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 JUNE 13, 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 June 13, 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
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet at June 13, 2000 2-3
Condensed Consolidated Statements of Operations for
the twelve weeks ended June 13, 2000 and June 15, 1999 4
Condensed Consolidated Statements of Operations for
the twenty-four weeks ended June 13, 2000 and June 15, 1999 5
Condensed Consolidated Statements of Cash Flows for
the twenty-four weeks ended June 13, 2000 and June 15, 1999 6
Notes to Condensed Consolidated Financial Statements 7-8
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-15
Part II. OTHER INFORMATION
Item 1 Legal Proceedings 16
Item 2 Change in Securities and Use of Proceeds 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 16
SIGNATURES 17
Part III. EXHIBITS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<PAGE>
STEAKHOUSE PARTNERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 13, 2000
(unaudited)
ASSETS
Current assets
Cash and cash equivalents $999,494
Accounts receivables, net 986,466
Inventories 4,084,158
Employee advances 752,900
Prepaid expenses and other current assets 1,726,875
------------
Total current assets 8,549,893
Property and equipment, net 46,430,253
Intangible assets, net 414,280
Other 1,252,867
Cash - restricted under collateral agreements 1,156,696
------------
Total assets $57,803,989
============
<PAGE>
STEAKHOUSE PARTNERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (CONTINUED)
AS OF JUNE 13, 2000
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $21,858,428
Current portion of capital lease obligations 244,397
Accounts payable 6,033,761
Accrued liabilities 10,276,802
Accrued payroll costs 2,911,677
------------
Total current liabilities 41,325,065
Long-term debt, net of current portion 3,652,565
Capital lease obligations, net of current portion 8,002,383
Deferred liabilities 2,334,345
------------
Total liabilities 55,314,358
------------
Commitments and contingencies
Stockholders' equity
Preferred stock, Series B, Convertible, $0.001 par value
1,000,000 shares authorized
and 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 11,547,192
Accumulated deficit (8,909,001)
------------
Total stockholders' equity 2,489,631
------------
Total liabilities and stockholders' equity $57,803,989
============
See the accompanying notes
<PAGE>
STEAKHOUSE PARTNERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
12 WEEKS 12 WEEKS
ENDED ENDED
JUNE 13, JUNE 15,
2000 1999
----------- -----------
(unaudited) (unaudited)
Revenues $30,470,886 $37,866,137
Cost of sales
Food and beverage 11,509,437 17,623,603
Payroll and payroll related costs 9,815,342 10,894,094
Direct operating costs 6,303,318 6,935,258
Depreciation and amortization 960,814 1,137,361
----------- -----------
Total cost of sales 28,588,911 36,590,316
Gross profit 1,881,975 1,275,821
General and administrative expenses 1,907,656 2,097,057
----------- -----------
Loss before other income (expense) (25,681) (821,236)
Interest expense and financing costs, net 417,290 1,175,932
----------- -----------
Loss before provision for income taxes (442,971) (1,997,168)
Provision for income taxes 46,155 46,155
----------- -----------
Net loss $(489,126) $(2,043,323)
=========== ===========
Basic and diluted loss per share $ (0.15) $ (0.78)
=========== ===========
Weighted-average shares outstanding 3,369,022 2,617,992
=========== ===========
See the accompanying notes
<PAGE>
STEAKHOUSE PARTNERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
24 WEEKS 24 WEEKS
ENDED ENDED
JUNE 13, JUNE 15,
2000 1999
----------- -----------
(unaudited) (unaudited)
Revenues $67,547,897 $78,242,419
Cost of sales
Food and beverage 28,059,219 35,878,944
Payroll and payroll related costs 19,902,354 22,560,556
Direct operating costs 12,554,364 14,418,915
Depreciation and amortization 1,893,690 2,319,214
----------- -----------
Total cost of sales 62,409,627 75,177,629
Gross profit 5,138,270 3,064,790
General and administrative expenses 3,700,367 4,589,718
----------- -----------
Income (loss) before other income (expense) 1,437,903 (1,524,928)
Interest expense and financing costs, net 1,405,036 2,026,529
----------- -----------
Income (loss) before provision for income taxes 32,867 (3,551,457)
Provision for income taxes 64,582 87,871
----------- -----------
Net loss $ (31,715) $(3,639,328)
=========== ===========
