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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED COMMISSION FILE NUMBER
March 25, 2003 000-22753
-------------- ---------
TOTAL ENTERTAINMENT RESTAURANT CORP.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 52-2016614
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
9300 EAST CENTRAL AVENUE
SUITE 100
WICHITA, KANSAS 67206
(Address of principal executive offices) (Zip code)
(316) 634-0505
(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.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at April 30, 2003
-----
COMMON STOCK, $.01 PAR VALUE 9,727,523 SHARES
TOTAL ENTERTAINMENT RESTAURANT CORP.
INDEX
PAGE
NUMBER
------
PART I. FINANCIAL INFORMATION
- -------------------------------
Item 1. Condensed Financial Statements (unaudited)
Condensed Consolidated Balance Sheets at
March 25, 2003 and December 31, 2002 2
Condensed Consolidated Statements of
Operations for the twelve weeks ended
March 25, 2003 and March 19, 2002 3
Condensed Consolidated Statements of
Cash Flows for the thirty-six weeks ended
March 25, 2003 and March 19, 2002 4
Notes to Condensed Consolidated
Financial Statements 5
Item 2. Management's Discussion and
Analysis of Financial Condition and
Results of Operations 7
Item 3. Quantitative and Qualitative
Disclosures About Market Risk 11
Item 4. Procedures and Controls 12
PART II. OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 12
-1-
TOTAL ENTERTAINMENT RESTAURANT CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 25, 2003 December 31, 2002
------------------- ---------------------
ASSETS
Current assets:
Cash and cash equivalents $ 792,446 $ 1,116,094
Inventories 1,589,608 1,603,672
Deferred income taxes 211,620 212,367
Other current assets 2,376,429 1,034,151
------------- -------------
Total current assets 4,970,103 3,966,284
Property and equipment:
Land 600,000 600,000
Buildings 702,739 702,739
Leasehold improvements 39,133,728 36,653,603
Equipment 21,667,434 20,802,285
Furniture and fixtures 6,332,329 5,845,627
------------- -------------
68,436,230 64,604,254
Less accumulated depreciation and amortization 18,754,812 17,391,742
------------- -------------
49,681,418 47,212,512
Other assets:
Goodwill, net of accumulated amortization 3,661,134 3,661,134
Advances to developer 1,102,000 570,000
Other assets 622,245 485,354
------------- -------------
Total other assets 5,385,379 4,716,488
------------- -------------
Total assets $ 60,036,900 $ 55,895,284
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of notes payable $ 336,721 $ 98,413
Accounts payable 5,308,524 4,043,123
Sales tax payable 873,476 1,032,184
Accrued payroll 969,616 1,148,677
Accrued payroll taxes 666,414 751,920
Accrued income taxes 880,172 960,645
Lease obligation for closed store 15,872 42,606
Other accrued liabilities 1,882,616 1,506,847
------------- -------------
Total current liabilities 10,933,411 9,584,415
Notes payable 3,123,279 2,441,587
Deferred taxes 190,275 98,633
Deferred revenue 66,952 73,875
Accrued rent 461,869 413,167
Stockholders' equity:
Preferred stock - -
Common stock 98,326 98,663
Additional paid-in capital 28,764,697 29,054,438
Retained earnings 16,398,091 14,130,506
------------- -------------
Total stockholders' equity 45,261,114 43,283,607
------------- -------------
Total liabilities and stockholders' equity $ 60,036,900 $ 55,895,284
============= =============
See accompanying notes.
