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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996.)
For the Fiscal Year ended December 29, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number: 0-28930
ROADHOUSE GRILL, INC.
(Exact name of registrant as specified in its charter)
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FLORIDA 65-0367604
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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6600 NORTH ANDREWS AVENUE, SUITE 160, FT. LAUDERDALE, FLORIDA 33309
(Address of principal executive offices and zip code)
Registrant's telephone number (954)489-9699
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK, PAR VALUE $.03 PER SHARE
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 [ ]
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO
THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 14, 1997 was $12,673,615 based upon the closing
sale price of $5.75 as reported on the Nasdaq National Market on March 14,
1997.
The number of shares of the registrant's common stock outstanding as of
March 14, 1997 was 9,305,408.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement relating to the Annual
Meeting of Shareholders to be held on June 3, 1997 are incorporated into Part
III hereof. Certain Exhibits in Part IV hereof are incorporated from the
registrant's Registration Statement on Form S-1 as filed with the Securities
and Exchange Commission on September 26, 1996, as amended.
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ROADHOUSE GRILL, INC.
FORM 10-K
FISCAL YEAR ENDED DECEMBER 29, 1996
INDEX
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PART I Page
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Item 1. Business ........................................................ 1
Item 2. Properties ...................................................... 5
Item 3. Legal Proceedings ............................................... 7
Item 4. Submission of Matters to a Vote of Security Holders ............. 7
PART II
Item 5. Market for Registrant's Common Equity and
Related Shareholder Matters ................................. 7
Item 6. Selected Financial Data ......................................... 8
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations ............... 8
Item 8. Financial Statements and Supplementary Data ..................... 13
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure ...................... 13
PART III
Item 10. Directors and Executive Officers of the Registrant .............. 14
Item 11. Executive Compensation .......................................... 14
Item 12. Security Ownership of Certain Beneficial Owners and Management .. 14
Item 13. Certain Relationships and Related Transactions .................. 14
PART IV
Item 14. Financial Statements and Exhibits ............................... 15
Signatures ................................................................. 16
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PART I
ITEM 1. BUSINESS
This Form 10-K contains forward-looking statements that involve risks and
uncertainties relating to future events. Actual events or the Company's
results may differ materially from the results discussed in the forward-looking
statements.
Roadhouse Grill, Inc. (the "Company") owns and operates 33 and franchises
or licenses five full-service, casual dining restaurants under the name
"Roadhouse Grill." The Roadhouse Grill concept offers a fun, value-oriented
dining experience that features premium quality grilled entrees and friendly
service consistent with the Company's motto: "Good Food and a Smile . . .
That's Roadhouse Style."(R) The comfortable, entertaining roadhouse setting is
designed to appeal to a broad range of customers, including business people,
couples, singles and particularly families.
Roadhouse Grill restaurants are based upon a roadhouse-style concept
developed in 1991 by the Company's founder and Chief Executive Officer, John D.
Toole, III. In March 1993, Mr. Toole introduced the roadhouse-style concept to
South Florida by opening the first Company-owned Roadhouse Grill restaurant in
Pembroke Pines (Fort Lauderdale) with the financial backing of sophisticated
industry investors. Since that time, the Company has grown rapidly, adding
three company-owned restaurants in 1993 (including the North Miami,
Florida Roadhouse Grill restaurant which was owned by a limited liability
company in which the company held a 50% ownership interest), three restaurants
in 1994 (including the Kendall, Florida Roadhouse Grill restaurant which was
owned by a separate limited liability company in which the company held a 50%
ownership interest), 13 restaurants in 1995 and 13 restaurants in 1996. As of
December 29, 1996, the Company also franchised or licensed three restaurants in
Malaysia and two restaurants in the United States. In fiscal 1996, the company
acquired a 50% ownership interest in a limited liability company that owned a
franchise restaurant which was opened in fiscal 1994.
THE ROADHOUSE GRILL CONCEPT
The key elements that define the Roadhouse Grill concept are:
- COMFORTABLE, OPEN LAYOUT. Roadhouse Grill restaurants have an
energetic and casual atmosphere. The interior of each restaurant is
large, open and visually appealing, with exposed ceilings and brick and
lapboard cedar walls decorated with colorful, hand-painted murals and
neon signs. Multi-level seating provides guests with a full view of the
restaurant, including the exhibition grill and display kitchen, allowing
everyone to enjoy the Roadhouse Grill experience. The exhibition
cooking area features a mesquite-fired grill, a kitchen where homemade
yeast rolls are made throughout the day and a display case filled with
fresh cuts of meat, seafood and salads. To help create Roadhouse
Grill's casual ambiance, metal pails of roasted peanuts top each table,
guests are encouraged to toss peanut shells on the floor, drinks are
served in mason jars, long neck beers are delivered in metal buckets
filled with ice, and a classic jukebox entertains guests with popular
rock and country and western music. The exterior of each restaurant
features rough-sawed siding, a wrap-around wood plank porch, a tin roof
trimmed in neon and an oversized "Roadhouse Grill" sign. See "Site
Selection; Design and Layout."
- PREMIUM QUALITY GRILLED ENTREES AND DIVERSE MENU. The Roadhouse
Grill menu features aged USDA Choice steaks and ribs, chicken and
seafood. An in-house butcher at each restaurant cuts and trims the
steaks and prime rib, which are aged both before and after carving. In
addition to grilled selections, the menu includes a variety of
appetizers, sandwiches, salads and desserts, including signature items
such as Roadhouse cheese wraps, hot out-of-the-oven yeast rolls made
from scratch each day and a daily selection of homemade ice cream.
- HIGH VALUE TO GUESTS. Roadhouse Grill strives to provide a high
value dining experience for its guests by offering a broad, moderately
priced menu and serving generous portions. At Roadhouse Grill
restaurants, the price of each entree includes a choice of house or
caesar salad, a choice of baked sweet potato, baked potato, home fries,
french fries or rice pilaf and hot out-of-the-oven homemade yeast rolls.
From 11 a.m. to 3 p.m. Monday through Friday, each Roadhouse Grill
offers a selection of 14 "Lunch in a Rush" menu items ranging from
entree salads to specialty sandwiches, all served to order in under 10
minutes and priced at $6.29 or less. For the fiscal year ended December
29, 1996, the average guest check, including beverage, was approximately
$11.80. The average check for lunch and dinner was $8.75 and $13.25,
respectively.
- BROAD CUSTOMER APPEAL; FOCUS ON FAMILIES. The Roadhouse Grill
concept is designed to appeal to a broad range of customers, including
business people, couples, singles and particularly families. The
Company believes that to be attractive to families a concept must be
appealing to both children and parents. Consequently, Roadhouse Grill
restaurants furnish children with coloring menus, balloons and a free
souvenir cup, and all Roadhouse Grill prototype restaurants have a game
room featuring pinball and video games. In addition, each restaurant
offers a special "Kids' Menu" featuring an assortment of entrees for
$2.99. In 1996, for the second year in a row,
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Roadhouse Grill was voted a "Best Family Restaurant" in a survey
conducted by South Florida Parenting magazine. For adults, each
Roadhouse Grill restaurant offers beverages from its full-service bar,
which is separated from the dining area.
- EFFICIENT, PERSONALIZED SERVICE. The Company believes that a
distinctive, enjoyable dining experience is made possible through
excellent service. Accordingly, the Company hires individuals who
possess strong initiative and the ability to provide quality and
personalized service. Roadhouse Grill attempts to foster the
individuality of its employees, encouraging them to converse and interact
with guests on a friendly, casual basis. Servers often sit down at the
table with guests to take orders, and the restaurant manager visits each
table to help ensure customer satisfaction.
SITE SELECTION; DESIGN AND LAYOUT
The Company believes the site selection process is critical to the
long-term success of any restaurant and, accordingly, devotes significant time
and effort to the investigation and evaluation of potential locations. Among
the factors it considers in the site selection process are market demographics
(including population, age and median household income), traffic patterns and
activity, site visibility and accessibility, and proximity to residential
developments, office complexes, hotels, retail establishments and entertainment
areas. The Company also considers existing or potential competition in the
area and attempts to analyze the performance of other area restaurants.
Management generally determines which geographic areas may be suitable for
Roadhouse Grill restaurants and then employs real estate agents and brokers to
identify potential sites in each area. In connection with the Company's
evaluation, Company personnel visit and analyze each potential site. After a
location has been leased or purchased and the necessary licenses and permits
obtained, the average time for construction of new Roadhouse Grill restaurants
has been approximately 120 days and the average time for renovation of an
existing building has been approximately 90 days. However, there can be no
assurances that such construction schedules can be maintained in the future.
Roadhouse Grill restaurants are large, open and visually appealing, with
exposed ceilings and brick and lapboard cedar walls decorated with colorful,
hand-painted murals and neon signs. The prototypical interior also includes
multi-level seating, an exhibition grill and display kitchen and a game room
featuring pinball and video games. The exterior of each restaurant features
rough-sawed siding, a wrap-around wood plank porch, a tin roof trimmed in neon
and an oversized "Roadhouse Grill" sign. Company-owned restaurants opened
prior to March 1996 generally range from 6,000 to 8,500 square feet in size.
In March of 1996, the Company refined its prototype from approximately 7,500
square feet (with seating for approximately 235 guests) to approximately 6,800
square feet (with seating for approximately 210 guests) in an effort to reduce
construction costs without significantly impacting restaurant sales. The
Company expects that the average cash investment required to open its prototype
restaurants, including pre-opening expenses but excluding real estate costs,
will be approximately $1.1 million or $1.4 million, depending on whether the
Company converts an existing building or constructs a new restaurant.
However, there can be no assurance that the cost of opening Roadhouse Grill
restaurants in the future will not increase.
MENU AND PRICING
The Roadhouse Grill menu features aged USDA Choice steaks and prime rib,
beef ribs, chicken and seafood, all of which are grilled to order. The
Company's steaks and prime rib are aged both before and after being cut and
trimmed by each restaurant's in-house butcher. The menu features over sixty
items, including eight cuts of steak ranging from 6 oz. to 18 oz. In addition
to grilled selections, the menu offers a wide variety of appetizers, sandwiches,
salads and desserts, including signature items such as Roadhouse cheese wraps
and a daily selection of homemade ice cream. Each entree is served with a
choice of a house salad or caesar salad, a choice of baked sweet potato, baked
potato, home fries, french fries or rice pilaf and homemade yeast rolls.
Roadhouse Grill restaurants are open seven days a week for lunch and dinner and
offer full bar service. Prices range from $2.99 to $6.29 for lunch entrees and
from $4.99 to $15.99 for dinner entrees. From 11 a.m. to 3 p.m. Monday through
Friday, in addition to its full menu, each Roadhouse Grill offers a selection of
14 "Lunch in a Rush" menu items ranging from char-broiled steak salad to
hand-breaded chicken strips and french fries, all prepared to order in under 10
minutes and priced at $6.29 or less. For fiscal 1996 the average guest check,
including beverage, was approximately $11.80. The average checks for lunch and
dinner were approximately $8.75 and $13.25, respectively.
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RESTAURANT OPERATIONS AND MANAGEMENT
Restaurant Personnel. The Company believes that excellent service
contributes significantly to a distinctive, enjoyable dining experience.
Accordingly, the Company seeks to hire individuals who possess strong
initiative and the ability to provide quality and personalized service.
Roadhouse Grill attempts to foster the individuality of its employees,
encouraging them to interact with customers on a friendly, casual basis.
Consistent with the Company's preference to promote from within, restaurant
managers generally are selected from Company personnel. The Company seeks to
retain high-quality restaurant managers and personnel by providing them with
opportunities for promotion and financial incentives based on individual
restaurant performance. These financial incentives include a bonus plan that
enables each restaurant manager to earn a portion of a bonus pool by achieving
certain predetermined performance goals. During fiscal 1996, the Company's
turnover rates were approximately 47% for restaurant staff and 27% for
restaurant managers, which are significantly below the restaurant industry
averages of 92% for staff employees and 50% for managers (as reported by the
National Restaurant Association).
Roadhouse Grill restaurants generally operate with five managers,
including a general manager, an assistant general manager, a kitchen manager
and two assistant managers. The general manager of each restaurant has primary
responsibility for managing the day-to-day operations of the restaurant in
accordance with Company standards. The general manager and kitchen manager of
each restaurant generally are responsible for interviewing, hiring and training
restaurant staff. Each restaurant has a staff of approximately 90 employees,
which includes at least one full-time, in-house butcher. The Company currently
employs seven area supervisors, each of whom is responsible for three to six
restaurants. The supervisors report to regional directors, each of whom has
responsibility for four supervisors. The Company currently has two regional
directors, who communicate daily with the Vice President of Operations.
The Company devotes a significant amount of time and resources to
restaurant management and staff training. Each new manager participates in an
eight-week training program, which is conducted at designated training
restaurants, before assuming an assistant manager position (or, in some
instances, a kitchen manager position) at a Roadhouse Grill restaurant. This
program is designed to provide training in all areas of restaurant operations,
including food preparation and service, alcoholic beverage service, Company
philosophy, operating standards, policies and procedures, and business
management and administration techniques. The managers of the training
restaurant conduct weekly evaluations of each manager trainee.
In connection with the opening of each new restaurant, the Company sends
one of its two full-time 16-member training teams to train and assist the new
restaurant employees. The training team generally arrives at each restaurant
two weeks prior to opening and remains for four weeks after opening.
Typically, the top three managers (the general manager, the assistant general
manager and the kitchen manager) of each new restaurant are individuals who
have been managers at an existing Roadhouse Grill restaurant.
Internal Controls; Restaurant Reporting. The Company maintains financial
and accounting controls for each of its restaurants through the use of
centralized accounting and management information systems. The Company uses a
computerized point-of-sale system to collect sales information from each
restaurant, and restaurant managers are provided access to the operating
statements for their respective restaurant.
Purchasing. Roadhouse Grill operates a centralized purchasing system that
is utilized by all restaurants operated by the Company (except those located in
upstate New York). The Company purchased approximately 89% of its food and
other products from two distributors during fiscal 1996. Beginning August 5,
1996, the Company began doing business with only one of these two principal
distributors and anticipates that approximately 89% of its food and other
products will be purchased from that distributor.
