SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| (Mark One) | |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: May 19, 2003 |
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OR |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
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Commission File Number: 0-6054
STAR BUFFET, INC.
(Exact name of registrant as specified in its charter)
| DELAWARE | 84-1430786 | |
| (State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification Number) |
420 Lawndale Drive,
Salt Lake City, UT 84115
(Address of principal executive offices) (Zip Code)
(801) 463-5500
(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 ý No o
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of June 26, 2003, there were 2,950,000 shares of Common Stock, $.001 par value, outstanding.
STAR BUFFET, INC. AND SUBSIDIARIES
INDEX
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Page |
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| PART I. FINANCIAL INFORMATION | ||||
| Item 1. Condensed Consolidated Financial Statements: | ||||
| Condensed Consolidated Balance Sheets as of May 19, 2003 (unaudited) and January 27, 2003 | 3 | |||
| Unaudited Condensed Consolidated Statements of Operations for the sixteen weeks ended May 19, 2003 and May 20, 2002 | 5 | |||
| Unaudited Condensed Consolidated Statements of Cash Flows for the sixteen weeks ended May 19, 2003 and May 20, 2002 | 6 | |||
| Notes to Unaudited Condensed Consolidated Financial Statements | 8 | |||
| Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | 13 | |||
| Item 3. Quantitative and Qualitative Disclosures about Market Risk | 18 | |||
| Item 4. Controls and Procedures | 19 | |||
| PART II. OTHER INFORMATION | ||||
| Item 1. Legal Proceedings | 20 | |||
| Item 6. Exhibits and Reports on Form 8-K | 20 | |||
| Signatures | 21 | |||
| Certifications | 22 | |||
2
Item 1: Condensed Consolidated Financial Statements
STAR BUFFET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| |
May 19, 2003 |
January 27, 2003 |
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|---|---|---|---|---|---|---|---|
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(Unaudited) |
|
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| ASSETS | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 688,000 | $ | 433,000 | |||
| Current portion of notes receivable | 244,000 | 193,000 | |||||
| Receivables, net of allowance | 512,000 | 367,000 | |||||
| Inventories | 590,000 | 619,000 | |||||
| Deferred income taxes, net | 223,000 | 194,000 | |||||
| Prepaid expenses | 405,000 | 279,000 | |||||
| Property held for sale | — | 1,211,000 | |||||
| Total current assets | 2,662,000 | 3,296,000 | |||||
| Property, buildings and equipment, net | 27,426,000 | 27,091,000 | |||||
| Real property and equipment under capitalized leases, net | 1,246,000 | 1,297,000 | |||||
| Other assets: | |||||||
| Notes receivable, net of current portion | 2,694,000 | 2,695,000 | |||||
| Deposits and other | 205,000 | 220,000 | |||||
| Total other assets | 2,899,000 | 2,915,000 | |||||
| Deferred income taxes, net | 379,000 | 713,000 | |||||
| Intangible assets: | |||||||
| Goodwill, less accumulated amortization | 2,907,000 | 2,907,000 | |||||
| Other intangible assets, less accumulated amortization | 1,016,000 | 1,086,000 | |||||
| Total intangible assets | 3,923,000 | 3,993,000 | |||||
| Total assets | $ | 38,535,000 | $ | 39,305,000 | |||
The accompanying notes are an integral part of the condensed consolidated financial statements.
