UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________________ to _______________
000-23739
(Commission file number)
GALVESTON'S STEAKHOUSE CORP.
(Exact name of small business issuer as specified in its charter)
Delaware 94-3248672
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
151 East Alessandro Blvd., Riverside, CA 92508
(Address of principal executive offices)
(909) 789-7606
(Issuer's telephone number)
(Former name, former address and former fiscal
year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of November 20, 1998: 2,428,325
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE>
GALVESTON'S STEAKHOUSE CORP.
<TABLE>
<CAPTION>
Index
Page
Number
---------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheet at September 30, 1998 2-3
Condensed Statements of Operations for the three months
ended September 30, 1998 and 1997 4
Condensed Statements of Operations for the nine months
ended September 30, 1998 and 1997 5
Condensed Statements of Cash Flows for the nine months
ended September 30, 1998 and 1997 6
Notes to Condensed Financial Statements 7-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10-15
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Change in Securities 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 17
SIGNATURES 17
Part III. EXHIBITS 18
</TABLE>
1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GALVESTON'S STEAKHOUSE CORP.
CONDENSED BALANCE SHEET
September 30, 1998
(unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets
Cash and cash equivalents $ 744,994
Accounts receivable 148,649
Advances to officers 461,047
Inventories 39,775
Acquisition deposits 1,954,519
Prepaid and other current assets 168,681
----------------
Total current assets 3,517,665
Furniture and equipment, net 935,127
Debt issuance costs 50,000
Intangible assets, net 469,714
Other assets 44,034
----------------
Total assets $ 5,016,540
================
</TABLE>
See the accompanying notes
2
<PAGE>
GALVESTON'S STEAKHOUSE CORP.
CONDENSED BALANCE SHEET (continued)
September 30, 1998
(unaudited)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
Current liabilities
Current portion of notes payable $ 1,439,497
Accounts payable 67,184
Other accrued liabilities 79,839
----------------
Total current liabilities 1,586,520
Notes payable, net of current portion 795,245
----------------
Total liabilities 2,381,765
Commitments and contingencies
Stockholders' equity
Preferred stock, $.001 par value
4,000,000 shares authorized
0 shares issued and outstanding -
Preferred stock, Series B, Convertible, $.001 par value
1,000,000 shares authorized
1,000,000 shares issued and outstanding 1,000
Common stock, $.01 par value
10,000,000 shares authorized
2,428,325 shares issued and outstanding 24,283
Additional paid-in capital 5,852,427
Accumulated deficit (3,242,935)
-----------------
Total stockholders' equity 2,634,775
Total liabilities and stockholders' equity $ 5,016,540
================
</TABLE>
See the accompanying notes
3
<PAGE>
GALVESTON'S STEAKHOUSE CORP.
CONDENSED STATEMENTS OF OPERATIONS
For the Three Months Ended September 30, 1998 and 1997
(unaudited)
<TABLE>
<CAPTION>
1998 1997
----------------- ----------------
<S> <C> <C>
Restaurant revenues $ 186,435 $ 598,240
Restaurant costs and expenses
Food and beverage 67,268 221,687
Payroll and payroll related costs 118,055 176,908
Restaurant operating expenses 134,464 111,892
Depreciation and amortization 44,300 33,946
General and administrative expenses 231,477 109,210
Pre-opening startup costs - 63,955
--------------- ----------------
Total restaurant costs and expenses 595,564 717,598
--------------- ----------------
Loss from operations (409,129) (119,358)
--------------- ----------------
Other income (expense)
Interest expense, net (68,452) (163,648)
Other income - 18,034
--------------- ----------------
Total other income (expense) (68,452) (145,614)
---------------- ----------------
Net loss $ (477,581) $ (264,972)
================= ================
Basic loss per share $ (0.20) $ (0.33)
================= ================
Diluted loss per share $ (0.20) $ (0.33)
================= ================
Weighted-average shares outstanding 2,416,325 810,000
================= ================
</TABLE>
See the accompanying notes
4
<PAGE>
GALVESTON'S STEAKHOUSE CORP.
