Because a judgment has been entered we have fully accounted for the lawsuit and do not expect additional liabilities to be accrued in 2008. Excluding the lawsuit and non-cash expense from depreciation and amortization, income from restaurant and franchise operations was $2.3 million in 2007 as compared to $1.9 million in 2006.
It is important to note that the financial data set forth below reflects a change in the accounting treatment that now affects the reporting of our investment portfolio. In past years, investments (namely, marketable securities) were held directly by Western, and changes in value affected the net worth on our balance sheet and were not reflected on our income statement, unless we sold holdings. In 2007, we formed an investment partnership and transferred most of our equity positions into Western Acquisitions, LP, which is managed by Western Investments, Inc., a wholly owned subsidiary of the company. Because we now own most of our equity positions through Western Acquisitions, L.P., which is consolidated on our financial statements and is treated as an investment company for generally accepted accounting principles (GAAP) purposes, changes in the fair value of our investments in marketable equity securities are now applied to earnings every quarter. We believe that the application of these GAAP requirements, which require our investments to be marked-to-market through earnings, can distort net income figures and comparisons between periods. However, despite the different accounting treatment, we believe that simply holding securities in different legal structures does not change our views on the intrinsic value of our investees, which we believe is primarily driven by cash flows that can be distributed out of the business.
As previously disclosed, on March 26, 2008, Western signed a term sheet to purchase a controlling interest in Houston, Texas-based Mustang Capital Advisors, LP, as well as in its general partner, Mustang Capital Management, LLC. Mustang Capital Advisors, which is owned by John K. H. Linnartz, currently manages approximately $55 million. Mustang, through its funds and its managed accounts, currently holds a total of 7.4% of Western's common stock, however, the funds will distribute the Western stock to their limited partners prior to the closing of the proposed transaction. Under the proposed transaction, Western will purchase (either directly or through a wholly-owned subsidiary) from Mr. Linnartz a 50.5% limited partnership interest in Mustang Capital Advisors and a 51% membership interest in Mustang Capital Management, which owns a 1% interest in Mustang Capital Advisors as its general partner. The total purchase price for these interests will be $1,173,000, consisting of $300,000 in cash and $873,000 in shares of Western's common stock.
WESTERN SIZZLIN CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2007 and 2006
2007 2006
Assets
Current assets:
Cash and cash equivalents $727,378 $2,344,644
Trade accounts receivable, less allowance
for doubtful accounts of $198,425 in 2007
and $470,758 in 2006 994,085 866,565
Current installments of notes receivable,
less allowance for impaired notes of $50,904
in 2007 and $17,409 in 2006 219,501 205,624
Other receivables 132,283 239,531
Income tax receivable 90,161 248,559
Inventories 73,017 55,207
Prepaid expenses 228,396 253,556
Deferred income taxes 404,334 296,671
Total current assets 2,869,155 4,510,357
Notes receivable, less allowance for
impaired notes receivable of $15,501 in 2007
and $164,396 in 2006, excluding current
installments 625,231 800,841
Property and equipment, net 1,877,694 2,270,300
Investment in real estate 3,745,152 -
Investments in marketable securities 15,896,865 6,508,645
Franchise royalty contracts, net of
accumulated amortization of $8,824,135 in
2007 and $8,193,840 in 2006 630,296 1,260,592
Goodwill 4,310,200 4,310,200
Financing costs, net of accumulated
amortization of $192,832 in 2007 and
$188,670 in 2006 7,378 11,540
Investment in unconsolidated joint venture 304,996 147,479
Deferred income taxes 235,655 -
Other assets 6,450 -
$30,509,072 $19,819,954
Liabilities and Stockholders' Equity
Current liabilities:
Note payable - line of credit $2,000,000 $-
Due to broker 342,022 -
Current installments of long-term debt 118,783 163,089
Accounts payable 733,983 555,110
Accrued expenses and other 383,237 279,443
Loss contingency - lawsuit 900,000 275,000
Total current liabilities 4,478,025 1,272,642
Long-term debt, excluding current installments 566,272 685,036
Other long-term liabilities 89,039 69,370
Deferred income taxes - 394,885
5,133,336 2,421,933
Minority interest 1,873,748 -
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock, series A,
$10 par value (involuntary liquidation
preference of $10 per share). Authorized
25,000 shares, none issued and outstanding - -
Convertible preferred stock, series B,
$1 par value (involuntary liquidation
preference of $1 per share). Authorized
875,000 shares, none issued and outstanding - -
Common stock, $0.01 par value. Authorized
4,000,000 shares, issued and outstanding
2,696,625 in 2007 and 1,787,750 shares
in 2006 26,967 17,878
Additional paid-in capital 20,415,785 12,790,681
Retained earnings 2,978,189 3,340,193
Accumulated other comprehensive income
- unrealized holding gains, net of taxes 81,047 1,249,269
Total stockholders' equity 23,501,988 17,398,021
$30,509,072 $19,819,954
WESTERN SIZZLIN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 2007, 2006 and 2005
2007 2006 2005
Revenues:
Company-operated restaurants $12,908,577 $12,985,109 $14,688,360
