.0% for the three months ended
September 30, 2002, from 29.5% for the comparable quarter in 2001. For the nine
months ended September 30, 2002, other operating expenses increased as a
percentage of revenue to 29.6% from 28.9% for the comparable period in 2001.
These increases were primarily the result of higher rents due to leasing mall
locations for our new Bamboo Club restaurants, increases in general liability
and worker's compensation insurance, higher marketing costs related to both
T.G.I. Friday's and Bamboo Club and increases in technology support costs.
Depreciation and amortization after income from restaurant operations includes
depreciation of corporate property and equipment and amortization of goodwill,
as applicable. Depreciation and amortization expense decreased as a percentage
of revenue to 0.2% for the three months ended September 30, 2002 as compared to
0.9% for the comparable period in 2001. For the nine months ended September 30,
2002, amortization of intangibles decreased to 0.2% from 0.9% for the comparable
period in 2001. These decreases were the result of the elimination of goodwill
amortization effective January 1, 2002 under FAS 142. Goodwill amortization for
the three and nine months ended September 24, 2001 was $354,466 and $1,067,849,
respectively.
General and administrative expenses increased as a percentage of revenue to 4.0%
for the three months ended September 30, 2002, compared with 3.9% for the
comparable period in 2001. For the nine months ended September 30, 2002, general
and administrative expenses increased as a percentage of revenue to 4.0% from
3.7% for the comparable period in 2001. The increases were primarily due to
increases in salaries and benefits and travel related to the building of the
Bamboo Club management and operational infrastructure. Other increases resulted
from increases in technology support related costs, higher rent expense related
to additional office space and higher legal costs.
Preopening expenses increased as a percentage of revenue to 0.5% for the three
months ended September 30, 2002 from 0.4% for the comparable period in 2001. For
the nine months ended September 30, 2002, preopening expenses increased as a
percentage of revenue to 0.7% from 0.5% for the comparable period in 2001. These
increases were primarily the result of the timing of new store openings,
specifically the new Bamboo Club opened in October 2002 and the two new Bamboo
Clubs we expect to open during the fourth quarter 2002. The majority of
preopening expenses occur during the two months prior to opening a new store.
New manager training expenses are those costs incurred in training newly hired
or promoted managers, as well as those costs incurred to relocate those managers
to permanent management positions. New manager training expenses increased as a
percentage of revenue for the three months ended September 30, 2002 to 0.9% from
0.8% for the comparable period in 2001. For the nine months ended September 30,
2002, new manager training expenses increased to 0.8% from 0.7% for the
comparable period in 2001. These increases were primarily the result of the
timing of new store openings, specifically the new Bamboo Club opened in October
2002 and the two new Bamboo Clubs we expect to open during the fourth quarter
2002.
Under Management Agreements, we manage four T.G.I. Friday's stores in Northern
California and one T.G.I. Friday's store in El Paso, Texas. Under these
agreements we are entitled to a management fee if certain cash flow levels are
achieved. Based on the cash flow provisions of the Management Agreements, we
were unable to record management fee income during the three and nine month
periods ended September 30, 2002 compared to $146,000 and $431,000, or 0.3% of
revenue, for the three and nine month periods in 2001, respectively. Subsequent
to September 30, 2002 the El Paso, Texas location was closed, which reduced the
number of stores we manage to the four stores in Northern California.
13
Interest expense increased as a percentage of revenue to 2.0% for the three
months ended September 30, 2002, compared with 1.7% for the comparable quarter
in 2001. For the nine months ended September 30, 2002, interest expense
decreased as a percentage of revenue to 1.7% from 1.8% for the comparable period
in 2001. Increases in interest expense during the three months ended September
30, 2002, was the result of additional borrowings for new restaurants opened
this year. The interest related to the additional borrowing was partially offset
by more favorable interest rates on our variable interest rate debt combined
with refinancing of a portion of our higher rate debt.
We recorded an income tax benefit for the three months ended September 30, 2002.
This income tax benefit was due to the loss we recorded during the quarter ended
September 30, 2002, primarily as a result of asset impairments. In prior years,
we did not have an income tax provision due to the utilization of tax loss and
tax credit carryforwards. Although we still have tax loss and tax credit
carryforwards available, the law limits the amount we can realize in 2002;
accordingly, we have estimated our effective tax rate during 2002 to be 18%.
