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 5, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________________ to _______________
000-23739
(Commission file number)
STEAKHOUSE PARTNERS, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 94-3248672
(State or other (IRS Employer
of incorporation or organization) Identification No.)
10200 WILLOW CREEK ROAD,
SAN DIEGO, CA 92131
(Address of principal executive offices)
(858) 689-2333
(Issuer's telephone number)
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 September 5, 2000 - 3,369,022 shares of Common Stock
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE>
STEAKHOUSE PARTNERS, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet at September 5, 2000 2-3
Condensed Consolidated Statements of Operations for
the twelve weeks ended September 5, 2000 and September 7, 1999 4
Condensed Consolidated Statements of Operations for
the thirty-six weeks ended September 5, 2000 and September 7, 1999 5
Condensed Consolidated Statements of Cash Flows for
the thirty-six weeks ended September 5, 2000 and September 7, 1999 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-12
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Change in Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
Part III. EXHIBITS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
</TABLE>
<PAGE>
STEAKHOUSE PARTNERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 5, 2000
(unaudited)
<TABLE>
<S> <C>
ASSETS
Current assets
Cash and cash equivalents $ 1,882,754
Accounts receivable, net 818,441
Inventories 3,407,309
Employee advances 572,328
Prepaid expenses and other current assets 1,517,271
-----------
Total current assets 8,198,103
Property and equipment, net 43,345,019
Intangible assets, net 394,888
Other 1,411,473
Cash - restricted under collateral agreements 1,165,746
-----------
Total assets $54,515,229
===========
</TABLE>
See the accompanying notes
2
<PAGE>
STEAKHOUSE PARTNERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (CONTINUED)
AS OF SEPTEMBER 5, 2000
(unaudited)
<TABLE>
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 2,458,132
Current portion of capital lease obligations 476,995
Accounts payable 5,635,784
Accrued liabilities 9,002,116
Accrued payroll costs 2,591,307
------------
Total current liabilities 20,164,334
Long-term debt, net of current portion 3,652,565
Capital lease obligations, net of current portion 26,953,264
Deferred liabilities 2,313,255
------------
Total liabilities 53,083,418
------------
Commitments and contingencies
Stockholders' equity
Preferred stock, Series B, Convertible, $0.001 par value
1,000,000 shares authorized
1,000,000 shares issued and outstanding 1,000
Preferred stock, Series C, Convertible, $0.001 par value
1,750,000 shares authorized
1,750,000 shares issued and outstanding 1,750
Common stock, $0.01 par value
10,000,000 shares authorized
3,369,022 shares issued
and outstanding 33,690
Subscriptions receivable (10,000)
Treasury stock (175,000)
Additional paid-in capital 11,586,152
Accumulated deficit (10,005,781)
------------
Total stockholders' equity 1,431,811
------------
Total liabilities and stockholders' equity $ 54,515,229
============
</TABLE>
See the accompanying notes
3
<PAGE>
STEAKHOUSE PARTNERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
12 WEEKS 12 WEEKS
ENDED ENDED
SEPTEMBER 5, SEPTEMBER 7,
2000 1999
------------- -------------
(unaudited) (unaudited)
<S> <C> <C>
Revenues $26,659,247 $37,457,661
Cost of sales
Food and beverage 9,358,293 18,626,256
Payroll and payroll related costs 9,213,329 9,920,418
Direct operating costs 6,048,545 6,548,351
Depreciation and amortization 717,829 1,101,144
----------- -----------
Total cost of sales 25,337,996 36,196,169
----------- -----------
Gross profit 1,321,251 1,261,492
General and administrative expenses 1,816,162 1,220,751
----------- -----------
Income (loss) before other income (expense) (494,911) 40,741
Interest expense and financing costs, net 565,059 1,054,291
----------- -----------
Loss before provision for income taxes (1,059,970) (1,013,550)
Provision for income taxes 46,155 41,215
----------- -----------
Net loss $(1,106,125) $(1,054,765)
=========== ===========
Basic and diluted loss per share $(0.33) $(0.33)
=========== ===========
Weighted-average shares outstanding 3,369,022 3,186,775
=========== ===========
</TABLE>
See the accompanying notes
4
<PAGE>
STEAKHOUSE PARTNERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
36 WEEKS 36 WEEKS
ENDED ENDED
SEPTEMBER 5, SEPTEMBER 7,
2000 1999
------------- -------------
(unaudited) (unaudited)
<S> <C> <C>
Revenues $94,207,144 $115,700,080
Cost of sales
Food and beverage 37,417,512 54,505,200
Payroll and payroll related costs 29,115,683 32,480,974
Direct operating costs 18,602,909 20,967,266
Depreciation and amortization 2,611,519 3,420,358