CONDENSED STATEMENTS OF OPERATIONS
For the Nine Months Ended September 30, 1998 and 1997
(unaudited)
<TABLE>
<CAPTION>
1998 1997
----------------- ----------------
<S> <C> <C>
Restaurant revenues $ 841,476 $ 1,481,719
Restaurant costs and expenses
Food and beverage 269,653 510,983
Payroll and payroll related costs 348,040 491,661
Restaurant operating expenses 366,328 308,640
Depreciation and amortization 109,741 100,224
General and administrative expenses 694,990 264,103
Pre-opening startup costs - 63,955
--------------- ----------------
Total restaurant costs and expenses 1,788,752 1,739,566
--------------- ----------------
Loss from operations (947,276) (257,847)
--------------- ----------------
Other income (expense)
Interest expense, net (275,140) (466,044)
Other income - 18,034
--------------- ----------------
Total other income (expense) (275,140) (448,010)
--------------- ----------------
Net loss $ (1,222,416) $ (705,857)
=============== ================
Basic loss per share $ (0.59) $ (0.91)
=============== ================
Diluted loss per share $ (0.59) $ (0.91)
=============== ================
Weighted-average shares outstanding 2,064,714 778,600
=============== ================
</TABLE>
See the accompanying notes
5
<PAGE>
GAVLESTON'S STEAKHOUSE CORP.
CONDENSED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1998 and 1997
(unaudited)
<TABLE>
<CAPTION>
1998 1997
----------------- ----------------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (1,222,416) $ (705,857)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 109,741 100,224
Amortization of discount on private placement proceeds - 117,746
Issuance of common stock in exchange for services
rendered - 124,730
Issuance of common stock for additional financing cost
on notes payable 100,000 -
(Increase) decrease in operating assets (446,535) (144,540)
Increase (decrease) in operating liabilities (360,716) 217,424
--------------- ----------------
Net cash used in operating activities (1,819,926) (290,273)
--------------- ----------------
Cash flows from investing activities
Purchases of furniture and equipment (100,146) (28,784)
Deposit on future acquisitions (1,883,713)
Other (10,431) (82,861)
--------------- ----------------
Net cash used in investing activities (1,994,290) (111,645)
--------------- ----------------
Cash flows from financing activities
Proceeds from issuance of notes payable, net 1,300,000 701,282
Repayment of notes payable (1,069,758)
Payment of offering costs (298,517)
Proceeds from issuance of common stock 4,264,242 173,720
--------------- ----------------
Net cash provided by financing activities 4,494,484 576,485
--------------- ----------------
Net increase in cash and cash equivalents 680,268 174,567
Cash and cash equivalents, beginning of period 64,726 46,439
--------------- ----------------
Cash and cash equivalents, end of period $ 744,994 $ 221,006
=============== ================
</TABLE>
See the accompanying notes
6
<PAGE>
GALVESTON'S STEAKHOUSE CORP.
NOTES TO CONSENSED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The unaudited Condensed 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 present in annual
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations. The results
of the nine months ended September 30, 1998 are not necessarily indicative of
the results to be expected for the full year ending December 31, 1998.
NOTE 2 - LOSS PER SHARE
In 1997, the Financial Accounting Standard Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." SFAS No.
128 replaced the previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants, and convertible securities. Diluted earnings per share is very similar
to the previously reported fully diluted earnings per share. Basic earnings per
share is computed using the weighted-average number of common shares outstanding
during the period. Common equivalent shares are excluded from the computation if
their effect is anti-dilutive. Net loss per share amounts for all periods have
been restated to conform to SFAS No. 128 requirements.
Prior to SFAS No. 128, the Securities and Exchange Commission ("SEC") required
that, even where anti-dilutive, common and common equivalent shares issued
during the twelve-month period prior to the filing of an initial public offering
("IPO") be included in the calculation of earnings per share as if they were
outstanding for all periods presented (using the treasury stock method and the
IPO price). Because of new requirements issued in 1998 by the SEC for companies
that recently completed an IPO and interpretation by FASB of the initial
application of SFAS No. 128, the number of shares used in the calculation of
basic net loss per share has changed to exclude common equivalent shares, even
when anti-dilutive. Net loss per share for the three and nine months ended
September 30, 1997 have been restated to conform with SFAS No. 128 and Staff
Accounting Bulleting No. 98.
7
<PAGE>
GALVESTON'S STEAKHOUSE CORP.
NOTES TO CONSENSED FINANCIAL STATEMENTS
NOTE 3 - STOCKHOLDERS' EQUITY
In February 1998, the Company received approximately $4.2 million, net of
offering costs, from the issuance of 1,250,000 shares in common stock in
connection with the Company's IPO.
In connection with the IPO in February 1998, the Company granted the
underwriters warrants to purchase 125,000 shares of common stock at an initial
exercise price of 140% of the IPO price. The warrants are exercisable for a
period of four years commencing one year from the IPO date.