-2-
TOTAL ENTERTAINMENT RESTAURANT CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Twelve weeks Twelve weeks
ended ended
March 25,2003 March 19,2002
----------------------- ---------------------
Sales:
Food and beverage $ 24,866,211 $ 19,875,913
Entertainment and other 2,174,700 1,948,821
------------- -------------
Total net sales 27,040,911 21,824,734
Costs and expenses:
Costs of sales 6,949,027 5,731,487
Restaurant operating expenses 13,514,737 10,400,074
Depreciation and amortization 1,355,668 1,009,618
Preopening costs 286,843 490,641
------------- -------------
Restaurant costs and expenses 22,106,275 17,631,820
------------- -------------
Restaurant operating income 4,934,636 4,192,914
General and administrative expenses 1,366,958 1,155,265
Loss on disposal of assets - 18,239
------------- -------------
Income from operations 3,567,678 3,019,410
Other income (expense):
Other income/(expense) 304 6
Interest expense (24,881) (106,665)
------------- -------------
Income from continuing operations
before income taxes 3,543,101 2,912,751
Provision for income taxes 1,275,516 1,047,399
------------- -------------
Income from continuing operations 2,267,585 1,865,352
Income from discontinued operations - 32,111
------------- -------------
Net income $ 2,267,585 $ 1,897,463
============= =============
Basic earnings per share:
Income from continuing operations $ 0.23 $ 0.22
Income from discontinued operations - -
------------- -------------
Basic earnings per share $ 0.23 $ 0.22
============= =============
Diluted earnings per share
Income from continuing operations $ 0.22 $ 0.21
Income from discontinued operations - -
------------- -------------
Diluted earnings per share $ 0.22 $ 0.21
============= =============
See accompanying notes.
-3-
TOTAL ENTERTAINMENT RESTAURANT CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Twelve weeks Twelve weeks
ended ended
March 25, 2003 March 19, 2002
---------------- ----------------
Cash flows from operating activities:
Net income $ 2,267,585 $ 1,897,463
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on disposal of assets - 18,239
Depreciation and amortization 1,372,589 1,024,193
Deferred income taxes 92,389 45,556
Net change in operating assets and liabilities:
Change in operating assets (1,474,624) (870,521)
Change in operating liabilities (243,434) (356,505)
------------- -------------
Net cash provided by operating activities 2,014,505 1,758,425
Cash flows from investing activities:
Purchases of property and equipment (2,436,075) (4,676,400)
Advances to developer (532,000) -
Proceeds from disposal of assets - 6,395
------------- -------------
Net cash used in investing activities (2,968,075) (4,670,005)
Cash flows from financing activities:
Proceeds from revolving note payable to bank 7,935,000 7,860,000
Payments of revolving note payable to bank (7,015,000) (5,385,000)
Proceeds from exercise of stock options 37,501 -
Purchase of common stock (327,579) -
------------- -------------
Net cash provided by financing activities 629,922 2,475,000
------------- -------------
Net (decrease) increase in cash and cash equivalents (323,648) (436,580)
Cash and cash equivalents at beginning of period 1,116,094 1,346,495
------------- -------------
Cash and cash equivalents at end of period $ 792,446 $ 909,915
============= =============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 25,432 $ 114,717
Cash paid for income taxes 1,263,601 1,710,457
Supplemental disclosure of non cash activity:
Additions to property and equipment in accounts
payable 1,395,901 123,463
See accompanying notes.
-4-
TOTAL ENTERTAINMENT RESTAURANT CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
-------------------------------------------------
The unaudited condensed consolidated financial statements have been
prepared by the Company 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 management, necessary to fairly present the operating results
for the respective periods. Certain information and footnote disclosures
normally presented in annual financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant to such
rules and regulations. These financial statements should be read in conjunction
with the Company's audited consolidated financial statements in its 2002 Form
10-K. The results of the twelve weeks ended March 25, 2003 are not necessarily
indicative of the results to be expected for the full year ending December 30
2003.
2. ACCOUNTING FOR STOCK-BASED COMPENSATION
---------------------------------------
In accordance with Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, the Company uses the intrinsic
value-based method for measuring stock-based compensation cost which measures
compensation cost as the excess, if any, of the quoted market price of Company's
common stock at the grant date over the amount the employee must pay for the
stock. The Company's policy is to grant stock options with grant prices equal to
the fair value of the Company's common stock at the date of grant. Proceeds from
the exercise of common stock options issued to officers, directors and key
employees under the Company's stock option plans are credited to common stock to
the extent of par value and to additional paid-in capital for the excess.