----------- ------------
Total cost of sales 87,747,623 111,373,798
----------- ------------
Gross profit 6,459,521 4,326,282
General and administrative expenses 5,516,529 5,810,469
----------- ------------
Income (loss) before other income (expense) 942,992 (1,484,187)
Interest expense and financing costs, net 1,970,095 3,080,820
----------- ------------
Loss before provision for income taxes (1,027,103) (4,565,007)
Provision for income taxes 110,737 129,086
----------- ------------
Net loss $(1,137,840) $ (4,694,093)
=========== ============
Basic and diluted loss per share $(0.34) $(1.71)
=========== ============
Weighted-average shares outstanding 3,369,022 2,748,673
=========== ============
</TABLE>
See the accompanying notes
5
<PAGE>
STEAKHOUSE PARTNERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
36 WEEKS 36 WEEKS
ENDED ENDED
SEPTEMBER 5, SEPTEMBER 7,
2000 1999
------------- -------------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities
Net loss $ (1,137,840) $(4,694,093)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 2,612,110 3,420,358
Gain on sale of furniture and equipment (592,712) -
Forgiveness of employee advances 200,000 -
Issuance of common stock in exchange for services
rendered 38,960 680,500
(Increase) decrease in operating assets 3,829,685 155,243
Increase (decrease) in operating liabilities (3,684,780) (2,123,554)
------------ -----------
Net cash provided by (used in) operating activities 1,265,423 (2,561,546)
------------ -----------
Cash flows from investing activities
Purchases of furniture and equipment (186,727) (715,774)
Change in restricted cash 443,757 (60,355)
Other - (168,121)
------------ -----------
Net cash provided by (used in) investing activities 257,030 (944,250)
------------ -----------
Cash flows from financing activities
Proceeds from sale leaseback 22,000,000 -
Debt offering costs - (302,809)
Net change in line of credit (2,775,435) 886,732
Proceeds (Repayment) of notes payable and capital leases (20,474,731) 99,112
Proceeds from issuance of common stock - 4,326,000
Equity offering costs - (306,820)
Proceeds from sale of stock options 20,000 -
------------ -----------
Net cash provided by (used in) financing activities (1,230,166) 4,702,215
------------ -----------
Net increase in cash and cash equivalents 292,287 1,196,419
Cash and cash equivalents, beginning of period 1,590,467 755,141
------------ -----------
Cash and cash equivalents, end of period $ 1,882,754 $ 1,951,560
============ ===========
</TABLE>
See the accompanying notes
6
<PAGE>
STEAKHOUSE PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
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
present in annual consolidated financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant to such
rules and regulations. The results of the thirty-six week period ended September
5, 2000 are not necessarily indicative of the results to be expected for the
full year ending December 26, 2000. The Company reports results quarterly with
the three quarters having 12 weeks and remaining quarter having 16 weeks. These
consolidated financial statements should be read in conjunction with the 1999
consolidated financial statements.
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.
NOTE 3 - CONTINGENCIES
The Company is periodically a defendant in cases involving personal injury and
other matters that arise in the normal course of business. While any pending or
threatened litigation has an element of uncertainty, the Company believes that
the outcome of any pending lawsuits or claims, individually or combined, will
not materially affect the financial condition or results of operations.
7
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward-Looking Statements
This Quarterly Report on Form 10-QSB includes forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. This Act
provides a "safe harbor" for forward-looking statements to encourage companies
to provide prospective information about themselves so long as they identify
these statements as forward looking and provide meaningful cautionary statements
identifying important factors that could cause actual results to differ from the
projected results. All statements other than statements of historical fact made
in this Quarterly Report on Form 10-QSB are forward looking. In particular, the
statements herein regarding, going concern opinions, industry prospects and
future results of operation or financial position are forward-looking
statements. Forward-looking statements reflect management's current expectations
and are inherently uncertain. The company's actual results may differ
significantly from management's expectations. The following discussion and the
section entitled "Business--Additional Factors That May Affect Future Results"
describes some, but not all, of the factors that could cause the differences.