Basic and diluted loss per share $ (0.01) $ (1.44)
=========== ===========
Weighted-average shares outstanding 3,369,022 2,529,623
=========== ===========
See the accompanying notes
<PAGE>
STEAKHOUSE PARTNERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
24 WEEKS 24 WEEKS
ENDED ENDED
JUNE 13, JUNE 15,
2000 1999
----------- ----------
(unaudited) (unaudited)
Cash flows from operating activities
Net loss $(31,715) $(3,639,328)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 1,893,690 2,319,214
Gain (loss) on sale of furniture and equipment 335,941
Issuance of common stock in exchange for services
rendered 678,750
(Increase) decrease in operating assets 2,878,966 1,191,144
Increase (decrease) in operating liabilities (1,680,002) (707,218)
----------- -----------
Net cash provided by (used in) operating activities 3,396,880 (157,438)
Cash flows from investing activities
Purchases of furniture and equipment (721,125) (397,136)
Change in restricted cash 452,807 (53,929)
Other (319,511)
---------- -----------
Net cash used in investing activities (268,318)
Cash flows from financing activities
Proceeds from issuance of notes payable 448,038 1,500,000
Debt offering costs (302,809)
Net change in line of credit (2,775,435) 509,584
Repayment of notes payable and capital leases 1,412,138) (800,741)
Proceeds from issuance of common stock 2,001,000
Equity offering costs (165,070)
Other 20,000
----------- -----------
Net cash provided by (used in) financing activities (3,719,535) 2,741,964
----------- -----------
Net increase (decrease) in cash and cash equivalents (590,973) 1,813,950
Cash and cash equivalents, beginning of period 1,590,467 755,141
----------- -----------
Cash and cash equivalents, end of period $ 999,494 $ 2,569,091
=========== ===========
See the accompanying notes
<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 twenty-four week period ended June 13,
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 GAIN ON SALE OF FIXED ASSETS
During the second quarter of 2000, the Companys Paragon Subsidiary sold a
previously closed (prior to December, 1998) Mountain Jacks Steakhouse in Warren,
MI for a gain of $483,000. The Company also sold an under-performing Texas
Looseys Restaurant in Norco, CA for a loss of $147,000.
NOTE 4 - 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.
<PAGE>
NOTE 5 SUBSEQUENT EVENTS
The Company has closed a sale-leaseback transaction for $22 million that will
provide the Company enough funds to repay the existing debt on the 19
restaurants as well as provide favorable lease rates for a substantial period of
time.
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 managements current expectations
and are inherently uncertain. The companys actual results may differ
significantly from managements expectations. The following discussion and the
section entitled BusinessAdditional 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 72 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,
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 effect quarter-to-quarter comparisons and results.
<PAGE>
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 slowest, 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 Restaurantsthat 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.
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.
RESULTS OF OPERATIONS
Twelve Weeks Ended June 13, 2000 Compared to Twelve Weeks Ended June 15,1999
Revenues for the twelve- week period ended June 13, 2000 decreased $7,395,251 or
19.5% from $37,866,137 for the twelve- week period ended June 15, 1999 to
$30,470,886 for the same period in 2000. The decrease is almost entirely
attributable to losing the two largest external customers at Pacific Basin
Foods. Pacific Basin Foods revenues for the twelve- week period ended June 13,
2000 decreased $6,990,248 or 85.7% from $8,156,361 for the twelve- week period
ended June 15, 1999 to $1,166,113 for the same period in 2000. Revenue from the
Companys original restaurants decreased $437,591 or 68.8% from $635,280 for the
twelve-week period ended June 15, 1999 to $197,689 for the same period in 2000.
The decrease was the result of selling one of the original restaurants and
closing down another pending its sale. Gross revenue for Paragon Steakhouse
Restaurants increased 5.1% for the twelve-week period ended June 13, 2000
compared to the gross revenue for comparable (69) restaurants for the same
twelve-week period ended June 15, 1999.