Pro forma information regarding net income and earnings per share is
required by Statement No. 123, which also requires the information be determined
as if the Company has accounted for its employee stock options granted under the
fair value of that Statement. The fair value method for these options were
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions: risk-free interest rate ranging from
2.9% to 5.3%; no dividend yields; volatility factor ranging from 0.281 to 0.853;
and a weighted-average expected life of the option of 5 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the option's vesting period. The Company's
pro forma information is as follows:
-5-
12 weeks 12 weeks
ended ended
March 25, 2003 March 19, 2002
----------------- ----------------
Net income, as reported $2,267,585 $1,897,463
Pro forma stock-based employee
compensation cost, net of tax 89,858 60,043
----------------- ----------------
Pro forma net income $2,177,727 $1,837,420
================= ================
Earnings per share:
Basic, as reported $ 0.23 $ 0.22
Basic, pro forma $ 0.22 $ 0.21
Diluted, as reported $ 0.22 $ 0.21
Diluted, pro forma $ 0.21 $ 0.20
Weighted average fair value of options granted during
the quarter $ 5.66 N/A
3. STOCK OPTIONS
-------------
During the twelve week period ended March 25, 2003, the Company granted to
certain key employees stock options for 69,500 shares of Common Stock at a
weighted-average exercise price of $8.24 per share and options to purchase 7,143
shares were exercised at a weighted-average exercise price of $5.25 per share
pursuant to its 1997 Incentive and Nonqualified Stock Option Plan.
4. EARNINGS PER SHARE
------------------
Basic earnings per share amounts are computed based on the weighted average
number of shares actually outstanding. The number of weighted averaged shares
outstanding for the twelve week periods ended March 25, 2003 and March 19, 2002
were 9,864,658 and 8,665,611, respectively.
Diluted earnings per share are computed similar to basic earnings per share
except that the weighted average shares outsanding are increased to include
additional shares for the assumed exercise of stock options, if dilutive. The
number of additional shares is calculated by assuming that outstanding stock
options were exercised and the proceeds from such exercises were used to acquire
common shares at an average price during the reporting period. The number of
shares resulting from this computation of diluted earnings per share for the
twelve weeks ended March 25, 2003 and March 19, 2002 were 10,247,682 and
9,025,477, respectively.
5. NEW ACCOUNTING STANDARDS
------------------------
In August 2001, the FASB issued SFAS No. 144, ACCOUNTING FOR THE IMPAIRMENT
OR DISPOSAL OF LONG-LIVED ASSETS. SFAS No. 144 addresses significant issues
relating to the implementation of SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, and develops a
single accounting method under which long-lived assets that are to be disposed
of by sale are measured at the lower of book value or fair value less cost to
sell. Additionally, SFAS No. 144 expands the scope of discontinued operations to
include all components of an entity with operations that (1) can be
distinguished from the rest of the entity and (2) will be eliminated from the
ongoing operations of the entity in a disposal transaction. The Company adopted
the provisions of SFAS No. 144 effective December 26, 2001. The Company closed
-6-
and abandoned one restaurant on March 31, 2002. Pursuant to SFAS No. 144, each
restaurant is a component of the entity, and the operations of the closed
restaurant can be distinguished from the rest of the entity and will be
eliminated from the ongoing operations of the Company. Accordingly, the
operations of the closed restaurant, net of applicable income tax effect, have
been presented as discontinued operations and prior period statements of income
have been reclassified accordingly.
6. LEGAL PROCEEDINGS
-----------------
Certain former employees have filed a complaint on their own behalf and on
the behalf of similarly situated persons alleging the Company violated certain
provisions of the Fair Labor Standards Act. Although it is not possible at this
time for the Company to evaluate the merits of this claim, nor their likelihood
of success, management of the Company is of the opinion that any resulting
liability will not have a material adverse effect on the Compnany's financial
statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANAYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction with
the Financial Statements and Notes thereto included elsewhere in this Form 10-Q.
As of March 25, 2003, the Company owned and operated 56 restaurants under
the Fox and Hound Smokehouse & Tavern and Fox and Hound English Pub & Grille
("Fox and Hound"), Bailey's Smokehouse & Tavern, Bailey's Sports Grille and
Bailey's Pub & Grille ("Bailey's") brand names. The Company's restaurants offer
a broad menu of mid-priced appetizers, entrees, and desserts served in generous
portions. In addition, each location features a full-service bar and offers a
wide selection of major domestic, imported and specialty beers. Each restaurant
emphasizes a high energy environment with multiple billiard tables and satellite
and cable coverage of a variety of sporting events and music videos. In addition
to our food, the Company believes that customers are attracted to the elegant
yet comfortable atmosphere of polished brass, embroidered chairs and booths,
hunter green and burgundy walls, and etched glass. The Fox and Hound and
Bailey's restaurants share identical design and operational principles and
menus. As of March 25, 2003, the Company owned and operated 42 Fox and Hound
restaurants and 14 Bailey's restaurants located in Alabama, Arizona, Arkansas,
Colorado, Georgia, Illinois, Indiana, Kansas, Louisiana, Michigan, Missouri,
Nebraska, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas
and Virginia. As of March 19, 2002, the Company owned and operated 33 Fox and
Hound restaurants and 14 Bailey's restaurants.