The following discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and related footnotes and the
Company's Annual Report on Form 10-KSB for the year ended December 28, 1999. The
discussion of results, causes and trends should not be construed to imply any
conclusion that such results or trends will necessarily continue in the future.
Overview
The Company currently operates 68 full-service steakhouse restaurants located in
11 states. The Company operates under the brand names of Carvers, Hungry Hunter
Steakhouse, Hunter Steakhouse, Mountain Jack's, Mountain Jack's Steakhouse, Red
Oak, Texas Loosey's and Galveston's. On December 21, 1998, the Company acquired
Paragon Steakhouse Restaurants, Inc. ("Paragon"), which owned 78 steakhouses, of
which five were closed, and Pacific Basin Foods, Inc., a restaurant food
distribution company. Prior to the acquisition of Paragon, the Company owned and
operated four restaurants.
The Company believes that its restaurants are well positioned in a high quality,
moderately priced segment of the restaurant industry. With the acquisition of
Paragon's Carvers restaurants, the Company has entered the upscale restaurant
market specializing in complete steak, chop, prime rib and seafood meals. Our
growth strategy is based on internal growth and growth through acquisition.
Internal growth focuses on improvement in same store sales and construction of
new restaurant properties. Acquisition growth focuses on conversion of acquired
restaurant properties to our steakhouse brand names and the targeted acquisition
of one or more large steakhouse chains.
To the extent we build steakhouses in new locations there is likely to be a time
lag between when the expenses of the startup are incurred and when the newly
constructed steakhouses are opened and begin to generate revenues, which time
lag could affect quarter-to-quarter comparisons and results.
Since acquiring Paragon in December 1998, one of the areas the Company has
focused on is reducing the operational, general and administrative expenses.
Prior to the acquisition, the general and administrative (including divisional)
expenses related to the restaurants operated by Paragon were approximately $9
million annually. During the first fiscal quarter of 1999, the Company
identified areas in which general and administrative expenses could be reduced
and the Company began immediately making the necessary changes to reduce these
expenses. During the second fiscal quarter of 1999, the Company began making the
necessary operational changes to improve quality, customer satisfaction and
reduce cost. The Company realized the full effect of the operational
improvements in the fourth fiscal quarter of 1999.
Our overall steakhouse operations tend to experience seasonal fluctuations, with
the fourth quarter and first quarter of each year being our strongest quarters,
reflecting both the Christmas season and the colder weather at our Mid-west
operations, and the third quarter being the weakest, as people tend to eat less
steak in restaurants in the summer months. This seasonality, however, is less
pronounced at our California locations, which do not experience the same
seasonal changes in weather that occur at our Mid-west locations.
We have three business units, which have separate management and reporting
infrastructures that offer different products and services. The business units
have been aggregated into two reportable segments, restaurant services and food
service distribution, since the long-term financial performance of these
reportable segments is affected by similar economic conditions. The restaurant
services segment consists of two business units -Paragon Steakhouse Restaurants,
Inc. and Galveston Steakhouse Restaurants--that operate specialty restaurants
around the country. Our food service distribution segment, which operates as
Pacific Basin Foods, performs distribution of restaurant foods and restaurant-
related products for internal operations, as well as customers outside our
internal operations.
8
<PAGE>
Since our Pacific Basin Foods subsidiary is in the wholesale business of
providing food supplies to restaurants, its profit margin on sale of food
products to restaurants is significantly less than the margin that can be
obtained through restaurant sales. In addition, since Pacific Basin Foods
maintains a large inventory of food supplies to service its wholesale customers,
its business is more susceptible to the risk of inventory obsolescence than our
other business operations. As described below, Pacific Basin Foods has suffered
the loss of its two principal outside customers as a result of which the Company
has reduced its workforce by 47% and consolidated warehouses. The Company
believes that the restructuring of Pacific Basin Foods is now complete.