(Continued)
3
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May 19, 2003 |
January 27, 2003 |
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|---|---|---|---|---|---|---|---|---|---|
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(Unaudited) |
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| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||
| Current liabilities: | |||||||||
| Accounts payable—trade | $ | 2,868,000 | $ | 4,045,000 | |||||
| Checks written in excess of cash in bank | — | 1,306,000 | |||||||
| Payroll and related taxes | 1,570,000 | 1,494,000 | |||||||
| Sales and property taxes | 1,044,000 | 1,047,000 | |||||||
| Rent, licenses and other | 981,000 | 1,260,000 | |||||||
| Income taxes payable | 60,000 | — | |||||||
| Current maturities of long-term debt | 5,755,000 | 4,862,000 | |||||||
| Current maturities of obligations under capital leases | 93,000 | 98,000 | |||||||
| Total current liabilities | 12,371,000 | 14,112,000 | |||||||
| Deferred rent payable | 920,000 | 1,080,000 | |||||||
| Capitalized lease obligations, net of current maturities | 1,718,000 | 1,751,000 | |||||||
| Long-term debt, net of current maturities | 2,758,000 | 2,423,000 | |||||||
| Total liabilities | 17,767,000 | 19,366,000 | |||||||
| Stockholders' equity: | |||||||||
| Preferred stock, $.001 par value; authorized 1,500,000 shares; none issued or outstanding | — | — | |||||||
| Common stock, $.001 par value; authorized 8,000,000 shares; issued and outstanding 2,950,000 shares | 3,000 | 3,000 | |||||||
| Additional paid-in capital | 16,351,000 | 16,351,000 | |||||||
| Officer's note receivable | (1,330,000 | ) | (1,330,000 | ) | |||||
| Retained earnings | 5,744,000 | 4,915,000 | |||||||
| Total stockholders' equity | 20,768,000 | 19,939,000 | |||||||
| Total liabilities and stockholders' equity | $ | 38,535,000 | $ | 39,305,000 | |||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
4
STAR BUFFET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| |
Sixteen Weeks Ended |
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|---|---|---|---|---|---|---|---|---|
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May 19, 2003 |
May 20, 2002 |
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| Total revenues | $ | 22,437,000 | $ | 25,192,000 | ||||
| Costs and expenses | ||||||||
| Food costs | 7,528,000 | 8,960,000 | ||||||
| Labor costs | 7,479,000 | 8,386,000 | ||||||
| Occupancy and other expenses | 4,407,000 | 5,115,000 | ||||||
| General and administrative expenses | 823,000 | 1,083,000 | ||||||
| Depreciation and amortization | 1,024,000 | 1,053,000 | ||||||
| Impairment of long-lived assets | 180,000 | — | ||||||
| Total costs and expenses | 21,441,000 | 24,597,000 | ||||||
| Income from operations | 996,000 | 595,000 | ||||||
| Interest expense | (222,000 | ) | (228,000 | ) | ||||
| Interest income | 69,000 | 73,000 | ||||||
| Gain from legal settlement | 400,000 | — | ||||||
| Other income | 27,000 | — | ||||||
| Income before income taxes and cumulative effect of a change in accounting principle | 1,270,000 | 440,000 | ||||||
| Income taxes | 441,000 | 152,000 | ||||||
| Income before cumulative effect of a change in accounting principle | 829,000 | 288,000 | ||||||
| Cumulative effect of a change in accounting principle—net of taxes | — | (560,000 | ) | |||||
| Net income (loss) | $ | 829,000 | $ | (272,000 | ) | |||
| Income per common share before cumulative effect of a change in accounting principle—basic and diluted | $ | 0.28 | $ | 0.10 | ||||
| Cumulative effect of a change in accounting principle—net of taxes | — | (0.19 | ) | |||||
| Net income (loss) per common share—basic and diluted | $ | 0.28 | $ | (0.09 | ) | |||
| Weighted average shares outstanding—basic and diluted | 2,950,000 | 2,950,000 | ||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
5
STAR BUFFET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| |
Sixteen Weeks Ended |
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|---|---|---|---|---|---|---|---|---|---|---|
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May 19, 2003 |
May 20, 2002 |
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| Cash flows from operating activities: | ||||||||||
| Net income (loss) | $ | 829,000 | $ | (272,000 | ) | |||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||
| Cumulative effect of change in accounting principle | — | 560,000 | ||||||||