The components of the Company's net sales are food and non-alcoholic
beverages, alcoholic beverages, and entertainment and other (principally
billiard table rental fees). For the twelve weeks ended March 25, 2003, food and
non-alcoholic beverages were 32.4% of total sales, alcoholic beverages were
59.6% of total sales and entertainment and other were 8.0% of total sales. For
the twelve weeks ended March 19, 2002, food and non-alcoholic beverages were
31.9% of total sales, alcoholic beverages were 59.1% of total sales and
entertainment and other were 9.0% of total sales.
The components of the Company's cost of sales primarily include direct
costs of food, non-alcoholic beverages and alcoholic beverages. These costs are
generally variable and will fluctuate with changes in sales volume and sales
mix.
-7-
Components of restaurant operating expenses include operating payroll and
fringe benefits, and occupancy, maintenance and utilities. All but one of the
Company's locations are leased and provide for a minimum annual rent, with some
leases calling for additional rent based on sales volume at the particular
location in excess of specified minimum sales levels.
Depreciation and amortization costs primarily include depreciation and
amortization of capital expenditures for restaurants.
Preopening costs include labor costs, costs of hiring and training
personnel and certain other costs relating to opening new restaurants.
General and administrative expenses include all corporate and
administrative functions that support existing operations and provide an
infrastructure to support future growth. Management, supervisory and staff
salaries, employee benefits, travel, information systems, training, rent and
office supplies as well as accounting services fees are major items of costs in
this category.
In calculating comparable restaurant sales, the Company includes a
restaurant in the comparable restaurant base after it has been in operation for
18 full months. As of March 25, 2003, there were 40 restaurants in the
comparable restaurant base. Annualized average weekly sales are computed by
dividing net sales during the period by the number of store operating weeks and
multiplying the result by 52. These calculations include sales and store
operating weeks for the one unit included in discontinued operations.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated (i) the
percentages which certain items included in the Condensed Consolidated Statement
of Operations bear to net sales, and (ii) other selected operating data. The
Company operates on a 52 or 53 week fiscal year ending the last Tuesday in
December. Fiscal year 2002 consisted of 53 weeks and fiscal year 2003 consists
of 52 weeks. Fiscal quarters consist of three accounting periods of 12 weeks
each and a final period of 16 or 17 weeks.
TWELVE WEEKS ENDED
------------------
MARCH 25, MARCH 19,
2003 2002
--------- ---------
OPERATING STATEMENT DATA:
Net sales 100.0% 100.0%
Costs and expenses:
Costs of sales....................................... 25.7 26.3
Restaurant operating expenses........................ 50.0 47.7
Depreciation and amortization........................ 5.0 4.6
Preopening costs..................................... 1.1 2.2
------ ------
Restaurant costs and expenses.................... 81.8 80.8
------ ------
Restaurant operating income.............................. 18.2 19.2
General and administrative expenses...................... 5.0 5.3
Loss on disposal of assets............................... -- 0.1
------ ------
Income from operations................................... 13.2 13.8
Interest expense 0.1 0.5
------ ------
Income from continuing operations before income taxes.... 13.1 13.3
Provision for income taxes 4.7 4.8
------ ------
Income from continuing operations........................ 8.4 8.5
Income from discontinued operations -- 0.2
------ ------
Net income............................................... 8.4% 8.7%
====== ======
RESTAURANT OPERATING DATA (DOLLARS IN THOUSANDS):
Annualized average weekly sales per location.............$ 2,137 $ 2,131
Number of restaurants at end of the period............... 56 47
-8-
TWELVE WEEKS ENDED MARCH 25, 2003 COMPARED TO TWELVE WEEKS ENDED MARCH 19, 2002
Net sales increased $5,216,000 (23.9%) for the twelve weeks ended March 25,
2003 to $27,041,000 from $21,825,000 for the twelve weeks ended March 19, 2002.
