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 twelve week period ended March 21, 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 -3248672
(State or other jurisdiction (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 March 21, 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 March 21, 2000 2-3
Condensed Consolidated Statements of Operations for
the twelve weeks ended March 21, 2000 4
Condensed Consolidated Statements of Cash Flows for
the twelve weeks ended March 21, 2000 5
Notes to Condensed Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-11
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Change in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4 Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
Part III. EXHIBITS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
</TABLE>
1
<PAGE>
STEAKHOUSE PARTNERS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 21, 2000
(unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 3,085,136
Accounts receivable, net 2,221,573
Inventories 4,046,985
Prepaid expenses and other current assets 1,637,494
----------
Total current assets 10,991,188
Property and equipment, net 47,230,975
Intangible assets, net 433,672
Other 1,396,479
Cash - restricted under collateral agreements 1,616,036
-----------
Total $61,668,350
===========
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
STEAKHOUSE PARTNERS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 21, 2000
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $22,271,137
Current portion of capital lease obligations 341,522
Line of credit 1,216,438
Accounts payable 6,561,795
Accrued liabilities 11,072,822
Accrued payroll costs 3,166,314
-----------
Total current liabilities 44,630,028
Long-term debt, net of current portion 3,654,118
Capital lease obligations, net of current portion 8,032,360
Other 173,643
Deferred rent 2,199,444
-----------
Total liabilities 58,689,593
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
Subscription receivable (10,000)
Treasury stock, 28,845 shares, at cost (175,000)
Additional paid-in capital 11,547,192
Accumulated deficit (8,419,875)
-----------
Total stockholders' equity 2,978,757
-----------
Total liabilities and stockholders' equity $61,668,350
===========
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
STEAKHOUSE PARTNERS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
12 Weeks 12 Weeks
Ended Ended
March 21, March 23,
2000 1999
------------------ ------------------
(unaudited) (unaudited)
<S> <C> <C>
Revenues $37,077,011 $40,376,282
Cost of sales
Food and beverage 16,549,782 18,255,341
Payroll and payroll related costs 10,087,012 11,666,462
Direct operating costs 6,251,046 7,483,657
Depreciation and amortization 932,876 1,181,853
------------------ -----------------
Total cost of sales 33,820,716 38,587,313
Gross profit 3,256,295 1,788,969
General and administrative expenses 1,792,711 2,492,661
------------------ -----------------
Income (loss) before other income (expense) 1,463,584 (703,692)
Other income (expense)
Interest income 9,951 20,269
Interest and financing costs (997,697) (870,866)
------------------ -----------------
Total other income (expense) (987,746) (850,597)
Income (loss) before provision for income taxes 475,838 (1,554,289)
Provision for income taxes 18,427 41,716
------------------ -----------------
Net income (loss) $457,411 $ (1,596,005)
================== ==================
Earnings (loss) per share
Basic $0.14 $ (0.65)
================== ==================
Diluted $0.10 $ (0.65)
================== =================
Weighted-average, shares outstanding
Basic 3,369,022 2,441,254
================== ==================
Diluted 4,428,724 2,441,254
================== ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
STEAKHOUSE PARTNERS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
12 Weeks 12 Weeks
Ended Ended
March 21, March 23,
2000 1999
--------------------- ---------------------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 457,411 $ (1,596,005)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and amortization 932,876 1,181,853
Issuance of common stock in exchange for services
rendered - 678,750
(Increase) decrease in operating assets 2,500,773 911,821
Increase (decrease) in operating liabilities (62,569) (358,460)
--------------------- ---------------------
Net cash provided by operating activities 3,828,491 817,959
Cash flows from investing activities
Purchases of furniture and equipment (412,656) (220,341)
Change in restricted cash (6,533) (26,981)
Other - (370,989)
--------------------- ---------------------
Net cash used in investing activities (419,189) (618,311)
Cash flows from financing activities
Proceeds from issuance of stock options 20,000 -
Net change in line of credit (1,558,997) 404,652
Repayment of notes payable and capital leases (786,960) (536,209)
Proceeds from issuance of debt 411,324 1,500,000
--------------------- ---------------------
Net cash provided by (used in) financing activities (1,914,633) 1,368,443
--------------------- ---------------------
Net increase in cash and cash equivalents 1,494,669 1,568,091
Cash and cash equivalents, beginning of period 1,590,467 755,141
--------------------- ---------------------
Cash and cash equivalents, end of period $3,085,136 $ 2,323,232
===================== =====================
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<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 twelve week period ended March 21,
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
condensed financial statements should be read in conjunction with the 1999
financial statements.