RESULTS OF OPERATIONS
Twelve Weeks Ended September 5, 2000 Compared to Twelve Weeks Ended September 7,
1999
Revenues for the twelve-week period ended September 5, 2000 decreased
$10,798,414 or 28.8% from $37,457,661 for the twelve-week period ended September
7, 1999 to $26,659,247 for the same period in 2000. The decrease is largely
attributable to losing the two largest external customers at Pacific Basin
Foods. Pacific Basin Foods had no revenues (excluding Paragon Steakhouse
Restaurants) for the twelve-week period ended September 5, 2000 versus
$10,316,416 for the twelve-week period ended September 7, 1999. Revenue from
the Company's original restaurants decreased $296,690 or 59.8% from $496,194 for
the twelve-week period ended September 7, 1999 to $199,504 for the same period
in 2000. The decrease was the result of closing down two non-performing
restaurants pending their sale and the sale of the third (of the original four)
in the prior period. Net revenue for Paragon Steakhouse Restaurants increased
4.3% for the twelve-week period ended September 5, 2000 compared to the net
revenue for comparable (67) restaurants for the same twelve-week period ended
September 7, 1999.
Food and beverage costs for the twelve-week period ended September 5, 2000
decreased $9,267,963 or 49.8% from $18,626,256 for the twelve-week period ended
September 7, 1999 to $9,358,293 for the same period in 2000. Food and beverage
costs for the restaurants only as a percentage of restaurant revenues was 34.7%
for the twelve-week period ended September 7, 1999 compared to 35.1% for the
same period in 2000. The major reasons for the 0.4% increase in costs was
management's decision to increase the size of food portions that were offered to
customers and the significant increase in beef prices for the twelve-week period
ended September 5, 2000. The total food and beverage cost as a percentage of
total revenue, which included the restaurants and the food distribution
subsidiary, was 35.1% for the twelve-week period ended September 5, 2000
compared to 49.7% for the twelve-week period ended September 7, 1999. The major
reason for this reduction is the decrease in the food distribution subsidiary's
business and its proportionate effect on these numbers. The food distribution
subsidiary's food and beverage costs typically ran about 90%.
Payroll and payroll related costs for the twelve-week period ended September 5,
2000 decreased $707,089 or 7.1% from $9,920,418 for the twelve-week period ended
September 7, 1999 to $9,213,329 for the same period in 2000. Payroll and payroll
related costs as a percentage of revenues were 26.5% for the twelve-week period
ended September 7, 1999 compared to 34.7% for the same period in 2000. The major
reason for this increase is the decrease in the food distribution subsidiary's
business and its proportionate effect on these numbers. The food distribution
subsidiary's payroll and payroll related costs typically ran about 6.7% for the
same period in 1999. Payroll and payroll related costs for the restaurants only
were 34.6% of restaurant revenues for the twelve-week period ended September 5,
2000 compared to 36.0% for the twelve-week period ended September 7, 1999. The
decrease is principally due the operational efficiencies and improvements that
management introduced in the third quarter of 1999.
Direct operating costs 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. Direct operating costs for the
twelve-week period ended September 5, 2000 decreased $499,806 or 7.6% from
$6,548,351 for the twelve-week period ended September 7, 1999 to $6,048,545 for
the same period in 2000. Direct operating costs as a percentage of revenues were
17.5% for the twelve-week period ended September 7, 1999 compared to 22.7% for
the same period in 2000. The major reason for this increase is the decrease in
the food distribution subsidiary's business and its proportionate effect on
these numbers. The food distribution subsidiary's direct operating costs
typically ran about 3.2%. Also contributing to the increase is higher utility
costs especially in the California units and investing more dollars in the
Company's guest relations program.
9
<PAGE>
Depreciation and amortization for the twelve-week period ended September 5, 2000
decreased $383,315 or 34.8% from $1,101,144 for the twelve-week period ended
September 7, 1999 to $717,829 for the same period in 2000. The decrease is
principally due to the sale of one under performing Texas Loosey's restaurant,
one under performing Paragon steakhouse restaurant and adjusting Paragon's asset
base to properly reflect the purchase price by Steakhouse Partners, Inc.
General and administrative expenses for the twelve-week period ended September
5, 2000 increased $595,411 or 48.8% from $1,220,751 for the twelve-week period
ended September 7, 1999 to $1,816,162 for the same period in 2000. General and
administrative expenses as a percentage of restaurant revenues was 3.3% for the
twelve-week period ended September 7, 1999 compared to 6.8% for the same period
in 2000. This increase in the general and administrative expenses is principally
due to a $200,000 accrual for year-end executive bonuses that was not made last
year and a $383,066 tax adjustment in last year's quarter that was misclassified
to general and administrative. This was reversed in the fourth quarter of 1999.