This increase was due to a 21.9% increase in store weeks (658 versus 540) as a
result of ten restaurants opened and one restaurant closed since March 19, 2002
and a 2.8% increase in annualized average weekly sales for units open during the
entire period primarily as a result of increased customer traffic. Comparable
restaurant sales decreased 2.3% for the quarter ended March 25, 2003.
Costs of sales increased $1,218,000 (21.3%) for the twelve weeks ended
March 25, 2003 to $6,949,000 from $5,731,000 in the twelve weeks ended March 19,
2002, and decreased as a percentage of sales to 25.7% from 26.3%. This decrease
as a percentage of sales is principally attributable to price increases
implemented in the first quarter of fiscal year 2003.
Restaurant operating expenses increased $3,115,000 (30.0%) for the twelve
weeks ended March 25, 2003 to $13,515,000 from $10,400,000 in the twelve weeks
ended March 19, 2002, and increased as a percentage of net sales to 50.0% from
47.7%. This increase as a percentage of sales is principally attributable to
higher occupancy costs on new units, higher employee benefits, higher utility
costs, and higher liability insurance and claims expense.
Depreciation and amortization increased $346,000 (34.3%) for the twelve
weeks ended March 25, 2003 to $1,356,000 from $1,010,000 in the twelve weeks
ended March 19, 2002, and increased as a percentage of sales to 5.0% from 4.6%.
This increase in expense is due to additional depreciation on ten restaurants
opened net of one restaurant closed since March 19, 2002.
Preopening costs decreased $204,000 (41.5%) for the twelve weeks ended
March 25, 2003 to $287,000 from $491,000 in the twelve weeks ended March 19,
2002. These costs are attributable to two units that opened during the twelve
weeks ended March 25, 2003 and partial preopening expenses for four restaurants
which have yet to open. Four restaurants were opened in the twelve weeks ended
March 19, 2002.
General and administrative expenses increased $212,000 (18.4%) for the
twelve weeks ended March 25, 2003 to $1,367,000 from $1,155,000 in the twelve
weeks ended March 19, 2002, due to an increase in corporate infrastucture to
support the Company's expansion. General and administrative expenses decreased
as a percentage of net sales to 5.0% from 5.3%, due to the leverage of
infrastructure expense against a higher sales volume.
Loss on disposal of assets was $18,000 for the twelve weeks ended March 19,
2002. The losses reflect the disposal of certain video games.
Interest expense was $25,000 for the twelve weeks ended March 25, 2003 and
$107,000 for the twelve weeks ended March 19, 2002. This decrease is due to both
a lower interest rate and lower average balance applicable to the revolving note
payable in the current fiscal year compared with the prior fiscal year.
The effective income tax rate was 36.0% for the twelve weeks ended March
25, 2003 and 36.0% for the twelve weeks ended March 19, 2002.
QUARTERLY FLUCTUATIONS, SEASONALITY AND INFLATION
The timing of new unit openings will result in significant fluctuations in
quarterly results. The Company expects seasonality to be a factor in the results
of its business in the future due to expected lower second and third quarter
revenues due to the summer season. The primary inflationary factors affecting
the Company's operations include food, liquor and labor costs. A large number
-9-
of the Company's restaurant personnel are tipped employees who are paid at the
federal subminimum wage level; therefore, future subminimum wage changes will
have a significant effect on labor costs. As costs of food and labor have
increased, the Company has historically been able to offset these increases
through economies of scale, improved operating procedures and menu price
changes; however, short-term fluctuations in raw product pricing may have an
impact on the Company's costs of food. To date, inflation has not had a material
impact on operating margins.
LIQUIDITY AND CAPITAL RESOURCES
As is customary in the restaurant industry, the Company operates with
negative working capital. Negative working capital increased $345,000 to
$5,963,000 as of March 25, 2003 from $5,618,000 as of December 31, 2002. This
increase is attributable primarily to the excess of cost of purchases of
property and equipment and repurchases of common stock in excess of working
capital provided by operations and net proceeds from the line of credit. Cash
decreased $324,000 at March 25, 2003 compared to the balance of $1,116,000 at
December 31, 2002. The Company does not have significant receivables or
inventory and receives trade credit based upon negotiated terms in purchasing
food and supplies. Because funds available from cash sales are not needed
immediately to pay for food and supplies, or to finance inventory, they may be
considered as a source of financing for noncurrent capital expenditures.