| Depreciation and amortization | 1,024,000 | 1,053,000 | ||||||||
| Amortization of loan cost | 38,000 | 38,000 | ||||||||
| Impairment of long-lived assets | 180,000 | — | ||||||||
| Deferred income taxes | 305,000 | — | ||||||||
| Change in operating assets and liabilities: | ||||||||||
| Receivables | (145,000 | ) | 114,000 | |||||||
| Inventories | 29,000 | (65,000 | ) | |||||||
| Prepaid expenses | (126,000 | ) | (304,000 | ) | ||||||
| Deposits and other | 15,000 | — | ||||||||
| Deferred rent payable | (160,000 | ) | 60,000 | |||||||
| Accounts payable-trade | (1,177,000 | ) | 941,000 | |||||||
| Income taxes payable | 60,000 | 137,000 | ||||||||
| Other accrued liabilities | (212,000 | ) | (68,000 | ) | ||||||
| Total adjustments | (169,000 | ) | 2,466,000 | |||||||
| Net cash provided by operating activities | 660,000 | 2,194,000 | ||||||||
| Cash flows from investing activities: | ||||||||||
| Payments made on notes receivable | 42,000 | 54,000 | ||||||||
| Acquisition of property, buildings and equipment | (1,491,000 | ) | (245,000 | ) | ||||||
| Proceeds from sale of property, buildings and equipment | 1,160,000 | — | ||||||||
| Net cash used in investing activities | (289,000 | ) | (191,000 | ) | ||||||
| Cash flows from financing activities: | ||||||||||
| Reduction in checks written in excess of cash in bank | (1,306,000 | ) | — | |||||||
| Payments on long term debt | (1,722,000 | ) | (7,521,000 | ) | ||||||
| Proceeds from issuance of long-term debt | 2,950,000 | 5,800,000 | ||||||||
| Capitalized loan costs | — | (13,000 | ) | |||||||
| Principal payment on capitalized lease obligations | (38,000 | ) | (31,000 | ) | ||||||
| Net cash used in financing activities | (116,000 | ) | (1,765,000 | ) | ||||||
| Net increase in cash and cash equivalents | 255,000 | 238,000 | ||||||||
| Cash and cash equivalents at beginning of period | 433,000 | 727,000 | ||||||||
| Cash and cash equivalents at end of period | $ | 688,000 | $ | 965,000 | ||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
(Continued)
6
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Sixteen Weeks Ended |
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|---|---|---|---|---|---|---|---|
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May 19, 2003 |
May 20, 2002 |
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| Supplemental disclosures of cash flow information: | |||||||
| Cash paid during the period for: | |||||||
| Interest | $ | 72,000 | $ | 137,000 | |||
| Income taxes | $ | 29,000 | $ | 15,000 | |||
| Non cash investing and financing activities: | |||||||
| Reclassification of property held for sale to property, buildings and equipment | $ | 52,000 | $ | — | |||
| Exchange of property, buildings and equipment for notes receivable | $ | 100,000 | $ | — | |||
The accompanying notes are an integral part of the condensed consolidated financial statements.
7
STAR BUFFET, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note (A) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts for Star Buffet, Inc., together with its direct and indirect wholly-owned subsidiaries Summit Family Restaurants Inc. ("Summit"), HTB Restaurants, Inc. ("HTB"), Northstar Buffet, Inc. ("NSBI") and Star Buffet Management, Inc. ("SBMI") (collectively the "Company") and have been prepared in accordance with accounting principles generally accepted in the United States of America, the instructions to Form 10-Q and Article 10 of Regulation S-X. These financial statements should be read in conjunction with the audited consolidated financial statements, and the notes thereto, included in the Company's Annual Report on Form 10-K for the fiscal year ended January 27, 2003. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial position and results of operations for the interim periods presented have been reflected herein. Results of operations for such interim periods are not necessarily indicative of results to be expected for the full fiscal year or for any future periods. Certain reclassifications have been made to the fiscal 2003 consolidated financial statements to conform to the fiscal 2004 presentation. The accompanying condensed consolidated financial statements include the results of operations and assets and liabilities directly related to the Company's operations. Certain estimates, assumptions and allocations were made in preparing such financial statements.