NOTE 4 - NOTES PAYABLE
In March 1998, $ 1,112,500 of the notes payable relating to the $1,500,000
private placements were converted into 278,125 shares of the Company's common
stock. The remaining balance of $387,500 plus accrued interest was paid off.
In March 1998, the bridge loans of $150,000 plus accrued interest were paid off.
In March through July 1998, certain other notes payable to various individuals
of $147,000 plus accrued interest were paid off.
In July 1998, the acquisition note payable of $375,000 plus accrued interest
were paid off (See note 6). In addition, the $92,000 convertible notes payable
was converted into 55,200 shares of the Company's common stock.
On July 15, 1998, pursuant to a private placement, the Company sold to two
investors $600,000 principal amount of 6% Convertible Debentures ("Debentures")
and received a commitment from such investors, subject to various conditions, to
purchase additional Debentures in the aggregate principal amount of $400,000. On
July 23, 1998, the Company sold an additional $100,000 principal amount of
Debentures to a third investor, who also received warrants to purchase 6,303
shares of common stock. The investors may convert the Debentures into common
stock, and the Company has the right, under certain circumstances, to require
such conversion. In connection with such private placement, the Company issued
warrants to purchase 12,000 shares of its common stock to the placement agents.
On September 28, 1998, pursuant to a private placement, the Company sold to one
investor a Secured Exchangeable Promissory Note in the principal amount of
$650,000 (the "Secured Note") and issued such investor warrants to purchase
73,125 shares of common stock at an exercise price of $5.28125 per share. The
investor may exchange all or a portion of the Secured Note for common stock.
8
<PAGE>
GALVESTON'S STEAKHOUSE CORP.
NOTES TO CONSENSED FINANCIAL STATEMENTS
NOTE 5 - RELATED PARTY TRANSACTIONS
Through September 30, 1998, the Company had advanced $461,047 to certain
officers of the Company. These advances are non-interest bearing and are
expected to be repaid by December 31, 1998.
NOTE 6 - CONTINGENCIES
Certain disputes arose with the sellers of the Torrance and Fullerton
restaurants following the closing of the Company's IPO resulting in an extended
escrow closing period. Additionally, certain disputes arose related to the
Company's obligation under its consulting agreement with the principal of the
sellers. The disputes in this transaction related primarily to the sellers'
claim that the Company should be obligated to pay for certain unpaid federal
income and state sales taxes of the sellers of approximately $287,000 and
$193,000, respectively, and certain liabilities to vendors of approximately
$135,000.
The Company made various, but not all scheduled payments in connection with the
above mentioned consulting agreement and withheld or deferred certain other
payments as a result of performance issues relating to the restaurants.
As a result of these disputes, the Company withheld payment on a $375,000 note
payable due subsequent to the Company's IPO in February 1998 and withheld five
(5) monthly payments due on a $870,000 note payable. On July 21, 1998, the
Company and the sellers of the Torrance and Fullerton restaurants settled the
matter which resulted in the Company paying the $375,000 note payable plus
accrued interest, paying the five (5) monthly payments on the $870,000 note
payable that were in arrears, and paying the amounts due under the consulting
agreement. The sellers in turn, paid their federal income and state sales taxes,
and the amounts due to the vendors.
9
<PAGE>
Item 2. Management's Discussion and Analysis 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-QSB.
The Company currently owns the two restaurants it acquired in August 1996, along
with managing the two restaurants that are currently in escrow. The Company has
already converted one of these restaurants into a Texas roadhouse format. The
Torrance restaurant is closed for remodeling and the Fullerton restaurant is
undergoing a partial remodeling. It is anticipated that the remodeling will be
completed for both restaurants by the end of the fourth quarter of 1998, with
the subsequent re-opening of the Torrance restaurant shortly thereafter. The
Company believes that its restaurants will be well positioned in a high-quality,
moderately-priced segment of the restaurant industry. The Company is continually
seeking strategic restaurant acquisitions to increase the size of the Company.
To that end, on August 31, 1998, the Company entered into an agreement to
acquire Paragon Steakhouse Restaurants, Inc., which owns eighty U.S. based
steakhouses and Pacific Basin Foods, a restaurant food distribution company. The
transaction is subject to various closing conditions and no assurance can be
given that the transaction will be closed. In addition, during the fourth
quarter of 1998, the Company purchased two restaurants in Riverside and Norco,
California that it previously managed.