<PAGE>
Food and beverage costs for the twelve- week period ended June 13, 2000
decreased $6,114,166 or 34.7% from $17,623,603 for the twelve- week period ended
June 15, 1999 to $11,509,437 for the same period in 2000. Food and beverage
costs for the restaurants only as a percentage of restaurant revenues was 34.5%
for the twelve- week period ended June 15, 1999 compared to 35.8% for the same
period in 2000. The major reasons for the 3.8% increase in costs was managements
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
June 13, 2000. The total food and beverage cost as a percentage of total
revenue, which included the restaurants and the food distribution subsidiary,
was 37.8% for the twelve-week period ended June 13, 2000 compared to 46.5% for
the twelve- week period ended June 15, 1999. The major reason for this reduction
is the decrease in the food distribution subsidiaries business and its
proportionate effect on these numbers. The food distribution subsidiaries food
and beverage costs typically run about 90%.
Payroll and payroll related costs for the twelve-week period ended June 13, 2000
decreased $1,078,752 or 9.9% from $10,894,094 for the twelve-week period ended
June 15, 1999 to $9,815,342 for the same period in 2000. Payroll and payroll
related costs as a percentage of revenues were 28.8% for the twelve-week period
ended June 15, 1999 compared to 32.2% for the same period in 2000. The major
reason for this increase is the decrease in the food distribution subsidiaries
business and its proportionate effect on these numbers. The food distribution
subsidiaries payroll and payroll related costs typically run about 6.7% for the
same period in 1999. Payroll and payroll related costs for the restaurants only
were 32.3% of restaurant revenues for the twelve-week period ended June 13, 2000
compared to 34.6% for the twelve- week period ended June 15, 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.
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 June 13, 2000 decreased $631,940 or 9.1% from
$6,935,258 for the twelve-week period ended June 15, 1999 to $6,303,318 for the
same period in. Direct operating costs as a percentage of revenues were 18.3%
for the twelve-week period ended June 15, 1999 compared to 20.7% for the same
period in 2000. The major reason for this increase is the decrease in the food
distribution subsidiaries business and its proportionate effect on these
numbers. The food distribution subsidiaries direct operating costs typically run
about 3.2%. These costs as a percentage of restaurant revenues were 21.0% for
the twelve-week period ended June 13, 2000 compared to 18.3% for the same period
in 1999. The increase is principally due to higher utility costs especially in
the California units and investing more dollars in the Companys guest relations
program.
Depreciation and amortization for the twelve-week period ended June 13, 2000
decreased $176,547 or 15.5% from $1,137,361 for the twelve-week period ended
June 15, 1999 to $960,814 for the same period in 2000. The decrease is
principally due to the elimination of one under performing Texas Looseys
restaurant, four under performing Paragon steakhouse restaurants and adjusting
Paragons asset base to properly reflect the purchase price by Steakhouse
Partners, Inc.
General and administrative expenses for the twelve-week period ended June 13,
2000 decreased $189,401 or 9.0% from $2,097,057 for the twelve-week period ended
June 15, 1999 to $1,907,656 for the same period in 2000. General and
administrative expenses as a percentage of restaurant revenues was 7.1% for the
twelve week period ended June 15, 1999 compared to 6.5% for the same period in
2000. This decrease in the dollar amount of general and administrative expenses
is principally due to 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
improve the Companys District Leaders and General Managers.
<PAGE>
Interest expense and financing costs, net for the twelve-week period ended June
13, 2000 decreased $758,642 or 64.5% from $1,175,932 for the twelve-week period
ended June 15, 1999 to $417,290 for the same period in 2000. The increase is
principally due to the Companys Paragon Subsidiary selling a previously closed
(prior to December, 1998) Mountain Jacks Steakhouse in Warren, MI for a gain of
$483,000
Net loss net for the twelve-week period ended June 13, 2000 decreased $1,554,197
or 76.1% from $2,043,323 for the twelve-week period ended June 15, 1999 to
$489,126 for the same period in 2000. The decrease is principally due to the
operational improvements and labor efficiencies that management introduced in
the twelve- week period ended June 15, 1999. This was partially offset by major
restructuring and non-recurring charges of $684,112 for warehouse consolidation,
the elimination of 47% of Pacific Basin's workforce, and additional training and
recruitment for Paragon Steakhouse.