LIQUIDITY AND CAPITAL RESOURCES
Our current liabilities exceed our current assets because of the longer payment
terms on trade payable, inventories and other current liabilities (payment terms
are normally 15 to 30 days). Comparatively, the restaurant sales cycle is short
as we receive substantially immediate payment for all sales transactions. As of
September 30, 2002, we had a cash balance of $7,273,000 and monthly cash
receipts have been sufficient to pay all obligations as they become due.
Net cash provided by operating activities was $4.3 million for the nine months
ended September 30,2002 and $6.1 million for comparable period in 2002,
primarily as a result of reduced earnings.
Net cash used in investing activities was $13.0 million and $6.7 million for the
nine months ended September 30, 2002 and September 24, 2001, respectively. We
use cash primarily to fund the development and construction of new restaurants.
During the nine months ended September 30, 2002 and for the comparable period in
2001, capital expenditures made up the majority of our investing activities.
Cash received from sale-leaseback transactions reduced cash used for investment
in capital expenditures for the nine-month period ended September 24, 2001.
Net cash provided by financing activities for the nine months ended September
30, 2002 was $6.4 million compared to $2.4 million for the comparable period in
2001. Financing activities in the nine-month period in 2002 consisted primarily
of new permanent financing and refinancing of existing higher interest rate debt
offset by repayment of higher interest rate debt and amortization of existing
debt. Financing activities in 2001 consisted primarily of borrowings on our
development facility with Bank of America and were offset by amortization of
debt.
During the period ended September 30, 2002, we obtained new permanent financing
of $9,464,000 from Bank of America for the refinance of two existing T.G.I.
Friday's locations (Cerritos, California and Oxnard, California) and the
financing of two new T.G.I. Friday's locations (Porter Ranch, California and
Chandler, Arizona). As of September 30, 2002, we had long-term debt of
$53,059,000, net of current portion of $3,347,000, with numerous lenders.
We currently retain exclusive development rights in our T.G.I. Friday's markets
outside of California, where we are current with our development obligations. In
California, we share co-development rights with T.G.I. Friday's and have
recently renegotiated our co-development obligations. Pursuant to the terms of
our amended development agreements, we are now required to open one restaurant
in our Northern California territory, two restaurants in our Southern California
territory, one restaurant in our Southwest territory, and one restaurant in our
Midwest territory by December 31, 2003.
14
We estimate that our total cost of opening a new T.G.I. Friday's restaurant
currently ranges from $2,450,000 to $2,800,000, exclusive of annual operating
expenses and assuming that we obtain the underlying real estate under a lease
arrangement. These costs include approximately (a) $1,650,000 to $2,000,000 for
building, improvements, and permits, including liquor licenses, (b) $600,000 for
furniture, fixtures, and equipment, (c) $150,000 in pre-opening expenses,
including hiring expenses, wages for managers and hourly employees, and
supplies, and (d) $50,000 for the initial franchise fee. Actual costs, however,
may vary significantly depending upon a variety of factors, including the site
and size of the restaurant and conditions in the local real estate and
employment markets.
We estimate our total cost of opening a new Bamboo Club restaurant ranges from
$1,325,000 to $1,625,000, exclusive of annual operating expenses. These costs
include approximately (a) $550,000 to $825,000, net of a reduction for
landlord's contribution, for building improvements and permits, including liquor
licenses, (b) $600,000 for furniture, fixtures, and equipment, and (c) $175,000
to $200,000 in pre-opening expenses, including hiring expenses, wages for
managers and hourly employees, and supplies. We have developed a plan for a
freestanding Bamboo Club restaurant, which is currently under construction, and
we anticipate that this cost will be in excess of the preceding averages. Actual
costs for future openings may vary significantly, depending on a variety of
factors.
Subsequent to September 30, 2002, we opened one new Bamboo Club (Newport,
Kentucky) and we have plans to open two additional new Bamboo Club restaurants
during the remainder of 2002. New store openings through the remainder of 2002
will be financed by our current cash on hand, internally generated funds from
operations and debt financing.
As of September 30, 2002, we had fully utilized our development facility with
Bank of America. Subsequent to September 30, 2002, we secured a $15 million
financing commitment through GE Franchise Finance. The terms include $6 million
for financing of equipment and leasehold improvements for the seven Bamboo Clubs
already open and approximately $9 million for new Bamboo Club development.
Additionally, subsequent to September 30, 2002, we came to terms with Comerica
Bank on the renewal of our $5 million revolving line of credit. We also came to
terms with Bank of America for financing on a new Friday's location. Both of
these arrangements are in the process of being documented.