NOTE 2 - EARNINGS (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 exclude 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 - NOTES PAYABLE
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 March 21, 2000, the
Company is not in compliance with certain financial ratio loan covenants and
therefore the entire loan balance is classified as current.
During the twelve weeks ended March 21, 2000 the Company obtained a note payable
for certain insurance premiums. The note bears an interest rate of 7.22% per
annum with an original principle of $411,324 and matures in December 2000. The
note requires monthly payments of $47,167.
During the twelve weeks ended March 21, 2000 the Company paid off a $100,000
bridge loan. In addition the put options related to this agreement expired
without being exercised.
6
<PAGE>
During the twelve weeks ended March 21, 2000 the Company paid off a $250,000
loan. In addition the put options related to this agreement expired without
being exercised.
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.
NOTE 5 - STOCKHOLDERS EQUITY
During the twelve weeks ended March 21, 2000 the Company sold 25,000 stock
options to purchase common stock at an exercise price of $6.50 per share to an
employee for cash totaling $20,000.
NOTE 6 - EARNINGS PER SHARE
Earnings per share for the twelve weeks ended March 21, 2000 were as follows:
For the Twelve Weeks Ended March 21, 2000
-----------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------ -----------
Basic EPS
Income available to common
stockholders $457,411 3,369,022 $0.14
Effect of dilutive securities
Options and warrants - 277,171
Convertible debt - 782,531
-------- -------
Diluted EPS
Income available to common
stockholders plus assumed
conversions $457,411 4,428,724 $0.10
======== =========
NOTE 7 - SUBSEQUENT EVENTS
The Company has negotiated a sale-leaseback transaction 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. On April 26,
2000, the existing mortgage lender approved this transaction and the assignment
of the properties. Upon consummation of this agreement the $20 million loan
will be removed from the Company's books.
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 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 73 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.
Since acquiring Paragon in December 1998, one of the areas the Company has
focused on is reducing the general and administrative expenses. Prior to the
acquisition, the general and administrative (including divisional) expenses
8
<PAGE>
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. During the second
fiscal quarter of 1999, the Company began making the necessary changes to reduce
these expenses. The Company began to realize a reduction in general and
administrative expenses in the third fiscal quarter with the full effect of the
reductions making a significant impact 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 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.
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 March 21, 2000 Compared to Twelve Weeks Ended March 23, 1999
Revenues for the twelve-week period ended March 21, 2000 decreased $3,299,271 or
8.2% from $40,376,282 for the twelve-week period ended March 23, 1999 to
$37,077,011 for the same period in 2000. The decrease is almost entirely
attributable to the elimination of four under-performing Paragon steakhouse
restaurants and the phasing out of three Galveston steakhouse restaurants. Also
contributing to the decline was the reduction in revenue from one of Pacific
Basin Foods key outside customers.
Food and beverage costs for the twelve-week period ended March 21, 2000
decreased $1,705,559 or 9.3% from $18,255,341 for the twelve-week period ended
March 23, 1999 to $16,549,782 for the same period in 2000. Food and beverage
costs as a percentage of restaurant revenues was 34.1% for the twelve-week
period ended March 23, 1999 compared to 34.4% for the same period in 2000. The
major reasons for this slight increase in costs was management's decision to
increase the size of food portions that were offered to customers and that beef
prices were higher in the first twelve weeks of 2000. The total food and
beverage costs for the twelve-week period ended March 21, 2000, as a percentage
of total revenue was 44.6%, which includes the restaurants and food distribution
subsidiary.
9
<PAGE>
Payroll and payroll related costs for the twelve-week period ended March 21,
2000 decreased $1,579,450 or 13.5% from $11,666,462 for the twelve-week period
ended March 23, 1999 to $10,087,012 for the same period in 2000. Payroll and
payroll related costs as a percentage of revenue were 28.9% for the twelve-week
period ended March 23, 1999 compared to 27.2% for the same period in 2000. The
decrease is principally due to operational efficiencies, menu simplification and
quality staffing changes introduced during the first half of 1999.