Twenty-four Weeks Ended June 13, 2000 Compared to Twenty-four Weeks Ended June
15,1999
Revenues for the twenty-four week period ended June 13, 2000 decreased
$10,694,522 or 13.7% from $78,242,419 for the twenty-four week period ended
June15, 1999 to $67,547,897 for the same period in 2000. The increase is almost
entirely attributable to the acquisition of Paragon. The decrease is almost
entirely attributable to losing the two largest external customers at Pacific
Basin Foods. Pacific Basin Foods revenues for the twenty-four week period ended
June 13, 2000 decreased $8,366,204 or 51.7% from $16,179,073 for the twenty-four
week period ended June 15, 1999 to $7,812,869 for the same period in 2000.
Revenue from the Companys original restaurants decreased $933,344 or 67.4% from
$1,385,109 for the twenty-four-week period ended June 15, 1999 to $451,765 for
the same period in 2000. The decrease was the result of selling one of the
original restaurants and closing down another pending its sale. Gross revenue
for Paragon Steakhouse Restaurants increased 4.1% for the twenty-four-week
period ended June 13, 2000 compared to the gross revenue for comparable (69)
restaurants for the same twenty-four-week period ended June 15, 1999.
Food and beverage costs for the twenty-four week period ended June 13, 2000
decreased $7,819,725 or 21.8% from $35,878,944 for the twenty-four week period
ended June 15, 1999 to $28,059,219 for the same period in 2000. Food and
beverage costs for the restaurants only as a percentage of restaurant revenues
was 35.1% for the twenty-four week period ended June 13, 2000 compared to 35.8%
for the same period in 1999. The food and beverage costs of Paragon's food
distribution subsidiary, Pacific Basin Foods, Inc., were 90.5% of the food
distribution revenue for the twenty-four week period ended June 13, 2000
compared to 89.9% for the same period in 1999. The total food and beverage cost
which includes the restaurants and the food distribution subsidiary as a
percentage of total revenue was 41.5% for the twenty-four week period ended June
13, 2000 compared to 45.9% for the same period in 1999. The major reason for
this reduction is the decrease in the food distribution subsidiaries business
and its proportionate effect on these numbers.
Payroll and payroll related costs for the twenty-four week period ended June 13,
2000 decreased $2,658,202 or 11.8% from $22,560,556 for the twenty-four week
period ended June 15, 1999 to $19,902,354 for the same period in 2000. Payroll
and payroll related costs as a percentage of revenues were 29.5% for the
twenty-four week period ended June 13, 2000 compared to 28.8% for the same
period in 1999. The major reason for this increase is the decrease in the food
distribution subsidiaries business and its proportionate effect on these
numbers. The food distribution subsidiaries payroll and payroll related costs
typically run about 6.7% for the same period in 1999. Payroll and payroll
related costs for the restaurants only were 31.8% of restaurant revenues for the
twenty-four-week period ended June 13, 2000 compared to 34.5% for the
twenty-four- week period ended June 15, 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.
<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
twenty-four week period ended June 13, 2000 decreased $1,864,551 or 12.9% from
$14,418,915 for the twenty-four week period ended June 15, 1999 to $12,554,364
for the same period in 2000. These costs as a percentage of restaurant revenues
were 18.6% for the twenty-four week period ended June 13, 2000 compared to 18.4%
for the same period in 1999. Direct operating costs for the restaurants only
were 19.2% of restaurant revenue for the twenty-four week period ended June 13,
2000 compared to 21.9% for the twenty-four- week period ended June 15, 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 Companys guest relations program in the
second half of the period.