Results of Operations
Three Months Ended September 30, 1998 Compared to the Three Months Ended
September 30, 1997
Restaurant revenues for the three months ended September 30, 1998 decreased
$411,805 or 68.8% from $598,240 for the three months ended September 30, 1997 to
$186,435 for the same period in 1998. The 68.8% decrease was attributable to the
closing of the Torrance restaurant for remodeling and the partial remodeling of
the Fullerton restaurant.
Food and beverage costs for the three months ended September 30, 1998 decreased
$154,419 or 69.7% from $221,687 for the three months ended September 30, 1997 to
$67,268 for the same period in 1998. Food and beverage costs as a percentage of
restaurant revenues was 37.1% for the three months ended September 30, 1997
compared to 36.1% for the same period in 1998. This decrease resulted from
slight declines in the cost of meat and produce.
Payroll and payroll related costs for the three months decreased $58,853 or
33.3% from $176,908 for the three months ended September 30, 1997 to $118,055
for the same period in 1998. Payroll and payroll related costs as a percentage
of restaurant revenues was 29.6% for the three months ended September 30, 1997
compared to 63.3% for the same period in 1998. The increase in these costs was
the result of ongoing payroll and payroll related costs incurred while
restaurant revenues declined during the remodeling.
10
<PAGE>
Restaurant operating expenses include all other unit-level operating costs, the
major components of which are operating supplies, repairs and maintenance,
advertising expenses, utilities, and other occupancy costs. A substantial
portion of these expenses is fixed or indirectly variable. Restaurant operating
expenses for the three months ended September 30, 1998 increased $22,572 or
20.2% from $111,892 for the three months ended September 30, 1997 to $134,464
for the same period in 1998. These costs as a percentage of restaurant revenues
were 18.7% for the three months ended September 30, 1997 compared to 72.1% for
the same period in 1998. The increase in these costs is attributable primarily
to ongoing fixed operating costs continuing to be incurred while the two
restaurant units were being remodeled.
Depreciation and amortization for the three months ended September 30, 1998
increased $10,354 or 30.1% from $33,946 for the three months ended September 30,
1997 to $44,300 for the same period in 1998. The increase in depreciation and
amortization is due to the addition of equipment and leasehold improvements that
must be depreciated and amortized over their useful lives.
General and administrative expenses for the three months ended September 30,
1998 increased $122,267 or 112.0% from $109,210 for the three months ended
September 30, 1997 to $231,477 for the same period in 1998. General and
administrative expenses as a percentage of restaurant revenues was 18.3% for the
three months ended September 30, 1997 compared to 124.2% for the same period in
1998. This increase resulted from the decline in restaurant revenues while the
remodeling of the two restaurants was undertaken, the increased costs of
pursuing potential acquisitions, higher legal and accounting costs, and
increased compensation to management officers who were not compensated prior to
the completion of the initial public offering.
Pre-opening startup costs for the three months ended September 30, 1998
decreased $63,955 or 100% from $63,955 for the three months ended September 30,
1997 to $0 for the same period in 1998. The Company incurred certain start up
costs to open certain restaurants in the third quarter of 1997. No such costs
were incurred in 1998.
As a result of the above factors, loss from operations for the three months
ended September 30, 1998 increased by $289,771 or 242.8% from $119,358 for the
three months ended September 30, 1997 to $409,129 for the same period in 1998
Net interest expense for the three months ended September 30, 1998 decreased
$95,196 or 58.2% from $163,648 for the three months ended September 30, 1997 to
$68,452 for the same period in 1998. The decrease in net interest expense was
the result of using the proceeds from the initial public offering to pay off
short-term borrowings.
Net loss for the three months ended September 30, 1998 increased $212,609 or
80.2% from $264,972 for the three months ended September 30, 1997 to $477,581
for the same period in 1998. Loss per share decreased to $0.20 for the three
months ended September 30, 1998 as compared to a loss per share of $0.33 for the
same period in 1997. The decrease in loss per share is due to the increase in
the weighted average number of shares outstanding as a result of the initial
public offering.
11
<PAGE>
Nine Months Ended September 30, 1998 Compared to the Nine Months Ended
September 30, 1997
Restaurant revenues for the nine months ended September 30, 1998 decreased
$640,243 or 43.2% from $1,481,719 for the nine months ended September 30, 1997
to $841,476 for the same period in 1998. The 43.2% decrease was attributable to
the closing of the Torrance restaurant for remodeling and the partial remodeling
of the Fullerton restaurant. Also, the adverse weather (El Nino) has affected
the restaurant industry's sales as a whole in California.