ADVERTISING AND MARKETING
The Company attempts to build brand awareness by providing a distinctive
dining experience that results in a significant number of new customers being
attracted through word of mouth, as well as by traditional marketing efforts
and promotional activities. The Company believes that clustering multiple
restaurants in target markets will help build brand awareness and increase
efficiencies in its marketing efforts. The Company's marketing efforts are
centered around print media and radio advertisements using the voice of "Cowboy
Jim," the Company's mascot, and, to a lesser extent, the use of outdoor
billboards. The Company also markets at the restaurant level through
sponsorship of community charity activities, sporting events, festivals and
Chamber of Commerce events. Prior to opening a restaurant, the Company
typically conducts a six-week print and radio advertising campaign and holds a
"VIP Night" at which city officials, Chamber of Commerce members, police, fire
and rescue personnel, local business people, area media and others are invited
to have "dinner on the Roadhouse." At certain restaurants, the Company also is
test marketing T-shirts and other merchandise bearing the Roadhouse Grill name
and logo to increase the Company's brand recognition. During fiscal 1996, the
Company spent approximately 2.9% of revenues on advertising and marketing
activities.
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FRANCHISING
The Company has granted franchise rights to the Roadhouse Grill concept in
Asia and the Pacific Rim and in certain limited geographic areas in the United
States. Pursuant to its expansion strategy, the Company expects to concentrate
its future franchising activity in Asia and the Pacific Rim through its
international franchisees, Roadhouse Grill Hong Kong and Roadhouse Grill Asia.
Although the Company's United States franchisees may open a limited number of
additional franchised restaurants in their respective territories, the Company
does not intend to grant additional franchise rights in the United States, other
than any rights that may be granted to the licensee of the Gresham, Oregon and
San Diego, California Roadhouse Grill restaurants. See "Domestic Franchising."
International Franchising. In January 1996, the Company entered into a
Master Development Agreement with Roadhouse Grill Hong Kong, which provides for
the development and franchising of Roadhouse Grill restaurants in Hong Kong.
Under the agreement, Roadhouse Grill Hong Kong is not required to develop any
specific number of restaurants in Hong Kong, but any restaurants that it
develops are credited against the development obligations of Roadhouse Grill
Asia under Roadhouse Grill Asia's Master Development Agreement with the
Company. Roadhouse Grill Hong Kong or its affiliates are not required to pay
any franchise or reservation fee for restaurants that it develops, but it is
responsible for paying or reimbursing approved expenses incurred by the Company
in connection with the opening of each restaurant. In addition, Roadhouse
Grill Hong Kong is required to pay a royalty in connection with the operation
of each of its restaurants in the amount of 2.0% of gross sales for each
restaurant's first three years of operation and 3.0% thereafter. Under certain
circumstances, Roadhouse Grill Hong Kong or the Company may grant franchises to
third parties in Hong Kong. In that event, the Company is entitled to receive
50% of any franchise and reservation fees and 50% of any royalty fee payable by
the third party franchisee, subject to limitations on the amounts payable to
the Company of $10,000 per restaurant in the case of franchise and reservations
fees and 2.5% of gross sales in the case of royalty fees.
In January 1996, the Company also entered into a Master Development
Agreement with Roadhouse Grill Asia which covers countries in Asia and the
Pacific Rim (other than Hong Kong), including, but not limited to, Australia,
China, India, Indonesia, Japan, Malaysia, New Zealand, North Korea, South
Korea, The Philippines and Thailand. Under the agreement, Roadhouse Grill Asia
is required to open and maintain at least 30 Roadhouse Grill restaurants during
the first ten years of the term of the agreement, with a minimum of two
restaurants to be developed each year. Under certain circumstances, Roadhouse
Grill Asia or the Company may grant franchises to third parties in the
territory. The fee arrangements under the agreement are substantially the same
as those under the agreement between the Company and Roadhouse Grill Hong Kong.
See Item 13 "Certain Relationships and Related Transactions."
Domestic Franchising. The Company has entered into franchise or license
arrangements for the development and operation of Roadhouse Grill restaurants in
Gresham, Oregon, San Diego, California, and Clark County, Nevada. The Gresham
Roadhouse Grill has been in operation since January 1993; the San Diego
Roadhouse Grill has been in operation since January 1996; and the first Nevada
franchise restaurant is currently under construction. The Company is currently
in negotiations with one of its licensees regarding exclusive development rights
relating to additional Roadhouse Grill restaurants in a limited number of states
in the western United States. There can be no assurance that an agreement on the
terms currently being discussed will be reached or that an agreement will be
reached at all.
COMPETITION; RESTAURANT INDUSTRY
The restaurant industry is highly competitive. The Company competes with
a broad range of restaurants, including national and regional casual dining
chains as well as locally-owned restaurants, some of which operate with
concepts similar to that of the Company. Many of the Company's competitors are
well established and have substantially greater market presence and financial
and other resources than the Company. The entrance of new competitors into the
Company's market areas or the expansion of operations by existing competitors
could have a material adverse effect on the Company's results of operations and
financial condition. In addition, the Company competes with other restaurant
companies and retailers for sites, labor and, in many cases, customers. The
Company believes that the key competitive factors in the restaurant industry
are quality of food and service, price, location and concept. To the extent
that one or more of its competitors becomes more successful with respect to any
key competitive factors, the Company's business could be adversely affected.
The restaurant industry is affected by changes in consumer tastes as well
as national, regional and local economic conditions, demographic trends,
traffic patterns, and the type, number and location of competing restaurants.
Dependence on fresh meats and produce also subjects restaurant companies to the
risk that shortages or interruptions of supply could adversely affect the
availability, quality or cost of ingredients. In addition, factors such as
inflation, increased food, labor and employee benefit costs and the
availability of qualified management and hourly employees also may adversely
affect the restaurant industry generally and the Company's restaurants in
particular. The success and future profitability of the
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Company will depend in part on its ability to identify and to respond
appropriately to changing conditions within the restaurant industry.
GOVERNMENT REGULATION
Each Roadhouse Grill restaurant is subject to numerous federal, state and
local laws and governmental regulations, including those relating to the
preparation, sale and service of food and alcoholic beverages, designation of
non-smoking and smoking areas, accessibility of restaurants to disabled
customers, development and construction of restaurants and environmental
matters. Roadhouse Grill also is subject to laws governing its relationship
with employees, including minimum wage requirements, overtime, working
conditions and immigration requirements. Difficulties or failures in obtaining
the required construction and operating licenses, permits or approvals could
delay or prevent the opening of a new restaurant. Roadhouse Grill believes
that it is operating in compliance in all material respects with applicable
laws and regulations that govern its operations.
Alcoholic beverage control regulations require each Roadhouse Grill
restaurant to apply to a state authority and, in certain locations, county
and/or municipal authorities for a license or permit to sell alcoholic
beverages on the premises and to provide service for extended hours.
Typically, licenses must be renewed annually and may be revoked or suspended
for cause at any time. If a liquor license for any restaurant were lost,
revenues for that restaurant would be adversely affected. Alcoholic beverage
control regulations relate to numerous aspects of the Company's restaurants,
including minimum age of patrons consuming and employees serving alcoholic
beverages, hours of operation, advertising, wholesale purchasing, inventory
control, and handling, storage and dispensing of alcoholic beverages. The
Company is also subject to "dram-shop" statutes, which generally provide a
person, injured by an intoxicated person the right to recover damages from an
establishment that wrongfully served alcoholic beverages to the intoxicated
person. The Company carries liquor liability coverage as part of its existing
comprehensive general liability insurance.
In connection with its sale of franchises, the Company is subject to the
United States Federal Trade Commission rules and regulations and state laws
that regulate the offer and sale of franchises. The Company also is subject to
laws that regulate certain aspects of the franchise relationship.
The Company is subject to various local, state and federal laws regulating
the discharge of pollutants into the environment. The Company believes that
its operations are in compliance in all material respects with applicable
environmental laws and regulations. The Company conducts environmental audits
of all proposed restaurant sites in order to determine whether there is any
evidence of contamination prior to purchasing or entering into a lease with
respect to such sites. However, there can be no assurance that the Company
will not incur material environmental liability in connection with any of its
owned or leased properties.
EMPLOYEES
At December 29, 1996, the Company employed 291 salaried employees, of whom
33 served in corporate and administrative capacities and 258 served as
restaurant management personnel. In addition, the Company employed 3,801
persons on an hourly basis. None of the Company's employees are covered by a
collective bargaining agreement, and the Company has never experienced an
organized work stoppage, strike or labor dispute. The Company believes its
relations with its employees are good.
TRADEMARKS, SERVICE MARKS AND TRADE DRESS
Roadhouse Grill believes its trademarks, service marks and trade dress are
important to its marketing efforts. Roadhouse Grill has registered the
"Roadhouse Grill" service mark, the "Cowboy Jim and rocking chair" design and
the slogan "Good Food and a Smile . . . That's Roadhouse Style" with the U.S.
Patent and Trademark Office. The Company currently has registered the
"Roadhouse Grill" service mark in France and Malaysia and has been approved for
registration in Canada. The Company also currently has applied for
registration of the "Roadhouse Grill" service mark in approximately 33
additional foreign countries, including Australia, Brazil, China, Germany, Hong
Kong, Indonesia, Japan, Mexico, New Zealand, The Philippines, South Africa,
Spain, Thailand and the United Kingdom.
ITEM 2. PROPERTIES
As of December 29, 1996, all but 12 of the Company's restaurants were
located in leased space. Initial lease expirations range from five to twenty
years, with the majority of these leases providing renewal options extending
the lease term to twenty years. All of the Company's leases provide for a
minimum annual rent, and three of the leases call for additional rent based on
sales volume at the particular location over specified minimum levels.
Generally the leases are triple net leases which require the Company to pay the
costs of insurance, taxes and a portion of the lessors' operating costs.
The Company leases approximately 8,000 square feet for its corporate
offices in Fort Lauderdale, Florida under a three-year lease expiring September
30, 1998.
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The following table provides information with respect to each of the
Company's owned, franchised and licensed restaurants as of December 29, 1996.
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Approximate Square Owned, Leased
Footage/Seating Licensed or
Location Opening Date Capacity(1) Franchised
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COMPANY-OWNED:
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Pembroke Pines (Fort Lauderdale), FL March 1, 1993 5,800/210 Leased
North Miami, FL (2) November 1, 1993 7,800/220 Leased
Coral Springs (Fort Lauderdale), FL December 6, 1993 10,000/230 Leased
West Palm Beach, FL February 21, 1994 6,000/220 Leased
Kendall (Miami), FL (2) June 28, 1994 8,000/230 Leased
Winter Park (Orlando), FL September 10, 1994 12,000/240 Leased
Boca Raton, FL (2) December 12, 1994 7,200/230 Leased
Deerfield Beach (Fort Lauderdale), FL January 16, 1995 7,500/230 Leased
Bradenton, FL February 20, 1995 10,000/280 Owned
Davie (Fort Lauderdale), FL (2) March 15, 1995 5,800/210 Leased
Tampa, FL April 10, 1995 8,600/220 Leased
St. Petersburg, FL May 16, 1995 6,200/190 Leased
Delray Beach, FL June 27, 1995 7,500/230 Leased
Kissimmee, FL July 18, 1995 7,500/230 Owned
Lakeland, FL July 18, 1995 6,300/190 Leased
Jacksonville, Fl August 15, 1995 8,300/210 Owned
Orlando South, FL October 10, 1995 7,500/230 Leased
Tallahassee, FL October 30, 1995 7,500/230 Owned
Ocala, FL October 31, 1995 7,500/230 Owned
Fort Lauderdale, FL (2) (3) December 14, 1995 12,000/200 Leased
North Palm Beach, FL February 15 1996 8,500/230 Owned
Sandy Springs (Atlanta), GA (4) March 14, 1996 6,800/210 Leased
Longwood (Orlando), FL May 13, 1996 7,500/230 Owned
Orange Park (Jacksonville), FL (4) May 30, 1996 6,800/210 Owned
Fort Myers, FL (4) July 2, 1996 6,800/210 Owned
Columbia, SC July 2, 1996 8,400/220 Owned
Cheektowaga (Buffalo), NY August 27, 1996 5,000/190 Leased
Kennesaw (Atlanta), GA (4) September 4, 1996 6,800/210 Leased
Amherst (Buffalo), NY September 24, 1996 5,000/190 Leased
Lake Worth (West Palm Beach), FL October 22, 1996 6,000/200 Leased
Greenville, SC (4) October 22, 1996 6,800/210 Owned
Duluth (Atlanta), GA (4) November 25, 1996 6,800/210 Leased
Rochester, NY December 4, 1996 7,140/210 Leased
FRANCHISED OR LICENSED:
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Gresham, OR January 23, 1993 8,200/190 Licensed
Bangsar Baru, Malaysia November 20, 1995 5,800/160 Franchised
San Diego, CA January 22, 1996 8,600/270 Licensed
Ampang, Malaysia April 24, 1996 7,000/200 Franchised
Jalan Sultan Ismail, Malaysia July 11, 1996 5,000/170 Franchised
</TABLE>
- ----------------------------------
(1) Excludes bar seating.
(2) The North Miami and Kendall restaurants originally were owned by limited
liability companies in which the Company held a 50% ownership interest. The
Davie, Fort Lauderdale and Boca Raton restaurants were opened in March 1993,
March 1993 and December 1994, respectively, as franchised restaurants. The
Company acquired 100% ownership of the North Miami, Davie and Fort Lauderdale
restaurants in March 1995; the Boca Raton store in December 1996; and has
contracted to acquire 100% ownership of the Kendall restaurant (the Company
anticipates the closing of this purchase will occur in December 1997), subject
only to the truth of the representations and warranties contained in the
acquisition agreement.
(3) The Ft. Lauderdale restaurant was closed for remodeling from September to
December 1995. The date indicated in the above chart is the restaurant's
re-opening date.
(4) Prototype restaurant.
- 6 -
<PAGE> 9
ITEM 3. LEGAL PROCEEDINGS
The Company is party to certain legal proceedings arising in the ordinary
course of business. In the opinion of the Company, any resulting liability
will not have material adverse effect on the Company or its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no maters submitted for a vote of security holders during the
fourth quarter of 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's authorized common equity consists of 9,305,408 shares of
Common Stock, par value $.03 per share.