The operating results for the 16-week period ended May 19, 2003 include operations for each of the Company's sixteen franchised HomeTown Buffet restaurants, nine JB's Restaurants, six JJ North's Country Buffet restaurants, five BuddyFreddys Country Buffet restaurants, two BuddyFreddys restaurants, two Casa Bonita restaurants, two Holiday House restaurants, one JJ North's Family Restaurant and one North's Star Buffet restaurant and the fixed charges for seven restaurants closed for the entire quarter. During the quarter ended May 19, 2003, four operating stores were permanently closed. Two non-operating stores were also permanently closed during the quarter. Five non-operating stores continue to be closed at the end of the first quarter of fiscal 2004 for repositioning. During the second quarter of fiscal 2004, an additional restaurant was closed resulting from a dispute with a landlord. The Company does not expect to incur any expenses as a result of this restaurant closure.
The operating results for the 16-week period ended May 20, 2002 include operations for each of the Company's sixteen franchised HomeTown Buffet restaurants, ten JB's Restaurants, seven JJ North's Country Buffet restaurants, seven BuddyFreddys Country Buffet restaurants, two BuddyFreddys restaurants, two Casa Bonita restaurants, two Holiday House restaurants and one North's Star Buffet restaurant and the fixed charges for four restaurants closed for the entire quarter. Five restaurants were closed at the end of the first quarter of fiscal 2003 for remodeling and repositioning. During the second quarter of fiscal 2003, an additional restaurant was closed for remodeling and repositioning.
The following is a summary of the Company's restaurant properties as of May 19, 2003. The HomeTown Buffet segment includes the Company's 16 franchised HomeTown Buffet restaurants. The Casa Bonita segment includes two Casa Bonita restaurants. The North's Star segment includes five JJ North's Country Buffet restaurants and one North's Star Buffet Restaurant. The Florida Buffets Division includes two BuddyFreddys restaurants, four BuddyFreddys Country Buffet restaurants and two Holiday House restaurants. The Florida Buffets Division also included four non-operating
8
properties. The JB's Restaurants segment includes the Company's eight JB's Restaurants. This segment also included one non-operating property.
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HomeTown Buffet |
Casa Bonita |
North's Star |
Florida Buffets |
JB's |
Total |
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|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Owned | 2 | — | 1 | 5 | 3 | 11 | ||||||
| Leased | 14 | 2 | 5 | 7 | 6 | 34 |
As of May 19, 2003, the Company's restaurants are located in the following states:
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Number of Restaurants |
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| State |
HomeTown Buffet |
Casa Bonita |
North's Star |
Florida Buffets |
JB's |
Total |
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| Arizona | 8 | — | 1 | — | 1 | 10 | |||||||
| Colorado | 2 | 1 | — | — | — | 3 | |||||||
| Florida | — | — | — | 12 | — | 12 | |||||||
| Idaho | — | — | 2 | — | — | 2 | |||||||
| Montana | — | — | — | — | 2 | 2 | |||||||
| New Mexico | 2 | — | — | — | 1 | 3 | |||||||
| Oklahoma | — | 1 | — | — | — | 1 | |||||||
| Oregon | — | — | 1 | — | — | 1 | |||||||
| Utah | 3 | — | — | — | 4 | 7 | |||||||
| Washington | — | — | 2 | — | — | 2 | |||||||
| Wyoming | 1 | — | — | — | 1 | 2 | |||||||
| Total | 16 | 2 | 6 | 12 | 9 | 45 | |||||||
As of May 19, 2003, the Company's non-operating restaurants are located in the following states:
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Number of Non-Operating Restaurants |
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| State |
HomeTown Buffet |
Casa Bonita |
North's Star |
Florida Buffets |
JB's |
Total |
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| Florida | — | — | — | 4 | — | 4 | |||||||
| Utah | — | — | — | — | 1 | 1 | |||||||
| Total | — | — | — | 4 | 1 | 5 | |||||||
Three of the non-operating restaurants in Florida are leased to third parties.
The Company utilizes a 52/53 week fiscal year which ends on the last Monday in January. The first quarter of each year contains 16 weeks while the other three quarters each contain 12 weeks.