Direct operating costs include all other unit-level operating costs, the major
components of which are operating supplies, repairs and maintenance, advertising
expense, utilities, and other occupancy costs. A substantial portion of these
expenses is fixed or indirectly variable. Direct operating cost costs for the
twelve-week period ended March 21, 2000 decreased $1,232,611 or 16.5% from
$7,483,657 for the twelve-week period ended March 23, 1999 to $6,251,046 for the
same period in 2000. These costs as a percentage of revenues were 18.5% for the
twelve-week period ended March 23, 1999 compared to 16.9% for the same period in
2000. The decrease is primarily due the cost reduction program and the
elimination of excessive coupon usage implemented during the first half of 1999.
Depreciation and amortization for the twelve-week period ended March 21, 2000
decreased $248,977 or 21.1% from $1,181,853 for the twelve-week period ended
March 23, 1999 to $932,876 for the same period in 2000. The decrease is entirely
attributable to the elimination of four under performing Paragon steakhouse
restaurants 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 March 21,
2000 decreased $699,950 or 28.1% from $2,492,661 for the twelve-week period
ended March 23, 1999 to $1,792,711 for the same period in 2000. These costs as a
percentage of revenues were 6.2% for the twelve-week period ended March 23, 1999
compared to 4.8% for the same period in 2000. The decrease is principally due to
non-recurring expenses associated with the acquisition of Paragon not being
incurred for the same period in 2000.
Other income (expenses) for the twelve-week period ended March 21, 2000
increased $137,149 or 16.1% from $(850,597) for the twelve-week period ended
March 23, 1999 to $(987,746) for the same period in 2000. The increase is
principally due to the full impact of outstanding indebtedness, which was
assumed in connection with the acquisition of Paragon.
Liquidity and Capital Resources
The Company had a cash and cash equivalents balance of $3,085,136 at March 21,
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 are 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 is near completion of obtaining additional financing to repay a $20
million loan that is collateralized by 19 restaurants owned by the Company. The
Company is currently in default with respect to certain loan covenants
associated with this loan. The Company has negotiated a sale-leaseback
transaction that will provide the Company enough funds to repay the existing
10
<PAGE>
debt on the 19 restaurants as well as provide favorable lease rates for a
substantial period of time. On April 26, 2000, the existing mortgage lender
approved this transaction and the assignment of the properties. Upon
consummation of this agreement the $20 million loan will be removed from the
Company's books.
On February 18,2000 the Company paid off a Note Payable for $250,000 dated,
December 21, 1999. On February 22, 2000 the Company paid off a bridge loan for
$100,000 dated, December 21, 1999.
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.
11
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not involved in any material legal proceedings.
Item 2. Change in Securities
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 March 21, 2000, the
Company is not in compliance with certain financial ratio loan covenants and
therefore the entire loan balance is classified as current.
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
12
<PAGE>
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: May 5, 2000
13
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001017156
<NAME> STEAKHOUSE PARTNERS, INC.
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> DEC-26-2000
<PERIOD-START> DEC-29-1999
<PERIOD-END> MAR-21-2000
<CASH> 3,085,136
<SECURITIES> 0
<RECEIVABLES> 2,221,573
<ALLOWANCES> 0
<INVENTORY> 4,046,985
<CURRENT-ASSETS> 10,991,188
<PP&E> 51,905,158
<DEPRECIATION> 4,674,183
<TOTAL-ASSETS> 61,668,350
<CURRENT-LIABILITIES> 44,630,028
<BONDS> 0
0
2,750
<COMMON> 33,690
<OTHER-SE> 2,942,317
<TOTAL-LIABILITY-AND-EQUITY> 61,668,350
<SALES> 37,077,011
<TOTAL-REVENUES> 37,077,011
<CGS> 33,820,716
<TOTAL-COSTS> 1,792,711
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 987,746
<INCOME-PRETAX> 475,838
<INCOME-TAX> 18,427
<INCOME-CONTINUING> 457,411
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 457,411
<EPS-BASIC> 0.14
<EPS-DILUTED> 0.10
</TABLE>