The common stock of the Company has been traded on the Nasdaq National
Market under the symbol GRLL since November 26, 1996.
The reported high and low last sale prices of the Company's Common Stock,
as reported on the Nasdaq National Market for the fourth quarter of 1996 were
$6.38 and $5.63, respectively. As of March 14, 1997 there were 44 holders of
record of the Common Stock.
Since the Company's Initial Public Offering in 1996, the Company has not
declared or paid any cash dividends or distributions on its capital stock. The
Company does not intend to pay any cash dividends on its Common Stock in the
foreseeable future, as the current policy of the Company's Board of Directors
is to retain all earnings to support operations and finance expansion. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources." Future declaration and payment
of dividends, if any, will be determined in light of then current conditions,
including the Company's earnings, operations, capital requirements, financial
condition, and other factors deemed relevant by the Board of Directors.
- 7 -
<PAGE> 10
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth for the periods and the dates indicated
selected financial data of the Company. The following should be read in
conjunction with the Financial Statements and Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere in this Form 10-K.
<TABLE>
<CAPTION> (in thousands, except per share amounts)
FISCAL YEAR
-----------
STATEMENT OF OPERATIONS DATA: 1993 1994 1995 1996
--------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Total revenues $ 3,465 $ 11,389 $ 34,275 $ 62,433
Cost of restaurant sales:
Food and beverage 1,471 4,085 12,084 21,382
Labor and benefits 988 4,606 12,019 19,749
Occupancy and other 1,219 2,318 8,710 13,773
--------- --------- --------- ---------
Total cost of restaurant sales 3,678 11,009 32,813 54,904
Depreciation and amortization 47 415 1,663 3,136
General and administrative 280 1,913 3,328 4,471
--------- --------- --------- ---------
Total operating expenses 4,005 13,337 37,804 62,511
--------- --------- --------- ---------
Operating income (loss) (540) (1,948) (3,529) (78)
Other income (expense):
Interest expense, net (40) (180) (404) (1,296)
Equity in income (loss)of affiliate 1 (136) (411) 284 206
Other, net 3 20 159 278
--------- --------- --------- ---------
Total other income (expense) (173) (571) 39 (812)
Net loss $ (713) $ (2,519) $ (3,490) $ (890)
========= ========= ========= =========
Net loss per common share 2 (0.34) (0.69) (0.65) (0.13)
========= ========= ========= =========
Weighted average shares outstanding 2,077,751 3,653,444 5,378,474 6,632,685
========= ========= ========= =========
BALANCE SHEET DATA:
Working capital $ (2,040) $ 7,409 $ (7,560) $ (5,605)
Total assets 1,685 24,843 42,201 67,335
Long-term debt and due to related parties,
including current portion 1,591 4,858 13,324 13,657
Obligations under capital leases, including
current portion - 1,272 4,484 4,271
Total shareholders' equity (deficit) (613) 17,639 20,261 41,100
</TABLE>
- -------------------------------
(1) See Note 1 of Financial Statements.
(2) Gives effect to the conversion of the Issued Preferred Stock into Common
Stock, which occurred as part of the Initial Public Offering on November
26, 1996.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report contains forward-looking statements which involve risks and
uncertainties relating to future events. Investors are cautioned that the
Company's actual events or results may differ materially from the results
discussed in the forward-looking statements.
The Company opened its first restaurant in March 1993 in Pembroke Pines,
Florida. As of December 29, 1996 there were 38 Roadhouse Grill restaurants in
operation, consisting of 33 company-owned and five franchised or licensed
restaurants. Of the Company-owned restaurants, 25 are located in Florida and 8
are located in Georgia, South Carolina and upstate New York.
-8-
<PAGE> 11
The Company's revenues are derived primarily from the sale of food and
beverages. Sales of alcoholic beverages accounted for approximately 12.4%,
13.6%, 13.0% and 12.5% of total revenues in fiscal 1993, fiscal 1994, fiscal
1995 and fiscal 1996, respectively. Franchise and management fees have
accounted for less than 1% of the Company's total revenues for all periods
since its inception.
The Company's new restaurants can be expected to incur above-average costs
during the first few months of operation. Pre-opening costs, such as employee
recruiting and training costs and other initial expenses incurred in connection
with the opening of a new restaurant, are amortized over a twelve-month period
commencing the first full period after the restaurant opens. During fiscal
1996, pre-opening expenses incurred in connection with the opening of new
Company-owned restaurants averaged approximately $166,000.
In the first four years of operation, fiscal 1993, fiscal 1994, fiscal
1995 and fiscal 1996, the Company incurred net losses of $713,000, $2.5
million, $3.5 million, and $900,000, respectively. Accordingly, the Company has
made no provision for taxes payable for such fiscal years. At December 29,
1996, the Company had a net operating loss carry forward of approximately
$4,771,000.
The average cash investment, excluding real estate costs and pre-opening
expenses, required to open each of the Roadhouse Grill restaurants opened by
the Company prior to December 29, 1996 was approximately $1.2 million. The
average real estate acquisition cost for the 12 restaurant sites owned by the
Company was approximately $836,000 (one of the sites the company acquired is
not yet open and is scheduled to open on April 1, 1997). The Company has
obtained financing in connection with the acquisition of its owned properties,
which financing generally has required a down payment of 10% of the purchase
price. The average annual occupancy cost in fiscal 1996 for the restaurant
sites leased by the Company was approximately $129,600 per site. The Company
expects that the average cash investment required to open its prototype
restaurants, including pre-opening expenses but excluding real estate costs,
will be approximately $1.1 million or $1.4 million, depending upon whether the
Company converts an existing building or constructs a new restaurant.
In August 1996, the Company contracted to purchase from an unaffiliated
third party the remaining 50% interest in Kendall Roadhouse Grill, L.C. The
Company paid a deposit on January 7, 1997 toward this purchase. The Company
anticipates the closing will occur in December 1997. In addition, the Company
purchased a 50% interest in Boca Roadhouse Grill, L.C., a limited liability
company which owns the Boca Raton, Florida Roadhouse Grill restaurant, from an
unaffiliated third party in December 1996. The Company has managed the Boca
Raton restaurant under a management agreement since December 1994 and expects
to continue to due so in the foreseeable future.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain selected
statement of operations data expressed as a percentage of total revenues.
<TABLE>
<CAPTION>
Fiscal Year
---------------------------------
1993 1994 1995 1996
------- ------- ------- ------
<S> <C> <C> <C> <C>
Total revenues ............................ 100.0% 100.0% 100.0% 100.0%
Cost of Company restaurant sales:
Food and beverage ........................ 42.4 35.9 35.3 34.2
Labor and benefits ....................... 28.5 40.4 35.1 31.6
Occupancy and other ...................... 35.2 20.4 25.4 22.1
------- ------- ------- ------
Total cost of Company restaurant sales .. 106.1 96.7 95.8 87.9
Depreciation and amortization ............. 1.4 3.6 4.9 5.0
General and administrative ................ 8.1 16.8 9.7 7.2
------- ------- ------- ------
Total operating expenses ................. 115.6 117.1 110.4 100.1
------- ------- ------- ------
Operating income (loss) ................... (15.6) (17.1) (10.4) (0.1)
Total other income (expense) .............. (5.0) (5.0) 0.1 (1.3)
------- ------- ------- ------
Net loss .................................. (20.6)% (22.1)% (10.3)% (1.4)%
======= ======= ======= ======
</TABLE>
- 9 -
<PAGE> 12
FISCAL 1996 COMPARED TO FISCAL 1995
Restaurants open. At the beginning of fiscal 1996, there were 19
Company-owned restaurants in operation (including the Kendall, Florida
Roadhouse Grill restaurant, which was owned by a limited liability company in
which the Company held a 50% ownership interest). At December 29, 1996, there
were 33 Company-owned restaurants in operation (including the Kendall and Boca
Raton limited liability companies in which the company held a 50% ownership
interest), a 73.7% year-over-year increase in the number of Company-owned
restaurants.
Total revenues. Total revenues increased $28.1 million, or 82.2%, from
$34.3 million in fiscal 1995 to $62.4 million for fiscal 1996. This increase
was attributable to the opening of additional restaurants during fiscal 1996
and the inclusion of all 13 Company-owned restaurants added in fiscal 1995 for
the entire fiscal year ended 1996, and was partially offset by modest decreases
in sales at other restaurants open during such period.
Food and beverage. Food and beverage costs increased $9.3 million, or
76.9%, from $12.1 million in fiscal 1995 to $21.4 million in fiscal 1996.
However, food and beverage costs decreased as a percentage of total revenues
from 35.3% for fiscal 1995 to 34.2% in fiscal 1996. This decrease reflects,
(i) the opening of new restaurants over a larger base of Company-owned
restaurants in operation during the fiscal year ended December 29, 1996
compared to the fiscal year ended December 31, 1995 and (ii) a continuing
decline in food costs resulting from increased efficiencies associated with the
implementation in fiscal 1995 of detailed recipes, training manuals, inventory
controls and other management tools.
Labor and benefits. Labor and benefits increased $7.7 million, or 64.3%
from $12.0 million in fiscal 1995 to $19.7 in fiscal 1996. However, labor and
benefit costs as a percentage of total revenues decreased from 35.1% in fiscal
1995 to 31.6% in fiscal 1996. The decrease was primarily attributable to
spreading the costs associated with training managers for new restaurants over
a larger base of Company-owned restaurants in operation during fiscal 1996
compared to fiscal 1995.
Occupancy and other. Occupancy and other costs increased $5.1 million, or
58.1% from $8.7 million in fiscal 1995 to $13.8 million in fiscal 1996.
However, occupancy and other costs decreased as a percentage of total revenues
from 25.4% in fiscal 1995 to 22.1% in fiscal 1996. The decreased percentage
resulted primarily from a significant increase in the percentage of restaurants
owned, as opposed to leased, by the Company during fiscal 1996, as compared to
fiscal 1995.
Depreciation and amortization. Depreciation and amortization expense
increased $1.4 million, or 88.6%, from $1.7 million in fiscal 1995 to $3.1
million in fiscal 1996. Depreciation and amortization as a percentage of total
revenues increased from 4.9% for fiscal 1995 to 5.0% for fiscal 1996. The
increase in this percentage resulted primarily from an increase in the
percentage of restaurants owned by the Company as opposed to leased during
the fiscal year 1996, as compared to fiscal 1995.
General and administrative. General and administrative expense increased
$1.2 million, or 34.4%, from $3.3 million in fiscal 1995 to $4.5 million in
fiscal 1996. General and administrative expense as a percentage of total
revenues decreased from 9.7% for fiscal 1995 to 7.2% for fiscal 1996.
Economies of scale resulting from a greater number of Company-owned restaurants
in operation during fiscal 1996 compared to fiscal 1995, were offset by
increased expenses in the latter half of fiscal 1995 associated with increasing
the management and support staff infrastructure in anticipation of future
expansion.
Total other income (expense). Total other income (expense) decreased by
$851,000 from income of $39,000 in fiscal 1995 to expense of $812,000 in fiscal
1996. This decrease resulted primarily from interest expense incurred in
connection with the purchase of a total of ten restaurants sites during fiscal
1995 and fiscal 1996, and was partially offset by income earned by the Kendall,
Florida Roadhouse Grill restaurant, which was accounted for under the equity
method of accounting. See Note 5 of Notes to Financial Statements.
FISCAL 1995 COMPARED TO FISCAL 1994
Restaurants open. At the beginning of fiscal 1994, there were three
Company-owned restaurants in operation (including the North Miami, Florida
Roadhouse Grill restaurant, which was owned by a limited liability company in
which the Company held a 50% ownership interest). During fiscal 1994, the
Company added three restaurants (including the Kendall, Florida Roadhouse Grill
restaurant, which was owned by a limited liability company in which the Company
held a 50% ownership interest), and during fiscal 1995 the Company added
thirteen restaurants. As of the end of fiscal 1995, the Company had 19
Company-owned restaurants in operation.
Total revenues. Total revenues increased $22.9 million, or 201.0%, from
$11.4 million in fiscal 1994 to $34.3 million in fiscal 1995. This increase
was attributable to the addition of 13 Company-owned restaurants during fiscal
1995 and the inclusion of a full year of operations for the two 100%
Company-owned restaurants opened in fiscal 1994 and was partially offset by
modest decreases in sales at certain restaurants opened in fiscal 1993 and
fiscal 1994.
Food and beverage. Food and beverage costs increased $8.0 million, or
195.8%, from $4.1 million in fiscal 1994 to $12.1 million in fiscal 1995, but
decreased as a percentage of total revenues from 35.9% in fiscal 1994 to 35.3%
in fiscal 1995.
- 10 -
<PAGE> 13
This decrease reflects a decline in food costs resulting from increased
efficiencies associated with the implementation in fiscal 1995 of detailed
recipes, training manuals, inventory controls and other management tools.
Labor and benefits. Labor and benefits costs increased $7.4 million, or
160.9%, from $4.6 million in fiscal 1994 to $12.0 million in fiscal 1995, but
decreased as a percentage of total revenues from 40.4% in fiscal 1994 to 35.1%
in fiscal 1995. This decline was primarily attributable to decreased training
and recruiting costs resulting from lower restaurant employee turnover in fiscal
1995 compared to fiscal 1994.
Occupancy and other. Occupancy and other costs increased by $6.4 million,
or 275.8%, from $2.3 million in fiscal 1994 to $8.7 million in fiscal 1995. As
a percent of total revenues, occupancy and other costs increased from 20.4% in
fiscal 1994 to 25.4% in fiscal 1995. This increase resulted primarily from
expanded advertising and promotional activities of the Company and greater
pre-opening expenses in fiscal 1995 compared to fiscal 1994.
Depreciation and amortization. Depreciation and amortization expense
increased by $1.3 million, or 300.7%, from $415,000 in fiscal 1994 to $1.7
million in fiscal 1995. As a percentage of total revenues, depreciation and
amortization expense increased from 3.6% in fiscal 1994 to 4.9% in fiscal
1995. This percentage increase resulted from higher depreciation expense
associated with the purchase of five restaurant sites in fiscal 1995 and from
the amortization of goodwill associated with three restaurants acquired from
franchisees in fiscal 1995. All of the Company-owned restaurants opened prior
to fiscal 1995 are leased.