Food and beverage costs for the nine months ended September 30, 1998 decreased
$241,330 or 47.2% from $510,983 for the nine months ended September 30, 1997 to
$269,653 for the same period in 1998. Food and beverage costs as a percentage of
restaurant revenues was 34.5% for the nine months ended September 30, 1997
compared to 32.1% for the same period in 1998. This decrease resulted from
slight declines in the cost of meat and produce.
Payroll and payroll related costs for the nine months decreased $143,621 or
29.2% from $491,661 for the nine months ended September 30, 1997 to $348,040 for
the same period in 1998. Payroll and payroll related costs as a percentage of
restaurant revenues were 33.2% for the nine months ended September 30, 1997
compared to 41.4% for the same period in 1998. The increase in these costs was
the result of ongoing payroll and payroll related costs incurred while
restaurant revenues declined during the remodeling.
Restaurant operating expenses include all other unit-level operating costs, the
major components of which are operating supplies, repairs and maintenance,
advertising expenses, utilities, and other occupancy costs. A substantial
portion of these expenses is fixed or indirectly variable. Restaurant operating
expenses for the nine months ended September 30, 1998 increased $57,688 or 18.7%
from $308,640 for the nine months ended September 30, 1997 to $366,328 for the
same period in 1998. These costs as a percentage of restaurant revenues were
20.8% for the nine months ended September 30, 1997 compared to 43.5% for the
same period in 1998. The increase in these costs is attributable primarily to
ongoing fixed operating costs continuing to be incurred while the two restaurant
units were being remodeled.
Depreciation and amortization for the nine months ended September 30, 1998
increased $9,517 or 9.5% from $100,224 for the nine months ended September 30,
1997 to $109,741 for the same period in 1998. The increase in depreciation and
amortization is due to the addition of equipment and leasehold improvements that
must be depreciated and amortized over their useful lives.
12
<PAGE>
General and administrative expenses for the nine months ended September 30, 1998
increased $430,887 or 163.2% from $264,103 for the nine months ended September
30, 1997 to $694,990 for the same period in 1998. General and administrative
expenses as a percentage of restaurant revenues was 17.8% for the nine months
ended September 30, 1997 compared to 82.6% for the same period in 1998. This
increase resulted from the decline in restaurant revenues while the remodeling
of the two restaurants was undertaken, the increased costs of pursuing potential
acquisitions, higher legal and accounting costs, and increased compensation to
management officers who were not compensated prior to the completion of the
initial public offering.
Pre-opening startup costs for the nine months ended September 30, 1998 decreased
$63,955 or 100% from $63,955 for the nine months ended September 30, 1997 to $0
for the same period in 1998. The Company incurred certain start up costs to open
certain restaurants in the third quarter of 1997. No such costs were incurred in
1998.
As a result of the above factors, loss from operations for the nine months ended
September 30, 1998 increased by $689,429 or 267.4% from $257,847 for the nine
months ended September 30, 1997 to $947,276 for the same period in 1998
Net interest expense for the nine months ended September 30, 1998 decreased
$190,904 or 41.0% from $466,044 for the nine months ended September 30, 1997 to
$275,140 for the same period in 1998. The decrease in net interest expense was
the result of using the proceeds from the initial public offering to pay off
short-term borrowings.
Net loss for the nine months ended September 30, 1998 increased $516,559 or
73.2% from $705,857 for the nine months ended September 30, 1997 to $1,221,416
for the same period in 1998. Loss per share decreased to $0.59 for the nine
months ended September 30, 1998 as compared to a loss per share of $0.91 for the
same period in 1997. The decrease in loss per share is due to the increase in
the weighted average number of shares outstanding as a result of the initial
public offering.
13
<PAGE>
Liquidity and Capital Resources
As a result of the completion of the initial public offering in February 1998,
and the issuance of debt in July and September, 1998, the Company has a cash and
cash equivalents balance of $744,994 at September 30, 1998, which together with
anticipated cash from operations, management believes is sufficient to cover
operations for at least the next eighteen months. If existing cash and cash
equivalents and anticipated cash from operations is insufficient to satisfy the
Company's working capital and capital expenditures requirements, the Company may
have to sell additional equity or debt securities or obtain credit facilities.