Interest expense and financing costs, net for the twelve-week period ended
September 5, 2000 decreased $489,232 or 46.4% from $1,054,291 for the
twelve-week period ended September 7, 1999 to $565,059 for the same period in
2000. The decrease is partially due to the Company's Paragon Subsidiary selling
a Red Oak in El Cajon, CA.
Net loss net for the twelve-week period ended September 5, 2000 increased
$51,360 or 4.9% from $1,054,765 for the twelve-week period ended September 7,
1999 to $1,106,125 for the same period in 2000. The increase is principally due
to the continued operational restructuring and external sales issues at Pacific
Basin Foods, the executive bonus accrual, and a sale-leaseback transaction.
Thirty-six Weeks Ended September 5, 2000 Compared to Thirty-six Weeks Ended
September 7, 1999
Revenues for the thirty-six week period ended September 5, 2000 decreased
$21,492,936 or 18.5% from $115,700,080 for the thirty-six week period ended
September 7, 1999 to $94,207,144 for the same period in 2000. The decrease is
almost entirely attributable to losing the two largest external customers at
Pacific Basin Foods and the closing of four restaurants. Pacific Basin Foods
revenues for the thirty-six week period ended September 5, 2000 decreased
$18,683,644 or 70.5% from $26,495,489 for the thirty-six week period ended
September 7, 1999 to $7,811,845 for the same period in 2000. Revenue from the
Company's original restaurants decreased $1,325,636 or 67.1% from $1,976,905 for
the thirty-six week period ended September 7, 1999 to $651,269 for the same
period in 2000. The decrease was the result of selling one of the Company's
original restaurants and closing down two more pending their sale. Net revenue
for Paragon Steakhouse Restaurants increased 4.6% for the thirty-six week period
ended September 5, 2000 compared to the net revenue for comparable (67)
restaurants for the same thirty-six week period ended September 7, 1999.
Food and beverage costs for the thirty-six week period ended September 5, 2000
decreased $17,087,688 or 31.4% from $54,505,200 for the thirty-six week period
ended September 7, 1999 to $37,417,512 for the same period in 2000. Food and
beverage costs for the restaurants only as a percentage of restaurant revenues
was 35.2% for the thirty-six week period ended September 5, 2000 compared to
35.4% for the same period in 1999. The food and beverage costs of Paragon's food
distribution subsidiary, Pacific Basin Foods, Inc., were 89.8% of the food
distribution revenue for the thirty-six week period ended September 5, 2000
compared to 89.8% for the same period in 1999. The total food and beverage cost
which includes the restaurants and the food distribution subsidiary's as a
percentage of total revenue was 39.7% for the thirty-six week period ended
September 5, 2000 compared to 47.1% for the same period in 1999. The major
reason for this reduction is the decrease in the food distribution subsidiary's
business and its proportionate effect on these numbers.
Payroll and payroll related costs for the thirty-six week period ended September
5, 2000 decreased $3,365,291 or 10.4% from $32,480,974 for the thirty-six week
period ended September 7, 1999 to $29,115,683 for the same period in 2000.
Payroll and payroll related costs as a percentage of revenues were 30.9% for the
thirty-six week period ended September 5, 2000 compared to 28.1% for the same
period in 1999. The major reason for this increase is the decrease in the food
distribution subsidiary's business and its proportionate effect on these
numbers. The food distribution subsidiary's payroll and payroll related costs
typically ran about 6.3% for the same period in 1999. Payroll and payroll
related costs for the restaurants only were 32.2% of restaurant revenues for the
thirty-six week period ended September 5, 2000 compared to 34.5% for the
thirty-six week period ended September 7, 1999. The decrease is principally due
the operational efficiencies and improvements that management introduced in the
second quarter of 1999 partially offset by higher non-recurring training
expenses in 2000.