On September 1, 1998 the Company entered into a loan agreement with Intrust
Bank, N.A. (the "Line of Credit") which provides for a line of credit of
$20,000,000 subject to certain limitations based on earnings before interest,
taxes, depreciation and amortization of the past fifty-two weeks and the amount
of capital lease obligations on personal property. The Line of Credit is secured
by substantially all of the Company's assets. The Line of Credit requires
monthly payments of interest only until November 1, 2003, at which time equal
monthly installments of principal and interest are required as necessary to
fully amortize the outstanding indebtedness plus future interest over a period
of four years. Interest is accrued at 1/2% below the prime rate as published in
THE WALL STREET JOURNAL. Proceeds from the Line of Credit are being used for
restaurant development. As of March 25, 2003 the Company had borrowed
$3,460,000 under the Line of Credit. The Company is in compliance with all debt
covenants.
Cash flows from operations were $2,015,000 in the 12 weeks ended March 25,
2003 compared to $1,758,000 in the 12 weeks ended March 19, 2002. Purchases of
property and equipment were $2,436,000 in the 12 weeks ended March 25, 2003
compared to $4,676,000 in the 12 weeks ended March 19, 2002. Advances made to
the developer of two build-to-suit locations were $532,000 in the 12 weeks ended
March 25, 2003. Net proceeds from the revolving note payable to bank was
$920,000 for the 12 week period ending March 25, 2003 compared to $2,475,000 for
the 12 weeks ending March 19, 2002. At March 25, 2003, the Company had $792,000
in cash and cash equivalents.
The Company intends to open ten to twelve new locations in fiscal year 2003
and twelve to fifteen new locations in fiscal year 2004. At March 25, 2003, two
units had been opened in fiscal 2003, three units were under construction,
leases had been executed on six additional sites, and lease negotiations had
begun on three additional sites. The Company is currently evaluating locations
in markets familiar to its management team. However, the number of locations
actually opened and the timing thereof may vary depending upon the ability of
the Company to locate suitable sites and negotiate favorable leases. The Company
expects to expend approximately $15.0 to $20.0 million to open new locations
over the next twelve months.
-10-
The Company believes the funds available from the Line of Credit and its
cash flow from operations will be sufficient to satisfy its working capital and
capital expenditure requirements for at least the next twelve months. There can
be no assurance, however, that changes in the Company's operating plans, the
acceleration or modification of the Company's expansion plans, lower than
anticipated revenues, increased expenses, stock repurchases, potential
acquisitions or other events will not cause the Company to seek additional
financing sooner than anticipated, prevent the Company from achieving the goals
of its expansion strategy or prevent any newly opened locations from operating
profitably. There can be no assurance that additional financing will be
available on terms acceptable to the Company or at all.
FORWARD LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which are intended to be covered by
the safe harbors created thereby. Although the Company believes that the
assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and, therefore, there
can be no assurance that the forward-looking statements included in this report
will prove to be accurate. Our actual results may differ materially from the
forward-looking statements contained herein. Factors that could cause actual
results to differ from the results discussed in the forward-looking statements
include, but are not limited to, potential increases in food, alcohol, labor,
and other operating costs, changes in competition, the inability to find
suitable new locations, changes in consumer preferences or spending patterns,
changes in demographic trends, the effectiveness of our operating and growth
initiatives and promotional efforts, and changes in government regulation.
Further information about the factors that might affect the Company's financial
and other results are included in the Company's 10-K, filed with the Securities
and Exchange Commission. In light of the significant uncertainties inherent in
the forward-looking statements included herein, the inclusion of such
information should not be regarded as a representation by the Company or any
other person that the objectives and plans of the Company will be achieved.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
INTEREST RATE RISK
The Company's Line of Credit has a variable rate which is directly affected
by changes in U.S. interest rates. The average interest rate of the Facility was
3.75% for the twelve weeks ended March 25, 2003. The interest rate at March 25,
2003 was 3.75%. The following table presents the quantitative interest rate
risks at March 25, 2003:
Principal Amount by Expected Maturity
--------------------------------------------------------------------
(In thousands)
Fair
There- Value
(dollars in thousands) 2003 2004 2005 2006 2007 after Total 3/25/03
---------------------- ---- ---- ---- ---- ---- ------ ----- -------
Variable rate debt $134 $822 $854 $886 $764 $ - $3,460 $3,460
Average Interest Rate--
1/2% below prime - 3.75% 3.75% 3.75% 3.75% 3.75%
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ITEM 4. PROCEDURES AND CONTROLS
-----------------------
Within the 90 days prior to the date of this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Company's management, including the Company's Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures pursuant to Exchange Act Rule
13a-14. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures are effective. There were no significant changes in the Company's
internal controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation.