General and administrative. General and administrative expense increased
by $1.4 million, or 73.9%, from $1.9 million in fiscal 1994 to $3.3 million in
fiscal 1995. This increase was a result of increasing the management and
support staff infrastructure in anticipation of future expansion. As a
percentage of total revenues, general and administrative expense declined from
16.8% in fiscal 1994 to 9.7% in fiscal 1995. The decrease in this percentage
was primarily attributable to economies of scale resulting from a greater
number of Company-owned restaurants in operation during fiscal 1995.
Total other income (expense). Total other income (expense) increased by
$610,000 from a $571,000 expense in fiscal 1994 to income of $39,000 in fiscal
1995. This increase in total other income (expense) was primarily attributable
to the Company's share of income earned by the Kendall, Florida Roadhouse Grill
restaurant, which was accounted for under the equity method of accounting, and
income from game rooms in new Company-owned restaurants, which income was
partially offset by increased interest expense incurred in connection with the
purchase of five restaurant sites in fiscal 1995.
FISCAL 1994 COMPARED TO FISCAL 1993
Restaurants open. At the beginning of Fiscal 1993, there were no
Company-owned restaurants in operation. The Company added three restaurants in
each of fiscal 1993 and fiscal 1994 (including the North Miami, Florida
Roadhouse Grill restaurant added in fiscal 1993, which was owned by a limited
liability company in which the Company held a 50% ownership interest, and the
Kendall, Florida Roadhouse Grill restaurant added in fiscal 1994, which was
owned by a separate limited liability company in which the Company held a 50%
ownership interest). As of the end of fiscal 1994, the Company had six
Company-owned restaurants in operation.
Total revenues. Total revenues increased $7.9 million, or 228.6% from
$3.5 million in fiscal 1993 to $11.4 million in fiscal 1994. This increase was
attributable to the opening of two 100% Company-owned restaurants during fiscal
1994 and the inclusion of a full year of operations for the two 100%
Company-owned restaurants opened in fiscal 1993.
Food and beverage. Food and beverage costs increased by $2.6 million, or
177.7%, from $1.5 million in fiscal 1993 to $4.1 million in fiscal 1994, but
decreased as a percentage of total revenues from 42.4% in fiscal 1993 to 35.9%
in fiscal 1994. This decrease was attributable primarily to lower food costs
during fiscal 1994 that resulted from the introduction of portion controls and
improved inventory management.
Labor and benefits. Labor and benefits costs increased by $3.6 million,
or 366.2%, from $988,000 in fiscal 1993 to $4.6 million in fiscal 1994. As a
percentage of total revenues, labor and benefits costs increased from 28.5% in
fiscal 1993 to 40.4% in fiscal 1994. This increase in labor and benefits costs
was a result of overstaffing existing restaurants in order to hire and train
managers and staff for restaurants to be opened.
Occupancy and other. Occupancy and other costs increased by $1.1 million,
or 90.2%, from $1.2 million in fiscal 1993 to $2.3 million in fiscal 1994, but
decreased as a percentage of total revenues from 35.2% in fiscal 1993 to 20.4%
in fiscal 1994. The decrease in this percentage reflects unusually high
occupancy and other costs as a percentage of total revenues in fiscal 1993,
which resulted primarily from spreading costs associated with the opening of
the Company's first three restaurants over a small revenue base in fiscal 1993.
-11-
<PAGE> 14
Depreciation and amortization. Depreciation and amortization expense
increased by $368,000 from $47,000 in fiscal 1993 to $415,000 in fiscal 1994.
As a percentage of total revenues, depreciation and amortization increased from
1.4% in fiscal 1993 to 3.6% in fiscal 1994 primarily as a result of
depreciation associated with two restaurants opened late in fiscal 1993 and
three restaurants opened in fiscal 1994.
General and administrative. General and administrative expense increased
by $1.6 million from $280,000 in fiscal 1993 to $1.9 million in fiscal 1994. As
a percentage of total revenues, general and administrative expense increased
from 8.1% in fiscal 1993 to 16.8% in fiscal 1994. This increase was the result
of the recruitment and hiring of additional management and support staff in
anticipation of future growth.
Total other income (expense). Total other income (expense) decreased by
$398,000 from a $173,000 expense in fiscal 1993 to a $571,000 expense in fiscal
1994. The decrease in total other income (expense) was primarily attributable
to losses incurred by the North Miami and Kendall, Florida Roadhouse Grill
restaurants, which were accounted for under the equity method of accounting,
and incremental financing costs associated with the Company's growth.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital principally for the opening of new
restaurants and has financed its requirements through the private placement of
Common Stock and Preferred Stock, an Initial Public Offering, and loans from
certain private parties, including present and former shareholders of the
Company.
In December 1996 the Company completed an Initial Public Offering of
2,500,000 shares of common stock at $6.00 per share. The proceeds of
approximately $13.2 million, net of underwriting discounts and other costs
incurred in connection with the Initial Public Offering, were used for the
repayment of debt, the acquisition of a 50 percent interest in a former
franchised restaurant, and for expansion of the Company.
In September 1996, the Company borrowed $500,000 from SunTrust Bank,
Miami, N.A. Such loan was unsecured; bore interest at the bank's prime rate
plus 1% and was repaid on December 30, 1996. The proceeds of this loan were
used for general corporate purposes.
In July 1996, the Company issued promissory notes in the principal amounts
of $1.5 million and $500,000 to a former Chairman of the Board of Directors of
the Company and to a shareholder of the Company, respectively. These notes were
repaid by the Company in August 1996 with the funds received in connection with
the issuance of a promissory note in the principal amount of $2.0 million to
Berjaya Group (Cayman) Limited ("Berjaya"), the Company's principal shareholder.
In September 1996, the Company issued another promissory note in the principal
amount of $1.5 million to such former Chairman of the Board. Also in September
1996, the Company issued an additional promissory note in the principal amount
of $3.0 million to Berjaya. The proceeds of these loans were used for opening
new restaurants. The loan from Berjaya, which was due and payable upon
completion of the Initial Public Offering, has been extended and will mature on
November 25, 1997.
The Company's capital expenditures aggregated approximately $19.9 million
in fiscal 1996, substantially, all of which were used to open Roadhouse Grill
restaurants. In addition, the company acquired a 50% interest in Boca Roadhouse
Grill, L.C., a limited liability company which owns the Boca Raton, Florida
Roadhouse Grill restaurant for approximately $480,000. During fiscal 1996 the
Company received approximately $5.0 million from the private placement of
Common Stock, $2.4 million, net, in promissory notes, $13.2 million, net, from
its Initial Public Offering and $4.1 million, net cash provided by operating
activities.
The Company's capital expenditures aggregated $14.5 million for fiscal
1995, substantially all of which was used to open Roadhouse Grill restaurants.
In addition, the Company acquired two restaurants for aggregate cash
consideration of $3.0 million. During fiscal 1995, the Company received
approximately $6.0 million from the private placement of Common Stock. It also
borrowed funds in the aggregate amount of approximately $2.5 million from a
former Chairman of the Board of Directors of the Company (who is also a former
shareholder), which loans were consolidated and extended in January 1996. In
addition, the Company borrowed $600,000 from the owner of a 50% interest in
Kendall Roadhouse Grill, L.C. and approximately $3.5 million from Berjaya. Net
cash used in operating activities during fiscal 1995 was approximately
$784,000.
The Company's capital expenditures aggregated approximately $10.1 million
for fiscal 1994; substantially all of which were used to open Roadhouse Grill
restaurants. During fiscal 1994, the Company received approximately $20.8
million from the private placement of the Issued Preferred Stock and Common
Stock. Net cash used in operating activities during fiscal 1994 was $1.8
million.
The Company's capital expenditures aggregated $1.4 million during fiscal
1993, substantially all of which was used to open Roadhouse Grill restaurants.
During fiscal 1993, the Company received $1.6 million in connection with the
issuance
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<PAGE> 15
of promissory notes to Berjaya and $100,500 from the private placement of Common
Stock. In addition, net cash provided by operating activities during 1993 was
approximately $40,000.
As is common in the restaurant industry, the Company has generally
operated with negative working capital ($5.6 million as of December 29, 1996).
The Company does not have significant receivables or inventory and receives
trade credit on its purchases of food and supplies.
SEASONALITY AND QUARTERLY RESULTS
The Company's sales and earnings fluctuate seasonally. Historically, the
Company's highest earnings have occurred in its first and fourth fiscal
quarters. In addition, quarterly results have been, and in the future are
likely to be, substantially affected by the timing of new restaurant openings.
Because of the seasonality of the Company's business and the impact of new
restaurant openings, results for any quarter are not necessarily indicative of
the results that may be achieved for a full fiscal year.
IMPACT OF INFLATION
The Company does not believe that inflation has materially affected its
results of operations during the past four fiscal years. Substantial increases
in costs and expenses, particularly food, supplies, labor and operating expenses
could have a significant impact on the Company's operating results to the extent
that such increases cannot be passed along to customers.
ACCOUNTING MATTERS
Statement of Financial Accounting Standards No. 121, "Accounting for
Long-Lived Assets and for Long-Lived Assets to be Disposed Of", requires that
long-lived assets and certain identifiable intangibles to be held and used by
an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Impairment is evaluated by comparing future cash flows
(undiscounted and without interest charges) expected to result from use of the
asset and its eventual disposition to the carrying amount of the asset. The
Company adopted SFAS No. 121 during fiscal 1996 and determined there is no
material impact on the Company's financial position or results of operations.
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123), which becomes effective for financial statements
for fiscal years beginning after December 15, 1995. SFAS No. 123 defines a
fair value based method of accounting for an employee stock option or similar
equity instrument and encourages all entities to adopt that method of
accounting for all of their employee stock compensation plans. However, it
also allows an entity to continue to measure compensation cost for those plans
using the intrinsic value based method of accounting prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB 25). The Company is currently accounting for stock-based compensation
under APB 25, and will continue accounting for stock-based compensation under
this method.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See "Index to Financial Statements" on Page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company dismissed its auditors on February 13, 1995 and again on
November 28, 1995. Both such dismissals were approved by the Board of
Directors of the Company, and neither was the result of the resignation of
either auditing firm. Further, the changes were not the result of any
disagreement with the former auditors on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure. The
reports rendered by such auditors for fiscal 1993 and fiscal 1994 do not
contain an adverse opinion or disclaimer of opinion and are not qualified or
modified as to uncertainty, audit scope or accounting principles. During
fiscal 1994 and fiscal 1995, there were no disagreements or "reportable events"
with the former accountants.
- 13 -
<PAGE> 16
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
This information with respect to the executive officers is incorporated by
reference to the information contained under the caption "Certain Information
Concerning Executive Officers" included in the Company's Proxy statement
relating to the Annual Meeting of Shareholders to be held on June 3, 1997.
This information with respect to the Directors of the Company is incorporated
by reference to the information contained under the caption "Certain
Information Concerning the Board of Directors" included in the Company's Proxy
Statement relating to the Annual Meeting of Shareholders to be held on June 3,
1997.
ITEM 11. EXECUTIVE COMPENSATION
This information is incorporated by reference to the information contained
under the caption "Executive Compensation" included in the Company's Proxy
Statement relating to the Annual Meeting of Shareholders to be held on June 3,
1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information is incorporated by reference to the information
contained under the caption "Security Ownership of Officers, Directors, and
Certain Beneficial Owners" included in the Company's Proxy Statement relating to
the Annual Meeting of Shareholders to be held on June 3, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In fiscal 1995, the Company obtained loans in the aggregate amount of
approximately $2.5 million from John Y. Brown, Jr. During fiscal 1995, Mr.
Brown was the former Chairman of the Board of Directors of the Company and was
a shareholder. In January 1996, these loans were consolidated and extended
under the Company's unsecured promissory note dated January 15, 1996, in the
principal amount of $2.5 million, bearing interest at 8.5 percent per annum,
the principal of and accrued interest on which were due and payable in full
upon the closing, and from the proceeds, of the Initial Public Offering. The
funds obtained by the Company from such loan were used to finance the opening
of new restaurants. The loan was initially unsecured but in July 1996 was
cross-collateralized by the lien granted on the additional $1.5 million loan
described in the next paragraph.
In July 1996, the Company borrowed an additional $1.5 million from Mr.
Brown under the Company's secured promissory note dated July 12, 1996, bearing
interest at 8.5 percent per annum, the principal of and accrued interest on
which were paid on August 19, 1996 from a portion of the proceeds of the
Company's $2.0 million loan from Berjaya described below. The loan, the
proceeds of which were used to finance the opening of new restaurants, was
secured by a lien on all of the furniture, fixtures and equipment located in
the Company's restaurants on July 12, 1996 that had not been previously pledged
to a third party. Following the repayment of this loan, the Company in
September 1996 obtained a new loan from Mr. Brown in the amount of $1.5
million, which was secured by the same collateral as the July 1996 note and
which is evidenced by the Company's promissory note dated September 5, 1996,
bearing interest at 5.0 percent per annum and payable in full upon the closing
of the Initial Public Offering. The proceeds of this loan were used for
general corporate purposes, including opening new restaurants.
In July 1996, the Company borrowed $500,000 from Cupertino, a shareholder
of the Company, under the Company's unsecured promissory note dated July 15,
1996, bearing interest at 8.5 percent per annum, the principal of and accrued
interest on which were paid on August 19, 1996. The proceeds of this loan were
used to finance the opening of new restaurants. Dr. Christian F. Horn, the
Chairman of the Board of Directors of the Company, is the Managing Partner of
Horn Ventures Partners II, L.P., which is a General Partner of Cupertino.
In August 1996, the Company borrowed $2.0 million from Berjaya, its
principal shareholder, under an unsecured promissory note dated August 16,
1996, bearing interest at 8.5 percent per annum, the principal of and accrued
interest on which were due and payable in full upon the closing of the Initial
Public Offering, but have been extended and will be due and payable on the
first anniversary of the closing of the Initial Public Offering. The proceeds
of this loan were used to repay the July 1996 $1.5 million loan from Mr. Brown
and the $500,000 loan from Cupertino described above. In September 1996, the
Company borrowed $3.0 million from Berjaya, its principal shareholder, under an
unsecured promissory note dated September 27, 1996, bearing interest at 8.5
percent per annum, the principal of and accrued interest on which were due and
payable in full upon the closing of the Initial Public Offering, but have been
extended and will be due and payable on November 25, 1997. The proceeds of this
loan were used
-14-
<PAGE> 17
for general corporate purposes, including opening new restaurants. Tan Kim Poh,
a director of the Company, is Group Executive Director of Berjaya Berhad, which
directly or indirectly owns Berjaya.