10
<PAGE>
Direct operating costs 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. Direct operating costs for the
thirty-six week period ended September 5, 2000 decreased $2,364,357 or 11.3%
from $20,967,266 for the thirty-six week period ended September 7, 1999 to
$18,602,909 for the same period in 2000. These costs as a percentage of
restaurant revenues were 21.5% for the thirty-six week period ended September 5,
2000 compared to 23.5% for the same period in 1999. Direct operating costs for
the restaurants only were 21.2% of restaurant revenue for the thirty-six week
period ended September 5, 2000 compared to 22.0% for the thirty-six week period
ended September 7, 1999. The decrease is primarily due to the cost reduction
program and elimination of excessive coupon usage implemented during the first
half of 1999. This was partially offset by higher utility costs especially in
the California units and investing more dollars in the Company's guest relations
program in the second half of the period.
Depreciation and amortization for the thirty-six week period ended September 5,
2000 decreased $808,839 or 23.6% from $3,420,358 for the thirty-six week period
ended September 7, 1999 to $2,611,519 for the same period in 2000. The decrease
is principally due to the sale of one non-performing Texas Loosey's restaurant,
two non-performing Paragon steakhouse restaurants (of which one was already
closed) and adjusting Paragon's asset base to reflect the purchase price paid by
Steakhouse Partners, Inc.
General and administrative expenses for the thirty-six week period ended
September 5, 2000 decreased $293,940 or 5.3% from $5,810,469 for the thirty-six
week period ended September 7, 1999 to $5,516,529 for the same period in 1999.
General and administrative expenses as a percentage of restaurant revenues was
6.4% for the thirty-six week period ended September 5, 2000 compared to 7.0% for
the same period in 1999. The decrease is principally due to non-recurring
expenses associated with the acquisition of Paragon not being incurred for the
same period in 2000, as well as, the reduction in force and other cost savings
measures implemented by management in the first half of 1999. These savings are
partially offset by planned investment in additional training programs and
recruitment to develop and improve the Company's District Leaders and General
Managers, as well as, the reversal of the tax adjustment made in 1999.
Interest expense and financing costs, net for the thirty-six week period ended
September 5, 2000 decreased $1,110,725 or 36.1% from $3,080,820 for the
thirty-six week period ended September 7, 1999 to $1,970,095 for the same period
in 2000. The decrease is principally due to the Company's Paragon Subsidiary
selling a previously closed (prior to December, 1998) Mountain Jack's Steakhouse
in Warren, MI for a gain of $483,000 and selling a Red Oak in El Cajon, CA.
Net loss net for the thirty-six week period ended September 5, 2000 decreased
$3,556,253 or 75.8% from $4,694,093 for the thirty-six week ended September 7,
1999 to $1,137,840 for the same period in 2000. The decrease is principally due
to the operational improvements and labor efficiencies that management
introduced in the thirty-six week period ended September 7, 1999. Also
contributing to the decrease was non-recurring expenses associated with the
acquisition of Paragon not being incurred for the same period in 2000, as well
as, the reduction in force and other cost savings measures implemented by
management in the first half of 1999. This was partially offset by the
accounting for the sale-leaseback transaction, executive bonus accrual and the
major restructuring and non-recurring charges of $684,112 for warehouse
consolidation, the reduction by 47% of Pacific Basin's workforce, and additional
training and recruitment for Paragon Steakhouse.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a cash and cash equivalents balance of $1,882,754 at September
5, 2000. Management of the Company believes that such cash and cash equivalents
together with anticipated cash from operations is sufficient to cover the cost
of operations for at least the next twelve 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 has been successful in obtaining additional financing to repay an
approximate $20 million loan that is collateralized by 19 restaurants owned by
the Company. The Company was in default with respect to certain loan covenants
associated with this loan. As of July 18, 2000 the Company closed the
sale-leaseback transaction and simultaneously repaid the approximately $20
million loan collateralizing the 19 restaurants. With the elimination of $20
million of short- term debt and its improved cash flow the Company will request
that its outside accountants review their going concern opinion as of the
Company's next audit.
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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.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 - FINANCIAL DATA SCHEDULE
(b) Reports on Form 8-K
On August 3, 2000 the Company filed a Current Report on Form 8-K to report the
closing of the sale-leaseback of 19 of its steakhouses.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STEAKHOUSE PARTNERS, INC.
By: /s/ Joseph L. Wulkowicz
----------------------------
Joseph L. Wulkowicz
Chief Financial and Accounting
Officer
Date: October 25, 2000
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