PART II. OTHER INFORMATION
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Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
Exhibits
Exhibit 99.1 - Certification by Steven M. Johnson pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
Exhibit 99.2 - Certification by James K. Zielke pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
Reports on Form 8-K
A Current Report on Form 8-K (Item 5) dated January 8, 2003, reporting the
filing of Exhibit 99.1-Press release of Total Entertainment Restaurant Corp.
A Current Report on Form 8-K (Item 5) dated February 14, 2003, reporting
the filing of Exhibit 99.1-Press release of Total Entertainment Restaurant Corp.
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TOTAL ENTERTAINMENT RESTAURANT CORP.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
Total Entertainment Restaurant Corp.
(Registrant)
Date May 8, 2003 /s/ James K. Zielke
--------------------- ------------------------------------
James K. Zielke
Chief Financial Officer,
Secretary and Treasurer
(Duly Authorized Officer)
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TOTAL ENTERTAINMENT RESTAURANT CORP.
CERTIFICATIONS
I, James K. Zielke, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Total Entertainment
Restaurant Corp.;
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 we 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 registrant's board of directors (or persons performing the
equivalent function):
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 or not 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 May 8, 2003 /s/ James K. Zielke
---------------------------- ------------------------
James K. Zielke
Chief Financial Officer,
Secretary and Treasurer
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TOTAL ENTERTAINMENT RESTAURANT CORP.
CERTIFICATIONS
I, Steven M. Johnson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Total Entertainment
Restaurant Corp.;
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 we 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 registrant's board of directors (or persons performing the
equivalent function):
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 or not 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 May 8, 2003 /s/ Steven M. Johnson
-------------------------------- ------------------------------
Steven M. Johnson
Chief Executive Officer
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TOTAL ENTERTAINMENT RESTAURANT CORP.
REPORT ON FORM 10Q MARCH 25, 2003
CERTIFICATION BY STEVEN M. JOHNSON PURSUANT TO
18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Chief Executive Officer of Total Entertainment Restaurant
Corp. (the "Company"), hereby certifies, to the best of my knowledge, that the
Form 10-Q of the Company for the quarter ended March 25, 2003 (the "Periodic
Report") accompanying this certification fully complies with the requirements of
the Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m
or 78o(d)) and that the information contained in the Periodic Report fairly
presents, in all material respects, the financial condition and results of
operations of the Company. The foregoing certification is incorporated solely
for purposes of complying with the provisions of Section 906 of the
Sarbanes-Oxley Act and is not intended to be used for any other purpose.
Date May 8, 2003 /s/ Steven M. Johnson
-------------------------------- ------------------------------
Steven M. Johnson
Chief Executive Officer
EXHIBIT 99.1
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TOTAL ENTERTAINMENT RESTAURANT CORP.
REPORT ON FORM 10Q MARCH 25, 2003
CERTIFICATION BY JAMES K. ZIELKE PURSUANT TO
18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Chief Financial Officer of Total Entertainment Restaurant
Corp. (the "Company"), hereby certifies, to the best of my knowledge, that the
Form 10-Q of the Company for the quarter ended March 25, 2003 (the "Periodic
Report") accompanying this certification fully complies with the requirements of
the Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m
or 78o(d)) and that the information contained in the Periodic Report fairly
presents, in all material respects, the financial condition and results of
operations of the Company. The foregoing certification is incorporated solely
for purposes of complying with the provisions of Section 906 of the
Sarbanes-Oxley Act and is not intended to be used for any other purpose.
Date May 8, 2003 /s/ James K. Zielke
---------------------------- ------------------------
James K. Zielke
Chief Financial Officer,
Secretary and Treasurer
EXHIBIT 99.2
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