Berjaya directly or indirectly owns Roadhouse Grill Hong Kong and
Roadhouse Grill Asia. In January 1996, the Company entered into a Master
Development Agreement with Roadhouse Grill Hong Kong which provides for the
development and franchising of Roadhouse Grill restaurants in Hong Kong. Under
the agreement, Roadhouse Grill Hong Kong is not required to develop any
specific number of restaurants in Hong Kong, but any restaurants that it
develops are credited against the development obligations of Roadhouse Grill
Asia under Roadhouse Grill Asia's Master Development Agreement with the
Company. Roadhouse Grill Hong Kong is not required to pay any franchise or
reservation fee for restaurants that it develops, but it is responsible for
paying or reimbursing approved expenses incurred by the Company in connection
with the opening of each restaurant. In addition, Roadhouse Grill Hong Kong is
required to pay a royalty in connection with the operation of each of its
restaurants in the amount of 2.0 percent of gross sales for each restaurant's
first three years of operation and 3.0 percent thereafter. Under certain
circumstances, Roadhouse Grill Hong Kong or the Company may grant franchises to
third parties in Hong Kong. In that event, the Company is entitled to receive
50 percent of any franchise and reservation fees and 50 percent of any royalty
fee payable by the third party franchisee, subject to limitations on the
amounts payable to the Company of $10,000 per restaurant in the case of
franchise and reservations fees and 2.5 percent of gross sales in the case of
royalty fees.
In January 1996, the Company also entered into a Master Development
Agreement with Roadhouse Grill Asia, which covers countries in Asia and the
Pacific Rim (other than Hong Kong), including but not limited to, Australia,
China, India, Indonesia, Japan, Malaysia, New Zealand, North Korea, South
Korea, The Philippines and Thailand. Under the agreement, Roadhouse Grill
Asia is required to open and maintain at least 30 Roadhouse Grill restaurants
during the first ten years of the term of the agreement, with a minimum of two
restaurants to be developed each year. Under certain circumstances, Roadhouse
Grill Asia or the Company may grant franchises to third parties in the
territory. The fee arrangements under the agreement are substantially the same
as those under the agreement between the Company and Roadhouse Grill Hong Kong.
The obligations of the original tenant, New York Roasters, Inc., under the
leases for the sites covering the Company's two restaurants in Buffalo, New
York were assumed by the Company in December 1995. At the time of such
assumptions, Mr. Brown was Chairman of the Board of Directors of the Company
and also Chairman and President of Roasters Corp. New York Roasters, Inc. was
a former franchisee of Roasters Corp. Except for the franchise relationship,
neither Mr. Brown nor Roasters Corp. had, or currently has, any financial or
other interest in New York Roasters, Inc.
Dr. Christian F. Horn, the Chairman of the Board of Directors of the
Company, is a director of Buffets, Inc. A subsidiary of Buffets, Inc. is the
licensee of the Company in the operation of Roadhouse Grill restaurants in
Gresham, Oregon and San Diego, California and is presently negotiating with the
Company for the development of additional Roadhouse Grill restaurants. See
"Business - Franchising - Domestic Franchising."
PART IV
ITEM 14. FINANCIAL STATEMENTS AND EXHIBITS
(a) List of documents filed as part of this report:
1. Financial Statements
The Financial Statements are listed in the accompanying "Index to
Financial Statements" on Page F-1.
2. Financial Statement Schedules
Financial Statement Schedules are listed in the accompanying "Index
to Financial Statements" on Page F-1
3. Exhibits
The exhibits filed with or incorporated by reference in this report
are listed on the Exhibit Index beginning on page E-1.
(b) Reports on Form 8-K:
The Company filed no reports on Form 8-K during the period covered by
this Form 10-K.
- 15 -
<PAGE> 18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on this 28th day
of March, 1997.
ROADHOUSE GRILL, INC.
By: /s/ John D. Toole III
--------------------------------
John D. Toole III,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ John D. Toole III President, Chief Executive March 28, 1997
---------------------------------- Officer and Director --------------------------------
John D. Toole III (Principal Executive Officer)
/s/ Dennis C. Jones Chief Financial Officer, March 28, 1997
---------------------------------- (Principal Financial Officer --------------------------------
Dennis C. Jones and Principal Accounting Officer)
/s/ Phillip Friedman Director March 28, 1997
---------------------------------- --------------------------------
Phillip Friedman
/s/ Dr. Christian F. Horn Director March 26, 1997
---------------------------------- --------------------------------
Dr. Christian F. Horn
/s/ Phil Ratner Director March 28, 1997
---------------------------------- --------------------------------
Phil Ratner
/s/ Ayman Sabi Director March 26, 1997
---------------------------------- --------------------------------
Ayman Sabi
/s/ Tan Kim Poh Director March 28, 1997
---------------------------------- --------------------------------
Tan Kim Poh
</TABLE>
- 16 -
<PAGE> 19
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Reports ............................................................ F-2
Balance Sheets as of December 31, 1995 and December 29, 1996 ............................ F-4
Statements of Operations for the Fiscal Years Ended January 1, 1995, December 31, 1995
and December 29, 1996 ................................................................. F-5
Statements of Changes in Shareholders' Equity for the Fiscal Years Ended January 1, 1995,
December 31, 1995 and December 29, 1996 ............................................... F-6
Statements of Cash Flows for the Fiscal Years Ended January 1, 1995, December 31, 1995
And December 29, 1996 ................................................................. F-7
Notes to Financial Statements ........................................................... F-8
Independent Auditors' Report ............................................................ F-18
Schedule II - Valuation and Qualifying Accounts for the Fiscal Years Ended
December 31, 1995 and December 29, 1996 ............................................... F-19
</TABLE>
F-1
<PAGE> 20
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Roadhouse Grill, Inc.:
We have audited the accompanying balance sheets of Roadhouse Grill, Inc. as of
December 29, 1996 and December 31, 1995, and the related statements of
operations, shareholders' equity and cash flows for each of the two years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Roadhouse Grill, Inc. as of
December 29, 1996 and December 31, 1995, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
February 17, 1997
Miami, Florida
F-2
<PAGE> 21
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Roadhouse Grill, Inc.:
We have audited the statements of operations, shareholders' equity and cash
flows of Roadhouse Grill, Inc. (the "Company") for the year ended January 1,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statements of operations,
shareholders' equity and cash flows are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the statements of operations, shareholders' equity and cash
flows. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the statements of operations, shareholders' equity and cash
flows. We believe that our audit of the statements of operations,
shareholders' equity and cash flows provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above presents fairly, in
all material respects, the results of operations and cash flows of Roadhouse
Grill, Inc. for the year ended January 1, 1995, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Miami, Florida
March 10, 1995
F-3
<PAGE> 22
ROADHOUSE GRILL, INC.
BALANCE SHEETS
December 31, 1995 and December 29, 1996
<TABLE>
<CAPTION>
December 31, December 29,
1995 1996
------------ ------------
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................... $ 2,805,043 $ 6,257,157
Accounts receivable..................................................... 119,826 196,542
Inventory............................................................... 405,585 814,225
Current portion of note receivable...................................... 76,407 76,634
Pre-opening costs, net.................................................. 316,638 1,508,310
Prepaid expenses........................................................ 241,003 577,883
----------- -----------
Total current assets................................................. 3,964,502 9,430,751
Note receivable......................................................... 265,128 218,539
Property, plant & equipment, net........................................ 35,844,784 54,129,230
Intangible assets, net of accumulated amortization of $28,366
and $92,270 at December 31, 1995 and December 29, 1996
respectively......................................................... 886,594 877,260
Other assets............................................................ 1,024,449 1,479,718
Investment in and advances to affiliates................................ 215,773 1,199,382
----------- -----------
Total assets......................................................... $42,201,230 $67,334,880
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable........................................................ $ 1,831,950 $ 5,246,738
Accrued expenses........................................................ 2,299,498 3,059,142
Due to related parties.................................................. 6,615,000 5,000,000
Current portion of long term debt....................................... 695,078 1,452,935
Current portion of capitalized lease obligations........................ 238,560 277,381
----------- -----------
Total current liabilities 11,680,086 15,036,196
Long term debt........................................................... 6,014,268 7,204,451
Capitalized lease obligations............................................ 4,245,391 3,993,858
----------- -----------
Total liabilities.................................................... 21,939,745 26,234,505
Shareholders' equity:
Preferred stock $.01 par value. Authorized 10,000,000 shares;
issued and outstanding Series A - 3,525,000, and 0 shares, respectively 35,250 --
Series B - 2,350,025 and 0 shares respectively.......................... 23,500 --
Common stock $.03 par value. Authorized 30,000,000 shares;
issued and outstanding 3,920,624 and 9,305,408, respectively............ 117,618 279,162
Additional paid-in-capital.............................................. 26,807,318 48,433,344
Accumulated deficit..................................................... (6,722,201) (7,612,131)
----------- -----------
Total shareholders' equity........................................... 20,261,485 41,100,375
Commitments and contingencies (note 13).................................. -- --
----------- -----------
Total liabilities and shareholders' equity............................... $42,201,230 $67,334,880
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 23
ROADHOUSE GRILL, INC
STATEMENTS OF OPERATIONS
For the fiscal years ended January 1, 1995, December 31, 1995 and December 29,
1996
<TABLE>
<CAPTION>
Fiscal Year
----------------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Total revenue $11,389,060 $34,275,496 $62,433,131
Cost of restaurant sales:
Food and beverage........................ 4,085,246 12,084,134 21,381,810
Labor and benefits....................... 4,606,156 12,019,723 19,748,626
Occupancy and other...................... 2,318,014 8,710,597 13,773,532
----------- ----------- -----------
Total cost of restaurant sales........... 11,009,416 32,814,454 54,903,968
Depreciation and amortization.............. 414,912 1,662,650 3,136,272
General and administrative................. 1,913,446 3,327,680 4,470,900
----------- ----------- -----------
Total operating expenses................. 13,337,774 37,804,784 62,511,140
----------- ----------- -----------
Operating income (loss).................. (1,948,714) (3,529,288) (78,009)
Other income (expense):
Interest expense, net...................... (179,803) (404,009) (1,296,393)
Equity in net income (loss) of affiliates (411,081) 284,241 206,489
Other, net................................. 20,325 159,152 277,983
----------- ----------- -----------
Total other income (expense)............ (570,559) 39,384 (811,921)
----------- ----------- -----------
Net loss................................ $(2,519,273) $(3,489,904) $ (889,930)
=========== =========== ===========
Net loss per common share.................. $ (0.69) $ (0.65) $ (0.13)
=========== =========== ===========
Weighted average common shares and
share equivalents outstanding............ 3,653,444 5,378,474 6,632,685
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 24
ROADHOUSE GRILL, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the fiscal years ended January 1, 1995, December 31, 1995 and December 29,
1996
<TABLE>
<CAPTION>
Common Stock Preferred Stock Additional
-------------------- --------------------- Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
--------- --------- ----------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 2, 1994 ............. 167 $ 500 -- $ -- $ 100,000 $ (713,024) $ (612,524)
Change in par value ................. -- (495) -- -- 495 -- --
Stock split ......................... 2,147,982 64,439 -- -- (64,439) -- --
Issuance of:
Common Stock ...................... 1,033,333 31,000 -- -- 9,577,500 -- 9,608,500
Preferred stock-Series A .......... -- -- 3,525,000 35,250 5,252,250 -- 5,287,500
Preferred stock-Series B .......... -- -- 2,350,025 23,500 5,851,562 -- 5,875,062
Net loss .......................... -- -- -- -- -- (2,519,273) (2,519,273)
--------- -------- ---------- ------- ----------- ----------- -----------
Balance January 1, 1995 ............. 3,181,482 95,444 5,875,025 58,750 20,717,368 (3,232,297) 17,639,265
Issuance of common stock .......... 620,624 18,618 -- -- 6,000,573 -- 6,019,191
Stock options exercised ........... 118,518 3,556 -- -- 49,777 -- 53,333
Stock options outstanding ......... -- -- -- -- 118,800 -- 118,800
Deferred compensation ............. -- -- -- -- (79,200) -- (79,200)
Net loss .......................... -- -- -- -- -- (3,489,904) (3,489,904)
--------- -------- ---------- ------- ----------- ----------- -----------
Balance December 31, 1995 ........... 3,920,624 117,618 5,875,025 58,750 26,807,318 (6,722,201) 20,261,485
Issuance of common stock .......... 3,287,030 98,612 -- -- 21,590,608 -- 21,689,220
Conversion of Series A to common .. 1,175,000 35,250 (3,525,000) (35,250) -- -- --
Conversion of Series B to common .. 922,754 27,682 (2,350,025) (23,500) (4,182) -- --
Deferred compensation ............. -- -- -- -- 39,600 -- 39,600
Net loss .......................... -- -- -- -- -- (889,930) (889,930)
--------- -------- ---------- ------- ----------- ----------- -----------
Balance December 29, 1996 ........... 9,305,408 $279,162 -- $ -- $48,433,344 $(7,612,131) $41,100,375
========= ======== ========== ======= =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 25
ROADHOUSE GRILL, INC.