All of our loan agreements contain various financial covenants. At September 30,
2002, we met all of the financial covenants. Some of our financial covenants are
dependant upon profitable operations. As discussed earlier in this Form 10-Q,
our recent operations have been negatively impacted by an economic slow down,
and resulting same-store sales declines. If this trend continues, and coupled
with the new restaurant development planned in the first half of 2003 and
resulting borrowings to finance the cost of building these restaurants, we may
violate one or more of these covenants with any one of our lenders in the fourth
quarter of 2002 or in the first or second quarter of 2003. We currently are in
discussions with all of our lenders seeking modifications of the affected
covenants. If we are unsuccessful in completing these modifications and economic
conditions remain depressed, this could have a material adverse effect on our
business and prevent us from having the cash availability to fund our
obligations and new restaurant development.
Assuming we remain in compliance with our current debt agreements or receive the
modifications to the covenants discussed above, and that there is an improvement
in the general economic conditions in our key markets, we believe that our
current cash resources, our line of credit, additional debt financing
commitments, and expected cash flows from operations will be sufficient to fund
our current operations and planned development through 2003. We believe we may
need to obtain capital to fund additional growth beyond 2003. Potential sources
of any such capital include bank financing, strategic alliances, and additional
offerings of our equity or debt securities. We cannot provide assurance that
such capital will be available from these or other potential sources, and the
lack of capital could have a material adverse effect on our business.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of September 30 2002, we were participating in three derivative financial
instruments for which fair value disclosure is required under Statement of
Financial Accounting Standards No. 133. The fair value liability of the interest
rate swap agreements discussed in note 5 increased to $2,640,780 using "hedge
accounting" per SFAS No. 133.
15
Our market risk exposure is limited to interest rate risk associated with our
credit instruments. We incur interest on loans made at variable interest rates
of 1.125% over prime, 2.85% over LIBOR, 3.20% over LIBOR, and 2.65% over the
30-Day Dealer Commercial Paper Rate. As of September 30, 2002, we had
outstanding borrowings on these loans of approximately $33,263,000. Our total
net interest expense for the three and nine months ended September 30, 2002 was
$1,071,000 and $2,761,000, respectively, compared to $893,000 and $2,875,000 for
the comparable periods in 2001. A one percent variation in interest rates would
have increased our total interest expense by approximately $82,000 and $246,000
for the three and nine-month periods ended September 30, 2002, respectively.
ITEM 4. CONTROLS AND PROCEDURES
As of a date within 90 days prior to the date of the filing of this report, our
Chief Executive Officer and Chief Financial Officer have reviewed and evaluated
the effectiveness of our disclosure controls and procedures, which included
inquiries made to certain other of our employees. Based on their evaluation, our
Chief Executive Officer and Chief Financial Officer have each concluded that our
disclosure controls and procedures are effective and sufficient to ensure that
we record, process, summarize and report information required to be disclosed by
us in our periodic reports filed under the Securities Exchange Act within the
time periods specified by the Securities and Exchange Commission's rules and
forms. Subsequent to the date of their evaluation, there have not been any
significant changes in our internal controls or in other factors that could
significantly affect these controls, including any corrective action with regard
to significant deficiencies and material weaknesses.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We were not involved in any material legal proceedings as of September 30, 2002.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
Our Board of Directors elected to increase the number of members of the Board of
Directors. Effective July 17, 2002, the Board appointed Wanda Williams as a new
member of the Board of Directors. Ms. Williams was also appointed to serve as a
member of the Audit Committee. In addition, effective July 17, 2002, Mr. John F.
Antioco resigned as a member of the Audit Committee.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
99.1 Certification of the Chief Executive Officer of the Registrant,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification of the Chief Financial Officer of the Registrant,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
None
16
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.
MAIN STREET AND MAIN INCORPORATED
Dated: November 14, 2002 /s/ Bart A. Brown, Jr.
----------------------------------------
Bart A. Brown Jr.,
Chief Executive Officer
Dated: November 14, 2002 /s/ Michael Garnreiter
----------------------------------------
Michael Garnreiter,
Executive Vice President, CFO, and
Treasurer
17
CERTIFICATIONS
I, Bart A. Brown, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Main Street and
Main Incorporated;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations, and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize, and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ Bart A. Brown, Jr.
----------------------------------------
Bart A. Brown, Jr.
Chief Executive Officer
18
I, Michael Garnreiter, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Main Street and
Main Incorporated;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations, and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize, and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ Michael Garnreiter
----------------------------------------
Michael Garnreiter
Chief Financial Officer
19