Note (B) Related Party Transactions
In connection with the Company's employment contract with Mr. Robert E. Wheaton, the Company's President and Chief Executive Officer, the Company has agreed to provide Mr. Wheaton with certain loans solely for the purchase of the Company's common stock. The loans are secured by the common stock and bear interest at the prevailing rate set forth in the Company's credit facility with FleetBoston Bank. The current rate is approximately 3.75% for the first quarter of fiscal 2004. At the end of the first quarter ended May 19, 2003, the loans totaled $1,330,000 ($1,330,000 at January 27, 2003).
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Note (C) Segment and Related Reporting
The Company has five reporting segments: HomeTown Buffet, Casa Bonita, North's Star, Florida Buffets Division and JB's Restaurants. The Company's reportable segments are aggregated based on brand similarities of operating segments.
The HomeTown Buffet segment includes the Company's 16 franchised HomeTown Buffet restaurants. The Casa Bonita segment includes two Casa Bonita restaurants. The North's Star segment includes six JJ North's Country Buffet restaurants and one North's Star Buffet Restaurant. The Florida Buffets Division includes two BuddyFreddys restaurants, four BuddyFreddys Country Buffet restaurants and two Holiday House restaurants. The JB's Restaurants segment also includes the Company's nine JB's Restaurants and one JJ North's Family Restaurant.
The accounting policies of the reportable segments are the same as those described in Note 1 of the audited consolidated financial statements included in the Company's Annual Report on Form 10-K. The Company evaluates the performance of its operating segments based on income before income taxes.
Summarized financial information concerning the Company's reportable segments is shown in the following table. The other assets presented in the consolidated balance sheet and not in the reportable segments relate to the Company as a whole, and not individual segments. Also certain corporate overhead income and expenses in the consolidated statements of operations are not included in the reportable segments.
| 16 Weeks Ended May 19, 2003 |
HomeTown Buffet |
Casa Bonita |
North's Star(1) |
Florida Buffet(2) |
JB's(3) |
Other |
Total |
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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(Dollars in Thousands) |
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| Revenues | $ | 11,201 | $ | 2,705 | $ | 2,091 | $ | 3,824 | $ | 2,616 | $ | — | $ | 22,437 | ||||||||
| Interest income | — | — | — | — | — | 69 | 69 | |||||||||||||||
| Interest expense | (62 | ) | — | — | — | — | (160 | ) | (222 | ) | ||||||||||||
| Depreciation & amortization | 457 | 72 | 139 | 225 | 121 | 10 | 1,024 | |||||||||||||||
| Impairment of long-lived assets | — | — | 166 | 14 | — | — | 180 | |||||||||||||||
| Income (loss) before income taxes | 1,074 | 472 | (350 | ) | 197 | 84 | (207 | ) | 1,270 | |||||||||||||
| Total assets | 13,525 | 1,575 | 6,279 | 11,330 | 4,956 | 870 | 38,535 | |||||||||||||||
16 Weeks Ended May 20, 2002 |
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| Revenues | $ | 11,855 | $ | 3,019 | $ | 2,578 | $ | 4,511 | $ | 3,229 | $ | — | $ | 25,192 | ||||||||
| Interest income | — | — | — | — | — | 73 | 73 | |||||||||||||||
| Interest expense | (65 | ) | — | — | (10 | ) | (1 | ) | (152 | ) | (228 | ) | ||||||||||
| Depreciation & amortization | 507 | 79 | 84 | 294 | 78 | 11 | 1,053 | |||||||||||||||
| Income (loss) before income taxes (benefit) and cumulative effect of a change in accounting principle | 689 | 512 | (222 | ) | 92 | 192 | (823 | ) | 440 | |||||||||||||
| Cumulative effect of a change in accounting principle—net of taxes | — | — | (367 | ) | (124 | ) | (69 | ) | — | (560 | ) | |||||||||||
| Total assets | 13,421 | 2,000 | 7,449 | 15,294 | 5,102 | 312 | 43,578 | |||||||||||||||
10
location opened for 12 weeks had rev