STATEMENTS OF CASH FLOWS
For the fiscal years ended January 1, 1995, December 31, 1995 and December 29,
1996
<TABLE>
<CAPTION>
January 1, December 31, December 29,
1995 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss ............................................................ ($2,519,273) ($3,489,904) ($889,930)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization ..................................... 414,912 1,662,650 3,136,272
Noncash compensation expense ...................................... -- 39,600 39,600
Equity in net (income) loss of affiliate .......................... 411,081 (284,241) (206,489)
Changes in assets and liabilities, net of acquisitions of businesses:
Decrease (increase) in accounts receivable ........................ (236,079) 133,868 (76,716)
Decrease (increase) in other assets ............................... 7,194 (882,068) (176,422)
Increase in prepaid expense ....................................... (92,629) (85,342) (336,880)
Increase in accounts payable ...................................... 83,697 911,772 3,414,788
Increase in accrued expenses ...................................... 283,378 1,760,798 759,644
Increase in inventory ............................................. (48,777) (300,608) (408,640)
Increase in pre-opening costs ..................................... (65,697) (250,941) (1,191,672)
----------- ---------- -----------
Net cash provided by (used in) operating activities ............ (1,762,193) (784,416) 4,063,555
----------- ---------- -----------
Cash flows from investing activities
Advances to affiliates, net ......................................... (572,064) 26,031 (222,120)
Payments for intangibles ............................................ - -- (54,570)
Proceeds from payment on notes receivable ........................... - 49,235 46,362
Proceeds from sale leaseback transactions ........................... - 1,185,960 395,164
Purchase of property and equipment .................................. (10,112,790) (14,541,042) (19,859,672)
Acquisition of restaurants .......................................... - (3,000,000) (480,000)
Capital contribution to affiliate ................................... - - (75,000)
------------ ------------ ------------
Net cash used in investing activities .......................... (10,684,854) (16,279,816) (20,249,836)
------------ ------------ ------------
Cash flows from financial activities
Proceeds from short term debt and amounts due to related parties .... 29,045 6,615,000 7,000,000
Repayments of amounts due to related parties ........................ (1,591,172) - (4,600,000)
Proceeds from long-term debt ........................................ 1,658,078 - --
Repayments of long-term debt ........................................ (664,592) (407,977) (694,459)
Payments on capital lease obligations ............................... (112,391) (144,765) (256,381)
Proceeds from issuance of common and preferred stock ................ 20,771,062 6,072,524 18,189,235
----------- ---------- -----------
Net cash provided by financing activities ......................... 20,090,030 12,134,782 19,638,395
----------- ---------- -----------
Increase (decrease) in cash and cash equivalents ...................... 7,642,983 (4,929,450) 3,452,114
Cash and cash equivalents at beginning of year ........................ 91,510 7,734,493 2,805,043
----------- ----------- -----------
Cash and cash equivalents at end of year .............................. $ 7,734,493 $ 2,805,043 $ 6,257,157
=========== =========== ===========
Supplementary disclosures:
Interest paid ....................................................... $ 343,703 $ 525,276 $ 1,369,897
=========== =========== ===========
</TABLE>
Noncash investing and financing activities:
Capital lease obligations and seller financing mortgage agreements of
$1,271,727 and $4,924,458, respectively, were entered into in the year ended
January 1, 1995.
During the fiscal year ended December 31, 1995 the Company entered into
capital leases for property and equipment in the amount of $4,100,000.
In addition, the Company entered into mortgage notes payable amounting to
approximately $2,000,000 during the fiscal year ended December 31, 1995. The
Company assumed $270,000 in debt in connection with the assumption of a lease
from a third party.
During the fiscal year ended December 29, 1996, $3,500,000 of long-term debt
was converted to common stock. The Company entered into capital lease
obligations and seller financing mortgage agreements of $44,000 and $2,144,070,
respectively, during the period from January 1, 1996 to December 29, 1996.
See accompanying notes to financial statements.
F-7
<PAGE> 26
ROADHOUSE GRILL, INC.
NOTES TO FINANCIAL STATEMENTS
January 1, 1995, December 31, 1995 and December 29, 1996
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BUSINESS
Roadhouse Grill, Inc. (the "Company") was incorporated under the laws of
the state of Florida in 1992. The principal business of the Company is the
operation of specialty restaurants. The Company has also granted franchises
and licenses to operate restaurants under the "Roadhouse Grill" name.
At December 29, 1996, there were 33 Company-owned restaurants open.
There were three restaurants operating under franchise agreements and two
restaurants operating under license agreements. Included in the 33
Company-owned restaurants were the Company's 50 percent interest in Kendall
Roadhouse Grill, L.C., a limited liability company that owns the Kendall,
Florida Roadhouse Grill restaurant ("Kendall") and 50 percent interest in
Boca Raton Roadhouse Grill, L.C., a limited liability company that owns the
Boca Raton, Florida Roadhouse Grill restaurant ("Boca"). The Company manages
the operations of the Kendall and Boca restaurants pursuant to individual
operating agreements. Under the operating agreements, the Company receives
management fees and is allocated its share of the restaurants' profits and
losses. The Company previously had a 50 percent interest in North Miami
Roadhouse Grill, L.C., a limited liability company that owned the North Miami
Roadhouse Grill restaurant ("North Miami"), under a similar arrangement. The
Company acquired the remaining interest in the first quarter of 1995.
(b) INVESTMENT IN AFFILIATES
The Company's 50 percent interests in Kendall and Boca are accounted for
under the equity method. In addition, the Company's 50 percent interest in
North Miami was accounted for under the equity method until the Company
acquired a 100% interest in that restaurant, which occurred in the first
quarter of 1995.
(c) PROPERTY AND EQUIPMENT
Property and equipment are carried at cost less accumulated
depreciation. The cost of restaurants held under capital leases is recorded
at the lower of the net present value of the minimum lease payments or the
fair value of the leased property at the inception of the lease. Repairs and
maintenance are charged to expense as incurred. Major renewals and
betterments, which substantially extend the useful life of the property, are
capitalized and depreciated over the useful life of the asset. When assets
are retired or otherwise disposed of, the cost and accumulated depreciation
are removed from their respective accounts and any gain or loss is
recognized.
Depreciation is calculated using the straight-line method over the
estimated useful lives of the assets. Amortization of capitalized leased
assets is calculated using the straight-line method over the shorter of the
estimated useful life of the leased asset or the lease term.
(d) INTANGIBLES
Intangibles consist primarily of goodwill recorded as a result of a
restaurant acquisition in 1995 (see Note 14) and are being amortized on a
straight-line basis over 17 years, which is the lease term of the respective
restaurant property. The Company evaluates whether changes have occurred
that would require revision of the remaining estimated useful life of the
assigned goodwill or render goodwill not recoverable. If such circumstances
arise, the Company uses undiscounted future cash flows to determine whether
the goodwill is recoverable. In 1996, the Company adopted Statement of
Financial Accounting Standard No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to Be Disposed of," (see Note 1m).
(e) CASH AND CASH EQUIVALENTS
The Company considers all short-term investments with an original
maturity of three months or less to be cash equivalents.
(f) INVENTORY
Inventories are valued at the lower of cost (based on first-in,
first-out inventory costing) or net realizable value and consist primarily of
restaurant food items, beverages and paper supplies.
F-8
<PAGE> 27
(g) INCOME TAXES
Prior to January 1994, the Company had elected to be treated as an S
Corporation under the appropriate sections of the Internal Revenue Code and,
accordingly, was not subject to federal and state income taxes. Instead, the
Company's taxable income or loss and available credits were the
responsibility of the Company's shareholders.
Effective January 1994, the Company terminated its S Corporation status
and consequently, became subject to federal and state income taxes. Upon
termination of the Company's S Corporation status, the Company adopted
Financial Accounting Standards Board Statement No. 109, "Accounting for
Income Taxes," which requires the utilization of the liability method of
accounting for deferred income taxes. Under this method, deferred income tax
assets and liabilities are recorded based on the difference between the
financial statement and tax bases of assets and liabilities using tax rates
in effect for the year in which the differences are expected to reverse.
(h) PRE-OPENING COSTS
Pre-opening costs are costs incurred in the opening of new stores
(primarily payroll costs) which are capitalized and amortized over a one-year
period commencing with the first full period after the new restaurant opens.
Deferred costs related to sites subsequently determined to be
unsatisfactory, and general site selection costs which cannot be identified
with a specific restaurant, are charged to operations.
(i) FISCAL YEAR
The Company's fiscal year ends on the Sunday nearest December 31.
(j) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(k) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of financial instruments have been determined
based on available information and appropriate valuation methodologies. The
carrying amounts of accounts receivable, accounts payable and accrued
expenses approximate fair value due to the short-term nature of the accounts.
The fair value of long-term debt is estimated based on market rates of
interest currently available to the Company. The fair value of long-term
debt at December 31, 1995 and December 29, 1996 is approximately
$6,240,000 and $7,597,000, respectively.
(l) REVENUE RECOGNITION
Total revenues include sales at Company-operated restaurants, royalties
received from restaurants operating under franchise and license agreements,
and fees earned under management agreements. Revenue earned from the game
rooms and vending machines in the restaurants is included in other income.
(m) NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 121, "Accounting Standards
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" (SFAS No. 121), which became effective for financial statements
for fiscal years beginning after December 15, 1995. The statement establishes
accounting standards for the impairment of long-lived assets, certain identif
iable intangible assets and goodwill related to those assets to be held and
used, and for long-lived assets and certain identifiable intangible assets
to be disposed of. The Company adopted SFAS No. 121 during fiscal 1996 and
determined there is no material impact to the financial position or results
of operations of the Company.
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123),
which became effective for financial statements for fiscal years beginning
after December 15, 1995. SFAS No. 123 defines a fair value based method of
accounting for an employee stock option or similar equity instrument and
encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans. However, it also allows an entity to
continue to measure compensation cost for those plans using the intrinsic
value based method of accounting prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and
provide pro forma net loss and pro forma net loss per share disclosures for
employee stock option grants made in 1995 and 1996 as if the fair value based
method defined in SFAS No. 123 had been applied. The Company previously
accounted for stock-based compensation under APB 25 and has
F-9
<PAGE> 28
opted to continue accounting for stock-based compensation under this method
and provide the pro forma disclosure provisions of SFAS No. 123.
(n) NET LOSS PER COMMON SHARE AND PRO FORMA NET LOSS PER COMMON SHARE
Net loss per common share for all periods is based on the weighted
average number of common shares outstanding plus all common shares, stock
options and warrants issued within one year prior to the initial filing date
of the registration statement for the Initial Public Offering. Common stock
equivalents prior to such period are included in the determination of loss
per share only where such inclusion is dilutive. In addition, net loss per
common share includes the conversion of all
outstanding preferred shares into common shares in connection with the
Initial Public Offering for all periods presented.
On October 9, 1996, the Board of Directors declared a one-for-three
reverse stock split (see Note 9). All per share data appearing in the
financial statements have been retroactively adjusted for the reverse split.
(o) ADVERTISING COSTS
During 1995, the Company adopted Statement of Position 93-7, "Reporting
on Advertising Costs" (SOP 93-7). The adoption of SOP 93-7 did not have a
material impact on the Company's financial position or results of operations.
The Company expenses all advertising costs as incurred. Advertising expense
for the fiscal years ending January 1, 1995, December 31, 1995 and December
29, 1996 amounted to approximately $414,000, $1,273,000 and $1,378,000,
respectively.
(p) RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform to the
current presentation.
(2) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at:
<TABLE>
<CAPTION>
December 31, December 29, Estimated
1995 1996 Useful Lives
---- ---- ------------
<S> <C> <C> <C>
Building............................................. $10,264,366 $17,018,598 20 years
Land................................................. 8,489,969 10,842,818 -
Furniture and equipment.............................. 8,324,125 13,319,318 3-7 years
Leasehold improvements .............................. 8,763,326 12,695,856 7-10 years
----------- -----------
35,841,786 53,876,590
Less accumulated depreciation 2,172,857 5,046,035
----------- -----------
33,668,929 48,830,555
Construction in progress 2,175,855 5,298,675
----------- -----------
$35,844,784 $54,129,230
=========== ===========
</TABLE>
Included in property and equipment are buildings under capital leases of
$4,621,318 and $4,661,633 at December 31, 1995 and December 29, 1996,
respectively, (see Note 3). The Company capitalized interest costs of
approximately $86,400, $273,000 and $269,000 during the fiscal years ended
January 1, 1995, December 31, 1995, and December 29, 1996, respectively, with
respect to qualifying construction projects.
F-10
<PAGE> 29
(3) CAPITAL LEASES
The following is a schedule of future minimum lease payments required
under capital leases as of December 29, 1996:
<TABLE>
<S> <C>
1997 $ 726,932
1998 736,860
1999 740,768
2000 556,315
2001 427,534
Thereafter 4,995,078
----------
Total minimum lease payments 8,183,487
Less amount representing interest at varying rates
ranging from 9.5 percent to 13 percent 3,912,248
----------
4,271,239
Less current portion 277,381
----------
Present value of minimum obligations $3,993,858
==========
</TABLE>
During the fiscal year ended December 31, 1995, the Company entered into
several agreements for the sale and leaseback of restaurant equipment for a
period of sixty months at four Company restaurants, which were recorded as
capital leases. The equipment was sold at book value of approximately
$1,200,000, and as such, no gain or loss resulted from the transaction.
(4) OPERATING LEASES
The Company leases the majority of its operating restaurant facilities.
The lease terms range from 5 to 10 years and generally provide for renewal
options extending the lease term to 20 years.
The following is a schedule of future minimum lease payments required
under operating leases that have remaining noncancelable lease terms in excess
of one year as of December 29, 1996:
<TABLE>
<S> <C>
1997 $ 2,621,059
1998 2,771,150
1999 2,547,714
2000 2,548,722
2001 2,499,739
Thereafter 14,938,324
------------
Total minimum lease payments $ 27,926,708
============
</TABLE>
The total rent expense for operating leases was $565,000, $1,524,900 and
$1,719,900 for fiscal 1994, fiscal 1995 and fiscal 1996, respectively.
F-11
<PAGE> 30
(5) INVESTMENT IN AND ADVANCES TO AFFILIATES
As discussed in Note 1, the Company had a 50 percent interest in Boca at
December 29, 1996, a 50 percent interest in Kendall at January 1, 1995, December
31, 1995 and December 29, 1996, and a 50 percent interest in North Miami at
January 1, 1995.
The Company accounted for these investments under the equity method.