Franchise operations 3,955,762 4,011,740 4,251,615
Other 393,274 407,091 432,078
Total revenues 17,257,613 17,403,940 19,372,053
Costs and expenses - restaurant
and franchise operations:
Company-operated restaurants -
food, beverage and labor
costs 9,307,505 9,294,432 10,503,746
Restaurant occupancy and
other 2,366,121 2,458,666 2,613,764
Franchise operations -
direct support 1,050,628 1,234,256 1,408,784
Subleased restaurant property
expenses 101,664 64,438 184,383
Corporate expenses 2,277,134 2,226,151 2,659,497
Depreciation and amortization
expense 1,063,017 1,057,492 1,072,334
Closed restaurants expense - - 350,279
Impairment and other charges - 46,284 319,830
Gain on settlement of
insurance claims - - (1,166,683)
Claims settlement and legal
fees associated with lawsuit 741,287 289,109 -
Total costs and expenses -
restaurant and franchise
operations 16,907,356 16,670,828 17,945,934
Equity in income (loss) of
joint venture 157,516 (160,902) (21,618)
Income from restaurant and
franchise operations 507,773 572,210 1,404,501
Net realized gain on sales of
marketable securities 1,972,252 - -
Net unrealized losses on
marketable securities held by
limited partnership (2,787,876) - -
Expense of investment
activities (347,634) (105,000) -
Loss from investment
activities (1,163,258) (105,000) -
Other income (expense):
Interest expense (106,263) (159,518) (279,612)
Loss on early extinguishment
of long-term debt - (92,535) -
Interest income 106,741 69,269 69,950
Other, net 11,048 175,721 31,779
Total other income (expense),
net 11,526 (7,063) (177,883)
Income (loss) before income
tax expense and minority
interest (643,959) 460,147 1,226,618
Income tax expense (benefit) (49,078) 185,808 545,258
Minority interest in net loss
of limited partnership 351,252 - -
Net income (loss) $(243,629) $274,339 $681,360
Earnings per share (basic and
diluted):
Net income (loss) $(0.13) $0.23 $0.57
WESTERN SIZZLIN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2007, 2006 and 2005
2007 2006 2005
Cash flows from operating
activities:
Net income (loss) $(243,629) $274,339 $681,360
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Restaurant and franchise
activities:
Depreciation and amortization
of property and equipment 428,099 427,195 423,865
Amortization of franchise
royalty contracts and other
assets 630,296 630,295 48,469
Write-off of financing costs
related to early
extinguishment of long-term
debt - 29,699 -
Amortization of finance costs 4,162 22,525 -
Provision for doubtful
accounts 124,659 110,000 129,940
Share-based compensation 5,920 39,100 -
Provision for deferred
income taxes 695,285 185,808 530,651
Loss on disposal of property
and equipment - 11,434 137,969
Gain on settlement of
insurance claims - - (1,166,683)
Loss on sale of asset held
for sale - 501 -
Common stock received related
to termination of franchise
agreement - - (15,000)
Impairment charges - 46,284 458,138
Equity in loss (income) of
unconsolidated joint venture (157,516) 160,902 21,618
(Increase) decrease in
current assets and other
assets 50,543 43,698 (80,073)
Increase (decrease) in current
liabilities and other
liabilities 831,788 (201,107) (715,840)
2,613,236 1,506,334 373,054
Investment activities:
Realized gain on sales of
marketable securities, net (1,972,252) - -
Unrealized losses on
marketable securities, net 2,787,876 - -
Minority interest in loss
of limited partnership (351,252) - -
Proceeds from sales of
marketable securities 12,384,056 - -
Purchases of marketable
securities (24,450,012) - -
Increase in due to broker 342,022 - -
Provision for deferred
income taxes (765,676) - -
Increase (decrease) in
current liabilities 128,807 - -
(11,896,431) - -
Net cash provided by
(used in) operating
activities (9,526,824) 1,780,673 1,054,414
Cash flows from investing
activities:
Investment in unconsolidated
joint venture - - (300,000)
Change in money market and
short-term investments - 260,069 (5,415)
Additions to property and
equipment (35,493) (492,107) (312,532)
Purchase of real estate held
for investment (3,745,152) - -
Purchases of marketable
securities (24,450,012) (4,543,768) -
Proceeds from fire casualties - 784,993 694,439
Proceeds from sale of property - 2,800 8,000
Proceeds from sale of asset
held for sale - 299,499 -
Deposits on construction - - (378,455)
Net cash used in investing
activities (3,780,645) (3,688,514) (293,963)
WESTERN SIZZLIN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2007, 2006 and 2005
2007 2006 2005
Cash flows from financing
activities:
Cash received from exercise
of stock options $85,290 $27,600 $-
Cash received from stock rights
offering 7,640,438 4,171,475 -
Payments on stock rights
offering (97,455) (123,280) -
Payments on long-term debt (163,070) (1,488,158) (1,201,354)
Cash received from line of
credit borrowings 2,000,000 695,000 -
Payment on line of credit
borrowings - (695,000) -
Borrowings related to margin debt - 1,760,393 -
Payments on margin debt - (1,760,393) -
Capital contributions from
minority interests in limited
partnership 2,225,000 - -
Net cash provided by
(used in) financing
activities 11,690,203 2,587,637 (1,201,354)
Net increase (decrease)
in cash and cash
equivalents (1,617,266) 679,796 (440,903)
Cash and cash equivalents at
beginning of the year 2,344,644 1,664,848 2,105,751
Cash and cash equivalents at
end of the year $727,378 $2,344,644 $1,664,848
Supplemental disclosure of
cash flow information:
Cash payments for interest $101,176 $87,380 $291,745
Adoption of FIN-48 (non-cash) $118,375 $- $-
Income taxes paid (refunded) $(51,969) $402,761 $25,557
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