Depreciation and amortization for the twenty-four week period ended June 13,
2000 decreased $425,524 or 18.3% from $2,319,214 for the twenty-four week period
ended June 15, 1999 to $1,893,690 for the same period in 2000. The decrease is
principally due to the elimination of one under performing Texas Looseys
restaurant, four under performing Paragon steakhouse restaurants and adjusting
Paragons asset base to properly reflect the purchase price by Steakhouse
Partners, Inc.
General and administrative expenses for the twenty-four week period ended June
13, 2000 decreased $889,351 or 19.4% from $4,589,718 for the twenty-four week
period ended June 15, 1999 to $3,700,367 for the same period in 1999. General
and administrative expenses as a percentage of restaurant revenues was 5.5% for
the twenty-four week period ended June 13, 2000 compared to 5.9% 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 Companys District Leaders and General
Managers.
Interest expense and financing costs, net for the twenty-four week period ended
June 13, 2000 decreased $621,493 or 30.7% from $2,026,529 for the twenty-four
week period ended June 15, 1999 to $1,405,036 for the same period in 2000. The
increase is principally due to the Companys Paragon Subsidiary selling a
previously closed (prior to December, 1998) Mountain Jacks Steakhouse in Warren,
MI for a gain of $483,000
Net loss net for the twenty-four week period ended June 13, 2000 decreased
$3,607,613 or 99.1% from $3,639,328 for the twenty-four week ended June 15, 1999
to $31,715 for the same period in 2000. The decrease is principally due to the
operational improvements and labor efficiencies that management introduced in
the twelve- week period ended June 15, 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 in the twelve-week period ended June 13, 2000 by major
restructuring and non-recurring charges of $684,112 for warehouse consolidation,
the elimination of 47% of Pacific Basin's workforce, and additional training and
recruitment for Paragon Steakhouse.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has a cash and cash equivalents balance of $999,494 at June 13,
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 June 13, 2000 the Company negotiated a
sale-leaseback transaction that would provide the Company with enough money to
repay the existing debt on the 19 restaurants, provide funds for working capital
and provide favorable lease rates for a substantial period of time. The Company
closed the sale-leaseback transaction on July 19, 2000 and simultaneously repaid
the approximately $20 million loan collateralizing the restaurants. The Company
believes that with the elimination of $20 million of short- term debt its
outside accountants in the next audit will remove its going concern opinion.
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. The inflationary impact of rapidly
increasing beef prices has effected the profitable operations in the twelve-week
period ended June 13, 2000. The Company has raised menu prices approximately
3.5% at the end of this period to offset the inflation pressures.
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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
As a result of the purchase of Paragon the Company assumed a note payable
secured by certain restaurants owned by Paragon. The terms of the note payable
agreement include specific financial covenants, restrictions on obtaining other
financing, and limitations on payments to its parent. As of June 13, 2000, the
Company was not in compliance with certain financial ratio loan covenants and
therefore the entire loan balance is classified as current. The Company,
however, closed a sale-leaseback transaction of 19 of its restaurants on July
19, 2000 thereby enabling the Company to repay and discharge the note payable.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held an annual meeting of its stockholders on June 6, 2000
(the "Annual Meeting"). Five matters were voted on at the Annual Meeting, as
follows:
(i) The election of nominee Mark W. Goudge as Director of
the Company to serve a three year term.
FOR AGAINST ABSTAIN
2,493,062 200 7,650
(ii) To approve a proposal to increase the authorized
number of shares of the Company's Common Stock from
10,000,000 to 25,000,000.
FOR AGAINST ABSTAIN
2,428,292 71,100 1,520
(iii) To consider and vote upon a proposal to approve the
Company's 1999 Steakhouse Partners Option Plan.
FOR AGAINST ABSTAIN
1,278,814 126,700 8,320
(iv) To consider and vote upon a proposal to approve the
Company's Year 2000 Incentive Plan.
FOR AGAINST ABSTAIN
1,293,694 117,320 2,820
(v) The ratification of the appointment of Singer Lewak
Greenbaum & Goldstein LLP as the Company's
independent public auditors for the fiscal year
ending December 26, 2000. The votes were cast for
this matter as follows:
FOR AGAINST ABSTAIN
2,485,362 9,750 5,800
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
None
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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: July 27, 2000