Summarized balance sheet and income statement information for these investments
is as follows:
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31, DECEMBER 29,
SUMMARIZED BALANCE SHEETS: 1995 1995 1996
- -------------------------- ---------- ----------- ------------
<S> <C> <C> <C>
Current assets $ 59,635 $ 117,246 $ 320,050
Property and equipment, net 1,657,445 823,273 1,561,202
Other 62,599 27,325 29,576
---------- ---------- ----------
Total assets 1,779,679 967,844 1,910,828
---------- ---------- ----------
Current liabilities 1,992,644 838,160 401,391
Due to related parties and other liabilities 334,152 79,975 462,062
---------- ---------- ----------
Total liabilities 2,326,796 918,135 863,453
---------- ---------- ----------
Net assets (deficit) $ (547,117) $ 49,709 $1,047,375
========== ========== ==========
SUMMARIZED STATEMENTS OF OPERATIONS:
- ------------------------------------
Revenue $4,901,572 $3,684,177 $5,447,911
---------- ---------- ----------
Operating income (loss) $ (94,264) $ 403,039 $ 372,882
---------- ---------- ----------
Net income (loss) $ (275,046) $ 319,296 $ 337,993
---------- ---------- ----------
</TABLE>
Under the terms of the operating agreements discussed in Note 1(a),
profits and losses are allocated 50 percent to each partner for each affiliate.
North Miami and Kendall cash distributions are paid 25 percent to the
Company and 75 percent to its partner until such time as the partner recovers
their investment. Thereafter, the cash distributions are paid 50 percent to
each partner. Boca cash distributions are paid equally to each partner. The
Company absorbed all of the losses of its affiliates during fiscal 1994.
Also included in investment in and advances to affiliates at December
31, 1995 and December 29, 1996 are $155,263 and $377,380 in cash advances made
by the Company to its affiliates.
(6) MAJOR SUPPLIERS
For the fiscal years ended December 31, 1995 and December 29, 1996, two
suppliers comprised approximately 87% and 89%, respectively, of the Company's
purchases. Purchases from these suppliers were approximately $11.8 million and
$21.4 million for fiscal 1995 and fiscal 1996, respectively.
(7) DUE TO RELATED PARTIES
At December 31, 1995, due to related parties consists principally of
$2,500,000 due to a former Chairman of the Board of Directors of the Company and
$600,000 due to the other 50 percent owner of the Kendall restaurant. The notes
bear interest at 8.5 percent and 13 percent, respectively, and the latter
required monthly payments of principal and interest through October 1996. A
note payable to Berjaya Group (Cayman) Ltd. ("Berjaya") at December 31, 1995 in
the amount of $3,500,000 was converted into common stock in April 1996. (See
Note 9).
At December 29, 1996, due to related parties consists principally of
promissory notes in the amount of $5,000,000 due to Berjaya. The notes bear
interest at 8.5 percent and are due on November 25, 1997.
F-12
<PAGE> 31
(8) LONG-TERM DEBT
The Company acquired several properties through seller financing
arrangements. These arrangements are collateralized by the properties and bear
interest at rates varying from 7 percent to 10.75 percent. Monthly principal
and interest payments are due through January 2006.
Annual maturities on the mortgage notes payable as of December 29, 1996
are as follows:
<TABLE>
<S> <C>
1997 $1,452,935
1998 1,034,803
1999 1,121,882
2000 1,136,588
2001 1,144,090
Thereafter 2,767,088
----------
8,657,386
Less current portion 1,452,935
----------
$7,204,451
==========
</TABLE>
The carrying amount of assets used as collateral is approximately
$18,700,000 and $27,860,000 at December 31, 1995 and December 29, 1996,
respectively.
(9) CAPITAL STOCK
As of January 1, 1995, the Company's capital structure consisted of
30,000,000 shares of authorized common stock, with a par value of $.01 of which
9,544,446 shares were issued and outstanding.
In April 1996, Berjaya converted $3,500,000 of debt into shares of
common stock at $3.60 per share. In addition, Berjaya purchased an additional
$5,000,000 of shares of common stock at $3.60 per share.
On October 9, 1996, the Board of Directors approved a one-for-three
reverse common stock split, which was effective prior to the date of the
Company's Initial Public Offering. In addition, the Board of Directors
approved an increase in the common stock par value from $0.01 to $0.03. The
number of shares in the accompanying financial statements have been restated to
retroactively reflect the reverse stock split. There were no changes to the
Company's common stock and additional paid-in capital accounts as a result of
the reverse stock split and par value change.
In December 1996, the Company completed an Initial Public Offering of
2,500,000 shares of common stock at $6.00 per share. The proceeds of
approximately $13.2 million, net of underwriting discounts and other costs
incurred in connection with the Initial Public Offering, were used for the
repayment of debt, the acquisition of a 50 percent interest in a former
franchised restaurant, and for expansion of the Company.
Preferred stock consists of the following:
(a) SERIES A SHARES
The Company issued 3,525,000 shares of the Series A Shares at a
purchase price of $1.50 per share for the purpose of expansion and working
capital. The Series A Shares had a liquidation value of $1.50 per share plus
unpaid declared dividends and were convertible, subject to adjustments, into
one share of common stock per Series A Share, at the option of the holder.
Dividends were payable at $0.105 per share as adjusted, and when and if
declared. Such dividends were noncumulative. The holders of the Series A
Shares were entitled to one vote for each share held on an as converted basis
and as adjusted. In May 1996, 102,500 Series A Shares were converted into
34,167 shares of common stock. All remaining Series A Shares were mandatorily
converted into 1,140,833 common shares in connection with the Company's Initial
Public Offering in November 1996.
(b) SERIES B SHARES
The Company issued 2,350,025 of the 2,366,700 authorized Series B
Shares at a purchase price of $2.50 per share for the purpose of expansion and
working capital. The Series B Shares had a liquidation value of $2.50 per
share plus unpaid declared dividends and ranked pari passu with the Series A
Shares with respect to any liquidation. The Series B Shares were convertible,
subject to adjustments, into one share of common stock per Series B Share at
the option of the holder. Dividends were payable at $0.175 per share as
adjusted, when and if declared. Such dividends were noncumulative. The
holders of the Series B Shares were entitled to one vote for each share held on
an as converted basis and as adjusted. In May 1996, 16,675 Series B Shares
were converted into
F-13
<PAGE> 32
5,558 shares of common stock. All remaining Series B Shares were
mandatorily converted into 917,196 common shares in connection with the
Company's Initial Public Offering in November 1996.
(10) STOCK OPTION PLANS
During the fiscal year ended January 1, 1995, options were issued to the
President and Chief Executive Officer to purchase 355,555 shares of the
authorized, but unissued shares of common stock at a purchase price of $0.15 per
share in connection with the founding of the Company. An additional 500,000
options were issued to the President and Chief Executive Officer at $2.50 per
share during the fiscal year ended January 1, 1995. These options are
exercisable at any time prior to January 31, 2010. During the fiscal year
ending December 31, 1995, certain of these options were exercised whereby
355,555 shares of common stock were purchased at $0.15 per share. In October
1996, the Company granted 450,000 options to the President and Chief Executive
Officer at $3.60 per share, subject to adjustment for the reverse stock split
discussed below and for such other adjustments provided in the stock option
agreement.
A stock option plan (the "Plan") was adopted for employees of the
Company and members of the Board of Directors who are not employees, and 250,000
and 650,000 shares of the Company's common stock were reserved for issuance
pursuant to such plan at December 31, 1995 and December 29, 1996, respectively.
These options vest over a three year period from the date of grant and are
exercisable for a period of ten years after grant. On April 25, 1994, options
were issued to a consultant of the Company to purchase 10,000 shares of common
stock at a purchase price of $1.50 per share. During the fiscal year ending
December 31, 1995, the Company granted options to employees under the stock
option plan to purchase 158,000 shares of common stock at $2.50 per share. In
addition, the Company granted certain directors options to purchase 20,000
shares of the Company's common stock at a price of $2.50 per share. The fair
market value of common stock at the time of issuance of these options was $3.10
per share. In connection with the granting of these options, the Company has
recorded $39,600 in compensation expense for each of the fiscal years ended
December 31, 1995 and December 29, 1996. In 1996, the Company granted
additional options to purchase 355,300 shares of common stock at a price of
$3.60 per share. At December 31, 1995 and December 29, 1996, deferred
compensation expense amounted to $79,200 and $39,600, respectively, and is
included in additional paid-in capital.
As discussed in Note 9, the Board of Directors declared a one-for-three
reverse stock split in October 1996. Concurrent with the reverse split, the
number of shares issuable upon the exercise of each outstanding option was
adjusted for the one-for-three reverse split and the exercise of each
outstanding option was adjusted such that the total amount paid upon exercise
of the option in full did not change. All of the following information
regarding stock options has been adjusted to reflect the reverse stock split.
At December 29, 1996, there were 24,636 additional shares available for
grant under the Plan. The per share weighted-average fair value of stock
options granted during 1995 and 1996 was $4.12 and $4.20, respectively, on the
date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions: 1995 - expected dividend yield 0.0%, risk-free
interest rate of 6.6%, and an expected life of 8 years; 1996 - expected
dividend yield 0.0%, risk-free interest rate of 6.6% , and an expected life of
8 years.
The Company applies APB 25 in accounting for its Plan and,
accordingly, recognized compensation expense for certain options, as discussed
above. Had the Company determined compensation cost based on the fair value at
the grant date for its stock options under SFAS No. 123, the Company's net
loss would have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C> <C>
Net loss As reported $(3,489,904) $ (889,930)
Pro forma (3,612,122) (1,278,541)
Net loss per share
As reported $ (0.65) $ (0.13)
Pro forma (0.67) (0.19)
</TABLE>
Pro forma net loss reflects only options granted in 1995 and 1996.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net loss amounts
presented above because compensation cost is reflected over the options'
vesting period ranging from one to three years and compensation cost for
options granted prior to January 1, 1995 is not considered.
F-14
<PAGE> 33
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
Number of Weighted-Average
Shares Exercise Price
------------- ----------------
<S> <C> <C>
Balance at January 1, 1995 .............................. 293,518 $ 4.62
Granted.............................................. 54,325 7.50
Exercised............................................ (118,518) 0.45
Forfeited............................................ -- --
Expired ............................................. -- --
--------
Balance at December 31, 1995 ............................ 229,325 7.46
Granted ............................................. 280,416 7.75
Exercised ........................................... -- --
Forfeited ........................................... (1,044) 10.80
Expired ............................................. -- --
--------
Balance at December 29, 1996 ............................ 508,697 $ 7.61
</TABLE>
At December 29, 1996 the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $4.50 - $10.80 and 6.77
years, respectively.
At December 31, 1995 and December 29, 1996, the number of options
exercisable was 78,098 and 135,875, respectively, and the weighted-average
exercise price of those options was $7.37 and $7.43, respectively.
On December 31, 1996 an additional 55,892 options become exercisable at
a weighted-average price of $9.76.
(11) INCOME TAXES
As a result of the Company's net operating losses for fiscal years ended
January 1, 1995, December 31, 1995, and December 29, 1996 there is no income tax
payable.
The tax effects of the temporary differences comprising deferred tax
assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29,
1995 1996
-------------- --------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward............... $ 1,941,000 $ 1,811,000
Preopening expenses, differences principally
due to differences in amortization.......... 164,000 420,000
Accrued workers' compensation................. 112,000 136,000
Other......................................... 126,000 316,000
Less valuation allowance...................... (2,230,000) (2,572,000)
----------- -----------
113,000 111,000
Deferred tax liabilities:
Property and equipment principally due to
differences in depreciation................. (113,000) (111,000)
----------- ------------
$ - $ -
=========== ============
</TABLE>
At December 31, 1995 and December 29, 1996, the Company had no deferred
tax assets or liabilities reflected on its financial statements since the net
deferred tax assets are completely offset by a valuation allowance. In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
level of historical income, scheduled reversal of deferred tax liabilities, and
projected further taxable income in making this assessment.
At December 29, 1996, the Company has a net operating loss carry forward
of $4,771,000 consisting of $2,335,000 and $2,436,000 expiring in varying
amounts through 2010 and 2011, respectively.
F-15
<PAGE> 34
(12) CONCENTRATIONS OF BUSINESS AND CREDIT RISK
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist primarily of cash in bank and investment
custodian accounts. At times, the Company maintains cash balances in excess of
insured limits. The custodian of the investment account is a major financial
institution.
Approximately 75 percent of the restaurants currently owned and operated
by the Company are located in the state of Florida. Consequently, the
operations of the Company are affected by fluctuations in the Florida economy.
Furthermore, the Company may be affected by changing conditions within the
foodservice industry.
(13) COMMITMENTS AND CONTINGENCIES
The Company is a party to legal proceedings arising in the ordinary
course of business, many of which are covered by insurance. In the opinion of
management, disposition of these matters will not materially affect the
Company's financial condition.
At December 29, 1996, the Company had 11 restaurants under development.
The estimated cost to complete these restaurants and other capital projects in
process was approximately $6.3 million at December 29, 1996.
(14) ACQUISITIONS
At January 1, 1995, the Company was a 50 percent owner in North Miami
which owned the North Miami, Florida Roadhouse Grill restaurant. In January
1995, the Company acquired the remaining 50 percent interest in North Miami
for $800,000. The transaction was accounted for using the purchase method of
accounting. The purchase price was allocated based on the fair value of the
assets acquired at the time of acquisition. Approximately $797,000 was
allocated to property and equipment and approximately $65,000 was allocated to
inventory and other assets. In connection with the acquisition, the Company
also assumed certain liabilities in the amount of $385,000.
During March 1995, the Company acquired two Roadhouse Grill restaurants
from a franchisee for $2.2 million. The transaction was accounted for using the
purchase method of accounting. The purchase price of the restaurants was
allocated to property and equipment based on the estimated fair value of the
assets at the date of acquisition. Approximately $1,555,000 was allocated to
property and equipment as a result of the acquisition. The acquisition
generated goodwill of approximately $645,000.
The Company's pro forma revenue, net loss, and net loss per share as if
the above acquisitions had taken place at the beginning of fiscal 1994 are as
follows (unaudited):
<TABLE>
<S> <C>
Revenue $21,411,270
Net loss $(1,759,769)
Net loss per common share $ (0.81)
</TABLE>
The pro forma information includes adjustments for amortization of
intangibles arising from the transactions. Such pro forma amounts are not
necessarily indicative of what the actual results of operations might have been
if the acquisitions had been effective at the beginning of fiscal 1994.