The Company expects to complete the remodeling of two restaurants by the end of
the fourth quarter of 1999 and does not expect to incur significant capital
expenditures in the near future.
During the last nine months the Company has paid deposits and other related fees
of approximately $1.9 million in connection with the planned acquisition of
Paragon Steakhouse Restaurant, Inc.
Impact of inflation
The primary inflationary factors affecting the Company's operations include food
and labor costs. The Company's restaurant personnel are paid at the federal and
state established minimum wage levels and accordingly, changes in such wage
level affect the Company' s labor costs. As costs of food and labor have
increased, the Company will be seeking to offset those increases through
economics of scale and/or increases in menu prices, although there is no
assurance that such offsets will continue. To date inflation has not had a
material impact on loss from operations.
Year 2000
The Company has not made a formal assessment of Year 2000 issues. Generally,
"Year 2000 issues" refers to problems that may arise due to the inability of
some computer software to distinguish between the early part of the present
century and the early part of the next because the software only uses two digits
to identify the year. Thus, 2001 would be indistinguishable from 1901. The
Company believes that there are three possible ways that it could be impacted by
this problem.
First, the Company's internal software could fail. If the Company's software
should fail it might disrupt accounting, the restaurant management system and
similar tasks. The Company believes that even if its software should fail,
remediation would not create a material expense. The second concern posed by
Year 2000 issues is the impact that such software failure would have on the
Company's suppliers. The Company is also contacting critical suppliers of
products and services to determine the extent to which the Company may be
vulnerable to such parties' failure to resolve their own Year 2000 issues. Where
practicable, the Company will assess and attempt to mitigate its risks with
respect to the failure of these entities to be Year 2000 compliant. The effect,
if any,
14
<PAGE>
on the Company's results of operations from the failure of such parties to be
Year 2000 compliant is not reasonably estimable. The third possible threat posed
to the Company by Year 2000 issues is one of a general downturn in the economy
due to software failures. The Company believes that this is a remote
possibility.
Although the Company believes that it will not suffer any material adverse
effects as a result of Year 2000 issues, it cannot be certain its judgment
regarding Year 2000 is correct. In the event that the Company, or its suppliers
experience a Year 2000 software failure such a failure could have a material
adverse impact on the Company's business financial condition and results of
operations. Similarly, if the economy as a whole should be adversely impacted by
Year 2000 problems, it could have a material adverse effect on the Company's
business financial condition and results of operations.
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, amended. Stockholders are cautioned that all
forward-looking statements involve risks and uncertainty, including without
limitation, the ability of the Company to open new restaurants, general market
conditions, competition and pricing. Although the Company believes 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 contained in the report will
prove to be accurate.
15
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Change in Securities
The Company completed its initial public offering by selling 1,250,000 shares of
its $0.01 par value common stock for $5.00 per share pursuant to a registration
statement (commission file no. 333-29093) dated February 27, 1998. The managing
underwriters for this offering were William Scott & Co., L.L.C. and Hornblower &
Weeks, Inc. The Company received net proceeds of approximately $4,200,000 after
deducting underwriters' commissions, non-accountable expense allowance and other
offering expenses of approximately $625,000, $187,500 and $1,237,500,
respectively.
The following table sets forth the Company's use of proceeds from its initial
public offering, from the closing of the offering until September 30, 1998.
Cash and cash equivalents $ 745,000
Deposit on future acquisitions 1,881,700
Repayment of notes payable 1,069,800
Advances to officers 281,300
General and administrative 222,200
-----------------
Total net proceeds $ 4,200,000
=================
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 - Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a report on Form 8-K dated September 14, 1998 announcing that
on August 31, 1998, the Company and Tri-Core Steakhouse, Inc., a Delaware
corporation and a wholly owned subsidiary of the Company (the "Merger Sub"),on
the one hand, and Paragon Steakhouse Restaurant, Inc., a Delaware
corporation("Paragon"), and Kyotaru Co., Ltd., a Japanese corporation and the
sole stockholder of Paragon ("Kyotaru"), on the other hand, entered into a
Merger Agreement (the "Merger Agreement"), pursuant to which the Merger Sub
intends to merge with and into Paragon such that Paragon will become a wholly
owned subsidiary of the Company.
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.
GALVESTON'S STEAKHOUSE CORP.
/s/ Hiram J. Woo
------------------------
Chief Financial and Principal
Accounting Officer, President,
and Director
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Restated
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<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> SEP-30-1998 SEP-30-1997
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