In December 1996, the Company acquired a 50 percent ownership interest
in Boca for approximately $480,000. The transaction was accounted for using the
purchase method of accounting. The excess of the purchase price over the fair
value of the investment amounted to $203,000 and is treated as goodwill, which
is being amortized over the remaining lease term of the Boca restaurant. Such
amount has been included in investment in affiliates at December 29, 1996.
Subsequent to the acquisition, the Company and the owner of the remaining 50
percent interest each contributed $75,000 to Boca.
In August 1996, the Company entered into an agreement to purchase the
remaining 50 percent interest in Kendall from the joint venture partner for a
purchase price of $2,300,000. The purchase price was to be paid from the
proceeds of the Initial Public Offering. Subsequent to fiscal 1996, the
agreement was amended as follows: the purchase price was changed to $1,800,000
payable in one lump sum deposit of $400,000 due in January 1997, with the
remaining $1,400,000 due December 31, 1997. At December 31, 1997, the Company
has the option of extending the acquisition date to June 1998, at which time the
purchase price increases to $1,850,000. In addition, Kendall will pay a
dividend of $20,000 per month to the sellers through the closing of the
purchase.
F-16
<PAGE> 35
(15) QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the unaudited quarterly results of
operations for the years ended December 29, 1996 and December 31, 1995:
<TABLE>
<CAPTION>
1STQTR 2NDQTR 3RDQTR 4THQTR TOTAL YEAR
----------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
1996:
Total revenues................ $13,868,867 $13,764,180 $16,147,214 $18,652,870 $62,433,131
Operating income (loss)....... 476,656 (331,963) (210,251) (12,451) (78,009)
Net income (loss)............. 346,025 (514,446) (401,047) (320,462) (889,930)
Net income (loss) per share... .06 (.08) (.06) (.04) (.13)
1995:
Total revenues................ 5,690,749 8,081,844 9,692,357 10,810,546 34,275,496
Operating income (loss)....... (206,100) (599,566) (835,797) (1,887,825) (3,529,288)
Net income (loss)............. (39,849) (592,607) (867,998) (1,989,450) (3,489,904)
Net loss per share............ (.01) (.11) (.15) (.35) (.65)
</TABLE>
F-17
<PAGE> 36
Independent Auditors' Report
The Board of Directors
Roadhouse Grill, Inc.:
Under date of February 17, 1997, we reported on the balance sheets of Roadhouse
Grill, Inc. as of December 29, 1996 and December 31, 1995, and the related
statements of operations, shareholders' equity, and cash flows for each of the
two years then ended, which are included in the 1996 Annual Report on Form
10-K. In connection with our audits of the aforementioned financial
statements, we also audited the related financial statement schedule in the
1996 Annual Report on Form 10-K. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG Peat Marwick LLP
Miami, Florida
February 17, 1997
F-18
<PAGE> 37
ROADHOUSE GRILL, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the fiscal years ended December 31, 1995 and December 29, 1996
<TABLE>
<CAPTION>
Balance at Charged to Balance
Beginning Costs and At End of
Of Period Expenses Write-offs Period
---------- ---------- ---------- ------
<S> <C> <C> <C> <C>
Balance at
January 1, 1995 .................. - - - -
Fiscal year 1995
allowance for doubtful accounts .. - $29,015 $(29,015) -
Balance at
December 31, 1995 ................ - - - -
Fiscal year 1996
allowance for doubtful accounts .. - $29,082 $(29,082) -
Balance at
December 29, 1996 ................ - - - -
</TABLE>
F-19
<PAGE> 38
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3.1 Articles of Incorporation of the Company (incorporated by reference from
the Company's Registration Statement on Form S-1 as filed with the
Securities and Exchange Commission on September 26, 1996, as amended (the
"Registration Statement")).
3.2 Bylaws of the Company (incorporated by reference from the Company's
Registration Statement).
4.1 Specimen of Certificate of Common Stock of the Company (incorporated by
reference from the Company's Registration Statement).
4.2 Relevant Portions of the Articles of Incorporation of the Company
(reference is hereby made to Exhibit 3.1 above) (incorporated by reference
from the Company's Registration Statement).
4.3 Relevant Portions of the Bylaws of the Company (reference is hereby made
to Exhibit 3.2 above) (incorporated by reference from the Company's
Registration Statement).
4.4 Relevant Portions of the Series A Convertible Preferred Stock Purchase
Agreement dated as of February 10, 1994 between the Company and the
several purchasers named in Schedule I (reference is hereby made to
Exhibit 10.17 below) (incorporated by reference from the Company's
Registration Statement).
4.5 Relevant Portions of the Series B Convertible Preferred Stock Purchase
Agreement dated as of June 8, 1994 between the Company and several
purchasers named in Schedule I (reference is hereby made to Exhibit 10.18
below) (incorporated by reference from the Company's Registration
Statement).
4.6 Relevant Portions of the Stock Purchase Agreement, dated as of September
26, 1994, between the Company and Berjaya (reference in hereby made to
Exhibit 10.18 below) (incorporated by reference from the Company's
Registration Statement).
4.7 Relevant Portions of the 1994 Registration Rights Agreement, dated
February 10, 1994 (reference is hereby made to Exhibit 10.19 below)
(incorporated by reference from the Company's Registration Statement).
4.8 Relevant Portions of the Amendment to 1994 registration Rights Agreement,
dated June 8, 1994 (reference is hereby made to Exhibit 10.20 below)
(incorporated by reference from the Company's Registration Statement).
4.9 Relevant Portions of the Amendment to 1994 Registration Rights Agreement,
dated July 26, 1996 (reference is hereby made to Exhibit 10.21 below)
(incorporated by reference from the Company's Registration Statement).
4.10 Relevant Portions of the Stock Option Agreement, dated February 10, 1994
(reference is hereby made to Exhibit 10.22 below) (incorporated by
reference from the Company's Registration Statement).
4.11 Relevant Portions of the Berjaya Registration Rights Agreement, dated
November, 1994 (reference is hereby made to Exhibit 10.23) (incorporated
by reference from the Company's Registration Statement).
4.12 Relevant Portions of the Investment Agreement, dated July 30, 1996,
between Berjaya and John Y. Brown (reference is hereby made to Exhibit
10.25 below) (incorporated by reference from the Company's Registration
Statement).
4.13 Relevant Portions of the Investment Agreement, dated January 15, 1996,
between Berjaya and the Company (reference is hereby made to Exhibit 10.26
below) (incorporated by reference from the Company's Registration
Statement).
10.1 Employment Agreement by and between the Company and John David Toole, III,
dated October 1, 1994 (incorporated by reference from the Company's
Registration Statement).
10.2 Form of the Company's Development Agreement (incorporated by reference
from the Company's Registration Statement).
10.3 Form of the Company's Franchise Agreement (incorporated by reference
from the Company's Registration Statement).
10.4 Intentionally omitted.
</TABLE>
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<TABLE>
<CAPTION>
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10.5 Form of the Company's Stock Option Agreement (incorporated by reference
from the Company's Registration Statement).
10.6 Sub-Lease Agreement, dated July 31, 1995, between Equitable Real Estate
Investment, Inc., Compass management and Leasing, Inc. and the Company.,
for property located at 6600 N. Andrews Ave., Ste. 160, Ft. Lauderdale,
Florida 33309 (incorporated by reference from the Company's Registration
Statement).
10.7 Assignment and Assumption Agreement, dated March 15, 1995, between
Roadhouse Waterway, Inc. and Roadhouse Grill
Commercial, Inc., for property located in Fort Lauderdale, Florida (lease
of restaurant premises) (incorporated by reference from the Company's
Registration Statement).
10.8 Lease Agreement, dated April 26, 1994, between Piccadilly Cafeterias,
Inc. and the Company, for property located in Winter Park, Florida (lease
of restaurant premises) (incorporated by reference from the Company's
Registration Statement).
10.9 Ground Lease, dated May 25, 1995, between Bruno, Inc. and the Company,
for property located in Sandy Springs, Georgia (lease of restaurant
premises) (incorporated by reference from the Company's Registration
Statement).
10.10 Lease, dated April 17, 1995, between Captec Net Lease Realty, Inc. and
New York Roasters, for property located in Cheektowaga, New York (lease of
restaurant premises, assumed by the Company) (incorporated by reference
from the Company's Registration Statement).
10.11 Operating Agreement, dated April 28, 1994, of Kendall Roadhouse Grill,
L.C. (incorporated by reference from the Company's Registration
Statement).
10.12 Management Agreement, dated November 8, 1994, between Boca Roadhouse,
Inc and the Company (incorporated by reference from the Company's
Registration Statement).
10.13 Promissory Note, dated January 15, 1996, made by the Company in favor of
John Y. Brown (incorporated by reference from the Company's Registration
Statement).
10.14 Promissory Note, dated September 27, 1995, made by the Company in favor
of Hal Dickson (incorporated by reference from the Company's Registration
Statement).
10.15 Series A Convertible Preferred Stock Purchase Agreement, dated as of
February 10, 1994, between the Company and several purchasers named in
Schedule I (incorporated by reference from the Company's Registration
Statement).
10.16 Initial Stockholders Agreement, dated February 10, 1994, among the
Company, the several purchasers of the Series A Preferred Shares, and the
initial shareholders of the Company (incorporated by reference from the
Company's Registration Statement).
10.17 Series B Convertible Preferred Stock Purchase Agreement, dated as of
June 8, 1994, between the Company and the several purchasers named in
Schedule I (incorporated by reference from the Company's Registration
Statement).
10.18 Stock Purchase Agreement, dated as of September 26, 1994, between the
Company and Berjaya (incorporated by reference from the Company's
Registration Statement).
10.19 1994 Registration Rights Agreement, dated February 10, 1994
(incorporated by reference from the Company's Registration Statement).
10.20 Amendment to 1994 Registration Rights Agreement, dated June 8, 1994
(incorporated by reference from the Company's Registration Statement).
10.21 Amendment to 1994 Registration Rights Agreement, dated July 26, 1996
(incorporated by reference from the Company's Registration Statement).
10.22 Stock Option Agreement, dated February 10, 1994, between the Company and
J. David Toole, III (incorporated by reference from the Company's
Registration Statement).
10.23 Intentionally omitted.
10.24 Consulting Agreement, dated August , 1992, between Americana
Entertainment Group, Inc. and David Toole, as amended on October 7, 1992
(incorporated by reference from the Company's Registration Statement).
10.25 Investment Agreement, dated July 30, 1995, between Berjaya and John
Y. Brown (incorporated by reference from the Company's Registration
Statement).
</TABLE>
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<CAPTION>
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10.26 Investment Agreement, dated January 15, 1996, between Berjaya and the
Company (incorporated by reference from the Company's Registration
Statement).
10.27 Assignment and Assumption Agreement, dated February 10, 1994, by and
between John Y Brown, Jr. and the Company (incorporated by reference from
the Company's Registration Statement).
10.28 Purchase and Sale Agreement, dated August 30, 1996, between Roadwear,
Inc. and the Company, relating to the Kendall restaurant (incorporated by
reference from the Company's Registration Statement).
10.29 Intentionally omitted.
10.30 Promissory note, dated August 16, 1996, made by the Company in favor of
Berjaya (incorporated by reference from the Company's Registration
Statement).
10.31 Master Development Agreement, dated January 5, 1996, between the Company
and Roadhouse Grill Asia (incorporated by reference from the Company's
Registration Statement).
10.32 Lease Transfer and Assumption Agreement for equipment used in New York
Roadhouse Grill restaurant, dated March 29, 1995, assumed by the Company
(incorporated by reference from the Company's Registration Statement).
10.33 Promissory note, dated September 5, 1996 made by the Company in favor of
John Y. Brown, Jr. (incorporated by reference from the Company's
Registration Statement).
10.34 Security Agreement, dated July 12, 1996, made by the Company and John Y.
Brown, Jr. (incorporated by reference from the Company's Registration
Statement).
10.35 Promissory note, dated September 27, 1996, made by the Company in favor
of Berjaya (incorporated by reference from the Company's Registration
Statement).
10.36 Promissory note, dated September 27, 1996, made by the Company in favor of
SunTrust Bank, Miami, N.A. (incorporated by reference from the Company's
Registration Statement).
10.37 Amended and Restated 1994 Stock Option Plan (incorporated by reference
from the Company's Registration Statement).
10.38 Stock Purchase Agreement, dated May 26, 1995, between the Company and the
several purchasers named in Schedule I (incorporated by reference from the
Company's Registration Statement).
10.39 Investment Agreement, dated October 25, 1995, between Berjaya and the
Company (incorporated by reference from the Company's Registration
Statement).
10.40 Employment Agreement between the Company and J. David Toole, III, dated
October 24, 1996 (incorporated by reference from the Company's
Registration Statement).
10.41 Stock Option Agreement between the Company and J. David Toole, III, dated
October 24, 1996 (incorporated by reference from the Company's
Registration Statement).
10.42 Stock Option Agreement between the Company and J. David Toole, III, dated
October 1, 1994 (incorporated by reference from the Company's Registration
Statement).
16.1 Letter from Stark and Bennett, P.A., dated November 14, 1996
(incorporated by reference from the Company's Registration Statement).
16.2 Letter from Coopers and Lybrand, L.L.P, dated November 15, 1996
(incorporated by reference from the Company's Registration Statement).
21.1 List of subsidiaries of the Company (incorporated by reference from the
Company's Registration Statement).
27 Financial Data Schedule (for SEC use only).
</TABLE>
E-3
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEETS & STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-29-1996
<CASH> 6,257,157
<SECURITIES> 0
<RECEIVABLES> 196,542
<ALLOWANCES> 0
<INVENTORY> 814,225
<CURRENT-ASSETS> 9,430,751
<PP&E> 59,175,265
<DEPRECIATION> (5,046,035)
<TOTAL-ASSETS> 67,334,880
<CURRENT-LIABILITIES> 15,036,196
<BONDS> 11,198,309
0
0
<COMMON> 279,162
<OTHER-SE> 40,821,213
<TOTAL-LIABILITY-AND-EQUITY> 67,334,880
<SALES> 0
<TOTAL-REVENUES> 62,433,131
<CGS> 54,903,968
<TOTAL-COSTS> 62,511,140
<OTHER-EXPENSES> (811,921)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (889,930)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
